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Safestyle UK plc

Interim results

Safestyle UK Plc (LON:SFE) has announced interim results for the six months ended 30 June. Revenue of £60.5m is down 27% YOY reflecting previously reported significant business disruption experienced in H1 due to the actions of aggressive new market entrant SafeGlaze UK. The Group sought a court injunction to counter these actions with a settlement announced earlier this month (3rd September). Cost pressures have resulted in a 930bps YOY decline in gross margin, delivering a loss before tax of £5.7m in H1 (H1 2017: £8.8m profit). A new management team is now in situ and the swift resolution of the SafeGlaze litigation removes uncertainty from the business and refocuses the group on returning to profitable growth. A slower than expected recovery in installation volumes in Q3 means we reduce our FY18 forecasts but encouraging signs of growth in the order book and anticipation of a return to profitability in Q4 means we leave FY19 forecasts broadly unchanged. At current levels the shares trade on 7.5x FY19 PER which we believe offers substantial turn-around potential should forecast improvements be realised.

Results: Revenue of £60.5m is down 26.6% YOY as a result of a significant decline in installation volumes -28.7% to 99,491 (H1 2017: 139,612). This was driven primarily by disruption to the sales and canvassing team due to the actions of an aggressive a new market entrant as well as a weaker market backdrop. A decline in volumes was partly offset by a 4.9% increase in average order value to £3,388 with average unit prices 2.9% higher at £616 (H1 2017: £599) and an increase in average frames per order.

Turn-around plan underway: Management are implementing a turnaround plan aimed at stabilising the business, returning it to profitability and establishing a solid base from which to grow. The arrival of the new management team and swift resolution of the SafeGlaze litigation removes uncertainty from the business. A number of self-help measures have been identified to address cost pressures in the business and drive profitability going forwards.

Forecasts & guidance: Safestyle have revised our full year forecasts in light of a delay in recovery of installation volumes seen in Q3 2018 but leave our FY19 forecasts broadly unchanged, reflecting the return to profitability anticipated in Q4 and the benefit of various self-help measures currently being implemented. See exhibit 3 for detail.

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