Construction firm SIG warns on profits amid weak UK building sector

The downturn in the UK construction sector was laid bare on Thursday as building materials specialist SIG issued its second profit warning since October.

Bosses at the FTSE 250 firm said underlying profits before tax for the year are now expected to be around £42 million, compared with analyst expectations of £68 million.

Following the announcement, shares plunged 24.5p, or 21%, to 94.7p by Thursday afternoon.

The company said: “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.”

It added that revenues for SIG’s distribution business fell 26% in the second half of 2019, with its exteriors roofing business down 10.8% during the period.

In total, UK and Ireland operations at SIG were down 15.5% for the year, with sales rising in France, Poland and the Benelux countries, and falling in Germany.

The big fall in UK sales was partly due to the company shifting away from low-margin work.

An agreed sale of the Air Handling and Building Solutions businesses will generate around £204 million and result in a net cash position by the end of June, the company added.

The construction sector has been one of the hardest hit in the UK economy in the past year, as the political and economic uncertainty from Brexit led to a contraction, according to analysts.

Earlier this month, the closely followed Markit/CIPS UK construction purchasing managers’ index (PMI) reported its eighth consecutive month of decline in the sector.

The reading for December was 44.4 for the month – anything below 50 is seen as a contraction – reflecting a slump from 45.3 in November.

The report highlighted a “sharp reduction” in construction output for December, which saw the sharpest decline in civil engineering activity for more than a decade.