The pressure's unlikely to ease up, warns SIG

INSULATION and roofing specialist SIG is hopeful that its markets will pick up in 2011, although it warned consumer confidence could be hit by the austerity measures being introduced across Europe.

The Sheffield-based group saw its shares dip four per cent last night after it warned that markets are likely to remain competitive and pressure on gross margins are unlikely to ease.

Looking ahead, chief executive Chris Davies said the group believes its markets may see some "slight growth" in 2011.

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"Although residential construction is expected to show modest improvement and private sector non-residential activity should stabilise during the course of the first half, there is some downside risk to consumer confidence and spending as a result of Government fiscal and austerity measures being taken across Europe."

He added that the group is confident that its position as Europe's leading distributor of insulation, its operational expertise and good track record mean it is well placed to take advantage of the long term demand for energy efficiency and carbon reduction.

The group, which sells insulation and other construction materials, said that its markets have continued to stabilise over the past five months.

It reported "modest" like-for-like sales growth in each of the four months from July to October 2010.

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This has been driven by a gradual improvement in residential construction, although some sectors and countries have remained in negative territory. Group sales are down one per cent in the year to date in constant currency, but have risen by three per cent since the end of June.

Mr Davies said that markets remain very competitive and gross margins have shown no improvement on the first half.

Despite this the group said it is confident that underlying pre-tax profits for the year will be in line with market expectations of 61.3m.

In the UK and Ireland, which accounts for almost half of group revenues, sales for the year to date in constant currency are down three per cent compared with the prior year and by one per cent in the second half to date.

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UK sales in distribution and merchanting businesses have continued the improvement seen in the second quarter and are now positive on a year to date basis.

But the Interiors Manufacturing and Energy Management divisions has seen sales run at a "substantially" lower rate than last year.

The group said that trading conditions in Ireland, which accounts for around three per cent of group turnover, remain difficult.

In Mainland Europe, which accounts for just over half of group revenues, the second half trading performance has been stronger than in the UK, with sales ahead by one per cent of the same period last year and up by six per cent in the second half to date.

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Following a difficult first half, which was hit by extreme weather conditions on the continent which severely limited construction, trading in the second half has continued to improve.

France and Germany have shown the best progress overall. Since the summer volumes in Poland and the Central European region have also improved and are now showing growth compared to the same period last year.

In contrast trading remains difficult in the Benelux countries, where the economic recession hit later than elsewhere in Europe. Sales have continued to decline in these countries.

The company, which has shed nearly 3,000 jobs over the past two years, said it has identified further opportunities for cost savings. It said that all significant restructuring measures will be finalised before the end of the current year.

The group's shares closed down 5p at 112.9p.

PATH TO BEING A MAJOR PLAYER

SIG was founded in 1957 as the Sheffield Insulation Group.

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Over the past 50 years the company has grown from a small insulation distribution business into a multi-national company operating in four different market sectors.

The company floated on the London Stock Exchange in May 1989 and is listed on the FTSE 250 mid cap index within the support services sector.

The group now operates in 11 countries in Europe and has small trading operations in a further five, serving a wide range of trades in the building and construction markets.