REG - SIG PLC - Half-year Report <Origin Href="QuoteRef">SHI.L</Origin> - Part 3
09/08/2016 07:06
- Part 3: For the preceding part double click ID:nRSI6004Gb
51.5 (0.8) (14.1)
Cash flow from increase in debt (31.2) (68.6) (86.6)
Decrease/(increase) in net debt resulting from cash flows 20.3 (69.4) (100.7)
Debt added on acquisition (1.1) (0.9) (2.5)
Recognition of loan notes and deferred consideration (6.5) - (2.7)
Non-cash items* 4.0 (4.1) (3.9)
Exchange differences (13.6) 5.9 0.8
Decrease/(increase) in net debt in the period 3.1 (68.5) (109.0)
Net debt at beginning of the period (235.9) (126.9) (126.9)
Net debt at end of the period (232.8) (195.4) (235.9)
* Non-cash items includes the fair value movement of debt recognised in the period which does not give rise to a cash inflow or outflow. Net debt is defined as follows:
Unaudited30 June 2016 Unaudited30 June 2015 Audited31 December 2015
£m £m £m
Non-current assets:
Derivative financial instruments 2.5 30.4 2.4
Deferred consideration - 1.5 -
Current assets:
Derivative financial instruments 48.6 - 34.4
Deferred consideration 1.5 - 1.5
Other financial assets - 1.9 1.3
Cash and cash equivalents 153.0 99.5 89.0
Current liabilities:
Obligations under finance lease contracts (2.4) (2.3) (2.5)
Bank overdrafts (5.2) (2.3) (2.3)
Bank loans (132.8) (67.5) (90.9)
Private placement notes (173.9) - (160.1)
Loan notes and deferred consideration (6.8) (1.9) (3.0)
Derivative financial instruments (1.4) (0.5) (1.3)
Non-current liabilities:
Obligations under finance lease contracts (7.7) (8.0) (7.5)
Bank loans (0.3) (0.5) (0.4)
Private placement notes (105.6) (245.2) (95.8)
Derivative financial instruments (2.3) (0.5) (0.7)
Net debt (232.8) (195.4) (235.9)
9. Financial instruments fair value disclosures
At the balance sheet date the Group held the following financial instruments at fair value:
Unaudited30 June 2016 Unaudited 30 June 2015 Audited31 December 2015
£m £m £m
Financial assets
Other financial assets - 1.9 1.3
Deferred consideration 1.5 1.5 1.5
Derivative financial instruments 51.1 30.4 36.8
52.6 33.8 39.6
Financial liabilities
Derivative financial instruments 3.7 1.0 2.0
Loan notes and deferred consideration 6.8 1.9 3.0
Contingent consideration 14.8 16.8 19.2
25.3 19.7 24.2
The derivative financial instruments above all have fair values which are
calculated by reference to observable inputs (i.e. classified as level 2 in
the fair value hierarchy). The fair values of these derivative financial
instruments, adjusted for credit risk, are calculated by discounting the
associated future cash flows to net present values using appropriate market
rates prevailing at the balance sheet date.
The contingent consideration is calculated based on management's forecasts for
the business over the earn-out period (i.e. classified as level 3 in the fair
value hierarchy). The fair value of contingent consideration is calculated by
discounting the associated future cash flows to net present values using
appropriate market rates prevailing at the balance sheet date.
The carrying value of financial assets and liabilities that are recorded at
amortised cost in the accounts is approximately equal to their fair value.
10. Called up share capital
Unaudited30 June 2016 Unaudited30 June 2015 Audited31 December 2015
£m £m £m
Authorised:
800,000,000 ordinary shares of 10p each (30 June 2015: 800,000,000; 31 December 2015: 800,000,000) 80.0 80.0 80.0
Allotted, called up and fully paid:
591,353,014 ordinary shares of 10p each (30 June 2015: 591,155,750; 31 December 2015: 591,347,148) 59.1 59.1 59.1
The Company allotted 5,866 shares during the period (30 June 2015: 17,947; 31 December 2015: 209,345).
