ANNUAL REPORT
ANNUAL REPORT
ANNUAL REPORT
AND ACCOUNTS 2019
AND ACCOUNTS 2019
FireAngel Safety Technology Group plc
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FireAngel’s mission is to protect and save lives by making
innovative, leading-edge technology home safety products
which are simple and accessible.
FireAngel is one of the market leaders in the European home safety products market with its growing proprietary connected home products
proposition. Its principal products are smoke alarms, carbon monoxide (‘CO’) alarms and accessories sold under the principal brand of FireAngel.
The Group has an extensive portfolio of patented intellectual property. Barriers to entry are high with considerable costs of product certifi cation
and signifi cant know-how required to sell home safety products.
The introduction of new technologically more-advanced products and new safety legislation, together with increasing levels of awareness of the
dangers of smoke and CO, continue to drive the Group’s sales.
FireAngel manufactures CO sensors at its subsidiary, Pace Sensors, for use in its CO alarms. All other manufacturing and product assembly
is outsourced and almost all of the Group’s product cost base is sourced in US dollars. FireAngel’s smoke, heat and accessory products are
manufactured by Flex in Poland. Other ranges of smoke products are sourced from a leading supplier in the Far East. The Group’s CO detectors
are manufactured at Pace Technologies in China.
FireAngel enjoys the leading sales footprint of any home products supplier across UK Retail and is the largest supplier to the UK’s Fire & Rescue
Services (‘UK F&RS’), both of which are a strong endorsement of the quality and technical capability of our products. The Group also supplies
the UK Utilities sector with British Gas as its key customer. FireAngel has a well-established but low market share of the UK Trade sector and
is seeking to signifi cantly expand this with its range of trade products. The Group also makes signifi cant sales into Continental Europe, mainly
selling in euros through a network of independently-owned, third-party distributors.
Financial headlines
• Revenue £45.5 million (2018: £37.6 million)
• Underlying operating loss1 £2.9 million, before £0.9 million impact of change to a
more appropriate amortisation approach (2018: underlying operating loss1 £2.0
million)
• Operating loss £10.7 million (2018 restated: operating loss £5.8 million)
• Adjusted gross profi t2 £8.7 million (2018: £8.7 million)
• Adjusted gross margin2 19.0% (2018: 23.2%)
• Gross margin 9.6% (2018 restated: 20.1%)
• Non-underlying items totalling £6.9 million before tax (2018 restated: £3.8 million)
• Underlying loss before tax3 £3.2 million (2018: underlying loss before tax3 £2.1
million)
• Loss before tax £11.0 million (2018 restated: loss before tax £5.9 million)
• Underlying EBITDA4
• Underlying EBITDA4
• Underlying EBITDA loss £0.4 million (2018: loss £0.9 million)
• Basic and diluted EPS (14.0p) (2018 restated: (9.9p))
• Capitalised product development spend reduced to £2.9 million (2018: £3.4
million)
• Net debt (before lease obligations) at 31 December 2019 £4.9 million (cash £2.1
million, debt £7.0 million) (2018: net debt £4.4 million)
• While COVID-19 has impacted the Company outlook in the short term, revenue
for April 2020, at almost 55% of the Company’s pre-COVID-19 budget, was,
encouragingly, some way ahead of the Board’s expectations. Revenue for
May 2020 is expected to be at a similar level of budget achievement. Due to
uncertainty around the impact of COVID-19 and timing of when restrictions will
be lifted, the Board withdrew the Company’s market guidance given that it is too
early to substantiate or vary it with any certainty
• Announcement post year end of open offer and placing to raise approximately
£6.1 million to strengthen the balance sheet and deploy connected homes
technology
1 Underlying operating loss in 2019 of £2.9 million is before the impact of the change to straight line amortisation
of £0.9 million and before non-underlying items of £6.9 million (2018: underlying operating loss of £2.0 million
before non-underlying items of £3.8 million). A reconciliation of ‘alternative performance measures’ to
measures prescribed in fi nancial standards is given in the Performance Review section.
2 Adjusted gross profi t is stated before non-underlying items of £4.3 million (2018 restated: non-underlying
items of £1.2 million). Adjusted gross margin is adjusted gross profi t as a percentage of revenue.
3 Underlying loss before tax in 2019 of £3.2 million is before the impact of the change to straight line
amortisation of £0.9 million and before non-underlying items of £6.9 million (2018: underlying loss before tax of
£2.1 million before non-underlying items of £3.8 million).
4 Underlying EBITDA in 2019 of (£0.4) million is loss before tax before depreciation and amortisation of £3.4
million, fi nance costs of £0.3 million and non-underlying items of £6.9 million (2018: underlying EBITDA of (£0.9)
million is loss before tax before depreciation and amortisation of £1.1 million, fi nance costs of £0.1 million and
non-underlying items of £3.8 million).
Operational headlines
• Total revenue growth of 21% to £45.5 million with growth of 36% in UK Retail,
23% in UK Trade and 26% internationally
• UK Retail wins with Aldi, Asda, Morrisons and secured principal supply to
Homebase and signifi cant online growth through Amazon
• Good progress in gaining share of core UK Trade market
• Grant of European patent for FireAngel Predict™ post year end
• Solid start to 2020 with sales up 15% and gross profi t up 39% on the fi rst
two months of 2019; performance in the fi rst quarter of 2020 was close to the
Board’s expectations, with revenue and gross profi t slightly below budget.
Gross profi t margin remained ahead of Q1 2019 and in line with budget,
however, an opportunity to outperform was lost in part due to the impact of
COVID-19 as March progressed
• Comprehensive gross margin improvement plan being rolled out
• Board changes to align to future challenges and opportunities
• Trials of FireAngel’s connected home products, including FireAngel Predict™,
have been well received, and market response is building, which bodes well for
2020 and beyond
• Close to securing our fi rst large connected rollout using FireAngel Pro Connect
and FireAngel Predict™ which represents an important endorsement of our
strategy and unique offering
• Company is now an independent, technology-led business with the key
objectives of monetising the investment made in connected technology and
to complete the transition to become a provider of safety-critical connected
home solutions
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Contents
Introduction
3 Overview
4 FireAngel at a glance
6 Executive Chairman’s statement
Strategic review
10 Our proprietary technology
11 Corporate social responsibility
Performance review
12 Group fi nancial results
Governance
18 Board of Directors and Company Secretary
20 Corporate governance report
25 Audit Committee report
27 Remuneration Committee report
31 Statutory Directors’ report
35 Section 172 Companies Act statement
37 Risks and risk management
Financial statements
40 Statement of Directors’ responsibilities
41 Independent auditor’s report
44 Consolidated income statement
44 Consolidated statement of comprehensive
income
45 Consolidated and Company statement of
fi nancial position
46 Consolidated and Company cash fl ow
statement
47 Consolidated statement of changes in equity
47 Company statement of changes in equity
48 Notes to the fi nancial statements
Other information
74 Corporate directory
74 Shareholder information
The Statutory Strategic Report comprises the
Executive Chairman’s Statement, the Strategic
Review, the Performance Review, the Section
172 Companies Act Statement and the Risks
and Risk Management sections.
Visit our investor website for
the latest news and announcements:
www.fi reangeltech.com
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
3
Introduction
FireAngel at a glance
Our business model
The FireAngel story started in 1998 when the business model was conceived by Nick Rutter, one of the two founders,
who wanted to design and sell products:
• where existing product solutions did not meet customer needs;
• which had global sales potential;
• manufactured using plastics and electronics (as this was the area most familiar to Nick); and
• which would provide an opportunity to take advantage of economies of scale of manufacture with low cost manufacturers.
2001
First domestic smoke alarm
to utilise environmentally
friendly PET packaging
First domestic smoke
alarm to utilise SMT
Sourcing of our own smoke, heat and
accessory products from Flex in Poland has
enabled us to consolidate our product range,
reduced lead times and leverage economies
of scale from a manufacturing facility just a
short fl ight away. It has also allowed us to bring
manufacturing closer to our core markets.
1998
FireAngel established
After a huge amount of product testing and
validation work, the business, with Nick as
Managing Director, launched the world’s fi rst
plug-in smoke alarm. Since that ground-
breaking design, the Company has gradually
extended its product range and expanded
to become the business it is today with a
comprehensive range of smoke, CO and
wireless products sold under its principal
FireAngel brand.
Our customer-centric approach, combined
with a comprehensive product range, world-
class third-party manufacturing capabilities
and high barriers to entry through product
certifi cation, makes our business model robust
and defensible. In turn, this enables us to build
strong, long-lasting partnerships with key
customers to maintain and gain market share.
Over time, we want to become the European
market leader selling FireAngel branded
products of choice in each of the markets
we serve.
The product and brand advocacy we have from
supplying smoke and hearing-impaired alarms
to the UK F&RS is illustrated through strong
customer loyalty across our business. This
philosophy shapes our business model as we
continue to listen to our customers’ needs to
develop the products they want in the future.
We have an exciting pipeline of products
coming through, including an enhanced range
of connected home products that incorporate
FireAngel’s unique predictive algorithm,
FireAngel Predict™, which not just detects fi res,
but predicts where fi res are more likely
to occur.
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2003
First UL Listed
rechargeable
2007
SSP launch award-
winning range of
accessory products
2009
First domestic smoke
alarm to incorporate
diagnostics
2015
Biggest wireless footprint
in the EU
2016
Launch of Wi-Safe Connect cloud
based B2B monitoring system
2014
Launch of lowest power AC
alarm in Europe
2017
Launch of NG-9B the fi rst battery
powered natural gas alarm in Europe
2019
2018
Launch of Co-Exist product
range utilising common smart
home protocols
2012
First domestic alarm to utilise 100%
EOL smoke test in production
2010
First domestic battery smoke alarm to
utilise aerosol calibration in production
First domestic battery smoke alarm
to use multi-sensor technology
FireAngel’s mission is to protect and save lives by
making innovative, leading-edge technology home
safety products which are simple and accessible.
1
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3
Number 1
50+
Supplying 90% of the
UK’s Fire & Rescue Services
Registered technology
patents & further pending
Unique
In-house CO sensing
technology
Think Ahead
Think Customer
Think Team
Three
Supplier / manufacturing
partnerships
Four
Brands targeted at
different markets
Infl uential
Member of Industry
and Trade Associations
4
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
5
Scalable & Defensive
Leading
Established
Business model with high
barriers to entry
Designer & supplier of smoke, heat and CO
alarms and wireless connectivity in Europe
Third party distribution across
Europe, the Middle East and Asia
Introduction
Executive Chairman’s statement
“The Group enters 2020 beginning to realise the promise of its
investment in R&D for connected alarms. 2019 was a challenging year
with results continuing to be negatively impacted by legacy issues. We
have addressed these issues and are taking action to improve gross
margins which we expect will increase in 2020 and continue to do so in
subsequent years. The opportunity presented by the growing demand
for connected home solutions is signifi cant and I look forward to the
Group’s next phase of growth. FireAngel has fi nally reached the start
line of an exciting future.”
John Conoley - Executive Chairman
Overview
In late 2019, the Group fi nally began fi eld installations of its connected products which was very encouraging, but not suffi ciently so to outweigh
what proved to be a very challenging year operationally for the Group. Our sales and marketing efforts represented a considerable success with
revenue up signifi cantly at 21%, yet we were disappointed to report an underlying loss for 2019 and to record substantial non-underlying charges
linked to historical issues. Signifi cant management time has once again been spent on resolving legacy problems, which should have been spent
moving forward with the Group’s clear strategic aims.
Although revenue saw impressive growth to £45.5 million, the impact on gross margin was held back for four main reasons:
1. Detrimental impact of the value of sterling against the US dollar
The prolonged weakening of sterling against the US dollar in 2019 signifi cantly increased the sterling cost of components used in the Group’s
products.
2. Higher costs and delayed product availability at the Group’s smoke and connected devices manufacturing partner
During 2018, a new manufacturing partner in Poland commenced production of FireAngel’s smoke and connected devices products and a new
Far East based supplier commenced supply of alternatives to the BRK/First Alert products.
Delays in reaching production capacity and effi ciency at the Polish manufacturer impacted both the availability of products and the product
cost in 2018. Although progress was made during 2019 in moving forward with both yield and effi ciency, we continue to see higher costs due, in
particular, to wage infl ation in Poland and delays in the availability of certain higher-margin products.
3. Change in sales mix towards lower margin UK Retail
Revenue from the lower-margin UK Retail sector increased by 36% to £11.3 million in 2019 and represented 25% of the Group’s turnover
compared to 22% in the previous year. This change in margin mix detrimentally impacted the Group’s overall gross margin compared with 2018.
4.
Impact of sales growth on the Company’s processes
Sales growth in 2019 of 21% put stress on the Company’s processes from production through to customer fulfi lment. This had the effect of
repeatedly shaving small amounts of both revenue and margin from the year’s results. In addition, the Company had to incur more costly air
freight charges to meet the growth in demand for certain of its products.
Fuller details of these issues and other factors affecting the year’s results are set out in the Strategic Review and Performance Review sections of
this Annual Report.
Results
For the year to 31 December 2019, the Group’s revenue was £45.5 million (2018: £37.6 million). The Group made an underlying loss before tax1
of £3.2 million (2018: £2.1 million). After charging £6.9 million for non-underlying costs (2018 restated: £3.8 million) and incurring £0.9 million in
changing to straight line amortisation for intangible development assets, the consolidated loss before tax for the year was £11.0 million (2018
restated: £5.9 million). Underlying EBITDA3 improved from a loss of £0.9 million in 2018 to a reduced loss of £0.4 million in 2019.
The adjusted gross profi t2 was maintained at £8.7 million, but represented a reduced adjusted gross margin2 of 19.0% (2018: 23.2%).
1 Underlying loss before tax in 2019 of £3.2 million is before the impact of the change to straight line amortisation of £0.9 million and before non-
underlying items of £6.9 million (further details of which are set out below) (2018: underlying loss before tax of £2.1 million before non-underlying
items of £3.8 million).
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2 Adjusted gross profi t is stated before non-underlying items of £4.3 million (2018 restated: non-underlying items of £1.2 million). Adjusted gross
margin is adjusted gross profi t as a percentage of revenue.
3 Underlying EBITDA in 2019 of (£0.4) million is loss before tax before depreciation and amortisation of £3.4 million, fi nance costs of £0.3 million
and non-underlying items of £6.9 million (2018: underlying EBITDA of (£0.9) million is loss before tax before depreciation and amortisation of £1.1
million, fi nance costs of £0.1 million and non-underlying items of £3.8 million).
FireAngel’s results continue to be negatively impacted by legacy issues as a result of certain historically poor internal processes.
Signifi cant non-underlying charges have been incurred during the year to increase the legacy battery warranty provision, for stock provisions and
for the impairment of intangible development costs. Details of these non-underlying items are given in the Performance Review section below.
Net debt (before lease obligations) at 31 December 2019 was £4.9 million (2018: £4.4 million). On 23 March 2020 the Company announced
details of an open offer and placing to raise approximately £6.1 million to strengthen its balance sheet, execute self-help plans to improve gross
margin, deploy and support the connected homes technology and fund part of the additional expected liabilities for the Company’s legacy battery
warranty issue fi rst identifi ed in 2016, further details of which are set out below. On 8 April 2020, the Company issued 50,623,480 new ordinary
shares at 12 pence per share as a result of valid acceptances under the open offer and placing.
Business unit performance
Revenue for the Group grew by 21% in the year, with signifi cant growth seen in all major business units. Gross margin, however, was lower
compared to the prior year due to the reasons outlined above.
Revenue split between the Group’s business units was as follows:
UK Trade
UK Retail
UK F&RS
UK Utilities
Total sales in the UK
International
Pace Sensors
Total revenue
2019
£m
15.2
11.3
4.7
1.5
32.7
11.1
1.7
45.5
2018
£m
12.4
8.3
4.2
2.3
27.2
8.8
1.6
37.6
Inc/(dec)
Inc/(dec)
Proportion
Proportion
2019
2018
£m
2.8
3.0
0.5
(0.8)
5.5
2.3
0.1
7.9
%
23%
36%
12%
(35%)
20%
26%
6%
21%
%
34%
25%
10%
3%
72%
24%
4%
%
33%
22%
11%
6%
72%
24%
4%
100%
100%
UK Trade
A very strong performance in UK Trade in
the year saw sales increase by 23% to £15.2
million, representing around a third of the
Group’s revenues. The UK Trade sector
represented the highest proportion of total
revenue in both 2019 and the prior year.
The growth in absolute sales of £2.8 million
shows the progress made in gaining share of
an addressable UK Trade market estimated
to be worth in excess of £100 million annually
and the recovery of demand throttled back
by stock availability issues in the second half
of 2018.
Our progress in winning market share
through 2019 continued to gain momentum
with announcements of agreements
to supply West of Scotland Housing
Association, North View Housing Association
and Link Group, all linked to the requirement,
from 1 February 2019, for greater safety
standards in Scotland as part of the Housing
(Scotland) Act. The Group is currently
engaged in rollouts with 17 housing
associations in Scotland. All properties in
Scotland must comply with this legislation
by the end of February 2021. In addition
to these announcements, since the start of
the year, the Group has begun supplying
products to local authorities and housing
associations with a combined portfolio of
approximately 65,000 properties.
Alarms fi tted through the UK Trade channel
are predominantly mains-powered solutions
with multiple devices being required in each
property. This signifi cantly increases the
value of each sale. FireAngel’s new and
unique connected technology solutions
offer housing associations, landlords and
their tenants the highest level of protection
and maintenance. As a result, the Group
is seeing signifi cantly increased interest in
its connected solutions which have been
designed to meet heightened duty of care
concerns within social housing. The Group
is currently engaged in connected solution
trials with social housing providers with a
combined portfolio in excess of 100,000
properties with further trials expected
to commence shortly for providers with
combined estates in excess of 110,000
properties. In addition, fi rst expressions of
interest have been received from a number
of other providers with a signifi cantly higher
combined portfolio. Progress with current
trials is detailed later in this statement.
UK Retail
Revenue from the UK Retail sector increased
by 36% to £11.3 million in 2019. In
addition to recovering ground lost in 2018
as product availability issues impacted
retailers re-stocking FireAngel ranges as
they transitioned from BRK/First Alert stock,
signifi cant competitive wins in the year
included Aldi, Asda, Morrisons and securing
principal supply to Homebase. However,
the most signifi cant contributor to growth
was seen in online sales. Revenue through
online platforms increased signifi cantly,
particularly through Amazon with which
we secured business directly in August
2018. Our connected home proposition is
ideally suited to online platforms and digital
channels where we can create the content
to clearly articulate the product features and
user benefi ts of this new technology.
This online growth and strong traditional
retailer support led to UK Retail sales
representing 25% of the Group’s turnover in
2019 (2018: 22%).
The Retail team worked hard in the year to
rollout the Group’s latest Pro Connected
range of products across all retailers. This
culminated with the launch of the FireAngel
Pro Connected B2C platform in January
2020 through Amazon, Screwfi x and
Toolstation. The FireAngel Pro Connected
gateway connects directly to the FireAngel
Pro Connected range of domestic safety
products and utilises the unique features
provided by FireAngel Predict™, the Group’s
AI data analytics technology, which has
the potential to avert domestic fi res before
they start by automatically analysing large
amounts of historical data in the Cloud.
6
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
7
Introduction
Executive Chairman’s statement continued
UK Fire and Rescue Services (‘UK
F&RS’) and Utilities
Together the UK F&RS and Utilities sectors
accounted for 13% of the Group’s revenue in
the year (2018: 17%). Although revenue from
the Utilities sector declined to £1.5 million
due to reduced demand for CO alarms from
British Gas, the UK F&RS sector saw growth
of 12% to £4.7 million refl ecting an increase in
demand for FireAngel’s interconnected range
of products and heat alarms. We continue
to be very proud that over 90% of the UK
F&RS choose to fi t FireAngel alarms within
properties.
International
Revenue from the Group’s International
business continued to represent 24% of
total turnover in the year. Sales increased by
26% to £11.1 million as overstocking issues
at the Group’s German distributor were
worked through and sales in Belgium grew
signifi cantly due to legislative requirements
for smoke alarms and the successful
transition from BRK and First Alert products to
FireAngel’s own product range.
Sales in France continued to show signifi cant
improvement after record legislative-driven
demand in 2015 and we continued to
supply to the Singapore market to address
the ongoing legislative requirement in that
country. Sales also increased in Central and
Eastern Europe as a result of appointing a new
network of distributors.
The Group continues to build an exciting
pipeline of core and connected opportunities
internationally for 2020 and beyond.
Pace Sensors
At £1.7 million, revenue at Pace Sensors,
the Group’s manufacturer of CO sensors,
continued to represent 4% of total turnover
for the Group. As stated in previous reports,
although the value of sales is reduced from
levels seen prior to 2018, this refl ects the
transition of demand to the lower cost but
higher margin nano sensor, fi tted into an
increasing proportion of the Group’s CO
alarms.
Dividend
Consistent with the decision not to pay
an interim dividend for 2019 in light of the
Group’s trading performance, the Board is not
recommending payment of a fi nal dividend
for the year. The total dividend payable for
2019 is therefore nil pence per share (2018: nil
pence per share).
Our dividend policy will remain under review
with the Board’s desire to recommence
dividend payments when it is prudent to
do so.
Board changes
There were a number of signifi cant changes to
the Board during the year and subsequently.
In July 2019, the Group announced the
resignation of Neil Smith, the Group Chief
Executive. Again, I would like to place on
record here the Board’s thanks to Neil for his
hard work and commitment through a period
of signifi cant change. With effect from the
beginning of August 2019 I was appointed as
Executive Chairman.
In September 2019, after long service to the
Group, William Payne stepped down as a
Non-Executive Director and was replaced
by Simon Herrick who took on chairmanship
of both the Audit and Remuneration
Committees. In the same month, Zoe Fox
was appointed as Company Secretary. Zoe is
Finance Director of the Company’s principal
subsidiary, a role which she has held since
2010.
Subsequent to the year end, in February 2020,
it was announced that Graham Whitworth,
Executive Director, would become a Non-
Executive Director with effect from the release
of the Company’s audited fi nal results for the
year ended 31 December 2019. As a Non-
Executive Director, Graham will continue to
have Business Development responsibilities,
in particular working to exploit FireAngel’s
strong IP portfolio globally, including FireAngel
Predict™.
At the same time, it was also announced that
Nick Rutter, co-founder and Chief Product
Offi cer, had decided to step down from the
Board continuing in his current role to focus
on connected home development. The
Company’s unique technological advantage
at this exciting time is due, in particular, to
Nick’s foresight and vision.
Finally, it was announced that Ashley Silverton
had decided to step down as a Non-Executive
Director at the Company’s forthcoming
Annual General Meeting. Ashley, who joined
the Board in 2011, has provided wise and
experienced counsel through his corporate
experience and fi nancial expertise. The
search is underway for a Non-Executive
Director with business-to-business
experience of the technology sector to
succeed Ashley.
I would like to place on record my thanks
to each of Graham, Nick and Ashley. Their
commitment and vision have positioned
FireAngel at the start line of an exciting future
and I look forward to continuing to work with
Graham and Nick to realise the investment
made in getting the business to this unique
position.
Manufacturing
Following the transition of the majority of the
Group’s manufacturing from China to Poland
during 2018, production at the Group’s
primary smoke alarm and connected devices
manufacturing partner increased in 2019
to meet the growth in demand. However,
despite signifi cant efforts on both sides
to improve effi ciencies in the production
process, there will only be incremental
improvements in margin from this source
in 2020. From 2021, it is expected that
rationalisation of the Group’s product range,
designing for automation for new products,
and changes in the mix of products will
lead to more signifi cant cost and effi ciency
improvements.
People
2019 continued to place signifi cant pressures
on FireAngel’s employees who responded
with exceptional commitment to the needs
of our customers. I once again thank them
sincerely.
Products and brands
The Company’s investment in connected
technology made over the last few years
is now being evidenced by the launch of a
range of connected products with unique
functionality and effi ciency. The Directors
estimate that typical connected product
spend is approximately £205 per property on
initial installation. There are 4.6 million social
properties in the UK, giving a market size in
the UK Trade business of almost £1 billion
product value over fi ve years. The recurring
revenue opportunity builds to approximately
£55 million per annum if installed in all UK
social housing properties. The Directors also
believe that the available margins in UK Trade
are potentially double those in the ‘traditional’
market.
In October 2019, FireAngel launched its
Specifi cation and Pro ranges of smoke,
heat and CO alarms which feature Smart
RF technology which enables all devices to
connect wirelessly, signifi cantly removing
the time-consuming requirement for wiring,
channelling or trunking. These are the only
alarms with proven low carbon footprints
producing on average 95 per cent. less
carbon dioxide compared with other leading
mains-powered alarms. These ranges
allow their connectivity to be upgraded
to communicate information outside the
property by installing a FireAngel Connect
Gateway. This has advantages to landlords
in fulfi lling their duty of care in accessing vital
information, including alarm status, history,
replacement dates and network health.
The system features ‘FireAngel Predict™’,
patented technology to identify and highlight
dangerous patterns of behaviour that increase
fi re risk. A network including a FireAngel
Connect Gateway can provide real-time
fi re and CO safety notifi cations via remote
monitoring of the alarms for more accurate
risk management.
In January 2020, the Group’s retail range was
completed with the launch of the FireAngel
Pro Connected B2C platform, initially through
selected retail channels. The FireAngel Pro
Connected gateway connects directly to the
FireAngel Pro Connected range of domestic
safety products and utilises the unique
features provided by FireAngel Predict™.
In February 2020, the Group announced that
FireAngel Predict™, the Group’s predictive
algorithm management information platform,
had been granted a patent by the European
Patent Offi ce following successful patent
awards in both the US and Australia. This
gives FireAngel the exclusive right to exploit
this technology in Europe and protects the
key operating system required to deliver
the functionality behind FireAngel Predict™.
The technology pinpoints properties where
there is a higher risk of a fi re which provides
stakeholders within the housing sector a
unique insight into the safety of the occupants
and their property portfolio. This is delivered
seamlessly through online notifi cations,
thereby protecting lives and homes and
providing a compelling proposition to help
fulfi l the stakeholders’ duty of care.
The launch of the connected range, combined
with the predictive analytics offered by
FireAngel Predict™, will address the increasing
demand for connected solutions and allow
the Company to access the higher margin
product and recurring revenue streams this
unique technology will command.
Progress with connected trials
As previously announced, trials of FireAngel’s
connected home products, including
FireAngel Predict™, have been ongoing and
have been well received. On 23 March 2020,
the Company announced that it was close to
signing a contract with a local authority for a
large connected rollout using FireAngel Pro
Connect and FireAngel Predict™.
While commercial discussions have now
been concluded and training for installers is
planned in June 2020, subject to lockdown
restrictions, with product rollout planned later
in the same month, the inevitable disruption
caused by the COVID-19 lockdown measures
has delayed contractual sign off. Further
trials have been completed with two other
signifi cant connected opportunities which
have now entered commercial discussions,
albeit, for obvious reasons, at a slower pace.
Some further opportunities have in the past
few weeks in fact become fi rmer despite
the impact of COVID-19. Further updates
will be announced as appropriate. Prior to
commencing active marketing, the total
identifi ed funnel of opportunities is worth
approximately £100 million, of which £34
million is already in the pipeline. The Board
expects to have several rollouts commencing
in H2 2020, each of which is expected to last
for 3 to 5 years, with a signifi cantly increasing
recurring revenue element. The business is
very scalable against volume longer term,
but the late 2020 challenge will be managing
growth and customer expectations. It is
pleasing to see the Group’s connected home
products performing well in the fi eld and the
fi rst responses to FireAngel Predict™ have
been positive and extremely informative for
both customers and FireAngel.
Strategy
We have closely considered FireAngel’s
purpose and strategic direction over the
course of 2019. FireAngel’s mission is to
protect and save lives by making innovative,
leading-edge technology home safety
products which are simple and accessible.
The Group is now an independent,
technology-led business with the key
objectives of monetising the investment made
in connected technology and to complete
the transition of the business to become a
provider of safety-critical connected home
solutions.
Production yields and capacity at our
Polish manufacturing partner have met the
signifi cant increase in demand in the year.
However, it remains unlikely that any cost
reductions will be realised in the short term.
We will continue to work together to achieve
greater effi ciencies, but we are unlikely to
see meaningful improvements until product
rationalisation plans have been executed
and we are able to introduce new products
specifi cally designed for automation. The
labour content engineered into our existing
product range is not optimal in a higher labour
cost environment. I remain confi dent that
Flex is the right partner to support the Group’s
strategic objective of developing technology
which provides customers with innovative and
market-leading products and solutions, and
that this benefi t will be fully realised through
product rationalisation and the introduction of
new products designed for automation in the
medium to longer term.
In the short term, the Group will seek to
improve gross margin, which it is hoped will
be achieved through reorganisation and
upskilling to focus on other costs of sale, for
example items such as warranty and product
rework, and also in improving its speed of
reaction. In addition, a signifi cant short
and medium-term opportunity for margin
progression is expected to be realised through
better focus on marketing and sales in the UK
Trade market and more assertively exploiting
digital channels. The Group is repositioning
existing products, reviewing pricing product
by product and, at the same time, continuing
to introduce newer product lines.
The strategic decision to invest heavily
in connected technology is proving to be
correct. The Directors believe that FireAngel
is uniquely positioned to satisfy the emerging
demand and benefi t from the recurring
revenue streams associated with services
offered by this technology. The benefi ts are
now beginning to come through in successful
real-world trials, the fi nancial benefi ts of
which are expected to be realised in the short,
medium and long term. The business must
reassess its delivery of technical solutions to
adequately meet the size and complexity of
these new opportunities.
The Board continues to expect connectivity
and interoperability between devices with
external monitoring and messaging to be at
the heart of medium to longer-term growth
and profi tability.
Outlook
The Group made a solid start to the year with
sales up 15 per cent. and gross profi t up 39
per cent. respectively on the fi rst two months
of 2019. Performance in the fi rst quarter of
I
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2020 was close to the Board’s expectations,
with revenue and gross profi t slightly below
budget. Gross profi t margin remained ahead
of Q1 2019 and in line with budget, however,
an opportunity to outperform was lost in part
due to the impact of COVID-19 as March
progressed. The Directors believe that there
is a rapidly increasing market interest in the
Group’s unique solutions which bodes well for
the future.
As announced on 30 April 2020, while
COVID-19 has impacted the Company
outlook in the short term, revenue for April, at
almost 55% of budget, was, encouragingly,
some way ahead of the Board’s expectations.
Revenue for May is expected to be at a
similar level of budget achievement. Due
to the uncertainty around COVID-19 and
timing of when restrictions will be lifted, the
Board decided to withdraw the Company’s
market guidance given that it is too early to
substantiate or vary it with any certainty.
The Board continues to believe that the
medium and long-term prospects for the
Company’s unique technology are strong.
We are encouraged by online sales resilience
and the increasing shift to online fulfi lment
in our Retail business. In recent days new
enquiries have come through our Trade
business, adding to our growing funnel of
opportunities. The recent re-opening of retail
and trade channels, and clear attempts to
restart the construction sector, reinforce the
expectation of a quick rebound in demand for
FireAngel’s unique cost-effective connected
solutions. It is pleasing that demand, whilst
reduced, has continued to recover in our
international markets and the emphasis in
many UK-customer conversations has moved
to preparing to return to normal behaviour
after lockdown restrictions have been lifted.
The Group is close to signing a contract for a
large connected rollout by a London Borough
using FireAngel Pro Connect and FireAngel
Predict™. This represents an important
endorsement of the Group’s strategy and
unique offering. The Directors believe that no
company in the Group’s marketplace is better
positioned to support providers of social
housing in their pursuit of higher levels of
proactive fi re risk management.
