9th Mar 2006 07:01
SIG PLC09 March 2006 9 March 2006 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 SIG plc is the market leading specialist supplier of insulation, roofing andcommercial interiors products in Europe. • SIG reports record sales and profits across all regions, with significant growth over 2004.• Sales increased by 17.2% to £1,639m (2004: £1,398m). Like for like sales growth (i.e. excluding the impact of acquisitions made in 2004 and 2005) was 9.3% in Sterling. o UK and Ireland sales increased 21.1% to £1,098m (2004: £907m). o Mainland Europe sales increased 9.2% to £473m (2004: £434m). o USA sales increased 17.9% to £67.9m (2004: £57.6m). • Underlying* operating profit increased 32.6% to £102.1m (2004: £77.0m). o UK and Ireland underlying operating profit increased 32.2% to £84.4m (2004: £63.8m). o Mainland Europe underlying operating profit increased 26.9% to £19.6m (2004: £15.5m). o USA underlying operating profit increased by 78.9% to £3.0m (2004: £1.7m). • Underlying profit before tax was up 33.0% to £94.3m (2004: £70.9m) and underlying basic earnings per share increased by 30.8% to 52.7p (2004: 40.3p).• Profit before tax was up 23.6% to £86.8m (2004: £70.2m) and basic earnings per share increased by 17.8% to 47.0p (2004: 39.9p).• Dividend per share up 20% to 16.8p (2004: 14.0p).• 21 acquisitions were completed during the year, for a total consideration of £110m. Each of these acquisitions is complementary to our existing trading activities and are within our existing geographic regions. * - Underlying - means excluding the effect of amortisation of acquiredintangibles, impairment of goodwill and hedge ineffectiveness. Les Tench, Chairman, commented: "In 2005, SIG continued its policy of investing in growth and development bothorganically and through acquisition. This programme of targeted investment, andthe strong entrepreneurial spirit of the management and staff throughout theGroup produced outstanding levels of growth over prior year. Whilst market demand in most of the key areas in which the Group is located wasgood, we believe that SIG again outperformed the overall market. The Group enters 2006 with confidence that further progress will be made." Enquiries: David Williams, Chief Executive SIG plc today 020 7251 3801Gareth Davies, Finance Director thereafter 0114 285 6300Faeth Birch / Gordon Simpson Finsbury 020 7251 3801 Full Preliminary Results information is available on www.sigplc.co.uk. Aninterview with David Williams, Chief Executive is now available on SIG's websiteand www.cantos.com Chairman's Statement In 2005, SIG continued its policy of investing in growth and development bothorganically and through acquisition. This programme of targeted investment, andthe strong entrepreneurial spirit of the management and staff throughout theGroup produced outstanding levels of growth over prior year. Whilst market demand in most of the key areas in which the Group is located wasgood, we believe that SIG again outperformed the overall market. Results The results have been prepared in accordance with International FinancialReporting Standards (IFRS), which are fully effective at 31 December 2005. Thecomparative information for the year ended 31 December 2004 has been restated onan IFRS basis. Where reference is made to "underlying", this should be taken as before theamortisation of acquired intangibles, the impairment of goodwill and hedgeineffectiveness. For the year ended 31 December 2005, compared with the corresponding period in2004: Sales • Total sales in Sterling increased by £241.1m (17.2%) to £1,639.3m (2004: £1,398.2m). • Sales growth, excluding the marginally positive impact of foreign exchange movement, was 16.7%. • Like for like sales growth (i.e. excluding the impact of acquisitions made in 2004 and 2005) was 9.3% in Sterling and 8.8% on a constant currency basis. Profits • Underlying operating profit increased by £25.1m (32.6%) to £102.1m (2004: £77.0m). • Amortisation of acquired intangibles increased by £3.1m to £3.7m (2004: £0.6m). • As notified in our Trading Statement in January 2006, an exceptional goodwill impairment charge of £5.7m was made in the year, relating to the write off of the remaining goodwill of the Screenbase business (which was acquired in 2000). • Underlying net finance costs increased by £1.7m to £7.8m (2004: £6.1m), before a credit of £1.9m to finance income relating to hedge ineffectiveness, arising from the new accounting requirements of IAS39. • Underlying profit before tax increased by £23.4m (33.0%) to £94.3m (2004: £70.9m). • Profit before tax increased by £16.6m (23.6%) to £86.8m (2004: £70.2m). Margins • The gross margin increased to 27.0% (2004: 25.8%). • The net underlying operating profit margin increased to 6.2% (2004: 5.5%). Earnings and Dividends • Underlying basic earnings per share increased by 12.4p to 52.7p (2004: 40.3p), an increase of 30.8%. • Basic earnings per share increased by 7.1p to 47.0p (2004: 39.9p), an increase of 17.8%. • A final dividend of 11.5p is proposed, subject to shareholder approval. This would make a total dividend for the year of 16.8p, an increase of 2.8p (20%) on the 2004 full year dividend of 14.0p per share. If approved, this will be payable on 22 May 2006 to shareholders on the register at 21 April 2006. Finances SIG has benefited from another good year of generating cash