Signet Jewelers Limited (SIG, NYSE)
Industry: Luxury Goods
Annual report, fiscal year 2010






## AT A GLANCE: PERFORMANCE





















* Underlying figures are stated before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

Like for like is defined as the business excluding the impact of acquisitions and disposals made in the current and prior year.



## OUR BUSINESS

# SIG plc is a leading European specialist supplier of insulation, exteriors, interiors and specialist construction products.

SIG’s strategy is to develop and grow the Group as a leading supplier of specialist products to the construction and related markets, in order to achieve sustainable long term growth in shareholder value.

The Group’s level of net debt reduced by £70m from £255m at 31 December 2009 to £185m at 31 December 2010. The Group’s significantly strengthened financial position ensures that the Group has the financial stability to support the Group’s growth plans in the medium and longer term. See page 23 for further details.

Despite the downturn and the Group’s cost saving and restructuring programme, in order to ensure the business is reshaped to benefit fully from the recovery in its markets, the Group has continued to invest throughout the downturn in carefully selected organic development growth initiatives. See page 11 for further details.

Overall the Group’s end markets in which it operates began to stabilise as 2010 progressed, with sales on a constant currency basis up 2.3% in H2 2010 compared to the equivalent period in 2009. The continuing stabilisation of the Group’s markets will provide a platform to improve the Group’s return on sales. See page 15 for further details.

The Group continued its cost saving and restructuring programme in 2010. Since mid-2008, the Group’s cost saving and restructuring programme has delivered £110m of annualised net cost savings. These carefully designed operating cost saving measures will stand the Group in good stead to benefit from the recovery in each of SIG’s markets. See page 21 for further details.

In 2010 the Group took the strategic decision to refinance its UK bank debt and has recently signed a new £250m four year bank facility. The new debt facility provides the Group with a strong financial platform to support future growth. See page 29 for further details.

## REVIEW OF THE YEAR

IFC AT A GLANCE: PERFORMANCE
01 OUR BUSINESS
02 AT A GLANCE: ACTIVITIES
04 CHAIRMAN'S STATEMENT
06 2010 BUSINESS REVIEW
32 INSULATION AND BUILDING
ENVIRONMENTS
34 EXTERIORS
36 INTERIORS
38 SPECIALIST CONSTRUCTION PRODUCTS

## CORPORATE GOVERNANCE

40 CORPORATE RESPONSIBILITY REPORT
48 BOARD OF DIRECTORS
49 COMPANY INFORMATION
49 FINANCIAL CALENDAR
49 SHAREHOLDER ANALYSIS
50 STATUTORY INFORMATION
54 STATEMENT OF DIRECTORS' RESPONSIBILITIES
55 CORPORATE GOVERNANCE
59 DIRECTORS' REMUNERATION REPORT
66 REPORT OF THE AUDIT COMMITTEE

## GROUP ACCOUNTS

69 CONSOLIDATED INCOME STATEMENT
70 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
71 CONSOLIDATED BALANCE SHEET
72 CONSOLIDATED CASH FLOW STATEMENT
73 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
74 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
79 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
80 NOTES TO THE ACCOUNTS
110 INDEPENDENT AUDITORS REPORT
111 FIVE YEAR SUMMARY

## COMPANY ACCOUNTS

113 COMPANY BALANCE SHEET
114 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
115 NOTES TO THE COMPANY ACCOUNTS
119 INDEPENDENT AUDITORS REPORT
120 PRINCIPAL ADDRESSES
121 PRINCIPAL TRADING SUBSIDIARIES



ANNUAL REPORT 2010 ONLINE
Go to our online report for additional
features and supporting content:
www.sigplc.com



## AT A GLANCE: ACTIVITIES

## WHERE WE OPERATE

UK and Ireland

£1,281.2m

48.0%
of total revenue

Mainland Europe

£1,386.8m

52.0%
of total revenue



Principal countries of operation:

<table><tr><td></td><td>Insulation and Building Environments</td><td>Exteriors</td><td>Interiors</td><td>Specialist Construction Products</td></tr><tr><td>United Kingdom</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Ireland</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Germany and Austria</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>France</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Poland</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Benelux</td><td>✓</td><td></td><td>✓</td><td></td></tr><tr><td>Czech Republic, Slovakia and Hungary</td><td>✓</td><td></td><td>✓</td><td>✓</td></tr></table>

In addition to SIG’s principal countries of operation the Group also has a small trading presence in six other jurisdictions, being Turkey, Romania, Bulgaria, UAE, Spain and Luxembourg. The operations in these six jurisdictions amount in total to less than 1% of Group revenue and have therefore not been included in the table above.



Insulation and Building Environments

SIG is the largest specialist supplier of insulation and related products in Europe. It holds leading market positions in the UK, Ireland, Germany and Poland and is the leader in industrial insulation in France.

SIG also operates in The Netherlands, Belgium, Austria, Czech Republic, Slovakia and Hungary.

