REG - SIG PLC - Half-year Report <Origin Href="QuoteRef">SHI.L</Origin> - Part 2
09/08/2016 07:06
- Part 2: For the preceding part double click ID:nRSI6004Ga
headroom of
c.E2m (30 June 2015: c.E82m; 31 December 2015: c.E49m). The Board has actively
reviewed the forecast associated with Larivière, considering the assumptions
used and, in a challenging economic environment, its continued outperformance
of the markets in which it operates, and is satisfied that no impairment is
necessary. If a 5% reduction in revenue were to arise from the forecast used
in the impairment review of Larivière, with no mitigating actions undertaken,
there would be an impairment of c.£37m.
All results are from continuing operations under International Accounting
Standards as the operations closed in 2015 did not meet the disclosure
criteria of IFRS 5 "Discontinued Operations" since they did not represent a
separate major line of business or geographical area of operation. In order to
give an indication of the underlying earnings of the Group, the results of
these businesses have been included within Other items in the Condensed
Consolidated Income Statement. The comparatives for the period ending 30 June
2015 have been re-analysed to present operating losses and business closure
costs of £0.7m associated with the Group's operations in the Kingdom of Saudi
Arabia, which were closed in the second half of 2015, within Other items.
Going Concern
The Directors have considered the Group's forecasts which support the view
that the Group will be able to continue to operate within its banking
facilities and comply with its banking covenants. Through its various business
activities the Group is exposed to a number of risks and uncertainties (see
Note 14), which could affect the Group's ability to meet these forecasts and
hence its ability to meet its banking covenants. The Directors have considered
the challenging trading conditions, the current competitive environment and
markets in which the Group's businesses operate and associated credit risks,
together with the available ongoing committed finance facilities and the
potential actions that can be taken, should revenues be worse than expected,
to protect operating profits and cash flows. After making enquiries, the
Directors have formed a judgment that there is a reasonable expectation that
the Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, the going concern basis has been adopted
in preparing this Interim Report.
Changes in accounting policy
Adoption of new and revised accounting standards
Since the 2015 Annual Report and Accounts were published no significant new
standards and interpretations have been issued.
The following new and revised standards became effective during 2016:
· IAS 1 "Disclosure Initiative" - effective for accounting periods
beginning on or after 1 January 2016;
· IAS 16 and IAS 38 "Clarification of Acceptable Methods of Depreciation
and Amortisation" - effective for accounting periods beginning on or after 1
January 2016;
· IAS 27 "Equity Method in Separate Financial Statements" (amendments) -
effective for accounting periods beginning on or after 1 January 2016; and
· IFRS 11 "Joint Arrangements" (amended) - effective for accounting
periods beginning on or after 1 January 2016.
The adoption of these standards has not had a material impact on the financial
statements of the Group.
2. Segmental information
(a) Segmental results
In accordance with IFRS 8
"Operating Segments", the Group
identifies its reportable segments
as those upon which the Group
Board regularly bases its opinion
and assesses performance. The
Group has deemed it appropriate to
aggregate its operating segments
into two reported segments: UK &
Ireland, and Mainland Europe. The
constituent operating segments
have been aggregated as they have
similar: products and services;
production processes; types of
customer; methods of distribution;
regulatory environments; and
economic characteristics. There
has been no change in the basis of
measurement of segment profit or
loss in the period.
Unaudited six months ended 30 June 2016 Unaudited six months ended 30 June 2015 Audited year ended 31 December 2015
UK &Ireland MainlandEurope Eliminations Total UK &Ireland MainlandEurope Eliminations Total UK &Ireland MainlandEurope Eliminations Total
£m £m £m £m £m £m £m £m £m £m £m £m
Revenue
Continuing sales 738.9 636.3 - 1,375.2 679.2 564.4 - 1,243.6 1,412.9 1,153.5 - 2,566.4
Inter-segment sales* 1.6 7.3 (8.9) - 1.3 5.6 (6.9) - 2.3 11.4 (13.7)
Total revenue 740.5 643.6 (8.9) 1,375.2 680.5 570.0 (6.9) 1,243.6 1,415.2 1,164.9 (13.7) 2,566.4
Result
Segment result before Other items 34.7 23.7 - 58.4 28.7 21.4 - 50.1 61.0 45.1 - 106.1
Amortisation of acquired (4.0) (1.1) - (5.1) (3.6) (0.9) - (4.5) (8.3) (2.0) - (10.3)
intangibles
Restructuring costs (0.8) (1.6) - (2.4) (1.7) (1.7) - (3.4) (5.2) (3.1) - (8.3)
Acquisition expenses and (3.5) 0.1 - (3.4) (2.9) (0.2) - (3.1) (8.6) (5.7) - (14.3)
contingent consideration
Other one-off items (Note 3) 3.5 - - 3.5 (0.7) - - (0.7) (0.3) 0.4 - 0.1
Defined benefit pension scheme (0.9) - - (0.9) - - - - - - - -
curtailment loss
Segment operating profit 29.0 21.1 - 50.1 19.8 18.6 - 38.4 38.6 34.7 - 73.3
Parent Company costs (4.1) (4.8) (7.4)
Operating profit 46.0 33.6 65.9
Net finance costs before Other (6.6) (5.5) (11.3)
items
Net fair value losses on (0.9) (0.9) (1.9)
derivative financial instruments
Unwinding of provision discounting (0.1) (0.4) (1.4)
Profit before tax 38.4 26.8 51.3
Income tax expense (10.0) (8.4) (15.0)
Non-controlling interests (0.2) (0.1) (0.3)
Profit for the period 28.2 18.3 36.0
* Inter-segment sales are charged
at the prevailing market rates.
