Final Results

RNS Number : 2961Z

SIG PLC

14 March 2012

 



14 March 2012

Preliminary results for the year ended 31 December 2011

SIG plc ("SIG") is a leading distributor of specialist building products in Europe, with strong positions in its core markets of insulation & energy management, interiors and exteriors.

Continuing operations*	2011	2010	Increase
Revenue	£2,744.8m	£2,545.4m	7.8%
Underlying** operating profit	£95.6m	£77.8m	22.9%
Underlying profit before tax	£81.7m	£64.2m	27.3%
Underlying basic earnings per share	9.4p	7.4p	27.0%
Dividends per share	2.25p	-	-

Financial highlights

·     Sales from continuing operations up by 7.8% to £2,744.8m (7.1% in constant currency)

·     Gross margin in continuing operations improved by 20bps to 25.6% (2010: 25.4%)

·     Underlying operating margin in continuing operations up by 40bps to 3.5% (2010: 3.1%)

·     Underlying profit before tax from continuing operations increased by 27.3% to £81.7m

·     Statutory profit before tax increased to £7.5m (2010: loss of £80.8m)

·     Net debt of £115.9m, reduced by £69.1m compared to 31 December 2010 - leverage now less than 1x (net debt/EBITDA)

·     Return on capital employed (post-tax) increased by 230bps to 7.9% (2010: 5.6%)

·     Proposed final dividend of 1.5p per share, bringing total dividend for the year to 2.25p

Operational highlights

·     Continued market outperformance of c.3%

·     Recently opened trading sites performing very strongly

·     Invested further in organic growth - another 18 branches opened during 2011

·     Divested non-core operations, increased focus on three core markets of insulation & energy management, interiors and exteriors 

·     £5m of annual cost savings identified from further rationalisation of branch network - total sites as at 31 December 2011: 715 (2010: 748)

* Continuing operations exclude the results of businesses (up to the date of the disposal) divested in 2011.  The comparative results for these businesses for the year ended 31 December 2010 have also been excluded.

** Underlying is before the amortisation of acquired intangibles, impairment charges, restructuring costs, profit and loss arising on the sale of businesses, trading profits and losses associated with disposed businesses and gains and losses on derivative financial instruments. On a pre-tax basis these totalled £74.2m (2010: £145.0m).

Statutory

Total operations	2011	2010
Revenue	£2,808.4m	£2,668.0m
Operating profit/(loss)	£25.6m	(£54.6m)
Profit/(loss) before tax	£7.5m	(£80.8m)
(Loss) after tax	(£0.0m)	(£76.8m)
(Loss) per share	(0.0p)	(13.0p)

Commenting on the results and outlook, Chris Davies, Chief Executive, said:

"We are pleased with these results and the progress we are making. I would highlight in particular the success of our organic growth strategy, with new branches moving into profitability more quickly than anticipated.

"During 2011 the Group delivered on a number of key objectives.  Operationally, we continued to outperform the market while improving gross margins and securing additional efficiency savings.  Strategically, we increased focus on our three core markets of insulation & energy management, interiors and exteriors by divesting non-core operations. Financially, we improved returns and further strengthened our balance sheet.

"We enter 2012 as a much leaner, stronger and more focused organisation.  Sales per day in constant currency so far this year were around 1% ahead of strong prior year comparators, despite the impact of severe weather across Mainland Europe in February this year.

"Given the current uncertainties in the macroeconomic environment, we continue to expect market volumes to be slightly down overall in 2012.  However, we have a solid platform on which to build and are targeting further market outperformance, with new branches expected to make a significant contribution to future growth."

Enquiries

SIG plc

Chris Davies, Chief Executive                                    + 44 (0) 114 285 6300

Doug Robertson, Group Finance Director

Simon Bielecki, Head of Investor Relations                + 44 (0) 7515 794359

FTI Consulting

Richard Mountain/Nick Hasell                                     + 44 (0) 20 7269 7291

Analyst presentation

A briefing to analysts will take place at 9.00am on Wednesday 14 March 2012 at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.  A webcast will be available on the investor relations section of www.sigplc.com and will also be available for replay later on in the day.

Chief Executive's Review

Summary

Sales from continuing operations were up by 7.8% to £2,744.8m and by 7.1% in constant currency. Growth was driven by three main factors: improved trading conditions, with market volumes increasing by c.1% compared to 2010; product price inflation of c.3% across the Group; and market outperformance of c.3%.

Trading towards the end of the year benefited from relatively mild weather, particularly in comparison to the exceptionally severe conditions in December 2010. 

In Mainland Europe revenues were up by 11.3% to £1,543.8m and by 10.1% on a constant currency basis, with France demonstrating the most marked progress of the countries in which SIG operates.  The strong performance in Mainland Europe is in part attributable to the Group's investment in new branches in recent years, which are contributing significant additional sales and profit as they mature.

In the UK & Ireland revenues from continuing operations increased by 3.7% to £1,201.0m, with sales in the UK up by 3.9% and down marginally in Ireland by 0.5% in Euros.  In line with its strategy of upgrading its portfolio, SIG divested three UK businesses during the year for net proceeds of £30.6m.

Gross margin from the Group's continuing operations improved by 20bps to 25.6% (2010: 25.4%).

Underlying operating profit from continuing operations increased by 22.9% to £95.6m (2010: £77.8m) and the underlying operating margin improved by 40bps to 3.5% (2010: 3.1%).

Underlying net finance costs increased marginally to £13.8m (2010: £13.6m), leaving underlying profit before tax from continuing operations up by 27.3% at £81.7m (2010: £64.2m).  This significant profit development reflects the operational gearing benefit of sales growth, partially moderated by the impact of cost inflation and investment in organic development of the business.  Underlying basic earnings per share from continuing operations increased by 27.0% to 9.4p (2010: 7.4p).

Non-underlying net charges before taxation during the period totalled £74.2m (2010: £145.0m) and included amortisation of acquired intangibles of £24.6m (2010: £28.5m), £22.7m (2010: £nil) relating to the net loss on disposal of businesses in 2011, exceptional restructuring costs of £12.0m (2010: £21.8m), impairment charges of £11.0m (2010: £80.4m), trading profits associated with divested businesses of £0.3m (2010: losses of £1.7m) and net losses on derivative financial instruments of £4.2m (2010: £12.6m).  Including these charges, profit before tax was £7.5m compared to a loss of £80.8m in 2010.  Basic loss per share was 0.0p (2010: loss per share of 13.0p).

Net debt at 31 December 2011 was £115.9m (31 December 2010: £185.0m), having benefited from the proceeds from the divestment of SIG's UK Safety & Workwear, UK Scaffolding and UK Interiors Manufacturing businesses, together with a continued strong focus on working capital, which at 8.2% (2010: 8.6%) of sales on a constant currency continuing operations basis, represents an historical low for the Group.

Return on Capital Employed ("ROCE") increased to 7.9% on a post-tax basis (2010: 5.6%). The Group is targeting further improvements in ROCE in 2012 and beyond.

Dividend

The Board has proposed a final dividend of 1.5p per ordinary share. Taken together with the interim dividend of 0.75p per ordinary share, which was paid in November 2011, this provides a total dividend of 2.25p per ordinary share for the year.  The final dividend is expected to be paid on 30 May 2012 to shareholders on the register at close of business on 4 May 2012.  The ex-dividend date is 2 May 2012.

