Full Year Results 2010

RNS Number : 1060D

SIG PLC

17 March 2011

 



17 March 2011

SIG plc

Full Year Results 2010

SIG plc ("SIG"), a leading European specialist supplier of insulation, exteriors, interiors and specialist construction products, announces its results for the full year to 31 December 2010.

Highlights

·           Return to revenue growth in H2; up 2.3% in constant currency

·           Underlying PBT of £62.5m up 3.1% and slightly ahead of market expectations

·           Net debt reduced by £69.5m to £185.0m (2009: £254.5m) again ahead of market

expectations

·           New £250m bank facility completed on favourable terms - March 2011

·           Intention to return to dividend payments at 2011 interim stage

Year ended 31 December	2010	2009	Change
Revenue	£2,668m	£2,723m	-2.0%
Underlying* operating profit	£76.1m	£80.9m	-5.9%
Underlying* profit before tax	£62.5m	£60.6m	+3.1%
Underlying* basic earnings per share	7.2p	9.0p	-20.0%

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

Statutory:

Year ended 31 December	2010	2009
Operating loss	£54.6m	£32.5m
Loss before tax	£80.8m	£55.3m
Basic loss per share	13.0p	9.7p

Commenting on the outlook for 2011, Leslie Van de Walle, Chairman, said:

"Demand trends overall in the Group's sectors and countries of operation are expected to gradually stabilise during the coming year and against this backdrop we are committed to improving our performance in 2011.

The Board expects to see 2010's modest growth trend in residential building continuing in 2011 and the decline in private non-residential construction levelling out in H1 2011.   However, government expenditure cuts are expected to cause public sector new construction activity to decline as the year progresses, counteracting mild growth in the private sector, particularly in the UK.

Trading in the first two months of 2011 was in line with management's expectations and well ahead of the particularly weak, weather-affected comparative sales levels of last year.

While maintaining a firm control on operating costs and working capital, the Group will continue to make carefully selected organic investments, notably in the area of renewables and carbon reduction, and in further controlled expansion of its branch network in both the UK and Mainland Europe.

The Board believes that SIG is well positioned to make progress through 2011."

For further information

SIG plc	Chris Davies Gareth Davies	Chief Executive Finance Director	0114 285 6300
Financial Dynamics	Richard Mountain Nick Hasell		020 7269 7291

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

Chairman's Statement

SIG's performance in 2010 was a tale of two halves, albeit with a similar beginning and end to the year.  Adverse weather conditions across Europe curtailed construction site activity during the first quarter and also lead to challenging market conditions towards the end of the year.  However, as 2010 progressed, the end markets in which SIG operates gradually stabilised.

Across the Group, the pattern of recovery during the year was uneven; individual countries improved at different rates, with some segments and geographies still to fully level out.  In our major markets of the UK, France and Germany, residential construction levels turned modestly positive from a low base.  The rate of decline in private sector non-residential construction activity slowed in H2 2010, while public sector construction work continued to benefit from government investment programmes.

Reported Group sales were down 2% for the year and in constant currency were down 0.3%.  However, improving trading conditions resulted in a 2.3% advance in H2 2010 reported sales over the same period in 2009 (on a constant currency basis).  Gross margins in H2 2010 were slightly ahead of those achieved in H1 2010, in markets which remained highly competitive although they finished the year overall down 0.2% compared to 2009 at 26.0% (2009: 26.2%). 

Underlying operating profit was £76.1m (2009: £80.9m).  Underlying net finance costs reduced by 33.0% to £13.6m (2009: £20.3m), leaving underlying profit before tax at £62.5m (2009: £60.6m).  Underlying basic earnings per share reduced to 7.2p (2009: 9.0p). 

As a result of non underlying charges totalling £143.3m (2009: £115.9m) the Group recorded a total loss before tax of £80.8m (2009: loss of £55.3m).  Including these charges, basic earnings per share amounted to a loss of 13.0p (2009: loss per share of 9.7p). 

The Group remained focused on its cost saving and restructuring programme, and implemented further measures to improve working capital and reduce capital expenditure in line with our objective of optimising cash flow and reducing net debt.

Our intense focus on cash management continued throughout the year.  A combination of good trading cash flows, strong working capital management and a tight rein on capital expenditure produced good cash conversion.  Net debt decreased by £69.5m to £185.0m (£254.5m at 31 December 2009).

Refinancing

In November the Board took the strategic decision to refinance its UK relationship bank debt.  The Group has recently signed a new £250m four year revolving credit facility with four banks on favourable terms as follows:

·      £250m 4 year unsecured Revolving Credit Facility

·      Pricing - Margin on LIBOR between 150 and 187.5 bps at 1.0x to 2.0x leverage

·      Covenants

o  Interest cover > 3x

o  Leverage < 3x

o  Fixed charge cover > 1.75x

Three of the banks (Barclays, Lloyds and RBS) are long standing lenders to the Group, whilst the fourth, HSBC, introduces a new relationship.

Upon signing of the new facility, the Group's existing UK bank facilities were replaced and the remaining borrowings were repaid from cash held on deposit.  The Group's existing private placement notes remain in place with maturities ranging from 2011 to 2018.

This new four year £250m facility will ensure that the Group maintains a conservative level of headroom and provide funds for selective investment over the medium term. 

Board

As announced on 13 January 2011, Les Tench retired on 31 January 2011.  I would like to take this opportunity to thank Les for his leadership of the Board since his appointment as non-executive chairman in May 2004.  He leaves with the Group in good shape, with a strong balance sheet and excellent long term prospects.  We wish him every success in the future.  Following my appointment as non-executive director on 1 October 2010 last year, I was delighted to accept the invitation to replace Les as non-executive chairman, and I look forward to leading the Board through the next stage of the Group's development.

Employees

Our employees have responded outstandingly to the task of returning SIG to growth, and on behalf of the Board and shareholders I would like to thank them all for their contribution.

Dividends

The Board remains committed to a progressive dividend policy and given that markets are now beginning to stabilise, it believes that it is appropriate to announce its intention to declare a dividend with the 2011 interim results.

