First Advantage Annual Report 2020

Plain-text annual report

ANNUAL REPORTS AND ACCOUNTS 2020 FireAngel Safety Technology Group plc I F R E A N G E L S A F E T Y T E C H N O L O G Y G R O U P P L C A n n u a l R e p o r t a n d A c c o u n t s 2 0 2 0 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 £39.9 million (2019: £45.5 million) • Underlying LBITDA1 £1.2 million (2019: EBITDA £0.2 million) • Underlying operating loss2 £5.4 million (2019: underlying operating loss2 £3.8 million) • Operating loss £9.0 million (2019: operating loss £10.7 million) • Adjusted gross proﬁ t3 £7.9 million (2019: £8.7 million) • Adjusted gross margin3 19.8% (2019: 19.0%) • Gross margin 15.9% (2019: 9.6%) • Non-underlying items totalling £3.6 million before tax (2019: £6.9 million) • Underlying loss before tax4 £5.7 million (2019: underlying loss before tax4 £4.1 million) • Loss before tax £9.3 million (2019: loss before tax £11.0 million) • Basic and diluted EPS (7.7p) (2019: (14.0p)) • Capitalised product development spend of £2.5 million (2019: £2.9 million) • Fundraising of £6.1 million (gross) in April 2020 and secured a £3.2 million loan under the Coronavirus Large Business Interruption Loan Scheme in June 2020 • Net debt (before lease obligations) at 31 December 2020 £3.7 million (cash £1.5 million, invoice discounting drawdowns £2.5million, CLBILS loan £2.6 million) (2019: net debt (before lease obligations) £4.9 million) • Post year end fundraise of £9.0 million (net of expenses) and reﬁ nancing of Coronavirus Large Business Interruption Loan Scheme in to Coronavirus Business Interruption Loan Scheme to generate an additional £1.7 million of cash. 1 Underlying LBITDA in 2020 of £1.2 million is loss before tax before depreciation and amortisation, ﬁ nance costs, unrealised mark-to-market losses and non-underlying items (2019: underlying EBITDA of £0.2 million). 2 Underlying operating loss in 2020 of £5.4 million is before non-underlying items (2019: underlying operating loss of £3.8 million before non-underlying items). A reconciliation of ‘alternative performance measures’ to measures prescribed in ﬁ nancial standards is given in the Performance Review section. 3 Adjusted gross proﬁ t is stated before non-underlying items. Adjusted gross margin is adjusted gross proﬁ t as a percentage of revenue. 4 Underlying loss before tax in 2020 of £5.7 million is before non-underlying items (2019: underlying loss before tax of £4.1 million before non-underlying items; for comparative purposes the underlying loss before tax includes the impact of changing to a more appropriate amortisation approach of £0.9 million in 2019). Operational headlines • Encouraging start to the year, before the full impact of COVID-19 measures took effect, with revenue and gross proﬁ t in the ﬁ rst quarter of 2020 slightly below budget and gross margin ahead of Q1 2019 and in line with budget • Material initial purchase order in excess of £1.0 million received for the Group’s ﬁ rst large-scale connected homes technology rollout with ﬁ rst installations in the year, representing an important endorsement of our strategy • While trials and existing commercial discussions around connected homes were impacted by COVID-19, new opportunities and enquiries about trials have since gained momentum • Lockdown period has facilitated an increased focus on operational improvements and longer-term planning to reﬁ ne the Group’s future business model • Signiﬁ cant reshaping of the FireAngel Board over the last two years has aligned its skills to future challenges and opportunities • Group is now an independent, technology-led business and has begun monetising its investment made in connected technology I n t r o d u c t i o n Contents Introduction 3 Overview 4 FireAngel at a glance Strategic review 6 Executive Chairman’s statement 8 Our proprietary technology 9 Corporate social responsibility Performance review 10 Group ﬁ nancial results Governance 16 Section 172 Companies Act statement 18 Risks and risk management 22 Board of Directors and Company Secretary 24 Corporate governance report 29 Audit Committee report 31 Remuneration Committee report 35 Statutory Directors’ report Financial statements 40 Statement of Directors’ responsibilities 41 Independent auditor’s report 46 Consolidated income statement 46 Consolidated statement of comprehensive income 47 Consolidated and Company statement of ﬁ nancial position 48 Consolidated and Company cash ﬂ ow statement 49 Consolidated statement of changes in equity 49 Company statement of changes in equity 50 Notes to the ﬁ nancial statements Other information 76 Corporate directory 76 Shareholder information The Statutory Strategic Report comprises 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 2020 Annual Report and Accounts 2020 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. 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, make 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. Sourcing of our own smoke, heat and accessory products from Flex in Poland has enabled us to consolidate our product range, reduce 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. 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. I n t r o d u c t i o n 2001 First domestic smoke alarm to utilise environmentally friendly PET packaging First domestic smoke alarm to utilise SMT 1998 FireAngel established 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 2018 Launch of Co-Exist product range utilising common smart home protocols 2019 Launch of B2C Smart Alarm Range - FireAngel Pro Connected 2021 2020 Largest IoT roll-out of it’s kind with FireAngel Connected being installed into 17,000 properties at Ealing Council 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 2 3 Number 1 100+ Supplying over 90% of the UK’s Fire & Rescue Services Registered technology patents & further pending Unique In-house CO sensing technology Three Supplier / manufacturing partnerships Six Brands targeted at different markets Inﬂ uential Member of Industry and Trade Associations 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 4 FireAngel Safety Technology Group plc FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Annual Report and Accounts 2020 FireAngel Safety Technology Group plc FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Annual Report and Accounts 2020 5 i S t r a t e g c r e v e w i Strategic review Executive Chairman’s statement “The impact of COVID-19 held the Company back from achieving what would almost certainly have been a signiﬁ cantly improved performance in 2020. However, our compelling proposition through our unique technology remains intact and our strategic ambition remains unaltered, and we have entered 2021 even more strongly than we ended 2020.” John Conoley - Executive Chairman Overview The Group entered 2020 with positive momentum against its strategic priorities, including strong growth, an increasing higher-value pipeline and initial progression on gross margin performance. including strong growth, an increasing higher-value pipeline and initial progression on gross margin performance. Undoubtedly, the onset of the COVID-19 pandemic and resultant government restrictions have signiﬁ cantly disrupted this journey, as it has for so many companies and of course for so many individuals. Nevertheless, it was encouraging to see a recovery in performance in the second half of the ﬁ nancial year, with the operational progress made providing a strong platform for further improvement in this ﬁ nancial year. Sales in the second half of 2020 were £23.4 million (59%) compared to ﬁ rst half sales of £16.5 million (41%). The Group has made a good start to 2021 and the UK Government’s roadmap out of lockdown gives us clarity and conﬁ dence in our plans for the year ahead and beyond. The overriding priority of the Group is to return to proﬁ tability and to become cash generative. This can be achieved through a combination of enacting a gross margin improvement plan, delivering our next generation of CO alarms together with the roll out of our connected homes technology, whilst maintaining our leading position in the Retail markets we serve and in our increasing Trade business in the UK and Europe. Financial performance The global COVID-19 pandemic has been a worrying time for all our staff and their families, as it has for everybody, and yet it is pleasing that the Group adjusted quickly in terms of its working practices and its ﬁ nances. It beneﬁ tted from strong support from its bank, and from a resultant CLBILS loan to support the business through the ﬁ rst lockdown. Following the year end, in March 2021 we secured further funding from our bank with the Coronavirus Large Business Interruption Loan Scheme (CLBILS) loan reﬁ nanced and increased through a Coronavirus Business Interruption Loan Scheme (CBILS) loan as the impact of the pandemic had been to reduce our annual revenue below the £45 million threshold used in the large company scheme. The revenue outturn for 2020 was £39.9 million reduced from £45.5 million in the prior year. Whilst the Board was satisﬁ ed with the revenue performance given the challenging market backdrop, our plans to improve margin during 2020 were undermined. The beneﬁ ts from a range of planned internal improvements came through much more slowly than anticipated, with less impact than planned and this was further compounded by reduced sales volumes. Many of the newer or growing revenue streams from Trade and social housing that the Group aimed to pursue became temporarily unfeasible during lockdown as a result of the impact of restrictions, with customers and business partners focussed on their own important priorities due to COVID-19. However, the improvements we have made are not lost, and the market opportunity, in particular, in Connected Homes technology is undiminished and indeed strengthened by the growing regulatory tailwinds. Our task now, is to regain momentum and deliver our Connected Homes strategy, targeting new types of business while continuing to improve margins. Margin improvement The overriding planned output of our activity in 2021, 2022 and 2023 is to improve our gross margin signiﬁ cantly year-on-year. We will do this by leveraging our differentiation, which includes our pioneering Connected Homes technology and our data opportunity, further details of which are set out below. The three key strands to achieve this are: - Commercialising our existing investment in connected technology; - Migrating to higher value activities and cut out lower value, lower impact activities; and - Streamlining our value chain of end-to-end administrative and production activities There remains signiﬁ cant opportunity in all three of these areas, and we spent a lot of otherwise lost time in lockdown reﬁ ning our plans as to how we will deliver against this priority. Commercialising Connected Homes technology Commercialising our signiﬁ cant investment made in Connected Homes technology means selling more connected alarms, while learning what part data generation could play in adding a new and exciting layer to our future activities and revenue. We saw an increase in our online sales over the course of 2020, a shift that we expect to be permanent, as buying habits continue to evolve. Commercialising also means re-establishing the momentum we had achieved in the form of trials and potential sales of large opportunities, particularly in social housing which was unavoidably lost during the pandemic. In the early months of 2021, we are already gaining traction and have seen results again with our Connected Homes proposition. This technology will make many people and properties safer. Moreover, there is an extra level to our PredictTM product, which enables the gathering of data from those alarms and the ability to manage ﬁ re risks through a dashboard. A highlight in our performance in 2020 was the receipt of a purchase order on behalf of Ealing Council, the ﬁ rst phase of which is valued at approximately £1.0 million of revenue. Whilst the rollout was inevitably delayed signiﬁ cantly due to the winter lockdown, however it has now begun. Higher value activities Migrating to higher value activities is closely allied with the value chain, details of which are set out below. As part of this focus, we have reviewed the economic potential of our SKUs. Some of our lower value alarms are uneconomic and pull development, maintenance and people costs into an area where we cannot command sufﬁ cient gross margin. This has led us to reduce our SKUs to, what will at the end of 2021, be a reduction of a third. Most of that reduction is in SKUs with little sales volume, but high complexity to the business and supply chain. Several of the SKUs can be made economic by partnering with an existing high-quality technology partner with relevant technology and adding our brand and external design. This will drive much better margin on a subset of our product range and maintain range coverage, without the continual overhead of designing from scratch and maintaining. Looking further out, our design philosophy has changed. A redesign of our higher value product lines will enable the use of automation in the factory. This in turn will improve yields and quality, and allow the refresh of components. Given the past investment in research, this is much more of a design exercise and opens the door to ﬂ exibility in the factory environment and crucially a signiﬁ cant opportunity in margin improvement in 2023 onwards. We can then focus our direct costs on our differentiated and connected technology, which is higher value, has higher margin potential and crucially is fundamental to our longer term Connected Homes strategy, opening the door to technology and commercial partnerships. In April 2021, an example of our emphasis on higher value activities was the signing of a long term partnership agreement with a German energy and efﬁ ciency service provider (the “Partner”) to provide a fully funded research and development programme for a new generation smoke alarm. Pursuant to the terms of the agreement, the Partner will fund the development phase of the next generation smoke alarm. In addition, FireAngel will receive a fee of £1.4 million for use of its background IP during the development phase. Thereafter, once production of the next generation smoke alarm has commenced, a royalty fee per product will be payable to FireAngel with a multi-million volume fee agreed for the initial 30 months. Manufacturing of the next generation smoke alarm is expected to commence in early 2024. It is forecast that 7 million new devices will be produced with a minimum of 3.5 million expected to be produced in the ﬁ rst 2.5 years and that during the life of the partnership, the Company should earn up to €21 million in royalty, management and support fees. Value chain Outlook The planned value chain improvements are primarily small-scale, but numerous initiatives are underway, intended to make the business more efﬁ cient, as previously communicated in part through the Gross Margin Improvement programme. Together these many small projects will enable a smoother, more joined-up, end-to-end, process, from conception to production to service. For the slightly longer term, we are redesigning and repackaging our mainstream ranges to enable a longer component lifecycle and by designing for automated manufacture. The expected upside from this refresh will potentially be in the range of £2-£4 million per year from part-way through 2023. This project will focus on development and modernisation, building on existing IP and research, yet taking opportunities to add new components or functionality as required. Implementation of modern Product Lifecycle management techniques will enable us to control this process far more effectively than it has done historically. Management team The Group continued to evolve its Board and management structure including making key senior appointments in the business. Mike Stilwell, our Group Financial Director, left the business at the start of 2021, and we were delighted to welcome Jon Kempster who joined the Board as Interim Chief Finance Ofﬁ cer in December 2020. Jon brings a wealth of valuable expertise to the Group, working alongside Zoe Fox, our experienced Finance Director. John Shepherd and Ashley Silverton stepped down as Non-Executive Directors after long service, while Glenn Collinson joined as a Non-Executive Director in summer 2020, bringing his signiﬁ cant technology and growth experience to the Board. I thank Mike, John and Ashley for their time and effort with FireAngel. I am pleased to announce that with effect from 30 April 2021, Jon has agreed to become a Non-Executive Director of the Company and that Zoe will be appointed as Chief Financial Ofﬁ cer with effect from the same date. As outlined above, the start to 2021 has been encouraging. The Group has returned to growth and although obvious uncertainties have still tempered the overall performance, sales in the ﬁ rst quarter were ahead of the same period in 2020. We were pleased to secure additional new funds from our bank under the Government backed loan schemes. In addition, we have today announced an equity fund raising to raise £9.0 million (net of costs) and provide the necessary funds to deliver the strategic goals we have set out. Together these will secure the future of the Group and provide the foundation for a return to proﬁ tability and cash generation. We are delighted to have begun the rollout of our Connected Homes alarms with Ealing Council. The contract includes generating safety data from alarms installed in properties to allow analysis and risk management for the ﬁ rst time, demonstrating the beneﬁ ts and potential of FireAngel PredictTM. As set out above, earlier this month, we announced a partnership with a German energy and efﬁ ciency service provider, which is further vindication of the hard work of the past year and more. As well as being a fantastic and transformational opportunity for the Group it is early testament of our progress towards higher value activities. There is now a clearer path out of the COVID-19 related restrictions, and while some uncertainty remains, the Board is targeting improved performance and sales growth in 2021 versus 2020. Our compelling proposition to protect and save lives with innovative, cutting-edge home safety technology remains intact. Our strategic ambition to achieve this through margin improvement and a focus on investing in Connected Homes technology remains unaltered, supported further by legislative direction in our favour. I thank all our shareholders for their support, and all our colleagues here at FireAngel for toughing their way through 2020. We are looking forward to growing the business in 2021 and beyond. John Conoley - Executive Chairman 30 April 2021 6 FireAngel Safety Technology Group plc FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Annual Report and Accounts 2020 FireAngel Safety Technology Group plc FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Annual Report and Accounts 2020 7 i S t r a t e g c r e v e w i 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. 