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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sig Plc | LSE:SHI | London | Ordinary Share | GB0008025412 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -1.81% | 27.05 | 27.00 | 27.25 | 27.80 | 27.05 | 27.60 | 191,897 | 15:06:53 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Roofing & Siding-wholesale | 2.74B | 15.5M | 0.0134 | 20.45 | 316.51M |
From Apr 2019 to Apr 2024
TIDMSHI
RNS Number : 1990H
SIG PLC
09 March 2018
9 March 2018
SIG plc: Results for the year ended 31 December 2017
SIG plc ("SIG" or "the Group"), a leading European supplier of specialist building products with strong positions in its core markets of insulation and interiors, roofing and exteriors, and air handling, today issues its results for the year ended 31 December 2017 ("FY 2017").
Highlights
-- Business stabilising, balance sheet strengthening and portfolio being rationalised
-- Underlying revenue +7.4% and LFL(2) sales +3.8% (2016: +0.4%). Statutory revenue +1.2% (2016: +10.9%)
-- Underlying PBT of GBP79.2m (2016: GBP75.9m) in line with expectations -- Underlying PBT excluding property profits of GBP65.5m (2016: GBP72.6m) -- Statutory loss before tax of GBP51.2m after GBP130.4m of non-underlying items -- ROCE improved to 10.3% (2016: 10.2%)
-- Underlying basic EPS of 9.8p (2016: 9.7p). Statutory basic loss per share of 10.1p (2016: 20.6p)
-- Final dividend of 2.5p per share in line with 2-3x cover policy
-- Review of medium-term strategy complete - highly disciplined execution now key to delivering significant operational and financial improvement
Hot Features
Premium
2016
Underlying operations(1) 2017 Restated Change
----------------------------- ------------ ------------ --------
Revenue GBP2,778.5m GBP2,587.4m 7.4%
LFL(2) sales +3.8% +0.4% 340bps
Underlying(3) operating
profit GBP94.3m GBP89.7m 5.1%
Underlying(3) profit
before tax GBP79.2m GBP75.9m 4.3%
Underlying(3) profit
before tax excl. property
profi GBP65.5m GBP72.6m (9.8)%
Underlying(3) basic
earnings per share 9.8p 9.7p 0.1p
Cash inflow from trading GBP62.8m GBP95.2m (34.0)%
Return on sales 3.4% 3.5% (10)bps
Return on capital employed
(post-tax) 10.3% 10.2% 10bps
Net debt GBP223.8m GBP279.7m (20.0)%
Headline financial leverage
(net debt/EBITDA) 1.9x 2.4x (0.5)x
----------------------------- ------------ ------------ --------
Alternative performance measures are referred to as "underlying" and "like-for-like". These are applied consistently throughout this document and the calculations to these are found in Note 10 and below.
Statutory results 2017 2016
Restated
---------------------- ------------ ------------
Revenue GBP2,878.4m GBP2,845.2m
Operating loss GBP33.9m GBP94.7m
Loss before tax GBP51.2m GBP110.0m
Basic loss per share 10.1p 20.6p
Total dividend per
share 3.75p 3.66p
---------------------- ------------ ------------
Commenting, Meinie Oldersma, Chief Executive Officer, said:
"In a year of challenge and change for SIG, I am pleased to be reporting results for 2017 in line with expectations, delivering the first improvement in underlying operating profit for three years, including the benefit of property profits.
We have achieved much this year, beginning to stabilise the business, returning SIG Distribution to underlying profitability and rationalising the loss-making UK Offsite Construction division. We have begun to get a grip on operating costs and working capital and we have made significant steps in refocusing the portfolio, exiting from eleven businesses, as we continue to strengthen our balance sheet.
As the Group moves into 2018, we are seeing increasingly confident markets across Mainland Europe and Ireland, but also the first signs of capacity and labour constraint in buoyant construction markets. In contrast, we are seeing an increasingly challenging environment in the UK created by macro uncertainty and recent events in the construction industry. Notwithstanding this outlook, we see considerable potential for a significant improvement in operational and underlying financial performance, with execution largely within management's control, and we are working hard to ensure effective delivery."
Analyst presentation (9am today)
A briefing to analysts will take place today at 9am at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A live webcast of the presentation will be on www.sigplc.com, a replay of which will also be available later in the day.
1. Underlying operations excludes businesses sold or closed before 9 March 2018. Revenue and LFLs(2) differ from the January trading statement due to the exclusion of GRM, Building Systems and IBSL which have been disposed of since 9 January 2018.
2. Like-for-like (LFL) is defined as sales per working day in constant currency excluding acquisitions and disposals. Sales are not adjusted for branch openings or closures.
3. Underlying results are stated before the amortisation of acquired intangibles, impairment charges, losses on agreed sale or closure of non-core businesses and associated impairment charges, net operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, the defined benefit pension scheme curtailment loss, other specific items, unwinding of provision discounting, fair value gains and losses on derivative financial instruments, the taxation effect of other items and the effect of changes in taxation rates.
Enquiries
SIG plc Meinie Oldersma, Chief Executive Officer +44 (0) 114 285 6300 Nick Maddock, Chief Financial Officer +44 (0) 114 285 6300 Hilary Kendrick, Group Communications Director +44 (0) 114 285 6300 FTI Consulting Richard Mountain +44 (0) 20 3727 1340 Jefferies Hoare Govett Chris Dickinson / Paul Nicholls +44 (0) 20 7029 8000 Peel Hunt LLP Justin Jones / Charles Batten +44 (0) 20 7418 8900
Overall performance
In 2017, the Group delivered its first improvement in underlying operating profit in three years as well as an improvement in its underlying profit before tax ("PBT"), up 4.3% to GBP79.2m (2016: GBP75.9m). Progress has been made in the year against the Group's medium term financial targets of like-for-like sales and headline financial leverage, with return on sales and return on capital employed stabilised at similar levels to the prior year.
Medium term targets Target 2017 2016
--------------------- --------------- ------ ------
Market growth
Maintain
LFL sales growth market share +3.8% +0.4%
Return on sales c.5% 3.4% 3.5%
Return on capital
employed c.15% 10.3% 10.2%
Headline financial
leverage Under 1.0x 1.9x 2.4x
--------------------- --------------- ------ ------
Included in the underlying PBT for the year is GBP13.7m (2016: GBP3.3m) of property profits relating to ongoing property portfolio management. On a statutory basis, the Group made a loss before tax of GBP51.2m in the year (2016: GBP110.0m) after GBP130.4m of non-underlying items (2016: GBP185.9m).
FY 2017
FY 2017 Statutory
LFL sales sales
growth growth
-------------------- ----------- -----------
SIGD +2.3% +2.0%
SIGE (1.1)% (7.1)%
Ireland & Other UK +8.1% (40.2)%
-------------------- ----------- -----------
UK & Ireland +1.6% (7.5)%
-------------------- ----------- -----------
France +5.9% +12.1%
Germany +4.8% +4.9%
Poland +13.7% +24.1%
Air Handling +10.9% +18.1%
Benelux (4.3)% +2.0%
-------------------- ----------- -----------
Mainland Europe +5.9% +10.8%
-------------------- ----------- -----------
SIG Group +3.8% +1.2%
-------------------- ----------- -----------
Stabilising the business
Following a disappointing 2016, the Group has taken a number of preliminary actions over the past year to stabilise the business under its new leadership. In particular, management has restored customer focus by reducing the distraction from internal initiatives, is bringing operating cost increases under control, is starting to reduce levels of working capital and debt (including through debt factoring) and is simplifying the business through ongoing portfolio management.
Internal initiatives which have been stopped or slowed down during 2017, in order to free time for branch employees to refocus on customers, include the suspension of the Group's Regional Distribution Centre programme and the completion of the roll-out of a new ERP system across the core UK businesses. In combination with improving construction market conditions across Mainland Europe and Ireland, this renewed focus on our customers has helped the Group to deliver LFL sales growth of +3.8% in 2017 (2016: +0.4%).
The Group has also looked to address the rapid rise in costs across the business, eliminating duplication and reducing discretionary expenditure. Group functions have been significantly scaled back and a number of layers of management have been removed, including the UK & Ireland executive management team. The back office support functions for the insulation and roofing businesses in the UK have been combined and co-located in a single shared services centre in Sheffield. A number of headcount reductions have also been made in the back office team in Germany. The Group has terminated the lease on its corporate office in Paddington and will move to smaller, fit-for-purpose premises next month. SIG's historical head office in Hillsborough, Sheffield, has been sold and will be vacated later this year.
As a result, operating costs (excluding profits from property disposals) have now begun to fall as a percentage of underlying revenue, to 23.3% in the second half, from a peak of 23.9% in the first half. Further progress is expected in 2018, benefitting from the full year impact of actions taken during 2017, and from some further initiatives currently in progress.
Initial steps have also been taken to bring levels of working capital under control. Working capital as a percentage of sales fell from 9.9% at the end of 2016, to 9.0% at the end of 2017, benefitting from non-recourse debt factoring arrangements and other short term actions to improve the balance sheet. Management continues to focus on delivering sustainable improvements in the Group's level of working capital, in particular its levels of stock, with the aim of reducing average working capital levels throughout the year and beyond.
Subdued UK trading environment
The UK & Ireland business generated 1.6% like-for-like sales growth, primarily reflecting industry price inflation, with volumes falling 2.9%. Operating margins fell 50bps as the business only partially recovered the deterioration in performance seen in the second half of 2016.
UK trading conditions have become increasingly challenging in recent months, reflecting increased macro uncertainty and recent events in the construction industry. Whilst new housing starts continued to grow, RMI markets remained subdued and there have been some delays to new starts in commercial new build.
Return to underlying profitability in SIG Distribution
On 1 February 2018, the Group announced that it had identified accounting irregularities relating to rebates and other potential supplier recoveries at SIG Distribution, the core insulation and interiors business in the UK, resulting in an overstatement of profit for the years ended 31 December 2016 and 31 December 2015, further details of which are set out below. In addition, the business saw intensified competition and a weaker performance during 2016, resulting in the business falling into loss in the second half of the year.
From this loss making position, management has made some initial progress during 2017 in restoring underlying profitability to SIG Distribution. The business returned to underlying profitability in the first half of 2017 and delivered full year underlying operating profit of GBP9.9m (2016 restated: GBP18.2m) on revenue of GBP797.5m (2016: GBP781.2m).
The business has a new leadership team which is placing particular focus on operational efficiency through improved cost and working capital control, and on customer value from effective pricing pass-through and improved management of customer profitability. Following the accounting irregularities identified during the year, the team is also further developing the controls environment within SIG Distribution.
Although there remain competitive pressures in the UK specialist insulation and interiors sector, the business is optimistic that it can make further increases in profitability in 2018 at both a gross and operating margin level.
European recovery
The Group's Mainland Europe businesses benefitted from improving construction market confidence during 2017, with LFL revenues increasing by 5.9% for the full year. Underlying revenues increased by 12.8% to GBP1,473.2m (2016: GBP1,305.9m). Margins were largely in line with 2016 and, as a result, underlying operating profit increased by 23.5% to GBP59.4m (2016: GBP48.1m).
In particular, SIG France posted an improvement in underlying operating profit, up GBP1.8m on 2016 at GBP26.2m. Underlying revenues grew by 12.1% to GBP660.7m, with LFL sales in France up by 5.9%. SIG operates three market leading businesses in France, and management anticipates all three continuing to grow through 2018.
The Group's Air Handling business also finished the year on a record high, delivering growth of 22.2% in underlying revenues, benefitting from a healthy LFL sales growth of 10.9%. Management expects the air handling market to continue to outperform the wider construction sector due to continuing strong demand drivers, including higher energy efficiency and air quality standards.
As we move into 2018, the early signs are that the market confidence witnessed across our European businesses through 2017 is continuing and we do not expect any erosion in gross margin. However, management recognises that there were some indications of both labour and capacity constraint during the second half of the year, and so will continue to monitor developing trends closely.
Ongoing portfolio management
The Group's medium term strategy recognises that there are a number of smaller businesses which are peripheral to its core focus. Management has identified a number of these businesses as potential exit candidates, representing around 13% or GBP0.4bn of the statutory Group revenues (as reported at the FY 2016 results), either because they have limited fit with Group strategy or because their small scale is a management distraction. In many cases, these businesses are also suffering from poor financial performance.
At the end of FY 2016, the Group announced the disposal of Carpet & Flooring, a UK distributor of floor covering products, as well as the sale of its joint venture interest in Drywall Qatar, an independent materials supplier and specialist installer of interior finishing materials. During the first half of 2017, the Group closed Metechno, the offsite manufacturer of bathroom pods and utility cupboards (part of its UK Offsite Construction division) and exited its small scale Austrian operation, WeGo Systembaustoffe Austria. During the year, the Group also completed the disposal of Building Plastics, a leading provider of roofline, drainage and building plastics products to the UK construction industry.
The sale of SIG's majority shareholding in its small Air Handling business in Turkey, ATC Turkey, was also finalised in December 2017. In the same month, SIG Poland ceased the processing of insulation product at its Sitaco subsidiary.
Since the 2017 year end, the Group has confirmed the disposal of the trade and assets of SIG Building Systems, its UK modular offsite construction business, and also of GRM, a small manufacturer of phenolic pipe insulation serving the UK's industrial and HVAC markets. The Group has also disposed of IBSL, a UK fabricator and supplier of cryogenic and high-temperature insulation solutions used by the petrochemical, power generation and offshore exploration industries and SIG has recently announced the exit from its Dubai-based distribution business, SIG Middle East, which will be completed over the coming months.
A reconciliation of underlying revenue to statutory revenue for 2017 as a result of these portfolio changes is set out below, with the impact on 2016 comparatives also detailed in the Financial Review section.
2017 2016
GBPm Revenue Revenue
------------------------ --------- ---------
Underlying 2,778.5 2,587.4
Carpet & Flooring 11.4 97.5
Drywall Qatar 1.2 7.9
Metechno 1.3 3.3
WeGo Austria 7.6 27.6
Building Plastics 34.5 63.0
Middle East 19.5 30.4
ATC Turkey 12.0 14.2
Building Systems 8.0 9.2
GRM 2.6 2.6
IBSL 1.8 2.1
------------------------ --------- ---------
Sales attributable to
businesses identified
as non-core* 99.9 257.8
------------------------ --------- ---------
Statutory 2,878.4 2,845.2
------------------------ --------- ---------
*SIG also ceased the processing of insulation products at its Sitaco subsidiary in Poland. However, as it will still continue its distribution activities, the sales have not been reclassified.
In total, this means that the Group has exited 11 businesses since 2016, representing 9.1% of statutory Group revenue reported in the FY 2016 results. The Group continues to review its ownership of a number of other peripheral businesses, and will update on further changes to the portfolio in due course.
Rationalisation of UK Offsite Construction division
As part of the portfolio rationalisation, the Group continued to review the potential for sustainable profits from the UK Offsite Construction division during the year and, as a result, has now completed the exit from two of the three businesses in that division. The only remaining offsite construction business is RoofSpace, a panelised room-in-roof manufacturer serving the UK new build residential market, which continues to deliver above-market growth at attractive margins and has been transferred into SIG Distribution for management and reporting purposes.
Initial progress on leverage
At 31 December 2016, the Group reported headline financial leverage of 2.1x, based on net debt of GBP259.9m, and made leverage reduction a key priority for the Group during 2017. Management accordingly took a number of short term actions to strengthen the balance sheet, including asset disposals, debt factoring and a tighter control over cash, coupled with some short term working capital improvements and temporary constraints over capital expenditure. In the first half of the year, this enabled the Group to reduce headline financial leverage to 1.6x (as reported at the half year).
On 9 January 2018, the Group announced that it had identified a historical overstatement of net cash and trade payables related to cash cut-off procedures in SIG Distribution, associated with the issue of cheques around previous period ends. This resulted in an overstatement of net cash of GBP19.8m at 31 December 2016 which, when adjusted, led to a restated net debt at 31 December 2016 of GBP279.7m and headline financial leverage of 2.4x. The restated headline financial leverage at 30 June 2017 increased to 2.0x.