Outlook

Demand trends overall in the Group's sectors and countries of operation are expected to continue to stabilise during the coming year.

The Board expects to see 2010's modest growth trend in residential building continuing in 2011 and the decline in private non-residential construction levelling out in H1 2011.  However, government expenditure cuts are expected to cause public sector new construction activity to decline as the year progresses, counteracting mild growth in the private sector, particularly in the UK.

Trading in the first two months of 2011 was in line with management's expectations and well ahead of the particularly weak, weather-affected comparative sales levels of last year.

While maintaining a firm control on operating costs and working capital, the Group will continue to make carefully selected organic investments, notably in the area of renewables and carbon reduction, and in further controlled expansion of its branch network in both the UK and Mainland Europe.

The Board believes that SIG is well positioned to make progress through 2011.

Chief Executive's Review of Trading Performance

The Group continued to experience challenging market conditions through 2010 but, notably in the second half, there were signs that the operational improvements we have undertaken over the last two years were beginning to assist our overall performance.

The Group experienced extreme winter weather conditions in all its geographies in the first quarter of 2010 which affected construction site activity and consequently demand for SIG's products and services.  Harsh weather was also a feature of the fourth quarter, with trading in December disrupted by what, in many of our territories, were the coldest temperatures for more than a century.  However, overall the Group's markets gradually stabilised as the year progressed, with modest growth in residential markets in the UK, France and Germany offsetting a continuing decline in non-residential construction activity.

Against this background, total Group turnover in 2010 was £2,668m, a decrease of 2% on the prior year.  Underlying profit before tax was 3% higher at £62.5m.

One-off restructuring costs incurred in 2010 amounted to £21.8m, taking total exceptional costs since the start of the programme in mid-2008 to £98.8m.  The restructuring programme in total has delivered annualised net cost savings of £110m, of which £10m is incremental in 2011.

Amortisation of acquired intangibles amounted to £28.5m (2009: £28.6m).  In addition, following the decline of construction activity in the Group's Interiors Manufacturing, Central European, UK access hire, UK fixings and Irish businesses, when reviewing the carrying value of goodwill and intangibles associated with these business units, the Board has concluded that in light of the anticipated medium term view of profitability that these assets are impaired.  As a result an impairment charge of £80.4m (2009: £30.0m) has been made. Non-cash amortisation charges relating to previously cancelled interest rate derivative financial instruments amounted to £12.6m (2009: £2.5m).

The restructuring we have undertaken over the last two and a half years is beginning to bring commercial benefits, in addition to targeted cost savings.  Throughout the downturn our aim was to re-engineer our business both to improve its underlying operational efficiency and to drive competitive advantage; not least to leverage SIG's strengths to enhance the quality and value of our offering to customers.

Most of the substantive organisational changes and divisional mergers which we announced between August 2009 and March 2010 have been successfully implemented, namely:

·      the merger of SIG Insulations, CPD, Fixings and Construction Accessories to create SIG Distribution;

·      the merger of our UK Roofing and Roofline operations;

·      the full integration of our Polish operations; and

·      a number of cross-divisional UK site cohabitation initiatives.

In all these cases, the businesses have responded well to restructuring and their subsequent performance has been in line with expectations.  Further opportunities for organisational and operational fine-tuning were identified and implemented during the course of the year.  In addition to actions previously announced, the latest programme of measures generated annualised cost savings of £10m, of which £6m has been carried forward into 2011.

The restructuring of the Interiors Manufacturing Division was considerably more challenging, with the move from 12 to 6 factories, which began at the end of 2009, coming against the backdrop of an ongoing steep deterioration in its non-residential markets. 

Whilst management's main focus in the year was on optimising revenue and gross margins and delivering cost savings and efficiencies in existing operations, the Group continued to allocate modest additional resources to core businesses where there were clear opportunities to extend market coverage on favourable commercial terms.

The combined effect of our rationalisation and investment initiatives was a net reduction of 5 in the total number of the Group's trading locations to 748 at the end of December 2010 (2009: 753), comprising:

·      19 closures or mergers, of which 18 were in the UK and 1 in Hungary; and

·      14 new trading site openings, of which 4 were in the UK, 6 in France, 2 in Benelux (including Air Trade Centre) and 2 in Poland and Central Europe.

Trading Highlights

UK and Ireland (48% of total sales)

·      Total sales decreased by £38.9m (2.9%) to £1,281.2m (2009: £1,320.1m).

·      In the UK, sales decreased by £29.1m (2.4%); H2 sales were down only 0.8%.

·      Underlying operating profit increased by £2.3m (6%) to £40.0m (2009: £37.7m).

·      Underlying operating profit margin was 20 basis points higher at 3.1% (2009: 2.9%).

·      Operating loss increased by £6.3m to £67.9m (2009: operating loss of £61.6m).

·      4 trading sites were added in the year organically, with 18 closures, taking the total at 31 December 2010 to 364 (31 December 2009: 378).

Our newly formed UK National Sales team made excellent progress in building supply chain arrangements with major contractors, working closely with them on major projects and promoting the full range of SIG's products and services to win incremental business for the individual Divisions.

Sales of the UK distribution business (i.e. excluding manufacturing and installation), were up 0.2% overall in the year and up 1.1% in H2 2010.

In Insulation and related products in the UK and Ireland, sales for the full year, excluding our Energy Management business Miller Pattison, were up 1.8%, on a gradually improving trend after the difficult start to the year.

Sales in our Energy Management business, whose main area of activity is retrofitting insulation in residential property, decreased by 21%, due entirely to power generating utilities holding back CERT funding until the Government's position on the future of the scheme was finalised.  The necessary legislation to extend the CERT scheme was eventually passed into law in July 2010, and although the rate of decline reduced in H2 2010, the resulting increased funding will only feed through into improved sales volumes during the course of 2011.

The Exteriors Division is the most exposed of our businesses to the improving residential new build and RMI sectors and, notwithstanding weather related disruption in both the first and last months of the year, sales in the UK merchanting part of this business were ahead by 2.5% in the year, with growth rates reasonably consistent in H1 and H2. Within the Division's overall mix, demand for roofing and cladding products into the non-residential building sector was flat across the year.

