Safestyle warns on profits yet again

AIM-listed Safestyle said on Wednesday that it expects to report a small underlying pre-tax loss for the year, while revenues are likely to be below market expectations, but there was some good news as the double glazing group said order intake has firmed up in recent weeks.

The company, which already warned on profits twice this year amid disruption from competitor SafeGlaze - once in February and again in April - said that while pricing has been firm, with recent price increases successfully implemented, gross margins have been hit by higher digital marketing costs and sales commissions.

"Against a background of weaker consumer spending on higher value home improvement products, exacerbated by the loss of significant numbers of canvass, sales and installation staff to the new competitor, order intake has firmed up in recent weeks, albeit at a lower level than the previous management team had expected," it said.

Providing there is no further material deterioration in market conditions, Safestyle expects to report a small underlying loss before tax for the year.

In addition, it expects to report non-recurring exceptional cash costs of around £6m in the current financial year. These include the previously-announced fine following the Health & Safety Executive investigation, the costs of its legal action against SafeGlaze and restructuring costs.

"Over the medium and longer term, the board remains confident of the group's prospects. The board expects exit momentum from the current year to benefit from the programme of costs and margin improvement actions now in train which are expected to result in material annualised savings benefiting future financial years."

Liberum cut its pre-tax profit forecast for 2018 from a £4m profit to a £3m loss following the update. It also reduced its price target on the hold-rated stock to 40p from 60p "to anticipate the likely stock market reaction", but said it is starting to see significant upside on a two-year view if recovery takes hold.

"We expect profit recovery in 2019 as Safestyle rebuilds its lead generation capability and as the group benefits from price increases made through the second half of 2018. We are confident that these will hold as we understand that the whole industry has pushed prices up."

At 0950 BST, the shares were down 18.3% to 40.60p.