FireAngel (AIM: FA.), one of Europe’s leading developers and suppliers of home safety products, announces an update on trading for the year ending 31 December 2019.
Revenue for the year ending 31 December 2019 is now expected to be below previous market expectations in the range £44.5 million to £45.0 million and the Company’s underlying operating result, before the impact of the change to straight line amortisation previously described in the Company’s interim results announcement released on 24 September 2019, is expected to be a loss in the range £2.6 million to £2.9 million. This is based on exchange rates as at the date of this announcement.
Expected sales growth in 2019 of approximately 20% has stressed the Company’s processes from production right through to customer fulfilment. This has had the effect of repeatedly shaving small amounts of both revenue and margin from the full year achievement. In addition, sales mix in the final quarter of 2019 is expected to be significantly different to that previously anticipated, with lower revenue from European and Trade sales being only partially mitigated by lower margin business in the Company’s Retail and Fire & Rescue Services business units.
To meet year-end demand for certain of its products, the Company expects to incur additional costs in reworking certain stock lines for particular markets and sectors. This has, in some cases, also required more costly air freight charges to be incurred. The strengthening of sterling against the US dollar since September 2019 has increased the committed sterling cost of forward contracts entered into in accordance with the Company’s policy to hedge future US-dollar purchase requirements. This mark-to-market increase in sterling cost is required to be recognised in the results for the year ending 31 December 2019 and, to the extent that this has not been mitigated by the retranslation of other US-dollar denominated monetary items, has detrimentally impacted the forecast result for the year.
Through the detailed work carried out during the course of this year in reviewing processes and procedures across the Company, it is clear that the opportunity to drive gross margin recovery in the short, medium and long term remains significant.
To allow actions from this margin recovery plan to gain traction, the Board proposes to leave its 2021 market guidance intact, but is reducing its 2020 underlying operating profit outlook, including the change to straight line amortisation, to around £0.5 million, which represents EBITDA of approximately £4.4 million. However, the Board, is focussed particularly on gross margin and cash generation. In addition, it is reviewing its product development and research & development strategy to maximise use of resource and focus on higher margin connected products.
Commenting on the results, John Conoley, Executive Chairman of FireAngel, said:
“While 2019 will see a fantastic sales performance, the Company is not yet efficient enough to benefit from that growth. It is disappointing for everyone to have missed the profitability target after so much hard work. It is time now to generate a return on our research & development investment. We are strongly focussed on gross margin, EBITDA and operational cash generation in 2020 and beyond, and our current experiences with connected technology field trials underpin our optimism for future profitable growth. We look forward to updating the market on progress with these, and other expected trials, in the first quarter of 2020.”