Balance Sheet Unaudited six months ended 30 June 2016 Unaudited six months ended 30 June 2015 Audited year ended 31 December 2015
UK &Ireland MainlandEurope Total UK &Ireland MainlandEurope Total UK &Ireland MainlandEurope Total
£m £m £m £m £m £m £m £m £m
Assets
Segment assets 800.4 811.6 1,612.0 766.6 632.2 1,398.8 771.5 649.0 1,420.5
Unallocated assets:
Property, plant and equipment 1.1 1.0 1.0
Derivative financial instruments 51.1 30.4 36.8
Deferred consideration 1.5 1.5 1.5
Other financial assets - 1.0 0.3
Cash and cash equivalents 48.3 11.1 12.8
Deferred tax assets 2.1 7.6 4.0
Other assets 4.0 2.6 3.2
Consolidated total assets 1,720.1 1,454.0 1,480.1
Liabilities
Segment liabilities 369.1 252.3 621.4 316.4 182.7 499.1 305.4 164.8 470.2
Unallocated liabilities:
Private placement notes 279.5 245.2 255.9
Bank loans 122.1 67.1 88.1
Derivative financial instruments 3.7 1.0 2.0
Other liabilities 8.9 13.4 14.3
Consolidated total liabilities 1,035.6 825.8 830.5
Other segment information
Capital expenditure on:
Property, plant and equipment 11.4 5.9 17.3 15.9 4.5 20.4 30.6 10.3 40.9
Computer software 2.1 0.6 2.7 3.2 0.4 3.6 8.4 0.8 9.2
Goodwill and intangible assets (excluding computer software) 9.6 2.7 12.3 29.1 2.3 31.4 60.0 12.7 72.7
Non-cash expenditure:
Depreciation 7.7 5.4 13.1 6.4 4.7 11.1 13.5 9.5 23.0
Amortisation of acquired intangibles and computer software 5.4 1.4 6.8 4.8 1.1 5.9 10.8 2.5 13.3
(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:
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Insulation and Energy Management 607.2 554.7 1,141.4
Exteriors 422.6 381.2 792.7
Interiors 345.4 307.7 632.3
Total 1,375.2 1,243.6 2,566.4
(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:
Unaudited six months ended30 June 2016 Unaudited six months ended30 June 2015 Audited year ended31 December 2015
Revenue Non-currentassets Revenue Non-currentassets Revenue Non-currentassets
Country £m £m £m £m £m £m
United Kingdom 699.0 388.3 644.2 360.9 1,340.8 397.5
Ireland 39.9 2.4 35.0 0.9 72.1 1.1
France 285.0 220.0 261.7 189.3 517.3 194.5
Germany and Austria 193.4 23.0 178.7 16.7 368.3 19.0
Poland 51.7 16.3 48.0 15.4 103.6 15.4
Benelux* 106.2 47.3 76.0 28.6 164.3 40.9
Total 1,375.2 697.3 1,243.6 611.8 2,566.4 668.4
* 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. Other items
Profit after tax includes the following Other items which have been disclosed in a separate column within the Condensed Consolidated Income Statement in order to provide a better indication of the underlying earnings of the Group:
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Amortisation of acquired intangibles (5.1) (4.5) (10.3)
Restructuring costs^ (2.4) (3.4) (8.3)
Acquisition expenses and contingent consideration (Note 6) (3.4) (3.1) (14.3)
Other one-off items* 3.5 (0.7) 0.1
Defined benefit pension scheme curtailment loss (0.9) - -
Impact on operating profit (8.3) (11.7) (32.8)
Net fair value losses on derivative financial instruments (0.9) (0.9) (1.9)
Unwinding of provision discounting (0.1) (0.4) (1.4)
Impact on profit before tax (9.3) (13.0) (36.1)
Income tax credit on Other items 1.4 1.9 4.2
One-off recognition of deferred tax assets - - 0.7
Utilisation of losses not previously recognised - - 0.3
Effect of change in rate on deferred tax - 0.2 0.8
Impact on profit after tax (7.9) (10.9) (30.1)
^ Included within restructuring costs are redundancy costs of £0.3m (30 June
2015: £0.6m; 31 December 2015: £0.9m), property closure costs of £1.2m (30
June 2015: £2.0m; 31 December 2015: £4.6m), rebranding costs of £0.2m (30 June
2015: £nil; 31 December 2015: £0.2m), and supply chain consultancy costs of
£0.7m (30 June 2015: £0.8m; 31 December 2015: £2.6m).
