Shares in Safestyle UK (SFE:AIM) slumped 14.5% to 59.2p on Monday after the PVCu replacement windows and doors maker warned it expects to post a full year loss amid escalating lead generation costs.

While the Yorkshire-based home improvement retailer is progressing its recovery strategy under new management, the costs of delivering phase three of its turnaround plan will also have ‘a negative impact on short-term profitability’ in 2020 too.

COUNTING THE COSTS

Unloved doors and windows retailer Safestyle expects to report an underlying loss of up to £1.5m for the year to December 2019 after absorbing additional lead generation costs as sales accelerated in November and December.

Management also warned that 2020 profits will be hit by around £3m worth of extra investment. This is related to brand awareness-boosting advertising as well as spending on everything from systems and training to regulatory compliance and customer service, although this heavy investment will deliver ‘material benefit to Safestyle from 2021 onwards’, insisted the company.

SAFEGLAZE OUT OF THE FRAME

Today’s double profit warning overshadowed the positives emanating from Safestyle, which has successfully recruited back a large proportion of self-employed agents who previously left to join SafeGlaze, a highly disruptive new market entrant that subsequently shut in late 2018.

Safestyle has positive sales momentum at its heels and has made continued progress with its turnaround since September’s encouraging first half results, despite weak consumer confidence and challenging market conditions for purveyors of ‘big ticket’ home improvement products.

Turnover for calendar 2019 should come in at around £126m, with sales up roughly 10.7% year-on-year for the second half, while Safestyle also flagged 24% growth in the year-end order book. With SafeGlaze out of the picture, the company’s market share has also recovered from 7% at the end of 2018 to 8.4% in the third quarter of 2019.

READ MORE ABOUT SAFESTYLE UK HERE

‘I am pleased with the pace at which we have stabilised the business, reduced costs, embedded regulatory compliance and enhanced our operational effectiveness,’ said chief executive Mike Gallacher.

‘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.’

Nevertheless, Gallacher insisted that with the right investment in 2020, Safestyle is ‘ideally placed to benefit from these trends’ and he is ‘determined to further establish the foundations needed to deliver sustainable profit growth and long-term success’ for his charge.

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Issue Date: 27 Jan 2020