Unlike the Exteriors Division, Interiors is weighted overwhelmingly towards non-residential construction, and the sales reduction was attributable to the continuing decline in overall market activity.  A reduction in the rate of decline was experienced in H2, with sales down 5.6% in the period compared to a full year decline of 7.6%. 

Our UK interiors distribution business, which benefited from a modest recovery in refurbishment activity in H2, saw a decline in sales of 3.1% whilst Interiors Manufacturing sales fell a further 17.2% compared to 2009.

Turnover in Specialist Construction Products, which supplies a wide range of specialist and niche products to building contractors,was down by 6.9% for the full year, but by only 2.8% in H2.  Its performance improved during the year as a result of the divisional organisational and management changes implemented in the first quarter of 2010.

In Ireland, which accounts for around 3% of Group turnover, trading conditions remained difficult and local currency sales were down 8%.  However, against weak prior year comparatives, constant currency sales moved into positive territory in each of the last four months of 2010.

Mainland Europe (52% of total sales)

·      Total sales in Sterling reduced by £16.2m (1.2%) to £1,386.8m (2009: £1,403.0m).

·      Sales in constant currency increased by 2.0%; in H2 constant currency sales were up 5.0%.

·      Underlying operating profit decreased by £7.7m (15.3%) to £42.5m (2009: £50.2m).

·      Underlying operating profit margin fell 50 basis points to 3.1% (2009: 3.6%).

·      Operating profit reduced by £16.4m to £19.7m (2009: £36.1m).

Following a difficult start to the year in which extreme weather on the continent severely reduced Q1 construction activity, trading improved in H2 across SIG's Mainland European businesses.  Whilst non-residential construction activity remained weak in all of SIG's countries of operation, as in the UK, those businesses most exposed to residential construction moved into positive territory in Q2 and continued to show progressive improvement throughout the year.

Within SIG's Mainland European portfolio, France and Germany (79% of Mainland Europe sales) showed the best progress.  Since the summer, the decline in volumes in the Poland and Central European region has also moderated and sales are now showing year-on-year growth.

In contrast, in Benelux, where the economic recession took hold later than elsewhere in Europe, trading remains difficult and sales have continued to decline.

In Germany and Austria (41% of sales in Mainland Europe) total sales were 1.7% behind prior year in Sterling and up 2.1% in Euros.  Overall construction activity in the region in the Group's segments is estimated to have been down around 5% on 2009, although after several years of stagnation, the residential distribution sector is expected to have grown by around 4%.  Whilst our German operations outperformed the market again in all segments, the development of the Roofing division was particularly encouraging, with sales in Euros up 7.5%. Sales in the insulation and interiors business in Euros were up 0.4%.

The number of trading sites remained unchanged at 82.

In France (38% of sales in Mainland Europe) total sales in Sterling grew 1.7% versus prior year, and by 5.6% in Euros.  Larivière continued to strongly outperform the general French roofing market, with sales in Euros versus prior year up by 8.1% in a residential construction market which grew an estimated 0.5%.  Incremental sales from trading sites opened in the previous four years, and from a further 4 trading sites opened in 2010, contributed significantly to the advance.

The Group's French Insulation and Interiors operations traded exceptionally well in challenging conditions, achieving 2.5% growth in sales in local currency in non-residential construction and industrial insulation markets which are estimated together to have fallen around 4% versus 2009. 

As was the case with Larivière, these divisions benefited from organic sales growth from recently opened sites - in this case, those opened in the previous three years - as well as from a further 2 sites opened in 2010.

The number of trading sites increased by 6 to 181 at the end of December 2010.

In Poland and Central Europe (11% of sales in Mainland Europe), total sales in Sterling fell by 0.9% and fell by 3.9% in constant currency.

The larger core business in Poland, where the Group has traded since 1996 and which accounted for 8.9% of sales in Mainland Europe in 2010, saw sales in local currency reduce by 4.2% against a market decline estimated at around 9%.  Trading conditions were extremely difficult in the first half with the severe winter conditions in Q1 being followed by flooding in Southern Poland in May and June.  H2 showed evidence of steady improvement, with sales in this period up by 6.5% compared to 2009.

In Czech Republic, Slovakia and Hungary a combination of domestic political issues and adverse currency moves exacerbated the global macroeconomic pressures on the region, severely reducing construction activity and leading to further price deflation.  Sales in local currency in this sub-region, which represented 2.1% of Mainland European sales in 2010, were down 3% against prior year, though as elsewhere in Mainland Europe there were signs of modest improvement later in the year, with H2 sales up 4% against very weak comparators.

The number of trading sites increased by 1 to 93 at the end of December 2010.

Sales in Benelux (6% of total sales in Mainland Europe) were down 7% in Euros against a market estimated to be around 11% lower.  The core business in Benelux is focused on Industrial Insulation and Interiors, and both of these divisions continued to outperform their difficult respective markets.

The number of trading sites increased by 1 to 15 at the end of December 2010.

Sales in Air Trade Centre, the pan-European air conditioning and air handling business headquartered in Benelux, amounted to 4% of total sales in Mainland Europe.  This business provides SIG with a platform for growth in the energy management of buildings, with its target HVAC (Heating, Ventilation and Air Conditioning) business being highly complementary to the Group's insulation, energy saving and carbon reduction activities.  Sales in Euros in Air Trade Centre in 2010 were up 0.4%.

The number of Air Trade Centre trading sites at 31 December 2010 increased by 1 to 13.

Our new Middle East operation, SIG Emirates, began trading from an existing site in Q2 2010 and made good progress in establishing supply chain arrangements and winning business in its first year of operation.

Strategy

With around one third of our business exposed to the gradually recovering residential construction segment, our mix of market sectors means that we are slightly later cycle than many of our peers, and against that backdrop our improving sales performance as we went through 2010 was encouraging.