* Other one-off items include credits arising on the reversal of provisions
made in prior periods of £0.4m (30 June 2015: £nil; 31 December 2015: £3.0m),
fair value gains on fuel hedging contracts of £0.3m (30 June 2015: £nil; 31
December 2015: losses of £0.4m), the profit on sale of property of £2.8m (30
June 2015: £nil; 31 December 2015: £1.1m), and operating losses and closure
costs associated with the Group's operations in the Kingdom of Saudi Arabia of
£nil (30 June 2015: £0.7m; 31 December 2015: £3.6m).
4. Income tax
The income tax expense comprises:
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended 31 December 2015
£m £m £m
UK taxation 4.8 3.0 5.2
Overseas taxation 5.2 5.4 9.8
Total income tax expense for the period 10.0 8.4 15.0
Tax for the six month period ended 30 June 2016 on underlying profits (i.e. before Other items) is charged at 24.0% (30 June
2015: 26.4%; 31 December 2015: 24.0%), representing the best estimate of the average annual effective tax rate expected for the
full year being applied to the underlying pre-tax income of the six month period to 30 June 2016. Reductions in the rate of UK
corporation tax from 20% to 19% with effect from 1 April 2017 and from 19% to 18% with effect from 1 April 2020 have been
substantively enacted. The rate reduction has been reflected in the calculation of the Group's deferred tax.
5. Earnings per share
The calculations of earnings per share are based on the following profits and numbers of shares:
Basic and diluted
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Profit after tax 28.4 18.4 36.3
Non-controlling interests (0.2) (0.1) (0.3)
28.2 18.3 36.0
Basic and diluted before Other items
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Profit after tax 28.4 18.4 36.3
Non-controlling interests (0.2) (0.1) (0.3)
Other items:
Amortisation of acquired intangibles 5.1 4.5 10.3
Restructuring costs 2.4 3.4 8.3
Acquisition expenses and contingent consideration (Note 6) 3.4 3.1 14.3
Other one-off items (Note 3) (3.5) 0.7 (0.1)
Defined benefit pension scheme curtailment loss 0.9 - -
Net fair value losses on derivative financial instruments 0.9 0.9 1.9
Unwinding of provision discounting 0.1 0.4 1.4
Tax credit relating to Other items (1.4) (1.9) (4.2)
One-off recognition of deferred tax assets - - (0.7)
Utilisation of losses not previously recognised - - (0.3)
Effect of change in rate on deferred tax - (0.2) (0.8)
36.1 29.2 66.1
(8.2)
Weighted average number of shares
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
Number Number Number
For basic earnings per share 591,349,505 591,141,273 591,183,300
Exercise of share options - 99,237 -
For diluted earnings per share 591,349,505 591,240,510 591,183,300
Earnings per share
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
Basic earnings per share 4.8p 3.1p 6.1p
Diluted earnings per share 4.8p 3.1p 6.1p
Earnings per share before Other items*
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
Basic earnings per share 6.1p 4.9p 11.2p
Diluted earnings per share 6.1p 4.9p 11.2p
* Earnings per share before Other items has been disclosed in order to present the underlying performance of the Group.