The Group ended the year with net debt of GBP223.8m and headline financial leverage of 1.9x, an improvement of 0.5x on the restated 2016 closing position. A reconciliation of the improvement in net debt in the year is set out below.
2016
GBPm 2017 Restated
----------------------------------- -------- ----------
Opening net debt (as previously
reported) (259.9) (235.9)
Historical overstatement of
net cash (19.8) (23.9)
Opening net debt (restated) (279.7) (259.8)
Cash inflow from trading* 62.8 95.2
Increase in working capital (11.8) (15.3)
Interest and tax (31.4) (22.1)
Maintenance capex (22.8) (29.5)
----------------------------------- -------- ----------
Free cash flow (3.2) 28.3
----------------------------------- -------- ----------
Investment capex - (10.4)
Dividends (18.2) (28.0)
Debt factoring 48.7 -
Sale of property and assets 34.6 39.5
Acquisitions including contingent
consideration (23.9) (29.6)
Exchange, fair value and other 17.9 (19.7)
----------------------------------- -------- ----------
Decrease/(increase) in borrowings 55.9 (19.9)
----------------------------------- -------- ----------
Closing net debt (223.8) (279.7)
----------------------------------- -------- ----------
Headline financial leverage 1.9x 2.4x
----------------------------------- -------- ----------
* Cash inflow from trading before the impact of Other items for the year ended 31 December 2017 was GBP106.2m (2016: GBP112.7m).
This is still considered by management to be a higher level of leverage than desirable, taking into account cyclical risk, and further leverage reduction remains a key priority. Accordingly, a number of actions have been initiated, with the aim of delivering sustainable reductions in levels of working capital, as well as seeking to monetise a number of businesses for cash proceeds as part of the refocusing of the portfolio.
These actions are expected to deliver further reductions in net debt during 2018 which, coupled with improvements in the level of profitability, mean the Group continues to target a 1.0-1.5x leverage range during the current financial year. SIG's infill acquisition programme remains suspended until leverage has been brought under control, and the Group continues to target leverage below 1.0x over the medium term.
Notwithstanding the current levels of leverage, the Group retains considerable headroom against its financing facilities, with total debt facilities of GBP553m as at 31 December 2017 (31 December 2016: GBP549m), and only GBP78m (2016: GBP162m) drawn from the Group's GBP350m Revolving Credit Facility at the year end.
Significant benefit from property profits
One of the actions taken by the Group to reduce leverage during 2017 was the sale of a number of properties across the Group's portfolio for a total net cash consideration of GBP33.4m (GBP5.7m being received in January 2018), and on which it realised an underlying profit of GBP13.7m and a non-underlying profit of GBP5.8m. The non-underlying element relates to the unutilised proportion of property and land and therefore not related to the ongoing operations of the Group.
Excluding the underlying property profits, SIG's underlying PBT was GBP65.5m (2016: GBP72.6m).
Non-underlying items
Following the extensive operational changes and portfolio management carried out during the year, SIG has sought to provide a clear understanding of the underlying and continuing performance of the businesses making up the Group, by separating and disclosing significant non-underlying items. Total non-underlying items during the year amounted to GBP130.4m (2016: GBP185.9m), on a pre-tax basis, and comprised:
-- Losses on agreed sale or closure of non-core businesses and associated impairment charges of GBP72.4m (2016: GBP40.1m), together with net operating losses from those businesses in 2017 of GBP14.3m (2016: GBP7.9m);
-- Amortisation of acquired intangibles of GBP9.3m (2016: GBP10.3m);
-- Impairment of GBP6.8m on the carrying value of the UK ERP system, Kerridge K8 (2016: GBPnil);
-- Net restructuring costs relating to the supply chain review and other restructuring costs of GBP21.1m (2016: GBP13.3m) and other specific items of GBP0.3m (2016: GBP8.7m);
-- Acquisition expenses and contingent consideration costs of GBP9.8m (2016: credit of GBP4.6m);
-- Fair value gains and losses and other finance charges of GBP2.2m (2016: GBP1.5m);
being offset by
-- Non-underlying profit on the disposal of property of GBP5.8m (2016: GBP2.8m).
The impact on net debt of these non-underlying items was GBP18.0m (2016: GBP44.4m).
SIG expects to disclose further non-underlying items in 2018, as management continues to restructure the Group and simplify its portfolio.
Strategy review - building on our potential
In parallel with operational improvements to stabilise the business, management conducted a review of the Group's strategy during 2017. This review concluded that there is considerable opportunity for a significant improvement in the operational and financial performance of the Group over the medium term. To deliver that improvement, management is focusing on the execution of initiatives across the operating companies in support of three key strategic levers: customer service, customer value and operational efficiency.
Customer service activities focus primarily on investment in sales capability and the effectiveness of the sales effort to deliver LFL sales growth and gross margin improvement. Customer value targets improved management of pricing and customer profitability, along with the development of the Group's specialist and own-label product offerings to further drive LFL sales growth and gross margin improvement. Operational efficiency seeks to deliver improved control over operating costs and working capital, to improve return on sales and return on capital employed.
Delivery of these initiatives is being supported by investment in three key enablers: data, IT and capability. During 2018, SIG is rolling out a consistent data foundation, making it easier to analyse and improve performance. In IT, SIG is working towards a common infrastructure and central portfolio management, with projects delivered under a standard framework, building a platform for future integration. In parallel, SIG is reinforcing the breadth and depth of its people and management capability to improve on a poor track record of delivering successful changes to the business.
During the initial weeks of 2018, the leadership team presented the strategy and detailed action plans directly across the operating companies to around 1,200 managers from eleven countries, followed by a cascade of the same key messages to all employees across the Group. All parts of the business have aligned around the key strategic priorities, with robust messaging about the need to simplify, focus and deliver. Performance management mechanisms have been revised to promote the strategy, with tools now in place for close monitoring and support, and the realignment of reward structures up and down the organisation.
There remains considerable work to be done to improve returns over the medium term and highly disciplined execution will be critical to success.
Current trading and outlook
It has been a year of challenge and change for SIG, reporting an underlying profit before tax of GBP65.5m, excluding property profits, for 2017.
As the Group moves into 2018, we are seeing increasingly confident markets across Mainland Europe and Ireland, but also the first signs of capacity and labour constraint in buoyant construction markets. In contrast, we are seeing an increasingly challenging environment in the UK, created by macro uncertainty and recent events in the construction industry. Notwithstanding this outlook, we see considerable potential for a significant improvement in operational and underlying financial performance, with execution largely within management's control, and we are working hard to ensure effective delivery.
The Group will provide a further update on trading and outlook on 10 May 2018, when it will hold its Annual General Meeting.
Dividend
In 2017, the Group delivered underlying earnings per share of 9.8p (2016: 9.7p). As a result, the Board is recommending payment of a final dividend for the year of 2.5p (2016: 1.83p) per share. Together with the interim dividend of 1.25p (2016: 1.83p) per share, this gives a total dividend for the year of 3.75p (2016: 3.66p) per share, in line with the Group's stated policy to target dividend cover in the range of 2-3x underlying earnings per share.
In determining the final dividend, the Board has considered the current defined benefit pension deficit and ongoing discussions with regard to the triennial valuation and recovery plan that is due to be finalised by the end of March 2018.
Subject to approval at the Group's Annual General Meeting, the final dividend is expected to be paid on 6 July 2018 to shareholders on the register at the close of business on 8 June 2018. The ex-dividend date will be 7 June 2018.
Financial performance
Overview
The Group delivered higher revenues and like-for-like sales growth which, together with return on sales at similar levels to 2016, enabled it to deliver an improved underlying operating profit performance for the first time in three years and an increased dividend. Net debt came down sharply, principally due to debt factoring and the sale of property, despite the adverse impact of a historical overstatement of net cash, meaning that headline financial leverage fell. Return on capital employed stabilised at a similar level to 2016.
Revenue and gross margin
Group revenue from underlying operations increased 7.4% to GBP2,778.5m (2016: GBP2,587.4m), benefitting from foreign exchange translation (+3.9%) and acquisitions (+0.2%), though offset by fewer working days (-0.5%). As a result, LFL sales were ahead by 3.8%. On a statutory basis, Group revenue was up 1.2% to GBP2,878.4m (2016: GBP2,845.2m).
In the UK & Ireland, revenue from underlying operations increased 1.9% to GBP1,305.3m (2016: GBP1,281.5m), benefitting from acquisitions (+0.2%) and foreign exchange translation (+0.5%), offset by fewer working days (-0.4%). LFL sales increased 1.6%. In Mainland Europe, revenue increased 12.8% to GBP1,473.2m (2016: GBP1,305.9m), benefitting from foreign exchange translation (+7.3%) and acquisitions (+0.2%), offset by fewer working days (-0.6%). LFL sales increased 5.9%.
Underlying operations excludes the results from the businesses divested during the year, or in the process of being divested as at 31 December 2017, in order to give a better understanding of the underlying earnings of the Group. These businesses reported a combined operating loss of GBP14.3m in 2017 (2016: GBP7.9m) on sales of GBP99.9m (2016: GBP257.8m).
The Group's underlying gross margin declined by 20bps to 26.5% (2016: 26.7%), due to a 40bps decrease in the UK & Ireland to 25.5% (2016: 25.9%), and by a 10bps decrease in Mainland Europe to 27.4% (2016: 27.5%). On a statutory basis, the Group's gross margin decreased by 20bps to 26.1% (2016: 26.3%). The decrease in gross margin in the UK & Ireland is largely attributable to the market and operational challenges at SIG Distribution, which had a significant impact on underlying profitability in the business from the second half of 2016, albeit with some initial recovery seen in 2017.
Operating costs and profit
SIG's underlying operating cost base, excluding the benefits of property profits, increased by GBP51.2m to GBP655.9m in 2017 (2016: GBP604.7m), due to a foreign exchange translation cost of GBP23.6m, the full year impact of additional costs from 2016 acquisitions of GBP3.2m, and other cost increases of GBP24.4m. As a result, operating costs (excluding property profits) as a percentage of sales increased from 23.4% in 2016 to 23.6% in 2017. Costs peaked in the first half of 2017 at 23.9% of sales.
The LFL sales growth and the favourable impact from the foreign exchange translation of improved European profitability were partially offset by lower gross margins and higher costs. This meant that the Group's underlying operating profit increased by 5.1% to GBP94.3m (2016: GBP89.7m) with the return on sales, one of the Group's primary performance metrics, decreasing 10bps to 3.4% (2016: 3.5%).
In the UK & Ireland, underlying operating profit fell 9.2% to GBP47.6m (2016: GBP52.4m) and the underlying operating margin declined 50bps to 3.6% (2016: 4.1%). In Mainland Europe, underlying operating profit increased by 23.5% to GBP59.4m (2016: GBP48.1m), including a GBP3.7m foreign exchange translation benefit, with the underlying operating margin increasing slightly, up 30bps, to 4.0% (2016: 3.7%). The Group made a statutory operating loss of GBP33.9m in 2017 (2016: GBP94.7m).
SIG's underlying net finance costs increased by GBP1.3m to GBP15.1m (2016: GBP13.8m), mainly due to higher average borrowings during the year, which offset some of the increase in operating profit, resulting in underlying profit before tax increasing 4.3% to GBP79.2m (2016: GBP75.9m). Excluding underlying property profits, underlying profit before tax declined 9.8% to GBP65.5m (2016: GBP72.6m). On a statutory basis, the Group made a loss before tax of GBP51.2m (2016: GBP110.0m) after non-underlying items of GBP130.4m (2016: GBP185.9m).
The Group's underlying tax charge for the year was GBP20.5m (2016: GBP18.1m), representing an underlying effective tax rate of 25.9% (2016: 23.8%). After Other items, the total tax charge decreased by GBP4.2m to GBP7.4m (2016: GBP11.6m).
Underlying basic earnings per share from underlying operations increased by 0.1p to 9.8p (2016: 9.7p). On a statutory basis, the Group made a basic loss per share of 10.1p (2016: 20.6p).
Return on Capital Employed
Post-tax Return on Capital Employed ("ROCE") is one of the Group's primary performance metrics and is calculated on a rolling 12 month basis as: underlying operating profit less tax, divided by average net assets, plus
average net debt. As at 31 December 2017, Group ROCE was 10.3% (2016: 10.2%).
This improvement primarily reflects reduced levels of working capital and debt at the year end, with working capital falling from 9.9% of sales in 2016 to 9.0% of sales at 31 December 2017, and debt falling from GBP279.7m to GBP223.8m.
Reported
Underlying operating
operating Underlying profit/
Revenue LFL Gross profit operating (loss)
(GBPm) Change change margin Change (GBPm) margin Change (GBPm)***
----------------- -------- -------- -------- -------- --------- ----------- ----------- --------- -----------
SIG
Distribution* 797.5 2.1% +2.3% 23.9% (60)bps 9.9 1.2% (110)bps (25.1)
SIG Exteriors* 409.5 (1.3)% (1.1)% 28.6% (20)bps 32.9 8.0% 60bps 2.8
Ireland
& Other
UK* 98.3 15.0% +8.1% 25.0% (70)bps 4.8 4.9% 60bps (39.9)
UK &
Ireland
before
non-core 1,305.3 1.9% +1.6% 25.5% (40)bps 47.6 3.6% (50)bps (62.2)
----------------- -------- -------- -------- -------- --------- ----------- ----------- --------- -----------
Non-core
businesses 80.3 (62.8)% n/a 13.7% (780)bps (13.7) (17.1)% n/a n/a
----------------- -------- -------- -------- -------- --------- ----------- ----------- --------- -----------
UK &
Ireland** 1,385.6 (7.5)% n/a 24.8% (50)bps 33.9 2.4% (50)bps (62.2)
----------------- -------- -------- -------- -------- --------- ----------- ----------- --------- -----------
UK & Ireland
* Before results attributable to businesses identified as non-core.
** On a statutory basis, 2017 revenue was GBP1,385.6m, operating loss was GBP62.2m and operating margin was (4.5)%. The Other division reported in previous years has been removed in 2017 as it primarily related to SIG's activities in the Middle East which are in the process of being closed. SIG Spain, which was also part of Other and had revenue of GBP1.8m in 2017 (2016: GBP1.5m), is now reported in SIG Distribution. The UK Offsite Construction division has also been removed as SIG has exited from two of the three businesses in that division, with the remaining business, RoofSpace, transferred to SIG Distribution for management and reporting purposes. RoofSpace had revenue of GBP17.6m in 2017 (2016: GBP15.0m).
*** Reported operating profits/(losses) are shown on a segmental basis including the operating result of the non-core businesses.
Underlying revenue in SIG Distribution, the Group's market leading specialist UK insulation and interiors distribution business was up 2.1% to GBP797.5m (2016: GBP781.2m) and by 2.3% on a LFL basis. The underlying operating margin for the full year of 1.2% represents a decline on 2016 (2.3%). As a result, underlying operating profit for the full year of GBP9.9m reflects a decline of 45.6% on 2016 (GBP18.2m). Excluding property profits, underlying operating profit decreased by 39.6% to GBP9.0m (2016: GBP14.9m). On a statutory basis, after taking into account Other items, SIG Distribution reported an operating loss of GBP25.1m (2016: operating profit GBP5.7m).
SIG Exteriors, the market leading and only national specialist UK roofing business, saw underlying revenues down by 1.3%, at GBP409.5m (2016: GBP414.8m), and by 1.1% on a LFL basis. As expected at the half year, trading conditions in the second half continued to be weak in the UK Repairs, Maintenance and Improvement ("RMI") sector, to which the business has a high degree of exposure. As a result, the business saw underlying operating profit fall by GBP5.3m to GBP25.2m. Including GBP7.7m of property profits recognised by the division, total underlying operating profit was GBP32.9m (2016: GBP30.5m).
