SIG Regulatory News (SHI)

RNS Number : 7632I

SIG PLC

18 March 2010

 

P R E S S R E L E A S E

18 March 2010

PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2009

 

SIG plc is a leading European specialist supplier of insulation, exteriors, interiors and specialist construction products.

 

·; As outlined in the trading update on 13 January 2010, trading conditions throughout 2009 were exceptionally challenging.

·; Group sales were £2,744m, down 10.2% on 2008 (2008: £3,054m), with like for like† sales down by 11.6% in Sterling and 15.6% in constant currency.

o Total sales in Mainland Europe were £1,417.3m, an increase of 2.4% (2008: £1,384.2m). Like for like sales on a constant currency basis decreased 7.6%.

o Total sales in the UK and Ireland were £1,326.2m, down 20.6% (2008: £1,669.4m). Like for like sales decreased by 21.7%.

·; Underlying* profit before tax was £60.6m, a decrease of 55.9% (2008: £137.3m) and in line with market expectations.

·; Underlying basic earnings per share was 9.0p, a reduction of 84.7% (2008: 58.9p).

·; Following charges of £115.9m (2008: £104.2m) relating primarily to the amortisation of acquired intangibles, restructuring costs and further impairment of SIG's Irish business, the Group recorded a loss before tax of £55.3m (2008: profit before tax £33.1m) and basic EPS amounted to a loss per share of 9.7p (2008: earnings per share 3.8p).

·; Net debt was reduced to £254.5m from £697.1m at 31 December 2008. This was driven by:

o Continued intense focus on cash management with trading cash generated increasing from £156.0m in 2008 to £174.1m in 2009. As a result trading cash conversion^ increased to 216% (2008: 97%); and

o The raising of £325m via a placing and open offer and firm placing of new shares.

·; The Group continued its rigorous cost cutting programme during the year, ensuring the protection of profits whilst also defending the Group's strong market positions and customer relationships.

o Actions taken since mid 2008 have resulted in total annualised cost savings of £100m.

o At the same time as implementing the very substantial change programmes most of the Group's operating units succeeded in delivering a sales performance ahead of the market.

·; The Board is not proposing a final dividend in respect of 2009.

 

Les Tench, Chairman, commented:

"2009 was an exceptionally challenging year for SIG, with the global economic downturn significantly reducing construction activity and hence demand for the products and services supplied by the Group. The scale of the decline varied by geography and market sector, with a number of SIG's Mainland European countries of operation less heavily affected than the UK and Ireland.

The extreme cold weather conditions and snow experienced across the UK and Mainland Europe in January and February have resulted in a particularly slow start to trading in 2010. It is management's expectation that the shape of the year is now more likely to be significantly more weighted towards the second half and that the pre tax profit for the first six months will be well below the result for the equivalent period last year.

Management action over the last 18 months has improved the Group's long-term operational efficiency, reduced its fixed cost base and significantly strengthened its balance sheet. SIG is therefore well positioned to deal with the likelihood of a number of its end markets continuing to weaken in the coming months and to take advantage of their subsequent later recovery and of any growth opportunities which may emerge."

Enquiries:

 

Chris Davies, Chief Executive Gareth Davies, Finance Director	SIG plc	today thereafter	020 7251 3801 0114 285 6300
Faeth Birch/Gordon Simpson	Finsbury		020 7251 3801

 

Results information, including a live webcast of the analyst presentation, is available at www.sigplc.com

 

† Like for like sales excludes the impact of acquisitions completed after 1 January 2008.

* Underlying is before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

^ Trading cash conversion is defined as cash flow from operations before pension movements divided

by underlying operating profit.

 

 

 

Chairman's Statement

2009 was an exceptionally challenging year for SIG, with the global economic downturn significantly reducing construction activity and hence demand for the products and services supplied by the Group. The scale of the decline varied by geography and market sector, with a number of SIG's Mainland European countries of operation less heavily affected than the UK and Ireland. Against the backdrop of these challenging trading conditions, the Group has remained focused on its cost saving and restructuring programme as well as initiatives to improve cash generation and reduce the Group's level of net debt.

Since the middle of 2008, the Group has achieved total annualised cost savings of £100m, and following the equity raise in 2009, net debt has reduced by £442.6m to £254.5m (2008: £697.1m). Underlying* profit before tax for the year of £60.6m is in line with market expectations.

Results

For the year ended 31 December 2009, compared with the corresponding period in 2008:

Sales

Total sales decreased by £310m (10.2%) to £2,744m (2008: £3,054m).

Like for like† sales declined by 11.6% in Sterling and 15.6% in constant currency.

The continued weakness of Sterling throughout 2009 against the Euro resulted in foreign exchange rate movements having a beneficial impact on reported sales on a year on year basis, adding £125m to sales.

Underlying Profits

Total underlying operating profit fell by £88.9m (52.4%) to £80.9m (2008: £169.8m). On a constant currency basis underlying operating profit was £75.9m (2008: £169.8m).

Underlying net finance costs reduced by £12.2m to £20.3m (2008: £32.5m).

Underlying profit before tax reduced by £76.7m (55.9%) to £60.6m (2008: £137.3m).

Other Items

The Group continued its cost saving and restructuring programme, which commenced in July 2008, throughout 2009. The primary objective has been to realign the Group's cost base to current and anticipated levels of market demand but also to drive operational and commercial efficiencies within the Group. One-off restructuring costs incurred in 2009 amounted to £54.8m, taking the total one-off costs since the inception of the programme in 2008 to £77.0m. The restructuring programme in total has delivered annualised net hard cost savings of £100m, of which £30m is incremental in 2010.

Amortisation of acquired intangibles increased by £2.2m to £28.6m (2008: £26.4m). In addition, the carrying value of goodwill in respect of the Group's Irish business has been written down by a further £30m during the year. Net losses on derivative financial instruments were £2.5m (2008: £41.4m).

(Loss)/Profit Before Tax

The Group recorded a loss before tax of £55.3m (2008: profit before tax £33.1m), after accounting for the other items noted above.