Going forward the Board is committed to a progressive dividend policy while maintaining a dividend cover of 2-3x on an underlying basis over the medium term.

Market Outperformance

As SIG operates in a number of different market segments there is no single source of market data by which it can compare its relative performance.

Therefore the Group has developed a standard in-house methodology which incorporates published research data, government statistics, sector reports, supplier and competitor information to establish market performance.  The same procedure is applied every time to ensure consistency.

Based on this methodology, SIG estimates that overall market volume and price growth was 4.3% in 2011, weighted according to the sectors in which it operates.  As Group revenues grew by 7.1% in constant currency during the year this equates to a market outperformance of 2.8%.  Using the same methodology the Group estimates that it outperformed its markets by nearly 3% in 2010.

SIG estimates that around two-thirds of this outperformance can be attributed to improved performance at its existing sites, with the other third being derived from recent branch openings.

New branch openings

The careful identification and opening of new trading sites is an important part of SIG's organic growth strategy, and this investment programme was maintained during the recent downturn.

The Group believes that this strategy has been vindicated, with new branches opened during the 2008-10 period performing very strongly.  In 2011 these branches added over £100m to Group revenues, with a c.4% return on sales, well ahead of expectations.  Further sales and profit progression is expected from these branches as they reach full maturity, which typically takes 5 to 6 years.

SIG expanded its network coverage with a further 18 new trading sites during 2011, including 4 in the UK, 7 in France and 4 in Germany, and intends to open around 15-20 new branches per annum over the medium term.  However, this indicative figure may be flexed upwards or downwards depending on suitable opportunities for site openings and the prevailing macroeconomic environment.

In the immediate future, new branch openings in the UK will be mainly focused on the Builders Express format, where SIG is targeting new customer types and filling gaps in geographical coverage.  To date the Group has opened 5 Builders Express branches and is aiming to open at least 6 further sites in 2012, mostly in London and South East England.

Organisation and Structure

Divestments

During 2011 the Group disposed of its UK Interiors Manufacturing, UK Scaffolding and UK Safety & Workwear businesses.  Net proceeds from the divestments were £30.6m. During their period of SIG ownership in 2011, these businesses generated aggregate revenues of £63.6m (2010: £122.6m), with an operating profit of £0.3m (2010: loss of £1.7m).

As a result of these disposals the Group has strengthened its competitive advantage and is now strategically focused on its core markets of insulation & energy management, interiors and exteriors in each country.  Accordingly and reflecting this focus, SIG will now report sales in these three business areas as follows:

	2011 % revenue*	2010 % revenue*
Insulation & energy management	46%	45%
Interiors	22%	23%
Exteriors	32%	32%

* excludes divested businesses.

Internal restructuring & operating cost savings

Following John Chivers' retirement from the Group, SIG has altered its management structure and appointed Robert Barclay, previously Managing Director of SIG Distribution, to the new post of Managing Director UK & Ireland.   This is now consistent with the Group's organisational structure in Mainland Europe and will enable SIG to drive further cross-selling and operational efficiencies in the region.

In this regard, and as announced in its trading update of 12 January 2012, the Group has identified approximately £5m of additional annual cost savings principally related to the rationalisation of its branch network.  The bulk of the savings are from the closure of 16 branches, of which 15 are in the UK & Ireland.  These closures began towards the end of 2011 and will complete during 2012. 

The Group expects to gain the majority of the operating cost savings in 2012, subject to the precise timing of closures, with the full benefit being realised in 2013.  Exceptional restructuring costs of £12.0m relating to this rationalisation and previous branch closures have been charged to the 2011 accounts.

Strategy

SIG seeks to become the leading distributor of specialist building products in Europe. Its strategy is to develop and grow in its three core markets of insulation & energy management, interiors and exteriors by combining the reputational strengths of its local brands with the scale efficiencies and know-how of a multinational group. Moreover, with its focus on specialist expertise and high customer service levels, SIG aims to continue to outperform its markets and thereby generate sustainable long term growth in shareholder value.

Trading Review

Mainland Europe (56% of Group sales)

·      Total sales up by 11.3% to £1,543.8m (2010: £1,386.8m)

·      Gross margin improved by 20bps to 24.9% (2010: 24.7%)

·      Underlying operating profit increased by 25.9% to £53.5m (2010: £42.5m)

·      Underlying operating margin improved by 40bps to 3.5% (2010: 3.1%)

·      Statutory operating profit of £32.0m (2010: £19.7m)

The Group's overall performance was driven in large part by the good progress it made in Mainland Europe, where sales were up by 10.1% on a constant currency basis.  Mainland Europe has steadily increased as a proportion of total sales and now accounts for 56% of Group revenues compared to 38% in 2007.

	Revenue 2011 £m	% change	% change  constant currency	% of Group revenues 2011
Germany and Austria	616.6	9.1	7.5	22.5
France	605.2	14.5	12.9	22.0
Poland and Central Europe	165.6	9.7	11.3	6.0
Benelux*	156.4	9.8	8.2	5.7

* includes international air conditioning and air handling business (headquartered in the Netherlands). 

During 2011 SIG opened 14 new trading sites in the region, of which 7 were in France and 4 in Germany.  In order to improve efficiency and reduce cost, the Group also rationalised its operations in Poland and Central Europe, closing 12 small branches.  As a result, including one further closure in Benelux, the total number of trading sites in Mainland Europe increased by one, to 385 as at 31 December 2011.

Revenues in Germany and Austria were up by 7.5% in Euros, representing a market outperformance of over 1%. Gross margin was up by 20bps.  Overall, both the German residential and non-residential markets experienced good growth, with residential the slightly stronger segment.  During the period the roofing division grew by 5.3% and its insulation and interiors business was up by 8.3% in Euros compared to prior year. 

Sales in France were up by 12.9% in Euros, representing a market outperformance of c.8%, and gross margin increased by 30bps.  There was good growth in the French residential market, particularly in new build construction, driven by low interest rates, relatively mild weather and tax incentives.  In contrast the non-residential market remained sluggish.

SIG's roofing business, Lariviere, performed well, with sales up by 11.9% in Euros, benefiting significantly from new trading sites opened during the last four years, where revenues were up by around a third compared to 2010.  The Group continues to be the market leader in France for industrial insulation, growing sales in this business by 14.2% in Euros.

Trading conditions in Benelux remained challenging, with the economic recession having impacted later than elsewhere in Europe.  Against this background SIG was pleased with its performance, growing its business by 8.2% in Euros, compared to a fall in the market of around 3%.  Gross margin was up slightly by 10bps.  These results include sales from SIG's pan-European air conditioning and air handling business, Air Trade Centre, which performed particularly well in Belgium, Bulgaria and Turkey despite difficult market conditions.  This business provides SIG with a platform for growth in the energy management of buildings, being highly complementary to the Group's insulation activities. 

In Poland and Central Europe, SIG consolidated its management team so that its operations in the region are run as a single unit, and the benefits of these cost saving measures are now being realised.  SIG's core business in Poland, which accounts for around 80% of the sales in the region, performed extremely well, growing by 11.5% in constant currency and improving gross margin by 20bps.  The Group has also recently taken the decision to close down its small operation in Hungary, having already scaled back in 2011 against the background of a rapidly deteriorating political and economic environment.

