TIDMSHI
RNS Number : 3397O
SIG PLC
29 May 2020
29 May 2020
SIG plc
Full Year 2019 Results, New Growth Strategy and Strengthening of
Capital Structure
Proposed Equity Raise of GBP150m with Clayton, Dubilier &
Rice Investment
SIG plc ("SIG", "the Group" or "Company"), a leading supplier of
specialist building products and solutions to trade customers
across the UK, Ireland and Mainland Europe, with strong positions
in its core markets as a specialist distributor of insulation and
interiors products and as a merchant of roofing and exteriors
products, announces its full year 2019 results ("FY 2019"); unveils
its new growth strategy; and announces the strengthening of its
capital structure including a proposed equity raise of
approximately GBP150m. Funds managed by Clayton, Dubilier &
Rice LLC ("CD&R") will invest up to GBP85m in the Company as
part of the equity raise.
Key Points
-- Consistent with previous guidance, underlying profit before
tax (including businesses held for sale), pre IFRS 16, of GBP41.9m
(2018: GBP74.5m)
-- Underlying profit before tax, post IFRS 16, of GBP15.6m (2018: GBP52.2m, pre IFRS 16)
-- Statutory loss before tax from continuing operations of
GBP112.7m (2018: profit before tax of GBP10.3m), reflecting
GBP128.3m of Other items, including GBP90.9m of impairment of
goodwill and other intangibles
-- The Board has taken decisive actions to address 2019
performance - appointed a new leadership team and developed a new
customer-centric strategy that reprioritises sales
-- COVID-19:
o Focus on keeping our employees, suppliers and customers
safe
o Strong management response and robust trading in Germany,
Benelux and Poland
o Liquidity preserved
-- Strengthening the capital structure for the long term:
o Constructive discussions ongoing with lenders to reset
covenants and agree other amendments to the Group's financing
facilities
o Intention to raise approximately GBP150m in new equity in the
coming weeks
o CD&R has agreed to invest up to GBP85m, with a guaranteed
minimum of GBP72.5m, conditional on c.GBP150m of equity being
raised and satisfactory amendments to the Group's financing
facilities being agreed
o IKO, the Company's largest shareholder, has confirmed that it
is fully supportive of the Company's new strategy and the equity
raise
Steve Francis, Chief Executive Officer ("CEO"), commented:
"Since my appointment as CEO on 25 February, we have been
developing a new strategy and organisational model which focuses on
people, growth and active industry leadership. The essence of our
new strategy is re-connection with our people - employees,
customers, suppliers and the communities in which we do business -
we are a local, sales and service-driven business. We have also
been navigating the effects of COVID-19. I am encouraged by how
robustly we have operated in the most testing of circumstances and
would like to thank all our people for their resilience and
fortitude in the face of this pandemic.
"After nearly a decade of contraction, which has included
disposals, rationalisation, debt and cost reduction, it is now time
to focus on how to grow SIG and rebuild our core USPs of customer
proximity, service and expertise. We play an important role in the
construction industry, providing a channel through which suppliers
can bring their products to a fragmented customer base conveniently
and efficiently. I firmly believe that o ur new strategy for growth
will provide the basis, not only for the restoration of profit and
cash conversion, but also serve as a foundation to play a leading
role in our industry in the years to come.
"The new management team will empower our customer-facing people
and promote an entrepreneurial spirit throughout the Group, thereby
re-connecting with our customers and suppliers, re-energising our
highly talented employees, and re-setting the growth ambition of
SIG.
"I am pleased to welcome Clayton, Dubilier & Rice, an
experienced business builder in our industry, as an investor, and
we look forward to working with the CD&R team."
Investor and Analyst presentation (9am today)
A webcast of the Group's briefing for analysts and investors
will take place today at 9am, a recording of which will also be
available later in the day on the investor page of the company's
website, www.sigplc.com .
To access the webcast please click this URL to join:
https://us02web.zoom.us/j/81007415970
Full Year 2019 Overview
-- Underlying revenue decline of 9.0%, impacted by market share
losses in UK and Germany due to poor execution of transformation
initiatives which the Board believes disconnected the business from
its customers, suppliers and its front-line colleagues
-- The Group's other operating companies recorded continued
steady performance, with like-for-like revenues up 1.4%
-- Good operating progress made through the further development
of new technologies, ecommerce and increased functionalisation
-- Underlying gross margin up 60bps
-- Implementation of IFRS 16 from 1 January 2019 has had no
economic impact on the Group but has materially changed some of the
Group's reported financial information. In order to allow clearer
comparisons with 2018, the Group has presented key financial
information for 2019 on both a pre and post IFRS 16 basis
-- Operating costs, pre IFRS 16, lower by GBP6.0m (1.2%),
reflecting the adoption of functional operating models, reduction
in footprint and continued cost discipline
-- Underlying profit before tax (including businesses held for
sale), pre IFRS 16, of GBP41.9m (2018: GBP74.5m), consistent with
previous guidance. Underlying profit before tax, post IFRS 16, of
GBP15.6m (2018: GBP52.2m )
-- Statutory loss before tax from continuing operations of
GBP112.7m (2018: profit before tax of GBP10.3m), reflecting
GBP128.3m of Other items, including GBP90.9m of impairments
-- Net debt, pre IFRS 16, at year end of GBP162.8m (2018:
GBP189.4m) and covenant leverage of 2.1x
Full year
2019
GBPm
--------------------------------------------- ------------
Underlying profit before tax (including
businesses held for sale)(1) 41.9
Less: Air Handling underlying profit before
tax, pre IFRS 16(2) (19.1)
Less: Building Solutions underlying profit
before tax, pre IFRS 16(3) (2.2)
--------------------------------------------- ------------
Underlying profit before tax, pre IFRS
16 20.6
--------------------------------------------- ------------
Underlying profit before tax, post IFRS
16 15.6
--------------------------------------------- ------------
1: Underlying profit before tax stated before IFRS 16
adjustments, including profit before tax for the Air Handling
division and Building Solutions (National) Limited and excluding
impairment and other non-underlying profits and losses.
2: Included within Discontinued operations in the Consolidated
Income Statement
3: Included within Other items in the Consolidated Income
Statement
New Growth Strategy
-- In order to return to profitable growth and win back market
share, the Board has developed a new, customer-centric strategy
that reprioritises sales
-- Fundamental management changes to re-establish SIG's
traditional strengths of being an experienced, technically strong
and service-focused local sales business:
o Steve Francis appointed as CEO in February 2020
o New strategy designed to grow the business after nearly a
decade of contraction
o A different approach to leadership and management; many
changes already made:
-- Phil Johns re-joins SIG as UK MD, leading a merger of the
leadership teams of our UK businesses, to resume his 28 year SIG
career and restore the UK businesses to growth
-- Ronald Hoozemans, Benelux MD, appointed as the MD of both our
German and Benelux businesses as they too are combined under one
leadership team
-- Ian Ashton, a widely experienced plc CFO, appointed as Group
CFO and will join on 1 July 2020
-- Board adds additional and current industry experience by the
appointment of Simon King as a non-executive Director, who will
also join on 1 July 2020
-- The new strategy gives priority to re-connecting and
refreshing relationships with suppliers, customers, the local
communities in which the Company operates, and its talented and
passionate colleagues
-- There will be an immediate and more pronounced focus on:
o Growth through the lens of a more expansive and
industry-relevant vision
o Playing a leading, active and forward-thinking role in the
construction industries in which we operate
-- In the medium term, the Group is targeting the following key financial metrics:
o An operating margin of c.5% within the Group's operating
companies
o A Group operating margin of c.3%, trending towards c.5% in the
longer term
o Headline financial leverage of <1.5x
o Dividend cover of 2.0-3.0x, once appropriate leverage has been
achieved
Strengthening the Capital Structure
-- As previously indicated, and alongside the Group's proposed
equity raise, the Board continues to have constructive discussions
with its banks and private placement noteholders with a view to
resetting covenants (including those applicable in respect of the
30 June 2020 testing date, which the Group anticipates that it
would otherwise breach) and agreeing other amendments to its
financing facilities. Further details will be provided in due
course. As part of this process the Group has already sought and
obtained a waiver of the Consolidated Net Worth ("CNW") covenant
contained in the Group's private placement notes in respect of any
testing thereof in the period from 28 May 2020 until 1 August 2020
(subject to certain events not occurring in that period). Such
waiver includes, without limitation, CNW testing as at 31 December
2019 on the basis of the Group's audited financial statements in
respect of the period ending 31 December 2019
-- In addition, the Board has explored its wider funding options
and is intending to raise approximately GBP150m in new equity in
the coming weeks to strengthen the Group's capital structure and
enable the management team to deliver its new growth strategy
-- As part of the new equity raise, Clayton, Dubilier & Rice
LLC ("CD&R"), a leading global investment manager, has agreed
to invest up to GBP85m, with a guaranteed minimum of GBP72.5m,
conditional on c.GBP150m of equity being raised and satisfactory
amendments to the Group's financing facilities being agreed
-- The equity offer, to be launched in the coming weeks, will be
structured in two, inter-conditional tranches: a tranche of GBP60m
being placed firm to CD&R (at 25p per share) and a second
tranche of GBP90m, offered to a broader range of investors and
incorporating a pre-emptive offer, in which CD&R will invest up
to GBP25m
-- While the exact percentage holding will be determined in due course, CD&R is expected to hold approximately 25% of the total enlarged issued share capital
-- Through a relationship agreement with the Group, CD&R
will take two seats on the Board of SIG. The Board welcomes
CD&R, recognised for its business-building capabilities, as a
long-term supportive shareholder with significant operational and
financial expertise
-- IKO, the Company's largest shareholder who currently owns
approximately 15% of the issued ordinary share capital of the
Company, has confirmed that it is fully supportive of the Company's
new strategy and equity raise
COVID-19 Response and Trading Update
-- Rapid development of a coordinated and decisive response to
COVID-19, with the Group's key priority being to ensure the safety
of our employees, suppliers and customers in all areas of
operation. Liquidity preserved since lockdown in March, despite
significant declines in revenues:
o Group revenues fell GBP138.9m during March and April from the
prior year, a decline of 37%
o Trading now returning to pre COVID-19 levels in most of our
operating companies as the Group adapted swiftly to new social
distancing protocols. This would not have been possible without the
dedication and professionalism of our front-line colleagues working
in extremely challenging conditions
o As at 26 March 2020, the Group reported that it had cash
resources of approximately GBP135m, following receipt of the sale
proceeds of its Air Handling division. In a further market update
on 30 April 2020, the Group announced that, as a result of
strengthened cash control measures, it had been able to preserve
its liquidity position and held cash of GBP142m as at 24 April
2020
o By the end of the month, cash at bank as at 30 April was
GBP155.3m, with a net debt of GBP114.1m, achieved through cost
control, utilisation of governmental programmes and intensive, but
careful, management of working capital
o In light of the current challenges, the Board has taken the
decision to not declare a full year dividend
-- The ability to respond effectively to the pandemic through
these measures demonstrates the Group's resilience and capacity for
organisational change, and points towards the successful adoption
of the new strategy as the Group emerges from this period of
business disruption
-- We would like to thank our suppliers and customers for their
partnership during this testing period and our employees, many of
whom forewent pay and have had to make sacrifices to support the
Group. It would not have been possible to achieve this liquidity
position today without these partnerships
Commenting on today's announcement, Andrew Allner, Chairman,
said:
"The 2019 results, albeit in line with January guidance, are
disappointing. However, the Board has taken decisive action to
address this performance. A new CEO has been appointed and, this
morning, we announced the appointment of a new CFO. In addition, we
have new Managing Directors of the UK and German businesses.
Furthermore, under the leadership of Steve Francis, we have
developed a new strategy which has been well received by customers,
suppliers and colleagues.
"We recognise the need to raise new equity, of approximately
GBP150m, to provide a solid capital structure for the future and we
are pleased to announce that CD&R has conditionally agreed to
invest up to GBP85m in the company and take two Board seats. We
welcome CD&R as a long-term, supportive shareholder and believe
they will bring considerable value to SIG through their
contribution on strategy, operational performance, culture and
value creation, which will benefit all stakeholders. We are pleased
to note the backing of IKO, our largest shareholder. We remain in
constructive discussions with our lenders and we are confident that
we will get to a satisfactory financing position.
"I am determined to restore value to shareholders and am
confident that we now have the right management team and strategy
to achieve this."
Full Year 2019 results
2018 2019
2019 (Restated, (post
pre IFRS
Underlying operations(1) (pre IFRS 16) 16) Change IFRS 16)
------------------------------ --------------- ------------- ----------- -------------
Revenue GBP2,084.7m GBP2,290.4m (9.0)% GBP2,084.7m
Like-for-like sales(2)
growth (7.6)% (2.1)% (550)bps (7.6)%
Gross margin 25.9% 25.3% 60bps 25.9%
Underlying(3) operating
profit GBP33.5m GBP66.9m (50.0)% GBP39.6m
Underlying(3) profit before
tax GBP20.6m GBP52.2m (60.5)% GBP15.6m
Underlying(3) profit before
tax (including businesses
held for sale)(4) GBP41.9m GBP74.5m (43.8)% GBP36.3m
Underlying(3) basic earnings
per share 0.6p 6.3p (90)% (0.1)p
Return on sales (excluding
property profits) 1.6% 2.8% (120)bps 1.9%
Post-tax
return
on
capital
employed
(ROCE) 6.1% 10.3% (420)bps n/a
Net
debt GBP162.8m GBP189.4m 14.0% GBP455.4m
Covenant
leverage
(covenant
net
debt/covenant
EBITDA) 2.1x 1.7x (0.4)x n/a
------------------------------ --------------- ------------- ----------- -------------
2018
2019 (Restated,
(post IFRS pre IFRS
Statutory results 16) 16)
----------------------------- ------------ ------------
Revenue(5) GBP2,160.6m GBP2,431.8m
Operating (loss)/profit(5) GBP(87.9)m GBP26.2m
(Loss)/profit before tax(5) GBP(112.7)m GBP10.3m
Basic (loss)/earnings per
share (21.0)p 3.0p
Dividend per share 1.25p 3.75p
----------------------------- ------------ ------------
1: Underlying operations excludes businesses divested or closed,
or which the Board has resolved to divest or close by 31 December
2019.
2: Like-for-like (LFL) is defined as sales per working day in
constant currency excluding acquisitions and disposals completed or
agreed in the prior year, or before announcement of the Group's
results for the relevant period. Sales are not adjusted for branch
openings or closures. LFL sales differ from the January trading
statement primarily as a result of the reclassification of non-core
businesses.
3: Underlying results are stated before the revenue and cost
items of businesses that have been disposed of, the amortisation of
acquired intangibles, impairment charges, profits and losses on
agreed sale or closure of non-core businesses and associated
impairment charges, net operating profits/(losses) attributable to
businesses identified as non-core, net restructuring costs,
acquisition expenses and contingent consideration, other specific
items, unwinding of provision discounting, fair value gains and
losses on derivative financial instruments, the taxation effect of
other items and the effect of changes in taxation rates.
4: Per note 3 above, t ogether with the underlying profit before
tax for the Air Handling division (Discontinued operations) and
Building Solutions (National) Limited (non-core business).
5: Statutory results of Continuing operations only.
LEI: 213800VDC1BKJEZ8PV53
Enquiries
SIG plc
Andrew Allner, Chairman +44 (0) 114 285 6300
Steve Francis, Chief Executive Officer +44 (0) 114 285 6300
Kath Kearney-Croft, Interim Chief Financial
Officer +44 (0) 114 285 6300
Lazard - Lead Financial Adviser
+44 (0) 20 7187
Cyrus Kapadia / Vasco Litchfield / Nick Fowler 2000
Jefferies International Limited - Financial
Adviser & Joint Broker
Ed Matthews / Philip Noblet / Lee Morton /
Will Soutar +44 (0) 20 7029 8000
Peel Hunt LLP - Financial Adviser & Joint Broker
Charles Batten / Nicholas How / Sam Cann +44 (0) 20 7418 8900
FTI Consulting
+44 ( 0) 20 3727
Richard Mountain / Susanne Yule 1340
NEW GROWTH STRATEGY
New Senior Leadership
In the context of the deterioration of the Group's financial
performance towards the end of 2019 and the substantial completion
of the Group's operational restructuring and simplification, the
Board determined that it was appropriate to appoint new senior
leadership, focused on returning the business back to profitable
growth and recapturing lost market share, particularly in the UK
Distribution and German businesses.
Steve Francis was appointed as a Director and the interim Chief
Executive Officer of the Group on 25 February 2020 and was
appointed on a permanent basis on 24 April 2020. Steve is a widely
experienced CEO with a proven track record of driving rapid
performance improvement through establishing strong customer
relationships, excellence in customer service and the creation of
highly engaged teams.
Kath Kearney-Croft joined the Group in January 2020 initially to
provide support to the executive team during the leave of absence
of Meinie Oldersma and was appointed as a Director and the interim
Chief Financial Officer of the Group on 25 February 2020. Kath has
extensive experience from a number of financial leadership roles
and was most recently Group Finance Director of The Vitec Group
plc.
As announced this morning, Ian Ashton will be taking on the
permanent CFO role with effect from 1 July 2020. Ian has operated
in a wide variety of senior financial roles around the globe. His
breadth of financial and operational experience, in differing
public company environments, will be of great value to SIG as we
improve and transform the business.
A number of significant appointments have also been made to
strengthen leadership of the Group's operating companies, including
merging the leadership of the Group's UK businesses under a new,
highly experienced Managing Director, Phil Johns, who joins the
Group having over 30 years experience in the construction sector,
including 28 years previously with SIG. Additionally, the Group's
German and Benelux businesses will also be managed under a single
management team by our current Benelux MD, Ronald Hoozemans. These
changes have been made to help focus these teams on re-gaining
market share and returning the businesses to winning ways.
New Growth Strategy
In order to return SIG to profitable growth and win back market
share, the Board has developed a new, customer-centric strategy
that reprioritises sales.
Fundamental to the new strategy is the recognition that SIG is a
sales-led organisation, where the ability to win and retain
customers is critical. The establishment of strong customer
relationships, by empowering and energising key account and branch
teams, and promoting an entrepreneurial spirit throughout the
organisation is key to this objective.
In France, Benelux, Poland and Ireland, where the Group's
operational and financial performance has been more stable, the new
strategy seeks to empower the Group's operating companies to move
onto a growth footing.
In the UK and Germany, where the Group's operational and
financial performance has seen greater deterioration, the new
strategy focuses on first repairing the foundations of these
businesses, creating the appropriate platform from which market
share can be recaptured and profitable growth restored.
The Group's new strategy comprises seven key tenets:
i. Local P&Ls within a "franchise-style" operating model,
supported by best in class operations and systems ;
ii. Rebalance the strategic focus between growth and cost reduction;
iii. Strengthen sales-led culture by accelerating salesforce
rebuild and augmenting commercial leadership throughout the
organisation..."everyone sells" ;
iv. Gain market share through enhanced customer proximity and
service, including strengthening the branch network and augmenting
the digital offering ;
v. Generate economies of scale and of skill, including
re-establishing more strategic and Board-led supplier partnerships
;
vi. Re-establish specialist focus and expertise ; and
vii. Leaner, smarter corporate functions; improve governance and
financial discipline .
These will be supported by new strategic key performance
indicators tracking progress on each of the seven elements listed
above.
Through the implementation of these strategic initiatives and
select additions to the management team, alongside the proposed
capital raise, the Board is confident that SIG will return to
profitable growth and achieve its vision to be the leading B2B
distributor of specialist construction products in its key
markets.
The Group's Medium Term Vision
The Group has a robust plan in place to deliver a return to
profitable growth and achieve the Board's vision of establishing
SIG as the leading B2B distributor of specialist construction
products in its key markets.
In the medium term, the Group is targeting the following key
financial metrics:
- Margin: An operating margin of approximately 5% within the
Group's operating companies and a Group operating margin of
approximately 3%, trending towards approximately 5% in the longer
term
- Leverage: Covenant leverage of <1.5x
- Dividend: Dividend cover of 2.0-3.0x, once appropriate leverage has been achieved
In summary, SIG remains a leading specialist supplier for the
building materials and construction industries in its key markets.
It is primed for growth under a strong, new management team, with a
robust plan in place and positive indications across all the
Group's operating companies. SIG remains engaged in a number of
high growth end-markets, with strong positions across its European
footprint. The traditional USPs that supported SIG in its markets
previously, provide opportunities for SIG to grow even further and
capitalise on the economic recovery following COVID-19.
People
The Board would like to thank all employees of SIG for their
continued commitment and resilience in what was a particularly
challenging year in 2019, both due to external market conditions
and the rapid pace of transformational change, and into 2020 with
the challenges faced resulting from COVID-19. Whilst the trading
results of the Group in 2019 have been disappointing, their efforts
have laid a strong foundation for the next phase of SIG's evolution
as we focus on building a stronger business with a high performing
workforce that is rewarded for making a positive difference.
The Board recognises that safety must always be its number one
priority; for its employees, its suppliers, customers, and within
the communities where we operate. A key focus for the Group since
the outbreak of the COVID-19 pandemic has been to ensure that
within those operations that remained open for business, all
necessary measures were taken in line with government safety
guidelines to protect the health and safety of employees, suppliers
and customers.
In 2019, a Board workforce engagement programme was developed,
designed to provide a direct communication channel between the
Board and employees. To further strengthen engagement with
colleagues, the Board also appointed Kate Allum as the designated
Non-Executive Director for workforce engagement with effect from 1
January 2020. In addition, in early 2020, a new culture programme
was launched to develop a culture aligned to shared behaviours and
encourage openness and transparency. Whilst the impact of COVID-19
temporarily hindered the progression of these programmes, they
remain a priority for the Group.
COVID-19
The sudden rise of the COVID-19 pandemic in early 2020 quickly
redirected focus from the implementation of the new strategy to
more immediate measures designed to mitigate the effects of the
pandemic. This required the rapid development of a coordinated and
decisive response and the operational agility of local managers to
implement the measures. Collective actions across the Group's
finance, treasury, human resource, sales, procurement and
operations functions at branch, regional and Group management
levels were implemented in a coordinated and decisive manner to
mitigate the operational and financial impact.
The ability of the organisation to respond effectively to the
pandemic through these measures demonstrates the Group's resilience
and capacity for organisational change, and points towards the
successful adoption of the new strategy as the Group emerges from
this period of business disruption.
As a result of government restrictions that were implemented to
mitigate the spread of COVID-19, large sections of SIG's
end-markets experienced a severe reduction in sales. During April,
the fourteen-day rolling average daily sales in the UK and Ireland
reduced to approximately 12% of their average daily sales between
January and mid-March (i.e. pre COVID-19 levels), reflecting the
closure of the majority of SIG's trading sites in response to
government advice. By mid-May, the fourteen-day average daily sales
had recovered to over 50% of pre COVID -19 levels as the Group's
sites and customers began to re-open . The Group had re-opened over
80% of the UK and Ireland sites by the middle of May.
In France, although trading continued from all sites, the
fourteen-day rolling average daily sales had reduced to
approximately 32% of pre COVID-19 levels by early April, recovering
to pre COVID-19 levels by the middle of May. The impact was less
severe in Germany, Poland and Benelux, where trading continued from
all sites and revenue fell to approximately 82% of pre COVID-19
levels. By the end of April, these countries saw activity back to
pre COVID-19 levels.
