Final Results

RNS Number : 1857C

SIG PLC

13 March 2014

 



13 March 2014

Full year results for the period ended 31 December 2013

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

Continuing operations*	2013	2012	Change
Revenue	£2,582.4m	£2,473.9m	+4.4%
Underlying** operating profit	£99.5m	£96.1m	+3.5%
Underlying** profit before tax	£88.1m	£83.7m	+5.3%
Underlying** basic earnings per share	10.4p	9.7p	+7.2%
Dividend per share	3.55p	3.0p	+18.3%
Return on capital employed (post-tax)	8.8%	8.6%	+20bps

Highlights

·     Trading improved in both regions as 2013 progressed

·     Like-for-like*** sales down 0.4% for the year, up 2.2% in H2

·     Post-tax return on capital employed up 20bps to 8.8%

·     Strategic initiatives gaining momentum

·     Market outperformance of 2.8%

·     Statutory profit before tax of £2.1m

·     Net debt of £121.2m including £16.4m of acquisition expenditure

·     Divested underperforming German roofing business

·     Final dividend increased by 20%; total dividend up 18.3% to 3.55p per share

·     Outlook and expectations unchanged from January trading statement

* Continuing operations excludes the results of divested businesses (German roofing and Central Europe).

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

*** Like-for-like is defined as sales per day on a constant currency basis excluding acquisitions and disposals completed or agreed in the current and prior year.

Statutory

Total operations	2013	2012
Revenue	£2,719.8m	£2,635.5m
Operating profit	£15.4m	£57.9m
Profit before tax	£2.1m	£43.7m
(Loss)/profit after tax	(£14.3m)	£26.6m
Basic (loss)/earnings per share	(2.5p)	4.5p

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

"2013 was a year of contrasting halves.  Following a challenging H1, which was affected by poor weather and weak market conditions, trading improved in both our regions as the year progressed and the Group delivered a good H2 performance.

"As expected we've had a good start to 2014, helped by the mild weather and weak comparatives, and implementation of our strategic initiatives to improve business performance is gaining momentum.  There is a significant step-up in activity and investment this year, with meaningful payback expected from 2015 onward, and a net annual benefit target of c.£30m by 2016.

"Our outlook for this year is unchanged from January's trading statement.  We expect construction activity in the UK residential market to remain buoyant, with the non-residential sector continuing to be broadly flat.  In Mainland Europe construction markets are anticipated to be variable.

"The trading outlook, operational efficiency savings and a modest net benefit from our strategic initiatives give us confidence in achieving good progress in 2014."

Enquiries

SIG plc

Stuart Mitchell, Chief Executive	+ 44 (0) 114 285 6300
Doug Robertson, Group Finance Director	+ 44 (0) 114 285 6300
Simon Bielecki, Head of Investor Relations	+ 44 (0) 7515 794359

FTI Consulting

Richard Mountain/Nick Hasell

+ 44 (0) 20 7269 7291

Analyst presentation

A briefing to analysts will take place at 9.00am on Thursday 13 March 2014 at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.  A webcast will be available on the investor relations section of www.sigplc.com and will also be available for replay later on in the day.

Chief Executive's Review

Summary

2013 was a year of contrasting halves.   Having been affected by the extended winter weather across Europe, which exacerbated the already weak market conditions, like-for-like ("LFL") sales in H1 decreased by 3.1%.  However, in H2 SIG benefited from generally good weather and improved trading conditions, particularly in the UK residential market, resulting in a 2.2% increase in LFL sales. 

For the year as a whole, sales from continuing operations were up 4.4% to £2,582.4m (2012: £2,473.9m), having benefited from favourable exchange rates and acquisitions, but fell 0.4% on a LFL basis, with the Group experiencing slight product price deflation of 0.5% and a marginal volume increase of 0.1%.  Given that SIG estimates that the overall market, weighted according to the sectors in which it operates, declined by 3.2% in 2013, this equates to an outperformance of 2.8%.

Revenues in Mainland Europe benefited from the stronger Euro, increasing by 3.8% to £1,339.4m, but were down by 1.5% on a LFL basis.  France continued to perform well relative to a weak market with sales up by 5.4%, though LFLs were slightly down, by 1.1%.  Continuing revenues in Germany  and Austria were up by 0.8% in Sterling but down 3.4% on a LFL basis, having been affected by weak demand for industrial insulation from power stations and the petrochemical sector.

Sales in the UK and Ireland increased by 5.0%, and were up 0.8% on a LFL basis despite a 60% reduction in sales for SIG Energy Management due to the ending of CERT and slow start-up of Green Deal and ECO.

The Group's underlying gross margin remained steady at 26.4% compared to prior year, with a 30bps increase in gross margin in Mainland Europe being offset by a 40bps reduction in the UK & Ireland.

SIG has continued to keep tight control of its overheads, with core operating costs declining marginally in 2013.  Underlying operating profit from continuing operations increased by 3.5% to £99.5m (2012: £96.1m) and the Group's underlying operating margin remained at 3.9% (2012: 3.9%), increasing by 30bps in H2 2013 to 4.5% (H2 2012: 4.2%).

Underlying net finance costs fell to £11.3m (2012: £12.1m), which after the £0.1m share of loss of associate (2012: £0.3m) resulted in underlying profit before tax from continuing operations increasing by 5.3% to £88.1m (2012: £83.7m).  Underlying basic earnings per share were up by 7.2% to 10.4p (2012: 9.7p).

Non-underlying net charges before taxation during the period totalled £86.0m (2012: £40.0m) and included amortisation of acquired intangibles of £20.6m (2012: £22.0m), net restructuring costs of £18.0m (2012: £16.6m), net fair value losses on derivative financial instruments of £1.9m (2012: £1.8m), other one-off items which gave rise to a charge of £0.7m (2012: credit of £1.4m), net losses on the sale or agreed sale of businesses and associated impairment charges of £42.8m (2012: £4.6m) and other goodwill impairment charge of £2.0m (2012: nil).

Including these charges, profit before tax was £2.1m compared to £43.7m in 2012.  Basic loss per share was 2.5p (2012: earnings per share of 4.5p).

Net debt at 31 December 2013 increased by £15.9m to £121.2m compared with 31 December 2012 (£105.3m), due to an increase in net capital expenditure to £38.1m (2012: £28.2m) and £16.4m expenditure on nine infill acquisitions.  The Group aims to increase expenditure on infill acquisitions to between £30m-£50m in 2014 and capital expenditure to be c.150% of depreciation.

Having consistently underperformed against the Group's Weighted Average Cost of Capital ("WACC"), SIG divested its German roofing business to The Gores Group, a US private equity firm, for an enterprise value of c.£9m.  The business lacked scale in a market dominated by co-operatives and in 2013 was break-even (2012: profit of £0.4m) on sales of £137.4m (2012: £134.7m).  All necessary regulatory approvals have been received and the transaction completed in February 2014.

As detailed in its January 2014 trading statement, SIG identified £8.9m of additional efficiency savings from its branch network.  Excluding the divested German roofing business this now equates to an annualised benefit of £7.9m, with £5.1m of this to come in 2014. 

Strategic Initiatives

As outlined at its Capital Markets Day in November 2013, the Group is targeting a net annual benefit of c.£30m by 2016 from its four key strategic initiatives to improve business performance, covering procurement, branch network, commercial vehicles and eCommerce.

