Final Results

RNS Number : 4301Z

SIG PLC

07 March 2013

 



SIG plc

7 March 2013

Full year results for the period ended 31 December 2012

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

Continuing operations*	2012	2011
Revenue	£2,608.6m	£2,713.5m
Underlying** operating profit	£96.5m	£98.4m
Underlying** profit before tax	£84.1m	£84.5m
Underlying** basic earnings per share	9.7p	9.9p
Dividend per share	3.0p	2.25p
Return on capital employed (post-tax)	8.6%	7.9%
Net debt as at 31 December	£105.3m	£115.9m

Highlights

·     Sales from continuing operations flat in constant currency, down 3.9% in Sterling

·     Continued market outperformance of 2.5%

·     Gross margin in continuing operations improved by 40bps to 26.1%

·     Tight control on overheads -  minimal increase in core operating costs

·     Underlying operating margin from continuing operations up 10bps to 3.7%

·     Underlying PBT in continuing operations up 4% in constant currency, down 0.5% in Sterling

·     Return on capital employed ("ROCE") increased by 70bps to 8.6%

·     Statutory profit before tax increased from £7.5m to £43.7m

·     Full year dividend up by a third to 3.0p per share

* Continuing operations excludes the results of businesses divested in 2012 (Central Europe) & 2011.

** Underlying is stated before the amortisation of acquired intangibles, impairment charges, restructuring costs, other one-off items, profit and loss arising on the sale of businesses, trading profits and losses associated with disposed businesses, fair value gains and losses on derivative financial instruments and the defined benefit pension scheme curtailment gain, together with the associated taxation effect and the effect of changes in taxation rates.

Statutory

Total operations	2012	2011
Revenue	£2,635.5m	£2,808.4m
Operating profit	£57.9m	£25.6m
Profit before tax	£43.7m	£7.5m
Profit/(loss) after tax	£26.6m	(£0.0m)
Basic earnings/(loss) per share	4.5p	(0.0p)

Commenting on the results and outlook, Stuart Mitchell, Chief Executive, said:

"SIG delivered a resilient performance in 2012, despite significant headwinds.  We maintained profitability and met our key objective of increasing ROCE above the Group's weighted average cost of capital. 

"My initial impressions of the business are very positive - SIG has a strong management team, leading positions in its markets and a clear strategy to take the business forward.   While this provides a firm foundation on which to build, I believe there is further potential in the Group, with opportunities to improve performance in areas such as procurement, ecommerce, supply chain logistics and rebranding. I am confident that we can drive significant improvements in ROCE, even in flat markets, with additional upside to come from eventual market recovery.

"Although sales per day in constant currency for the first two months were slightly down compared to prior year, poor weather and a strong January comparator make it difficult to discern underlying trading patterns.

"Our outlook for 2013 remains unchanged from our trading statement in January.  We expect construction markets to remain challenging and likely to decline at a similar rate to 2012.  Against this background, and building on recent performance, SIG expects to make further progress by continuing to focus on sales outperformance, gross margin enhancement and improved operational efficiency."

Enquiries

SIG plc

Stuart Mitchell, 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 Thursday 7 March 2013 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

The Group's performance in 2012 was affected by weak construction markets and the second wettest year on record in the UK.  Despite these headwinds, sales from continuing operations (excluding Central Europe and businesses divested in 2011) were up 0.1% in constant currency, with a volume decline of 1.1% being offset by product price inflation of 1.2%.   Due to exchange rate movements Group sales fell by 3.9% in Sterling.

SIG estimates that the overall market (volume and price) declined by 2.4% in 2012, weighted according to the sectors in which it operates.  As the Group's sales were up by 0.1% in constant currency this equates to a market outperformance of 2.5%, consistent with recent experience.

SIG's performance in Mainland Europe in 2012 was impacted by the weakening Euro, which based on average exchange rates, depreciated by 7% compared to Sterling.  As a result sales in the region from continuing operations fell by 5.0% in Sterling to £1,436.7m but were up 1.8% in constant currency, benefiting from strong performances in France and Benelux. 

In the UK & Ireland revenues from continuing operations fell 2.4% to £1,171.9m.  Sales in the UK were impacted by the wet weather, which particularly affected the outside building trades, and were down 1.4% to £1,108.4m.  Trading towards the end of the year in the UK benefited from a strong performance in SIG Energy Management, as energy suppliers increased volumes to meet their Carbon Emissions Reduction Targets (CERT), which ended in December 2012.

SIG's focus on improving the quality of its sales has delivered a further improvement in the Group's gross margin from continuing operations, which was up by 40bps to 26.1% in 2012 (2011: 25.7%), following a 30bps increase in 2011.

Although underlying operating profit from continuing operations fell by 1.9% to £96.5m (2011: £98.4m) due to foreign exchange, the Group's underlying operating margin improved by 10bps to 3.7% (2011: 3.6%).

Underlying net finance costs fell to £12.1m (2011: £13.8m), which after the £0.3m share of loss of associate (2011: £0.1m) results in underlying profit before tax from continuing operations up 4% in constant currency but down by 0.5% in Sterling at £84.1m (2011: £84.5m).  Underlying basic earnings per share from continuing operations fell by 2.0% to 9.7p (2011: 9.9p).

Non-underlying net charges before taxation during the period totalled £40.4m (2011: £77.0m) and included amortisation of acquired intangibles of £22.0m (2011: £24.6m), exceptional restructuring costs of £16.6m (2011: £12.0m), net fair value losses on derivative financial instruments of £1.8m (2011: £4.2m), other one-off items which gave rise to a credit of £1.4m (2011: £ nil), loss on disposal of £4.6m (2011: £33.7m including impairment charges), net trading losses on disposed businesses of £1.2m (2011: £2.5m) and an exceptional gain of £4.4m (2011: £ nil) arising from changes to the Group's UK defined benefit pension scheme.