UK & Ireland (44% of Group sales)

·      Total sales on a continuing basis up by 3.7% to £1,201.0m (2010: £1,158.6m)

·      Gross margin on a continuing basis improved by 30bps to 26.5% (2010: 26.2%)

·      Underlying operating profit increased by 18.9% to £49.6m (2010: £41.7m)

·      Underlying operating margin improved by 50bps to 4.1% (2010: 3.6%)

·      Statutory operating profit of £1.1m (2010: loss of £67.9m)

In the UK, sales from continuing operations increased by 3.9% to £1,123.7m and gross margin improved by 30bps.  Revenue in Ireland was up by 0.9% to £77.3m but marginally down in Euros by 0.5%.   For the UK & Ireland combined sales increased by 3.6% on a constant currency basis.

During the year the Group opened 4 new trading sites in the UK, of which 2 were of the new Builders Express format, closed 19 branches and disposed of a further 19 branches. In total these movements reduced the number of branches in the UK & Ireland by 34, from 364 to 330.

With regard to the UK, during the year growth in residential markets maintained a slightly positive trend and non-residential construction activity levels were broadly flat.  Commercial market activity varied by region with the majority of growth weighted towards London and the South East of England.  Towards the end of the year SIG began to observe a reduction in public sector construction activity and although this had a minimal impact on 2011, the effect of the slowdown is likely to be more pronounced in 2012.

Performance across SIG's divisions was broadly uniform in 2011, with insulation sales (excluding SIG Energy Management) up by 3.3%, exteriors up by 4.6% and interiors increasing by 2.2% compared with 2010.

Sales in SIG Energy Management, whose main activity is retrofitting insulation in residential properties in the UK, increased by 10% despite a slower than anticipated release of CERT (Carbon Emissions Reduction Target) funding, though profitability declined due to the mix of work.   There was some evidence that major energy suppliers were starting to respond to the requirements of CERT by increasing their sales generation efforts in the second half of 2011. 

CERT and CESP (Community Energy Savings Programme) both expire towards the end of 2012 and are to be replaced by the Green Deal and ECO (Energy Company Obligation).  The consultation period for these schemes, to which SIG contributed, is now closed, and the Government's response is due shortly.

Outlook

Following recent initiatives SIG enters 2012 as a leaner, stronger and more focused organisation.  Sales per day in constant currency so far this year were around 1% ahead of strong prior year comparators, despite the impact of severe weather across Mainland Europe in February this year.

Given the ongoing uncertainties in the macroeconomic environment, the Group continues to expect market volumes to be slightly down overall in 2012.  However, SIG has a solid platform on which to build and is targeting further market outperformance, with new branches expected to continue to make a significant contribution to future growth.

Directors Responsibility Statement on the Annual Report

The responsibilities statement below has been prepared in connection with the Company's full annual report for the year ended 31 December 2011. Certain parts thereof are not included within this announcement.

We confirm that to the best of our knowledge:

•           the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or 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 that they face; and

•           the financial statements include a fair review of all related party transactions.

The responsibilities statement was approved by the Board of Directors and signed on its behalf by:

Chris Davies                                                                  Doug Robertson
Director                                                                         Director
13 March 2012                                                               13 March 2012

Consolidated Income Statement
for the year ended 31 December 2011
		Before other items*	Other items*	Total		Before other items*	Other items*	Total
		2011	2011	2011		2010	2010	2010
	Note	£m	£m	£m		£m	£m	£m
Revenue	2	2,744.8	63.6	2,808.4		2,545.4	122.6	2,668.0
Cost of sales		(2,042.3)	(39.5)	(2,081.8)		(1,899.1)	(76.3)	(1,975.4)
Gross profit		702.5	24.1	726.6		646.3	46.3	692.6
Other operating expenses		(606.9)	(94.1)	(701.0)		(568.5)	(178.7)	(747.2)
Operating profit/(loss)		95.6	(70.0)	25.6		77.8	(132.4)	(54.6)
Finance income		7.4	-	7.4		7.8	-	7.8
Finance costs		(21.2)	(4.2)	(25.4)		(21.4)	(12.6)	(34.0)
Profit/(loss) before tax and loss of associate		81.8	(74.2)	7.6		64.2	(145.0)	(80.8)
Share of loss of associate		(0.1)	-	(0.1)		-	-	-
Profit/(loss) before tax		81.7	(74.2)	7.5		64.2	(145.0)	(80.8)
Income tax (expense)/credit	3	(25.7)	18.2	(7.5)		(20.1)	24.1	4.0
(Loss)/profit after tax		56.0	(56.0)	(0.0)		44.1	(120.9)	(76.8)
Attributable to:
Equity holders of the Company		55.7	(56.0)	(0.3)		43.8	(120.9)	(77.1)
Non-controlling interests		0.3	-	0.3		0.3	-	0.3
Earnings per share
Basic (loss)/earnings per share	4	9.4p	(9.4p)	(0.0p)		7.4p	(20.4p)	(13.0p)
Diluted (loss)/earnings per share	4	9.4p	(9.4p)	(0.0p)		7.4p	(20.4p)	(13.0p)
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs, profit and loss arising on the sale of businesses, trading profits and losses associated with disposed businesses 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.

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
		2011		2010
		£m		£m
Loss after tax		(0.0)		(76.8)
Other comprehensive (expense)/income
Exchange difference on retranslation of foreign currency goodwill and intangibles		(9.6)		(8.8)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)		(14.7)		(6.8)
Exchange and fair value movements associated with borrowings and derivative financial instruments		3.6		3.2
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments		(0.9)		(0.9)
Gains and losses on cash flow hedges		(5.2)		6.8
Transfer to profit and loss on cash flow hedges		3.9		12.6
Actuarial loss on defined benefit pension schemes		(21.8)		(1.8)
Deferred tax movement associated with actuarial loss		5.4		0.5
Effect of change in rate on deferred tax		(0.3)		(0.2)
Other comprehensive (expense)/income		(39.6)		4.6
Total comprehensive expense		(39.6)		(72.2)
Attributable to:
Equity holders of the Company		(39.9)		(72.5)
Non-controlling interests		0.3		0.3
		(39.6)		(72.2)

Consolidated Balance Sheet
as at 31 December 2011
		2011		2010
		£m		£m
Non-current assets
Property, plant and equipment		142.7		183.6
Interest in associate		1.5		1.6
Goodwill		431.4		447.1
Intangible assets		62.7		92.2
Deferred tax assets		35.7		28.7
Derivative financial instruments		52.7		52.0
		726.7		805.2
Current assets
Inventories		223.4		230.9
Trade receivables		366.6		373.9
Other receivables		25.6		24.8
Cash and cash equivalents		126.9		129.5
		742.5		759.1
Total assets		1,469.2		1,564.3
Current liabilities
Trade and other payables		342.3		347.6
Obligations under finance lease contracts		1.8		1.7
Bank overdrafts		4.0		2.5
Bank loans		2.9		31.2
Private placement notes		-		49.1
Derivative financial instruments		-		4.9
Deferred consideration		5.4		-
Current tax liabilities		7.7		0.1
Provisions		14.6		12.7
		378.7		449.8
Non-current liabilities
Obligations under finance lease contracts		5.5		5.5
Bank loans		0.2		0.3
Private placement notes		265.2		263.6
Derivative financial instruments		10.5		7.7
Deferred tax liabilities		20.8		26.5
Other payables		5.0		5.5
Retirement benefit obligations		44.5		25.2
Provisions		31.3		28.8
		383.0		363.1
Total liabilities		761.7		812.9
Net assets		707.5		751.4
Capital and reserves
Called up share capital		59.1		59.1
Share premium account		447.0		447.0
Capital redemption reserve		0.3		0.3
Share option reserve		1.2		1.0
Hedging and translation reserve		11.2		32.8
Retained profits		187.7		209.3
Attributable to equity holders of the Company		706.5		749.5
Non-controlling interests		1.0		1.9
Total equity		707.5		751.4

