Disclosure of effect of invoice discounting on operating cash flow and net debt

SIG plc – Annual report – 31 December 2017

Industry: building products

  1. TRADE AND OTHER RECEIVABLES (extract)

TRANSFER OF TRADE RECEIVABLES

The Group sold without recourse trade receivables to banks and other financial institutions for cash proceeds. These trade receivables of £48.7m (2016: £nil) have been derecognised from the Consolidated Balance Sheet, because the Group has transferred the risks and rewards.

  1. RECONCILIATION OF OPERATING LOSS TO CASH GENERATED FROM OPERATING ACTIVITIES (extract)

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^ The total losses on agreed sale or closure of non-core businesses of £72.4m (Note 11) includes the £63.6m above, together with £6.6m in relation to impairment of goodwill (Note 12) and £2.2m in relation to impairment of property, plant and equipment (Note 10).

Included within the cash generated from operating activities is a defined benefit pension scheme employer’s contribution of £2.5m (2016: £2.5m).

Of the total profit on sale of property, plant and equipment, £5.8m (2016: £2.8m) has been included within Other items of the Consolidated Income Statement (see Note 2).

Included within working capital movements are payments of £2.7m (2016: £6.1m) in settlement of contingent consideration dependent upon the vendors remaining with the business.

Receivables have decreased due to debt factoring of £48.7m (2016: £nil).

  1. RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT

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^ 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 has decreased by £48.7m (2016: £nil) due to debt factoring.

Financial review (extract)

CASH FLOW AND FINANCIAL POSITION

Taking into account the restatement of the opening net debt position, the Group ended 2017 with net debt of £223.8m and headline financial leverage of 1.9x. The £55.9m reduction in net debt includes the benefit of £48.7m of receipts relating to non-recourse debt factoring arrangements.

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  • Where net capital expenditure is equal to or less than depreciation (including amortisation of computer software), all such net capital expenditure is assumed to be maintenance capital expenditure. To the extent that net capital expenditure exceeds depreciation, the balance is considered to be investment capital expenditure.

This is still considered by management to be a higher level than desirable taking into account cyclical risk and accordingly further leverage reduction remains a key priority. In particular, management has initiated a number of actions to deliver sustainable reductions in levels of working capital as well as seeking to monetise a number of businesses for cash proceeds as part of the refocusing of the portfolio.

These actions are expected to deliver further reductions in net debt during 2018 which, coupled with improvements in the level of profitability, mean the Group continues to target a 1.0 – 1.5x headline financial leverage range during 2018. SIG’s infill acquisition programme remains suspended until leverage has been brought under control and the Group continues to target headline financial leverage below 1.0x over the medium term.

 

 

 

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