SIG plc (LON: SIG), a leading supplier of specialist building materials to trade customers across Europe, today issued a trading update for the year ended 31 December 2019.
Summary and outlook
The Group has made considerable progress during the year in transforming its business. The previously reported actions in our businesses around pricing continue to deliver improvements in gross margins, and the realignment to a more integrated functional operating model has resulted in a further reduction in operating costs in the year. The announced disposals of the Air Handling division and Building Solutions business will complete the transition to a robust balance sheet.
This progress has been made against a backdrop of challenging market conditions. The Group has been reporting an ongoing deterioration during the year in the level of construction activity in key markets and key indicators continue to point to further weakening, principally in the UK. The Group has also experienced some challenges in sustaining sales rates during a period of considerable and rapid organisational change. This deterioration in sales accelerated during December, with sales per working day in the month around a quarter lower than November.
Management initiated several profit protection measures through the autumn to help offset the impact of the challenging market conditions with most of these delivering financial benefit in 2020, not in 2019 as previously expected. As a result, the Board now anticipates underlying profit before tax for the year ended 31 December 2019 of c.£42m1.
The key challenge for the Group in 2020 is to deliver a return to top line growth. Management is taking a number of actions to address sales performance which, coupled with profit protection actions taken in recent months and the annualised benefit of the broader transformation, will leave the Group well placed to capitalise on any recovery in trading conditions.
Operating performance
The Group saw a 6.1% decline in its like-for-like2 revenues over the year. Group revenues from continuing operations were 7.4% lower in the period, including an adverse 0.8% currency movement and a 0.5% impact from fewer working days.
| Like-for-like sales growth | H1 2019 | H2 2019 | FY 2019 |
| SIG Distribution | (16.6%) | (26.0%) | (21.1%) |
| SIG Exteriors | (6.3%) | (10.8%) | (8.6%) |
| Ireland & Other UK | (6.6%) | 0.1% | (3.4%) |
| UK & Ireland | (12.5%) | (18.6%) | (15.5%) |
| France | 3.3% | 1.1% | 2.2% |
| Germany | 0.0% | (5.1%) | (2.6%) |
| Poland | 6.3% | (1.5%) | 2.1% |
| Air Handling | 7.6% | 4.3% | 5.6% |
| Benelux | (1.4%) | (5.2%) | (3.3%) |
| Mainland Europe | 3.2% | (0.7%) | 1.2% |
| Group | (3.8%) | (8.3%) | (6.1%) |
1: Underlying profit before tax stated before IFRS 16 adjustments, including profit before tax for the Air Handling Division and the Building Solutions business and excluding impairment and other non-underlying profits and losses.
2: Like-for-like is defined as sales per day in constant currency excluding completed acquisitions and disposals and adjusted for the number of working days. Sales are not adjusted for branch closures or openings. Numbers include sales from the Air Handling Division and the Building Solutions business.
Disposals and balance sheet
Further reductions in levels of working capital have helped the Group to reduce its net debt at 31 December 2019 to c.£162m (2018: £189m), with debt factoring also reduced to c.£26m at the year end (2018: £50m).
The announced disposals of the Group’s Air Handling division and its Building Solutions business will generate c.£204m of net proceeds and complete the transition to a robust balance sheet, delivering a net cash position on a pro forma basis and provide flexibility for increased investment and returns to shareholders. Following receipt of shareholder approval, the disposal of the Air Handling Division is now expected to complete later this month, with the disposal of the Group’s Building Solutions business also expected to complete during the first quarter, subject to competition clearances.
These disposals enable the Group to focus on its leading positions as a specialist distributor of insulation and interiors products which operates in seven countries across Europe and a merchant of roofing and exteriors products in the UK and France.
Following completion of these disposals, SIG plc intends to terminate its remaining debt factoring arrangements and to target headline financial leverage, pre IFRS 16, of approximately 0.5x EBITDA (31 December 2018: 1.8x).