Of course macroeconomic uncertainties persist and management is alert to the possibility of a stalling in the gradual improvement in trading conditions which we have experienced in recent quarters.  We believe that recovery in our markets will be slow and uneven, but our view is that, across the Group's range of segments and countries of operation, overall demand in 2011 is likely to be stable, if not mildly positive.  Although we estimate that UK construction levels will be at best flat compared with 2010, the outlook on the Continent is slightly more optimistic, notably in Germany and France. 

On a sectoral basis, whilst we anticipate that non-residential construction activity will decline in all our regions, driven in large measure by reductions in government capital budgets, residential new build and RMI should continue to exhibit modest growth.

Since the middle of 2008 we have made major changes to our cost base and operating structure, not only to adjust our resources to markets which are substantially lower than at 2007/08 peak levels and look likely to remain so for some time to come, but also to enable us to enhance our commercial effectiveness and customer service levels.  Whilst we have now completed all the major restructuring work, we will continue to fine-tune our operations as appropriate.

Our focus on cash management will continue, and with a healthy balance sheet and the recent refinancing of our bank debt we are in a strong financial position.

Notwithstanding the substantial cost cutting measures we have implemented, throughout the downturn we have continued to selectively invest in organic development initiatives in core markets, filling in gaps in our geographical coverage and creating a platform for future development as markets recover.

During 2010 we completed extended trials of our "SIG Express" concept, with two trading sites offering a stripped down range of essential specialist products from across our UK divisions to new customers and in locations where there are gaps in our market coverage.  The trials have gone well and we intend to proceed with a roll out of this model, starting with a small number of new locations in 2011.  We also have further plans to add to our branch network in Mainland Europe.

We are focused on further extending our offering in the field of energy management of buildings, through SIG Energy Management, and as part of this strategy during 2010 we acquired a small stake in Ice Energy Technologies Limited, a designer and installer of heat pumps and solar PV systems.  This investment was made to secure access to essential expertise and new products at a point in time where demand for sustainable energy solutions is set to grow as a result of the new Solar feed-in tariff and the anticipated Renewable Heat Incentive.

In summary, we believe we have the right strategy, a solid operational base and exceptional employees to take the Company forward.

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 2010. 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                                                                  Gareth Davies
Director                                                                         Director
16 March 2011                                                               16 March 2011

Consolidated Income Statement
for the year ended 31 December 2010
		Before other items*	Other items*			Total		Before other items*			Other items*		Total
		2010	2010			2010		2009			2009		2009
	Note	£m	£m			£m		£m			£m		£m
Revenue
Continuing operations	2	2,668.0	-			2,668.0		2,723.1			-		2,723.1
Cost of sales		(1,975.4)	-			(1,975.4)		(2,010.0)			-		(2,010.0)
Gross profit		692.6	-			692.6		713.1			-		713.1
Other operating expenses		(616.5)	(130.7)			(747.2)		(632.2)			(113.4)		(745.6)
Operating (loss)/profit
Continuing operations		76.1	(130.7)			(54.6)		80.9			(113.4)		(32.5)
Finance income		7.8	-			7.8		10.3			1.4		11.7
Finance costs		(21.4)	(12.6)			(34.0)		(30.6)			(3.9)		(34.5)
(Loss)/profit before tax		62.5	(143.3)			(80.8)		60.6			(115.9)		(55.3)
Income tax credit/(expense)	3	(19.7)	23.7			4.0		(18.0)			28.2		10.2
(Loss)/profit after tax		42.8	(119.6)			(76.8)		42.6			(87.7)		(45.1)
Attributable to:
Equity holders of the Company		42.5	(119.6)			(77.1)		42.1			(87.7)		(45.6)
Non-controlling interests		0.3	-			0.3		0.5			-		0.5
Earnings per share
Basic (loss)/earnings per share	4	7.2p	(20.2p)			(13.0p)		9.0p			(18.7p)		(9.7p)
Diluted (loss)/earnings per share	4	7.2p	(20.2p)			(13.0p)		9.0p			(18.7p)		(9.7p)
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments. "Other items" have been disclosed separately in order to give an indication of the underlying earnings of the Group.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
						2010					2009
						£m					£m
Loss after tax						(76.8)					(45.1)
Other comprehensive income/(expense)
Exchange difference on retranslation of foreign currency goodwill and intangibles						(8.8)					(33.1)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)						(6.8)					(21.2)
Exchange and fair value movements associated with borrowings and derivative financial instruments						3.2					16.5
Tax charge on exchange difference arising on borrowings and derivative financial instruments						(0.9)					(5.5)
Gains and losses on cash flow hedges						6.8					(20.1)
Transfer to profit and loss on cash flow hedges						12.6					1.3
Actuarial loss on defined benefit pension schemes						(1.8)					(4.7)
Deferred tax movement associated with actuarial loss						0.5					1.3
Effect of change in rate on deferred tax						(0.2)					-
Other comprehensive income/(expense)						4.6					(65.5)
Total comprehensive expense						(72.2)					(110.6)
Attributable to:
Equity holders of the Company						(72.5)					(111.1)
Non-controlling interests						0.3					0.5
						(72.2)					(110.6)

Consolidated Balance Sheet
as at 31 December 2010
		2010		2009
		£m		£m
Non-current assets
Property, plant and equipment		183.6		213.5
Interest in associate		1.6		-
Goodwill		447.1		506.9
Intangible assets		92.2		150.6
Deferred tax assets		28.7		27.5
Derivative financial instruments		52.0		-
		805.2		898.5
Current assets
Inventories		230.9		227.7
Trade receivables		373.9		385.8
Other receivables		24.8		28.0
Derivative financial instruments		-		38.6
Cash and cash equivalents		129.5		219.4
		759.1		899.5
Total assets		1,564.3		1,798.0
Current liabilities
Trade and other payables		347.6		340.7
Obligations under finance lease contracts		1.7		2.3
Bank overdrafts		2.5		2.5
Bank loans		31.2		173.5
Private placement notes		49.1		-
Loan notes		-		0.1
Derivative financial instruments		4.9		0.1
Current tax liabilities		0.1		2.8
Provisions		12.7		9.5
		449.8		531.5
Non-current liabilities
Obligations under finance lease contracts		5.5		7.1
Bank loans		0.3		12.1
Private placement notes		263.6		299.2
Derivative financial instruments		7.7		15.6
Deferred tax liabilities		26.5		38.9
Other payables		5.5		6.1
Retirement benefit obligations		25.2		24.0
Provisions		28.8		31.7
		363.1		434.7
Total liabilities		812.9		966.2
Net assets		751.4		831.8
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		1.0		0.9
Hedging and translation reserve		32.8		46.1
Retained profits		209.3		276.2
Attributable to equity holders of the Company		749.5		829.6
Non-controlling interests		1.9		2.2
Total equity		751.4		831.8