Margins

The underlying operating profit margin for the Group fell from 5.6% to 2.9% during the year. This decline principally arose as the sales decline in 2009 outpaced the Group's reduction in operating costs. In addition, the reduction in the Group's gross margin from 26.5% to 25.3% was a significant factor.

In the UK and Ireland, the underlying operating profit margin fell from 6.7% to 2.8% reflecting the decline in like for like sales of 21.7% and also the reduction in the gross margin by 2%.

In Mainland Europe, the underlying operating profit margin reduced from 4.9% to 3.5%.

 

Earnings and Dividends

The underlying basic earnings per share reduced by 49.9p (84.7%) to 9.0p (2008: 58.9p). Basic EPS amounted to a loss per share of 9.7p (2008: earnings per share 3.8p) as a result of charging the other items noted above to profit after tax.

The Board has determined not to propose a final dividend in respect of 2009. This follows no interim dividend being declared.

The Board remains committed to a progressive dividend policy and SIG will resume dividend payments when markets stabilise and it believes it is prudent to do so taking into account the Group's earnings, cash flow and balance sheet position.

Capital Structure

In order to reduce the Group's level of debt from £697m at 31 December 2008 and in light of the increasingly challenging outlook for 2009, in April 2009 the Group raised £325m (net of expenses) through the issue of 455,047,973 ordinary shares via a placing and open offer and firm placing of new shares. The equity share issue enabled SIG to preserve its existing attractive debt financing arrangements and increase headroom against debt covenants. The reduction in debt also provides greater resilience and financial flexibility in the current environment.

Financial Position

Overall, the Group's level of net debt at 31 December 2009 has reduced by £442.6m to £254.5m (2008: £697.1m). This reduction in debt can be analysed as follows:

§ Intense focus on cash management continued throughout the year and the Group implemented a range of operational measures to reduce working capital and minimise non-essential capital expenditure. As a result of these measures, despite lower trading volumes, trading cash generated has increased from £156.0m in 2008 to £174.1m in 2009.

§ As detailed above, in April 2009 the Group raised £325m (net of expenses) via a placing and open offer and firm placing of new shares. The Group has used these equity proceeds to reduce the Group's overall level of net debt.

§ Interest and taxation payments in 2009 reduced by £25.5m to £37.9m (2008: £63.4m).

§ Following the appreciation of Sterling against the Euro in 2009, the Group benefited from foreign exchange rate gains on the Group's reported net debt position of £20m. However, these gains were more than offset by fair value movements associated with the Group's derivative financial instruments which added a further £25m to the Group's net debt at 31 December 2009.

Acquisitions

No acquisitions have been made in the year.

Cost Saving Initiatives

2009 was characterised by massive upheavals and uncertainty in construction markets which began in earnest in 2008 but which gathered momentum during the year. Against this backdrop, SIG instigated a comprehensive range of measures to minimise the impact of the macroeconomic crisis on its various businesses, aimed at protecting profits by reducing costs promptly in light of rapidly shifting market conditions, whilst simultaneously defending its strong market positions and maintaining the integrity of its customer service proposition. At the same time as implementing very substantial change programmes most of the Group's operating units succeeded in delivering a sales performance ahead of their respective individual markets, an achievement which is of great credit to the professionalism and commitment of the Group's operational management and staff.

The following table sets out the impact of the restructuring and cost saving programme since inception in 2008. The table also separately details the cost saving measures introduced since 1 January 2009.

 

 

	TOTAL ACTIONS			2009 ACTIONS
	To 30/06/09	01/07/09 - 31/12/09	Cumulative	H1 2009	H2 2009	Cumulative
Annualised net hard cost savings	£74m	£26m	£100m	£39m	£26m	£65m
Branches closed/merged	124	28	152	44	28	72
Headcount reduction	2,000	794	2,794	980	794	1,774
Associated one-off costs	£40m	£37m	£77m	£18m	£37m	£55m

 

Board

During the year SIG appointed Chris Geoghegan, Vanda Murray OBE and Jonathan Nicholls to its Board as Non-Executive Directors. Mr Geoghegan and Mrs Murray joined the Board on 1 July 2009 and Mr Nicholls joined on 6 November 2009.

Peter Blackburn and Michael Borlenghi (both Non-Executive Directors) retired from the Board on 30 September 2009. Following Mr Blackburn's retirement, Mr Geoghegan was appointed Chairman of the Remuneration Committee. Mr Nicholls was appointed Chairman of the Audit Committee on 12 November 2009. In addition, David Haxby, Senior Independent Director, has advised the Company of his intention to retire as a Director at the conclusion of the Company's Annual General Meeting on 13 May 2010.

I would like to thank Peter, Michael and David for their many years of service and their significant contribution to the success of SIG.

Employees

On behalf of the Board I wish to thank all our employees throughout the Group for their efforts during an exceptionally challenging year.

Outlook

With macroeconomic conditions remaining uncertain the prospects for recovery in construction markets are unclear with regard to both timing and degree. SIG's outlook for 2010 therefore remains challenging in all of the Group's markets although it is generally expected that as macroeconomic conditions improve, the rate of decline in construction in most of SIG's different market sectors and countries of operation should gradually level out as the year progresses.

The extreme cold weather conditions and snow experienced across the UK and Mainland Europe in January and February, and in parts of Mainland Europe in March to date, have impacted SIG's business with deliveries unable to be made and construction site activity inhibited for prolonged periods, resulting in a particularly slow start to trading in 2010. The Group estimates that as a result of the bad weather it has lost around £30m of sales in the first two months of 2010.

It remains to be seen whether these lost sales are retrieved over the next few months. However it is management's expectation that the shape of the year is now more likely to be significantly more weighted towards the second half and that the pre tax profit for the first six months will be well below the result for the equivalent period last year.

In general, excluding the effects of the extreme cold weather experienced this winter, the level of market activity and the decline in like for like sales since the corresponding period last year has been in line with management's expectations.