Consolidated Cash Flow Statement
for the year ended 31 December 2011
		2011		2010
	Note	£m		£m
Net cash flow from operating activities
Cash generated from operating activities	5	96.1		98.8
Borrowing costs paid		(16.2)		(15.6)
Interest received		1.4		2.1
Income tax paid		(10.2)		(13.4)
Net cash generated from operating activities		71.1		71.9
Cash flows from investing activities
Purchase of property, plant and equipment		(16.4)		(16.8)
Proceeds from sale of property, plant and equipment		2.6		4.8
Proceeds from sale of businesses	10	30.6		-
Settlement of amounts payable for purchase of businesses		(1.4)		(0.9)
Investment in associate		-		(1.6)
Net cash generated from/(used in) investing activities		15.4		(14.5)
Cash flows from financing activities
Capital element of finance lease rental payments		(1.5)		(1.9)
Repayment of loans/settlement of derivative financial instruments		(81.6)		(143.4)
Dividend paid to equity holders of the Company	7	(4.4)		-
Dividend payments to non-controlling interests		(0.1)		(0.4)
Net cash used in financing activities		(87.6)		(145.7)
Decrease in cash and cash equivalents in the year		(1.1)		(88.3)
Cash and cash equivalents at beginning of year		127.0		216.9
Effect of foreign exchange rate changes		(3.0)		(1.6)
Cash and cash equivalents at end of year		122.9		127.0

Consolidated Statement of Changes in Equity for the year ended 31 December 2011
	Called up share capital	Share premium account	Capital redemption reserve	Share option reserve	Hedging and translation reserve	Retained profits	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 31 December 2010	59.1	447.0	0.3	1.0	32.8	209.3	749.5	1.9	751.4
Loss after tax	-	-	-	-	-	(0.3)	(0.3)	0.3	(0.0)
Other comprehensive (expense)/income:
Exchange difference on retranslation of foreign currency goodwill and intangibles	-	-	-	-	(9.6)	-	(9.6)	-	(9.6)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)	-	-	-	-	(14.7)	-	(14.7)	-	(14.7)
Exchange and fair value movements associated with borrowings and derivative financial instruments	-	-	-	-	3.6	-	3.6	-	3.6
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments	-	-	-	-	(0.9)	-	(0.9)	-	(0.9)
Gains and losses on cash flow hedges	-	-	-	-	-	(5.2)	(5.2)	-	(5.2)
Transfer to profit and loss on cash flow hedges	-	-	-	-	-	3.9	3.9	-	3.9
Actuarial loss on defined benefit pension schemes	-	-	-	-	-	(21.8)	(21.8)	-	(21.8)
Deferred tax movement associated with actuarial loss	-	-	-	-	-	5.4	5.4	-	5.4
Effect of change in rate on deferred tax	-	-	-	-	-	(0.3)	(0.3)	-	(0.3)
Total comprehensive (expense)/income	-	-	-	-	(21.6)	(18.3)	(39.9)	0.3	(39.6)
Credit to share option reserve	-	-	-	0.2	-	-	0.2	-	0.2
Purchase of non-controlling interest shareholdings	-	-	-	-	-	1.1	1.1	(1.1)	-
Dividend payments to non-controlling interests	-	-	-	-	-	-	-	(0.1)	(0.1)
Dividends paid to equity holders of the Company	-	-	-	-	-	(4.4)	(4.4)	-	(4.4)
At 31 December 2011	59.1	447.0	0.3	1.2	11.2	187.7	706.5	1.0	707.5

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.

Consolidated Statement of Changes in Equity (continued) for the year ended 31 December 2010
	Called up share capital	Share premium account	Capital redemption reserve	Share option reserve	Hedging and translation reserve	Retained profits	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 31 December 2009	59.1	447.0	0.3	0.9	46.1	276.2	829.6	2.2	831.8
Loss after tax	-	-	-	-	-	(77.1)	(77.1)	0.3	(76.8)
Other comprehensive (expense)/income:
Exchange difference on retranslation of foreign currency goodwill and intangibles	-	-	-	-	(8.8)	-	(8.8)	-	(8.8)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)	-	-	-	-	(6.8)	-	(6.8)	-	(6.8)
Exchange and fair value movements associated with borrowings and derivative financial instruments	-	-	-	-	3.2	-	3.2	-	3.2
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments	-	-	-	-	(0.9)	-	(0.9)	-	(0.9)
Gains and losses on cash flow hedges	-	-	-	-	-	6.8	6.8	-	6.8
Transfer to profit and loss on cash flow hedges	-	-	-	-	-	12.6	12.6	-	12.6
Actuarial loss on defined benefit pension schemes	-	-	-	-	-	(1.8)	(1.8)	-	(1.8)
Deferred tax movement associated with actuarial loss	-	-	-	-	-	0.5	0.5	-	0.5
Effect of change in rate on deferred tax	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Total comprehensive (expense)/income	-	-	-	-	(13.3)	(59.2)	(72.5)	0.3	(72.2)
Credit to share option reserve	-	-	-	0.1	-	-	0.1	-	0.1
Current and deferred tax on share options	-	-	-	-	-	0.2	0.2	-	0.2
Recognition of put options regarding non-controlling interests	-	-	-	-	-	(7.4)	(7.4)	-	(7.4)
Purchase of non-controlling interest shareholding	-	-	-	-	-	(0.5)	(0.5)	(0.2)	(0.7)
Dividend payments to non-controlling interests	-	-	-	-	-	-	-	(0.4)	(0.4)
At 31 December 2010	59.1	447.0	0.3	1.0	32.8	209.3	749.5	1.9	751.4

1. Basis of preparation

The Group's Financial Information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") 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 prepared 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 years ended 31 December 2011 and 31 December 2010 within the meaning of Section 435 of the Companies Act 2006 but is derived from those statutory accounts.

The Group's statutory accounts for the year ended 31 December 2010 have been filed with the Registrar of Companies, and those for 2011 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2011 and 2010, and their reports, which included no matters to which the Auditor drew attention by way of emphasis, were unqualified and did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the financial statements. 

All results are from continuing operations under International Accounting Standards as the businesses disposed of in 2011 did not meet the disclosure criteria of IFRS 5  "Non-current Assets held for Sale and Discontinued Operations" as they did not represent a separate major line of business or geographical area of operations.  In order to give an indication of the underlying earnings of the group the results of these businesses have been included in the middle column of the Consolidated Income Statement entitled "Other items".

 Changes in accounting policy

The following significant change to accounting standards has been adopted in the current period, but has had no material impact on the Accounts:

·  Improvements to IFRS 2010 - effective for accounting periods beginning on or after 1 January 2011.

At the date of authorisation of these Accounts, there are a number of new standards and interpretations issued but not yet effective (some of which are pending endorsement by the European Union), which the Group has not applied in these Accounts. These are detailed in the Group's Annual Report and Accounts for the year ended 31 December 2011.