8 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 9 Performance review Group ﬁ nancial results “Despite a strong start to the year, lockdown restrictions to control the spread of COVID-19 have directly and materially impacted revenue and progress towards proﬁ t recovery.” Jon Kempster - Interim Chief Financial Ofﬁ cer Overview 2020 was dominated by the impact of COVID-19 lockdown restrictions. Despite a strong start to the year, which augured well for full year performance, revenue and the Group’s proﬁ t recovery programme were materially and directly impacted by UK and international measures to control the spread of COVID-19. Underlying Group performance 2020 2019 Revenue Cost of sales Gross proﬁ t Operating expenses Other operating income Loss from operations Add back: Mark-to-market losses Depreciation and amortisation Underlying (LBITDA)/EBITDA Before non-underlying items £m Non-underlying items £m - (1.7) (1.7) (1.9) - (3.6) 39.9 (32.0) 7.9 (13.6) 0.3 (5.4) 0.3 3.9 (1.2) Total £m 39.9 (33.7) 6.2 (15.5) 0.3 (9.0) Before non- underlying items £m Non-underlying items £m - (4.3) (4.3) (2.6) - (6.9) 45.5 (36.8) 8.7 (12.5) - (3.8) 0.6 3.4 0.2 Total £m 45.5 (41.1) 4.4 (15.1) - (10.7) Total revenue for the year decreased by 12% from £45.5 million to £39.9 million resulting in an underlying LBITDA1 of £1.2 million compared with underlying EBITDA of £0.2 million in 2019. The adjusted gross proﬁ t2 was £7.9 million (2019: £8.7 million), which represented an adjusted gross margin2 of 19.8% (2019: 19.0%). The underlying operating loss3 was £5.4 million compared to a loss of £3.8 million in 2019. The underlying loss before tax4 was £5.7 million (2019: underlying loss before tax £4.1 million). 1 Underlying LBITDA in 2020 of £1.2 million is loss before tax before depreciation and amortisation, ﬁ nance costs, unrealised mark-to-market losses and non-underlying items (2019: underlying EBITDA of £0.2 million). 2 Adjusted gross proﬁ t is stated before non-underlying items. Adjusted gross margin is adjusted gross proﬁ t as a percentage of revenue. 3 Underlying operating loss in 2020 of £5.4 million is before non-underlying items (2019: underlying operating loss of £3.8 million before non- underlying items) 4 Underlying loss before tax in 2020 of £5.7 million is before non-underlying items (2019: underlying loss before tax of £4.1 million before non- underlying items; for comparative purposes the underlying loss before tax includes the impact of changing to a more appropriate amortisation approach of £0.9 million in 2019). The key drivers for changes in revenue and adjusted gross margin are detailed in the Executive Chairman’s statement. Overall cash outﬂ ow in the year was £0.6 million (2019: inﬂ ow of £0.8 million) and net debt (before lease obligations) at 31 December 2020 was £3.7 million. This compared with net debt (before lease obligations) of £4.9 million at 31 December 2019. The net movement of £1.2 million comprised a decrease in cash and cash equivalents of £0.6 million, which included the net proceeds received from the equity fund raise of £5.5m in the year. There was a net decrease in bank debt of £1.8 million through repayment of £4.4 million under the invoice discounting facility and net drawdown of £2.6 million of loans under the Coronavirus Large Business Interruption Loan Scheme (‘CLBILS’). 10 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Income statement Revenue by business unit Revenue split between the Group’s business units and Pace Sensors is as follows: 2020 2019 UK Trade UK Retail UK F&RS UK Utilities & Leisure Total sales in the UK International Pace Sensors Total revenue 2020 £m 7.5 16.6 2.9 1.4 28.4 9.2 2.3 39.9 2019 £m 7.5 18.3 4.7 2.2 32.7 11.1 1.7 45.5 Inc/(dec) £m Inc/(dec) % Proportion % Proportion % - (1.7) (1.8) (0.8) (4.3) (1.9) 0.6 (5.6) - (9%) (38%) (36%) (13%) (17%) 35% (12%) 19% 42% 7% 3% 71% 23% 6% 17% 40% 10% 5% 72% 24% 4% 100% 100% From 1 January 2020, certain customers previously reported within the UK Trade business unit are now reported through the UK Retail and UK Utilities business units. The 2019 comparatives have been adjusted accordingly, further details of which can be found in note 6 to the ﬁ nancial statements. Overall, the Group’s revenue fell by 12% to £39.9 million. The £5.6 million reduction in sales was largely due to the impact of COVID-19 lockdown restrictions on customer demand despite an encouraging start to the year before restrictions applied. These reductions were seen across all of the Group’s business units with the exception of UK Trade and Pace Sensors. Signiﬁ cant improvements in demand in UK Retail and, in particular, UK Trade were seen in the second half of the year as initial lockdown restrictions were lifted and it was pleasing to see the UK Trade and Pace Sensors business units actually improving sales performance compared with 2019. Revenue at Pace Sensors, the Group’s manufacturer of CO sensors, increased to £2.3 million as demand grew for its CO sensor technology. P e r f o r m a n c e r e v e w i Gross proﬁ t and gross margin Adjusted gross proﬁ t2 decreased to £7.9 million and represented an improved adjusted gross margin2 of 19.8% (2019: 19.0%). 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 £1.2 million reﬂ ecting an increase in the terminal volume of units expected to be impacted. In addition, £0.3 million was expensed in relation to the settlement of warranty issues with certain distributors. Secondly, a net provision of £0.2 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. Non-underlying items impacting gross proﬁ t in the prior year amounted to £4.3 million. Further details are given below. The overall gross proﬁ t increased from £4.4 million to £6.2 million, largely due to the reduction in non-underlying items to £1.7 million (2019: £4.3 million) described above, and represented a gross margin of 15.5% (2019: 9.6%). Exchange rates Although on average over the course of the year the value of sterling against the US dollar and euro remained largely the same as the average for 2019, there was signiﬁ cant variation throughout the course of 2020 due largely to COVID-19 and Brexit-related uncertainty. 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 towards the end of 2020 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 £0.3 million detrimental impact on the gross margin for the year, although not as signiﬁ cant as the £0.6 million impact in the prior year. Overheads The Group’s overhead costs comprise the distribution and administrative costs of running the business. Excluding non-underlying items totalling £1.9 million (2019: £2.6 million), further details of which are given below, and depreciation and amortisation of £3.9 million (2019: £3.4 million), overheads of £9.7 million were 6.5% higher than the prior year’s £9.1 million, due largely to the full impact of the investment in people to improve processes across the organisation. Total overhead costs amounted to £15.5 million (2019: £15.1 million). Non-underlying items in 2020 Non-underlying costs totalling £3.6 million were incurred in the year as follows: Within cost of sales: • Provision for warranty costs: the FireAngel battery warranty provision, an isolated historical issue relating to a third-party supplier ﬁ rst identiﬁ ed in April 2016, was increased by £1.2 million 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; in addition, an amount of £0.3 million was expensed in relation to the settlement of warranty issues with certain distributors • Stock impairment and disposal costs: £0.2 million net was provided in the year as a result of a further review of product lines and future development plans in line with the Group’s strategy to become a more technology-led connected home solutions provider. This comprised gross impairment charges of £0.4 million offset by proceeds of £0.2 million from stock previously impaired. Within operating expenses: • Intangible capitalised development assets of £1.4 million were impaired during the year as a result of a thorough review of product lines and future development costs. • Tangible assets of £0.2 million were impaired during the year as a result of a thorough review of tooling required for ongoing product lines. • Restructuring costs of £0.1 million were incurred in the year. • Share-based payment charges of £0.2 million were incurred during the year. Non-underlying items in 2019 Non-underlying costs totalling £6.9 million were incurred in the prior year as follows: Within cost of sales: • Provision for warranty costs: 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 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. FireAngel Safety Technology Group plc Annual Report and Accounts 2020 11 Performance review Group ﬁ nancial results continued Result for the year During 2019, the Board concluded that the ‘straight line’ method of amortisation for the Group’s connected homes capitalised development costs was more appropriate than the ‘units of production’ method given the difﬁ culty in accurately predicting the timing of the take up of its connected homes technology. However, as a result of the temporary loss of momentum in demand for the Group’s connected homes technology due to COVID-19, this has resulted in a mismatch of income from connected technology with the amortisation of costs associated with its development. A more representative measure of the Group’s underlying performance is therefore its earnings before the impact of depreciation and amortisation. The Group’s underlying LBITDA1 for the year amounted to £1.2 million compared with underlying EBITDA of £0.2 million in 2019. The underlying operating loss3 for the year amounted to £5.4 million compared to an underlying operating loss3 of £3.8 million in 2019. After taking account of non-underlying items of £3.6 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 £9.3 million (2019: loss before tax £11.0 million). The Group booked a tax credit of £0.6 million (2019: tax credit of £1.6 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 7.7 pence per share (2019: loss of 14.0 pence per share). Statement of ﬁ nancial position The net assets of the Group amounted to £14.2 million at 31 December 2020 (2019: £17.2 million) and can be summarised as follows: 2020 2019 Goodwill Plant and equipment 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 Warranty provision Net assets £m 0.2 4.3 11.7 2.0 18.2 1.5 (5.2) (3.7) (1.4) 3.8 0.7 (0.7) (2.7) 14.2 £m 0.2 5.3 12.6 2.5 20.6 2.1 (7.0) (4.9) (1.5) 6.2 0.7 (0.4) (3.5) 17.2 Non-current assets at 31 December 2020 amounted to £18.2 million compared with £20.6 million at 31 December 2019. The most signiﬁ cant components of this were capitalised development costs, with a net book value of £11.7 million, plant and equipment (£4.3 million) and purchased software costs (£2.0 million). Capitalised development assets of £1.4 million were impaired during the year as a result of a thorough review of product lines and future development costs. Plant and equipment assets of £0.2 million were impaired as a result of a thorough review of tooling required for ongoing product lines. Total capital expenditure (excluding right of use assets) decreased to £2.8 million compared to £3.7 million in 2019. Of this total, £2.6 million represented capitalised development expenditure to further enhance the Group’s connected homes and wider technology portfolio as described in note 17 to the ﬁ nancial statements. Total capital expenditure of £3.1 million (2019: £4.7 million) compares with depreciation, amortisation and impairment charges totalling £5.4 million in the year (2019: £5.2 million). Working capital reduced signiﬁ cantly by £2.4 million to £3.8 million at 31 December 2020. Stock increased by £0.3 million to £6.6 million (2019: £6.3 million) as much of the excess stock from procurement commitments made at the beginning of 2020 was sold through in the second half of the year. A non-underlying charge of £0.2 million was made to provide for the cost of older stock and its disposal as a result of a further review of product lines. Trade and other receivables decreased by £2.0 million to £10.1 million (2019: £12.1 million) as a result of reduced revenue in the year with average debtor days increasing from 59 to 62 due to a higher proportion of sale going through our Retail business unit. Trade and other payables increased by £0.6 million to £12.8 million (2019: £12.2 million). Average creditor days reduced to 72 days (2019: 76 days). Net tax assets at 31 December 2020 amounted to £0.7 million (2019: £0.7 million) and comprised a current tax asset of £0.7 million (2019: £0.7 million), deferred tax assets of £2.4 million (2019: £2.4 million) and deferred tax liabilities of £2.4 million (2019: £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 2020 amounted to £2.7 million (2019: £3.5 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. The provision has been revised and increased this year and in prior years as experience has helped reﬁ ne estimates and assumptions used and as such the amounts provided are the best estimate of the ongoing liability (refer to note 3) Cash The Group ended the year with net debt (before lease obligations) of £3.7 million at 31 December 2020 (2019: net debt (before lease obligations) £4.9 million). The movement in net debt (before lease obligations) during the year is reﬂ ected in the statement of ﬁ nancial position as follows: 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 0.6 (4.4) 2.6 (1.2) The net cash outﬂ ow of £0.6 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 £2.3 million, capital expenditure of £2.8 million as described above, and the cash ﬂ ows in relation to the fundraising described below. On 8 April 2020, the Group raised £6.1 million (gross) through the issue of 50,623,480 new ordinary shares of 2p nominal value at an issue price of 12p per share. Share issue expenses amounted to £0.6 million. In June 2020, the Group secured funding of £3.2 million through the CLBILS, which was drawn down in August 2020. Funding through the invoice discounting facility reduced by £4.4 million in the year due both to the alternative funding secured through the CLBILS and reduced debtor levels as a result of COVID-19 impacted sales. Following the year end, the Company’s existing CLBILS loan which at the end of March 2021 had reduced to £2.0m was reﬁ nanced by a new Coronavirus Business Interruption Loan Scheme (CBILS) loan of £3.2 million, together with a Receivables Finance CBILS of £0.5m. In addition, the Group maintained the existing Invoice Discounting Facility of £7.5 million. In addition, the Company has today announced an equity fund raising to raise £9.0 million (net of costs) and provide the necessary funds to deliver the strategic goals we have set out elsewhere in this report. P e r f o r m a n c e r e v e w i 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 2020 £m (5.4) 3.9 2.1 0.3 0.9 (2.3) (1.4) (0.3) 0.7 (2.8) 5.5 (4.4) 3.2 (0.6) - (0.5) (0.6) 2019 £m (3.8) 3.4 (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 1 Underlying operating loss in 2020 of £5.4 million is before non-underlying items (2019: underlying operating loss of £3.8 million before non- underlying items). 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 international accounting standards in conformity with the Companies Act 2006. 