6. Acquisitions
During the period SIG acquired the following companies:
Acquisition name % of ordinaryshare capitalacquired Acquisition date Country ofincorporation Principal activities
Metall Architektur Limited* 100% 5 January 2016 United Kingdom Manufacturer and supplier of facade panel systems
Profant Lufttechnik HandelsgmbH 100% 11 January 2016 Austria Developer and fabricator of specialist air handling systems
Maury SAS 100% 20 January 2016 France Manufacturer and supplier of metal roofing and facades
Metechno Limited 100% 1 March 2016 United Kingdom Designer and manufacturer of offsite products
SAS Direct & Partitioning Limited 100% 5 March 2016 United Kingdom Distributor of partitioning systems and associated products
* Includes acquisition of the trade and certain assets of KME Yorkshire
Limited.
The fair value of the net assets of these businesses at acquisition (in
aggregation) was as follows:
£m
Property, plant and equipment 1.1
Inventories 3.1
Trade and other receivables 4.9
Cash acquired 0.3
Debt acquired (1.1)
Trade and other payables (4.7)
Net corporation tax and deferred tax liability (0.1)
Net assets acquired 3.5
Intangible assets - customer relationships 5.4
Intangible assets - non-compete clauses 0.1
Deferred tax liability on acquired intangible assets (1.2)
Goodwill 6.8
Total consideration 14.6
Consideration is represented by:
Cash 14.6
Total consideration 14.6
Cash (per above) 14.6
Cash acquired (0.3)
Settlement of loan notes and contingent consideration in respect of acquisitions 3.9
Settlement of amounts payable for purchase of businesses 18.2
In accordance with IFRS 3 "Business Combinations", acquisition expenses of £0.3m in relation to the above acquisitions have been recognised within the Condensed Consolidated Income Statement and have been presented within Other items. It is currently expected that, dependent upon future profits, a further £31.0m will be paid to the vendors of 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 Condensed Consolidated Income Statement as earned. The related accrual of potential consideration in the six month period ended 30 June 2016 is £3.1m (30 June 2015: £2.5m; 31 December 2015: £10.2m). Added to the £0.3m acquisition expenses, this has led to a charge within Other items in the Condensed Consolidated Income Statement of £3.4m in respect of acquisitions. As a result of updated information, a credit of £1.9m has been recognised to restate deferred
and contingent consideration (not subject to the vendors remaining within the business) in relation to prior period acquisitions, with a corresponding reduction in goodwill and intangible assets made in the period. The Directors have made a provisional assessment of the fair value of the net assets acquired. Any further adjustments arising will be accounted for within the hindsight period. These fair value adjustments relate primarily to:(a) a 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 £4.2m and a gross contractual value of £4.4m. The best estimate at the date of acquisition of the contractual cash flows not able to be collected
is £0.2m. 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. Goodwill arising is not deductible for income tax purposes. Post-acquisition revenue and operating profit for the period ended 30 June 2016 for all 2016 acquisitions amounted to £12.3m and £0.6m respectively. The Directors estimate that the
combined pre-acquisition revenue and operating loss of the 2016 acquisitions for the period from 1 January 2016 to the respective acquisition dates was £0.6m and £0.2m respectively. Post balance sheet event On 4 July 2016 (with formal closing on 2 August 2016), the Group acquired 100% of the issued share capital of BLH - Bauelemente für Lüftungstechnik Hennen GmbH, a fabricator and distributor of specialist air handling products in Germany, for a total consideration of E7.4m, with net assets acquired of
E3.3m.
7. Reconciliation of operating profit to cash generated from operating activities
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Operating profit 46.0 33.6 65.9
Depreciation 13.1 11.1 23.0
Amortisation of computer software 1.7 1.4 3.0
Amortisation of acquired intangibles 5.1 4.5 10.3
Profit on sale of property, plant and equipment (6.2) (0.3) (2.4)
Share-based payments 0.2 0.7 -
Working capital movements 0.3 (39.5) (38.2)
Cash generated from operating activities 60.2 11.5 61.6
Included in cash generated from operating activities is a special contribution to the defined benefit pension scheme of £2.5m
(30 June 2015: £2.5m; 31 December 2015: £2.5m). Of the total profit on sale of property, plant and equipment, £2.8m has been
included within Other items of the Condensed Consolidated Income Statement (see Note 3). Included within working capital
movements are payments of £0.7m (30 June 2015: £1.1m; 31 December 2015: £2.1m) in settlement of contingent consideration
dependent upon the vendors remaining with the business.
8. Reconciliation of net cash flow to movements in net debt
Unaudited six monthsended 30 June 2016 Unaudited six monthsended 30 June 2015 Audited year ended31 December 2015
£m £m £m
Increase/(decrease) in cash and cash equivalents in the period
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