to help support itsinvestment in organic and acquired growth, with 97% of profit attributable toequity holders being converted into free cashflow. After acquisition spend,gearing increased to 60% (2004: 39%). Interest cover improved to 13.1 times(2004: 12.5 times). Acquisitions 2005 was the most successful year yet in respect of the Group's acquisitionprogramme, with 21 acquisitions completed during the year, for a totalconsideration of £110m including assumed debt. Each of these acquisitions is complementary to our existing trading activities,and is within our existing geographic trading regions. Employees Personal commitment and the personal will to excel lies at the heart of theculture of the Group and I would like to thank all employees for their hard workand valuable efforts during the year. Prospects The Group has benefited from increased demand and a positive pricing environmentin most of the main areas in which it operates during both 2004 and 2005. Coming into 2006, it is expected that demand will continue to improve modestly,but that the impact of pricing, and in particular that of price inflation, willbe less helpful than has been the case for the last 2 years. Looking at the three geographic regions in which we have trading operations,beginning with the UK and Ireland, we expect demand from both residential andnon-residential new build to continue to be positive, and anticipate somecontinued weakness in the residential repairs and maintenance sectors. In Mainland Europe, positive conditions are expected in France, Benelux andPoland. In Germany, whilst market conditions are expected to continue to bedifficult, we do not expect to see the same degree of decline in generalconstruction activity which occurred in 2005. In the USA, the specific industries which we serve are expected to continue theprogramme of investment and rebuilding that began in 2005. Looking at the prospects of SIG on a longer term basis, we plan to continue thefocused and measured expansion of the Group's activities, by adding additionaltrading sites, and by widening the range of specialist products that the Groupsells. The strength of the Group's finances will enable the Company to takeadvantage of opportunities that may arise. Increasing global energy prices and concern about the harmful impact of energyconsumption on the environment are expected to influence demand for insulation.Insulation materials offer a proven solution in the quest to reduce energyconsumption in buildings and in industry. Over time, the Group believes thatgovernments, businesses and the public will increasingly focus on reducingenergy consumption more vigorously than in the past, and that as a resultinsulation demand will rise in the years ahead. The Group enters 2006 with confidence that further progress will be made. Chief Executive's Review of Operations It is pleasing to report that 2005 was a year in which the Group achievedunprecedented levels of growth and expansion. In markets where we have market leadership, this was reinforced and in areaswhere we are still developing our position, considerable progress has been made. Whilst the acquisition programme achieved the largest number of transactions inany year, it is particularly encouraging to see the continued progress andgrowth achieved on a like for like basis. This demonstrates the Group's policy of driving for organic growth, andsupplementing this with targeted acquisitions. Two points stand out as key features of the 2005 results; the underlying likefor like growth in sales, and the improvement in the net operating profitmargin. The improvement in these two key performance measures are a result ofSIG's core principles of Focus, Specialisation and Service. Trading Highlights Where reference is made to underlying operating profit and net underlyingoperating profit margin this should be taken as being before the amortisation ofacquired intangibles and impairment of goodwill. UK & Ireland (67% of total sales) • Total sales increased by £191.0m (21.1%) to £1,098.1m (2004: £907.1m). • Like for like sales increased by £86.6m (9.8%). • Underlying operating profit increased by £20.6m (32.2%) to £84.4m (2004: £63.8m). • Like for like underlying operating profit increased by £9.4m (15.2%) to £71.3m (2004: £61.9m). • The net underlying operating profit margin was increased to 7.7% (2004: 7.1%) • 80 trading sites were added in the year, taking the total at 31 December 2005 to 337 (31 December 2004: 257). Still the largest single part of the Group, the Insulation operations in the UKand Ireland had an excellent year. Total sales increased by 17.3%, and 9.9% on a like for like basis. The netunderlying operating profit margin increased and underlying operating profitswere substantially ahead of prior year. In line with expectations, the increased demand for thermal insulation productsfor use in new buildings, arising from the increased mandatory standards whichwere introduced by a change in the UK Building Regulations in April 2002, hadlevelled off by mid year 2005. This is reflected in a reduced rate of growth inlike for like sales in the second half year. After periods of product shortages in 2003 and 2004, additional manufacturingcapacity began to come on stream throughout 2005, partly to meet demand but alsoin anticipation of future increases in demand, as the Building Regulationsintroduce