Consolidated Cash Flow Statement
for the year ended 31 December 2010
		2010		2009
	Note	£m		£m
Net cash flow from operating activities
Cash generated from operating activities	5	98.8		174.1
Borrowing costs paid		(15.6)		(27.4)
Interest received		2.1		6.0
Income tax paid		(13.4)		(16.5)
Net cash generated from operating activities		71.9		136.2
Cash flows from investing activities
Purchase of property, plant and equipment		(16.8)		(19.6)
Proceeds from sale of property, plant and equipment		4.8		10.1
Settlement of amounts payable for purchase of businesses		(0.9)		(3.9)
Investment in associate		(1.6)		-
Net cash used in investing activities		(14.5)		(13.4)
Cash flows from financing activities
Proceeds from issue of ordinary share capital		-		325.0
Capital element of finance lease rental payments		(1.9)		(2.3)
Repayment of loans/settlement of derivative financial instruments		(143.4)		(278.6)
Dividend payments to non-controlling interests		(0.4)		(0.2)
Net cash (used)/generated in financing activities		(145.7)		43.9
(Decrease)/increase in cash and cash equivalents in the year	6	(88.3)		166.7
Cash and cash equivalents at beginning of year		216.9		52.9
Effect of foreign exchange rate changes		(1.6)		(2.7)
Cash and cash equivalents at end of year		127.0		216.9

Consolidated Statement of Changes in Equity 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 income/(expense):
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 difference 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

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.

A liability of £7.4m has been recognised in the year for the put element of options that exist to purchase the remaining non-controlling interests of the Group.

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

The special reserve arose as a result of a number of transfers from the Group's share premium reserve up until 1996. Goodwill arising on a number of historical acquisitions was then written off against this special reserve under the accounting convention at that time. The balance on the special reserve was transferred into retained profits in 2009.

1. Basis of preparation

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

The financial information has been prepared under the historical cost convention except for derivative financial instruments that are stated at their fair value.

Whilst the financial information included in this Annual Results announcement has been 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 2010 and 31 December 2009 within the meaning of Section 435 of Companies Act 2006 but is derived from those statutory accounts.

The Group's statutory accounts for the year ended 31 December 2009 have been filed with the Registrar of Companies, and those for 2010 will be delivered following the Company's Annual General Meeting. The Auditors have reported on the statutory accounts for 2010 and 2009, 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. 

Changes in accounting policy

The Group has applied IFRS 3 "Business Combinations" - revision effective for accounting periods beginning on or after 1 July 2009, in the year. IFRS 3 will impact upon the treatment of any acquisition-related costs (for instance finder's fees, advisory, legal, accounting, valuation and other professional or consulting fees incurred on the acquisition of new businesses), with such costs being expensed in the period. IFRS 3 also impacts the treatment of contingent consideration associated with acquisitions. There has been no impact of the application of this standard in the current year. The impact on the Group's Accounts in future periods will depend upon the number and significance of any acquisitions arising.

In addition to the standard detailed above, the following standards have been adopted in the current period, which have had no material impact on the Accounts:

·       IAS 24 (revised) "Related Party Disclosures".

·       IAS 27 "Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate" - revision effective for accounting periods beginning on or after 1 July 2009.

·       IAS 39 "Financial Instruments: Recognition and Measurement - Eligible Hedged Items" - revision applies retrospectively for accounting periods beginning on or after 1 July 2009.

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 principally include:

·       IFRS 7 (amendment) "Financial instruments: Disclosures on derecognition" - effective for accounting periods beginning on or after 1 July 2011.

·       IAS 12 (amendment) "Deferred tax: Recovery of underlying assets" - effective for accounting periods beginning on or after 1 January 2012.

·       IAS 32 (amendment) "Financial instruments: Presentation on classification of rights issues" - effective for accounting periods beginning on or after 1 February 2010;

·       IFRIC 14 "prepayments of a minimum funding requirement" - effective for accounting periods beginning on or after 1 January 2011;

·       IFRIC 19 "Extinguishing financial liabilities with equity instruments"- effective for accounting periods beginning on or after 1 July 2010;

·       IFRS 1 (amendment) "Severe hyperinflation and removal of fixed dates for first time adopters" - effective for accounting periods beginning on or after 1 July 2011;

·       IFRS 9 "Financial Instruments" - revision effective for accounting periods beginning on or after 1 July 2013.

·       Improvements to IFRS 2010 - effective for accounting periods beginning on or after 1 January 2011, with certain aspects on or after 1 July 2010.

Treatment of early settlement discounts

On transition to IFRS it was considered materially appropriate to continue to classify early settlement discounts granted and received within "Other operating expenses". Having reflected on current practice, and in conjunction with a regular review of the Group's accounting policies and their application across our subsidiary businesses, the Directors consider that it would be more appropriate to disclose early settlement discounts granted as a reduction in "Revenue", and early settlement discounts received as a reduction in "Cost of sales" in 2010 and going forward. The relevant comparative amounts presented have been restated in line with this change.

This change in treatment has resulted in Revenue being reduced by £20m (2009: £20m), Cost of sales being reduced by £40m (2009: £40m), and Other operating expenses increasing by £20m (2009: £20m). This change has had no effect on operating profit, cash flows or net assets.