SIG believes procurement has the most potential for savings and is targeting a 1.5% reduction in purchasing costs by 2016.  The Group has moved from a decentralised structure to six international product categories covering roofing, structural insulation, drywall, ceilings, technical insulation and air handling and is professionalising its procurement function. SIG is on track to reach its first milestone, which is to have fully recruited its procurement team by H1 2014. 

In terms of branch network SIG has adopted a two-phase approach. Phase one, which relates to the further optimisation of its existing UK network, is currently underway and due to conclude in H1 2014.  Phase two, which involves scoping more fundamental network change, is continuing and will be informed by the performance of the Group's new supersite in the North East of England.  This opened on schedule in December 2013 and combined four SIG branches into one.

Regarding commercial vehicles SIG has met its first two milestones of signing a Group-wide purchasing agreement for fork lift trucks and rolling out telematics across its UK fleet.  The next steps are to replicate these actions in Mainland Europe and negotiate a Group-wide fleet purchasing agreement.

With regard to eCommerce the Group is currently in the design phase for its UK platform and will shortly start on its construction.  The Group is targeting to launch the site in 2015 and has recently appointed a new eCommerce Director to lead the programme.

As there is a significant step-up in activity and investment this year, SIG is targeting a small net benefit of between £1-5m from its strategic initiatives in 2014 (c.75% from procurement and c.25% from supply chain). The Group is on track to achieve this target, providing SIG with a strong base for delivering the rest of the programme.

Return on Capital Employed

Post-tax Return on Capital Employed ("ROCE") is a key metric for the Group and is calculated as underlying operating profit less tax, divided by average net assets plus average net debt.  Net assets as at 31 December 2013 have not been adjusted for the £42.8m impairment charge attributable to the agreed sale of German Roofing.

In 2013 SIG's ROCE increased by 20bps to 8.8% (2012: 8.6%), compared to a WACC of 8.3%.  The Group's medium-term target is for ROCE to exceed its WACC by 300bps by 2015 assuming flat markets.  SIG's longer-term aspiration is to achieve a ROCE beyond this target.

Dividend

The Board has proposed a final dividend of 2.4p per ordinary share, an increase of 20% on prior year. Taken together with the interim dividend of 1.15p per ordinary share, this provides a total dividend of 3.55p per ordinary share for the year (2012: 3.0p), an increase of 18.3% on prior year.  The final dividend is expected to be paid on 30 May 2014 to shareholders on the register at close of business on 2 May 2014.  The ex-dividend date is 30 April 2014.

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

Trading Review

Mainland Europe (52% of Group sales)

·      Sales from continuing operations up 3.8% to £1,339.4m (2012: £1,289.8m)

·      Gross margin from continuing operations improved by 30bps to 26.6% (2012: 26.3%)

·      Underlying operating profit up 4.4% to £59.0m (2012: £56.5m)

·      Total operating loss of £0.7m (2012: profit of £34.1m)

	2013 Continuing sales	Change	Like-for-like change	Change in gross margin
France	£622.4m	5.4%	(1.1)%	+30bps
Germany and Austria	£437.5m	0.8%	(3.4)%	+30bps
Benelux*	£154.8m	4.5%	(1.5)%	+80bps
Poland	£124.7m	6.4%	2.9%	+30bps

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

During 2013, in Mainland Europe SIG opened 6 new branches and acquired 2 sites, closed or merged 5 branches and divested 24 branches.  As a result the total number of trading sites in Mainland Europe fell to 345 as at 31 December 2013.

Revenues in Mainland Europe benefited from the stronger Euro, increasing by 3.8% to £1,339.4m, but were down by 1.5% on a LFL basis.

In France although LFL sales declined slightly, by 1.1%, SIG again performed strongly compared to the market, which the Group estimates fell by 5.3%.  Following a 4.6% decline in H1 LFL sales, and having been affected by the adverse weather and weak trading conditions, SIG performed well in H2, increasing LFL sales by 2.5%.  In November SIG also acquired two branches from Wolseley, in Rouen and Amiens, with a combined annual turnover of c.€12m.

Although the Group remains cautious on the outlook for the French construction market in 2014, SIG believes that it can continue to outperform the market based on its specialist expertise, the strength of its local management team and growth from new and acquired branches.

In Germany and Austria LFL sales declined by 3.4% having been adversely affected by the weather in H1 and weak demand throughout the period for industrial insulation, which accounts for nearly 20% of SIG's sales in the region.  This was due to the uncertainties in the German power station and petrochemical construction RMI markets.  Despite this uncertainty, the outlook for the German market in 2014 is generally positive, driven by activity in the German new build residential market.  

While trading conditions remained very challenging in Benelux in 2013, SIG's LFL sales declined slightly, by 1.5%, and the Group significantly outperformed the market.   Gross margin also increased by 80bps due to SIG's product mix reverting to a more normal blend compared to 2012, and a strong performance in its pan-European air conditioning and air handling business.  While the market in The Netherlands is expected to remain weak this year, the Group is anticipating better prospects for Belgium.

Following a poor H1 in Poland, which was in part due to severe weather, sales accelerated sharply in H2 and were up by c.7% on a LFL basis.  In contrast to Western European economies, where structural insulation and residential products performed best, in Poland the strongest demand was for ceilings and technical insulation.  This positive momentum is expected to continue into 2014.

UK & Ireland (48% of Group sales)

·      Sales up 5.0% to £1,243.0m (2012: £1,184.1m)

·      Gross margin down by 40bps to 26.2% (2012: 26.6%)

·      Underlying operating profit up by 1.7% to £48.5m (2012: £47.7m)

·      Total operating profit of £24.1m (2012: £31.9m)

	2013 Sales	Change	Like-for-like change	Change in gross margin
UK	£1,177.5m	5.1%	0.9%	-40bps
Ireland	£65.5m	3.1%	(1.4)%	-10bps

During the year the Group opened 2 new trading sites in the UK, acquired 21 sites and closed or merged 15 branches.  As a result the total number of trading sites in the UK & Ireland increased by 8 to 323 as at 31 December 2013.

Revenues in the UK and Ireland increased by 5.0%, and were up 0.8% on a LFL basis despite sales in SIG Energy Management declining by c.60% due to the ending of CERT and slow start-up of Green Deal and ECO.   Excluding SIG Energy Management, LFL sales in the Group's UK distribution business increased by 4.5%.  Gross margin in the UK declined by 40bps mainly due to volume and pricing pressures affecting the Group's roofing business.

While the UK construction market as a whole declined during H1 due to the weather and a weak market, trading conditions improved significantly in H2 driven by increased activity in the residential sector.  The non-residential sector however remained subdued due to a lack of demand in both the public and commercial sectors.  SIG expects these market trends to continue into 2014.

The implementation of Kerridge K8, SIG's new ERP system in the UK, is progressing well and has recently completed a major milestone, having been successfully rolled out in the back office of SIG Distribution.   This project is expected to take around two years to complete and is integral to the delivery of the Group's strategic initiatives.

Following the successful rebranding of the Group's UK insulation and interiors business, during 2014 SIG will begin to streamline and rebrand its market-leading roofing business, which currently trades under forty different brands across the UK.