Revenue:

£1,020.6m

38%
of total revenue



Key Market Drivers

The need to reduce energy consumption

• More stringent Government regulation

• Government initiatives around renewable energy




Exteriors

SIG is the largest specialist supplier of exterior roofing products in the UK and Ireland, a leading independent supplier in France and a key regional supplier in Germany and Poland.

SIG supplies products and systems to every sector of the roofing industry for both new projects and repair and maintenance.

Revenue:

£788.7m

30%
of total revenue



Key Market Drivers

Essential RMI requirement

- Growth of specialist distribution as the main supply route

• New products



Interiors

SIG is a leading supplier of branded complementary products for the interior fit out of non-residential buildings with trading sites in the UK, Ireland, Germany, France, Poland, The Netherlands, Belgium, Austria, Czech Republic, Slovakia and Hungary. In the UK and Ireland SIG also supplies purpose-made partitions and performance doorsets for all types of commercial and other non-residential buildings.

Revenue:

£661.3m

25%
of total revenue



Key Market Drivers

- Refurbishment of non-residential buildings (e.g. schools, offices, hospitals, retail)

• Improving standards of internal fit out

• Thermal, acoustic and safety standard



Specialist Construction Products

SIG is a leading supplier of specialist construction products in the UK and Ireland and offers a wide portfolio of products including concrete accessories, waterproofing systems and chemicals, brickwork support systems, specialist fixings, safety products and tools. SIG also supplies specialist construction products in Poland, Germany and France.

Revenue:

£197.4m

7%
of total revenue



Key Market Drivers

- Investment in infrastructure and non-discretionary spending by utilities

- Demand for high performance solutions and innovative products

- Supply chain efficiency and specific technical “just in time” project management



# CHAIRMAN'S STATEMENT

SIG’s performance in 2010 was a tale of two halves, albeit with a similar beginning and end to the year. As 2010 progressed, the end markets in which SIG operates gradually stabilised.

Leslie Van de Walle Non-Executive Chairman



## HIGHLIGHTS

- End markets gradually stabilising as the year progressed

- The Group remained focused on its cost saving and restructuring programme

- New £250m bank debt facility signed on favourable terms

## GLOSSARY OF TERMS

Underlying is before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.
SIG’s performance in 2010 was a tale of two halves, albeit with a similar beginning and end to the year. Adverse weather conditions across Europe curtailed construction site activity during the first quarter and also lead to challenging market conditions towards the end of the year. However, as 2010 progressed, the end markets in which SIG operates gradually stabilised.

Across the Group, the pattern of recovery during the year was uneven; individual countries improved at different rates, with some segments and geographies still to fully level out. In our major markets of the UK, France and Germany, residential construction levels turned modestly positive from a low base. The rate of decline in private sector non-residential construction activity slowed in H2 2010, while public sector construction work continued to benefit from government investment programmes.

Reported Group sales were down 2% for the year and in constant currency were down 0.3%. However, improving trading conditions resulted in a 2.3% advance in H2 2010 reported sales over the same period in 2009 (on a constant currency basis). Gross margins in H2 2010 were slightly ahead of those achieved in H1 2010, in markets which remained highly competitive, although they finished the year overall down 0.2% compared to 2009 at 26.0% (2009: 26.2%).

Underlying operating profit was £76.1m (2009: £80.9m). Underlying net finance costs reduced by 33.0% to £13.6m (2009: £20.3m), leaving underlying profit before tax at £62.5m (2009: £60.6m). Underlying basic earnings per share reduced to 7.2p (2009: 9.0p).

As a result of non-underlying charges totalling £143.3m (2009: £115.9m) the Group recorded a total loss before tax of £80.8m (2009: Loss of £55.3m). Including these charges, basic earnings per share amounted to a loss of 13.0p (2009: loss per share 9.7p).

The Group remained focused on its cost saving and restructuring programme, and implemented further measures to improve working capital and reduce capital expenditure in line with our objective of optimising cash flow and reducing net debt.

Our intense focus on cash management continued throughout the year. A combination of good trading cash flows, strong working capital management and a tight rein on capital expenditure produced good cash conversion. Net debt decreased by £69.5m to £185.0m (£254.5m at 31 December 2009).



## REFINANCING

In November the Board took the strategic decision to refinance its UK relationship bank debt. The Group has recently signed a new £250m four year revolving credit facility with four banks on favourable terms as follows:

• £250m 4 year unsecured Revolving Credit Facility

• Pricing – Margin on LIBOR between 1.50 and 187.5 bps at 1.0x to 2.0x leverage

• Covenants

• Interest cover > 3x

• Leverage < 3x

• Fixed charge cover > 1.75x

Three of the banks (Barclays, Lloyds and RBS) are longstanding lenders to the Group, whilst the fourth, HSBC, introduces a new relationship.

Upon signing of the new facility, the Group’s existing UK bank facilities were replaced and the remaining borrowings were repaid from cash held on deposit. The Group’s existing private placement notes remain in place with maturities ranging from 2011 to 2018.

This new four year £250m facility will ensure that the Group maintains a conservative level of headroom and provide funds for selective investment over the medium term.

