Analysis: Safestyle recovery is on the right track

Safestyle UK, the leading retailer and manufacturer of PVCu replacement windows and doors, is making progress with its turnaround plan after seeing off arch rival SafeGlaze.

Safestyle hasgrownitsmarket share by 16.5per cent compared with the first half of 2018

Bradford-based Safestyle said that despite a challenging market where consumer demand appears soft, it is on track to deliver a small profit for the full year.

Safestyle said it is making progress on Phase Two of its turnaround plan, which is focused on recovering volumes and market share, restoring operational effectiveness, reducing costs and enhancing margins.

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The firm said that as expected, the first half of 2019 will result in a small loss.

The group said it is rebuilding its order book and as a result, revenues for the six months to June 30 will be around £64m, 6 per cent higher than the first half of 2018. The final two months of this period (May and June) saw revenue rise 15 per cent, indicating that the group is well on the road to recovery.

Safestyle is operating in a tough market. At a time of huge political upheaval, economic uncertainty and job fears surrounding a no-deal Brexit, getting your windows double glazed does not come first in consumers' minds. It is largely a non-essential switch that can be delayed until political fog clears.

Indeed, FENSA installation statistics for the first half of 2019 indicate the market has declined in volume by 8 per cent compared with the first half of 2018. Against this disappointing market performance, Safestyle has grown its market share by 16.5 per cent compared with the first half of 2018 and by 19.5 per cent compared with the second half of 2018.

Mike Gallacher, CEO of Safestyle UK, said: “The first half of 2019 has seen significant progress delivered against phase two of our turnaround plan and we continue to focus on accelerating the company’s operational recovery, controlling costs and improving margins.

“Our focus in the second half will be to continue to establish the foundations for sustained growth in 2020 as we move into phase three of our plan.”

Analyst Marcus Cole at Liberum said: "Safestyle's trading update brings the welcome news that recovery is being achieved in revenues and profitability, with revenue growth of 6.4 per cent and further margin progression being delivered in the first half.

"We expect over a £9m positive swing in profits in 2019, from a loss of £8.4m to a slight profit of £700,000. This is driven by management successfully stabilising the business after the exit of a very aggressive disruptor last year and the progress of the recovery plan.

"We remain confident that a significant recovery in profits will come through in 2020 and 2021 and the shares look cheap on multiples of these years."

Mr Cole was referring to SafeGlaze when he made a reference to the "very aggressive disruptor".

Safestyle suffered a torrid year in 2018 after rival SafeGlaze entered the market and stole both its agents and its customers.

The company went from a healthy £15m underlying pre-tax profit in 2017 to a pre-tax loss of £8m in 2018.

The two firms, both based in Bradford, became arch enemies after Safestyle accused its rival of “passing off, misuse of confidential information, malicious falsehood and various other matters”.

Last July, shares in Safestyle UK plunged nearly 20 per cent after the firm issued its second profit warning in three months. The group blamed higher costs, sending its shares to an all time low.

The retailer had been struggling with a steady decline in sales volume amid rising inflation and falling consumer confidence as homeowners reined in non-essential spending. So the arrival of new market entrant SafeGlaze was far from welcome.

However, Liberum said there is now a compelling recovery story following the demise of SafeGlaze and a strong new management team at Safestyle is pursuing numerous initiatives to restore profitability.

SafeGlaze has now closed down and agents have returned to Safestyle.

Before SafeGlaze came along, Safestyle had achieved a long record of market share growth and delivered industry-leading profitability and cash flow.

Safestyle has introduced senior management changes over the past year to boost its recovery.

Mr Gallacher, a former Mars executive, joined as Safestyle’s chief executive just over a year ago, taking over the post from Steve Birmingham.

A year ago, Safestyle appointed Alan Lovell as its non-executive chairman. Mr Lovell was appointed as chairman of the restructuring committee of Carillion as part of an attempt to put together a rescue package for the company during its final 10 weeks of trading, so he knows something about helping a company when the chips are down.

Through no fault of its own, Safestyle had a torrid 2018.

With the court case behind it, it can now focus on its core business.

With a new, experienced management team in place, the firm should hopefully ride out economic worries and re-emerge as a strong player in this market.