There are early signs of an improvement in market conditions in Ireland, with the rate of decline in the Group's LFL sales slowing significantly in 2013 to 1.4%, compared to a double-digit sales decline in 2012.

Outlook

As expected the Group has had a good start to the year, helped by the mild weather and weak comparatives, and its outlook for 2014 remains unchanged from its January trading statement.  SIG expects construction activity in the UK residential market to remain buoyant, with the non-residential sector continuing to be broadly flat.  In Mainland Europe construction markets are anticipated to be variable.

The trading outlook, operational efficiency savings and a modest net benefit from its strategic initiatives give the Group confidence in achieving good progress in 2014.

Directors' Responsibility Statement on the Annual Report

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2013. 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 strategic report 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 Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business and strategy.

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

Stuart Mitchell	Doug Robertson
Director	Director
12 March 2014	12 March 2014

Consolidated Income Statement
for the year ended 31 December 2013
		Before other items*	Other items*	Total		Before other items*	Other items*	Total
		2013	2013	2013		2012	2012	2012
	Note	£m	£m	£m		£m	£m	£m
Revenue	2	2,582.4	137.4	2,719.8		2,473.9	161.6	2,635.5
Cost of sales		(1,900.6)	(110.0)	(2,010.6)		(1,819.9)	(129.3)	(1,949.2)
Gross profit		681.8	27.4	709.2		654.0	32.3	686.3
Other operating expenses		(582.3)	(111.5)	(693.8)		(557.9)	(70.5)	(628.4)
Operating profit		99.5	(84.1)	15.4		96.1	(38.2)	57.9
Finance income		1.4	0.2	1.6		1.5	0.4	1.9
Finance costs		(12.7)	(2.1)	(14.8)		(13.6)	(2.2)	(15.8)
Profit before tax and share of loss of associate		88.2	(86.0)	2.2		84.0	(40.0)	44.0
Share of loss of associate		(0.1)	-	(0.1)		(0.3)	-	(0.3)
Profit before tax		88.1	(86.0)	2.1		83.7	(40.0)	43.7
Income tax expense	3	(26.1)	9.7	(16.4)		(26.1)	9.0	(17.1)
(Loss)/profit after tax		62.0	(76.3)	(14.3)		57.6	(31.0)	26.6
Attributable to:
Equity holders of the Company		61.3	(76.3)	(15.0)		57.3	(31.0)	26.3
Non-controlling interests		0.7	-	0.7		0.3	-	0.3
Earnings per share
Basic (loss)/earnings per share	4	10.4p	(12.9p)	(2.5p)		9.7p	(5.2p)	4.5p
Diluted (loss)/earnings per share	4	10.4p	(12.9p)	(2.5p)		9.7p	(5.2p)	4.5p
* "Other items" relate to the amortisation of acquired intangibles, net restructuring costs, other one-off items, loss arising on the sale or agreed sale of businesses and associated impairment charges, trading profits and losses associated with disposed businesses, other impairment charges, fair value gains and losses on derivative financial instruments, the defined benefit pension scheme curtailment gain, the taxation effect of "Other items" and the effect of changes in taxation rates. "Other items" have been disclosed separately in order to give an indication of the underlying earnings of the Group (see Note 4).

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2013
		2013		2012
		£m		£m
(Loss)/profit after tax		(14.3)		26.6
Items that will not subsequently be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit pension liability		8.3		(0.2)
Deferred tax movement associated with remeasurement of defined benefit pension liability		(2.0)		0.2
Effect of change in rate on deferred tax		(0.9)		(0.8)
		5.4		(0.8)
Items that may subsequently be reclassified to the Consolidated Income Statement:
Exchange difference on retranslation of foreign currency goodwill and intangibles		6.6		(6.2)
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)		4.7		(5.2)
Exchange and fair value movements associated with borrowings and derivative financial instruments		(1.9)		4.0
Tax credit/(charge) on exchange and fair value movements arising on borrowings and derivative financial instruments		0.4		(1.0)
Gains and losses on cash flow hedges		(0.4)		(2.7)
Transfer to profit and loss on cash flow hedges		2.1		2.2
		11.5		(8.9)
Other comprehensive income/(expense)		16.9		(9.7)
Total comprehensive income		2.6		16.9
Attributable to:
Equity holders of the Company		1.9		16.6
Non-controlling interests		0.7		0.3
		2.6		16.9

Consolidated Balance Sheet
as at 31 December 2013
		2013		2012
	Note	£m		£m
Non-current assets
Property, plant and equipment		135.6		134.2
Interest in associate	8	-		0.8
Goodwill		417.6		428.7
Intangible assets		49.3		54.4
Deferred tax assets		22.2		29.0
Derivative financial instruments		29.7		37.4
		654.4		684.5
Current assets
Inventories		220.4		224.0
Trade and other receivables		391.9		373.3
Assets held for sale		9.1		-
Derivative financial instruments		-		6.2
Associate loan and deferred consideration		-		2.7
Cash and cash equivalents		118.7		128.1
		740.1		734.3
Total assets		1,394.5		1,418.8
Current liabilities
Trade and other payables		346.3		333.0
Liabilities held for sale		1.9		-
Obligations under finance lease contracts		2.7		2.2
Bank overdrafts		4.9		4.1
Bank loans		0.3		1.3
Private placement notes		-		81.8
Derivative financial instruments		0.1		5.8
Current tax liabilities		5.3		4.4
Provisions		9.5		9.3
		371.0		441.9
Non-current liabilities
Obligations under finance lease contracts		7.1		5.4
Bank loans		-		0.1
Private placement notes		252.5		174.2
Derivative financial instruments		2.0		4.8
Deferred tax liabilities		14.7		17.3
Other payables		4.3		3.0
Retirement benefit obligations		25.5		34.4
Provisions		24.3		28.9
		330.4		268.1
Total liabilities		701.4		710.0
Net assets		693.1		708.8
Capital and reserves
Called up share capital		59.1		59.1
Share premium account		447.2		447.0
Capital redemption reserve		0.3		0.3
Share option reserve		1.1		0.9
Hedging and translation reserve		12.6		2.8
Retained profits		172.2		197.7
Attributable to equity holders of the Company		692.5		707.8
Non-controlling interests		0.6		1.0
Total equity		693.1		708.8

Consolidated Cash Flow Statement
for the year ended 31 December 2013
		2013		2012
	Note	£m		£m
Net cash flow from operating activities
Net cash generated from operating activities	5	86.2		88.7
Finance costs paid		(12.0)		(13.3)
Finance income received		1.4		1.5
Income tax paid		(15.7)		(19.4)
Net cash generated from operating activities		59.9		57.5
Cash flows from investing activities
Purchase of property, plant and equipment and computer software		(37.9)		(29.7)
Proceeds from sale of property, plant and equipment		4.8		4.1
Net proceeds from sale of businesses		(0.1)		1.2
Settlement of amounts payable for purchase of businesses	10	(14.9)		(12.7)
Net cash used in investing activities		(48.1)		(37.1)
Cash flows from financing activities
Capital element of finance lease rental payments		(3.3)		(2.1)
Issue of share capital		0.2		-
Repayment of loans/settlement of derivative financial instruments		(87.3)		(1.2)
New loans		85.6		-
Dividends paid to equity holders of the Company	7	(18.6)		(14.8)
Dividends paid to non-controlling interest		(0.3)		(0.3)
Net cash used in financing activities		(23.7)		(18.4)
(Decrease)/increase in cash and cash equivalents in the year		(11.9)		2.0
Cash and cash equivalents at beginning of the year		124.0		122.9
Effect of foreign exchange rate changes		1.7		(0.9)
Cash and cash equivalents at end of the year		113.8		124.0