Management action over the last 18 months has improved the Group's long-term operational efficiency, reduced its fixed cost base and significantly strengthened its balance sheet. Accordingly, SIG is well positioned to deal with the likelihood of a number of its end markets continuing to weaken in the coming months and to take advantage of their subsequent later recovery and of any growth opportunities which may emerge. In the meantime, management remains resolutely focused on customer service, driving operational efficiencies and cash generation.

SIG's position as Europe's leading distributor of insulation grouped with its operational expertise and track record mean it is exceptionally well placed to take advantage of the long term demand drivers for energy efficiency, carbon reduction and sustainability throughout all regions in which it trades and to pursue at the appropriate time other organic opportunities.

Chief Executive's Review of Trading Performance

Exceptionally challenging trading conditions prevailed in all of SIG's market sectors and countries of operation throughout 2009, with the economic downturn significantly reducing construction activity and hence demand for the products and services which the Company supplies.

The pace and the likely extent of market decline proved especially hard to gauge in the early part of the year, with abnormally harsh winter weather conditions which gripped Mainland Europe throughout Q1 restricting building site activity for all outside trades and severely depressing normal patterns of seasonal demand. Inconsistent trading from week to week across all of SIG's operations was a feature of the early months of 2009, but by mid year underlying trends were beginning to emerge in the Group's different sectors and geographies. It emerged that the heavy fall in demand experienced in the UK and Ireland towards the end of 2008 had gathered speed in the first half of 2009. The much reduced level of activity that the Group experienced from early 2008 onwards in the UK house building market was followed by a rapid slowdown in non-residential construction. By late spring 2009 new housing construction began to show signs of stabilisation, albeit at a historically low level, whilst an increased flow of work coming through from the publicly-funded non-residential sector proved insufficient to offset the decline in commercial new build.

The trading environment in Ireland remained extremely challenging during the year as the full effects of the country's economic difficulties impacted on all sectors of the construction market.

Trading conditions in the Group's Mainland European countries of operation had held up much better than in the UK and Ireland throughout 2008, and whilst none of these countries proved to be impervious to the strengthening macroeconomic headwinds, taken together they were also more resilient in 2009. In general terms, SIG's principal Western European markets of Germany, France and Benelux were less volatile than those of Poland and Central Europe, and by early summer they began to emerge from recession. These Western European countries appear to have suffered less economic damage and, as management had anticipated, construction markets there seem to have escaped the depth of decline suffered by the UK and Ireland.

For the first time sales in Mainland Europe in 2009 represented over half of Group turnover. This along with the exchange gains on the translation of overseas earnings denominated in Euros(following the consistent strength of the Euro) and the relative stability in its European markets, proved beneficial to the Company's results.

The precipitous fall in volumes in many markets from 2008 onwards has exceeded most expectations, and, notwithstanding cuts in manufacturing capacity in many product groups and countries, surplus production continued to wash into the market in 2009, exerting downward pressure on factory gate prices and resulting in price deflation averaging a little over 2% for the Group as a whole.

Against this background, total Group turnover in 2009 was £2,744m, a decrease of 10.2% on prior year. Underlying profit before tax was 55.9% lower at £60.6m as a result of the more challenging trading conditions. The Group recorded a loss before tax of £55.3m (2008: profit before tax £33.1m), after accounting for other items amounting to £115.9m (2008: £104.2m).

In the face of further reductions in demand for its products and services, as well as bearing down on day to day running costs and working capital, the Company continued in 2009 to implement a comprehensive range of cost reduction measures aimed at adapting resources to the evolving level of demand in its various market sectors and geographies, and which included a significant number of further trading site closures and mergers.

Whilst management's main focus in the year was on optimising revenue and gross margins and delivering cost savings and efficiencies, the Group did selectively continue to allocate some modest additional resources to core operations where opportunities arose to extend market coverage which offered good value.

As a result of these various actions, there was a net reduction of 54 in the total number of the Group's trading locations to 753 at the end of December 2009 (2008: 807), comprising:

Ÿ 18 new trading site openings, of which 3 were in the UK, 11 in France, 2 in Benelux and 2 in Central Europe

Ÿ 72 closures or mergers, of which 58 were in the UK and 14 across Mainland Europe

Trading Highlights

UK and Ireland (48% of total sales)

Ÿ Total sales decreased by £343.2m (20.6%) to £1,326.2m (2008: £1,669.4m)

Ÿ Like for like sales decreased by £342.4m (21.7%)

Ÿ In the UK only, like for like sales decreased by £296.2m (20.5%)

Ÿ Underlying operating profit decreased by £73.5m (66.1%) to £37.7m (2008: £111.2m)

Ÿ Underlying operating profit margin was 390 basis points lower at 2.8% (2008: 6.7%)

Ÿ In the UK and Ireland the Group recorded an operating loss of £61.6m (2008: profit of £60.4m) after accounting for other items amounting to £99.3m (2008: £50.8m).

Ÿ 3 trading sites were added in the year organically, with 58 closures, taking the total at 31 December 2009 to 378 (31 December 2008: 433)

As a consequence of the worsening economic situation, construction activity in the UK weakened considerably again in 2009, following an accelerating decline which began in the Spring of 2008 in the house building sector and which subsequently spread to other parts of the market. New housing starts and completions again fell steeply in 2009 to levels not seen for decades, resulting from a powerful combination of negative factors including weak consumer confidence, falling house prices and lack of mortgage finance availability. By the spring, however, demand in the house building sector began to stabilise, and as the year progressed there were signs of a small but consistent improvement in demand for product from the major national house builders, although smaller regional and local builders were slower to see any signs of recovery.

Discretionary repair, maintenance and improvement (RMI) demand in the types of higher value residential projects supplied by SIG such as home extensions and re-roofing work showed a similar negative trend to residential new build construction.

The private sector component of the non-residential construction market contracted sharply in 2009, with the lack of new building projects in the office, retail and leisure segments since mid-2008 causing an acute shortage of work as existing projects under construction came to a finish. The publicly and PFI-funded sectors showed some positive development in programmes such as Building Schools for the Future and NHS infrastructure renewal projects, although this was insufficient to offset the steep drop in the private commercial new build and refurbishment segments.