In response to the challenges posed by the COVID-19 pandemic,
the Group has implemented a comprehensive set of actions to reduce
costs and manage liquidity. These actions include, but are not
limited, to:
i. Employees : Over 2,000 employees were furloughed under the UK
government's scheme and the majority of trading sites across the UK
and Ireland were temporarily closed. Remaining staff agreed to take
up to 20% temporary pay reductions, with the salaries of all
members of the Board temporarily reduced by 50% from 1 April to 30
June 2020. In mid-May, the Company re-instated the executive
Directors' pay to 80% at the same time as other Group employees
were returning to work on full pay. The furloughing of employees,
combined with other wage saving initiatives, has enabled the Group
to retain an incremental c.GBP8m of cash in the period to May
2020.
ii. Government support : Relevant government support is being
accessed in all countries of operation, across employment support,
tax and social security deferrals and the business is assessing
whether to apply for government loans (which are currently being
considered in France and Germany, in coordination with the Group's
existing financial arrangements). Tax and social security deferrals
have been implemented where available in the UK (PAYE/NIC, VAT), in
France (social charges, pension contributions), Germany (VAT),
Poland (corporation tax), Belgium (VAT, payroll tax) and the
Netherlands (VAT, payroll tax). In the aggregate, use of government
support schemes has enabled the Group to defer approximately GBP15
million of cash payments in the period through May 2020.
iii. Capital expenditure: Programmes that require significant
cash investment or do not provide near-term business benefits have
been paused, including major IT projects.
iv. Customers: The Group has maintained a sharp focus on
proactively managing collections and monitoring overdue
payments.
v. Trade suppliers: The Group has conducted active discussions
with large trade suppliers, in order to maintain continuity of
supply while netting rebates and agreeing slower payment plans
where possible.
vi. Non-trade suppliers: Deferral and terms extension requests
are being managed across non-trade suppliers, with a significant
focus on IT, services and property, with p roperty rates being
deferred on UK properties and 'empty' or 'retail' relief claims
submitted.
vii. Landlords : A number of UK landlords have been approached
to request that the June rent quarter payment is spread across the
subsequent two quarters. In other cases, lease extensions are being
offered in return for rent-free periods. The Group's business in
Poland has also approached landlords for rent reductions.
viii. Fleet leases: Payment holidays have been requested from
fleet lease providers.
ix. Dividend: The Board took the decision not to declare a full
year 2019 dividend, nor to consider any return to shareholders of
the proceeds of recent disposals.
The Group's ability to maintain its liquidity position during
this period of extreme uncertainty reflects the effectiveness of
the mitigating actions initiated by the Board, the agility of the
organisation and the experience of the managers who enacted these
measures throughout the Group.
Notwithstanding the effectiveness of these actions, the
prolonged impact of COVID-19 is anticipated to have significant
consequences on the Group's financial performance in 2020, both in
terms of profitability and cash.
CURRENT TRADING AND OUTLOOK
Pre COVID-19 (January 2020 to February 2020)
Group revenue for the two months ended 29 February 2020 was
GBP296.0m, down GBP36.8m from the prior year (two months ended 28
February 2019: GBP332.8m), a like-for-like decline of c.11%.
Trading in the UK and Germany saw a continuation of the challenging
trends seen in the last quarter of 2019, whilst trading activity in
the rest of Europe was relatively stable.
Due to reduced sales volumes in key markets, gross profit margin
fell compared to the prior year period (two months ended 28
February 2019).
As reported in the Group's trading update on 26 March 2020, the
Group posted an underlying operating loss of c.GBP9m, pre IFRS 16,
in the first two months of the year.
COVID-19 period (March 2020 to April 2020)
Group revenue for the two months ended 30 April 2020 was
GBP235.0m, down GBP138.9m from the prior year (two months ended 30
April 2019: GBP373.9m). Revenues in the period were significantly
impacted by the COVID-19 outbreak, particularly in the UK, Ireland
and France.
On 30 March 2020, the Group announced that large parts of its UK
market had seen sales fall away rapidly, in common with the broader
construction industry. It was concluded that it was necessary and
appropriate to temporarily close UK operations. Trading sites in
Ireland were also temporarily closed due to restrictions
implemented by the Irish Government.
The UK and Ireland businesses remained open to service critical
and emergency projects only, such as for the NHS, energy and food
sectors. Revenue, during the closure period in April, reduced to
c.GBP0.4m per day on average, a reduction of c.86% compared to
February. By mid-May, the fourteen-day average daily sales had
recovered to over 50% as the Group's sites and customers began to
re-open . The Group had re-opened over 80% of the UK and Ireland
sites by the middle of May.
Trading activity suffered a temporary setback in France
following the short-term closure of all branches for three days in
mid-March, with the fourteen-day rolling average daily sales
reduced to approximately 32% of pre COVID-19 levels by early April.
A staged reopening throughout April and into early May saw, on
average, France trading at c.56% of pre COVID-19 revenue levels in
April, recovering to pre COVID-19 levels by the middle of May.
The Group's operating companies in Germany, Poland and Benelux
were impacted by government measures to a lesser extent, where
trading continued from all sites and revenue fell to approximately
82% of pre COVID-19 levels. By the end of April, these countries
saw activity back to pre COVID-19 levels.
Similar to the first two months, the Group's gross profit margin
in March and April was negatively impacted by the decline in
overall sales, combined with a shift in mix away from the more
profitable roofing merchanting businesses in the UK and France.
During the period, the Group has taken decisive cost actions in
response to COVID-19 as well as accessing the government-supported
job retention schemes, resulting in a reduction in its operating
costs year-on-year.
Outlook
As a result of the impacts of declining revenues under the
previous strategy and COVID-19 on the construction industry across
Europe generally, management expects revenues for 2020 to be
approximately GBP500m lower than 2019 as reported, post the
disposal of the Air Handling division. Management is targeting a
return to around 2019 levels of Group revenues (as reported, post
the disposal of the Air Handling division) in 2022.
While those geographies that were less severely impacted by
COVID-19 are expected to recover faster, those which need strategic
improvements may take longer to see the impact of management
actions. The focus of the UK business through the second half of
2020 will be to continue to put the correct leadership structures
and people in place, and restructuring the organisation to better
position it to recapture market share. The planned combination of
the leadership teams in UK Distribution and UK Exteriors is
expected to reduce and simplify the central functions, resulting in
a potential reduction in operating costs within the UK businesses
of up to GBP4m, after investments in front line sales to drive
growth. In Germany and Benelux, the consolidation of the management
structure is also intended to return Germany to growth after recent
underperformance. In France, where the Group has shown resilience
over the last few years, the business is expected to recover to
targeted levels of revenue faster given its strong existing
platform in the region.
Management remains focused on the overall levels of operating
cost in the business which, if properly controlled, can result in
significant operational gearing. The Group aims to grow its market
share over time to leverage its cost base, which the Group seeks to
supplement with improved processes and systems which the Board
believes will improve Group productivity. The new strategy will be
focused on growth with limited cost reductions outside the merging
of senior management and central support functions in the UK and
Germany and Benelux. Management's medium term target is to restore
an operating margin of approximately 5% within the Group's
operating companies and a Group operating margin of approximately
3%, trending towards approximately 5% in the longer term.
Depreciation and amortisation as a percentage of sales is
expected to remain in line with historical levels going forward,
capital expenditure is expected to run slightly ahead of
depreciation and as a percentage of sales return to historic levels
given management's strategic plan focusing on operational
improvements rather than requiring large capex investment.
The loss of revenues in 2020 is expected to impact
profitability, cash generation and therefore debt levels. The
Group's cash conservation measures have resulted in estimated cash
savings of approximately GBP23m through to May 2020, comprising
approximately GBP8m of wage savings under the furlough schemes and
other wage saving initiatives and a further approximately GBP15m of
tax and other deferrals. As at 30 April 2020, the Group had GBP155m
of cash and a net debt position, pre IFRS 16, of GBP114m. The
unwind of these cash conservation measures, as well as the expected
growth in sales, is expected to lead to a higher working capital
position by the year end. As the Group returns to growth it will
also require more working capital in the business, compared to its
average historic levels, both to improve the service to customers
and to support the Group's sales growth.
PERFORMANCE REVIEW
Overall performance
The Group's strategy of centralising certain functions to gain
consistency and economies of scale continued at a rapid pace during
2019, on the back of a strong close to the previous year and
continued to demonstrate an improvement in profit margins during
the first half of 2019 as less profitable products were
discontinued and branches were closed or merged. However, this
growth in profitability masked underlying loss of market share and
damage to our sales capacity, particularly in Distribution and
Exteriors in the UK and in Germany, resulting from rapid change and
centralisation, leading to an erosion of key USPs for a
fundamentally sales-led organisation, namely customer proximity,
service and expertise. This contrasted with other European markets
which were relatively more stable, where implementation of the
Group's strategy had been better adapted to local dynamics.
Whilst the first half performance delivered significant
operational and financial progress, despite a ransomware attack
affecting both of the French businesses, LiTT and Lariviere, the
decline in sales accelerated during the second half of 2019 in
Germany (5.1% like-for-like decline relative to H2 2018) and in the
Distribution and Exteriors businesses in the UK (26.1% and 12.5%
decline respectively relative to H2 2018), the latter two
exacerbated by increasing political and macro-economic uncertainty
leading up to the UK General Election.
The improvements in margins and reductions to the cost base in
H1 were insufficient to stop a deterioration in bottom line
profits, resulting in full year underlying profit before tax, post
IFRS 16, of GBP15.6m, down 70.1% on prior year (2018: GBP52.2m).
Underlying profit before tax (including businesses held for sale),
pre IFRS 16, was GBP41.9m (43.8% down on prior year). Statutory
loss before tax from continuing operations was GBP112.7m (2018:
profit before tax of GBP10.3m), reflecting GBP128.3m of Other
items, including GBP90.9m of impairment of goodwill and other
intangibles.
Further reductions in the level of working capital have helped
the Group to reduce its net debt, pre IFRS 16, at 31 December 2019
to GBP162.8m (2018: GBP189.4m). The value of the Group's debt
factoring facilities were also reduced at the year end to GBP35.0m
(2018: GBP49.7m). Despite delivering a significant reduction in net
debt, the closing 2019 figure being approximately 54% of the level
that it was at the end of 2016, the year-on-year reduction in
revenues and profits in 2019 resulted in the Group taking a
backward step in its progress towards its previously stated medium
term financial targets.
Medium term targets Target 2019 2018
---------------------------- ------------------ ------- -------
Market growth
Maintain market
LFL sales growth share (7.6)% (2.1)%
Return on sales (excl.
property profits) c.5% 1.6% 2.8%
Return on capital employed c.15% 6.1% 10.3%
Covenant leverage Under 1.0x 2.1x 1.7x
---------------------------- ------------------ ------- -------
Note: data represents underlying performance, pre IFRS 16
Marked deterioration in second half performance
In early October, the Group first became aware that a number of
its businesses had missed their revenue and profit forecasts for
September. The UK and German businesses were suffering from a loss
of market share due to rapid change related to a new centralised
operating model with the situation in the other European operating
companies (LiTT and Lariviere in France, Ireland, Poland and
Benelux) being more positive as their implementation of the Group's
strategy had been more selective in the operational changes
adopted, and were introduced gradually and better adapted to local
dynamics. A trading performance update was announced in October to
realign investor expectations for the Group's underlying profit
before tax result for the year ending 31 December 2019.
Over the final trading quarter of 2019, a number of short-term
profit protection measures instigated by the businesses did not
deliver sufficiently to offset the continued deterioration in
sales. December, in particular, produced a very disappointing
result leading to the Group issuing a further trading update on 9
January 2020, advising that the Board anticipated underlying profit
before tax, pre IFRS 16, for the year ended 31 December 2019 of
c.GBP42.0m (including the trading results of Air Handling and
Business Solutions, and excluding any impairment and other
non-underlying profits and losses).
PwC investigation
Following the Company's full year trading update published on 9
January 2020 ("January Trading Update"), the Chairman commissioned
PricewaterhouseCoopers LLP ("PwC") to undertake an independent
review of the communication and level of explanation of the Group's
underlying financial forecasts and the associated risks and
opportunities in light of the disparity between the forecast level
of underlying profit before tax for 2019 set out in the January
Trading Update and market consensus of forecast profit prior to
that announcement.
Following a thorough and detailed review of internal documents
and interviews with relevant employees, PwC delivered its
confidential written report to the Company on 21 April 2020 ("PwC
Report").
The evidence as presented in the PwC Report indicates a number
of issues with the 2019 forecasting process, with a principal
shortcoming being in the reporting to the Board of information
received by Group from the Operating Companies. Further, the
evidence indicates that in the latter part of H2 2019 in
particular, underlying forecasts from certain operating companies
were the subject of material positive overlays at Group level and,
in addition, the attendant risks to those underlying forecasts were
both poorly classified and poorly reported at Group level, with the
result that the Board was unsighted as to the overall picture. The
PwC Report makes clear that the issues identified were not
adequately communicated to the Board in the reports presented to it
by the CFO.
The Board takes the findings of the PwC Report very seriously.
The Company voluntarily notified the FCA of the progress of the PwC
review and has shared the PwC Report with the FCA. Since SIG's
receipt of the PwC Report, in order to strengthen the Group's
financial forecasting and internal reporting, KPMG has been
appointed to assist the Audit Committee in ensuring appropriate
improvements are implemented to the Company's forecasting systems,
procedures and controls, including those recommended in the PwC
Report.
Further details on the actions taken in response to the findings
in the PwC Report will be contained in the Company's report and
accounts for 2019.
Further organisational changes
The Group continued to take measures throughout 2019 to reduce
its operating cost base following structural changes made in 2018,
particularly in its two UK businesses, where UK Distribution
transformed its organisational structure from a branch-centric
model to a centralised functional model, and UK Roofing to a
centrally governed but locally adaptive model. During 2019, UK
Distribution reduced its branch network from 53 branches to 44,
after combining a number of existing sites (small to medium sized)
into large 'hub' branches, emulating its Trafford Park, Manchester
Distribution Centre. UK Exteriors (including Building Solutions)
also reduced its branch network during 2019, from 122 to 117
branches.
Germany (WeGo/VTi) witnessed a rapid pace of change in 2019,
moving to a more integrated, functional operating model, more
closely akin to the 'hub and spoke' model of the Exteriors business
in the UK. Cost efficiencies from a lower branch volume,
regionalised inventory procurement and sales team structures have
already commenced.
The process of closing branches, revising branch network
footprints and the disposal (or closure) of nineteen businesses has
seen the number of trading sites across the Group fall from 661 at
the beginning of 2017 to 425 (excluding Air Handling) at 31
December 2019. In parallel, headcount has fallen c.38% from 10,328
in January 2017 to 6,452 (excluding Air Handling) at 31 December
2019. It has become apparent that the loss of senior sales people
directly resulted in the loss of much of the associated customer
volumes.
In October 2019, the Group announced the disposal of Building
Solutions (National) Limited ("Building Solutions") to Kingspan
Group for a consideration of GBP37.5m on a cash free, debt free
basis. The disposal was conditional upon the approval of the CMA.
In April 2020, the CMA referred the disposal for a Phase 2
investigation. In order to carry out the Phase 2 investigation, the
long stop date of July 2020 in the sale and purchase agreement
would have required being extended. As a result of the prevailing
market conditions, it was not possible for the Company and Kingspan
Group to agree commercial terms for this extension and accordingly
the parties agreed to terminate the disposal in May 2020. The
Company is currently reviewing a number of options regarding the
Building Solutions business .
Continued investment in customer service
In 2019, SIG focused on investing in market-leading software
tools and associated processes to enhance the service levels that
we offer our customer base in pursuit of our desire to be 'best in
class'.
Having the inventory that our customers require at the right
place and at the right time, for collection at a branch or
delivered to a site, is critically important for the business.
Software platforms such as a Warehouse Management System, which has
been successfully introduced in SIG Ireland and is to be rolled out
into UK Distribution and Germany in 2020, and new Inventory
Management Systems implemented in UK Distribution, France and
Poland during 2019, provide our businesses with much greater stock
management capability and also allow for greater accuracy on
availability timelines for our customers.
The introduction in the UK businesses and Germany of a Transport
Management System has also enhanced our customers' trading
experience, as well as helping the Group to deliver logistical
efficiencies. The enhanced electronic point-of-delivery capability
of these systems allows the business to keep customers informed of
delivery details, along with providing electronic proof of
delivery, improving our service offering and customer
experience.
These supporting systems are providing SIG with further
opportunities of competitive advantage and it intends to continue
to selectively invest in further software tools, where appropriate,
providing a solid platform upon which the business can build its
customer base and grow future profits.
FINANCIAL REVIEW
Overview and trading update comparison
The Group has been negatively impacted by the poor execution of
transformation initiatives, which the Board believes disconnected
the business from its customers, suppliers and its front-line
colleagues, particularly in Germany and the UK's Distribution and
Exterior businesses; the latter two also being impacted by
increased political and macro-economic uncertainty leading up to
Brexit and the General Election.
2019 underlying profit before tax (including businesses held for
sale), pre IFRS 16, was GBP41.9m (2018: GBP74.5m). This compares to
the guidance of c.GBP42.0m referenced in the Trading Updates issued
in January and March 2020 and can be analysed as follows:
Full year
2019
GBPm
--------------------------------------------- ------------
Underlying profit before tax (including
businesses held for sale)(1) 41.9
Less: Air Handling underlying profit before
tax, pre IFRS 16(2) (19.1)
Less: Building Solutions underlying profit
before tax, pre IFRS 16(3) (2.2)
--------------------------------------------- ------------
Underlying profit before tax, pre IFRS
16 20.6
--------------------------------------------- ------------
Underlying profit before tax, post IFRS
16 15.6
--------------------------------------------- ------------
1: Underlying profit before tax stated before IFRS 16
adjustments, including profit before tax for the Air Handling
division and Building Solutions (National) Limited and excluding
impairment and other non-underlying profits and losses.
2: Included within Discontinued operations in the Consolidated
Income Statement
3: Included within Other items in the Consolidated Income
Statement
During the year, the Group announced the disposal of its Air
Handling division. The results from this business have been
excluded from the reported underlying results and are shown as a
discontinued operation in order to provide a better understanding
of the Group's underlying performance in the continuing
business.
Underlying profit before tax from continuing operations, post
IFRS 16, was GBP15.6m. At a statutory level, the Group saw a loss
before tax from continuing operations of GBP112.7m (2018: GBP10.3m
profit), principally as a result of impairment charges of GBP90.9m,
restructuring costs of GBP27.1m, and other costs of GBP9.5m,
including amortisation of acquired intangibles and the investment
in omnichannel retailing. The restructuring costs, including
headcount reductions and exiting a number of trading sites, were
incurred in connection with the Group's implementation of a new
target operating model in the UK and Germany.
Improved cash flows from trading and reductions in working
capital helped reduce net debt, pre IFRS 16, to GBP162.8m (2018:
GBP189.4m). Net debt, post IFRS 16, was GBP455.4m. Debt factoring
facilities were reduced by approximately 30% to GBP35.0m (2018:
GBP49.7m) at year end.
Revenue and gross margin
The Group saw lower revenues in the year ended 31 December 2019,
partly due to the loss of market share following the decision to
increase prices in the UK against a tough economic backdrop but
also poor execution of transformation initiatives resulting in a
loss of sales focus in both the UK and Germany. Group revenue from
underlying operations fell 9.0% to GBP2,084.7m (2018: GBP2,290.4m).
Revenue generated in the year by non-core businesses was GBP75.9m
(2018: GBP141.4m) which primarily relates Building Solutions
(National) Limited and WeGo FloorTec GmbH. On a statutory basis
including the revenue from these non-core businesses, Group revenue
was down 11.2% to GBP2,160.6m (2018: GBP2,431.8m).
LFL sales growth was one of the Group's key performance metrics
and the Group targeted over the medium term to grow its LFL sales
and recapture market share. The decline in LFL sales over the year
was 7.6%, with the Group continuing to reduce exposure to low
margin business.
Offset against the decline in revenue is an increase in
underlying gross margin, which increased 60bps to 25.9% (2018:
25.3%). The actions around improving gross margin levels that were
introduced across the Group during 2018 continued through into
2019. Focus remained on adopting a range of initiatives to optimise
pricing and margins, supported by software systems in UK
Distribution and Germany that provide management with greater
degrees of control around such areas as quantity breaks, spot
pricing, end-to-end margin visibility and centralised discount
management. Further margin uplift was achieved by the continual
review of the levels of profitability by customer, updating
historical terms and conditions at current levels wherever
possible, along with the introduction of new charging structures
for ancillary services across a number of the businesses.
Underlying gross margin increased in Specialist Distribution to
25.9% (2018: 25.1%) but dropped slightly in Roofing Merchanting to
25.7% (2018: 25.8%).
The new pricing framework adopted by Germany (WeGo/VTi) at the
start of the year is now fully embedded across all of its network
and enabled the business to grow its gross margin by 80bps in 2019
but at the cost of market share. The ransomware attack in France
delayed the rollout of a new pricing framework until the second
half of the year when both businesses were seeing growth in
margins.
On a statutory basis, the Group's gross margin increased by
50bps to 25.9% (2018: 25.4%). Statutory gross profit fell from
GBP618.6m to GBP559.1m, partly as a result of the disposal of
businesses.
Operating costs and profit
At a Group level, underlying operating profit, pre IFRS 16,
dropped by 50% year-on-year and decreased to GBP33.5m (2018:
GBP66.9m). The Group continued to reduce its operating cost base
following on from structural changes made in 2018, particularly in
its two UK businesses, where UK Distribution transformed their
organisational structure from a branch-centric model to a
centralised functional model, and UK Roofing to a centrally
governed but locally adaptive model. These actions throughout the
year resulted in underlying operating costs, pre IFRS 16, reducing
by 1.2% to GBP505.8m (2018: GBP511.8m).
Non-core businesses, reported a combined operating profit
(excluding exceptional items) of GBP2.0m in the year (2018:
GBP5.5m). The underlying operating profit for discontinued
operations, which included the Air Handling division, was GBP19.1m
(2018: GBP20.1m). For further detail on Divestments and
Discontinued operations, refer to notes 9 and 10.
At a statutory level, the operating loss was GBP87.9m (2018:
GBP26.2m profit), as a result of impairment charges and lost sales
whilst delivering transformation initiatives together with a
challenging market. The Group reported GBP128.3m of Other items in
the year, principally relating to impairment charges (GBP90.9m),
restructuring costs (GBP27.1m) and amortisation of acquired
intangibles (GBP6.2m).
Underlying profit before tax, pre IFRS 16, was down 61% to
GBP20.6m (2018: GBP52.2m) and reported a statutory loss before tax
for the year of GBP112.7m (2018: GBP10.3m profit) after a loss from
non-underlying items of GBP128.3m (2018: GBP41.9m loss).
Specialist Distribution
As previously reported, the negative impacts from rapid
transformation changes together with macro-uncertainties during
2019 resulted in a significant fall in sales, notably in the second
half of the year. These changes led to an underlying loss of market
share and damage to the sales performance primarily in the UK and
Germany being key factors behind the lower LFL revenues in
Specialist Distribution (8.8%).