Including these charges, profit before tax was £43.7m compared to £7.5m in 2011.  Basic earnings per share were 4.5p (2011: 0.0p).

Net debt at 31 December 2012 fell by £10.6m to £105.3m compared with 31 December 2011 (£115.9m), despite a planned increase in capital expenditure to £28.2m (2011: £15.5m), total net investment of £7.3m on five infill acquisitions and a one-off payment of £7.0m to its UK defined benefit pension scheme.

Return on Capital Employed

The Group's key financial target in 2012 was for post-tax Return on Capital Employed (ROCE), calculated as underlying operating profit less tax divided by average net assets plus average net debt, to exceed its Weighted Average Cost of Capital (WACC). SIG achieved this target with ROCE increasing by 70bps to 8.6% (2011: 7.9%), compared to a WACC of 8.2% (2011: 8.2%). The Group's medium-term target remains to exceed its WACC by 300bps.

Dividend

The Board has proposed a final dividend of 2.0p per ordinary share. Taken together with the interim dividend of 1.0p per ordinary share, this provides a total dividend of 3.0p per ordinary share for the year.  The final dividend is expected to be paid on 31 May 2013 to shareholders on the register at close of business on 3 May 2013.  The ex-dividend date is 1 May 2013.

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.

Operating costs and efficiency savings

SIG has continued to keep tight control of its overheads, with operating costs in its existing perimeter only increasing by 0.2% in 2012, well below the Group's 2% target.

As detailed in its January trading update, SIG has identified a further £10m of additional efficiency savings from its branch network, with an incremental benefit of £7m in 2013.  The associated restructuring charge related to these savings was £16.6m in 2012.

New branch openings and infill acquisitions

In 2012 SIG opened 21 new branches, of which 16 were in Mainland Europe and 5 were in the UK.  The Group anticipates that it will open fewer new sites in 2013, instead focusing on investments in infill acquisitions. 

The Group made five small infill acquisitions in 2012, all within its core areas of expertise and geographies, at a cost of £7.3m. They were:

·              a single site insulation business in the Netherlands;

·              a single site specialist structural insulation and dry lining business in Toulouse, France;

·              a Heating, Ventilation and Air Conditioning (HVAC) distribution business in Belgium;

·              a roofing branch in Kings Lynn, UK, which was bought out of administration; and

·              a leading UK distributor of roofing battens.

The Group expects to increase expenditure on infill acquisitions in 2013 to c.3-4 times the 2012 level.  In February SIG made its first acquisition of 2013, purchasing a UK industrial roofing business with gross assets of c.£2m. 

SIG has strict criteria when evaluating acquisition opportunities and targets a ROCE that is above its WACC in the first full year of ownership and 300bps higher by the third year. 

Divestment

In order to focus its regional management and resources on further strengthening its position in Poland, SIG agreed to divest its Central European business (Czech Republic and Slovakia), subject to regulatory clearance, to the Woodcote Group, a recent management buyout from Wolseley plc.  This business made an operating loss of £1.2m in 2012 (2011: loss of £2.8m) on revenues of £26.9m (2011: £31.3m).

Trading Review

Mainland Europe (55% of Group sales)

·              Sales from continuing operations up 1.8% in constant currency, down 5.0% in Sterling to £1,436.7m (2011: £1,512.5m)

·              Gross margin from continuing operations improved by 50bps to 25.6% (2011: 25.1%)

·              Underlying operating profit from continuing operations broadly flat at £56.2m (2011: £56.3m)

·              Total operating profit of £33.4m (2011: £32.0m)

	2012 Sales (£m)	% change in sales	% change in sales (constant currency)	Change in gross margin
France	590.6	(2.4)	4.5	+60bps
Germany and Austria	568.6	(7.8)	(1.2)	+90bps
Benelux*	160.3	2.5	9.8	-140bps
Poland	117.2	(12.7)	(5.8)	+20bps

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

During 2012 SIG opened 16 new trading sites in the region, of which 11 were in France, 4 were in Germany and 1 was in Poland.   Across Mainland Europe the Group also acquired 3 sites, closed or merged 19 branches, transferred 2 sites and sold 22 branches.  As a result the total number of trading sites in Mainland Europe fell to 361 as at 31 December 2012 from 385 at 31 December 2011.

France

SIG's French business performed strongly in 2012 despite weakening market conditions, with sales increasing 4.5% in constant currency and gross margin improving by 60bps.

The Group estimates that it outperformed the market by c.6%, principally due to sales growth from new branches opened over recent years, a shift in the market towards specialists as customers require more advice given increasingly complex building regulations, and the strength of SIG's local management team. 

Despite a significant slowdown in the French residential market, with new building starts down c.14% on 2011 levels, sales in the Group's roofing business, Lariviere, were maintained compared to prior year on a constant currency basis and gross margin improved by 10bps.

SIG's interiors and insulation business, which trades under the LiTT and Ouest Isol brands, grew sales by 10.9% in constant currency in what was a relatively flat non-residential market.  The Group continues to be the market leader in France for industrial insulation.

Germany and Austria

Although revenues in Germany and Austria fell by 1.2% in constant currency, gross margin increased by 90bps.  SIG estimates that it underperformed the market by c.1% in 2012, in part due to some of its competitors chasing volume at the expense of margin. 

Sales in SIG roofing fell by 5.2% in constant currency due to this increased competition and weaker demand in the regions in which the Group has its strongest presence.  In response SIG has implemented a series of cost cutting measures with full year benefits to be delivered in 2013.

Sales in the Group's insulation and interiors business, WeGo, were flat compared to prior year in constant currency, with growth from the residential market being offset by a weaker non-residential market due to declining public sector demand and a relatively stagnant commercial sector.

Benelux

Against the background of challenging market conditions in Benelux, especially in the residential sector, SIG performed particularly well, increasing sales by 9.8% in constant currency, significantly outperforming the market.  This was due mainly to the Group winning a number of orders for large projects, which partly due to their product mix, contributed to a reduction in gross margin of 140bps.