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 10 to 13, to relevant GAAP 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 2020 £m 6.2 1.5 0.2 7.9 2019 £m 4.4 2.6 1.7 8.7 12 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 13 Net cash 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. Dividends As a result of the loss reported for the year, and consistent with the decision not to pay an interim dividend (2019: nil pence per share), the Directors do not recommend payment of a ﬁ nal dividend for the year (2019: nil pence per share). The total dividend payable for 2020 is therefore nil pence per share (2019: nil pence per share). Post balance sheet events The gradual relaxation of the lockdown in the UK is welcomed and we are hopeful that normal trading patterns will emerge. We are especially keen to see continued traction in our connected homes opportunities. The ongoing impact of COVID-19 is described in detail in the Executive Chairman’s statement and within the Going Concern accounting policy. We have reﬁ nanced our existing Coronavirus loans with our bank as the impact of Coronavirus and the lockdowns continued beyond that envisaged originally. We have also announced a long term partnership agreement with a German energy efﬁ ciency service provider to provide a fully funded research and development programme for a new generation smoke alarm which will lead in to a manufacturing and supply relationship in due course. Today the Company announced an equity fundraising to raise £9.0 million (net of costs) in order to support the growth and strategic ambition of the Group. Jon Kempster - Interim Chief Financial Ofﬁ cer 30 April 2021 P e r f o r m a n c e r e v e w i Performance review Group ﬁ nancial results continued Adjusted gross margin percentage Adjusted gross margin percentage is the adjusted gross proﬁ t (as deﬁ ned on previous page) as a proportion of revenue. Underlying operating loss Reported operating loss Non-underlying items: - Provision for warranty costs - Provision against stock and disposal costs (net) - Restructuring costs - Impairment of intangible assets - Impairment of tangible assets - Share-based payments charge Underlying operating loss Underlying loss before tax Reported loss before tax Non-underlying items: - Provision for warranty costs - Provision against stock and disposal costs (net) - Restructuring costs - Impairment of intangible assets - Impairment of tangible assets - Share-based payments charge Underlying loss before tax Underlying (LBITDA)/EBITDA Reported loss before tax Finance costs Depreciation and amortisation Decrease in fair value of derivatives Non-underlying items: - Provision for warranty costs - Provision against stock and disposal costs (net) - Restructuring costs - Impairment of intangible assets - Impairment of tangible assets - Share-based payments charge Underlying loss before tax 2020 £m (9.0) 1.5 0.2 0.1 1.4 0.2 0.2 (5.4) 2020 £m (9.3) 1.5 0.2 0.1 1.4 0.2 0.2 (5.7) 2020 £m (9.3) 0.3 3.9 0.3 1.5 0.2 0.1 1.4 0.2 0.2 (1.2) 2019 £m (10.7) 2.6 1.7 0.7 1.8 - 0.1 (3.8) 2019 £m (11.0) 2.6 1.7 0.7 1.8 - 0.1 (4.1) 2019 £m (11.0) 0.3 3.4 0.6 2.6 1.7 0.7 1.8 - 0.1 0.2 14 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 15 Performance review 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? Investors The Company’s major shareholders are set out on page 37 of the Statutory Directors’ Report. Why were they engaged? How were they 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 to 25. Key interactions included through: • Physical and virtual meetings with major institutional investors • In September 2020, for the ﬁ rst time, the Executive Directors delivered a live investor presentation of the Company’s 2020 interim results via the Investor Meet Company platform. This allowed the Directors to address questions from its shareholders submitted pre-event and during the live presentation • 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. Workforce The Group employs staff with key managerial, engineering and technical skills. 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. The global impact of COVID-19 on both the availability and cost of products meant that close co-operation with key suppliers was crucial to ensure continuity of supply and appropriate credit terms in the face of uncertain demand. 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 Board’s duty to ensure a safe working environment for the Company’s employees is its top priority and continues to be the ﬁ rst consideration in all decisions made during the COVID-19 pandemic. Key interactions included through: • Regular operational workshops held virtually between key staff at the Group’s Coventry facilities and the suppliers’ manufacturing facilities • Presentation of strategic and product roadmaps • Sharing detailed COVID-19 impact assessments including variation in expected demand through reforecasts, production and delivery issues and COVID-19 risk assessments The Group’s approach to workforce engagement is detailed in the Corporate social responsibility section of the Strategic Review report on page 9. Key interactions included through: • Regular communication, guidance and feedback throughout the COVID-19 pandemic as to measures being taken to ensure a safe working environment, recommended working practices and the ﬁ nancial impact on the Company • Company Brieﬁ ng Updates delivered throughout the year by the Executive Chairman • Presentation of the Group’s strategic and ﬁ ve-year plan to its senior management team in Q4 2020 What was discussed 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: • Mitigation against the impact of COVID-19: the Directors discussed with certain major institutional shareholders the impact of COVID-19 on the Company’s ﬁ nancial position and agreed proposed actions to conserve cash and protect the ﬁ nancial result • Long-Term Incentive Plan considerations: feedback and input around the quantum and performance criteria of an annual LTIP award to John Conoley and planned closure of the share matching scheme was sought from certain major institutional shareholders • Board appointments: feedback and input was provided by certain major institutional shareholders around the appointment of an interim Chief Financial Ofﬁ cer and a Non-Executive Director • Fundraising in April 2020: certain existing shareholders were consulted as to their appetite for participating in a fundraising in March 2020, the outcome of which was a full placing of the fundraising amount subject to clawback under the open offer • Close sharing of quality data led to improvements to production processes which reduced waste and increased yields through improved quality • Collaboratively sharing the impact of COVID-19 disruption on forecast demand, capacity and cash ﬂ ows led to mutually agreed changes to production and delivery schedules and temporary extensions to payment terms and conditions • Discussions around safe working practices and attendance at the workplace led to a number of changes to the workplace environment to ensure the safety of employees and those visiting our sites. As a result, IT equipment was provided to those working from home to ensure they could continue to work in a safe way • 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 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 its 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. Key interactions included through: • Key customers and industry groups provided feedback • Regular account management meetings with key customers during 2020 • Sharing detailed COVID-19 impact assessments including variation in expected demand through reforecasts, production and delivery issues and COVID-19 risk assessments 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 as a result of COVID-19 lockdown restrictions allowed the Company to assess the impact on funding available through its invoice discounting facility and consequently to apply for additional funding to mitigate the short-term shortfall 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. The impact of COVID-19 lockdown restrictions led to an immediate and material reduction in sales and debtors, with a corresponding reduction in funding available through the Group’s invoice discounting facility. Key interactions included through: • The Group discussed with its primary lender the • Input into the Group’s fundraising plans in April 2020 • Applying for and securing a Coronavirus Large Business Interruption Loan Scheme (‘CLBILS’) loan for £3.2 million to replace the temporary reduction in funding available through the Group’s invoice discounting facility • 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 intention to raise £6.1 million through a placing and open offer • The Group discussed the impact of COVID-19 lockdown restrictions on demand and short-term funding with its primary lender which led to it securing a CLBILS loan of £3.2 million in June 2020 • The Group discussed with its primary lender the contractual relationships expected to be in place during the delivery of its connected homes technology and whether this would meet the criteria to be funded through the Group’s existing invoice discounting facility. This discussion informed the choice of contractual relationships and terms in connected homes contract negotiations P e r f o r m a n c e r e v e w i The impact of the Company’s operations on the Community and the Environment The Directors appreciate that collaboration with some of our customers provides the Group with a unique insight into the community. Our work with the Fire & Rescue Services is targeted to assist the Service protect some of the most vulnerable members of society. Aligned to this our connected homes technology is being purchased by social housing groups in order to assist in protecting life and property. It also reduces unnecessary maintenance visits and so has the wider environmental beneﬁ ts that comes from accessing data remotely and taking the necessary action when required. 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. The standards expected of a listed public company provide an excellent framework for governance and behaviours which are taken very seriously and endorsed by the Board and senior Executive management. The Board Executives have regular contact with our various stakeholders including our shareholders, bank, suppliers and customers. We have through COVID-19 undertaken regular communications to employees as many have been remote working since the ﬁ rst lockdown in March 2020. This has been very important to maintain a positive dialogue and to recognise that all employees are vital in assisting the Group deliver the strategic transformation that had begun and represents the future of the Group. Principal decision 1: Fundraising in April 2020 In March 2020, 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 £6.1 million (gross). In particular, the Board considered its engagement with certain major institutional 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: Throughout 2020 the Board closely monitored and reacted to the emerging impact of COVID-19 and consequent lockdown restrictions. The most signiﬁ cant decisions taken by the Board in this area involved employee safety and ﬁ nancial management. The Board quickly implemented safe working practices to ensure the safety of the Company’s workforce including working from home where possible and the establishment of COVID-secure policies in the workplace. In addition, in order to maintain the ﬁ nancial stability of the Company the Board took action to conserve cash and protect the ﬁ nancial result. This involved a range of measures which reduced planned expenditure by placing 15% of the UK workforce on furlough for a number of weeks and limited headcount reductions through reassessment of certain R&D project deliverables. The Board and senior management team agreed to take salary reductions for a number of months and cash was conserved through deferral of payments, such as VAT and payroll taxes, as well as arrangements with landlords and suppliers. The Board took steps to mitigate the impact on funding of the temporary reduction in sales in the period by securing a £3.2 million CLBILS loan. Zoe Fox - Company Secretary 30 April 2021 16 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 17 Governance Risks and risk management 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 18 to 21. Exchange rate risk The Audit Committee advises the Board of Directors on matters of risk management. It has its own report, which can be read on pages 29 to 30. 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 signiﬁ cantly impacted demand for the Group’s core products during 2020 and has continued to do so in the ﬁ rst months of 2021 as new lockdown restrictions were imposed. The increasing momentum of interest in the Group’s connected homes technology has been temporarily held back. The Board continues to believe that the medium and long-term prospects for the Group’s unique technology are strong. It is encouraged by online sales resilience, the increasing shift to online fulﬁ lment in our Retail business and interest returning to our connected homes proposition as evidenced by a growing funnel of opportunities. Inevitably uncertainty remains around the continuing impact of COVID-19 although sentiment has recently improved as vaccines are being rolled out across the UK and globally. Throughout 2020, the Board took mitigating actions to conserve cash and protect proﬁ t, whilst maintaining capability. These included placing a number of employees on furlough, further headcount savings through a reassessment of R&D project deliverables, and Board and senior management pay reductions. To conserve cash, the Group took advantage of the Government’s tax payment deferral arrangements and secured a CLBILS loan to offset the temporary reduction in availability of funding through the Group’s invoice discounting facility. In December 2020, the Group successfully negotiated with its bank a revised repayment schedule due under the CLBILS loan in order to aid cashﬂ ows due to the continuing uncertainties caused by COVID-19 and their impact on the business, which are continuing into 2021. In March 2021 the Group reﬁ nanced its existing CLBILS loan to a combined CBILS and receivables ﬁ nance CBILS to provide further headroom and to support the revenue growth expected in 2021. Further details can be found in the post balance sheet events in note 33. 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. 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. Product prices from the Group’s primary smoke alarm and connected products manufacturer cannot be reduced Inability to multi-source production 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 2020, a provision of £2.7 million is recognised against the FireAngel battery warranty provision, a historical legacy issue relating to a third-party supplier. 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. Working capital and liquidity risk 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. 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. 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 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. G o v e r n a n c e 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. 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. 18 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 19 Governance Risks and risk management continued Risk Factors that may impact the business Mitigation What we are doing to minimise the risk 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. 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. 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 took steps to prepare for the end of the transition period. These actions included 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. Given the major economic markets in which the Group operates, although some administrative disruption is expected to increase costs marginally in the short term, once these processes are bedded in it is not expected there will be any detrimental long-term impact to the Group as a result of the UK’s exit from the European Union. 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 The Brexit transition period ended on 1 January 2021 and the terms of a new trading arrangement between the UK and EU came into force. Although increased trade tariffs have largely been avoided, there is a risk of short-term disruption and cost increases due to the additional administrative procedures which now apply and that will inevitably take a period of time to bed in. 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 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. 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. G o v e r n a n c e The Statutory Strategic Report comprises the Strategic Review, the Performance Review, the Section 172 Companies Act Statement and the Risks and Risk Management section, on pages 18 to 21. The Statutory Strategic Report has been approved by the Board. By Order of the Board Zoe Fox - Company Secretary 30 April 2021 20 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 21 Governance Board of Directors and Company Secretary At the date of this report, FireAngel’s Board of Directors comprises three Non-Executive Directors and two Executive Directors, including the Executive Chairman. Membership of the Audit and Remuneration Committees is made up solely of certain of the Independent Non-Executive Directors. 