The Group has completed further trials and
has entered commercial discussions with
certain other larger social housing providers
and the Directors are optimistic of further
business wins, and of generating recurring
revenue streams, from our growing pipeline of
large opportunities. The Company has fi nally
reached the start line of an exciting future.
John Conoley - Executive Chairman
26 May 2020
8
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
9
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Strategic review
Our proprietary technology
Our range of products is comprehensive,
allowing the Group to tailor its smoke and CO
alarms and accessories to suit its customers’
needs at various price points under the
following brands:
FireAngel. A market-leading and innovative
battery operated range of smoke and CO
alarms principally targeted at UK Retail and
UK F&RS.
AngelEye. Launched in 2012, FireAngel sells
smoke alarms and CO detectors principally
into the French market under the AngelEye
brand which has become a leading brand
targeted at the DIY channel in France.
FireAngel Specifi cation and FireAngel Pro.
Our ranges of smoke, heat and CO alarms
which feature Smart RF technology which
enables all devices to connect wirelessly,
signifi cantly removing the time-consuming
requirement for wiring, channelling or
trunking. These are the only alarms with
proven low carbon footprints producing on
average 95 per cent. less carbon dioxide
compared with other leading mains-powered
alarms. These ranges allow their connectivity
to be upgraded to communicate information
outside the property by installing a FireAngel
Connect Gateway. The system features
‘FireAngel PredictTM’, patented technology to
identify and highlight dangerous patterns of
behaviour that increase fi re risk. A network
including a FireAngel Connect Gateway
can provide real-time fi re and CO safety
notifi cations via remote monitoring of the
alarms for more accurate risk management.
Pace Sensors. CO sensors used within
FireAngel’s CO products are developed by
FireAngel and Pace Sensors, FireAngel’s
wholly-owned subsidiary in Canada. Pace
Sensors’ CO sensors are used within all
FireAngel, AngelEye and Pace Sensors’ CO
detectors.
Enhanced Protection
Simple Connection
The Wi-Safe 2 range of products are designed
to provide an enhanced level of fi re and CO
safety for high risk individuals such as the
deaf, those with mild to moderate hearing
loss, children and people under the infl uence
of alcohol or drugs.
Wi-Safe 2 products can be linked together in
a matter of seconds with a simple two button
connection process. Wi-Safe 2 simplifi es
installation with no need for extra wiring,
mess or fuss.
Intelligent Locate
The intelligent locate feature means on
activation, pressing the Test / Silence button
on any alarm in the network will silence all but
the initiating alarm which has sensed smoke,
heat or CO.
Corporate social responsibility
Introduction
Corporate social responsibility is integral to our success. We aspire to carry out our business activities to the highest ethical standards, act
responsibly and make a positive impact in our interactions with all our stakeholders.
Respect for people and diversity
Employee experience and satisfaction in the workplace are very important to us. Operating our business in a non-discriminatory manner that
focusses on the fair treatment and respect for each other is a core value and underpins our interactions with our employees, customers and suppliers.
The Board and the Company’s human resources function are responsible for ensuring that our policies and practices refl ect best practice for equality
of opportunity and long-term professional development for our employees. All senior management are responsible for ensuring that throughout the
business our workplace is free from harassment and bullying and we strive to create a positive environment that is supportive, enables employees to
fulfi l their maximum potential and drives our business performance.
We are committed to ensuring that within the framework of the law, FireAngel is free from discrimination on any grounds. FireAngel is an equal
opportunities employer and ensures that all applications for employment are given full and fair consideration. Every effort is made to support
employees to be successful in their careers. Our people and development policies are reviewed regularly to ensure that they are non-discriminatory
and promote equal opportunity. In particular, recruitment, selection, promotion, and training and development are all monitored to ensure that all
employees have the opportunity to progress in line with their abilities.
Supporting our community
We regularly donate to various charities, including a number of CO and fi re fi ghter charities. We have an established charity committee to manage our
involvement with, and support of, local and national charities. We also work closely with local universities to give presentations and support students
with their career progression including, where appropriate, work experience in the Group.
Health, safety and the environment
Supporting health, safety and the environment are important elements to our success. We view the standards of health and safety required by law
as being only the minimum and endeavour to follow best practice at each of our sites. The Group complies with all local legislation relevant to the
respective territories in which it operates.
To support the environment, we have a range of initiatives from recycling to encouraging staff to cycle to work through a tax-effi cient cycle-to-work
scheme. We believe that we were the fi rst company in our industry to have a smoke alarm with its own very low carbon footprint where the product
range has been specifi cally designed to minimise power consumption using approximately 10% of the stand-by power of a conventional alarm.
Wider stakeholder engagement
The Group conducts employee opinion surveys to receive employees’ feedback on all aspects of employment with the business. Senior managers
meet regularly with employees to update them on the Group’s performance and to discuss business-related issues.
The Group also encourages feedback from its customers through its Business Unit Directors supported by product management specialists as
required.
The Group’s marketing, product management and new product introduction teams regularly engage with customers, industry bodies and trade
associations, both directly and through social media. In addition the Group’s technical support team liaises with customers through its call centre,
social media and its website.
10
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
11
Performance review
Group fi nancial results
“Although the Group moved forward signifi cantly with revenue, legacy
issues continued to be a major distraction at the expense of driving
forward strategic goals. The success of recent trials positions us well
to move forward into 2020 and beyond.”
Mike Stilwell - Group Finance Director
Overview
Despite a signifi cant increase in revenue, 2019 proved once again to be a year of signifi cant disruption and distraction for the Group with results
negatively impacted by legacy issues as a result of certain historically poor internal processes. Actions have been taken to address this.
Underlying Group performance
2019
2018 Restated
Before non-
underlying items and
change to straight
line amortisation
£m
Impact of
change to
straight line
amortisation
£m
Non-
underlying
items
£m
Revenue
Cost of sales
Gross profi t
Operating expenses
Loss from operations
45.5
(36.8)
8.7
(11.6)
(2.9)
-
-
-
(0.9)
(0.9)
-
(4.3)
(4.3)
(2.6)
(6.9)
Before non-
underlying
items
£m
Non-
underlying
items
£m
37.6
(28.9)
8.7
(10.7)
(2.0)
-
(1.2)
(1.2)
(2.7)
(3.8)
Total
£m
45.5
(41.1)
4.4
(15.1)
(10.7)
Total
£m
37.6
(30.0)
7.6
(13.4)
(5.8)
Total revenue for the year increased by 21% from £37.6 million to £45.5 million resulting in an underlying operating loss1 of £2.9 million compared
to £2.0 million in 2018. The adjusted gross profi t2 was maintained at £8.7 million which represented an adjusted gross margin2 of 19.0% (2018:
23.2%). The underlying loss before tax3 was £3.2 million (2018: £2.1 million). Underlying EBITDA4 improved from a loss of £0.9 million in 2018 to a
reduced loss of £0.4 million in 2019.
1 Underlying operating loss in 2019 of £2.9 million is before the impact of the change to straight line amortisation of £0.9 million and before non-
underlying items of £6.9 million (further details of which are set out below) (2018: underlying operating loss of £2.0 million before non-underlying
items of £3.8 million).
2 Adjusted gross profi t is stated before non-underlying items of £4.3 million (2018 restated: non-underlying items of £1.2 million). Adjusted gross
margin is adjusted gross profi t as a percentage of revenue.
3 Underlying loss before tax in 2019 of £3.2 million is before the impact of the change to straight line amortisation of £0.9 million and before non-
underlying items of £6.9 million (2018: underlying loss before tax of £2.1 million before non-underlying items of £3.8 million).
4 Underlying EBITDA in 2019 of (£0.4) million is loss before tax before depreciation and amortisation of £3.4 million, fi nance costs of £0.3 million
and non-underlying items of £6.9 million (2018: underlying EBITDA of (£0.9) million is loss before tax before depreciation and amortisation of £1.1
million, fi nance costs of £0.1 million and non-underlying items of £3.8 million).
The key drivers for changes in revenue and adjusted gross margin are detailed in the Executive Chairman’s statement on pages 6 to 9.
Overall cash infl ow in the year was £0.8 million (2018: outfl ow of £2.0 million) and net debt (before lease obligations) at 31 December 2019 was
£4.9 million. This compared with net debt (before lease obligations) of £4.4 million at 31 December 2018. The net movement of £0.5 million
comprised an increase in cash and cash equivalents of £0.8 million and a net increase in bank debt of £1.3 million through repayment of £5.7
million under the revolving credit facility and drawdown of £7.0 million under the invoice discounting facility.
P
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Income statement
Revenue by business unit
Revenue split between the Group’s business units and Pace Sensors is as follows:
UK Trade
UK Retail
UK F&RS
UK Utilities
Total sales in the UK
International
Pace Sensors
Total revenue
2019
£m
15.2
11.3
4.7
1.5
32.7
11.1
1.7
45.5
2018
£m
12.4
8.3
4.2
2.3
27.2
8.8
1.6
37.6
Inc/(dec)
£m
Inc/(dec)
%
Proportion
%
Proportion
%
2019
2018
2.8
3.0
0.5
(0.8)
5.5
2.3
0.1
7.9
23%
36%
12%
(35%)
20%
26%
6%
21%
34%
25%
10%
3%
72%
24%
4%
33%
22%
11%
6%
72%
24%
4%
100%
100%
Overall, the Group’s revenue increased by 21% to £45.5 million. The most signifi cant factors in the £7.9 million increase were the improvement
in sales in the UK Retail, UK Trade and International markets which saw revenues increase to £11.3 million, £15.2 million and £11.1 million
respectively as a result of growth in core demand, the completion of the transition process to FireAngel products and the resolution of stock
availability issues which impacted 2018. Revenue increased in the UK F&RS business unit to £4.7 million as demand increased for FireAngel’s
interconnected range of products and heat alarms. This was partially offset by a reduction in revenue in the UK Utilities business unit due to
reduced demand from British Gas for CO alarms. Revenue at Pace Sensors, the Group’s manufacturer of CO sensors, increased slightly to £1.7
million through increased demand of its cheaper, higher-margin, nano sensor technology.
Gross profi t and gross margin
Adjusted gross profi t2 remained level at £8.7
million and represented an adjusted gross
margin2 of 19.0% (2018: 23.2%).
The reduction in adjusted gross margin2 was
largely due to the detrimental impact of the
value of sterling against the US dollar (due to
the prolonged weakening of sterling against
the US dollar increasing the sterling cost of
components used in the Group’s products,
and the strengthening of sterling against the
US dollar since September 2019 increasing
the committed cost of forward contracts
at the year end), higher costs and delayed
product availability at the Group’s smoke and
connected devices manufacturing partner, the
change in sales mix towards the lower margin
UK Retail sector, and the impact of sales
growth on the Company’s processes.
During the year, overall gross profi t was
impacted by a number of non-underlying
items charged to cost of sales. Firstly, the
legacy FireAngel battery warranty provision
was increased by £1.4 million due to increased
costs of supplying replacement products. The
provision was also increased by £2.7 million
largely refl ecting an increase in the terminal
volume of units expected to be impacted, of
which £1.2 million was charged through the
income statement for 2019 and £1.5 million
was accounted for as a prior period adjustment
(see note 8 to the fi nancial statements).
Secondly, a provision of £1.7 million was made
against certain lines of stock and associated
disposal costs as a result of a thorough review
of product lines and future development plans.
Further details are given below.
restated: 20.1%). As a result of the termination
of the BRK agreement, the distribution fee paid
by the Group to BRK, its former manufacturing
and distribution partner, reduced to £nil for the
year (2018: £0.9 million).
Exchange rates
Sterling strengthened slightly against the euro
by around 1% on average over the year. This
was unfavourable to the sterling translation
of the Group’s euro-denominated income, on
signifi cantly higher year-on-year revenue from
this sector. Over the same period, sterling
weakened against the US dollar by around
4% on average. This was unfavourable to the
sterling translation of the Group’s US dollar-
denominated component purchases.
There was signifi cant variation in the value
of sterling against the US dollar over the
year, particularly in the second half of 2019.
The Group has a forward hedging policy
which aims to mitigate the risk of currency
fl uctuations by locking into current rates for
future periods on a set percentage of expected
future currency fl ows. The strengthening of
sterling against the US dollar since September
2019 increased the committed sterling cost of
forward contracts entered into in accordance
with the Group’s policy to hedge future US-
dollar purchase requirements. This mark-to-
market increase in sterling cost is required to
be recognised in cost of sales for the year and,
to the extent that this was not mitigated by the
retranslation of other US-dollar denominated
monetary items, had a detrimental impact on
the gross margin for the year.
Overheads
The overall gross profi t decreased from
£7.6 million to £4.4 million, largely due to the
non-underlying items described above, and
represented a gross margin of 9.6% (2018
The Group’s overhead costs comprise the
distribution and administrative costs of running
the business. Excluding non-underlying
items totalling £2.6 million (2018: £2.7 million),
further details of which are given below, and
the £0.9 million impact of changing to straight
line amortisation, overheads of £11.6 million
were 8% ahead of the prior year’s £10.7
million, approximately £1.2 million of which
was due to increased underlying depreciation
and amortisation of the Group’s tangible and
intangible assets as a result of a full year’s
charge relating to machinery and set up costs
at the Group’s new manufacturer of products
in Poland. Excluding this increase, underlying
overheads were lower than the previous year.
As a result of a review during the year of
the Group’s processes, procedures and
controls, it was concluded that the ‘straight
line’ method of amortisation for the Group’s
connected home capitalised development
costs was more appropriate given the diffi culty
in accurately predicting the timing of the
take up of its connected home technology.
This reverses the decision taken in 2017 to
adopt the ‘units of production’ method of
amortisation which, under accounting rules,
is only appropriate where demand can be
measured with suffi cient reliability.
This change to straight line amortisation over
seven years has no impact on expected cash
fl ows and gives greater certainty to future
income statement charges. The impact of
the move to straight line amortisation was to
increase overheads by £0.9 million in the year.
Further details are given in note 17 to
the fi nancial statements.
Total overhead costs amounted to £15.1
million (2018: £13.4 million), the adverse
movement largely due to the increase in
underlying depreciation and amortisation
and the move to straight line amortisation
described above.
12
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
13
Performance review
Group fi nancial results continued
Non-underlying items in 2019
Non-underlying costs totalling £6.9 million were incurred in the year as follows:
Within cost of sales:
• Provision for warranty costs: during the year, the FireAngel battery warranty provision, an isolated legacy issue relating to a third-party supplier fi rst
identifi ed in April 2016, was increased by £1.4 million as lower rework yields and higher product costs compared to those originally anticipated when
the provision was estimated three years ago, were leading to increased costs of supplying replacement products. In addition, a charge of £1.2 million
was made largely to refl ect an increase in the terminal volume of units expected to be impacted by the issue based on the level of returns currently
being seen.
• Stock impairment and disposal costs: £1.7 million was provided in the year 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.
Within operating expenses:
• Restructuring and certain fundraising costs of £0.7 million were incurred in the year.
• Intangible capitalised development assets of £1.8 million were impaired during the year as a result of a thorough review of product lines and future
development costs.
• Share-based payment charges of £37,000 were incurred during the year.
Non-underlying items in 2018
Non-underlying costs totalling £3.8 million were incurred in 2018 to provide against stock and disposal costs, for incremental production ramp up
costs at the Group’s smoke alarm and connected devices manufacturing partner, for the costs of restructuring the Group’s German distribution
channels, and share-based payment charges. Further details are given in note 7 to the fi nancial statements.
Prior period adjustment
In addition to the items above charged through the 2019 income statement in relation to the legacy battery warranty provision, an amount of £1.5
million was recorded to increase the provision through a prior period adjustment. Towards the end of 2019, continuing ongoing monitoring of
warranty returns data identifi ed that the number of units expected to be impacted by the third-party supplied battery impedance issue could be
higher than originally anticipated. The need for this prior period adjustment was due to an error in the operational assumptions made regarding
product manufactured between 2016 and Q1 2018. No further increase in the number of units impacted is expected as the issue relates only to units
produced at one of the Company’s previous manufacturers in China up to the end of March 2018. Approximately £0.3 million of this additional charge
has been utilised at 31 December 2019. Due to the introduction of various product design changes, units produced at the Company’s manufacturing
partner in Poland since April 2018 should not be affected by these historic issues. Further details are given in note 8 to the fi nancial statements.
Result for the year
The underlying operating loss1 for the year amounted to £2.9 million compared to an underlying operating loss1 of £2.0 million in 2018. After taking
account of the impact of the change to straight line amortisation of £0.9 million, the non-underlying items of £6.9 million and fi nance charges of £0.3
million as a result of interest on borrowings in the year, the Group reported a loss before tax of £11.0 million (2018 restated: £5.9 million).
The Group booked a tax credit of £1.6 million (2018 restated: tax credit of £1.4 million) due largely to the recognition of tax losses and the surrender of
taxable losses for a research and development tax credit.
Basic and diluted EPS for the year was a loss of 14.0 pence per share (2018 restated: loss of 9.9 pence per share).
Statement of fi nancial position
The net assets of the Group amounted to £17.2 million at 31 December 2019 (2018 restated: £21.0 million) and can be summarised as follows:
2019
2018 Restated
Goodwill
Plant and equipment
Right-of-use-assets
Capitalised development costs
Purchased software costs
Non-current assets
Net cash balances
Loans and borrowings
Net debt
Lease liabilities
Net working capital
Net tax asset (including deferred tax)
Net derivative fi nancial (liabilities)/assets
Warranty provision
Net assets
14
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
£m
0.2
3.8
1.5
12.6
2.5
20.6
2.1
(7.0)
(4.9)
(1.5)
6.2
0.7
(0.4)
(3.5)
17.2
£m
0.2
4.0
-
13.2
2.9
20.3
1.3
(5.7)
(4.4)
-
7.8
0.3
0.1
(3.1)
21.0
Non-current assets at 31 December 2019 amounted to £20.6 million compared with £20.3 million at 31 December 2018. The most signifi cant
components of this were capitalised development costs, with a net book value of £12.6 million, plant and equipment (£3.8 million) and purchased
software costs (£2.5 million). Capitalised development assets of £1.8 million were impaired during the year as a result of a thorough review of product
lines and future development costs.
Total capital expenditure in the year decreased to £3.7 million compared to £6.1 million in 2018 refl ecting completion in the prior year of signifi cant
investment in tooling at the Group’s primary smoke alarm and connected devices manufacturer. Of this total, £2.9 million represented capitalised
development expenditure to further enhance the Group’s connected home and wider technology portfolio as described in note 17 to the fi nancial
statements.
Total capital expenditure of £3.7 million (2018: £6.1 million) compares with depreciation, amortisation and impairment charges totalling £5.2 million in
the year (2018: £1.1 million).
The Group adopted IFRS 16 ‘Leases’ with effect from 1 January 2019. The standard eliminates the classifi cation of leases as either operating or
fi nance leases and introduces a single accounting model requiring lessees to recognise assets and liabilities for all leases unless the underlying
asset has a low value or the lease term is twelve months or less. Lessees are required to recognise on the balance sheet right-of-use assets which
represent the right to use underlying assets during the lease term and a lease liability representing the minimum lease payment for all leases.
Depreciation of right-of-use assets and interest on lease liabilities is charged to the income statement, replacing the corresponding operating lease
rentals. The Group has applied the modifi ed retrospective approach and therefore at the date of initial application an amount equal to the lease
liability, using appropriate incremental borrowing rates, has been recognised as a right-of-use asset. The adoption of IFRS 16 has increased both
‘Non-current assets’ and ‘Total liabilities’ at 31 December 2019 by £1.5 million, but has not had a material impact on the overall result for the year in
the income statement. Further details are given in notes 1 and 18 to the fi nancial statements.
Working capital reduced signifi cantly by £1.6 million to £6.2 million at 31 December 2019. Stock reduced by £2.1 million to £6.3 million (2018: £8.4
million) a large part of which was due to the non-underlying charge of £1.7 million to provide for the cost of older stock and its disposal 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.
Trade and other receivables increased by £1.3 million to £12.1 million (2018: £10.8 million) as a result of increased revenue in the year with average
debtor days reducing from 89 to 59 due to the favourable mix of customers across the year.
Trade and other payables increased by £0.7 million to £12.2 million (2018: £11.5 million). Average creditor days returned to a more normal 76 days
(2018: 137 days), the prior year infl ated due to the delayed payment terms negotiated as part of the BRK Settlement Agreement.
Net tax assets at 31 December 2019 amounted to £0.7 million (2018 restated: £0.3 million) and comprised a current tax asset of £0.7 million (2018:
£1.2 million), deferred tax assets of £2.4 million (2018 restated: £1.5 million) and deferred tax liabilities of £2.4 million (2018: £2.4 million). Deferred tax
assets refl ect temporary timing differences in the treatment for tax and accounting of the Group’s trading losses and share-based payments charge.
Deferred tax liabilities largely refl ect timing differences in the treatment of accelerated research and development tax credits on product development
costs.
The Group’s warranty provision at 31 December 2019 amounted to £3.5 million (2018 restated: £3.1 million) of which £1.5 million is expected to
be utilised within twelve months of the balance sheet date. This provision predominantly covers the expected costs of replacing smoke alarm
products over the next three to four years where an issue in certain batteries provided by a third-party supplier, announced in April 2016, may cause a
premature low battery warning chirp and increased during the year as explained above.
Cash
The Group ended the year with net debt (before lease obligations) of £4.9 million at 31 December 2019 (2018: net debt £4.4 million).
The movement in net debt (before lease obligations) during the year is refl ected in the statement of fi nancial position as follows:
P
e
r
f
o
r
m
a
n
c
e
r
e
v
e
w
i
Increase in cash balances and net cash infl ow
Drawdown of invoice discounting facility
Repayment of revolving credit facility
Increase in net debt (before lease obligations)
£m
(0.8)
7.0
(5.7)
0.5
The net cash infl ow of £0.8 million in the year is summarised in the table below. The most signifi cant non-operating cash fl ow items include the costs
of the warranty provision and other non-underlying items totalling £2.4 million, capital expenditure of £3.7 million as described above, and the cash
fl ows in relation to the fundraising and restructure of bank facilities described below.
On 16 April 2019, the Company raised £6.0 million through the issue of 30,000,000 new ordinary shares at an issue price of 20p per share and
incurred fundraising costs of £0.5 million. In conjunction with the fundraising, the Group restructured its borrowing facilities with HSBC and moved
from a revolving credit facility to an invoice discounting and overdraft facility. As such, in the year the Group repaid the £7.0 million loan drawn under
the revolving credit facility, £1.3 million of which had been drawn since the beginning of the period, and drew down £7.0 million of invoice
discounting facility.
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
15
2019
2018 Restated
£m
(11.0)
0.9
2.6
1.7
0.7
1.8
-
-
0.1
(3.2)
£m
(5.9)
-
-
1.1
-
-
0.9
1.7
0.1
(2.1)
2019
2018 Restated
£m
(11.0)
0.3
3.4
2.6
1.7
0.7
1.8
-
-
0.1
(0.4)
£m
(5.9)
0.1
1.1
-
1.1
-
-
0.9
1.7
0.1
(0.9)
P
e
r
f
o
r
m
a
n
c
e
r
e
v
e
w
i
Performance review
Group fi nancial results continued
Underlying operating loss1
Depreciation and amortisation charges
(Increase)/decrease in working capital
Decrease/(increase) in fair value of derivatives
Cash (used by)/from operations before non-underlying payments
Cash cost of warranty provision and other non-underlying items
Cash used by operations
Interest paid (net)
Taxation received
Capital expenditure
Proceeds from share issue (net)
Drawdown of invoice fi nance
Drawdown of loan
Repayment of loan
Loan restructuring costs
Lease payments
Net cash fl ow
2019
2018
Impact of change to straight line amortisation
Underlying loss before tax
Reported loss before tax
£m
(2.9)
2.5
(0.4)
0.6
(0.2)
(2.4)
(2.6)
(0.4)
1.2
(3.7)
5.5
7.0
1.3
(7.0)
(0.2)
(0.3)
0.8
£m
(2.0)
1.1
2.1
(0.6)
0.6
(2.2)
(1.6)
(0.1)
-
(6.0)
-
-
5.7
-
-
-
(2.0)
Non-underlying items:
- Provision for warranty costs
- Provision against stock and disposal costs
- Restructuring and fundraising costs
- Impairment of intangible assets
- Incremental production ramp up costs
- Restructure of distribution channels
- Share-based payments charge
Underlying loss before tax
Underlying EBITDA
Reported loss before tax
Finance costs
Depreciation and amortisation
Non-underlying items:
- Provision for warranty costs
- Provision against stock and disposal costs
- Restructuring and fundraising costs
- Impairment of intangible assets
- Incremental production ramp up costs
- Restructure of distribution channels
- Share-based payments charge
Underlying EBITDA
1 Underlying operating loss in 2019 of £2.9 million is before the impact of the change to straight line amortisation of £0.9 million and before non-
underlying items of £6.9 million (2018: underlying operating loss of £2.0 million before non-underlying items of £3.8 million).
Use of non-GAAP fi nancial performance measures
Certain disclosures and analyses set out in this Annual Report and Accounts include measures which are not defi ned by generally accepted
accounting principles (‘GAAP’) under EU-adopted IFRS. We believe this information, along with comparable GAAP measurements, is useful
to investors. Management uses these fi nancial measures, along with the most directly comparable GAAP fi nancial measures, in evaluating our
operating performance. Non-GAAP measures should not be considered in isolation from, or as a substitute for, fi nancial information presented in
compliance with GAAP.
In the following table we provide a reconciliation of this and other non-GAAP measures, as defi ned in the Performance Review on pages 12 to 17, to
relevant GAAP measures:
Net cash
Underlying profi t measures
Adjusted gross profi t
Reported gross profi t
Non-underlying items:
- Provision for warranty costs
- Provision against stock and disposal costs
Adjusted gross profi t
Adjusted gross margin percentage
Adjusted gross margin percentage is the adjusted gross profi t (as defi ned above) as a proportion of revenue.
Underlying operating loss
Reported operating loss
Impact of change to straight line amortisation
Non-underlying items:
- Provision for warranty costs
- Provision against stock and disposal costs
- Restructuring and fundraising costs
- Impairment of intangible assets
- Incremental production ramp up costs
- Restructure of distribution channels
- Share-based payments charge
Underlying operating loss
16
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
2019
£m
2018 Restated
£m
4.4
2.6
1.7
8.7
7.6
-
1.1
8.7
Net cash is considered to be a non-GAAP measure as it is not defi ned in IFRS. The most directly comparable IFRS measure is the aggregate of loans
and other borrowings (current and non-current) and cash and cash equivalents. This is the calculation used by the Group to measure net cash.
Post balance sheet events
On 23 March 2020, the Company announced details of an open offer and placing to raise approximately £6.1 million to strengthen its balance sheet,
execute self-help plans to improve gross margin, deploy and support the connected homes technology and fund part of the additional expected
liabilities for the Company’s legacy battery warranty issue fi rst identifi ed in 2016. On 8 April 2020, the Company issued 50,623,480 new ordinary
shares at 12 pence per share as a result of valid acceptances under the open offer and placing. The Company’s share capital consequently increased
to 126,558,845 ordinary shares.
The impact of COVID-19 is described in detail in the Executive Chairman’s statement on page 9 and within the Going Concern accounting policy.
2019
2018 Restated
Mike Stilwell - Group Finance Director
26 May 2020
£m
(10.7)
0.9
2.6
1.7
0.7
1.8
-
-
0.1
(2.9)
£m
(5.8)
-
-
1.1
-
-
0.9
1.7
0.1
(2.0)
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
17
Governance
Board of Directors and Company Secretary
At the date of this report, FireAngel’s Board of Directors comprises four Non-Executive Directors and two Executive Directors, including the Executive
Chairman. Membership of the Audit Committee is made up solely of certain of the Independent Non-Executive Directors. Membership of the
Remuneration Committee includes the Executive Chairman.
The Board has the breadth and depth of skills necessary to guide the Group as it seeks to take full advantage of new opportunities and contend with
new challenges. A brief biography of each of the current Directors is set out below:
Non-Executive Directors
John Shepherd
Senior Independent
Non-Executive Director
AGED 66
Simon Herrick
Non-Executive Director
AGED 56
Executive Directors
John Conoley
Executive Chairman
AGED 59
Mike Stilwell
Group Finance Director
AGED 44
Mike joined FireAngel in December 2018 as Group Finance Director,
after previously spending six years with AIM-listed Synectics plc, the
last four of which as Group Finance Director. Prior to this, he held senior
fi nance roles with the Saint-Gobain Group, Coventry Building Society
and the Caparo Group. Mike qualifi ed as a Chartered Accountant with
KPMG and has a fi rst-class degree in Accounting and Financial Analysis
from the University of Warwick.
John was appointed as Non-Executive Chairman of the Board on
22 January 2019. With effect from 1 August 2019, following the resignation
of Neil Smith as Group Chief Executive, John was appointed Executive
Chairman. He brings signifi cant executive and non-executive Board-level
experience of both fully-listed and AIM-quoted businesses. John began his
career in the IT industry with IBM in 1983, and worked in a range of industries
in technical, sales, and marketing roles. Since then, John has held general
management and director-level roles in small and medium-sized private and
public companies. Recent public company roles include Chief Executive
Offi cer of Psion PLC,
the fully-listed international mobile device company, from April 2008 to
October 2012 when it was sold to Motorola; and Non-Executive Director
of NetDimensions (Holdings) Limited, the AIM-quoted human capital
management software company, from October 2016 to April 2017 when it was
sold to Learning Technologies plc. Current roles comprise Non-Executive
Chairman of Wameja Limited, the AIM and ASX quoted innovative mobile
fi nancial services company, and related to that role John serves as a Non-
Executive Director of HomeSend SCRL,
the company jointly owned by Wameja Limited and Mastercard; and
Non-Executive Chairman of Parity Group plc, the AIM-quoted professional
recruitment and IT services company to which he was appointed in April 2017.
Company Secretary
Zoe Fox
Company Secretary
AGED 47
Zoe was appointed as Company Secretary to the Board during 2019.
She is Finance Director of the Group’s principal subsidiary, a role which
she has held since 2010. Prior to this she held the Finance Director
position in BRK Brands Europe Limited, part of the Jarden Corporation.
Zoe qualifi ed as an Accountant in 2004 and has a degree from the
University of South Bank, London.
18
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
John began his career at British Aerospace where he held various
systems and software engineering management positions. In 1990
he joined Smiths Industries where, as Managing Director of the
Smiths Detection division, he was responsible for building a world-
leading transport, security and military detection systems business.
Subsequently, he was appointed as Chief Executive of First Technology
Group plc where he built up a substantial gas sensor and detection
systems business prior to the company being acquired by Honeywell.
From 2008 until 2014, John served as Chief Executive of Synectics plc,
an AIM-listed leader in the design, integration, control and management
of advanced surveillance technology and networked security systems.
John succeeded William Payne as the Company’s Senior Independent
Non-Executive Director on 24 September 2019.
Simon joined the FireAngel Board on 24 September 2019. He has
signifi cant experience in senior fi nance and operational roles including
as Chief Financial Offi cer of Debenhams plc, Chief Executive Offi cer
and Chief Financial Offi cer of Northern Foods plc, Chief Financial
Offi cer of Darty plc and Chief Financial Offi cer at PA Consulting Limited.
Simon has most recently pursued a plural career and is a Non-Executive
Director of Ramsdens plc and has undertaken a number of consultancy
projects in a broad range of companies and sectors, most recently as
Interim Chief Executive Offi cer of Blancco Technology Group PLC.
Simon is a Fellow of The Institute of Chartered Accountants in England
and Wales having qualifi ed at Price Waterhouse in London and holds an
MBA from Durham University.
