SFE.L Regulatory News (SFE)

29 November 2022

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Safestyle UK plc

("Safestyle" or the "Group")

 Trading Update

Safestyle UK plc (AIM: SFE), the leading UK focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, today issues the following trading update.

Trading update

Order intake across the period from late September to the end of October has been volatile. The Board attributes this to the well-reported political and economic news and events that have had a direct, adverse impact on consumer confidence. Consequently, order intake (value) across this period was 7.6% behind expectations and 2.7% lower than the prior year. In addition, the Group experienced higher costs of acquisition than forecast which the Board also attributes to the challenging market context. 

Encouragingly, since early November, demand has improved which has resulted in order intake (value) returning to expected levels and growing by over 30% year on year across these last three weeks. Lead generation costs have also returned to expected levels. 

The lower order intake of September/October will result in lower installation volume levels (c.5k frames) than expected this year. The improved order intake in November has driven an increase in cost in the month, but came too late to deliver the associated revenue this year. Unfortunately, both aspects will significantly impact FY22 profitability. The improved order intake later in the year will, however, result in an order book that will close the year significantly ahead of our original expectations which will help mitigate any sales volatility in early FY23.

Operational update

The Group continues to execute the plan to transition to its new supplier of PVCu profile which will conclude by the end of the year. There is expected to be a small impact on manufacturing volumes and thus installation volume levels (which is included in the overall volume shortfall quantified above) to ensure there is sufficient time for a smooth switchover.

The Group has also maintained the installation capacity levels that it has built in the last few years. This has helped resource the resolution of a backlog of customer service issues that arose during the year following the cyber-attack and subsequent summer factory disruption caused by record summer temperatures. The Board looks forward to moving into calmer waters and making progress with its initiatives and plans to further improve the customer experience as described at its recent Capital Markets Day.

Borrowing facility update

The Board can confirm that it has reached agreement on heads of terms for a replacement of its existing facility with a new £7.5m RCF extending out to the end of 2026. The Board expects legal completion by the end of the year. This new facility will also be provided by Aurelius, the Group's existing facility provider. The terms and pricing represent a reduced cost that is commensurate with the much-improved health of the balance sheet since the previous borrowing facility was secured in 2018.

Outlook

The Board continues to focus on delivery of its strategies and medium-term financial targets which were shared at the recent Capital Markets Day. 

In the immediate term, as described above, the economic uncertainty has had an adverse impact on demand levels in a trading period that under-pinned installation volume expectations for the last months of the financial year. Demand has significantly improved in November and the Board is expecting the Group to continue to achieve strong year on year order intake growth until the end of the year. This performance will come too late to positively influence FY22's outturn, but will materially increase the closing order book versus previous expectations.

These reduced sales and thus lower installation volumes combined with higher costs of order acquisition incurred until early November, costs of maintaining capacity levels in the short-term and investment in a larger closing order book will adversely impact the Group's gross margin. As a result, the Board expects that the Group's underlying profit before taxation for FY22 will be materially below current market expectations. The Board also forecasts that net cash, whilst still remaining healthy, will be lower than expectations at c.£9m at the year-end.

Looking ahead into 2023, there remains limited visibility on the strength of demand for next year, but the Board expects that the market will continue to be sensitive to negative sentiment. The Board reiterates that demand levels have improved recently and points to the fact that the Group operates in what has historically been a resilient and consistently-performing category despite previous challenging macroeconomic conditions. 

In addition, the Group has a strong track record of out-performing the market in an environment such as this. The Board intends to continue with its sales and marketing strategies to ensure that consumers are aware of the Group's value proposition whilst also emphasising the energy savings that our products can deliver. 

Despite the recent volatility in trading, the Board is focused on advancing our strategic agenda and remains confident that this will lead to progressive increases in the Group's share of the market as well as driving improved margins over the coming years.

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About Safestyle UK plc

The Group is the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market. For more information please visit www.safestyleukplc.co.uk or www.safestyle-windows.co.uk.