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 Glenn Collinson Independent Non- Executive Director AGED 57 Simon Herrick Senior Independent Non-Executive Director AGED 57 Executive Directors John Conoley Executive Chairman AGED 60 Jon Kempster Interim Chief Financial Ofﬁ cer AGED 58 John was appointed as Non-Executive Chairman of the Board on 22 January 2019. With effect from 1 August 2019, following the resignation of the 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. John is also 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. Jon was appointed as Interim Chief Financial Ofﬁ cer on 17 December 2020. He is currently a Non-Executive Director and Chair of the Audit Committee at Ted Baker plc, Redcentric plc, Serinus Energy plc and Bonhill Group plc and a Trustee of the Delta plc pension scheme. Jon’s career has included Board positions at Delta plc, Fii Group plc, Frasers Group plc, Linden plc, Low & Bonar plc, Utilitywise plc and Wincanton plc. He qualiﬁ ed as a Chartered Accountant with Price Waterhouse in 1990 and has a BA (Hons) in Business Studies from the University of Liverpool. Jon will ﬁ nish as Interim CFO and be appointed as a Non- Executive Director of the Company with effect from 30 April 2021. Company Secretary Zoe Fox Company Secretary AGED 48 Zoe was appointed as Company Secretary in 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. Zoe will be appointed as Chief Financial Ofﬁ cer with effect from 30 April 2021. 22 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Glenn joined FireAngel’s Board on 1 August 2020. He started his career at Racal and worked for Motorola and Texas Instruments before co-founding Cambridge Silicon Radio in 1998. There he served as an executive director and helped grow the company from a concept to a $3 billion market capitalisation entity in 2006 (as CSR Plc) and one of the biggest players in the Bluetooth market. Since leaving CSR in 2007, he has held a number of non-executive directorships in UK and French companies – both public and private – that specialise in technology. He is a member of the Institute of Engineering and Technology and holds an MSc in electronics as well as an MBA from Cranﬁ eld University. Glenn sits on the Board’s Audit and Remuneration Committees. 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 Holdings plc, Biome Technologies plc, Christie’s Group 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. Simon chairs the Board’s Audit and Remuneration Committees and succeeded John Shepherd as the Company’s Senior Independent Non-Executive Director on 1 August 2020. G o v e r n a n c e Graham Whitworth Non-Executive Director AGED 67 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 2015 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. On 27 May 2020, Graham became a Non-Executive Director of the company and continues 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 2020 23 Governance Corporate governance report “The Board remains committed to ensuring the highest standards of corporate governance are maintained. During 2020 the Board once again 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. Build trust 10 The extent of compliance with the ten principles that comprise the Code was most recently reviewed by the Board on 15 January 2021. 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 6 7 8 9 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. 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 Group’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 Group 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. 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 Group 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 Group 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 continued changes in Board composition during 2020, it was again concluded that a formal process for evaluating the Board would be undertaken by the Nominations Committee 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 Nominations Committee was run in conjunction with the board meetings but will in future be a standalone 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. In line with the Group’s commitment to ensuring appropriate communication structures are in place for all sections of its shareholder base, the Executive Directors for the ﬁ rst time delivered a live investor presentation of its 2020 interim results via the Investor Meet Company platform in September 2020. This allowed the Directors to address questions from its shareholders submitted pre-event and during the live presentation. 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, although meetings during 2020 have largely been held via video conference due to COVID-19 restrictions. In more normal times, Board members may occasionally 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 and senior leadership 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. 24 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 25 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. 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 1 August 2020, Simon Herrick succeeded John Shepherd as Senior Independent Non-Executive Director of the Group following John’s resignation from the Board. Simon 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 2020 matters dealt with by the Board included: • approval of the Group’s equity fundraising documentation in March • consideration of Audit and Remuneration Committee reports and 2020; recommendations; • reviewing the Group’s response to COVID-19 including approval of • review of corporate governance matters and reporting including a documentation around the Group’s CLBILS facility; • review and monitoring of Group strategy and progress against 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; 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 • review of 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 during 2020 attended in person or by video conference or telephone is set out as follows: JR Conoley1 - Executive Chairman G Collinson2 SE Herrick - Chairman of Audit and Remuneration Committees J Kempster3 NA Rutter4 J Shepherd5 AV Silverton6 MJ Stilwell GRA Whitworth 1. Number of Remuneration Committee meetings eligible to attend: 2 2. Number of meetings eligible to attend after appointment, Board: 4; Audit Committee: 1; Remuneration Committee: 2 3. Number of meetings eligible to attend after appointment, Board: nil 4. Number of meetings eligible to attend before resignation, Board: 3 5. Number of meetings eligible to attend before resignation, Board: 9; Audit Committee: 2; Remuneration Committee: 1 6. Number of meetings eligible to attend before resignation, Board: 9; Audit Committee: 2; Remuneration Committee: 1 26 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Total number of meetings Board Audit Committee Remuneration Committee 13 4 12 - 3 8 8 13 13 - 1 3 - - 2 2 - - 2 2 3 - - 1 1 - - 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 29 to 33. 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 37 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 three 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. Simon Herrick and Glenn Collinson have served on the Board between one and two years and less than one year respectively and are both considered independent. Graham Whitworth has served on the Board as a Non-Executive Director for less than one year. The Board does not view Graham Whitworth as independent as he had served in executive roles within the Company. Each Non-Executive Directors 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 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. On 17 December 2020, Jon Kempster joined as Interim Chief Financial Ofﬁ cer and works part time. A process commenced following the year end to ﬁ nd a full time replacement and culminated today in the announcement of Zoe Fox’s appointment as Chief Financial Ofﬁ cer with effect from 30 April 2021 when Jon Kempster will be appointed as a Non-Executive Director of the Company. 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. G o v e r n a n c e 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. The principal risks and uncertainties facing the Group, together with mitigating actions taken to address those risks, are set out on pages 18 to 21. 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 2020 27 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. In line with the Company’s commitment to ensuring appropriate communication structures are in place for all sections of its shareholder base, the Executive Directors for the ﬁ rst time delivered a live investor presentation of its 2020 interim results via the Investor Meet Company platform in September 2020. This allowed the Directors to address questions from its shareholders submitted pre-event and during the live presentation. 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 Senior Independent Non- Executive Director 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 2020 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 30 April 2021 On behalf of the Board, I am pleased to present the Audit Committee report for the year ended 31 December 2020, 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: • Simon Herrick, Chairman of the Committee, Senior Independent Non-Executive Director; and • From 1 August 2020, Glenn Collinson, 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; G o v e r n a n c e • 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 2020 During the year the Committee met three times and considered the following matters: • the suitability of the Group’s accounting policies and practices; • the half-year and full-year ﬁ nancial results, including the appropriateness of using the going concern concept; • the scope and cost of the external audit; • the auditor’s report for 2019; • 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 2020, which detailed the proposed audit scope and risk and governance assessment; • the review and approval of the external auditor’s fees for 2020; 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. 28 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 29 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 18 to 21 . 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 2021 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. Due to the change in Ethical Standards during 2020 RSM resigned from providing the Group with corporation tax services. However, they have continued to provide services relating to VAT advice. During the year ended 31 December 2020, 4 per cent. of services provided to the Group were non-audit services and related predominantly to VAT advice (see note 8 to the ﬁ nancial statements). By Order of the Board Simon Herrick - Chairman of the Audit Committee 30 April 2021 On behalf of the Board, I am pleased to present the Remuneration Committee report for the year ended 31 December 2020, 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 2020. 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 2021 Annual General Meeting. Remuneration Committee The Group’s Remuneration Committee comprises: • Simon Herrick, Chairman of the Committee, Senior Independent Non-Executive Director; and • From 1 August 2020, Glenn Collinson, 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 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 member 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). 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. Remuneration philosophy G o v e r n a n c e 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. 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. 30 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 31 Governance Remuneration Committee report continued 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 2020 During the year the Committee met three times and considered the following matters: • approval of a share matching scheme as part of long-term incentive arrangements for all employees; • 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. 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 Details of the Directors’ emoluments are given below. a) Remuneration Executive Directors JR Conoley3 J Kempster (appointed 17 December 2020) NA Rutter (resigned 5 February 2020) NC Smith (resigned 31 July 2019) MJ Stilwell (resigned 17 December 2020) Non-Executive Directors G Collinson (appointed 1 August 2020) SE Herrick (appointed 24 September 2019) WJB Payne (resigned 24 September 2019) J Shepherd (resigned 1 August 2020) AV Silverton (resigned 30 June 2020) GRA Whitworth4 Total Salary, fees and car allowances Beneﬁ ts Bonuses1 Pension allowance2 £000 £000 £000 £000 237 6 18 - 176 15 35 - 18 17 171 693 2 - - - 3 - - - - - 6 11 - - - - - - - - - - - - 14 - 2 - 15 - - - - - - 31 2020 Total £000 253 6 20 - 194 15 35 - 18 17 177 735 2019 Total £000 140 - 210 153 199 - 10 31 36 36 227 1,042 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 the Group Chief Executive, John was appointed Executive Chairman. 4. On 27 May 2020, Graham Whitworth’s role changed from Executive Director to Non-Executive Director of the Board. b) Share schemes Directors’ interests in unvested and vested share option awards are as follows: G o v e r n a n c e Element Salary Purpose and link to strategy 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 To provide market competitive beneﬁ ts sufﬁ cient to recruit and retain Operation Maximum opportunity 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 include life assurance and medical insurance Beneﬁ ts will be market competitive taking into account the role and the local market None 2014 EMI GRA Whitworth 2015 LTIP JR Conoley MJ Stilwell JR Conoley Share matching scheme JR Conoley JR Conoley JR Conoley Awards granted in the year Awards lapsed in the year Awards exercised in the year Number of awards over shares at 1 January 2020 125,000 1,500,000 750,000 - - - - - 750,000 - - - - 5,000,000 281,514 25,000 49,660 - - - - Number of awards over shares at 31 December 2020 Expiry date Exercise price (pence) 125,000 28/4/2024 200 1,500,000 - 2/8/2029 2/8/2029 5,000,000 30/11/2030 281,514 25,000 1/6/2030 3/7/2030 49,660 18/12/2030 2 2 2 2 2 2 - - - - - - - To provide market competitive pension arrangements sufﬁ cient to recruit and retain 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 To incentivise and reward execution of the business strategy, delivery of ﬁ nancial performance targets and the Group’s strategic plan 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 Under the Long-Term Incentive Plan, 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 awarded at the end of the three- year period is dependent on the achievement of certain performance criteria. Value of shares at time of vesting less nominal value. Bonus payments are at the discretion of the Remuneration Committee and take into account the overall ﬁ nancial performance of the Group Vesting of the awards is dependent on achievement of total shareholder return on a pro-rata basis. 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: G Collinson JR Conoley SE Herrick J Kempster GRA Whitworth * Graham’s contract expires on 29 January 2022 and can be extended by mutual consent. Notice period 3 months 6 months 3 months 1 month * Beneﬁ ts Pension Annual performance related bonus Share Schemes 32 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 33 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 30 April 2021 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 Strategic Review, the Performance Review, the Section 172 Companies Act Statement and the Risks and Risk Management section, on pages 6 to 21. Review of business and future developments The consolidated income statement for the year ended 31 December 2020 is set out on page 46. A review of the Group’s business activities during the year and its prospects for the future can be found in the Strategic Review and the Performance Review on pages 6 to 15. 