In Ireland & Other UK, SIG grew underlying revenue by 15.0%, benefitting from foreign exchange translations, and by 8.1% on a LFL basis, as the business continues to benefit from favourable market conditions in Ireland. This helped the business grow underlying operating profit by GBP1.1m to GBP4.8m. On a statutory basis after taking into account Other items, Ireland & Other UK reported an operating loss of GBP39.9m (2016: GBP49.3m).
Mainland Europe
Underlying Reported
operating Underlying operating
Revenue LFL Gross profit operating profit
(GBPm) Change change margin Change (GBPm) margin Change (GBPm)***
--------------- -------- -------- -------- -------- -------- ----------- ----------- --------- -----------
France 660.7 12.1% +5.9% 27.6% (10)bps 26.2 4.0% (10)bps 25.2
Germany* 425.9 10.5% +4.8% 26.4% (50)bps 11.5 2.7% 70bps 9.1
Poland* 142.8 24.1% +13.7% 20.0% 0bps 1.0 0.7% (20)bps -
Air Handling* 142.1 22.2% +10.9% 38.4% 110bps 14.4 10.1% 90bps 5.2
Benelux 101.7 2.0% (4.3)% 25.8% 60bps 6.3 6.2% 210bps 1.5
Mainland
Europe
before
non-core 1,473.2 12.8% +5.9% 27.4% (10)bps 59.4 4.0% 30bps 41.0
--------------- -------- -------- -------- -------- -------- ----------- ----------- --------- -----------
Non-core
businesses 19.6 (53.1)% n/a 26.4% 140bps (0.6) (3.1)% (560)bps n/a
--------------- -------- -------- -------- -------- -------- ----------- ----------- --------- -----------
Mainland
Europe** 1,492.8 10.8% n/a 27.4% 0bps 58.8 3.9% 30bps 41.0
--------------- -------- -------- -------- -------- -------- ----------- ----------- --------- -----------
* Before results attributable to businesses identified as non-core.
** On a statutory basis, 2017 revenue was GBP1,492.8m, operating profit was GBP41.0m and operating margin was 2.7%.
*** Reported operating profits are shown on a segmental basis, including the operating result of the non-core businesses.
Revenue in France, where SIG operates three businesses (Larivière, the market leading specialist roofing business; LiTT, the leading structural insulation and interior business; and Ouest Isol/Ouest Ventil, a leading supplier of technical insulation and air handling products), increased by 12.1% to GBP660.7m (2016: GBP589.2m), having benefitted from foreign exchange translation. On a LFL basis, sales were up by 5.9%.
Improved market conditions in France have helped revenue this year, particularly in the residential sector, which accounts for 64% of revenue in the country. The business has also benefitted from some of the actions taken at LiTT to drive improved operational efficiency, which are now also being applied to the Larivière business. As a result, SIG France had a strong year, delivering underlying operating profit of GBP26.2m, up GBP1.8m on 2016.
Underlying revenue in Germany grew by 10.5% to GBP425.9m (2016: GBP385.6m), as it benefitted from foreign exchange translation. LFL sales grew by 4.8%, as the Group sought to improve its performance and to reposition the business towards the higher growth segments of the German market, such as the residential sector. Underlying operating profit increased by GBP3.8m to GBP11.5m (2016: GBP7.7m). Excluding property profits, underlying operating profit decreased by 9.1% to GBP7.0m (2016: GBP7.7m).
In Poland, SIG grew revenues by 24.1% to GBP142.8m, benefitting from strong sales performance and foreign exchange translation. Following last year's subdued performance, resulting from political and economic uncertainty, construction markets stabilised in the first quarter of 2017. There was then significant improvement during the remainder of the year, leading to a 13.7% increase in SIG's LFL sales growth for the year. After operating cost inflation and other cost increases, the business delivered an underlying operating profit of GBP1.0m (2016: GBP1.1m).
Air Handling, the largest pure-play specialist air handling distributor in Europe, grew underlying revenue by 22.2% as it benefitted from a healthy LFL growth of 10.9%, and from acquisitions and foreign exchange translations. The air handling market continues to grow at a faster rate than the wider construction sector due to strong demand drivers, including higher energy efficiency and air quality standards. As a result, Air Handling delivered an improved underlying operating profit performance, up GBP3.6m to GBP14.4m.
The 2% increase in underlying revenue in the Benelux reflects foreign exchange translations, with LFL sales decreasing by 4.3%. Following a construction market recovery during 2016, conditions became tougher in 2017, with increased price competition for interior products and a weaker demand for technical insulation. However, robust cost management ensured that underlying operating profit improved by GBP2.2m to GBP6.3m.
Historical overstatements
On 9 January 2018, the Group announced that it had identified during initial year end close processes, historical overstatements of net cash and trade payables related to cash cut-off procedures, associated with the issue of cheques around previous period ends. There was no impact from this on the Group's income statement, but it resulted in an understatement of net debt of GBP19.8m (comprising GBP19.5m in SIG Distribution and GBP0.3m in Ireland) at 31 December 2016 and GBP27.2m at 30 June 2017 (GBP26.9m in SIG Distribution and GBP0.3m in Ireland).
As a result, net debt has been restated to GBP279.7m at 31 December 2016 (previously reported GBP259.9m) and to GBP193.4m at 30 June 2017 (previously reported GBP166.5m) and headline financial leverage has been restated to 2.4x at 31 December 2016 (previously reported 2.1x) and 2.0x at 30 June 2017 (previously reported 1.6x).
In addition, on 1 February 2018, the Group announced that following a whistleblowing allegation of potential accounting irregularity at SIG Distribution, it had identified that a number of balances relating to rebates and other potential supplier recoveries were overstated at 31 December 2016, in some cases intentionally. This resulted in an overstatement of profit for the year ended 31 December 2016 of GBP3.7m, with a further GBP0.4m overstatement of profit relating to the year ended 31 December 2015, and a further GBP2.5m overstatement of profit for the half year ended 30 June 2017.
Both of these overstatements have been restated in the results being presented today. In response to these issues, the Group has implemented a number of priority controls recommendations in relation to both rebates and cash. With support from KPMG, the Group has completed a review of financial reporting controls at SIG Distribution, which has identified no further material accounting cause for concern, although it has made some controls recommendations which are now being implemented. A number of employees are leaving the business following disciplinary investigations into the circumstances.
SIG is in the process of formalising and rolling out a key controls framework across the business to provide additional discipline around the appropriate design and effective operation of key controls going forward.
The Board is determined to hold itself and the broader Group to the highest standards of ethical and professional practice, and will not tolerate any breaches of these standards. Robust action has been taken by management, in conjunction with the Audit Committee, in relation to the controls issues identified during the year. The historical overstatements have been thoroughly investigated and reported, and we have moved swiftly and decisively to address these serious matters.
Impact of non-core businesses and historical overstatements
The revenue and profits of businesses that have been divested, closed or were under review at the year end, and which are therefore now being treated as non-underlying, are set out in the table below. The table also highlights the impact on profit of the historical overstatements, in order to derive comparatives for the underlying business:
GBPm FY 2016 HY 2017 FY 2017
-------------------------- --------------------- --------------------- ---------------------
Underlying Underlying Underlying
PBT Revenue PBT Revenue PBT Revenue
-------------------------- ----------- -------- ----------- -------- ----------- --------
Statutory Group
revenue as reported
at 2016 FY results n/a 2,845.2 Not applicable
-------------------------- ----------- -------- --------------------------------------------
Drywall Qatar(1) 2.8 (7.9) 1.4 (1.2) 1.4 (1.2) -------------------------- ----------- -------- ----------- -------- ----------- -------- Carpet & Flooring(1) 3.0 (97.5) 0.7 (11.6) 0.7 (11.4) -------------------------- ----------- -------- ----------- -------- ----------- -------- Underlying Group as reported at 2016 FY results 77.5 2,739.8 35.2 1,426.4 67.0 2,865.8 -------------------------- ----------- -------- ----------- -------- ----------- -------- Metechno(2) 0.1 (3.3) 3.4 (1.3) 3.4 (1.3) -------------------------- ----------- -------- ----------- -------- ----------- -------- WeGo Austria(2) (0.6) (27.6) 0.3 (7.5) 0.2 (7.6) -------------------------- ----------- -------- ----------- -------- ----------- -------- Building Plastics(3) (2.9) (63.0) (1.0) (29.0) (0.9) (34.5) -------------------------- ----------- -------- ----------- -------- ----------- -------- Middle East(3) (0.9) (30.4) 0.4 (13.2) 0.7 (19.5) -------------------------- ----------- -------- ----------- -------- ----------- -------- Underlying Group as reported at 2017 HY results 73.2 2,615.5 38.3 1,375.4 70.4 2,802.9 -------------------------- ----------- -------- ----------- -------- ----------- -------- ATC Turkey(4) (0.2) (14.2) 0.3 (6.9) 0.4 (12.0) -------------------------- ----------- -------- ----------- -------- ----------- -------- Building Systems(5) 6.2 (9.2) 3.3 (4.2) 7.6 (8.0) -------------------------- ----------- -------- ----------- -------- ----------- -------- GRM Insulation(5) 0.6 (2.6) 0.3 (1.3) 0.8 (2.6) -------------------------- ----------- -------- ----------- -------- ----------- -------- IBSL(6) (0.2) (2.1) (0.1) (1.0) - (1.8) -------------------------- ----------- -------- ----------- -------- ----------- -------- Historical overstatement (3.7) n/a (2.5) n/a n/a n/a -------------------------- ----------- -------- ----------- -------- ----------- -------- Restated at 2017 FY results 75.9 2,587.4 39.6 1,362.0 79.2 2,778.5 -------------------------- ----------- -------- ----------- -------- ----------- --------
1. First announced at SIG's 2016 full year results on 14 March 2017.
2. First announced in SIG's AGM trading update on 11 May 2017.
3. First announced at SIG's half year results on 8 August 2017.
4. First announced in SIG's trading update on 9 January 2018.
5. First announced on 28 February 2018.
6. First announced in this statement.
Directors' Responsibility Statement on the Annual Report
The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2017. Certain parts solely thereof are not included within this announcement.
We confirm that to the best of our knowledge:
-- the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 8 March 2018 and signed on its behalf by:
Meinie Oldersma Nick Maddock Director Director 8 March 2018 8 March 2018
Cautionary Statement
This announcement has been prepared to provide the Company's Shareholders with a fair review of the business of the Group and a description of the principal risks and uncertainties facing it. It may not be relied upon by anyone, including the Company's Shareholders, for any other purpose.
This announcement contains forward-looking statements that are subject to risk factors including the economic and business circumstances occurring from time to time in countries and markets in which the Group operates and risk factors associated with the building and construction sectors. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied by the forward-looking statements. No assurance can be given that the forward-looking statements in this announcement will be realised. Statements about the Directors' expectations, beliefs, hopes, plans, intentions and strategies are inherently subject to change and they are based on expectations and assumptions as to future events, circumstances and other factors which are in some cases outside the Group's control. Actual results could differ materially from the Group's current expectations.
It is believed that the expectations set out in these forward-looking statements are reasonable but they may be affected by a wide range of variables which could cause actual results or trends to differ materially, including but not limited to, changes in risks associated with the level of market demand, fluctuations in product pricing and changes in foreign exchange and interest rates.
The Company's Shareholders are cautioned not to place undue reliance on the forward-looking statements. This announcement has not been audited or otherwise independently verified. The information contained in this announcement has been prepared on the basis of the knowledge and information available to Directors at the date of its preparation and the Company does not undertake any obligation to update or revise this announcement during the financial year ahead.
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Consolidated Income
Statement
for the year ended
31 December 2017
Other Other
Underlying* items** Total Underlying* items** Total
2017 2017 2017 2016 2016 2016
Restated Restated Restated
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---- ----------- -------- --------- ----------- -------- ---------
Revenue 2 2,778.5 99.9 2,878.4 2,587.4 257.8 2,845.2
Cost of sales (2,042.0) (83.9) (2,125.9) (1,896.3) (201.0) (2,097.3)
---------------------------- ---- ----------- -------- --------- ----------- -------- ---------
Gross profit 736.5 16.0 752.5 691.1 56.8 747.9
Other operating expenses (642.2) (144.2) (786.4) (601.4) (241.2) (842.6)
Operating (loss)/profit 94.3 (128.2) (33.9) 89.7 (184.4) (94.7)
Finance income 0.5 0.1 0.6 1.2 0.5 1.7
Finance costs (15.6) (2.3) (17.9) (15.0) (2.0) (17.0)
(Loss)/profit before
tax 79.2 (130.4) (51.2) 75.9 (185.9) (110.0)
Income tax (expense)/credit 3 (20.5) 13.1 (7.4) (18.1) 6.5 (11.6)
---------------------------- ---- ----------- -------- --------- ----------- -------- ---------
(Loss)/profit after
tax 58.7 (117.3) (58.6) 57.8 (179.4) (121.6)
Attributable to:
Equity holders of
the Company 57.7 (117.3) (59.6) 57.3 (179.4) (122.1)
Non-controlling interests 1.0 - 1.0 0.5 - 0.5
---------------------------- ---- ----------- -------- --------- ----------- -------- ---------
Loss per share
Basic and diluted
loss per share 4 (10.1)p (20.6)p
* Underlying represents the results before Other items.
** Other items relate to the amortisation of acquired
intangibles, impairment charges, losses on agreed sale
or closure of non-core businesses and associated impairment
charges, net operating losses attributable to businesses
identified as non-core, net restructuring costs, acquisition
expenses and contingent consideration, the defined
benefit pension scheme curtailment loss, other specific
items, unwinding of provision discounting, fair value
gains and losses on derivative financial instruments,
the taxation effect of Other items and the effect of
changes in taxation rates. Other items have been disclosed
separately in order to give an indication of the underlying
earnings of the Group.
All results are from continuing operations.
The 2016 results have been restated as noted in the
basis of preparation (Note 1) and set out in prior
year restatement (Note 11).