In Ireland, the severe economic recession and government austerity measures took a further toll on all areas of the construction market, which suffered an overall decline in 2009 approaching 50%.

Sales of Insulation and related products in the UK and Ireland decreased by 16.6% in total, 17.2% like for like, which was better than the overall annual decline in construction markets as a whole in those countries. In the UK, this was again partly due to the higher levels of thermal performance required by the 2006 changes to Building Regulations (Part L) feeding through into increased quantities of insulation being installed in new buildings. There was also some impact from the effects of the Carbon Emissions Reduction Target ("CERT") scheme, a three-year arrangement which came into effect in April 2008 and under which the Government obliges the UK power generation companies to fund CO2 and therefore energy-saving programmes in existing homes. In Ireland, the sharply reduced level of construction activity resulted in correspondingly lower demand for insulation and all other types of building materials. In the later part of the year however, there was some modest improvement in insulation volumes stemming from government supported energy saving initiatives.

The Group's Miller Pattison subsidiary, whose main activity is the retrofitting of thermal insulation in the walls and lofts of houses, saw volumes under the CERT scheme grow strongly in the first half of the year, but then fall away from summer onwards. This reflected a reduction in the flow of funding from the utility companies, pending the outcome of government consultations to increase the value of work to be carried out during the lifetime of the current arrangements and to extend the scheme pro rata for a further year to 2012.

As well as thermal and acoustic insulation for buildings, SIG is the leading UK supplier of specialist insulation materials for a broad range of industrial process applications, ranging from food processing through to power generation, petrochemical and pharmaceutical plant. Demand for insulation for industrial applications was less depressed in 2009 than for construction use, although the severe contraction in non-residential building adversely impacted sales into the Heating and Ventilation (H&V) sector.

The number of Insulation trading sites decreased by 4 to 79 at the end of December 2009.

The Exteriors division through its sales of core roofing and building plastics products is the part of SIG most heavily exposed to the housing market. With both new residential construction and larger discretionary home improvement projects running at low levels, trading conditions remained challenging through the year, and sales in 2009 were down 20.1% on prior year in total and down 21.8% like for like.

The majority of sales in this division are generated from RMI works rather than new construction, and from the summer onwards there was a slight, gradual but consistent increase in market activity partly due to the release of work under the Decent Homes scheme by local authorities in the Midlands and the North of England. Demand for roofing and cladding products into the non-residential building sector remained weak throughout the year.

In 2009 the Exteriors division extended the rationalisation of its trading locations which began in 2008, implementing a significant number of further site closures and merging the hitherto separate Roofing and Building Plastics businesses into a single operating unit. This streamlining has strengthened the commercial and operational efficiency of the Division and provides a solid platform for the future.

The number of Exteriors trading sites decreased by 35 to 218 at the end of December 2009.

The Interiors division had a very difficult year, with sales decreasing by 24.4% in total and 25.5% like for like. This division, through its several operating units, supplies a wide range of specialist products for the fit out of the interior space of all types of non-residential building, from offices, shops and hotels to schools, hospitals and other public buildings. The product portfolio encompasses resale items such as suspended ceilings and commercial floor coverings bought and sold through the division's distribution network, and partitioning and door sets made to order in the Company's own manufacturing units. SIG enjoys a leading market position in both distributed and manufactured interior products.

In the UK and Ireland the steep decline in the commercial new build and renovation sector which commenced towards the end of 2008 continued apace in 2009. Whilst there was some growth in the distribution businesses in public works such as schools and hospitals, the fall in the office, retail and leisure sectors resulted in a more significant reduction in sales and profitability in the manufacturing businesses. Gross margins came under pressure from a diluted product mix and from capacity underutilisation in the manufacturing businesses as well as external competition, and major restructuring measures were introduced to improve the commercial and operational efficiency of the division.

The number of Interiors trading sites decreased by 9 to 40 at the end of December 2009.

The Specialist Construction Products division supplies a wide range of specialist and niche products to building contractors, including brickwork accessories, access equipment, groundwork preparation products, power tools, fixings, personal protection equipment, cable ducting and other supplies for mechanical and electrical engineering contractors. A large part of the division's sales is into new construction, and with the severe curtailment in the number of new projects getting underway in both housing and non-residential development sales in the year were down 24.4% in total, and down 25.8% like for like. In the face of reducing market demand significant steps were taken in 2009 to further reconfigure the operating structure, increasing the sharing of sites and other resources both within the division and with other SIG businesses.

As a result of these changes, the number of Specialist Construction Products trading sites decreased by 7 to 41 at the end of December 2009.

Mainland Europe (52% of total sales)

Ÿ Total sales in Sterling increased by £33.1m (2.4%) to £1,417.3m (2008: £1,384.2m), aided by a strengthening Euro

Ÿ Like for like sales on a constant currency basis decreased by 7.6%

Ÿ Underlying operating profit decreased by £17.7m (26.1%) to £50.2m (2008: £67.9m)

Ÿ Underlying operating profit margin fell 140 basis points to 3.5% (2008: 4.9%)

Ÿ Total operating profit reduced by £19.8m (35.4%) to £36.1m (2008: £55.9m) after accounting for other items amounting to £14.1m (2008: £12.0m)

Against a background of strong sales and profit performance in Mainland Europe in 2008, when like for like turnover was up 4% in the year and 5% in H2, 2009's results were overall moderately encouraging. Although sales and profits were well down on 2008, the region as a whole saw construction activity less impaired by the economic downturn than the UK or Ireland, with SIG's main Western European countries of operation going into recession later and emerging from it earlier without the property bubble burst which was experienced in the UK and Ireland.

 

Broadly speaking, residential new build and RMI was down in Mainland Europe but tended to stabilise as the year unfolded, while non-residential activity declined less than many had expected. In part this was due to the effect of government stimulus packages, notably in France, although the major support measures put in place in Germany by the federal government were much slower to take effect. Demand for industrial insulation from non-construction sectors also remained reasonably stable.