Consolidated Statement of Changes in Equity for the year ended 31 December 2013
	Called up share capital	Share premium account	Capital redemption reserve	Share option reserve	Hedging and translation reserve	Retained profits	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 31 December 2011	59.1	447.0	0.3	1.2	11.2	187.7	706.5	1.0	707.5
Profit after tax	-	-	-	-	-	26.3	26.3	0.3	26.6
Other comprehensive income/(expense)	-	-	-	-	(8.4)	(1.3)	(9.7)	-	(9.7)
Total comprehensive income/(expense)	-	-	-	-	(8.4)	25.0	16.6	0.3	16.9
Debit to share option reserve	-	-	-	(0.3)	-	-	(0.3)	-	(0.3)
Current and deferred tax on share options	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	(0.3)	(0.3)
Dividends paid to equity holders of the Company	-	-	-	-	-	(14.8)	(14.8)	-	(14.8)
At 31 December 2012	59.1	447.0	0.3	0.9	2.8	197.7	707.8	1.0	708.8
Loss after tax	-	-	-	-	-	(15.0)	(15.0)	0.7	(14.3)
Other comprehensive income/(expense)	-	-	-	-	9.8	7.1	16.9	-	16.9
Total comprehensive income/(expense)	-	-	-	-	9.8	(7.9)	1.9	0.7	2.6
Share capital issued in the year	-	0.2	-	-	-	-	0.2	-	0.2
Credit to share option reserve	-	-	-	0.3	-	-	0.3	-	0.3
Exercise of share options	-	-	-	(0.1)	-	0.1	-	-	-
Current and deferred tax on share options	-	-	-	-	-	0.1	0.1	-	0.1
Adjustments arising from changes in non-controlling interests	-	-	-	-	-	0.8	0.8	(0.8)	-
Dividend paid to non-controlling interest	-	-	-	-	-	-	-	(0.3)	(0.3)
Dividends paid to equity holders of the Company	-	-	-	-	-	(18.6)	(18.6)	-	(18.6)
At 31 December 2013	59.1	447.2	0.3	1.1	12.6	172.2	692.5	0.6	693.1

The share option reserve represents the cumulative share option charge under IFRS 2 less the value of any share options that have been exercised.

The hedging and translation reserve represents movements in the Consolidated Balance Sheet as a result of movements in exchange rates which are taken directly to reserves.

1. Basis of preparation

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

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

Whilst the financial information included in this Preliminary 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 Preliminary Results Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2013 and 31 December 2012 within the meaning of Section 435 of the Companies Act 2006 but is derived from those statutory accounts.

The Group's statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies, and those for 2013 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2013 and 2012, and their reports, which included no matters to which the Auditor drew attention by way of emphasis, were unqualified and did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the financial statements.

All results are from continuing operations under IFRS as the businesses sold or agreed to be sold in 2013 and 2012 did not meet the disclosure criteria of IFRS 5  "Non-current Assets held for Sale and Discontinued Operations" as they did not represent a separate major line of business or geographical area of operation.  In order to give an indication of the underlying earnings of the Group the results of these businesses have been included in the column of the Consolidated Income Statement entitled "Other items".

Changes in accounting policy

The following standards became effective or were amended in the current period:

·        IAS 1 (amended) "Presentation of Financial Statements";

·        IAS 19 (revised) "Employee Benefits";

·        IAS 27 (revised) "Separate Financial Statements";

·        IAS 28 (revised) "Investments in Associates and Joint Ventures";

·        IFRS 10 "Consolidated Financial Statements";

·        IFRS 11 "Joint Arrangements";

·        IFRS 12 "Disclosure of Interests in Other Entities"; and 

·        IFRS 13 "Fair Value Measurement".

The disclosures as a result of the changes arising from the above standards are not considered to be material by the Directors except as follows:

·        IAS 19 (revised) - Calculating and treating finance costs on the defined benefit pension scheme on a net basis. This has caused both finance income and finance costs to be reduced by £5.3m in the year ended 31 December 2013;

·        IFRS 13 - Additional disclosure of fair values of financial instruments; and

·        IAS 1 (amended) - Revised presentation of the Consolidated Statement of Comprehensive Income.

At the date of authorisation of this financial information, 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 this financial information. These are detailed in the Group's Annual Report and Accounts for the year ended 31 December 2013.

2. Revenue and segmental information
(a) Segmental results
Following the adoption of IFRS 8 "Operating Segments", the Group identifies its reportable segments as those upon which the Group Board regularly bases its opinion and assesses performance. The Group has deemed it appropriate to aggregate its operating segments into two reported segments: UK and Ireland; and Mainland Europe. The constituent operating segments have been aggregated as they have: similar products and services; production processes; types of customer; methods of distribution; regulatory environments; and economic characteristics.
			2013		2013			2013		2013			2012			2012		2012	2012
			UK and Ireland		Mainland Europe			Eliminations		Total			UK and Ireland			Mainland Europe		Eliminations	Total
			£m		£m			£m		£m			£m			£m		£m	£m
Revenue
Continuing sales			1,243.0		1,339.4			-		2,582.4			1,184.1			1,289.8		-	2,473.9
Sales attributable to business divested in 2012			-		-			-		-			-			26.9		-	26.9
Sales attributable to business held for sale at 31 December 2013			-		137.4			-		137.4			-			134.7		-	134.7
Inter-segment sales*			1.6		9.6			(11.2)		-			0.8			8.2		(9.0)	-
Total revenue			1,244.6		1,486.4			(11.2)		2,719.8			1,184.9			1,459.6		(9.0)	2,635.5
Result Segment result before Other items			48.5		59.0			-		107.5			47.7			56.5		-	104.2
Amortisation of acquired intangibles			(9.9)		(10.7)			-		(20.6)			(12.3)			(9.7)		-	(22.0)
Net restructuring costs			(12.0)		(6.0)			-		(18.0)			(8.6)			(8.0)		-	(16.6)
Other one-off items			(0.5)		(0.2)			-		(0.7)			0.7			0.7		-	1.4
Loss arising on the sale or agreed sale of businesses and associated impairment charges			-		(42.8)			-		(42.8)			-			(4.6)		-	(4.6)
Operating loss attributable to business divested in 2012			-		-			-		-			-			(1.2)		-	(1.2)
Operating profit attributable to business held for sale at 31 December 2013			-		-			-		-			-			0.4		-	0.4
Goodwill impairment charge			(2.0)		-			-		(2.0)			-			-		-	-
Defined benefit pension scheme curtailment gain			-		-			-		-			4.4			-		-	4.4
Segment operating profit/(loss)			24.1		(0.7)			-		23.4			31.9			34.1		-	66.0
Parent Company costs										(8.0)									(8.1)
Operating profit										15.4									57.9
Net finance costs										(11.3)									(12.1)
Net fair value losses on derivative financial instruments										(1.9)									(1.8)
Share of loss of associate										(0.1)									(0.3)
Profit before tax										2.1									43.7
Income tax expense										(16.4)									(17.1)
Non-controlling interests										(0.7)									(0.3)
(Loss)/profit for the period										(15.0)									26.3
*Inter-segment sales are charged at the prevailing market rates.

