Shares in double glazing firm Safestyle UK slumped 17 per cent after the group said demand has weakened further and it expects market conditions to continue to be very challenging in 2018.
The unscheduled trading update follows a warning three months ago that the group was suffering the severest contraction in its market since the banking crisis of 2008.
The Bradford-based group has blamed a combination of macro-economic factors denting consumer confidence including Brexit and rising inflation.
The group now expects 2017 full year underlying pre-tax profit to come in below market expectations.
The group’s shares fell 33p to 158.5p.
Safestyle’s sales were 0.3 per cent lower by value and 6.8 per cent lower by volume in the three months to November 30 compared with the same period last year.
Whilst it believes it has made significant market share gains in 2017, the group’s sales by value are 0.8 per cent lower for the 11 month period to November 30.
It said that sales in the short month of December were not helped by severe weather disruption to the planned installation programme and it is clear that fourth quarter sales will now be below its already reduced expectations.
These sales have come at an increased cost of acquisition, due to higher lead generation expense in a competitive landscape and a higher proportion being made on extended finance terms, which has hit margins.
As a consequence, its 2017 full year profit is expected to be below current market expectations. The firm now expects profits of around £15m.
On a brighter note, the firm said it is highly cash generative and expects to have a strong cash balance of around £12m at the year end and a robust balance sheet.
During the year it completed a major capital investment programme, which it said leaves the business very well invested for future trading and any upturn in demand. It remains fully committed to its progressive ordinary dividend policy.
“We are actively reviewing all of our costs and seeking operational efficiencies where we can, and have already implemented substantial savings across the business, including a major restructuring of our sales and canvass function,” the firm said.
“At the same time we are investing in technology and other developments to enhance operational efficiency and improve the customer experience.”
Although it aims to further consolidate its position of market leadership, the board has lowered its expectations for 2018.
It said the benefits of its cost saving and efficiency programme will fall mainly in 2018 and as such should help mitigate the impact on profitability of any further fall in market demand.
It expects only modest growth in earnings in 2017.
Analyst Matthew McEachran at N+1 Singer said tougher trading and further margin pressure is driving another 10 per cent downgrade for Safestyle. “In an unscheduled trading update today, Safestyle indicates slightly weaker sales than hoped since the last formal update in September, and leads coming at a slightly higher cost of acquisition and lower margin,” he said.
“This has been exacerbated in December by delays to their installation programme due to the snow, which will delay some business into the first quarter next year. The net effect is a shortfall of around £1.5m versus previously downgraded expectations, and guidance towards pre-tax profits of around £15m. This equates to a 10 per cent downgrade and a year on year decline of 27 per cent.”
Analyst Charlie Campbell at Liberum said: “We have cut estimates by around 10 to 13 per cent across the forecast period as Safestyle has suffered from weaker volumes than expected in its second half and as expected cost savings have slipped into 2018.
“Actions have been taken to restructure sales and door canvass functions which should deliver savings in 2018, driving some profit improvement in 2018 in spite of expected ‘very challenging’ markets.”