Consolidated Statement of Comprehensive
Income
for the year ended 31 December 2017
2017 2016
Restated
GBPm GBPm
--------------------------------------------- ------- ---------
Loss after tax (58.6) (121.6)
---------------------------------------------- ------- ---------
Items that will not subsequently
be reclassified to the Consolidated
Income Statement:
Remeasurement of defined benefit
pension liability 5.5 (12.5)
Deferred tax movement associated
with remeasurement of defined benefit
pension liability (0.9) 2.3
Effect of change in rate on deferred
tax (0.2) (0.5)
---------------------------------------------- ------- ---------
4.4 (10.7)
Items that may subsequently be reclassified
to the Consolidated Income Statement:
Exchange difference on retranslation
of foreign currency goodwill and
intangibles 5.4 33.6
Exchange difference on retranslation
of foreign currency net investments
(excluding goodwill and intangibles) 13.6 35.7
Exchange and fair value movements
associated with borrowings and derivative
financial instruments (9.2) (25.3)
Tax credit on exchange and fair
value movements arising on borrowings
and derivative financial instruments 1.8 6.3
Exchange differences reclassified
to the Consolidated Income Statement
in respect of the disposal of foreign
operations 0.1 -
Gains and losses on cash flow hedges 0.4 (3.8)
Transfer to profit and loss on cash
flow hedges 2.1 2.3
---------------------------------------------- ------- ---------
14.2 48.8
--------------------------------------------- ------- ---------
Other comprehensive income 18.6 38.1
---------------------------------------------- ------- ---------
Total comprehensive expense (40.0) (83.5)
---------------------------------------------- ------- ---------
Attributable to:
Equity holders of the Company (41.0) (84.0)
Non-controlling interests 1.0 0.5
---------------------------------------------- ------- ---------
(40.0) (83.5)
--------------------------------------------- ------- ---------
Consolidated Balance Sheet
as at 31 December 2017
2016
2017 Restated
Note GBPm GBPm
--------------------------------------- ----- -------- ----------
Non-current assets
Property, plant and equipment 102.4 127.3
Goodwill 312.2 352.7
Intangible assets 57.0 76.9
Deferred tax assets 22.6 17.2
Derivative financial instruments 0.1 4.4
Deferred consideration 1.4 -
495.7 578.5
--------------------------------------- ----- -------- ----------
Current assets
Inventories 243.5 250.6
Trade and other receivables 468.0 512.8
Current tax assets 5.2 3.2
Derivative financial instruments 1.2 0.1
Deferred consideration 0.1 0.7
Other financial assets - 1.1
Cash and cash equivalents 121.8 127.0
Assets classified as held for
sale 8 0.3 15.6
--------------------------------------- ----- -------- ----------
840.1 911.1
--------------------------------------- ----- -------- ----------
Total assets 1,335.8 1,489.6
--------------------------------------- ----- -------- ----------
Current liabilities
Trade and other payables 429.0 421.6
Obligations under finance lease
contracts 3.1 3.1
Bank overdrafts 29.6 22.7
Bank loans 84.2 171.6
Private placement notes 21.1 -
Loan notes and deferred consideration 17.0 2.7
Derivative financial instruments 0.2 0.2
Current tax liabilities 7.2 8.4
Provisions 12.0 14.5
Liabilities directly associated
with assets classified as held
for sale 8 0.1 15.6
--------------------------------------- ----- -------- ----------
603.5 660.4
--------------------------------------- ----- -------- ----------
Non-current liabilities
Obligations under finance lease
contracts 6.8 8.1
Bank loans - 0.3
Private placement notes 183.1 200.7
Derivative financial instruments 3.3 3.6
Deferred tax liabilities 13.4 15.2
Other payables 3.8 5.5
Retirement benefit obligations 30.4 37.1
Provisions 13.8 22.4
--------------------------------------- ----- -------- ----------
254.6 292.9
--------------------------------------- ----- -------- ----------
Total liabilities 858.1 953.3
--------------------------------------- ----- -------- ----------
Net assets 477.7 536.3
--------------------------------------- ----- -------- ----------
Capital and reserves
Called up share capital 59.2 59.1
Share premium account 447.3 447.3
Capital redemption reserve 0.3 0.3
Share option reserve 1.3 1.1
Hedging and translation reserve 19.6 7.9
Retained (losses)/profits (50.9) 19.8
--------------------------------------- ----- -------- ----------
Attributable to equity holders
of the Company 476.8 535.5
--------------------------------------- ----- -------- ----------
Non-controlling interests 0.9 0.8
--------------------------------------- ----- -------- ----------
Total equity 477.7 536.3
--------------------------------------- ----- -------- ----------
Consolidated
Statement
of Changes in
Equity
for the year
ended 31
December 2017
Called Hedging
up Share Capital Share and Retained
share premium redemption option translation (losses)/ Non-controlling Total
capital account reserve reserve reserve profits Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- --------
At 31 December
2015 (restated) 59.1 447.3 0.3 1.4 (42.4) 182.7 648.4 0.9 649.3
(Loss)/profit
after tax - - - - - (122.1) (122.1) 0.5 (121.6)
Other
comprehensive
income/(expense) - - - - 50.3 (12.2) 38.1 - 38.1 ------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- -------- Total comprehensive income/(expense) - - - - 50.3 (134.3) (84.0) 0.5 (83.5) Share capital issued in the year - - - - - - - - - Debit to share option reserve - - - (0.3) - - (0.3) - (0.3) Exercise of share options - - - - - - - - - Deferred tax on share options - - - - - (0.6) (0.6) - (0.6) Dividends paid to non-controlling interest - - - - - - - (0.6) (0.6) Dividends paid to equity holders of the Company - - - - - (28.0) (28.0) - (28.0) At 31 December 2016 (restated) 59.1 447.3 0.3 1.1 7.9 19.8 535.5 0.8 536.3 ------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- -------- (Loss)/profit after tax - - - - - (59.6) (59.6) 1.0 (58.6) Other comprehensive income - - - - 11.7 6.9 18.6 - 18.6 ------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- -------- Total comprehensive income/(expense) - - - - 11.7 (52.7) (41.0) 1.0 (40.0) Share capital issued in the year 0.1 - - - - - 0.1 - 0.1 Credit to share option reserve - - - 0.2 - - 0.2 - 0.2 Exercise of share options - - - - - - - - - Deferred tax on share options - - - - - 0.2 0.2 - 0.2 Dividends paid to non-controlling interest - - - - - - - (0.9) (0.9) Dividends paid to equity holders of the Company - - - - - (18.2) (18.2) - (18.2) ------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- -------- At 31 December 2017 59.2 447.3 0.3 1.3 19.6 (50.9) 476.8 0.9 477.7 ------------------ -------- -------- ----------- -------- ------------ ---------- -------- ---------------- --------
The share option reserve represents the cumulative equity-settled share option charge under IFRS 2 "Share-based payment" less the value of any share options that have been exercised.
The hedging and translation reserve represents movements in the Consolidated Balance Sheet as a result of movements in exchange rates which are taken directly to reserves.
Consolidated Cash Flow Statement
for the year ended 31 December
2017
2017 2016
Restated
Note GBPm GBPm
-------------------------------------- ----- -------- ---------
Net cash flow from operating
activities
Cash generated from operating
activities 5 99.7 79.9
Income tax paid (18.8) (9.6)
Net cash generated from operating
activities 80.9 70.3
-------------------------------------- ----- -------- ---------
Cash flows from investing activities
Finance income received 0.5 1.2
Purchase of property, plant
and equipment and computer
software (19.9) (37.5)
Proceeds from sale of property,
plant and equipment 34.6 39.5
Settlement of amounts payable
for purchase of businesses (6.9) (25.3)
Net cash flow arising on the
sale of businesses 17.6 -
-------------------------------------- ----- -------- ---------
Net cash generated from/(used
in) investing activities 25.9 (22.1)
-------------------------------------- ----- -------- ---------
Cash flows from financing activities
Finance costs paid (13.1) (13.7)
Capital element of finance
lease rental payments (3.5) (2.6)
Issue of share capital - -
Repayment of loans/settlement
of derivative financial instruments (87.9) (139.5)
New loans/settlement of derivative
financial instruments 0.2 166.1
Dividends paid to equity holders
of the Company 7 (18.2) (28.0)
Dividends paid to non-controlling
interest (0.9) (0.6)
Net cash used in financing
activities (123.4) (18.3)
-------------------------------------- ----- -------- ---------
(Decrease)/increase in cash
and cash equivalents in the
year (16.6) 29.9
-------------------------------------- ----- -------- ---------
Cash and cash equivalents at
beginning of the year 104.3 62.8
Effect of foreign exchange
rate changes 4.5 11.6
Cash and cash equivalents at
end of the year 92.2 104.3
-------------------------------------- ----- -------- ---------
1. Basis of preparation
The Group's financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and on a basis consistent with that adopted in the previous year.
The financial information has been prepared under the historical cost convention except for derivative financial instruments which are stated at their fair value.
Whilst the financial information included in this Preliminary Results Announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.
The Preliminary Results Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2017 and 31 December 2016 within the meaning of Section 435 of the Companies Act 2006 but is derived from those statutory accounts.
The Group's statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies, and those for 2017 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2017 and 2016, and their reports, which included no matters to which the Auditor drew attention by way of emphasis, were unqualified and did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the financial statements.
The following new and revised Standards and Interpretations have been adopted in the current period:
-- Annual Improvements to IFRSs 2014-2016 Cycle - various standards (amendments to IFRS 12 "Disclosure of Interests in Other Entities")
-- Recognition of Deferred Tax Assets for Unrealised Losses (amendments to IAS 12 "Income Taxes")
-- Disclosure initiative - amendments to IAS 7 ("Statement of Cash Flows")
Adoption of the above standards has not had a material impact on the Accounts of the Group.
At the date of authorisation of this financial information, there are a number of new standards and interpretations issued but not yet effective (some of which are pending endorsement by the EU), which the Group has not applied in this financial information. These are detailed in the Group's Annual Report and Accounts for the year ended 31 December 2017.
Prior year restatements
Following a whistleblowing allegation in SIG Distribution, the core insulation and interiors business in the UK, the Group has identified a historical overstatement of profit relating to the years ended 31 December 2016 and 2015 due to overstatement of balances recognised in relation to rebates receivable from suppliers. This error has been corrected by restating the prior year comparatives, reducing prepayments and accrued income (included with trade and other receivables) by GBP3.3m and trade and other liabilities by GBP0.8m at 31 December 2016 and prepayments and accrued income by GBP0.4m at 1 January 2016. The impact on the Consolidated Income Statement for the year ended 31 December 2016 is an increase in cost of sales (before Other items) of GBP3.7m resulting in an increase in operating loss and loss before tax of GBP3.7m and an increase in loss after tax of GBP3.0m. Net assets are GBP3.3m lower than previously reported at 31 December 2016 and GBP0.3m lower at 1 January 2016. There is no impact on the Consolidated Cash Flow Statement for the year ended 31 December 2016. The restatement increased basic and diluted loss per share from 20.1p per share to 20.6p per share for the year ended 31 December 2016. Notes 2, 3, 4, 5 and 10 have also been restated where relevant to incorporate these changes.
During 2017 year end close procedures the Group also identified a historical overstatement of cash and trade payables in relation to cash cut-off procedures associated with cheques issued around previous period ends. This error has been corrected by restating the prior year comparatives, reducing cash and cash equivalents (reduction in cash GBP0.6m and increase in bank overdrafts GBP19.2m) and trade payables by GBP19.8m at 31 December 2016. This restatement had no impact on the reported consolidated income statement or net assets. The consolidated cash flow statement has also been restated, with cash and cash equivalents at 1 January 2016 reduced by GBP23.9m to GBP62.8m and at 31 December 2016 by GBP19.8m to GBP104.3m, resulting in an increase in net cash generated from operating activities of GBP4.1m to GBP29.9m for the year ended 31 December 2016. Notes 2, 6 and 10 have also been restated to incorporate this adjustment.
The effect of the prior year restatement on each financial line item affected is shown in Note 11.
The above restatements impacted net debt and EBITDA which had an impact on leverage and interest cover covenant calculations, but the Group remained within covenant requirements for all relevant periods. Additional interest payable as a result of the restatements has been accrued for in this financial information.
Further details regarding the restatements are provided in the Audit Committee Report in the Group's Annual Report and Accounts for the year ended 31 December 2017.
2. Revenue and segmental information
Revenue
An analysis of the Group's revenue is as follows:
2017 2016
GBPm GBPm
------------------------------------- -------- --------
Sale of goods 2,814.1 2,786.8
Revenue from construction contracts 64.3 58.4
------------------------------------- -------- --------
Total revenue 2,878.4 2,845.2
------------------------------------- -------- --------
Finance income 0.6 1.7
Total income 2,879.0 2,846.9
------------------------------------- -------- --------
2. Revenue and segmental information
(continued)
a) Segmental
analysis
Segment revenues
and results 2017
UK & Ireland Mainland Europe
--------------------------------------------- ------------------------------------
SIG SIG Ireland Total France Germany Other Total Eliminations Total
Distribution Exteriors & Other Europe
UK
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------- ---------- -------- -------- ------- -------- ------- -------- ------------- --------
Revenue
Underlying
revenue 797.5 409.5 98.3 1,305.3 660.7 425.9 386.6 1,473.2 - 2,778.5
Revenue
attributable
to businesses
identified
as non-core 4.4 34.5 41.4 80.3 - 7.6 12.0 19.6 - 99.9
Inter-segment
revenue^ 15.3 5.2 - 20.5 12.5 0.2 0.6 13.3 (33.8) -
----------------- ------------- ---------- -------- -------- ------- -------- ------- -------- ------------- --------
Total revenue 817.2 449.2 139.7 1,406.1 673.2 433.7 399.2 1,506.1 (33.8) 2,878.4
----------------- ------------- ---------- -------- -------- ------- -------- ------- -------- ------------- --------
Result
Segment result
before
Other items 9.9 32.9 4.8 47.6 26.2 11.5 21.7 59.4 - 107.0
Amortisation of
acquired
intangibles (2.0) (4.9) (0.1) (7.0) (0.8) - (1.5) (2.3) - (9.3)
Impairment
charges (6.8) - - (6.8) - - - - - (6.8)
Losses on agreed
sale or closure
of
non-core
businesses
and associated
impairment
charges (7.6) (28.6) (31.9) (68.1) - (1.2) (3.1) (4.3) - (72.4)
Net operating
losses
attributable to
businesses
identified as
non-core (0.8) 0.9 (13.8) (13.7) - (0.2) (0.4) (0.6) - (14.3)
Net
restructuring
costs (16.8) (1.3) (0.8) (18.9) (0.2) (1.0) (1.0) (2.2) - (21.1)
Acquisition
expenses
and contingent
consideration (1.1) (1.6) 1.9 (0.8) - - (9.0) (9.0) - (9.8)
Other specific
items 0.1 5.4 - 5.5 - - - - - 5.5
----------------- ------------- ---------- -------- -------- ------- -------- ------- -------- ------------- --------
Segment
operating
(loss)/profit (25.1) 2.8 (39.9) (62.2) 25.2 9.1 6.7 41.0 - (21.2)
----------------- ------------- ---------- -------- -------- ------- -------- ------- -------- ------------- --------
Parent Company
costs (12.7)
--------
Operating loss (33.9)
--------
Net finance
costs
before Other
items (15.1)
Net fair value
losses
on derivative
financial
instruments (1.7)
Unwinding of
provision
discounting (0.5)
Loss before tax (51.2)
--------
Income tax
expense (7.4)
Non-controlling
interests (1.0)
--------
Loss for the
year (59.6)
--------
^ Inter-segment revenue is charged at the prevailing market rates.
2. Revenue and segmental information (continued)
a) Segmental
analysis
(continued)
Segment revenues
and results 2016
UK & Ireland Mainland Europe
--------------------------------------------- -------------------------------------
SIG SIG Ireland Total France Germany Other Total Eliminations Total
Distribution Exteriors & Other Europe
UK
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------- ---------- -------- -------- -------- -------- ------- -------- ------------- --------
Revenue
Underlying
revenue 781.2 414.8 85.5 1,281.5 589.2 385.6 331.1 1,305.9 - 2,587.4
Revenue
attributable
to businesses
identified
as non-core 4.7 63.0 148.3 216.0 - 27.6 14.2 41.8 - 257.8
Inter-segment
revenue^ 13.9 2.0 0.3 16.2 12.5 0.2 1.9 14.6 (30.8) -
----------------- ------------- ---------- -------- -------- -------- -------- ------- -------- ------------- --------
Total revenue 799.8 479.8 234.1 1,513.7 601.7 413.4 347.2 1,362.3 (30.8) 2,845.2
----------------- ------------- ---------- -------- -------- -------- -------- ------- -------- ------------- --------
Result
(restated)*
Segment result
before
Other items 18.2 30.5 3.7 52.4 24.4 7.7 16.0 48.1 - 100.5
Amortisation of
acquired
intangibles (2.2) (4.9) (1.0) (8.1) (0.8) - (1.4) (2.2) - (10.3)
Impairment
charges - - - - (100.4) - (10.2) (110.6) - (110.6)
Losses on agreed
sale or closure
of
non-core
businesses
and associated
impairment
charges - - (40.1) (40.1) - - - - - (40.1)
Net operating
losses
attributable to
businesses
identified as
non-core (0.4) 2.9 (11.2) (8.7) - 0.6 0.2 0.8 - (7.9)
Net
restructuring
costs (8.8) (0.2) (1.6) (10.6) (1.5) (0.7) (0.5) (2.7) - (13.3)
Acquisition
expenses
and contingent
consideration 5.3 (2.0) 1.4 4.7 - - (0.1) (0.1) - 4.6
Defined benefit
pension
scheme
curtailment
loss (0.9) - - (0.9) - - - - - (0.9)
Other specific
items (5.5) - (0.5) (6.0) - - 0.1 0.1 - (5.9)
----------------- ------------- ---------- -------- -------- -------- -------- ------- -------- ------------- --------
Segment
operating
(loss)/profit 5.7 26.3 (49.3) (17.3) (78.3) 7.6 4.1 (66.6) - (83.9)
----------------- ------------- ---------- -------- -------- -------- -------- ------- -------- ------------- --------
Parent Company
costs (10.8)
--------
Operating loss (94.7)
--------
Net finance
costs
before Other
items (13.8)
Net fair value
losses
on derivative
financial
instruments (1.9)
Unwinding of
provision
discounting 0.4
Loss before tax (110.0)
--------
Income tax
expense (11.6)
Non-controlling
interests (0.5)
--------
Loss for the
year (122.1)
--------
^ Inter-segment revenue is charged at the prevailing market rates.