Full year 2019
-------------------------------------------------------------------
Underlying Reported
revenue revenue Gross
(GBPm) Change LFL change (GBPm)(2) margin Change
--------------------- ----------- -------- ----------- ----------- -------- --------
UK Distribution(1) 534.3 (21.4%) (21.1%) 535.5 26.2% 150bps
France Distribution
(LiTT) 184.5 5.2% 7.1% 184.5 27.5% (0)bps
Germany (WeGo/VTi) 381.5 (5.4%) (2.5%) 396.0 27.7% 80bps
Poland 156.1 (0.3%) 2.1% 156.1 20.3% 30bps
Benelux 103.0 (5.0%) (3.3%) 103.0 24.7% 100bps
Ireland 94.9 (5.0%) (3.3%) 94.9 25.0% (30)bps
Distribution before
non-core 1,454.3 (10.4%) (8.8%) 1,470.0 25.9% 80bps
----------- -------- ----------- ----------- -------- --------
Non-core businesses 15.7 n/a n/a n/a n/a n/a
--------------------- ----------- -------- ----------- ----------- -------- --------
Distribution 1,470.0 (13.6%) n/a 1,470.0 25.9% 70bps
--------------------- ----------- -------- ----------- ----------- -------- --------
1: Excludes SK Sales, which is now reported within the Air Handling
division.
2: Reported revenue is shown on a segmental basis, including the
operating result of the non-core businesses.
Full year 2019
--------------------------------------------------------------------------
Statutory,
As reported, post IFRS
Pre IFRS 16 post IFRS 16 16
--------------------- ----------------------------------- ------------------------ -----------
Reported
operating
Profit/
Underlying Underlying
operating operating
profit profit (loss)
Underlying Underlying
operating operating
(GBPm) margin Change (GBPm) margin (GBPm)(2)
--------------------- ----------- ----------- --------- ----------- ----------- -----------
UK Distribution(1) 5.8 1.1% (230)bps 7.9 1.5% (62.9)
France Distribution
(LiTT) 10.8 5.9% 100bps 11.2 6.1% 11.2
Germany (WeGo/VTi) 3.4 0.9% (100)bps 4.4 1.2% 4.5
Poland 4.2 2.7% 60bps 4.3 2.8% 4.3
Benelux 5.1 5.0% 80bps 5.2 5.0% 4.8
Ireland 6.2 6.5% 40bps 6.8 7.2% 4.7
Distribution before
non-core 35.5 2.4% (90)bps 39.8 2.7% (33.4)
----------- ----------- --------- ----------- ----------- -----------
Non-core businesses 0.1 n/a n/a n/a n/a n/a
--------------------- ----------- ----------- --------- ----------- ----------- -----------
Distribution 35.6 2.4% (60)bps 39.8 2.7% (33.4)
--------------------- ----------- ----------- --------- ----------- ----------- -----------
1: Excludes SK Sales, which is now reported within the Air Handling
division.
2: Reported operating profit is shown on a segmental basis, including
the operating result of the non-core businesses and after taking
into account Other items.
UK Distribution, the core insulation and interiors business in
the UK, saw a deterioration in profitability in 2019 with
underlying operating profit, pre IFRS 16, decreasing to GBP5.8m
(2018: GBP23.0m). Underlying revenue fell by 21.1% on a LFL basis,
however by maintaining the pricing and profitability disciplines as
reported previously, gross margin increased to 26.2% (2018: 24.7%).
On a statutory basis, after taking into account Other items,
including GBP58.2m of impairment charges and GBP10.2m of
restructuring costs, and adjusting for first time adoption of IFRS
16, UK Distribution reported an operating loss of GBP62.9m (2018:
GBP9.8m profit).
France Distribution (LiTT), the structural insulation and
interior business, suffered from the impact of a ransomware attack
in the period. No ransom was paid in relation to the attack.
Despite this, France Distribution (LiTT) saw an increase of 7.1%
LFL sales in the year, and delivered a gross margin of 27.5%.
Underlying operating profit was GBP10.8m, pre IFRS 16, and
statutory operating profit after adjusting for first time adoption
of IFRS 16, in the year was GBP11.2m (2018: GBP8.6m).
Germany (WeGo/VTi), a leading specialist insulation and
interiors distribution business in Germany, saw LFL sales decline
by 2.5%, however gross margins increased to 27.7% (2018: 26.9%).
Germany (WeGo/VTi) started a step change in its organisational
structure during the year with further work ongoing into 2020.
However, cost efficiencies did not all materialise, resulting in a
lower underlying operating profit, pre IFRS 16, of GBP3.4m in the
year (2018: GBP7.6m). On a statutory basis, after taking into
account Other items, including GBP6.6m of restructuring costs, and
adjusting for first time adoption of IFRS 16, Germany (WeGo/VTi)
reported an operating profit of GBP4.5m (2018: GBP2.6m).
Poland, a market leading distributor of insulation and
interiors, had a strong year with LFL sales up 2.1%, benefiting
from economic stability and growth in the construction markets. In
this environment, Poland slightly improved its gross margin to
20.3% (2018: 20.0%) and effectively managed its operating costs to
deliver an improved operating margin of 2.7% (2018: 2.1%) and an
underlying operating profit, pre IFRS 16, of GBP4.2m (2018:
GBP3.3m). On a statutory basis, after adjusting for first time
adoption of IFRS 16, Poland reported an operating profit of GBP4.3m
(2018: GBP3.3m).
In the Benelux region, LFL sales decreased by 3.3% in the year
reflecting a challenging market due to macro-economic trends and a
reduction in the construction output. However, tight management of
operating costs resulted in gross margins of 24.7% (2018: 23.7%)
and increased underlying operating profit, pre IFRS 16, of GBP5.1m
(2018: GBP4.5m). On a statutory basis, after taking into account
Other items and adjusting for first time adoption of IFRS 16,
Benelux reported an operating profit of GBP4.8m (2018:
GBP3.0m).
In Ireland, where the Group's operations predominantly comprise
specialist distribution of insulation, interiors and other building
products, saw LFL revenue for the year decline by 3.3%. However,
good cost control saw underlying operating profits, pre IFRS 16,
marginally up at GBP6.2m (2018: GBP6.1m). On a statutory basis,
after taking into account other items and adjusting for first time
adoption of IFRS 16, Ireland reported an operating profit of
GBP4.7m (2018: GBP3.7m).
Overall, Distribution delivered underlying revenue of
GBP1,454.3m (2018: GBP1,623.8m) and underlying operating profit,
pre IFRS 16, of GBP35.5m (2018: GBP53.1m), at an operating margin
of 2.4% (2018: 3.1%). On a statutory basis, after taking into
account Other items and adjusting for first time adoption of IFRS
16, Distribution reported an operating loss of GBP33.4m (GBP31.0m
profit).
Roofing Merchanting
Similar to that reported in the Distribution business, trading
conditions slowed in the construction markets in the second half of
the year and together with rapid transformation changes in UK
Exteriors, this made trading difficult across the year. Revenues in
France were affected by the impact of the ransomware attack, as
reported in the interim results. Overall, Roofing Merchanting
delivered an underlying operating profit, pre IFRS 16, of GBP15.7m
(2018: GBP27.0m).
Full year 2019
------------------------------------------------------------------
Underlying Reported
revenue revenue Gross
(GBPm) Change LFL change (GBPm)(1) margin Change
------------------------- ----------- -------- ----------- ----------- -------- -------
UK Exteriors 288.2 (10.5%) (10.1%) 346.5 28.4% 0bps
France Exteriors
(Lariviere) 342.2 (0.7%) 1.1% 344.1 23.4% 10bps
Roofing before non-core 630.4 (5.4%) (4.3%) 690.6 25.7% 10bps
----------- -------- ----------- ----------- -------- -------
Non-core businesses 60.2 n/a n/a n/a n/a n/a
------------------------- ----------- -------- ----------- ----------- -------- -------
Roofing 690.6 (5.3%) n/a 690.6 25.9% 0bps
------------------------- ----------- -------- ----------- ----------- -------- -------
1: Reported revenue is shown on a segmental basis, including the
operating result of the non-core businesses.
Full year 2019
--------------------------------------------------------------------------
Statutory,
As reported, post IFRS
Pre IFRS 16 post IFRS 16 16
------------------------- ----------------------------------- ------------------------ -----------
Reported
operating
profit/
Underlying Underlying
operating operating
profit profit (loss)
Underlying Underlying
operating operating
(GBPm) margin Change (GBPm) margin (GBPm)(1)
------------------------- ----------- ----------- --------- ----------- ----------- -----------
UK Exteriors 7.7 2.7% (160)bps 8.9 3.1% (2.7)
France Exteriors
(Lariviere) 8.0 2.3% (150)bps 8.6 2.5% (29.1)
Roofing before non-core 15.7 2.5% (160)bps 17.5 2.8% (31.8)
----------- ----------- --------- ----------- ----------- -----------
Non-core businesses 1.9 n/a n/a n/a n/a n/a
------------------------- ----------- ----------- --------- ----------- ----------- -----------
Roofing 17.6 2.5% (160)bps 17.5 2.8% (31.8)
------------------------- ----------- ----------- --------- ----------- ----------- -----------
1: Reported operating profit is shown on a segmental basis, including
the operating result of the non-core businesses and after taking
into account Other items.
UK Exteriors, a leading roofing merchant and specialist UK
roofing business, saw LFL sales reduce by 10.1% in the year.
Although pricing disciplines were introduced in the prior year
gross margins remained flat at 28.4% (2018: 28.4%). Underlying
operating profit, pre IFRS 16, at UK Exteriors ended the year at
GBP7.7m (2018: GBP13.8m). On a statutory basis, after taking into
account Other items, including GBP8.0m of restructuring costs, and
adjusting for first time adoption of IFRS 16 in the period, UK
Exteriors reported an operating loss of GBP2.7m (2018: GBP0.5m
loss).
As previously reported, the business in France Exteriors
(Lariviere), a market leading specialist roofing business suffered
from the impact of a ransomware attack in the period. No ransom was
paid in relation to the attack. Despite this, France Exteriors
(Lariviere) saw LFL sales increase by 1.1% and delivered an
improved gross margin of 23.4% and underlying operating profit, pre
IFRS 16, of GBP8.0m (2018: GBP13.2m). On a statutory basis, after
taking into account Other items, including GBP2.1m of restructuring
costs, and adjusting for first time adoption of IFRS 16 in the
period, France Exteriors (Lariviere) reported an operating loss of
GBP29.1m (2018: GBP8.9m profit) due to impairment charges
(GBP32.2m) in the year.
Discontinued operations - Air Handling
The Group announced in October 2019 that an agreement had been
reached to dispose of its Air Handling division. The Air Handling
division includes Ouest Isol & Ventil, a leading supplier of
technical insulation and air handling products in France, and SK
Sales, a specialist supplier of heating, ventilation and air
conditioning in the UK. The disposal completed on 31 January for an
enterprise value of EUR222.7m (c.GBP187.0m) on a cash free, debt
free basis, which, prior to transaction costs, yielded a net cash
inflow for the Group of c.GBP163m.
Full year 2019
---------------------------------------------------------------
Underlying Reported
revenue revenue Gross
(GBPm) Change LFL change (GBPm) margin Change
------------------ ----------- ------- ----------- --------- -------- -------
Air Handling(1) 323.1 4.2% n/a 323.1 37.5% 0bps
------------------ ----------- ------- ----------- --------- -------- -------
1: Includes SK Sales, which was previously reported within SIG
Distribution, and Ouest Isol & Ventil, which was previously reported
within France.
Full year 2019
------------------------------------------------------------------------
Statutory,
As reported, post IFRS
Pre IFRS 16 post IFRS 16 16
----------------- --------------------------------- ------------------------ -----------
Underlying Underlying Reported
operating Underlying operating Underlying operating
profit operating profit operating profit
(GBPm) margin Change (GBPm) margin (GBPm)(2)
----------------- ----------- ----------- ------- ----------- ----------- -----------
Air Handling(1) 19.1 5.9% 60bps 19.8 6.1% 5.0
----------------- ----------- ----------- ------- ----------- ----------- -----------
1: Includes SK Sales, which was previously reported within SIG
Distribution, and Ouest Isol & Ventil, which was previously reported
within France.
2: Reported operating profit is stated after taking into account
Other items.
The Air Handling division in France was also affected at an
operating profit level by the ransomware attack described above,
and in the UK by losses in the early part of the year at SK Sales.
As a result, Air Handling delivered a reduced underlying operating
profit performance, pre IFRS 16, of GBP19.1m (2018: GBP19.4m). For
further detail on Discontinued operations, refer to note 9.
Dividend
In 2019, the Group delivered underlying loss per share of 0.1p
(2018: earnings per share of 6.3p). As announced on 26 March 2020,
the Board has taken the decision not to declare a final dividend
for the year (2018: 2.5p), in the interest of preserving the
Group's liquidity position. With an interim dividend of 1.25p
(2018: 1.25p) per share having been paid in November 2019, this
gives a total dividend for the year of 1.25p (2018: 3.75p) per
share.
Return on Capital Employed
Post tax return on capital employed (ROCE) is one of the Group's
primary performance metrics and is calculated on a rolling 12-month
basis as underlying operating profit less tax, divided by average
net assets plus average net debt. ROCE (excluding the impact of
IFRS 16) was 6.1% at 31 December 2019 (2018: 10.3%), with the
reduction in underlying operating profit more than offsetting lower
average net assets and debt (refer to note 12c).
Cash flow and leverage
Management continued to pursue the reduction of the Group's debt
during 2019, prioritising reductions in the level of its working
capital. As a result, the Group generated GBP166.0m of net cash
from operating activities (2018: GBP103.6m) during the year,
together with GBP8.4m net cash flow arising on the sale of
businesses (2018: GBP35.8m), offset by lower proceeds of GBP7.6m
from the sale of property, plant and equipment (2018: GBP5.1m).
After taking into account dividends paid and other cash flow from
financing activities, net debt, pre IFRS 16, fell to GBP162.8m at
the year-end (2018: GBP189.4m). Net debt, post IFRS 16, is
GBP455.4m.
2019 2018
---------------------------------------
GBPm GBPm
Opening net debt (189.4) (258.7)
Cash inflow from trading 92.1 73.5
Decrease in working capital 73.9 29.1
Cash inflow from factoring
arrangement 0.0 1.0
======================================= ======== ========
Cash inflow from operating
activities 166.0 103.6
Interest and tax (35.3) (27.1)
Dividends paid to equity holders
of the Company (22.2) (22.2)
Capital expenditure (34.5) (25.3)
Proceeds from sale of property,
plant and equipment 7.6 5.1
Cashflow from divested businesses 8.4 35.8
Acquisitions/contingent consideration (0.9) 2.6
Movement of lease liabilities (55.2) -
Other (including fair value
movements) 0.5 (3.2)
--------------------------------------- -------- --------
Movement in net debt 34.4 69.3
======================================= ======== ========
IFRS 16 on adoption at 1 January
2019 (300.4) -
======================================= ======== ========
Movement in net debt (266.0) 69.3
======================================= ======== ========
Closing net debt (455.4) (189.4)
======================================= ======== ========
Covenant leverage 2.1x 1.7x
--------------------------------------- -------- --------
The Group's covenant net debt as at 31 December 2019 was
GBP168.5m, compared with covenant EBITDA for 2019 of GBP78.4m.
Covenant leverage is one of the Group's primary performance metrics
and is calculated on the same basis as one of the primary covenants
to the Group's revolving credit facility and private placement
notes. The monitoring of this covenant is an important element of
treasury risk management. The Group's covenant leverage (the ratio
of covenant net debt to covenant EBITDA) was 2.1x as at the same
date, and increased year-on-year as a result of lower EBITDA more
than offsetting the benefit of lower net debt (refer to note
12b).
IFRS 16
IFRS 16 is the standard relating to accounting for leases which
is effective for accounting periods beginning on or after 1 January
2019. The standard eliminates the classification of leases as
either operating leases or finance leases for lessees and
introduces a single lease accounting model where the lessee is
required to recognise assets and liabilities for all leases unless
the lease term is 12 months or less, or the underlying asset is of
low value.
The Group elected to adopt the standard using the modified
retrospective approach, which means that 2019 is the first year
impacted by the accounting standard. 2018 has not been restated. On
1 January 2019, GBP306.2m of leases were recognised as liabilities
on adoption of the standard and GBP312.8m capitalised as right of
use assets, including GBP18.0m previously included in property,
plant and equipment in relation to assets held under finance leases
under the old standard.
The financial impacts of IFRS 16 on the underlying results for
2019 are set out in the table below.
Impact
2019, of 2019,
pre IFRS post IFRS
16 IFRS 16 16
(GBPm) (GBPm) (GBPm)
---------- --------- -----------
Underlying operating profit 33.5 6.1 39.6
Net finance costs (12.9) (11.1) (24.0)
------------------------------ ---------- --------- -----------
Underlying profit before tax 20.6 (5.0) 15.6
------------------------------ ---------- --------- -----------
Right-of-use assets - 255.2 255.2
Property, plant & equipment 68.0 (9.4) 58.6
Other assets 995.5 38.5 1,034.0
Lease liabilities (15.2) (260.4) (275.6)
Other liabilities (748.0) (30.0) (778.0)
------------------------------ ---------- --------- -----------
Net assets 300.3 (6.1) 294.2
------------------------------ ---------- --------- -----------
Net debt (162.8) (292.6) (455.4)
------------------------------ ---------- --------- -----------
The changes in accounting resulting from the implementation of
IFRS 16 will not affect the way liquidity is assessed against the
Group's banking covenants, which will continue to be assessed as
though the accounting rules had not changed (i.e. on a 'frozen'
GAAP basis). As such, covenant leverage will continue to be
measured on a consistent basis in 2019 and the Group's medium term
vision is targeting covenant leverage below 1.5x.
Reconciliation of statutory result to underlying result
Income statement items are presented in the column of the
Consolidated Income Statement entitled Other items where they are
significant in size and either they do not form part of the trading
activities of the Group or their separate presentation enhances
understanding of the underlying financial performance of the Group.
With continuing extensive operational changes and portfolio
management carried out during the year, SIG has again sought to
provide a clear understanding of the underlying and continuing
performance of the businesses making up the Group, by separating
and disclosing significant non-underlying items within its profit
before tax for continuing operations as set out in the following
table:
2019 2018
---------------------------------------
GBPm GBPm
--------------------------------------- -------- -------
Underlying profit before tax 15.6 52.2
Other items - impact operating
profit:
Amortisation of acquired intangibles (6.2) (6.9)
Impairment charges of goodwill
and other intangibles (90.9) (4.0)
Profit/(losses) on agreed sale
or closure of non-core businesses
and associated impairment charges 0.1 (6.3)
Net operating profits attributable
to businesses identified as non-core 2.0 5.5
Net restructuring costs (27.1) (27.7)
Other specific items (5.4) (1.3)
Other items - impact net finance
costs:
Net fair value losses on derivative
financial instruments and unwinding
of provision discounting (0.8) (1.2)
======================================= ======== =======
Total Other items (128.3) (41.9)
======================================= ======== =======
Statutory (loss)/profit before
tax (112.7) 10.3
--------------------------------------- -------- -------
Amounts reported in the Other items column of the Consolidated
Income Statement which in total amounted to a loss before tax of
GBP128.3m (2018: GBP41.9m) are as follows:
-- Amortisation of acquired intangibles of GBP6.2m (2018: GBP6.9m);
-- Impairment charges of GBP90.9m (2018: GBP4.0m) principally
relating to impairment of goodwill in relation to UK Distribution
(GBP57.4m) and France Exteriors ( Lariviere ) (GBP32.2m);
-- Profit on agreed sale or closure of non-core businesses and
associated impairment charges of GBP0.1m (2018: GBP6.3m loss);
-- Net operating profits of GBP2.0m (2018: GBP5.5m) attributable
to businesses identified as non-core;
-- Net restructuring costs of GBP27.1m (2018: GBP27.7m),
including property closure costs of GBP6.0m (2018: GBP5.5m),
redundancy and related staff costs of GBP9.5m (2018: GBP11.5m),
impairment of non-current assets due to restructuring of GBPnil
(2018: GBP0.6m) and GBP9.6m (2018: GBP10.1m) in relation to
restructuring consultancy costs and GBP2.0m other costs (2018:
GBPnil), all mainly incurred in connection with the fundamental
restructuring of the target operating model of the major operating
companies in the UK, Germany and France;
-- A net cost of GBP5.4m (2018: GBP1.3m cost) in relation to
other specific items including GBP5.7m (2018: GBPnil) investment in
omni-channel retailing; and
-- Non-underlying finance costs, net fair value losses on
derivative financial instruments and unwinding of provision
discounting of GBP0.8m (2018: GBP1.2m).
Impact of divestments and closure of non-core businesses
During the year, the Group has continued to exit a number of
businesses which are deemed to be non-core to allow us to focus on
our two core markets. The revenue, profits and net debt of
businesses that had been divested or closed, and which are
therefore now being treated as non-underlying, are set out in the
table below.
2019 2018
------------------------- ---------------------
Underlying
profit/
Underlying (loss)
profit/(loss) before
Revenue before tax Revenue tax
------------------------
GBPm GBPm GBPm GBPm
------------------------ -------- --------------- -------- -----------
Underlying Group as
reported at 2018 full
year results 2,482.5 38.2 2,683.2 75.3
======================== ======== =============== ======== ===========
FloorTec (14.5) (0.8) (23.2) (1.5)
------------------------ -------- --------------- -------- -----------
Underlying Group as
reported at 2019 half
year results 2,468.0 37.4 2,660.0 73.8
------------------------ -------- --------------- -------- -----------
Air Handling (323.1) (19.8) (310.1) (19.5)
Building Solutions (58.3) (2.9) (56.8) (2.8)
Maury (1.9) 0.9 (2.7) 0.7
------------------------ -------- --------------- -------- -----------
Underlying Group as
included at 2019 full
year results 2,084.7 15.6 2,290.4 52.2
------------------------ -------- --------------- -------- -----------
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 2019. Certain parts solely 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 applicable set of accounting standards, 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 position and
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 29 May 2020 and signed on its behalf by:
Steve Francis Kath Kearney-Croft
Director Director
29 May 2020 29 May 2020
Cautionary statement
The securities of the Group have not been and will not be
registered under the US Securities Act of 1933, as amended (the
"Securities Act"), or under the securities laws of any state or
other jurisdiction of the United States, and may not be offered,
sold, pledged or transferred , directly or indirectly, in, into or
within the United States except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of
the Securities Act and in compliance with any applicable securities
laws of any relevant state or other jurisdiction of the United
States. There has been and will be no public offering of the
securities of the Group in the United States.
This announcement has been prepared to provide the Company's
shareholders with a fair review of the business of the Group and a
description of the principal risks and uncertainties facing it. It
may not be relied upon by anyone, including the Company's
shareholders, for any other purpose.
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. Forward-looking
statements in this Announcement include, but are not limited to,
statements about the Group's future financial and operational
performance, the new management's ability to successfully execute
the new strategy, and the ability of the Group and the construction
industry generally to respond to the effects and aftermath of the
COVID-19 pandemic. 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 foreign exchange and interest
rates.
