Interim Results
SIG PLC
2 September 2002
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
SIG plc is the market leading specialist distributor of insulation, commercial
interiors and roofing products in Europe.
• Sales in the first half increased by 8% to £539m (£498m), principally
reflecting recent acquisitions
• Operating profits before goodwill amortisation were down 4% to £25.3m
(£26.2m) reflecting increased investment spend and continued tough trading
conditions in major markets
- In the UK and Eire, which accounts for 64% of turnover, sales rose by 14%
and operating profit increased to £22.7m (£21.9m), reflecting the benefit
of acquisitions and good performance in building insulation and roofing.
As expected, commercial interiors suffered a fall in profits due to
reduced demand for office interiors.
- In mainland Europe, despite a fall in demand, the Group increased sales.
Operating profits fell to £2.9m (£4.3m) reflecting increased investment
and the cost of opening new branches.
- In the US, operating profit was £0.9m (£1.5m) due to tighter market
conditions
• Goodwill amortisation increased to £2.1m (£1.1m) and interest charges
increased to £3.3m (£2.1m), giving profit before tax down 14% lower at £19.8m
(£23.0m)
• Profit before tax fell by 14% to £19.8m (£23.0m) and earnings per share were
11.3p (12.9p - restated for FRS 19)
• Interim dividend per share increased by 5.4% to 3.9p (3.7p)
Barrie Cottingham, Chairman, commented: 'Across the Group as a whole, we have
strengthened our operations through investment and have clearly increased our
market share against our competitors in generally very difficult conditions.
Trading to date in the second half has been more encouraging than in the first
half, but it is now evident that the high level of construction activity in the
commercial sector is not feeding through to demand for office interiors
products, and the anticipated recovery has not materialised either in the UK or
mainland Europe. Whilst we expect the second half to be adversely affected by
these continuing difficult conditions, we are confident that the strength of our
operations and the leading position that we occupy in our main markets will
enable the Group to deliver future growth.'
Enquiries:
David Williams, Chief Executive SIG plc today 020 7251 3801
Gareth Davies, Finance Director thereafter 0114 285 6300
Rupert Younger/ Faeth Birch /
Gordon Simpson Finsbury 020 7251 3801
Further information and photographs are available on SIG's website
www.sigplc.co.uk/interimresults.htm. A webcast of the results presentation will
be available from lunchtime Monday, 2 September 2002.
2002 INTERIM RESULTS
As explained in our Trading Statement in July, the first six months of 2002 has
seen a decline in demand in our overseas markets and in the Commercial Interiors
sector in the UK. Market conditions were more favourable in UK Building
Insulation and Roofing and the Group made good progress in these sectors.
The Group has responded to these mixed conditions by investing to strengthen and
develop the business. Market coverage and penetration has been improved both by
an increase in the number of trading locations and investment in resources and
staff, focused on customer service. New products have been added to the range
and we have successfully continued our acquisition strategy, with four
businesses joining the Group during the first six months of 2002.
Overall, sales have grown 8% over prior year, including the benefit of
acquisitions made in 2001 and in the first half of 2002. As indicated in the
July Statement, the difficult market conditions, combined with the cost of
increased investment, resulted in a small decline in operating profit before
goodwill.
Results
• Sales in the first half have increased by 8%, an increase of £41m to
£539m, largely reflecting the benefit of acquisitions made in the last
twelve months;
• Operating profits for the period, before amortisation of goodwill, are 4%
lower at £25.3m (2001 : £26.2m);
• Goodwill amortisation increased to £2.1m in the period (2001 : £1.1m) and
interest charges increased to £3.3m ( 2001 : £2.1m);
• Profit before tax is 14% lower at £19.8m (2001 : £23.0m);
• Earnings per share are 12% lower at 11.3p (2001 : 12.9p - restated as a
result of the adoption of FRS 19 - Deferred Tax);
• Balance Sheet gearing was 74% at 30 June 2002, compared with 66% at 31
December 2001, reflecting the acquisition spend of £17.7m. Interest cover
was a healthy 7 times. Cash flow from trading was strong at £28.1m, a 10%
increase over the first half of 2001.
