Safestyle UK shares tumble following warning on debts

Safestyle shares maintained their downward spiral after the company warned it would default on its debt if expected losses materialized.

Britain’s biggest seller of doors and windows said it has met the terms of a £7.5m loan facility, which it plans to use in coming months to maintain “working capital and liquidity requirements”.

Still, the group of investors told that if projected losses were to materialize for the remainder of the year, it would create a “material shortfall” and mean access to the credit facility could be completely blocked.

Safestyle UK shares have tumbled 43.2 percent to 2.5 cents today, making them the biggest fallers on the AIM All-Share index and continuing their steep decline since late March, when they were around 30 cents.

The Bradford-based company revealed it was in ‘productive’ discussions with shareholders and other third parties about receiving investment to support the recovery and fund future growth.

It added that any injection of working capital would not come through an equity raise, but through an “alternative financing structure.”

In addition, the company said discussions with its lender about obtaining a covenant waiver on its revolving credit facility had been “good”, although a full agreement has not yet been reached.

Safestyle bosses said they were optimistic about receiving ‘the continued support needed to enable the group to meet the short-term challenges associated with a difficult market context.’

Safestyle’s announcement comes less than a week after it said pre-tax losses had more than doubled to £6.7 million for the six months ended July 2, amid a downturn in the replacement windows and doors market.

Order volumes were affected by rising interest rates, which affected disposable income and consumer confidence, and increased the cost of consumer finance products.

As a result, sales fell 5.3 percent to £74.1 million, even as price increases helped increase the size of average customer orders.

The company warned that economic conditions remained “extremely difficult” but noted that inflation was moderating from significantly high levels.

It also expects to benefit from the need to modernize Britain’s aging housing stock, which CEO Rob Neale called “one of the most attractive opportunities for the company in the medium term.”

Charlie Campbell and Edward Perst, analysts at investment bank Liberum, estimate that Safestyle’s annual turnover could reach £180 million if more than 180,000 frames were installed in a year.

But if installation rates return to peak volumes, the company’s annual turnover would reach at least £200 million, while pre-tax profits would likely reach their medium-term target of £20 million.