## BOARD

As announced on 13 January 2011, Les Tench retired on 31 January 2011. I would like to take this opportunity to thank Les for his leadership of the Board since his appointment as Non-Executive Chairman in May 2004. He leaves with the Group in good shape, with a strong balance sheet and excellent long term prospects. We wish him every success in the future. Following my appointment as Non-Executive Director on 1 October 2010 last year, I was delighted to accept the invitation to replace Les as Non-Executive Chairman, and I look forward to leading the Board through the next stage of the Group's development.

Vanda Murray resigned as a Non-Executive Director of the Company with effect from 16 March 2011. Vanda is also a Non-Executive Director of Carillion plc and her resignation is pursuant to Carillion plc's offer for Eaga plc and her future potential conflict of interest as a result of that transaction in respect of SIG's energy management business. I would like to thank Vanda for her valuable contribution to the Board since her appointment in July 2009. I can also confirm that we are in the process of seeking to appoint a new independent Non-Executive Director in order that the Company will return to compliance with Code Provision A.3.2 of the Combined Code on Corporate Governance.

## EMPLOYEES

Our employees have responded outstandingly to the task of returning SIG to growth, and on behalf of the Board and shareholders I would like to thank them all for their contribution.

## DIVIDENDS

The Board remains committed to a progressive dividend policy and given that markets are now beginning to stabilise, it believes that it is appropriate to announce its intention to declare a dividend with the 2011 interim results.

## OUTLOOK

Demand trends overall in the Group’s sectors and countries of operation are expected to continue to stabilise during the coming year.

The Board expects to see 2010's modest growth trend in residential building continuing in 2011 and the decline in private non-residential construction levelling out in H1 2011. However, Government expenditure cuts are expected to cause public sector new construction activity to decline as the year progresses, counteracting mild growth in the private sector, particularly in the UK.

Trading in the first two months of 2011 was in line with management’s expectations and well ahead of the particularly weak, weather-affected comparative sales levels of last year.

While maintaining a firm control on operating costs and working capital, the Group will continue to make carefully selected organic investments, notably in the area of renewables and carbon reduction, and in further controlled expansion of its branch network in both the UK and Mainland Europe.

The Board believes that SIG is well positioned to make progress through 2011.



## LESLIE VAN DE WALLE
CHAIRMAN



# 2010 BUSINESS REVIEW

# SIG plc is a leading supplier of specialist products to professionals in the building, construction and related industries, with 748 trading sites throughout the UK and Ireland and Mainland Europe and employed 11,400 people as at 31 December 2010.





GLOSSARY OF TERMS
Underlying is before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

Trading cash is defined as cash flow from operations divided by underlying operating profit.
This Business Review has been prepared by the Board solely for the members of SIG plc. It is intended to provide Shareholders with a summary of the development, performance and financial position of the Group for 2010. It also provides details of the main trends and factors underlying the year's results and which are likely to affect future performance and describes the Group's business and its key objectives, strategies, values and resources, together with the principal risks and uncertainties it faces. A cautionary comment relating to forward looking statements is provided on page 31.

## INTRODUCTION TO SIG

SIG plc is a leading supplier of specialist products to professionals in the building, construction and related industries, with 748 trading sites throughout the UK and Ireland and Mainland Europe and employed 11,400 people as at 31 December 2010.

Founded in 1957 in Sheffield, UK, SIG has grown from a single site insulation distribution business into a multi-national specialist supplier operating in four different market sectors. The Company was listed on the London Stock Exchange in May 1989 and is a constituent member of the FTSE 250 index, listed within the Support Services Sector.

On 16 March 2011, the share price closed at £1.211. At this date there were 590,829,339 shares in issue, giving a market capitalisation at that date of £715m.

## SIG'S ORGANISATIONAL STRUCTURE

SIG's operations are managed on a country-by-country basis. Within each country there is dedicated divisional management focusing on each market sector. This is critical to the success of the business, ensuring that focus is provided to the specific requirements of the customer and the supply chain required to service the customer. Back office functions such as HR, IT, finance, property and fleet management are provided on a country-by-country basis and are shared across business units in each country where it is appropriate and economic to do so.

The Parent Company of the Group, SIG plc, oversees and supports the strategic development of each business via the activities of the Group Board, the Corporate Development Department and the Group Finance Department.



## SIG'S BUSINESS MODEL

SIG is the market leader in most of the specialist markets in which it trades. Specialist markets are characterised by the need to hold a broad and comprehensive range of stock, supported by technical advice and extensive service and delivery capability.

SIG’s leading position in specialist markets has enabled the Group’s sales growth to outperform each of its markets in recent years.

Specialist markets provide opportunity for superior growth as they tend to be more fragmented in nature and require technical product and application knowledge which provide entry barriers to the general merchandising community. SIG's strategy in fragmented markets is to build scale and market share whilst generating superior purchasing power and achieving economies of scale in back office activities thereby delivering superior returns.

The supply of specialist products requires a proactive sales approach rather than a passive retail approach together with a more collaborative process of supply chain management.

