SIG sees hope in building sector

In an interview with the Yorkshire Post, Chris Davies said UK growth could moderate but he does not expect to see another substantial fall in construction activity.

He was speaking as the Sheffield-based supplier of insulation, exteriors, interiors and specialist construction products delivered its interim results for the six months ending June 30.

Group sales for the first half of 2010 were in line with management expectations at 1.291bn, down four per cent on the first half of 2009.

SIG's underlying profit before tax was 18.5m, a fall of 16 per cent.

Performance was hit by extreme weather conditions in the first quarter, but trading improved in the latter part of the first half with sales moving into positive territory in the second quarter.

This trend has continued into the second half of the year, reported the company.

Mr Davies said: "I certainly feel a lot more positive about the outlook for the next six months for any six-month period since I took over two years ago."

Residential construction is improving in the UK and Europe while the pace of decline in non-residential construction is easing and is expected to start improving in the next quarter, he added.

Mr Davies said the prospect of a double-dip recession was unlikely, but his company was "vigilant" about the possibility and would look at its cost base again if necessary.

The group has shed around 2,800 jobs over the last two years. It currently employs around 12,000 people.

Mr Davies said: "Do we see the likelihood of a severe plunge again in construction activity? I don't see that.

"It is more likely that the construction markets over the next couple of years will be pretty neutral and a low-growth environment... with a bit of weakness here and there rather than any further steep declines."

He added: "I'm not going to call the turn. We are just moving into our high season – summer and autumn are strongest months for us in much of our business – obviously we will wait to see how trends develop over that period.

"Based on trading patterns in the last four or five months I'm cautiously optimistic."

Les Tench, chairman, said: "Although overall sales trends since the end of the first quarter have been encouraging, SIG's management remains cautious on how its markets will develop over the next few months.

"This caution is based on the continuing macroeconomic uncertainty and concerns about the potential impact of government austerity measures and credit availability on the timing and path of the construction markets' recovery."

In the UK and Ireland, sales were 633.7m, down 5 per cent on the first half of 2009. In mainland Europe sales were 657m, down 3 per cent on the same period in 2009.

After costs including amortisation, losses on derivative financial instruments and restructuring, SIG made a total loss before tax of 2.2m in the first half of 2010, down from 9.2m in the first half of 2009. No dividend was paid.

An analysts' note from JP Morgan Cazenove said the results were "significantly ahead of market expectations".

It said SIG is well-placed for any recovery in the UK and European construction markets, but the investment bank retained its neutral rating due to lack of visibility in the sec- tor.

Shares closed last night at 93p, an increase of 2.3p.