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 the impact of non-underlying 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 non-underlying 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 10 to 15. Streamlined Energy and Carbon Reporting (SECR) The group appreciates its responsibility to ensure operating activities are undertaken in an environmentally conscious manner. Therefore, the group ensures all relevant environmental legislation is compiled with and, where possible exceeded. Actions and initiatives have been implemented to reduce energy consumption such as video conferencing. SECR regulations came into force 1 April 2019, requiring companies to disclose UK energy use and greenhouse gas emissions. Details of the group SECR results have been reported in the tables below. G o v e r n a n c e Energy consumption used to calculate emissions Gas (kWh) Electricity (kWh) Transport fuels (kWh) Total energy consumption 2020 kWh 217,335 193,007 182,198 592,540 34 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 35 Governance Statutory Directors’ report continued Business Carbon Footprint Emissions from combustion of gas (Scope 1) Emissions from other activities the company owns or controls including operation of facilities (Scope 1) Emissions from purchased electricity (Scope 2) Emissions from business travel in rental cars or employee-owned vehicles where company is responsible for purchasing of the fuel (Scope 3) Emissions from other activities (Scope 3): Transport – other Total gross Scope 1, Scope 2 & Scope 3 emissions Total gross GHG emissions per unit turnover/revenue (tCO2e/£M) Total gross GHG emissions tCO2e by FTE – Full time equivalent employees (tCO2e/FTE) 2020 tCO2e 40.0 6.1 45.0 41.3 3.9 136.3 3.42 1.12 Scope 1: Direct Greenhouse Gas emissions are emissions issued from sources directly controlled by FireAngel, such as stationary combustion equipment used for building heating. Scope 2: Indirect Energy Emissions are emissions issued from electricity production, or from the imported heat or vapor consumed in the buildings and equipment operation, provided by an external entity (sources out of the organizational boundaries). Scope 3: Other indirect Greenhouse Gas emissions are emissions issued from FireAngel activities but from sources controlled by external enterprises, such as waste disposal (transport and processing) and the transportation means of employees. Principal risks and uncertainties Control and share structure Details of the 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 2020 were as follows: G Collinson JR Conoley SE Herrick J Kempster GRA Whitworth NA Rutter (resigned 5 February 2020) J Shepherd (resigned 1 August 2020) AV Silverton (resigned 30 June 2020) MJ Stilwell (resigned 17 December 2020) 2020 Number of shares held 2020 Interests in share schemes 2020 Total interests in shares 2019 Total interests in shares - - - - 424,355 6,856,174 7,280,529 1,568,181 - - - - - - - - 3,560,398 125,000 3,685,398 3,685,398 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 4,175,000 237,497 100,000 805,538 3,984,753 6,981,174 10,965,927 10,571,614 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 18 to 21. Since the year end to 28 April 2021, the interests of the Directors and their connected persons in the issued share capital of the Company have changed as follows: 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 46 and 49. The consolidated loss after tax for the year was £8.7 million (2019: loss after tax of £9.4 million). As a result of the loss reported for the year, and consistent with the decision not to pay an interim dividend (2019: nil pence per share), the Directors do not recommend payment of a ﬁ nal dividend for the year (2019: nil pence per share). The total dividend payable for 2020 was therefore nil pence per share (2019: 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 page 50 to 57. General research costs undertaken in respect of the Group’s principal activities are charged through the income statement as incurred. Share capital and voting rights The Company’s issued share capital comprises a single class of ordinary shares of 2p each, with 126,558,845 shares in issue and listed on AIM of the London Stock Exchange as at 31 December 2020. 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. 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. G Collinson JR Conoley SE Herrick J Kempster GRA Whitworth Signiﬁ cant shareholdings As at 28 April 2021, the Company was aware of the following holdings, excluding holdings of Directors and their connected persons, 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 Nick Rutter Number of shares held Interests in share schemes Total interests in shares - - - 424,355 6,856,174 7,280,529 - - - - - - 3,636,542 125,000 3,761,542 4,060,897 6,981,174 11,042,071 Number of shares % of total voting rights Nature of interest 29,582,205 23,645,248 14,638,098 12,982,500 4,102,107 23.4 18.7 11.6 10.3 3.2 Direct Indirect Indirect Indirect Direct G o v e r n a n c e 36 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 37 Governance Statutory Directors’ report continued 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 2020 with the exception of the following appointments and resignations during the year: • Glenn Collinson (appointed 1 August 2020) • Jon Kempster (appointed 17 December 2020) • Nick Rutter (resigned 5 February 2020) • John Shepherd (resigned 1 August 2020) • Ashley Silverton (resigned 30 June 2020) • Mike Stilwell (resigned 17 December 2020) Details and biographies of the current Directors and Company Secretary are shown on page 22 to 23. 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, Graham Whitworth will retire and stand for re-election. As newly appointed Directors, Glenn Collinson, Jon Kempster and Zoe Fox will be subject to election being the ﬁ rst Annual General Meeting since they were appointed. The Company’s shareholders may by ordinary resolution appoint any person to be a Director. The Company must not have less than two 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. 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 9. The Group employed an average of 153 people in 2020 (2019: 149). 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 2020, the Group had 72 days’ purchases outstanding in trade payables (2019: 76 days’). Going concern Post balance sheet events Information on any events occurring after the balance sheet date is described in note 33 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. Directors Report The Directors Report comprises the Board of Directors and Company Secretary, Corporate governance report, Audit Committee report, Remuneration Committee report and the Statutory Directors’ report, on pages 22 to 34. The Directors’ Report have been approved by the Board. By Order of the Board Zoe Fox - Company Secretary 30 April 2021 G o v e r n a n c e 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 Directors prepared cash ﬂ ow forecasts for the period ending 31 December 2022 which considered the ﬁ nancial position of the Group, its cash ﬂ ows, borrowing facilities and ﬁ nancial covenants thereon. 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. The Group has been loss making in recent years and absorbed cash. The Group raised equity funding in 2020 and secured support from its bank through the government backed loan schemes. The impact of COVID-19 has been material as the Group was starting to see improvements in its underlying trading activity levels in early 2020 and especially important was the traction it was receiving from social housing Groups on the deployment of its connected homes alarms strategy which the group had invested in. The pandemic brought about a reduction in sales of core product through the traditional retail and trade channels and at the same time saw the deferral of any connected homes roll out as other priorities took precedent. The Group has used the lockdown periods to shape the business for the delivery of Gross margin improvement alongside capitalising on the resurfaced interest in our connected homes technology. The Group is very focused on this path and a major thrust will be the design and production of new products that lend themselves to more automated production and easy update and refresh cycles. Based on the cash ﬂ ow forecasts, the Group is anticipated to absorb cash in 2021 and to be close to cash neutral in 2022 and as such has successfully achieved increased committed loans through the government backed COVID loan schemes. These facilities by themselves do not however provide the group with the necessary cash to deliver the strategy and return the group to proﬁ tability and cash generative activity levels. On 30 April 2021 the Directors have announced an equity raise of £9.0m (net of expenses) in order to provide the group with the resources to meet its liabilities as they fall due over the period of the cash ﬂ ow forecast. Accordingly, the full year accounts for 2020 have been prepared on the going concern basis. 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 issue. Details of the resolutions passed at the 2021 Annual General Meeting will be made available on the Company’s website after the meeting. 38 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 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 have elected under company law and the AIM rules of the London Stock Exchange to prepare the Group ﬁ nancial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and to prepare the company ﬁ nancial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law. The ﬁ nancial statements are required by law and international accounting standards in conformity with the requirements of the Companies Act 2006 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 international accounting standards in conformity with the requirements of the Companies Act 2006; and • 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 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 30 April 2021 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 2020 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 statements, the consolidated statement of changes in equity, the company statement of changes in equity and the notes to the ﬁ nancial statements, including signiﬁ cant accounting policies. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 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 2020 and of the group’s loss for the year then ended; • the group ﬁ nancial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006; • the parent company ﬁ nancial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 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. Basis for opinion 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. Conclusions relating to going concern In auditing the ﬁ nancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the ﬁ nancial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting is set out below in our Key Audit Matter entitled “Going Concern”. Based on the work we have performed, we have not identiﬁ ed any material uncertainties relating to events or conditions that, individually or collectively, may cast signiﬁ cant doubt on the group’s or the parent company’s ability to continue as a going concern for a period of at least twelve months from when the ﬁ nancial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Summary of our audit approach Key audit matters Group • FireAngel warranty provisioning • Impairment of product development costs • Going concern Parent Company • Impairment of intercompany receivables Materiality Group • Overall materiality: £400,000 (2019: £461,000) • Performance materiality: £300,000 (2019: £346,000) Parent Company • Overall materiality: £200,000 (2019: £225,000) • Performance materiality: £150,000 (2019: £168,000) Scope Our audit procedures covered 94% of revenue, 95% of total assets and 98% 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 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 41 i F n a n c a i l s t a t e m e n t s Independent auditor’s report continued 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 remains ongoing. The warranty provision at 31 December 2020 of £2.7 million is stated after recording an additional exceptional warranty charge in the 2020 income statement of £1.2m. 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 exceptional charge of £1.2 million in note 7. The most signiﬁ cant estimate is the terminal rate of product return over the ten year warranty period for each year of production and for each end market. 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 changes to assumptions from those previously applied. • Challenging the appropriateness of the key assumptions used in the calculations, and the changes made compared to prior periods, by comparing them to other internal information held by management and considering whether any changes were indicators of possible management bias. • 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. • Developing our own estimate of the warranty provision required at 31 December 2020. • Considering the adequacy of disclosures and whether they were in accordance with the appliable ﬁ nancial reporting framework. Key observations Based on the results of the audit procedures outlined above, management increased the reported provision by £0.2m. Impairment of product development costs Key audit matter description The group continues to develop new products and has unamortised capitalised product development costs of £13.8 million at the reporting date, of which £5.8 million relates to projects where amortisation has not yet commenced. In accordance with their stated accounting policy, management 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 £1.4 million as disclosed in note 7. The recovery of these assets in future periods is dependent upon the successful completion and/or product sales from 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 future sales performance. Management have explained the estimation uncertainties relevant to their impairment considerations in note 3, and detailed analysis of the amounts capitalised is set out in note 17. How the matter was addressed in the audit Our audit work included, but was not restricted to: • Discussing product development expenditure during the year with management to understand progress and to identify areas of greater potential risk. • Obtaining and reviewing management’s impairment assessment for all projects within capitalised product development costs and performing audit work as follows: o For projects where amortisation has not yet commenced, we challenged management’s assessment, corroborated explanations to supporting evidence where available including key assumptions relating to future revenue and considered any contradictory evidence. For projects where amortisation has commenced, we reviewed the sales and margin achieved on products using this technology and compared the margins achieved with unamortised capitalised costs at the reporting date to assess the period over which the capitalised costs will be recovered. o • Reperforming management’s impairment calculations and assessing whether the impairment in the period was accurately calculated. • Considering the adequacy of disclosures and whether they are in accordance with the applicable ﬁ nancial reporting framework. Impairment of intercompany receivables (parent company only) Key audit matter description As 31 December 2020 the parent company statement of ﬁ nancial position includes amounts owed by subsidiary undertaking of £29.9 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. How the matter was addressed in the audit Due to the size of the balance owned by the subsidiary undertaking and the degree of judgement and estimation needed to calculate an appropriate expected credit loss provision this matter is one of the most signiﬁ cant risks of a material misstatement for the parent company At 31 December 2020, the gross amount owed by subsidiary undertakings was £33.3 million and the ECL recorded was £3.5 million as detailed in notes 3 and 21. 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 adequacy of disclosures and whether they were in accordance with the applicable ﬁ nancial reporting framework. Key observations We have no observations to report. 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: Group Overall materiality £400,000 (2019: £461,000) Basis for determining overall materiality 4.3% of loss before tax Parent company £200,000 (2019: £225,000) 0.6% of net assets Rationale for benchmark applied Loss before tax is considered the most appropriate benchmark for users of the ﬁ nancial statements. Net assets are considered to be the most appropriate benchmark for the parent company as it is primarily a holding company. Performance materiality £300,000 (2019: £346,000) Basis for determining performance materiality 75% of overall materiality £150,000 (2019: £168,000) 75% of overall materiality Reporting of misstatements to the Audit Committee Misstatements in excess of £20,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. Misstatements in excess of £10,000 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 Loss before tax Full scope audit Total 2 2 94% 94% 95% 95% 98% 98% i F n a n c a i l s t a t e m e n t s Key observations We have no observations to report. Analytical procedures at group level were performed for the remaining component. Going concern Key audit matter description It is the responsibility of the directors to form an opinion on whether the going concern basis of accounting is appropriate and to identify and disclose any material uncertainties that may cast signiﬁ cant doubt on the group’s or parent company’s ability to continue as a going concern. When planning our current year audit we identiﬁ ed a signiﬁ cant risk that there may be material uncertainties regarding the availability of funds required to meet the group’s operational cash requirements and to deliver the group’s strategy. The directors have set out their assessment in relation to going concern in the summary of signiﬁ cant accounting policies in note 2. How the matter was addressed in the audit Our audit work included, but was not restricted to: • Obtaining and reviewing the cash ﬂ ow forecasts prepared by management for the period to 31 December 2022. • Checking the mathematical accuracy of the cash ﬂ ow forecasts. • • • Reviewing the cashﬂ ow forecasts in light of our understanding of the business to identify and challenge the key assumptions therein, to assess the level of cash headroom and to assess likely ﬁ nancial covenant compliance. Considering the impact of management’s sensitivities on the forecast cash ﬂ ows and covenant compliance (including downside scenarios relating to revenue and gross margins). Adjusting the cashﬂ ow forecasts for our own sensitivities to consider the combined effect of the scenarios considered by management together with reverse stress testing of the cash ﬂ ow forecasts. • Reviewing the key terms of banking facilities and equity fundraise commitments. • Review of the disclosures within the ﬁ nancial statements to assess whether they accurately reﬂ ect management’s assessment of going concern, including any uncertainties. Key observations We have no observations to report. 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. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the ﬁ nancial statements themselves. 