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 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.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Consolidated Income
Statement
for the year ended
31 December 2019
Other Other
Underlying* items** Total Underlying* items** Total
2019 2019 2019 2018^ 2018^ 2018^
Restated^^ Restated^^ Restated^^
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Continuing operations
Revenue 2 2,084.7 75.9 2,160.6 2,290.4 141.4 2,431.8
Cost of sales (1,545.5) (56.0) (1,601.5) (1,711.8) (101.4) (1,813.2)
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Gross profit 539.2 19.9 559.1 578.6 40.0 618.6
Other operating expenses 3 (499.6) (147.4) (647.0) (511.7) (80.7) (592.4)
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Operating profit/(loss) 39.6 (127.5) (87.9) 66.9 (40.7) 26.2
Finance income 0.5 - 0.5 0.5 - 0.5
Finance costs (24.5) (0.8) (25.3) (15.2) (1.2) (16.4)
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Profit/(loss) before
tax from continuing
operations 15.6 (128.3) (112.7) 52.2 (41.9) 10.3
Income tax (expense)/credit 4 (15.9) 4.5 (11.4) (14.4) 8.2 (6.2)
------------
Profit/(loss) after
tax from continuing
operations (0.3) (123.8) (124.1) 37.8 (33.7) 4.1
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Discontinued operations
Profit/(loss) after
tax from discontinued
operations 10 - (0.4) (0.4) - 13.8 13.8
Profit/(loss) after
tax for the year (0.3) (124.2) (124.5) 37.8 (19.9) 17.9
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Attributable to:
Equity holders of
the Company (0.3) (124.2) (124.5) 37.4 (19.9) 17.5
Non-controlling interests - - - 0.4 - 0.4
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
Earnings/(loss) per
share
Basic and diluted
earnings/(loss) per
share 5 (21.0)p 3.0p
Basic and diluted
earnings/(loss) per
share from continuing
operations 5 (21.0)p 0.6p
---------------------------- ----- ------------ --------- ---------- ------------ ----------- -----------------
^ The Group has initially applied IFRS 16 "Leases" using the
modified retrospective method. Under this method, the comparative
information is not restated. See Note 1 Basis of preparation
for further details.
^^ The 2018 results have been restated in order to present
the Air Handling business as a discontinued operation. See
Note 10 for further details.
* Underlying represents the results before Other items.
** Other items relate to the amortisation of acquired intangibles,
impairment charges, profits and losses on agreed sale or closure
of non-core businesses and associated impairment charges,
net operating losses attributable to businesses identified
as non-core, net restructuring costs, investment in omnichannel
retailing, other specific items, unwinding of provision discounting,
fair value gains and losses on derivative financial instruments,
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. Further details can be found in Note 3.
Consolidated Statement of Comprehensive
Income
for the year ended 31 December 2019
------------------------------------------------------ -------- ------
2019 2018^
GBPm GBPm
Profit after tax (124.5) 17.9
------------------------------------------------------- -------- ------
Items that will not subsequently be reclassified
to the Consolidated Income Statement:
Remeasurement of defined benefit pension
liability (1.8) 0.1
Deferred tax movement associated with remeasurement
of defined benefit pension liability (6.6) 0.1
Current tax movement associated with remeasurement
of defined benefit pension liability 0.4 -
(8.0) 0.2
Items that may subsequently be reclassified
to the Consolidated Income Statement:
Exchange difference on retranslation of
foreign currency goodwill and intangibles (7.4) 1.3
Exchange difference on retranslation of
foreign currency net investments (excluding
goodwill and intangibles) (16.1) (0.6)
Exchange and fair value movements associated
with borrowings and derivative financial
instruments 10.9 1.8
Tax credit on exchange and fair value movements
arising on borrowings and derivative financial
instruments (2.1) (0.4)
Exchange differences reclassified to the
Consolidated Income Statement in respect
of the disposal of foreign operations (0.1) -
Gains and losses on cash flow hedges 0.4 2.0
Transfer to profit and loss on cash flow
hedges 0.9 (0.7)
------------------------------------------------------- -------- ------
(13.5) 3.4
------------------------------------------------------ -------- ------
Other comprehensive (expense)/income (21.5) 3.6
------------------------------------------------------- -------- ------
Total comprehensive (expense)/ income (146.0) 21.5
------------------------------------------------------- -------- ------
Attributable to:
Equity holders of the Company (146.0) 21.1
Non-controlling interests - 0.4
------------------------------------------------------- -------- ------
(146.0) 21.5
------------------------------------------------------ -------- ------
^ The Group has initially applied IFRS 16 "Leases" using the
modified retrospective method. Under this method, the comparative
information is not restated. See Note 1 Basis of preparation
for further details.
Consolidated Balance Sheet
as at 31 December 2019
2019 2018^
GBPm GBPm
-------------------------------------------------- ---------- ------------
Non-current assets
Property, plant and equipment 58.6 105.4
Right-of-use assets 255.2 -
Goodwill 159.0 293.9
Intangible assets 42.3 46.2
Lease receivables 4.4 -
Deferred tax assets 4.4 14.6
Derivative financial instruments 1.7 1.9
Deferred consideration - 0.7
525.6 462.7
-------------------------------------------------- ---------- ------------
Current assets
Inventories 156.5 207.2
Lease receivables 0.8 -
Trade and other receivables 294.7 477.7
Contract assets - 1.8
Current tax assets 0.9 5.5
Derivative financial instruments 0.9 -
Deferred consideration - 0.8
Cash at bank and on hand 110.0 83.3
Assets classified as held for sale 258.4 1.9
822.2 778.2
-------------------------------------------------- ---------- ------------
Total assets 1,347.8 1,240.9
-------------------------------------------------- ---------- ------------
Current liabilities
Trade and other payables 327.4 428.3
Contract liabilities - 1.6
Lease liabilities 51.5 3.2
Bank overdrafts - 4.5
Bank loans 99.6 56.5
Private placement notes 175.5 -
Loan notes and deferred consideration - 0.9
Other financial liabilities 1.5 1.1
Derivative financial instruments 0.2 0.3
Current tax liabilities 3.7 4.9
Provisions 6.7 11.0
Liabilities directly associated with assets
classified as held for sale 115.7 -
781.8 512.3
-------------------------------------------------- ---------- ------------
Non-current liabilities
Lease liabilities 224.1 20.2
Private placement notes - 185.6
Derivative financial instruments 1.9 3.8
Other financial liabilities 1.4 -
Deferred tax liabilities - 1.4
Other payables 1.0 5.6
Retirement benefit obligations 24.8 28.7
Provisions 18.6 20.4
271.8 265.7
-------------------------------------------------- ---------- ------------
Total liabilities 1,053.6 778.0
-------------------------------------------------- ---------- ------------
Net assets 294.2 462.9
-------------------------------------------------- ---------- ------------
Capital and reserves
Called up share capital 59.2 59.2
Share premium account 447.3 447.3
Capital redemption reserve 0.3 0.3
Share option reserve 1.8 1.7
Hedging and translation reserves 10.2 21.7
Cost of hedging reserve 0.3 1.0
Retained losses (224.9) (68.3)
Attributable to equity holders of the Company 294.2 462.9
-------------------------------------------------- ---------- ------------
Non-controlling interests - -
-------------------------------------------------- ---------- ------------
Total equity 294.2 462.9
-------------------------------------------------- ---------- ------------
^ The Group has initially applied IFRS 16 "Leases" using the
modified retrospective method. Under this method, the comparative
information is not restated. See Note 1 Basis of preparation for
further details.
Consolidated
Statement of
Changes in Equity
for the year
ended 31 December
2019
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
Called Hedging Cost
up Share Capital Share and of Retained
share premium redemption option translation hedging (losses)/ Non-controlling Total
capital account reserve reserve reserves reserve profits Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
At 1 January
2018^ 59.2 447.3 0.3 1.3 19.6 - (58.1) 469.6 0.9 470.5
Impact of
adoption of IFRS
15 - - - - - - (0.7) (0.7) - (0.7)
Impact of
adoption of IFRS
9 - - - - - 0.9 (0.7) 0.2 - 0.2
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
Adjusted balance
at 1 January
2018 59.2 447.3 0.3 1.3 19.6 0.9 (59.5) 469.1 0.9 470.0
Loss after tax - - - - - - 17.5 17.5 0.4 17.9
Other
comprehensive
income - - - - 2.1 0.1 1.4 3.6 - 3.6
------------------ ------------ -------- ---------- -------- ---------------- --------
Total
comprehensive
income/(expense) - - - - 2.1 0.1 18.9 21.1 0.4 21.5
Share capital
issued in
the year - - - - - - - - - -
Credit to share
option reserve - - - 0.4 - - - 0.4 - 0.4
Exercise of share
options - - - - - - - - - -
Current and
deferred tax
on share options - - - - - - (0.2) (0.2) - (0.2)
Movement in
reserves - - - - - - (1.7) (1.7) 1.7 -
Dividends paid to
non-controlling
interest - - - - - - - - (0.3) (0.3)
Transaction
between equity
holders - - - - - - (3.6) (3.6) (2.7) (6.3)
Dividends paid to
equity
holders of the
Company - - - - - - (22.2) (22.2) - (22.2)
At 31 December
2018^ 59.2 447.3 0.3 1.7 21.7 1.0 (68.3) 462.9 - 462.9
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
Impact of
adoption of IFRS
16 - - - - - - (0.6) (0.6) - (0.6)
Adjusted balance
at 1 January
2019 59.2 447.3 0.3 1.7 21.7 1.0 (68.9) 462.3 - 462.3
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
Profit after tax - - - - - - (124.5) (124.5) - (124.5)
Other
comprehensive
income - - - - (12.8) (0.7) (8.0) (21.5) - (21.5)
------------------ -------- -------- ----------- -------- ------------ -------- ---------- ---------------- --------
Total
comprehensive
income - - - - (12.8) (0.7) (132.5) (146.0) - (146.0)
Transfer of
reserves - - - - 1.3 (1.3) - -
Credit to share
option reserve - - - 0.1 - - - 0.1 - 0.1
Current and
deferred tax
on share options - - - - - - - - - -
Dividends paid to
equity
holders of the
Company - - - - - - (22.2) (22.2) - (22.2)
At 31 December
2019 59.2 447.3 0.3 1.8 10.2 0.3 (224.9) 294.2 - 294.2
------------------ -------- -------- ----------- -------- ------------ -------- ---------- -------- ---------------- --------
^ The Group has initially applied IFRS 16 "Leases" using the
modified retrospective method. Under this method, the comparative
information is not restated. See Note 1 Basis of preparation for
further details.
The share option reserve represents the cumulative
equity-settled share option charge under IFRS 2 "Share-based
payment" less the value of any share options that have been
exercised.
The hedging and translation reserves represents movements in the
Consolidated Balance Sheet as a result of movements in exchange
rates and movements in the fair value of cash flow hedges which are
taken directly to reserves. Amounts have been reclassified during
the year to clarify the effects of hedging between retained
(losses)/profits and the cash flow hedging reserve.
Consolidated Cash Flow Statement
for the year ended 31 December
2019
2019 2018^
Restated^^
Note GBPm GBPm
-------------------------------------------- ------ ------- -----------
Net cash flow from operating activities
Cash generated from operating
activities 6 166.0 103.6
Income tax paid (10.8) (14.0)
Net cash generated from operating
activities 155.2 89.6
-------------------------------------------- ------ ------- -----------
Cash flows from investing activities
Finance income received 0.6 1.0
Purchase of property, plant and
equipment and computer software (34.5) (22.7)
Proceeds from sale of property,
plant and equipment 7.6 5.1
Settlement of amounts payable
for previous purchases of businesses
not dependent on vendors remaining
within the business - (11.2)
Net cash flow arising on the sale
of businesses 9 8.4 35.8
Net cash generated from investing
activities (17.9) 8.0
-------------------------------------------- ------ ------- -----------
Cash flows from financing activities
Finance costs paid (25.1) (14.1)
Capital element of finance lease
rental payments (59.9) (1.5)
Acquisition of non-controlling
interests (0.9) (2.5)
Repayment of loans/settlement
of derivative financial instruments - (57.1)
Loans drawn down 42.4 -
Dividends paid to equity holders
of the Company 8 (22.2) (22.2)
Dividends paid to non-controlling
interest - (0.3)
Net cash used in financing activities (65.7) (97.7)
-------------------------------------------- ------ ------- -----------
Increase/(decrease) in cash and
cash equivalents in the year 71.6 (0.1)
-------------------------------------------- ------ ------- -----------
Cash and cash equivalents at beginning
of the year 78.8 78.6
Effect of foreign exchange rate
changes (5.3) 0.3
Cash and cash equivalents at end
of the year* 145.1 78.8
-------------------------------------------- ------ ------- -----------
^ The Group has initially applied IFRS 16 "Leases" using the
modified retrospective method. Under this method, the comparative
information is not restated. See Note 1 Basis of preparation
for further details.
* Cash and cash equivalents comprise cash at bank and on hand
of GBP145.1m (31 December 2018: GBP83.3m) less bank overdrafts
of GBPnil (31 December 2018: GBP4.5m)
The 2018 Consolidated Cash Flow Statement has been restated
following a review of the 2018 Annual Report and Accounts by
the Financial Reporting Council. The restatement relates to
the classification of cash flows in relation to the settlement
of amounts payable for previous purchases of businesses, with
GBP6.0m reclassified between the net cash flow from operating
activities and cash flows from investing activities. Further
details are included in Note 1 Basis of preparation.
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 2019
and 31 December 2018 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
2018 have been filed with the Registrar of Companies, and those for
2019 will be delivered following the Company's Annual General
Meeting. The Auditor has reported on the statutory accounts for
2019 and 2018. Their report for 2019 was (i) unqualified, (ii)
contains a number of material uncertainties in respect of going
concern to which the auditor drew attention by way of emphasis
without modifying their report and (iii) did not contain statements
under Sections 498 (2) or 498 (3) of the Companies Act 2006 in
relation to the financial statements. Their report for 2018
included no matters to which the Auditor drew attention by way of
emphasis, was unqualified and did not contain statements under
Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation
to the financial statements.
Going concern
The Group closely monitors its funding position throughout the
year, including monitoring compliance with covenants and available
facilities to ensure it has sufficient headroom to fund
operations.
During 2019, the Directors announced the proposed sale of the
Group's Air Handling division to France Air for an enterprise value
of EUR222.7m (GBP187.0m 1 ) to strengthen the balance sheet and
reduce working capital facilities. The sale completed on 31 January
2020 with net cash proceeds of EUR180.9m (GBP151.9m(1) ) being
partly used to manage the Group's working capital, including
providing liquidity over the short term to support the Group's
business through the COVID-19 uncertainty.
Following a challenging trading period in 2019 and a change in
its Executive Directors in February 2020, the Group undertook an
extensive review of its business and operating strategy together
with potential growth opportunities. During these reviews, it
became clear that revised lower forecasts for future earnings for
2020 to 2022, based on an analytical review of recent sales trends,
were likely to leave the Group with higher than anticipated
leverage levels during this period. In turn, these highlighted that
the Group's capital structure needs to be addressed and, as a
result, the Group needs to raise new equity in order to enable the
successful delivery of the Group's new strategy while at the same
time managing liquidity.
With this in mind the Group is proposing to raise up to GBP150m
of equity through a firm placing and placing and open offer in
order to reduce net debt and strengthen the Group's balance sheet.
Alongside the proposed equity raising the Group is currently
engaged in discussions with its Revolving Credit Facility (RCF)
lenders and private placement noteholders with a view to agreeing
amended terms in respect of the Group's RCF and private placement
debt.
Detailed discussions with the Group's RCF lenders and private
placement noteholders are ongoing and we expect to reach agreement
on amended terms in respect of the RCF and private placement debt,
which may include the following key conditions:
-- An equity issuance timetable including receipt of proceeds in
an amount of at least GBP100m by no later than 29th July 2020;
-- An extension of the maturity of the RCF in order to meet the
Group's on-going working capital requirements;
-- A new covenant package which will support an equity raise;
-- Dividend restrictions until leverage reaches certain levels;
-- An event of default if the Group's equity raising fails
and/or related key milestones are not reached, triggering a
requirement for the Group to present an alternative deleveraging
plan for consideration by the RCF lenders and private placement
noteholders. A deleveraging plan could result in, without
limitation and if the consent of the RCF lenders and private
placement noteholders is obtained, potential disposals or a merger
or acquisition transaction to ensure an acceptable deleveraging of
the Group's Balance Sheet; and
-- Opportunity to explore additional Government funding
facilities both in the UK and in Europe to further support the
Group.
We have assumed that terms for the revised financing structure
will be agreed and that the Group and its RCF lenders and private
placement noteholders are able to successfully document such terms
in substantive and binding documentation.
Pending the entry into such documentation, the Group has sought
and obtained a waiver of the Consolidated Net Worth (CNW) covenant
contained in the private placement notes in respect of any testing
thereof in the period from 28 May 2020 until 1 August 2020 (subject
to certain events not occurring in that period). Such waiver
includes, without limitation, CNW as at 31 December 2019 on the
basis of the Group's audited financial statements in respect of the
period ending 31 December 2019.
As outlined above, the Group is seeking to raise up to GBP150m
of equity through a firm placing and placing and open offer in
order to reduce net debt and strengthen the Group's balance sheet.
The equity raising process is expected to complete by 8 July 2020
however will require prior approval by shareholders. The additional
funds raised will seek to create an appropriate balance sheet
structure and prevent investment being constrained and business
decisions being influenced by a focus on leverage and covenant
management, which could otherwise lead to managing the business in
a manner that may cause detriment to the longer term prospects and
the interests of the Group's shareholders.
1 Based on GBP: EUR foreign exchange rate of 1.191, as at 31
January 2020
In parallel to the discussions with the RCF lenders and private
placement noteholders, as outlined above, the Group has been in
discussions with, and received confirmation from IKO, the Company's
largest shareholder of their support for the equity raise, and a
conditional commitment from CD&R, a new cornerstone investor to
participate in the equity issuance.
-- IKO, which currently owns approximately 15 per cent of the
issued ordinary share capital of the Company, has confirmed that it
is fully supportive of the Company's new strategy and equity raise
and are intending to take up their pro-rata entitlements in full as
part of the open offer.
-- CD&R, a leading global private equity manager has agreed
to invest up to GBP85m as part of the equity raise, with a
guaranteed minimum of GBP72.5m, provided that an acceptable deal
with the Group's RCF lenders and private placement noteholders is
agreed. While the exact percentage holding will be determined in
due course, CD&R will hold approximately 25% of the total
enlarged issue share capital. The initial tranche of its
participation will be placed at 25p per share. The residual quantum
of its equity investment will be placed as part of the second
tranche, a portion of which will be firm placed and the outcome of
the remainder will be dependent on the take up of the pre-emptive
offer by existing shareholders.
Whilst the Group has reason to believe that the equity raise
will be successful based on the above confirmation of support from
IKO and conditional commitment from CD&R to participate in the
equity raise, at the time of publication of this report the outcome
of the equity raising is uncertain.
If an equity raise in line with the above-mentioned timing is
not successful, then the Group will have to take mitigating
actions, including further discussions with the RCF lenders and the
private placement noteholders regarding the basis upon which they
may be willing to continue to support the Group (including the need
for covenant waivers and access to further liquidity). Alternatives
could include the option to conduct a post-summer equity raise (if
available) or further disposals of assets (such as the disposal of
one or more of the Group's operating businesses to facilitate a
reduction of the Group's outstanding indebtedness) or a merger or
acquisition transaction involving the Company (in each case if the
consent of the RCF lenders and private placement noteholders is
obtained). There remains the possibility of other investors
interested in buying the company's shares outright should an
alternative funding scenario be required.
In addition to the matters set out above, the COVID-19 virus has
added additional uncertainty to the Group's liquidity position as
Government restrictions in the UK and Ireland, applied from late
March 2020, resulted in swathes of construction activity stopping
and impacting the Group's sales. To protect the health, safety and
wellbeing of staff, the majority of the Group's UK and Irish sites
were substantially closed in April although a phased return to work
has since begun. In March, the Group's French operating company was
briefly closed following government guidance although sites were
permitted to be reopened shortly afterwards, and trading in France
continues to build to pre-COVID-19 levels. However, the Directors
believe the Group will be able to continue to manage through the
current COVID-19 uncertainty, particularly given the experience of
the Group's operating companies in Benelux, Germany and Poland
which have continued to trade well despite government lockdown
guidance.
Comprehensive actions have been taken across the Group to reduce
costs and manage liquidity, including the furloughing, for April
and much of May, of approximately 2000 employees across the UK and
Ireland during the shutdown period, short-time working in France,
maximising opportunities to defer VAT, PAYE and other tax payments,
temporary Board and employee salary reductions, stopping or
postponing capex investment and cancellation of the 2019 final
dividend. Government loan support both in the UK and Europe remains
a route potentially available if required. These actions to reduce
costs and manage liquidity during the COVID-19 crisis have resulted
in the Group managing its liquidity position with cashflow forecast
projections improved from initial expectations. Despite the
benefits of these actions, ongoing significant revenue reductions
beyond the scenarios which have been modelled could lead to the
Group's liquidity falling below the minimum required levels such
that alternative deleveraging plans which have been considered
would need to be implemented.
Accordingly, at the time of signing these financial statements,
there remain several material uncertainties related to events or
conditions that may cast significant doubt on the Group's ability
to continue as a going concern and, therefore, it may be unable to
realise its assets and discharge its liabilities in the normal
course of business.
In forming an assessment of the Group's ability to continue as a
going concern, the Board has identified the following material
uncertainties and made significant judgements about:
-- The Group successfully agreeing outline terms with its RCF
lenders and private placement noteholders (and the RCF lenders and
private placement noteholders obtaining credit approval of the
same).
-- The Group, together with its RCF lenders and private
placement noteholders, successfully documenting such terms in
substantive and binding documentation.
-- Achieving a successful equity raise of up to GBP150m in line
with the above-mentioned timing, which entails the approval of a
prospectus by the FCA, approval by shareholders at a General
Meeting and securing appetite for the necessary investment.
-- Whether, in the event the Group does not achieve a successful
equity raise, the RCF lenders and the private placement noteholders
will continue to support the Group in the short term in order to
allow the Group to complete the execution of alternative plans (a
secondary equity window or alternative deleveraging plans including
further disposals or a merger or acquisition transaction).
-- The forecast cashflow of the Group over the next 12 months
upon signing the financial statements depends on the Group's
ability to continue to successfully manage through the current
uncertain trading environment related to COVID-19.
-- The Group's ability to implement the new strategy and deliver
a stronger business which is more sales led in a relatively short
period and do so in a period of economic uncertainty.
After careful consideration of these, and an assessment of the
likelihood of a positive outcome, the Directors believe that it is
appropriate to prepare the financial statements on a going concern
basis. The financial statements do not reflect any adjustments that
would be required to be made if they were prepared on a basis other
than the going concern basis.