Dividend
An Interim dividend of 3.9p (2001 : 3.7p) has been declared, an increase of
5.4%. This reflects our confidence in the future. The dividend is payable on 15
November 2002 to shareholders on the register at 18 October 2002.
Review of Operations
UK and Eire
Sales in the UK and Eire, which account for 64% of the total for the Group,
increased by 14% (£42m) to £344m, demonstrating the continued development of the
Group's position in its main territory.
Overall, pricing was stable to mildly inflationary and gross margins were either
held or slightly improved. Operating profits in the UK and Eire improved by 4%
overall.
Our Insulation and Related Products division grew sales by 12.2%. There have
been indications that the new Building Regulations, introduced in April 2002,
are beginning to have a positive effect on sales of thermal insulation into the
new building sector. Conversely, demand from the industrial sector, where the
Group is market leader in providing thermal and fire insulation products into
power generation, petrochemical and offshore applications, declined in the first
half of 2002.
In Roofing sales were increased by 22% against the background of flat market
conditions. Most of this increase was derived from the Capco and Proos
acquisitions (acquired August 2001 and March 2002, respectively). During the
first half, management has concentrated on improving efficiencies within the
existing operations, and we have made substantial progress in this Division.
Our Commercial Interiors operations increased sales by 12%, reflecting the Capco
acquisition in August 2001. However, sales, excluding the contribution from
Capco, declined by 7%. Demand for our core ceiling and partitions products fell
and the higher margin partition systems were especially impacted by the reduced
demand for premium office space. The Group is the leader in this market in the
UK and the decline in demand has a serious effect, causing a reduction of £1.9m
in the operating profit (before the contribution from Capco) compared to the
first half of 2001. As part of the actions taken to help counter these
conditions, new products are being introduced to further extend market coverage.
Europe
Sales in mainland Europe increased by 1% to £159m, which represents 29% of the
Group total. This increase, which is largely organic, has been achieved in
market conditions that have proved to be considerably weaker than in 2001.
Despite slightly weaker pricing than in the prior year, gross margins have been
held. However, cost increases, including those relating to new branch openings
and the appointment of new sales teams, reduced the operating profit.
Germany
Sales in Germany were flat at £106m in the first half, an excellent achievement
in a market that declined by an estimated 8% compared with 2001. Sales of
insulation to the industrial sector held up well. In the building sector, sales
of insulation and commercial interiors products were broadly in line with prior
year, indicating further growth in market share.
The Group has increased the level of resources in Germany to take advantage of
future opportunities, following the failure of certain competitors. The benefit
of these investments did not come through in the period. The Group continued to
be profitable in Germany, albeit at a lower level than in the corresponding
period in 2001.
France
Overall sales in the first half increased by 5% to £34m. Despite a reduction in
market demand in the Commercial Interiors sector, our business increased sales
by 3%, including the contribution made by two new branches (Le Mans and Lille).
Sales of insulation to the Industrial sector declined slightly as demand
weakened in the market. During the period, initial steps were taken to develop
sales into the fragmented roofing market in France and trading has commenced in
two locations. These are at an early stage but indications are positive.
Operating profits in France reduced when compared to the equivalent prior year
period, partly reflecting the start up costs associated with the new branches.
The Netherlands
Sales in the Netherlands increased by 6% to £12m. Organic sales declined as the
market for commercial interiors products in the Netherlands experienced a
downturn in demand. The recent acquisition of a leading insulation supplier
gives the Group a more balanced product mix going forward. Operating profits
declined slightly.
Poland
In Poland we increased sales in local currency by 1%, in a market that remained
extremely challenging with construction activity declining further. This
indicates a strengthening of our market share. As a result of actions taken to
reduce costs and improve efficiencies, losses in Poland were small and
significantly down on prior year.
