SIG warns of 'slightly lower' profits due to tough European market

12th Nov 2014 08:45

Insulation products supplier SIG said it continued to outperform the market since its interim results in August, but warned full year results would be slightly lower than previously thought due to tough European markets and foreign exchange effects.Like-for-like revenues for the period since 1 July were up 1.7% on last year but the FTSE 250 company said strong growth in the UK and Ireland and accelerated savings from its strategic initiatives would not be enough to offset the effects of weaker macroeconomic conditions in mainland Europe and forex headwinds."As a result, SIG continues to expect a year of good progress, albeit slightly lower than its previous expectations."The third quarter statement was otherwise broadly positive, with UK and Ireland continuing to lead the way thanks to their strong construction markets, particularly residential, with LFL sales increasing by 6.5% in the UK and by a huge 21.6% in Ireland. Trading conditions in continental Europe were a lot tougher, with Germany LFL sales down 4.1% and Poland down 9.8% as both were hard hit by a deteriorating macroeconomic environment and geopolitical worries. In the even tougher market of France, SIG was resilient in the face of a housing market that has suffered double-digit declines in new housing starts, with the division's LFL sales down by 2.9% in the period after rising 2.1$ in the first half.Further "good progress" was reported on the group's strategic initiatives, with a further £8m of procurement savings driving an improved benefit target from its initiatives towards the upper end of its £15m-£20m range. It is targetting £30m net benefit in 2016.These savings also meant gross margin benefited, increadign 50 basis points for the year to October.Net debt remains on track to be in-line with management's leverage target of roughly one times at the year end.Analyst Andy Brown at broker N+1 Singer downgraded his full year pre-tax profit forecasts by 2%, from £99m to £97m, and trimmed 5% off his 2015 numbers from £119m to £113m but remained positive on the stock.He said SIG's strong position as the leading supplier of insulation products in Europe, allied to scope for better performance thanks to the self-help initiatives meant the shares had an encouraging future."With volatile energy prices and increasing regulation insulation plays a key role; governments are concerned about energy supply so efficient management is increasingly important," he added."SIG has a large European presence and will be a major beneficiary of mainland economic recovery. Group margins are still trading well below historic peaks and this provides the operational gearing boost."