## SIG'S PRODUCTS



• Thermal insulation

• Fire protection

• Acoustic insulation

• Dry lining

• Refrigeration and cold storage

• Flooring

• Installation of insulation

• High temperature insulation

• Air tightness testing

• Heating and ventilation products

• Industrial lining

• Pipe insulation

• Roofing insulation

• Waterproofing

• Air handling and treatment

• Air conditioning

## Exteriors



• Flat roofing

– Roofing membranes

– Single ply

– Liquid waterproofing

– Mastic asphalt

– Roof lights and domes

– Green roofs

– Roof paving systems

• Slating and tiling

– Concrete tiles

– Clay tiles

– Slates – natural and man-made glass

– Shingles

– Metal roof tiles

• Sheeting and cladding

– Fibre cement sheeting

– Profiled metal sheeting

– Insulated panels

• Rainwater goods

• Roofline products

– Softits

– Fascias

– Barge boards

• Ventilation

• Building plastics

– uPVC windows, doors

– Conservatories

– Plastic cladding

• Photovoltaic solar kits/panels

## SIG'S ACTIVITIES

SIG is primarily a distributor handling and supplying specialist products manufactured by other companies. In markets where the supply chain requires bespoke products to be made and supplied direct to the end user, SIG's route to market has been by manufacturing products for its specialist customer contractors to fit. SIG manufactures partition systems and doorsets in the UK and fabricates certain custom products across the Group. Fabrication involves adding value by cutting, reshaping or attaching two or more core products together. The largest fabrication activities are the cutting and shaping of industrial insulation, the cutting and processing of glass products and the assembly of roofing panels.

In addition, in the UK SIG also installs loft and cavity wall insulation in residential properties.

SIG operates under a wide variety of trading names. Many of these brands are widely recognised throughout their respective market sectors or countries as the leading supplier of specialist products and services to the construction trade.



• Suspended ceilings

• Partitioning

• Doors and doorsets

• Category lighting

• Dry lining

• Fire protection

• Insulation

• Architectural glass

• Toughened and laminated glass

• Raised access floors

• Office/acoustic screens

• Noise control

• Fixing products

• Temporary protection products

• Floor coverings

• Washroom systems



• Mechanical engineering fixings and accessories

• Fixings and fastenings

• Groundwork products

– Shoring equipment

– Geotextiles

– Reinforcement products

– Ground stabilisation products

• Temporary fencing and scaffolding

• Masonry components

• Construction chemicals

• Safety helmets

• Protective clothing

• Safety glasses

• Safety boots

• Ear plugs

• Gloves

• Dust respirators

• Tools (including power tools and accessories)

• Concrete accessories

• Waterproofing

• Render

• Precast

• Steel support systems

• Site set-up equipment



# 2010 BUSINESS REVIEW CONTINUED

# The products that SIG supplies are specialist in nature and are provided to specialist contracting companies and professional trades, both for new construction and for Repairs, Maintenance and Improvement.

## INTRODUCTION TO SIG CONTINUED

## SIG'S ROLE IN THE SUPPLY CHAIN

The products that SIG supplies are specialist in nature and are provided to specialist contracting companies and professional trades, both for new construction and for Repairs, Maintenance and Improvement (“RMI”). Whilst general jobbing builders may purchase some items from SIG, they are more broadly served through the general builders merchant supply chain.
SIG provides a crucial role in the specialist building products supply chain by:

## Providing access to a broad and diverse customer base

SIG provides a diverse range of specialist products from manufacturers to support specialist contractors. Manufacturers deliver products in bulk to SIG's trading sites throughout each country of operation. SIG then focuses upon delivering a packaged range of products in job specific quantities on a time critical basis to a broad and diverse customer base as required by the construction cycle. SIG provides an efficient channel by which manufacturers can access thousands of specialist contractors.

## Providing “immediate” availability of product close to site location

Through SIG's 748 trading sites, contractors are able to obtain product in rapid timeframes to meet the demands of a fast moving construction site. The majority of construction sites do not have a large area to store product safely and securely and so the ability to source product quickly overcomes the problems caused by such a space constraint.

## Having an extensive delivery fleet

SIG delivers the majority of its goods sold to the construction site. SIG has a wide range of delivery vehicles, including a number of mechanical offload and crane facilities to deliver the product to exactly where it is needed.

## Providing technical advice and product expertise

As building regulations, environmental issues and modern methods of construction become ever more complex, SIG's customer base values the comprehensive technical knowledge that SIG's sales staff have of each product's specific application to ensure their suitability for purpose and that legal and safety standards are met in buildings and industry. Where particularly complex queries arise, SIG is able to call upon advice from its supplier base. This is an important value-added element of the service offered by SIG. No other European company has the depth of experience and expertise that SIG has in its product fields.

## Enabling contractors to maximise efficient use of labour

It is estimated that there is up to a 40% loss of efficiency whilst skilled labour waits for material delivery. SIG's ability to deliver product at short notice enables contractors to flex their work schedule depending upon the daily needs of the construction site thus minimising this inefficiency. This part of the service offering is highly valued by SIG's customer base and ensures SIG maintains its critical role in the supply chain.

