Its earnings season, which means we’re about to hear from the traded companies we have within the window and door industry and how they did during the first half of 2019.

Safestyle have just reported, and whilst it’s good news for them, a very specific detail within their announcement signals big difficulty for the industry as a whole.

Positive H1

Here’s the release from Safestyle:

Safestyle UK plc (AIM: SFE), the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market, today issues a trading update for the six months ended 30 June 2019, in advance of its half year results announcement scheduled for 19 September 2019.

Since the Group’s AGM Statement on 16 May 2019, management has continued to make 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.  As expected, the first half of the year will result in a small loss, but despite a challenging market where consumer demand appears soft, the Group remains on track to deliver a small profit for the full year which is in line with current market expectations.

In the first half of the year, the Group continued to rebuild its order book and as a result, revenues for the period will be c.£64.4m,6.4% higher than H1 2018 with May and June being c.15% higher than the same months in 2018.

FENSA installation statistics for the first half indicate that the market has declined in volume by 8.2% versus H1 2018.  Against this disappointing market performance, we have grown market share; by 16.5% versus H1 2018 and by 19.5% versus H2 2018.

The Group continues to improve its margins and operational KPIs versus the prior year and has delivered good progress during H1.  During 2018, the cost base of the business had grown and a broad range of actions have now been taken to significantly recover our earlier, more competitive cost base.  The benefits from these actions are expected to have a fuller impact on the Group’s financial results during H2 and the Board forecasts a significant reduction in overheads versus 2018.

Cash remains a key priority for management and the Board continues to forecast that full year net cash will increase versus FY 2018’s closing positive level of £0.3m.

Mike Gallacher, CEO of Safestyle UK, commented:

 “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.  This work has been enabled by enhanced financial transparency and performance metrics as a result of our 2018 digital project. 

“Our focus in H2 will be to continue to establish the foundations for sustained growth in 2020 as we move into Phase Three of our Plan.”

Read the release in full here

On the whole, this is a good first half performance for the company. They have faced some very difficult market conditions and new competitors in the past couple of years, which led the company to a fairly serious situation. Now, revenues are on the up, market share is recovering, and they are on track to deliver a small profit at the end of the year.

When you look at the past couple of years, this is a much rosier picture for the company. Their turnaround plan is clearly working, so as long as their plan remains on track, the recovery will follow.

However, there was one line in there which I am sure grabbed all our attention, and that is the FENSA figures.

Market volume declines

This is something we should all be looking hard at: FENSA installation statistics for the first half indicate that the market has declined in volume by 8.2% versus H1 2018.

FENSA’s figures remain a key barometer of market performance, and a drop of 8.2% in market volume is major. A couple of small percent and it perhaps wouldn’t be noteworthy. But we’re not far away from a double digit drop.

This does back up the noises I have been hearing all year that trading conditions have taken a downwards spiral and that business is becoming much harder for a lot of the industry. That doesn’t mean some companies aren’t doing great, there will be those dotted around having a very good 2019. But you can’t sugar coat figures of -8.2% in market volume and pretend it isn’t affecting the industry more generally speaking.

We can blame this on a number of things. Brexit uncertainty will play its part. We’re at the end of an economic cycle. The skills shortage is preventing good companies from growing. But whatever the reason, the industry is going to have to take on board these figures seriously and really focus on making the second half of the year a better on. It’s quite possible the industry could end up down by significant double-digits in terms of market volume.

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