REG - SIG PLC - Final Results <Origin Href="QuoteRef">SHI.L</Origin> - Part 3
14/03/2017 07:07
- Part 3: For the preceding part double click ID:nRSN3460Zb
assets on acquisition in accordance with the relevant
accounting standards. The goodwill of £10.8m 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 2016 for all 2016 acquisitions amounted to
£34.8m and £1.3m respectively.
The Directors estimate that the combined pre-acquisition revenue and operating profit of the 2016 acquisitions for the
period from 1 January 2016 to the acquisition dates was £4.9m and £0.3m respectively.
10. 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 £284m in 2016 (2015: £251m). At the balance sheet date net trade payables in respect of the
co-operative amounted to £12m (2015: £1m).
In 2016, SIG incurred expenses of £0.3m (2015: £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 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".
2016 2015
£m £m
Short-term employee benefits 3.9 2.8
Termination and post-employment benefits 0.8 -
IFRS 2 share option (credit)/charge (0.1) 0.1
4.6 2.9
11. 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.
a) Leverage covenant
2016 2015
£m £m
Operating (loss)/profit (91.0) 65.9
Depreciation 26.0 23.0
Amortisation of computer software 3.5 3.0
Amortisation of acquired intangibles 10.3 10.3
Goodwill and intangible impairment charges 110.6 -
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges 40.1 -
Net operating losses attributable to businesses identified as non-core in 2016* 5.8 -
Depreciation attributable to businesses identified as non-core in 2016* (0.5) -
Net restructuring costs 13.3 8.3
Acquisition expenses and contingent consideration (4.6) 14.3
Defined benefit pension scheme curtailment loss 0.9 -
Other one-off items 5.9 (0.1)
Annualised EBITDA impact of acquisitions 0.3 8.7
Covenant EBITDA 120.6 133.4
* The 2015 covenant calculation has not been restated to reflect the decision in December 2016 to exit the non-core businesses of Carpet & Flooring and Drywall Qatar.
2016 2015
£m £m
Reported net debt 259.9 235.9
Other covenant financial indebtedness 3.5 2.6
Foreign exchange adjustment* (6.4) (1.6)
Covenant net debt 257.0 236.9
* For the purpose of covenant calculations, leverage is calculated using net debt translated at average rather than period end rates.
2016 2015
Leverage (covenant net debt to covenant EBITDA - maximum 3.0x) 2.1x 1.8x
b) Post-tax Return on Capital Employed ("ROCE")
2016 2015
£m £m
Operating (loss)/profit (91.0) 65.9
Income tax expense (12.3) (15.0)
Operating (loss)/profit after tax (103.3) 50.9
2016 2015
£m £m
Operating (loss)/profit (91.0) 65.9
Amortisation of acquired intangibles 10.3 10.3
Goodwill and intangible impairment charges 110.6 -
Profits and losses on agreed sale of closure of non-core business and associated impairment charges 40.1 -
Net operating losses attributable to businesses identified as non-core in 2016* 5.8 1.2
Net restructuring costs 13.3 8.3
Acquisition expenses and contingent consideration (4.6) 14.3
Defined benefit pension scheme curtailment loss 0.9 -
Other one-off items 5.9 (0.1)
Underlying operating profit 91.3 99.9
Income tax expense (12.3) (15.0)
Tax credit associated with other items (7.2) (6.4)
Underlying operating profit after tax 71.8 78.5
2016 2015
£m £m
Opening reported net assets 649.6 664.3
Opening reported net debt 235.9 126.9
Opening capital employed 885.5 791.2
Computer software impairment charges* (7.9) (7.9)
Goodwill and intangible impairment charges* (110.6) (110.6)
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges* (40.1) (40.1)
Adjusted opening capital employed 726.9 632.6
2016 2015
£m £m
Closing reported net assets 539.6 649.6
Closing reported net debt 259.9 235.9
Closing capital employed 799.5 885.5
Computer software impairment charges* - (7.9)
Goodwill and intangible impairment charges* - (110.6)
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges* - (40.1)
Adjusted closing capital employed 799.5 726.9
Average capital employed 842.5 838.4
Adjusted average capital employed* 763.2 679.8
* Capital employed has been adjusted to take into account the normalised impact of the goodwill and intangible assets impairment charges, the profits and losses on agreed sale or closure of non-core businesses and associated impairment charges incurred in 2016 and computer software impairment charges.