higher minimum standards of thermal performance in new buildings againin April 2006. This change in the supply / demand balance put pressure onpricing in 2005, and some product prices fell during the year. Demand for insulation for upgrading standards in existing residential propertiesincreased during the year, and the Group's leading position with a number ofenergy producers and grant schemes enabled it to benefit from these positiveconditions. In summary, our insulation business in the UK and Ireland had an excellentperformance in market conditions which became more challenging as the yearprogressed. Against the background of reduced market demand, the Roofing division increasedsales by 15.7% in total, and 5.7% on a like for like basis. The net underlying operating profit margin was slightly reduced, due to costincreases associated with expansion and the dilutive impact of acquisitions madeduring the year. Underlying operating profits were increased significantly overprior year. A significant proportion of sales in this division are materials for the repairand renovation of the roof areas of existing domestic properties. Some of thiswork is driven by discretionary consumer spending - for example the practice ofreplacing wood boarding around the perimeter of house roofs with long lasting,low maintenance, PVC materials. Reduced consumer spending in 2005 has had someimpact on some parts of the roofing industry, and this, together with areduction in housing transactions meant that overall market demand was reducedin the UK. However, in some areas of the country, urban renewal schemes such asthe Decent Homes programme created demand for complete roof renewals in olderresidential properties. In addition, the continued strength of construction in Ireland augured well forour roofing products, and our roofing sales grew substantially on a like forlike basis through our trading sites in this region. Market coverage was improved significantly during the course of the year, and weincreased the number of dedicated roofing product trading sites by 64 to 193 at31 December 2005. The new trading sites were a mixture of brownfield openingsand acquisitions. The Commercial Interiors operations in the UK and Ireland, benefited fromgovernment expenditure on the renovation and replacement of schools, hospitalsand other public buildings. In addition, other areas of non-residentialconstruction were quite strong, including hotels, retail developments, leisurecomplexes and offices. As the leading supplier of internal fit-out products tothe non-residential building industry, the Group made substantial progress in2005. Total sales in the sector were up 25.9%, and 15.0% on a like for likebasis. The net underlying operating profit margin was increased, due to positivechanges in the mix of sales, together with the positive impact of the highermargin in the business acquired during the year. The operating profit was substantially increased, both before and after the£5.7m goodwill write-off relating to Screenbase, a business which was acquiredin 2000 and which forms a small part of our UK Commercial Interiors operations. In June 2005 we acquired the UK's premier supplier of high performance interiordoor sets, with a proven track record in the design and supply of qualityproducts to all types of non-residential buildings. This substantially increasesour existing doors business, and is part of the programme of offering a widerrange of products to customers. The 2004 revision of the UK Building Regulations concerning the acousticperformance of buildings had an impact on parts of the Commercial Interiorsbusiness (in addition to the UK Insulation business itself), and resulted inincreased sales of certain products to meet the new standards. Within Safety and Specialist Construction Products, excellent progress was madewith sales up 57.6% in total, and 9.2% on a like for like basis. The net underlying operating margin increased, and underlying operating profitswere substantially ahead of prior year. Within Safety products, sales via the company internet trading site increasedsignificantly. During 2005 the Specialist Construction Products division was created and givenincreased focus and identity. A new senior management team was appointed withdedicated responsibility for this emerging division. Operating in a focused but fragmented industry, the business supplies essentialspecialist materials and products to tradesmen and construction companiesworking on both housing and non-residential building projects. Specific productsinclude specialist mechanical fixings and fastenings, chemicals and metalreinforcing products used in concrete structures and other civil engineeringapplications. There are related uses for certain types of insulation materials,which provides a natural synergy with other parts of SIG. Mainland Europe (29% of total sales) • Total sales in Mainland Europe increased by £39.8m (9.2%) to £473.4m (2004: £433.6m). • Like for like sales, on a constant currency basis, increased by 5.8% over 2004. • Total underlying operating profit increased by £4.2m (26.9%) to £19.6m (2004: £15.5m). • Underlying operating profit, on a constant currency basis increased by 25.6%. • 6 trading sites were added during the year, taking the total in Mainland Europe to 139 at 31 December 2005 (133 at 31 December 2004). • All