UPDATE 1-Building products supplier SIG's profit up as UK housing recovers

(Corrects CEO name to Stuart Mitchell, not Stuart Mitchelle throughout story)

* Full-year pretax profit rises 5.3 pct

* Sales from continuing operations increase 4.4 pct

* Final div 2.40 pence, total div 3.55 pence vs 3.00

By Aashika Jain

March 13 (Reuters) - Building materials distributor SIG Plc (LSE: SHI.L - news) said full-year underlying pretax profit rose 5.3 percent as the UK residential construction market picked up in the second half of 2013.

The company, which operates in Europe as well as the UK, said it expected construction activity in the UK residential market to remain buoyant, with the non-residential sector continuing to be broadly flat.

Shares in the FTSE-250 component were down 0.35 percent at 200.9 pence in late morning trading on the London Stock Exchange (Other OTC: LDNXF - news) on Thursday.

Employment and output in Britain's construction sector in November was the highest since August 2007, according to Markit/CIPS construction PMI survey.

Britain's construction industry was hit hard by the financial crisis of 2007-09 but has been recovering since last year thanks to record low interest rates, government programmes to encourage people to buy new homes and falling unemployment.

SIG's underlying pretax profit rose to 88.1 million pounds ($146.3 million) in 2013 from 84.1 million pounds in 2012.

The company said full-year sales from continuing operations rose 4.4 percent to 2.6 billion pounds, helped by favourable exchange rates and acquisitions.

The euro firmed about 2.25 percent against the pound in 2013. SIG generates 52 percent of its revenue in Europe.

Sales in the UK, which accounts for about 48 percent of SIG's revenue, increased 5 percent despite a 60 percent drop in sales at SIG Energy Management, which provides insulation and other products to improve energy efficiency.

SIG blamed the fall on the end of a European program to reduce carbon emissions and the slow startup of other programs aimed at improving energy efficiency in buildings.

The company's gross margin in Britain and Ireland (Other OTC: IRLD - news) fell 26.20 percent from 26.60 in 2012. In Europe, the gross margin increased to 26.60 percent from 26.30.

"We continue to see a trend where the French construction markets are in total decline, and we are outperforming the market based on our specialist expertise," Chief Executive Stuart Mitchell told Reuters.

Mitchell said he expected this trend to continue in 2014.

After Great Britain, France is SIG's second-largest market.

COST CUTTING

SIG said it aimed to cut purchasing costs by 1.5 percent by 2016 as part of cost-cutting initiatives launched last year.

"(The initiatives) will ensure the group combined with some decent bolt-on opportunities will deliver better than average profit growth over the medium term," Peel Hunt analyst Clyde Lewis said in a note to clients.

The group sold its German underperforming roofing business last month but retained its insulation and interiors business in that country, which account for 17 percent of total revenue.

Like-for-like sales in Germany declined 3.4 percent due to weak demand for industrial insulation from power stations and the petrochemical sector, SIG said.

"We are looking hard at any underperforming business, and that is all we have got to say at this stage," Mitchell said without identifying any particular business.

However, he said the company was comfortable with its portfolio and the regions in which it operates.

An analyst who attended the company's post-earnings conference call said SIG was looking at 30-50 million pounds of bolt-on acquisitions this year.

Mitchell told Reuters the company was looking at expanding revenue from Poland, where key competitors Wolseley Plc (LSE: WOS.L - news) and France's Saint Gobain SA have exited the market.

SIG will pay a final dividend of 2.40 pence per share, bringing the total payout to 3.55 pence for the year, up from 3.00 pence in 2012.

($1 = 0.6022 British pounds) (Reporting by Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Ted Kerr)