Results for Benelux include sales from SIG's pan-European air conditioning and air handling business, Air Trade Centre, which performed well, with constant currency sales increasing by 1.2% 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. 

Poland

In Poland sales fell by 5.8% in constant currency, largely due to a slowdown in the wider construction market following the 2012 European Football Championships.  Gross margin improved by 20bps.  The Group remains positive on prospects for Poland and following the agreed divestment of its Central European business will focus its regional resources on further strengthening its position in this market.

UK & Ireland (45% of Group sales)

·      Sales from continuing operations down 2.4% to £1,171.9m (2011: £1,201.0m)

·      Gross margin on a continuing basis improved by 20bps to 26.7% (2011: 26.5%)

·      Underlying operating profit reduced by 2.4% to £48.4m (2011: £49.6m)

·      Total operating profit of £32.6m (2011: £1.1m)

During the year the Group opened 5 new trading sites in the UK, acquired 1 new site and closed or merged 18 branches.  As a result the total number of trading sites in the UK & Ireland, including a transfer of 2 branches, fell to 320 as at 31 December 2012 from 330 at 31 December 2011.

United Kingdom

Sales in the UK from continuing operations fell 1.4% to £1,108.4m, but gross margin improved by 20bps.  SIG estimates that it outperformed the market by c.2% in 2012.

Conditions in the UK construction market remained challenging during 2012 due to the uncertain economic environment and continuing public sector austerity measures.  Furthermore, activity in the outside building trades was also affected by the extreme and prolonged periods of wet weather.

Activity in the public non-residential sector continued to decline having been affected by government austerity measures, with new work orders c.20% lower in 2012 compared to prior year.  The commercial sector also remained weak, with the market in decline outside of London, which although more resilient, was unable to compensate for the rest of the country.

Although stronger than the non-residential sector, the UK residential market remained fragile and relatively flat due to mortgage finance constraints, lack of consumer confidence and reduced investment by the government in the provision of public housing.  As a result of this general market weakness, sales in the Group's interiors and insulation business fell by 1.4% and revenues in its roofing business were down 1.3%, with this business also having been affected by the wet weather.

SIG Energy Management, whose main activity is retrofitting insulation in residential properties, performed better than anticipated in H2 2012 as energy suppliers increased volumes to meet their CERT targets.  The Group anticipates reduced volumes in 2013 due to the end of CERT and likely slow start-up of the successor Green Deal scheme. 

Alongside Green Deal is the Energy Company Obligation (ECO), a subsidy targeted at improving energy efficiency in hard-to-treat properties and for poor or vulnerable householders, from which SIG expects to gain some benefit.  Longer-term SIG is well positioned to benefit from Green Deal as it gains traction in the market, by leveraging both its status as a Green Deal Provider and its stake in Ice Energy, which it increased from 26% to 51% in March 2013 by way of a debt for equity swap.

Ireland

Sales in Ireland fell by 12.0% in constant currency and by 17.9% in Sterling to £63.5m.  Market conditions remained very challenging with the availability of credit and lack of confidence continuing to impact the industry.  This was compounded by a delay in the release of energy grant funding which only started to be made available towards the end of the year.

Outlook

The Group's outlook for 2013 remains unchanged from its January trading statement.  It expects construction markets to remain challenging and likely to decline at a similar rate to 2012.  Against this background, and building on recent performance, SIG expects to make further progress by continuing to focus on sales outperformance, gross margin enhancement and improved operational efficiency.

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 2012. 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:

Stuart Mitchell                                                               Doug Robertson
Director                                                                         Director
6 March 2013                                                                6 March 2013

Consolidated Income Statement
for the year ended 31 December 2012
		Before other items*	Other items*	Total		Before other items*	Other items*	Total
		2012	2012	2012		2011	2011	2011
	Note	£m	£m	£m		£m	£m	£m
Revenue	2	2,608.6	26.9	2,635.5		2,713.5	94.9	2,808.4
Cost of sales		(1,927.4)	(21.8)	(1,949.2)		(2,016.4)	(65.4)	(2,081.8)
Gross profit		681.2	5.1	686.3		697.1	29.5	726.6
Other operating expenses		(584.7)	(43.7)	(628.4)		(598.7)	(102.3)	(701.0)
Operating profit		96.5	(38.6)	57.9		98.4	(72.8)	25.6
Finance income		7.5	0.4	7.9		7.4	-	7.4
Finance costs		(19.6)	(2.2)	(21.8)		(21.2)	(4.2)	(25.4)
Profit before tax and share of loss of associate		84.4	(40.4)	44.0		84.6	(77.0)	7.6
Share of loss of associate		(0.3)	-	(0.3)		(0.1)	-	(0.1)
Profit before tax		84.1	(40.4)	43.7		84.5	(77.0)	7.5
Income tax expense	3	(26.2)	9.1	(17.1)		(25.7)	18.2	(7.5)
Profit/(loss) after tax		57.9	(31.3)	26.6		58.8	(58.8)	(0.0)
Attributable to:
Equity holders of the Company		57.6	(31.3)	26.3		58.5	(58.8)	(0.3)
Non-controlling interests		0.3	-	0.3		0.3	-	0.3
Earnings per share
Basic earnings/(loss) per share	4	9.7p	(5.2p)	4.5p		9.9p	(9.9p)	(0.0p)
Diluted earnings/(loss) per share	4	9.7p	(5.2p)	4.5p		9.9p	(9.9p)	(0.0p)
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs, other one-off items, profit and loss arising on the sale of businesses, trading profits and losses associated with disposed businesses, fair value gains and losses on derivative financial instruments, the defined benefit pension scheme curtailment gain, the taxation effect of "Other items" and the effect of changes in taxation rates. "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 2012
		2012		2011
		£m		£m
Profit/(loss) after tax		26.6		(0.0)
Other comprehensive (expense)/income
Exchange difference on retranslation of foreign currency goodwill and intangibles		(6.2)		(9.6)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)		(5.2)		(14.7)
Exchange and fair value movements associated with borrowings and derivative financial instruments		4.0		3.6
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments		(1.0)		(0.9)
Gains and losses on cash flow hedges		(2.7)		(5.2)
Transfer to profit and loss on cash flow hedges		2.2		3.9
Actuarial loss on defined benefit pension schemes*		(0.2)		(21.8)
Deferred tax movement associated with actuarial loss*		0.2		5.4
Effect of change in rate on deferred tax*		(0.8)		(0.3)
Other comprehensive expense		(9.7)		(39.6)
Total comprehensive income/(expense)		16.9		(39.6)
Attributable to:
Equity holders of the Company		16.6		(39.9)
Non-controlling interests		0.3		0.3
		16.9		(39.6)