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 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 In our opinion, based on the work undertaken in the course of the audit: • we have not received all the information and explanations we require for • the information given in the Strategic Report and the Directors’ Report our audit. 42 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 43 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 30 April 2021 Independent auditor’s report continued 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. Auditor’s responsibilities for the audit of the ﬁ nancial statements Our objectives are to obtain reasonable assurance about whether the ﬁ nancial 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. The extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufﬁ cient appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the ﬁ nancial statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the ﬁ nancial statements, and to respond appropriately to identiﬁ ed or suspected non- compliance with laws and regulations identiﬁ ed during the audit. In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the ﬁ nancial statements due to fraud, to obtain sufﬁ cient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate The most signiﬁ cant laws and regulations were determined as follows: responses and to respond appropriately to fraud or suspected fraud identiﬁ ed during the audit. However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud. In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team: • obtained an understanding of the nature of the industry and sector, including the legal and regulatory framework that the group and parent company operate in and how the group and parent company are complying with the legal and regulatory framework; • inquired of management, and those charged with governance, about their own identiﬁ cation and assessment of the risks of irregularities, including any known actual, suspected or alleged instances of fraud; • discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the ﬁ nancial statements may be susceptible to fraud. Legislation / Regulation Additional audit procedures performed by the audit engagement team included: International accounting standards inconformity with the Companies Act 2006 Tax compliance regulations • Review of the ﬁ nancial statement disclosures and testing to supporting documentation; • Completion of disclosure checklists to identify areas of non-compliance • Inspection of advice received from external tax advisors • Inspection of correspondence with local tax authorities • Consideration of whether any matter identiﬁ ed during the audit required reporting to an appropriate authority outside the entity Product certiﬁ cation requirements • Inquiry of management and those charged with governance. The areas that we identiﬁ ed as being susceptible to material misstatement due to fraud were: Risk Audit procedures performed by the audit engagement team: Revenue recognition • Use of data analytics and substantive testing to test assertions over revenue (including cut-off) and to identify and investigate any transactions outside of the normal revenue cycle Impairment of product development costs • The audit procedures performed in relation to impairment of product development costs are documented in the key audit matter section of our audit report. Management override of controls • Testing the appropriateness of journal entries and other adjustments; • Assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and • Evaluating the business rationale of any signiﬁ cant transactions that are unusual or outside the normal course of business. 44 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 45 i F n a n c a i l s t a t e m e n t s Consolidated Company Consolidated income statement For the year ended 31 December 2020 2020 2019 Before non- underlying items Non-underlying items (note 7) Total £000 39,928 Before non- underlying items Non- underlying items (note 7) Total £000 45,486 £000 £000 - 45,486 Revenue Cost of sales Gross proﬁ t Operating expenses Other operating income 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 £000 39,928 (32,032) 7,896 (13,606) 291 (5,419) (278) (5,697) 630 (5,067) Note 6 8 8 9 8 11 12 14 14 £000 - (1,717) (1,717) (1,924) - (3,641) - (3,641) - (33,749) (36,821) 6,179 8,665 (15,530) (12,461) 291 (9,060) (278) (9,338) 630 - (3,796) (312) (4,108) 548 (3,641) (8,708) (3,560) (7.7) (7.7) Consolidated statement of comprehensive income For the year ended 31 December 2020 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 (4,308) (4,308) (2,608) - (41,129) 4,357 (15,069) - (6,916) (10,712) - (312) (6,916) (11,024) 1,056 (5,860) 2020 £000 (8,708) (22) (8,730) 1,604 (9,420) (14.0) (14.0) 2019 £000 (9,420) 31 (9,389) Consolidated and Company statement of ﬁ nancial position As at 31 December 2020 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 Cash and cash equivalents Total assets Current liabilities Trade and other payables Lease liabilities Current tax liabilities Provisions Invoice discounting facilities Loans and borrowings 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 26 23 25 23 23 22 23 23 25 27 29 2020 £000 169 11,738 2,059 4,263 - - 2019 £000 169 12,560 2,492 5,323 - - 18,229 20,544 6,558 10,071 711 1,466 18,806 37,035 6,304 12,073 729 2,062 21,168 41,712 (12,834) (12,150) (348) - (1,496) (6,985) - (429) (21,408) (440) (32) (1,491) (2,539) (2,600) (693) (20,629) (1,823) (23) (941) (1,254) - (2,218) (22,847) 14,188 2,531 22,104 121 (10,568) 14,188 2020 £000 - - - - 392 - 392 - 29,857 - 2 29,859 30,251 - - - - - - - 2019 £000 - - - - 149 - 149 - 25,947 - 4 25,951 26,100 - - - - - - - - i F n a n c a i l s t a t e m e n t s (240) 29,859 25,951 - (1,131) (1,997) - (3,128) (24,536) 17,176 1,519 17,617 143 (2,103) 17,176 - - - - - - - - - - - - 30,251 26,100 2,531 22,104 - 5,616 30,251 1,519 17,617 - 6,964 26,100 46 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 47 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 £1,591,000 (2019: loss of £1,182,000). The ﬁ nancial statements on pages 46 to 49 were approved and authorised for issue by the Board of Directors on 30 April 2021 and were signed on its behalf by: John Conoley - Executive Chairman Jon Kempster -Interim Chief Financial Ofﬁ cer Company registered number: 3991353 1,586 1,155 Net foreign exchange gains from overseas subsidiaries Consolidated and Company cash ﬂ ow statement For the year ended 31 December 2020 Consolidated statement of changes in equity For the year ended 31 December 2020 Share capital Share premium account Currency translation reserve Note 7 7 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 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 Net cash (used in)/generated by operating activities Investing activities Capitalised development costs Purchase of property, plant and equipment Interest received Net cash used in investing activities (2,831) (3,722) Financing activities Repayment of loan Drawdown of loan (Repayment) / 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 (decrease)/ increase 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 (600) 3,223 (4,445) - 5,499 (381) (278) 3,018 (577) 2,062 (19) 1,466 (7,000) 1,300 6,985 (209) 5,488 (307) (382) 5,875 784 1,251 27 2,062 Consolidated Company 2020 £000 2019 £000 2020 £000 (9,338) (11,024) (1,591) 278 312 5 (9,060) (10,712) (1,586) 1,429 2,482 - 3,641 (2,287) 264 - (3,531) (479) 1,911 (28) 683 (1,444) 680 (764) (2,554) (277) - 1,267 2,105 16 6,916 (2,346) 643 - (2,111) 418 (106) 520 (2,560) 1,191 (1,369) (2,882) (841) 1 (1,281) (5,496) - - - - - - - - - - (5,496) - (5,496) - - - - - - - 5,499 - (5) 5,494 (2) 4 - 2 2019 £000 (1,182) 18 (1,164) - - - - - - (9) - 242 - - 233 - 233 - - - - (7,000) 1,300 - - 5,488 - (18) (230) 3 1 - 4 Balance at 1 January 2019 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 £000 918 - - - 601 - - 601 - £000 12,729 - - - - 5,400 (512) 4,888 - Balance at 31 December 2019 1,519 17,617 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 Credit in relation to share-based payments Total transactions with owners in their capacity as owners Balance at 31 December 2020 - - - 1,012 - - - 1,012 2,531 - - - - 5,062 (575) - 4,487 22,104 Retained earnings £000 7,280 (9,420) - (9,420) - - - - 37 (2,103) (8,708) - (8,708) - - - 243 243 Total £000 21,039 (9,420) 31 (9,389) 601 5,400 (512) 5,489 37 17,176 (8,708) (22) (8,730) 1,012 5,062 (575) 243 5,742 £000 112 - 31 31 - - - - - 143 - (22) (22) - - - - - i F n a n c a i l 121 (10,568) 14,188 Company statement of changes in equity For the year ended 31 December 2020 Share capital Share premium account Retained earnings Balance at 1 January 2019 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 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 Credit in relation to share-based payments Total transactions with owners in their capacity as owners Balance at 31 December 2020 £000 918 - - 601 - - 601 1,519 - - 1,012 - - - 1,012 2,531 £000 12,729 - - - 5,400 (512) 4,888 17,617 - - - 5,062 (575) - 4,487 22,104 £000 8,146 (1,182) (1,182) - - - - 6,964 (1,591) (1,591) - - - 243 243 5,616 s t a t e m e n t s Total £000 21,793 (1,182) (1,182) 601 5,400 (512) 5,489 26,100 (1,591) (1,591) 1,012 5,062 (575) 243 5,742 30,251 48 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 49 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: • Use of UK-adopted international accounting standards (IAS) instead of EU adopted IAS • IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16 Interest Rate Benchmark Reform – Phase 2 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. Government Grants The Group has received grant funding from the UK and Canadian Governments. Government income is recognised within other income in proﬁ t or loss on a systematic basis over the periods in which the Group recognises costs for which the grants are intended to compensate. 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 £0.5 million (2019: £0.4 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. Notes to the ﬁ nancial statements For the year ended 31 December 2020 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 the Alternative Investment Market (‘AIM’) of the London Stock Exchanges. 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, heat 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. Basis of preparation These consolidated ﬁ nancial statements are prepared in accordance with international accounting standards in conformity with the Companies Act 2006 (‘IFRS’). The ﬁ nancial statements are presented in thousands (£’000) unless otherwise indicated. 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 Directors prepared cash ﬂ ow forecasts for the period ending 31 December 2022 which considered the ﬁ nancial position of the Group, its cash ﬂ ows, borrowing facilities and ﬁ nancial covenants thereon. 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. The Group has been loss making in recent years and absorbed cash. The Group raised equity funding in 2020 and secured support from its bank through the government backed loan schemes. The impact of COVID-19 has been material as the Group was starting to see improvements in its underlying trading activity levels in early 2020 and especially important was the traction it was receiving from social housing Groups on the deployment of its connected homes alarms strategy which the group had invested in. The pandemic brought about a reduction in sales of core product through the traditional retail and trade channels and at the same time saw the deferral of any connected homes roll out as other priorities took precedent. The Group has used the lockdown periods to shape the business for the delivery of Gross margin improvement alongside capitalising on the resurfaced interest in our connected homes technology. The Group is very focused on this path and a major thrust will be the design and production of new products that lend themselves to more automated production and easy update and refresh cycles. Based on the cash ﬂ ow forecasts, the Group is anticipated to absorb cash in 2021 and to be close to cash neutral in 2022 and as such has successfully achieved increased committed loans through the government backed COVID loan schemes. These facilities by themselves do not however provide the group with the necessary cash to deliver the strategy and return the group to proﬁ tability and cash generative activity levels. On 30 April 2021 the Directors have announced an equity raise of £9.0m (net of expenses) in order to provide the group with the resources to meet its liabilities as they fall due over the period of the cash ﬂ ow forecast. Accordingly, the full year accounts for 2020 have been prepared on the going concern basis. Changes in accounting policies and disclosures New standards, amendments and interpretations adopted by the Group The following 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 2020: • IFRS 3 Business Combinations • Amendments to IAS 1 and IAS 8: Deﬁ nition of Material 50 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 51 i F n a n 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 2020 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. The Directors estimate that the useful economic lives of these various intangible assets are 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 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 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. 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. 52 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 53 i F n a n 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 2020 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. Tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority, and the Group intends to settle its tax assets and liabilities on a net basis. 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 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. 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. 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 Chief Operating Decision Maker (‘CODM’) has been determined to be the Executive Chairman as he is primarily responsible for the allocation of resources and the assessment of the performance. 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. 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. Non-underlying items 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. e) Financial liabilities and equity Financial liabilities and equity instruments are classiﬁ ed according to the substance of the contractual arrangements entered into. 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 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. 3. Critical accounting estimates and areas of judgement Impacting the Group 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. 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. Warranty provision for FireAngel products 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 20. 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. 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 for affected products manufactured between 2012 and 2018 as at 31 December 2020 increased to £2.7 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. 54 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 55 i F n a n 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 2020 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. During the year, the FireAngel battery warranty provision was increased by £1.2 million 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. 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. 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 £33.3 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 £3.5 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 2020, net of provisions, was £29.9 million (2019: £25.9 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 weekly and 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. As we have disclosed elsewhere in this report the adoption of the going concern basis is predicated on a planned equity fund raise to be undertaken in the current year. Full disclosure around this can be found in the Going Concern disclosures on page 50. During 2020, the Group recognised an impairment charge of £1.4 million against its capitalised intangible product development costs after a thorough review of product lines and future development costs (see note 17). Maturity analysis The Board notes that the Group has a signiﬁ cant value of intangible assets on the balance sheet at the year end. Connected homes 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 £4.5 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 three years and the heightened risk of impairment that this leads to. At times during the year 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. Deferred tax recognition At 31 December 2020 there is a deferred tax asset of £1,869,602 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. 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 2020 amounted to £0.6 million (2019: £2.4 million). An amount of £0.4 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, offset by proceeds of £0.2 million from stock previously impaired. 56 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 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. 