G
o
v
e
r
n
a
n
c
e
Ashley Silverton
Non-Executive Director
AGED 60
Graham Whitworth
Non-Executive Director
AGED 65
Ashley was appointed to the Board in February 2011. He has worked
for Brewin Dolphin and its predecessor fi rms for more than 30 years
and has represented Brewin Dolphin at the National Association of
Pension Funds. Having joined a City-based stockbroking partnership
after graduation, he was elected to Membership of the Stock Exchange
in 1985 and is a Fellow of the Chartered Institute for Securities
& Investment. Throughout his career, Ashley has specialised in
investment management for private clients and charities. He has served
as a committee member of the FTSE/WMA Private Investor Indices
and was previously Head of the Brewin Dolphin London offi ce and
a member of the Advisory Board. Subsequent to the year end, on 5
February 2020, it was announced that Ashley would step down from the
Board at the Company’s forthcoming Annual General Meeting.
Prior to investing as a seed investor in the business, Graham developed
a diverse set of international business skills from the corporate
boardroom to his own start up. Graham has worked in a number of
technology businesses, initially in engineering and then IT-based
design technology roles, where he led a number of strategic initiatives
and directed many multi-million dollar contracts with leading blue chip
companies across a diverse set of industries with ComputerVision
Corporation, a leading US CAD/CAM provider. From the late 1980s
Graham was Sales Director, Managing Director and then Executive
Vice-President, before leaving in 1997. In 1998, Graham started his
own company which he later merged with Division Plc. He became
Managing Director before disposing of the enlarged business to
Parametric Technology in 2000. Graham led the original Sprue
Aegis (now FireAngel) IPO and until February 2016 was the Group
Chief Executive and Chairman. He subsequently undertook the
role of Executive Chairman until 22 January 2019, on which date he
transitioned to the role of Executive Director. Subsequent to the year
end, on 5 February 2020, it was announced that Graham would become
a Non-Executive Director on the release of the Company’s audited
fi nancial results for the year ended 31 December 2019. He will continue
to have Business Development responsibilities, in particular working to
exploit FireAngel’s strong IP portfolio globally.
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
19
Governance
Corporate governance report
“The Board is committed to ensuring the highest standards of
corporate governance are maintained. During 2019 the Board
reviewed the extent of compliance with the Quoted Companies
Alliance Corporate Governance Code for small and mid-size quoted
companies with the aim to move to full compliance in due course.”
John Conoley - Executive Chairman
Introduction
The Board of FireAngel places great importance on effective corporate governance. This is refl ected in our governance principles, policies and
practices. We believe that effective governance, not only in the boardroom but right across the business, ultimately supports an organisation in
improving long-term fi nancial performance. Central to this is the Group’s culture. We work hard across the organisation to ensure that we operate
with high standards of moral and ethical behaviour and that this expectation is clear at all levels, in the way we work, in the way we reward, and in
everything we do.
We are rightly proud of our culture and the high standards with which our employees and the business acts. We also recognise that culture does not
stand still. It must evolve as the business grows and as the environment changes to ensure our behaviours remain aligned with our size, structure and
interests of our stakeholders. Culture is a continuous journey and we must invest in our people and structures to ensure this remains central to driving
behaviours as the business grows.
During 2018 the Board conducted its fi rst review of the Company’s corporate governance policies and procedures to ensure it was compliant with the
reporting changes that came into effect in September 2018. The Board has fully adopted, and is working towards full compliance with, the Quoted
Companies Alliance Corporate Governance Code (‘the Code’) for small and mid-size quoted companies.
The extent of compliance with the ten principles that comprise the Code was most recently reviewed by the Board on 16 December 2019. The
results of this review, together with an explanation of any areas of non-compliance, and any steps taken or intended to be taken to move towards full
compliance, are set out below:
Principle
Deliver growth
Current
compliance
Comment and disclosures
1
2
3
4
Establish a strategy and business model
which promote long-term value for
shareholders
Full
The Group’s business model and strategy, together with the key risks to achieving these goals,
and mitigating actions taken, are documented in the Introduction, Strategic review and Risks
and risk management sections of this Annual Report. These disclosures are supplemented by
information in the About Us section of our website www.fi reangeltech.com.
Seek to understand and meet shareholder
needs and expectations
Full
The Group’s approach to engagement with shareholders is documented in the Investor
relations section of this Corporate governance report of this Annual Report. The success of
this engagement is measured through approval of shareholder resolutions recommended by
the Board. This is communicated in the Regulatory announcements section of the Investors
area of the Group’s website www.fi reangeltech.com.
Take into account wider stakeholder and
social responsibilities and their implications
for long-term success
Full
The Group’s approach and actions in relation to wider stakeholder involvement and social
responsibilities are detailed in the Corporate social responsibility section and Statutory
Directors’ report of this Annual Report.
Embed effective risk management,
considering both opportunities and threats,
throughout the organisation
Full
The Group’s internal control environment and system of risk management, including the key
risks to which the Group is exposed, are documented in this Corporate governance report
and the Risks and risk management section of this Annual Report.
Maintain a dynamic management framework
5
Maintain the Board as a
well-functioning, balanced
team led by the chair
Partial
The role, composition and independence of the Board are documented in this Corporate governance report of this
Annual Report and supplemented by information in the Directors section of the Investors area of our website
www.fi reangeltech.com.
Since the publication of the Annual Report and Accounts 2018, it was announced on 30 July 2019 that Neil Smith, the
Group Chief Executive, would be leaving the Company with effect from 31 July 2019 and, with effect from 1 August
2019, John Conoley, the Company’s Chairman, would be appointed as Executive Chairman. Graham Whitworth,
part-time Executive Director of the Company, had agreed to extend his tenure as an Executive Director until January
2021. Zoe Fox was appointed Company Secretary on 17 September 2019. In addition, on 24 September 2019, it
was announced that Simon Herrick had joined the Company as a Non-Executive Director replacing William Payne
who resigned with immediate effect. Simon succeeded William in chairing the Company’s Audit and Remuneration
Committees and John Shepherd succeeded William as Senior Independent Non-Executive Director. Subsequent
to the year end, on 5 February 2020, it was announced that Graham Whitworth would become a Non-Executive
Director on the release of the Company’s audited fi nancial results for the year ended 31 December 2019.
The Board recognises that the primary responsibility of the chair is to lead the Board effectively and to oversee
the adoption, delivery and communication of the Company’s corporate governance model. There should be
adequate separation from the day-to-day business to be able to make independent decisions. The chair should not
normally also fulfi l the role of chief executive. This separation of roles existed in the Company from John Conoley’s
appointment as Non-Executive Chairman on 22 January 2019 until his appointment as Executive Chairman on 1
August 2019 after the departure of the Chief Executive, Neil Smith. The Nominations Committee considered carefully
the appropriateness of the joint role and concluded that John’s skillset and experience were well matched to the
current requirements of the Company as it transitioned to become a provider of safety-critical connected home
solutions. The joint role, discussed beforehand with major shareholders, is expected to be short to medium term
in tenure until the Company has moved further in its transition described above, at which point it is the intention to
appoint a Chief Executive with skills appropriate for the challenges of the transitioned business. In addition, Board
independence and structure, particularly with more recent changes in composition, are considered to be suffi ciently
robust to ensure that independent decisions can be made despite increased day-to-day involvement by the chair.
The experience and skills of each Director are described in the Board of Directors section of the Governance
section of this Annual Report and supplemented by information in the Directors section of the Investors area of our
website www.fi reangeltech.com. The roles of the Senior Independent Non-Executive Director and the Company
Secretary, together with a description of the ongoing education of the Directors, are detailed in this Corporate
governance report of this Annual Report.
Given the changes in Board composition during 2019, it was concluded that a formal process for evaluating the
Board would be undertaken by the Nominations Committee during 2020 when new structures and relationships
had been established. However, the understanding, effectiveness and contribution of each Director is kept under
constant review by the Chairman with each Director’s performance being reviewed before any proposal for re-
election at the Annual General Meeting.
The promotion of the Group’s corporate culture is evident in everything the Group does. This can be seen in our
Business Model in the Introduction section of this Annual Report, in the Corporate and social responsibility section
and addressed specifi cally in the Chairman’s Introduction to this Corporate governance report.
The Board structure, its committees, their roles and members, and the roles of Directors with specifi c remits, are
described in this Corporate governance report and in the individual committee reports of this Annual Report. The
terms of reference of the committees are detailed in the Resources section of our website www.fi reangeltech.com.
G
o
v
e
r
n
a
n
c
e
The Group’s approach and actions in relation to wider stakeholder engagement are detailed in the Statutory
Directors’ report of this Annual Report. Details of all shareholder communications are provided on the Group’s
website, including historical annual reports, general meetings and the outcome of all general meeting votes. The
Group’s regulatory RNS and RNS Reach announcements are also listed in the Regulatory announcements section
of the Investors area of our website www.fi reangeltech.com.
6
7
8
9
Build trust
10
Full
Partial
Full
Full
Full
Ensure that between
them the directors have
the necessary up-to-date
experience, skills and
capabilities
Evaluate board
performance based
on clear and relevant
objectives, seeking
continuous improvement
Promote a corporate
culture that is based
on ethical values and
behaviours
Maintain governance
structures and processes
that are fi t for purpose and
support good decision-
making by the board
Communicate how the
company is governed
and is performing by
maintaining a dialogue with
shareholders and other
relevant stakeholders
The Group’s corporate governance disclosures include the Corporate Governance Report, the Audit Committee Report and the Remuneration
Committee Report.
Leadership and operation of the Board
The Board has ten full meetings scheduled in a year, with attendance in person expected where possible. Occasionally, Board members may join by
telephone if other commitments prevent attendance in person. In addition, ad hoc board meetings are called to address exceptional or administrative
matters.
All Directors are expected to devote such time as is necessary for the proper performance of their duties. After taking into consideration the
availability and time commitment demanded of individual members, the Chairman was satisfi ed that the members of the Board were able to devote
suffi cient time and resource to perform their roles for the Group.
The ‘chief operating decision making’ authority is the Board which delegates day-to-day responsibility for managing the Group to the Executive
Management Team (‘EMT’) led by the Executive Chairman. The Executive Chairman leads the weekly trading review meetings of the Group to ensure
operational targets are met or exceeded. Details of the EMT and trading review meetings are set out below.
The EMT is responsible for developing and implementing the strategy approved by the Board and led by the Executive Chairman. In particular,
it is responsible for ensuring that the Group’s budget and forecasts are properly prepared, that targets are met, and for generally managing and
developing the business within the overall budget. Any changes in strategy or signifi cant deviation from budget require explanation to, and approval
of, the Board.
The EMT typically meets weekly and comprises the two Executive Directors, with other senior managers attending as appropriate.
20
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
21
Governance
Corporate governance report continued
Three business unit directors collectively manage the Group’s fi ve business units. They report into, and meet with, the Executive Chairman.
Trading review meetings are also held weekly and include key managers from each of the departments across the business. Business unit reviews
are typically held once per quarter and together with the trading review meetings, this provides the forum for the Executive Chairman to ensure
a consistent implementation of FireAngel’s business agenda across the organisation. Business unit meetings are also attended by other senior
departmental managers as required.
On 17 September 2019, Zoe Fox was appointed Company Secretary of the Group. All Directors have access to the advice and services of the
Company Secretary. Both the appointment and removal of the Company Secretary are matters reserved for the Board. All Directors have the benefi t
of directors’ and offi cers’ liability insurance and are entitled to take independent professional advice at the Group’s expense. The Directors keep their
skills up-to-date through regular updates from the Group’s advisory team, review of relevant publications, and attendance at appropriate seminars
and market updates.
On 24 September 2019, John Shepherd succeeded William Payne as Senior Independent Non-Executive Director of the Group following William’s
resignation from the Board. John provides a communication channel between the Chairman and the Non-Executive Directors and is available to
discuss matters with shareholders when required.
The Board agenda
The Board’s responsibilities include:
• setting and monitoring the strategic objectives of the Group and reviewing individual management performance;
• monitoring the risks to achieving the strategic objectives;
• providing entrepreneurial leadership within a framework of prudent and effective controls for risk assessment and management;
• ensuring that appropriate resources are in place and being managed effectively for the Group to create long-term shareholder value; and
• approving annual budgets and investments in the Group’s technology roadmap.
The agenda for each Board meeting is reviewed by the Chairman to ensure that suffi cient time is given to consideration of the most signifi cant issues.
The Board receives the minutes of all Board Committee meetings at the next Board meeting following the Board Committee meeting. The culture
of the Board is such that Non-Executive Directors are encouraged to constructively challenge the performance of management through rigorous
discussion and debate in meeting the goals and objectives agreed to achieve the Group’s strategy.
Board meetings
During 2019 matters dealt with by the Board included:
• review and monitoring of Group strategy and progress against
• review of corporate governance matters and reporting including a
business objectives;
• operational and fi nancial performance of the Group;
• approval of the Group’s budget;
• approval of fi nancial statements and dividend policy;
• risk management oversight;
• Board and senior management succession planning;
• approval of large contracts and bids;
• consideration of Audit and Remuneration Committee reports and
recommendations;
review of compliance with the Quoted Companies Alliance Corporate
Governance Code for small and mid-size quoted companies, fi rst
adopted during 2018;
• review of the Group’s plans in relation to Brexit;
• the re-appointment of RSM UK Audit LLP as external auditor, upon
the recommendation of the Audit Committee; and
• reviewing the Group’s product development roadmap and
technological developments in the industry.
Excluding ad hoc Board meetings for general administrative matters, the number of Board and Board
Committee meetings attended in person or by telephone is set out as follows:
JR Conoley - Executive Chairman
SE Herrick1 - Chairman of Audit and Remuneration Committees
WJB Payne2
NA Rutter
J Shepherd
AV Silverton
NC Smith3
MJ Stilwell
GRA Whitworth
1. Number of meetings eligible to attend after appointment, Board: two; Audit Committee: nil; Remuneration Committee: one
2. Number of meetings eligible to attend before resignation, Board: eight; Audit Committee: two; Remuneration Committee: four
3. Number of meetings eligible to attend before resignation, Board: six
22
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
Total number of meetings
Board
Audit
Committee
Remuneration
Committee
10
2
8
10
10
9
6
10
10
-
-
1
-
2
2
-
-
-
5
1
4
-
5
4
-
-
-
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Board Committees
The Group has two standing Board Committees:
an Audit Committee and a Remuneration
Committee. The roles and activities of those
Committees are included in the respective
Committee reports on pages 25 to 30.
The functions of a nominations committee are
generally undertaken by the Group Board as
a whole. Given the size of the Group and the
size and composition of its Board, the Directors
believe it is both practical and benefi cial for
matters of Board composition and recruitment,
Board performance evaluation, Executive and
Non-Executive succession planning, and training
and development, to be undertaken by the Board
as a whole unless it is necessary and appropriate
for a separate nominations committee to be
established for the most senior appointments.
All such matters are regularly scheduled on the
Board’s agenda and are discussed thoroughly
and robustly, incorporating the detailed
perspectives and experience of all Directors.
Directors’ confl icts of interest
Training on the Companies Act 2006 has been
given to all Directors on the provisions within,
and Directors are reminded of their duties at each
Board meeting. All Directors maintain confl icts
of interest declarations and any planned changes
in their interests, including directorships outside
the Group, are notifi ed to the Board. None of
the relationships declared are considered to be
of a detrimental nature to FireAngel’s business
and as such none are deemed to impact on the
independence of the Directors. Any confl icts are
declared at the fi rst Board meeting at which the
Director becomes aware of a potential confl ict.
The benefi cial interests of all Directors in the
share capital of the Company are set out on page
32 of the Annual Report.
Effectiveness and ensuring the Board
is effective
The Board has considered the overall balance
between Executive and Non-Executive Directors
and believes that the structure of the Board, with
two Executive and four Non-Executive Directors,
ensures that there is no one individual or interest
group dominating the decision-making process.
The independence of all Non-Executive
Directors is reviewed and evaluated annually
as part of the appraisal of each Director. Ashley
Silverton, John Shepherd and Simon Herrick
have served on the Board for eight years, four
years and less than one year respectively. The
Board considers each of the Non-Executive
Directors to be independent. This is because
each has different and complementary skills
and experiences which allow each issue facing
the Board to be viewed and addressed from a
variety of perspectives. The lengths of service
of Ashley Silverton and John Shepherd have
positively impacted the effectiveness of the
Board through their knowledge of the Group, and
of the home safety products industry, their tenure
has afforded. Subsequent to the year end, on 5
February 2020, it was announced that Graham
Whitworth would become a Non-Executive
Director on the release of this Annual Report and
that Ashley Silverton would step down from the
Board at the Company’s forthcoming Annual
General Meeting.
The Board considers that its size and
composition are appropriate and that the
balance of qualifi cations and experience
appropriately refl ects the fi nancial, sector
specifi c, technology and general international
business skills required for it to discharge its
duties and responsibilities effectively.
In advance of each meeting, Board members
are provided with accurate, timely and clear
information including operational updates and
details of the fi nancial performance and position
of the Group. In this way, informed decisions
and discussions can take place which enable the
Board to properly discharge its duties.
Should they wish to, Non-Executive Directors are
able to infl uence agendas for Board discussions
and to ensure the amount of time spent reviewing
strategic and operational issues is appropriately
balanced. From time to time, the Board meets
off site to review and discuss specifi c business
issues.
In the event that Directors are unable to attend
a meeting or a conference call, they receive
and read the papers for consideration and have
the opportunity to relay their comments to the
Chairman.
All new Directors undertake a formal and
comprehensive induction to the Group which
is designed to develop their knowledge and
understanding of the Group’s culture and
operations. Non-Executive Directors have
regular opportunities to meet with senior
managers to ensure they have a thorough
understanding of the Group, its operations and
markets.
All Directors are expected to devote such time as
is necessary for the proper performance of their
duties. With the exception of Graham Whitworth
whose time commitment is longer, the Non-
Executive Directors’ commitment approximates
to two days per month. Executive Directors are
expected to work full time.
Performance evaluation
The Remuneration Committee regularly reviews
and evaluates the performance of Directors
and senior managers. The most recent review
concluded that the Board and its individual
members continue to operate effectively with
robust constructive challenge from the Non-
Executive Directors.
Subjects covered during the most recent
review included a general overview as to the
operation of the Board, opinions on shareholder
relationships, views on the Board’s input
into strategy discussions, governance and
compliance, risk management and succession
planning. The Board culture and relationships
with senior management were also considered.
Where required, the Executive Chairman holds
meetings with the Non-Executive Directors
without the other Executive Directors present.
The Non-Executive Directors, led by the Senior
Non-Executive Director, meet without the
Chairman present at least once annually to
appraise the Chairman’s performance.
Internal control
The Board acknowledges its responsibility for
safeguarding the investment of shareholders and
the Group’s assets. It has established processes
for identifying, evaluating and managing the
signifi cant risks facing the Group.
The Board has overall responsibility for ensuring
the Group maintains an adequate system of
internal control and risk management, whilst
the Audit Committee reviews its effectiveness
on behalf of the Board. The implementation of
internal control systems is the responsibility of
management.
The Group’s system of internal control is
designed to help ensure:
• the effective and effi cient operation of the
Group by enabling management to respond
appropriately to signifi cant risks to achieving
the Group’s business objectives;
• the safeguarding of assets from inappropriate
use or from loss or fraud and ensuring that
liabilities are identifi ed and managed;
• there is high quality of internal and external
fi nancial reporting;
• compliance with applicable laws and
regulations and with internal policies on the
conduct of the Group’s business; and
• the ability to recover in a timely manner from
the effects of disasters or major accidents
which originate from outside the Group’s direct
control.
The Directors believe the internal control
environment is generally adequate and
appropriate given the size and complexity of the
Group. However, subsequent to the year end it
became clear that there had been failures within
certain of the Group’s historical manufacturing
quality review processes leading to an increase in
the legacy battery warranty provision (see note 8
to the fi nancial statements). The Directors do not
anticipate that there will be any further increase in
the number of units impacted as the issue relates
only to units produced at one of the Company’s
previous manufacturers in China up to the end of
March 2018.
The principal risks and uncertainties facing the
Group, together with mitigating actions taken to
address those risks, are set out on pages 37 to
39. These refl ect the risks of most concern to the
Group, as considered at recent Board and Audit
Committee meetings.
Given the Group’s size and complexity, it does
not have a separate internal audit function. The
external auditor reports to the Audit Committee
(and to the Board) on any controls which, during
the course of its audit work, it has identifi ed
as requiring improvement. The Group then
takes prompt action to address any control
defi ciencies. The Audit Committee reviews the
need for a separate internal audit function on an
annual basis. Its most recent review concluded
that the reporting lines within the Group, and the
level of control exercised by the management
team, are both suffi ciently robust to make an
internal audit function neither necessary nor
cost effective at this time. The Directors have
taken steps to ensure that the Group has an
appropriate control environment for its size and
complexity. The management team will ensure
that the internal control environment develops
appropriately with the size of the Group, with
respect to the identifi cation, evaluation and
monitoring of risk.
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
23
Governance
Corporate governance report continued
Audit Committee report
Investor relations
The Board believes it is important to have open communications with shareholders and seeks to ensure that these are informative and transparent.
The Executive Directors make themselves available to, and expect to meet with, major institutional shareholders at least twice per year to discuss
the published fi nancial results. The Executive Directors also attend private investor seminars and events. From time to time, where appropriate, the
Group may consult with major shareholders on any signifi cant issues.
Members of the Board develop an understanding of the views of major shareholders through direct contact that may be initiated by the Group’s
broker or through shareholder feedback following investor roadshows, and through analysts’ and brokers’ briefi ngs. The Group also regularly hosts
investor days at its Coventry head offi ce and seeks investor feedback on its performance. Where voting decisions are not in line with the Group’s
expectations, the Board will engage with any dissenting major shareholders to understand and address any issues. The Company Secretary is the
main point of contact for such matters.
Whistleblowing procedures
The Board has adopted a whistleblowing policy which provides a mechanism for all employees to raise concerns to the Non-Executive Directors, in
strict confi dence and without recrimination, regarding any unethical business practices, fraud, misconduct or wrongdoing. Any such incident would
be addressed confi dentially by the Audit Committee. There were no whistleblowing reports during 2019 nor to the date of this report.
Anti-bribery and anti-corruption policy
The Board is committed to the fundamental values of integrity, transparency and accountability. As such it seeks to prohibit bribery and corruption
in any form, whether direct or indirect. The Group aims to create and maintain a trust-based and inclusive internal culture in which bribery and
corruption is not tolerated.
The Group would cease to trade with any third party it had reasonable grounds to suspect was involved in bribery or corruption. It would not hesitate
to take legal and/or disciplinary action against employees or third parties who breach the Group’s bribery and corruption policy.
By Order of the Board
John Conoley - Executive Chairman
26 May 2020
On behalf of the Board, I am pleased to present the Audit Committee report for the year ended 31 December 2019, which provides information about
the Audit Committee, its principal duties, and the specifi c matters it has considered during the year.
The Group’s Audit Committee comprises:
• From 24 September 2019, Simon Herrick, Chairman of the Committee, Independent Non-Executive Director, succeeding William Payne,
Independent Non-Executive Director;
• John Shepherd, Senior Independent Non-Executive Director; and
• Ashley Silverton, Independent Non-Executive Director.
All the Committee members are Independent Non-Executive Directors and have no personal or fi nancial interests, other than as shareholders, in the
matters considered by the Committee.
The Audit Committee operates within the remit delegated by the Board, which is set out in formal terms of reference. A copy of the terms of reference
can be obtained from the Corporate Governance section within the Investors area of the Group’s website (www.fi reangeltech.com).
Neither the Chairman nor any other Executive Director attend meetings other than by invitation of the Committee members. The Committee invites
the auditor to attend certain meetings.
In accordance with best practice, the Audit Committee is required to comprise at least one fi nancially qualifi ed member (as recognised by the
Consultative Committee of Accountancy Bodies). I am deemed by the Board to have recent and relevant fi nancial experience as a qualifi ed chartered
accountant with extensive experience in the fi nancing and management of businesses generally.
The Committee’s key objective is the provision of effective fi nancial governance and assistance to the Board in ensuring the integrity of the Group’s
fi nancial reporting. The Committee oversees the external audit process and reviews the Group’s risk management framework, the effectiveness of its
risk management processes and the system of internal control. Its principal duties are to:
• monitor the integrity of the fi nancial statements of the Group and any formal announcements relating to the Group’s fi nancial performance and
review signifi cant fi nancial reporting judgements contained therein;
• consider whether in its view the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary to
assess the Group’s performance, business model and strategy, the ultimate approval of which is decided by the Board;
• review the effectiveness of the Group’s fi nancial reporting and the internal control and risk management policies and systems;
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• review annually, the need for an internal audit function;
• make recommendations to the Board for a resolution to be put to shareholders for their approval in general meeting, on the appointment of the
external auditor and approval of its remuneration and terms of engagement;
• review the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK
professional and regulatory requirements;
• review the appropriateness of accounting policies;
• develop and implement a policy on the engagement of the external auditor to supply non-audit services, taking into account relevant guidance
regarding the provision of non-audit services by the external audit fi rm; and
• review the arrangements by which staff may in confi dence raise concerns about possible improprieties.
Key considerations in 2019
During the year the Committee met twice and considered the following matters:
• the suitability of the Group’s accounting policies and practices;
• the half-year and full-year fi nancial results;
• the scope and cost of the external audit;
• the auditor’s report for 2018;
• the evaluation of the performance and independence of RSM UK Audit LLP as the Group’s external auditor;
• the review and approval of the external auditor’s plan for 2019, which detailed the proposed audit scope and risk and governance assessment;
• the review and approval of the external auditor’s fees for 2019; and
• the internal control environment across the Group.
Signifi cant fi nancial statement reporting issues
The Audit Committee looks carefully at those aspects of the fi nancial statements which require signifi cant accounting judgements or where there
is estimation uncertainty. The Audit Committee also reviews the draft of the external Auditor’s Report on the fi nancial statements, with particular
reference to those matters reported as carrying risks of material misstatement. The Audit Committee discusses the range of possible treatments both
with management and with the external auditor and satisfi es itself that the judgements made by management are robust and should be supported.
24
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
25
Governance
Audit Committee report continued
Remuneration Committee report
Internal controls
Introduction
The Board of Directors, advised by the Audit Committee, has overall responsibility for the Group’s system of internal control and for reviewing its
effectiveness. Details of the system of internal control, the principal risks facing the Group, and the strategies put in place to mitigate them, are set
out in the Risk and Risk Management section on pages 37 to 39.
Audit independence
The Audit Committee and the Board place great emphasis on the objectivity of the external auditor in its reporting to shareholders.
The Audit Partner is present at Audit Committee meetings as required to ensure full communication of matters relating to the audit. The overall
performance of the auditor is reviewed annually by the Audit Committee, taking into account the views of Committee members and senior fi nance
personnel covering overall quality, independence and objectivity, business understanding, technical knowledge, quality and continuity of personnel,
responsiveness and cost effectiveness. The Audit Committee also has discussions with the auditor, without management being present, on the
adequacy of controls and on any judgemental areas. The scope of the forthcoming year’s audit is discussed in advance by the Audit Committee.
Audit fees are approved by the Audit Committee.
RSM UK Audit LLP was appointed as auditor in 2001. This appointment has not been subject to a tender process since that date although, from time
to time, the Board has benchmarked the audit cost with third parties. The Committee has concluded that RSM UK Audit LLP continues to provide an
effective audit and the Committee and Board will recommend their reappointment at the 2020 Annual General Meeting.
Other than the audit, the Audit Committee is required to give prior approval of all work carried out by the auditor and its associates. Part of this review
is to determine that other potential providers of the services have been adequately considered. These controls provide the Audit Committee with
confi dence in the independence of the auditor in its reporting on the audit of the Group.
Non-audit services
RSM UK Audit LLP provides non-audit services to the Group, which are governed, so as to safeguard its independence and objectivity, by the
Group’s non-audit services policy. Compliance with the policy is actively managed and an analysis of non-audit services is reviewed throughout
the year. During the year ended 31 December 2019 28% of services provided to the Group were non-audit services and related predominantly to
corporate tax advice and the preparation of claims for research and development tax credits (see note 9 to the fi nancial statements).
By Order of the Board
Simon Herrick - Chairman of the Audit Committee
26 May 2020
On behalf of the Board, I am pleased to present the Remuneration Committee report for the year ended 31 December 2019, which provides
information about the Remuneration Committee, the remuneration policies approved and applied by the Board, and the actual remuneration of
Directors earned during the year. The report is divided into two sections: a policy report, which sets out the approach to remuneration, and a
remuneration report, which details amounts paid to the Directors during 2019.
Basis of preparation
This report follows the principles of the Companies Act 2006. The Directors have chosen to apply these principles as best practice and in order to
provide greater transparency to shareholders. This includes details of the Committee’s policy on Directors’ remuneration, which will be put to an
advisory vote at the 2020 Annual General Meeting.
Remuneration Committee
The Group’s Remuneration Committee comprises:
• From 24 September 2019, Simon Herrick, Chairman of the Committee, Independent Non-Executive Director, succeeding William Payne,
Independent Non-Executive Director;
• John Conoley, Executive Chairman of FireAngel Safety Technology Group plc;
• John Shepherd, Senior Independent Non-Executive Director; and
• Ashley Silverton, Independent Non-Executive Director.
With the exception of John Conoley, Executive Chairman of FireAngel Safety Technology Group plc, at the date of this report the Committee
members are Independent Non-Executive Directors and have no personal or fi nancial interests, other than as shareholders, in the matters considered
by the Committee.
The Remuneration Committee operates within the remit delegated by the Board, which is set out in formal terms of reference. The remuneration
of Non-Executive Directors is a matter for the Chairman and the other Executive members of the Board. No Director or manager is involved in any
decision regarding their own remuneration. A copy of the terms of reference can be obtained from the Corporate Governance section within the
Investors area of the Group’s website (www.fi reangeltech.com).
Other than John Conoley’s membership of the Committee described above, the Executive Directors do not attend meetings other than by invitation
of the Committee members and are not present at any discussion of their own remuneration.
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Remuneration philosophy
The Remuneration Committee’s policy is to attract and retain individuals of the highest calibre by offering remuneration competitive with comparable
publicly quoted companies, and to drive the Group’s fi nancial performance by providing arrangements which fairly and responsibly reward
individuals for their contribution to the success of the Group. Performance-related bonuses and long-term equity-based remuneration linked to a
demanding profi t target represent a signifi cant proportion of Executive Directors’ potential remuneration, which aligns the interests of the individuals
with those of the shareholders.
The Committee continues to seek to ensure that the remuneration of Executive Directors, as well as the wider senior management team, is suffi cient
to attract, retain and motivate quality individuals. The principal duties of the Remuneration Committee are to:
• consider and make recommendations to the Board on the policy for the remuneration package of the Executive Directors;
• determine the whole remuneration package for Senior Executives;
• recommend to the Board the remuneration package for the Chairman;
• determine the terms and conditions of service contracts for Senior Executives;
• determine the design, conditions and coverage of the annual long-term incentive schemes for Senior Executives and to approve total and
individual payments under these schemes;
• determine targets for any annual and long-term incentive schemes;
• determine the issue and terms of all share-based plans available to all employees; and
• determine compensation in the event of termination of service contracts of any Senior Executive.
Remuneration policy framework
The Group is committed to achieving sustained improvements in performance. This depends crucially on the individual contributions made by
the executive team and by employees at all levels. The Board believes that an effective remuneration strategy plays an essential part in the future
success of the Group. Accordingly, the remuneration policy refl ects the following broad principles:
• the remuneration of Executive Directors and senior managers refl ects their responsibilities and contains incentives to deliver the Group’s
performance objectives without encouraging excessive risk taking;
• remuneration must be capable of attracting and retaining the individuals necessary for business success;
• remuneration should be based on both individual and Group performance, both in the short and long term;
• the system of remuneration should establish a close alignment of interest between senior executives and shareholders by ensuring a signifi cant
proportion of senior executive remuneration is generated from equity-based incentives; and
• when determining remuneration, the Committee will take into account pay and employment conditions in the market.