* These items will not be reclassified subsequently to the Consolidated Income Statement.

Consolidated Balance Sheet
as at 31 December 2012
		2012		2011
		£m		£m
Non-current assets
Property, plant and equipment		134.2		142.7
Interest in associate		0.8		1.5
Goodwill		428.7		431.4
Intangible assets		54.4		62.7
Deferred tax assets		29.0		35.7
Derivative financial instruments		37.4		52.7
		684.5		726.7
Current assets
Inventories		224.0		223.4
Trade and other receivables		373.3		392.2
Derivative financial instruments		6.2		-
Associate loan and deferred consideration		2.7		-
Cash and cash equivalents		128.1		126.9
		734.3		742.5
Total assets		1,418.8		1,469.2
Current liabilities
Trade and other payables		333.0		342.3
Obligations under finance lease contracts		2.2		1.8
Bank overdrafts		4.1		4.0
Bank loans		1.3		2.9
Private placement notes		81.8		-
Derivative financial instruments		5.8		-
Deferred consideration		-		5.4
Current tax liabilities		4.4		7.7
Provisions		9.3		14.6
		441.9		378.7
Non-current liabilities
Obligations under finance lease contracts		5.4		5.5
Bank loans		0.1		0.2
Private placement notes		174.2		265.2
Derivative financial instruments		4.8		10.5
Deferred tax liabilities		17.3		20.8
Other payables		3.0		5.0
Retirement benefit obligations		34.4		44.5
Provisions		28.9		31.3
		268.1		383.0
Total liabilities		710.0		761.7
Net assets		708.8		707.5
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		0.9		1.2
Hedging and translation reserve		2.8		11.2
Retained profits		197.7		187.7
Attributable to equity holders of the Company		707.8		706.5
Non-controlling interests		1.0		1.0
Total equity		708.8		707.5

Consolidated Cash Flow Statement
for the year ended 31 December 2012
		2012		2011
	Note	£m		£m
Net cash flow from operating activities
Cash generated from operating activities	5	88.7		96.1
Finance costs paid		(13.3)		(16.2)
Finance income received		1.5		1.4
Income tax paid		(19.4)		(10.2)
Net cash generated from operating activities		57.5		71.1
Cash flows from investing activities
Purchase of property, plant and equipment		(29.7)		(16.4)
Proceeds from sale of property, plant and equipment		4.1		2.6
Net proceeds from sale of businesses	9	1.2		30.6
Settlement of amounts payable for purchase of businesses	10	(12.7)		(1.4)
Net cash (used in)/generated from investing activities		(37.1)		15.4
Cash flows from financing activities
Capital element of finance lease rental payments		(2.1)		(1.5)
Repayment of loans/settlement of derivative financial instruments		(1.2)		(81.6)
Dividends paid to equity holders of the Company	7	(14.8)		(4.4)
Dividend payments to non-controlling interests		(0.3)		(0.1)
Net cash used in financing activities		(18.4)		(87.6)
Increase/(decrease) in cash and cash equivalents in the year		2.0		(1.1)
Cash and cash equivalents at beginning of the year		122.9		127.0
Effect of foreign exchange rate changes		(0.9)		(3.0)
Cash and cash equivalents at end of the year		124.0		122.9

Consolidated Statement of Changes in Equity for the year ended 31 December 2012
	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 2011	59.1	447.0	0.3	1.2	11.2	187.7	706.5	1.0	707.5
Profit after tax	-	-	-	-	-	26.3	26.3	0.3	26.6
Other comprehensive income/(expense):
Exchange difference on retranslation of foreign currency goodwill and intangibles	-	-	-	-	(6.2)	-	(6.2)	-	(6.2)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)	-	-	-	-	(5.2)	-	(5.2)	-	(5.2)
Exchange and fair value movements associated with borrowings and derivative financial instruments	-	-	-	-	4.0	-	4.0	-	4.0
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments	-	-	-	-	(1.0)	-	(1.0)	-	(1.0)
Gains and losses on cash flow hedges	-	-	-	-	-	(2.7)	(2.7)	-	(2.7)
Transfer to profit and loss on cash flow hedges	-	-	-	-	-	2.2	2.2	-	2.2
Actuarial loss on defined benefit pension schemes*	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Deferred tax movement associated with actuarial loss*	-	-	-	-	-	0.2	0.2	-	0.2
Effect of change in rate on deferred tax*	-	-	-	-	-	(0.8)	(0.8)	-	(0.8)
Total comprehensive income/(expense)	-	-	-	-	(8.4)	25.0	16.6	0.3	16.9
Debit to share option reserve	-	-	-	(0.3)	-	-	(0.3)	-	(0.3)
Current and deferred tax on share options	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Dividend payments to non-controlling interests	-	-	-	-	-	-	-	(0.3)	(0.3)
Dividends paid to equity holders of the Company	-	-	-	-	-	(14.8)	(14.8)	-	(14.8)
At 31 December 2012	59.1	447.0	0.3	0.9	2.8	197.7	707.8	1.0	708.8

* These items will not be reclassified subsequently to the Consolidated Income Statement.

