REG - SIG PLC - SIG plc Half Year Results <Origin Href="QuoteRef">SHI.L</Origin> - Part 3
08/08/2017 07:07
- Part 3: For the preceding part double click ID:nRSH3384Nb
Reassessment of the provision associated with the closure in 2015 of the Group's operations in the Kingdom of Saudi Arabia - - 0.7
Total Other one-off items 5.4 3.5 (5.9)
4. Income tax
The income tax expense comprises:
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
£m £m £m
UK taxation (0.8) 4.8 1.7
Overseas taxation 5.9 5.2 10.6
Total income tax expense for the period 5.1 10.0 12.3
Tax for the six month period ended 30 June 2017 on underlying profits (i.e. before Other items) is charged at 26.9% (30 June
2016: 23.8%; 31 December 2016: 25.7%), 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 2017. The UK's main rate of
corporation tax reduced to 19% from 1 April 2017 and will be further reduced to 17% from 1 April 2020. These rate changes were
taken into account when calculating the deferred tax provision for the year ended 31 December 2016.
Notes to the Condensed Interim Financial Statements
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 months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
£m £m £m
(Loss)/profit after tax (15.8) 28.4 (118.6)
Non-controlling interests (0.4) (0.2) (0.5)
(16.2) 28.2 (119.1)
Basic and diluted before Other items
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
£m £m £m
(Loss)/profit after tax (15.8) 28.4 (118.6)
Non-controlling interests (0.4) (0.2) (0.5)
Other items:
Amortisation of acquired intangibles 4.7 5.1 10.3
Impairment charges 9.1 - 110.6
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges 30.4 - 40.1
Net operating losses attributable to businesses identified as non-core 5.2 0.2 1.5
Net restructuring costs 3.4 2.4 13.3
Acquisition expenses and contingent consideration 0.5 3.4 (4.6)
Defined benefit pension scheme curtailment loss - 0.9 0.9
Other one-off items (Note 3) (5.4) (3.5) 5.9
Net fair value losses on derivative financial instruments 0.8 0.9 1.9
Unwinding of provision discounting 0.3 0.1 (0.4)
Income tax credit relating to Other items (5.2) (1.4) (5.9)
Effect of change in rate on deferred tax - - (0.2)
Other tax adjustments in respect of previous years - - (0.4)
27.6 36.3 53.9
Weighted average number of shares
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
Number Number Number
For basic and diluted (loss)/earnings per share 591,466,749 591,349,505 591,365,906
Earnings per share
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
Basic and diluted (loss)/earnings per share (2.7)p 4.8p (20.1)p
Earnings per share before Other items^
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
Basic and diluted earnings per share 4.7p 6.1p 9.1p
^ Earnings per share before Other items has been disclosed in order to present the underlying performance of the Group.
Notes to the Condensed Interim Financial Statements
6. Divestments and exit of non-core businesses
Divested businesses
The Group has divested of the following businesses during the period to 30 June 2017:
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 of £6.9m. The disposal was completed on 28 February 2017. The
Group has recognised a further £10.4m of costs relating to the sale in the period ended 30 June 2017, resulting in a loss
on disposal within Other items in the Condensed Consolidated Income Statement of £3.5m.
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 fixed assets of the business were impaired. The disposal was
completed on 27 March 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 and intangibles of the business (a
credit of £0.8m) were reclassified to the Condensed Consolidated Income Statement. The Group has recognised a further £1.7m
of costs relating to the sale in the period ended 30 June 2017, resulting in a net loss on disposal within Other items in
the Condensed Consolidated Income Statement of £0.9m.
WeGo Austria
In May and June 2017 the Group sold certain trade and assets of WeGo Systembaustoffe Austria GmbH for consideration of
£1.7m, resulting in a loss on disposal within Other items in the Condensed Consolidated Income Statement of £0.9m.
The net assets at the date of disposal of the three businesses were as follows:
At date of disposal At 30 June 2016 At 31 December 2016
£m £m £m
Investments and intangible assets - 2.7 -
Property, plant and equipment 1.1 3.2 1.2
Cash 6.7 9.3 -
Inventories 1.8 20.3 11.1
Trade and other receivables 12.8 21.5 13.2
Trade and other payables (8.4) (21.4) (18.6)
Provisions - (0.5) -
Deferred tax asset - 0.5 -
Net assets 14.0 35.6 6.9
Other costs 0.7
Loss on disposal (6.1)
Sale proceeds 8.6
These businesses contributed £2.4m of loss* on £20.3m of revenue to the Group in the six months ended 30 June 2017, £1.7m
of loss on £63.3m of revenue in the six months ended 30 June 2016 and £5.2m of loss on £133.0m of revenue for the year
ended 31 December 2016, with the results for the current and prior periods now disclosed within Other items in the
Condensed Consolidated Income Statement.