USA
Sales in the first half declined by 6% to £36m as the tighter market conditions
encountered in the second half of 2001 continued. Three new trading locations
were opened in the Carolinas in the second quarter to take advantage of new
opportunities, with the start up costs being recognised in the period.
Additional costs were also incurred as we upgraded the computer systems
throughout our US operations and created a unified accounting function.
Operating profits in the period were below prior year.
Acquisitions
During the period, the Group continued to pursue its strategy of acquiring
suitable businesses within the scope of existing activities, four companies
being acquired for a consideration of £17.7m. These operations contributed
sales of £11.7m in the first half - £10m in the UK and £1.7m in the Netherlands.
All four are integrating well and are performing in line with our
expectations.
Trading Locations
Increasing the number of trading locations is an important part of developing
the business and providing improved customer service. The movement in the
number of individual trading locations during the period is shown below:
31 December Opened / Merged / 30 June
2001 Acquired Closed 2002
UK & Eire 188 30 -5 213
Mainland Europe 122 5 -1 126
USA 22 3 0 25
Total Branches 332 38 -6 364
Board
In July, we announced that after 17 years of outstanding service with the Group,
Frank Prust was stepping down as Finance Director and as a member of the Board
on medical advice. Frank has been largely responsible for establishing the
tight financial controls and prudent accounting disciplines applied within the
Group.
This development had been anticipated and Gareth Davies, formerly Group
Financial Controller, was appointed as Finance Director on 1 August 2002.
Gareth joined the Group in 1993 and has worked very closely with Frank on all
aspects of finance since that time. He has effectively headed this function for
the last 12 months during Frank's absence due to ill health.
Prospects
Looking forward, conditions overall are not expected to change significantly in
the second half.
Within the UK and Eire, some increased momentum is anticipated from the Roofing
and building-related Insulation sectors. Demand from the Industrial sectors for
insulation is not expected to improve in the short term. In addition,
conditions in the commercial property market remain difficult as low tenant
uptake of premium quality office space has a direct effect on our Commercial
Interiors business. In Eire, there is some sign that the decline in building
activity, especially in the commercial sector, is slowing.
In France, Germany and the Netherlands, the recent investments and developments
are aimed at enabling the Group to continue to outperform the markets. Whilst
conditions in Poland will remain difficult, our business is steadily improving
its position.
In the USA, whilst we do not anticipate any significant change in conditions, we
expect to benefit from the new branch investments that have recently been made.
Across the Group as a whole, we have strengthened our operations through
investment and have clearly increased our market share against our competitors
in generally very difficult conditions. Trading to date in the second half has
been more encouraging than in the first half, but it is now evident that the
high level of construction activity in the commercial sector is not feeding
through to demand for office interiors products, and the anticipated recovery
has not materialised either in the UK or mainland Europe. Whilst we expect the
second half to be adversely affected by these continuing difficult conditions,
we are confident that the strength of our operations and the leading position
that we occupy in our main markets will enable the Group to deliver future
growth.