Prior year restatements
Following a review of the 2018 Annual Report and Accounts by the
Financial Reporting Council the Group has identified an error in
the 2018 Consolidated cash flow statement. This is corrected by a
prior year restatement to previously reported numbers in these
Financial Statements. The error relates to the classification of
cash flows in relation to the settlement of amounts payable for
previous purchases of business. GBP6.0m of the GBP17.2m cash
outflow in 2018 related to consideration dependent on vendors
remaining within the business and should have been classified as an
operating cash flow rather than an investing cash flow. The
restatement results in a reduction in cash generated from operating
activities from GBP109.6m to GBP103.6m and a reduction in
settlement of amounts payable for previous purchases of businesses
within cash flows from investing activities from GBP17.2m to
GBP11.2m, resulting in a reduction in net cash generated from
operating activities from GBP95.6m to GBP89.6m and a corresponding
increase in net cash generated from investing activities from
GBP2.0m to GBP8.0m. There is no impact on profit before tax, net
assets or net cash flow.
New standards, interpretations and amendments adopted by the
Group
The Group has applied IFRS 16 for the first time. The nature and
effect of the changes as a result of adoption of this new
accounting standard is described below.
Several other amendments and interpretations apply for the first
time in 2019, but do not have an impact on the consolidated
financial statements of the Group. The Group has not early adopted
any standards, interpretations or amendments that have been issued
but are not yet effective.
IFRS 16 "Leases"
IFRS 16 removes the distinction between finance and operating
leases and brings virtually all leases onto the balance sheet. The
standard has no effect on cash flows for the Group but does have a
significant impact on the way the assets, liabilities and the
income statement of the Group are presented, as well as the
classification of cash flows relating to lease contracts.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly,
the comparative information for the 2018 reporting period has not
been restated, as permitted under the specific transitional
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 January 2019.
As permitted by the standard, the Group has elected not to
reassess whether a contract is, or contains, a lease at the date of
initial application. Instead, for contracts entered into before the
transition date the Group relied on its assessment made applying
IAS 17 and IFRIC 4 Determining whether an Arrangement contains a
Lease.
a) The Group's leasing activities
The group leases various offices, warehouses, branches,
equipment and cars. Rental contracts are typically made for fixed
periods of 3 to 10 years but may have extension or early
termination options. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions.
The lease agreements do not impose any covenants.
b) How leases are accounted for
Prior to the transition of IFRS 16 the Group classified leases
as either finance or operating leases. Payments made under
operating leases (net of any incentives received from the lessor)
were charged to profit or loss on a straight-line basis over the
period of the lease.
IFRS 16 eliminates the classification of leases as either
operating leases or finance leases for lessees and introduces a
single lease accounting model where leases are recognised as a
right of use asset and corresponding liability at the commencement
date of a lease. IFRS 16 replaces the straight-line operating lease
expense with a depreciation charge for right-of-use assets and an
interest expense on lease liabilities.
A lease liability is recognised based on the discounted present
value of total future lease payments, with a corresponding
right-of-use asset recognised and depreciated over the lease term.
The lease payments are discounted using the interest rate implicit
in the lease, or, if that rate cannot be determined, the lessee's
incremental borrowing rate.
Where a lease liability relates to an onerous lease contract the
right-of-use asset is assessed for impairment. Payments due under
the lease continue to be included in the lease liability, therefore
a separate provision is no longer required. The lease liability is
also remeasured upon the occurrence of certain events, which is
generally also recognised as an adjustment to the right of-use
asset. Provisions for short-term onerous lease contracts continue
to be recognised.
i) Definition of a lease
A lease is a contract (i.e. an agreement between two or more
parties that creates enforceable rights and obligations), or part
of a contract, that conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. It is determined whether a contract is a lease or
contains a lease at the inception of the contract.
Under IFRS 16, an identified asset can be either implicitly or
explicitly specified in a contract.
ii) Lease term
In accordance with IFRS 16, the lease term is defined as the
non-cancellable period of the lease, together with:
-- periods covered by an option to extend the lease if the
lessee is reasonably certain to exercise that option; and
-- periods covered by an option to terminate the lease if the
lessee is reasonably certain not to exercise that option.
iii) Variable lease payments
Variable lease payments based on an index or a rate are part of
the lease liability. Variable lease payments are initially measured
using the index or the rate at the commencement date, or at 1
January 2019 on initial adoption. Forecast future changes in rates
are not included; these are only taken into account at the point in
time at which lease payments change.
The Group has a few property leases where rentals are based on
an index but with a cap and collar, and for such leases the minimum
future increase is included in the initial recognition of the lease
liability where relevant.
Other variable payments, for example additional costs based on
usage or vehicle mileage, are not included in the lease
liability.
iv) Asset restoration costs
Where there is an obligation under a lease contract to dismantle
and/or restore the asset to its original condition, provision is
made for this in accordance with IAS 37, and the initial carrying
amount of this provision is added to the right-of-use asset on
inception of the lease. The liability continues to be recorded as a
separate provision on the balance sheet (i.e. it is not included in
the IFRS 16 lease liability).
v) Finance leases
The accounting for finance leases is consistent under IFRS 16
and the previous accounting standard, and under the transition
rules of IFRS 16, the lease liability and asset for leases
previously classified as finance lease is the carrying value of the
lease liability and asset immediately before the date of
transition.
vi) Exemptions
The Group has certain assets with lease terms of 12 months or
less and leases of equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition
exemptions for these leases.
c) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- The accounting for lease contracts with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases; and
-- The exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- The option to not reassess whether a contract is, or
contains, a lease at 1 January 2019 Instead, the Group applied the
standard only to contracts that were previously identified as
leases applying IAS 17 and IFRIC 4 at the date of initial
application .
d) Adjustments recognised on adoption
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 1 January 2019. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities on 1
January was 3.2%.
For leases previously classified as finance leases the entity
recognised the carrying amount of the lease asset and lease
liability immediately before transition as the carrying amount of
the right of use asset and the lease liability at the date of
initial application.
2019
GBPm
-------------------------------------------------------- -------
Operating lease commitments disclosed as at 31
December 2018 295.5
Less: short-term leases recognised on a straight-line
basis as an expense (2.2)
Add: adjustments as a result of different treatment
of extension and termination options 74.8
Effect from discounting using the lessee's incremental
borrowing rate at the date of initial application (61.9)
-------------------------------------------------------- -------
Liabilities additionally recognised based on the
initial application of IFRS 16 as at 1 January
2019 306.2
-------------------------------------------------------- -------
Lease liabilities as at 31 December 2018 23.4
-------------------------------------------------------- -------
Lease liabilities recognised as at 1 January 2019 329.6
-------------------------------------------------------- -------
Of which are:
Current lease liabilities 57.1
Non-current lease liabilities 272.5
-------------------------------------------------------- -------
Right-of-use assets were measured at the amount equal to the
lease liability, adjusted by the amount of any prepaid or accrued
lease payments relating to that lease recognised in the balance
sheet as at 31 December 2018. Right-of use-assets were then tested
for impairment at the date of initial application, in accordance
with IAS 36 Impairment of Assets.
2019
GBPm
---------------------------------------------------------------- ------
Amount of the initial measurement of lease liabilities
recognised at 1 January 2019 306.2
Less: any rental prepayments/(accruals) made at or before
the commencement date (1.1)
Less: right-of-use assets derecognised due to subleases (5.8)
Less: impairment of right-of-use assets on initial recognition (4.5)
---------------------------------------------------------------- ------
Right of use asset additionally recognised based on the
initial application of IFRS 16 as of 1 January 2019 294.8
---------------------------------------------------------------- ------
Add: assets from finance leases as at 31 December 2018 18.0
Right of use asset recognised as at 1 January 2019 312.8
---------------------------------------------------------------- ------
The change in the accounting policy affected the following items
on the balance sheet at 1 January 2019:
1 January
2019 1 January
Prior to IFRS 16 2019
IFRS 16 impact Adjusted
GBPm GBPm GBPm
---------------------------------- ------------ ---------- ------------
Right-of-use assets - 312.8 312.8
Property, plant and equipment 105.4 (18.0) 87.4
Lease receivables - 5.8 5.8
Deferred tax assets 14.6 - 14.6
Trade and other receivables 477.7 (3.7) 474.0
Other assets 643.2 - 643.2
Total assets 1,240.9 296.9 1,537.8
---------------------------------- ------------ ---------- ------------
Trade and other payables 428.3 (4.8) 423.5
Lease liabilities 23.4 306.2 329.6
Provisions 31.4 (3.9) 27.5
Deferred tax liabilities 1.4 - 1.4
Other liabilities 293.5 - 293.5
Total liabilities 778.0 297.5 1,075.5
---------------------------------- ------------ ---------- ------------
Net assets 462.9 (0.6) 462.3
---------------------------------- ------------ ---------- ------------
Capital and reserves
Retained losses (68.3) (0.6) (68.9)
Other capital and reserves 531.2 - 531.2
--------------------------------------- ------- ---------- ------------
Total equity 462.9 (0.6) 462.3
--------------------------------------- ------- ---------- ------------
-- Right-of-use assets were recognised and presented separately
in the statement of financial position. Lease assets recognised
previously under finance leases, which were included in Property,
plant and equipment, were reclassified to right-of-use assets, with
the exception of a finance lease classified as an investment
property which remains within Property, plant and equipment.
-- Additional lease liabilities were recognised and presented in
the statement of financial position, in addition to lease
liabilities previously recognised in relation to obligations under
finance lease contracts.
-- Lease receivables were recognised in relation to subleases
previously classified as operating leases
-- Trade and other receivables and trade and other payables
related to previous operating leases were derecognised
-- Retained earnings decreased due to the net impact of these adjustments
e) Impact for the period
As a result of initially applying IFRS 16, in relation to the
leases that were previously classified as operating leases, the
Group recognised GBP244.4m of right-of-use assets and GBP260.5m of
lease liabilities as at 31 December 2019 (excluding disposal groups
held for sale at 31 December 2019), resulting in total right-of-use
assets of GBP255.2m and lease liabilities of GBP275.6m including
leases that were previously classified as finance leases.
In addition, in relation to those leases under IFRS 16, the
Group has recognised depreciation and interest costs, instead of
operating lease expense. During the year ended 31 December 2019,
the Group recognised GBP50.3m of depreciation charges and GBP11.1m
of interest cost from these leases.
The impact on profit before tax for the year ended 31 December
2019 is as follows:
Excluding
IFRS 16 IFRS
As reported Impact 16 Impact
Continuing operations GBPm GBPm GBPm
------------------------------ ------------ -------- -----------
Underling operating profit 39.6 (6.1) 33.5
Net finance costs (24.0) 11.1 (12.9)
Underlying profit before tax 15.6 5.0 20.6
------------------------------ ------------ -------- -----------
Other items (128.3) 1.6 (126.7)
------------------------------ ------------ -------- -----------
Profit before tax (112.7) 6.6 (106.1)
------------------------------ ------------ -------- -----------
Statutory loss per share increased by 0.9p per share and
underlying earnings per share decreased by 0.7p per share for the
year to 31 December 2019 as a result of the adoption of IFRS
16.
Cash flow from operating activities increased by GBP67.9m and
cash outflows from financing activities increased by the same
amount, relating to the decrease in operating lease payments and
increases in principal and interest payments of lease liabilities.
The interest element of lease payments is included within finance
costs paid.
Other amendments
The following other potentially relevant amendments and
interpretations apply for the first time in 2019, but do not have
an impact on the Financial Statements of the Group:
-- IFRIC Interpretation 23 "Uncertainty over Income Tax Treatment"
-- Amendments to IAS 19 "Plan Amendment, Curtailment or Settlement"
-- Annual Improvements 2015-2017 Cycle
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty that affects the
application of IAS 12 Income Taxes. It does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated
with uncertain tax treatments. The Interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments separately;
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities;
-- How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates; and
-- How an entity considers changes in facts and circumstances.
The Group determines whether to consider each uncertain tax
treatment separately or together with one or more other uncertain
tax treatments and uses the approach that better predicts the
resolution of the uncertainty.
New standards, amendments and interpretations not yet
adopted
At the date of authorisation of these Financial Statements,
there are no significant standards and interpretations, which are
in issue but not yet effective which are expected to have a
material impact on the Group.
2. Revenue and segmental information
Revenue
------------- -------- -------- ----------
Specialist Distribution Roofing Merchanting
-------------------------------------------------------------------------------- -------------------------------------
France France
UK Distribution Germany UK Exteriors
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Eliminations Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Type of
product
Interiors 515.4 56.4 184.5 381.5 149.6 103.0 1,390.4 - - - - 1,390.4
Exteriors - 38.5 - - - - 38.5 288.2 342.2 630.4 - 668.9
Heating,
ventilation
and air
conditioning 18.9 - - - 6.5 - 25.4 - - - - 25.4
Inter-segment
revenue^ 11.9 - 0.1 1.0 - 0.1 13.1 9.1 0.2 9.3 (22.4) -
Total
underlying
revenue 546.2 94.9 184.6 382.5 156.1 103.1 1,467.4 297.3 342.4 639.7 (22.4) 2,084.7
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Revenue
attributable
to businesses
identified
as non-core* 1.2 - - 14.5 - - 15.7 58.3 1.9 60.2 - 75.9
Total 547.4 94.9 184.6 397.0 156.1 103.1 1,483.1 355.6 344.3 699.9 (22.4) 2,160.6
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Nature of
revenue
Goods for
resale 547.4 88.7 184.6 397.0 156.1 103.1 1,476.9 355.6 344.3 699.9 (22.4) 2,154.4
Construction
contracts - 6.2 - - - - 6.2 - - - - 6.2
Total 547.4 94.9 184.6 397.0 156.1 103.1 1,483.1 355.6 344.3 699.9 (22.4) 2,160.6
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Timing of
revenue
recognition
Goods
transferred
at
a point in
time 547.4 88.7 184.6 397.0 156.1 103.1 1,476.9 355.6 344.3 699.9 (22.4) 2,154.4
Goods and
services
transferred
over time - 6.2 - - - - 6.2 - - - - 6.2
Total 547.4 94.9 184.6 397.0 156.1 103.1 1,483.1 355.6 344.3 699.9 (22.4) 2,160.6
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
^ Inter-segment revenue is charged at the prevailing market rates.
* Revenue attributable to businesses identified as non-core:
GBP15.7m relates to interiors and GBP60.2m to exteriors product
types.
Revenue
Specialist Distribution Roofing Merchanting
-------------------------------------------------------------------------------- -------------------------------------
France France
UK Distribution Germany UK Exteriors
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Eliminations Total
2018
(Restated)^^ GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Type of
product
Interiors 680.1 60.6 175.4 403.4 151.0 108.4 1,578.9 - - - - 1,578.9
Exteriors - 39.2 - - - - 39.2 321.9 344.7 666.6 - 705.8
Heating,
ventilation
and air
conditioning - 0.1 - - 5.6 - 5.7 - - - - 5.7
Inter-segment
revenue^ 10.2 0.6 - 0.2 - 0.3 11.3 3.7 9.5 13.2 (24.5) -
Total
underlying
revenue 690.3 100.5 175.4 403.6 156.6 108.7 1,635.1 325.6 354.2 679.8 (24.5) 2,290.4
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Revenue
attributable
to businesses
identified
as non-core* 51.5 3.5 - 23.5 - - 78.5 60.2 2.7 62.9 - 141.4
Total 741.8 104.0 175.4 427.1 156.6 108.7 1,713.6 385.8 356.9 742.7 (24.5) 2,431.8
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Nature of
revenue
Goods for
resale 717.8 96.0 175.4 427.1 156.6 108.7 1,681.6 385.8 356.9 742.7 (24.5) 2,399.8
Construction
contracts 24.0 8.0 - - - - 32.0 - - - - 32.0
Total 741.8 104.0 175.4 427.1 156.6 108.7 1,713.6 385.8 356.9 742.7 (24.5) 2,431.8
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
Timing of
revenue
recognition
Goods
transferred
at
a point in
time 717.8 96.0 175.4 427.1 156.6 108.7 1,681.6 385.8 356.9 742.7 (24.5) 2,399.8
Goods and
services
transferred
over time 24.0 8.0 - - - - 32.0 - - - - 32.0
Total 741.8 104.0 175.4 427.1 156.6 108.7 1,713.6 385.8 356.9 742.7 (24.5) 2,431.8
--------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------ ------------- --------
^ Inter-segment revenue is charged at the prevailing market rates.
^^ The 2018 results have been restated in order to present the Air Handling business as a discontinued
operation. See Note 10 for further details.
* Revenue attributable to businesses identified as non-core: GBP78.5m to interiors and GBP62.9m relates
to exteriors product types.
Segment revenues and
results
Specialist Distribution Roofing Merchanting
-------------------------------------------------------------------------------- --------------------------------------
France France
UK Distribution Germany UK Exteriors
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Eliminations Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
Revenue
Underlying revenue 534.3 94.9 184.5 381.5 156.1 103.0 1,454.3 288.2 342.2 630.4 - 2,084.7
Revenue attributable
to businesses
identified
as non-core 1.2 - - 14.5 - - 15.7 58.3 1.9 60.2 - 75.9
Inter-segment
revenue^ 11.9 - 0.1 1.0 - 0.1 13.1 9.1 0.2 9.3 (22.4) -
Total revenue 547.4 94.9 184.6 397.0 156.1 103.1 1,483.1 355.6 344.3 699.9 (22.4) 2,160.6
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
Result
Segment result before
Other items 7.9 6.8 11.2 4.4 4.3 5.2 39.8 8.9 8.6 17.5 - 57.3
Amortisation of
acquired
intangibles (0.9) - - - - (0.2) (1.1) (4.4) (0.7) (5.1) - (6.2)
Impairment charges (58.2) - - - - - (58.2) (0.5) (32.2) (32.7) - (90.9)
Profits and losses on
agreed sale or
closure
of non-core
businesses
and associated
impairment
charges (0.9) (1.8) - 6.0 - - 3.3 (1.6) (1.6) (3.2) - 0.1
Net operating losses
attributable to
businesses
identified as
non-core (0.8) - - 0.8 - - - 2.9 (0.9) 2.0 - 2.0
Net restructuring
costs (10.2) - - (6.6) - (0.2) (17.0) (8.0) (2.1) (10.1) - (27.1)
Other specific items 0.2 (0.3) - (0.1) - - (0.2) - (0.2) (0.2) - (0.4)
Segment operating
profit/(loss) (62.9) 4.7 11.2 4.5 4.3 4.8 (33.4) (2.7) (29.1) (31.8) - (65.2)
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
Parent Company costs (17.7)
Investment in
omnichannel
retailing (5.7)
Movement in fair
value
of forward currency
option 0.7
Operating
profit/(loss) (87.9)
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
Net finance costs
before
Other items (24.0)
Non-underlying
finance
costs (0.8)
Net fair value losses
on derivative
financial
instruments -
Unwinding of
provision
discounting -
Loss before tax and
discontinued
operations (112.7)
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
Income tax expense (11.4)
Profit from
discontinued
operations (0.4)
Non-controlling
interests -
Loss for the year (124.5)
---------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- ---------
^ Inter-segment revenue is charged at the prevailing market rates.
Segment revenues and
results
------------- -------- -------- ----------
UK & Ireland Mainland Europe
-------------------------------------------------------------------------------- --------------------------------------
France France
UK Distribution Germany UK Exteriors
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Eliminations Total
2018
(Restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
Revenue
Underlying revenue 680.1 99.9 175.4 403.4 156.6 108.4 1,623.8 321.9 344.7 666.6 - 2,290.4
Revenue attributable
to businesses identified
as non-core 51.5 3.5 - 23.5 - - 78.5 60.2 2.7 62.9 - 141.4
Inter-segment revenue^ 10.2 0.6 - 0.2 - 0.3 11.3 3.7 9.5 13.2 (24.5) -
Total revenue 741.8 104.0 175.4 427.1 156.6 108.7 1,713.6 385.8 356.9 742.7 (24.5) 2,431.8
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
Result
Segment result before
Other items 23.0 6.1 8.6 7.6 3.3 4.5 53.1 13.8 13.2 27.0 - 80.1
Amortisation of acquired
intangibles (0.9) (0.4) - - - (0.2) (1.5) (4.8) (0.6) (5.4) - (6.9)
Impairment charges (3.9) - - (0.1) - - (4.0) - - - - (4.0)
Profits and losses on
agreed sale or closure
of non-core businesses
and associated impairment
charges (1.8) 0.4 - (0.1) - - (1.5) (4.8) - (4.8) - (6.3)
Net operating losses
attributable to businesses
identified as non-core 4.0 (2.0) - 1.2 - - 3.2 3.0 (0.7) 2.3 - 5.5
Net restructuring costs (10.1) (0.4) - (6.0) - (1.2) (17.7) (7.7) (2.3) (10.0) - (27.7)
Acquisition expenses
and contingent consideration - - - - - - - - - - - -
Other specific items (0.5) - - - - (0.1) (0.6) - (0.7) (0.7) - (1.3)
Segment operating profit/(loss) 9.8 3.7 8.6 2.6 3.3 3.0 31.0 (0.5) 8.9 8.4 - 39.4
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
Parent Company costs (13.2)
Operating profit 26.2
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
Net finance costs before
Other items (14.7)
Non-underlying finance
costs (0.7)
Net fair value losses
on derivative financial
instruments (0.3)
Unwinding of provision
discounting (0.2)
Profit before tax and
discontinued operations 10.3
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
Income tax expense (6.2)
Profit from discontinued
operations 13.8
Non-controlling interests (0.4)
Profit for the year 17.5
-------------------------------------------------------------------------------------------- ------------- -------- ------------- ----------- ------- -------- -------- ---------- ----------------- ------- ------------- --------
^ Inter-segment revenue is charged at the prevailing market rates.
^^ The 2018 results have been restated in order to present the Air Handling business as a discontinued
operation. See Note 10 for further details.
