Weaker trading environments see SIG revenues fall

Specialist building materials supplier SIG updated the market on its trading for the year ended 31 December on Tuesday, reporting that despite “challenging” market conditions and lower trading revenues in the second half of the year, particularly in December, its transformation continued to progress at pace.

The FTSE 250 company said it would report adjusted profit before tax of around £75m, including the benefit of between £2m and £3m of property profits in the year.

Its said it expected the benefits of the ongoing transformation to drive a “further significant increase” in profitability in 2019.

Group revenues from continuing operations decreased by 1.4% in the year, with a further 0.7% decrease from currency and 0.2% from more working days.

As a result, SIG said group like-for-like revenues were 2.3% lower.

In its UK and Ireland geography, like-for-like revenue was down 5.7%, with SIG Distribution falling 6%, SIG Exteriors sliding 6.7%, and its Ireland and other revenue slipping 0.1%.

SIG’s mainland Europe revenue grew by 0.7% on a like-for-like basis, with Poland’s growth being 8.5%, although Germany fell by 1.1% and France by 1%.

Its Mainland Europe air handling business saw 2.7% revenue growth, while in the Benelux area it was 5.7%.

“As previously reported, the UK construction environment became increasingly challenging in the second half of 2018,” the SIG board said in its statement.

“Commercial construction demand remained dampened by macroeconomic uncertainty, house price inflation slowed and secondary housing market transactions continued to fall.

“This weaker trading environment impacted on demand for SIG's products and is a key factor behind the lower like-for-like revenues in the UK and Ireland, down 8.8% in the second half.”

It said revenues at SIG Distribution also continued to reflect the focus on improving profitability, which delivered higher gross margins at the expense of lower revenue.

Trading conditions in construction markets across mainland Europe also slowed materially in the second half, the company claimed, particularly in France and Germany.

Revenues in Germany were also affected by ongoing actions to reduce the group's exposure to unprofitable business.

In contrast, the group continued to see “robust demand” and good top-line growth in Poland, Air Handling and Benelux.

“The group has delivered significant improvement in its operational and financial performance during the second half of 2018, in line with its strategy,” the board explained.

“The focus on better pricing management and the planned withdrawal from unprofitable business has reduced revenue in the second half of 2018, but increased gross margins above our expectations.

“Falling headcount has contributed to reduced operating costs as planned.”

SIG said that, following leadership changes and the restructuring of the business model across its major operating companies, the foundations were in place for further strong progress in 2019, focused on its strategic levers linked to customer service, customer value and operational efficiency.

As part of the ongoing management of its portfolio, during December SIG sold its shareholding in its remaining UK offsite manufacturing business, RoofSpace, and the trade and assets of Proteus, a small UK-based façade panel systems manufacturing business.

The businesses exited or divested in the past two years represented around 11% of 2016 revenue.

“Leverage reduction remains a key priority and the group continues to focus on structural reductions in levels of working capital, particularly stock, and sustained profit improvement to drive leverage lower.

“Whilst headline financial leverage has fallen significantly during 2018 from a 2017 year end level of 2.3x, the group did not see as large a working capital reduction around the year end as usual and is expecting 2018 closing headline financial leverage of around 1.7x.

“The group remains confident of delivering headline financial leverage below 1.0x over the medium term.”