2. Segmental information
(a) Segmental results
Following the adoption of IFRS 8 "Operating Segments", the Group has identified its reportable segments as those upon which the Group Board regularly bases its opinion and assesses performance. The Group has deemed it appropriate to aggregate its operating segments into two reported segments: UK and Ireland and Mainland Europe. The constituent operating segments have been aggregated as they have similar products and services; production processes; types of customer; methods of distribution; regulatory environments; and economic characteristics.
		2010			2010		2010		2010			2009		2009	2009	2009
		UK and Ireland			Mainland Europe		Eliminations		Total			UK and Ireland		Mainland Europe	Eliminations	Total
		£m			£m		£m		£m			£m		£m	£m	£m
Revenue
External sales		1,281.2			1,386.8		-		2,668.0			1,320.1		1,403.0	-	2,723.1
Inter-segment sales*		0.1			4.3		(4.4)		-			0.5		3.9	(4.4)	-
Total revenue		1,281.3			1,391.1		(4.4)		2,668.0			1,320.6		1,406.9	(4.4)	2,723.1
Result Segment result before amortisation of acquired intangibles, impairment charges and restructuring costs		40.0			42.5		-		82.5			37.7		50.2	-	87.9
Amortisation of acquired intangibles and impairment charges		(87.4)			(21.5)		-		(108.9)			(49.5)		(9.1)	-	(58.6)
Restructuring costs		(20.5)			(1.3)		-		(21.8)			(49.8)		(5.0)	-	(54.8)
Segment operating (loss)/profit		(67.9)			19.7		-		(48.2)			(61.6)		36.1	-	(25.5)
Parent Company costs									(6.4)							(7.0)
Operating loss									(54.6)							(32.5)
Net finance costs									(13.6)							(20.3)
Net losses on derivative financial instruments									(12.6)							(2.5)
Loss before tax									(80.8)							(55.3)
Income tax credit									4.0							10.2
Non-controlling interests									(0.3)							(0.5)
Retained loss									(77.1)							(45.6)
*Inter-segment sales are charged at the prevailing market rates.
Balance sheet
Assets
Segment assets		677.2			785.7		-		1,462.9			800.4		826.0	-	1,626.4
Unallocated assets:
Derivative financial instruments									52.0							38.6
Cash & cash equivalents									47.2							132.7
Other items									2.2							0.3
Consolidated total assets									1,564.3							1,798.0
Liabilities
Segment liabilities		262.5			182.7		-		445.2			260.4		188.0	-	448.4
Unallocated liabilities:
Bank loans and overdrafts									24.7							191.8
Private placement notes									312.7							299.2
Derivative financial instruments									12.6							15.6
Other items									17.7							11.2
Consolidated total liabilities									812.9							966.2

2. Segmental information (continued)	2010			2010					2010					2010					2009						2009				2009					2009
(a) Segmental results (continued)
	UK and Ireland			Mainland Europe					Eliminations					Total					UK and Ireland						Mainland Europe				Eliminations					Total
	£m			£m					£m					£m					£m						£m				£m					£m
Other segment information
Capital expenditure on:
Property, plant and equipment	9.6			7.2										16.8					10.7						8.9									19.6
Investment in associate	1.6			-										1.6					-						-									-
Goodwill	(0.5)			-										(0.5)					(3.0)						1.7									(1.3)
Non-cash expenditure:
Depreciation	21.2			14.8										36.0					25.7						14.5									40.2
Impairment of property, plant and equipment	3.8			-										3.8					6.8						-									6.8
Amortisation of acquired intangibles	19.0			9.5										28.5					19.5						9.1									28.6
Impairment of goodwill and intangibles	68.4			12.0										80.4					30.0						-									30.0
(b) Revenue by product group
The Group focuses its activities into four product sectors: Insulation and Building Environments; Interiors; Exteriors; and Specialist Construction Products ("SCP").
The following table provides an analysis of Group sales by type of product:
			2010					2009
			£m					£m
Insulation and Building Environments			1,020.6					1,078.3
Interiors			661.3					680.8
Exteriors			788.7					743.4
SCP			197.4					220.6
Total			2,668.0					2,723.1
(c) Geographic information
The Group's revenue from external customers and its non-current assets (i.e. property, plant and equipment, goodwill and intangible assets) by geographical location are as follows:
			2010			2010							2009		2009
Country			Revenue			Non-current assets^							Revenue		Non-current assets^
			£m			£m							£m		£m
United Kingdom			1,204.6			328.7							1,233.7		424.1
Ireland			76.6			1.1							86.4		13.4
France			528.4			252.8							519.8		267.1
Germany and Austria			565.0			62.9							575.0		70.6
Poland			123.1			19.8							122.7		21.3
Benelux*			142.4			44.2							155.8		45.9
Central Europe			27.9			15.0							29.7		28.6
Total			2,668.0			724.5							2,723.1		871.0
* Includes international air handling business (headquartered in Benelux). ^ 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 credit comprises:	2010	2009
	£m	£m
Current tax
UK corporation tax:     - on (losses)/profits for the year	(2.1)	(4.7)
- adjustments in respect of previous years	(0.2)	(0.4)
	(2.3)	(5.1)
Overseas taxation:     - on (losses)/profits for the year	11.6	13.0
- adjustments in respect of previous years	(0.1)	(0.3)
Total current tax	9.2	7.6
Deferred taxation
Current year	(13.2)	(10.7)
Adjustments in respect of previous years	-	(7.0)
Deferred tax charge/(credit) in respect of pension schemes	0.2	(0.1)
Change in rate	(0.2)	-
Total deferred tax	(13.2)	(17.8)
Total income tax credit	(4.0)	(10.2)

The total tax credit for the year differs from that resulting from applying the standard rate of corporate tax in the UK, 28.0% (2009: 28.0%). The differences are explained in the following reconciliation:

	2010	2010	2009	2009
	£m	%	£m	%
Loss before tax	(80.8)		(55.3)
Tax at 28.0% (2009: 28.0%) thereon	(22.6)	28.0%	(15.5)	28.0%
Factors affecting the income tax credit for the year:
- non-deductible and non-taxable items	1.2	(1.5%)	1.4	(2.5%)
- impairment charges not deductible for tax	17.9	(22.1%)	8.4	(15.2%)
- losses not recognised	0.7	(0.9%)	0.4	(0.7%)
- losses utilised not previously recognised	(3.1)	3.8%	(5.8)	10.5%
- other adjustments in respect of previous years	(0.3)	0.4%	(1.9)	3.4%
- effect of overseas tax rates	2.4	(3.0%)	2.8	(5.1%)
- effect of change in rate	(0.2)	0.3%	-	-
Total income tax credit	(4.0)	5.0%	(10.2)	18.4%

The effective tax rate for the Group on the total loss before tax of £80.8m is 5.0% (2009: 18.4%). The effective tax charge for the Group on profit before tax before the amortisation of intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments of £143.3m is 31.5% (2009: 29.7%), which comprises a charge of 33.1% (2009: 33.0%) in respect of current year profits and a tax credit of 1.6% (2009: 3.3%) in respect of prior 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 28%) and Ireland/Poland/Netherlands/Czech Republic/Slovakia (corporate tax rates less than 28%). 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 corresponding reduction in cash tax payments) of unrecognised deferred tax assets.

3. Income tax (continued)

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

	2010	2009
	£m	£m
Deferred tax movement associated with actuarial loss	0.5	1.3
Current and deferred tax on share options	0.2	-
Tax charge on exchange difference arising on borrowings and derivative financial instruments	(0.9)	(5.5)
Change in rate	(0.2)	-
	(0.4)	(4.2)

Change in the tax rate

On 28 June 2010, the Finance Bill 2010-11 was presented to the UK Parliament. The Bill proposed four annual reductions in the rate of   corporation tax from 28% to 24% by 2014-15. At the balance sheet date, the reduction in the UK corporation tax rate to 27% from April 2011 had been enacted. The resulting net reduction in the deferred tax asset has been reflected in the Consolidated Balance Sheet as at 31 December 2010 and gave rise to a credit to the Consolidated Income Statement for the year ended 31 December 2010 of £0.2m. It is currently expected that each future Finance Bill enacted will reduce the UK corporation tax rate by 1% until the rate of 24% is reached.

4. Earnings per share
The calculations of earnings per share are based on the following (losses)/ profits and numbers of shares:
				Basic and diluted
				2010				2009
				£m				£m
Loss after tax				(76.8)				(45.1)
Non-controlling interests				(0.3)				(0.5)
				(77.1)				(45.6)
				Basic and diluted before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments
				2010				2009
				£m				£m
Loss after tax				(76.8)				(45.1)
Non-controlling interests				(0.3)				(0.5)
Amortisation of acquired intangibles				28.5				28.6
Impairment charges				80.4				30.0
Restructuring costs				21.8				54.8
Gains and losses on derivative financial instruments				12.6				2.5
Tax credit relating to other items*				(23.7)				(28.2)
				42.5				42.1
* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.
Weighted average number of shares:
					Before other items* 2010 Number	Total 2010 Number		Before other items* 2009 Number		Total 2009 Number
For basic earnings per share					590,829,339	590,829,339		469,350,343		469,350,343
Exercise of share options^					2,333,789	-		897,421		-
For diluted earnings per share					593,163,128	590,829,339		470,247,764		469,350,343
^ The weighted average number of shares has been presented for earnings per share both before "Other items" and after "Other items". Due to the fact that the Group has recorded a loss after tax, any share options would be anti-dilutive, and as such in accordance with IAS 33 "Earnings per Share" the impact of the exercise of these share options has been removed from the weighted average number of shares when calculating diluted earnings per share after "Other items".

4. Earnings per share (continued)
		2010	2009
Total basic loss per share		(13.0p)	(9.7p)
Total diluted loss per share		(13.0p)	(9.7p)
Earnings per share before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments
Total basic earnings per share		7.2p	9.0p
Total diluted earnings per share		7.2p	9.0p

Earnings per share before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments is 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 £28.5m (2009: £28.6m) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

b) impairment charges of £80.4m (2009: £30.0m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

c) restructuring costs of £21.8m (2009: £54.8m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

d) losses on derivative financial instruments of £12.6m (2009: net losses of £2.5m) are included as finance costs within the column of the Consolidated Income Statement entitled "Other items"; and

e) the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments give rise to tax as disclosed in the table below:

			2010						2009
	Other items		Tax impact					Other items	Tax impact
	£m		£m			%		£m	£m		%
Amortisation of acquired intangibles	28.5		8.0			28.0		28.6	8.0		28.0
Impairment charges	80.4		4.3			5.3		30.0	-		-
Restructuring costs	21.8		4.8			22.0		54.8	13.3		24.3
Net losses on derivative financial instruments	12.6		3.5			28.0		2.5	1.1		44.0
Utilisation of losses not previously recognised	-		2.9			-		-	5.8		-
Effect of change in tax rates	-		0.2			-		-	-		-
	143.3		23.7			16.5		115.9	28.2		24.3
5. Reconciliation of operating profit to cash generated from operating activities
							2010			2009
							£m			£m
Operating loss							(54.6)			(32.5)
Depreciation charge							36.0			40.2
Impairment of property, plant and equipment							3.8			6.8
Amortisation of acquired intangibles							28.5			28.6
Goodwill and intangible impairment charges							80.4			30.0
Profit on sale of property, plant and equipment							(1.2)			(1.8)
Share-based payments							0.4			(0.5)
Working capital movement:
Loan issued to associate							(1.2)			-
(Increase)/decrease in inventories							(7.7)			26.1
Decrease in receivables							9.1			67.8
Increase in payables							5.3			9.4
Cash generated from operating activities							98.8			174.1

Included within the cash generated from operating activities is cash paid in respect of current year and prior year exceptional costs of £19.3m        (2009: £27.1m).