Balance sheet
	2013	2013	2013	2013		2012	2012	2012	2012
	UK and Ireland	Mainland Europe	Eliminations	Total		UK and Ireland	Mainland Europe	Eliminations	Total
	£m	£m	£m	£m		£m	£m	£m	£m
Assets
Segment assets	639.6	691.0	-	1,330.6		612.1	711.9	-	1,324.0
Unallocated assets:
Derivative financial instruments				29.7					43.6
Cash and cash equivalents				33.3					46.1
Associate loan				-					2.4
Other assets				0.9					2.7
Consolidated total assets				1,394.5					1,418.8
Liabilities
Segment liabilities	262.8	174.7	-	437.5		264.0	167.4	-	431.4
Unallocated liabilities:
Private placement notes				252.5					256.0
Derivative financial instruments				2.1					10.6
Other liabilities				9.3					12.0
Consolidated total liabilities				701.4					710.0
Other segment information
Capital expenditure on:
Property, plant and equipment	19.5	13.4	-	32.9		11.0	13.2	-	24.2
Computer software	9.6	0.4	-	10.0		7.3	0.8	-	8.1
Goodwill and intangible assets (excluding computer software)	14.5	-	-	14.5		0.2	6.2	-	6.4
Non-cash expenditure:
Depreciation	8.5	13.3	-	21.8		11.2	12.4	-	23.6
Impairment of property, plant and equipment and computer software	0.2	11.5	-	11.7		1.0	-	-	1.0
Amortisation of acquired intangibles and computer software	10.2	12.3	-	22.5		12.3	9.7	-	22.0
Impairment of goodwill and intangibles (excluding computer software)	2.0	21.5	-	23.5		-	-	-	-

(b) Revenue by product group
The Group focuses its activities into three product sectors: Insulation and Energy Management; Exteriors; and Interiors.
The following table provides an analysis of Group sales by type of product:
				2013		2012
				£m		£m
Insulation and Energy Management				1,223.8		1,181.1
Exteriors				754.9		705.5
Interiors				603.7		587.3
Total continuing				2,582.4		2,473.9
Sales attributable to business divested in 2012				-		26.9
Sales attributable to business held for sale at 31 December 2013				137.4		134.7
Total				2,719.8		2,635.5
(c) Geographic information
The Group's revenue from external customers and its non-current assets (including property, plant and equipment, interest in associate, goodwill and intangible assets but excluding deferred tax and derivative financial instruments) by geographical location are as follows:
			2013			2013			2012		2012
Country			Revenue			Non-current assets^			Revenue		Non-current assets^
			£m			£m			£m		£m
United Kingdom			1,177.5			312.3			1,120.6		276.3
Ireland			65.5			0.9			63.5		0.9
France			622.4			223.9			590.6		228.3
Germany and Austria			437.5			16.5			433.9		20.5
Poland			124.7			18.4			117.2		16.1
Benelux*			154.8			30.5			148.1		42.1
Total continuing			2,582.4			602.5			2,473.9		584.2
Attributable to business held for sale at 31 December 2013			137.4			-			134.7		33.9
			2,719.8			602.5			2,608.6		618.1
Attributable to business divested in 2012			-			-			26.9		-
Total			2,719.8			602.5			2,635.5		618.1
* Includes international air conditioning and air handling business (headquartered in The Netherlands). ^ Excluding deferred tax assets and derivative financial instruments. There is no material difference between the basis of preparation of the information reported above and the accounting policies adopted by the Group.

3. Income tax
The income tax expense comprises:			2013	2012
			£m	£m
Current tax
UK corporation tax:  - on profits/(losses) for the year			-	(0.2)
- adjustments in respect of previous years			0.3	0.1
			0.3	(0.1)
Overseas tax:           - on profits/(losses) for the year			15.7	14.8
- adjustments in respect of previous years			0.2	0.8
Total current tax			16.2	15.5
Deferred tax
Current year			(0.9)	(2.2)
Adjustments in respect of previous years			0.2	0.7
Deferred tax charge in respect of pension schemes			0.2	2.5
Effect of change in rate			0.7	0.6
Total deferred tax			0.2	1.6
Total income tax expense			16.4	17.1

The total tax charge for the year differs from that resulting from applying the standard rate of corporate tax in the UK at 31 December 2013 of 23.0% (31 December 2012: 24.0%). The differences are explained in the following reconciliation:

	2013		2012
	£m	%	£m	%
Profit on ordinary activities before tax	2.1		43.7
Tax at 23% (2012: 24%) thereon	0.5	23.0	10.5	24.0
Factors affecting the income tax expense for the year:
- non-deductible and non-taxable items	1.6	76.2	3.6	8.1
- impairment charges not deductible for tax	9.5	452.4	-	-
- losses not recognised	0.1	4.8	0.6	1.4
- losses utilised not previously recognised	(1.7)	(81.0)	(5.0)	(11.4)
- other adjustments in respect of previous years	0.7	33.3	1.6	3.7
- effect of overseas tax rates	5.0	239.0	5.2	11.9
- effect of change in rate on deferred tax	0.7	33.3	0.6	1.4
Total income tax expense	16.4	781.0	17.1	39.1

The effective tax rate for the Group on the total profit before tax of £2.1m is 781.0% (2012: 39.1%).

The effective tax charge for the Group on profit before tax before other items of £88.1m is 29.6% (2012: 31.2%), which comprises a charge of 29.1% (2012: 31.3%) in respect of current year profits and a tax charge of 0.5% (2012: credit 0.1%) 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/The Netherlands (corporate tax rates greater than that of the UK) and Ireland/Poland (corporate tax rates less than that of the UK). If the proportion of profits from these jurisdictions changes this could result in a higher or lower Group tax charge;

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

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

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

In addition to the amounts charged to the Consolidated Income Statement, the following amounts in relation to taxes have been recognised in the Consolidated Statement of Comprehensive Income with the exception of deferred tax on share options which has been recognised in the Consolidated Statement of Changes in Equity.