countries in which SIG has trading activities increased both sales and operating profit on a like for like basis, over 2004. • The net underlying operating profit margin was increased to 4.1% (2004: 3.6%). In Germany, (60% of total sales in Mainland Europe), the construction andbuilding industry experienced lower levels of activity across both residentialand non-residential sectors, which caused a reduction in market demand for ourproducts, principally insulation and commercial interiors materials. Marketprices weakened, and the combination of these factors made trading conditionsvery challenging. Demand for more specialist insulation materials for a range of process andindustrial applications held up rather better. In addition, we had the benefitin 2005 of a full year's contribution from the new trading sites which begantrading towards the latter part of 2004 including three brownfield trading sitesin Austria. Overall, sales increased by 4.2% in Euros, 4.8% in Sterling, a goodperformance in a difficult market. Continued close management attention to pricing controls and cost efficienciesenabled the net operating margin to be improved, and the operating profit wassubstantially increased. During the course of 2005, we added 1 further trading site, taking the total inGermany and Austria combined to 65. In France, (25% of total sales in Mainland Europe), overall market conditionswere favourable, with good levels of demand for both insulation and commercialinteriors products, and pricing levels firm. In addition, we continued to expand our sales of air handling products, whichare used primarily in larger, non-residential buildings. The two roofing trading sites which were opened in 2003 on a trial basis had notmet our expectations, and they were sold in November 2005. Total sales in France increased by 13.6% in Euros, 14.3% in Sterling. The likefor like sales growth on a constant currency basis was 8.2%. Again, local management were successful in achieving an increase in the netoperating profit margin, and operating profits were increased significantly. We added 3 new trading sites during 2005, taking our network to a total of 45 atthe year end. In Benelux, (7.5% of total sales in Mainland Europe), market conditionscontrasted from weak in the Netherlands, to strong in Belgium. Our activitiesare biased towards the Netherlands, and we acquired a further trading site inBelgium towards the year end to improve our market penetration. The changes made in 2004 to the branch structure and to the local managementteam had a very positive impact on our performance in 2005. Total salesincreased by 9.2% in Euros, 9.9% in Sterling. Like for like sales growth was6.7% on a constant currency basis, an excellent achievement in difficultmarkets. The net operating margin was increased and operating profits rose substantially. We added 3 trading sites in the year, taking our total at the year end to 10. In Poland, (7.5% of total sales in Mainland Europe), we had our most successfulyear. Market conditions were actually less favourable than had been expected,and whilst non-residential construction was a little stronger than in theprevious year, housebuilding, which is very fragmented in Poland, was reportedto have declined. We continued to invest in our operations to improve customer-facing services,and believe we have made good progress despite the rather hesitant recovery inthe building sector. Total sales, entirely like for like, were up by 23.2% in local currency, 38.9%in Sterling. In line with the pattern across SIG's operations in Europe, boththe net operating margin and operating profits were substantially ahead of prioryear. USA (4% of total sales) • Total sales increased by £10.3m (17.9%) to £67.9m (2004: £57.6m). • Like for like sales in local currency increased by 16.4%. • Total operating profit increased by £1.3m (78.9%) to £3.0m (2004: £1.7m), entirely on a like for like basis. • The net operating profit margin increased to 4.4% (2004: 2.9%). Specialist technical insulation materials, used in a wide range of industrial,process and air-handling applications, form the core of the Group's sales in theUSA, and demand increased throughout the year. This momentum was accelerated by the after effects of the catastrophic hurricanedamage which occurred in the Southern US States in September 2005. The Group has its larger trading operations in the area affected by thehurricanes and after a period of major disruption throughout the region,customers involved in oil, gas and petrochemical industries began to rebuild,repair and replace process plants. This work requires technical high temperatureinsulation as a core material, and the Group's operations were able to quicklyrespond to the increased demand. It should be recognised that many of our staff experienced enormous personaldifficulties and loss due to the storm damage, including in some cases thecomplete destruction of their homes. The speed with which employees responded toboth the personal and business challenges was very impressive. Acquisitions A total of 21 acquisitions were completed in the year, all of which complementexisting businesses within SIG, and are within countries in which we alreadyhave a trading presence. The total spend on these acquisitions was £110m (including assumed debt andcontingent consideration) bringing £145m of annualised sales to the Group. 