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 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)
Dividend 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

*These items will not be reclassified subsequently to the Consolidated Income Statement.

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 2012 and 31 December 2011 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 2011 have been filed with the Registrar of Companies, and those for 2012 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2012 and 2011, 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 2012 and 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 operation.  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 standards were amended in the current period, but have had no material impact on the Accounts:

·        IAS 12 "Income Taxes"; and

·        IFRS 7 "Financial Instruments: Disclosures".

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 2012.

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.
		2012			2012		2012			2012			2011		2011	2011	2011
		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		1,171.9			1,436.7		-			2,608.6			1,201.0		1,512.5	-	2,713.5
Sales attributable to businesses divested in 2012 and 2011		-			26.9		-			26.9			63.6		31.3	-	94.9
Inter-segment sales*		0.8			8.2		(9.0)			-			0.6		5.5	(6.1)	-
Total revenue		1,172.7			1,471.8		(9.0)			2,635.5			1,265.2		1,549.3	(6.1)	2,808.4
Result Segment result before Other items		48.4			56.2		-			104.6			49.6		56.3	-	105.9
Amortisation of acquired intangibles and impairment charges		(12.3)			(9.7)		-			(22.0)			(15.1)		(20.5)	-	(35.6)
Restructuring costs		(8.6)			(8.0)		-			(16.6)			(11.0)		(1.0)	-	(12.0)
Other one-off items		0.7			0.7		-			1.4			-		-	-	-
Net loss on sale of businesses and associated impairment charges		-			(4.6)		-			(4.6)			(22.7)		-	-	(22.7)
Operating (loss)/profit attributable to businesses divested in 2012 and 2011		-			(1.2)		-			(1.2)			0.3		(2.8)	-	(2.5)
Defined benefit pension scheme curtailment gain		4.4			-		-			4.4			-		-	-	-
Segment operating profit		32.6			33.4		-			66.0			1.1		32.0	-	33.1
Parent Company costs										(8.1)							(7.5)
Operating profit										57.9							25.6
Net finance costs										(12.1)							(13.8)
Net fair value losses on derivative financial instruments										(1.8)							(4.2)
Share of loss of associate										(0.3)							(0.1)
Profit before tax										43.7							7.5
Income tax expense										(17.1)							(7.5)
Non-controlling interests										(0.3)							(0.3)
Profit/(loss) for the period										26.3							(0.3)
*Inter-segment sales are charged at the prevailing market rates.

2. Revenue and segmental information (continued)
(a) Segmental results (continued)
Balance sheet
	2012	2012	2012	2012		2011	2011	2011	2011
	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	612.1	711.9	-	1,324.0		631.8	731.4	-	1,363.2
Unallocated assets:
Derivative financial instruments				43.6					52.7
Cash & cash equivalents				46.1					50.8
Associate loan				2.4					-
Other assets				2.7					2.5
Consolidated total assets				1,418.8					1,469.2
Liabilities
Segment liabilities	264.0	167.4	-	431.4		297.6	179.9	-	477.5
Unallocated liabilities:
Private placement notes				256.0					265.2
Derivative financial instruments				10.6					10.5
Other liabilities				12.0					8.5
Consolidated total liabilities				710.0					761.7
Other segment information
Capital expenditure on:
Property, plant and equipment	18.3	14.0	-	32.3		9.3	8.8	-	18.1
Goodwill and intangible assets	0.2	6.2	-	6.4		-	-	-	-
Non-cash expenditure:
Depreciation	11.2	12.4	-	23.6		15.4	14.0	-	29.4
Impairment of property, plant and equipment	1.0	-	-	1.0		0.3	-	-	0.3
Impairment charges in respect of businesses disposed of in 2011	-	-	-	-		21.1	-	-	21.1
Amortisation of acquired intangibles	12.3	9.7	-	22.0		15.1	9.5	-	24.6
Impairment of goodwill and intangibles	-	-	-	-		-	11.0	-	11.0

2. Revenue and segmental information (continued)
(b) Revenue by product group
The Group 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:
		2012			2011
		£m			£m
Insulation and Energy Management		1,197.6			1,233.8
Interiors		587.3			591.1
Exteriors		823.7			888.6
Total continuing		2,608.6			2,713.5
Attributable to businesses divested in 2012 and 2011		26.9			94.9
Total		2,635.5			2,808.4
(c) Geographic information
The Group's revenue from external customers and its non-current assets (including property, plant and equipment, interest in associate, goodwill and intangible assets but excluding deferred tax and derivative financial instruments) by geographical location are as follows:
		2012		2012				2011		2011
Country		Revenue		Non-current assets^				Revenue		Non-current assets^
		£m		£m				£m		£m
United Kingdom		1,108.4		276.3				1,123.7		285.3
Ireland		63.5		0.9				77.3		1.0
France		590.6		228.3				605.2		237.2
Germany and Austria		568.6		54.4				616.6		56.5
Poland		117.2		16.1				134.3		16.1
Benelux*		160.3		42.1				156.4		40.7
Total continuing		2608.6		618.1				2,713.5		636.8
Attributable to businesses divested in 2012 (i.e. Central Europe)		26.9		-				31.3		1.5
		2,635.5		618.1				2,744.8		638.3
Attributable to businesses divested in 2011		-						63.6
Total		2,635.5						2,808.4
* Includes international air conditioning and 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 comprises:			2012	2011
			£m	£m
Current tax
UK corporation tax:  - on profits/(losses) for the year			(0.2)	-
- adjustments in respect of previous years			0.1	(1.7)
			(0.1)	(1.7)
Overseas taxation:   - on profits/(losses) for the year			14.8	16.4
- adjustments in respect of previous years			0.8	0.6
Total current tax			15.5	15.3
Deferred taxation
Current year			(2.2)	(8.5)
Adjustments in respect of previous years			0.7	(0.9)
Deferred tax charge in respect of pension schemes			2.5	0.8
Effect of change in rate			0.6	0.8
Total deferred tax			1.6	(7.8)
Total income tax expense			17.1	7.5

