REG - SIG PLC - Final Results <Origin Href="QuoteRef">SHI.L</Origin> - Part 2
09/03/2016 07:10
- Part 2: For the preceding part double click ID:nRSI4709Ra
Profit for the year 36.0 33.0
* Inter-segment sales
are charged at the
prevailing market rates.
Balance sheet
2015 2015 2015 2014 2014 2014
UK & Ireland Mainland Europe Total UK & Ireland Mainland Europe Total
£m £m £m £m £m £m
Assets
Segment assets 771.5 649.0 1,420.5 666.4 645.6 1,312.0
Unallocated assets:
Property, plant and equipment 1.0 0.1
Derivative financial instruments 36.8 33.9
Deferred consideration 1.5 1.5
Other financial assets 0.3 -
Cash and cash equivalents 12.8 25.8
Deferred tax assets 4.0 9.6
Other assets 3.2 1.4
Consolidated total assets 1,480.1 1,384.3
Liabilities
Segment liabilities 305.4 164.8 470.2 283.9 165.4 449.3
Unallocated liabilities:
Private placement notes 255.9 254.3
Bank loans 88.1 -
Derivative financial instruments 2.0 1.1
Other liabilities 14.3 15.3
Consolidated total liabilities 830.5 720.0
Other segment information
Capital expenditure on:
Property, plant and equipment 30.6 10.3 40.9 16.5 14.8 31.3
Computer software 8.4 0.8 9.2 10.1 0.3 10.4
Goodwill and intangible assets (excluding computer software) 60.0 12.7 72.7 23.1 8.5 31.6
Non-cash expenditure:
Depreciation 13.5 9.5 23.0 11.4 9.8 21.2
Impairment of property, plant and equipment and computer software - - - 6.1 - 6.1
Amortisation of acquired intangibles and computer software 10.8 2.5 13.3 10.8 11.6 22.4
Impairment of goodwill and intangibles (excluding computer software) - - - 3.3 - 3.3
(b) Revenue by product group
The Group focuses its activities into three product sectors: Insulation and
Energy Management; Exteriors; and Interiors.
The following table provides an analysis of Group sales by type of product:
2015 2014
£m £m
Insulation and Energy Management 1,157.8 1,195.0
Exteriors 792.6 807.6
Interiors 616.0 600.3
Total continuing 2,566.4 2,602.9
Sales attributable to businesses divested in 2014 - 31.0
Total 2,566.4 2,633.9
(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, deferred consideration and derivative financial
instruments) by geographical location are as follows:
2015 2014
Country Revenue Non-currentassets Revenue Non-currentassets
£m £m £m £m
United Kingdom 1,340.8 397.5 1,265.2 323.2
Ireland 72.1 1.1 71.0 0.8
France 517.3 194.5 586.1 205.7
Germany & Austria 368.3 19.0 412.2 17.8
Poland 103.6 15.4 112.0 16.8
Benelux* 164.3 40.9 156.4 31.7
Total continuing 2,566.4 668.4 2,602.9 596.0
Attributable to businesses divested in 2014 - - 31.0 -
Total 2,566.4 668.4 2,633.9 596.0
*Includes Air Trade Centre.
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: 2015 2014
£m £m
Current tax
UK corporation tax: - on profits/(losses) for the year - -
- adjustments in respect of previous years - -
- -
Overseas tax: - on profits/(losses) for the year 10.8 14.7
- adjustments in respect of previous years (0.4) 0.9
Total current tax 10.4 15.6
Deferred tax
Current year 5.7 3.4
Adjustments in respect of previous years (1.0) (15.1)
Deferred tax charge in respect of pension schemes* 0.2 0.7
Effect of change in rate (0.3) (0.1)
Total deferred tax 4.6 (11.1)
Total income tax expense 15.0 4.5
* Includes a credit of £0.5m (2014: £0.1m) in respect of the change in rate.
