What does selling loft insulation have in common with flogging boxes of cornflakes?
Not much, as it turns out. Last year Sheffield building products company SIG finally woke up to this fact. Chief executive Stuart Mitchell, a former Sainsbury’s veteran who had run SIG since 2013, was shown the door after a spell of dire trading.
SIG, the biggest supplier of insulation in Europe, had been brought low by a combination of weakening consumer confidence and self-inflicted problems, culminating in November’s profit warning.
Analysts point to an array of issues: trying to play hardball with suppliers such as cement giant Lafarge, and failing miserably; a loose and federated management structure that Mitchell inherited; and trying to roll out too many initiatives at once. The chill that has blown through the construction market since the Brexit vote only added to its woes.
Since Mitchell’s exit, however, things have started looking up for the 60-year-old company. Its shares have soared since November, climbing 70% to value it at £880m. A new boss, Meinie Oldersma, joined in April and brought a fan club with him. When he invited analysts and brokers round for an introductory drink after May’s shareholder meeting, more than 20 lined up to meet him.
These are far from ideal conditions to be restructuring a £2.9bn insulation company, but Oldersma has pedigree. He has turned around 13 distributors, mainly owned by private equity, and is said to reckon SIG will be relatively simple by comparison. He has a credible new finance director alongside him: Nick Maddock was finance chief at retirement home builder McCarthy & Stone.
Oldersma wants to cut debt, which stood at £260m in December, but should avoid a dilutive rights issue by focusing on cash generation, costs and working capital. Assets will be sold, acquisitions halted and he has slashed the dividend.
All noble stuff, but where does SIG go from here? Oldersma also has pedigree in selling companies, guiding industrial parts company Brammer into a takeover last year after a brief stint as chief executive. SIG looks vulnerable to something similar. Grafton, its Irish rival, would make a decent partner, while 7.3% shareholder IKO Enterprises, a Canadian insulation supplier, has been quietly building its stake. Maybe it’s time to join Oldersma’s fan club. Buy.