17 of the acquisitions were made in the UK, comprising 2 in insulation, 9 inroofing, 1 in commercial interiors and 5 in specialist construction products. The remaining 4 businesses acquired are in Mainland Europe, comprising aninsulation business in France, an insulation and a commercial interiors businessin Benelux, and a commercial interiors business in Germany. All of the acquisitions meet the strategic requirement of being suppliers ofspecialist products, chiefly to the building and construction industry and theintegration process is progressing well. The 68 additional sites added through the acquisition programme have enabled SIGto reach new customers, extend our product offering to existing and newcustomers, and to further improve our standards of service to all customersthereby continuing the process of strengthening the Company going forward. Summary of Trading Performance The combination of strong growth from the core operations of SIG, and the highlevel of acquisition activity during the year, produced excellent overallresults in 2005. This performance also demonstrates the success of anothercombination; that of clear, focused strategies combined with the drive, energyand enthusiasm of all our employees. Consolidated Income Statementfor the year ended 31 December 2005 Before Amortisation of Total Before Amortisation of Total amortisation of acquired amortisation of acquired acquired intangibles, acquired intangibles, intangibles, goodwill intangibles, goodwill goodwill impairment and goodwill impairment and impairment and hedge impairment and hedge hedge ineffectiveness* hedge ineffectiveness* ineffectiveness* ineffectiveness* 2005 2005 2005 2004 2004 2004 Continuing Note £000's £000's £000's £000's £000's £000'sOperations RevenueExisting 1,581,142 - 1,581,142 1,369,093 - 1,369,093operationsAcquisitions 58,190 - 58,190 29,144 - 29,144Continuing 2 1,639,332 - 1,639,332 1,398,237 - 1,398,237operations Cost of sales 1,196,328 - 1,196,328 1,037,052 - 1,037,052Gross profit 443,004 - 443,004 361,185 - 361,185Other 340,901 9,342 350,243 284,165 634 284,799operatingexpenses OperatingprofitExisting 96,356 (9,342) 87,014 75,139 (634) 74,505operationsAcquisitions 5,747 - 5,747 1,881 - 1,881Continuing 2 102,103 (9,342) 92,761 77,020 (634) 76,386operations Finance income (6,691) (1,880) (8,571) (5,045) - (5,045)Finance costs 14,521 - 14,521 11,202 - 11,202 Profit before tax 94,273 (7,462) 86,811 70,863 (634) 70,229Income tax expense 29,211 (542) 28,669 21,615 (190) 21,425 Profit after tax 65,062 (6,920) 58,142 49,248 (444) 48,804 Attributable to:Equity holders of the 64,106 (6,920) 57,186 48,676 (444) 48,232CompanyMinority 956 - 956 572 - 572interests Earnings pershareBasic earnings 3 52.7p (5.7p) 47.0p 40.3p (0.4p) 39.9pper shareDiluted 3 51.9p (5.6p) 46.3p 39.7p (0.4p) 39.3pearnings pershare * Amortisation of acquired intangibles, goodwill impairment and hedge ineffectiveness have beendisclosed separately in order to give an indication of the underlying earnings of the Group. Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2005 2005 2004 Note £000's £000's Profit after tax 58,142 48,804Exchange difference on retranslation of foreign (725) 149currency goodwill and intangiblesExchange difference on retranslation of foreign (1,669) (619)currency net investments (excluding goodwill andintangibles)Exchange difference on foreign currency 1,111 (1,676)borrowingsTax (charge)/credit on exchange difference (639) 1,786arising on foreign currency borrowingsDeferred tax on share options 596 1,824Actuarial loss relating to the pension schemes (1,885) (8,741)Deferred tax movement associated with actuarial 563 2,537lossTransitional adjustment to adopt IAS 32 and IAS 7 (6,625) -39 at 1 January 2005Recognition of deferred tax assets on certain 7 3,869 -transitional adjustments at 1 January 2005 Total recognised income and expense for the year 52,738 44,064 Attributable to:Equity holders of the Company 51,782 43,492Minority interests 956 572 52,738 44,064 Consolidated Balance Sheet 2005 2004as at 31 December 2005 Note £000's £000's Non-current assetsProperty, plant and equipment 102,093 74,481Goodwill 164,675 113,467Intangible assets 49,252 14,714Deferred tax assets 21,085 21,455 337,105 224,117 Current assetsInventories 128,101 113,636Trade receivables 281,053 243,766Other receivables 21,745 19,996Cash and cash equivalents 32,120 19,467 463,019 396,865 Total assets 800,124 620,982 Current liabilitiesTrade and other payables 224,859 189,233Obligations under finance leases and hire 756 1,391purchase agreementsBank overdrafts 3,211 2,966Bank loans 95,148 10,245Loan notes 2,253 -Current tax liabilities 25,483 13,995Provisions 2,252 1,735 353,962 219,565 Non-current liabilitiesObligations under finance leases and hire 838 564purchase agreementsBank loans 521 1,345Derivative financial instruments 28,376 -Loan notes 75,740 101,274Deferred tax liabilities 7,507 6,615Other payables 2,159 3,955Retirement benefit obligations 26,987 25,035Provisions 13,695 8,714 155,823 147,502 Total liabilities 509,785 367,067 Net assets 290,339 253,915 Capital and reservesCalled up share capital 4 12,189 12,139Share premium account 4 17,883 16,793Capital redemption reserve 4 347 347Special reserve 4 22,113 22,113Share option reserve 4 1,375 639Hedging and translation reserve 4 (2,282) (360)Retained profits 4 237,515 