The total tax charge for the year differs from that resulting from applying
the standard rate of corporate tax in the UK at 31 December 2015 of 20.0% (31
December 2014: 21.0%). The differences are explained in the following
reconciliation:
2015 2014
£m % £m %
Profit on ordinary activities before tax 51.3 39.0
Tax at 20.0% (2014: 21.0%) thereon 10.3 20.0 8.2 21.0
Factors affecting the income tax expense for the year:
- non-deductible and non-taxable items 4.8 9.4 6.2 15.9
- losses not recognised - - 0.4 1.0
- losses utilised not previously recognised (0.3) (0.6) (0.1) (0.3)
- other adjustments in respect of previous years (1.4) (2.7) (14.2) (36.4)
- effect of overseas tax rates 2.4 4.7 4.2 10.8
- effect of change in rate on deferred tax (0.8) (1.6) (0.2) (0.5)
Total income tax expense 15.0 29.2 4.5 11.5
The effective tax rate for the Group on the total profit before tax of £51.3m
is 29.2% (2014: 11.5%). The effective tax charge for the Group on profit
before tax, before amortisation of acquired intangibles, restructuring costs,
acquisition expenses and contingent consideration, other one-off items,
profits and losses arising on the sale of businesses and associated impairment
charges, trading profits and losses associated with disposed businesses,
unwinding of provision discounting and fair value gains and losses on
derivative financial instruments, of £87.4m is 24.0% (2014: 28.1%), which
comprises a tax charge of 24.8% (2014: 27.3%) in respect of current year
profits and a tax credit of 0.8% (2014: charge 0.8%) in respect of prior
years.
In 2014, a deferred tax asset of £14.9m was recognised in respect of
previously unrecognised UK excess non-trading losses incurred in 2008.
The following factors will affect the Group's future total tax charge as a
percentage of underlying profits:
- the mix of profits between the UK and overseas; in particular,
France/Germany/Belgium/Netherlands (corporate tax rates greater than 20%) and
Ireland/Poland (corporate tax rates less than 20%). 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;
- the agreement of open tax computations with the respective tax
authorities; and
- the recognition or utilisation (with a corresponding reduction in cash
tax payments) of unrecognised deferred tax assets.
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.
2015 2014
£m £m
Deferred tax movement associated with remeasurement of defined benefit pension liabilities* (0.2) 1.7
Deferred tax on share options (0.1) 0.5
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments (1.5) (1.9)
Effect of change in rate on deferred tax* (0.7) (0.1)
Total (2.5) 0.2
*These items will not subsequently be reclassified to the Consolidated Income
Statement.
4. Earnings per share
The calculations of earnings per share are based on the following profits and numbers of shares:
Basic and diluted
2015 2014
£m £m
Profit after tax 36.3 34.5
Non-controlling interests (0.3) (1.5)
36.0 33.0
Basic and diluted before
Other items
2015 2014
£m £m
Profit after tax 36.3 34.5
Non-controlling interests (0.3) (1.5)
Other items:
Amortisation of acquired intangibles 10.3 19.6
Profits and losses arising on the sale of businesses and associated impairment charges - 14.0
Net operating losses attributable to businesses divested in 2014 - 6.7
Restructuring costs 8.3 9.2
Acquisition expenses and contingent consideration 14.3 3.9
Other one-off items (0.1) 4.6
Net fair value losses on derivative financial instruments 1.9 1.9
Unwinding of provision discounting 1.4 0.2
Tax credit relating to Other items (4.2) (8.1)
One-off recognition of deferred tax assets (0.7) (14.9)
Utilisation of losses not previously recognised (0.3) (0.1)
Effect of change in rate on deferred tax (0.8) (0.2)
Other items attributable to non-controlling interests - 1.1
