In the continuation of earnings season in the fenestration sector, Safestyle UK is the latest to present its H1 2022 results. On the face of it, things looks fairly positive, but a bit of digging into the results shows that headwinds are beginning to be felt, as they are across the entire sector.
This is the key part of the statement that was published earlier today.
Safestyle UK H1 Interim Results
• H1 revenue growth of 7.2%, order intake (sales) growth of 11.7% and order book growth of 17.7%.
• Return to dividend payments, with an interim dividend declared of 0.4p per share.
• Net cash increased to £13.0m from £12.1m at year-end.
• H1 underlying profit reduction due to the c.£4m impact of a cyber-attack in Q1.
• The business initiated a £5m strategic investment programme (versus 2021) that includes TV advertising, new business development, the Safestyle Academy (for new fitters) and a range of actions to improve our customer experience and reduce our cost of quality.
• Order book investment of £1.7m plus cost push on materials and lead generation spend have reduced H1 gross margins; price increases expected to mitigate these in H2.
• We continue to make progress on our ESG agenda and remain on track to achieve our 2025 targets with a further 1% reduction in CO2 per frame and waste to landfill decreasing to 4% in this first half.
• The business expects its strong value proposition, consumer finance options and its products’ energy efficiency benefits to mitigate what may be an uncertain consumer market in H2 and beyond.
• Softer sales at the height of an unusually hot summer in the UK drove a decision to invest in an earlier return to TV, with a focused message on value and energy efficiency.
• Record temperatures in late July also caused some disruption to our factory fulfilment performance for c.2 weeks which impacted customer service and installation volumes during Q3; the factory is now operating normally.
• H2 revenues are forecast to accelerate to double-digit growth and will support gross margin percentages back above 30%.
• Our strategic investment programme will be sustained through H2 and covered at our forthcoming Capital Markets Day (detailed below).
• The Board forecasts that the Group’s underlying performance will still be profitable for H2 and for the full year. After the impact of the factors above, although we anticipate revenue exceeding expectations, we now expect full-year underlying profit will be no lower than £1.0m. The Board have, however, decided not to reduce the pace or quantum of our investment following delays caused by a prolonged period of turbulence.
• As the national value player in our industry, we believe we are well placed to attract consumers in tougher economic times and have traded resiliently through previously difficult economic periods.
• Having returned to a dividend payment at the half year, the Group targets a progressive dividend policy in line with its capital allocation policy.
Mike Gallacher, CEO:
The business has delivered a good trading performance in the first half, achieving revenue growth of 7.2% against an increasingly difficult economic backdrop. Despite the obvious financial impact of the cyber-attack, it is pleasing to see our net cash position remains strong, increasing to £13.0m at period end with the Group’s order book also growing by 17.7% over the first half, representing a closing position that was 17.6% ahead of the prior period. This supports our ability to act on our long-standing intent to return to paying dividends to shareholders.
In 2022 we emerged from a sustained period of turbulence and have now initiated a multi-year strategic investment programme. For 2022, this represents a £5m investment versus 2021 and it encompasses a full year return to TV advertising (£2.5m), the initiation of an important new business development project (£0.7m), the launch of the new Safestyle Academy which has prioritised training new window fitters (£0.8m), the roll out of Standard Operating Procedures (‘SOPs’) across our depot network and a range of investments behind improving our customer experience and reducing our quality costs. This programme is designed to modernise the business, drive growth and build a sustainable competitive advantage over the medium term. More details will be shared at our Capital Markets Day which is scheduled to take place on 16th November 2022. We remain committed to sustaining these strategic investments through the coming years.
Looking ahead, notwithstanding the challenging macroeconomic conditions, we still expect the business to deliver both an (underlying) profitable full year and positive cash flow from operations. As a result of the challenges in Q3 caused by the unusually hot weather and the Board’s commitment to our strategic investment programme, we now expect full-year underlying profit will be no lower than £1.0m. As ever, the Group remains keenly focused on advancing our strategic priorities and believes these investments will leave us well positioned to deliver sustainable long-term performance for our shareholders.
Signs of challenges ahead
Whilst the results show revenues have increased steadily from H1 of 2022, they show that just like everyone else in the sector, Safestyle has been hit by turbulent market conditions and the same price increases that have eaten into the margins of many others.
H1 in 2022 actually resulted in a loss, with some of that down to the cost of putting right the massive hack that the company suffered the year earlier. There is also a hint in the headlines that H2 are going to see some price increases for consumers to try and mitigate their own higher costs. I would be surprised if they have actually waited this long to increase prices to their clients, considering the length of time our sector has been having to deal with increases in raw material costs. It may be that some increases have already been passed down to the consumer, with more to come in H2, but that’s just my opinion.
Net cash is down a little, but nothing major and the company did manage a small dividend in H1 which they did not pay out in H1 of last year.
The outlook they provide tries to be positive but is weighted significantly with language which pares down expectations for the second half of this year. Profitability still looks likely, but the company, along with the rest of the sector, is perhaps not as bullish about 2022 as a whole as they were in 2021.
You can read the entire interim statement here: https://www.doubleglazingblogger.com/wp-content/uploads/2022/09/Safestyle-UK-plc-H1-22-Interim-announcement-FINAL-22.09.22.pdf
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