SIG surges as annual profits rise but H1 LFL sales seen weaker

8th Mar 2019 08:03

(Sharecast News) - FTSE 250 building materials company SIG reported a rise in full-year profit on Friday as its transformation started to bear fruit, but warned that like-for-like sales in the first half of 2019 are likely to continuing declining amid "challenging" trading conditions.In the year to 31 December 2018, underlying pre-tax profit was up 8.5% to £75.3m, but revenue fell 1.2% to £2.68bn due to challenging market conditions and a focus on profitability over volume. Like-for-like sales were down 2.1%, versus a 3.5% increase the year before.Despite difficult conditions and lower revenue in the group's largest markets, SIG said its focus on pricing and profitability over volume allowed it to grow gross margins and gross profit, particularly in the UK insulation and interiors business, SIG Distribution. In addition, actions taken to reduce headcount and improve operational efficiency brought operating costs under tighter control, resulting in a reduction during the year. SIG said net debt fell sharply to £189.4m at the year-end versus £258.7m in 2017.The group declared a final dividend of 2.5p a share, taking the total dividend for the year to 3.75p, in line with 2017.Gross margins over the year increased to 26.7% from 26.4%, reflecting some initial benefit from price increases and the start of an initiative to reduce the exposure to low margin business. SIG also said on Friday that it was reviewing its options for its Air Handling business and has engaged financial advisers to help with the review.Chief executive officer Meinie Oldersma said: "As expected, our transformation strategy began to deliver during the year and we saw significant operational and financial progress in the second half. Despite challenging market conditions and lower revenue in our largest markets, our focus on pricing and profitability over volume, coupled with tighter control over operating costs, has enabled us to grow our gross margins and profit."Trading conditions remain challenging, with the outlook in many of our end markets uncertain, and the group expects continuing like-for-like sales declines in the first part of the year. Notwithstanding these headwinds, the margin and cost actions taken in 2018 give us good visibility of further significant progress in the current year." At 0825 GMT, the shares were up 9.7% to 134.10p.Peel Hunt said the results were "reassuringly in line with more to come"."While the trading outlook in terms of the group's end markets is mixed to slightly softer, we are leaving our forecasts of £88m and £100m profit before tax unchanged for 2019/20. The group expects the cost cutting benefits to continue coming through along with the gross margin changes the group has implemented."We think the shares will bounce a bit today despite stable forecasts as the market will have more belief in the recovery story going forward which sees the company trade on a growing discount to the sector over the next few years."