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 2012 of 24% (31 December 2011: 26%). The differences are explained in the following reconciliation:

	2012	2012	2011	2011
	£m	%	£m	%
Profit on ordinary activities before tax	43.7		7.5
Tax at 24% (2011: 26%) thereon	10.5	24.0	2.0	26.0
Factors affecting the income tax expense for the year:
- non-deductible and non-taxable items	3.6	8.1	1.2	16.0
- impairment charges not deductible for tax	-	-	1.8	24.4
- losses not recognised	0.6	1.4	2.0	26.7
- losses utilised not previously recognised	(5.0)	(11.4)	(2.7)	(36.0)
- other adjustments in respect of previous years	1.6	3.7	(2.0)	(26.7)
- effect of overseas tax rates	5.2	11.9	4.4	58.7
- effect of change in rate on deferred tax	0.6	1.4	0.8	10.9
Total income tax expense	17.1	39.1	7.5	100.0

The effective tax rate for the Group on the total profit before tax of £43.7m is 39.1% (2011: 100.0%).

The effective tax charge for the Group on underlying profit before tax (i.e. before "Other items") of £84.1m is 31.2% (2011: 30.4%), which comprises a charge of 31.3% (2011: 31.4%) in respect of current year profits and a tax credit of 0.1% (2011: credit 1.0%) 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/The Netherlands (corporate tax rates greater than that of the UK) and Ireland/Poland (corporate tax rates less than that of the UK). 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;

- the 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 Changes in Equity:

	2012	2011
	£m	£m
Deferred tax movement associated with actuarial loss*	0.2	5.4
Current and deferred tax on share options	(0.2)	-
Tax charge on exchange and fair value movements arising on borrowings and derivative financial instruments	(1.0)	(0.9)
Effect of change in rate on deferred tax*	(0.8)	(0.3)
	(1.8)	4.2

*These items will not be reclassified subsequently to the Consolidated Income Statement.

4. Earnings per share
The calculations of earnings per share are based on the following profits/(losses) and numbers of shares:
					Basic and diluted
					2012		2011
					£m		£m
Profit/(loss) after tax					26.6		(0.0)
Non-controlling interests					(0.3)		(0.3)
					26.3		(0.3)
					Basic and diluted before Other items
					2012		2011
					£m		£m
Profit/(loss) after tax					26.6		(0.0)
Non-controlling interests					(0.3)		(0.3)
Other items:
Amortisation of acquired intangibles					22.0		24.6
Goodwill and intangible asset impairment charges					-		11.0
Net loss arising on the sale of businesses (Note 9)					4.6		22.7
Net operating losses attributable to businesses divested in 2012 and 2011					1.2		2.5
Restructuring costs					16.6		12.0
Other one-off items					(1.4)		-
Defined benefit pension scheme curtailment gain					(4.4)		-
Net fair value losses on derivative financial instruments					1.8		4.2
Tax credit relating to other items (see below)					(9.1)		(18.2)
					57.6		58.5
Weighted average number of shares:
				2012 Number			2011 Number
For basic earnings per share				590,835,039			590,829,339
Exercise of share options				-			3,703,528
For diluted earnings per share				590,835,039			594,532,867
Total earnings per share				2012			2011
Basic earnings/(loss) per share				4.5p			(0.0p)
Diluted earnings/(loss) per share				4.5p			(0.0p)
Earnings per share before Other items^
Basic earnings per share				9.7p			9.9p
Diluted earnings per share				9.7p			9.9p

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

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

a)     amortisation of acquired intangibles of £22.0m (2011: £24.6m) 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 £ nil (2011: £11.0m) 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 £4.6m (2011: £22.7m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

d)     net operating losses attributable to businesses divested in 2012 and 2011 of £1.2m (2011: £2.5m) are included within the column of the Consolidated Income Statement entitled "Other items";

e)     restructuring costs of £16.6m (2011: £12.0m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

f)     other one-off items amounting to a credit of £1.4m (2011: £ nil) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

g)     the defined benefit pension scheme curtailment gain of £4.4m (2011: £ nil) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

h)     net fair value losses on derivative financial instruments of £1.8m (2011: £4.2m) are included as finance income and finance costs within the column of the Consolidated Income Statement entitled "Other items"; and

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

4. Earnings per share (continued)

	2012				2011
	Other items	Tax impact			Other items	Tax impact
	£m	£m	%		£m	£m	%
Amortisation of acquired intangibles	22.0	4.9	22.0		24.6	6.0	24.4
Goodwill and intangible asset impairment charges	-	-	-		11.0	1.1	10.0
Net loss arising on the sale of businesses	4.6	-	-		22.7	4.6	20.3
Net operating losses attributable to businesses divested in 2012 and 2011	1.2	-	-		2.5	(0.1)	(4.0)
Restructuring costs	16.6	1.2	7.2		12.0	2.5	20.8
Other one-off items	(1.4)	(0.3)	21.0		-	-	-
Defined benefit pension scheme curtailment gain	(4.4)	(1.1)	24.5		-	-	-
Net fair value losses on derivative financial instruments	1.8	0.4	24.5		4.2	1.1	26.5
Utilisation of losses not previously recognised	-	4.6	-		-	3.8	-
Effect of change in rate on deferred tax	-	(0.6)	-		-	(0.8)	-
	40.4	9.1	22.5		77.0	18.2	23.6

5. Reconciliation of operating profit to cash generated from operating activities
							2012	2011
				£m				£m
Operating profit					57.9			25.6
Depreciation					23.6			29.4
Impairment of property, plant and equipment					1.0			0.3
Impairment and other costs associated with the disposal of the UK Interiors Manufacturing business in 2011						-		21.1
Net loss arising on the sale of businesses (Note 9)					4.6			1.6
Amortisation of acquired intangibles					22.0			24.6
Goodwill and intangible asset impairment charges					-			11.0
Profit on sale of property, plant and equipment					(1.1)			(0.1)
Share-based payments					(0.2)			0.2
Working capital movements:
Increase in inventories					(4.0)			(9.8)
Decrease/(increase) in receivables					4.0			(33.7)
(Decrease)/increase in payables					(19.1)			25.9
Cash generated from operating activities					88.7			96.1

Included within the cash generated from operating activities is cash paid in respect of current year and prior year restructuring costs of £12.7m (2011: £12.4m).