* Profit or loss throughout this note refers to operating profit/(loss) before Other items.
Other non-core businesses
The Group has also commenced or resolved to commence the exit of the following businesses during the period to 30 June
2017:
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 £4.5m included in Other items in the
Condensed Consolidated Income Statement.
In addition, on 2 August 2017 SIG decided to review its business in the Middle East as it assesses the scale of ongoing
growth opportunities in what is a relatively volatile market. Net assets are considered to be at recoverable value and
there is no exceptional profit/loss arising that needs to be recognised in the six months to 30 June 2017.
These two non-core businesses contributed £3.8m of loss on £14.5m of revenue to the Group in the six months ended 30 June
2017, £0.4m of profit on £15.1m of revenue in the six months ended 30 June 2016 and £0.8m of profit on £33.7m of revenue
for the year ended 31 December 2016, with the results for the current and prior periods now disclosed within Other items in
the Condensed Consolidated Income Statement.
Notes to the Condensed Interim Financial Statements
6. Divestments and exit of non-core businesses
Divestment of SIG Building Plastics (after the balance sheet date)
On 12 July 2017 the Group Board resolved to dispose of its UK building plastics distribution business, part of the UK
Exteriors division, and the sale was completed on 3 August 2017. The assets and liabilities sold were as follows:
At 30 June 2017
Recoverable value Impairment and asset write down Original carrying value At 30 June 2016 At 31 December 2016
£m £m £m £m £m
Goodwill 12.9 (20.4) 33.3 33.3 33.3
Property, plant and equipment 0.5 - 0.5 1.1 1.0
Inventories 4.7 - 4.7 4.5 4.4
Trade and other receivables 0.8 - 0.8 0.9 0.5
Total assets 18.9 (20.4) 39.3 39.8 39.2
Trade and other payables - - - - -
Total liabilities - - - - -
Net assets 18.9 (20.4) 39.3 39.8 39.2
The associated goodwill has been impaired by £20.4m to reflect the recoverable amount indicated by the consideration
received in respect of the sale, and the assets and liabilities presented as held for sale within the Consolidated Balance
Sheet. This business contributed £1.0m of profit on £29.0m of revenue to the Group in the six months ended 30 June 2017,
£1.1m of profit on £30.4m of revenue in the six months ended 30 June 2016 and £2.9m of profit on £63.0m of revenue for the
year ended 31 December 2016 and the results for the current and prior periods have been disclosed within Other items in the
Condensed Consolidated Income Statement.
As part of the disposal of SIG Building Plastics a guarantee has been provided to the landlord of the leasehold properties
transferred with the business covering rentals over the remaining term of the leases in the event that the acquiring
company enters into administration before the end of the lease term. The maximum liability that could arise from this would
be approximately £7.4m. No provision has been made in these financial statements as it is not considered likely that any
loss will be incurred in connection with this.
Cash flows associated with divestments and exit of non-core businesses
The net cash inflow in the six months ended 30 June 2017 in respect of divestments and the exit of non-core businesses is
as follows:
£m
Cash consideration received for divestments (net of cost to sell) 8.6
Cash at date of disposal (6.7)
Disposal costs paid (0.7)
Net cash inflow 1.2
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 Condensed Consolidated Income
Statement in order to present the underlying earnings of the Group.
Notes to the Condensed Interim Financial Statements
7. Reconciliation of operating (loss)/profit to cash generated from operating activities
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
£m £m £m
Operating (loss)/profit (2.2) 46.0 (91.0)
Depreciation 11.3 13.1 26.0
Amortisation of computer software 2.1 1.7 3.5
Amortisation of acquired intangibles 4.7 5.1 10.3
Impairment of computer software 6.8 - 7.9
Impairment of property, plant and equipment 2.3 - 0.3
Goodwill and intangible impairment charges - - 110.6
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges 30.4 - 40.1
Profit on sale of property, plant and equipment (14.1) (6.2) (8.5)
Share-based payments - 0.2 (0.3)
Working capital movements 55.0 0.3 (23.1)
Cash generated from operating activities 96.3 60.2 75.8
Included in cash generated from operating activities is a special contribution to the defined benefit pension scheme of £2.5m
(30 June 2016: £2.5m; 31 December 2016: £2.5m). Of the total profit on sale of property, plant and equipment, £5.5m (30 June
2016: £2.8m; 31 December 2016: £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 2016: £0.7m; 31 December 2016: £6.1m) in
settlement of contingent consideration dependent upon the vendors remaining with the business.
