11th Aug 2015 09:02
LONDON (Alliance News) - SIG PLC on Tuesday said its pretax profit was higher in the first half of 2015 than a year earlier thanks to lower exceptional costs, but revenue for the group was pulled lower both by a weakening euro and by challenging market conditions in mainland Europe, while the group said margins pressures are likely to offset some of the benefits from its cost-cutting programme.
The building products company said its pretax profit for the half to the end of June was GBP26.8 million, sharply higher than the GBP11.8 million it posted a year earlier, as exceptional costs in the half fell to GBP12.3 million from GBP31.2 million a year earlier.
Revenue in the half fell slightly to GBP1.24 billion from GBP1.31 billion, primarily thanks to the weakness of the euro in the period. In constant currencies, revenue was up by 3.1% and like-for-like sales grew by 0.6%.
But while SIG said there was an improvement in mainland Europe trading towards the end of the half, the company's business in the region has continued to face competitive pressures and weak markets, exacerbated by the translation effect of the weak euro. Those challenges offset a rise in sales in the UK and Ireland, which came in the face of tough market conditions.
The group said its strategic initiatives, designed to improve its procurement processes and cut costs, are ahead of schedule and contributed GBP7.0 million in annualised cost savings in the first half. It added that its review of its supply chain is going well and it intends to present the findings of that review in the fourth quarter.
On the back of the rise in profit, the group said it will increase its interim dividend to 1.69 pence per share, up from 1.42p a year earlier, a 19% rise.
"The group delivered a robust first half performance against a strong comparative period, supported by continued good progress on its strategic initiatives. This was despite variable trading conditions in mainland Europe, increasing competitive pressures and a significant weakening of the euro," said Chief Executive Stuart Mitchell.
But while Mitchell said the outlook for the company is broadly unchanged, underlying market conditions are squeezing its margins and will offset some of the benefits the company expects to see from its business transformation programme.
"Assuming the improving sales trend in mainland Europe continues we expect to make year-on-year progress, with results second half-weighted as anticipated," Mitchell added.
SIG shares were down following the results, falling 2.8% in mid-morning trade to 195.60 pence, the worst performer in the FTSE 250.
UK and Ireland sales for SIG in the half were up by 5.8%, with sales rising by 6.0% in the UK and by 2.0% in Ireland. In both markets, however, the group improved its gross margin, with the divisional gross margin improving by 40 basis points. Like-for-like sales in the region were up 2.8%, split between 2.1% growth in the UK and 15% growth in Ireland.
The improvement in margins helped the group to offset competitive pressures on its SIGD insulation and interior business. Across the business, the margin improvements have been driven by its focus on improving its procurement processes, SIG said. The business also saw some weakness in its roofing division, which it blamed on lower levels of demand in the private repair, maintenance and improvement market, to which the division has a high exposure.
SIG said its outlook for the UK market remains positive, driven by continued improvements in the residential sector, while it expects an upturn to emerge in the non-residential sector towards the end of 2015 and into 2016.
In Ireland, revenue was hit hard by the weakening euro, as evidenced by the gap between like-for-like sales growth and actual revenue, but its underlying performance was strong, driven by the improving conditions in both the residential and non-residential markets, albeit to a lesser extent in the latter.
The rise in revenue in the UK and Ireland was offset by a weak performance in mainland Europe, where sales were down by 11%, driven by weak performances in its larger French, German and Austrian business and softness in Poland, while its Benelux revenue declined, but at a less severe rate. All division were hit by the softness of the euro, but even in constant currencies, sales declined in France, Germany and Austria, though they did rise in Benelux.
The French construction industry remained challenging in the half, with ongoing poor conditions in the residential sector, where housing starts were down 7% on a rolling 12-month basis. The group's like-for-like sales in France were down 3.4% in the period, though the decline eased to only 0.9% in the second quarter, compared to the 6.0% fall it experienced in the first quarter and the 10% drop in the fourth quarter of 2014.
Margins in France fell by 30 basis points in the half, primarily due to competitive pressures within the shrinking market and an adverse revenue mix shift in its roofing business towards lower-margin products. Margins in Germany and Austria were unchanged in the half, as the group saw positive effects from its procurement initiative, offset by unhelpful revenue mix changes.
Like-for-like sales in Germany and Austria were down 2.5%, slightly ahead of the local market decline, SIG said, thanks to weak performances in the non-residential and industrial sectors, which have wiped out relatively robust trading in Germany's residential sector. The technical insulation business in the region was hit by the closure of power stations in recent years, amid a transition to renewable energy sources, and SIG said it is seeking to tap this part of the market.
Benelux sales were up 7.7% on a like-for-like basis in the half, though translation effects meant they fell by 1.7% on a reported basis. Market conditions in the Netherlands continued to improve in the half, led by good residential sector growth, though the Belgian construction market remains challenging across the board, the company said.
Poland like-for-like sales were up 0.2% in the half, amid signs of a construction market recovery, but SIG's gross margin there fell back due to the revenue mix.
Panmure Gordon said SIG's results showed a mixed but improving picture and said its performance in the UK and Ireland was impressive given the tough market conditions. Analyst Aidan Kearsey said the self-help measures the company has implemented are feeding through and was encouraged by SIG management saying the second phase of that programme will be outlined soon.
By Sam Unsted; [email protected]; @SamUAtAlliance
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