26
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
27
Governance
Remuneration Committee report continued
Details of the Directors’ emoluments are given below.
a) Remuneration
The Group has a clearly defi ned strategy to drive the business forward by understanding the product needs of our customers, focussing on product
innovation and working to develop market-leading positions in each of the markets we serve. Our remuneration policy supports the delivery of this
strategy and aligns the interests of Directors and shareholders. This is achieved by short-term profi t-based bonus incentives and longer-term share-
based incentive plans which focus on delivering key business objectives, profi table growth and strong shareholder returns.
The Committee monitors the market competitiveness of the overall remuneration package for each member of the Group’s senior management team
in order to ensure the Group is able to retain and attract new talent as required.
Group employee considerations
The Group employs people across fi ve countries with the majority of staff based in the UK. Inevitably remuneration arrangements differ to refl ect local
markets, but a common theme applied to employees at all levels is the Group’s aim to offer competitive levels of remuneration, benefi ts and incentives to
attract and retain employees. At more senior levels, remuneration has a larger variable proportion dependent on the Group’s fi nancial performance.
Shareholder views
The Committee has considered the guidance provided by shareholder advisory groups in preparing this policy and has followed this insofar as it
is appropriate in the context of the Group’s business. The Committee continues to welcome an open dialogue and input from shareholders on the
remuneration policies of the Group.
Key considerations in 2019
During the year the Committee met fi ve times and considered the following matters:
• approval of 2019 salary increases for the Executive Directors and certain senior managers;
• approval of the 2019 discretionary bonus scheme for certain senior managers and Executive Directors;
• consideration of the terms and conditions for Executive Director and Non-Executive Director appointments; and
• approval of the performance criteria and share option awards under the FireAngel Safety Technology Group 2015 Long-Term Incentive Plan.
The following tables set out the key elements of the Group’s remuneration policy for Directors.
Remuneration policy for Non-Executive Directors
Element Purpose and link to strategy Operation
Maximum opportunity
Performance measures
Fees
To reward individuals for
fulfi lling the relevant role
and to attract individuals
with the skills and calibre
required
The Committee makes recommendations to the
Board on the remuneration of the Non-Executive
Directors. The level of remuneration is set within a
limit approved from time to time by shareholders.
Non-Executive Directors are paid a base fee
covering Board and committee membership
Fees are set at a level appropriate for the
role and are reviewed regularly, taking into
account fees payable to Non-Executive
Directors of companies of a similar size and
complexity
Evaluation of overall
contribution to the Board
Remuneration policy for Executive Directors
Element
Purpose and link to strategy Operation
Maximum opportunity
Salary
It is essential that the
Group pays competitive
salaries to attract and
retain individuals of the
right calibre to develop
and execute the business
strategy
Salary levels are set using careful
judgement, taking into account the
scope of the role and responsibilities,
performance, experience, potential,
retention issues and salaries elsewhere
in the Group and in the market place.
Judgement will be informed, but not
led, by reference to companies of
similar size and complexity. Salaries
are reviewed annually either in March
or October taking into account the
fi nancial performance of the Group.
Salary increases are not automatic.
In exceptional circumstances, salaries
may be increased on other dates in
the year
Annual salary increases will not normally exceed
average increases for employees in other
appropriate parts of the Group. On occasion,
increases may be larger where the Committee
considers this to be necessary to align with
market rate or exceptional performance.
Circumstances where this may apply include:
growth into a role to refl ect a change in scope
of role and responsibilities or where market
conditions indicate lack of competitiveness and
the Committee judges that there is a risk in relation
to attracting or retaining Executives. Where the
Committee exercises its discretion to award
increases above the average for other employees,
the resulting salary will not exceed the competitive
market range
Performance measures
Overall contribution to
the Group. Individual
performance is the
primary consideration in
setting salary alongside
overall affordability and
market competitiveness
Benefi ts
Pension
To provide market
competitive benefi ts
suffi cient to recruit and
retain
To provide market
competitive pension
arrangements suffi cient to
recruit and retain
Benefi ts include life assurance and
medical insurance
Benefi ts will be market competitive taking into
account the role and the local market
None
New Executive Directors to the
Company are offered membership
of the Group’s defi ned contribution
pension plan. Pension contributions
are based only on an individual’s salary
The maximum employer contribution to
the Group’s defi ned contribution pension
arrangements is 10% of gross salary
None
Annual
performance
related
bonus
To incentivise and reward
execution of the business
strategy, delivery of
fi nancial performance
targets and the Group’s
strategic plan
In line with the scheme covering other
senior members of staff, performance-
related bonuses for the Executive
Directors are based on the achievement
of specifi c fi nancial targets for the
Group and agreed personal objectives
Bonus potential is capped at an appropriate level
to encourage outperformance of budgeted targets
Bonus payments are
at the discretion of
the Remuneration
Committee and take
into account the overall
fi nancial performance
of the Group
Executive Directors
JR Conoley3 (appointed 22 January 2019)
JR Gahan (resigned 5 March 2018)
NA Rutter (resigned 5 February 2020)
NC Smith (resigned 31 July 2019)
MJ Stilwell (appointed 3 December 2018)
GRA Whitworth4
Non-Executive Directors
SE Herrick (appointed 24 September 2019)
WJB Payne (resigned 24 September 2019)
J Shepherd
AV Silverton
Total
Salary, fees
and car
allowances
Benefi ts
Bonuses1
Pension
allowance2
£000
£000
£000
£000
2019
Total
£000
2018
Total
£000
140
-
187
138
179
219
10
31
36
36
976
-
-
5
3
3
8
-
-
-
-
19
-
-
-
-
-
-
-
-
-
-
-
-
-
18
12
17
-
-
-
-
-
140
-
210
153
199
227
10
31
36
36
47
1,042
-
34
206
292
16
224
-
42
39
36
889
1. Bonuses are paid or accrued based on the achievement of agreed personal objectives and corporate performance metrics.
2. Pension allowance includes both contributions to the Group’s defi ned contribution pension scheme and cash payments in lieu of contributions.
3.
John Conoley was appointed as Non-Executive Chairman of the Board on 22 January 2019. With effect from 1 August 2019, following the resignation of Neil Smith as Group Chief Executive, John
was appointed Executive Chairman.
4. On the appointment of John Conoley on 22 January 2019, Graham Whitworth’s role changed from Executive Chairman to Executive Director.
b) Share schemes
Directors’ interests in unvested and vested share option awards are as follows:
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2014 EMI
NA Rutter
GRA Whitworth
2015 LTIP
JR Conoley
NA Rutter
MJ Stilwell
Number of
awards over
shares at 1
January 2019
Awards
granted in the
year
Awards
lapsed in the
year
Awards
exercised in
the year
Number of
awards over
shares at 31
December
2019
Expiry date
Exercise price
(pence)
125,000
125,000
-
-
-
-
-
1,500,000
250,000
750,000
-
-
-
-
-
-
-
-
-
-
125,000
28/4/2024
125,000
28/4/2024
1,500,000
250,000
750,000
2/8/2029
2/8/2029
2/8/2029
200
200
2
2
2
Further information on the Group’s share schemes are given in note 31 of the fi nancial statements.
c) Service contracts
There are no service contracts for Directors with notice periods in excess of twelve months. The notice periods under the service agreements for
Executive Directors and letters of appointment for Non-Executive Directors are as follows:
JR Conoley
SE Herrick
NA Rutter
J Shepherd
AV Silverton
MJ Stilwell
GRA Whitworth
Notice period
6 months
3 months
12 months
3 months
3 months
6 months
12 months
28
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
29
Governance
Remuneration Committee report continued
Statutory Directors’ report
Policy on exit payments
The notice periods the Group is required to give to Executive Directors under their contracts of employment is as set out above. Payment in lieu of
notice includes the value of salary in the notice period, bonus, benefi ts, car allowance and pension contributions. Both mitigation and the staggering
of payments through the notice period will be considered by the Committee where appropriate, as will the funding of professional fees. Should
additional compensation matters arise, such as a settlement or compromise agreement, the Committee would exercise judgement and take into
account the specifi c commercial circumstances.
The Committee has the discretion to preserve incentive awards pro-rated to service. In exercising its discretion on incentive awards, the Committee
will have regard to performance, the circumstances of the Director leaving the Group and the terms of the relevant service agreement.
For share options, the rules state that unvested awards may be preserved at the Committee’s discretion according to the circumstances. In such
cases, vesting will be at the normal date, subject to the established performance conditions, and pro-rata to the duration of employment in the
performance period. In cases such as death and terminal illness, the Committee also has the discretion to vest the awards immediately.
In the event of a change of control of the Group, all share option awards may be permitted to vest in full at the discretion of the Remuneration
Committee.
Policy on new appointments
Newly appointed Executive Directors will be awarded a remuneration package which is consistent with the policy and principles as set out in this
report. Base salary may be set at a level higher or lower than previous incumbents and in certain circumstances, to facilitate the recruitment of
individuals of the required calibre, the Committee may use its discretion to make individual additional incentive awards. This level of discretion is
considered appropriate given the Group’s growth strategy.
By Order of the Board
Simon Herrick - Chairman of the Remuneration Committee
26 May 2020
The following matters are reported by the Directors in accordance with the Companies Act 2006 requirements in force at the date of this Annual
Report.
Principal activities
The principal activities of FireAngel Safety Technology Group plc (the ‘Company’) and its subsidiary companies (the ‘Group’) are set out within the
Statutory Strategic Report, which comprises the Executive Chairman’s Statement, the Strategic Review, the Performance Review, the Section 172
Companies Act Statement and the Risks and Risk Management section, on pages 6 to 17, and pages 35 to 39.
Review of business and future developments
The consolidated income statement for the year ended 31 December 2019 is set out on page 44.
A review of the Group’s business activities during the year and its prospects for the future can be found in the Executive Chairman’s Statement,
the Strategic Review and the Performance Review on pages 6 to 17. These reports, together with the Chairman’s Introduction, the Corporate
Governance Report, the Audit Committee Report and the Remuneration Committee Report, are incorporated into this report and should be read as
part of this report.
Key performance indicators
The Board’s principal objective is to increase shareholder value. The Directors measure the Group’s progress in achieving this objective principally
using the following indicators (as refl ected in this Annual Report):
• Sales performance. Sales are reviewed each week to assess individual business unit performance against budget and to ensure all sales
opportunities are being appropriately pursued. The Group seeks to build long-term customer relationships and maximise the sales mix of its
higher margin products.
• Gross margin percentage. Gross margins are reviewed each week to assess individual business unit performance and to identify areas to improve
the profi tability of the Group. Different market segments have varying gross margin opportunities, depending on the level of competition in that
market and the positioning of the Group’s products and brands.
• Adjusted gross margin percentage. The adjusted gross margin of the Group is measured to understand underlying business performance before
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the impact of one-off non-recurring items.
• Operating result. The fi xed costs of the business are carefully managed to ensure that, in conjunction with the gross profi t generated, the Group
can return an acceptable operating result.
• Underlying operating result. The operating performance of the Group before the impact of one-off non-recurring items is monitored to better
understand the underlying trends in operating results.
• Underlying EBITDA. The underlying cash generation of the business is measured through operational cash fl ows represented by underlying
EBITDA.
• Basic EPS. The Group seeks to reward its shareholders with an annual dividend where possible.
• Net working capital. The Group seeks to proactively manage its working capital to ensure that it minimises its asset base to maximise cash fl ow
from which to pay dividends.
• Investment in research and development. The Group’s principal source of product differentiation is through investment in its technology base,
rather than simply price. The Board regularly reviews the Group’s product roadmap to ensure its internal investment is focussed on the right areas
and that products come to market on time.
Commentary on the key performance indicators above is set out in the Performance Review on pages 12 to 17.
Principal risks and uncertainties
Details of the principal risks and uncertainties considered by the Board to affect the Group, and the related risk mitigation actions, are given on pages
37 to 39.
Group results and dividends
The fi nancial results for the year and fi nancial position of the Group and the Company are as shown on pages 44 and 45. The consolidated loss after
tax for the year was £9.4 million (2018 restated: loss after tax of £4.5 million).
As a result of the loss reported for the year, and consistent with the decision not to pay an interim dividend (2018: nil pence per share), the Directors do
not recommend payment of a fi nal dividend for the year (2018: nil pence per share). The total dividend payable for 2019 was therefore nil pence per
share (2018: nil pence per share).
Financial instruments
The Group’s fi nancial risk management objectives and policies, including the policy for hedging future foreign exchange rate risk, are outlined in note
4 to the fi nancial statements. The Group does not adopt hedge accounting and all future contracts beyond the balance sheet date are marked-to-
market at the balance sheet date with the net gain or loss on those contracts taken through the income statement in the period.
Research and development expenditure
The Group has continued to invest in research and development of both software and hardware products during the year. The people and non-
people costs of product development on specifi c identifi able projects are capitalised in accordance with the accounting policy set out on pages 50
and 51. General research costs undertaken in respect of the Group’s principal activities are charged through the income statement as incurred.
30
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
31
Governance
Statutory Directors’ report continued
Share capital and voting rights
The Company’s issued share capital comprises a single class of ordinary shares of 2p each, with 75,935,365 shares in issue and listed on AIM of the
London Stock Exchange as at 31 December 2019. No shares were held in treasury. Details of movements in the issued share capital can be found in
note 29 to the fi nancial statements. On 8 April 2020, the Company issued 50,623,480 new ordinary shares at 12 pence per share as a result of valid
acceptances under the open offer and placing announced on 23 March 2020. The Company’s share capital consequently increased to 126,558,845
ordinary shares.
Each share carries the right to one vote at general meetings of the Company. Holders of the shares are entitled to receive the Company’s annual
report. They are also entitled to attend and speak at general meetings of the Company, to appoint one or more proxies or, if they are corporations,
corporate representatives, and to exercise voting rights. They have the right to ask questions at the Annual General Meeting relating to the business
of the meeting and for these to be answered, unless such answer would interfere unduly with the business of the meeting, involve the disclosure of
confi dential information, if the answer has already been published on the Group’s website or if it is not in the interests of the Group or the good order
of the meeting that the question be answered.
All issued shares are fully paid up and carry no additional obligations or special rights. The full rights are set out in the Company’s Articles of
Association (the ‘Articles’), the latest copy of which can be found in the Incorporation section of the Investors area of the Group’s website at www.
fi reangeltech.com. There are no restrictions on transfers of shares in the Company, or on the exercise of voting rights attached to them, other than
those which may from time to time be applicable under existing laws and regulations.
Control and share structure
Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the year, are
shown in note 29 to the fi nancial statements. The Company has one class of ordinary share which carries no right to fi xed income.
There are no specifi c restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the
Articles and prevailing legislation. The Directors are not aware of any agreements between shareholders of the Company’s shares that may result in
restrictions on the transfer of securities or voting rights.
Details of employee share schemes are set out in note 31 to the fi nancial statements. No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
Directors’ interests in shares
Interests of the Directors and their connected persons in the issued share capital
of the Company as at 31 December 2019 were as follows:
JR Conoley
SE Herrick
NA Rutter
J Shepherd
AV Silverton
MJ Stilwell
GRA Whitworth
2019
Number of
shares held
2019
Interests in
share schemes
2019
Total interests
in shares
2018
Total interests
in shares
68,181
1,500,000
1,568,181
-
-
-
-
-
3,800,000
375,000
4,175,000
3,125,000
237,497
100,000
55,538
-
-
750,000
237,497
100,000
805,538
23,063
35,000
-
3,560,938
125,000
3,685,938
3,646,937
7,822,154
2,750,000
10,572,154
6,830,000
There has been no change in the interests of the Directors and their connected persons in the issued share capital of the Company from those set out
in the table above to 26 May 2020.
Signifi cant shareholdings
As at the close of the market on 19 May 2020, the Company was aware of the following holdings, excluding Directors’ holdings, of 3% or more of the
Company’s total issued share capital:
Newell Rubbermaid UK Services Limited
Downing LLP
BGF Investment Management Limited
Canaccord Genuity Group Inc
Number of
shares
% of total
voting rights
Nature of
interest
29,582,205
26,718,571
14,638,098
12,561,851
23.4
21.1
11.6
9.9
Direct
Indirect
Indirect
Indirect
Agreements affected by change of control
Other than some customer and supplier contracts that have an option to be terminated, the Company is not a party to any agreements which take
effect, alter or terminate upon a change of control of the Company following a takeover bid. There are no agreements between the Company and its
Directors or employees providing compensation for loss of offi ce or employment (whether through resignation, purported redundancy or otherwise)
that occurs because of a takeover bid.
Board of Directors
All Directors were in offi ce throughout the year ended 31 December 2019 with the exception of the following appointments and resignations during
the year:
• John Conoley (appointed as Non-Executive Chairman on 22 January 2019, then Executive Chairman on 1 August 2019)
• Simon Herrick (appointed 24 September 2019)
• William Payne (resigned 24 September 2019)
• Neil Smith (resigned 31 July 2019)
Subsequent to the year end, on 5 February 2020, Nick Rutter stepped down from the Board with immediate effect and it was announced that Graham
Whitworth would become a Non-Executive Director on the release of the Company’s audited fi nancial results for the year ended 31 December 2019.
It was also announced that Ashley Silverton would step down from the Board at the Company’s forthcoming Annual General Meeting.
Details and biographies of the current Directors and Company Secretary are shown on pages 18 and 19.
The powers of the Company’s Directors and rules that apply to changes in the Directors are set out in the Company’s Articles. Any changes to the
Articles would require the consent of the Company’s shareholders.
The Board may delegate to a Director holding any executive offi ce any of the powers, authorities and discretions exercisable by the Board for such
time and on such terms and conditions as it thinks fi t. The Board may revoke or alter the terms and conditions of the delegation and may retain or
exclude the right of the Board to exercise the delegated powers, authorities or discretions collaterally with the Executive Director.
The Company’s Articles require that a minimum of one-third of the Directors must retire by rotation at each Annual General Meeting, or if their number
is not three or a multiple of three, then the number nearest to but not exceeding one-third shall retire from offi ce, excluding Directors who are retiring
and standing for election at the fi rst Annual General Meeting following their appointment to the Board. If the number of Directors subject to retirement
by rotation is fewer than three, one of such Directors shall retire. At the forthcoming Annual General Meeting, John Shepherd and Mike Stilwell will
retire and stand for re-election. As a newly appointed Director, Simon Herrick will be subject to election being the fi rst Annual General Meeting since
he was appointed.
The Company’s shareholders may by ordinary resolution appoint any person to be a Director. The Company must not have less than three and
no more than twelve directors holding offi ce at any time. The Company may by ordinary resolution from time to time vary the minimum and/or the
maximum number of directors.
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Confl icts of interest
The Group has procedures in place for managing confl icts of interests. If a Director becomes aware that they, or a connected party have an interest
in an existing or proposed transaction with the Group, they should notify the Company Secretary as soon as possible. Directors have a continuing
obligation to update any changes to confl icts and the Board formally reviews any such confl icts periodically.
Directors’ and offi cers’ liability insurance
The Group maintains a management protection policy including directors’ and offi cers’ liability insurance which is reviewed annually. The insurance
covers the Directors and offi cers of the ultimate holding company of the Group, FireAngel Safety Technology Group plc, and its subsidiaries, against
the costs of defending themselves in civil proceedings taken against them in their capacity as a director or offi cer of a Group company and in respect
of damages or civil fi nes or penalties resulting from the unsuccessful defence of any proceedings. The indemnity was in force throughout the fi nancial
year and is currently in force.
No indemnity is provided for the Group’s auditor.
Employment policies
Details of the Group’s policy in respect of employment and training are given in the Corporate social responsibility section on page 11.
The Group employed an average of 149 people in 2019 (2018: 154).
The Group has established employment policies that comply with current legislation and codes of practice, including in the areas of health and safety
and equal opportunities. The Group consults employees on developments and changes to take account of their views when making decisions that
may impact their interests.
The Group has in place a Diversity and Equality Policy which sets out the Group’s approach to equal opportunities and avoidance of discrimination at
work. This policy confi rms the Group’s commitment to treating employees fairly and inclusively, ensuring that all decisions on recruitment, selection,
training, promotion, career opportunities, pay and other terms and conditions are based solely on objective and job-related criteria. The Group is
committed to offering employment to suitably qualifi ed people with disabilities and making reasonable adjustments to the working environment to
accommodate their needs.
Policy on payment of suppliers
The Group’s policy during the year was to pay suppliers in accordance with agreed terms. At 31 December 2019, the Group had 76 days’ purchases
outstanding in trade payables (2018: 137 days’).
Charitable contributions
The Group made charitable contributions amounting to £420 (2018: £622) during the year. The Group has a charity committee that organises regular
events and donates money to specifi c charities.
32
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
33
Governance
Statutory Directors’ report continued
Going concern
In determining whether the Group and
Parent Company’s fi nancial statements can
be prepared on a going concern basis, the
Directors considered the Group’s business
activities, together with the factors likely to
affect its future development, performance
and position. The review also included the
fi nancial position of the Group, its cash fl ows,
and borrowing facilities.
The Board regularly reviews revenue,
profi tability and cash fl ow forecasts across
the short, medium and longer term. A
number of downside sensitised scenarios are
modelled and considered to create a wide
range of possible outcomes, the assumptions
behind which are robustly challenged. The
Board compares actual performance against
budgets and forecasts and reviews variances
to continually refi ne and improve forecasting
ability from which to make effective decisions.
However, the uncertain impact of COVID-19
makes such an assessment more challenging
than usual. In order to understand the
potential impact of the risks associated
with this uncertainty, a number of highly
sensitised illustrative scenarios have been
modelled. Although the Board expects the
most signifi cant effects of COVID-19 on
revenue and profi tability still to be in Q2 2020,
it considers a scenario based on the following
assumptions to be prudent given the nature
of the Company’s customers, products and
distribution channels:
• Revenue in May 2020 to be at a similar level
of budget achievement to that seen in April
2020 with some recovery in June 2020,
although still signifi cantly below budgeted
levels, due to the impact of restrictions
being lifted and some normality returning
to retailer and customer behaviour
• Revenue to be stronger in H2 2020 and
improving continually across the half as:
There will be an element of pent up
demand which has been deferred,
not lost, due in part to a drive in the
self-employed trade sector which we
would expect to be highly motivated
to recover earnings lost during the
lockdown period
The opportunity for cost savings
afforded by the Company’s connected
solution will become more attractive
as non-safety critical budgets tighten
as evidenced by recent UK customer
enquiries
Many social housing authorities will
have ring-fenced fi re safety budgets
for the fi scal year to utilise over a now
reduced period of time
There has been no change in the
underlying demand for the Company’s
unique technology and there is unlikely
to be any change in the necessity and
desire to meet increased duty of care
requirements post Grenfell
Existing smoke and CO alarms
installed by all manufacturers will
continue to reach end of life and require
replacement
issue. Details of the resolutions passed at the
2020 Annual General Meeting will be made
available on the Company’s website after the
meeting.
Post balance sheet events
Information on any events occurring after the
balance sheet year end is described in note 34
to the fi nancial statements.
Auditor
RSM UK Audit LLP has indicated its
willingness to continue in offi ce and a
resolution that it be reappointed as auditor
will be proposed at the forthcoming Annual
General Meeting.
Statement as to disclosure of
information to the auditor
The Directors who were in offi ce on the date
of approval of these fi nancial statements have
confi rmed, that as far as they are aware, there
is no relevant audit information of which the
Company’s auditor is unaware.
Each Director has confi rmed that they
have taken all the steps that they ought to
have taken as Directors in order to make
themselves aware of any relevant audit
information and to establish that it has been
communicated to the Company’s auditor.
Forward-looking statements
This report may contain certain statements
about the future outlook for FireAngel Safety
Technology Group plc. Although the Directors
believe their expectations are based on
reasonable assumptions, any statements
about future outlook may be infl uenced by
factors that could cause actual outcomes and
results to be materially different.
Statutory Strategic Report
The Statutory Strategic Report comprises
the Executive Chairman’s Statement, the
Strategic Review, the Performance Review,
the Section 172 Companies Act Statement
and the Risks and Risk Management section,
on pages 6 to 17 and pages 35 to 39.
The Statutory Strategic Report and the
Directors’ Report have been approved by the
Board.
By Order of the Board
Zoe Fox - Company Secretary
26 May 2020
Recent conversations with the UK Fire
& Rescue Service have highlighted an
increased awareness of the importance
of protecting vulnerable people in
their homes, particularly in the current
climate
• Some strengthening in the value of
sterling against the US dollar in H2
2020, recovering to levels near those
seen immediately before the impact of
COVID-19
• Expected full year cost savings of £0.5
million from actions already taken to
reduce staff costs through furlough and
redundancy, Board and senior manager
salary savings, deferred recruitment,
marketing savings and other overhead
reductions
The sensitised cash fl ow forecast based on
these assumptions demonstrates that the
Group will be able to pay its debts as they
fall due for a period of at least twelve months
from the date of these fi nancial statements.
The Directors are, therefore, satisfi ed that the
fi nancial statements should be prepared on
the going concern basis.
However, in the event that the COVID-19
impact is worse than modelled regarding
sales demand (including the speed of demand
recovery and further possible lockdown
restrictions) then further measures would
be required to relieve any short-term cash
pressures which may arise. The Company
has applied for a Coronavirus Large Business
Interruption Loan as a further measure
of prudence. Further measures required
could include increasing the number of
staff furloughed, deeper cost savings and
tougher working capital management
through negotiation of payment terms with
key suppliers. Given the uncertainty that
COVID-19 has created for the Group’s
operations, markets, partners and distribution
channels there is a risk that, in the event of a
signifi cant and ongoing fall in sales demand,
the measures described above may not be
suffi cient to allow the group to operate within
current banking facilities and these conditions
therefore indicate the existence of a material
uncertainty which may cast signifi cant doubt
on the Company’s ability to continue as a
going concern.
The fi nancial statements do not include any
adjustments that would result in the basis
of preparation as a going concern being
inappropriate.
Annual General Meeting
The notice convening the Annual General
Meeting is distributed separately to
shareholders at least 20 working days before
the meeting. Separate Resolutions are
proposed on each substantially separate
Section 172 Companies Act statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to (f) and forms the Directors’
statement required under section 414CZA of The Companies Act 2006.
Who was
engaged?
Stakeholder group
Investors
The Company’s
major shareholders
are set out on page
32 of the Statutory
Directors’ Report.
Why were they engaged?
How were they engaged?
Why it is important to engage
How management and/or Directors engaged
The Board believes it is important
to have open communications
with shareholders to continue to
access capital to ensure the long-
term success of the business.
Through its engagement activities
the Board seeks to:
•
broaden the investor base to
encourage long-term support
and increased liquidity in the
market for the Company’s
shares
•
obtain investor buy-in into the
Group’s strategic objectives
and how they are executed
The Board’s approach to investor engagement
is detailed in the Corporate Governance
Report on page 24.
Key interactions included through:
• The Annual General Meeting
• Meetings with major institutional investors
• Private investor seminars
•
One-to-one investor meetings with the
Executive Chairman and Chair of the Audit
and Remuneration Committees
Suppliers
The Group has a
limited number
of international
suppliers who
manufacture
products designed
by the Group.
With all its production outsourced,
the performance of the Group’s
suppliers is crucial to the continued
success of the business.
In some cases production of the
Group’s products represents
a signifi cant proportion of the
supplier’s total output. It is
therefore vital that the Group
engages with these suppliers to
ensure the continuity of supply in
the longer term.
Key interactions included through:
•
•
•
Regular operational workshops between
key staff at the Group’s Coventry facilities
and the suppliers’ manufacturing facilities
Presentation of strategic and product
roadmaps
Regular ongoing internal and external
quality audits at suppliers’ production
facilities
Workforce
The Group
employs staff with
key managerial,
engineering and
technical skills.
The contribution of the Group’s
dedicated staff and management
team is critical to the Group’s
success. Should the Group be
unable to attract new employees,
or retain existing staff, this could
have a material adverse effect
on the Group’s ability to grow or
maintain its business.
The Group’s approach to workforce
engagement is detailed in the Corporate
social responsibility section of the Strategic
Review report on page 11.
Key interactions included through:
•
•
•
A Group-wide colleague engagement
survey in July 2019
Regular Company Briefi ng Updates,
including question and answer sessions,
delivered throughout the year
Offsite presentation of the Group’s
strategic objectives to the senior
management team in September 2019
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What was discussed and what were the outcomes
and actions?
What were the key topics of engagement, what feedback
and input did the Board/management obtain, and what
were the outcomes and actions?
The Directors regularly engage with investors through the
cycle of presentations linked to results announcements
during which the topics of strategy, governance and
performance are discussed.
In addition to this, specifi c matters on which the Board
engaged and the outcomes and actions that followed,
included:
•
•
•
•
•
•
•
Long-Term Incentive Plan considerations: feedback
and input around the structure and performance
criteria of the scheme was provided by certain major
shareholders and incorporated within the scheme
rules and awards
Board succession planning: feedback and input
was provided around certain Board changes and
in succession around the Chair of the Audit and
Remuneration Committees which informed the Board
changes detailed in the Statutory Directors’ Report
Fundraising in April 2019: certain major new and
existing shareholders were consulted as to their
appetite for participating in a fundraising in April
2019, the outcome of which was a full placing of the
fundraising amount subject to clawback under the
open offer
Improvements to production yields, forecast and
capacity planning, and ways of working were
identifi ed and implemented through the operational
workshops held during the year
Sharing strategic plans and product roadmaps
during the year has enabled suppliers to build future
capacity requirements into their longer-term decision-
making, ensuring that the Group’s future plans can be
accommodated by the current supplier relationships
Audits of supplier facilities and processes during
the year ensured that the Group met its ongoing
requirements to demonstrate compliance with
external quality standards and led to a number of
operational improvement targets being put in place
around staff training and product handling
Feedback in the colleague engagement survey
resulted in action plans being put in place to address
Company-wide improvements to working life and
communications, individual departmental plans to
improve working practices, and the identifi cation
of training requirements and plans for individual
members of staff
•
Employee responses to the Company Briefi ng
Updates helped focus future briefi ngs on specifi c
areas of current product development and feature
sets, future strategy and remuneration policies
34
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
35
Governance
Section 172 Companies Act statement continued
Risks and risk management
Why were they engaged?
Why it is important to engage
How were they engaged?
How management and/or Directors
engaged
What was discussed and what were the outcomes
and actions?
What were the key topics of engagement, what feedback
and input did the Board/management obtain, and what
were the outcomes and actions?
Who was
engaged?
Stakeholder group
Customers
The Group has
customers of
varying size across
its divisions both
in the UK and
internationally.
The Group is dependent upon its
customers and distribution channels to
sell and promote the Group’s products
in its chosen markets.
The Group’s products form part of range
strategies and long-term rollout plans
for many of its customers. Customer
feedback and communication is
therefore vital to ensure that the Group’s
products evolve as part of a planned,
thought-through strategy such that
supply meets future demand.
Lenders
The Group has
access to debt
fi nance through
its banking
relationships.
In addition to equity funding, the Group
uses debt fi nance to provide short-term
funds.
The Group must demonstrate the future
viability of the business in order to
ensure that debt fi nance continues to be
available at acceptable rates of interest.