Notes to the Condensed Interim Financial Statements
8. Reconciliation of net cash flow to movements in net debt
Unaudited six months ended 30 June 2017 Unaudited six months ended 30 June 2016 Audited year ended 31 December 2016
£m £m £m
Increase in cash and cash equivalents in the period 43.9 51.5 25.8
Cash flow from decrease/(increase) in debt 52.6 (31.2) (19.5)
Decrease in net debt resulting from cash flows 96.5 20.3 6.3
Debt added on acquisition - (1.1) (1.6)
Recognition of loan notes and deferred consideration - (6.5) (2.7)
Non-cash items* (0.1) 4.0 (14.4)
Exchange differences (3.0) (13.6) (11.6)
Decrease/(increase) in net debt in the period 93.4 3.1 (24.0)
Net debt at beginning of the period (259.9) (235.9) (235.9)
Net debt at end of the period (166.5) (232.8) (259.9)
* 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 2017 Unaudited30 June 2016 Audited31 December 2016
£m £m £m
Non-current assets:
Derivative financial instruments 1.2 2.5 4.4
Current assets:
Derivative financial instruments 0.2 48.6 0.1
Deferred consideration - 1.5 0.7
Other financial assets 1.6 - 1.1
Cash and cash equivalents (restated) 177.3 210.2 127.6
Current liabilities:
Obligations under finance lease contracts (3.2) (2.4) (3.1)
Bank overdrafts (restated) (6.0) (62.4) (3.5)
Bank loans (123.9) (132.8) (171.6)
Private placement notes - (173.9) -
Loan notes and deferred consideration - (6.8) (2.7)
Derivative financial instruments - (1.4) (0.2)
Non-current liabilities:
Obligations under finance lease contracts (7.9) (7.7) (8.1)
Bank loans (0.6) (0.3) (0.3)
Private placement notes (203.5) (105.6) (200.7)
Derivative financial instruments (1.7) (2.3) (3.6)
Net debt (166.5) (232.8) (259.9)
9. Financial instruments fair value disclosures
At the balance sheet date the Group held the following financial instruments at fair value:
Unaudited 30 June 2017 Unaudited 30 June 2016 Audited 31 December 2016
£m £m £m
Financial assets
Other financial assets 1.6 - 1.1
Deferred consideration - 1.5 0.7
Derivative financial instruments 1.4 51.1 4.5
3.0 52.6 6.3
Financial liabilities
Derivative financial instruments 1.7 3.7 3.8
Loan notes and deferred consideration - 6.8 2.7
Contingent consideration 7.3 14.8 9.7
9.0 25.3 16.2
Notes to the Condensed Interim Financial Statements
9. Financial instruments fair value disclosures
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
Unaudited 30 June 2017 Unaudited 30 June 2016 Audited 31 December 2016
£m £m £m
Authorised:
800,000,000 ordinary shares of 10p each (30 June 2016: 800,000,000; 31 December 2016: 800,000,000) 80.0 80.0 80.0
Allotted, called up and fully paid:
591,475,263 ordinary shares of 10p each (30 June 2016: 591,353,014; 31 December 2016: 591,460,301) 59.1 59.1 59.1
The Company allotted 14,962 shares during the period (30 June 2016: 5,866; 31 December 2016: 113,153).
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.
The IAS 19 valuation conducted as at 31 December 2016 has been updated to reflect current market conditions, and as a
result an actuarial gain of £2.4m and an associated deferred tax debit of £0.4m have been recognised within the Condensed
Consolidated Statement of Comprehensive Income.
12. Interim dividend
An interim dividend of 1.25p per share has been declared for the period (30 June 2016: 1.83p). 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 2016 of 1.83p per share has been recognised as a distribution to equity
holders in the period.