2. Revenue and segmental information
(a) Segmental results
Following the adoption of IFRS 8 "Operating Segments", the Group identifies its reportable segments as those upon which the Group Board regularly bases its opinion and assesses performance. The Group has deemed it appropriate to aggregate its operating segments into two reported segments: UK 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.
		2011			2011		2011			2011			2010		2010	2010	2010
		UK and Ireland			Mainland Europe		Eliminations			Total			UK and Ireland		Mainland Europe	Eliminations	Total
		£m			£m		£m			£m			£m		£m	£m	£m
Revenue
Continuing sales		1,201.0			1,543.8		-			2,744.8			1,158.6		1,386.8	-	2,545.4
Sales attributable to businesses divested in 2011		63.6			-		-			63.6			122.6		-	-	122.6
Inter-segment sales*		0.6			5.5		(6.1)			-			0.1		4.3	(4.4)	-
Total revenue		1,265.2			1,549.3		(6.1)			2,808.4			1,281.3		1,391.1	(4.4)	2,668.0
Result Segment result before other items^		49.6			53.5		-			103.1			41.7		42.5	-	84.2
Amortisation of acquired intangibles and impairment charges		(15.1)			(20.5)		-			(35.6)			(87.4)		(21.5)	-	(108.9)
Restructuring costs		(11.0)			(1.0)		-			(12.0)			(20.5)		(1.3)	-	(21.8)
Net loss on sale of businesses and associated impairment charges		(22.7)			-		-			(22.7)			-		-	-	-
Operating profit/(loss) attributable to businesses divested in 2011		0.3			-		-			0.3			(1.7)		-	-	(1.7)
Segment operating profit/(loss)		1.1			32.0		-			33.1			(67.9)		19.7	-	(48.2)
Parent Company costs										(7.5)							(6.4)
Operating profit/(loss)										25.6							(54.6)
Net finance costs										(13.8)							(13.6)
Net losses on derivative financial instruments										(4.2)							(12.6)
Share of loss of associate										(0.1)							-
Profit/(loss) before tax										7.5							(80.8)
Income tax (expense)/credit										(7.5)							4.0
Non-controlling interests										(0.3)							(0.3)
Loss for the period										(0.3)							(77.1)
*Inter-segment sales are charged at the prevailing market rates. ^"Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs, profit and loss arising on the sale of businesses and trading profits and losses associated with disposed businesses.

2. Revenue and segmental information (continued)
(a) Segmental results (continued)
Balance sheet
	2011		2011			2011				2011					2010		2010	2010	2010
	UK and Ireland		Mainland Europe			Eliminations				Total					UK and Ireland		Mainland Europe	Eliminations	Total
	£m		£m			£m				£m					£m		£m	£m	£m
Assets
Segment assets	631.8		731.4			-				1,363.2					677.2		785.7	-	1,462.9
Unallocated assets:
Derivative financial instruments										52.7									52.0
Cash & cash equivalents										50.8									47.2
Other items										2.5									2.2
Consolidated total assets										1,469.2									1,564.3
Liabilities
Segment liabilities	297.6		179.9			-				477.5					262.5		182.7	-	445.2
Unallocated liabilities:
Bank loans and overdrafts										-									24.7
Private placement notes										265.2									312.7
Derivative financial instruments										10.5									12.6
Other items										8.5									17.7
Consolidated total liabilities										761.7									812.9
Other segment information
Capital expenditure on:
Property, plant and equipment	9.3		8.8			-				18.1					9.6		7.2	-	16.8
Investment in associate	-		-			-				-					1.6		-	-	1.6
Goodwill	-		-			-				-					(0.5)		-	-	(0.5)
Non-cash expenditure:
Depreciation	15.4		14.0			-				29.4					21.2		14.8	-	36.0
Impairment of property, plant and equipment	0.3		-			-				0.3					3.8		-	-	3.8
Impairment charges in respect of businesses disposed of in 2011	21.1		-			-				21.1					-		-	-	-
Amortisation of acquired intangibles	15.1		9.5			-				24.6					19.0		9.5	-	28.5
Impairment of goodwill and intangibles	-		11.0			-				11.0					68.4		12.0	-	80.4
2. Revenue and segmental information (continued)
(b) Revenue by product group
The Group now focuses its activities into three product sectors: Insulation and Energy Management; Interiors; and Exteriors.
The following table provides an analysis of Group sales by type of product:
				2011				2010
				£m				£m
Insulation and Energy Management				1,251.7				1,152.6
Interiors				604.5				584.1
Exteriors				888.6				808.7
Total continuing				2,744.8				2,545.4
Attributable to businesses divested in 2011				63.6				122.6
Total				2,808.4				2,668.0
(c) Geographic information
The Group's revenue from external customers and its non-current assets (including property, plant and equipment, goodwill and intangible assets but excluding deferred tax and derivative financial instruments) by geographical location are as follows:
				2011			2011					2010		2010
Country				Revenue			Non-current assets^					Revenue		Non-current assets^
				£m			£m					£m		£m
United Kingdom				1,123.7			285.3					1,082.0		328.7
Ireland				77.3			1.0					76.6		1.1
France				605.2			237.2					528.4		252.8
Germany and Austria				616.6			56.5					565.0		62.9
Poland				134.3			16.1					123.1		19.8
Benelux*				156.4			40.7					142.4		44.2
Central Europe				31.3			1.5					27.9		15.0
Total continuing				2,744.8			638.3					2,545.4		724.5
Attributable to businesses divested in 2011				63.6								122.6
Total				2,808.4								2,668.0
* Includes international air handling business (headquartered in the Netherlands). ^ Excluding deferred tax assets and derivative financial instruments. There is no material difference between the basis of preparation of the information reported above and the Accounting Policies adopted by the Group.

3. Income tax
The income tax expense/(credit) comprises:			2011	2010
			£m	£m
Current tax
UK corporation tax:  - on profits/(losses) for the year			-	(2.1)
- adjustments in respect of previous years			(1.7)	(0.2)
			(1.7)	(2.3)
Overseas taxation:   - on profits/(losses) for the year			16.4	11.6
- adjustments in respect of previous years			0.6	(0.1)
Total current tax			15.3	9.2
Deferred taxation
Current year			(8.5)	(13.2)
Adjustments in respect of previous years			(0.9)	-
Deferred tax charge in respect of pension schemes			0.8	0.2
Change in rate			0.8	(0.2)
Total deferred tax			(7.8)	(13.2)
Total income tax expense/(credit)			7.5	(4.0)

3. Income tax (continued)

The total tax charge for the year differs from that resulting from applying the standard rate of corporate tax in the UK at 31 December 2011 of 26.0% (31 December 2010: 28.0%). The differences are explained in the following reconciliation:

	2011	2011	2010	2010
	£m	%	£m	%
Profit/(loss) on ordinary activities before tax	7.5		(80.8)
Tax at 26.0% (2010: 28.0%) thereon	2.0	26.0	(22.6)	28.0
Factors affecting the income tax expense/(credit) for the year:
- non-deductible and non-taxable items	1.2	16.0	1.2	(1.5)
- impairment charges not deductible for tax	1.8	24.4	17.9	(22.1)
- losses not recognised	2.0	26.7	0.7	(0.9)
- losses utilised not previously recognised	(2.7)	(36.0)	(3.1)	3.8
- other adjustments in respect of previous years	(2.0)	(26.7)	(0.3)	0.4
- effect of overseas tax rates	4.4	58.7	2.4	(3.0)
- effect of change in rate	0.8	10.9	(0.2)	0.3
Total income tax expense/(credit)	7.5	100.0	(4.0)	5.0

The effective tax rate for the Group on the total profit before tax of £7.5m is 100.0% (2010: 5.0%). The effective tax charge for the Group on profit before tax before the amortisation of acquired intangibles, impairment charges, restructuring costs, profit and loss arising on the sale of businesses, trading profits and losses associated with disposed businesses and gains and losses on derivative financial instruments of £74.2m is 31.5% (2010: 31.3%), which comprises a charge of 32.5% (2010: 32.9%) in respect of current year profits and a tax credit of 1.0% (2010: 1.6%) in respect of previous years.

