SIG PLC (LON:SHI) shares rose on Friday as the insulation materials supplier posted a 25% jump in 2018 profit as cost control and price hikes countered the weak demand in construction markets.
The FTSE 250-listed firm reported an underlying pre-tax profit, excluding property profits, of £72.7mln for the year ended December 31, up from £58.1mln a year earlier, in spite of like-for-like sales falling by 2.1%.
READ: SIG shares in the red as revenues hit by tough construction market
The group‘s 2018 revenue fell by 1.2% to £2.68bn, down from £2.72bn in 2017, but its underlying gross margin rose by 50 basis points to 26.7% as it reined in costs.
SIG said it expects to cut more costs in 2019 and added that it was reviewing options for its air handling unit, which provides services to improve air quality.
Meinie Oldersma, SIG’s chief executive officer, said: "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.”
He added: “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.”
The company is paying a final dividend of 2.5p per share, maintaining the total 2018 pay-out at 3.75p, unchanged from a year earlier.
In late afternoon trading, SIG shares were 7.6% higher at 131.50p.
Self-help measures improving profitability
Russ Mould, investment director at AJ Bell commented: “Some challenges are beyond the control of a company. For example, if you make building materials you are almost certain to be affected by sluggish construction markets at present.
“This is the case for Sheffield-headquartered SIG which sees lower like-for-like sales in the first half of 2019 following a fall in revenue in 2018.”
“However,” he added, “where management can make a difference they are doing so. Overheads are being lowered, middle management have been removed and poorly performing businesses have been sold.
“These self-help measures are improving profitability and robust cash flow is also enabling the company to get its net debt position under control.“
“This process could be accelerated if the company proceeds with a potential sale of its air handling business – which is focused on indoor air quality and is not an obvious fit with the rest of the business.
“Too much importance can be attached to scale and growth for its own sake when judging a company. SIG’s plan is to demonstrate that the best things really can come in smaller packages.”
-- Adds analyst comment, updates share price --