66.1 70.9
Weighted average number of shares
2015Number 2014Number
For basic earnings per share 591,183,300 591,112,524
Exercise of share options - 99,237
For diluted earnings per share 591,183,300 591,211,761
2015 2014
Earnings per share
Basic earnings per share 6.1p 5.6p
Diluted earnings per share 6.1p 5.6p
Earnings per share before Other items^
Basic earnings per share 11.2p 12.0p
Diluted earnings per share 11.2p 12.0p
^ Earnings per share before Other items 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:
2015 2014
Otheritems Taximpact Taximpact Other items Tax impact Tax impact
£m £m % £m £m %
Amortisation of acquired intangibles 10.3 2.2 21.4 19.6 5.3 27.0
Profits and losses arising on the sale of businesses and associated impairment charges - - - 14.0 - -
Net operating losses attributable to businesses divested in 2014 - - - 6.7 0.4 6.0
Restructuring costs 8.3 1.7 20.5 9.2 1.5 16.3
Acquisition expenses and contingent consideration 14.3 - - 3.9 - -
Other one-off items (0.1) (0.1) - 4.6 0.5 10.9
Impact on operating profit 32.8 3.8 11.6 58.0 7.7 13.3
Net fair value losses on derivative financial instruments 1.9 0.4 21.1 1.9 0.4 21.1
Unwinding of provision discounting 1.4 - - 0.2 - -
Impact on profit before tax 36.1 4.2 11.6 60.1 8.1 13.5
One-off recognition of deferred tax assets - 0.7 n/a - 14.9 n/a
Utilisation of losses not previously recognised - 0.3 n/a - 0.1 n/a
Effect of change in rate on deferred tax - 0.8 n/a - 0.2 n/a
Impact on profit after tax 36.1 6.0 16.6 60.1 23.3 38.8
Other items attributable to non-controlling interests - - - 1.1 - -
Impact on profit attributable to equity holders of the Company 36.1 6.0 16.6 61.2 23.3 38.1
5. Reconciliation of operating profit to cash generated from operating
activities
2015 2014
£m £m
Operating profit 65.9 53.2
Depreciation 23.0 21.2
Amortisation of computer software 3.0 2.8
Impairment of property, plant and equipment - 6.1
Profits and losses arising on sale of businesses and associated impairment charges - 14.0
Amortisation of acquired intangibles 10.3 19.6
Profit on sale of property, plant and equipment (2.4) (2.2)
Share-based payments - 0.7
Working capital movements:
Increase in inventories (15.8) (9.0)
Increase in receivables (9.0) (0.4)
Decrease in payables (13.4) (10.4)
Cash generated from operating activities 61.6 95.6
Included within the cash generated from operating activities is a defined
benefit pension scheme employer's special contribution of £2.5m (2014:
£2.5m).
6. Reconciliation of net cash flow to movements in net debt
2015 2014
£m £m
Decrease in cash and cash equivalents in the year (14.1) (2.7)
Cash flow from (increase)/decrease in debt (86.6) 0.7
Increase in net debt resulting from cash flows (100.7) (2.0)
Debt added on acquisition (2.5) (0.1)
Recognition of loan notes (2.7) -
Non-cash items^ (3.9) (3.8)
Exchange differences 0.8 0.2
Increase in net debt in the year (109.0) (5.7)
Net debt at 1 January (126.9) (121.2)
Net debt at 31 December (235.9) (126.9)
^ 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 is defined as the net of cash and cash equivalents, deferred
consideration, other financial assets, bank overdrafts, derivative financial
instruments, loan notes, private placement notes, bank loans and obligations
under finance lease contracts.
7. Dividends
An interim dividend of 1.69p per ordinary share was paid on 7 November 2015
(2014: 1.42p). The Directors have proposed a final dividend for the year ended
31 December 2015 of 2.91p per ordinary share (2014: 2.98p). The proposed final
dividend is subject to approval by Shareholders at the Annual General Meeting
and has not been included as a liability in these financial statements. No
dividends have been paid between 31 December 2015 and the date of signing the
Accounts.