The following factors that will affect the Group's future total tax charge as a percentage of underlying profits are:

- the mix of profits between the UK and overseas; in particular, France/Germany/Belgium (corporate tax rates greater than 26%) and Ireland/Poland/Netherlands/Czech Republic/Slovakia (corporate tax rates less than 26%). If the proportion of profits from these jurisdictions changes, this could result in a higher or lower Group tax charge;

- the impact of non-deductible expenditure and non-taxable income;

- agreement of open tax computations with the respective tax authorities; and

- the recognition or utilisation (with a corresponding reduction in cash tax payments) of unrecognised deferred tax assets.

In addition to the amounts charged to the Consolidated Income Statement, the following amounts in relation to taxes have been (charged)/credited directly to equity and are shown in the Consolidated Statement of Comprehensive Income and Consolidated Statement of Changes in Equity:

	2011	2010
	£m	£m
Deferred tax movement associated with actuarial loss	5.4	0.5
Current and deferred tax on share options	-	0.2
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments	(0.9)	(0.9)
Change in rate	(0.3)	(0.2)
	4.2	(0.4)

4. Earnings per share
The calculations of earnings per share are based on the following (losses)/profits and numbers of shares:
					Basic and diluted
					2011			2010
					£m			£m
Loss after tax					(0.0)			(76.8)
Non-controlling interests					(0.3)			(0.3)
					(0.3)			(77.1)
					Basic and diluted before other items*
					2011			2010
					£m			£m
Loss after tax					(0.0)			(76.8)
Non-controlling interests					(0.3)			(0.3)
Amortisation of acquired intangibles					24.6			28.5
Goodwill and intangible asset impairment charges					11.0			80.4
Net loss arising on the sale of businesses (Note 10)					22.7			-
Operating (profit)/loss attributable to businesses divested in 2011					(0.3)			1.7
Restructuring costs					12.0			21.8
Fair value losses on derivative financial instruments					4.2			12.6
Tax credit relating to other items*					(18.2)			(24.1)
					55.7			43.8
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs, net loss arising on the sale of businesses, trading profits and losses associated with disposed businesses and gains and losses on derivative financial instruments.
Weighted average number of shares:
				Total 2011 Number				Total 2010 Number
For basic earnings per share				590,829,339				590,829,339
Exercise of share options^				3,703,528				2,333,789
For diluted earnings per share				594,532,867				593,163,128
				2011				2010
Total basic loss per share				(0.0p)				(13.0p)
Total diluted loss per share				(0.0p)				(13.0p)
Earnings per share before other items^
Total basic earnings per share				9.4p				7.4p
Total diluted earnings per share				9.4p				7.4p

^ Earnings per share before "Other items" has been disclosed in order to present the underlying performance of the Group.

4. Earnings per share (continued)

The following disclosures reconcile these adjustments to the disclosures made on the face of the Consolidated Income Statement:

a)     amortisation of acquired intangibles of £24.6m (2010: £28.5m) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

b)     goodwill and intangible asset impairment charges of £11.0m (2010: £80.4m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

c)     net loss arising on the sale of businesses of £22.7m (2010: £ nil) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

d)     operating profits attributable to businesses divested in 2011 of £0.3m (2010: losses of £1.7m) are included within the column of the Consolidated Income Statement entitled "Other items";

e)     restructuring costs of £12.0m (2010: £21.8m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

f)     fair value losses on derivative financial instruments of £4.2m (2010: £12.6m) are included as finance costs within the column of the Consolidated Income Statement entitled "Other items"; and

g)     the "Other items" give rise to tax as disclosed in the table below:

	2011				2010
	Other items	Tax impact			Other items	Tax impact
	£m	£m	%		£m	£m	%
Amortisation of acquired intangibles	24.6	6.0	24.4		28.5	8.0	28.0
Goodwill and intangible asset impairment charges	11.0	1.1	10.0		80.4	4.3	5.3
Net loss arising on the sale of businesses	22.7	4.6	20.3		-	-	-
Operating (profit)/loss attributable to businesses divested in 2011	(0.3)	(0.1)	33.3		1.7	0.4	28.0
Restructuring costs	12.0	2.5	20.8		21.8	4.8	22.0
Fair value losses on derivative financial instruments	4.2	1.1	26.5		12.6	3.5	28.0
Utilisation of losses not previously recognised	-	3.8	-		-	2.9	-
Effect of change in tax rates	-	(0.8)	-		-	0.2	-
	74.2	18.2	24.5		145.0	24.1	16.6

5. Reconciliation of operating profit to cash generated from operating activities
						2011	2010
				£m			£m
Operating profit/(loss)					25.6		(54.6)
Depreciation charge					29.4		36.0
Impairment of property, plant and equipment (excluding UK Interiors Manufacturing business)					0.3		3.8
Impairment and other costs associated with the disposal of the UK Interiors Manufacturing business (Note 10)					21.1		-
Net loss arising on the sale of businesses					1.6		-
Amortisation of acquired intangibles					24.6		28.5
Goodwill and intangible asset impairment charges					11.0		80.4
Profit on sale of property, plant and equipment					(0.1)		(1.2)
Share-based payments					0.2		0.4
Loan to associate					-		(1.2)
Working capital movements:
Increase in inventories					(9.8)		(7.7)
(Increase)/decrease in receivables					(33.7)		9.1
Increase in payables					25.9		5.3
Cash generated from operating activities					96.1		98.8

Included within the cash generated from operating activities is cash paid in respect of current year and prior year restructuring costs of £12.4m        (2010: £19.3m).

Also included within the cash generated from operating activities is a one-off defined benefit pension scheme employers contribution of £2.4m (2010: £ nil).

6. Reconciliation of net cash flow to movements in net debt
						2011	2010
						£m	£m
Decrease in cash and cash equivalents in the year						(1.1)	(88.3)
Cash flow from decrease in debt						81.3	145.3
Decrease in net debt resulting from cash flows						80.2	57.0
Non-cash items^						(12.2)	6.9
Exchange difference						1.1	5.6
Decrease in net debt in the year						69.1	69.5
Net debt at beginning of year						(185.0)	(254.5)
Net debt at end of year						(115.9)	(185.0)
^ Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow and the recognition of deferred consideration payable in January 2012 (see Note 11). In March 2011 the Group signed a new £250m four year bank facility, at which point the Group's existing UK bank debt facilities were cancelled and repaid using cash held on deposit.