Summary Consolidated Profit and Loss Account
for the six months ended 30 June 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Restated Restated
Note 2002 2002 2001 2001 2001 2001
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 3 538,847 497,640 1,037,258
Operating profit before
amortisation of goodwill 25,282 26,235 59,113
Amortisation of goodwill 2,132 1,111 2,801
Operating profit 3 23,150 25,124 56,312
Net interest payable 3,348 2,099 5,045
Profit on ordinary activities
before taxation 19,802 23,025 51,267
Tax on profit on ordinary
activities 6,258 7,671 17,017
Profit on ordinary activities
after taxation 13,544 15,354 34,250
Minority interests (all 137 78 160
equity)
Equity dividends 4,682 4,387 13,051
Retained profit for the year 8,725 10,889 21,039
Earnings per share
Basic earnings per share 4 11.3p 12.9p 28.8p
Fully diluted earnings per 4 11.1p 12.8p 28.5p
share
Earnings per share before
goodwill amortisation
Basic earnings per share 4 13.1p 13.9p 31.2p
Fully diluted earnings per 4 12.9p 13.7p 30.8p
share
Consolidated Statement of Total Recognised Gains and Losses
for the six months ended 30 June 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
Restated Restated
£'000 £'000 £'000
Profit on ordinary activities after
taxation and minority interests 13,407 15,276 34,090
(Loss)/gain on foreign currency translation (373) (371) (398)
Total recognised gains and losses for
the period 13,034 14,905 33,692
Prior period adjustment (note 7) (506) - -
Total recognised gains and losses since last
annual report 12,528 14,905 33,692
Reconciliation of Movement in Consolidated Shareholders' Funds
for the six months ended 30 June 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
Restated Restated
£'000 £'000 £'000
Profit on ordinary activities after taxation
and minority interests 13,407 15,276 34,090
Dividends (4,682) (4,387) (13,051)
8,725 10,889 21,039
New share capital issued 1,241 25 384
(Loss)/gain on foreign currency translation (373) (371) (398)
Credit to L-TIP reserve 90 88 223
Net addition to shareholders' funds 9,683 10,631 21,248
Opening shareholders' funds as previously
stated 165,486 143,448 143,448
Prior period adjustment (note 7) (506) 284 284
Opening shareholders' funds as restated 164,980 143,732 143,732
Closing shareholders' funds as restated 174,663 154,363 164,980
Summary Consolidated Balance Sheet
as at 30 June 2002
Unaudited Unaudited Audited
30 June 30 June 31 December
2002 2001 2001
Restated Restated
£'000 £'000 £'000
Fixed assets
Intangible assets 78,748 42,897 67,152
Tangible assets 68,729 62,316 65,031
147,477 105,213 132,183
Current assets
Stocks 90,931 77,208 78,504
Debtors 236,263 201,647 199,330
Cash at bank and in hand 14,146 5,942 10,348
341,340 284,797 288,182
Creditors: Amounts falling due within one
year (204,058) (201,863) (151,868)
Net current assets 137,282 82,934 136,314
Total assets less current liabilities 284,759 188,147 268,497
Creditors: Amounts falling due after more
than one year (106,039) (30,285) (99,815)
Provision for liabilities and charges (3,920) (3,499) (3,702)
Net assets 174,800 154,363 164,980
Shareholders' funds 174,663 154,363 164,980
Minority interests 137 - -
Total capital employed (all equity) 174,800 154,363 164,980
Summary Consolidated Cash Flow Statement
for the six months ended 30 June 2002
Unaudited Unaudited Audited
30 June 30 June 31 December
2002 2001 2001
Note £'000 £'000 £'000
Net cash inflow from operating
activities 5 28,113 25,531 50,932
Returns on investments and
servicing of finance (3,473) (2,099) (2,737)
Tax paid (6,321) (6,202) (17,888)
Capital expenditure (9,704) (10,304) (19,506)
Acquisitions (4,809) (10,178) (36,536)
Equity dividends paid (8,696) (8,040) (12,431)
Financing 4,209 6,081 76,811
(Decrease)/increase in cash in the 6 (681) (5,211) 38,645
period
Notes to the Unaudited Interim Results
1. Basis of preparation of interim financial information
The interim financial information has been prepared in accordance with the
accounting policies included in the Annual Report for the year ended 31 December
2001, which have been applied consistently throughout the current and preceding
periods, with the exception of a change in accounting policy resulting from the
adoption of FRS 19 Deferred tax (note 7). The interim financial information was
approved by the Board of Directors on 2 September 2002.
2. Publication of non statutory accounts
The financial information included in this interim statement does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The interim results to 30 June 2002 and 2001 are neither audited nor reviewed.