The 2016 results have been restated as noted in the basis of preparation (Note 1) and set out in prior year restatement (Note 11).
2. Revenue and segmental information (continued)
a) Segmental
analysis
(continued)
Balance sheet 2017
UK & Ireland Mainland Europe
------------------------------------------- -----------------------------------
SIG SIG Ireland Total France Germany Other Total Total
Distribution Exteriors & Other Europe
UK
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------- ---------- -------- ------ -------- -------- ------- ------ --------
Assets
Segment assets 360.0 221.0 59.6 640.6 343.4 124.4 204.1 671.9 1,312.5
Unallocated assets:
Property, plant
and equipment 0.1
Derivative financial
instruments 1.3
Deferred -
consideration
Other financial -
assets
Cash and cash
equivalents 10.2
Deferred tax assets 0.2
Other assets 11.5
--------
Consolidated total
assets 1,335.8
--------
Liabilities
Segment liabilities 190.5 59.0 45.0 294.5 149.2 36.0 61.4 246.6 541.1
Unallocated
liabilities:
Private placement
notes 204.2
Bank loans 75.7
Derivative financial
instruments 3.5
Other liabilities 33.6
--------
Consolidated total
liabilities 858.1
--------
Other segment
information
Capital expenditure
on:
Property, plant
and equipment 6.5 2.3 1.1 9.9 5.4 2.1 2.0 9.5 19.4
Computer software 2.3 - - 2.3 0.2 0.1 0.6 0.9 3.2
Goodwill and
intangible
assets (excluding
computer software) - - - - - 0.1 - 0.1 0.1
Non-cash
expenditure:
Depreciation 7.7 1.9 1.2 10.8 6.0 3.0 3.1 12.1 22.9
Impairment of
property,
plant and equipment
and computer
software 7.6 - 2.7 10.3 - - 0.3 0.3 10.6
Amortisation of
acquired
intangibles
and computer
software 4.1 4.9 0.6 9.6 1.4 0.4 1.6 3.4 13.0
Impairment of
goodwill
and intangibles
(excluding computer
software) 5.6 - 1.0 6.6 - - - - 6.6
2. Revenue and segmental information (continued)
a) Segmental
analysis
(continued)
Balance sheet 2016
UK & Ireland Mainland Europe
------------------------------------------- -----------------------------------
SIG SIG Ireland Total France Germany Other Total Total
Distribution Exteriors & Other Europe
UK
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------- ---------- -------- ------ -------- -------- ------- ------ --------
Assets (restated)
Segment assets 391.9 283.0 109.4 784.3 351.3 130.0 201.1 682.4 1,466.7
Unallocated assets:
Property, plant
and equipment 0.9
Derivative financial
instruments 4.5
Deferred
consideration 0.7
Other financial -
assets
Cash and cash
equivalents 14.5
Deferred tax assets 2.3
Other assets -
--------
Consolidated total
assets 1,489.6
--------
Liabilities
(restated)
Segment liabilities 186.9 85.5 62.2 334.6 143.9 34.5 52.6 231.0 565.6
Unallocated
liabilities:
Private placement
notes 200.7
Bank loans 158.8
Derivative financial
instruments 3.8
Other liabilities 24.4
--------
Consolidated total
liabilities 953.3
--------
Other segment
information
Capital expenditure
on:
Property, plant
and equipment 14.2 3.4 4.1 21.7 3.9 5.3 2.8 12.0 33.7
Computer software 4.6 0.1 0.1 4.8 0.6 0.5 0.3 1.4 6.2
Goodwill and
intangible
assets (excluding
computer software) 6.1 4.1 0.4 10.6 1.4 - 6.5 7.9 18.5
Non-cash
expenditure:
Depreciation 10.5 2.4 1.5 14.4 5.1 3.4 3.1 11.6 26.0
Impairment of
property,
plant and equipment
and computer
software 8.2 - 3.8 12.0 - - - - 12.0
Amortisation of
acquired
intangibles
and computer
software 4.4 5.0 1.5 10.9 1.0 0.3 1.6 2.9 13.8
Impairment of
goodwill
and intangibles
(excluding computer
software) - - 22.0 22.0 100.4 - 10.2 110.6 132.6
*The 2016 results have been restated as noted in the basis of preparation (Note 1) and set out in prior year restatement (Note 11).
2. Revenue and segmental information (continued) b) Revenue by product group
The Group focuses its activities into three product sectors: insulation and interiors; roofing and exteriors; and air handling.
The following table provides an analysis of Group revenue by type of product:
2017 2016
GBPm GBPm
--------------------------------------- -------- --------
Insulation and interiors 1,718.9 1,571.1
Roofing and exteriors 814.5 808.9
Air handling 245.1 207.4
--------------------------------------- -------- --------
Total underlying 2,778.5 2,587.4
--------------------------------------- -------- --------
Attributable to businesses identified
as non-core 99.9 257.8
--------------------------------------- -------- --------
Total 2,878.4 2,845.2
--------------------------------------- -------- --------
c) Geographic information
The Group's revenue from external customers and its non-current assets (including property, plant and equipment, goodwill and intangible assets but excluding deferred tax, derivative financial instruments and deferred consideration) by geographical location are as follows:
2017 2016
---------------------- ----------------------
Non-current Non-current
Country Revenue assets Revenue assets
GBPm GBPm GBPm GBPm
---------------------------- -------- ------------ -------- ------------
United Kingdom 1,207.0 265.0 1,196.0 298.0
Ireland 98.3 2.8 85.5 2.7
France 660.7 126.0 589.2 124.6
Germany 425.9 18.5 385.6 21.7
Poland 142.8 6.7 115.1 6.9
Benelux* 243.8 52.3 216.0 52.3
------------ --------
Total continuing 2,778.5 471.3 2,587.4 506.2
---------------------------- -------- ------------ -------- ------------
Attributable to businesses
identified as non-core 99.9 0.3 257.8 50.7
---------------------------- -------- ------------ -------- ------------
Total 2,878.4 471.6 2,845.2 556.9
---------------------------- -------- ------------ -------- ------------
*Includes the Air handling business managed from The Netherlands.
There is no material difference between the basis of preparation of the information reported above and the accounting policies adopted by the Group.
3. Income tax
The income tax expense comprises: 2017 2016
Restated
GBPm GBPm
--------------------------------------------------------------------- ----- --------
Current tax
UK & Ireland corporation tax: - charge
for the year 0.6 0.1
- adjustments in respect of previous
years 0.2 -
--------------------------------------------------------------------- ----- --------
0.8 0.1
France corporation tax: - charge for
the year 7.0 6.5
- adjustments in respect of previous
years (0.2) -
--------------------------------------------------------------------- ----- --------
6.8 6.5
Germany corporation tax: - charge
for the year 2.8 1.8
- adjustments in respect of previous
years 0.2 -
--------------------------------------------------------------------- ----- --------
3.0 1.8
Other corporation tax: - charge for
the year 4.0 3.1
- adjustments in respect of previous
years 0.5 (0.6)
--------------------------------------------------------------------- ----- --------
4.5 2.5
--------------------------------------------------------------------- ----- --------
Total current tax 15.1 10.9
--------------------------------------------------------------------- ----- --------
Deferred tax
Current year (2.1) 1.1
Adjustments in respect of previous
years (6.9) (0.3)
Deferred tax charge in respect of
pension schemes* 0.3 0.2
Effect of change in rate 1.0 (0.3)
--------------------------------------------------------------------- ----- --------
Total deferred tax (7.7) 0.7
--------------------------------------------------------------------- ----- -------- Total income tax expense 7.4 11.6 --------------------------------------------------------------------- ----- --------
* Includes a charge of GBPnil (2016: GBP0.1m) in respect of the change in rate.
3. Income tax (continued)
As the Group's profits and losses are earned across a number of tax jurisdictions an aggregated income tax reconciliation is disclosed, reflecting the applicable rates for the countries in which the Group operates.
The total tax charge for the year differs from the expected tax using a weighted average tax rate which reflects the applicable statutory corporate tax rates on the accounting profits/losses in the countries in which the Group operates. The differences are explained in the following aggregated reconciliation of the income tax expense:
2017 2016
Restated
GBPm % GBPm %
------------------------------------------------- ------ ------ ------- ------
Loss on ordinary activities before tax (51.2) (110.0)
------------------------------------------------- ------ ------ ------- ------
Expected tax credit (2.5) 4.9 (31.1) 28.3
Factors affecting the income tax expense
for the year:
- expenses not deductible for tax purposes^ 3.9 (7.6) 9.0 (8.1)
- income non-taxable* (1.8) 3.5 (5.5) 5.0
- impairment and disposal charges not deductible
for tax purposes** 9.1 (17.9) 38.9 (35.4)
- losses arising in the year not recognised
for deferred tax purposes 3.3 (6.4) 1.4 (1.3)
- other adjustments in respect of previous
years*** (6.2) 12.1 (1.1) 1.0
- tax on branch profits 0.6 (1.2) 0.2 (0.2)
- effect of change in rate on deferred tax 1.0 (1.9) (0.2) 0.2
Total income tax expense 7.4 (14.5) 11.6 (10.5)
------------------------------------------------- ------ ------ ------- ------
^ The majority of the Group's expenses that are not deductible for tax purposes are primarily in relation to the divestments of businesses and contingent consideration adjustments.
* The majority of the Group's non-taxable income relates to French employment tax credits and to contingent consideration adjustments.
** During the year the Group incurred impairment charges of GBP6.0m and disposal costs of GBP39.5m in relation to goodwill (2016: GBP127.9m). These impairment and disposal charges are not deductible for tax purposes.
*** In the prior year the Group was in the process of disposing of a number of businesses and the tax deductibility and utilisation of the write downs was uncertain. Following an investigation of these matters with the Group's tax advisors it was determined that these expenses were tax deductible.
The effective tax rate for the Group on the total loss before tax of GBP51.2m is negative 14.5% (2016: negative 10.5%). The effective tax charge for the Group on profit before tax before Other items of GBP79.2m is 25.9% (2016: 23.8%), which comprises a tax charge of 27.9% (2016: 24.5%) in respect of current year profits and a tax credit of 2.0% (2016: 0.7%) in respect of prior years.
The factors that will affect the Group's future total tax charge as a percentage of underlying profits are:
- the mix of profits and losses between the tax jurisdictions in which the Group operates; in particular the tax rates in France, Germany and Belgium are relatively high when compared to the Group's underlying effective rate and so if the proportion of profits from these jurisdictions changes, this could result in a higher or lower Group tax charge;
- the impact of non-deductible expenditure and non-taxable income; - agreement of open tax computations with the respective tax authorities; and
- the recognition or utilisation (with corresponding reduction in cash tax payments) of unrecognised deferred tax assets.
On 26 October 2017, the European Commission ("EC") announced an investigation into the UK's controlled foreign company ("CFC") rules. The UK's CFC rules provide an exemption for 75% of the CFC charge where the CFC is carrying out financing activities. The EC is investigating whether the UK's exemption is in breach of EU State Aid rules. This exemption has been claimed by SIG and the Group is monitoring developments in relation to the EC's investigation. The Group does not currently consider that a provision against the potential liability is required.
In addition to the amounts charged to the Consolidated Income Statement, the following amounts in relation to taxes have been recognised in the Consolidated Statement of Comprehensive Income with the exception of deferred tax on share options which has been recognised in the Consolidated Statement of Changes in Equity.
2017 2016
Restated
GBPm GBPm
-------------------------------------------- ----- --------
Deferred tax movement associated with
remeasurement of defined benefit pension
liabilities* (0.9) 2.3
Deferred tax on share options 0.2 (0.6)
Tax (charge)/credit on exchange and
fair value movements arising on borrowings
and derivative financial instruments (1.8) 6.3
Effect of change in rate on deferred
tax* (0.2) (0.5)
-------------------------------------------- ----- --------
Total (2.7) 7.5
-------------------------------------------- ----- --------
*These items will not subsequently be reclassified to the Consolidated Income Statement.
4. (Loss)/earnings per share
The calculations of (loss)/earnings per share
are based on the following (losses)/profits
and numbers of shares:
Basic and diluted
----------------------------------
2017 2016
Restated
GBPm GBPm
----------------------------------------------- --- ------------------- -------------
Loss after tax (58.6) (121.6)
Non-controlling
interests (1.0) (0.5)
(59.6) (122.1)
--- ------------------- -------------
Basic and diluted
before
Other items
----------------------------------
2017 2016
Restated
GBPm GBPm
----------------------------------------------- --- ------------------- -------------
Loss after tax (58.6) (121.6)
Non-controlling
interests (1.0) (0.5)
Other items:
Amortisation of
acquired intangibles 9.3 10.3
Impairment charges 6.8 110.6
Losses on agree sale or closure
of non-core businesses and
associated impairment charges
(Note 8) 72.4 40.1
Net operating losses attributable
to businesses identified as
non-core (Note 8) 14.3 7.9
Net restructuring costs 21.1 13.3
Acquisition expenses and contingent
consideration 9.8 (4.6)
Defined benefit pension scheme
curtailment loss - 0.9
Other specific items (5.5) 5.9
Net fair value losses on derivative
financial instruments 1.7 1.9
Unwinding of provision discounting 0.5 (0.4)
Tax credit relating
to Other items (9.9) (5.9)
Effect of change
in rate on deferred
tax 1.0 (0.2)
Other tax adjustments in respect
of previous years (4.2) (0.4)
57.7 57.3
--- ------------------- -------------
Weighted average number
of shares
2017 2016
Number Number
------------------------------------------------ ------------------- -------------
For basic and diluted
earnings per share 591,489,053 591,365,906
2017 2016
Restated
Loss per share
Basic and diluted loss
per share (10.1)p (20.6)p
Earnings per share before
Other items^
Basic and diluted earnings
per share 9.8p 9.7p
------------------------------------------------ ------------------- -------------
^ Earnings per share before Other items (also referred to as underlying earnings per share) has been disclosed in order to present the underlying performance of the Group.
The impact of Other items on the Consolidated Income Statement, along with their associated tax impact, is disclosed in the table below:
2017 2016
Restated
------------------------ ------------------------
Other Tax Tax Other Tax Tax
items impact impact items impact impact
GBPm GBPm % GBPm GBPm %
---------------------------------- ------ ------- ------- ------ ------- -------
Amortisation of acquired
intangibles 9.3 1.9 20.4 10.3 2.1 20.4
Goodwill and intangible
impairment charges 6.8 1.3 19.1 110.6 - -
Losses on agreed sale or
closure of non-core businesses
and associated impairment
charges (Note 8) 72.4 2.0 2.8 40.1 0.9 2.2
Net operating losses attributable
to businesses identified
as non-core 14.3 1.4 9.8 7.9 (0.1) (1.3)
Net restructuring costs 21.1 4.1 19.4 13.3 2.9 21.8
Acquisition expenses and
contingent consideration 9.8 - - (4.6) - -
Defined benefit pension
scheme curtailment loss - - - 0.9 0.2 22.2
Other specific items (5.5) (1.1) 20.0 5.9 (0.5) (8.5)
---------------------------------- ------ ------- ------- ------ ------- -------
Impact on operating loss 128.2 9.6 7.5 184.4 5.5 3.0
Net fair value losses on
derivative financial instruments 1.7 0.3 17.6 1.9 0.4 21.1
Unwinding of provision
discounting 0.5 - - (0.4) - -
Impact on loss before tax 130.4 9.9 7.6 185.9 5.9 3.2
Effect of change in rate
on deferred tax - (1.0) - - 0.2 -
Other tax adjustments in
respect of previous years - 4.2 - - 0.4 -
Impact on loss attributable
to equity holders of the
Company 130.4 13.1 10.0 185.9 6.5 3.5
---------------------------------- ------ ------- ------- ------ ------- -------
5. Reconciliation of operating loss to cash generated from operating activities
2017 2016
Restated
GBPm GBPm
------------------------------------------ ------- ---------
Operating loss (33.9) (94.7)
------------------------------------------ ------- ---------
Depreciation 22.9 26.0
Amortisation of computer software 3.7 3.5
Amortisation of acquired intangibles 9.3 10.3
Impairment of computer software 6.8 7.9
Impairment of property, plant and
equipment 3.8 0.3
Goodwill and intangible impairment
charges (excluding computer software) 6.6 110.6
Losses on agreed sale or closure
of non-core businesses^ 63.6 40.1
Profit on sale of property, plant
and equipment (20.2) (8.5)
Share-based payments 0.2 (0.3)
Working capital movements:
Increase in inventories (0.3) (0.5)
Decrease/(increase) in receivables 30.3 (27.6)
Increase in payables 6.9 12.8
Cash generated from operating activities 99.7 79.9
------------------------------------------ ------- ---------
^ The total losses on agreed sale or closure of non-core businesses of GBP72.4m includes the GBP63.6m above, together with GBP6.6m in relation to impairment of Goodwill and GBP2.2m in relation to impairment of property, plant and equipment.
