Trading Update

RNS Number : 0078K

SIG PLC

08 July 2011

 



8^th July 2011

SIG plc

("SIG" or "the Group")

Trading Update

SIG plc, a leading European supplier of insulation, interiors, exteriors and specialist construction products, issues the following trading update for the six months ended 30 June 2011 in advance of its interim results announcement on 25 August 2011.

Since SIG's Interim Management Statement on 11 May 2011, overall trading has continued to be in line with management's expectations and the Board expects the Group's underlying profit before tax* for the first half of 2011 to be approximately £34m (H1 2010 - £18.5m).  This performance reflects the operational gearing benefit of strong sales growth at stable gross margins, delivered through a leaner cost base as a result of management initiatives in recent years.

Total revenues in the first half of 2011 increased by c.9% to c.£1,400m (H1 2010 - £1,282m), with sales from continuing operations (i.e. excluding businesses divested in H1 2011) up by c.10% compared to the prior year.  This was driven by a particularly strong outperformance of the market in Mainland Europe, assisted by some moderate product price inflation.

As previously reported, strong growth was recorded in Q1 2011 in both UK & Ireland and Mainland Europe, assisted by weak weather-affected 2010 comparators.  As anticipated, the rate of revenue growth eased back in Q2 against more testing comparators.  The rate of growth in the UK & Ireland was affected by a noticeable softening in demand towards the end of Q2, due to the weaker economic environment, whereas demand in Mainland Europe was generally more robust than expected.

Overall, in both operating regions, gross margins for the first half year are expected to be broadly consistent with those achieved in H1 2010 in markets which remain highly competitive. 

Mainland Europe (c.54% of Group Sales)

Total sales in Mainland Europe increased by just over 15% and by c.14% on a constant currency basis, with relative performance in Q1 benefitting significantly from weaker comparators.  Pleasingly, growth in Q2 remained strong and in high single-digit percentage terms.

Good progress was made in France, Germany and Poland & Central Europe, with sales growing strongly in all of these geographies. 

In the first half, growth in residential construction activity levels continued to demonstrate good progress across the countries in which SIG operates.  The rate of decline in activity levels in private sector non-residential construction continued to moderate in 2011 and appears to have reached an inflexion point, broadly levelling out.

Trading conditions in Benelux remain challenging, with the economic recession having impacted later than elsewhere in Europe. However, sales here also improved modestly during H1 2011 following a decline in H2 2010.

UK and Ireland (c.46% of Group Sales)

Total sales in UK and Ireland increased by nearly 3% and sales from continuing operations were up by just under 4%.

Growth in residential construction maintained the mildly positive trend experienced during 2010, although some weakness in the private repair, maintenance and improvement sector (RMI) and public sector housing was experienced towards the end of the period.

Similar to Mainland Europe, non-residential construction activity levels now appear to have broadly flattened out, with some modest recovery in the South East being offset by continuing slight decline in other parts of the UK. To date, the Group has not experienced any significant impact from the expected reduction in public sector non-residential construction resulting from Government austerity measures.

In the UK, sales in the Group's distribution and merchanting businesses (c.86% of UK revenues) grew by c.3.5% in total, and by c.4.5% from continuing operations.

The Interiors Manufacturing division continues to be impacted by weak conditions in the segment of the market in which it operates, and experienced a small reduction in sales during the period.  Although sales were up slightly in the period, SIG Energy Management is yet to benefit materially from increased CERT funding, which is slowly filtering through.  This situation is unlikely to change before the autumn given the normal summer lull in demand for home insulation.

Constant currency sales in Ireland grew modestly, though from a low base.

Divestments

In line with SIG's stated objective of upgrading its portfolio and as previously announced, the Group divested its scaffolding and safety & workwear businesses in the first half of 2011. In aggregate these businesses generated an operating profit of £1.1m prior to disposal this year, compared to a loss of £0.7m in H1 2010.

Financial Position

Net debt at 30 June 2011 was c.£168m (31 December 2010: £185m).  During the period net debt benefited from the above divestments, partially offset by adverse exchange rate movements and cash costs associated with prior year restructuring.  The Group continues to focus strongly on its working capital management and on improving returns on capital consumed.

Board changes

SIG is pleased to announce that it has appointed Janet Ashdown and Mel Ewell to its Board as Non-Executive Directors, both of whom have extensive commercial experience.

Ms Ashdown will join the Board from 11 July 2011 and Mr Ewell from 1 August 2011.  Ms Ashdown is currently Chief Executive Officer of Blue Ocean Associates Ltd, having previously held a number of senior positions with BP p.l.c..  Mr Ewell is currently Chief Executive Officer of Amey plc.

Outlook

In Mainland Europe, the Group is not directly exposed to those Southern European countries facing the most difficult economic challenges, and, whilst unhelpful, uncertainty in the Eurozone is not expected to have any immediate impact on the recovery in SIG's main countries of operation.

In the UK, a weaker economic backdrop is likely to impact consumer discretionary spending, for example, on home improvement projects.  Public sector new building programmes, which account for c.6% of the Group's total revenues, are also expected to be affected by Government cuts, though this is likely to be partly offset by a modest improvement in the larger private non-residential construction sector.

Overall, SIG expects growth to moderate in the second half, due to a combination of stronger comparators and macroeconomic factors. However, building on the strong first half performance the Group continues to believe it is well positioned to make progress this year.

Conference Call

There will be a conference call with management at 8.00am this morning to discuss the statement.  The dial in number is + 44 (0)20 3140 0722 (no pin required).

Definition

*          Underlying profit before tax is before the amortisation of acquired intangibles, impairment charges, restructuring costs, gains and losses on disposal of businesses and gains and losses on derivative financial instruments.

Enquiries

Chris Davies, Chief Executive Gareth Davies, Finance Director Simon Bielecki, Head of Investor Relations	SIG plc		0114 285 6300 0114 285 6324
Richard Mountain / Nick Hasell	Financial Dynamics		020 7269 7291

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 looking 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 level of market demand, product availability and pricing, competitor risk, credit risk, credit insurance, restructuring of SIG and exchange rates.  More information about the risks and uncertainties that may affect the Group's performance is contained in the Annual Report to Shareholders for the year ended 31 December 2010.  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.

 

END

 

 

TSTUBOVRARABRAR