Also included within the cash generated from operating activities is a one-off defined benefit pension scheme employers contribution of £7.0m (2011: £2.4m).

6. Reconciliation of net cash flow to movements in net debt
						2012	2011
						£m	£m
Increase/(decrease) in cash and cash equivalents in the year						2.0	(1.1)
Cash flow from decrease in debt*						6.2	81.3
Decrease in net debt resulting from cash flows						8.2	80.2
Non-cash items^						(0.8)	(12.2)
Exchange difference						3.2	1.1
Decrease in net debt in the year						10.6	69.1
Net debt at beginning of the year						(115.9)	(185.0)
Net debt at end of the year						(105.3)	(115.9)
*Cash flow from decrease in debt includes £5.4m related to the payment of deferred consideration that is included within investing activities in the Consolidated Cash Flow Statement. ^ 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.

7. Dividends

An interim dividend of 1.0p per ordinary share was paid on 7 November 2012 (2011: 0.75p). The Directors have proposed a final dividend for the year ended 31 December 2012 of 2.0p per ordinary share (2011: 1.5p). No dividends have been paid between 31 December 2012 and the date of this financial information.

8. 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 2012 was a loss of £0.3m (2011: loss of £0.1m). In addition, one-off costs of £0.4m have been included within "Other items" in 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 £2.4m as at 31 December 2012 (2011: £1.2m). Interest receivable on the loan for the year was £61,000 (2011: £51,000). The loan is due for repayment in 2013.

Ice purchased goods and services from SIG plc's subsidiary undertakings amounting to £1.2m in 2012 (2011: £1.2m), of which £1.0m was outstanding as at 31 December 2012 (2011: £0.8m).

The current accounting period for Ice ends on 31 March 2013. 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.

On 5 March 2013 the Group purchased a further 26% share in Ice for a consideration of £1.5m via a debt for equity exchange. Following this transaction SIG owns 51% of Ice. The Group has a call option to purchase the remaining 49% shareholding of Ice in 2015.

9. Divestments

On 5 December 2012 the Company sold its Central Europe business for a total consideration net of expenses of £1.8m, resulting in a net loss on disposal of £4.6m. The net assets (excluding intercompany balances) of this business at the date of disposal were as follows:

	At the date of disposal		At 31 December 2011
	£m		£m
Property, plant and equipment	1.2		1.6
Cash (less debt)	0.5		3.7
Inventories	2.2		1.9
Trade and other receivables		8.0	6.2
Trade and other payables		(5.5)	(6.0)
Net assets		6.4	7.4
Loss on disposal		(4.6)
Consideration less expenses		1.8
Cash received		1.7
Deferred consideration		0.3
Total consideration in respect of the sale		2.0
Less expenses		(0.2)
Total consideration net of expenses		1.8
Reconciliation to amounts included in the Consolidated Cash Flow Statement
Cash received during the year		1.7
Cash (less debt) disposed of		(0.5)
Total cash flow during the year		1.2

The loss on disposal includes expenses of £0.2m which remained unpaid as at 31 December 2012.

The net loss arising on the sale of the Central Europe business of £4.6m and the result for the current and comparative periods have been disclosed within "Other items" in the Consolidated Income Statement. The business formed part of the Mainland Europe reported segment as disclosed in Note 2.

Although the sale of the Slovakian business remains subject to regulatory approval in that country, operational control passed to the new owners on 5 December 2012.

The 2011 comparatives for operating profits and losses attributable to divested businesses within the Consolidated Income Statement include businesses divested in 2011.

10. Acquisitions

During the period SIG acquired the following companies:

Acquisition name	% of share capital acquired	Acquisition date	Country of incorporation	Principal activity
M. Van Tol B.V.	100%	5 June 2012	The Netherlands	Distribution of insulation materials and associated products
Monteis Materiaux	100%	10 October 2012	France	Distribution of structural insulation and dry lining products
Electrotech S.A.	100%	5 November 2012	Belgium	Distribution of air conditioning and air handling products

The Group also acquired the trade and certain assets and liabilities of the following:

Acquisition name	Acquisition date	Country of incorporation	Principal activity
Essex Roofing	10 September 2012	United Kingdom	Distribution of roofing materials and associated products
SR Timber	16 November 2012	United Kingdom	Distribution of roofing materials and associated products

The net assets on these businesses at acquisition (in aggregation) were as follows:

	£m
Property, plant and equipment	0.4
Inventories	1.8
Trade and other receivables	1.2
Net cash acquired	1.9
Trade and other payables	(1.4)
Fair value adjustments to inventories	(0.1)
Net assets acquired	3.8
Intangible assets - customer relationships	3.1
Intangible assets - non-compete clauses	0.4
Deferred tax liability on acquired intangible assets	(1.0)
Goodwill	2.9
Total cash consideration	9.2
Total consideration including assumed cash:
Cash (per above)	9.2
Net cash acquired	(1.9)
Total consideration (including assumed cash)	7.3
Settlement of deferred consideration in respect of prior period acquisitions	5.4
Total cash flows in respect of acquisitions	12.7

In accordance with IFRS 3, acquisition expenses of £0.1m in relation to the above acquisitions have been recognised within "Other items" in the Consolidated Income Statement.

