FireAngel (FA.)  has announced its unaudited preliminary results for the year ended 31 December 2019 and proposes to raise approximately £6.1m to strengthen the Company’s balance sheet and fund the deployment of its connected homes technology. 

FireAngle has announced a placing and open offer to raise approximately £6.1 million, on the basis of 2 Open Offer Shares for every 3 Existing Ordinary Shares held on the Record Date, at an issue price of 12 pence per New Ordinary Share (20% premium to the closing price on 20 March).  

However, before investors reach for the chequebook, it’s worth looking at their FY19 results in more detail as it was clearly a difficult year for the Company.  

Many of the financial items reported in the FY19 results relate to historical issues, and we’ll therefore try to pick through the adjustments totalling almost £7m, to assess the underlying performance of the business. 

  • Revenue increased to £45.5 million (2018: £37.6 million) 

  • Adjusted gross profit was maintained at £8.7 million, 

  • Adjusted gross margin 19.0% (2018: 23.2%). 

  • Underlying EBITDA loss reduced to £0.4 million (2018: £0.9 million loss) 

  • Underlying loss before tax of £3.2 million (2018: £2.1 million). 

After charging £6.9 million for non-underlying costs (2018: £3.8 million) and incurring £0.9 million in changing to straight line amortisation for intangible development assets, the consolidated loss before tax for the year was £11.0 million (2018 restated: £5.9 million). 

In conclusion, despite the impressive top line growth, Gross and Operating Profits were held back by a series of events including, but not limited to: 

  • Impact of sales growth on the Company's processes. Sales growth in 2019 of 21% put stress on the Company's processes from production through to customer fulfilment. This had the effect of repeatedly shaving small amounts of both revenue and margin from the year's results.  In addition, the Company had to incur more costly air freight charges to meet the growth in demand for certain of its products. 

  • Change in sales mix towards lower margin UK Retail. Revenue from the lower-margin UK Retail sector increased by 36% to £11.3 million in 2019 and represented 25% of the Group's turnover compared to 22% in the previous year. This change in margin mix detrimentally impacted the Group's overall gross margin compared with 2018. 

  • Higher costs and delayed product availability at the Group's smoke and connected devices manufacturing partner. During 2018, a new manufacturing partner in Poland commenced production of FireAngel's smoke and connected devices products and a new Far East based supplier commenced supply of alternatives to the BRK/First Alert products. Delays in reaching production capacity and efficiency at the Polish manufacturer impacted both the availability of products and the product cost in 2018.  Although progress was made during 2019 in moving forward with both yield and efficiency, we continue to see higher costs than originally anticipated. 

  • Detrimental impact of the value of sterling against the US dollar. The prolonged weakening of sterling against the US dollar in 2019 significantly increased the sterling cost of components used in the Group's products.  

Whilst all the above is particularly frustrating to FireAngle investors, they are evidently operational issues that can be overcome with strong management.  

We would therefore look towards some of the operational highlights as lead indicators of where the financial performance could go in the future. In particular: 

UK Retail -  

Outlook 

The Company has reported encouraging start to FY20 trading and stated a “Solid start to 2020 with sales up 15% and gross profit up 39% on the first two months of 2019”. In particular, we highlight: 

  • Comprehensive gross margin improvement plan being rolled out 

  • Board changes to align to future challenges and opportunities 

  • Trials of FireAngel's connected home products, including FireAngel PredictTM, have been well received, and market response is building, which bodes well for 2020 and beyond 

  • Close to securing our first large connected rollout using FireAngel Pro Connect and FireAngel PredictTM which represents an important endorsement of our strategy and unique offering 

  • Company is now an independent, technology-led business with the key objectives of monetising the investment made in connected technology and to complete the transition to become a provider of safety-critical connected home solutions 

Obviously, investors should always consider the Impact of COVID-19 and the Company states “While COVID-19 has had an impact on the supply chain and/or those factories in China which manufacture certain of the Group's products, those factories are working close to full capacity again.  However, the Directors consider that, with what they know presently, COVID-19 is likely to have an impact of up to £4.0 million on the Group's revenue in the year ending 31 December 2020 which, currently, is expected to be largely restricted to the second quarter.  The Directors are nevertheless confident that some of this reduced revenue is likely to be recovered, and not lost permanently, and should fall into the second half of the year when the Group's margin is expected to be higher than in the first half.  The Board expects that the Group's results for the year ending 31 December 2020 will be in line with market expectations. 

Commenting on the results, John Conoley, Executive Chairman of FireAngel, said: 

"The Group enters 2020 beginning to realise the promise of its investment in R&D for connected alarms. 2019 was a challenging year with results continuing to be negatively impacted by legacy issues.  We have addressed these issues and are taking action to improve gross margins which we expect will increase in 2020 and continue to do so in subsequent years.  The opportunity presented by the growing demand for connected home solutions is significant and I look forward to the Group's next phase of growth." 

Open Offer 

Clearly, the Company is confident in its future with the Issue Price of 12 pence representing a premium of 20 per cent. to the Closing Price on 20 March 2020 (being the last Business Day prior to this announcement). 

The Company has already conditionally raised approximately £6.1 million (before expenses) by means of a Placing with certain existing Shareholders and other investors of up to 50,623,576 New Ordinary Shares at an issue price of 12 pence per New Ordinary Share, which will be scaled back dependant on take-up of the Open Offer from existing shareholders. 

Of interest to shareholders should be that much of the proceeds will be used to both execute “self-help plans”, ensure the issues encountered during FY19 will not be repeated in FY20, and fund the deployment of the Company's connected homes technology, which is regarded by many as ‘best-in-class’ in the industry. 

John Conoley, Chairman of FireAngel, commented: "I am pleased to announce that we have raised £6.1 million for the next stage of the Company's development and wish to thank those investors, both existing and new, for their support. I do believe that FireAngel has reached the start line of beginning to realise a return on the significant investment that has been made in our connected homes technology." 

Shares in FireAngel have had a turbulent time over th past 12 months with highs of 16p and lows of 10p. Clearly the Placing at Open Offer suggests Institutional investors are willing to pay at least 20% more!