## Providing credit terms to contractors

SIG's typical customer is relatively small to medium sized. SIG provides credit to enable a contractor generally to fit goods before they are paid for to ensure continuity of the supply chain. SIG has very well established and rigorous credit control procedures that limits its risk exposure whilst having regard to the needs of the customer base.

These activities have enabled SIG to build businesses that are able to differentiate themselves from mainstream competitors.



## SIG'S MARKET SECTORS

Over the last two decades, SIG has continuously expanded the range of products it sells to specialist contracting companies and professional trades. SIG now sells different lines of specialist construction products across a number of different countries. The principal countries in which SIG trades are:

<table><tr><td></td><td>Insulation and Building Environments</td><td>Exteriors</td><td>Interiors</td><td>Specialist Construction Products</td></tr><tr><td>United Kingdom</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Ireland</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Germany and Austria</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>France</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Poland</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Benelux</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Czech Republic, Slovakia and Hungary</td><td>✓</td><td></td><td>✓</td><td>✓</td></tr></table>

In addition to SIG’s principal countries of operation, the Group also has a small trading presence in six other jurisdictions, being Turkey, Romania, Bulgaria, UAE, Spain and Luxembourg. The operations in these six jurisdictions amount in total to less than 1% of Group revenue and have therefore not been included in the table above.

## MARKETS SUPPLIED BY SIG

SIG is well diversified, serving a wide range of industries and markets. The following table provides an indicative estimate, based upon SIG's analysis of market information, of the breakdown of the Group's 2010 revenue into its different end markets:

<table><tr><td></td><td>Total % of Group</td><td>New build % of sub-Group</td><td>RMI % of sub-Group</td></tr><tr><td>Non-residential</td><td>53%</td><td>56%</td><td>44%</td></tr><tr><td>Residential</td><td>37%</td><td>46%</td><td>54%</td></tr><tr><td>Industry (non-construction)</td><td>10%</td><td>38%</td><td>62%</td></tr></table>

Source: SIG estimates.

The non-residential market is SIG’s largest market. This includes both private and public expenditure on schools, hospitals, prisons, warehouses, leisure complexes, retail developments, sports stadia, airports and offices.

Residential is SIG’s second largest market. In this market, SIG is more heavily weighted to the essential repairs and maintenance market which is less sensitive to the economic fluctuations which can impact the new build sector and provides an underlying market in periods of economic downturn.

The final market for SIG is Industry (non-construction). SIG predominantly supplies industrial (technical) insulation to this market which includes, for example, power stations and process industries where heat is an important part of the production process.

Revenue by country

<table><tr><td>UK</td><td>45%</td></tr><tr><td>Ireland</td><td>3%</td></tr><tr><td>Germany and Austria</td><td>21%</td></tr><tr><td>France</td><td>20%</td></tr><tr><td>Poland</td><td>5%</td></tr><tr><td>Belerux</td><td>5%</td></tr><tr><td>Central Europe</td><td>1%</td></tr></table>



Markets supplied by SIG

<table><tr><td>Non-residential</td><td>53%</td></tr><tr><td>Residential</td><td>37%</td></tr><tr><td>Industry (non-construction)</td><td>10%</td></tr></table>






# 2010 BUSINESS REVIEW CONTINUED

## INTRODUCTION TO SIG CONTINUED

## DEMAND FOR SIG'S PRODUCTS

Demand for the products sold by SIG is influenced by a wide range of factors. Overall economic GDP growth drives construction activity on a long term basis. As the economy grows and contracts, construction activity reflects this trend. New build is driven by the economic cycle whilst RMI activity is more constant in nature and in certain markets can be counter cyclical, offering a more constant level of activity.

In addition, construction activity is also largely dependent on both the level and cost of credit available in order to finance large construction projects. Since mid-2008, the availability of credit has reduced and the cost of credit has increased significantly, thus having a dampening effect on construction activity.

The current economic downturn is inevitably affecting the short term demand for SIG's products. However, the medium to long term prospects for SIG's market sectors remain strong. The current low levels of residential and private non-residential building activity across certain parts of Europe are not sustainable when set against demographic growth trends. Given that SIG enjoys leading positions in the majority of its markets and geographies, the Group is in a prime position to benefit from any upturn in market demand over the medium term.

Whilst demand is principally influenced by the macroeconomic conditions described above, other factors by product range are detailed below:

## Business

## Insulation and Building Environments

## Exteriors

## Interiors

## Specialist Construction Products

## All Businesses

## Sector-specific market drivers

Demand for products that reduce energy consumption in both new and existing residential and non-residential buildings to reduce the impact of high energy costs and to reduce carbon dioxide ( \( ^{\circ} \) CO \( _{2} \) ) emissions.

Demand for insulation products will be driven by regulation in addition to environmental and economic factors.

A regular and essential RMI requirement for roofs subject to increasingly variable and severe weather conditions.