Balance sheet
------------- -------- ------------- --------
Specialist Distribution Roofing Merchanting
------------------------------------------------------------------------------------- -----------------------------------------
France France
UK Distribution Germany UK Exteriors
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------- -------- ------------- ----------- ------- -------- ------------- ---------- ----------------- ---------- --------
Balance sheet
Assets
Segment assets 268.3 56.0 57.5 154.0 66.5 51.6 653.9 204.1 211.1 415.2 1,069.1
Unallocated assets:
Right-of-use assets 2.9
Property, plant and
equipment 0.4
Derivative financial
instruments 2.6
Cash and cash
equivalents (3.6)
Deferred tax assets 4.4
Assets held for sale 258.4
Other assets 13.6
Consolidated total
assets 1,347.8
--------------------- ------------- -------- ------------- ----------- ------- -------- ------------- ---------- ----------------- ---------- --------
Liabilities
Segment liabilities 196.9 36.1 54.8 96.4 35.7 16.4 436.3 83.5 97.4 180.9 617.2
Unallocated
liabilities:
Private placement
notes 175.5
Bank loans 99.6
Derivative financial
instruments 2.1
Liabilities held for
sale 115.7
Other liabilities 43.5
Consolidated total
liabilities 1,053.6
--------------------- ------------- -------- ------------- ----------- ------- -------- ------------- ---------- ----------------- ---------- --------
Other segment
information
Capital expenditure
on:
Property, plant and
equipment 2.4 0.7 0.8 1.3 2.2 0.3 7.7 6.5 0.9 7.4 15.1
Computer software 5.1 0.4 - 0.1 - - 5.6 1.2 - 1.2 6.8
Goodwill and
intangible
assets (excluding
computer
software) - - - - - - - - - - -
Non-cash
expenditure:
Depreciation 19.1 2.8 5.2 13.8 3.5 2.4 46.8 10.6 10.0 20.6 67.4
Impairment of
right-of-use
assets 0.5 - - - - - 0.5 0.5 0.5 1.0 1.5
Impairment of
property,
plant and equipment
and
computer software 0.9 - - - - - 0.9 - - - 0.9
Amortisation of
acquired
intangibles and
computer
software 3.5 - - 0.1 0.1 0.2 3.9 4.5 0.7 5.2 9.1
Impairment of
goodwill
and intangibles
(excluding
computer software) 57.4 - - - - - 57.4 - 33.3 33.3 90.7
--------------------- ------------- -------- ------------- ----------- ------- -------- ------------- ---------- ----------------- ---------- --------
Balance sheet
Specialist Distribution Roofing Merchanting
------------------------------------------------------------------------------ -------------------------------------
France France
UK Distribution Germany UK Exteriors Air
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Total Exteriors (Larivière) Total Handling Total
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------- -------- ------------- ----------- ------- -------- ------ ---------- ----------------- ------ --------- --------
Balance sheet
Assets
Segment
assets 329.4 37.0 65.6 103.2 58.3 50.8 644.3 218.1 190.4 408.5 159.9 1,212.7
Unallocated
assets:
Property,
plant and
equipment 2.7
Derivative
financial
instruments 1.9
Cash and cash
equivalents 14.9
Deferred tax
assets 3.8
Other assets 4.9
Consolidated
total
assets 1,240.9
-------------- ------------- -------- ------------- ----------- ------- -------- ------ ---------- ----------------- ------ --------- --------
Liabilities
Segment
liabilities 160.2 17.1 37.7 35.2 29.3 10.8 290.3 77.9 87.1 165.0 51.7 507.0
Unallocated
liabilities:
Private
placement
notes 185.6
Bank loans 56.5
Derivative
financial
instruments 4.1
Other
liabilities 24.8
Consolidated
total
liabilities 778.0
-------------- ------------- -------- ------------- ----------- ------- -------- ------ ---------- ----------------- ------ --------- --------
Other segment
information
Capital
expenditure
on:
Property,
plant and
equipment 4.7 1.1 2.4 2.2 1.1 0.7 12.2 3.8 3.1 6.9 0.9 20.0
Computer
software 2.0 2.5 - 0.3 - - 4.8 - 0.2 0.2 0.3 5.3
Goodwill and
intangible
assets
(excluding
computer
software) - - - - - - - - - - - -
Non-cash
expenditure:
Depreciation 5.3 0.9 1.0 2.5 1.1 0.6 11.4 2.4 4.6 7.0 1.3 19.7
Impairment of
property,
plant and
equipment
and computer
software 4.4 - - - - - 4.4 - - - 0.1 4.5
Amortisation
of acquired
intangibles
and computer
software 4.4 0.5 - 0.3 0.1 0.2 5.5 4.8 1.5 6.3 1.5 13.3
-------------- ------------- -------- ------------- ----------- ------- -------- ------ ---------- ----------------- ------ --------- --------
Geographic information
The Group's non-current operating assets (including property, plant and equipment, right-of-use
assets, goodwill and intangible assets but excluding deferred tax, derivative financial instruments
and deferred consideration) by geographical location are as follows:
-----------------------------------------------------------------------------------------------------------
2019 2018
Non-current
Non-current assets assets
Country GBPm GBPm
---------------------------------------------------------------- ------------------------ ---------------
United Kingdom 283.4 248.6
Ireland 15.7 2.8
France 112.0 124.3
Germany 66.2 14.4
Poland 14.2 6.3
Benelux 23.4 49.1
Total underlying 514.9 445.5
---------------------------------------------------------------- ------------------------ ---------------
Attributable to businesses identified as non-core 0.2 -
Attributable to businesses held for sale 112.9 -
Total 628.0 445.5
---------------------------------------------------------------- ------------------------ ---------------
There is no material difference between the basis of preparation of the information reported above
and the accounting policies adopted by the Group.
3. Other operating expenses
3a. Analysis of other operating
expenses
------------- ------------ ----------- ------------- ------------ -----------
2019 2018 (Restated)
---------------------------------------- ----------------------------------------
Before Other Before Other
items Other items Total items Other items Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Other operating expenses:
- distribution costs 200.9 34.2 235.1 217.1 14.6 231.7
- selling and marketing costs 175.4 7.2 182.6 161.6 6.5 168.1
- management, administrative
and central
costs 123.6 106.0 229.6 135.6 59.6 195.2
- property profits (0.3) - (0.3) (2.6) - (2.6)
499.6 147.4 647.0 511.7 80.7 592.4
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
3b. Other items
Profit/(loss) after tax includes the following Other items which have been disclosed in a separate
column within the Consolidated Income Statement in order to provide a better indication of the
underlying earnings of the Group (as explained in the Statement of Accounting Policies):
--------------------------------------------------------------------------------------------------------------------
2019 2018 (Restated)
---------------------------------------- ----------------------------------------
Other items Tax impact Tax impact Other items Tax impact Tax impact
GBPm GBPm % GBPm GBPm %
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Amortisation of acquired
intangibles (6.2) 1.4 (22.6) (6.9) 1.4 (20.3)
Impairment charges^ (90.9) 0.2 (0.2) (4.0) - -
Profits and losses on agreed
sale or
closure of non-core businesses
and associated
impairment charges 0.1 (0.8) (800.0) (6.3) 1.3 (20.6)
Net operating profits/(losses)
attributable
to businesses identified as
non-core 2.0 (0.4) (20.0) 5.5 (1.0) (18.2)
Net restructuring costs^^ (27.1) 4.4 (16.2) (27.7) 6.3 (22.7)
Investment in omnichannel
retailing (5.7) - - - - -
Other specific items* 0.3 - - (1.3) (0.2) 15.4
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Impact on operating
profit/(loss) (127.5) 4.8 (3.8) (40.7) 7.8 (19.2)
Non-underlying finance costs (0.8) 0.1 (12.5) (0.7) 0.1 (14.3)
Net fair value losses on
derivative
financial instruments - - - (0.3) 0.1 (33.3)
Unwinding of provision
discounting - - - (0.2) - -
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Impact on profit/(loss) before
tax (128.3) 4.9 (3.8) (41.9) 8.0 (19.1)
Effect of change in rate on
deferred
tax - - - - 0.3 -
Other tax adjustments in
respect of
previous years - (0.4) - - (0.1) -
Impact on profit/(loss) after
tax (128.3) 4.5 (3.5) (41.9) 8.2 (19.6)
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
^ Impairment charges comprises GBP89.6m related to goodwill, GBP0.3m software and GBP1.0m right
of use assets.
^^ Included within net restructuring costs are property closure costs of GBP6.0m (2018: GBP5.5m),
redundancy and related staff costs of GBP9.5m (2018: GBP11.5m), impairment of non-current assets
due to restructuring of GBPnil (2018: GBP0.6m) and GBP9.6m (2018: GBP10.1m) in relation to restructuring
consultancy costs and GBP2.0m (2018: GBPnil) other costs, all mainly incurred in connection with
the fundamental restructuring of the target operating model of the major operating companies
in the UK, Germany and France.
*Other specific items comprises
the
following:
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
2019 2018
Restated
GBPm GBPm
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Movement in fair value of
forward currency
option not hedged 0.7 -
Costs in relation to the cyber
attack
in France (0.6) -
GMP equalisation - (1.0)
Other specific items 0.2 (0.3)
Total other specific items 0.3 (1.3)
-------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
The 2018 results have been restated in order to present the Air Handling business as a discontinued
operation. See Note 10 for further details.
4. Income tax
The income tax expense comprises:
----------------------------------- -------------------------- ------- ---------
2019 2018
Restated
GBPm GBPm
----------------------------------- -------------------------- ------- ---------
Current tax
UK & Ireland corporation
tax: - charge for the year 0.8 1.3
- adjustments in respect
of previous years (0.1)z (0.2)
-------------------------------------------------------------- ------- ---------
0.7 1.1
Mainland Europe - charge for the year 6.8 6.3
- adjustments in respect
of previous years 2.7 (0.7)
-------------------------------------------------------------- ------- ---------
9.5 5.6
Total current tax 10.2 6.7
--------------------------------------------------------------- ------- ---------
Deferred tax
Current year 5.3 (1.5)
Adjustments in respect of
previous years 0.8 0.8
Deferred tax charge in respect of pension schemes (3.9) 0.5
Effect of change in rate (1.0) (0.3)
Total deferred tax 1.2 (0.5)
--------------------------------------------------------------- ------- ---------
Total income tax expense 11.4 6.2
--------------------------------------------------------------- ------- ---------
As the Group's profits and losses are earned across a number of tax jurisdictions
an aggregated income tax reconciliation is disclosed, reflecting the
applicable rates for the countries in which the Group operates.
The total tax charge for the year differs from the expected tax using
a weighted average tax rate which reflects the applicable statutory corporate
tax rates on the accounting profits/losses in the countries in which
the Group operates. The differences are explained in the following aggregated
reconciliation of the income tax expense:
----------------------------------------------------------------------------------------------
2019 2018 (Restated)
GBPm % GBPm %
--------------------------------------------------- ---------- -------- ------- ----------
Profit/(loss) before tax from
continuing operations (112.7) 10.3
Profit/(loss) before tax from
discontinued operations 3.8 18.2
--------------------------------------------------- ---------- -------- ------- ----------
Profit/(loss) before tax (108.9) 28.5
--------------------------------------------------- ---------- -------- ------- ----------
Expected tax charge/(credit) (23.2) 21.3 8.8 30.9
Factors affecting the income tax
expense for the year:
- expenses not deductible for
tax purposes^ 7.5 (6.9) 3.5 12.3
- non-taxable income* (4.5) 4.1 (3.7) (13.0)
- impairment and disposal charges
not deductible for tax purposes** 22.4 (20.6) 2.7 9.5
- deductible temporary differences
not recognised for deferred tax
purposes 10.5 (9.6) 0.3 1.1
- losses utilised not previously
recognised for deferred tax purposes - - (0.6) (2.1)
- other adjustments in respect
of previous years 3.7 (3.4) (0.2) (0.7)
- tax on branch profits 0.1 (0.1) 0.1 0.4
- effect of change in rate on
deferred tax (0.9) 0.8 (0.3) (1.1)
Total income tax expense 15.6 (14.3) 10.6 37.2
--------------------------------------------------- ---------- -------- ------- ----------
Income tax expense reported in
the statement of profit or loss 11.4 6.2
Income tax attributable to a discontinued
operation 4.2 4.4
15.6 10.6
---------- -------
^ The majority of the Group's expenses that are not deductible for tax
purposes are in relation to the divestments of businesses, internal restructuring
and impairments of property.
* The majority of the Group's non-taxable income relates to the divestments
of businesses.
** During the year the Group incurred impairment charges of GBP90.3m
in relation to goodwill which are not deductible for tax purposes.
The effective tax rate for the Group on the total loss before tax of
GBP108.9m is negative 14.3% (2018: 37.2%). The effective tax charge for
the Group on profit before tax excluding 'other items' of GBP19.4m is
103.3% (2018: 26.3%) which comprises a tax charge of 95.8% (2018: 26.6%)
in respect of current year profits and a tax charge of 7.5% (2018: credit
of 0.3%) in respect of prior years. The increased current year rate is
predominantly due to unrecognised deferred tax assets and expenses not
deductible for tax purposes.
Factors that will affect the Group's future total tax charge as a percentage
of underlying profits are:
- the mix of profits and losses between the tax jurisdictions in which
the Group operates; in particular the tax rates in France, Germany and
Belgium are relatively high when compared to the UK and so a higher proportion
of profits in these jurisdictions could result in a higher Group tax
charge;
- the impact of non-deductible expenditure and non-taxable income;
- agreement of open tax computations with the respective tax authorities;
and
- the recognition or utilisation (with corresponding reduction in cash
tax payments) of unrecognised deferred tax assets.
On 25 April 2019, the European Commission ('EC') concluded its investigation
into the UK's controlled foreign company ('CFC') tax rules. The EC concluded
that the UK's CFC rules, which provide an exemption for 75% of the CFC
charge where the CFC is carrying out financing activities, were in breach
of EU State Aid. The UK Government disagrees with this conclusion and
has applied to have this judgement annulled. In the meantime, the Group
is continuing to review the specific facts and circumstances of its position
in conjunction with professional advisors (having claimed the exemption
in historic periods). Based on the initial assessment undertaken to date,
a provision is not deemed to be required. However, should the UK Government
be unsuccessful in appeal and all CFC profits deemed taxable in the UK,
this would give rise to additional UK tax payable of up to a maximum
of GBP5m (before interest and penalties).
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:
----------------------------------------------------------------------------------------------
2019 2018
Restated
GBPm GBPm
--------------------------------------------------- ---------- -------- ------- ----------
Deferred tax movement associated with re-measurement
of defined benefit pension liabilities* (6.6) 0.1
Deferred tax on share options - (0.2)
Tax (charge)/credit associated with re-measurement
of defined benefit pension liabilities* 0.4 -
Tax (charge)/credit on exchange and fair value
movements arising on borrowings and derivative
financial instruments (2.1) 0.4
Effect of change in rate on deferred
tax - -
Total (8.3) 0.3
--------------------------------------------------- ---------- -------- ------- ----------
*These items will not subsequently be reclassified to the Consolidated
Income Statement.
5. Earnings/(loss) per share
The calculations of earnings/(loss) per share are based on the
following profits/(losses) and numbers of shares:
Basic and diluted
--------------------------
2019 2018
Restated
GBPm GBPm
------------------------------------------------------ ------------ ------------
Profit/(loss) after tax from continuing operations (124.1) 4.1
Non-controlling interests - (0.4)
Profit attributable to ordinary equity holders
of the parent for basic and diluted earnings per
share from continuing operations (124.1) 3.7
------------------------------------------------------ ------------ ------------
Profit attributable to ordinary equity holders
of the parent from discontinued operations (0.4) 13.8
------------------------------------------------------ ------------ ------------
Profit attributable to ordinary equity holders
of the parent for basic and diluted earnings per
share (124.5) 17.5
------------------------------------------------------ ------------ ------------
Basic and diluted
before Other items
--------------------------
2019 2018
Restated
GBPm GBPm
------------------------------------------------------ ------------ ------------
Profit/(loss) after tax from continuing operations (124.1) 4.1
Non-controlling interests - (0.4)
Add back:
Other items 123.8 33.7
(0.3) 37.4
------------------------------------------------------ ------------ ------------
2019 2018
Weighted average number of shares Number Number
------------------------------------------------------ ------------ ------------
For basic and diluted earnings/(loss) per share 591,556,982 591,548,834
------------------------------------------------------ ------------ ------------
2019 2018
Restated
------------------------------------------------------ ------------ ------------
Profit/(loss) per share
Basic and diluted earnings/(loss) per share (21.0)p 3.0p
Basic and diluted earnings/(loss) per share from
continuing operations (21.0)p 0.6p
------------------------------------------------------ ------------ ------------
Earnings per share before Other items^
Basic and diluted earnings per share from continuing
operations (0.1)p 6.3p
------------------------------------------------------ ------------ ------------
^ Earnings per share before Other items (also referred to as
underlying earnings per share) has been disclosed in order to
present the underlying performance of the Group.
6. Reconciliation of operating profit/(loss) to cash generated from operating activities
2019 2018
Restated
GBPm GBPm
----------------------------------------------------- --------- ---------
Profit/(loss) before tax from continuing
operations (112.7) 10.3
Profit/(loss) before tax from discontinued
operations 3.8 18.2
----------------------------------------------------- --------- ---------
Profit/(loss) before tax (108.9) 28.5
Depreciation of property, plant and equipment 15.2 19.7
Depreciation of right-of-use assets 61.0 -
Net finance costs 26.3 15.8
Amortisation of computer software 4.5 4.4
Amortisation of acquired intangibles 8.1 8.9
Impairment of computer software 0.3 1.1
Impairment of property, plant and equipment 0.6 3.4
Impairment of goodwill 89.6 -
Impairment of right-of-use asset 1.0 -
Profit on agreed sale or closure of non-core
businesses (Note 9) (0.1) 6.7
Profit on sale of property, plant and equipment (1.4) (7.5)
Settlement of amounts payable for previous
purchases of business dependent on vendors
remaining within the business - (6.0)
Share-based payments 0.1 0.4
Net foreign exchange differences (1.3) -
Decrease in provisions (2.9) (1.9)
Working capital movements:
- Decrease in inventories 1.7 30.1
- (Increase)/decrease in receivables 95.6 (6.5)
- Increase/(decrease) in payables (23.4) 6.5
Cash generated from operating activities 166.0 103.6
----------------------------------------------------- --------- ---------
Included within the cash generated from operating activities is
a defined benefit pension scheme employer's contribution of GBP2.5m
(2018: GBP3.1m).
Of the total profit on sale of property, plant and equipment,
GBPnil (2018: GBP1.1m) has been included within Other items of
the Consolidated Income Statement.
Net finance costs were included within working capital movements
in the prior year but have been shown separately in the current
year and the 2018 numbers above have been reclassified to present
on a consistent basis.
7. Reconciliation of net cash flow to movements in net debt
2019 2018
GBPm GBPm
Increase/(decrease) in cash and cash equivalents
in the year 71.6 (0.1)
Cash flow from decrease in debt (37.6) 75.5
------------------------------------------------------ -------- --------
Decrease in net debt resulting from cash
flows 34.0 75.4
Debt relating to divested businesses - 0.1
Recognition of loan notes and deferred consideration - (0.9)
Non-cash items^ (6.4) (3.3)
Exchange differences 6.8 (2.0)
------------------------------------------------------ -------- --------
Decrease in net debt in the year 34.4 69.3
Net debt at 1 January (189.4) (258.7)
Impact of adoption of IFRS 16 at 1 January
2019 (300.4) -
------------------------------------------------------ -------- --------
Net debt at 31 December (455.4) (189.4)
---
^ 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 follows:
-------------------------------------------------------------------------------
2019 2018
GBPm GBPm
------------------------------------------------------ -------- -------------
Non-current assets:
Derivative financial instruments 1.7 1.9
Deferred consideration - 0.7
Lease receivables 4.4 -
Current assets:
Derivative financial instruments 0.9 -
Lease receivables 0.8 -
Deferred consideration - 0.8
Cash at bank and on hand 110.0 83.3
Less IFC Restricted Cash (8.1) -
Financial assets held for sale 35.9 -
Current liabilities:
Lease liabilities (51.5) (3.2)
Bank overdrafts - (4.5)
Bank loans (99.6) (56.5)
Private placement notes (175.5) -
Loan notes and deferred consideration - (0.9)
Other financial liabilities (1.5) (1.1)
Derivative financial instruments (0.2) (0.3)
Lease liabilities directly associated with
liabilities classified as held for sale (45.3) -
Non-current liabilities:
Lease liabilities (224.1) (20.2)
Private placement notes - (185.6)
Derivative financial instruments (1.9) (3.8)
Other financial liabilities (1.4) -
Net debt (455.4) (189.4)
------------------------------------------------------ -------- -------------
8. Dividends
An interim dividend of 1.25p per ordinary share was paid on 8
November 2019 (2018: 1.25p), amounting to GBP7.4m (2018: GBP7.4m).
There is no final dividend proposed for the year ended 31 December
2019 (2018: 2.5p per share amounting to GBP14.8m). Total dividends
paid during the year were GBP22.2m (2018: GBP22.2m), comprising the
2019 interim dividend of GBP7.4m and the final dividend for 2018 of
GBP14.8m. No dividends have been paid between 31 December 2019 and
the date of signing the Financial Statements.
At 31 December 2019 the Company has negative distributable
reserves of GBP158.4m. Before the Group seeks to recommence its
dividend payments it will be required to review its medium term
plan and distributable reserves position. The Directors intend to
carry out a review of the structure of the Group during the coming
year in order to remedy this and optimise existing reserves.
9. Divestments and exit of non-core
businesses
The Group has recognised a total gain of GBP0.1m (31 December 2018:
charge of GBP6.3m) in respect of profits and losses on agreed sale
or closure of non-core businesses and associated impairment charges
within Other items of the Consolidated Income Statement. This consists
of GBP6.0m gain on disposal of WeGo FloorTec during the year, GBP1.6m
of costs in relation to the sale of Building Solutions (held for
sale at 31 December 2019), GBP0.9m costs in relation to the Commercial
Drainage business which was closed during the year, GBP1.6m impairment
of goodwill and right of use assets in relation to the Maury business
in France, which is being sold or closed, and GBP1.8m in relation
to prior year divestments, all of which are explained further below.
Businesses disposed during the year
WeGo FloorTec
On 13 August 2019 the Group completed the sale of WeGo Floortec
GmbH, the German raised access flooring division, for proceeds
of EUR13.5m plus settlement of intercompany balances. An overall
gain on sale of GBP6.0m has been recognised within Other items,
including the reclassification of the cumulative exchange differences
on the retranslation of the net assets from equity to the consolidated
income statement, in accordance with IAS 21 "The effects of changes
in foreign exchange rates".
The net assets at the date of disposal were as follows:
-------------------------------------------------------------------------------------------------
At 31
December
At date of disposal 2018
GBPm GBPm
-------------------------------------------------------- -------------------- -----------
Attributable goodwill and intangible
assets 0.4 0.4
Property, plant and equipment 0.8 1.0
Cash 0.4 -
Inventories 3.3 3.4
Trade and other receivables 2.4 2.5
Trade and other payables (2.4) (0.6)
Net assets 4.9 6.7
-------------------------------------------------------------- -------------------- -----------
Other costs 0.9
Reclassification of cumulative exchange
differences to consolidated income statement -
Gain on disposal 6.0
Sale proceeds 11.8
-------------------------------------------------------------- -------------------- -----------
Satisfied by:
Cash and cash equivalents 11.8
Disposal groups held for sale
Building Solutions
On 7 October 2019, the Group announced the sale of Building
Solutions (National) Limited ("Building Solutions"), a subsidiary
of SIG Trading Limited, for proceeds of GBP37.5m. At 31 December
2019 the assets and liabilities are classified as held for sale
on the Consolidated Balance Sheet, as shown below. Costs of
GBP1.6m in relation to the disposal are included in Other items
in the Consolidated Income Statement.
Air Handling
On 7 October 2019, the Group announced that it had agreed a
sale of the Air Handling business and the sale completed on
31 January 2020. This business is a major line of business of
the Group and is therefore classified as a discontinued operation.
See Note 10 for further details.