In Germany and Austria (42% of sales in Mainland Europe) total sales were 3.2% ahead of prior year in Sterling, but down 7.2% in local currency and down 7.6% like for like in local currency. Overall construction activity in the region in the Group's segments is estimated to have been down around 10% on 2008, although the residential sector has been running at a low level for a number of years and experienced only modest further deterioration in 2009. Whilst our German operations outperformed the market again in all segments, the development of the Roofing division was particularly encouraging with like for like sales in Euros held at 2008 levels out of 4 fewer trading locations, and up 6% in H2 on the same basis.

The number of trading sites decreased by 7 to 82 at the end of December 2009.

In France (37% of sales in Mainland Europe) total sales in Sterling grew 7.4% versus prior year, but were down 3.5% in local currency both in total and on a like for like basis. Larivière continued to outperform the general French roofing market, with annual sales in Euros versus prior year down by 6.2% in a residential construction market down by more than 10%. Incremental sales from maturing trading sites opened in the previous three years as part of Larivière's strategic development programme, and from a further 4 trading sites opened in 2009, contributed significantly to the positive sales development.

The Group's French Insulation and Interiors operations traded exceptionally well in challenging trading conditions, achieving like for like sales in local currency in line with prior year levels in non-residential construction and process industrial insulation markets estimated together to be down around 10% versus 2008. As in the case of Larivière, these divisions benefited from organic sales growth from trading sites opened in the previous three years as well as from another 7 sites opened in 2009.

The number of trading sites increased by 11 to 175 at the end of December 2009.

In Poland and Central Europe (11% of sales in Mainland Europe), total sales in Sterling fell by 27.2% and by 23.8% like for like in local currency. As developing economies, the majority of them recent European Union accession states, the countries in which SIG is present in this region offer the prospect of above average sales and profit growth in the medium term, but are prone to above average volatility.

In Czech Republic, Slovakia and Hungary a variety of local political and exchange rate issues complicated the global macroeconomic pressures on the region, severely reducing construction activity and leading to substantial price deflation. Like for like sales in local currency in this sub-region, which represented 2.4% of Mainland European sales in 2009, were down 42.3% against prior year. The larger core business in Poland, where the Group has been present since 1996 and which accounted for 8.6% of sales in Mainland Europe in the year, traded in an increasingly weak market and suffered a reduction in like for like sales in local currency of 20.5% compared with 2008. Gross margins across the whole region were adversely affected by a combination of significant price deflation and temporary arbitraging across national borders occasioned by exchange rate anomalies as well as by general competitive pressures.

In light of the unfolding trading environment and forward prospects, significant restructuring measures were implemented in Poland to secure greater operational efficiency and commercial effectiveness. Management continues to have full confidence in the medium term outlook for its businesses in this region.

The number of trading sites decreased by 5 to 92 at the end of December 2009.

Sales in Benelux (6% of total sales in Mainland Europe) were up by a substantial 11.8% in total in Sterling, and were held at 2008 level on a like for like basis in local currency. The core business in Benelux is focused on Industrial Insulation and Interiors, and both divisions continued to perform well in 2009 against background market conditions in Benelux which, in SIG's sectors combined, are estimated to have been around 6% lower than prior year.

The number of trading sites increased by 2 to 14 at the end of December 2009.

Sales in Air Trade Centre, the European-wide air conditioning and air handling business acquired in April 2008 and which is headquartered in Benelux, amounted to 4% of total sales in Mainland Europe. This business provides SIG with a platform for growth in the field of the energy management of buildings, which is highly complementary to the Group's insulation activities in energy saving and carbon reduction. Like for like sales in Euros in Air Trade Centre in 2009 were 11% lower than in 2008, not all of which period was under SIG ownership.

The number of Air Trade Centre trading sites at 31 December 2009 was 12.

Cost Saving and Restructuring

With its individual operating divisions affected differently by the downturn and being at different points in their business cycle, the Group continued a differentiated approach to cost reduction whereby the performance, resources employed and forward prospects of individual trading locations were kept under regular review and pre-planned contingency measures implemented as these became warranted. Consistent with the overarching aims of maintaining customer service and defending market position, as appropriate, staffing and vehicles were cut back and trading locations merged or closed to protect profitability. Such actions were taken in all of the Group's countries and operating divisions, although given the scale of the decline and the density of market coverage, the impact of such changes was heaviest in the UK and Ireland.

In addition to seeking efficiencies in the Group's operations on a standalone basis, a number of further initiatives were implemented to increase commercial and operational efficiencies between some of the UK divisions. These ranged from site sharing between several trading locations in different divisions to the full merger under single management of the insulation and interiors distribution businesses, and likewise of the previously separate roofing and roofline plastics operating units. In Poland, all of the Group's standalone businesses were merged into a single entity with a unified management structure. Furthermore, the Company embarked on the complete reconfiguration of its UK Interiors manufacturing operations, with four previously autonomous businesses being re-formed into a specialist UK Manufacturing Division, rationalising the product range and improving capacity utilisation by reducing the number of production facilities from twelve to six.

The impact of these carefully designed changes will become increasingly apparent in 2010, and will stand the Company in good stead to benefit from eventual market recovery.

Outlook

2010 is set to be another challenging year, though one in which the rate of decline in most of SIG's different market sectors and countries of operation should gradually level out as the year unfolds. Management and staff across the Group are ready to deal with the challenges ahead, to continue to provide excellent service and value to our customers, to strengthen our position in our different markets to look for opportunities for profitable growth, and to take full advantage of the upturn when it eventually comes.

Definitions

† Like for like sales excludes the impact of acquisitions completed after 1 January 2008.

* Underlying is before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

Directors' responsibilities statement

We confirm that to the best of our knowledge:

·; the Accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole;

·; the Trading Performance Review includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and

·; the Accounts include a fair review of all related party transactions.

 

 

Chris Davies	Gareth Davies
Director	Director
17 March 2010	17 March 2010

 

Cautionary Statement

This report contains certain forward looking statements with respect to the financial condition, results, operations and business of SIG plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this report should be considered as a profit forecast.  