201,672Attributable to equity holders of the Company 289,140 253,343 Minority interests 4 1,199 572 Total equity 4 290,339 253,915 Consolidated Cash Flow Statementfor the year ended 31 December 2005 2005 2004 Note £000's £000'sNet cash flow from operating activitiesCash inflow from operating activities 5 113,581 77,422 Borrowing costs paid (11,511) (8,472)Interest received 3,518 2,319Income tax paid (21,850) (15,049) Net cash inflow from operating 83,738 56,220activities Cash flows from investing activitiesPurchase of property, plant and (34,547) (22,627)equipmentProceeds from sale of property, plant 2,098 1,549and equipmentPurchase of businesses (83,482) (35,740) Net cash used in investing activities (115,931) (56,818) Cash flows from financing activitiesProceeds from issue of ordinary share 1,140 1,938capitalCapital element of finance lease rental (335) (3,317)paymentsRepayment of loans (22,020) (17,172)New loans 84,511 -Dividends paid to equity holders of the (17,861) (15,587)CompanyPayments to minority shareholder (572) (447) Net cash generated/(used) in financing 44,863 (34,585)activities Increase/(decrease) in cash and cash 6 12,670 (35,183)equivalents in the year Cash and cash equivalents at beginning 16,501 51,356of year Effect of foreign exchange rate changes (262) 328 Cash and cash equivalents at end of year 28,909 16,501 Notes 1. Basis of preparation The Group's financial information has been prepared in accordance withInternational Financial Reporting Standards ("IFRS") issued for use in theEuropean Union and are effective or available for adoption at the Group's firstIFRS annual reporting date, 31 December 2005. Comparative information for theyear ended 31 December 2004 has been restated under IFRS from the UK FinancialReporting Standard ("UK GAAP") values originally reported by the Group. While the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRS. The Company will publish full IFRScompliant accounts towards the end of March 2006. The preliminary announcement does not constitute the Company's statutoryaccounts for the year ended 31 December 2005 or 31 December 2004 within themeaning of Section 240 of the Companies Act 1985 but is derived from thosestatutory accounts. The Group's statutory accounts for the year ended 31 December 2004 have beenfiled with the Registrar of Companies, and those for 2005 will be deliveredfollowing the Company's Annual General Meeting. The auditors have reported onthe statutory accounts for 2005 and 2004, and their reports were unqualified anddid not contain statements under section 237 (2) or 237 (3) of the Companies Act1985. The financial information has been prepared under the historical cost conventionexcept for derivative financial instruments that are stated at their fair value. IFRS 1 permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. TheGroup has taken advantage of the following exemptions: a) IFRS 3 "Business combinations" - the Group has elected not to appl IFRS 3 retrospectively to acquisitions that took place before 1 January 2004. b) IFRS 2 "Share based payments" - the Group has elected to apply IFRS 2 only to those share based payment options that were granted after 7 November 2002 and remained unvested at 1 January 2005. c) IAS 21 "The effects of changes in foreign exchange rates" - the Group has elected to reset the hedging and translation reserve to zero at 1 January 2004. d) IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement"- the Group has elected to apply UK GAAP to its comparative accounts (i.e. 1 January 2004 to 31 December 2004) and implement IAS 32 and IAS 39 at 1 January 2005. On 1 January 2005, in accordance with IAS 32 and IAS 39, all derivative financial instruments are recorded at their fair value. The difference between the fair value and book value of all derivative financial instruments at 1 January 2005 has been recorded in 2005 through the Consolidated Statement of Recognised Income and Expense. The Group has today released a "Final Restatement of 2004 Financial Information"document that contains the following: • the restatement of 2004 comparative financial information from UK GAAP to IFRS, including a reconciliation of equity from UK GAAP to IFRS at the date of transition and 31 December 2004; • a summary of significant accounting policies; and • an unqualified independent auditors' report on the document This document can be found on the Company's website, www.sigplc.co.uk and isalso available in hard copy from the Company Secretary of SIG plc at theregistered office (tel. 0114 2856300). 2. Segmental information The Group is managed and organised in three geographies: UK & Ireland, Mainland Europe and the USA. These geographies are the basis on which the Group reports its primary segment information. Segment information about these geographies is presented below: 2005 2005 2005 2005 2005 2004 2004 2004 2004 2004 UK & Mainland USA Eliminations Total UK & Mainland USA Elimina- Total Ireland Europe Ireland Europe tions REVENUE £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's External sales 1,098,055 473,393 67,884 - 1,639,332 907,054 433,595 57,588 - 1,398,237Intersegment sales* - 2 50 (52) - 3 48 57 (108) -Total Revenue 1,098,055 473,395 67,934 (52) 1,639,332 907,057 433,643 57,645 (108) 1,398,237 Segment result before 84,359 19,612 3,008 - 106,979 63,823 15,456 1,681 - 