2016 2015
Unadjusted ROCE (operating profit after tax to average capital employed) (12.3)% 6.1%
ROCE (underlying operating profit after tax to adjusted average capital employed) 9.4% 11.5%
c) Covenant interest cover ratio
2016 2015
£m £m
Operating (loss)/profit (91.0) 65.9
Add back:
Amortisation of acquired intangibles 10.3 10.3
Goodwill and intangible impairment charges 110.6 -
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges 40.1 -
Net restructuring costs 13.3 8.3
Defined benefit pension scheme curtailment loss 0.9 -
Contingent consideration* (4.7) 2.2
Other one-off items** 6.3 (0.5)
Consolidated EBITA 85.8 86.2
Finance costs 17.0 15.6
Finance income (1.7) (1.0)
Less:
Finance costs included within Other items (2.0) (3.3)
Finance income included within Other items 0.5 -
Interest costs arising on the defined benefit pension scheme (0.5) (0.7)
Covenant net interest payable 13.3 10.6
2016 2015
Interest cover ratio (consolidated EBITA to covenant net interest payable) 6.5x 8.1x
* This relates to the element of contingent consideration that is disallowed in the covenant calculation.** Other one-off items in 2016 is adjusted for the credit relating to fair value gains and losses on fuel hedging contracts of £0.4m (2015: charge of £0.4m) in the covenant calculation.
d) Working capital to sales ratio
2016 2015
£m £m
Current:
Inventories 250.6 242.9
Trade and other receivables 516.1 468.1
Trade and other payables (440.6) (417.7)
Provisions (14.5) (9.7)
Non-current:
Other payables (5.5) (3.8)
Provisions (22.4) (37.6)
Reported working capital 283.7 242.2
Working capital for non-core businesses (3.8) (20.4)
Foreign exchange adjustment* (7.6) 19.0
Adjusted working capital 272.3 240.8
* Working capital is translated at average rather than period end rates.
2016 2015
£m £m
Reported revenue 2,845.2 2,566.4
Sales attributable to business identified as non-core in 2016 (105.4) (103.3)
Pre-acquisition revenue of the current year acquisitions for the period from 1 January to the acquisition dates 4.9 61.4
Foreign exchange adjustment - 160.0
Adjusted revenue 2,744.7 2,684.5
2016 2015
Reported working capital to reported revenue 10.0% 9.4%
Like-for-like working capital to sales ratio (adjusted working capital to adjusted revenue) 9.9% 9.0%
e) Net capital expenditure to depreciation ratio
2016 2015
£m £m
Property, plant and equipment additions 33.7 40.9
Computer software additions 6.2 9.2
Gross Capital expenditure 39.9 50.1
Proceeds from sale of property, plant and equipment (39.5) (4.9)
Net capital expenditure 0.4 45.2
2016 2015
£m £m
Depreciation 26.0 23.0
Amortisation of computer software 3.5 3.0
Depreciation (including amortisation of computer software) 29.5 26.0
2016 2015
Gross capital expenditure to depreciation ratio 1.35x 1.93x
Net capital expenditure to depreciation ratio 0.01x 1.74x
f) Gearing
2016 2015
£m £m
Reported net assets 539.6 649.6
Reported net debt 259.9 235.9
Gearing (reported net debt to reported net assets ratio) 48.2% 36.3%
g) 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. Sales are not adjusted for
organic branch openings and closures.
UK Ireland UK &Ireland Germany &Austria France Poland Benelux SIG AirHandling MainlandEurope Group
£m £m £m £m £m £m £m £m £m £m
Continuing revenue 2016 1,306.6 85.5 1,392.1 413.2 589.2 115.1 99.7 130.5 1,347.7 2,739.8
Continuing revenue 2015 1,237.5 72.1 1,309.6 368.3 517.3 103.6 85.7 78.6 1,153.5 2,463.1
% change year on year:
Continuing revenue 5.6% 18.6% 6.3% 12.2% 13.9% 11.1% 16.3% 66.0% 16.8% 11.2%
Impact of currency (0.3)% (14.1)% (1.1)% (13.3)% (13.5)% (9.0)% (13.8)% (19.5)% (13.4)% (6.8)%
Impact of acquisitions (4.3)% (0.4)% (4.0)% (0.1)% (1.1)% - - (38.0)% (3.2)% (3.7)%
Impact of working days - (0.3)% - - (1.2)% - - - (0.6)% (0.3)%
Like-for-like sales 1.0% 3.8% 1.2% (1.2)% (1.9)% 2.1% 2.5% 8.5% (0.4)% 0.4%
h) Cash inflow from trading
2016 2015
£m £m
Cash generated from operating activities (Note 5) 75.8 61.6
Add back:
Increase in inventories 0.5 15.8
Increase in receivables 30.5 9.0
(Increase)/decrease in payables (7.9) 13.4
Cash inflow from trading 98.9 99.8
12. Viability Statement
In accordance with the requirements of the 2014 amendments to the 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.
The Board has determined that a three year period to 31 December 2019 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 and business cycle, to make a realistic viability assessment. As part of the Group's strategic planning
process a three year business model was produced covering the period to 31 December 2019. 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:
· the implications of both a challenging economic environment and a growing market on the Group's revenues (both
pricing and volume impacts);
· the impact of the competitive environment within which the Group's businesses operate and the interaction with the
Group's gross margin;
· global inflation and the impact on the Group's operating cost base;
· working capital requirements from investment and trading activities, taking into account normal seasonality trends
and short term working capital management; and
· timing, delivery and efficiency of the Group's strategic growth priorities.
The resulting impact on key metrics, such as debt headroom and covenants, was considered. 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 31 December 2019.
13. Going concern basis
In determining whether the Group's 2016 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 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, 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 2016 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 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 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:
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 and act as a natural hedge 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
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