Demand for new products to reduce building exterior maintenance costs.

Growth of specialist distribution as the main supply route.

Government incentives surrounding solar energy feed-in tariffs providing significant impetus to demand for Solar Photovoltaic Systems.

Rising standards of internal fit out and the growing importance of acoustic and fire safety standards.

Increased demand for integrated solutions.

Government expenditure to improve the internal environments of schools and hospitals and other public buildings.

Government and utility investment in major infrastructure projects.

Requirement for value engineered solutions on construction projects.

“Just-in-time” approach to project management.
Insulation usage in new construction is affected by the building regulations in operation in each country. Over time, it is expected that governments, businesses and the public will increasingly focus on reducing energy consumption more vigorously than in the past and that as a result, insulation demand will continue to rise.

The age profile of roofs across the UK and Europe gives rise to an ongoing RMI requirement. This provides a core product demand.

Certain products are used extensively for both new build and repair and maintenance in commercial property and demand over time is expected to increase as people look for low-maintenance products and energy efficient options.

New interiors are often required following a change of use or a change of occupancy within existing non-residential buildings, requiring refitting and removal of partitions, wall storage and ceiling systems.

Fire and acoustic regulations are set to become more stringent in the next few years. This will favour the larger suppliers with a depth of technical expertise, such as SIG.

Complex major construction projects require specialist application and performance knowledge. This is provided by SIG's specialist businesses in this area.

Over recent years, methods of construction have changed, leading to a requirement for new innovative specialist products which SIG is ideally placed to supply.

Convergence of trades and requirement from major contractors for "bundled" solutions and supply chain management, thus benefiting businesses with significant scale and breadth of product offering such as SIG.



# The Group’s core strategy is to continue the growth and development of SIG as a leading European specialist supplier to the building and construction industries, in order to create long term growth in Shareholder value.

## SIG'S STRATEGY

The Group’s core strategy is to continue the growth and development of SIG as a leading European specialist supplier to the building and construction industries, in order to create long term growth in Shareholder value. This includes, but is not limited to:

• operating efficiency improvements in core businesses;

• upgrading the Group’s portfolio by prioritising investment in high growth/profitable markets; and

• organic growth initiatives supported by selected acquisitions.

In light of deteriorating macroeconomic conditions which first impacted the Group in the second half of 2008 and the associated reduction in demand for construction related products, SIG has reacted quickly to align the cost base of its businesses to anticipated levels of market demand. The Group has also taken a number of actions which drive operational and commercial efficiencies. These actions ensure that the Group is in good shape to take advantage of stabilising markets.

In order to further reduce the Group’s net debt, cash generation has again been a key focus during 2010. This has been driven by a number of initiatives:

• strict management of working capital, through the issue of stringent working capital targets to all business units;

- the deferral of non-essential capital expenditure and the redeployment of certain assets;

• an increased drive for process efficiency through the adoption of best practice principles;

• further cross business unit resource sharing and cost saving initiatives; and

• procurement, logistics and property reviews.

## PORTFOLIO REVIEW

As part of the Group’s Strategic Development planning, SIG maintains an active portfolio management process to ensure:

• operating businesses are positioned to deliver sustainable long term growth;

• efficient allocation of cash to optimise return on capital employed; and

• focussed and prioritised investment for growth and business development.

The review process is conducted at business unit level and includes a rigorous analysis of external market conditions and competitive dynamics together with an assessment of internal capabilities and resource requirements from which three year rolling business plans are developed feeding into the Group Strategic Review.

A key output of this process is the identification of development initiatives at both business unit and Group level. Each initiative is the subject of a full investment appraisal to include capital requirements, return on investment profile, implementation and execution risk analysis.

## RESHAPED FOR THE FUTURE: INVESTMENT IN ORGANIC DEVELOPMENT GROWTH INITIATIVES

As a direct consequence of the recent economic downturn which first impacted the Group’s end markets in mid-2008 resulting in a significant fall in demand for SIG’s products, the Group focused on reducing its operating cost base through its cost saving and restructuring programme and also focused on the reduction of net debt through the minimisation of working capital and the deferral of all non-essential capital expenditure.

However, in order to ensure the business is in good shape to benefit fully from recovery in its markets, the Group has continued to invest throughout the downturn in carefully selected organic growth initiatives including:

- new trading sites – despite the closure of 1/1 trading sites since 1 January 2008 as part of the Group’s cost saving and restructuring programme, the Group has also opened 75 new trading sites in the same period;

- new geographies – the Group has established a trading presence in UAE (SIG Emirates). Whilst this is currently a relatively small (single site) operation, the growth prospects in this region are anticipated to be good;

- new formats – Following the successful trial of the SIG Express concept, which offers a stripped down range of essential specialist products from across all our UK divisions to new customers and in locations where gaps remain in our geographical coverage, the Group is continuing to develop this model and gradually roll out elsewhere in the UK; and

- SIG Energy Management – we are focused on further extending our offering in the field of energy management of buildings, through SIG Energy Management, and as part of this strategy during 2010 we acquired a small stake in Ice Energy Technologies Limited, a designer and installer of heat pumps and solar PV systems. This investment was made to secure access to essential expertise and new products at a point in time where demand for sustainable energy solutions is set to grow as a result of the new Solar feed-in tariff and the anticipated Renewable Heat Incentive.