Included within the cash generated from operating activities is a defined benefit pension scheme employer's contribution of GBP2.5m (2016: GBP2.5m).
Of the total profit on sale of property, plant and equipment, GBP5.8m (2016: GBP2.8m) has been included within Other items of the Consolidated Income Statement.
Included within working capital movements are payments of GBP2.7m (2016: GBP6.1m) in settlement of contingent consideration dependent upon the vendors remaining with the business. Receivables have decreased due to debt factoring of GBP48.7m (2016: GBPnil).
6. Reconciliation of net cash flow to movements in net debt
2017 2016
Restated
GBPm GBPm
------------------------------------ -------- ---------
(Decrease)/increase in cash and
cash equivalents in the year (16.6) 29.9
Cash flow from decrease/(increase)
in debt 93.9 (19.5)
-------------------------------------- -------- ---------
Decrease in net debt resulting
from cash flows 77.3 10.4
Debt added on acquisition - (1.6)
Debt relating to divested
businesses 3.1 -
Recognition of loan notes (17.0) (2.7)
Non-cash items^ (3.3) (14.4)
Exchange differences (4.2) (11.6)
------------------------------------- -------- ---------
Decrease/(increase) in net debt
in the year 55.9 (19.9)
Net debt at 1 January (279.7) (259.8)
-------------------------------------- -------- ---------
Net debt at 31 December (223.8) (279.7)
------------------------------------- -------- ---------
^ Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow.
Net debt has decreased by GBP48.7m (2016: GBPnil) due to debt factoring.
Net debt is defined as follows:
2017 2016
Restated
GBPm GBPm
------------------------------------------- -------- ---------
Non-current assets:
Derivative financial instruments 0.1 4.4
Deferred consideration 1.4 -
Current assets:
Derivative financial instruments 1.2 0.1
Deferred consideration 0.1 0.7
Other financial assets - 1.1
Cash and cash equivalents 121.8 127.0
Current liabilities:
Obligations under finance lease contracts (3.1) (3.1)
Bank overdrafts (29.6) (22.7)
Bank loans (84.2) (171.6)
Private placement notes (21.1) -
Loan notes and deferred consideration (17.0) (2.7)
Derivative financial instruments (0.2) (0.2)
Non-current liabilities:
Obligations under finance lease contracts (6.8) (8.1)
Bank loans - (0.3)
Private placement notes (183.1) (200.7)
Derivative financial instruments (3.3) (3.6)
Net debt (223.8) (279.7)
------------------------------------------- -------- ---------
7. Dividends
An interim dividend of 1.25p per ordinary share was paid on 3 November 2017 (2016: 1.83p). The Directors have proposed a final dividend for the year ended 31 December 2017 of 2.5p per ordinary share (2016: 1.83p). The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in this financial information. Total dividends paid during the year, including the final dividend for 2016, were GBP18.2m (2016: GBP28.0m). No dividends have been paid between 31 December 2017 and the date of signing the Annual Report and Accounts.
At 31 December 2017 the Company has c.GBP53m of distributable reserves, as set out in the Company Financial Statements, and when required the Company can further increase these distributable reserves from appropriate repatriation of funds from subsidiary undertakings. Whilst the level of distributable reserves is sufficient to support the Group's dividend policy over the short term, the Directors intend to carry out a review during the coming year in order to optimise existing reserves.
8. Divestments and exit of non-core businesses
The Group has recognised a total charge of GBP72.4m (2016: GBP40.1m) in respect of "losses on agreed sale or closure of non-core businesses and associated impairment charges" within Other items of the Consolidated Income Statement.
Divested businesses
The Group has divested of the following businesses during the year:
Carpet & Flooring
As disclosed in the 2016 Annual Report and Accounts, at 31 December 2016 the Group Board had resolved to dispose of its UK specialist flooring distribution operation, Carpet & Flooring, and because a loss was anticipated the net assets of the business were impaired to reflect the estimated net proceeds. The disposal was completed on 28 February 2017 for consideration of GBP7.2m and resulted in a further loss on disposal within Other items in the Consolidated Income Statement in 2017 of GBP2.3m.
Drywall Qatar
As disclosed in the 2016 Annual Report and Accounts, at 31 December 2016 the Group Board had resolved to exit the Drywall Qatar business, and because a loss was anticipated the goodwill and fixed assets of the business were impaired. The disposal was completed on 27 March 2017. The Group has recognised further costs relating to the sale in the period ended 31 December 2017, and in accordance with IAS 21 "The Effects of Changes in Foreign Exchange Rates" the cumulative exchange differences on the retranslation of the net assets and goodwill intangibles of the business (GBP1.2m credit) have been reclassified to the Consolidated Income Statement, resulting in an overall net loss on disposal within Other items in the Consolidated Income Statement of GBP0.4m.
WeGo Austria
In May and June 2017 the Group sold certain trade and assets of WeGo Systembaustoffe Austria GmbH ("WeGo Austria") for consideration of GBP1.7m, and the entity has subsequently been liquidated, resulting in an overall loss on disposal within Other items in the Consolidated Income Statement of GBP1.2m.
Building Plastics
On 3 August 2017 the Group disposed of its UK building plastics distribution business ("Building Plastics"), part of the UK Exteriors division, for consideration of up to GBP20.3m, comprising an initial cash payment of GBP18.0m plus up to GBP2.3m of future consideration contingent on future performance of the business and payable in July 2019. The loss arising on disposal of GBP28.6m has been disclosed within Other items in the Consolidated Income Statement.
Air Handling Turkey
On 21 December 2017 the Group disposed of its shareholding in Air Trade Centre East BV and A.T.C. Air Trade Centre Havealandirma Aiatemieri Ticaret Limited Sirketi (together, "Air Handling Turkey"). Consideration for the sale was GBP3.1m, comprising an initial cash payment of GBP1.6m and GBP1.6m converted to a vendor loan repayable over 48 months from October 2018 which is recognised at the present value of future cash payments of GBP1.5m. The loss arising on disposal of GBP1.8m has been included within Other items in the Consolidated Income Statement. In addition, in accordance with IAS 21 "The Effects of Changes in Foreign Exchange Rates", the cumulative exchange differences on the retranslation of the net assets of the business (GBP1.3m debit) have been reclassified to the Consolidated Income Statement, resulting in an overall net loss on disposal within Other items in the Consolidated Income Statement of GBP3.1m.
8. Divestments and exit of non-core businesses (continued)
The net assets of the five businesses at the date of disposal were as follows:
Building Plastics Other
At date of disposal At 31 December 2016 At date of disposal At 31 December 2016
GBPm GBPm GBPm GBPm
-------------------------------- ------------------- ------------------- ------------------- -------------------
Attributable goodwill 39.0 39.0 0.8 -
Property, plant and equipment 0.5 1.0 1.3 1.5
Cash - - 8.6 0.1
Inventories 5.8 4.4 4.4 13.6
Trade and other receivables 0.7 0.5 13.8 19.7
Trade and other payables - - (9.6) (22.9)
Provisions - - - (0.1)
Bank and other loans - - (1.6) (0.1)
------------------- ------------------- ------------------- -------------------
Net assets 46.0 44.9 17.7 11.8
------------------- ------------------- ------------------- -------------------
Other costs 1.8 1.2
Provision release (1.2) -
Reclassification of cumulative
exchange differences to
Consolidated Income Statement - 0.1
Loss on disposal (28.6) (7.0)
------------------- -------------------
Sale proceeds 18.0 12.0
------------------- -------------------
Satisfied by:
Cash and cash equivalents 18.0 10.5
Deferred consideration (vendor
loan note) - 1.5
------------------- -------------------
18.0 12.0
------------------- -------------------
Other non-core businesses
The Group has also divested of or agreed to exit/divest from the following businesses:
Building Systems
On 28 February 2018 the Group agreed terms to sell the trade and assets of SIG Building Systems Limited ("Building Systems"), the Group's offsite manufacturer of modular housing, to Urban Splash House Limited and the sale completed on 2 March 2018. The assets of the business have been impaired to reflect the recoverable amount indicated by the consideration received in respect of the sale. The write-downs and provisions in anticipation of the sale of the business of GBP7.9m have been disclosed within Other items in the Consolidated Income Statement. The business did not meet the criteria under IFRS 5 to be classified as held for sale at 31 December 2017.
The associated assets and liabilities of the Building Systems business were as follows:
At 31 December 2017
--------------------------------------
Impairment Original At 31
Recoverable and asset carrying December
value write-down value 2016
GBPm GBPm GBPm GBPm
----------------------------- ------------ ------------ ---------- ----------
Property, plant and
equipment - (2.1) 2.1 2.5
Inventories - (1.1) 1.1 0.2
Trade and other receivables 2.9 (0.9) 3.8 4.0
Trade and other payables (4.3) (1.3) (3.0) (1.1)
------------------------------ ------------ ------------ ---------- ----------
Net (liabilities)/
assets (1.4) (5.4) 4.0 5.6
------------------------------ ------------ ------------ ---------- ----------
In addition to the impairment and asset write-down above, GBP2.5m of provisions have been recorded in the Consolidated Balance Sheet in relation to ongoing property costs to be incurred by the Group, resulting in a total loss arising in anticipation of the sale of GBP7.9m.
GRM
On 2 February 2018 the Group completed the disposal of GRM Insulation Solutions ("GRM"), a division of SIG Trading Limited and part of the UK Distribution CGU. The goodwill, fixed assets and inventories associated with the business of GBP4.4m have been impaired to reflect the recoverable amount indicated by the sale proceeds and further costs of GBP1.3m have been accrued in relation to the sale. The loss arising on the agreed sale of GBP5.7m has been disclosed within Other items in the Consolidated Income Statement. The business did not meet the criteria under IFRS 5 to be classified as held for sale at 31 December 2017. The recoverable value of net assets of GRM at the balance sheet date, after the impairments and write-downs noted above, is GBP0.1m of fixed assets.
Metechno
On 27 March 2017 the Directors of Metechno Limited, a subsidiary of the Group, commenced the orderly wind down of Metechno Limited. The assets of the business and associated goodwill have been impaired to reflect the recoverable amount indicated by the period end impairment review process, resulting in a total loss on wind down of GBP4.2m included in Other items in the Consolidated Income Statement.
Middle East
The Group has announced the closure of its business in the Middle East. The assets of the business and associated goodwill have been impaired to reflect the recoverable amount indicated by the period end impairment review process, resulting in a total loss on wind down of GBP17.1m (principally relating to provisions for trade receivables, provisions for inventories and stock provisions and other closure costs) included in Other items in the Consolidated Income Statement. The closing net liabilities in relation to the Middle East business included in the Consolidated Balance Sheet at 31 December 2017 are GBP5.1m (2016: net assets of GBP7.6m).
IBSL
On 2 March 2018 the Group completed the disposal of IBSL, a small industrial insulation division operated by SIG Trading Limited and part of the UK Distribution CGU. The assets of the business have been impaired to reflect the recoverable amount indicated by the sale proceeds less costs to sell of GBP0.1m, resulting in an impairment of goodwill and intangible assets associated with the business of GBP1.6m and write down of inventories of GBP0.2m. The assets and liabilities have been classified as held for sale on the Consolidated Balance Sheet at 31 December 2017 (comprising fixed assets of GBP0.2m, inventories of GBP0.1m and liabilities of GBP0.1m). The total loss arising on the agreed sale of GBP1.9m has been disclosed within Other items in the Consolidated Income Statement.
Manufacturing in Poland
In December 2017 the Group ceased the processing of insulation product at its Sitaco subsidiary in Poland. Costs in relation to the closure of GBP0.9m have been recognised and included within Other items in the Consolidated Income Statement. It is not possible to separately identify the revenue and operating results in relation to this closure as the business continues to perform distribution activities. Therefore no amounts have been included in Other items in relation to revenue and operating profit/loss in either of the 2017 or 2016 periods.
The impairments for Building Plastics, IBSL, GRM, Metechno and Building Systems were charged to administration expenses within the respective segments.
Contribution to Revenue and Operating loss
The results of the above businesses for the current and prior periods have been disclosed within Other items in the Consolidated Income Statement in order to provide an indication of the continuing earnings of the Group. The amounts contributed to Revenue and Operating profit/(loss) before Other items for the year ended 31 December 2017 and 2016 are as follows:
2017 2016
Revenue Net operating profit/(loss) Revenue Net operating profit/(loss)
GBPm GBPm GBPm GBPm
---------------------------------------- ------- --------------------------- ------- ---------------------------
Carpet & Flooring 11.4 (0.7) 97.5 (3.0)
Drywall Qatar 1.2 (1.4) 7.9 (2.8)
------- --------------------------- ------- ---------------------------
Businesses identified as non-core in
2016 12.6 (2.1) 105.4 (5.8)
Building Plastics 34.5 0.9 63.0 2.9
WeGo Austria 7.6 (0.2) 27.6 0.6
ATC Turkey 12.0 (0.4) 14.2 0.2
Building Systems 8.0 (7.6) 9.2 (6.2)
GRM 2.6 (0.8) 2.6 (0.6)
Metechno 1.3 (3.4) 3.3 (0.1)
Middle East 19.5 (0.7) 30.4 0.9
IBSL 1.8 - 2.1 0.2
------- --------------------------- ------- ---------------------------
Businesses identified as non-core in
2017 87.3 (12.2) 152.4 (2.1)
Total attributable to non-core
businesses 99.9 (14.3) 257.8 (7.9)
------- --------------------------- ------- ---------------------------
Cash flows associated with divestments and exit of non-core businesses
The net cash inflow in the year ended 31 December 2017 in respect of divestments and the exit of non-core businesses is as follows:
Air Handling
Carpet & Flooring Drywall Qatar WeGo Austria Building Plastics Turkey Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------------- ------------- ------------------ ------------------ ------
Cash consideration
received for
divestments 7.2 - 1.7 18.0 1.6 28.5
Cash at date of
disposal (6.6) (0.1) - - (1.9) (8.6)
Disposal cost paid (0.6) (0.1) (0.5) (1.1) - (2.3)
Net cash (outflow)/
inflow - (0.2) 1.2 16.9 (0.3) 17.6
The losses arising on the agreed sale or closure of non-core businesses and associated impairment charges, along with their results for the current and prior periods have been disclosed within Other items in the Consolidated Income Statement in order to present the underlying earnings of the Group.
Events after the Balance Sheet Date
The disposals of the Building Systems, GRM and IBSL businesses completed after the balance sheet date, as disclosed above. There are no other post balance sheet events.
9. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and have therefore not been disclosed.
