Embattled Safestyle UK have released their full 2017 financial results. There are some positive nuggets of information in there, but the overall picture is that of decline.

Despite the fairly negative overview, the share price has remained stable, indicating that the expected bad news was already priced in in their sharp decline a couple of weeks ago.

The key bullet points

These are the key facts and figures from the report:

  • volume of installed frames down 7.9% compared to 2016
  • gross profit down 7.6% compared to 2016 (£51.4m)
  • growth in market share: 10.7%
  • pre-tax operating cash flow of £14.5 million (2016: £21.1 million)
  • EBITDA down 24% to 15.5%
  • dividend remained 11.25p
  • EPS – Basic down 31.1%
  • new installation depot opened in South Wales
  • average unit sales price up 7.6% to £608 from £565

There were plenty more, and you can read the full results here: http://otp.investis.com/clients/uk/safestyle/rns/regulatory-story.aspx?newsid=991661&cid=656

Here’s what CEO Steve Birmingham had to say:

During 2017 the market became increasingly challenging and although Safestyle again increased market share, the Group’s financial performance was impacted primarily due to increases in lead generation costs, consumer finance subsidy costs and raw materials.

The start to 2018 has been difficult and as previously announced our order intake has been below management expectations as a result of the continued deteriorating market, declining consumer confidence and increased competitive environment.

We have already taken action to reduce our cost base and modernise our sales and canvass operations. We expect the major benefits of these efforts to take effect in the second half of 2018.

2018 will be a year of transition as we continue to invest in operational improvements so that by the end of the year we will have a leaner, fitter and more cost effective business.

There were some other interesting nuggets in the very long summary, so I have picked out a couple I want to focus on:

Market Contraction

 Market conditions at the start of 2017 were relatively stable, with FENSA data showing that the overall market in Q1 2017 experienced a relatively modest volume decline. However, the market contraction accelerated thereafter, reflecting declining consumer confidence, with volume declining 10.2% for the remainder of the year. The current outlook for the market for large household discretionary purchases remains challenging and the Board expects market conditions to continue to be challenging in 2018.

 We responded to these challenging market conditions through deployment of market leading consumer finance, although the increased cost has impacted gross margins. We continue to evolve our product range and will be offering both new build and refurbishment conservatory propositions throughout the course of 2018. We have continued to invest in technology and our digital lead generation performance continues to be strong although we have had to absorb significant cost inflation which has impacted margins.


Directorate Change

After 10 years with the Company, Mike Robinson will step down as CFO and from the Board during May 2018 to pursue other business opportunities. On behalf of the Board, I would like to thank Mike for his contribution to the development of the Group over the last 10 years.

The Board will appoint Rob Neale to succeed Mike as CFO. Rob is currently Head of Leisure Travel Finance at Jet2.com and Jet2holidays, divisions of Dart Group plc. He will join the Group when a departure date from his current employer has been agreed.

Looking Ahead

The beginning of 2018 has been difficult with a continuing deterioration in the market resulting from declining consumer confidence. We estimate the overall market to be approximately 10% lower than the comparable period in 2017, reflecting the continuation of the trend seen for the final three quarters of 2017. As announced in our previous Trading Update on 28 February 2018, this has been exacerbated by the activities of an aggressive new market entrant in an already competitive landscape which has impacted the Group in certain areas of its operations, primarily in relation to our Canvass operations although not exclusively so. As a result of the deteriorating market conditions and the activities of the aggressive new competitor, the Group’s order intake in 2018 to date has been weak and our market share is under pressure.

Whilst Canvass has been a declining part of our revenue for some time, it remains an important and significant part of our operations. We have responded to this by accelerating the modernisation of our Sales and Canvass operations and by selective recruitment to strengthen our operations. We expect the benefits of this response to take effect in H2 2018.

We are well invested in our manufacturing facilities and are focused on enhancing our operations, particularly through the effective deployment and utilisation of technology. Although 2018 is likely to be a year of significant challenge for all market participants, with our leading market position we are determined to participate strongly in a smaller more competitive marketplace.

There’s plenty to pick through here.

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Make no mistake, this is not a positive report by any stretch. There are far too many negative figures in there for shareholders’ liking. But before we dive into the negative, it’s worth pointing out that despite falling margins and operating cash flow, Safestyle still managed to increase their market share by over 10%. Impressive, given everything else that is happening. But just dwell on this point for just a minute. The other major national competitors are Anglian and Everest. Both are also in tight predicaments. Both have the same type of market demographic. Could it be that these two are in declines so sharp that Safestyle are picking up market share by default? Anglian reported a £3.3m loss just before Christmas, and Everest’s investors have already admitted that their investment isn’t doing well.

Back to the other major points though. A 7.9% drop in the number of frames being installed for a company that installs hundreds of thousands per year is a steep drop by any measure. Yes the sale price per unit rose, but profit margins fell by a significant amount. They might have increased market share, but it hasn’t translated into more frames installed and profit margins increased.

In the statements there were two main actors blamed for the poor performance. First was the “continued deteriorating market”. They state FENSA figures to explain a 10.2% volume decline in the market, and then goes on to lay the foundations for the next trading updates by saying they expect a further 10% decrease in market volume. I have to admit these are the highest figures I’ve read when it comes to UK fenestration market recession. All others have been far less than this.

Safestyle share price: Wednesday 22nd March Credit: Bloomberg

The second actor was once again the “activities of an aggressive new market entrant” which we know to mostly likely be Safeglaze UK. Anecdotal reports from industry insiders say that their company revenues have been growing at astronomical rates, with the new company attracting a lot of Safestyle workers, including installers, surveyors and sales reps. I cannot independently verify these reports. It’s hard to ignore the evidence however, Safeglaze appear to have Safestyle in their sights and seem to be doing a fairly effective job of building their new business in key Safestyle territory. Question is, can Safestyle hold them off?

Their Looking Ahead section I found to be revealing. They admit that revenues from Canvass, the long disputed sales method despised by many, has been declining for a while. But, they’re sticking with it, choosing to modernise the Canvass sales method and to refine their recruiting process for canvassers. Honestly, I’m not sure what good that is going to do. Most home owners I find still do not want to be sold to at the door. We’re in an internet age and a much more educated consumer. If revenues have been declining for a while, as they admit, it’s not because of the people knocking at the door, it’s the whole process itself.

They go on to say that they are investing in tech to help streamline their business (in other words reduce costs further and perhaps cut jobs) and state that they aim to remain competitive in what they see as a smaller market place. That is a very positive spin on what is still a very negative outlook. They say that 2018 looks set to be a challenging year for all market participants. I disagree. It will be challenging for certain types of companies, not all. We all know who will struggle this year, and in this statement that is who they are referring to, perhaps speaking more to themselves in a form of group reassurance. The smaller, more agile and forward thinking companies will still perform well this year.

Despite this full year report, shares in Safestyle were pretty flat all day on Wednesday. Their mini update a couple of weeks ago seemed to cause the brunt of the damage, so my guess is a lot of the negativity was priced in back then.

That being said, this particular part of the market remains very volatile. Much could change in the coming weeks and months, and as we leave the first quarter behind, the next trading update could provide a useful insight into the future of Safestyle.


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