Now we are passed the halfway point in the year, our publicly traded companies are starting to report their half-year trading updates. Safestyle released theirs this week, striking a positive tone, but with a hint of caution for the future too.

Highlights

• Strong rebound in order intake post-lockdown with order intake for the eight weeks from 25 May 23.2% ahead of the same period last year
• The Group was profitable for the months of January, February and June 2020
• Net cash £6.0m at the end of June 2020
• Order book carried into H2 is 45% higher than at the same point last year
• Focus is on continuing to increase our survey, order processing and installation capacity
• Board is encouraged by the restart performance whilst cognisant that confidence and consumer demand remain uncertain

Trading and Operational Update

The Group restarted operations in mid-May with a phased return to work which allowed the smooth implementation of COVID safe policies, a balancing of work in progress and a good level of collaboration with suppliers. Every function in the business was impacted by our new COVID safe practices, with a particular focus placed on ensuring safe in-home operations. The consumer response was supportive and flexible with existing customers keen to have their windows and doors fitted, reassured by the practices we had adopted.

On restart it became clear that consumer demand was ahead of our expectations. The strength of this demand combined with the speed of our return to full operations delivered excellent initial order intake, with growth of 23.2% versus 2019 for the eight week period from 25 May.

In this context the Group has been focused on scaling up capacity to meet the increased demand.  As a result, initial installation revenues were only marginally ahead for the same eight week period of the prior year.  Progress on capacity has been made and hence the last three weeks delivered a 16.9% growth in installation revenue.

All of the above has resulted in an order book carried into H2 that is now 45% higher than at the same point last year.

Our current focus is on continuing to ramp up our survey, order processing and installation capacity to match our trading performance. We aim to do this while ensuring we maintain discipline on fixed overhead levels.

H1 Financial Headlines

H1 revenues were impacted by the cessation of all activities on 23 March with installation activities restarting on 25 May.  As a result of this, revenues for the period will be c.£42.1m, 34.7% below H1 2019 despite the first two months of the year delivering revenue growth year on year.

Net Cash at 30 June 2020 was c.£6.0m, with £3.0m of the Group’s committed banking facilities undrawn.  The net cash position has benefitted from the Placing of new shares raising £8.2m (net) on 8 April 2020 and a delay in VAT payments agreed with HMRC of £2.7m.  With this exception, working capital is being controlled normally and the Group is generating positive net cash inflows.

Outlook

The Board is encouraged by the performance of the business following the restart of operations. However, it is not yet clear whether the recent performance is sustainable in an environment where confidence and consumer demand remain uncertain.

Faced with this uncertainty, the Board will continue to closely monitor the Group’s performance and market fundamentals in the months ahead with the intention of providing guidance for the full year as soon as it is credible to do so.

Mike Gallacher, CEO of Safestyle UK, commented:

“Prior to the lockdown on 23 March the business was ahead of our internal budget and making good progress on its strategic priorities. The lockdown was managed smoothly with a small skeleton staff maintaining our order book, providing emergency customer support and running a trial remote digital sales team. During April we were pleased to receive strong support from our shareholders in a £8.5m placing of new shares which significantly strengthened our balance sheet and provided additional liquidity which proved helpful as we restarted the business.

“The Board took an early decision to accelerate the Group’s return to full operations in response to the strong consumer demand experienced in May and early June. Our cash position supported our ability to trade proactively and we have undoubtedly benefited from a slower competitor response since the lockdown lifted. Our view is that the combination of deferred lockdown demand and a major shift in consumer spend from travel and leisure to home improvement have driven the increased demand we have experienced.

“Despite very good levels of current consumer demand the medium term economic outlook remains uncertain. We will therefore maintain a balanced approach, seeking to grow the business while keeping our costs controlled and net cash position positive.”

Positive and cautious

The report makes note of the better than expected demand upon reopening. Something I think most installers can relate to when they also reopened. And they, like many of us have, had to scale up to help cope with the extra work that was being won. Financially, the first half of the year was still rough. Most installers, even with a very busy June, will look back on their own H1 figures and see a huge dent right in the middle of it.

That being said, if some of that ground can be made up over the coming couple of months then perhaps at the end of the year we’ll look back on 2020 and wonder if it could have been worse than what it actually was.

Whilst the update is generally positive, the tone at the end strikes a cautious note. The company knows that the medium-term looks highly uncertain, despite high demand levels right now. And there are just one or two signals out there that the pace of business for installers is starting to fall back a little. The board at Safestyle will know this and know that what the end of the year looks like is anyone’s guess right now.

They also note that whether this level of demand is here to stay is uncertain, and because of that they will continue to not publish future guidance at this time. You can expect others to take the same stance.

At the time of writing Safestyle’s share price was 28p per share, which has traded in a narrow range for a while now.

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