Sheffield building materials firm SIG warns over its profits

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Building materials supplier SIG plc warned of a sharp fall in 2019 profit, hit by a long-running weakness in European construction markets and delays in its turnaround efforts bearing fruit.

Sheffield-based SIG saw its shares tumble after the firm also said its sales rates deteriorated towards the end of the year.

Demand in the UK and Germany has taken a beating from political uncertainty and fears of a recession respectively, prompting SIG to focus on streamlining operations, switching to higher-margin sales, and cutting down costs and debt.

SIG, which previously issued a profit warning in October, said its sales rate in December was about a quarter lower than the previous month.

The downturn in Britain’s construction industry deepened last month, driven by the sharpest drop in civil engineering activity since 2009, a survey showed last week, underscoring the economy’s frailties at the end of last year.

SIG, which supplies insulation, energy management and roofing products, said it expects underlying pre-tax profit of about £42m for the year to December.

The Sheffield-based firm’s profit forecast was well short of the analyst consensus of £68m, Peel Hunt analysts said.

The brokerage, which cut its rating on SIG’s stock to “hold” from “buy”, said SIG’s trading position in December was “much worse” than expected, further exacerbated by wet weather in November and December.

The forecast was also over 40 per cent lower than SIG’s 2018 profit, hurt by a fall in like-for-like sales at its unit focusing on insulation products and interiors and its UK business in the second half of the year.

The company also pointed to a delay in the impact of measures it took earlier in the year to offset the slump in construction markets. It now expects those benefits to show up in 2020 instead of 2019.

SIG’s warning spooked rival stocks as well, with shares of Travis Perkins, Howden Joinery Group, Grafton Group and B&Q-Owner Kingfisher all lower.

SIG also said the disposal of its air handling division would be completed later this month, and that it expects the sale of its building solutions business to close in the first quarter.

The company is banking on cash from these transactions to cut down debt, having reduced borrowings at the end of last year to £162m from £189m a year earlier.

In October, SIG agrred to sell its Building Solutions business to Kingspan Group.

Meinie Oldersma, CEO of SIG, said: “This disposal, on attractive terms, is in line with SIG’s medium-term strategy and completes the exit of peripheral, non-core businesses identified in our 2017 strategic review.”

The firm agreed to sell its Air Handling Division to France Air Management SA.

Mr Oldersma said the disposal was a result of “continuing management actions in line with stated priorities to reduce financial leverage”.