Consolidated Income Statement
for the year ended 31 December 2009
		Before other items*	Other items*	Total		Before other items*	Other  items*	Total
		2009	2009	2009		2008	2008	2008
	Note	£m	£m	£m		£m	£m	£m
Revenue
Existing operations		2,743.5	-	2,743.5		2,898.0	-	2,898.0
Acquisitions		-	-	-		155.6	-	155.6
Continuing operations	2	2,743.5	-	2,743.5		3,053.6	-	3,053.6
Cost of sales		(2,050.3)	-	(2,050.3)		(2,245.2)	-	(2,245.2)
Gross profit		693.2	-	693.2		808.4	-	808.4
Other operating expenses		(612.3)	(113.4)	(725.7)		(638.6)	(62.8)	(701.4)
Operating (loss)/profit
Existing operations		80.9	(113.4)	(32.5)		156.6	(62.8)	93.8
Acquisitions		-	-	-		13.2	-	13.2
Continuing operations		80.9	(113.4)	(32.5)		169.8	(62.8)	107.0
Finance income		10.3	1.4	11.7		11.9	-	11.9
Finance costs		(30.6)	(3.9)	(34.5)		(44.4)	(41.4)	(85.8)
(Loss)/profit before tax		60.6	(115.9)	(55.3)		137.3	(104.2)	33.1
Income tax credit/(expense)	3	(18.0)	28.2	10.2		(40.2)	13.9	(26.3)
(Loss)/profit after tax		42.6	(87.7)	(45.1)		97.1	(90.3)	6.8
Attributable to:
Equity holders of the Company		42.1	(87.7)	(45.6)		96.6	(90.3)	6.3
Minority interests		0.5	-	0.5		0.5	-	0.5
Earnings per shareˆ
Basic (loss)/earnings per share	4	9.0p	(18.7p)	(9.7p)		58.9p	(55.1p)	3.8p
Diluted (loss)/earnings per share	4	9.0p	(18.7p)	(9.7p)		58.7p	(54.9p)	3.8p
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments. "Other items" have been disclosed separately in order to give an indication of the underlying earnings of the Group.   ˆ In accordance with IAS 33 "Earnings per Share", earnings per share has been recalculated to take into account the discount to the open offer element of the Group's equity issue completed in April 2009. Further details can be found in Note 4.

 

 

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2009
		2009		2008
		£m		£m
(Loss)/profit after tax		(45.1)		6.8
Other comprehensive (expense)/income
Exchange difference on retranslation of foreign currency goodwill and intangibles		(33.1)		97.0
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)		(21.2)		61.8
Exchange and fair value movements associated with borrowings and derivative financial instruments		16.5		(92.9)
Tax (charge)/credit on exchange difference arising on borrowings and derivative financial instruments		(5.5)		13.8
Gains and losses on cash flow hedges		(20.1)		3.5
Transfer to profit and loss on cash flow hedges		1.3		(1.4)
Current and deferred tax on share options		-		(0.7)
Actuarial loss on defined benefit pension schemes		(4.7)		(10.6)
Deferred tax movement associated with actuarial loss		1.3		3.0
Other comprehensive (expense)/income		(65.5)		73.5
Total comprehensive (expense)/income		(110.6)		80.3
Attributable to:
Equity holders of the Company		(111.1)		79.8
Minority interests		0.5		0.5
		(110.6)		80.3

 

Consolidated Balance Sheet
as at 31 December 2009
		2009		2008
		£m		£m
Non-current assets
Property, plant and equipment		213.5		259.3
Goodwill		506.9		567.1
Intangible assets		150.6		183.4
Deferred tax assets		27.5		18.7
		898.5		1,028.5
Current assets
Inventories		227.7		268.6
Trade receivables		385.8		469.7
Other receivables		28.0		31.3
Derivative financial instruments		38.6		74.6
Cash and cash equivalents		219.4		71.7
		899.5		915.9
Total assets		1,798.0		1,944.4
Current liabilities
Trade and other payables		340.7		373.2
Obligations under finance lease contracts		2.3		3.4
Bank overdrafts		2.5		18.8
Bank loans		173.5		345.3
Loan notes		0.1		0.1
Derivative financial instruments		0.1		60.6
Current tax liabilities		2.8		5.9
Provisions		9.5		8.3
		531.5		815.6
Non-current liabilities
Obligations under finance lease contracts		7.1		9.2
Bank loans		12.1		6.4
Private placement notes		299.2		328.6
Loan notes		-		0.1
Derivative financial instruments		15.6		70.9
Deferred tax liabilities		38.9		49.5
Other payables		6.1		4.0
Retirement benefit obligations		24.0		19.1
Provisions		31.7		22.1
		434.7		509.9
Total liabilities		966.2		1,325.5
Net assets		831.8		618.9
Capital and reserves
Called up share capital		59.1		13.6
Share premium account		447.0		167.5
Capital redemption reserve		0.3		0.3
Special reserve		-		22.1
Share option reserve		0.9		2.6
Hedging and translation reserve		46.1		89.4
Retained profits		276.2		321.5
Attributable to equity holders of the Company		829.6		617.0
Minority interests		2.2		1.9
Total equity		831.8		618.9

 

 

Consolidated Cash Flow Statement
for the year ended 31 December 2009
		2009		2008
	Note	£m		£m
Net cash flow from operating activities
Cash inflow from operating activities	5	174.1		156.0
Borrowing costs paid		(27.4)		(42.2)
Interest received		6.0		6.6
Income tax paid		(16.5)		(27.8)
Net cash inflow from operating activities		136.2		92.6
Cash flows from investing activities
Purchase of property, plant and equipment		(19.6)		(65.9)
Proceeds from sale of property, plant and equipment		10.1		15.8
Settlement of amounts payable for purchase of businesses		(3.9)		(121.4)
Net cash used in investing activities		(13.4)		(171.5)
Cash flows from financing activities
Proceeds from issue of ordinary share capital		325.0		1.1
Capital element of finance lease rental payments		(2.3)		(3.5)
Repayment of loans / settlement of derivative financial instruments		(278.6)		(74.8)
New loans		-		146.0
Dividends paid to equity holders of the Company		-		(36.5)
Payments to minority Shareholder		(0.2)		(0.7)
Net cash generated in financing activities		43.9		31.6
Increase/(decrease) in cash and cash equivalents in the year	6	166.7		(47.3)
Cash and cash equivalents at beginning of year		52.9		87.3
Effect of foreign exchange rate changes		(2.7)		12.9
Cash and cash equivalents at end of year		216.9		52.9

