While I was away Safestyle UK issued a full year trading update to the markets. This is a summary of their performance in 2019, in advance of their full year results and numbers being published on March 19th.

The last few updates have been pretty positive, and this trading update continues that positive trend and further reinforces the success of their recovery plan.

“Continued progress”

You can catch the entire release here. But these are the key snippets from their statement:

Since the Group’s interim results announcement on 19 September 2019, management is pleased to report continued progress with its Turnaround Plan albeit against a backdrop of weak consumer confidence and challenging market conditions in the second half of the year.

Turnover for FY19 is expected to be c.£126 million, with the second half of 2019 delivering c.10.7% higher revenue than for the same period in the prior year.

The Group has delivered a solid recovery in market share from 7.0% at the end of 2018 to 8.4% in Q3 2019.  Sales performance accelerated in November and December, driving additional lead generation costs in Q4 while strengthening the year-end order book, which increased by 24% versus 2018’s closing position.  As a result of this investment the Board now expects an underlying loss before tax for FY19 of up to £1.5m.

That H2 performance compared to 2018 is a massive turnaround, posting double-digit growth. Remember, this was a company that at one time was in a very dicey position not too long ago.

As the business moves into phase three of this plan in 2020, the focus is on maintaining the Group’s strong momentum, whilst continuing to put in place the foundations for sustainable, long term growth and UK market leadership which will include the following key initiatives:

·     Invest significantly in modernising the Safestyle brand and communicating its compelling value proposition both on and offline, primarily through TV advertising. This follows two years of restricted investment and aims to increase brand awareness and drive further growth in the Group’s market share position.

·     Continue to establish robust systems, training and processes to underpin the future growth of the business; and finally

·     Continue to embed the considerable progress made on regulatory compliance, health and safety and customer service – reflecting the changing operating environment and consumer expectations.    

The Group will invest c.£3m in 2020 in order to deliver these initiatives. Whilst this is expected to have a negative impact on short-term profitability, the Board believes that the substantial uplift in media spend alongside selective investment to continue transforming key areas of the business will deliver material benefit to Safestyle from 2021 onwards.

So, whilst spending will remain tight, they do have some money earmarked for TV advertising.

Mike Gallacher, CEO of Safestyle UK, commented:

“The new Executive team has been in place for 12 months and I am pleased with the pace at which we have stabilised the business, reduced costs, embedded regulatory compliance and enhanced our operational effectiveness.  However, there remains a lot to do as we move into the final phase of our Turnaround Plan. Recently and concurrent with our internal challenges, there have been huge regulatory changes in the industry, whilst consumer buying behaviour and customer service expectations have evolved.  As the UK market leader, with the right investment in 2020, we believe we are ideally placed to benefit from these trends and I am determined to further establish the foundations needed to deliver sustainable profit growth and long-term success for Safestyle.”

The company recognises that although the turnaround plan is right on track, there is much more work to be done to reinforce the progress that has been made. The full year results being published in March will make for some interesting reading. In recent months, the company share price had recovered somewhat. Indeed, the share price neared 100p back in May last year before dropping off. Near the end of the year it broke the 70p mark again as investors appeared to see an opportunity. So you naturally assume that given these positive results, that upwards trend would continue. This has not been the case.

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On the slide

This is a chart showing the share price performance over the past few months:

Credit: Bloomberg

That sharp sell of started before the trading update was published. It looks to me like a bit of profit taking. The price dipped below 50p for a time, but recovered a little once the trading update was published.

I predict more movement once the full year results are published in March as investors will have more detail to dive into.

Thinking ahead, if I were to declare Safestyle fully recovered, I would want to see their share price move back solidly into the triple figures. Remember these shares were worth over 300p each at one time. That may be a little way off yet, and investors will want to see more evidence of a sustained recovery with longevity. But, its so far so good as far as the recovery plan is going.

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