Following the recent impairments and losses associated with the closure of non-core businesses, the Group has accumulated
losses as at 30 June 2017 of £0.3m (30 June 2016: retained profits £175.4m; 31 December 2016: retained profits £23.1m). The
Company has retained profits of £189.8m (30 June 2016: £195.3m; 31 December 2016: £191.2m) and therefore this has not
impacted the Company's ability to distribute dividends.
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 £138m in the period to 30 June 2017 (30 June 2016: £133m; 31 December 2016: £284m). At the
balance sheet date net trade payables in respect of the co-operative amounted to £14m (30 June 2016: £17m; 31 December
2016: £12m).
In the period to 30 June 2017, SIG incurred expenses of £0.2m (30 June 2016: £0.2m; 31 December 2016: £0.3m) on behalf of
the SIG plc Retirement Benefits Plan, the UK defined benefit pension scheme.
The Group has not identified any other related party transactions in the six month period to 30 June 2017.
Notes to the Condensed Interim Financial Statements
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 2017 financial year remain consistent with those set out in the Strategic
Report on pages 16 to 19 of the Group's 2016 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) availability of funding;
(6) working capital and cash management;
(7) IT infrastructure and cybersecurity; and
(8) availability and quality of key resources (personnel).
The primary risk affecting the Group for the remaining six months of the year continues to be 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. As SIG continues with its strategic
change programme there is an increase in focus on the risk of the availability and quality of key resources (personnel).
SIG continues to ensure that the strategic and budget review process identifies and manages all key resource requirements,
whilst senior management succession planning mitigates the risk of knowledge loss associated with restructuring.
The result of the UK referendum to leave the European Union in June 2016, and the subsequent triggering of Article 50 on 29
March 2017, has created a period of significant uncertainty which may continue to 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 2016, the period to 30 June accounted for 48% of the Group's annual revenue (2015: 48%). In terms of
outlook the key risk is the challenging environment created by macro uncertainty in the UK, although this may partly be
mitigated by continuing improvement in confidence in Mainland European markets. However, the business continues to expect
a stronger second half profit performance (excluding H1 property profits) as detailed in the "Group outlook" section of the
Trading Review.
16. Post balance sheet events
On 3 August 2017 the Group completed the sale of its UK Building Plastics business for up to £20.3m. Associated goodwill
has been impaired at 30 June 2017 to reflect the recoverable amount and the assets and liabilities are presented as held
for sale within the Consolidated Balance Sheet. See Note 6 for further details. The Group is currently conducting a review
of its strategy, use of capital and cost base and is undergoing a consultation exercise regarding potential headcount
reductions.
17. 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 - rolling 12 months
Unaudited twelve months ended 30 June 2017 Unaudited twelve months ended 30 June 2016* Audited year ended 31 December 2016*
Note £m £m £m
Operating (loss)/profit (139.2) 78.3 (91.0)
Depreciation 7 24.2 25.0 26.0
Amortisation of computer software 7 3.9 3.3 3.5
Amortisation of acquired intangibles 7 9.9 10.9 10.3
Impairment charges 3 119.7 - 110.6
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges 3 70.5 - 40.1
Net operating losses attributable to businesses identified as non-core 3 6.5 - 5.8
Depreciation attributable to businesses identified as non-core (0.7) - (0.5)
Net restructuring costs 3 14.3 7.3 13.3
Acquisition expenses and contingent consideration 3 (7.5) 14.6 (4.6)
Defined benefit pension scheme curtailment loss 3 - 0.9 0.9
Other one-off items 3 4.0 (4.3) 5.9
Annualised EBITDA impact of acquisitions - 2.5 0.3
Covenant EBITDA 105.6 138.5 120.6
* The 2016 covenant calculations have not been restated to reflect the decision in 2017 to exit the non-core businesses of Metechno, WeGo Austria and Building Plastics, along with the review of the Middle East business.
Notes to the Condensed Interim Financial Statements
17. Non-statutory information a) Leverage covenant - rolling 12 months
30 June 2017 30 June 2016 31 December 2016
Note £m £m £m
Reported net debt 8 166.5 232.8 259.9
Other covenant financial indebtedness 3.8 2.9 3.5
Foreign exchange adjustment* (1.3) (11.2) (6.4)
Covenant net debt 169.0 224.5 257.0
* For the purpose of covenant calculations, leverage is calculated using net debt translated at average rather than period end rates.
30 June2017 30 June2016 31 December 2016
Leverage (covenant net debt to covenant EBITDA - maximum 3.0x) 1.6x 1.6x 2.1x
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