8. Acquisitions
During the period SIG acquired the following:
Acquisition name % ofOrdinaryShareCapitalacquired Acquisition date Country ofincorporation Principal activity
Advanced Cladding & Insulation Group Limited 100% 30 January 2015 United Kingdom Distributor of roofing and cladding materials and associated products
Gutters & Ladders (1968) Limited 100% 7 March 2015 United Kingdom Distributor of building plastics and associated products
Multijoint SA 100% 30 April 2015 Switzerland Distributor of insulating materials and associated products
Undercover Holdings Limited 100% 30 April 2015 United Kingdom Distributor of roofing materials and associated products
Flex-R Limited 100% 1 May 2015 United Kingdom Distributor of flat roofing materials
KG SML System und Metallbau GmbH & Co. 100% 7 May 2015 Germany Distributor of commercial interiors products
Drywall Qatar LLC 49%* 28 May 2015 Qatar Distributor of commercial interiors products
Ainsworth Group 100% 31 July 2015 United Kingdom Distributor of insulating materials and associated products
Weymead Holdings Limited 100% 4 September 2015 United Kingdom Distributor of roofing materials and associated products
HC Groep B.V. 100% 23 September 2015 The Netherlands Design, supply and distribution of air handling products and systems
Interland Techniek B.V. 100% 22 October 2015 The Netherlands Distributor of air handling products
*Although the Group owns less than 50% of the ordinary share capital of
Drywall Qatar LLC it has full operational control of the business; therefore
the assets, liabilities and results of the business are consolidated in full
in the Group's Financial Statements.
The Group also acquired the trade and certain assets and liabilities of the
following business:
Acquisition name Acquisition date Country of operation Principal activity
Airtech 23 March 2015 France Distributor of air handling products
The provisional fair value of the net assets of these businesses at
acquisition (in aggregation) were as follows:
£m
Property, plant and equipment 4.0
Inventories 8.6
Trade and other receivables 22.9
Cash acquired 12.1
Debt acquired (1.5)
Trade and other payables (20.2)
Net corporation tax and deferred tax liability (2.3)
Finance leases and other debt items (0.7)
Net assets acquired 22.9
Intangible assets - customer relationships 42.3
Intangible assets - non-compete clauses 0.8
Deferred tax liability on acquired intangible assets (8.4)
Goodwill 29.4
Total consideration 87.0
Consideration is represented by:
Cash 78.1
Deferred consideration 0.3
Contingent consideration 8.6
Total consideration 87.0
Cash (per above) 78.1
Cash acquired (12.1)
Settlement of loan notes and contingent consideration in respect of acquisitions 4.1
Settlement of amounts payable for purchase of businesses 70.1
In accordance with IFRS 3 "Business Combinations", acquisition expenses of
£1.9m in relation to the above acquisitions have been recognised within the
Consolidated Income Statement and have been presented within "Other items".
It is currently expected that, dependent upon future profits, a further £30.9m
may be paid to the vendors of recent acquisitions who are employed by the
Group. These payments are contingent upon the vendors remaining within the
business, and as required by IFRS 3, this will be treated as remuneration and
will be charged to the Consolidated Income Statement as earned. The related
accrual of potential consideration in the year to 31 December 2015 is £10.2m
(31 December 2014: £2.9m). Added to the £1.9m acquisition expenses is a £2.2m
increase in contingent consideration based solely on a reassessment of
post-acquisition performance of the acquired businesses outside of the
hindsight period, this has led to a charge within "Other items" in the
Consolidated Income Statement of £14.3m in respect of acquisitions.
In addition, £8.9m of deferred and contingent consideration (not subject to
the vendors remaining within the business) has been recognised within goodwill
and intangible assets in the year.
The Directors have made a provisional assessment of the fair value of the net
assets acquired. Any further adjustments arising will be accounted for in
2016. These fair value adjustments may relate primarily to:
a) the review of the carrying value of all non-current assets to ensure that
they accurately reflect their fair value;
b) the alignment of valuation and provisioning methodologies to those adopted
by the Group; and
c) an assessment of all provisions and payables to ensure they are accurately
reflected in accordance with the Group's policies.
The fair value of financial assets includes trade receivables with a fair
value of £20.9m and a gross contractual value of £21.4m. The best estimate at
the date of acquisition of the contractual cash flows not able to be collected
is £0.5m.
Included within goodwill is the benefit of staff acquired as part of the
business and strategic acquisition synergies which are specifically excluded
in the identification of intangible assets on acquisition in accordance with
the relevant accounting standards. The goodwill of £29.4m arising from the
acquisitions is not expected to be deductible for income tax purposes.