Key interactions included through:
•
•
•
Regular account management
meetings with key customers during
2019
Attendance at fi re and CO safety
seminars and industry groups
presenting the Group’s future
product roadmap and evolving
connected technology including
FireAngel Predict™
Key interactions included through:
•
•
•
Input into the Group’s fundraising
plans in March 2019
Regular performance review
meetings throughout the year
including presentation of the Group’s
budget for the year ahead
Independent audit of the Group’s
compliance with the terms of the
invoice discounting facility
Key customers and industry groups provided
feedback on proposed future range strategies and
evolving feature sets which impacted the Group’s
connected homes technology product design and
market positioning plans
•
Customer feedback on future demand also informed
the Group’s decision to halt the development of
certain technology projects leading to the impairment
of certain intangible assets and stock during the year
as detailed in note 7 to the fi nancial statements
•
•
The Group discussed with its primary lender the
intention to raise £6.0 million of funds through a
placing and open offer
The feedback received led to the restructuring of
the Group’s facilities with its primary lender from
a revolving credit facility to an invoice discounting
facility
Principal decisions
Principal decisions are defi ned as those material to both the Group and any of its key stakeholder groups. In making the following principal decisions
the Board considered the outcome from its stakeholder engagement as well as the need to maintain a reputation for high standards of business
conduct and the need to act fairly between the members of the Company:
Principal decision 1: Fundraising in April 2019
In April 2019, the Board concluded that it was in the best interests of the Company, and was most likely to promote its success, for it to enter into a
fundraising process to raise £6.0 million. In particular, the Board considered its engagement with major shareholders and its lender in assessing the
quantum and method of fundraising. Further details of the fundraising are given in note 29 to the fi nancial statements.
Principal decision 2: Review of product lines and future development plans
During the year, the Board conducted 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 considered the Company’s engagement with its customers and
shareholders in relation to future strategy and product offering and concluded that given the progress made with the Company’s connected home
safety system strategy, it was appropriate to narrow its focus to developing and promoting those products and services which give the highest and
quickest returns. As a result, it was appropriate to make non-underlying charges in relation to stock provisions and the impairment of intangible
development costs, further details of which are given in note 7 to the fi nancial statements.
Zoe Fox - Company Secretary
26 May 2020
Product
prices from
the Group’s
primary smoke
alarm and
connected
products
manufacturer
cannot be
reduced
Inability to
multi-source
production
Product
warranty risk
Like every business, the Group faces risks undertaking its day-to-day operations and in pursuit of its longer-term objectives.
Further information on those risks and how they are managed by the Group is set out in the following pages. It is recognised that the Group is exposed to a
number of risks wider than those identifi ed here. However, we have chosen to disclose those risks of most concern to the Board and those that have been
the subject of debate at recent Board or Audit Committee meetings. It is recognised, however, that no risk management strategy can provide absolute
assurance against loss.
Through the management of our business units, the Group has an established risk management process for identifying, assessing, evaluating and managing
signifi cant risks whereby the Executive Directors, in conjunction with the Board and Audit Committee, seek to identify, assess and manage risk.
The Chairman of the Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. His role is to set the
tone and infl uence the culture of risk management within the Group, determine the Group’s risk prioritisation and monitor and manage the fundamental risks
which the business faces through clear delegation of responsibility to each member of the Executive team.
All the Executive Directors are responsible for identifying, evaluating and mitigating risk in a timely manner, ensuring that there is an open and receptive
approach to solving risk problems in the Group, embedding risk management as part of the system of internal controls within the Group and regularly
updating the Board on the status of risks and controls where signifi cant issues are identifi ed.
Signifi cant risks, which are defi ned with reference to magnitude of impact and likelihood of occurrence, are escalated to the Executive Chairman and Group
Finance Director and, if appropriate, formally reviewed by the Board to assess the potential fi nancial impact on the Group and to determine the optimum
course of action to address these risks. Read more about how the Group manages risk in the Corporate Goverance Report from page 20.
The Audit Committee advises the Board of Directors on matters of risk management. It has its own report, which can be read on pages 25 and 26.
The principal risks facing the Group, and the strategies put in place to mitigate them, are described in the following table.
Risk
Factors that may impact the business
Mitigation
What we are doing to minimise the risk
The impact of
COVID-19
COVID-19 has impacted the Company outlook in the short term, although revenue
for April 2020, at almost 55% of budget, was, encouragingly, some way ahead
of expectation. Revenue for May is expected to be at a similar level of budget
achievement.
G
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The Board continues to believe that the medium and long-term prospects for the
Company’s unique technology are strong. We are encouraged by online sales
resilience and the increasing shift to online fulfi lment in our Retail business. In
recent days new enquiries have come through our Trade business, adding to our
growing funnel of opportunities. In addition, pre-existing commercial opportunities
for our connected technology continue to move forward. The recent re-opening
of retail and trade channels, and clear attempts to restart the construction sector,
reinforce the expectation of a quick rebound in demand for FireAngel’s unique
cost-effective connected solutions. It is pleasing that demand, whilst reduced, has
continued to recover in our international markets and the emphasis in many UK-
customer conversations has moved to preparing to return to normal behaviour after
lockdown restrictions have been lifted.
Due to uncertainty around COVID-19 and timing of when restrictions will be lifted,
the Board has withdrawn the Company’s market guidance given that it is too early
to substantiate or vary it with any certainty.
The relationship with the Group’s primary smoke alarm and connected products
manufacturer is relatively new. Whilst satisfactory progress has been made in
increasing production yield and volumes, there remain challenges in levels of
utilisation and effi ciency in the manufacturing process which is impacting product
costing in the short term.
The Board continues to take mitigating actions to conserve
cash and protect profi t, whilst maintaining capability in these
times of exceptional uncertainty. In addition to the initial range
of measures, which included placing a number of employees on
furlough and further headcount savings through a reassessment
of R&D project deliverables, the Board has reinforced the actions
taken in response to the impact of COVID-19 by extending the
furlough period for some employees and placing additional
employees on furlough. Consistent with this, the Executive
Directors have agreed to extend their reductions of 10% of salary
for a further two months and senior managers have volunteered to
reductions for two months. All measures remain subject to review
as the macro and trading picture become clearer.
To conserve cash, the Company has taken advantage of the
Government’s tax payment deferral arrangements and is in the
process of applying for a Coronavirus Large Business Interruption
Loan as a further measure of prudence. Together with our recent
equity fundraising, this will strengthen the Company’s ability to
navigate through these unprecedented times.
Whilst the Group’s supply chain and technical teams are working
with its primary manufacturing partner to ensure that effi ciency
is improved to reduce the future costs of production, and whilst
all new products are designed to be manufactured in the most
effi cient way, if such challenges remain in the longer term, this may
have a material adverse effect on the operating results, business,
fi nancial condition and prospects of the Group. In addition, the
impact of the coronavirus outbreak may lead to increases in the
costs of the electronic components used in the Group’s products,
which may detrimentally impact operating results.
Due to the high complexity and certifi cation requirements of the Group’s products,
it is not practical to multi-source production across a number of suppliers. This
weakens the Group’s negotiating position with its existing suppliers and increases
the concentration risk associated with a sole source of supply.
Although the Group is addressing this in the future through
modularity of product design, there is a heightened risk in the short
term of supply disruption and higher prices with single-source
supplier relationships.
Each year, the number of the Group’s smoke and CO products in the market
increases and it is inevitable, given the technology-content of the Group’s products,
that despite best efforts to produce a product with zero defects, from time to time
the Group will experience product warranty issues. Products are designed to
‘fail safe’ so that if it is not working, it is designed to alert the user that it requires
attention. Many products have a ten-year life and if product issues do emerge, it
is not unusual to experience the same product issues over a number of years. If a
product fails, the Group’s liability is governed by the contractual agreement with its
immediate customer which may include the provision of a replacement product. If
the defect relates to the design of the product, the Group has insurance in place
against potential claims but not the cost of replacing products in the market. A
manufacturing defect may not be covered by the Group’s suppliers’ insurance in all
circumstances. The cost to the Group of any product issued with a design defect
would extend beyond the cost of any specifi c claims brought against it, including
potentially swapping products out in the market or in the worst case, a product
recall. The cost of potentially replacing defective units already distributed and
the reputational impact that could occur at product, brand and Group level would
be signifi cant. As at 31 December 2019, a provision of £3.5 million is recognised
against the FireAngel battery warranty provision, an isolated legacy issue relating to
a third-party supplier.
The Group seeks to ensure that products manufactured by its
suppliers comply with the relevant product specifi cations which
are approved by various test houses and regulatory bodies. If
a product is not compliant, the Group would potentially have
a warranty claim on its supplier. Where it becomes clear there
are issues with batches of a certain product, the Group makes
specifi c provision to cover 100% of the estimated warranty costs
of providing free of charge replacements with a ‘no quibble’
warranty policy. Product returns in each market are managed by
the Group’s in-house Technical Support team which records all
product warranty by date of manufacture.
36
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
37
Governance
Risks and risk management continued
Exchange
rate risk
Working
capital and
liquidity risk
Risk
Factors that may impact the business
The Group operates internationally giving rise to
exposure from changes in foreign currency exchange
rates. The majority of the components used in the
manufacture of the Group’s products are priced in
US dollars. The Group also receives a signifi cant
proportion of its revenues in euros from sales into
Europe. Unprecedented levels of uncertainty in global
economic markets, and in particular around the UK’s
future trading relationship with the rest of the world,
has led to a prolonged weakening in the value of
sterling against both currencies.
Recent poor fi nancial results may lead to reduced
credit terms being offered by suppliers. The
requirement to pay suppliers earlier than anticipated
could put short term pressure on the Group’s cash
fl ows, lead to the deferral of investment decisions
and in the worst case have a material adverse effect
on its fi nancial condition.
Changing
trends in
the market
place
The introduction of connected home products and
solutions with companies seeking to connect and
monitor products in the home via the internet could
potentially reduce the popularity of the Group’s
standalone safety product range.
It is possible that new products and technologies may
emerge in the future as more viable alternatives to the
Group’s products.
Competition
risk
Several home safety product companies are
considered to be direct competitors of the Group.
These companies vary in the relative strength of
their product offering. As competitors launch new
products, the Group’s prospects may be impacted
which could either reduce or enhance the Group’s
product sales.
Intellectual
property risk
Many of the Group’s products are protected by
intellectual property rights and the market can be
characterised as having relatively high barriers to
entry in this regard. Before introducing new products,
the Group carefully checks that it is not infringing the
patented technology of third parties. Potentially, third
parties could seek to copy or fi nd a workaround to the
Group’s registered technology.
Mitigation
What we are doing to minimise the risk
The Group manages this risk through the matching of foreign currency receipts and payments,
where possible, and also through a policy of hedging using forward exchange contracts to
guarantee the future exchange rate at which chosen volumes of currency are exchanged, however,
if such levels of uncertainty continue and the value of sterling against the US dollar remains
depressed, this may have a material adverse effect on the operating results, business, fi nancial
condition and prospects of the Group.
The Group maintains regular communications with its suppliers around the size and timing of
payment runs and routinely updates on the Group’s performance as part of scheduled account
management meetings. The recently announced fundraising will strengthen the balance sheet and
reassure all stakeholders as to the fi nancial stability of the Group.
The Group is selling its own connected home solutions products and is increasing its investment in
technology and products which connect to the internet. The Group continues to invest in product
technology to reduce the cost of connected home solutions and to ensure that they are the
products of choice for the Group’s customers.
The Group dedicates signifi cant resources to product research and development to keep the
business and its products at the forefront of technology. The Group seeks to stay abreast of
emerging market trends to position the Group to exploit and commercialise such technologies
as they appear. The Group regularly reviews other technologies to ensure that it has the right
technology and engineering capability in-house.
However, there can be no guarantees that new products, modifi cations or services will be
successfully developed or, if developed, successfully sold to customers. This could affect the
Group’s future revenues and profi ts.
The Group monitors competitors’ offerings and regularly reviews competitor products. The
Group’s continued investment in new products and technology provides a barrier to new entrants
in the market. Certifi cation costs per product are high at approximately £100,000 per new product.
This also acts as a signifi cant barrier to entry.
The Group, in part to mitigate against this competitive threat, continues to commit signifi cant
resources to research and development, as it has done since foundation. It cannot, however, be
guaranteed that the Group will be able to succeed in developing new products that can compete
head-on with competitors’ products.
The Group’s principal protection in the market lies in its business model and patented intellectual
property rights. The breadth of the Group’s product range and its ability to add new products
and leverage its brands across the markets it serves represents a signifi cant barrier to entry
to competitors. The Group is not dependent on any one single patent for sales. The Group’s
products are protected by over 50 granted patents in its major markets and the Group continues to
register new patents to protect its intellectual property where the Group believes it is appropriate
to do so.
Notwithstanding this, any failure to protect or successfully defend the Group’s intellectual property
may result in another party copying or otherwise obtaining and using its proprietary technology
or other intellectual property without authorisation. There may not be adequate protection for
the intellectual property in every country in which the Group’s products are sold and policing
unauthorised use of proprietary information is diffi cult and expensive. The Group cannot
guarantee that it will be able to detect and prevent infringement of its intellectual property but
would vigorously defend its intellectual property if it believed it was being infringed.
Any misappropriation of the Group’s intellectual property could have a material adverse impact
on the Group’s business and its operating results. Furthermore, the Group may need to take legal
action to enforce its intellectual property, to protect trade secrets or to determine the validity or
scope of the proprietary rights of others which may result in substantial costs and the diversion
of resources and management attention and there can be no guarantee as to the outcome of any
such litigation.
The Group is not aware of any third party that has any claim over the intellectual property of the
Group, however, if it was proven that part of the Group’s intellectual property was in fact owned
by a third party, this could lead to the removal of certain functionality from the Group’s products
or for certain products to be removed from the market altogether. Any legal action resulting from
such claims would likely be time-consuming and expensive. In either case the business, fi nancial
condition and results of operations may be materially and adversely affected.
Distributor
relationships
The Group works with third party distributors of its
products in Continental Europe who own the key customer
relationships and undertake marketing support activities
to drive revenue in the markets they serve. The Group is
dependent upon these distributors to fulfi l these roles in
an effective and effi cient manner to continue to grow sales
in these jurisdictions. Given the signifi cant concentration
of sales through a small number of distributors, the Group
closely monitors sales by the third-party distributors.
From time to time, the Group has fi nancially supported its
distributors with extensions to payment terms.
Product
certifi cation
compliance
Products are required to comply with the appropriate
certifi cation standards. If products do not comply,
certifi cation bodies could insist on quarantining product
for further testing, rework, or, in extreme situations, a recall.
This could affect the Group’s future revenues and profi ts.
Risks
following
the UK’s
exit from the
European
Union
In October 2019, a withdrawal agreement (the ‘Withdrawal
Agreement’) setting out the terms of the UK’s exit from the
EU was agreed between the UK and EU governments.
The Withdrawal Agreement, which became effective on
31 January 2020, includes the terms of a transition or
‘standstill’ period until 31 December 2020. During the
transition period, the UK has formally withdrawn from the
EU but is still treated for most purposes as an EU member
state. The UK and EU have been negotiating the terms of
a trading arrangement which will apply following the end of
the transition period.
Staff
recruitment
and
retention
risk
International
trade
regulations
Health and
safety risk
As with most businesses, particularly those operating
in a technical fi eld, the Group is dependent on engaging
employees with key managerial, engineering and technical
skills. The contribution of the Group’s dedicated staff and
management team has been, and continues to be, critical
to the Group’s success. Should the Group be unable to
attract new employees, or retain existing employees, this
could have a material adverse effect on the Group’s ability
to grow or maintain its business.
The Group’s development and prospects are somewhat
dependent upon the continued services and performance
of its Directors, senior management and other key
personnel. The loss of the services of any of the Directors,
senior management or key personnel or a substantial
number of talented employees, could cause disruption
which could have a material adverse effect on the Group’s
business, fi nancial condition and results of operations until
suitable replacements are found.
The Group’s activities involve the import and export of
products. Any changes in the regulations covering such
movements might impact the Group’s trading activities.
Increasing geographical reach and continual expansion of
the Group’s customer base, particularly into Continental
Europe, exposes the Group to a potentially wider set of
regulatory restrictions. Risks associated with Brexit are
described as a separate risk within this table. If the Group
is unable to comply with, or react quickly enough to, any
new regulation introduced, or changes made to existing
regulations, it may lose customers, fi nd it more diffi cult to
win new customers or, in the worst case, lose the ability
to distribute products into certain jurisdictions resulting in
lost sales and profi ts.
As the Group’s product range expands, the risk of non-
compliance with health and safety regulations increases.
The Group handles products with low levels of radioactive
particles in the ‘foils’ contained within ionisation alarms
which were historically sold in the UK. Changes to product
design mean that products incorporating radioactive
particles are no longer sold.
The Group has contracts with most of its major distributors. Many of these relationships
are well established and, in some cases, the distributor only or mainly sells the Group’s
products. The Group ensures that the contractual relationships with its customers are fair and
commercially benefi cial for both parties and monitors outstanding credit balances owed by
distributors to minimise potential bad debt risk for the Group. From time to time, overstocking
in the distribution channel may cause fi nancial pressures on the Group and its third-party
distributors depending on the sales conditions in the relevant market. The Group keeps in
close contact with each of its distributors to monitor their sales and market conditions to
maximise the sales potential of the distributor and the Group.
In conjunction with suppliers, the Group seeks to ensure that all products are manufactured
in accordance with the relevant product certifi cation standards. Detailed compliance records
are maintained for each product which is approved for sale. In addition, detailed testing is
performed on each product with traceability of key components a contractual commitment
by each of the Group’s suppliers. The Group works closely with the standard review bodies
to ensure that its products remain of the highest quality. Suppliers are also audited by
independent third parties to ensure that they maintain the highest quality standards. Ensuring
product certifi cation is obtained in a timely manner helps ensure that the Group’s sales are not
impacted by issues with certifi cation.
The Board has taken steps to prepare for the end of the transition period. These actions
include setting up a dedicated cross-functional project team; reviewing all imports and
exports by country with visibility maps of supply routes; considering the impact of potential
changes on the Group’s strategic objectives; reviewing warehouse locations and logistics
procedures; registering for appropriate VAT and customs procedures; and assessing the
potential cash impact of tariffs and new arrangements.
The extent of the impact would depend in part on the nature of the arrangements that are put
in place between the UK and the EU following the end of the transition period and the extent
to which the UK continues to apply laws that are based on EU legislation. However, the
Group’s primary manufacturing partner for smoke, heat and accessory products is based in
Poland, and Poland has not adopted the euro (notwithstanding it has been a full member of
the EU since 2004). Should the import duty regime change following the end of the transition
period, the Group would review the import duty arrangements and adjust its product pricing
accordingly.
The general speculation and concern surrounding the nature of the trading arrangement
which will apply following the end of the transition period has also caused uncertainty in the
market which may damage confi dence. Due to this, the macroeconomic effect of this on
the Group’s business is unknown. As such, it is not possible to state the impact that any
such trading arrangement would have either on the Group and whether such impact would
positively or adversely affect the business. Any of these risks could have a material adverse
effect on the operating results, business, fi nancial condition and prospects of the Group.
The Group places great importance on open communication with its employees, including
regular staff updates and, where results permit, an annual staff away day. The Group aims to
offer appropriate remuneration packages and incentive arrangements in order to mitigate this
risk and seeks to create a supportive working environment where employees are encouraged
to learn and develop in their roles through personal development plans.
G
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The Group closely monitors international import and export regulations and adapts its
procedures to minimise duty costs while remaining compliant.
The Group places the greatest importance on maintaining the highest standards of health and
safety compliance. The Group’s procedures comply with the requirements of ISO audits and
detailed records are maintained to ensure that products are correctly stored and disposed.
38
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
39
Financial statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Statutory Strategic Report, the Directors’ Report and the fi nancial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company fi nancial statements for each fi nancial year. The Directors are required by the
AIM rules of the London Stock Exchange to prepare the Group fi nancial statements in accordance with International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union (‘EU’) and have elected under company law to prepare the Company fi nancial statements in accordance
with IFRS as adopted by the EU.
The fi nancial statements are required by law and IFRS adopted by the EU to present fairly the fi nancial position of the Group and the Company and
the fi nancial performance of the Group. The Companies Act 2006 provides in relation to such fi nancial statements that references in the relevant part
of that Act to fi nancial statements giving a true and fair view are references to their achieving a fair presentation.
Under company law the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of
affairs of the Group and the Company and of the profi t or loss of the Group for that period.
In preparing the Group and Company fi nancial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS adopted by the EU; and
Independent auditor’s report
TO THE MEMBERS OF FIREANGEL SAFETY TECHNOLOGY GROUP PLC
Opinion
We have audited the fi nancial statements of FireAngel Safety Technology Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for
the year ended 31 December 2019 which comprise the consolidated income statement, the consolidated statement of comprehensive income,
the consolidated and company statements of fi nancial position, the consolidated and company cash fl ow statement, the consolidated statement
of changes in equity, the company statement of changes in equity and the notes to the fi nancial statements, including a summary of signifi cant
accounting policies. The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company fi nancial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In our opinion:
• the fi nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2019 and of the
group’s loss for the year then ended;
• the group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the Companies Act 2006; and
• the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006.
• prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in
Basis for opinion
business.
The Directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Group’s and the Company’s
transactions and disclose with reasonable accuracy at any time the fi nancial position of the Group and the Company and enable them to ensure that
the fi nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the FireAngel Safety
Technology Group plc website.
Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other
jurisdictions.
By order of the Board
Zoe Fox - Company Secretary
26 May 2020
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the fi nancial statements section of our report. We are independent
of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the fi nancial statements in the UK,
including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfi lled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 2 in the fi nancial statements, which indicates that the group may be adversely affected by the COVID-19 (coronavirus)
outbreak and in particular the potential impact of a signifi cant and ongoing fall in sales demand on the group’s cash fl ow. As stated in note 2, these
events or conditions, along with the other matters as set forth in note 2, indicate that a material uncertainty exists that may cast signifi cant doubt on
the Company’s ability to continue as a going concern. Our opinion is not modifi ed in respect of this matter.
Summary of our audit approach
Key audit matters
Group
• FireAngel warranty provisioning
•
Impairment of product development costs
Parent Company
•
Impairment of intercompany receivables
Materiality
Group
• Overall materiality: £461,000
• Performance materiality: £346,000
Parent Company
• Overall materiality: £225,000
• Performance materiality: £168,000
Scope
Our audit procedures covered 96% of revenue, 94% of total assets and 99% of loss before tax
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most signifi cance in our audit of the group and parent company
fi nancial statements of the current period and include the most signifi cant assessed risks of material misstatement (whether or not due to fraud) we
identifi ed, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of
the engagement team. These matters were addressed in the context of our audit of the group and parent company fi nancial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
40
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
41
i
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s
Independent auditor’s report continued
In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to
be the key audit matters to be communicated in our report.
FireAngel warranty provisioning
Key audit matter description
How the matter was addressed
in the audit
The group reported a signifi cant battery warranty issue in the fi nancial statements for the year ended 31 December 2015 which included
an exceptional warranty cost charge of £5.5 million. The warranty provision at 31 December 2019 of £3.5 million is stated after recording
an additional exceptional warranty charge in the income statement of £2.6 million, and an additional amount of £1.5 million in respect of
prior periods.
The recorded provision is one of the most signifi cant risks of material misstatement due to the high degree of estimation uncertainty
contained within management’s calculations of the required provision. Management have explained in detail in note 3 and note 25 the
estimation uncertainties relevant to the calculation of the warranty provision. Management have explained the additional exceptional
warranty charge of £2.6 million and the restatement of the provision in relation to prior periods in notes 7 and 8, respectively.
The most signifi cant estimates include the terminal rate of product return, and the cost of servicing each returned unit, having regard to
current inventory, purchase price and returns reworking.
Management provided us with a calculation of the warranty provision. Our audit work included, but was not restricted to:
• Obtaining an understanding of the calculation methodology used by management to calculate the warranty provision in light of our
understanding of the specifi c warranty issue, the wider business, and the signifi cant charge recorded during the year.
• Challenging the appropriateness of key assumptions used in the calculations, and any changes made compared to prior periods, by
comparing them to other internal information held by management.
• Comparing the actual rates of return to those anticipated when the issue was initially identifi ed to assess the adequacy of projected
terminal rates of return and challenging management as to the reasons for any changes made to assumptions in this regard.
• Considering the circumstances relating to the restatement of the prior periods and the extent to which this treatment was
appropriate.
• Considering the adequacy of disclosures and whether they were in accordance with the applicable fi nancial reporting framework.
Impairment of product development costs
Key audit matter description
How the matter was addressed
in the audit
The group continues to develop new products and has unamortised capitalised product development costs of £13.1 million at the
reporting date, of which £5.1 million relates to projects where amortisation has not yet commenced. In accordance with their stated
accounting policy, management should only capitalise these costs on the basis that it is probable that the asset created will generate future
economic benefi ts and management are required to consider whether or not there are any indicators of impairment for each asset at each
reporting date. As a result of these considerations, the group has recorded an impairment charge of £1.8 million as disclosed in note 7.
The recovery of these assets in future periods is dependent upon the successful completion and / or sale of each project. The potential
for impairment is one of the most signifi cant risks of material misstatement due to the quantum of costs capitalised in respect of certain
individual projects and also due to the exercise of management judgement regarding inherently uncertain future outcomes relating to the
adoption of new technologies and sales performance.
Management have explained in detail in note 3 the estimation uncertainties relevant to their impairment considerations, and detailed
analysis of the amounts capitalised are set out in note 17.
Our audit work included, but was not restricted to:
• Obtaining and reviewing management’s assessment of all projects within capitalised product development costs.
• Reviewing the impairment charge recorded by management and considering the appropriateness of the impairment in the context of
the wider business.
• For projects where amortisation has not yet commenced, we challenged management’s assessment, corroborated explanations to
supporting evidence where available and considered whether there was any contradictory evidence gathered during our audit.
• For projects where amortisation has commenced, we reviewed the sales and gross margin achieved on products using this
technology and comparing the gross margin achieved with unamortised capitalised costs at the reporting date to assess the period
over which the capitalised costs will be recovered.
• Considered the adequacy of disclosures and whether they were in accordance with the applicable fi nancial reporting framework.
Impairment of intercompany receivables (parent company only)
Key audit matter description
At 31 December 2019 the parent company balance sheet includes amounts owed by subsidiary undertakings of £25.9 million. The
loan is interest free and repayable on demand. The subsidiary undertaking does not have suffi cient liquid assets to make repayment
should the parent company demand repayment. The key audit matter is that an Expected Credit Loss (‘ECL’) provision is required in
accordance with IFRS 9, Financial Instruments and the measurement of the ECL involves a signifi cant degree of judgement.
At 31 December 2019, the gross amount owed by subsidiary undertakings was £27.8 million and the ECL recorded was £1.9 million as
detailed in notes 3 and 21.
How the matter was addressed
in the audit
We obtained management’s calculation of the ECL and the underlying calculations prepared to support the carrying value of the
balance and performed work as follows:
• Assessed the reasonableness of the recovery scenarios considered by management and the probabilities assigned thereon.
• Reviewed and challenged the assumptions and estimates utilised in the model.
• Recalculated the computation of the ECL.
• Considered the sensitivity of key assumptions and estimates.
• Considered the adequacy of disclosures and whether they were in accordance with the applicable fi nancial reporting framework.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit
procedures. When evaluating whether the effects of misstatements, both individually and on the fi nancial statements as a whole, could reasonably
infl uence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our
professional judgement, we determined materiality as follows:
Overall materiality
Basis for determining overall
materiality
Group
£461,000
4.9% of Loss before tax
Rationale for benchmark applied Result before tax chosen as the group is profi t oriented.
Performance materiality
£346,000
Basis for determining
performance materiality
75% of overall materiality
Reporting of misstatements to
the Audit Committee
Misstatements in excess of £23,000 and misstatements below that threshold
that, in our view, warranted reporting on qualitative grounds.
Parent company
£225,000
0.9% of Net assets
Net assets chosen as parent company is purely a
holding company.
£168,000
75% of overall materiality
Misstatements in excess of £11,000 and
misstatements below that threshold that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
The group consists of three components, located in the United Kingdom and Canada. The coverage achieved by our audit procedures was:
Number of components
Revenue
Total assets
Profi t before tax
Full scope audit
Total
2
2
96%
96%
94%
94%
99%
99%
Analytical procedures at group level were performed for the remaining component.
Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the fi nancial statements and our
auditor’s report thereon. Our opinion on the
fi nancial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the fi nancial
statements, our responsibility is to read the other
information and, in doing so, consider whether
the other information is materially inconsistent
with the fi nancial statements or our knowledge
obtained in the audit or otherwise appears to
be materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether there is a material misstatement in the
fi nancial statements or a material misstatement
of the other information. If, based on the work
we have performed, we conclude that there is a
material misstatement of this other information,
we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in
the course of the audit:
• the information given in the Strategic Report
and the Directors’ Report for the fi nancial
year for which the fi nancial statements are
prepared is consistent with the fi nancial
statements; and
• the Strategic Report and the Directors’
Report have been prepared in accordance
with applicable legal requirements.
Matters on which we are required to
report by exception
In the light of the knowledge and understanding
of the group and the parent company and their
environment obtained in the course of the audit,
we have not identifi ed material misstatements in
the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to you
if, in our opinion:
• adequate accounting records have not
been kept by the parent company, or returns
adequate for our audit have not been
received from branches not visited by us; or
• the parent company fi nancial statements are
not in agreement with the accounting records
and returns; or
• certain disclosures of directors’ remuneration
specifi ed by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Statement of
directors’ responsibilities, the directors are
responsible for the preparation of the fi nancial
statements and for being satisfi ed that they
give a true and fair view, and for such internal
control as the directors determine is necessary
to enable the preparation of fi nancial statements
that are free from material misstatement,
whether due to fraud or error.
In preparing the fi nancial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability to
continue as a going concern, disclosing, as
applicable, matters related to going concern and
using the going concern basis of accounting
unless the directors either intend to liquidate
the group or the parent company or to cease
operations, or have no realistic alternative but
to do so.
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when it
exists. Misstatements can arise from fraud or
error and are considered material if, individually
or in the aggregate, they could reasonably be
expected to infl uence the economic decisions
of users taken on the basis of these fi nancial
statements.
A further description of our responsibilities for
the audit of the fi nancial statements is located
on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s
report.
Use of our report
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we
might state to the company’s members those
matters we are required to state to them in an
auditor’s 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 and the company’s members
as a body, for our audit work, for this report, or
for the opinions we have formed.
Michael Thornton (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP,
Statutory Auditor
Chartered Accountants
St Philips Point
Temple Row
Birmingham
B2 5AF
Auditor’s responsibilities for the audit
of the fi nancial statements
26 May 2020
Our objectives are to obtain reasonable
assurance about whether the fi nancial
42
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
43
i
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n
a
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c
a
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s
t
a
t
e
m
e
n
t
s
Consolidated income statement
For the year ended 31 December 2019
Consolidated and Company statement of fi nancial position
As at 31 December 2019
2019
2018 Restated
Consolidated
Company
Revenue
Cost of sales
Gross profi t
Operating expenses
Loss from operations
Finance costs
Loss before tax
Income tax credit
Loss attributable to equity
owners of the Parent
Basic earnings per share
Diluted earnings per share
Before non-
underlying items
Non-underlying
items (note 7)
£000
45,486
(36,821)
8,665
(12,461)
(3,796)
(312)
(4,108)
548
(3,560)
-
-
£000
-
(4,308)
(4,308)
(2,608)
(6,916)
-
(6,916)
1,056
(5,860)
-
-
Note
6
9
-
-
9
11
-
12
14
14
Total
£000
45,486
(41,129)
4,357
(15,069)
(10,712)
(312)
(11,024)
1,604
(9,420)
(14.0)
(14.0)
Before non-
underlying items
Non-underlying
items (note 7)
£000
37,587
(28,866)
8,721
(10,712)
(1,991)
(114)
(2,105)
508
(1,597)
-
-
Total
£000
37,587
(30,024)
7,563
(13,387)
(5,824)
(114)
(5,938)
1,412
£000
-
(1,158)
(1,158)
(2,675)
(3,833)
-
(3,833)
904
(2,929)
(4,526)
-
-
(9.9)
(9.9)
All amounts stated relate to continuing activities.
