Construction materials supplier SIG has issued a trading update in which is has downgraded it’s profit forecasts amid subdued demand and weaker business activity.

SIG, a pan-European company headquartered in the UK, supplies a wide range of construction and building materials, including VELUX windows, cladding and roofline products which supplies into the fenestration sector.

SIG trading update

Here is the statement they published this week:

SIG plc (“SIG”, or “the Group”), a leading supplier of specialist insulation and building products across Europe, issues a trading update for the year ending 31 December 2024 to date.

Key points

·   Market conditions have remained challenging, with Group like-for-like1 (“LFL”) sales decline vs prior year in May and June to date at c7%, which is similar to that seen in the first four months of the year, but behind expectations.

·   Given the weaker than expected trading in recent weeks and a consequently more cautious view of the timing of any potential market improvements during H2, the Board now expects our 2024 full year underlying operating profit2 to be in the range £20m-£30m, which is below the current analyst range.3

·   The Group continues to perform well relative to its markets and is also continuing to drive cost reductions and efficiency initiatives, which support the continued expectation of a stronger second half performance and will help drive higher profitability as markets recover.

·   Cash performance to date remains in line with expectations.

Summary

Subdued demand has continued to be a factor in the majority of the Group’s markets, reflecting the ongoing softness in the building and construction sector. This impact has been most notable in the French and German markets, and in the end markets of our UK Interiors business. Whilst we continue to see more robust demand in our Poland, Ireland and UK Exteriors businesses, Group sales overall were weaker than expected in May and June to date.

Despite the difficult market backdrop, the Group continues to make good progress on its strategic and operational initiatives. These have included permanent cost restructuring to lower central and operating company overheads, modernisation implementations which will lower our cost-to-serve and support higher margin sales mix, and more robust commercial execution, which has seen a continuation of the market share growth achieved over the last three years. The Group also continues to prioritise and demonstrate effective working capital and cash flow management, with year to date cash performance also reflecting normal seasonal trends and the lower profit, and our RCF remaining undrawn.

Outlook

Based on the  performance in the year to date, the Board now expects the Group to report an H1 2024 LFL sales decline of c7%, and an underlying operating profit in the range of £10m-£12m. Given the weaker than expected trading in recent weeks and a consequently more cautious view of the timing of any potential market improvements during H2, the Board now expects our full year 2024 underlying operating profit to be in the range of £20m-£30m, which is below the current analyst range. The increasing benefit from productivity and cost initiatives underpins our continued expectation of a stronger second half.  The extent of this improvement is subject to the evolution of demand conditions, particularly given market uncertainties in France and Germany, and recognising the sensitivity of operating profit to relatively small movements in sales.

Whilst market conditions remaining challenging in a majority of areas, the Board continues to expect its strategic and commercial initiatives to benefit medium term margin and profit growth, also supported by meaningful operating leverage when market volumes recover.

A trading update like this further demonstrates the difficult trading conditions construction-related businesses are operating in and the state of the overall economy. Although UK GDP rose in Q1 of this year, the latest data shows that recovery is already slowing, and I think anyone in the fenestration sector or other construction-related sectors can feel that sluggishness at the moment.

Another factor which won’t be helping is the election. A tweet and report from S&P Global showed a sharp drop in PMI and pre-election spending had been paused:

Ahead of any major vote, such as elections or referendums, the public tends to reign in their spending until the results are known. The same thing happened in the run up to the Brexit referendum, in which spending returned afterwards once the vote was conducted and the result was announced.

It is fairly illogical behaviour, as there is very likely to be no material change in people’s personal circumstances should Labour win power as expected. But, hesitation is a natural reaction to uncertainty and until we move past the vote economic activity is likely to remain subdued.

Read the full trading update here: https://otp.tools.investis.com/clients/uk/sig_plc/rns/regulatory-story.aspx?newsid=1834481&cid=296

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