2020 Trade payables Loans and borrowings Other payables Lease liabilities Derivative ﬁ nancial liabilities Financial liabilities 2019 Trade payables Loans and borrowings Other payables Lease liabilities Derivative ﬁ nancial liabilities Financial liabilities Within 6 months £000 6 months to 1 year £000 1 to 5 years £000 Over 5 years £000 7,032 3,439 3,654 247 587 14,959 £000 7,355 6,985 3,282 174 401 18,197 - 1,700 - 252 106 2,058 - 23 - 1,001 - 1,024 - - - - - - £000 £000 £000 - - - 174 28 202 - - - 1,131 - 1,131 - - - - - - Total £000 7,032 5,162 3,654 1,500 693 18,041 £000 7,355 6,985 3,282 1,479 429 19,530 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. 2020 Trade receivables and other debtors Cash and cash equivalents Financial assets 2019 Trade receivables and other debtors Cash and cash equivalents Financial assets Within 6 months £000 6 months to 1 year £000 1 to 5 years £000 Over 5 years £000 9,430 1,466 10,896 £000 11,270 2,062 13,332 - - - - - - - - - £000 £000 £000 - - - - - - - - - Total £000 9,430 1,466 10,896 £000 11,270 2,062 13,332 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 57 i F n a n 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 2020 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, of which £2.5 million was drawn down at the year end, with HSBC UK Bank plc secured on UK and international trade debtors which can be accessed as required. On 26 March 2021 the Group announced it had reﬁ nanced its existing Coronavirus Large Business Interruption Loan Scheme (‘CLBILS’). As the Group’s revenue dropped below £45.0 million, the CLBILS (which reduced to £2.0 million at the end of March 2021) have been reﬁ nanced under the Coronavirus Business Interruption Loan Scheme (“CBILS”) with HSBC UK. The new loan of, in aggregate, £3.7 million (“New Loan”) comprises a CBILS loan of £3.2 million and an additional Receivables Finance CBILS of £0.5 million. The New Loan, which will be used to pay off the balance of the CLBILS, has a term of 6 years with the ﬁ rst year being free of interest and capital repayments and an interest rate thereafter of 3.99 per cent. over the Bank of England’s base rate. Today the Company announced an equity fundraising of £9.0 million (net of expenses). 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 believes 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 2021 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. Cash and cash equivalents and derivative ﬁ nancial instruments are all held with an AA- rated bank, HSBC UK Bank plc. 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 2020 £000 9,430 1,466 10,896 2019 £000 11,270 2,062 13,332 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 £29.9 million (2019: £25.9 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 £3.5 million at 31 December 2020 (2019: £1.9 million). 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. 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. IFRS 8 requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating Decision Maker (‘CODM’). The CODM has been determined to be the Executive Chairman as he is primarily responsible for the allocation of resources and the assessment of the performance. Based on the information on which strategic and operating decisions are made, the CODM 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 2020 £000 2019 Restated £000 7,560 16,603 2,875 1,363 9,198 2,329 39,928 7,452 18,317 4,718 2,173 11,140 1,686 45,486 All business units earn revenue from the sale of smoke, heat 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. As of 1 January 2020, the business has reassigned a number of customers to different business units. Two large customers with a combined revenue of £7.1m in 2019 which were previously reported within the Trade business unit are now reporting through the Retail business unit. The Utilities business unit gained two customers with a combined revenue of £0.7m in 2019 which were previously reported within the Trade business unit. The 2019 sales comparatives have been adjusted accordingly. For 2020, revenues of approximately £9.4 million were derived from two external customers (2019: £5.5 million from one external customer), which individually contributed over 10% of total revenue of the Group. These revenues are attributable to the UK Retail business unit. An analysis of the Group’s revenue is as follows: Continuing operations: UK Continental Europe Rest of World 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) Commercial distributer settlements (note b) Provision against stock and disposal costs (note c) Within operating expenses Restructuring and fundraising costs (note d) Impairment of intangible assets (note e) Impairment of tangible assets (note f) Share-based payment charges Total non-underlying items 2020 £000 28,400 8,961 2,567 39,928 2020 £000 18,050 179 18,229 2020 £000 1,168 324 225 1,717 77 1,416 188 243 1,924 3,641 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 58 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 59 i F n a n 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 2020 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 £1.2 million. The additional provision 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 being seen. The total cash impact of the warranty provision in 2020 was £1.9 million. b. Customer settlements relating to the battery impedance totalled £0.3m for the year. As at 31 December 2020 the Group had paid £0.2 million of these settlements. c. Stock impairment and disposal costs of £0.2 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, £1.7 million was provided. The cash impact in 2020 relating to stock disposal costs equated to £0.1 million. d. Restructuring and certain fundraising costs of £0.1 million were incurred and paid in the year. In the prior year, £0.7 million was provided. e. Intangible capitalised development assets of £1.4 million were impaired during the year as a result of a thorough review of product lines and future development costs. In the prior year, £1.8 million was provided. f. Tangible assets of £0.2 million were impaired during the year as a result of a thorough review of tooling required for ongoing product lines. In the prior year nil was provided. 8. 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 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 2020 £000 6,005 3,424 395 841 27,928 112 977 953 890 283 3,398 717 3,356 49,279 2019 Restated £000 5,465 3,065 307 879 33,190 33 920 728 540 270 6,879* 405 3,517* 56,198 *The 2019 share based payment charge of £37,000 has been moved out of non-underlying items excluding staff costs and in to other net expenses. Loss from operations has been arrived at after charging: Net foreign exchange losses/ (gains) excluding foreign currency forward transactions Research and development costs Amortisation and impairment of intangible assets Depreciation of owned assets Depreciation on right-of-use assets 2020 £000 477 283 3,898 1,033 396 2019 Restated £000 (210) 270 3,730 958 307* *The 2019 depreciation on right-of-use assets has been restated from £354,000 to £307,000. The previous ﬁ gure contained both depreciation and interest on right -of-use assets. 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 9. Other operating income 2020 £000 36 73 - 109 5 - 5 2019 £000 32 66 - 98 32 7 39 Furlough payments of £0.1m were received under the UK Government’s Coronavirus Job Retention Scheme and £0.2 million under the Canadian Emergency Wage Subsidy. The scheme enabled employers to retain staff despite the economic impact of COVID-19 through government grants relating to wage subsidies. As per the accounting policies adopted, the grant received was recognised in the proﬁ t and loss in ‘other income’ as the related salaries for the furloughed employees were recognised. 10. Staff costs The average monthly number of employees (including Executive and Non-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 Less: Staff costs in prepayments Total remuneration charged to the income statement 2020 Number 2019 Number 26 40 49 26 7 5 23 40 48 27 7 4 153 149 2020 £000 6,612 613 224 243 7,692 (1,687) - 6,005 2019 £000 6,341 598 214 37 7,190 (1,635) (90) 5,465 60 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 61 i F n a n 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 2020 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 Domestic income tax is calculated at 19.00% (2019: 19.00%) of the estimated assessable proﬁ t or loss for the year. 2020 £000 (227) (51) (278) 2020 £000 (711) (49) 130 (630) - - (630) 2019 £000 (265) (47) (312) 2019 £000 (707) (47) 46 (708) (1,024) 128 (1,604) 13. Dividends As a result of the loss reported for the year, and consistent with the decision not to pay an interim dividend (2019: nil pence per share), the Directors do not recommend payment of a ﬁ nal dividend for the year (2019: nil pence per share). The total dividend payable for 2020 is therefore nil pence per share (2019: 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 2020 £000 (8,708) ‘000 112,865 - 112,865 2020 pence (7.7) (7.7) 2019 £000 (9,420) ‘000 67,219 - 67,219 2019 pence (14.0) (14.0) 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 2020. % 15. Financial instruments 2020 Financial assets Trade receivables and other debtors Cash and cash equivalents Total 2019 Financial assets Trade receivables and other debtors Cash and cash equivalents Total Assets at fair value through proﬁ t and loss £000 Financial assets at amortised cost £000 - 1,466 1,466 9,430 - 9,430 Assets at fair value through proﬁ t and loss £000 Financial assets at amortised cost £000 - 2,062 2,062 11,270 - 11,270 Total £000 9,430 1,466 10,896 Total £000 11,270 2,062 13,332 i F n a n c a i l s t a t e m e n t s 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% (2019: 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 % 2020 £000 (9,338) (1,774) 52 (306) (49) 1,428 59 - (40) 2019 £000 (11,024) (2,095) 60 (305) 81 437 23 168 27 (630) 7% (1,604) 15% The weighted average applicable tax rate was 7% (2019: 15%). The tax credit for 2020 is largely due to enhanced research and development tax relief at a rate of 230% and operating losses in the year of £9.3 million. Tax losses are, where possible, realised during the year through surrender for research and development tax credits. At 31 December 2020 there is a deferred tax asset of £1,869,602 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 2020 £000 - - 2019 £000 - - 62 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 63 Notes to the ﬁ nancial statements continued For the year ended 31 December 2020 2020 Financial liabilities Trade payables Loans and borrowings Other payables Lease liabilities Derivative ﬁ nancial liabilities Total 2019 Financial liabilities Trade payables Loans and borrowings Other payables Lease liabilities Derivative ﬁ nancial liabilities Total Group impairment test At times during the year, 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 2020 amounted to £17.9 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 four-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 and sales mix; • future anticipated capital expenditure; and • requirements for working capital based on revenue growth. Total £000 7,355 6,985 3,282 1,479 429 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 £54.1 million compared with the carrying amount of £17.9 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 (2019: 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 2023 and thereafter to that expected to be achieved in 2022; 19,101 19,530 • an increase in overheads in 2022 and in each year thereafter; Liabilities at fair value through proﬁ t and loss £000 Financial liabilities held at amortised cost £000 Total £000 7,032 5,162 3,654 1,381 693 17,229 17,922 7,032 5,162 3,654 1,381 - 7,355 6,985 3,282 1,479 - - - - - 693 693 - - - - 429 429 Liabilities at fair value through proﬁ t and loss £000 Financial liabilities held at amortised cost £000 At 31 December 2020 the Company held ﬁ nancial assets held at amortised cost in the form of intercompany balances to the value of £29.9 million (2019: £25.9 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 (2019: £nil). 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 2020 £000 9,430 9,430 2019 £000 11,270 11,270 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 2020 a credit loss provision of £66,000 (2019: £7,000) was held against the exposure of potential bad debts. 16. Goodwill Cost and carrying value Cost and carrying value of goodwill at 31 December 2020 and 2019 The goodwill above relates solely to Pace Sensors. £000 169 64 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 • an increase in capital expenditure in 2022 and in each year thereafter; and • an increase in working capital required as a percentage of revenue in 2021 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 2019 Additions At 31 December 2019 Additions Disposals At 31 December 2020 Amortisation At 1 January 2019 Amortisation for the year Impairment for the year At 31 December 2019 Amortisation for the year Impairment for the year Disposals At 31 December 2020 Carrying amount At 31 December 2019 At 31 December 2020 Product development costs £000 Purchased software costs £000 Computer software costs £000 15,981 2,867 18,848 2,519 (1,597) 19,770 2,859 1,660 1,825 6,344 1,925 1,416 (1,597) 8,088 12,504 11,682 2,899 - 2,899 - - 2,899 - 407 - 407 433 - - 840 2,492 2,059 415 15 430 35 (141) 324 336 38 - 374 35 - (141) 268 56 56 Total £000 19,295 2,882 22,177 2,554 (1,738) 22,993 3,195 2,105 1,825 7,125 2,393 1,416 (1,738) 9,196 15,052 13,797 The amortisation charge of £2,393,000 (2019: £2,105,000) and impairment charge of £1,416,000 (2019: £1,825,000) have been recognised within operating expenses. The Group disposed of £1.6 million of product development assets, £1.4 million of which had a net book value of zero at 31st December 2019 and £0.2 million which was impaired in 2020. These disposals were against technologies which are no longer in use within the business and do not appear on the Group’s strategic roadmap in the future. There was nil cash value with regards to these disposals. A summary of intangible costs as at 31 December 2020 is given in the table which follows. Except as outlined below, intangible assets are typically amortised over seven to twelve 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. FireAngel Safety Technology Group plc Annual Report and Accounts 2020 65 i F n a n 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 2020 Impairment review During 2020, the Group recorded an impairment charge of £1.4 million (2019: £1.8 million) against projects which were no longer considered to be commercially viable after a thorough review of product lines. As part of the impairment review, the Group compared the net book value of each intangible asset with the discounted cash ﬂ ows which are expected to be derived from the sale of products over the next one to ﬁ ve years that use the relevant intangible asset. The review was based on a discounted cash ﬂ ow model using a pre-tax discount rate of 12% and included associated overhead costs. 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 recoverable 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 becomes mainstream, and is pleased with the good progress made in securing the Group’s ﬁ rst material purchase order during the year and in trials currently underway. 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 2020 Projects amortised in 2020 Disposals Technical costs capitalised Employment costs capitalised Total additions At 31 December 2020 Amortisation At 1 January 2020 Charge Impairment Disposals 5,013 1,035 - 64 335 399 6,447 1,098 849 - - 1,923 1,599 1,280 2,064 2,024 1,998 15,901 3,762 2,084 5,846 21,747 - - - - - - - - - - - - - - - - (88) - - - - - 386 - 386 - 1,035 - (1,035) (1,035) - (758) (846) - - - 450 335 785 (206) 83 628 711 (545) (751) (1,597) 299 382 832 724 1,352 1,687 1,023 1,734 2,519 1,923 1,599 1,280 1,976 2,410 1,240 16,875 4,267 1,527 5,794 22,669 836 203 489 - 300 153 - - 327 134 - - 1,326 139 428 (88) 508 794 320 86 2,358 179 1,416 - (758) (846) 1,562 5,957 249 545 794 - - (206) 43 - - - - 6,751 2,358 1,416 (545) (751) (1,597) - 43 8,928 At 31 December 2020 1,947 1,528 453 461 1,805 1,622 1,069 8,885 Wi-Safe 2 Wi-Safe 2 is the Group’s primary protocol that allows its interconnected alarms to communicate with one another. This is a core element of the Groups wider Connected Homes strategy. Nano Developed in house by FireAngel’s wholly-owned subsidiary in Canada, Pace Sensors, the Nano went into production into ﬁ nished CO detectors in November 2016. This new generation of sensor is incorporated within the Group’s new Gen5 CO detectors range which are due to be released in late 2021. Mains-powered products Mains-powered products include FireAngel Speciﬁ cation and FireAngel Pro ranges which were relaunched in 2019 and complete the Group’s product suite. Smoke-sensing products This consists of FireAngel’s own-brand heat and optical product ranges. Manufacturing setup costs These are the 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 This includes FireAngel’s 10-year life CO alarm as well as well as internally developed testing equipment. 