	2013	2012
	£m	£m
Deferred tax movement associated with remeasurement of defined benefit pension liabilities*	(2.0)	0.2
Deferred tax on share options	0.1	(0.2)
Tax credit/(charge) on exchange and fair value movements arising on borrowings and derivative financial instruments	0.4	(1.0)
Effect of change in rate on deferred tax*	(0.9)	(0.8)
Total	(2.4)	(1.8)

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

4. Earnings per share
The calculations of earnings per share are based on the following (losses)/profits and numbers of shares:
					Basic and diluted
					2013		2012
					£m		£m
(Loss)/profit after tax					(14.3)		26.6
Non-controlling interests					(0.7)		(0.3)
					(15.0)		26.3
					Basic and diluted before Other items
					2013		2012
					£m		£m
(Loss)/profit after tax					(14.3)		26.6
Non-controlling interests					(0.7)		(0.3)
Other items:
Amortisation of acquired intangibles					20.6		22.0
Loss arising on the sale or agreed sale of businesses and associated impairment charges (Note 9)					42.8		4.6
Operating loss attributable to business divested in 2012					-		1.2
Operating profit attributable to business held for sale 31 December 2013					-		(0.4)
Net restructuring costs					18.0		16.6
Other one-off items					0.7		(1.4)
Goodwill impairment charge					2.0		-
Defined benefit pension scheme curtailment gain					-		(4.4)
Net fair value losses on derivative financial instruments					1.9		1.8
Tax credit relating to Other items (see below)					(9.7)		(9.0)
					61.3		57.3
Weighted average number of shares:
				2013 Number			2012 Number
For basic earnings per share				590,881,190			590,835,039
Exercise of share options*				154,065			-
For diluted earnings per share				591,035,255			590,835,039
Earnings per share				2013			2012
Basic (loss)/earnings per share				(2.5p)			4.5p
Diluted (loss)/earnings per share				(2.5p)			4.5p
Earnings per share before Other items^
Basic earnings per share				10.4p			9.7p
Diluted earnings per share				10.4p			9.7p

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

* For earnings per share after Other items, due to the fact that the Group has recorded a loss after tax any share options would be anti-dilutive. Therefore the impact of the exercise of share options has been removed from the weighted average number of shares when calculating earnings per share after Other items.

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

a)     amortisation of acquired intangibles of £20.6m (2012: £22.0m) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

b)     loss arising on the sale or agreed sale of businesses and associated impairment charges of £42.8m (2012: £4.6m) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

c)     operating loss attributable to business divested in 2012 of £1.2m is included within the column of the Consolidated Income Statement entitled "Other items";

d)     operating profit attributable to business held for sale as at 31 December 2013 of £ nil (2012: £0.4m) is included within the column of the Consolidated Income Statement entitled "Other items";

e)     net restructuring costs of £18.0m (2012: £16.6m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

f)     other one-off items amounting to a charge of £0.7m (2012: credit of £1.4m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

g)     goodwill impairment charge of £2.0m (2012: £ nil) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

h)     the prior year defined benefit pension scheme curtailment gain of £4.4m is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

i)      net fair value losses on derivative financial instruments of £1.9m (2012: £1.8m) are included as finance income and finance costs within the column of the Consolidated Income Statement entitled "Other items"; and

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

	2013				2012
	Other items	Tax impact			Other items	Tax impact
	£m	£m	%		£m	£m	%
Amortisation of acquired intangibles	20.6	3.3	16.0		22.0	4.9	22.0
Loss arising on the sale or agreed sale of businesses and associated impairment charges	42.8	1.3	3.0		4.6	-	-
Operating loss attributable to business divested in 2012	-	-	-		1.2	-	-
Operating profit attributable to business held for sale at 31 December 2013	-	-	-		(0.4)	(0.1)	30.0
Net restructuring costs	18.0	4.0	22.2		16.6	1.2	7.2
Other one-off items	0.7	-	-		(1.4)	(0.3)	21.0
Goodwill impairment charge	2.0	-	-		-	-	-
Defined benefit pension scheme curtailment gain	-	-	-		(4.4)	(1.1)	24.5
Net fair value losses on derivative financial instruments	1.9	0.4	21.1		1.8	0.4	24.5
Utilisation of losses not previously recognised	-	1.4	-		-	4.6	-
Effect of change in rate on deferred tax	-	(0.7)	-		-	(0.6)	-
	86.0	9.7	11.3		40.0	9.0	22.5

5. Reconciliation of operating profit to cash generated from operating activities
							2013	2012
				£m				£m
Operating profit						15.4		57.9
Depreciation						21.8		23.6
Amortisation of computer software						1.9		-
Impairment of property, plant and equipment						0.2		1.0
Loss arising on the sale or agreed sale of businesses and associated impairment charges (Note 9)						42.8		4.6
Amortisation of acquired intangibles						20.6		22.0
Goodwill impairment charge						2.0		-
Profit on sale of property, plant and equipment						(1.2)		(1.1)
Share-based payments						0.4		(0.2)
Working capital movements:
Increase in inventories						-		(4.0)
(Increase)/decrease in receivables						(12.0)		4.0
Decrease in payables						(5.7)		(19.1)
Cash generated from operating activities						86.2		88.7

Included within the cash generated from operating activities is cash paid in respect of current year and prior year restructuring costs of £13.3m (2012: £12.7m).

Also included within the cash generated from operating activities is a defined benefit pension scheme employer's special contribution of £3.0m (2012: £7.0m).

The decrease in payables of £5.7m includes the payment of £0.4m contingent consideration in respect of the 2012 acquisition of Monteis Materiaux.

6. Reconciliation of net cash flow to movements in net debt
	2013	2012
	£m	£m
(Decrease)/increase in cash and cash equivalents in the year	(11.9)	2.0
Cash flow from decrease in debt	4.0	6.2
(Increase)/decrease in net debt resulting from cash flows	(7.9)	8.2
Debt added on acquisition	(0.3)	-
Non-cash items^	(6.7)	(0.8)
Exchange differences	(1.0)	3.2
(Increase)/decrease in net debt in the year	(15.9)	10.6
Net debt at 1 January	(105.3)	(115.9)
Net debt at 31 December	(121.2)	(105.3)
^ Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow. Net debt is defined as the net of cash and cash equivalents, bank overdrafts, financial derivatives, associate loans and deferred consideration, private placement debt, bank loans and obligations under finance lease contracts.

7. Dividends

An interim dividend of 1.15p per ordinary share was paid on 7 November 2013 (2012: 1.0p). The Directors have proposed a final dividend for the year ended 31 December 2013 of 2.4p per ordinary share (2012: 2.0p). The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability at the balance sheet date. No dividends have been paid between 31 December 2013 and the date of this financial information.

8. Interest in associate

On 5 March 2013 the Group purchased an additional 26% shareholding in its associate, Ice Energy Technologies Limited ("Ice") for a consideration of £1.5m (debt for equity exchange), taking its total shareholding to 51%. Following this transaction Ice became a subsidiary of the Group. The Group has a call option to purchase the remaining 49% shareholding of Ice in 2015.

The Group's share of loss after tax arising from its interest in Ice for the period ending 5 March 2013 was £0.1m (2012: £0.7m, of which £0.4m was included within "Other items"), which has been recognised on the face of the Consolidated Income Statement. In accordance with IFRS 3, the 25% holding in Ice is deemed to have been disposed of and reacquired on the same day, and as a result a profit on disposal of £0.2m has been recognised within "Other items" in the Consolidated Income Statement.

The current accounting period for Ice ends on 31 March 2014. Ice does not have the same accounting reference date as SIG plc for commercial reasons.

In the period to 5 March 2013 there were no material transactions between Ice and SIG companies.

