FireAngel Safety Technology Group plc
(‘FireAngel’ or the ‘Company’)

Trading update

FireAngel (AIM: FA.), one of Europe’s leading developers and suppliers of home safety products, announces a trading update ahead of the release of its audited final results for the year ended 31 December 2018, which are expected to be below market expectations, specifically at the underlying operating loss level. The figures set out in this announcement are subject to audit.

In December 2018, the Company welcomed Mike Stilwell as Group Finance Director, and on 22 January 2019, announced the appointment of John Conoley as Non-Executive Chairman.

For the year ended 31 December 2018, sales are now expected to be approximately £37.6m (2017: £54.3m) and the underlying operating loss ¹is expected to be approximately £2.0m (2017: underlying operating profit of £4.7m). 2018 was a year of significant disruption and distraction for the Company which has been well documented in previous announcements.

¹Underlying expected operating loss in 2018 of £2.0m is before exceptional charges of £3.6m (further details of which are set out below) and a share-based payments charge of £0.1m (2017: underlying operating profit of £4.7m is stated before an exceptional charge for the settlement agreement with BRK of £3.8m and a share-based payments charge of £0.4m).

Since release of the Company’s trading update on 22 November 2018, sales remained broadly in line with market expectations. However, a warranty provision release which the Board had expected to make has been prudently retained based on current higher product costs, which are described in more detail below. Levels of product returns in 2018 were in line with the Board’s expectations.

The Board now expects to make an exceptional charge of approximately £3.6m in the year ended 31 December 2018. This charge comprises the following three items which are non-underlying in nature:

(a) This stock was largely purchased for the French market to address demand driven by local legislative change. There may be some future upside to the Company’s performance if this stock is sold into alternative markets or used to meet demand for replacement products.

(b) These one-off costs are due to delays in reaching full production capacity and pricing expectations and have been incurred due to previously announced delays in the full ramp up of production at the Company’s primary smoke alarm and connected devices manufacturing partner. The Board considers that output is now sufficient to meet forecast demand for 2019.

(c) In line with its previously announced strategy to transition from a hardware safety products provider to a more integrated safety solutions provider, the Company has taken action to move from a traditional distributor model to more value-added reseller partnerships in its distribution channels for both its core and connected product ranges. The Board believes that this is key to the Company gaining greater market penetration and generating higher margins.

The Company has operated within its banking facilities throughout the year. Net debt at 31 December 2018 was £4.7m (31 December 2017: net cash of £3.3m).

The warranty provision at 31 December 2018 stood at £1.6m (31 December 2017: £2.2m).

Provisions against slow-moving stock have reduced to £1.0m at 31 December 2018 (31 December 2017: £3.7m). Net stock at 31 December 2018 stood at £8.3m (31 December 2017: £11.2m).

The Company expects to announce its final results for the year ended 31 December 2018 in late March 2019.

Outlook
Whilst progress has been made with the Company’s primary smoke alarm and connected devices manufacturing partner in increasing production yield and volumes such that output is now expected to meet forecast demand for 2019, there remain challenges in levels of utilisation and efficiency in the manufacturing process which is impacting product costing in the short term. The Company is working with its primary manufacturing partner to ensure that utilisation is improved to reduce the future costs of production.

The Board remains confident that its expectations for revenue growth are achievable. Gross margins and profitability are forecast to grow, but the impact of higher current product costs has led to a reduction in the overall level of profitability expected in 2019. Both the Company and its primary manufacturing partner are focused on reducing production costs. In addition the Company is undertaking a range of other initiatives to improve profitability.

Whilst the Board is disappointed with 2018’s financial performance, it remains confident that the Company’s transition from a self-contained hardware safety products provider to a more integrated safety solutions provider will underpin strong medium to longer-term growth and profitability.

John Conoley, Chairman of FireAngel, commented: “I am pleased to have joined FireAngel at this time. The Company had a challenging year in 2018 and has been very active in addressing the issues it has faced. The opportunity presented by growing demand for connected home solutions is significant and I look forward to contributing to the Company during this next phase of growth.”

Company update

As previously communicated, the Company continues to build an exciting pipeline of core and connected opportunities for 2019 and beyond. Recent contract wins with Queens Cross Housing Association, River Clyde Homes and Caledonia Housing Association support the expected sales potential driven by Scottish legislation, which will require the fitting of interconnected alarms in all properties over a two-year period, expected to come into force in February 2019.

The global market for interoperable smoke and carbon monoxide (‘CO’) detection continues to grow, with demand in Europe forecast to be particularly strong. Increasing government support and initiatives over recent years have increased levels of awareness of the dangers of both fire and CO poisoning, and have helped focus the thinking of those responsible for the safety of others. At the same time the pace of technological advancement has increased the scope and potential for integration into related products and solutions. The Company’s investment in connected home technology has positioned it uniquely to satisfy this emerging demand and benefit from the recurring revenue streams associated with the provision of such services. Its patented proprietary solutions are built on a solid foundation of core smoke and specifically CO products which incorporate years of industry knowledge.

New connected product launches planned for this year have given the Board confidence to expect a significant contribution to revenue from connected solutions in 2019 and beyond. To support this, steps have been taken to align the Company’s focus and resources to best achieve this ambition. The role of Nick Rutter, the Company’s Chief Product Officer and a founder of the business, has been redefined to now directly focus on connected home sales and pipeline development. To take advantage of the technology deliverables, the Company will also shortly commence a review of the structure, processes and skills within the business to ensure that these are appropriate and optimally aligned to deliver its core smoke and CO products, together with connected propositions. In addition, as previously noted, the Company recently appointed John Conoley to the role of Non-Executive Chairman. John has a number of years’ experience as a leader of technology-led businesses and is well placed to support the Company in realising its connected home potential.

Together with its focused investment in product development, these changes will position the Company to meet the growing demand for connected solutions through its unique, patented technologies, expertise and strong brand. The Board fully expects connectivity and interoperability between devices with external monitoring and messaging to be at the heart of medium and longer-term growth and profitability.

The Board continues to focus on driving higher value product sales and earnings through a combination of initiatives. The expected continued growth of sales through UK and European Trade channels is margin enhancing along with the higher value connected solutions and associated recurring revenue opportunities. The increasing demand for CO alarms, particularly in Europe, is also beneficial with FireAngel cost advantaged through the production of its own CO sensors at Pace Sensors, its wholly owned subsidiary in Canada.

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Notes to Editors

About FireAngel Safety Technology Group plc (‘FireAngel’)

FireAngel’s mission is to protect, save and improve our customers’ lives by making innovative, leading edge technology simple and accessible.  FireAngel is one of the market leaders in the European home safety products market and launched its own connected homes product proposition at the end of 2016.

FireAngel’s principal products are smoke alarms, CO alarms and accessories.  The Company has an extensive portfolio of patented intellectual property in Europe, the US and other selected territories.  Products are sold under FireAngel’s leading brands of FireAngel, FireAngel Pro, AngelEye and FireAngel Connect.

For further product information, please visit: www.fireangeltech.com