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Loss for the year
Items that may be reclassifi ed subsequently to profi t and loss:
Exchange differences on translation of foreign operations (net of tax)
Total comprehensive loss for the year
2019
£000
(9,420)
31
(9,389)
2018 Restated
£000
(4,526)
(67)
(4,593)
Non-current assets
Goodwill
Other intangible assets
Purchased software costs
Property, plant and equipment
Shares in subsidiaries
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax asset
Derivative fi nancial assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Current tax liabilities
Provisions
Invoice discounting facilities
Derivative fi nancial liabilities
Net current (liabilities)/assets
Non-current liabilities
Loans and borrowings
Lease liabilities
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Currency translation reserve
Retained earnings
Total equity attributable to equity holders of the
Parent Company
Note
16
17
17
18
19
27
20
21
-
22
-
26
23
-
25
23
22
23
23
25
27
29
-
-
-
2019
£000
169
12,560
2,492
5,323
-
-
2018 Restated
2017 Restated
£000
169
13,201
2,899
4,006
-
-
£000
169
10,475
2,574
2,077
-
523
20,544
20,275
15,818
6,304
12,073
729
-
2,062
21,168
41,712
8,425
10,792
1,248
214
1,251
21,930
42,205
11,201
17,366
625
-
3,273
32,465
48,283
(12,150)
(11,465)
(16,472)
(348)
-
(1,496)
(6,985)
(429)
(21,408)
(240)
-
(1,131)
(1,997)
-
(3,128)
(24,536)
17,176
1,519
17,617
143
(2,103)
17,176
-
(39)
(1,195)
-
-
(12,699)
9,231
(5,700)
-
(1,871)
(896)
(8,467)
(21,166)
21,039
918
12,729
112
7,280
21,039
-
(15)
(1,507)
-
(364)
(18,358)
14,107
-
-
(2,166)
(1,974)
(4,140)
(22,498)
25,785
918
12,729
179
11,959
25,785
2019
£000
-
-
-
-
149
-
149
-
25,947
-
-
4
25,951
26,100
-
-
-
-
-
-
-
25,951
-
-
-
-
-
-
26,100
1,519
17,617
-
6,964
26,100
2018
£000
-
-
-
-
149
-
149
-
27,343
-
-
1
27,344
27,493
-
-
-
-
-
-
-
27,344
(5,700)
-
-
-
(5,700)
(5,700)
21,793
918
12,729
-
8,146
21,793
The Company has taken advantage of the exemption contained within section 408 of the Companies Act 2006 not to present its own statement
of comprehensive income. The result for the year dealt with in the fi nancial statements of the Company was a loss of £1,182,000 (2018: loss of
£848,000).
The fi nancial statements on pages 44 to 73 were approved and authorised for issue by the Board of Directors on 26 May 2020 and were signed on its
behalf by:
John Conoley - Executive Chairman
Mike Stilwell - Group Finance Director
Company registered number: 3991353
i
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a
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a
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e
m
e
n
t
s
44
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
45
Consolidated and Company cash fl ow statement
For the year ended 31 December 2019
Consolidated statement of changes in equity
For the year ended 31 December 2019
Consolidated
Company
Note
2019
2018 Restated
£000
(11,024)
312
£000
(5,938)
114
2019
£000
(1,182)
18
(10,712)
(5,824)
(1,164)
Loss before tax
Finance expense
Operating loss for the year
Adjustments for:
Depreciation of property, plant and equipment, and right-of-use assets
Amortisation of intangible assets
Loss on disposal of non-current assets
Non-underlying items
Cash fl ow relating to non-underlying items
Decrease/(increase) in fair value of derivatives
Provision against intercompany receivables
Operating cash fl ow before movements in working capital
Movement in inventories
Movement in receivables
Movement in provisions
Movement in payables
Cash (used in)/generated by operations
Income taxes received/(paid)
Net cash (used in)/generated by operating activities
Investing activities
Capitalised development costs
Purchased software
Purchase of property, plant and equipment
Interest received
1,267
2,105
16
6,916
(2,346)
643
-
(2,111)
418
(1,281)
(106)
520
(2,560)
1,191
(1,369)
(2,882)
-
(841)
1
385
689
-
3,833
(2,199)
(578)
-
(3,694)
1,672
4,754
611
(4,983)
(1,640)
(35)
(1,675)
(3,415)
(325)
(2,342)
7
Net cash used in investing activities
(3,722)
(6,075)
Financing activities
Repayment of loan
Drawdown of loan
Drawdown of invoice fi nance
Loan restructuring costs
Proceeds from issue of ordinary shares (net of expenses)
Repayment of lease obligations
Interest paid
Net cash generated by/(used in) fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Non-cash movements – foreign exchange
Cash and cash equivalents at end of year
23
23
(7,000)
1,300
6,985
(209)
5,488
(307)
(382)
5,875
784
1,251
27
2,062
-
5,700
-
-
-
-
(121)
5,579
(2,171)
3,273
149
1,251
2018
£000
(848)
121
(727)
-
-
-
-
-
-
725
(2)
-
(5,640)
-
-
(5,642)
-
(5,642)
-
-
-
-
-
-
5,700
-
-
-
-
(121)
5,579
(63)
64
-
1
Balance at 1 January 2018 as originally presented
Correction of error (net of tax) (note 8)
Restated total equity at 1 January 2018
Loss for the year - restated
Net foreign exchange losses from overseas subsidiaries
Total comprehensive loss for the year
Credit in relation to share-based payments
Deferred tax charge in relation to share-based payments
Share capital
Share premium
account
£000
918
-
918
-
-
-
-
-
£000
12,729
-
12,729
-
-
-
-
-
Balance at 31 December 2018
918
12,729
Loss for the year
Net foreign exchange gains from overseas subsidiaries
Total comprehensive loss for the year
Transactions with owners in their capacity as owners:
Issue of equity shares
Premium arising on issue of equity shares
Share issue expenses
Total transactions with owners in their capacity as owners
Credit in relation to share-based payments
-
-
-
601
-
-
601
-
-
-
-
-
5,400
(512)
4,888
-
Balance at 31 December 2019
1,519
17,617
Company statement of changes in equity
For the year ended 31 December 2019
Currency
translation
reserve
£000
179
-
179
-
(67)
(67)
-
-
112
-
31
31
-
-
-
-
-
143
Retained
earnings
£000
13,188
(1,229)
11,959
(4,526)
-
Total
£000
27,014
(1,229)
25,785
(4,526)
(67)
(4,526)
(4,593)
107
(260)
7,280
(9,420)
-
107
(260)
21,039
(9,420)
31
(9,420)
(9,389)
-
-
-
-
37
601
5,400
(512)
5,489
37
(2,103)
17,176
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
Share capital
Share premium
account
Retained earnings
Balance at 1 January 2018
Loss for the year
Total comprehensive loss for the year
Balance at 31 December 2018
Loss for the year
Total comprehensive loss for the year
Transactions with owners in their capacity as owners:
Issue of equity shares
Premium arising on issue of equity shares
Share issue expenses
Total transactions with owners in their capacity as owners
Balance at 31 December 2019
£000
918
-
-
918
-
-
601
-
-
601
1,519
£000
12,729
-
-
12,729
-
-
-
5,400
(512)
4,888
17,617
£000
8,994
(848)
(848)
8,146
(1,182)
(1,182)
-
-
-
-
6,964
26,100
Total
£000
22,641
(848)
(848)
21,793
(1,182)
(1,182)
601
5,400
(512)
5,489
-
-
-
-
-
-
1,155
(9)
-
242
-
-
233
-
233
-
-
-
-
-
(7,000)
1,300
-
-
5,488
-
(18)
(230)
3
1
-
4
46
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
47
Notes to the fi nancial statements
For the year ended 31 December 2019
1. Principal activities
FireAngel Safety Technology Group plc (the ‘Company’) is registered and domiciled in England and Wales, having been incorporated under the
Companies Act, company registration number 3991353. The Company is listed on AIM. The Company’s registered offi ce and the address of its
principal place of business is The Vanguard Centre, Sir William Lyons Road, Coventry, West Midlands, CV4 7EZ.
The Company and its subsidiary undertakings (the ‘Group’) are in the business of the design, sale and marketing of smoke and CO alarms and
accessories sold under the brands of FireAngel, FireAngel Pro and Specifi cation, AngelEye and Pace Sensors. The Group also operates its own CO
sensor manufacturing facility in Canada.
2. Summary of signifi cant accounting policies
The Group has adopted the accounting policies set out below in preparation of the consolidated fi nancial statements. All of these policies have been
applied consistently throughout the periods presented, with the exception of the adoption of IFRS 16 ‘Leases’ and the change to a straight-line basis
of amortisation for product development costs. Both of these changes are described further below.
Basis of preparation
These consolidated fi nancial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European
Union (‘IFRS’).
The preparation of fi nancial statements requires management to exercise its judgement in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where the Group’s assumptions and estimates are signifi cant to the
consolidated fi nancial statements, are disclosed in note 3.
Basis of consolidation
The consolidated fi nancial statements of the Group incorporate the fi nancial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year.
Subsidiaries
Subsidiaries are entities over which the Group has power to govern the fi nancial and operating policies so as to obtain economic benefi ts from their
activities. Subsidiaries are consolidated from the date on which control is obtained (the acquisition date) up until the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as
the fair value of the assets given, equity instruments issued, contingent consideration and liabilities incurred or assumed at the date of exchange.
Costs directly attributable to the acquisition are expensed as incurred. Identifi able assets acquired and liabilities assumed in a business combination
are initially measured at fair value at the acquisition date.
Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring the accounting policies used into line with those used by
the Group.
Intra-group transactions, balances, and unrealised gains and losses on transactions between Group companies are eliminated on consolidation.
Going concern
In determining whether the Group and Parent Company’s fi nancial statements can be prepared on a going concern basis, the Directors considered
the Group’s business activities, together with the factors likely to affect its future development, performance and position. The review also included
the fi nancial position of the Group, its cash fl ows, and borrowing facilities.
The Board regularly reviews revenue, profi tability and cash fl ow forecasts across the short, medium and longer term. A number of downside
sensitised scenarios are modelled and considered to create a wide range of possible outcomes, the assumptions behind which are robustly
challenged. The Board compares actual performance against budgets and forecasts and reviews variances to continually refi ne and improve
forecasting ability from which to make effective decisions.
However, the uncertain impact of COVID-19 makes such an assessment more challenging than usual. In order to understand the potential impact of
the risks associated with this uncertainty, a number of highly sensitised illustrative scenarios have been modelled. Although the Board expects the
most signifi cant effects of COVID-19 on revenue and profi tability still to be in Q2 2020, it considers a scenario based on the following assumptions to
be prudent given the nature of the Company’s customers, products and distribution channels:
• Revenue in May 2020 to be at a similar level of budget achievement to that seen in April 2020 with some recovery in June 2020, although still
signifi cantly below budgeted levels, due to the impact of restrictions being lifted and some normality returning to retailer and customer behaviour
• Revenue to be stronger in H2 2020 and improving continually across the half as:
There will be an element of pent up demand which has been deferred, not lost, due in part to a drive in the self-employed trade sector which we
would expect to be highly motivated to recover earnings lost during the lockdown period
The opportunity for cost savings afforded by the Company’s connected solution will become more attractive as non-safety critical budgets tighten
as evidenced by recent UK customer enquiries
Many social housing authorities will have ring-fenced fi re safety budgets for the fi scal year to utilise over a now reduced period of time
There has been no change in the underlying demand for the Company’s unique technology and there is unlikely to be any change in the necessity
and desire to meet increased duty of care requirements post Grenfell
Existing smoke and CO alarms installed by all manufacturers will continue to reach end of life and require replacement
Recent conversations with the UK Fire & Rescue Service have highlighted an increased awareness of the importance of protecting vulnerable
people in their homes, particularly in the current climate
• Some strengthening in the value of sterling against the US dollar in H2 2020, recovering to levels near those seen immediately before the impact of
COVID-19
• Expected full year cost savings of £0.5 million from actions already taken to reduce staff costs through furlough and redundancy, Board and senior
manager salary savings, deferred recruitment, marketing savings and other overhead reductions
The sensitised cash fl ow forecast based on these assumptions demonstrates that the Group will be able to pay its debts as they fall due for a period
of at least twelve months from the date of these fi nancial statements. The Directors are, therefore, satisfi ed that the fi nancial statements should be
prepared on the going concern basis.
However, in the event that the COVID-19 impact is worse than modelled regarding sales demand (including the speed of demand recovery and
further possible lockdown restrictions) then further measures would be required to relieve any short-term cash pressures which may arise. The
Company has applied for a Coronavirus Large Business Interruption Loan as a further measure of prudence. Further measures required could
include increasing the number of staff furloughed, deeper cost savings and tougher working capital management through negotiation of payment
terms with key suppliers. Given the uncertainty that COVID-19 has created for the Group’s operations, markets, partners and distribution channels
there is a risk that, in the event of a signifi cant and ongoing fall in sales demand, the measures described above may not be suffi cient to allow the
group to operate within current banking facilities and these conditions therefore indicate the existence of a material uncertainty which may cast
signifi cant doubt on the Company’s ability to continue as a going concern.
The fi nancial statements do not include any adjustments that would result in the basis of preparation as a going concern being inappropriate.
Changes in accounting policies and disclosures
New standards, amendments and interpretations adopted by the Group
The Group adopted IFRS 16 ‘Leases’ with effect from 1 January 2019. The standard eliminates the classifi cation of leases as either operating or
fi nance leases and introduces a single accounting model requiring lessees to recognise assets and liabilities for all leases unless the underlying
asset has a low value or the lease term is twelve months or less. Lessees are required to recognise on the balance sheet right-of-use assets which
represent the right to use underlying assets during the lease term and a lease liability representing the minimum lease payment for all leases.
Depreciation of right-of-use assets and interest on lease liabilities is charged to the income statement, replacing the corresponding operating lease
rentals. The Group has applied the modifi ed retrospective approach and therefore at the date of initial application an amount equal to the lease
liability, using appropriate incremental borrowing rates, has been recognised as a right-of-use asset. The adoption of IFRS 16 has increased both
‘Non-current assets’ and ‘Total liabilities’ at 31 December 2019 by £1.5 million, but has not had a material impact on the overall result for the year in
the income statement.
The following other new standards and amended standards, none of which have had a material impact on these fi nancial statements, are mandatory
and relevant to the Group for the fi rst time for the fi nancial period commencing 1 January 2019:
• IFRIC 23: Uncertainty over Income Tax Treatments
• Annual Improvements to IFRS Standards 2015-2017 Cycle
Accounting standards in issue but not yet effective
At the date of authorisation of these fi nancial statements the following standards and interpretations, which have not been applied in these fi nancial
statements and which are considered potentially relevant, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
• Amendments to References to the Conceptual Framework in IFRS Standards
• Amendments to IAS 1 and IAS 8: Defi nition of Material
• Amendments to IAS 1: Presentation of Financial Statements: Classifi cation of Liabilities as Current or Non-current
The Directors anticipate that the adoption of the amendments to standards in future periods will have no material impact on the recognition and
measurement of assets, liabilities and the associated performance of the Group or the Company when the relevant standards and interpretations
come into effect.
Revenue recognition
Revenue is recognised when revenue and associated costs can be measured reliably and future economic benefi ts are probable. Revenue is
measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of rebates
and settlement discounts, VAT and other sales related taxes.
Sales of goods are recognised when the risks and rewards of ownership have been transferred to the customer. For the majority of customers this
is when goods are delivered and title has passed. For others it is when goods are delivered for shipment by our contract manufacturers, depending
upon the terms and conditions of the sales contract as to when the risks and rewards of ownership are transferred.
Revenue recognition – warranty obligations
IFRS 15 ‘Revenue from customer contracts’ provides guidance on the treatment of warranties provided on the sale of goods. The Group sells
products with warranties ranging from one to ten years.
The longer-term warranties are usually applicable to products with either long-term sealed batteries or sealed CO sensors that degrade over time.
The performance of either the battery or the sensor for the warranted period of time is integral to the overall performance of the product and is a key
feature of the product at the point of sale.
The Directors have considered the guidance within IFRS 15 as to whether these warranties are assurance type or service type. Assurance warranties
solely warrant that the product will function as sold, whilst service warranties provide a higher level of assurance. Assurance warranties are not
separate performance obligations, whilst service warranties are considered separate performance obligations and revenue attributes to the service
element should be spread over the service period.
On the basis that the majority of warranties provided by the Group solely warrant that the product will operate as sold, the Directors have concluded
that these warranties are assurance type warranties and do not represent a separate performance obligation.
Interest income
Interest income is accrued on a time-apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s net carrying amount.
Accounting for discretionary payments made to customers
The Group made discretionary payments in total amounting to £0.4 million (2018: £0.6 million) to certain UK retailers in respect of maintaining the
ongoing relationship with these customers and to secure promotional activities during the year. Such costs are taken to the income statement in the
year to which they relate and are recorded in operating expenses.
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FireAngel Safety Technology Group plc
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Notes to the fi nancial statements continued
For the year ended 31 December 2019
Goodwill
Goodwill arising on consolidation represents the excess of the consideration transferred and the fair value of any previous interest in the acquired
entity over the fair value of the identifi able assets and liabilities of a subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is
separately disclosed.
Goodwill is recognised as an asset and reviewed for impairment at least annually. It is allocated to cash-generating units which represent the Group’s
investment in each country of operation. Impairment losses are recognised immediately in profi t or loss and are not subsequently reversed.
Other intangibles assets – internally-generated intangible assets
Expenditure on research activities is recognised through the income statement as incurred.
Expenditure arising from the Group’s development of future products is capitalised only if all the following conditions are met:
• an asset is created that can be identifi ed;
• it is probable that the asset created will generate future economic benefi ts;
• the development cost of the asset can be measured reliably;
• the Group has the intention to complete the asset and the ability and intention to use or sell it;
• the product or process is technically and commercially feasible; and
• suffi cient resources are available to complete the development and to either sell or use the asset.
Where these criteria have not been achieved, development expenditure is recognised through the income statement in the period in which it is
incurred.
Development expenditure is written off, except where the Directors are satisfi ed as to the innovative nature and technical, commercial and fi nancial
viability of clearly defi ned projects whose outcome can be assessed with reasonable certainty. In such cases, identifi able people and non-people
costs by product/technology are capitalised and carried forward to be amortised over the expected life of the product over which the Group is
expected to benefi t from sales of such products.
From 2017, the Group used the ‘units of production’ method of amortisation for all product development costs (excluding the costs of readying Flex
and the Far East based supplier for full manufacturing). However, as a result of a review during the year of the Group’s processes, procedures and
controls it was concluded that the ‘straight line’ method of amortisation was more appropriate given the diffi culty in accurately predicting the timing
of the take up of its connected home technology. This reverses the decision taken in 2017 to adopt the ‘units of production’ method of amortisation
which, under accounting rules, is only appropriate where demand can be measured with suffi cient reliability. The impact of the move to straight line
amortisation was to increase overheads by £0.9 million in the year.
The Directors estimate that the useful economic lives of these various intangible assets is between seven and 15 years. Amortisation commences
from the date of fi rst sale of the related product. Intangible assets are described in note 17 to the fi nancial statements.
Directly attributable costs in bringing the Group’s manufacturing assets in to use at Flex and our Far East based supplier have been amortised using
a straight-line method as the Board believes this is most appropriate given forecast production volumes. These assets are being amortised over fi ve
years.
Other intangible assets - computer software
Software capitalised is amortised at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its
estimated useful life of four years.
Plant, equipment and tooling
All plant, equipment, tooling, fi xtures and fi ttings, motor vehicles, offi ce equipment and right-of-use assets are stated at cost less accumulated
depreciation and any recognised impairment loss. A right-of-use asset is recognised at commencement of the lease and initially measured at the
amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available
for use by the Group. The right-of-use asset is subsequently measured at cost less accumulated depreciation and any accumulated impairment
losses. Right-of-use assets are depreciated on a straight-line basis over the lease term.
Subsequent costs, including replacement parts and major inspections, are capitalised only when it is probable that such costs will generate future
economic benefi ts. Any replaced parts are derecognised. All other costs of repairs and maintenance are charged to through the income statement
as incurred.
Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated
useful lives, using the straight-line method, on the following bases:
Manufacturing tooling
5 years
Fixtures and fi ttings
4 years
Motor vehicles
Offi ce equipment
4 years
3 years
Right-of-use assets
over the period of the lease
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The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the income statement.
Investment made in manufacturing tooling at Flex, the Group’s primary manufacturing partner for smoke alarms and connected products, is
depreciated over fi ve years. Regular reviews are conducted to ensure that any obsolete assets are appropriately recognised in the fi nancial
statements.
Impairment of plant and equipment and intangible assets
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. Intangible assets with an indefi nite useful life and other intangible assets not yet
available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired.
If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where
the asset does not generate cash fl ows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time
value of money and the risks specifi c to the asset (or cash-generating unit) for which the estimates of future cash fl ows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profi t or loss
immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation
increase.
Leases
On commencement of a contract which gives the Group the right to use assets for a period of time in exchange for consideration, the Group
recognises a right-of-use asset and a lease liability unless the lease qualifi es as a ‘short-term’ lease (where the term is twelve months or less with no
option to purchase the lease asset) or a ‘low-value’ lease (where the underlying asset is £4,000 or less when new).
The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the
lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. The lease term is the non-cancellable
period of the lease plus extension periods that the Group is reasonably certain to exercise and termination periods that the Group is reasonably
certain not to exercise. Lease payments include fi xed payments, less any lease incentives receivable, variable lease payments dependent on an
index or a rate and any residual value guarantees.
The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for
lease payments. Interest on the lease liability is recognised in profi t or loss. Variable lease payments not included in the measurement of the lease
liability as they are not dependent on an index or rate, are recognised in profi t or loss in the period in which the event or condition that triggers those
payments occurs.
For the 2018 comparatives only, rentals payable under operating leases were expensed on a straight-line basis over the term of the relevant lease.
Benefi ts received and receivable as an incentive to enter into an operating lease were also spread on a straight-line basis over the lease term.
Functional and presentation currency
Items included in the fi nancial information of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entity operates (‘the functional currency’). The consolidated fi nancial statements are presented in sterling, which is the functional currency
of the Group and the Group’s presentational currency.
Foreign currency transaction and balances
Foreign currency transactions are translated at the exchange rate prevailing on the date of the transaction. At each reporting date, monetary assets
and liabilities that are denominated in foreign currencies are retranslated at the exchange rate prevailing at the reporting date. Non-monetary assets
and liabilities carried at values that are denominated in foreign currencies are translated at the rates prevailing at the date when the values were
determined. Gains and losses arising on retranslation are included in the income statement for the period, except for exchange differences on non-
monetary assets and liabilities, which are recognised directly in other comprehensive income when the changes in fair value are recognised directly in
other comprehensive income.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated into the Group’s presentational currency at exchange
rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period. All resulting exchange
differences are recognised in other comprehensive income. All exchange differences arising, if any, are transferred to the Group’s foreign exchange
reserve and are recognised as income or as expenses in the period in which the operation is disposed of, or when control, signifi cant infl uence or joint
control is lost.
The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as sterling
denominated assets and liabilities.
Retirement benefi t costs
For defi ned contribution schemes the amount charged through the income statement in respect of pension costs and other post retirement
contributions is the contribution payable in the year. Differences between contributions payable in the year and contributions actually paid are shown
as either accruals or prepayments in the statement of fi nancial position.
Taxation
The tax expense represents the sum of the current tax expense and deferred tax expense.
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
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Notes to the fi nancial statements continued
For the year ended 31 December 2019
Current tax
The tax currently payable is based on taxable profi t for the year. Taxable profi t differs from accounting profi t as reported through the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability or asset for current tax is measured using tax rates that have been enacted or substantively enacted by the reporting
date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amount of assets and liabilities in
the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction which affects neither the taxable profi t nor the accounting profi t.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates
that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited through the income statement, except when
it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity, or items charged or credited directly to
other comprehensive income, in which case the deferred tax is also recognised in other comprehensive income.
Financial instruments
Financial assets and fi nancial liabilities are recognised when the Group has become a party to the contractual provisions of the instrument.
a) Financial assets
The Group categorises its fi nancial assets as: fair value through profi t and loss or at amortised cost. The classifi cation depends on the purpose for which
the fi nancial assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition.
Financial assets include ‘trade receivables’ and ‘cash and cash equivalents’.
b) Trade receivables
Trade receivables are initially measured at their transaction value and are subsequently measured at amortised cost. Under IFRS 9 the expected credit
loss model requires the Group to consider expectations of future events when determining its expectations of impairment.
c) Borrowings
Group borrowings, namely bank loans, are initially recognised at fair value and are subsequently carried at amortised cost. Fees paid on the arrangement
of the loan facility are recognised as transaction costs and spread over the life of the arrangement.
d) Financial assets at fair value through profi t and loss
Financial assets at fair value through profi t and loss are fi nancial assets held for trading. Assets in this category are classifi ed as current assets if
expected to be settled within twelve months, otherwise they are classifi ed as non-current. The only assets/liabilities currently held in this category are
forward currency derivatives (described further below) and cash and cash equivalents.
The Group does not have the right of offset between such derivatives, and so all derivatives that are fi nancial assets are shown separately from all
derivatives that are fi nancial liabilities, at each period end.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits held by the Group with maturities of less than three
months.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables
are classifi ed as current liabilities if payment is due within one year.
Provisions
Provisions for product warranty claims are recognised when the Group has a present obligation as a result of a past event which it is probable will result in
an outfl ow of economic benefi ts that can be reliably estimated.
Where the effect of the time value of money is material, the provision is based on the present value of future outfl ows, discounted at the pre-tax discount
rate that refl ects the risks specifi c to the liability. The increase in the provision due to passage of time is recognised as an interest expense.
Equity instruments
Equity instruments issued by the Company are recorded at fair value on initial recognition net of transaction costs.
Share-based payment transactions
The Group issues equity-settled share options to certain employees. Equity-settled share-based payments are measured at fair value at the date of
grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date of equity-settled share-based payments
is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of instruments that will eventually vest with a
corresponding adjustment to equity. Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted,
based on management’s best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations.
Non-vesting and market vesting conditions are taken into account when estimating the fair value of the option at grant date. Service and non-market
vesting conditions are taken into account by adjusting the number of options expected to vest at each reporting date.
Options over the Company’s shares granted to employees of subsidiaries are recognised as a capital contribution by the Company to the subsidiaries.
Operating segments
IFRS 8 requires the presentation of segmental information in relation to the Group in the Annual Report on the same basis as information reported to
the Board. The Board is considered to be the chief operating decision maker for the purposes of resource allocation. Assessment of performance is
based wholly on the overall activities of the Group. The Board considers that there are no separately identifi able business segments that are engaged
in providing individual products or services, or a group of related products and services, that are subject to risks and returns that are different to the core
business.
Non-underlying items
The Group discloses certain fi nancial information both including and excluding non-underlying items. The presentation of information excluding non-
underlying items allows a better understanding of the underlying trading performance of the Group and provides consistency with the Group’s internal
management reporting. Non-underlying items are identifi ed by virtue of their size, nature or incidence and the Directors consider that these items should
be separately identifi ed so as to facilitate comparison with prior periods and to assess the underlying trends in the fi nancial performance of the Group.
e) Financial liabilities and equity
3. Critical accounting estimates and areas of judgement
Financial liabilities and equity instruments are classifi ed according to the substance of the contractual arrangements entered into.
Impacting the Group
An equity instrument is any contract that gives a residual interest in the assets of the Group after deducting all its liabilities.
Derivative fi nancial liabilities are measured at fair value through profi t and loss; all other fi nancial liabilities are measured at amortised cost.
f) Recognition and measurement
Gains and losses arising from changes in the fair value of the ‘fi nancial assets at fair value through profi t and loss’ category are presented in the income
statement within ‘Cost of sales’ in the period in which they arise as these assets relate to the purchase of goods.
g) Impairment of fi nancial assets
The Group and Company recognise an impairment loss on fi nancial assets using the expected credit loss model by assessing the probability that the
counterparty will be unable to settle their contractual cash fl ow at the contractual due dates.
The likelihood of default and expected recoverable amounts are assessed using reasonable and supportive past and forward-looking information that is
available without undue cost. The output of the expected credit loss model is a probability-weighted amount determined from a range of outcomes.
Inventories
Inventories are stated at the lower of historical cost and net realisable value. Cost comprises direct material cost and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the fi rst-in
fi rst-out method. Net realisable value represents the estimated selling price in the ordinary course of business less all estimated costs to completion and
selling costs to be incurred. The Group’s approach to inventory provisioning is described in note 3.
Forward currency derivatives
The Group enters into derivative foreign currency forward contracts which are classifi ed as fi nancial instruments at fair value through profi t and loss.
They are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Fair value
gains and losses are recognised in profi t and loss.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by defi nition, seldom
equal the related actual results. The estimates and assumptions at the end of the accounting period that have a signifi cant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.
Warranty provision for FireAngel products
In April 2016, the Group identifi ed a non-safety critical issue in relation to certain batteries supplied by a third-party supplier that may cause a premature
low battery warning chirp in certain of its smoke alarm models sold in the UK and in Continental Europe. As a result, to support the Group’s customer
service obligations, the Board increased the Group’s total warranty provisions as at 31 December 2015 to £6.8 million and has continued to provide
replacement products in line with the Group’s contractual obligations. The Group’s total warranty provision as at 31 December 2019 increased to £3.5
million as explained below.
With specifi c reference to FireAngel products, the determination of the amount of the provision, which refl ects the Board’s best estimate of resolving
these issues, requires the exercise of signifi cant judgement. It is necessary, therefore, to form a view on matters which are inherently uncertain, such
as the returns profi le over time, the fi nal return rate, whether the return rate of each year of production will be similar, whether the return rates from
different sales channels will vary and the average cost of redress. There is a greater degree of uncertainty in assessing these factors when an issue is fi rst
identifi ed. Consequently, the continued appropriateness of the underlying assumptions will be reviewed on an ongoing basis against actual experience
and other relevant evidence, and adjustment made to the provision over time as required.
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For the year ended 31 December 2019
Impacting the Company only
Recoverability of intercompany receivables
The provision relates mainly to the high impedance battery issue and is most sensitive to the assumption regarding the fi nal return percentage rate. The
expected terminal rate of return percentage for each year of production for each market was estimated by FireAngel’s Technical team. For reference, a
10% increase in the estimated fi nal return rate, with no further improvement for each subsequent year of affected production, would result in an increase
in the provision of approximately £0.5 million. The Board is not aware of any other major warranty issues but has continued to expense FireAngel
warranty at approximately 2% of sales in the year.
During the year, the FireAngel battery warranty provision was increased by £1.4 million as lower rework yields and higher product costs compared to
those originally anticipated when the provision was estimated three years ago, were leading to increased costs of supplying replacement products. In
addition, a charge of £1.2 million was made largely to refl ect an increase in the terminal volume of units expected to be impacted by the issue based
on the level of returns currently being seen. Further to this, an amount of £1.5 million was recorded to increase the provision through a prior period
adjustment. Towards the end of 2019, continuing ongoing monitoring of warranty returns data identifi ed that the number of units expected to be
impacted by the third-party supplied battery impedance issue could be higher than originally anticipated. The need for this prior period adjustment was
due to an error in the operational assumptions made regarding product manufactured between 2016 and Q1 2018. No further increase in the number of
units impacted is expected as the issue relates only to units produced at one of the Company’s previous manufacturers in China up to the end of March
2018. Approximately £0.3 million of this additional charge has been utilised at 31 December 2019. Due to the introduction of various product design
changes, units produced at the Company’s manufacturing partner in Poland since April 2018 should not be affected by these historic issues.