Post-acquisition revenue and operating profit for the year ended 31 December
2015 for all 2015 acquisitions amounted to £57.6m and £7.5m respectively.
The Directors estimate that the combined pre-acquisition revenue and operating
profit of the 2015 acquisitions for the period from 1 January 2015 to the
acquisition dates was £61.4m and £8.4m respectively.
Post balance sheet events
On 5 January 2016, the Group acquired 100% of the issued share capital of
Metall Architektur Limited and the trade and certain assets of KME Yorkshire
Limited, fabricators of high performance facade panels in the United Kingdom,
for a total initial consideration of £4.4m, with net assets acquired of
£1.4m.
On 11 January 2016 the Group acquired 100% of the issued share capital of
Profant Lufttechnik HandelsgmbH, a distributor and fabricator of premium air
handling systems in Austria, for an initial consideration of E2.2m, with net
assets acquired of E1.7m.
On 20 January 2016, the Group acquired 100% of the issued share capital of
Maury SAS, a specialist converter of metal serving high-end roofing and facade
markets in France, for an initial consideration of E2.2m, with net assets
acquired of E0.9m.
On 1 March 2016, the Group acquired 100% of the issued share capital of
Metechno Limited, a designer and fabricator of offsite manufactured
technologies in the United Kingdom, for an initial consideration of £1, with
net liabilities acquired of £1.1m.
On 5 March 2016, the Group acquired 100% of the issued share capital of SAS
Direct & Partitioning Limited, a distributor of partitioning systems and
associated products in the United Kingdom, for an initial consideration of
£6.8m, with net assets acquired of £3.4m.
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 £251m in
2015 (2014: £282m). At the balance sheet date net trade payables in respect of
the co-operative amounted to £1m (2014: £3m).
In 2015, SIG incurred expenses of £0.3m (2014: £0.3m) 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
Executive Committee members and the Non-Executive Directors, was £2.5m (2014:
£4.3m). In addition, the Group recognised a share-based payment charge under
IFRS 2 in respect of the Directors of less than £0.1m (2014: £0.1m).
10. Forward-looking statements
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 exchange and
interest rates.
The forward-looking statements should be read in particular in the context of
the specific risk factors for the Group identified in Note 13. 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 the 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.
11. Viability Statement
In accordance with the requirements of the 2014 amendments to the UK Corporate
Governance Code ("the Code"), the Directors 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.
While the Board has no reason to believe the Group will not be viable over a
longer period, it has determined that the three years to 31 December 2018 is
the most appropriate time period for its viability review. This period
reflects the forecast period for the Group's strategic plans and industry
forecasts. This gives the Board sufficient visibility of the future to make a
realistic and reasonable assessment of longer-term viability.
As part of the Group's strategic planning process a three year business model
was produced covering the period to December 2018. In order to assess the
resilience of the Group to risks in severe but plausible scenarios, the model
was subject to thorough multi-variant stress and sensitivity analysis,
together with an assessment of potential mitigating actions. The resulting
impact on key metrics, such as debt headroom and covenants, was considered.
In making this statement the Directors have also made the following key
assumptions:
· The Group will be required to refinance at least a portion of the
c.£130m of private placement notes that mature in November 2016, in order to
provide the appropriate funding headroom. The Directors have concluded that
they will be able to successfully refinance, on the basis of recent successful
refinancing processes and the current and forecast position of bank debt and
debt capital markets in 2016;
· There will be no severe prolonged downturn in the markets in which the
Group operates; and
· In the event that the UK votes to leave the European Union, given the
nature of SIG's operations, it would not be expected to have a direct,
material adverse effect on performance.
After conducting their viability review, 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 December 2018.
12. Going concern basis
In determining whether the Group's 2015 financial information can be prepared
on a going concern basis, the Directors considered all factors likely to
affect the Group's future development, performance and its 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;
· the impact of the competitive environment in 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 and the ability
of the Group to refinance the c.£130m of maturing private placement notes, as
set out in the Viability Statement (Note 11).