 

 

Consolidated Statement of Changes in Equity for the year ended 31 December 2009
	Called up share capital	Share premium account	Capital redemption reserve	Special reserve	Share option reserve	Hedging and translation reserve	Retained profits	Total	Minority interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 31 December 2008	13.6	167.5	0.3	22.1	2.6	89.4	321.5	617.0	1.9	618.9
Loss after tax	-	-	-	-	-	-	(45.6)	(45.6)	0.5	(45.1)
Other comprehensive income/(expense):
Exchange difference on retranslation of foreign currency goodwill and intangibles	-	-	-	-	-	(33.1)	-	(33.1)	-	(33.1)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)	-	-	-	-	-	(21.2)	-	(21.2)	-	(21.2)
Exchange and fair value movements associated with borrowings and derivative financial instruments	-	-	-	-	-	16.5	-	16.5	-	16.5
Tax charge on exchange difference arising on borrowings and derivative financial instruments	-	-	-	-	-	(5.5)	-	(5.5)	-	(5.5)
Gains and losses on cash flow hedges	-	-	-	-	-	-	(20.1)	(20.1)	-	(20.1)
Transfer to profit and loss on cash flow hedges	-	-	-	-	-	-	1.3	1.3	-	1.3
Actuarial loss on defined benefit pension schemes	-	-	-	-	-	-	(4.7)	(4.7)	-	(4.7)
Deferred tax movement associated with actuarial loss	-	-	-	-	-	-	1.3	1.3	-	1.3
Total comprehensive expense	-	-	-	-	-	(43.3)	(67.8)	(111.1)	0.5	(110.6)
New share capital issued	45.5	279.5	-	-	-	-	-	325.0	-	325.0
Transfer between reserves	-	-	-	(22.1)	-	-	22.1	-	-	-
Debit to share option reserve	-	-	-	-	(1.3)	-	-	(1.3)	-	(1.3)
Exercise of share options	-	-	-	-	(0.4)	-	0.4	-	-	-
Dividend payment to minority interest Shareholder	-	-	-	-	-	-	-	-	(0.2)	(0.2)
At 31 December 2009	59.1	447.0	0.3	-	0.9	46.1	276.2	829.6	2.2	831.8

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity (continued) for the year ended 31 December 2008
	Called up share capital	Share premium account	Capital redemption reserve	Special reserve	Share option reserve	Hedging and translation reserve	Retained profits	Total	Minority interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 31 December 2007	13.5	166.5	0.3	22.1	2.7	9.7	358.8	573.6	1.3	574.9
Profit after tax	-	-	-	-	-	-	6.3	6.3	0.5	6.8
Other comprehensive income/(expense):
Exchange difference on retranslation of foreign currency goodwill and intangibles	-	-	-	-	-	97.0	-	97.0	-	97.0
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)	-	-	-	-	-	61.8	-	61.8	-	61.8
Exchange and fair value movements associated with borrowings and derivative financial instruments	-	-	-	-	-	(92.9)	-	(92.9)	-	(92.9)
Tax credit on exchange difference arising on borrowings and derivative financial instruments	-	-	-	-	-	13.8	-	13.8	-	13.8
Gains and losses on cash flow hedges	-	-	-	-	-	-	3.5	3.5	-	3.5
Transfer to profit and loss on cash flow hedges	-	-	-	-	-	-	(1.4)	(1.4)	-	(1.4)
Current and deferred tax on share options	-	-	-	-	-	-	(0.7)	(0.7)	-	(0.7)
Actuarial loss on defined benefit pension schemes	-	-	-	-	-	-	(10.6)	(10.6)	-	(10.6)
Deferred tax movement associated with actuarial loss	-	-	-	-	-	-	3.0	3.0	-	3.0
Total comprehensive income	-	-	-	-	-	79.7	0.1	79.8	0.5	80.3
New share capital issued	0.1	1.0	-	-	-	-	-	1.1	-	1.1
Dividends	-	-	-	-	-	-	(36.5)	(36.5)	-	(36.5)
Recognition of option in relation to minority interest Shareholding	-	-	-	-	-	-	(2.0)	(2.0)	-	(2.0)
Credit to share option reserve	-	-	-	-	1.0	-	-	1.0	-	1.0
Exercise of share options	-	-	-	-	(1.1)	-	1.1	-	-	-
Minority interest acquired	-	-	-	-	-	-	-	-	1.4	1.4
Purchase of minority interest Shareholding	-	-	-	-	-	-	-	-	(0.6)	(0.6)
Dividend payment to minority interest Shareholder	-	-	-	-	-	-	-	-	(0.7)	(0.7)
At 31 December 2008	13.6	167.5	0.3	22.1	2.6	89.4	321.5	617.0	1.9	618.9
The special reserve arose as a result of a number of transfers from the Group's share premium reserve up until 1996. Goodwill arising on a number of historic acquisitions was then written off against this special reserve under the accounting convention at that time. The balance on the special reserve was transferred into retained profits in the year.   The share option reserve represents the cumulative share option charge under IFRS 2 less the value of any share options that have been exercised.   The hedging and translation reserve represents movements in the Consolidated Balance Sheet as a result of movements in exchange rates which are taken directly to reserves.

 

 

 

1. Basis of preparation

 

The Group's financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") issued for use in the European Union and on a basis consistent with that adopted in the previous year.

