SIG plc (LON: SIG), a leading supplier of specialist building materials to trade customers across Europe, today issued a trading update covering the period since the announcement of the 2019 half year results on 6 September 2019, together with an outlook for the full year 2019.
The Group has been reporting during the year a deterioration in the level of construction activity in key markets and highlighting a number of key indicators pointing to further weakening of the macro-economic backdrop, notably in the UK and in Germany. This deterioration in trading conditions has accelerated over recent weeks, and political and macro-economic uncertainty has continued to increase.
Management is taking ongoing actions to address the continuing market weakness. Further benefits from transformational initiatives and the Group’s normal seasonality are still expected to deliver a stronger second half. However, the recent further weakening of the trading backdrop as the Group has entered its traditionally strongest trading months of the year means that the Board is now anticipating, in both the specialist distribution and roofing merchanting businesses, significantly lower underlying profitability for the full year than its previous expectations.
The company went on to announce that it has entered into an agreement for the sale of Building Solutions Limited to Kingspan Group (specifically, Kingspan Holdings (Panels) Limited), a global leader in building envelope solutions based in Ireland, for a consideration of £37.5m on a cash free, debt free basis, following a competitive process.
Building Solutions is a leading UK manufacturer and distributor of building envelope solutions operating through its well-known brands, Steadmans, United Roofing Products, Trimform Products, and Advanced Cladding & Insulation.
In the year ended 31 December 2018, the Business reported revenue of c.£60.0m, operating profit of c.£3.3m and operating cash flow of c.£5.0m, with gross assets of c.£28.8m. This disposal represents an attractive valuation of approximately 11.4x 2018 operating profit.
The strategic review undertaken in 2017 identified the manufacturing focus and product offering of the Business as very different to that of the core SIG businesses. This divestment completes SIG’s medium-term strategy of disposing of peripheral, non-core businesses to refocus the Group’s portfolio and strengthen its balance sheet.
TRANSACTION HIGHLIGHTS
· The consideration of £37.5m, on a cash free, debt free basis, payable on completion (subject to customary adjustment), represents an attractive valuation of approximately 11.4x 2018 operating profit.
· It is intended that the net cash proceeds will be used to reduce the Company’s financial indebtedness, in line with the Group’s previously stated priority to reduce leverage.
· Completion is conditional on a satisfaction of certain conditions, the most significant of which is completing the Competition & Markets Authority’s clearance process.
Commenting on the Disposal, Meinie Oldersma, Chief Executive Officer of SIG Plc, 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 final announcement was that it has entered into an agreement for the sale of its Air Handling Division to France Air Management SA for an enterprise value of EUR 222.7m (£198.3m1) on a cash free, debt free basis.
TRANSACTION HIGHLIGHTS
· Enterprise value of EUR 222.7m (£198.3m)1 represents an attractive valuation of approximately 10.2×2 underlying operating profit.
· At least £130 million of the net cash proceeds will be used to reduce the Company’s financial indebtedness, in line with the Group’s previously stated priority to reduce leverage.
· The majority of any residual net cash proceeds will be used to make a return to shareholders. The Board will decide on the quantum, timing and method of the shareholder return following completion of the Disposal.
· The Disposal is conditional upon approval by SIG shareholders and certain anti-trust approvals, as well as being dependent upon completion of French works council consultations and employee related information processes.
· Completion is expected to occur in Q1 2020.
STRATEGIC HIGHLIGHTS
· The Disposal creates value for shareholders by enabling the Group to focus on its leading positions as:
(i) a specialist distributor of insulation and interiors products which operates in seven countries across Europe; and
(ii) a merchant of roofing and exteriors products in the UK and France.
· The Disposal provides a strengthened balance sheet and the flexibility to pursue further value creating investment opportunities in support of medium-term growth as appropriate.
· Following the Disposal the Group intends to terminate its debt factoring arrangements and to target headline financial leverage pre-IFRS 16 of approximately 0.5x EBITDA (30 June 2019: 1.4x).
· The Group continues to see benefits from transformational initiatives across its business and will continue to focus on its strategic levers of customer service, customer value and operational efficiency.
· SIG intends to hold a capital markets presentation in due course at which it will set out its strategy for future growth in its core distribution and merchanting businesses.
Commenting on the Disposal, Meinie Oldersma, Chief Executive Officer of SIG, said:
“We believe that the proposed sale of our Air Handling Division represents an attractive value for SIG’s shareholders. The Disposal is a result of continuing management actions in line with stated priorities to reduce financial leverage, to simplify the Group’s operations by exiting from non-core businesses and to deliver significantly improved operational and financial performance.
The Disposal enables SIG to become a more focused business, with leading positions and attractive medium-term growth prospects in its core markets, a strengthened balance sheet and the flexibility to pursue further value creating investment opportunities.”
The Disposal constitutes a Class 1 transaction for the purpose of the Listing Rules. A circular and notice of general meeting will be posted to shareholders in due course following completion of the French works council consultations and employee related information processes, and will be available for inspection at www.sigplc.com. A further announcement will be made on posting.
