SIG slides into the red but ups guidance for second half

SIG tumbled into the red in the first half of the year, the building products distributor said on Thursday, after the Covid-19 pandemic shuttered the construction industry and dented trade.

Revenues at the firm, which supplies insulation and roofing materials, fell 24% in the six months to 30 June to £817.7m, while like-for-like sales also declined 24%, compared to a 4% fall a year previously.

The underlying loss came in at £43.2m against an interim operating profit of £29.1m in 2019. Exceptional items, including a £42.8m goodwill impairment charge on the UK business because of Covid-19, dragged the statutory pre-tax loss to £125.4m from a pre-tax profit of £2.2m a year earlier.

Chief executive Steve Francis said the half had been better than initially feared. "Trading was better than anticipated during the peak lockdown months of March to May, compared to our initial estimates of the possible Covid-19 impact, and the board now expects full-year sales to be moderately higher than guided in May," he said.

"Group sales in July and August were encouraging, although down year-on-year, and market share losses during 2019, particularly in the UK distribution business, will take time to recover.

"The second half of 2020 is expected to remain loss making, but at a lower rate than the first, despite some increased pressure on gross margin in the UK."

Francis, widely seen as a turnaround specialist, joined SIG earlier this year from collapsed café chain Patisserie Valerie after chief executive Meinie Oldersma and chief financial officer Nick Maddock were ousted.

The new leadership team was installed with a mandate to return SIG to profitable growth and win back market share, and in May launched a new strategy that will see the firm refocus on customer service. The team has also restructured financing facilities and raised £165m, including an £83m equity investment from US private equity firm Clayton, Dubilier & Rice.

Francis said: "The group demonstrated agility and resilience in the first half of the year, dealing with an unprecedented external challenge and significant internal change and activity. Couple with a strengthened balance sheet, the foundations are now in place for the business to grow."

However SIG warned that while market fundamentals were sound, there remained "significant economic uncertainty" going forward.

Aynsley Lammin, analyst at Canaccord Genuity, said: "Clearly the balance sheet is in much better shape post the equity raise, with net cash at the end of August, and management is now implementing its new strategy. While the full-year underlying operating loss looks set to be a bit lower than we currently expect - probably around £80m versus the £90m we currently forecast - the second half is expected to remain loss making.

"The investment case remains a turnaround under the new management team with profitability unlikely to return before 2022. In the near term, there remain significant macro risks as well as the execution risk of delivering the improved performance from the new strategy."

As at 1030 BST, shares in SIG were off 10% at 24.07p.