SIG has a shareholding of less than 0.1% in a German purchasing co-operative. Net purchases from this co-operative (on commercial terms) totalled GBP318.5m in 2017 (2016: GBP283.8m). At the balance sheet date net trade payables in respect of the co-operative amounted to GBP10.1m (2016: GBP11.7m).
In 2017, SIG incurred expenses of GBP0.2m (2016: GBP0.3m) on behalf of the SIG plc Retirement Benefits Plan, the UK defined benefit pension scheme.
Remuneration of key management personnel
The total remuneration of key management personnel of the Group, being the Group Executive Committee members and the Non-Executive Directors, is set out below in aggregate for each of the categories specified in IAS 24 "Related Party Disclosures".
2017 2016
GBPm GBPm
Short-term employee benefits 6.2 3.9
Termination and post-employment benefits 2.4 0.8
IFRS 2 share option charge/(credit) 0.2 (0.1)
8.8 4.6
10. Non-statutory information
The Group uses a variety of alternative performance measures, which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful historical financial information to help investors evaluate the underlying performance of the business.
These measures, as shown below, are used to improve the comparability of information between reporting periods and geographical units, to adjust for Other items or to adjust for businesses identified as non-core to provide information on the continuing activities of the Group. This also reflects how the business is managed and measured on a day-to-day basis. Non-core businesses are those businesses that have been closed or disposed or where the Board has resolved to close or dispose of the businesses prior to signing the Annual Report and Accounts.
These measures are used by management for performance analysis, planning, reporting and incentive setting purposes and remain consistent year-on-year.
Information regarding covenant calculations (Notes 10a and 10c) is provided to show the financial measures used to calculate financial covenants as defined by the banking agreements.
a) Headline financial leverage covenant
The headline financial leverage covenant is one of the primary covenants applicable to the
Revolving Credit Facility and the private placement notes. The monitoring of this covenant
is therefore an important element of treasury risk management for the Group.
2016
2017 Restated
GBPm GBPm
Operating loss (33.9) (94.7)
Depreciation 22.9 26.0
Amortisation of computer software 3.7 3.5
Amortisation of acquired intangibles 9.3 10.3
Impairment charge 6.8 110.6
Losses on agreed sale or closure of non-core businesses and associated impairment charges
(note 8) 72.4 40.1
Net operating losses attributable to businesses identified as non-core* 14.3 5.8
Depreciation attributable to businesses identified as non-core* (0.8) (0.5)
Net restructuring costs 21.1 13.3
Acquisition expenses and contingent consideration 9.8 (4.6)
Defined benefit pension scheme curtailment loss - 0.9
Other specific items (5.5) 5.9
Annualised EBITDA impact of acquisitions - 0.3
Covenant EBITDA 120.1 116.9
*The 2016 covenant calculation has not been restated to reflect the decisions made to exit
non-core businesses after the signing of the 2016 Financial Statements (Note 8).
10. Non-statutory information (continued)
a) Headline financial leverage covenant (continued)
2016
2017 Restated
GBPm GBPm
Reported net debt 223.8 279.7
Other covenant financial indebtedness 11.8 3.5
Foreign exchange adjustment* (1.5) (6.4)
Covenant net debt 234.1 276.8
* For the purpose of covenant calculations, leverage is calculated using net debt translated
at average rather than period end rates.
2017 2016
Headline financial leverage (covenant net debt to covenant EBITDA - maximum 3.0x) 1.9x 2.4x
b) Post-tax Return on Capital Employed ("ROCE")
Return on capital employed is the ratio of operating profit less taxation divided by average
capital employed (average net assets plus average net debt). The ratio is used to understand
the value creation to shareholders and to understand how effectively the Group is using the
capital and resources it has available.
2016
2017 Restated
GBPm GBPm
Operating loss (33.9) (94.7)
Income tax expense (7.4) (11.6)
Operating loss after tax (41.3) (106.3)
2016
2017 Restated
GBPm GBPm
Operating loss (33.9) (94.7)
Amortisation of acquired intangibles 9.3 10.3
Impairment charges 6.8 110.6
Losses on agreed sale or closure of non-core businesses and associated impairment charges 72.4 40.1
Net operating losses attributable to businesses identified as non-core 14.3 7.9
Net restructuring costs 21.1 13.3
Acquisition expenses and contingent consideration 9.8 (4.6)
Defined benefit pension scheme curtailment loss - 0.9
Other specific items (5.5) 5.9
Underlying operating profit 94.3 89.7
Income tax expense (7.4) (11.6)
Tax credit associated with Other items (13.1) (6.5)
Underlying operating profit after tax 73.8 71.6
2017 2016
GBPm GBPm
Opening reported net assets (restated) 536.3 649.3
Opening reported net debt (restated) 279.7 259.8
Opening capital employed 816.0 909.1
Computer software impairment charges* (6.8) (14.7)
Goodwill and intangible impairment charges* - (110.6)
Losses on agreed sale or closure of non-core businesses and associated impairment charges* (72.4) (112.5)
Adjusted opening capital employed 736.8 671.3
10. Non-statutory information (continued)
b) Post-tax Return on Capital Employed ("ROCE")
2017 2016
GBPm GBPm
Closing reported net assets (2016 restated) 477.7 536.3
Closing reported net debt (2016 restated) 223.8 279.7
Closing capital employed 701.5 816.0
Computer software impairment charges* - (6.8)
Losses on agreed sale or closure of non-core businesses and associated impairment charges* - (72.4)
Adjusted closing capital employed 701.5 736.8
Average capital employed 758.8 862.6
Adjusted average capital employed* 719.2 704.1
* Capital employed has been adjusted to take into account the normalised impact of the goodwill
and intangible impairment charges, the profits and losses on agreed sale or closure of non-core
businesses and associated impairment charges (Note 8).
2016
2017 Restated
Unadjusted ROCE (operating loss after tax to average capital employed) (5.4)% (12.3)%
ROCE (underlying operating profit after tax to adjusted average capital employed) 10.3% 10.2%
c) Covenant interest cover ratio
The covenant interest cover ratio is one of the primary covenants applicable to the Revolving
Credit Facility and the Private Placement Notes. The monitoring of this covenant is therefore
an important element of treasury risk management for the Group.
2016
2017 Restated
GBPm GBPm
Operating loss (33.9) (94.7)
Add back:
Amortisation of acquired intangibles 9.3 10.3
Impairment charges 6.8 110.6
Losses on agreed sale or closure of non-core businesses and associated impairment charges
(Note 8) 72.4 40.1
Net restructuring costs 21.1 13.3
Defined benefit pension scheme curtailment loss - 0.9
Contingent consideration* 1.5 (4.7)
Other specific items** (5.5) 6.3
Consolidated EBITA 71.7 82.1
Finance costs 17.9 17.0
Finance income (0.6) (1.7)
Less:
Finance costs included within Other items (2.3) (2.0)
Finance income included within Other items 0.1 0.5
Interest costs arising on the defined benefit pension scheme (0.7) (0.5)
Covenant net interest payable 14.4 13.3
Interest cover ratio (consolidated EBITA to covenant net interest payable) 5.0x 6.2x
* This relates to the element of contingent consideration that is disallowed in the covenant
calculation.
** Other specific items in 2016 is adjusted for the charge relating to fair value gains and
losses on fuel hedging contracts of GBP0.4m. There were no contracts in 2017 and therefore
the charge in 2017 is GBPnil.
10. Non-statutory information (continued)
d) Underlying profit before tax excluding property profits
This is used to enhance understanding of the underlying financial performance of the Group
and to provide further comparability between reporting periods.
2016
2017 Restated
GBPm GBPm
Loss before tax (51.2) (110.0)
Amortisation of acquired intangibles 9.3 10.3
Impairment charges 6.8 110.6
Losses on agreed sale or closure of non-core businesses and associated impairment charges 72.4 40.1
Net operating losses attributable to businesses identified as non-core (Note 8) 14.3 7.9
Net restructuring costs 21.1 13.3
Acquisition expenses and contingent consideration 9.8 (4.6)
Defined benefit pension scheme curtailment loss - 0.9
Other specific items (5.5) 5.9
Net fair value losses and derivative financial instruments 1.7 1.9
Unwinding of provision discounting 0.5 (0.4)
Underlying profit before tax 79.2 75.9
Underlying property profits (13.7) (3.3)
Underlying profit before tax excluding property profits 65.5 72.6
e) Effective tax rates
The effective tax rate is a ratio of income tax expense to profit/(loss) before tax and is
used to assess SIG's contribution to corporate taxation across the tax jurisdictions in which
the Group operates.
2016
2017 Restated
GBPm GBPm
Loss before tax (51.2) (110.0)
Other items 130.4 185.9
Underlying profit before tax (d above) 79.2 75.9
2016
2017 Restated
GBPm GBPm
Income tax expense (7.4) (11.6)
Taxation credit associated with Other items (13.1) (6.5)
Underlying tax charge (20.5) (18.1)
2016
2017 Restated
Effective tax rate (income tax expense to loss before tax) (14.5)% (10.5)%
Underlying effective tax rate (underlying tax charge to underlying profit before tax) 25.9% 23.8%
f) Like-for-like working capital to sales ratio
Like-for-like working capital to sales ratio is the ratio of closing working capital (including
provisions but excluding pension scheme obligations) to annualised revenue (after adjusting
for any acquisitions and disposals in the current and prior year) on a constant currency basis.
The ratio is used to understand how effectively the Group is using the resources it has available.
2016
2017 Restated
GBPm GBPm
Current:
Inventories 243.5 250.6
Trade and other receivables 468.0 512.8
Trade and other payables (429.0) (421.6)
Provisions (12.0) (14.5)
Non-current:
Other payables (3.8) (5.5)
Provisions (13.8) (22.4)
Reported working capital 252.9 299.4
Working capital for non-core businesses 1.1 (37.7)
Foreign exchange adjustment* (2.9) 5.0
Adjusted working capital 251.1 266.7
* Working capital is translated at average rather than period end rates.
10. Non-statutory information (continued)
f) Like-for-like working capital to sales ratio (continued)
2017 2016
GBPm GBPm
Reported revenue 2,878.4 2,845.2
Revenue attributable to business identified as non-core (99.9) (257.8)
Pre-acquisition revenue of the current year acquisitions for the period from 1 January to
the acquisition dates - 4.9
Foreign exchange adjustment - 96.0
Adjusted revenue 2,778.5 2,688.3
2016
2017 Restated
Reported working capital to reported revenue 8.8% 10.5%
Like-for-like working capital to sales ratio (adjusted working capital to adjusted revenue) 9.0% 9.9%
g) Net capital expenditure and net capital expenditure to depreciation ratio
Net capital expenditure to depreciation ratio is the ratio of capital expenditure to depreciation.
The ratio is used to understand how investment in capital compares to the use of existing
assets.
Maintenance capital expenditure
2017 2016
GBPm GBPm
Property, plant and equipment additions (19.6) (33.7)
Computer software additions (3.2) (6.2)
Capital expenditure (22.8) (39.9)
Depreciation (22.9) (26.0)
Amortisation of computer software (3.7) (3.5)
Depreciation (including amortisation of computer software) (26.6) (29.5)
Maintenance capital expenditure* (22.8) (29.5)
*Where capital expenditure is equal to or less than depreciation (including amortisation of
computer software), all such capital expenditure is assumed to be maintenance capital expenditure.
To the extent that net capital expenditure exceeds depreciation, the balance is considered
to be investment capital expenditure.
Investment capital expenditure
2017 2016
GBPm GBPm
Property, plant and equipment additions (19.6) (33.7)
Computer software additions (3.2) (6.2)
Capital expenditure (22.8) (39.9)
Less:
Maintenance capital expenditure 22.8 29.5
Investment capital expenditure - (10.4)
Net capital expenditure
2017 2016
GBPm GBPm
Maintenance capital expenditure (above) (22.8) (29.5)
Investment capital expenditure (above) - (10.4)
Proceeds from sale of property, plant and equipment 34.6 39.5
Net capital expenditure 11.8 (0.4)
2017 2016
Capital expenditure to depreciation ratio 0.86x 1.35x
Net capital expenditure to depreciation ratio (0.44)x 0.01x
10. Non-statutory information (continued)
h) Gearing
Gearing is the ratio of net debt to net assets. It is used to understand the funding structure
of the Group and is an important part of the treasury risk management of the Group.
2016
2017 Restated
GBPm GBPm
Net assets 477.7 536.3
Net debt 223.8 279.7
Gearing (net debt to net assets ratio) 46.8% 52.2%
i) Cash inflow from trading
This is used to understand how the Group is generating cash from trading activities.
2016
2017 Restated
GBPm GBPm
Cash generated from operating activities 99.7 79.9
Addback:
Increase in inventories 0.3 0.5
(Decrease)/increase in receivables (30.3) 27.6
Increase in payables (6.9) (12.8)
Cash inflow from trading 62.8 95.2
j) Operating costs as a percentage of sales
This is a measure of how effectively the Group's operating cost base is being used to generate
revenue.
Six months Six months
ended ended
30 June 31 December Year ended 31 Six months ended Six months ended Year ended 31
2017 2017 December 2017 30 June 2016 31 December 2016 December 2016
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------
Statutory
revenue 1,439.2 1,439.2 2,878.4 1,375.2 1,470.0 2,845.2
Non-core
businesses (77.2) (22.7) (99.9) (122.6) (135.2) (257.8)
---------- ------------
Underlying
revenue 1,362.0 1,416.5 2,778.5 1,252.6 1,334.8 2,587.4
---------- ------------
Operating costs
(statutory) 381.9 404.5 786.4 325.4 517.2 842.6
Other items (64.6) (79.6) (144.2) (39.6) (201.6) (241.2)
---------- ------------
Underlying
operating costs 317.3 324.9 642.2 285.8 315.6 601.4
Property profits 8.2 5.5 13.7 2.5 0.8 3.3
---------- ------------
Underlying
operating costs
excluding
property
profits 325.5 330.4 655.9 288.3 316.4 604.7
Operating costs
as a percentage
of statutory
revenue 26.5% 28.1% 27.3% 23.7% 35.2% 29.6%
---------- ------------
Underlying
operating costs
excluding
property
profits as a
percentage of
underlying
revenue 23.9% 23.3% 23.6% 23.0% 23.7% 23.4%
---------- ------------
10. Non-statutory information (continued)
k) Like-for-like sales
Like-for-like sales is calculated on a constant currency basis, and represents the growth in the Group's sales per day excluding any acquisitions or disposals completed or agreed in the current and prior year. Revenue is not adjusted for organic branch openings and closures. This measure shows how the Group has developed its revenue for comparable business relative to the prior period. As such it is a key measure of the growth of the Group during the year.
Ireland
SIG SIG & Other UK & Air Mainland
Distribution Exteriors UK Ireland France Germany Poland Benelux Handling* Europe Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Statutory
revenue 2017 801.9 444.0 139.7 1,385.6 660.7 433.5 142.8 101.7 154.1 1,492.8 2,878.4
Non-core
businesses (4.4) (34.5) (41.4) (80.3) - (7.6) - - (12.0) (19.6) (99.9)
Underlying
revenue 2017 797.5 409.5 98.3 1,305.3 660.7 425.9 142.8 101.7 142.1 1,473.2 2,778.5
Statutory
revenue 2016 785.9 477.8 233.8 1,497.5 589.2 413.2 115.1 99.7 130.5 1,347.7 2,845.2
Non-core
businesses (4.7) (63.0) (148.3) (216.0) - (27.6) - - (14.2) (41.8) (257.8)
Underlying
revenue 2016 781.2 414.8 85.5 1,281.5 589.2 385.6 115.1 99.7 116.3 1,305.9 2,587.4
% change year
on year:
Underlying
revenue 2.1% (1.3)% 15.0% 1.9% 12.1% 10.5% 24.1% 2.0% 22.2% 12.8% 7.4%
Impact of
currency - - (7.2)% (0.5)% (7.0)% (7.0)% (10.8)% (6.3)% (7.6)% (7.3)% (3.9)% Impact of acquisitions (0.2)% (0.2)% (0.1)% (0.2)% 0.4% - - - (3.7)% (0.2)% (0.2)% Impact of working days 0.4% 0.4% 0.4% 0.4% 0.4% 1.3% 0.4% - - 0.6% 0.5% Like-for-like sales 2.3% (1.1)% 8.1% 1.6% 5.9% 4.8% 13.7% (4.3)% 10.9% 5.9% 3.8%
*represents the business managed from The Netherlands. Further Air Handling product category trading results are incorporated within the other operating segments.
l) Gross margin
Gross margin is the ratio of gross profit to revenue and is used to understand the value the Group creates from its trading activities.
