Trading Statement

RNS Number : 7388Y

SIG PLC

10 July 2008

 



Trading Statement 

Thursday 10 July 2008

SIG plc, the leading European supplier of insulation, interiors, roofing and specialist construction products, issues the following trading update for the six months to 30 June 2008 ahead of its Interim Results which will be announced on 21 August 2008.

Further to our Interim Management Statement of 14 May 2008, trading in the six months to 30 June 2008 has been solid, with total sales in excess of £1,480m, up c.35% over the equivalent period in 2007, and like for like* sales up c.9%.  At constant currency, total sales were up c.26% and like for like c.2.2%.

Underlying** operating profit is expected to exceed £84m, an increase of £14m (20%) on the £70m reported in the first half of 2007. 

Underlying profit before tax for the six months to 30 June 2008 is expected to be not less than £68m, an increase of £6m (c.10%) on the £62.1m reported in the first half of 2007.

Profitability in the first half of 2008 has been generally in line with internal expectations, taking account particularly of some testing prior year comparatives in Mainland Europe and continuing investment in organic development and customer service programmes. Reduced trading levels in some Group businesses where there is greater exposure to new residential construction, especially Ireland, has also had some effect on profits.

Around one third of the Group's sales are made into the residential sector, both new build and Repairs, Maintenance and Improvement (RMI).  The residential new build sector is weak, most evidently in Ireland and the UK but also to a lesser extent in parts of Mainland Europe, and some elements of residential RMI are also weaker than in 2007.  

In contrast, around two thirds of the Group's sales are made into the non-residential building and industrial (non-construction) sectors, which include both public and private long-term projects. Demand from these sectors has remained robust in all countries in which SIG trades. 

Notwithstanding this encouraging performance, the Group is mindful of the possibility of more challenging trading in some of its markets. As a result, it has already taken steps to realign its cost base where appropriate and continues to keep market developments under close review.

UK and Ireland (c.57% of total sales)

Overall construction and building activity has shown modest growth in 2008 over 2007 in the UK, and has declined significantly in Ireland (c.5% of Group sales). Against this background, SIG's total sales increased in the UK and Ireland by c.17% to £847m, over the first half of 2007 with like for like sales growth of c.2.8% (constant currency 1.7%). Excluding Ireland where like for like local currency sales declined by c.19%,  like for like sales in the UK increased by c.4%.

Sales of insulation and related products in the UK have performed particularly well, benefiting from increased demand driven in part by the higher thermal performance standards required by the 2006 Part 'L' regulations governing new buildings in the UK, and also by the introduction in the UK of the CERT (Carbon Emissions Reduction Target) Scheme in April 2008, which has gained momentum rapidly and is already generating strong growth in demand for retrofit insulation in existing homes.

Unlike the residential sector, which has seen significant reduction in demand, the non-residential sector in the UK and Ireland continues to perform well, with private and publicly funded projects providing a good pipeline of demand for SIG's products across the whole spectrum of building types, from offices, retail and leisure through to increasingly significant public sector developments such as schools, hospitals and defence establishments.

The number of trading sites increased by 40 to 501 (31 December 2007: 461).

Mainland Europe (c.43% of total sales)

Total sales in Mainland Europe increased by c.70% to c.£643m, also reflecting the benefit of strengthening European currencies.

Trading in all countries in which the Group operates has been good, with like for like sales growth of c.3% ahead of 2007 on a constant currency basis, notwithstanding demanding prior first half comparative numbers in Germany and Poland due to the distorting effect on normal trading patterns of last year's very mild winter. Lariviere, our largest acquisition last year has performed soundly, with the planned branch roll out program bringing modest incremental sales in the period. 

The number of trading sites increased by 53 to 371 (31 December 2007: 318).

Acquisitions

The Group has completed 24 transactions with annualised sales of c.£185m, adding 36 trading sites in the UK and Ireland and 25 in mainland Europe. Most of these are bolt-on acquisitions, adding weight to our existing market positions in UK insulation, interiors, roofing and specialist construction products, and in insulation, roofing and interiors in Mainland Europe. Of the £185m acquired sales, £125m is in the UK and Ireland and £60m in Mainland Europe.

The larger acquisitions include an insulated panel business in the UK and an international supplier of specialist air handling products, which in addition to locations within SIG's existing geographical footprint extends the Group's sales into Turkey, Romania, Hungary and Bulgaria.  

The consideration for these 24 acquisitions (including assumed debt) amounted to £122m.  

These businesses are being successfully integrated into the Group and are trading in line with our expectations.

  Financial Position

In order to provide funds for further expansion of the Group, an additional £175m of committed debt facilities have been secured in 2008 at a similar margin to facilities in place at 31 December 2007. This takes the Group's committed debt facilities to £775m.

Net debt at 30 June 2008 is expected to be c. £640m (31 December 2007: £430m).

Interest cover and leverage (net debt/EBITDA) are the two key debt ratios forming the basis of the Group's borrowing covenants, and the Group intends to maintain these within comfortable levels. 

Outlook

The Group has made good progress in the first half of 2008 with like for like sales growth supplemented by the positive impact of acquisitions made in 2007 and 2008.

External forecasts for overall construction activity in the UK for 2008 and 2009 have recently been revised downwards, influenced in particular by prospects for the housing sector, and the Group believes that the main areas of market weakness, namely new housing and discretionary consumer spending on existing residential properties in the UK and Ireland, will continue into 2009.  However, UK non-residential construction activity is holding up much better than residential, especially public funded works related to hospitals, schools and infrastructure, and leading contractors continue to report solid order books through 2008 and 2009. 

In Mainland Europe, external agencies point to generally stable or positive construction trends through 2009 in SIG's markets. 

Additionally, demand for insulation products continues to perform better than other building materials due to a combination of regulation, environmental and economic drivers throughout all regions in which SIG trades.  

The Group is actively taking steps to realign its cost base in those markets where demand is expected to be subdued for some time and is keeping market developments under review. In the current market environment the Group's approach to acquisitions is cautious and highly selective. Whilst remaining receptive to any attractive acquisition opportunities that the current environment may present, the Group expects acquisition activity in the second half of the year to be materially lower than the first half, thereby helping to ensure that debt levels remain comfortable. 

SIG has been through periods of reduced demand in various markets many times in the past. It has the management expertise to enable it to outperform market conditions and remains confident of further progress. 

*      'Like for like' is defined as the business excluding the impact of acquisitions made     since 1 January 2007.

**    'Underlying' is before the amortisation of acquired intangibles and hedge     ineffectiveness.

Enquiries:

Chris Davies, Chief Executive Gareth Davies, Finance Director	SIG plc		0114 285 6300
Faeth Birch / Gordon Simpson	Finsbury		020 7251 3801

Cautionary Statement

This Trading Update is prepared for and addressed only to the Company's shareholders as a whole and to no other person. The Company, its directors, employees, agents or advisors do not accept or assume responsibility to any other person to whom this Trading Update is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed.

Certain information included in this Trading Update is forward looking and involves risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by forward thinking statements. It is believed that the expectations set out in these forward looking statements are reasonable but they may be affected by a wide range of variables which could cause future outcomes to differ from those foreseen in forward looking statements, including but not limited to, changes in risks associated with the Company's growth strategy, fluctuations in product pricing and changes in exchange and interest rates. All statements in this release are based upon information known to the Company at the date of this Trading Update. The Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.  

 

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