The financial information for the full preceding year is based on the statutory
accounts for the financial year ended 31 December 2001, restated as necessary to
comply with FRS 19 Deferred tax. Those accounts, upon which the auditors issued
an unqualified opinion, have been delivered to the Registrar of Companies. The
auditors' report contained no statement under Sections 237(2) or 237(3) of the
Companies Act 1985.
3. Segmental information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Geographical analysis 2002 2001 2001
£'000 £'000 £'000
Turnover
- UK & Eire 343,549 301,987 638,883
- Europe 158,832 156,769 325,614
- Rest of world 36,466 38,884 72,761
............ ............ ............
Total operations 538,847 497,640 1,037,258
............ ............ ............
Operating profit
- UK & Eire 22,692 21,897 49,120
- Europe 2,896 4,304 10,424
- Rest of world 941 1,460 2,097
- Parent Company (1,247) (1,426) (2,528)
- Amortisation of goodwill (2,132) (1,111) (2,801)
............ ............ .........
Total operations 23,150 25,124 56,312
............ ............ .........
Turnover and operating profit by destination is not materially different from
these amounts. Turnover and operating profit from acquisitions during the
period have not been reported separately due to their immateriality to the Group
results.
4. Earnings per share
The calculations of earnings per share are based on the following profits and numbers of
shares:
Basic and diluted before
Basic and diluted goodwill amortisation
Unaudited Six months Audited Year ended Unaudited Six Audited Year ended
ended 30 June 31 December months ended 30 31 December
June
2002 2001 2001 2002 2001 2001
Restated Restated Restated Restated
£'000 £'000 £'000 £'000 £'000 £'000
Profit after tax 13,544 15,354 34,250 13,544 15,354 34,250
Minority interests (137) (78) (160) (137) (78) (160)
Goodwill - - - 2,132 1,111 2,801
amortisation
......... ......... ......... ...... ......... ..........
13,407 15,276 34,090 15,539 16,387 36,891
......... ......... ......... ...... ......... ..........
Weighted average number of shares:
Unaudited Audited
Six months Year ended
ended 30 June 31 December
2002 2001 2001
Number Number Number
For basic earnings per share 118,970,539 118,257,428 118,415,817
Exercise of share options 1,487,836 1,522,544 1,215,171
............... ............... ...............
For diluted earnings per share 120,458,375 119,779,972 119,630,988
............... ............... ...............
Earnings per share before goodwill amortisation is presented in order to give an indication of the
underlying performance of the Group.
5. Reconciliation of operating profit to net cash inflow from operating activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
Operating profit 23,150 25,124 56,312
Depreciation and amortisation 9,989 7,995 17,101
Profit on sale of tangible fixed assets (233) (6) (504)
Changes in working capital (4,793) (7,582) (21,977)
............ ............ ............
Net cash inflow from operating 28,113 25,531 50,932
activities
............ ............ ............
6. Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(Decrease)/increase in cash in the
period (681) (5,211) 38,645
Cash inflow from increase in debt (2,968) (6,056) (76,427)
............ ............ ............
Changes in net debt resulting from
cash flows (3,649) (11,267) (37,782)
Acquisitions (12,021) (60) (84)
Exchange differences (3,572) 1,277 935
............ ............ ............
Movement in net debt in the period (19,242) (10,050) (36,931)
Net debt at start of period (109,328) (72,397) (72,397)
............ ............ ............
Net debt at end of period (128,570) (82,447) (109,328)
............ ............ ............
7. Deferred tax
The Group has adopted FRS 19 Deferred tax with effect from 1 January 2002. FRS
19 requires deferred tax to be recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date. The Group's
previous policy was to recognise deferred tax to the extent that a deferred
taxation liability was expected to arise in the foreseeable future. This change
has been accounted for as a prior period adjustment and previously reported
figures have been restated accordingly.
The effect of this change in accounting policy on profit after taxation, net
assets and earnings per share is as follows:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
Decrease in profit after taxation 35 395 790
Decrease in net assets 541 111 506
Decrease in basic earnings per share
(pence) - 0.4p 0.7 p
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