9. Divestments

Divestment of German Roofing

As at 31 December 2013 the Group Board had resolved to dispose of the Group's German Roofing operations. The disposal was completed on 28 February 2014. The assets and liabilities sold were as follows:

	At 31 December 2013		At 31 December 2012
	£m		£m
Goodwill and intangible assets	21.5		22.0
Property, plant and equipment	10.2		9.9
Computer software	1.3		2.0
Cash (less debt)	-		0.4
Inventories	10.5		10.3
Trade and other receivables		8.4	8.3
Trade and other payables		(1.9)	(2.1)
Net assets		50.0	50.8
Impairment of goodwill and intangible assets		(21.5)
Impairment of assets		(21.3)
Loss on disposal and associated impairment charges		(42.8)
Sale proceeds less costs to sell		7.2

The various assets of the business have been impaired to reflect the recoverable amount indicated by the consideration received in respect of the sale, and assets and liabilities presented as held for sale within the Consolidated Balance Sheet. The loss arising on the sale of German Roofing of £42.8m and the results for the current and prior year have been disclosed within "Other items" in the Consolidated Income Statement.

Divestment of ATC Spain

On 5 April 2013 the Group sold its 85% shareholding in Air Trade Centre Spain S.L. for a consideration of €1. SIG's share of net liabilities at the date of disposal amounted to £0.1m, and the resulting profit on disposal of £0.1m is included within other one-off items in the Consolidated Income Statement.

10. Acquisitions

During the period SIG acquired the following:

Acquisition name	% of share capital acquired	Acquisition date	Country of incorporation	Principal activity
United Roofing Products Limited	100%	28 February 2013	United Kingdom	Manufacture and distribution of roofing materials and associated products
Ice Energy Technologies Limited*	51%	5 March 2013	United Kingdom	Design and distribution of renewable energy systems
S. K. (Sales) Limited	100%	30 April 2013	United Kingdom	Distribution of air conditioning and air handling products
Roof Care (Northern) Limited	100%	22 July 2013	United Kingdom	Distribution of roofing materials and associated products
United Trading Company (UK) Limited	100%	29 November 2013	United Kingdom	Distribution of roofing materials and associated products

*The Group increased its shareholding in Ice Energy Technologies Limited ("Ice") from 25% to 51% on 5 March 2013 via a debt for equity exchange, at which point the company became a subsidiary undertaking of the Group (see Note 8).

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

Acquisition name	Acquisition date	Country of operation	Principal activity
KC Roofing Supplies	30 April 2013	United Kingdom	Distribution of roofing materials and associated products
Harris Slate and Stone (UK) Limited	30 April 2013	United Kingdom	Distribution of roofing materials and associated products
Roof Warehouse Limited	31 October 2013	United Kingdom	Distribution of roofing materials and associated products
Coverpro Rouen and Coverpro Amiens	1 December 2013	France	Distribution of roofing materials and interiors products

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

	At date of acquisition £m	Fair value adjustments £m	Fair value £m
Property, plant and equipment	2.7	(0.1)	2.6
Inventories	4.9	(0.4)	4.5
Trade and other receivables	10.6	(0.4)	10.2
Net cash acquired	3.4	-	3.4
Trade and other payables	(12.6)	(0.4)	(13.0)
Net corporation tax and deferred tax asset	0.3	-	0.3
Finance leases	(0.3)	-	(0.3)
Net assets acquired	9.0	(1.3)	7.7
Intangible assets - customer relationships			8.0
Intangible assets - non-compete clauses			1.1
Deferred tax liability on acquired intangible assets			(1.8)
Goodwill			5.4
Debt for equity exchange in respect of Ice			(1.5)
Total consideration			18.9
Consideration is represented by:
Cash			18.3
Contingent consideration			0.6
Total consideration			18.9
Total consideration including assumed cash:
Cash (per above)			18.3
Net cash acquired			(3.4)
Settlement of amounts payable for purchase of businesses			14.9

Included within working capital movements in the year (Note 5) is £0.4m in relation to contingent consideration settled during the year in respect of the acquisition of Monteis Materiaux in 2012.

In accordance with IFRS 3 (2008), acquisition expenses of £0.8m in relation to the above acquisitions have been recognised within "Other items" in the Consolidated Income Statement.

In addition, it is currently expected that, dependent upon future profits, a further £2.8m will be paid to the vendors of recent acquisitions who are employed by the Group. These payments are contingent upon the vendors remaining within the business, and as required by IFRS 3 (2008), this will be treated as remuneration and will be charged to the income statement as earned. The related accrual of potential consideration in the period to 31 December 2013 is £0.6m (31 December 2012: £0.1m). Added to the £0.8m acquisition expenses this has led to a charge within "Other items" in the Consolidated Income Statement of £1.4m in respect of acquisitions.

Further to this, £0.6m of contingent consideration (not subject to the vendors remaining within the business) has been recognised within goodwill and intangible assets in the year in relation to the acquisition of United Trading Company (UK) Limited.

The Directors have made a provisional assessment of the fair value of the net assets acquired. Any further adjustments arising will be accounted for in 2014. These fair value adjustments may relate primarily to:

a)     the review of the carrying value of all non-current assets to ensure that they accurately reflect their fair value;

b)     the alignment of valuation and provisioning methodologies to those adopted by the Group; and

c)     an assessment of all provisions and payables to ensure they are accurately reflected in accordance with the Group's policies.

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

Post-acquisition revenue and operating profit for the year ended 31 December 2013 for all 2013 acquisitions amounted to £39.0m and £3.0m respectively.

The Directors estimate that the combined pre-acquisition revenue and operating profit of the 2013 acquisitions for the period from 1 January 2013 to the acquisition dates was £32.7m and £1.1m respectively.

Post balance sheet events

On 20 January 2014, the Group acquired 100% of the issued share capital of Trimform Products Limited, a manufacturer and distributor of roofing materials and associated products in the United Kingdom for an initial consideration of £3.6m with net assets acquired of £0.9m.

Due to the proximity to the period end, further financial information has not been provided. This will be included in the Group's interim financial statements for the period ending 30 June 2014.

11. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and have therefore not been disclosed.

SIG has a shareholding of less than 0.1% in a German purchasing co-operative. Net purchases from this co-operative (on commercial terms) totalled £364m in 2013 (2012: £405m). At the balance sheet date trade payables in respect of the co-operative amounted to £15m (2012: £12m).

During the year, the Group exercised its option to acquire the remaining 18% non-controlling interest of Air Trade Centre Romania s.r.l. Of the 18% shareholding, 16% was purchased in 2013, with the remaining 2% purchased in 2014. The Group now holds 100% of the ordinary share capital of Air Trade Centre Romania s.r.l.

Other than the relationship disclosed in Note 8, the Group has not identified any other material related party transactions in the year to 31 December 2013.

12. Forward looking statements

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

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

The forward looking statements should be read in particular in the context of the specific risk factors for the Group identified in Note 14. The Company'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 the Directors at the date of its preparation and the Company does not undertake any obligation to update or revise this announcement during the financial year ahead.

13. Going concern basis

In determining whether the Group's 2013 financial information can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.

The key factors considered by the Directors were as follows:

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

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

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

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

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

·      the committed and renewed finance facilities available to the Group, or the reasonable expectation of the renewal of facilities.

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

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's 2013 financial information.

