Safestyle UK plc (LON:SFE), the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market, has issued an update on current trading for the year ending 31 December 2020.
Following the Government’s implementation of a second national lockdown in November, the Group was able to continue largely normal operations with its strict COVID-safe policies that were developed during and after the first lockdown and embedded throughout the business.
Since the Group’s interim results announcement on 17 September 2020, the Board is pleased to report that in response to the strong order intake growth described in its previous announcement, the business has continued to increase its operational capacity, recruiting staff across processing, survey, manufacturing and installations. This response delivered 9% year on year revenue growth in Q3 and is expected to deliver c.20% revenue growth for Q4.
This revenue growth was achieved despite major supply chain issues attributable to the overall increase in industry demand, reduced third party supply chain inventories and specific global and European supply constraints. Despite these significant operational disruptions, the increase in capacity has enabled the Group to deliver its fastest acceleration in revenue growth since flotation in 2013.
Throughout the second half of this year, management have worked to balance trading and installation activities to optimise order intake growth and deliver margin improvement whilst controlling customer lead times and service levels. This is illustrated by the Group taking the opportunity to grow the order book to a position that is more than double what it was at the end of Q3 last year and a forecast year-end level that is 75% higher than 2019’s closing position.
The Group will therefore enter 2021 with its strongest ever installation pipeline at this stage of the year, providing a solid platform to maintain its current trading momentum whilst at the same time providing some insulation against the potential impact of disruption to future sales activities from further lockdowns.
Despite the challenges associated with operating safely and effectively through H2, progress has also been made on our longer-term strategic priorities. Our new commercial management team have started to standardise our sales branch structure and processes and the same activities are underway within our depot network. Significant investments have been made in improving our customer service and this focus will be sustained in 2021. In addition, a range of margin enhancing activities have been completed that are now starting to positively impact our financial performance.
The level of installations activity in Q4 is expected to help deliver our strongest financial result for any quarter since 2017. The Group has built capacity to deliver double digit revenue growth and has also invested in strengthening the year-end order book. At the same time, management have navigated a range of issues including supply chain disruption, additional COVID-related costs, temporary restrictions on canvass operations and investments to deal with lockdown warranty work. Together, these factors have impacted profitability levels.
As a result, H2 revenue is expected to be approximately £71m with an underlying profit before taxation of around £0.5m, materially lowered by the investments made into building our order book and the issues highlighted above.
Full year revenue is therefore expected to be over £113m with an underlying loss before taxation of approximately £(4.5)m, the loss being fully attributable to the cessation of operations during the first national lockdown in H1. Liquidity remains strong with year-end net cash forecast to be approximately £7m, with £3m of the Group’s banking facilities remaining undrawn and a significant level of covenant headroom available. The year-end net cash position benefits from an agreed deferral of a £2.5m VAT liability originally payable during the first lockdown in May which will be paid in March 2021.
The Group has made good progress in its margin initiatives as a result of actions taken through the year, most importantly through addressing the costs of our consumer finance proposition. The benefits of these items are only recently translating into installation revenue, with the majority of the improvement currently reflected in the order book.
Notwithstanding the obvious uncertainty of the consumer context, the Board is confident that the Group’s revenue and profitability momentum in Q4 will carry through into 2021, a performance level that is underpinned by the strength of the order book.
Consequently, the Board expects 2021 financial performance to be significantly ahead of current market expectations.
Mike Gallacher, CEO of Safestyle UK, commented:
“Despite the unprecedented challenges faced by the Group during the year, I am pleased with the recent tangible progress we have made in stepping up our operational capacity and delivering strong revenue growth, whilst further strengthening our order book. Moreover, we have also made good progress on our longer-term strategic priorities. Notwithstanding the uncertainty associated with the current economic backdrop, the Group is well positioned to build on this positive momentum going into 2021. I would again like to thank our staff and all of our stakeholders for their efforts and support over the course of the year.”