Additional deferred and contingent consideration not recognised may be payable in the future in respect of the above acquisitions, subject to certain performance criteria being met, up to a maximum of £1.8m. In accordance with the recent interpretation from the IFRIC committee this additional consideration has not been recognised as an addition to goodwill, but instead will be amortised through the Consolidated Income Statement over the period to which the performance criteria relates. This amortisation of £0.1m in 2012 (2011: £ nil), added to the £0.1m acquisition expenses, led to a charge in "Other items" in the Consolidated Income Statement of £0.2m in respect of acquisitions.

The Directors have made a provisional assessment of the fair value of the net assets acquired. Any further adjustments arising will be accounted for in 2013.

Included within goodwill are staff acquired as part of the business and strategic acquisition synergies which are specifically excluded in the identification of intangible assets on acquisition in accordance with the relevant accounting standards. Goodwill arising is not deductible for tax purposes.

Post-acquisition revenue and operating profit for the year ended 31 December 2012 for all 2012 acquisitions amounted to £3.3m and £0.3m respectively. The Directors estimate that the combined pre-acquisition revenue and operating profit of the 2012 acquisitions for the period from 1 January 2012 to the acquisition dates was £6.2m and £0.6m respectively.

Payment of deferred consideration

During the period, deferred consideration of £5.4m was paid to Mr Gerry Carr in respect of his 20% shareholding in Insulation Distributors Limited, a distributor of insulation products based in Ireland, in settlement of his option to sell. The Group now owns 100% of the share capital of Insulation Distributors Limited.

Post balance sheet events

On 28 February 2013, SIG acquired 100% of the issued share capital of United Roofing Products Limited, a distributor of roofing materials and associated products in the United Kingdom. Furthermore, on 5 March 2013 SIG acquired a further 26% shareholding in its associate, Ice Energy Technologies Limited, increasing its total shareholding to 51%. The total initial consideration for acquisitions made after the balance sheet date was £4.0m, and net assets acquired were c.£0.2m.

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, the Company purchased the remaining non-controlling interest of Air Trade Centre UK Limited for a consideration of less than £0.1m. Following the purchase of this 25% minority shareholding, the Group now owns 100% of the shares in Air Trade Centre UK Limited.

SIG has a shareholding of less than 0.1% in a German purchasing co-operative. Net purchases from this co-operative (on commercial terms) totalled £405m in 2012 (2011: £364m). At the balance sheet date trade payables in respect of the co-operative amounted to £12m (2011: £12m).

Other than the relationship disclosed in Note 8, the Group has not identified any other material related party transactions in the year to 31 December 2012.

The remuneration of the Directors, who are the key management personnel of the Group, amounted to £1.8m (2011: £3.2m), excluding an IFRS 2 share based payment credit of £0.3m (2011: 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.

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 2012 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 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 2012 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 the process was reviewed again during 2012 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 are 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	Mitigation
Market Conditions	SIG operates in a number of countries across Mainland Europe with the vast majority of SIG's sales being 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 (for example obtaining Green Deal funding), 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 ongoing instability of the Eurozone and the uncertainty regarding the future of the Euro could potentially have a number of consequences on SIG's operations.	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. The Group Board has considered a number of alternative Eurozone outcomes and the potential impact these may have on SIG. The Group also believes that the Eurozone crisis is not as acute as it was 12 months ago but continues to monitor the situation and also retains, where appropriate, mitigating contingency strategies. While the potential impact on overall global consumer demand has been considered, it should also be noted that the Group's Mainland European operations are based in the Northern European countries (e.g. France and Germany) which have more robust economies and therefore the risk associated with a country leaving the Euro or a complete break-up of the Euro on SIG is reduced to some extent.
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 supplier 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. Customers: Long term key customer harmonisation and national account strategy planning. Customer behaviour and performance is continually monitored and analysed.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Mitigation
Competitors and margin management	SIG has a mix of both direct specialist competition and some overlap with more general suppliers (such as general builder's 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 continues to implement initiatives designed to improve the Group's core competencies surrounding customer service, including enhanced sales support and training. Operating margin is considered to be a key performance indicator by the Group. In order to improve operating 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, and tight control of operating costs is a permanent feature of management practice.
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. As well as the inherent cost of compliance, there is also the financial cost of being penalised for non-compliance with legislation such as the Anti-Competition and Anti-Bribery Laws.	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. The Group actively monitors relevant laws and regulations across its markets to ensure that the effect of any changes to the legal framework are minimised. During the course of 2012 a number of initiatives were undertaken to respond to new or updated laws and regulations. These include the continual review and improvement of anti-fraud and anti-bribery procedures across the Group. 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.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Mitigation
Debt	Group net debt at 31 December 2012 amounted to £105.3m. 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; (4) compliance with debt covenants; and (5) counterparty credit risk.	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 during 2012, this risk has reduced year on year.
Working capital/credit management	Failure to manage working capital effectively may lead to a significant increase in the Group's net debt, thereby reducing the Group's funding headroom and liquidity. Continued austerity measures within the Eurozone is impacting confidence and may impact the ability for customers to sustain debt servicing and repayment.	Cash flow targets are agreed with each business unit as part of the annual budget process. All targets are reviewed on a monthly basis. The Group has well established and stringent authorisation procedures and debt collection cycles which control all capital expenditure and working capital requirements. The Group operates a central led and pro-active credit management system with bespoke customer monitoring solutions, internal risk categorisations which drive credit policy (perpetually reviewed), and excellent major customer relationships.
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. A new ERP system is currently being developed for the UK Distribution businesses.	Each operating business unit has a documented IT strategy with a complete programme of 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 ERP system for the UK Distribution businesses has successfully completed the proving phase and will be selectively rolled out to branches during the course of 2013 and 2014.
14. Principal risks and uncertainties (continued)
Principal Risks	Nature of Risk	Mitigation
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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