The results are in from Safestyle and their performance in the first half of this year, and it looks like that things are bang on track for the company. Before I give my analysis, here are the key points that were released by the company this morning.

The results

This is the information provided by the company:

Financial and operational highlights:

¹ Underlying (loss) before taxation is defined as reported (loss) before taxation before non-underlying items and is included as an alternative performance measure in order to aid users in understanding the ongoing performance of the Group. 

² Non-underlying items consist of non-recurring costs, share-based payments and the Commercial Agreement amortisation.

³ Net (debt) / cash is cash and cash equivalents less loan facility.

A reconciliation between the terms used in the above table and those in the financial statements can be found in the Financial Review.

• Turnaround on track – The implementation of phase two of the three phase turnaround is making good progress; the focus for phase two is returning the Group to profitability.
• Profitability achieved from Q2 – The business returned to profitability in Q2 2019 with levels forecast to increase in H2.
• Gross profit increased by £2.1m (14.2%) to £16.6m and gross margin % of 25.8% improved by 177 basis points (bps) versus H1 2018 (24.1%) and 417bps versus H2 2018 (21.7%).
• Underlying (loss) before taxation¹– loss reduced by £2.6m (75.7%) to £(0.8)m. 
• Reported (loss) before taxation – loss reduced by £3.2m (56.1%) to £(2.5)m.
• Revenue growth – Revenue up 6.4% to £64.4m (H1 2018: £60.5m) and up 15.3% versus H2 2018.
• Volume recovery – Frames installed of 98,966 broadly in line with H1 2018 of 99,491 and representing a 16.9% improvement on H2 2018.
• Gaining market share – Market share as measured by FENSA now recovering; at 8.6% in H1 2019 (H2 2018: 7.0%)* with continued share recovery expected for H2.
• Balanced growth – Growth achieved across all three lead generation channels with a focus on cost effectiveness and compliance.
• Value improvement – Average price per frame up 8.6% versus H1 2018 to £669.
• Cost control – Improvements in operational efficiencies and cost reductions in a number of areas underpinned the recovery in profitability.

* The market share figures for last year included in the 2018 Results Presentation and those referred to in the July 2019 trading statement have been updated and restated following a revision to the dataset from FENSA.  The market share growth referred to in the July 2019 trading statement of 19.5% versus H2 2018 has increased to 22.9%.

Outlook

Since the Group’s AGM Statement on 16 May 2019, management has continued to make good progress on phase two of its turnaround plan with the results for the first half of the year as expected.  There has been improvement in many of the Group’s core KPIs and a return to a small profit has been achieved in Q2. 

Despite a challenging market where consumer demand appears soft across the Repair, Maintenance and Improvement (RMI) market, the Board expects a further increase in profitability during Q3 and into Q4 of this year.  The Board remains highly focussed on ensuring that the trajectory of performance is carried through into 2020 with the aim to achieve acceleration in growth in revenue and profitability next year as part of phase three of the Group’s turnaround plan.

To ensure the Group maintains its current momentum through the end of the year into Q1 2020, the Board is anticipating an increase in the levels of investment required in lead generation versus those previously projected and when compared to those of previous years.  The Board also expects revenue to be marginally below previous expectations, although still expects double-digit growth in H2 versus the prior year alongside continued gains in market share.  Consequently, the Board now expects a small underlying loss before taxation of c.£0.5m for the full year.

Looking further ahead, the Board remains confident that these actions will give the Group the best possible base from which to accelerate its revenue, margin and profit growth in 2020 as part of phase three of the turnaround plan.  The Board therefore remains comfortable with market expectations for 2020.

Commenting on the results, Mike Gallacher, CEO said:

“We are making strong progress on delivery of the second phase of our three phase turnaround plan.  We have increased our revenues, improved our margins and reduced  costs and as a result the Group returned to profitability in Q2.  We expect this to continue into Q3 and the momentum to be sustained through to the end of the year.

The Board and I are hugely encouraged by the progress we are making as we look to turnaround the performance of our business and build on our position as the UK market leader in the RMI industry.  We believe we have an enviable position in this market with a strong, recognisable brand and a great value proposition.  We also have highly skilled and dedicated people across the entire organisation. 

There remains a lot of hard work to do, but it is rewarding that we are beginning to see the results of the work completed so far.  We remain wholly focussed on modernising the business, improving customer service, strengthening our processes and leveraging technology whilst striving to make the business the industry benchmark in all areas of compliance.  We believe delivery of these objectives, along with a relentless focus on maximising opportunities for growth, will position Safestyle for success in the years to come.”

Analysis

The company is now profitable as of Q2. Losses have been greatly reduced. Revenues are up by high single digits. Price per frame is up by high single digits. Market share is up. All in all, this is a report that the Safestyle board and investors are going to be happy to read.

Its important to note that the job is not yet done. Losses need to be eradicated completely. The company will want to recover all market share lost and gain some. Still, these are good results and the team that have been brought in to oversee the recovery of the business will most certainly see this as validation.

There are nuances in the text above which do provide clues as to the general health of the sector. In the Outlook statement they mention that consumer demand appears “soft”. A term used for when things are going amazing. The fact they have operated a recovery to this degree in a soft market in testament to the plan being implemented. But, the market does seem mushy right now, and you sense that the overall economy isn’t that far away from the risk of a small recession.

In their last update to the industry, they mentioned that FENSA reported volumes down over 8%, that was back in May. An indication of how “soft” the market really is. Whether it remains that high by the end of the year remains to be seen, but whilst Brexit uncertainty continues and the global economy continues to slow, there is a risk that it will creep higher.

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