To prevent the issue happening again, various product design changes were implemented at both the supplier of the batteries and to the fi rmware
used in fi nished products when manufactured at the Group’s primary smoke alarm and connected devices manufacturing partner. The group has also
reviewed its returns processes to reduce the cost of servicing product returns and has identifi ed a number of signifi cant improvements that will reduce
the cost of servicing the warranty in the fi eld going forwards.
Impairment of non-fi nancial assets
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation
can be identifi ed, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-
generating units for which a reasonable and consistent allocation basis can be identifi ed.
Intangible assets with indefi nite useful lives and other intangible assets not yet available for use are tested for impairment annually and whenever there is
an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised immediately through the income statement, unless the relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
During 2019, the Group recognised a £1.8 million impairment charge against its capitalised intangible product development costs after a thorough review
of product lines and future development costs (see note 17).
The Board notes that the Group has a signifi cant value of intangible assets on the balance sheet at the year end. Connected home intangible assets
with a net book value of £1.5 million are not yet being amortised as they are currently being developed for sale. Connected home intangible assets with
a net book value of £3.9 million are being amortised. The Board expects that in future, the vast majority of products sold will in some way be connected
(through Wi-safe 2, Z-wave or Zigbee technology) and given that the Group already has a connected homes technology product offering which is
working, the Board believes that the carrying value of connected homes technology intangibles is not impaired. In reaching this conclusion, the Board
also acknowledges the losses incurred by the Group over the past two years and the heightened risk of impairment that this leads to.
At times during the year, and at 31 December 2019, the market capitalisation of the Group was lower than Group net assets. IAS 36, Impairment of
Assets, states that this circumstance may be an indicator of impairment and accordingly the Directors have performed an impairment test on the primary
cash-generating unit of the Group (being FireAngel Safety Technology Limited). The test, details of which are given in note 16, did not indicate any such
impairment.
Inventory provision
The Group reviews each stock keeping unit (‘SKU’) on a line-by-line basis taking into account sales and gross margins achieved on every SKU over the
past 24 months and the expected sales of each SKU over the next twelve months (and beyond) and the likely gross margin thereon.
Discontinued SKUs are fully provided against (at 100% of the cost) as future sales are very unlikely. In addition, where stock is identifi ed as being slow-
moving, a 10% provision is typically booked against the cost of the stock. The Group’s stock provisioning policy reviews unit sales and margins on each
line of stock and considers the level of sales likely to be achieved in the future, and at what margin, before determining if a stock provision is required.
Historically, on eventual sale of slow-moving SKUs, the Group has not experienced any material issues where the net realisable value of stock ultimately
transpires to be less than the book value of the stock (plus associated rework costs). Moreover, where stock has been identifi ed as slow-moving, ten-
year life products are typically reworked into seven-year or fi ve-year product packaging and sold as such still at a positive net margin. Even after rework
costs, the net realisable value of slow-moving SKUs typically exceeds the combined product and rework costs. The Group is fortunate that products
are certifi ed to common European standards (and certain country standards) and many products are saleable in markets other than the original market
destination.
The inventory provision at 31 December 2019 amounted £2.4 million (2018: £2.4 million). An amount of £1.7 million was provided in the year 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.
Amounts owed by subsidiary undertakings represent interest-free loans made to the Company’s main subsidiary undertaking. The gross loan advanced
by the Company is £27.8 million.
In accordance with IFRS 9 ‘Financial Instruments’, as the subsidiary undertaking cannot repay the loan at the reporting date, the Company has made
an assessment of expected credit losses. Having considered multiple scenarios on the manner, timing, quantum and probability of recovery of the
receivables, a lifetime expected credit loss (‘ECL’) of £1.9 million has been provided.
The calculation of the allowance for lifetime expected credit losses requires a signifi cant degree of estimation and judgment, in particular determining the
probability-weighted likely outcome for each scenario considered. The Directors assessment of ECL included repayment through future cash fl ows over
time (which are inherently diffi cult to forecast for the Company given the timing of take up of its connected homes technology) and also the amount that
could be realised through an immediate sale of the subsidiary undertaking. The Directors’ assessment of repayment through future cash fl ows included
a scenario where the loan was not recovered in full. The provision is sensitive to the key assumptions inherent in the calculation.
The carrying value of amounts owed by subsidiary undertakings at 31 December 2019, net of provisions, was £25.9 million (2018: £27.3 million) and is
disclosed in note 21 to the fi nancial statements.
4. Financial risk management
The Group’s operations expose it to a variety of fi nancial risks that include the effects of changes in market prices including foreign exchange rate risk,
credit risk and liquidity risk. The Group has in place a risk management programme that seeks to limit the adverse effects on the fi nancial performance of
the Group by monitoring these risks and taking appropriate action where necessary.
Liquidity risk
Management’s objective is to meet its liabilities as they fall due whilst maintaining suffi cient headroom to enable the Board to react to unexpected
changes in market conditions. Management monitors its cash fl ows through the preparation of forecasts on a monthly basis. Cash forecasts are based
on historic trading levels, expected settlement of supplier balances and collection of trade receivables as they fall due. Subject to unforeseen adverse
trading conditions, the cash fl ows from operations are not expected to change signifi cantly from the level of underlying business performance.
Maturity analysis
The table below analyses the Group’s fi nancial liabilities on a contractual gross undiscounted cash fl ow basis into maturity groupings based on amounts
outstanding at the reporting date up to the contractual maturity date.
2019
Trade payables
Loans and borrowings
Other payables
Lease liabilities
Derivative fi nancial liabilities
Financial liabilities
2018
Trade payables
Other payables
Loans and borrowings
Financial liabilities
Within 6 months
£000
6 months to 1 year
£000
1 to 5 years
£000
Over 5 years
£000
7,355
6,985
3,282
174
401
18,197
£000
8,220
1,868
-
10,088
-
-
-
174
28
202
-
-
-
1,131
-
1,131
-
-
-
-
-
-
£000
£000
£000
-
-
-
-
-
-
5,700
5,700
-
-
-
-
Total
£000
7,355
6,985
3,282
1,479
429
19,530
£000
8,220
1,868
5,700
15,788
The table below analyses the Group’s fi nancial assets held for managing liquidity risk which are considered to be readily saleable or are expected to
generate cash infl ows to meet cash outfl ows on fi nancial liabilities.
2019
Trade receivables and other debtors
Cash and cash equivalents
Financial assets
2018
Trade receivables and other debtors
Cash and cash equivalents
Derivative fi nancial assets
Financial assets
Within 6 months
£000
6 months to 1 year
£000
1 to 5 years
£000
Over 5 years
£000
11,270
2,062
13,332
£000
10,269
1,251
214
11,734
-
-
-
-
-
-
-
-
-
£000
£000
£000
-
-
-
-
-
-
-
-
-
-
-
-
Total
£000
11,270
2,062
13,332
£000
10,269
1,251
214
11,734
54
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
55
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a
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c
a
i
l
s
t
a
t
e
m
e
n
t
s
Notes to the fi nancial statements continued
For the year ended 31 December 2019
The Group would normally expect that suffi cient cash is generated in the operating cycle to meet the contractual cash fl ows as disclosed above through
effective cash management. In addition, the Group maintained a £7.5 million invoice discounting facility with HSBC UK Bank plc secured on UK and
international trade debtors which can be accessed as required.
On 23 March 2020, the Group announced details of an open offer and placing to raise approximately £6.1 million to strengthen its balance sheet, execute
self-help plans to improve gross margin, deploy and support the connected homes technology and fund part of the additional expected liabilities for the
Company’s legacy battery warranty issue fi rst identifi ed in 2016. On 8 April 2020, the Company issued 50,623,480 new ordinary shares at 12 pence per
share as a result of valid acceptances under the open offer and placing.
Foreign currency risk
The Group operates in a number of markets across the world and is exposed to foreign exchange risk arising from various currency exposures in
particular, with respect to the US dollar and euro. The Group is exposed to foreign currency risk arising from recognised assets and liabilities as well as
commitments arising from future trading transactions. Management has a policy to manage foreign exchange risk by entering into forward exchange
contracts.
Sensitivity analysis
The Group derived the following sensitivities based on the forward rates readily available for the US dollar and euro. Management believe that these
most closely refl ect the probable performance of the various economies in which the Group’s fi nancial assets and liabilities are located.
The approximate impact on the Group’s operating result in 2020 from a one cent change in the value of the US dollar and euro against sterling on a full
year basis is approximately £0.2 million and £0.1 million respectively.
Interest rate risk
The Group regularly reviews its exposure to fl uctuations in underlying interest rates and will take appropriate action if required to minimise the impact on
the performance and fi nancial position of the Group.
Credit risk
Group credit risk predominantly arises from trade receivables and cash and cash equivalents. The Company’s credit risk arises solely from amounts
receivable from subsidiary undertakings.
Credit exposure is managed on a Group basis. External credit ratings are obtained for new customers and the Group’s policy is to assess the credit
quality of each customer internally before accepting any terms of trade. Internal procedures take into account the customer’s fi nancial position as well as
their reputation within the industry and past payment experience where relevant.
6. Revenue and segmental reporting
The Group sells and distributes home safety products and accessories in the UK, Continental Europe and certain other countries and undertakes
manufacturing activities in Canada. Its major customers are based throughout the UK, Continental Europe and in a number of other countries outside
Continental Europe. Financial information is reported to the Board on a consolidated basis with revenue and operating profi t stated for the Group.
The Board considers that there are no identifi able business segments that are engaged in providing individual products or services or a group of related
products and services that are subject to risks and returns that are different to the core business of the home safety products market in Europe.
Revenue and gross profi t for each of the Group’s business units are reviewed by the Board and rolled up into consolidated fi nancial information with non-
business unit costs included to arrive at the results that investors see. Business unit reporting to the Board generally excludes information on overheads
by business and other income statement information, which is all reported on a consolidated basis. Assets and liabilities are also generally reported to
the Board on a consolidated basis.
Revenue from continuing operations
Business Units:
UK Trade
UK Retail
UK Fire & Rescue Services
UK Utilities
International
Pace Sensors
Total revenue from external customers
2019
£000
15,221
11,266
4,718
1,455
11,140
1,686
45,486
2018
£000
12,433
8,281
4,208
2,259
8,756
1,650
37,587
All business units earn revenue from the sale of smoke alarms and CO alarms and accessories to end customers. Pace Sensors earns revenue from the
manufacture and sale of CO sensors to a third-party CO detector assembler based in China.
For 2019, revenues of approximately £5.5 million were derived from one external customer (2018: £4.5 million from one external customer), which
individually contributed over 10% of total revenue of the Group. These revenues are attributable to the UK Trade business unit in both the current and
preceding year. An analysis of the Group’s revenue is as follows:
Continuing operations:
UK
Continental Europe
Cash and cash equivalents and derivative fi nancial instruments are all held with an AA- rated bank, HSBC UK Bank plc.
Rest of World
The Group’s maximum exposure to credit risk relating to its fi nancial assets is equivalent to their carrying value as disclosed below. All fi nancial assets
have a fair value which is equal to their carrying value.
Maximum exposure to credit risk
Trade receivables and other debtors
Cash and cash equivalents
Derivative fi nancial assets
2019
£000
11,270
2,062
-
13,332
2018
£000
10,269
1,251
214
11,734
The Group did not have any fi nancial instruments that would mitigate the credit exposure arising from the fi nancial assets designated at fair value through
profi t or loss in either the current or the preceding fi nancial year.
The Company’s credit risk arises exclusively through its intercompany balances which stand at £25.9 million (2018: £27.3 million). For the Company,
impairment losses on fi nancial assets measured at amortised cost relate solely to amounts due from fellow group companies and total £1.9 million at
31 December 2019 (2018: £725,000). The impairment loss recorded against amounts due from fellow group companies is calculated based on lifetime
expected credit losses.
5. Capital management
The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade profi tably in the
foreseeable future and cash is managed on a conservative basis.
The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its cash balances on
a daily basis.
The Group considers its capital to include called up share capital, share premium account, currency translation reserve and retained earnings.
Non-current assets, excluding deferred tax assets, for UK and overseas territories are as follows:
Continuing operations:
UK
Canada
Non-current assets
7. Non-underlying items
Within cost of sales
Provision for warranty costs (note a)
Provision against stock and disposal costs (note b)
Within operating expenses
Restructuring and fundraising costs (note c)
Impairment of intangible assets (note d)
Incremental production ramp up costs (note e)
Restructuring of distribution channels (note f)
Share-based payment charges
Total non-underlying items
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
2019
£000
32,660
10,677
2,149
45,486
2019
£000
20,362
182
20,544
2019
£000
2,605
1,703
4,308
746
1,825
-
-
37
2,608
6,916
2018
£000
27,181
8,456
1,950
37,587
2018
£000
20,159
116
20,275
2018
Restated
£000
53
1,105
1,158
-
-
928
1,640
107
2,675
3,833
56
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
57
Notes to the fi nancial statements continued
For the year ended 31 December 2019
a. During the year, the FireAngel battery warranty provision, an isolated legacy issue relating to a third-party supplier fi rst identifi ed in April 2016, was
increased by £1.4 million as lower rework yields and higher product costs compared to those originally anticipated when the provision was estimated
three years ago, were leading to increased costs of supplying replacement product. In addition, a charge of £1.2 million was made to refl ect an increase
in the terminal volume of units expected to be impacted by the issue based on the level of returns currently being seen. 2018 results have been restated
by £53,000 to correct an error in the amount previously reported (see note 8).
b. Stock impairment and disposal costs of £1.7 million were provided in the year 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. In the prior year, £1.1 million was
provided against stock originally purchased for the French market to address demand driven by local legislative change.
c. Restructuring and certain fundraising costs of £0.7 million were incurred in the year.
d. Intangible capitalised development assets of £1.8 million were impaired during the year as a result of a thorough review of product lines and future
development costs.
e. In the prior year, one-off non-underlying costs of £0.9 million were incurred due to delays in reaching full production capacity and pricing expectations
at the Group’s primary smoke alarm and connected devices manufacturing partner.
f. In the prior year, non-underlying costs of £1.6 million were incurred in executing the Group’s previously announced strategy to transition from a
hardware safety products provider to a more integrated safety solutions provider. The Group took action to move from a traditional distributor model to
more value-added reseller partnerships in its German distribution channel for both its core and connected product ranges.
8. Restatement of primary statements for the year ended 31 December 2018
In addition to the items charged through the 2019 income statement in relation to the legacy battery warranty provision, an amount of £1.5 million was
recorded to increase the provision through a prior period adjustment.
Towards the end of 2019, continuing ongoing monitoring of warranty returns data identifi ed that the number of units expected to be impacted by the
third-party supplied battery impedance issue could be higher than originally anticipated. The need for this prior period adjustment was due to an
error in the operational assumptions made regarding product manufactured between 2016 and Q1 2018. No further increase in the number of units
impacted is expected as the issue relates only to units produced at one of the Company’s previous manufacturers in China up to the end of March 2018.
Approximately £0.3 million of this additional charge has been utilised at 31 December 2019. Due to the introduction of various product design changes,
units produced at the Company’s manufacturing partner in Poland since April 2018 should not be affected by these historic issues.
It was determined by the Board that the results for the year ended 31 December 2018 should be restated to refl ect the actual position and performance of
the Group for that year.
The adjustments to the fi nancial statements for the year ended 31 December 2018 are as follows:
1. Non-underlying provision for legacy battery warranty costs of £53,000.
2. Non-underlying tax credit in relation to the provision for legacy battery warranty costs of £10,000.
The adjustments to the fi nancial statements for the years ended on or before 31 December 2017 are as follows:
1. Non-underlying provision for legacy battery warranty costs of £1,479,000.
2. Non-underlying tax credit in relation to the provision for legacy battery warranty costs of £250,000.
Extract from restated consolidated income statement for the year ended 31 December 2018:
Extract from restated consolidated statement of fi nancial position as at 31 December 2018:
As previously
stated
£000
2017
Adjustment
£000
2017
Adjustment
£000
2018
Adjustment
£000
2018
Adjustment
£000
Current liabilities
Provisions
Net current assets
Non-current liabilities
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Total equity
(934)
9,492
(600)
(1,156)
(19,894)
22,311
22,311
(261)
(261)
(1,218)
-
(1,479)
(1,479)
(1,479)
-
-
-
250
250
250
250
-
-
(53)
-
(53)
(53)
(53)
9. Loss from operations
The following table analyses the nature of expenses:
Staff costs (note 10)
Depreciation, amortisation and impairment (notes 17 and 18)
- Owned assets
- Right-of-use assets
Premises costs
Cost of inventories recognised as an expense
Inventory provision recorded in year, excluding non-underlying charges
BRK distribution fee
Distribution costs
Marketing and trade contributions
Professional fees excluding Non-Executive Directors
Research and development costs
Non-underlying items excluding staff costs (note 7)
Foreign exchange revaluations and mark-to-mark movements
Other net expenses/costs
Total cost of sales and operating expenses
Loss from operations has been arrived at after charging:
Revenue
Gross profi t
Loss from operations
Loss before tax
Income tax credit
Loss attributable to equity owners of the Parent
As previously stated
Adjustment
Restated
Before non-
underlying items
£000
Non-underlying
items (note 7)
£000
Non-underlying
items (note 7)
£000
37,587
8,721
(1,991)
(2,105)
508
(1,597)
-
(1,105)
(3,780)
(3,780)
894
(2,886)
-
(53)
(53)
(53)
10
(43)
Total
£000
37,587
7,563
(5,824)
(5,938)
1,412
(4,526)
Net foreign exchange (gains)/losses excluding foreign currency forward transactions
Research and development costs
Amortisation and impairment of intangible assets
Depreciation of owned assets
Depreciation and interest on right-of-use assets
Rentals under operating leases
Amounts payable to RSM UK Audit LLP and its associates in respect of both audit and non-audit
services are set out below:
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group;
The audit of the Company’s subsidiaries
Other audit related services
Total audit fees
Taxation services
Accounting services
Total non-audit fees
Restated
£000
(1,195)
9,231
(1,871)
(896)
(21,166)
21,039
21,039
2018
Restated
£000
5,677
1,074
-
1,206
25,692
(40)
944
992
965
718
260
3,833
(504)
2,594
43,411
2018
£000
21
260
689
385
-
386
2018
£000
30
61
37
128
23
13
36
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
-
-
-
10
10
10
10
2019
£000
5,465
3,065
307
879
33,190
33
-
920
728
540
270
6,916
405
3,480
56,198
2019
£000
(210)
270
3,730
958
354
-
2019
£000
32
66
-
98
32
7
39
58
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
59
Notes to the fi nancial statements continued
For the year ended 31 December 2019
10. Staff costs
The average monthly number of employees (including Executive Directors) within the Group was as follows:
Manufacturing (Pace Sensors)
Technology
Administration
Sales and marketing
Executive and Non-Executive Directors
Warehousing
The aggregate remuneration for the above persons (excluding Non-Executive Directors) comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payment expense
Total remuneration
Less: Capitalised product development costs
Staff costs in prepayments
Total remuneration charged to the income statement
11. Finance costs
Interest expense on bank balance
Lease liability interest expense
Total fi nance costs
12. Income tax
Current tax
UK corporation tax credit
UK – adjustments in respect of prior periods (credit)/charge
Foreign tax charge
Deferred tax (note 27)
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Income tax credit
2019
Number
2018
Number
23
40
48
27
7
4
27
42
49
27
6
3
149
154
2019
£000
6,341
598
214
37
7,190
(1,635)
(90)
5,465
2019
£000
(265)
(47)
(312)
2018
£000
6,338
614
213
107
7,272
(1,595)
-
5,677
2018
£000
(114)
-
(114)
2019
£000
2018 Restated
£000
(707)
(47)
46
(708)
(1,024)
128
(1,604)
(686)
61
27
(598)
(814)
-
(1,412)
Domestic income tax is calculated at 19.00% (2018: 19.00%) of the estimated assessable profi t or loss for the year.
The tax credit for the year can be reconciled to the profi t per the consolidated
income statement as follows:
Loss before tax
Tax at the domestic income tax rate of 19.00% (2018: 19.00%)
Tax effect of expenses that are not deductible in determining taxable profi t
Effect of allowance for capitalised development expenditure
Adjustments in respect of prior periods
Deferred tax not recognised
Impact of foreign tax rates
Difference in current and deferred tax rates
Other adjustments
Tax credit and effective tax rate for the year
60
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
2019
£000
2018 Restated
£000
%
%
(11,024)
(2,095)
60
(305)
81
437
23
168
27
(5,938)
(1,128)
13
(295)
(69)
-
1
96
(30)
(1,604)
15%
(1,412)
24%
The weighted average applicable tax rate was 15% (2018: 24%). The tax credit for 2019 is largely due to enhanced research and development tax relief
at a rate of 230% and operating losses in the year of £11.0 million.
Tax losses are, where possible, realised during the year through surrender for research and development tax credits.
At 31 December 2019 there is a deferred tax asset of £437,000 which has not been recognised as the timing of utilisation is uncertain. Deferred tax
assets should only be recognised where they are more likely than not to be realised. Whilst the Group expects a return to profi tability in the future, the
generous deduction available for research and development expenditure means that it is likely to be several years before these losses will need to be
accessed.
The income tax charged to equity during the year was as follows:
Deferred tax
Share-based payments
Income tax charge
13. Dividends
2019
£000
-
-
2018
£000
(260)
(260)
As a result of the loss reported for the year, and consistent with the decision not to pay an interim dividend (2018: nil pence per share), the Directors do
not recommend payment of a fi nal dividend for the year (2018: nil pence per share). The total dividend payable for 2019 is therefore nil pence per share
(2018: nil pence per share).
14. Earnings per share
Earnings from continuing operations
Earnings for the purposes of basic and diluted earnings per share (loss for the year attributable to owners of the Parent)
Number of shares
Weighted average number of ordinary shares – basic calculation
Dilutive potential ordinary shares from share options
Weighted average number of ordinary shares – diluted calculation
Basic earnings per share
Diluted earnings per share
2019
£000
(9,420)
‘000
67,219
-
67,219
2019
pence
(14.0)
(14.0)
2018 Restated
£000
(4,526)
‘000
45,905
30
45,935
2018 Restated
pence
(9.9)
(9.9)
Basic EPS is calculated by dividing the earnings attributable to ordinary owners of the parent by the weighted average number of shares outstanding
during the period.
Diluted EPS is calculated on the same basis as basic EPS but with a further adjustment to the number of weighted average shares in issue to refl ect the
effect of all potentially dilutive share options. The number of potentially dilutive share options is derived from the number of share options and awards
granted to employees and Directors where the exercise price is less than the average market price of the Company’s ordinary shares during the period.
Under IFRS no allowance is made for the dilutive impact of share options which reduce a loss per share. The basic and diluted EPS measures are
therefore the same for the year ended 31 December 2019.
15. Financial instruments
2019 Financial assets
Trade receivables and other debtors
Cash and cash equivalents
Total
2018 Financial assets
Trade receivables and other debtors
Cash and cash equivalents
Derivative fi nancial assets
Total
Assets at fair
value through
profi t and loss
£000
Financial
assets at
amortised cost
£000
-
2,062
2,062
11,270
-
11,270
Assets at fair
value through
profi t and loss
£000
Financial
assets at
amortised cost
£000
-
1,251
214
1,465
10,269
-
-
10,269
Total
£000
11,270
2,062
13,332
Total
£000
10,269
1,251
214
11,734
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
61
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a
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a
t
e
m
e
n
t
s
Notes to the fi nancial statements continued
For the year ended 31 December 2019
2019 Financial liabilities
Trade payables
Loans and borrowings
Other payables
Lease liabilities
Derivative fi nancial liabilities
Total
2018 Financial liabilities
Trade payables
Other payables
Loans and borrowings
Total
Liabilities at fair
value through
profi t and loss
£000
Financial
liabilities held at
amortised cost
£000
Total
£000
7,355
6,985
3,282
1,479
429
Total
£000
8,220
1,868
5,700
7,355
6,985
3,282
1,479
-
8,220
1,868
5,700
15,788
15,788
-
-
-
-
429
429
-
-
-
-
19,101
19,530
Liabilities at fair
value through
profi t and loss
£000
Financial
liabilities held at
amortised cost
£000
At 31 December 2019 the Company held fi nancial assets held at amortised cost in the form of intercompany balances to the value of £25.9 million
(2018: £27.3 million). At the same date the Company had a fi nancial liability held at amortised cost in the form of borrowings to the value of £nil (2018:
£5.7 million).
Credit risk management
The Group’s exposure to credit risk is limited to the carrying amount of fi nancial assets recognised at the balance sheet date, which are set out below.
Trade and other receivables
2019
£000
11,270
11,270
2018
£000
10,269
10,269
The Group has applied the IFRS 9 simplifi ed approach in measuring the lifetime expected credit losses for trade receivables. The credit loss provision
has been calculated using a provision matrix based on the Group’s historic default rates over the expected life of the asset and is adjusted where
needed for forward looking estimates. The expected losses are based on the experience over the past twelve months with trade receivables grouped
together on similar credit risk and aging.
As at 31 December 2019 a credit loss provision of £7,000 (2018: £10,000) was held against the exposure of potential bad debts.
16. Goodwill
Cost and carrying value
Cost and carrying value of goodwill at 31 December 2019 and 2018
The goodwill above relates solely to Pace Sensors.
£000
169
Group impairment test
At times during the year, and at 31 December 2019, the market capitalisation of the Group was lower than Group net assets. IAS 36, Impairment of
Assets, states that this circumstance may be an indicator of impairment and accordingly the Directors have performed an impairment test on the primary
cash-generating unit of the Group (being FireAngel Safety Technology Limited). The test did not indicate any such impairment and the key disclosures
relating to the test are set out below.
The carrying amount of the cash-generating unit assets and liabilities at 31 December 2019 amounted to £22.1 million. The recoverable amount of the
cash-generating unit is determined based on a value-in-use calculation which uses cash fl ow projections based on fi nancial budgets and business plans
approved by the Directors covering a two-year period. Cash fl ows beyond that period have been extrapolated using a steady 2.0% per annum growth
rate, which the Directors consider to be specifi c to the business and does not exceed the UK long-term average growth rate.
The key inputs to the cash fl ow forecasts are:
• forecasted changes in revenue taking into account future expectations of revenue streams and sales mix linked to the Board’s strategic plans;
• forecasted changes in gross margin taking into account expected improvements in production effi ciencies at the Group’s outsourced manufacturers,
simplifi cation afforded by modular product design, foreign exchange trends and sales mix;
• future anticipated capital expenditure; and
• requirements for working capital based on revenue growth.
The key assumptions used in the cash fl ow projections are a terminal value applied after fi ve years assuming a 7.5 times multiple and pre-tax weighted
average cost of capital of 15.3% cross-referenced to comparable companies operating within the sector. The other key assumptions have been
assigned values by the Directors using estimates based on past experience and expectations of future performance.
Based on these assumptions, the value-in-use calculation amounted to £56.8 million compared with the carrying amount of £22.1 million. The Directors
believe that, based on the sensitivity analysis performed and described below, any reasonably possible change in the key assumptions on which the
recoverable amounts are based would not cause the Group’s net asset value to exceed the recoverable amount. As a result, there is no impairment in the
period (2018: no impairment).
In assessing the impact on the value-in-use calculation of changes in the assumptions used, the Directors considered the following sensitivities:
• a restriction in the gross margin in 2021 and thereafter to that expected to be achieved in 2020;
• an increase in overheads in 2021 and in each year thereafter;
• an increase in capital expenditure in 2021 and in each year thereafter; and
• an increase in working capital required as a percentage of revenue in 2020 and maintained thereafter.
In performing this sensitivity analysis, the Directors noted the signifi cant headroom of the value-in-use calculation compared with the carrying value in
each of the scenarios above.
17. Other intangible assets
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Additions
At 31 December 2019
Amortisation
At 1 January 2018
Amortisation for the year
Impairment for the year
Disposals
At 31 December 2018
Amortisation for the year
Impairment for the year
At 31 December 2019
Carrying amount
At 31 December 2018
At 31 December 2019
Product
development
costs
£000
Purchased
software
costs
£000
Computer
software
costs
£000
12,874
3,387
(280)
15,981
2,867
18,848
2,492
617
30
(280)
2,859
1,660
1,825
6,344
13,122
12,504
2,574
325
-
2,899
-
2,899
-
-
-
-
-
407
-
407
2,899
2,492
387
28
-
415
15
430
294
42
-
-
336
38
-
374
79
56
Total
£000
15,835
3,740
(280)
19,295
2,882
22,177
2,786
659
30
(280)
3,195
2,105
1,825
7,125
16,100
15,052
The amortisation charge of £2,105,000 (2018: £659,000) and impairment charge of £1,825,000 (2018: £30,000) have been recognised within operating
expenses.
A summary of intangible costs as at 31 December 2019 is shown in the table which follows.
Except as outlined below, intangible assets are typically amortised over seven to 12 years depending on the Group’s assessment of the likely period of
time over which the benefi t from the technology is expected to be realised.
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63
Notes to the fi nancial statements continued
For the year ended 31 December 2019
Impairment review
During 2019, the Group recorded a £1.8 million impairment charge (2018: £30,000) against projects which were no longer considered to be commercially
viable after a thorough review of product lines and future development costs.
As part of the impairment review, the Group compares the net book value of each intangible asset with the gross profi t which is expected to be derived
from the sale of products over the next one to fi ve years that use the relevant intangible asset. The purpose of this review is to ensure that the value of
the intangible asset is likely to be recovered within the foreseeable future. In many cases, the expected gross profi t over the next two to three years from
the sale of products that use the intangible asset is materially greater than the net book value of the individual intangible asset on the balance sheet. This
provides signifi cant comfort that the carrying value of the intangible is supportable and, therefore, is not impaired.
Assessing the potential sales of products such as the Group’s connected homes technology is inherently more diffi cult than products where the run rate
of sales is already well known and the pattern of sales is established. The Board expects that the take up of connected homes technology products will
increase over time as the technology gradually becomes mainstream, and is pleased with the good progress made in trials currently underway.
Change in method of amortisation
From 2017, the Group used the ‘units of production’ method of amortisation for all product development costs (excluding the costs of readying Flex and
the Far East based supplier for full manufacturing). However, as a result of a review during the year of the Group’s processes, procedures and controls
it was concluded that the ‘straight line’ method of amortisation was more appropriate given the diffi culty in accurately predicting the timing of the take
up of its connected home technology. This reverses the decision taken in 2017 to adopt the ‘units of production’ method of amortisation which, under
accounting rules, is only appropriate where demand can be measured with suffi cient reliability. The impact of the move to straight line amortisation was
to increase operating expenses by £0.9 million in the year.
Projects being amortised
Projects not currently being
amortised
Connected
homes
£000
Wi-safe 2
£000
Nano
£000
Mains-
powered
£000
Smoke-
sensing
products
£000
Manu-
facturing
setup costs
£000
Other
£000
Total
£000
Future
projects
£000
Connected
homes
£000
Total
£000
Grand
Total
£000
Cost
At 1 January 2019
4,909
2,353
1,567
1,280
1,803
1,688
1,764
15,364
Projects amortised in
2019
Technical costs
capitalised
Employment costs
capitalised
Total additions
18
46
40
86
(430)
32
-
-
-
-
-
-
-
-
-
-
203
-
234
57
25
33
58
336
-
336
-
-
-
407
73
480
At 31 December 2019
5,013
1,923
1,599
1,280
2,064
2,024
1,998
15,901
588
289
3,516
18,880
(57)
-
615
825
1,232
592
1,562
1,635
1,207
2,387
2,867
2,084
5,846
21,747
Amortisation
At 1 January 2019
Charge
Impairment
38
805
255
At 31 December 2019
1,098
Carrying amount
At 1 January 2019
At 31 December 2019
4,871
3,915
% of total
26%
7%
9%
*Analysed in more detail on the following pages.