7. Dividends

An interim dividend of 0.75p per ordinary share was paid on 4 November 2011 (2010: nil p). The Directors have proposed a final dividend for the year ended 31 December 2011 of 1.5p per ordinary share (2010: nil p).  No dividends have been paid between 31 December 2011 and the date of this financial information.

8. Impairment of goodwill and intangible assets

During the year, the Group recorded an impairment charge of £11.0m in relation to its Central European business.  While sales have grown strongly (more than 10%) in the Group's Central European business in 2011, given the extremely challenging economic environment in this region, exacerbated by the current Eurozone crisis, the recovery is now anticipated to take longer than previously envisaged. This worsening outlook has therefore adversely affected projected future cash flows to the extent that the Directors have concluded that the remaining carrying value of goodwill of £7.0m and intangible assets of £4.0m are no longer supportable. The Group's "value in use" calculation indicates an impairment in full, which has been charged to the Consolidated Income Statement within "Other items".

9. Interest in associate

The Group's share of operating income/(expense) arising from its interest in associate, Ice Energy Technologies Limited ("Ice"), for the year ended 31 December 2011 was a loss of £0.1m (2010: £ nil), which has been recognised on the face of the Consolidated Income Statement.

The only material transaction between SIG plc and its associate is a loan made by SIG plc to Ice amounting to £1.2m as at 31 December 2011 (31 December 2010: £1.2m) which is included within other receivables. Interest receivable on the loan for the year was £51,000 (2010: £24,000). The loan is due for repayment in 2013.

Ice purchased goods and services from SIG plc's subsidiary undertakings amounting to £1.2m in 2011 (2010: £ nil), of which £0.8m was outstanding as at 31 December 2011 (31 December 2010: £ nil).

The current accounting period for Ice ends on 31 March 2012. The company does not have the same accounting reference date as SIG plc as the company operates independently of SIG, and therefore may independently select the accounting reference date it considers most appropriate.

The Group has a call option to purchase the remaining 75% shareholding of Ice in two phases, 26% in 2013, and the remaining 49% in 2015.

10. Divestments

During the period the Company sold the trade and assets of its UK Scaffolding business (30 April 2011), its UK Safety & Workwear business (1 June 2011) and its UK Interiors Manufacturing business (1 August 2011) for a total consideration net of expenses of £30.6m, resulting in a net loss on disposal (including impairment charges of £21.1m) of £22.7m. The combined net assets of these businesses at disposal were as follows:

	At the date of disposal		31 December 2010
	£m		£m
Property, plant and equipment	13.0		22.9
Inventories	8.6		12.8
Trade and other receivables		32.1	25.3
Trade and other payables		(21.5)	(15.0)
		32.2	46.0
Expenses		2.5
Loss on disposal		(1.6)
Total consideration (satisfied by cash)		33.1
Loss on disposal (per above)		(1.6)
Impairment charges and other costs in respect of the UK Interiors Manufacturing business		(21.1)
Total losses arising on disposal of businesses		(22.7)
Profit/(loss) by business:
UK Safety & Workwear		5.4
UK Scaffolding		(6.9)
UK Interiors Manufacturing		(21.2)
		(22.7)

The net loss arising from the sale of the businesses of £1.6m, together with the impairment charges of £21.1m and the results for these businesses in the current and comparative periods have been disclosed within "Other items" in the Consolidated Income Statement.  All three businesses form part of the UK and Ireland reported segment as disclosed in Note 2.

11. 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.

During the year, Gerry Carr, a Director of the Group's Ireland business, exercised his option to sell his 20% non-controlling interest in Insulation Distributors Limited, an indirect subsidiary undertaking of SIG plc in Ireland, to the Group.

The original option agreement was signed in 1996 when the business was a start-up operation and the amount payable of £5.4m is based upon an agreed multiple of 2005 and 2006 profits. Deferred consideration of £5.4m has been reclassified from accruals at 31 December 2011 in respect of the option, which was settled in cash in January 2012. Following settlement of the option, the Group now owns 100% of the shares of Insulation Distributors Limited.

Also during the year, the Company exercised its option to purchase the remaining non-controlling interest of Air Trade Centre International B.V. for a consideration of £1.1m. Following the purchase of this 5.4% shareholding, the Group now owns 100% of the shares in Air Trade Centre International B.V. but not 100% of the shares of all of the subsidiary businesses.

Other than the relationship disclosed in Note 9, the Group has not identified any other material related party transactions in the year to 31 December 2011.

Directors' emoluments in the year were £3.2m (2010: £2.2m), excluding an IFRS 2 share based payment charge of £0.2m (2010: charge of £0.1m).

12. Forward looking statements

This announcement contains forward looking statements that are subject to risk factors including the economic and business circumstances occurring from time to time in countries and markets in which the Group operates and risk factors associated with the building and construction sectors. By their nature, forward looking statements involve a number of risks, uncertainties and assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied by the forward looking statements. No assurance can be given that the forward looking statements in this announcement will be realised. Statements about the Directors' expectations, beliefs, hopes, plans, intentions and strategies are inherently subject to change and they are based on expectations and assumptions as to future events, circumstances and other factors which are in some cases outside the Group's control. Actual results could differ materially from the Group's current expectations.

It is believed that the expectations set out in these forward looking statements are reasonable but they may be affected by a wide range of variables which could cause actual results or trends to differ materially, including but not limited to, changes in risks associated with the level of market demand, fluctuations in product pricing and changes in exchange and interest rates.

12. Forward looking statements (continued)

The forward looking statements should be read in particular in the context of the specific risk factors for the Group identified in Note 14. The Group's Shareholders are cautioned not to place undue reliance on the forward looking statements. This announcement has not been audited or otherwise independently verified. The information contained in this announcement has been prepared on the basis of the knowledge and information available to Directors at the date of its preparation and the Company does not undertake any obligation to update or revise this announcement during the financial year ahead.

13. Going concern basis

In determining whether the Group's 2011 financial information can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.

The key factors considered by the Directors were as follows:

·      the implications of the challenging economic environment, the current Eurozone crisis and the continuing weak levels of market demand in the building and construction markets on the Group's revenues and profits. The Group prepares forecasts and projections of revenues, profits and cash flows on a regular basis. While this is essential for targeting performance and identifying areas of focus for management to improve performance and mitigate the possible adverse impact of a deteriorating economic outlook, these also provide projections of working capital requirements;

·      the impact of the competitive environment within which the Group's businesses operate;

·      the availability and market prices of the goods that the Group sells;

·      the credit risk associated with the Group's trade receivable balances;

·      the potential actions that could be taken in the event that revenues are worse than expected, to ensure that operating profit and cash flows are protected; and

·      the committed and renewed finance facilities available to the Group.

Having considered all the factors above impacting the Group's businesses, including downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's 2011 financial information.

14. Principal risks and uncertainties

Risk management involves the identification and evaluation of risks and is the responsibility of the Group Board. The field of risk management is constantly evolving within SIG, and following the comprehensive review of the Group's risk management processes undertaken during 2010, the process was reviewed again during 2011 to ensure that it remained robust and that emerging risks are identified, assessed and managed effectively. The review process involved the consideration of the objectives and targets of the Group's strategic business plan, the ongoing development of a risk universe, and the identification of key strategic risks. These risks are then continually evaluated using consistent measurement criteria, mitigating controls identified and opportunities for the enhancement of the Group's control environment implemented.