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 Gen 5 and Gen 6 are the next generation of the Group’s smoke, heat, CO and combined alarms. These new technologies 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. They also provide 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. Gen 5 CO alarms are expected to be released in late 2021. Connected homes technology 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. i F n a n c a i l s t a t e m e n t s Carrying amount At 1 January 2020 At 31 December 2020 3,915 4,500 1,087 1,299 395 1,146 % of total 33% 3% 8% *Analysed in more detail on the following pages. Projects being amortised 953 819 6% 738 171 1% 1,516 788 6% 436 171 1% 9,944 7,990 58% *3,513 *4,224 31% 1,539 5,052 1,527 5,751 11% 42% 14,996 13,741 100% The following is a high-level summary of the projects being amortised which are set out in the table above. Connected homes technology This technology connects FireAngel’s alarms to the cloud via its interface gateway technologies. Access to the cloud removes the need for social landlords to access properties for maintenance as well as providing risk analysis on a property by property basis via the Group’s intuitive dashboards. During 2020 the Group has continued to develop its B2B offering and successfully completed a number of trials with social housing bodies around the UK. 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 2020 an IoT rollout partnership was commenced with Ealing Council with signiﬁ cant other opportunities in the pipeline for 2021. This includes £2.1 million of purchased core software modules from Intamac. 66 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 67 Notes to the ﬁ nancial statements continued For the year ended 31 December 2020 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 2019 Additions Disposals At 31 December 2019 Additions Disposals At 31 December 2020 Accumulated depreciation At 1 January 2019 Depreciation charge for the year Disposals Effect of exchange rates At 31 December 2019 Depreciation charge for the year Impairment Disposals Reclassiﬁ cation Effect of exchange rates At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 3,670 724 (15) 4,379 155 (283) 4,251 156 789 - - 945 874 188 (283) - - 1,413 89 (5) 1,497 117 (235) 1,379 1,119 122 (2) - 1,239 124 - (235) 31 4 1,724 1,163 3,434 2,527 258 216 7 - - 7 - - 7 4 2 - - 6 1 - - - - 7 1 - 435 28 (55) 408 5 (66) 347 240 47 (22) (4) 261 34 - (66) (31) - 198 147 149 The total depreciation expense of £1,429,000 (2019: £1,267,000) has been charged to operating expenses. There are no material capital commitments at the balance sheet date. 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 768 1,022 - 1,790 283 (19) 2,054 - 307 - - 307 396 - (19) - (1) 683 1,483 1,371 2020 £000 1,303 39 28 Total £000 6,293 1,863 (75) 8,081 560 (603) 8,038 1,519 1,267 (24) (4) 2,758 1,429 188 (603) - 3 3,775 5,323 4,263 2019 £000 1,464 11 8 Total carrying amount presented within property, plant and equipment 1,370 1,483 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 68 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 2019 £000 284 8 15 307 2020 £000 375 6 15 396 2020 £000 49 1 1 51 19. Shares in subsidiaries Company Cost At 31 December Accumulated impairment At 31 December Net book value 2020 £000 392 - 392 2019 £000 149 - 149 The share-based payments in 2020 totalling £243,232 were issued from the parent company. These related to the 2015 Long-Term Incentive Plan nominal cost options awarded on 2 August 2019 and 30 November 2020, and option awards under the Company’s share matching scheme since May 2020. 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 2020 were 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 Corporation. 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 (2019: no impairment). FireAngel Safety Technology Group plc Annual Report and Accounts 2020 69 i F n a n 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 2020 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 £3.5 million has been provided. Further details are given in note 3. The carrying value of amounts owed by subsidiary undertakings at 31 December 2020, net of provisions, was £29.9 million (2019: £25.9 million). 20. Inventories Raw materials Work-in-progress Finished goods Total gross inventories Inventory provisions Total net inventories Group 2020 £000 133 267 6,790 7,190 (632) 6,558 Group 2019 £000 126 265 8,310 8,701 (2,397) 6,304 Company 2020 £000 Company 2019 £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 £0.2 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 (2019: £1.7 million). The inventory provision has decreased by £1.8m due to writing off £2.0m of stock that was provided for in previous periods coupled with the 2020 charge of £0.2m detailed in note 7. 21. Financial assets Trade receivables and other debtors Cash and cash equivalents Derivative ﬁ nancial assets Maximum exposure to credit risk Group 2020 £000 9,430 1,466 - Group 2019 £000 11,270 2,062 - Company 2020 £000 Company 2019 £000 29,857 25,947 2 - 4 - 10,896 13,332 29,859 25,951 Maturity analysis of lease liabilities: Land and buildings Plant and machinery Vehicles Total lease liabilities 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 2020 £000 9,309 - 380 382 10,071 Group 2019 £000 10,316 Company 2020 £000 Company 2019 £000 - - - 29,857 25,947 1,307 450 12,073 - - - - 29,857 25,947 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 62 days (2019: 59 days). As at 31 December 2020 a credit loss provision of £66,000 (2019: £7,000) was held against the exposure of potential bad debts. 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 2020 was £7.3 million (2019: £7.9 million). At 31 December 2020 £7.3 million (2019: £8.0 million) of trade receivables were denominated in sterling, £1.0million (2019: £0.5 million) in US dollars and £1.0 million (2019: £1.8 million) in euros. At 31 December 2020, cash of nil (2019: cash of £1.6 million) was denominated in sterling, a balance of £1.4 million (2019: overdrawn balance of £0.8 million) in US dollars, cash of £0.1 million (2019: cash of £0.1 million) in Canadian dollars and an overdrawn balance of £0.1 million (2019: cash of £1.2 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 £33.3 million. 22. Derivative ﬁ nancial instruments Assets Foreign currency forward contracts Liabilities Foreign currency forward contracts 2020 £000 - 693 2019 £000 - 429 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 2020 were US $15.5 million (2019: US $14.7 million), sterling of £nil million (2019: £3.6 million) and euro of €nil (2019: €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 2020 £000 2,623 2,539 Group 2019 £000 - 6,985 Company 2020 £000 Company 2019 £000 - - - - During the year, to fund the temporary increase in working capital due to COVID-19 the Company secured a £3.2 million loan under the Coronavirus Large Business Interruption Loan Scheme, £0.9 million was repayable in instalments throughout 2020 and the balance of £2.3 million was repayable in instalments in 2021. In December 2020, the Group agreed with the lender to amend the repayments so that £0.6 million was repaid in 2020 and £2.6 million was repayable in instalments in 2021. On 26 March 2021 the Group announced the reﬁ nancing of this loan, further details can be found in note 33. At 31 December 2020, the Group had the following lease liabilities totalling £1.4 million: Within 6 months £000 6 months to 1 year £000 1 to 5 years £000 Over 5 years £000 Total at 31 December 2020 £000 207 1 7 215 211 8 6 225 899 26 16 941 - - - - 1,317 35 29 1,381 i F n a n c a i l s t a t e m e n t s 24. Fair value disclosures The total net loss on forward contracts recognised in the income statement for the year ended 31 December 2020 was £0.3 million (2019: loss 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. Level 2 Assets Foreign currency forward contracts Liabilities Foreign currency forward contracts 25. Provisions At 1 January 2019 Charge in year Utilisation in year At 31 December 2019 Charge in year Utilisation in year At 31 December 2020 2020 £000 - 693 FireAngel warranty provisions £000 BRK Brands warranty provisions £000 2,932 2,605 (2,072) 3,465 1,167 (1,887) 2,745 134 - (106) 28 - (28) - 2019 £000 - 429 Total £000 3,066 2,605 (2,178) 3,493 1,167 (1,915) 2,745 70 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 71 Notes to the ﬁ nancial statements continued For the year ended 31 December 2020 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 2020 £000 1,491 1,254 2,745 2019 £000 1,496 1,997 3,493 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 £1.2 million 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. 26. Trade and other payables Trade payables Accruals and deferred income Other tax and social security Group 2020 £000 7,033 3,654 2,147 Group 2019 £000 7,355 3,282 1,513 12,834 12,150 Company 2020 £000 Company 2019 £000 - - - - - - - - At 31 December 2020, £0.6 million (2019: £0.5 million) of payables were denominated in sterling, £0.2 million (2019: £0.2 million) in euros and £6.2 million (2019: £6.6 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 72 days (2019: 76 days). 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 to income 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 2020 Credit/ (charge) to income for the year At 31 December 2020 2020 £000 (2,415) 2,415 - 2020 £000 - - - Derivative ﬁ nancial instruments £000 Non-current asset timing differences £000 32 (10) 22 2,332 61 2,393 2019 £000 (2,364) 2,364 - 2019 £000 (896) 896 - Total £000 2,364 51 2,415 Deferred tax assets At 1 January 2020 Credit to income for the year At 31 December 2020 Deferred tax losses £000 Derivative ﬁ nancial instruments £000 Share-based payments £000 2,354 17 2,371 1 - 1 9 34 43 Total £000 2,364 51 2,415 As at 31 December 2020, there is an unrecognised net deferred tax asset of £1,869,602. 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 (2019: £0.2 million) represents contributions payable by the Group to the fund for the year. Contributions amounting to £40,000 (2019: £nil) were payable at the year end. 29. Called up share capital 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 2020 Number ‘000 75,935 50,623 - Company 2019 Number ‘000 45,905 30,000 30 126,558 75,935 £000 1,519 1,012 - 2,531 £000 918 600 1 1,519 The Company has one class of ordinary share which carries no right to ﬁ xed income. On 8 April 2020, the Company raised £6.1 million (gross) through the issue of 50,623,480 new ordinary shares of 2p nominal value each at an issue price of 12p per share. The premium on issue was 10p per share amounting to £5.1 million. This was credited to the share premium account. Share issue expenses amounted to £0.6 million. These were debited to the share premium account. 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 £1,591,000 (2019: loss of £1,182,000). 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 £243,232 (2019: £37,000), 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 and 30 November 2020, and option awards under the Company’s share matching scheme since May 2020. Outstanding at 1 January Exercised during the year Granted during the year Expired or lapsed during the year Outstanding at 31 December 2020 2019 Options ‘000 3,968 - 6,190 (870) 9,288 Weighted average exercise price Options ‘000 Weighted average exercise price 30p - 2p 3p 14p 684 (30) 3,400 (86) 3,968 99p 2p 2p 200p 30p 72 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 73 i F n a n 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 2020 Details of the share options outstanding at the end of the year are as follows: Grant date Outstanding at start of the year Recategorised during the year Exercised during the year Lapsed during the year Granted during the year Outstanding at end of the year Expiry date Exercise price Options under LTIPs Directors’ share options 25/04/2014 02/08/2019 30/11/2020 Employee share options 25/04/2014 02/08/2019 Options under LTIPs 250,000 (125,000) 2,500,000 (250,000) - - 317,612 125,000 900,000 250,000 3,967,612 Options under share matching scheme Directors’ share options 01/06/2020 03/07/2020 18/12/2020 Employee share options 01/06/2020 19/06/2020 03/07/2020 Options under share matching scheme Total options - - - - - - - 3,967,612 - - - - - - - - - - - - - - - - - - - - - - - - (750,000) - - 125,000 28/04/2024 200p 1,500,000 02/08/2029 - 5,000,000 5,000,000 30/11/2030 (5,500) (115,000) - - 437,112 28/04/2024 1,035,000 02/08/2029 (870,500) 5,000,000 8,097,112 - - - - - - - 281,514 281,514 01/06/2030 25,000 49,660 239,838 544,904 25,000 03/07/2030 49,660 18/12/2030 239,838 01/06/2030 544,904 19/06/2030 49,473 49,473 03/07/2030 1,190,389 1,190,389 (870,500) 6,190,389 9,287,501 2p 2p 200p 2p 2p 2p 2p 2p 2p 2p As at 31 December 2020, a total of 9,287,501 options were outstanding which had an average exercise price of 14p, and a weighted average remaining contractual life of 9.1 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 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. 2020 share options award On 30 November 2020, the Company granted an annual award over 5 million shares under its 2015 Long-Term Incentive Plan (‘LTIP’) to the Executive Chairman, John Conoley. Under the LTIP, he is entitled to exercise an option to receive 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 awarded at the end of the three-year period is dependent on the achievement of certain performance criteria. 74 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 Vesting of the LTIP awards is dependent on achievement of total shareholder return (‘TSR’). If TSR on Shares is 300% 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 fair value of these options was determined using a monte-carlo model and principal input assumptions into that model include the exercise price 2p, expected volatility of 60.0%, option life 3.5 years. Volatility was determined with reference to the movement in the Company share price over 5 years starting from November 2015. Employee share matching scheme In May 2020, the Board implemented an employee share-matching incentive scheme. The scheme awards options to acquire shares at nominal value on a one-for-one basis with any shares acquired in the market by the employee, their spouse or civil partner, subject to the discretion of the Board’s Remuneration Committee. There is no vesting period or performance criteria for the options under the scheme, therefore the option to acquire shares vests immediately and becomes fully exercisable. It is the Board’s intention to close the share matching scheme shortly after the release of the Company’s audited ﬁ nal results for the year ended 31 December 2020. 32. 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 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 2020 £000 - - (1,586) 5,496 3,910 2020 £000 1,009 69 205 157 2019 £000 1,300 (7,000) (1,155) 5,459 (1,396) 2019 £000 1,319 74 113 37 1,440 1,543 2020 £000 239 14 253 2019 £000 227 - 227 During 2020, the Company granted awards over 5 million shares in total to one 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 Director is £92,834. 33. Post balance sheet events On 26 March 2021 the Group announced it had reﬁ nanced its existing Coronavirus Large Business Interruption Loan Scheme (‘CLBILS’). As the Group’s revenue dropped below £45.0 million, the CLBILS (which reduced to £2.0 million at the end of March 2021) have been reﬁ nanced under the Coronavirus Business Interruption Loan Scheme (“CBILS”) with HSBC UK. The new loan of, in aggregate, £3.7 million (“New Loan”) comprises a CBILS loan of £3.2 million and an additional Receivables Finance CBILS of £0.5 million. The New Loan, which will be used to pay off the balance of the CLBILS, has a term of 6 years with the ﬁ rst year being free of interest and capital repayments and an interest rate thereafter of 3.99 per cent. over the Bank of England’s base rate. On 7 April 2021 the Group announced it had signed a long term strategic partnership agreement with a German energy efﬁ ciency service provider (the “Partner”) to provide a fully funded research and development programme for a new generation smoke alarm. This next generation alarm will offer additional, innovative safety and environmental features to meet the increased demands of landlords as well as tenants. Both parties will have the right to use any foreground IP resulting from development of the new smoke alarm. Pursuant to the terms of the agreement, the Partner will fund the development phase of the next generation smoke alarm. In addition, FireAngel will receive a fee of £1.4 million for use of its background IP during the development phase. Thereafter, once production of the next generation smoke alarm has commenced, a royalty fee per product will be payable to FireAngel with a multi-million volume fee agreed for the initial 30 months. Manufacturing of the next generation smoke alarm is expected to commence in early 2024. It is forecast that 7 million new devices will be produced with a minimum of 3.5 million expected to be produced in the ﬁ rst 2.5 years and that during the life of the partnership, the Company should earn up to €21 million in royalty, management and support fees. On 30 April 2021 the Company announced an equity fundraising of £9.0 million (net of expenses) in order to provide the Group with the resources to deliver the strategy and return to proﬁ tability. FireAngel Safety Technology Group plc Annual Report and Accounts 2020 75 i F n a n c a i l s t a t e m e n t s 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 FINANCIAL CALENDAR Financial year end - 31 December 2020 Full year results announced - 30 April 2021 Annual General Meeting - 16 June 2021 O t h e r i n f o r m a t i o n 76 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 FireAngel Safety Technology Group plc Annual Report and Accounts 2020 77 www.fireangeltech.com info@fireangeltech.com 024 7771 7700

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