Ireland
SIG SIG & Other UK & Air Mainland
Distribution Exteriors UK Ireland France Germany Poland Benelux Handling* Europe Group
% % % % % % % % % % %
Statutory
gross
margin
2017 23.9% 28.9% 16.8% 24.8% 27.6% 26.3% 20.0% 25.8% 37.7% 27.4% 26.1%
Impact of
non-core
businesses - (0.3)% 8.2% 0.7% - 0.1% - - 0.7% - 0.4%
Underlying
gross
margin
2017 23.9% 28.6% 25.0% 25.5% 27.6% 26.4% 20.0% 25.8% 38.4% 27.4% 26.5%
Statutory
gross
margin
2016 24.4% 29.2% 20.2% 25.3% 27.7% 26.6% 20.0% 25.2% 36.4% 27.4% 26.3%
Impact of
non-core
businesses 0.1% (0.4)% 5.5% 0.6% - 0.3% - - 0.9% 0.1% 0.4%
Underlying
gross
margin
2016 24.5% 28.8% 25.7% 25.9% 27.7% 26.9% 20.0% 25.2% 37.3% 27.5% 26.7%
*represents the business managed from The Netherlands. Further Air Handling product category trading results are incorporated within the other operating segments.
10. Non-statutory information (continued)
m) Operating profit before property profits
Ireland Total Total Parent
SIG SIG & Other UK & Other Mainland Company Total
Distribution Exteriors UK Ireland France Germany Europe Europe Costs Group
GBPm GBPm GBPm GBP'm GBPm GBPm GBPm GBPm GBPm GBPm
2017
Underlying revenue
(Note 2) 797.5 409.5 98.3 1,305.3 660.7 425.9 386.6 1,473.2 - 2,778.5
Underlying operating
profit (Note 2^) 9.9 32.9 4.8 47.6 26.2 11.5 21.7 59.4 (12.7) 94.3
Property profits (0.9) (7.7) - (8.6) (0.5) (4.5) (0.1) (5.1) - (13.7)
Underlying operating
profit before
property profits 9.0 25.2 4.8 39.0 25.7 7.0 21.6 54.3 (12.7) 80.6
^Underlying operating profit equals segmental result
before Other items
Return on sales* 1.2% 8.0% 4.9% 3.6% 4.0% 2.7% 5.6% 4.0% n/a 3.4%
Return on sales
(excluding property
profits)* 1.1% 6.2% 4.9% 3.0% 3.9% 1.6% 5.6% 3.7% n/a 2.9%
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2016
Underlying revenue
(Note 2) 781.2 414.8 85.5 1,281.5 589.2 385.6 331.1 1,305.9 - 2,587.4
Underlying operating
profit (Note 2^) 18.2 30.5 3.7 52.4 24.4 7.7 16.0 48.1 (10.8) 89.7
Property profits (3.3) - - (3.3) - - - - - (3.3)
Underlying operating
profit before
property profits 14.9 30.5 3.7 49.1 24.4 7.7 16.0 48.1 (10.8) 86.4
^Underlying operating profit equals segmental result
before Other items
Return on sales* 2.3% 7.4% 4.3% 4.1% 4.1% 2.0% 4.8% 3.7% n/a 3.5%
Return on sales
(excluding property
profits)* 1.9% 7.4% 4.3% 3.8% 4.1% 2.0% 4.8% 3.7% n/a 3.3%
* Return on sales is also referred to as underlying operating margin.
n) Other non-statutory measures
In addition to the alternative performance measures noted above, the Group also uses underlying EPS (as set out in Note 4) and underlying net finance costs.
11. Prior year restatement
During 2017, the Group discovered that profit had been overstated in relation to rebates receivable
from suppliers and cash had been overstated in relation to cash cut-off procedures. As a consequence,
cost of sales and the related assets and liabilities have been overstated. The errors have
been corrected by restating each of the affected financial statement line items for prior
periods. The following tables summarise the impacts on the financial information.
a) Consolidated Balance Sheet
Impact of restatements
As at 1 January 2016 As previously reported Adjustments As restated
GBPm GBPm GBPm
Deferred tax assets 21.0 0.1 21.1
Trade and other receivables 468.1 (0.4) 467.7
Cash and cash equivalents 146.2 (23.9) 122.3
Other assets 955.2 - 955.2
Total assets 1,590.5 (24.2) 1,566.3
Trade and other payables 417.7 (23.9) 393.8
Bank overdrafts 59.5 - 59.5
Other liabilities 463.7 - 463.7
Total liabilities 940.9 (23.9) 917.0
Retained profits 183.0 (0.3) 182.7
Other capital and reserves 466.6 - 466.6
Total equity 649.6 (0.3) 649.3
Impact of restatements
As at 1 January 2017 As previously reported Adjustments As restated
GBPm GBPm GBPm
Deferred tax assets 16.4 0.8 17.2
Trade and other receivables 516.1 (3.3) 512.8
Cash and cash equivalents 127.6 (0.6) 127.0
Other assets 832.6 - 832.6
Total assets 1,492.7 (3.1) 1,489.6
Trade and other payables 440.6 (19.0) 421.6
Bank overdrafts 3.5 19.2 22.7
Other liabilities 509.0 - 509.0
Total liabilities 953.1 0.2 953.3
Retained profits 23.1 (3.3) 19.8
Other capital and reserves 516.5 - 516.5
Total equity 539.6 (3.3) 536.3
b) Consolidated Income Statement and Other Comprehensive Income
Impact of restatements
For the year ended 31 December 2016 As previously reported Adjustments As restated
GBPm GBPm GBPm
Cost of sales (2,093.6) (3.7) (2,097.3)
Income tax expense (12.3) 0.7 (11.6)
Other income/(expenses) 1,987.3 - 1,987.3
Loss after tax (118.6) (3.0) (121.6)
Total comprehensive expense (80.5) (3.0) (83.5)
Loss per share (20.1)p (0.5)p (20.6)p
11. Prior year restatement (continued)
c) Consolidated Cash Flow Statement
Impact of restatements
For the year ended 31 December 2016 As previously reported Adjustments As restated
GBPm GBPm GBPm
Net cash generated from operating activities 66.2 4.1 70.3
Other cash flows (40.4) - (40.4)
Increase in cash and cash equivalents in the year 25.8 4.1 29.9
Cash and cash equivalents at beginning of the year 86.7 (23.9) 62.8
Effect of foreign exchange rate changes 11.6 - 11.6
Cash and cash equivalents at end of the year 124.1 (19.8) 104.3
d) Consolidated Statement of Changes in Equity
Impact of restatements
For the year ended 31 December 2016 As previously reported Adjustments As restated
GBPm GBPm GBPm
Total equity at 31 December 2014 664.3 - 664.3
Profit after tax 36.3 (0.3) 36.0
Other movements in equity (51.0) - (51.0)
Total equity at 31 December 2015 649.6 (0.3) 649.3
Loss after tax (118.6) (3.0) (121.6)
Other movements in equity 8.6 - 8.6
Total equity at 31 December 2016 539.6 (3.3) 536.3
12. Viability Statement
In accordance with the requirements of the 2016 UK Corporate Governance Code ("the Code"), the Directors confirm that they have performed a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. As such, the key factors affecting the Group's prospects are:
-- Market positions: SIG retains top three positions in its core business, which will continue to offer sustainable positions over the medium term;
-- Specialist business model: SIG is focused on specialist distribution and merchanting of specialist products for our business customers. A defined product focus means SIG occupies a key supply niche, partnering both suppliers and customers to add value;
-- Sales mix: A diversified portfolio of products, market sectors and geographies means SIG has a resilient underlying portfolio of customers, and as a result, competitors, diversifying the risk around sales for the Group.
The Board has determined that a three-year period to 31 December 2020 is the most appropriate time period for its viability review. This period has been selected since it gives the Board sufficient visibility into the future, due to industry characteristics, business cycle and the tenor of existing financing, to make a realistic viability assessment. This aligns with the turnaround plan for the business.
The assessment process and key assumptions
As part of the Group's strategic and financial planning process a medium-term business plan including detailed financial forecasts for the first three years was produced covering the period to 31 December 2020. The process included a detailed review of the plan, led by the Chief Executive Officer and Chief Financial Officer in conjunction with input from divisional and functional management teams. The Board participated fully in this process by means of an extended Board meeting to review and approve the plan.
The key assumptions within the Group's financial forecasts include:
-- Modest but realistic growth: The Group is targeting top-line sales growth in line with the market over the medium-term. Other than the strategic levers and the impact of the annualising cost saving actions taken in 2017, trading is assumed in be on a 'business as usual' basis.
-- Strategic levers: Improvements are assumed as a result of the delivery of the three strategic levers:
- Operational efficiency: operating cost savings and working capital reduction; - Customer value: pricing and product, enhancing gross margin for the Group; and - Customer service: sales and service improvements. -- Dividends: No change in the stated dividend policy.
-- Availability of financing: No change in capital structure as the refinancing undertaken in 2016 ensures that SIG has sufficient funding headroom and liquidity in place to support its plans over the medium-term.
12. Viability Statement (continued)
Assessment of viability
In order to assess the resilience of the Group to threats to its viability posed by those risks in severe but plausible scenarios, this model was subjected to thorough multi-variant stress and sensitivity analysis together with an assessment of potential mitigating actions. This multi-variant stress and sensitivity analysis included scenarios arising from combinations of the following:
Variant Link to principal risks and uncertainties SIG's recent track record highlights the challenge in delivering lasting Working capital and cash management change. On this basis, the sensitivity analysis has been modelled as if the improvements from the Competitors and margin management Group's strategic levers will not be achieved during the assessment period. Commercial relationships The implications of both a challenging economic environment and a growing Market conditions market on the Group's revenues (both pricing and volume impacts) have been modelled by assuming a severe but plausible reduction in sales volume throughout the period. The impact of the competitive environment within which the Group's Competitors and margin management businesses operate and the interaction with the Group's gross margin has been modelled by assuming Commercial relationships a severe but plausible reduction in gross margins throughout the period. The impact of a severe and prolonged economic downturn on the Group's Market conditions financial results was modelled using a scenario based on the 2009 economic crisis.
The resulting impact on key metrics was considered with particular focus on solvency measures including debt headroom and covenants such as leverage. The impact of a severe prolonged downturn in the markets in which the Group operates would affect the carrying value of the Group's assets and have an impact on the consolidated net worth covenant.
The Group has controls in place to monitor these risks. In the case of these scenarios arising, various mitigating actions are available to the Group, including further cost reduction programmes, a reduction in non-essential capital expenditure and a moderation of dividend payments.
After conducting their viability review, and taking into account the Group's current position and principal risks, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment to 31 December 2020.
13. Going concern basis
In determining whether the Group's 2017 financial information can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.
The key factors considered by the Directors were as follows:
-- the implications of the challenging economic environment and the continuing weak levels of market demand in the building and construction markets on the Group's revenues and profits;
-- projections of working capital requirements taking into account normal seasonality trends and short-term working capital management;
-- the impact of the competitive environment within which the Group's businesses operate; -- the availability and market prices of the goods that the Group sells; -- the credit risk associated with the Group's trade receivable balances;
-- the potential actions that could be taken in the event that revenues are worse than expected, to ensure that operating profit and cash flows are protected; and
-- the committed finance facilities available to the Group.
Having considered all the factors above impacting the Group's businesses, including downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities, and have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's 2017 financial information.
14. Principal risks and uncertainties
Risk management involves the identification and evaluation of risks and is the responsibility of the Group Board. The Group's ability to manage risk is continually improving through the focus on risk management capability to ensure that it remains robust and that emerging risks are identified, assessed and managed effectively.
The risk management process incorporates both top-down and bottom-up elements to the identification, evaluation and management of risks, and all risks evaluated are referenced to the achievement of the Group's strategy. Risks are continually evaluated using consistent measurement criteria. Mitigating controls are identified and opportunities for the enhancement of the Group's control environment are implemented.
14. Principal risks and uncertainties (continued)
Throughout the year the risks that SIG faces have been critically reviewed and evaluated. The assessment of the most significant risks and uncertainties that could impact SIG's long-term performance are outlined below. These risks are not set out in order of priority and they do not comprise all the risks and the uncertainties that SIG faces. This list has the potential to change as some risks assume greater importance than others during the course of the year.
Risk Key mitigation activities include:
Delivering the change agenda
Without appropriate and sufficient capability and * Medium term plans for each operating company have
capacity, the Group will suffer initiative been reviewed and prioritised from the outset and
overload resulting in management stretch and failure to KPIs are monitored by senior management through local
focus on core activities. and Group dashboards.
* Appropriate resources and personnel are brought in to
deliver and support initiatives, for example,
consultants, delivery directors and programme
managers.
* Appointment of a Group Change Director to support
delivery of initiatives in the operating companies.
Systems and data quality
Lack of appropriate systems and availability and * There are adequate firewalls, offsite back up and
reliability of data and Management Information Disaster Recovery plans to safeguard existing
have an adverse impact on the ability of the business to systems.
make properly informed decisions,
identify over-ride/ weakness of controls and to conduct
processes consistently and accurately. * A dedicated team is responsible for preparing
appropriate management information for the business.
* A new IT strategy for the Group has been approved by
the Board.
* New overlay systems in development to fill the gaps
that exist in diverse systems and to define common
master data.
Access to finance
The Group may not reduce its leverage sufficiently in * The Group has strong relationships with its banking
order to gain access to funds for further partners.
investment and growth. This will impact its ability to
grow profits.
* Capex and other expenditure is tightly controlled
through robust planning, budgeting, and monitoring
controls at operating company and Group level.
* A Delegation of Authority policy is in place to
ensure expenditure is approved at the right level.
* Leverage position closely scrutinised through a
series of senior forums.
Working capital and cash management
Failure to manage working capital effectively may lead to * Working capital forum has been established to develop
a significant increase in the Group's workstreams to optimise stock, debtors and creditors.
net debt, thereby reducing the Group's funding headroom
and liquidity.
* Budgets set for all areas of the business, with
accountability for performance established.
* Stretch targets on inventory reduction have been
applied to all branches.
* Working capital is closely monitored at operating
company and GEC level.
* Weekly cash flow forecasting has been developed and
piloted in the UK.
14. Principal risks and uncertainties (continued)
Risk Key mitigation activities include:
Market conditions
Market downturn, impacting our ability to meet budget and * The Group's geographical diversity reduces the impact
City expectations. of changes in market conditions in any one business.
* Medium term plans for each operating company include
consideration of forecast market conditions.
* Cost reduction plans for each operating company have
been agreed and are monitored monthly.
* Industry-based KPIs are monitored monthly at
operating company and Group level.
Health and safety
Health and safety risks, including major injury or loss * Health and safety policy and procedure documents in
of life. place for use in all branches and risk assessments
performed as appropriate.
* The Group maintains its health and safety
accreditation for ISO 18001 management systems.
* Targeted training and awareness is delivered to
relevant personnel.
* Health and safety KPIs are monitored at Group level.
Supplier rebate income
Rebate income recognised is not fully supported by rebate * Regular review of rebate income and rebate debtors by
agreements. commercial and finance teams in operating companies.
* Monthly reconciliations of rebate debtor balances.
* Rebate forecasts and assumptions are reviewed monthly
and changes agreed between commercial and finance
teams.
* Review of rebate controls in all operating companies
as part of the Internal Audit plan.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JLMMTMBIMMBP
(END) Dow Jones Newswires
March 09, 2018 02:01 ET (07:01 GMT)
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