Investment in the above organic growth initiatives ensures that the Group is well positioned to benefit from future growth in its markets.



# 2010 BUSINESS REVIEW CONTINUED

# Despite the recent economic downturn, where appropriate the Group has continued to invest in its branch network, opening 75 new branches in the three year period from 1 January 2008 to 31 December 2010.

## SIG'S STRATEGY CONTINUED

## PORTFOLIO REVIEW CONTINUED

Acquisition opportunities are also generated from the portfolio review and are subject to the same rigorous filtering process to ensure compatibility with strategic priorities and that they are in line with strict investment criteria in terms of commercial, financial and operational risk and return.

Management of the development pipeline for both organic and acquisition initiatives forms part of the Board’s ongoing performance monitoring and is reviewed on a regular basis to ensure development opportunities and outcomes are in line with Group expectations.

## DEVELOPMENT OF OUR PEOPLE

SIG is committed to ensuring that all employees and management know what is expected of them in their roles and that they receive the necessary training and development to be highly competent in what they do. An integrated approach to the identification of training needs and the development of talent is core to our people development strategy. To this end a UK Talent Manager has been appointed to coordinate our activities in the UK. Development activities are organised generally on a business-by-business or country-by-country basis depending on local priorities. However the Group continues to invest in its Executive Development Programme run in conjunction with Sheffield Hallam University. This has shown huge benefits, not least in the development of cross company working at a senior level. The Group has also launched an Executive Coaching and Mentoring Programme aimed at continuing the development of senior talent and reinforcing the values and behaviours that underpin our activities. Following on from the success of the New Manager of the Year Award we have launched the Emerging Manager of the Year Award aimed at identifying, encouraging and nurturing potential managers for the future. The Group continues to recruit and invest in commercial trainees and graduate talent to help feed our future management requirements.

## KEY LONG TERM OBJECTIVES

SIG remains committed to the following key long term objectives:

• create long term growth in shareholder value through a progressive dividend policy and capital growth;

• develop and grow by applying the Group’s core principles of Focus, Specialisation and Service;

• expand the Group and its activities as a leading specialist supplier to professional trades in the construction and related industries;

• supplement organic growth with targeted acquisition and development initiatives; and

• be an employer of choice and provide a rewarding and fulfilling environment for its people.
In order to achieve the Group’s key long term objectives, SIG’s long term growth plan is focused around five key growth strategies as follows:

• consolidate and exploit existing market leading positions;

• market demand growth;

• wider product range;

• pipeline of development initiatives; and

• geographical development into attractive new markets.

1. CONSOLIDATE AND EXPLOIT EXISTING MARKET LEADING POSITIONS
SIG’s strategy is to develop its distribution footprint in order to achieve further penetration in core markets. SIG continually evaluates its existing trading site network and trading format structure to take advantage of synergistic opportunities within the Group.

Such opportunities include the sharing of trading sites across different trading brands, sharing of transport and inventory across multiple trading sites and combining purchasing capabilities across different business streams throughout the Group.

Since mid-2008, SIG has reviewed rigorously the appropriate structure of its trading site network and has quickly resized it to align with anticipated future market demand. This has resulted in the closure of 171 trading sites since 1 January 2008.

SIG has ensured that it has retained its most profitable and successful trading sites across each of its businesses to ensure that it is well positioned to benefit from future improvements in market demand.

Furthermore, as part of the Group’s cost saving and restructuring programme, a number of SIG businesses have been merged to deliver cost savings, but more importantly to deliver operational and commercial efficiencies including the enhancement of the Group’s cross selling capabilities. This has included the merger of the UK’s Insulation and Interiors Distribution businesses and also the merger of the Group’s Polish businesses into one entity.



## SIG'S STRATEGY CONTINUED

## KEY LONG TERM OBJECTIVES CONTINUED

## I. CONSOLIDATE AND EXPLOIT EXISTING MARKET LEADING POSITIONS CONTINUED

Despite the recent economic downturn, where appropriate the Group has continued to invest in its trading site network, opening 75 new trading sites in the three year period from 1 January 2008 to 31 December 2010.