6. Reconciliation of net cash flow to movements in net debt
						2010	2009
						£m	£m
(Decrease)/increase in cash and cash equivalents in the year						(88.3)	166.7
Cash flow from decrease in debt						145.3	280.9
Decrease in net debt resulting from cash flows						57.0	447.6
Non-cash items^						6.9	(24.5)
Exchange difference						5.6	19.5
Decrease in net debt in the year						69.5	442.6
Net debt at beginning of year						(254.5)	(697.1)
Net debt at end of year						(185.0)	(254.5)
^ Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise toa cash inflow or outflow.

  7. Dividends

No distributions have been made to equity holders of the Company in the year (2009: £nil). No distributions to equity holders of the      Company have been proposed after the year end (2009: £nil).

8. Impairment of goodwill

During the year, the Group recorded the following impairment charges:

	Goodwill	Intangible	Total
		Assets
CGU	£m	£m	£m
Interiors Manufacturing	24.6	17.9	42.5
Central Europe	12.0	-	12.0
UK SCP - Access Hire	7.5	5.1	12.6
Ireland	7.1	5.5	12.6
UK Distribution (Cornish Fixings)	0.6	0.1	0.7
	51.8	28.6	80.4

The Interiors Manufacturing division has continued to experience significantly reduced levels of demand, and as such it is anticipated that the full benefits of the restructuring projects ongoing in that division will not be seen for some time. As a result of this, the value in use calculation has indicated an impairment in the Interiors Manufacturing CGU of £42.5m, which has been charged to the Consolidated Income Statement during the year. This impairment charge has been allocated to Goodwill (£24.6m) and to Intangible assets (£17.9m). This impairment charge reduces the carrying value of the Goodwill and Intangible assets attributable to this CGU to £nil.

The Group's Central Europe division has continued to perform poorly in an extremely challenging economic environment in particular in Hungary. The Group remains committed to the development of its Central European business, however, the economic recovery in these markets (in particular Hungary) is expected to take longer than originally anticipated. As a result, the Directors have reviewed the future cash flows and concluded that the carrying value of goodwill is no longer fully supportable, with the Group's "value in use" calculation indicating an impairment of £12.0m, which has been charged to the Consolidated Income Statement. The remaining Goodwill and Intangible assets in respect of this CGU amounted to £13.0m (£7.3m Goodwill and £5.7m Intangible assets), which is supported by the value in use calculation.

The Access Hire business (a specific business within the UK SCP CGU) has also suffered from the recent UK economic downturn, such that a recovery to previous trading levels is considered unlikely in the near future. Further to this, the business' Shoring and Piling division was closed during 2010. As a result of this, the value in use calculation indicates that an impairment of £12.6m is necessary, split between Goodwill (£7.5m) and Intangibles assets (£5.1m). The impairment charge reduces the carrying value of the Goodwill and Intangible assets attributable to this CGU to £nil.

Given the continuing challenging trading conditions experienced in Ireland, and the resulting restructuring programme that has significantly reduced the size of the Group's operations in this region, the Directors have reviewed the future cash flows and concluded that the carrying value of the Ireland CGU is £nil, which results in an impairment charge of  £12.6m, being £7.1m Goodwill and £5.5m Intangible assets.

Finally, in addition to the impairments noted above, following the disposal of Cornish Fixings in February 2011 (part of the UK Distribution CGU), the Directors have noted the Goodwill in respect of this business has been impaired in full, leading to a charge to the Consolidated Income Statement of £0.7m, allocated to Goodwill (£0.6m) and Intangible assets (£0.1m).

9. Interest in associate

On 4 May 2010, the Company made a strategic trade investment in Ice Energy Technologies Limited ("Ice"), a company incorporated in the United Kingdom, by acquiring shares in that company from existing management. Ice is a specialist designer and installer of ground source heat pumps and Solar PV systems. Consideration of £1.0m was paid to the shareholders of Ice and a further £0.5m was paid for new shares in the company, taking the total cost of the investment to £1.6m including costs of £0.1m. Following the investment, the Group holds a 25% stake in the company and as such this investment will be accounted for as an associate in accordance with IAS 28 "Investments in Associates".

In addition to this, at the date of this announcement, the Company has made a loan to Ice amounting to £1.2m which is included within trade receivables. The loan is due for repayment in 2013.

The Group's share of the operating income arising from this investment since 4 May 2010 has been positive but minimal. Given that the Group's Consolidated Income Statement is reported in £m's, in order for a figure to be separately disclosable, the minimum threshold for recognition is £50,000, i.e. £0.1m. As a result, no separate recognition of the Group's share of income attributable to this associate has been made on the face of the Consolidated Income Statement. Accordingly, no further analysis has been given in respect of Ice's results or balance sheet position on the grounds of materiality.

The current accounting period for Ice ends on 31 March 2011. 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.

10. 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 Group acquired a non-controlling interest in Ice Energy Technologies Limited (see Note 9).

Directors' emoluments in the year were £2.2m (2009: £1.9m), excluding an IFRS 2 share based payment charge of £0.1m (2009: credit of £0.4m).

11. 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 13. 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.

12. Going concern basis

In determining whether the Group's 2010 Accounts 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 and 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. Whilst 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.

12. Going concern basis (continued)

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 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 2010 Accounts.

13. Principal risks and uncertainties

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 & Mitigation Strategies
Level of market demand in SIG's operating markets	Approximately 90% 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.
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 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 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.

13. Principal risks and uncertainties (continued)

Principal Risks	Nature of Risk	Key Controls & Mitigation Strategies
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 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 constantly reviewed with reference to changing legislation requirements. The Group has a number of affiliations with regulatory bodies and trade associations.
Debt	Group net debt at 31 December 2010 amounted to £185m. 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	The Group has a comprehensive treasury policy which covers the Group's management of treasury risk.
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 capital expenditure and working capital requirements.

13. Principal risks and uncertainties (continued)

Principal Risks	Nature of Risk	Key Controls & 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/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. New national IT platforms were put in place in Germany and Benelux in 2010. Final selection phase for a new fully-integrated IT platform for our UK Distribution businesses currently ongoing.
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 process 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 (fuel), 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 a regular 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.

 

END

 

 

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