Air Building
Handling Solutions Other Total
GBPm GBPm GBPm GBPm
Goodwill and intangible
assets 33.2 12.5 45.7
Property, plant and equipment 15.1 6.2 1.9 23.2
Right-of-use assets 31.5 12.5 44.0
Inventories 33.9 3.8 37.7
Trade and other receivables 58.9 8.5 67.4
Contract assets 1.5 - 1.5
Deferred tax asset 1.3 1.7 3.0
Deferred consideration 0.8 - 0.8
Cash at bank and on hand 28.8 6.3 35.1
-------------------------------------------------- ---------- ----------------- ------ ------------
Assets held for sale 205.0 51.5 1.9 258.4
-------------------------------------------------- ---------- ----------------- ------ ------------
Trade and other payables (46.0) (15.3) (61.3)
Contract liabilities (1.5) - (1.5)
Lease liabilities (31.9) (13.4) (45.3)
Deferred tax liability (1.0) - (1.0)
Corporation tax liability (1.2) - (1.2)
Retirement benefit obligations (3.4) - (3.4)
Provisions (1.5) (0.5) (2.0)
-------------------------------------------------- ---------- ----------------- ------ ------------
Liabilities directly associated
with assets held for sale (86.5) (29.2) - (115.7)
-------------------------------------------------- ---------- ----------------- ------ ------------
Net assets directly associated
with disposal groups 118.5 22.3 1.9 142.7
-------------------------------------------------- ---------- ----------------- ------ ------------
Prior year divestments
GRM
On 2 February 2018 the Group completed the disposal of GRM Insulation
Solutions (GRM), a division of SIG Trading Limited and part of
the UK Distribution segment. In 2017 the goodwill, fixed assets
and inventories were impaired to reflect the recoverable amount
indicated by the sale proceeds and the expected costs of the
sale were accrued, resulting in a loss on sale of GBP5.7m being
recognised in 2017. During the period to 31 December 2018 inventory
previously impaired has been sold and, therefore, GBP0.2m of
this provision was released as a credit to Other items in 2018.
IBSL
On 2 March 2018 the Group completed the disposal of IBSL, a small
industrial insulation division operated by SIG Trading Limited
and part of the UK Distribution segment. In 2017 the assets of
the business were impaired to reflect the recoverable amount
indicated by the sale proceeds less costs to sell and a loss
on sale of GBP1.9m recognised within Other items of the 2017
Consolidated Income Statement. The assets and liabilities were
classified as held for sale at 31 December 2017 (comprising fixed
assets of GBP0.2m, inventories of GBP0.1m and liabilities of
GBP0.1m). During the period to 31 December 2018, further costs
of GBP0.1m were recognised.
Building Systems
On 2 March 2018 the Group completed the disposal of the trade
and assets of SIG Building Systems Limited (Building Systems),
a subsidiary of the Group. In 2017 the assets of the business
were impaired to reflect the recoverable amount indicated by
the sale proceeds less costs to sell, resulting in a loss on
sale of GBP7.9m. An additional credit of GBP1.2m was recognised
during the period to 31 December 2018, largely due to the release
of an onerous lease provision due to properties being sublet.
Additional property costs of GBP0.9m have been recognised in
2019.
VJ Technology
On 29 June 2018 the Group completed the disposal of the trade
and assets of VJ Technology, a division of SIG Trading Limited
UK and part of the UK Distribution segment. Consideration for
the sale less costs to sell was GBP29.3m resulting in a profit
on disposal of GBP5.2m included within Other items in the Consolidated
Income Statement in 2018.
Roofspace
On 14 December 2018 the Group completed the disposal of 100%
of the share capital of SIG Roofspace Limited (Roofspace), a
subsidiary of SIG Trading Limited and included within the UK
Distribution segment. Consideration for the sale was GBP14.6m,
resulting in a loss on sale of GBP7.1m which was included within
Other items in the Consolidated Income Statement in 2018. Additional
costs of GBP0.4m have been recognised in 2019.
Proteus
On 18 December 2018 the Group completed the disposal of the trade
and assets of Proteus Engineered Facades (Proteus), a division
of SIG Trading Limited included within the UK Exteriors segment,
for consideration of GBP0.5m. The consideration was included
within deferred consideration at 31 December 2018 and was received
in May 2019. The loss arising on the sale of GBP4.8m was included
within Other items in the Consolidated Income Statement in 2018.
Other
Additional expenses of GBP0.3m have also been recognised and
included within Other items in relation to the divestments in
previous years. This largely relates to write offs for debts
that are no longer deemed recoverable.
Other business closures
The Group has also exited or agreed to exit the following businesses:
Maury
In November 2019 the Group has approved the sale or closure of
Maury NZ SAS "Maury", the Group's high-end façade fabrication
business in France and part of the France Exteriors (Larivière)
segment. The operating losses for the year have been included
in Other items in the Consolidated Income Statement and the associated
goodwill and intangibles of GBP1.1m and right-of-use assets of
GBP0.5m have been impaired.
SIG Cut Solutions
As disclosed in the 2018 Annual Report and Accounts, in June
2018 the Group closed SIG Cut Solutions, the Group's German insulation
conversion business. The stock and fixed assets of the business
was sold and the associated goodwill written off leading to an
expense of GBP0.1m recognised within Other items in the Consolidated
Income Statement in 2018.
Commercial Drainage
As disclosed in the 2018 Annual Report and Accounts, the Group
announced the closure of its Commercial Drainage business, part
of the UK Distribution segment. All assets are held at recoverable
value and the operating losses for the year have been included
in Other items in the Consolidated Income Statement.
Middle East
As disclosed in the 2018 Annual Report and Accounts, the Group
continues with the closure of its business in the Middle East.
The assets of the business were impaired at 31 December 2017
to reflect the recoverable amount indicated by the period end
impairment review process and there have been various expenses
incurred since associated with the costs of closure. During the
year to 31 December 2019 a net expense of GBP1.0m (2018: GBP0.9m)
has been recognised in Other items, comprising additional costs
associated with the closure and further write-off of debtor balances
no longer considered recoverable. On 22 January 2020 the business
has been sold for AED1.
Contribution to revenue and operating loss
The results of the above businesses for the current and prior
periods have been disclosed within Other items in the Consolidated
Income Statement in order to provide an indication of the
underlying earnings of the Group. The revenue and net operating
profit/(loss) of the non-core businesses for the years ended 31
December 2019 and 31 December 2018 are as follows:
2018
2019 2018
Net operating Net operating
Revenue profit/(loss) Revenue profit/(loss)
GBPm GBPm GBPm GBPm
--------------------------- -------- -------------- ---------- --------------
Building Systems - - 1.4 (1.2)
GRM - - 0.3 (0.2)
Middle East - - 2.1 (0.8)
IBSL - - 0.2 (0.2)
VJ Technology - - 17.0 3.1
Roofspace - - 24.0 2.1
Proteus - - 3.4 (0.5)
Commercial Drainage 1.2 (0.8) 10.0 (0.8)
SIG Cut Solutions - - 0.3 (0.3)
Businesses identified as non-core
in 2018 1.2 (0.8) 58.7 1.2
------------------------------------------- -------- -------------- ---------- --------------
WeGo Floortec 14.5 0.8 23.2 1.5
Building Solutions 58.3 2.9 56.8 3.5
Maury 1.9 (0.9) 2.7 (0.7)
------------------------------------------- -------- -------------- ---------- --------------
Businesses identified as non-core
in 2019 74.7 2.8 82.7 4.3
------------------------------------------- -------- -------------- ---------- --------------
Total attributable to non-core
businesses 75.9 2.0 141.4 5.5
------------------------------------------- -------- -------------- ---------- --------------
Cash flows associated with divestments and exit of non-core
businesses
The net cash inflow in the year ended 31 December 2019 in
respect of divestments and the exit of non-core businesses is as
follows:
Proteus WeGo FloorTec Other non-core Total
businesses
GBPm GBPm GBPm GBPm
--------------------------------- -------- -------------- --------------- ------
Cash consideration received
for divestments 0.5 11.8 0.3 12.6
Cash at date of disposal - (0.5) - (0.5)
Other income received/(disposal
costs paid) - (0.9) (2.8) (3.7)
Net cash inflow/(outflow) 0.5 10.4 (2.5) 8.4
--------------
The losses arising on the agreed sale or closure of non-core
businesses and associated impairment charges, along with their
results for the current and prior periods have been disclosed
within Other items in the Consolidated Income Statement in order to
present the underlying earnings of the Group.
10. Discontinued operations
On 7 October 2019, the Group announced that it had agreed a sale
of the Air Handling business for consideration of EUR222.7m. The
sale was approved by shareholders at a general meeting on 23
December 2019 and completed on 31 January 2020. At 31 December
2019, Air Handling is classified as a disposal group held for sale
and as a discontinued operation as it represented a major line of
business of the Group. With Air Handling being classified as a
discontinued operation, the Air Handling segment is no longer
presented in the segment note. The carrying amount of the disposal
group is lower than its fair value less cost to sell and therefore
no impairment loss is recognised.
The results of the Air Handling business for the year are
presented below:
2019 2018
GBPm GBPm
Revenue 323.1 310.1
Cost of sales (202.0) (193.8)
------------------------------------------------
Gross profit 121.1 116.3
Other operating expenses (101.3) (96.9)
------------------------------------------------
Underlying operating profit 19.8 19.4
Other items (0.7) 0.7
------------------------------------------------
Operating profit 19.1 20.1
Finance income 0.1 0.1
Finance costs (1.3) -
------------------------------------------------
Profit before tax from discontinued operations
before group costs 17.9 20.2
Costs incurred in connection with the agreed
disposal of the Air Handling business (12.2) -
Amortisation of acquired intangibles (1.9) (2.0)
------------------------------------------------
Profit before tax from discontinued operations 3.8 18.2
Income tax expense (4.2) (4.4)
Profit after tax from discontinued operations (0.4) 13.8
------------------------------------------------
The major classes of assets and liabilities of the Air Handling
classified as held for sale as at 31 December 2019 are as
follows:
2019
GBPm
Goodwill and intangible assets 33.2
Property, plant and equipment 15.1
Right-of-use assets 31.5
Inventories 33.9
Trade and other receivables 58.9
Contract assets 1.5
Deferred tax asset 1.3
Deferred consideration 0.8
Cash at bank and on hand 28.8
Assets held for sale 205.0
Trade and other payables (46.0)
Contract liabilities (1.5)
Lease liabilities (31.9)
Deferred tax liability (1.0)
Corporation tax liability (1.2)
Retirement benefit obligations (3.4)
Provisions (1.5)
Liabilities directly associated with assets
held for sale (86.5)
Net assets directly associated with disposal
group 118.5
Amounts included in accumulated OCI are as follows:
2019 2018
GBPm GBPm
Remeasurement of defined benefit pension liability (0.5) 0.1
Deferred tax movement associated with remeasurement
of defined benefit pension liability 0.1 -
Reserve of disposal group classified as held
for sale (0.4) 0.1
The net cash flows incurred by Air Handling are as follows:
2019 2018
GBPm GBPm
Operating 26.5 10.5
Investing (5.1) (1.1)
Financing (9.4) (15.4)
Net cash (outflow)/inflow 12.0 (6.0)
Earnings per share:
2019 2018
Basic and diluted, earnings/(loss) per share
from discontinued operations (0.00)p 0.02p
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 had a shareholding of less than 0.1% in a German purchasing
co-operative up until termination of the contract on 31 December
2018. Net purchases from this co-operative (on commercial terms)
totalled GBP266.1m in 2018 and net trade payables in respect
of the co-operative amounted to GBP8.0m at 31 December 2018.
This is not a related party for 2019.
In 2019, SIG incurred expenses of GBP0.4m (2018: GBP0.2m) on
behalf of the SIG plc Retirement Benefits Plan, the UK defined
benefit pension scheme.
Remuneration of key management personnel
The total remuneration of key management personnel of the Group,
being the Group Executive Committee members and the Non-Executive
Directors, is set out below in aggregate for each of the categories
specified in IAS 24 "Related Party Disclosures".
2019 2018
GBPm GBPm
Short term employee benefits 4.3 4.8
Termination and post-employment benefits 0.4 0.5
IFRS 2 share option charge 0.1 0.4
4.8 5.7
12. Non-statutory information
The Group uses a variety of alternative performance measures,
which are non-IFRS, to assess the performance of its
operations.
The Group considers these performance measures to provide useful
historical financial information to help investors evaluate the
underlying performance of the business.
These measures, as shown below, are used to improve the
comparability of information between reporting periods and
geographical units, to adjust for Other items (as explained in
further detail within the Statement of Significant Accounting
Policies) or to adjust for businesses identified as non-core to
provide information on the ongoing activities of the Group. This
also reflects how the business is managed and measured on a
day-to-day basis. Non-core businesses are those businesses that
have been closed or disposed of or where the Board has resolved to
close or dispose of the businesses by 31 December 2019.
Information regarding covenant calculations is provided to show
the financial measures used to calculate financial covenants as
defined by the banking agreements.
In 2019 a number of these measures also reconcile the reported
numbers to what would have been reported prior to the adoption of
IFRS 16, in order to allow comparison between periods and to
reconcile to numbers used in covenant calculations which are
prepared on a frozen GAAP basis.
a) Underlying operating profit and profit before tax excluding impact of IFRS 16
A number of the alternative performance measures use underlying
operating profit and underlying profit before tax excluding the
impact of IFRS 16, in order to allow comparison with the previous
year and to reconcile to numbers used in covenant calculations.
Continuing operations
2019 2018
Restated
GBPm GBPm
Operating profit from continuing operations (87.9) 26.2
Operating lease rentals (57.5) -
Additional depreciation from adoption of
IFRS 16 50.9 -
Impairment of right-of-use assets and onerous
lease adjustment 1.6 -
Adjustment due to treatment of sale and
leaseback transaction 0.4 -
Operating profit excluding impact of IFRS
16 (92.5) 26.2
------------------------------------------------
Add back:
Other items 127.5 40.7
Less right-of-use asset impairment and
onerous lease costs included in Other items (1.5) -
Underlying operating profit excluding impact
of IFRS 16 33.5 66.9
------------------------------------------------
Net finance costs (24.8) (15.9)
Add back:
Additional net finance costs from adoption
of IFRS 16 11.1 -
Non-underlying finance costs 0.8 0.7
Net fair value losses on derivative financial
instruments - 0.3
Unwinding of provision discounting - 0.2
Underlying profit before tax excluding
impact of IFRS 16 20.6 52.2
------------------------------------------------
Income tax expense (11.4) (6.2)
Reduction in tax expense from adoption
of IFRS 16 (1.5) -
Add back:
Tax credit associated with Other items,
excluding items on adoption of IFRS 16 (4.1) (8.2)
Underlying profit after tax excluding impact
of IFRS 16 3.6 37.8
------------------------------------------------
Discontinued operations
2019 2018
Restated
GBPm GBPm
Operating profit from discontinued operations 19.1 20.1
Operating lease rentals (7.4) -
Additional depreciation from adoption of
IFRS 16 6.7 -
Operating profit from discontinued operations
excluding impact of IFRS 16 18.4 20.1
-------------------------------------------------
Add back:
Other items 0.7 (0.7)
Underlying operating profit from discontinued
operations excluding impact of IFRS 16 19.1 19.4
-------------------------------------------------
Net finance costs (1.2) 0.1
Add back:
Additional net finance costs from adoption
of IFRS 16 1.2 -
Underlying profit before tax from discontinued
operations excluding impact of IFRS 16 19.1 19.5
-------------------------------------------------
Income tax expense (4.2) (4.4)
Reduction in tax expense from adoption
of IFRS 16 (0.1) -
Add back:
Tax credit associated with Other items 0.7 0.3
Underlying profit after tax from discontinued
operations excluding impact of IFRS 16 15.5 15.4
-------------------------------------------------
Other business held for sale
2019 2018
GBPm GBPm
Operating profit from business held for
sale 2.9 3.5
Operating lease rentals (0.8) -
Additional depreciation from adoption of
IFRS 16 0.7 -
Operating profit from business held for
sale excluding impact of IFRS 16 2.8 3.5
Net finance costs (0.8) (0.7)
Add back:
Additional net finance costs from adoption
of IFRS 16 0.2 -
Underlying profit before tax from business
held for sale excluding impact of IFRS
16 2.2 2.8
Underlying profit before tax excluding
IFRS 16 including businesses held for sale
2019 2018
GBPm GBPm
Underlying profit before tax from continuing
operations excluding impact of IFRS 16 20.6 52.2
Underlying profit before tax from discontinued
operations excluding impact of IFRS 16 19.1 19.5
Underlying profit before tax from other
business held for sale excluding impact
of IFRS 16 2.2 2.8
41.9 74.5
Underlying profit before tax including
businesses held for sale (post IFRS 16)
2019 2018
GBPm GBPm
------------------------------------------------
Underlying profit before tax from continuing
operations 15.6 52.2
Underlying profit before tax from discontinued
operations 18.6 19.5
Underlying profit before tax from other
business held for sale 2.1 2.8
36.3 74.5
------------------------------------------------
b) Covenant leverage
Covenant leverage is one of the primary covenants applicable to the Revolving Credit
Facility and the private placement notes. The monitoring of this covenant is therefore
an important element of treasury risk management for the Group.
2019 2018
Restated
GBPm GBPm
-----------------------------------------------
Underlying operating profit from continuing
operations excluding impact of IFRS 16 33.5 66.9
Underlying operating profit from discontinued
operations held for sale excluding impact
of IFRS 16 19.1 19.4
Underlying operating profit from other
disposal group held for sale excluding
impact of IFRS 16 2.8 3.5
Add back:
Depreciation prior to adoption of IFRS
16 18.7 19.7
Amortisation of computer software 4.5 4.4
Reversal of restatement on net operating
losses attributable to businesses identified
as non-core* - 0.8
Depreciation attributable to businesses
identified as non-core* (0.2) (0.3)
Covenant EBITDA 78.4 114.4
------------------------------------------------
*The 2018 covenant calculation has not been restated to reflect
the decisions made to exit non-core businesses after the signing of
the 2018 Financial Statements (Note 9).
2019 2018
GBPm GBPm
Reported net debt 455.4 189.4
Lease liabilities recognised in accordance
with IFRS 16 (296.0) -
Lease receivables recognised in accordance
with IFRS 16 5.2 -
Other financial liabilities recognised in
accordance with IFRS 16 (1.8) -
162.8 189.4
Other covenant financial indebtedness 5.4 10.9
Foreign exchange adjustment* 0.3 (1.8)
Covenant net debt 168.5 198.5
* For the purpose of covenant calculations, leverage is calculated
using net debt translated at average rather than period end rates.
2019 2018
Covenant leverage (covenant net debt to
covenant EBITDA - maximum 3.0x) 2.1x 1.7x
c) Post-tax Return on Capital Employed ('ROCE')
Return on capital employed is the ratio of operating profit less
taxation divided by average capital employed (average net assets
plus average net debt). The ratio is used to understand the value
creation to shareholders and to understand how effectively the
Group is using the capital and resources it has available.
2019 2018
Restated
GBPm GBPm
Operating profit from continuing operations
excluding the impact of IFRS 16 (92.5) 26.2
Income tax expense excluding the impact
of IFRS 16 (12.9) (6.2)
Operating (loss)/profit after tax from continuing
operations excluding impact of IFRS 16 (105.4) 20.0
Operating profit from discontinued operations
excluding impact of IFRS 16 18.4 20.1
Income tax expense from discontinued operations
excluding the impact of IFRS (4.3) (4.4)
Operating (loss)/profit after tax from discontinued
operations excluding impact of IFRS 16 14.1 15.7
Total operating profit after tax excluding
impact of IFRS 16 (91.3) 35.7
c) Post-tax Return on Capital Employed ('ROCE')
(continued 2019 2018
Restated
GBPm GBPm
Underlying operating profit from continuing
operations excluding impact of IFRS 16 33.5 66.9
Income tax expense excluding impact of IFRS
16 (12.9) (6.2)
Tax credit associated with Other items (4.1) (8.2)
Underlying operating profit after tax from
continuing operations excluding impact of
IFRS 16 16.5 52.5
Underlying operating profit after tax from
discontinued operations excluding impact
of IFRS 16 15.5 15.4
Underlying operating profit after tax from
other disposal group held for sale excluding
impact of IFRS 16 2.3 3.0
Total underlying operating profit after
tax excluding impact of IFRS 16 34.3 70.9
2019 2018
GBPm GBPm
Opening reported net assets 462.9 470.5
Opening reported net debt 189.4 258.7
Opening capital employed 652.3 729.2
Computer software impairment charges* (0.3) (1.4)
Profits and losses on agreed sale or closure
of non-core businesses and associated
impairment charges* 0.1 (6.2)
Adjusted opening capital employed 652.1 721.6
Closing reported net assets 294.2 462.9
Closing reported net debt 455.4 189.4
Lease liabilities recognised in accordance
with IFRS 16 (296.0) -
Lease receivables recognised in accordance
with IFRS 16 5.2 -
Other financial liabilities recognised
in accordance with IFRS 16 (1.8)
Other net asset adjustments recognised
in accordance with IFRS 16 9.9 -
Closing capital employed excluding impact
of IFRS 16 466.9 652.3
Computer software impairment charges* - (0.3)
Profits and losses on agreed sale or closure
of non-core businesses and associated
impairment charges* - 0.1
Adjusted closing capital employed excluding
impact of IFRS 16 466.9 652.1
Average capital employed excluding impact
of IFRS 16 559.6 690.8
Adjusted average capital employed excluding
impact of IFRS 16* 559.5 686.9
* Capital employed has been adjusted to take into account the
normalised impact of the goodwill and intangible impairment
charges, the losses on agreed sale or closure of non-core
businesses and associated impairment charges.
2019 2018
Restated
Unadjusted ROCE excluding impact of IFRS
16 (operating profit after tax to average
capital employed) (16.3)% 5.2%
ROCE excluding impact of IFRS 16 (underlying
operating profit after tax to adjusted
average capital employed) 6.1% 10.3%
d) Covenant interest cover ratio
The covenant interest cover ratio is one of the primary
covenants applicable to the Revolving Credit Facility and the
private placement notes. The monitoring of this covenant is
therefore an important element of treasury risk management for the
Group.
2019 2018
Restated
GBPm GBPm
Underlying operating profit excluding
impact of IFRS 16 33.5 66.9
Add back:
Net operating losses attributable to
businesses identified as non-core 1.9 5.5
Underlying operating profit from discontinued
operations excluding impact of IFRS 16 19.1 19.4
Consolidated EBITA 54.5 91.8
Underlying net finance costs excluding
impact of IFRS 16 12.9 14.7
Net finance cost of disposal groups held
for sale, excluding impact of IFRS 16 0.6 0.6
Less:
Interest costs arising on the defined
benefit pension scheme (0.5) (0.5)
Acceptance commission (0.8) (0.9)
Covenant net interest payable 12.2 13.9
Interest cover ratio (consolidated EBITA
to covenant net interest payable) 4.5x 6.6x
e) Underlying profit before tax excluding impact of IFRS 16 and property profits
This is used to enhance understanding of the underlying
financial performance of the Group and to provide further
comparability between reporting periods.
2019 2018
Restated
GBPm GBPm
Underlying profit before tax from continuing
operations 15.6 52.2
Underlying profit before tax impact
of IFRS 16 for the period (4.9) -
Underlying property profits (0.3) (2.6)
Underlying profit before tax from continuing
operations excluding impact of IFRS 16
and property profits 10.4 49.6
f) Effective tax rates
The effective tax rate is a ratio of income tax expense to
profit/(loss) before tax and is used to assess SIG's contribution
to corporate taxation across the tax jurisdictions in which the
Group operates.