Projects being amortised
548
220
68
836
147
153
-
300
192
135
-
327
700
202
424
90
1,144
2,859
418
-
134
284
2,067
1,031
1,326
508
1,562
5,957
-
-
545
545
-
-
794
794
1,805
1,420
1,088
1,103
1,087
1,299
738
1,598
1,516
620
12,505
*2,928
588
3,516
436
9,944
*3,513
1,539
5,052
5%
10% 3% 66%
24%
10% 34%
953
6%
2,859
2,067
1,825
6,751
16,021
14,996
100%
2,928
(346)
210
970
1,180
3,762
-
-
249
249
Wi-safe 2
Wi-safe 2 (including products using Wi-safe 2 capabilities) are an enhancement and development of the Group’s Wi-safe I technology with a combined
net book value of £1.1 million at 31 December 2019 (2018: £1.8 million). Wi-safe 2 is core technology which underpins a number of key products and
accessories, including the Group’s connected homes technology.
Nano
Nano is the Group’s miniaturised CO sensor developed by FireAngel’s wholly-owned subsidiary in Canada, Pace Sensors. The Nano went into
production into fi nished CO detectors in November 2016. The net book value of Nano technology was £1.3 million at 31 December 2019 (2018: £1.4
million) and represents the costs incurred in the development of the CO sensor and the fi nal development of fi nished CO products which incorporate the
sensor.
Mains-powered products
Mains-powered products include FireAngel Specifi cation and FireAngel Pro ranges which at 31 December 2019 had a net book value of £1.0 million
(2018: £ 1.1 million).
Smoke-sensing products
The net book value of non mains-powered smoke-sensing products (being heat and optical products) at 31 December 2019 was £0.7 million (2018: £1.1
million). This category includes all FireAngel’s own-brand developed products.
Manufacturing setup costs
The net book value of manufacturing setup costs at 31 December 2019 was £1.5 million (2018: £1.6 million), and includes costs incurred by the Group’s
Technical and Project Management teams in preparing its Polish manufacturing partner to produce FireAngel products and in preparing the Group’s Far
East based supplier to produce replacements to the BRK range. Such costs have been included within intangible assets and are being amortised over
fi ve years.
Other projects
The net book value of other projects at 31 December 2019 amounted to £0.4 million (2018: £0.6 million). This includes FireAngel’s 10-year life CO alarm
and the CO alarm developed for British Gas.
Projects not currently being amortised
Product development costs and other intangible assets not yet available for use are regularly tested for impairment. This assessment includes
consideration of the likely costs of completing the project, the time to market and an assessment of the potential sales and gross profi t opportunity using
the relevant technology.
Future projects
Future projects have a combined net book value of £3.5 million at 31 December 2019 (2018: £2.9 million). This includes the major project development
activities of the Group, including ‘Gen 5’ costs of £2.5 million. Gen 5 is the next generation of smoke, heat, CO and combined alarms. Gen 5 will be a
common platform across all product types and will allow the Group to develop new products using ‘bookshelf’ technologies developed as part of this
project. As well as standalone smoke, heat and CO alarms, combination alarms utilise all three of these sensing methods in a single product that can
use CO and heat to augment smoke measurements to improve the rapid detection of fi res, while further reducing the incidence of false alarms. Gen 5
also provides enhanced data logging of events and the ability for wireless diagnostic downloads to a smartphone, enabling service technicians to easily
access diagnostic data on the alarm without the need to remove it from the base. The Group has also invested £0.7 million in developing its mains-
powered Wi-safe 2 CO alarm which is expected to be rolled out shortly. In addition, a total of £0.3 million has been capitalised in relation to a number of
smaller product developments.
Connected homes technology
Connected homes technology which is not currently in use includes approximately £1.5 million at 31 December 2019 (2018: £0.6 million) in total of
specifi c product development costs. The Group continues to invest in its FireAngel Connected B2B and B2C offerings which include new gateway
products, end mobile user apps and web interfaces.
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The following is a high-level summary of the projects being amortised which are set out in the table above.
Connected homes technology
Connected homes technology products connect a range of FireAngel’s own products, through its interface gateway technology, to the internet. This
technology is key to the Group’s growth in sales in the year, particularly in UK Trade and UK Retail, and is the cornerstone of the ongoing trials with a
number of UK Housing Associations.
During 2019, the Group redeveloped its FireAngel Connect B2B offering to incorporate a new range of Amazon Web Services (‘AWS’) technologies
which make the system more scalable. In addition, signifi cant development was undertaken to develop a B2C offering, which includes new gateway
products, end mobile user apps and web interfaces.
The total net book value at 31 December 2019 of projects being amortised with connected homes technology amounted to £3.9 million (2018: £4.9
million) which includes £2.5 million incurred to purchase core software modules from Intamac.
64
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Annual Report and Accounts 2019
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Annual Report and Accounts 2019
65
Notes to the fi nancial statements continued
For the year ended 31 December 2019
18. Property, plant and equipment
Tooling
£000
Offi ce
equipment
£000
Motor
vehicles
£000
Fixtures &
fi ttings
£000
Right-of-use
assets
£000
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Recognition of right-of-use assets on initial application of IFRS 16
Restated opening book cost 1 January 2019
Additions
Disposals
At 31 December 2019
Accumulated depreciation
At 1 January 2018
Depreciation charge for the year
Effect of exchange rates
At 31 December 2018
Depreciation charge for the year
Disposals
Effect of exchange rates
At 31 December 2019
Net book value
At 31 December 2018
At 31 December 2019
1,382
2,288
-
3,670
-
3,670
724
(15)
4,379
-
156
-
156
789
-
-
1,400
51
(38)
1,413
-
1,413
89
(5)
1,497
950
179
(10)
1,119
122
(2)
-
945
1,239
3,514
3,434
294
258
12
-
(5)
7
-
7
-
-
7
7
2
(5)
4
2
-
-
6
3
1
432
3
-
435
-
435
28
(55)
408
192
48
-
240
47
(22)
(4)
261
195
147
-
-
-
-
768
768
1,022
-
1,790
-
-
-
-
307
-
-
307
-
1,483
Total
£000
3,226
2,342
(43)
5,525
768
6,293
1,863
(75)
8,081
1,149
385
(15)
1,519
1,267
(24)
(4)
2,758
4,006
5,323
The total depreciation expense of £1,267,000 (2018: £385,000) has been charged to operating expenses.
There are no material capital commitments at the balance sheet date.
Leases under IFRS 16
The Group leases a variety of offi ces, warehouses, equipment and vehicles. Rental contracts are typically made for fi xed periods of three to fi ve years.
IFRS 16 eliminates the classifi cation of leases as either operating or fi nance leases and introduces a single accounting model requiring lessees to
recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is twelve months or less. At 1 January 2019
the Group did not recognise a number of its offi ce leases under IFRS 16 as the remaining lease term was less than twelve months. These leases were
renewed in 2019 and at this point were accounted for under IFRS 16.
Until 1 January 2019, leases of property, plant and equipment were classifi ed as either fi nance leases or operating leases. From 1 January 2019, leases
are recognised as right-of-use assets with corresponding liabilities at the date at which the leased assets are available for use by the Group.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received; and
• any initial direct costs.
Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Lease liabilities are calculated based on the net present value of the fi xed lease payments. The lease payments are discounted using the interest rate
implicit in the lease. Where there is no implicit rate, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to
borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and
conditions.
Differences between the operating lease commitments disclosed at 31 December 2018 under IAS 17 discounted at the incremental borrowing rate at 1
January 2019 and lease liabilities recognised at 1 January 2019 are explained below:
Minimum operating lease commitments disclosed as at 31 December 2018
Include break clauses included under IFRS 16
Exclude operating leases not treated under IFRS 16
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Lease liability recognised as at 1 January 2019
66
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
£000
628
338
(132)
(66)
768
The following table breaks down the net book value of right-of-use assets by category:
Carrying amount of right-of-use assets by category:
Land and buildings
Plant and machinery
Vehicles
Total carrying amount presented within property, plant and equipment
The following depreciation and interest have been charged to profi t and lost in the period:
Depreciation charge for the year included in operating expenses
Land and buildings
Plant and machinery
Vehicles
Total depreciation charge on leased assets
Interest expense for the year recognised in fi nance costs
Land and buildings
Plant and machinery
Vehicles
Total interest expense on lease liabilities
19. Shares in subsidiaries
Company
Cost
At 1 January 2019 and 31 December 2019
Accumulated impairment
At 1 January 2019 and 31 December 2019
Net book value
At 1 January 2019 and 31 December 2019
2019
£000
1,464
11
8
1,483
Shares
£000
149
-
149
1 January 2019
£000
725
19
24
768
2019
£000
284
8
15
307
2019
£000
45
1
1
47
Total
£000
149
-
149
The Group has two non-trading subsidiary companies, AngelEye Corporation and AngelEye Incorporated, both, registered in North America.
The Company’s subsidiaries as at 31 December 2019 are as follows:
Name of subsidiary
FireAngel Safety Technology Limited
Pace Sensors Limited
AngelEye Corporation
AngelEye Incorporated
Registered
offi ce (see
footnote)
Place of
incorporation
(or registration)
and operation
Proportion
of ownership
interest %
Proportion of
voting power
held %
1
2
3
4
UK
Canada
Canada
USA
100
100
100
100
100
100
100
100
Principal activity
Distribution of smoke and CO alarms
Manufacture of CO sensors
Non-trading
Non-trading
1. Vanguard Centre, Sir William Lyons Road, Coventry, CV4 7EZ, UK
2. 3-3165 Unity Dr., Mississauga, ON, L5L 4L4, Canada
3. 82 Bilbermar Drive, Richmond Hill, ON, L4S 1C1, Canada
4. The Corporation Trust Company, 1209 Orange Street, Wilmington, DE, 19801, USA
The results of all subsidiary undertakings are included in the consolidated accounts.
FireAngel Safety Technology Group plc has direct holdings in FireAngel Safety Technology Limited, AngelEye Corporation and AngelEye Incorporated. It
has an indirect holding in Pace Sensors Limited, via AngelEye Incorporated.
Company impairment test
As part of the Group impairment test detailed in note 16, the Directors considered the need to impair the carrying value of the Company’s shares in its
subsidiaries. In common with the conclusion reached in the Group impairment test, no impairment was considered necessary in the period (2018: no
impairment).
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
67
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For the year ended 31 December 2019
20. Inventories
Raw materials
Work-in-progress
Finished goods
Total gross inventories
Inventory provisions
Total net inventories
Group
2019
£000
126
265
8,310
8,701
(2,397)
6,304
Group
2018
£000
131
562
10,102
10,795
(2,370)
8,425
Company
2019
£000
Company
2018
£000
-
-
-
-
-
-
-
-
-
-
-
-
Pace Sensors Limited, the Group’s wholly-owned subsidiary in Canada, manufactures CO sensors for use in the Group’s CO alarms. The CO sensors
are shipped to Pace Technologies, an independent third-party supplier based in China, for assembly into fi nished CO alarms, which are then purchased
by the Group in the UK. The Group does not maintain a provision for unrealised profi t in CO sensors within fi nished CO alarm stock, as CO sensors are
sold to an independent third party, Pace Technologies, before being acquired as fi nished CO alarm products and put into stock by the Group.
Stock impairment and disposal costs of £1.7 million were provided in the year 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. In the prior year, £1.1 million was
provided against stock originally purchased for the French market to address demand driven by local legislative change.
21. Financial assets
Trade receivables and other debtors
Cash and cash equivalents
Derivative fi nancial assets
Maximum exposure to credit risk
Group
2019
£000
11,270
2,062
-
13,332
Group
2018
£000
10,269
1,251
214
11,734
Company
2019
£000
Company
2018
£000
25,947
27,343
4
-
1
-
25,951
27,344
The Directors are of the opinion that whilst there are signifi cant concentrations of credit risk, customer payments are closely scrutinised to ensure debts
are paid on time and credit limits are reasonably adhered to.
The fair value of the fi nancial assets is not considered to be materially different from their carrying value.
Trade and other receivables for the Company represents balances owed to it by fellow Group undertakings.
Trade and other receivables comprise:
Trade receivables
Amounts due from fellow group companies
Other debtors
Prepayments
Trade and other receivables
Group
2019
£000
10,316
-
1,307
450
12,073
Group
2018
£000
9,589
-
680
523
Company
2019
£000
Company
2018
£000
-
-
25,947
27,343
-
-
-
-
10,792
25,947
27,343
The primary credit risk relates to customers which potentially may be unable to settle their debts with the Group. The average credit period taken on sale
of goods is 59 days (2018: 89 days). There are no provisions for impairment losses in respect of trade and other receivables.
The Directors believe that the carrying value of trade and other receivables represents their fair value. In determining the recoverability of trade
receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date. Factors
considered include a review of past payment history and the current fi nancial status of customers and the ongoing relationship with the Group. Credit
limits are kept under review to ensure customers are not exceeding agreed terms.
Domestic trade debtors are pledged as security to the Group’s bankers as part of the Group’s banking facilities. The domestic trade debtor balance at
31 December 2019 was £7.9 million (31 December 2018: £7.8 million). At 31 December 2019 £8.0 million (2018: £7.8 million) of trade receivables were
denominated in sterling, £0.5 million (2018: £0.8 million) in US dollars and £1.8 million (2018: £1.0 million) in euros.
At 31 December 2019, cash of £1.6 million (2018: overdrawn balance of £1.1 million) was denominated in sterling, an overdrawn balance of £0.8 million
(2018: cash of £2.3 million) in US dollars, cash of £0.1 million (2018: cash of £0.2 million) in Canadian dollars and a cash balance of £1.2 million (2018:
overdrawn balance of £0.1 million) in euros. At the year end, all other fi nancial assets held were denominated in sterling.
Amounts owed by fellow group companies represent interest-free loans made to the Company’s main subsidiary undertaking. The gross loan advanced
by the Company is £27.8 million. Whilst the loan is legally repayable on demand, the Company has confi rmed to the subsidiary undertaking that it does
not intend to demand repayment within at least one year.
In accordance with IFRS 9 ‘Financial Instruments’, as the subsidiary undertaking cannot repay the loan at the reporting date, the Company has made
an assessment of expected credit losses. Having considered multiple scenarios on the manner, timing, quantum and probability of recovery on the
receivables, a lifetime expected credit loss of £1.9 million has been provided. Further details are given in note 3.
The carrying value of amounts owned by subsidiary undertakings at 31 December 2019, net of provisions, was £25.9 million (2018: £27.3 million).
22. Derivative fi nancial instruments
Assets
Foreign currency forward contracts
Liabilities
Foreign currency forward contracts
2019
£000
-
429
2018
£000
214
-
Derivative fi nancial instruments are classifi ed between current and non-current based on the date of their maturity. They are measured at their fair value.
The maturity of all forward contracts at each year end was less than twelve months, and therefore all contracts are classifi ed as current.
The notional principal amounts of the outstanding foreign currency forward contracts at 31 December 2019 were US $14.7 million (2018: US $8.1
million), sterling of £3.6 million (2018: £nil) and euro of €nil (2018: €nil).
Gains and losses on foreign currency forward contracts are recognised within cost of sales each month, as the forward contracts are utilised to mitigate
foreign currency risk associated with product sales and purchases in currencies other than the Group’s sterling functional currency.
23. Loans and borrowings
Bank term loan
Invoice discounting facilities
Group
2019
£000
-
6,985
6,985
Group
2018
£000
5,700
-
5,700
Company
2019
£000
Company
2018
£000
-
-
-
5,700
-
5,700
On 16 April 2019, the Company raised £6.0 million through the issue of 30,000,000 new ordinary shares at an issue price of 20p per share and incurred
fundraising costs of £0.5 million. In conjunction with the fundraising, the Group restructured its borrowing facilities with HSBC and moved from a
revolving credit facility to an invoice discounting facility. As such, in the year the Group repaid the £7.0 million loan drawn under the previous revolving
credit facility, £1.3 million of which had been drawn since the beginning of the period, and drew down £7.0 million from the invoice discounting facility.
At 31 December 2019 the Group had lease liabilities totalling
£1.5 million detailed below:
Maturity analysis of lease liabilities:
Land and buildings
Plant and machinery
Vehicles
Total lease liabilities
Within 6
months
£000
6 months to
1 year
£000
1 to 5 years
£000
Over 5 years
£000
Total at 31
December 2019
£000
166
2
6
174
170
1,123
1
3
8
-
174
1,131
-
-
-
-
1,459
11
9
1,479
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24. Fair value disclosures
The total net loss on forward contracts recognised in the income statement for the year ended 31 December 2019 was £0.6 million (2018: gain of £0.6
million) and is included within cost of sales.
The table below analyses fi nancial instruments carried at fair value, by valuation method. The different levels have been defi ned as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,
derived from prices) (level 2)
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3)
The following table presents the Group’s fi nancial assets and liabilities that are measured at fair value at the last two year ends. All assets and liabilities
measured are valued at level 2.
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Assets
Foreign currency forward contracts
Liabilities
Foreign currency forward contracts
25. Provisions
At 1 January 2017
Credit/(charge) in year (Restated)
Utilisation in year
At 1 January 2018 (Restated)
Charge in year (Restated)
Utilisation in year
At 31 December 2018 (Restated)
Charge in year
Utilisation in year
At 31 December 2019
2019
£000
-
429
FireAngel
warranty
provisions
£000
BRK Brands
warranty
provisions
£000
5,317
(86)
(1,835)
3,396
634
(1,098)
2,932
2,605
(2,072)
3,465
260
245
(228)
277
30
(173)
134
-
(106)
28
2018
£000
214
-
Total
£000
5,577
159
(2,063)
3,673
664
(1,271)
3,066
2,605
(2,178)
3,493
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Annual Report and Accounts 2019
FireAngel Safety Technology Group plc
Annual Report and Accounts 2019
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Notes to the fi nancial statements continued
For the year ended 31 December 2019
The total warranty provision is classifi ed between less than one year and greater than one year as follows:
Current provision
Non-current provision
Total warranty provisions
Review of warranty provision
2019
£000
1,496
1,997
3,493
2018
Restated
£000
1,195
1,871
3,066
In assessing the adequacy of the warranty provision, it is necessary to form a view on matters which are inherently uncertain, such as the returns profi le
over time, the fi nal return rate, whether the product return rates of each year of production will be similar, whether the return rates from different sales
channels will vary and the average cost of redress.
There is a greater degree of uncertainty in assessing these factors when an issue is fi rst identifi ed although with the known battery warranty issue (which
represents the majority of the provision) the Board has considerably more experience of the returns rates having monitored product returns by year of
manufacture by market for several years. Consequently, the continued appropriateness of the underlying assumptions is reviewed on an ongoing basis
against actual experience and other relevant evidence and adjustment made to the provision over time as required.
During the year, the FireAngel battery warranty provision was increased by £1.4 million as lower rework yields and higher product costs compared to
those originally anticipated when the provision was estimated three years ago, were leading to increased costs of supplying replacement product. In
addition, a charge of £1.2 million was made to refl ect an increase in the terminal volume of units expected to be impacted by the issue based on the level
of returns currently being seen.
Provisions as at 1 January 2018 have been restated by £1.5 million refl ecting the prior period adjustment additional warranty provision charge for 2016
and 2017. The charge for 2018 has been restated by £53,000 refl ecting the additional warranty provision charge for 2018 (see notes 7 and 8).
26. Trade and other payables
Trade payables
Accruals and deferred income
Other tax and social security
Group
2019
£000
7,355
3,282
1,513
Group
2018
£000
8,220
1,868
1,377
12,150
11,465
Company
2019
£000
Company
2018
£000
-
-
-
-
-
-
-
-
At 31 December 2019, £0.5 million (2018: £1.2 million) of payables were denominated in sterling, £0.2 million (2018: £0.2 million) in euros and £6.6 million
(2018: £6.8 million) in US dollars. Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 76 days (2018: 137 days). Creditor days in 2018 were unusually high due to the delayed payment
terms negotiated as part of the BRK Settlement Agreement.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
27. Deferred tax
Deferred tax liabilities
Deferred tax assets
Net position at 31 December
The movement in the year in the Group’s net deferred tax position was as follows:
At 1 January
Credit/(charge) to income for the year
Charge to equity for the year
At 31 December
The following are the major deferred tax liabilities and assets recognised by the Group
and the movements thereon during the period:
Deferred tax liabilities
At 1 January 2019
Credit to income for the year
At 31 December 2019
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Annual Report and Accounts 2019
2019
£000
2018 Restated
£000
2017 Restated
£000
(2,404)
1,508
(896)
(1,974)
523
(1,451)
2018 Restated
£000
2017 Restated
£000
(2,364)
2,364
-
2019
£000
(896)
896
-
-
(1,450)
814
(260)
(896)
Derivative
fi nancial
instruments
£000
Non-current
asset timing
differences
£000
38
(6)
32
2,366
(34)
2,332
(777)
(613)
(61)
(1,451)
Total
£000
2,404
(40)
2,364
Deferred tax assets
At 1 January 2019 (Restated)
Credit/(charge) to income for the year
At 31 December 2019
Deferred
tax losses
£000
Derivative
fi nancial
instruments
£000
Share-based
payments
£000
1,501
853
2,354
(6)
7
1
13
(4)
9
Total
£000
1,508
856
2,364
As at 31 December 2019 there is an unrecognised net deferred tax asset of £437,000. This has not been recognised due to uncertainty as to when the
asset will be utilised by the Group. Whilst the Group expects a return to profi tability in the future, the generous deduction available for research and
development expenditure means that it is likely to be several years before these losses will need to be accessed.
28. Retirement benefi ts - defi ned contribution plan
The Group operates a defi ned contribution retirement benefi t plan. The assets of the scheme are held separately from those of the Group in an
independently-administered fund. The pension cost charge of £0.2 million (2018: £0.2 million) represents contributions payable by the Group to the fund
for the year. Contributions amounting to £nil (2018: £24,000) were payable at the year end.
29. Called up share capital
Authorised:
100,000,000 ordinary shares of 2p each
Ordinary shares in issue:
As at 1 January
Issue of shares in respect of capital raise
Issue of shares in respect of share options exercised
As at 31 December
Issued and fully paid ordinary shares of 2p each:
As at 1 January
Issue of shares in respect of capital raise
Issue of shares in respect of share options exercised
As at 31 December
Company
2019
Number
‘000
Company
2018
Number
‘000
45,905
30,000
30
45,905
-
-
75,935
45,905
£000
918
600
1
1,519
£000
918
-
-
918
The Company has one class of ordinary share which carries no right to fi xed income.
On 16 April 2019, the Company raised £6.0 million through the issue of 30,000,000 new ordinary shares of 2p nominal value each at an issue price of 20p
per share. The premium on issue was 18p per share amounting to £5.4 million. This was credited to the share premium account. Share issue expenses
amounted to £0.5 million. These were debited to the share premium account.
On 23 March 2020, the Group announced details of an open offer and placing to raise approximately £6.1 million to strengthen its balance sheet, execute
self-help plans to improve gross margin, deploy and support the connected homes technology and fund part of the additional expected liabilities for the
Company’s legacy battery warranty issue fi rst identifi ed in 2016. On 8 April 2020, the Company issued 50,623,480 new ordinary shares at 12 pence per
share as a result of valid acceptances under the open offer and placing. The Company’s share capital consequently increased to 126,558,845 ordinary
shares.
30. Reserves
Share premium account
The share premium account represents the excess of consideration received for shares issued above their nominal value net of transaction costs.
Currency translation reserve
The currency translation reserve represents the exchange gains and losses that have arisen on the retranslation of overseas operations.
Retained earnings
Retained earnings represents the cumulative profi t and loss net of distributions to owners.
The loss for the fi nancial year dealt with in the Company was £1,182,000 (2018: loss of £848,000). As permitted under Section 408 of the Companies Act
2006, a separate profi t and loss account has not been presented for the Company.
31. Share-based payments
The share-based payments charge of £37,000 (2018: £107,000), included in the consolidated income statement within operating expenses, relates to
the 2015 Long-Term Incentive Plan nominal cost options awarded on 2 August 2019.
Outstanding at 1 January
Exercised during the year
Granted during the year
Expired or lapsed during the year
Outstanding at 31 December
2019
2018
Options
‘000
Weighted
average
exercise price
684
(30)
3,400
(86)
3,968
99p
2p
2p
200p
30p
Options
‘000
1,902
-
-
(1,218)
684
Weighted
average
exercise price
99p
-
-
46p
191p
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Annual Report and Accounts 2019
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Notes to the fi nancial statements continued
For the year ended 31 December 2019
Details of the share options outstanding at the end of the year are as follows:
Grant date
Directors’ share options
25/04/2014
02/08/2019
Employee share options
25/04/2014
03/06/2015
02/08/2019
Outstanding at
start of the year
Exercised during
the year
Lapsed during
the year
Granted during
the year
Outstanding at
end of the year
Expiry date
Exercise price
250,000
-
403,723
30,000
-
-
-
-
(30,000)
-
-
-
(86,111)
-
-
-
250,000
28/04/2024
2,500,000
2,500,000
02/08/2029
-
-
317,612
28/04/2024
-
03/06/2020
900,000
900,000
02/08/2029
683,723
(30,000)
(86,111)
3,400,000
3,967,612
200p
2p
200p
2p
2p
As at 31 December 2019, a total of 3,967,612 options were outstanding which had an average exercise price of 30p, and a weighted average remaining
contractual life of 5.6 years.
2014 EMI share options award
The Company has an approved EMI scheme for qualifying UK-based employees which provided for an award of share options based on seniority.
Share options vest over three years. If options remain unexercised after a period of ten years from the date of grant, the options usually expire except in
exceptional circumstances at the discretion of the Board.
On 30 April 2014, the Company granted awards over 1.46 million shares under the EMI scheme at an exercise price of £2.00 per share. The share
options vested evenly over three years and are exercisable for ten years from the date of grant.
2019 share options award
On 2 August 2019, the Company granted awards over a total of 3.4 million shares under its 2015 Long-Term Incentive Plan (‘LTIP’). Under the LTIP,
selected employees are entitled to exercise an option to receive a certain number of shares at any time after a three-year vesting period, at a cost
to the employee of the nominal value of the shares. The number of shares that are awarded at the end of the three-year period is dependent on the
achievement of certain performance criteria.
Vesting of the LTIP awards is dependent on achievement of total shareholder return (‘TSR’). If TSR on Shares is 200% or more at the end of three years
following the award, all of the shares awarded will vest. If TSR is 100%, then 25% of the awarded shares will vest. Between these points the number
of shares that vest will be pro-rata. If TSR is less than 100% then no shares will vest. The limit on the number of shares over which interests may be
awarded remains unchanged.
32. Operating lease arrangements
The minimum lease payments under non-cancellable operating lease rentals are in aggregate as follows:
Amounts due:
Within one year
Between one and fi ve years
More than fi ve years
Total lease payments
2019
£000
-
-
-
-
2018
£000
325
303
-
628
Operating lease payments represent rentals payable by the Group principally for its offi ces and warehouse. The operating lease expenditure charged to
the income statement during the year is disclosed in note 9 of the fi nancial statements.
33. Related party transactions
Balances and transactions between the Company and its subsidiaries were as follows:
Drawdown of loans and borrowings (principal amount)
Repayment of loans and borrowings (principal amount)
Impairment of intercompany loan (IFRS 9)
Cash transfer
Total transactions between Company and subsidiaries
2019
£000
1,300
(7,000)
(1,155)
5,459
(1,396)
Newell Brands, through its subsidiary Newell Rubbermaid UK Services Limited (formerly BRK Brands Europe Limited), holds a signifi cant proportion
of the Company’s ordinary shares (23.4% as at 31 December 2019). Up to 31 March 2018, Newell represented the single largest supplier to the Group
supplying all the Group’s smoke alarms, heat alarms and accessories from DTL. Since 31 March 2018, products which were being acquired from
DTL are now sourced directly from Flex in Poland and a Far East Asia based supplier. Purchases between related parties are made under contractual
arrangements negotiated on an arm’s length basis.
During the year, Group companies entered into the following transactions with
Newell Brands which is not a member of the Group:
Newell Brands
Net purchases of goods in year including engineering fees
Distribution agreement fee
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, together with the Non-Executive Directors, is set out below.
Details of individual Directors’ remuneration are given in the remuneration section of the Remuneration Committee report.
Remuneration of key management personnel
Aggregate emoluments
Company pension contributions
Sums paid for Non-Executive Directors’ services
Share-based payments
Total remuneration
The remuneration in respect of the highest paid Director was:
Emoluments
Defi ned pension contributions
Share-based payments
2019
£000
-
-
2019
£000
1,319
74
113
37
2018
£000
4,540
944
2018
£000
1,400
74
117
107
1,543
1,698
2019
£000
227
-
227
2018
£000
270
22
292
During 2019, the Company granted awards over 2.5 million shares in total to three Executive Directors under its 2015 LTIP. These options have
an exercise price of the nominal cost of the shares of 2 pence per share and have an expected life of ten years. The share options vest following a
performance period of three years and are subject to the achievement of total shareholder return targets. The element of the share-based payment
charge relating to the Directors is £27,206.
Wilkins Kennedy
William Payne, a Non-Executive Director of the Company for part of 2019, is a partner of Wilkins Kennedy, which is the fi rm through which his services are
provided. During the year, Wilkins Kennedy were paid £31,500 (2018: £42,000) for the provision of William Payne’s services as a Non-Executive Director
and £11,937 (2018: £9,775) for accounting and management services. At the year end the Company owed Wilkins Kennedy £nil (2018: £nil).
34. Post balance sheet events
On 23 March 2020, the Group announced details of an open offer and placing to raise approximately £6.1 million to strengthen its balance sheet, execute
self-help plans to improve gross margin, deploy and support the connected homes technology and fund part of the additional expected liabilities for the
Company’s legacy battery warranty issue fi rst identifi ed in 2016.
On 8 April 2020, the Company issued 50,623,480 new ordinary shares at 12 pence per share as a result of valid acceptances under the open offer and
placing. The Company’s share capital consequently increased to 126,558,845 ordinary shares.
The impact of COVID-19 is described in detail in the Executive Chairman’s statement on page 9 and within the Going Concern accounting policy.
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Other information
Corporate directory
REGISTERED NUMBER
3991353
COMPANY SECRETARY
Mrs ZA Fox
REGISTERED OFFICE
Vanguard Centre
Sir William Lyons Road
Coventry
CV4 7EZ
AUDITOR
RSM UK AUDIT LLP
Chartered Accountants
St Philips Point
Temple Row
Birmingham
B2 5AF
SOLICITORS
Pinsent Masons
30 Crown Place
London
EC2A 4ES
NOMINATED ADVISOR AND BROKER
Shore Capital & Corporate Limited
Cassini House
57-58 St James’s Street
London
SW1A 1LD
REGISTRAR
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
B62 8HD
BANKER
HSBC UK Bank plc
3 Rivergate
Temple Quay
Bristol
BS1 6ER
Shareholder information
SHAREHOLDER ENQUIRIES
SHARE PRICE INFORMATION
INVESTOR RELATIONS
Any shareholder with enquiries should, in the
fi rst instance, contact the Company’s registrar,
Neville Registrar, using the address provided in
the Corporate directory.
London Stock Exchange AIM symbol: FA.
Information on the Company’s major
shareholders is available in the Share Details
section of the Investors area of the FireAngel
Safety Technology Group plc website at
www.fi reangeltech.com.
Vanguard Centre
Sir William Lyons Road
Coventry
CV4 7EZ
Telephone: 024 7771 7700
Email: info@fi reangeltech.com
Website: www.fi reangeltech.com
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Annual Report and Accounts 2019
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