There are a number of potential risks and uncertainties which could have a material impact on SIG's long term performance. The key risks and uncertainties identified as part of the Group's risk management process are as follows:

Principal Risks	Nature of Risk	Key Controls and Mitigation Strategies
Eurozone Risk	SIG operates in a number of countries across Mainland Europe.  The current Eurozone crisis and the uncertainty regarding the future of the Euro will potentially have a number of consequences on SIG's operations.  The main risks faced by SIG are: (1)   The overall impact on global consumer demand; (2)   Translational risk (P&L, balance sheet and net debt); and (3)   Transactional risk.	The Group Board have considered a number of alternative Eurozone outcomes and the potential impact these may have on SIG.  Where appropriate, mitigating strategies have been put in place. While the potential impact on overall global consumer demand has been considered within the "level of market demand" risk below, it should also be noted that the Group's Mainland European operations are based in the "stronger" Northern European countries (i.e. France and Germany) and therefore the risk associated with a break-up of the Euro on SIG is reduced to some extent. The Group's cross-border activities are relatively low and therefore, the transactional risk is considered low.
Level of market demand in SIG's operating markets	The vast majority of SIG's sales are made to the building, construction and civil engineering industries. These industries are driven by both private and Government expenditure. SIG is exposed to changes in the level of activity and therefore demand from these industries. Government policy and expenditure plans, private investor decisions, the general economic climate and both business and (to a lesser extent) consumer confidence are all factors which can influence the level of building activity and therefore the demand for many of SIG's products.	The Group continually reviews all available indicators of market activity including market data, economic forecasts, surveys and also has regular communication with key suppliers and customers to ensure that any fall in market demand is anticipated as early as possible. Early identification of reducing market demand ensures that the Group is able to act swiftly to changing market conditions. The Group operates in a number of different countries and market sectors. This differentiation provides an element of  protection against reduced market activity in any individual country or sector. The Group Board's portfolio review ensures that the Group's capital is appropriately allocated to the geographies and markets which remain core to the Group and which have strong long term growth prospects. In 2011, the Group divested three non-core operations which were more exposed to changes in market demand, thereby de-risking the Group's portfolio.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Key Controls and Mitigation Strategies
Competitors and margin management	SIG has a mix of both direct specialist competition and some overlap with more general suppliers (such as general builders merchants) in all of its markets and countries of operation. Challenging trading conditions further increase competition which in turn increases margin pressures faced by the Group.	The majority of products that are sold by SIG are relatively bulky and inexpensive in relation to their mass and the cost of transport. This means that the risk faced by SIG of price disruption and possible cross border or international trading having a detrimental impact on prices in any particular country is low. Similarly, the risk posed by internet-based trading dependent upon parcel-carrier service is mitigated by the bulky nature of most of the products sold by SIG and the fact that specialist handling and delivery services are an important feature of the service provided by SIG to many customers. The Group operates in a number of different countries and market sectors and has a strong trading presence in the majority of these markets. This strong market position and balanced portfolio provides an element of protection against increased competition in any individual country or sector. Notwithstanding the above, the Group has implemented a number of initiatives designed to improve the Group's core competencies surrounding customer service, including enhanced sales support and training. Operating profit margin is considered a key performance indicator by the Group. In order to improve operating profit margin, the Group must reduce its operating costs as a percentage of sales and/or improve gross margins. The Group has a number of ongoing pricing and purchasing initiatives designed to improve gross margin on an ongoing basis, and tight control of operating costs is a permanent feature of management practice.
Commercial relationships	Failure to negotiate competitive terms of business with our suppliers or failure to satisfy the needs of our customers could harm the Group's business. Customer or supplier consolidation and/or manufacturers dealing directly with customers.	It is a key task for the operational management in each country and business unit to maintain and develop their relationships with customers and suppliers. In particular, the following key tasks are undertaken: Suppliers: Long term key supplier harmonisation and national account strategy planning. The Group purchases its products from a number of suppliers thereby ensuring it is not overly reliant upon any one supplier. In addition, each business performs alternative key suppliers scenario planning should product not be available from any one individual supplier. Strategically important suppliers are reviewed globally to assess their financial health to ensure that any disruption to product supply is minimised.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Key Controls and Mitigation Strategies
Commercial relationships (continued)		Customers: Long term key customer harmonisation and national account strategy planning. Customer behaviour and performance is continually monitored and analysed.
Government legislation	SIG operates in a number of countries across Europe, each with its own laws and regulations, encompassing environmental, legal, health and safety, employment and tax matters. Changes in these laws and regulations could impact on SIG's ability to conduct its business, or make such conduct of business more costly.	The Group has continued to add to its resources dedicated to legal and regulatory compliance in order to further enhance its capability to identify and manage the risk of compliance failure. Policies, procedures and associated training schemes are in place, which are frequently reviewed with reference to changing legislative requirements. The Group has a number of affiliations with regulatory bodies and trade associations.
Debt	Group net debt at 31 December 2011 amounted to £115.9m. The Group has to manage the following risks relating to its net debt: (1) Future availability of funding; (2) Interest rate risk; (3) Foreign currency risk; and (4) Compliance with debt covenants.	The Group has a comprehensive treasury policy which covers the Group's management of treasury risk. Given the continued reduction in the Group's level of net debt and the refinancing of the Group's bank debt facilities in 2011, this risk has reduced year on year.
Working capital/cash management	Failure to effectively manage working capital may lead to a significant increase in the Group's net debt, thereby reducing the Group's funding headroom and liquidity.	Cash flow targets are agreed with each business unit as part of the annual budget process. All targets are reviewed to plan on a monthly basis. The Group has well established and stringent authorisation procedures which control all working capital expenditure and working capital requirements. Given the reduction in Group net debt in 2011, the inherent risk associated with working capital management is reduced.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Key Controls and Mitigation Strategies
IT infrastructure and resilience	SIG uses a range of computer systems to provide order processing, inventory control and financial management within each country. Outages and interruptions could affect SIG's ability to conduct day-to-day operations. Any lengthy failure or disruption to the IT system in any business unit or country would result in loss of sales and delays to cash flow.	Each operating business unit has a documented IT strategy with fully tested IT Disaster Recovery Plans in place for all major data centres. The Group employs dedicated internal IT support teams, together with external support service providers to monitor the IT systems. Technology, infrastructure, communications and application systems are regularly updated. The Group has advanced hardware and software security in place to ensure protection of commercial and sensitive data. For new IT projects, external consultants are utilised in conjunction with internal project management teams. The new national IT platforms put in place in Germany and Benelux in 2010 have now been fully implemented and have provided significant benefits to the business. The final selection phase for a new fully-integrated IT platform for our UK Distribution businesses was completed during 2011 and the next phase of the development programme is underway.
Availability of key resources	Unavailability of key resources (i.e. assets such as property, stock and personnel) will impact on the ability of SIG to operate effectively and efficiently. Failure to retain key individuals, or the failure to attract and retain strong management and technical staff in the future, could have an adverse effect upon the Group's business.	The Group has a series of review processes in place (including annual strategic reviews, budget reviews and rolling forecast reviews) which ensure that all key resource requirements are identified and managed accordingly. In respect of transportation costs, the Group continually monitors fuel price and availability, although no hedging is currently performed. In respect of key personnel, senior management succession planning is performed with an annual review of current and future management requirements. The Group also performs regional talent management programmes and management development initiatives which are reviewed regularly by the Group Board.

 

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