Having considered all the factors above, 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 has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis in preparing
the Group's 2015 financial information.
13. 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 Strategic
Initiatives. 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.
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 any order or 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:
Market conditionsThe Group is exposed to changes in the level of activity and therefore demand from the building, construction and civil engineering industries. Government policy and expenditure plans, private investor decisions, the general economic climate and both business and (to a lesser extent) consumer confidence are all factors which can influence the level of building activity and therefore the demand for many of the Group's products. · Maintain a broad spread of markets, products and customers to limit risks within any given territory · The Group Board's portfolio review ensures that the Group's capital is appropriately allocated to the geographies and markets which remain core
· Continual review of all available indicators of market activity and regular communication with key suppliers and customers to ensure that any change in market demand is anticipated as early as possible · Ensure the Group remains structured in a
way that enables it to take prompt action in the event of a material change in the trading environment · Ensure the Group maintains a strong balance sheet and financial position
Competitors and margin managementChallenging market trading conditions mean that competition pressures from direct specialist competition and the overlap with general suppliers remain high, which in turn results in continued margin pressures being faced by the Group. · Strong trading presence and positions in the majority of the markets in which the Group trades · Initiatives designed to improve the Group's core competencies surrounding customer service, sales support and training · Ongoing pricing and
purchasing initiatives, including supplier rebates, designed to improve gross margin · Tight control of operating costs · Significant investment in the branch network and distribution capability, people, IT infrastructure and product offering ·
Diversified portfolio of products, customers and markets limits the risk from any single competitor
Commercial relationshipsFailure to negotiate competitive terms of business with suppliers or failure to satisfy the needs of customers could harm the Group's business. Customer or supplier consolidation and/or manufacturers dealing directly with customers. · Ongoing pricing and purchasing initiatives designed to improve gross margin · The Group has extensive and regular dialogue with all commercial partners to maintain strong relationships · Key supplier/customer harmonisation and national
account strategy planning · The Group is not overly reliant on any one supplier and all businesses undergo alternative key supplier scenario planning · Strategically important suppliers are reviewed globally to assess their financial health ·
Monitoring of customer behaviour and performance
Risk Key Mitigation Activities Include:
Government legislationSIG operates in a number of countries, each with its own laws and regulations, encompassing environmental, legal, health and safety, employment and tax matters. Changes in these laws and regulations, including a potential "Brexit", could impact on SIG's ability to conduct its business, or make the conduct of such business more expensive. There is also the reputational and financial cost of being penalised for non-compliance. · Dedicated resource to monitor compliance with legal and regulatory matters · Active monitoring of relevant laws and regulations to ensure that any changes to the legal framework are identified and effects minimised · Review of policies and
procedures with reference to changing legislative requirements and the provision of associated training · Affiliation with regulatory bodies and trade associations · Strong internal control framework, policies and culture supported by strong
leadership, accountability and commitment throughout the organisation· Continuous monitoring of political environment· Continuous review of business plans in order to minimise SIG's exposure to potential changes in Government policy
DebtGroup net debt at 31 December 2015 amounted to £235.9m. The Group has to manage the following risks relating to its net debt: (1) future availability of funding; (2) interest rate risk; (3) foreign currency risk; (4) compliance with debt covenants; and (5) counterparty credit risk. · Comprehensive Treasury Policy · Regular monitoring, including sensitivity analysis, to understand the impact of interest rate and exchange rate movements · Active hedging programme in place · Monitor performance against covenants on the
Group's Revolving Credit Facility and private placement notes· Regular discussion with Banking and Private Placement partners
Working capital and cash managementFailure to manage working capital effectively may lead to a significant increase in the Group's net debt, thereby reducing the Group's funding headroom and liquidity. · Post-tax Return on Capital Employed is a Key Performance Indicator of the Group · Cash flow targets are agreed with each business unit as part of the annual budget process and reviewed on a monthly basis · Stringent authorisation procedures
to control capital expenditure · Proactive credit management systems supported by daily customer monitoring systems
Risk
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