80,960amortisation of acquiredintangibles and goodwillimpairment lossAmortisation of acquired (3,630) (58) - - (3,688) (619) (15) - - (634)intangiblesGoodwill impairment loss (5,654) - - - (5,654) - - - - - Segment result 75,075 19,554 3,008 - 97,637 63,204 15,441 1,681 - 80,326 Parent Company costs (4,876) (3,940)Operating profit 92,761 76,386 Net finance costs (5,950) (6,157)Profit before tax 86,811 70,229 Income tax expense (28,669) (21,425)Minority interests (956) (572)Retained profit 57,186 48,232BALANCE SHEETAssetsSegment assets 587,710 179,100 31,535 798,345 422,705 168,095 24,826 615,626Unallocated assets ,779 5,356Consolidated total assets 800,124 620,982LiabilitiesSegment liabilities 238,255 54,200 6,327 298,782 190,587 57,332 4,350 252,269Unallocated liabilities 211,003 114,798Consolidated total 509,785 367,067liabilities * Intersegment sales are charged at the prevailing market rates. 2. Segmental information (continued) 2005 2005 2005 2005 2004 2004 2004 2004 UK & Mainland USA Total UK & Mainland USA Total Ireland Europe Ireland Europe £000's £000's £000's £000's £000's £000's £000's £000'sOTHER SEGMENT INFORMATIONCapital expenditure on:Property, plant and 25,773 8,448 326 34,547 16,526 5,672 429 22,627equipmentIntangible assets 37,543 689 - 38,232 15,138 210 - 15,348Goodwill 56,107 1,474 - 57,581 29,543 801 - 30,344 Non cash expenditure:Depreciation 16,537 4,781 501 21,819 12,295 4,899 626 17,820Amortisation of acquired 3,630 58 - 3,688 619 15 - 634intangiblesGoodwill impairment loss 5,654 - - 5,654 - - - - 3. Earnings per shareThe calculations of earnings per share are based on the followingprofits and numbers of shares: Basic and diluted Basic and diluted before amortisation of acquired intangibles, goodwill impairment and hedge ineffectiveness 2005 2004 2005 2004 £000's £000's £000's £000's Profit after tax 58,142 48,804 58,142 48,804Minority interests (956) (572) (956) (572)Amortisation of intangibles - - 3,688 634Goodwill impairment loss - - 5,654 -Hedge ineffectiveness - - (1,880) -Tax effect of amortisation - - (542) (190)of acquired intangibles andhedge ineffectiveness 57,186 48,232 64,106 48,676 2005 2004Weighted average number of Number Numbershares For basic earnings per 121,625,474 120,863,011shareExercise of share options 1,970,146 1,747,068 For diluted earnings per 123,595,620 122,610,079share Earnings per share before amortisation of acquired intangibles, goodwill impairmentand hedge ineffectiveness is presented in order to give an indication of theunderlying performance of the Group. 4. Consolidated Statement of Changes in Equity Called Share Capital Special Share Hedging and Retained Total Minority Total up premium redemption reserve option translation profits interests equity share account reserve reserve reserve capital £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000's At 1 January 12,027 14,967 347 22,113 237 66 149,556 199,313 447 199,7602004 - UK GAAPIFRS adjustments: Reverse - - - - - - 9,983 9,983 - 9,983proposeddividend Stock - - - - - - (2,800) (2,800) - (2,800)valuationadjustment Deferred tax - - - - - - 12,845 12,845 - 12,845 Lease - - - - - - (510) (510) - (510)incentives Retranslation - - - - - 4,278 - 4,278 - 4,278of goodwill Exchange - - - - - (4,344) 4,344 - - -reserve reset Adjustment to - - - - - - (57) (57) - (57)pension assetvaluation Adjustment - - - - (46) - 46 - - -for IFRS 2Share basedpayments At 1 January 12,027 14,967 347 22,113 191 - 173,407 223,052 447 223,4992004 - IFRS Profit for - - - - - - 48,232 48,232 572 48,804the period Dividends - - - - - - (15,587) (15,587) - (15,587) New share 112 1,826 - - - - - 1,938 - 1,938capitalissued Exchange - - - - - 149 - 149 - 149difference onretranslationof foreigncurrencygoodwill andintangibles Exchange - - - - - (619) - (619) - (619)difference onretranslationof overseasnetinvestments(excludinggoodwill andintangibles) Exchange - - - - - (1,676) - (1,676) - (1,676)difference onforeigncurrencyborrowings Tax credit on - - - - - 1,786 - 1,786 - 1,786exchangedifferencearising onforeigncurrencyborrowings Deferred tax - - - - - - 1,824 1,824 - 1,824on shareoptions Credit to - - - - 448 - - 448 - 448share optionreserve Actuarial - - - - - - (8,741) (8,741) - (8,741)loss ondefinedbenefitpensionschemes Deferred tax - - - - - - 2,537 2,537 - 2,537movementassociatedwithactuarialloss Payment to - - - - - - - - (447) (447)minorityinterestshareholder At 31 12,139 16,793 347 22,113 639 (360) 201,672 253,343 572 253,915December 2004- IFRS 4 .Consolidated Statement of Changes in Equity (continued) Hedging Capital and Called up Share redemp Share trans share premium -tion Special option -lation Retained Minority Total capital account reserve reserve reserve reserve profits Total interests equity £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000's £'000'sAt 31 December 2004 - IFRS 12,139 16,793 347 22,113 639 (360) 201,672 253,343 572 253,915 Profit for the period - - - - - - 57,186 57,186 956 58,142 Dividend - - - - - - (17,861) (17,861) - (17,861) New share capital issued 50 1,090 - - - - - 1,140 - 1,140 Exchange difference on - - - - - (725) - (725) - (725)retranslation of foreign currency goodwilland intangibles Exchange difference on - - - - - (1,669) - (1,669) - (1,669)retranslation of overseas net investments (excludinggoodwill and intangibles) Exchange difference on foreign - - - - - 1,111 - 1,111 - 1,111currency borrowings Tax debit on exchange difference - - - - - (639) - (639) - (639)arising on foreign currencyborrowings Deferred tax on share options - - - - - - 596 596 - 596 Credit to share option reserve - - - - 736 - - 736 - 736 Actuarial loss on defined benefit - - - - - - (1,885) (1,885) - (1,885)pension schemes Deferred tax movement associated - - - - - - 563 563 - 563with actuarial loss Payment to minority interest - - - - - - - - (572) (572)shareholder Recognition of minority interest - - - - - - - - 243 243on acquisition Transitional adjustment to adopt - - - - - - (6,625) (6,625) - (6,625)IAS 32 and IAS 39 at 1 January 2005 (note 7) Recognition of deferred tax assets - - - - - - 3,869 3,869 - 3,869on certain transitionaladjustments at 1 January 2005 (note 7) At 31 December 2005 - IFRS 12,189 17,883 347 22,113 1,375 (2,282) 237,515 289,140 1,199 290,339 5. Reconciliation of operating profit to cash inflow from operatingactivities 2005 2004 £000's £000's Operating profit 92,761 76,386 Depreciation charge 21,819 17,820Amortisation of intangibles 3,688 634Goodwill impairment loss 5,654 -Profit on sale of property, plant and (572) (279)equipmentShare based payments 736 448Increase in inventories (5,066) (19,037)Increase in receivables (10,043) (21,573)Increase in payables 4,604 23,023 Cash inflow from operating activities 113,581 77,422 Acquisitions made in the year had the following impact on the Group's cashflowsin 2005: cash inflow from operating activities £5.795m (2004 : £1.125m),borrowing costs paid £1.389m (2004: £0.049m), purchase of property, plant andequipment £1.018m (2004: £0.114m), repayment of loans £3.247m (2004 : £nil) andincome tax paid £1.034m (2004: £0.624m).Included within the increase in payables is a cash outflow relating to definedbenefit pension contributions being £0.863m (2004 : £5.048m) greater than theamount charged to operating profit. 6. Reconciliation of net cash flow to movements in net 2005 2004debt £000's £000'sIncrease / (decrease) in cash and cash equivalents 12,670 (35,183)in the yearCash (outflow) / inflow from movement in debt (62,156) 20,255Increase in net debt resulting from cash flows (49,486) (14,928)Debt acquired with acquisitions (21,270) (7,488)Non-cash items (271) -IFRS transitional adjustment (note 7) (6,625) -Exchange differences 1,247 413 Increase in net debt in the year (76,405) (22,003)Net debt at beginning of year (98,318) (76,315) Net debt at end of year (174,723) (98,318) 7. Transitional adjustment to adopt IAS 32 and IAS 39 at 1 January2005The Group has derivative financial instruments associated with its US Senior loannotes, being interest and foreign currency contracts. These convert the Group'sinterest and loan principal payments under the US Senior loan notes into Sterlingand Euro currencies in order to fund the Group's UK and European operations.Previously under UK GAAP, the Group recognised the book value of its derivativefinancial instruments in the carrying value of its US Senior loan note debt. The Group has elected to apply UK GAAP to its comparative accounts (i.e. 1 January2004 to 31 December 2004) and implement IAS 32 and IAS 39 at 1 January 2005. On 1January 2005, in accordance with IAS 32 and IAS 39, all derivative financialinstruments are recorded at their fair value. The difference between the fair valueand book value of all derivative financial instruments at 1 January 2005 was£6.625m, being an additional liability for the Group. In addition, as a result offurther guidance issued by the UK tax authorities regarding the tax treatment oftransitional adjustments relating to derivative financial instruments and foreigncurrency exchange differences, the Group has recognised a deferred tax asset of£3.869m at 1 January 2005. Both of these transitional adjustments have beenrecorded in 2005 through the Consolidated Statement of Recognised Income andExpense. The table below shows the effect of including the fair value of thesederivative financial instruments on the Consolidated Balance Sheet and theassociated deferred tax assets at 1 January 2005: At 1 January 2005 UK GAAP IFRS £000's £000'sUS Senior loan note debt 94,268 63,854US Senior loan note derivative - 37,039financial instrumentsTotal 94,268 100,893 Additional liability under IFRS 6,625Deferred tax assets (3,869)Reduction in net assets at 1 January 2,7562005 as a result of adopting IAS 32 andIAS 39 Under UK GAAP, the debt is valued as a composite liability by converting theSterling and Euro principal values featuring in the loan note derivative financialinstruments at the closing rates of exchange at the balance sheet date. TheSterling value of this debt therefore moves with the Sterling:Euro exchange rate. Under IFRS, the US Senior loan notes are valued at the closing US dollar:Sterlingexchange rate. The derivative financial instruments are valued at their fair marketvalue at the balance sheet date.It must be noted that the recognition of this additional £6.625m liability as aresult of adopting IFRS will not impact the cashflows of the Group. Upon expiry ofthese derivatives in 2008 and 2011, the value of the loan notes and the associatedderivatives under IFRS will equal the equivalent UK GAAP book value of thecomposite debt at that time. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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