11. Retirement benefit schemes
Defined benefit schemes
The Group operates a number of pension schemes, six of which provide defined
benefits based upon pensionable salary. One of these schemes has assets held
in a separate trustee administered fund, and five are overseas book reserve
schemes. The UK defined benefit pension scheme obligation is calculated on a
year to date basis, using the latest triennial valuation as at 31 December
2013.
On 30 June 2016 the UK defined benefit pension scheme was closed to future
benefit accrual. The change in assumptions associated with the closure
resulted in a curtailment loss of £0.9m which has been charged within Other
items in the Condensed Consolidated Income Statement.
The IAS 19 valuation conducted as at 31 December 2015 has been updated to
reflect current market conditions and the closure of the UK scheme to future
benefit accrual, and as a result an actuarial loss of £22.6m and an associated
deferred tax credit of £4.1m have been recognised within the Condensed
Consolidated Statement of Comprehensive Income.
12. Interim dividend
An interim dividend of 1.83p per share has been declared for the period (30
June 2015: 1.69p). In accordance with IAS 10 "Events After the Balance Sheet
Date", dividends declared after the balance sheet date are not recognised as a
liability in the financial statements.
The final dividend for the year ended 31 December 2015 of 2.91p per share has
been recognised as a distribution to equity holders in the period.
13. 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 £133m in
the period to 30 June 2016 (30 June 2015: £101m; 31 December 2015: £251m). At
the balance sheet date net trade payables in respect of the co-operative
amounted to £17m (30 June 2015: £18m; 31 December 2015: £1m).
In the period to 30 June 2016, SIG incurred expenses of £0.2m (30 June 2015:
£0.1m; 31 December 2015: £0.3m) on behalf of the SIG plc Retirement Benefits
Plan, the UK defined benefit pension scheme.
The Group has not identified any other material related party transactions in
the six month period to 30 June 2016.
14. Risks and uncertainties
The Directors consider that the principal risks and uncertainties which could
have a material impact upon the Group's performance over the remaining six
months of the 2016 financial year remain consistent with those set out in the
Strategic Report on pages 20 to 23 of the Group's 2015 Annual Report and
Accounts. These risks and uncertainties include, but are not limited to:
(1) market conditions;
(2) competitors and margin management;
(3) commercial relationships;
(4) government legislation;
(5) debt;
(6) working capital and cash management;
(7) IT infrastructure and cybersecurity; and
(8) availability and quality of key resources.
The primary risk affecting the Group for the remaining six months of the year
is the level of market demand in the markets in which SIG operates. SIG's
diverse market sectors are affected by macroeconomic factors which limit
visibility and therefore render the short to medium-term outlook difficult to
predict.
The result of the UK referendum to leave the European Union has created a
period of significant uncertainty which may affect future market conditions
and the competitive landscape, the impact of which could adversely affect
financial performance. The Board consider it too early to determine the
precise effect that the decision to leave may have, however it acknowledges
that the market conditions risk and competitor and margin management risk have
increased since the referendum. The Directors will continue to closely monitor
market conditions and will react accordingly.
The "Group outlook" section of the Trading Review details the current
assessment of the markets in which the Group operates.
15. Seasonality
The Group's operations are not normally affected by significant seasonal
variations between the first and second halves of the calendar year. In 2015,
the period to 30 June accounted for 48% of the Group's annual revenue (2014:
49%).