The financial information has been prepared under the historical cost convention except for derivative financial instruments that are stated at their fair value. Whilst the financial information included in this Annual Results announcement has been computed in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

The Annual Results announcement does not constitute the Company's statutory accounts for the year ended 31 December 2009 within the meaning of Section 435 of Companies Act 2006 and the year ended 31 December 2008 within the meaning of Section 240 of the Companies Act 1985 but is derived from those statutory accounts. The Group's statutory accounts for the year ended 31 December 2008 have been filed with the Registrar of Companies, and those for 2009 will be delivered following the Company's Annual General Meeting. The Auditors have reported on the statutory accounts for 2009 and 2008, and their reports were unqualified and did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the 2009 financial statements or Sections 237 (2) or 237 (3) of the Companies Act 1985 in relation to the 2008 financial statements.

 

 

Changes in accounting policy

 

The Group has adopted IFRS 8 "Operating Segments" for the first time in 2009. This standard requires the Group to report segmental information on the basis of internal reports which are regularly reviewed by the Group Board and used to allocate the resources of the business, and supersedes IAS 14 "Segment Reporting". The Group has also adopted IAS 1 "Presentation of Financial Statements" (revised 2007) for the first time in 2009. The amendments arising from this require the inclusion of the Consolidated Statement of Changes in Equity as a primary statement in the financial information. The Group has complied fully with the requirements of IFRS 8 and IAS 1 in the year, which apply to disclosure matters only.

 

In the current financial year, in addition to the two standards detailed above, the following significant changes to International Financial Reporting Standards have become applicable. The adoption of these standards in the current year has had no material impact on the financial statements of the Group:

 

·; IFRS 2 "Share-based Payment";

 

·; IAS 23 "Borrowing Costs"; and

 

·; IFRIC 16 "Hedges of a Net Investment in a Foreign Operation".

2. Segmental information
(a) Segmental results
Following the adoption of IFRS 8 "Operating Segments", the Group had identified 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 and 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.
		2009					2009								2009									2009											2008									2008								2008					2008
		UK and Ireland					Mainland Europe								Eliminations									Total											UK and Ireland									Mainland Europe								Eliminations					Total
		£m					£m								£m									£m											£m									£m								£m					£m
Revenue
External sales		1,326.2					1,417.3								-									2,743.5											1,669.4									1,384.2								-					3,053.6
Inter-segment sales*		0.5					3.9								(4.4)									-											-									2.3								(2.3)					-
Total revenue		1,326.7					1,421.2								(4.4)									2,743.5											1,669.4									1,386.5								(2.3)					3,053.6
Result Segment result before amortisation of acquired intangibles, impairment charges and restructuring costs		37.7					50.2								-									87.9											111.2									67.9								-					179.1
Amortisation of acquired intangibles and impairment charges		(49.5)					(9.1)								-									(58.6)											(31.7)									(8.9)								-					(40.6)
Restructuring costs		(49.8)					(5.0)								-									(54.8)											(19.1)									(3.1)								-					(22.2)
Segment operating (loss)/profit		(61.6)					36.1								-									(25.5)											60.4									55.9								-					116.3
Parent Company costs																								(7.0)																																	(9.3)
Operating (loss)/profit																								(32.5)																																	107.0
Net finance costs																								(20.3)																																	(32.5)
Net losses on derivative financial instruments																								(2.5)																																	(41.4)
(Loss)/profit before tax																								(55.3)																																	33.1
Income tax credit/(expense)																								10.2																																	(26.3)
Minority interests																								(0.5)																																	(0.5)
Retained (loss)/profit																								(45.6)																																	6.3
Balance sheet
Assets
Segment assets		801.1					826.0								-									1,627.1											909.0									961.4								-					1,870.4
Unallocated assets																								170.9																																	74.0
Consolidated total assets																								1,798.0																																	1,944.4
Liabilities
Segment liabilities		260.4					188.0								-									448.4											245.4									246.5								-					491.9
Unallocated liabilities																								517.8																																	833.6
Consolidated total liabilities																								966.2																																	1,325.5
Other segment information
Capital expenditure on:
Property, plant and equipment		10.7					8.9								-									19.6											39.7									29.0								-					68.7
Intangible assets		-					-								-									-											35.8									4.6								-					40.4
Goodwill		(3.0)					1.7								-									(1.3)											40.2									25.8								-					66.0
Non-cash expenditure:
Depreciation		25.7					14.5								-									40.2											28.4									14.2								-					42.6
Impairment of property, plant and equipment		6.8					-								-									6.8											-									-								-					-
Amortisation of acquired intangibles		19.5					9.1								-									28.6											17.5									8.9								-					26.4
Goodwill impairment charges		30.0					-								-									30.0											14.2									-								-					14.2
* Inter-segment sales are charged at the prevailing market rates.
2. Segmental information (continued)   (b) Revenue by product group
The Group focuses its activities into four product sectors: Insulation and Building Environments; Interiors; Exteriors; and Specialist Construction Products ("SCP").
The following table provides an analysis of Group sales by type of product:
						2009							2008
						£m							£m
Insulation and Building Environments						1,086.4							1,111.5
Interiors						685.9							809.2
Exteriors						749.0							848.9
SCP						222.2							284.0
Total						2,743.5							3,053.6
(c) Geographic information
The Group's revenue from external customers and its non-current assets (i.e. property, plant and equipment, goodwill, intangible assets and deferred tax assets) by geographical location are as follows:
						2009				2009										2008					2008
Country								Revenue						Non-current assets									Revenue				Non-current assets
								£m						£m									£m				£m
United Kingdom								1,239.3						442.6									1,536.2				501.2
Ireland								86.9						14.0									133.2				52.9
France								520.0						269.6									484.5				288.1
Germany & Austria								588.6						73.7									570.5				79.5
Poland								122.7						23.0									171.1				26.7
Benelux*								156.3						46.1									120.0				49.3
Central Europe								29.7						29.5									38.1				30.8
Total								2,743.5						898.5									3,053.6				1,028.5
* Includes international air handling business (headquartered in Benelux).
There is no material difference between the basis of preparation of the information reported above and the Accounting Policies adopted by the Group.