ISG.L Regulatory News (ISG)

ISG plc

Trading Update

ISG plc (the "Group" or the "Company") today announces the following trading update.

Current Trading

The Group's UK Fit Out and Engineering Services, UK Retail and International divisions have performed well during the period and in aggregate for the half year have exceeded the Board's expectations. However, trading in UK Construction has been further adversely impacted by the performance of three contracts procured more than eighteen months ago that has offset these improvements.

Furthermore the Group is in protracted negotiations on one large construction contract entered into in 2012, and has decided to make a significant provision against this contract. As a consequence of this additional provision, the Board now expects the full year results from continuing operations to be c£7m below its expectations set at the time of the AGM statement announced on 5 December 2014.

UK Construction

The Group has been restructuring its UK Construction division over the past eighteen months. The trading update made today is a result of the completion of an internal contracts performance review within UK Construction (including the discontinued activities) in preparation for the Group's half year results by the recently appointed divisional managing director.

This review has focussed on the appropriateness of internal judgements and forecasts of contract recoveries. In particular the review has focussed on projects that were procured more than eighteen months ago when market conditions were less favourable, where there has been project deterioration and on the close out of outstanding contracts within previously discontinued operations.

Performance from ongoing activities in UK Construction in the first half of the current year, excluding the older contracts mentioned, has been profitable reflecting the Group's initiatives to improve procurement, bid and risk management. The business has continued to focus on winning work from repeat customers and frameworks, and on reducing open market tendering. Contracts procured since the start of the financial year continue to be secured on significantly improved terms.

Exceptional costs from Discontinued Operations

The Group also announces today that it is discontinuing its London Exclusive Residential activities at a cost of £6m and is making further provisions for increased losses of £11m related to the closure of its Tonbridge office and associated contracts announced last year.

The Board has

· decided to discontinue its London Exclusive Residential construction activities as the rewards do not meet the division's new bid and risk management policies. The provision reflects the losses incurred year to date and the Board's assessment of the costs to close its West End office and the remaining contracts. There are five larger contracts in this division of which two have achieved practical completion and the remaining three are due to complete within the next six months;

· continued to finalise the closure of its Tonbridge office. This closure has adversely impacted its ability to collect sums due on the remaining projects within this division. A substantial portion of the additional provision announced today reflects a more prudent assessment of the ultimate recoverability of project entitlements. All contractual entitlements continue to be vigorously pursued.

Financial Position

Net cash as at 31 December 2014 was £38m (2013: £33m). The Group continues to trade in line with normal seasonal cash flow trends and within its committed banking facilities which extend to March 2019 and expects to end the year with a similar net cash position as at the end of the first half.

Order Book and Outlook

The Group's order book remains robust at c£1bn as at 31 December 2014. The UK Fit Out and Engineering Services, UK Retail and International divisions are expected to continue to outperform in the second half supported by this robust pipeline and trading in UK Construction is expected to stabilise. With the actions that have been taken the Board anticipates that the Group's growth trajectory will return to the expected levels in 2015/16.

The interim results will be announced on 3 March 2015.

2 February 2015

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