2019 2018
Restated
GBPm GBPm
(Loss)/profit before tax from continuing
operations (112.7) 10.3
Other items 128.3 41.9
Underlying profit before tax from continuing
operations 15.6 52.2
Income tax expense on continuing operations (11.4) (6.2)
Tax credit associated with Other items (4.5) (8.2)
Underlying tax charge on continuing operations (15.9) (14.4)
Effective tax rate (income tax expense to
(loss)/profit before tax) on continuing
operations (10.1)% 60.2%
Underlying effective tax rate (underlying tax
charge to underlying profit before tax) on continuing
operations 101.9% 27.6%
g) Like-for-like working capital to sales ratio
Like-for-like working capital to sales ratio is the ratio of
closing working capital (including provisions but excluding pension
scheme obligations) to annualised revenue (after adjusting for any
acquisitions and disposals in the current and prior year) on a
constant currency basis. The ratio is used to understand how
effectively the Group is using the resources it has available.
2019 2018
Restated
GBPm GBPm
Current:
Inventories 156.5 207.2
Trade and other receivables 294.7 477.7
Contract assets - 1.8
Trade and other payables (327.4) (428.3)
Contract liabilities - (1.6)
Provisions (6.7) (11.0)
Non-current:
Other payables (1.0) (5.6)
Provisions (18.6) (20.4)
Reported working capital 97.5 219.8
Working capital for non-core businesses* 0.8 (25.7)
Foreign exchange adjustment* 2.8 (1.6)
Adjusted working capital 101.1 192.5
* Working capital is translated at average rather than period
end rates. 2018 has been adjusted to include working capital for
businesses held for sale at 31 December 2019 to be consistent with
the revenue from continuing operations below.
2019 2018
GBPm GBPm
Reported revenue from continuing operations 2,160.6 2,431.8
Revenue attributable to business identified
as non-core (75.9) (141.4)
Adjusted revenue 2,084.7 2,290.4
-----------------------------------------------
2019 2018
Restated
Reported working capital to reported
revenue 4.5% 9.0%
Like-for-like working capital to sales
ratio (adjusted working capital to adjusted
revenue) 4.8% 8.4%
h) Consolidated net worth
Consolidated net worth is one of the primary covenants
applicable to the Revolving Credit Facility and the private
placement notes. The monitoring of this covenant is therefore an
important element of treasury risk management for the Group.
2019 2018
GBPm GBPm
Net assets 294.2 462.9
Lease liabilities recognised in accordance
with IFRS 16 296.0 -
Right-of-use assets recognised in accordance
with IFRS 16 (279.8) -
Lease receivables recognised in accordance
with IFRS 16 (5.2) -
Other financial liabilities recognised
in accordance with IFRS 16 1.8 -
Other net asset adjustments recognised
in accordance with IFRS 16 (6.7) -
Less: non-controlling interests - -
Consolidated net worth excluding impact
of IFRS 16 300.3 462.9
------------------------------------------------
i) Cash inflow from trading
This is used to understand how the Group is generating cash from
trading activities.
2019 2018
Restated
GBPm GBPm
Cash generated from operating activities 166.0 103.6
Add back:
Working capital movements:
- Decrease in inventories (1.7) (30.1)
- (Increase)/decrease in receivables (95.6) 6.5
- Increase/(decrease) in payables 23.4 (6.5)
Cash inflow from trading 92.1 73.5
--------------------------------------------
j) Like-for-like sales
Like-for-like sales is calculated on a constant currency basis
and represents the growth in the Group's sales per day excluding
any acquisitions or disposals completed or agreed in the current
and prior year. Revenue is not adjusted for branch openings and
closures. This measure shows how the Group has developed its
revenue for comparable business relative to the prior period. As
such it is a key measure of the growth of the Group during the
year.
France Total France Total
UK Distribution Germany Specialist UK Exteriors Roofing
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Distribution Exteriors (Larivière) Merchanting Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- -------- ------------- ----------- ------- -------- ------------- ---------- -----------------
Statutory
revenue 2019 535.5 94.9 184.5 396.0 156.1 103.0 1,470.0 346.5 344.1 690.6 2,160.6
Non-core
businesses (1.2) - - (14.5) - - (15.7) (58.3) (1.9) (60.2) (75.9)
Underlying
revenue
2019 534.3 94.9 184.5 381.5 156.1 103.0 1,454.3 288.2 342.2 630.4 2,084.7
------------- -------- ------------- ----------- ------- -------- ------------- ---------- -----------------
Statutory
revenue 2018 731.6 103.4 175.4 426.9 156.6 108.4 1,702.3 382.1 347.4 729.5 2,431.8
Non-core
businesses (51.5) (3.5) - (23.5) - - (78.5) (60.2) (2.7) (62.9) (141.4)
Underlying
revenue
2018 680.1 99.9 175.4 403.4 156.6 108.4 1,623.8 321.9 344.7 666.6 2,290.4
------------- -------- ------------- ----------- ------- -------- ------------- ---------- -----------------
% change year
on year:
Underlying
revenue (21.4)% (5.0)% 5.2% (5.4)% (0.3)% (5.0)% (10.4)% (10.5)% (0.7)% (5.4)% (9.0)%
Impact of
currency - 1.3% 1.5% 1.3% 2.0% 1.3% 0.9% - 1.4% 0.7% 0.8%
Impact of
acquisitions - - - - - - - - - - -
Impact of
working days 0.3% 0.4% 0.4% 1.6% 0.4% 0.4% 0.7% 0.4% 0.4% 0.4% 0.6%
Like-for-like
sales (21.1)% (3.3)% 7.1% (2.5)% 2.1% (3.3)% (8.8)% (10.1)% 1.1% (4.3)% (7.6)%
------------- -------- ------------- ----------- ------- -------- ------------- ---------- -----------------
k) Gross margin
Gross margin is the ratio of gross profit to revenue and is used
to understand the value the Group creates from its trading
activities.
France Total France Total
UK Distribution Germany Specialist UK Exteriors Roofing
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Distribution Exteriors (Larivière) Merchanting Group
% % % % % % % % % % %
------------- ----------- ------- -------- ------------- ---------- ----------------- -------
Statutory
gross
margin
2019 26.2% 25.0% 27.5% 27.6% 20.3% 24.7% 25.9% 28.3% 23.3% 25.9% 25.9%
Impact of
non-core
businesses - - - 0.1% - - - 0.1% 0.1% (0.2)% -
Underlying
gross
margin
2019 26.2% 25.0% 27.5% 27.7% 20.3% 24.7% 25.9% 28.4% 23.4% 25.7% 25.9%
-------- ------------- ----------- ------- -------- ------------- ---------- ----------------- -------
Statutory
gross
margin
2018 25.3% 23.8% 27.5% 26.8% 20.0% 23.7% 25.2% 28.3% 23.3% 25.9% 25.4%
Impact of
non-core
businesses (0.6)% 1.5% - 0.1% - - (0.1)% 0.1% - (0.1)% (0.1)%
Underlying
gross
margin
2018 24.7% 25.3% 27.5% 26.9% 20.0% 23.7% 25.1% 28.4% 23.3% 25.8% 25.3%
-------- ------------- ----------- ------- -------- ------------- ---------- ----------------- -------
l) Operating cost as a percentage of sales
This is a measure of how effectively the Group's operating cost
base is being used to generate revenue.
Six months Six months
Six months ended 31 Year ended Six months ended 31 Year ended
ended 30 December 31 December ended 30 December 31 December
June 2019 2019 2019 June 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Statutory revenue 1,272.6 888.0 2,160.6 1,381.7 1,050.1 2,431.8
Non-core businesses (41.8) (34.1) (75.9) (89.0) (52.4) (141.4)
Underlying revenue 1,230.8 853.9 2,084.7 1,292.7 997.7 2,290.4
--------------------------------------
Operating costs (statutory) 326.1 320.9 647.0 338.6 253.8 592.4
Other items (32.3) (115.1) (147.4) (27.0) (53.7) (80.7)
Underlying operating costs 293.8 205.8 499.6 311.6 200.1 511.7
Property profits - 0.3 0.3 0.3 2.3 2.6
Underlying operating costs excluding
property profits 293.8 206.1 499.9 311.9 202.4 514.3
--------------------------------------
Operating costs as a percentage of
statutory revenue 25.6% 36.1% 29.9% 24.5% 24.2% 24.4%
Underlying operating costs excluding
property profits as a percentage of
underlying revenue 23.9% 24.1% 24.0% 24.1% 20.3% 22.5%
Operating costs excluding impact of IFRS 16
2019 2018
GBPm GBPm
Underlying operating costs 499.9 511.7
Operating lease rentals 57.5 -
Additional depreciation from adoption
of IFRS 16 (50.9) -
Adjustment due to treatment of sale
and leaseback transaction (0.4) -
Underlying operating costs excluding
impact of IFRS 16 505.8 511.7
----------------------------------------
m) Return on sales
This is used to enhance understanding and comparability of the
underlying financial performance of the Group by period and
segment, excluding the benefit of property profits which can have a
significant effect on results in a particular period.
France Total France Total Parent
UK Distribution Germany Specialist UK Exteriors Roofing company
Distribution Ireland (LiTT) (WeGo/VTi) Poland Benelux Distribution Exteriors (Larivière) Merchanting costs Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------------- --------
2019
Underlying revenue 534.3 94.9 184.5 381.5 156.1 103.0 1,454.3 288.2 342.2 630.4 - 2,084.7
-------- ----------------- --------
Underlying operating
profit^ 7.9 6.8 11.2 4.4 4.3 5.2 39.8 8.9 8.6 17.5 (17.7) 39.6
IFRS 16 adjustment to
operating profit (2.1) (0.6) (0.4) (1.0) (0.1) (0.1) (4.3) (1.2) (0.6) (1.8) 0.0 (6.1)
----------------------- -------- ----------------- --------
Underlying operating
profit
excluding impact of
IFRS
16 5.8 6.2 10.8 3.4 4.2 5.1 35.5 7.7 8.0 15.7 (17.7) 33.5
Property profits - - - - (0.3) - (0.3) - - - - (0.3)
-------- ----------------- --------
Underlying operating
profit
excluding property
profits
and impact of IFRS 16 5.8 6.2 10.8 3.4 3.9 5.1 35.2 7.7 8.0 15.7 (17.7) 33.2
-------- ----------------- --------
Operating margin 1.5% 7.2% 6.1% 1.2% 2.8% 5.0% 2.7% 3.1% 2.5% 2.8% n/a 1.9%
-------- ----------------- --------
Underlying operating
margin
excluding impact of
IFRS
16 1.1% 6.5% 5.9% 0.9% 2.7% 5.0% 2.4% 2.7% 2.3% 2.5% n/a 1.6%
-------- ----------------- --------
Return on sales
(excluding
IFRS 16 and property
profits) 1.1% 6.5% 5.9% 0.9% 2.5% 5.0% 2.4% 2.7% 2.3% 2.5% n/a 1.6%
-------- ----------------- --------
2018
Underlying revenue 680.1 99.9 175.4 403.4 156.6 108.4 1,623.8 321.9 344.7 666.6 - 2,290.4
------ ------ ------ ------ -------- ------ ------ ------ ------- --------
Underlying
operating profit^ 23.0 6.1 8.6 7.6 3.3 4.5 53.1 13.8 13.2 27.0 (13.2) 66.9
Property profits - - (1.0) (1.6) - - (2.6) - - - - (2.6)
-------------------- ------ ------ ------ ------ -------- ------ ------ --------
Underlying operating
profit
excluding property
profits 23.0 6.1 7.6 6.0 3.3 4.5 50.5 13.8 13.2 27.0 (13.2) 64.3
------ ------ ------ ------ -------- ------ ------ ------ --------
Operating margin 3.4% 6.1% 4.9% 1.9% 2.1% 4.2% 3.3% 4.3% 3.8% 4.1% n/a 2.9%
-------------------- ------ ------ ------ ------ -------- ------ ------ ------ --------
Return on sales
(excluding
property profits) 3.4% 6.1% 4.3% 1.5% 2.1% 4.2% 3.1% 4.3% 3.8% 4.1% n/a 2.8%
-------------------- ------ ------ ------ ------ -------- ------ ------ ------ --------
^ Underlying operating profit equals segmental result before Other items.
n) Underlying EPS excluding impact of IFRS 16
2019 2018
Weighted average number of shares (number) 591,556,982 591,548,834
Underlying profit after tax from continuing
operations excluding impact of IFRS 16 (GBPm) 3.6 37.8
Underlying earnings per share from continuing
operations excluding impact of IFRS 16 (p) 0.6p 6.4p
o) Other non-statutory measures
In addition to the alternative performance measures noted above,
the Group also uses underlying EPS and underlying net finance
cost.
13. Viability Statement
In accordance with the requirements of the 2018 UK Corporate
Governance Code ("the Code"), the directors confirm that they have
performed a robust assessment of the principal risks facing the
Group, including those that would threaten its business model,
future performance, solvency or liquidity. Details of the risk
identification and management process and a description of the
principal risks and uncertainties facing the Group are included in
this Strategic report on pages 46 to 47. As such, the key factors
affecting the Group's prospects are:
-- Market positions: SIG retains strong market positions in its
two core businesses, which the Board believes will continue to
offer sustainable positions over the medium term;
-- Specialist business model: SIG is focused on specialist
distribution and merchanting of specialist products for our
business customers. A defined product focus means SIG occupies a
key supply niche, partnering both suppliers and customers to add
value;
-- Sales mix: a diversified portfolio of products, market
sectors and geographies means SIG has a resilient underlying
portfolio of customers and as a result, competitors, diversifying
the risk around sales for the Group; and
-- Capital structure: ability of the Group to raise up to
GBP150m in new equity and, alongside the proposed equity raise, to
agree amended facilities in respect of the Group's RCF and private
placement debt, including a reset of financial covenants.
The Board has determined that a three-year period to 31 December
2022 is the most appropriate time period for its viability review.
This period has been selected since it gives the Board sufficient
visibility into the future, due to industry characteristics,
business cycle and the tenor of the Group's financing, to make a
realistic viability assessment. This also aligns with the new
growth plan for the business.
The assessment process and key assumptions
As part of the Group's strategic and financial planning process
a medium term business plan including detailed financial forecasts
for the first three years was produced covering the period to 31
December 2022. The process included a detailed review of the plan,
led by the Chief Executive Officer and Chief Financial Officer in
conjunction with input from divisional and functional
management
The key assumptions within the Group's financial forecasts
include:
-- Turnaround for the business: a new strategy is in place based
on growing the stronger EU businesses whilst maintaining margin and
costs, and delivering a market share recapture plan in the UK.
Turnaround in the UK is focussed on back to basics and
re-establishing valuable customer and supplier relationships.
-- Return to profitable growth: a new strategy is in place to
return the Group to profitable growth through focussing on:
o Leading market positions: maintaining and growing our leading
share in chosen specialist markets and obtaining economies of scale
and skill through a modernised supply chain and opportunities to
digitise our business;
o Modernised operating model: driving an omni-channel customer
and sales-led organisation built around strong, local relationships
supported by specialists and national supply chain network; and
o Effective partnerships: strengthening customer relationships
with superior service and expertise and developing supplier
relationships through scale, coverage and knowledge of their
business and markets.
-- Impact of COVID-19: financial forecasts include the impact of
COVID-19 in FY20, in particular in the UK, French and Irish
businesses, with two main scenarios considered and updated for
trading performances during March and April and time required to
return to normal trading.
-- Dividends: no final dividend for 2019 as previously announced.
-- Availability of financing: EUR50m of private placement debt
matures within the viability assessment period and the Group's
GBP233m Revolving Credit Facility ('RCF') is due to expire in May
2021. However, alongside the proposed equity raising and having
regard to the 3 year viability period, the Group is currently
engaged in discussions with its RCF lenders and private placement
noteholders with a view to agreeing amended facilities in respect
of the RCF and private placement debt, including a reset of
financial covenants and an extension of the availability of the
RCF. Pending the entry into such documentation, the Group has
already sought and obtained a waiver of the Consolidated Net Worth
(CNW) covenant contained in the private placement notes in respect
of any testing thereof in the period from 28 May 2020 until 1
August 2020 (subject to certain events not occurring in that
period) including the testing of the CNW covenant as at 31 December
2019 on the basis of these financial statements.
-- Strengthening of balance sheet: a GBP150m equity raise is in
progress to strengthen the Group's balance sheet and enable
reductions in net debt and leverage.
In order to assess the resilience of the Group to threats to its
viability posed by those risks in severe but plausible scenarios,
the Group's financial forecasts were subjected to thorough
multi-variant stress and sensitivity analysis together with an
assessment of potential mitigating actions. This multi- variant
stress and sensitivity analysis included scenarios arising from
combinations of the following:
Variant Link to principal
risks and uncertainties
Sensitivity analysis has been modelled on the Delivering business
basis that the return to profitability may take change
longer than expected, with downside scenarios Market downturn
modelled for 2021 and 2022.
The implications of a challenging economic environment, Delivering business
in particular the continued uncertainty in relation change
to COVID-19, have been modelled by assuming a Market downturn
severe but plausible reduction in sales in FY20 Access to finances
due to temporary closures and reduced operations, and cash management
in particular in the UK, France and Ireland.
The impact of the competitive environment within Delivering business
which the Group's business operates and the interaction change
with the Group's gross margin has been modelled Market downturn
by assuming a severe but plausible reduction
in revenue and gross margin throughout the period.
The impact of the equity raise not being successful Access to finances
has been considered. and cash management
The resulting impact (of the first three factors set out above)
on key metrics was considered with particular focus on solvency
measures including debt headroom and covenants. The impact of a
severe or extreme COVID-19 scenario may affect the carrying value
of the Group's assets and impact the current and (following
documentation being agreed with the Group's RCF lenders and private
placement noteholders) future financial covenants associated with
the RCF and private placement notes.
If the equity raise is not successful then this would trigger an
end to the CNW waiver referred to above or, following documentation
being agreed with the Group's RCF lenders and private placement
noteholders (and based on the Group's current expectations), an
event of default under such amended documentation. In either case
the Group will have to take mitigating actions, including further
discussions with the RCF lenders and the private placement
noteholders regarding any basis upon which they may be willing to
continue to support the Group (including the need for covenant
waivers and access to further liquidity).
The Group has controls in place to monitor these risks. In the
case of these scenarios arising, various mitigating actions are
available to the Group, including further cost reduction
programmes, a reduction in non-essential capital expenditure,
seeking support from the RCF lenders and the private placement
noteholders, seeking alternative sources of finance, making further
business disposals and/or a merger or acquisition transaction.
The financial statements for 2019 are prepared on a going
concern basis but noting a number of material uncertainties which
may cast significant doubt over the Group's ability to continue as
a going concern. These uncertainties relate to the success of the
equity raise, the need to agree amended terms in respect of the RCF
and private placement debt, the impact on the Group's debt
facilities if the equity raise does not go ahead and the
uncertainty regarding the impact of COVID-19.
After conducting their viability review, and taking into account
the Group's current position and principal risks, and noting the
material uncertainties disclosed in relation to going concern, the
directors confirm that they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment to 31 December 2022.
14. Principal risks and uncertainties
The Board sets the strategy for the Group and ensures the risks
for the delivery of this strategy are effectively identified and
managed through the implementation of the risk management
framework.
The Group employs a three lines of defence model to provide a
simple and effective way to enhance the risk management process and
ensure roles and responsibilities are clear. Activity is
coordinated to ensure there are no gaps or duplication of
controls.
The SIG risk management framework is based on the identification
of Group risks through regular discussion at local operating
company leadership, Executive Committee and Transformation
Committee meetings. New and emerging risks are identified through
the use of horizon scanning, attendance at risk forums and risk
workshops held with management teams. Emerging risks identified and
monitored throughout 2018 include Brexit.
14. Principal risks and uncertainties (continued)
Throughout the year the risks that SIG faces have been
critically reviewed and evaluated. The assessment of the most
significant risks and uncertainties that could impact SIG's
long-term performance are outlined below. These risks are not set
out in order of priority and they do not comprise all the risks and
the uncertainties that SIG faces. This list has the potential to
change as some risks assume greater importance than others during
the course of the year.
Risk Controls:
Access to finance and liquidity
Failure to secure ongoing access to finance and/or * Cash forecasting undertaken to manage short-term
maximise working capital and cash to support ongoing liquidity.
business and growth strategies.
* Budgets set for all areas of the business with
accountability for performance established.
* Key metrics reviewed regularly in management accounts
and at management meetings.
* Borrowing requirements regularly reforecast.
* Relationship maintained with banks and PP holders
through regular communications and presentations.
* Monitoring conducted over compliance with covenants.
Retention of talent
Failure to attract, retain people with the right * Improved induction process.
skills, drive and capability to re-shape and grow
the business.
* Engagement survey completed with associated action
plan developed.
* Improved remuneration packages and retention plans
for critical roles.
Cyber security
Internal or external cyber-attack could result * Training, communications and schedule to ensure
in system disruption of loss of sensitive data. employee awareness of risks.
* Disaster recovery plans in place and secure backups
conducted to ensure continuity of service.
* End point encryption installation.
Delivering the customer experience
Failure to deliver consistent, superior service * Customer-centric training and development programmes.
to customers and / or strengthen relationships
with customers.
* Customer segmentation analysis.
* Investment in digitising order-to-delivery processes.
* Development of loyalty programmes.
* Customer metrics are reported and monitored regularly
in management accounts and at management meetings.
Business growth
SIG is unable to grow sales and/ or land new market * Growth targets included in budgets for all business
opportunities to grow market share in line with areas.
strategy.
* Budgets set for all areas of the business with
accountability for performance established.
* Business performance is reported and monitored
regularly in management accounts and at management
meetings.
* Bespoke technical offerings and diverse specialist
product ranges give access to specialist markets.
* Operational marketing (e.g. promotions, incentives)
* Salesforce innovation and diversification activities.
* Regular MD and FD meetings to refresh and implement
growth strategies.
Market downturn
Volatility in the market impact the Group's ability * The Group's geographical diversity across Europe
to accurately forecast and to meet budget and City reduces the impact of changes in market conditions in
expectations . any one country.
* Cost reduction plans across the Group to reduce cost
base.
* Industry-based KPIs and KRIs monitored monthly at a
Group and operating company level.
* Regular and ongoing business performance reviews are
conducted.
Systems failure
Systems become heavily customised and outdated * New IT strategy approved.
and are unable to support critical business activity
and decision making.
* Support from specialised third party experts.
Supplier rebates
The Group may not be accessing and/or maximising * Reducing the reliance on rebate income through
all available rebate income. off-invoice discounting.
* Rebate debtors and income regularly reviewed by
commercial and finance teams.
* Changes to rebate assumptions approved by the rebates
committee.
Health and safety
Danger of incident or accident, resulting in injury * Health and safety policies and procedures in place
or loss of life to employees, customers or the and available to all employees.
general public.
* Well established training programme during induction
and on an ongoing basis.
* Monitoring and reporting on incidents and
investigations into root cause carried out to
continually improve processes.
* Health and safety inspections completed by
independent teams.
Delivering business change
Failure to deliver the change and growth agenda * Project Delivery Framework in place for IT enabled
in an effective manner, resulting in management projects
stretch, compromised quality and inability to meet
growth targets.
* Governance process in place for delivery of major
projects
* Appointment of transformation directors at each
operating company level.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EASSNAEKEEEA
(END) Dow Jones Newswires
May 29, 2020 02:00 ET (06:00 GMT)
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