14. Principal risks and uncertainties

Risk management involves the identification and evaluation of risks and is the responsibility of the Group Board. The field of risk management is constantly evolving within SIG and the process was reviewed again during 2013 to ensure that it remained robust and that emerging risks are identified, assessed and managed effectively. The review process involved the consideration of the objectives and targets of the Group's strategic business plan, the ongoing development of a risk universe and the identification of key strategic risks. Risks are continually evaluated using consistent measurement criteria. Mitigating controls are identified and opportunities for the enhancement of the Group's control environment are implemented.

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

Risk	Nature of Risk	Mitigation
Market Conditions	The Group operates in a number of countries across Europe with the vast majority of the Group's sales being made to the building, construction and civil engineering industries. These industries are driven by both private and Government expenditure. The Group is exposed to changes in the level of activity and therefore demand from these industries. Government policy and expenditure plans (for example Green Deal and Energy Company Obligation ("ECO")), 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 the Group's products.	The Group continually reviews all available indicators of market activity including market data, economic forecasts and surveys, and also has regular communication with key suppliers and customers to ensure that any change 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	The Group has a mix of both direct specialist competition and some overlap with more general suppliers (such as general builders' merchants) in all of its markets and countries of operation. Challenging market trading conditions mean that competition pressures remain high which in turn results in continued margin pressures being faced by the Group.	The majority of products that are sold by the Group are relatively bulky and inexpensive in relation to their mass and the cost of transport. This means that the risk faced by the Group of price disruption and possible cross-border or international trading having a detrimental impact on prices in any particular country is relatively 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 the Group and the fact that specialist handling and delivery services are an important feature of the service provided by the Group to many customers. The Group operates in a number of different countries and market sectors and has a strong trading presence in the majority of these markets. This strong market position and balanced portfolio provides an element of protection against increased competition in any individual country or sector. Notwithstanding the above, the Group continues to implement initiatives designed to improve the Group's core competencies surrounding customer service, including enhanced sales support and training. Operating margin is considered to be a Key Performance Indicator by the Group. In order to improve operating margin, the Group must reduce its operating costs as a percentage of sales and/or improve gross margins. The Group has a number of ongoing pricing and purchasing initiatives designed to improve gross margin. Tight control of operating costs is a permanent feature of management practice.
Commercial relationships	Failure to negotiate competitive terms of business with our suppliers or failure to satisfy the needs of our customers could harm the Group's business. Customer or supplier consolidation and/or manufacturers dealing directly with customers.	Gross margin improvement is a Key Performance Indicator of the Group. The Group has an ongoing pricing and purchasing initiative designed to improve gross margin. Operational management in each country and business unit are tasked on an ongoing basis to maintain and develop their relationships with customers and suppliers. In particular, the following key tasks are undertaken: Suppliers: Long-term key supplier harmonisation and national account strategy planning. The Group purchases its products from a number of suppliers, thereby ensuring it is not overly reliant upon any one supplier. In addition, each business performs alternative key supplier scenario-planning should product not be available from any one individual supplier. Strategically important suppliers are reviewed globally to assess their financial health to ensure that any disruption to product supply is minimised. Customers: Long-term key customer harmonisation and national account strategy planning. Customer behaviour and performance is continually monitored and analysed.
Government legislation	SIG operates in a number of countries across Europe, each with its own laws and regulations, encompassing environmental, legal, health and safety, employment and tax matters. Changes in these laws and regulations could impact on SIG's ability to conduct its business, or make such conduct of business more costly. As well as the inherent cost of compliance, there is also the reputational and financial cost of being penalised for non-compliance with legislation such as the anti-competition and anti-bribery laws.	The Group continues to add to its resources dedicated to legal and regulatory compliance in order to further enhance its capability to identify and manage the risk of compliance failure. The Group actively monitors relevant laws and regulations across its markets to ensure that the effect of any changes to the legal framework are minimised. During the course of 2013 the Group undertook a comprehensive review of its anti-bribery and anti-fraud practices. Improvements have been made to existing risk frameworks and procedures.  Policies, procedures and associated training schemes are in place, which are frequently reviewed with reference to changing legislative requirements. The Group has a number of affiliations with regulatory bodies and trade associations.
Debt	Group net debt at 31 December 2013 amounted to £121.2m. The Group has to manage the following risks relating to its net debt: (1) future availability of funding; (2) interest rate risk; (3) foreign currency risk; (4) compliance with debt covenants; and (5) counterparty credit risk.	The Group has a comprehensive Treasury Policy which covers the Group's management of treasury risk. During the year the Group successfully refinanced €100m of maturing private placement debt with a further €100m of private placement debt (seven, eight and ten year maturities) on a bilateral basis with two institutional investors, providing further longevity to the Group's debt profile. The Group also has in place a £250m committed revolving credit facility ("RCF") provided by its four key relationship banks.  At 31 December 2013 this facility was undrawn and therefore represents the committed funding headroom for the Group. The RCF matures in March 2015 and therefore it is envisaged that SIG will undertake a refinancing exercise during 2014 in order to ensure that sufficient funding headroom and liquidity is available to support the Group's medium-term strategic plans.
Working capital/credit management	Failure to manage working capital effectively may lead to a significant increase in the Group's net debt, thereby reducing the Group's funding headroom and liquidity.	Post-tax Return on Capital Employed ("ROCE") is a Key Performance Indicator of the Group and therefore working capital management remains a key priority. Cash flow targets are agreed with each business unit as part of the annual budget process. All targets are reviewed on a monthly basis. The Group has well established and stringent authorisation procedures and debt collection cycles which control all capital expenditure and working capital requirements. The Group operates a centrally-led and proactive credit management system with bespoke customer monitoring solutions, internal risk categorisations which drive credit policy (perpetually reviewed), and excellent major customer relationships.
IT infrastructure and resilience	SIG uses a range of computer systems to provide order processing, inventory control and financial management within each country. Outages and interruptions could affect SIG's ability to conduct day-to-day operations. Any lengthy failure or disruption to the IT system in any business unit or country would result in loss of sales and delays to cash flow. A new ERP system is currently being  implemented in the UK distribution businesses.	The IT strategies in place across the Group continue to be reviewed and developed to ensure that they remain appropriate and that the business continuity frameworks are robust and effective. The Group employs dedicated internal IT support teams, together with external support service providers to monitor the IT systems. Technology, infrastructure, communications and application systems are regularly updated. The Group has advanced hardware and software security in place to ensure protection of commercial and sensitive data. For new IT projects, external consultants are utilised in conjunction with internal project management teams. The new ERP system for the UK distribution businesses has been successfully rolled out to selective branches during the course of 2013 and this will continue during 2014 and 2015.
Availability of key resources	Unavailability of key resources (e.g. assets such as property, stock and personnel) will impact on the ability of SIG to operate effectively and efficiently. Failure to retain key individuals, or the failure to attract and retain strong management and technical staff in the future, could have an adverse effect upon the Group's business.	The Group has a series of review processes in place (including periodic strategic reviews, budget reviews and rolling forecast reviews) which ensure that all key resource requirements are identified and managed accordingly. In respect of key personnel, senior management succession planning is performed with an annual review of current and future management requirements. The Group also performs regional talent management programmes and management development initiatives which are reviewed regularly by the Group Board. During 2014 we will be conducting an Employee Engagement survey across the entire SIG Group. The Board is fully committed to the survey and its outcomes and will support action plans which positively impact on our performance, people, customer service and financial results and those which make SIG an employer of choice.

 

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