16. Non-statutory information
(a) Covenant EBITDA (rolling 12 month)
Twelve monthsended 30 June2016 Twelve monthsended 30 June2015 Twelve monthsended 31December 2015
£m £m £m
Operating profit 78.3 67.7 65.9
Depreciation 25.0 21.9 23.0
Amortisation of computer software 3.3 2.9 3.0
Amortisation of acquired intangibles 10.9 14.7 10.3
Restructuring costs 7.3 11.2 8.3
Acquisition expenses and contingent consideration 14.6 6.5 14.3
Profit and losses on sale of businesses and associated impairment charges - 5.7 -
Net operating loss attributable to businesses divested in 2014 1.0 -
Other one-off items (4.3) (0.1) (0.1)
Defined benefit pension scheme curtailment loss 0.9 - -
Annualised EBITDA impact of acquisitions 2.5 6.8 8.7
Covenant EBITDA 138.5 138.3 133.4
(b) Covenant net debt
As at30 June2016 As at30 June2015 As at31 December2015
£m £m £m
Reported net debt 232.8 195.4 235.9
Other covenant financial indebtedness 2.9 4.8 2.6
Foreign exchange adjustment* (11.2) 4.3 (1.6)
Covenant net debt 224.5 204.5 236.9
* For the purpose of covenant calculations, leverage is calculated using net debt translated at average rather than period end rates.
(c) Covenant leverage
30 June2016 30 June2015 31 December2015
Leverage (covenant net debt to covenant EBITDA - maximum 3.0x) 1.6x 1.5x 1.8x
(d) Underlying operating profit after tax (rolling 12 months)
Twelve monthsended 30 June2016 Twelve monthsended 30 June2015 Twelve monthsended 31December 2015
£m £m £m
Operating profit 78.3 67.7 65.9
Amortisation of acquired intangibles 10.9 14.7 10.3
Restructuring costs 7.3 11.2 8.3
Acquisition expenses and contingent consideration 14.6 6.5 14.3
Profit and losses on sale of businesses and associated impairment charges - 5.7 -
Net operating loss attributable to businesses divested in 2014 - 1.0 -
Other one-off items (4.3) (0.1) (0.1)
Defined benefit pension scheme curtailment loss 0.9 - -
Income tax expense (16.6) (18.7) (15.0)
Tax credit associated with Other items (5.3) (7.6) (6.0)
Underlying operating profit after tax 85.8 80.4 77.7
(e) Average capital employed
30 June2016 30 June2015 31 December2015
£m £m £m
Opening reported net debt 195.4 131.5 126.9
Opening reported net assets 628.2 670.1 664.3
Opening capital employed 823.6 801.6 791.2
Year end reported net debt 235.9 126.9 n/a
Year end reported net assets 649.6 664.3 n/a
Year end capital employed 885.5 791.2 n/a
Closing reported net debt 232.8 195.4 235.9
Closing reported net assets 684.5 628.2 649.6
Closing capital employed 917.3 823.6 885.5
Average capital employed 875.5 805.5 838.4
(f) Post-tax Return on Capital Employed ("ROCE")
30 June2016 30 June2015 31 December2015
ROCE (rolling 12 month underlying operating profit after tax to average capital employed) 9.8% 10.0% 9.3%
(g) Free cash flow
Six monthsended 30 June2016 Six monthsended 30 June2015 Twelve monthsended 31December 2015
£m £m £m
Cash generated from operating activities (Note 7) 60.2 11.5 61.6
Defined benefit pension scheme special contribution 2.5 2.5 2.5
Maintenance capital expenditure* (14.8) (12.5) (26.0)
Proceeds from sale of property, plant and equipment 25.1 0.6 4.9
Proceeds from one-off sales of fixed assets (22.9) - (1.1)
Income tax paid (3.3) (5.5) (11.1)
Finance income received 0.6 0.5 1.2
Finance costs paid (6.8) (5.6) (10.7)
Free cash flow/(outflow) 40.6 (8.5) 21.3
* Where net capital expenditure is equal to or less than depreciation (including amortisation of computer software), all such net 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.
INDEPENDENT REVIEW REPORT TO SIG PLC
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2016 which comprises the Condensed Consolidated Income Statement, the
Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in
Equity, the Condensed Consolidated Cash Flow Statement and related Notes 1 to
16. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the Company those matters we are required to state to it in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2016 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
8 August 2016
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