The change in the number of the Group’s trading sites over the last three years is shown below:

<table><tr><td></td><td>UK and Ireland</td><td>Mainland Europe</td><td>Total</td></tr><tr><td>31 December 2007</td><td>461</td><td>318</td><td>779</td></tr><tr><td>Closures</td><td>(73)</td><td>(7)</td><td>(80)</td></tr><tr><td>Openings</td><td>9</td><td>34</td><td>43</td></tr><tr><td>Acquired</td><td>36</td><td>29</td><td>65</td></tr><tr><td>31 December 2008</td><td>433</td><td>374</td><td>807</td></tr><tr><td>Closures</td><td>(58)</td><td>(14)</td><td>(72)</td></tr><tr><td>Openings</td><td>3</td><td>15</td><td>18</td></tr><tr><td>31 December 2009</td><td>378</td><td>375</td><td>753</td></tr><tr><td>Closures</td><td>(18)</td><td>(1)</td><td>(19)</td></tr><tr><td>Openings</td><td>4</td><td>10</td><td>14</td></tr><tr><td>31 December 2010</td><td>364</td><td>384</td><td>744</td></tr></table>

## 2. MARKET DEMAND GROWTH

SIG is well placed to exploit its product and market knowledge to take a larger share of the European construction markets in which it already operates. Given the relative size of the wider European construction market, the opportunity for growth for SIG is significant.

SIG believes that the market demand growth for insulation products and sustainable construction products in particular will outstrip the demand for other building products as the world attempts to address the issues caused by climate change and increasing energy costs. SIG is ideally placed to serve this additional demand.

In addition, it is anticipated that the recovering residential sector will provide greater growth in the short to medium term than the non-residential sector. At present, approximately 37% of the Group’s sales are attributable to the residential sector, and it is part of the Group’s medium term strategy to increase the proportion of Group sales made to this sector.

## 3. WIDER PRODUCT RANGE

Extending the range of specialist products and services which SIG offers improves customer service and market penetration. Once SIG has identified a new product offering, consideration is then given to widening the supply of this product through the existing trading site network. In order to demonstrate SIG's diverse product offering, it is estimated that on a typical non-residential project in the UK, in excess of 35% of the total material cost can be supplied through SIG. In addition, SIG is at the forefront of product innovation and has developed a number of own brand product ranges.

## 4. PIPELINE OF DEVELOPMENT INITIATIVES

In support of SIG’s long term growth objectives, SIG employs an active business development and portfolio management strategy. This involves identifying attractive growth opportunities for the Group where SIG’s key skills and capabilities match with those necessary in developing attractive new market opportunities. This includes a targeted acquisition strategy as well as organic growth initiatives.

In light of the challenging market environment the Group has ceased its acquisition programme since September 2008.

Despite the temporary cessation of the Group’s acquisition programme, the Group continues to maintain an excellent knowledge of its market place and has ensured that it remains aware of possible future acquisition opportunities across Europe. The Board will be very careful in its considerations regarding the most appropriate time to recommence this part of the Group’s strategy, with carefully chosen acquisitions being initially funded out of divestment proceeds.

In the meantime, the Group continues to develop and exploit the synergistic benefits that its historical acquisition programme has provided. These benefits include maximising cross business trading, selling new products to existing Group customers, selling existing products to new Group customers and the sharing of resources to enhance current cash flow and profitability.

Whilst management’s main focus in the year was on optimising revenue and gross margin and also on delivering cost savings in existing operations, the Group did selectively continue to allocate some modest additional resources to core businesses where opportunities to extend market coverage were identified.

Further detail can be found on page 11 regarding these specific growth opportunities.

5. GEOGRAPHICAL DEVELOPMENT INTO ATTRACTIVE NEW MARKETS
SIG is continually evaluating the construction market prospects of a number of countries to assess where the best growth prospects lie. SIG analyses the supply chain structure of each market and evaluates the future potential for SIG to enter the market as a specialist supplier within its chosen four market sectors.

Due to the economic downturn and the cessation of the Group’s acquisition programme in September 2008, since that date, the Group’s extension of its geographic coverage into new countries has been limited. Geographical development, however, remains an integral part of SIG’s long term growth plan, and to this end, the Group began trading from an existing site in the UAE in Q2 2010.



# 2010 BUSINESS REVIEW CONTINUED

KEY PERFORMANCE INDICATORS

The Group uses the following key performance indicators to evaluate the success of its business:

## 1. Like for like constant currency sales growth

Like for like constant currency sales growth (0.3%)



Like for like constant currency sales growth is defined as the percentage growth/(decline) in the sales of the Group excluding the impact of current year and prior year acquisitions.

The measure reflects the underlying sales growth in the business which typically arises from increased sales volumes to both new and existing customers, product price inflation and selling new products through the existing infrastructure. The growth is supported by investment in new brownfield trading site openings and trading site relocations into larger premises with additional stockholding capability together with merging of divisions in order to enhance the quality and value of offering to customers. Maintaining positive like for like growth in every business is a key target by which every business is measured and is a key component of being able to drive profit growth.

Like for like sales growth rates/(rates of decline) on a constant currency basis are set out below:

<table><tr><td></td><td>2008</td><td>2009</td><td>2010</td></tr><tr><td>UK and Ireland</td><td>(3.4%)</td><td>(22.2%)</td><td>(2.7%)</td></tr><tr><td>Mainland Europe</td><td>4.2%</td><td>(7.6%)</td><td>2.0%</td></tr><tr><td>Group</td><td>(0.8%)</td><td>(15.6%)</td><td>(0.3%)</td></tr></table>

The like for like sales reduction of 2.7% in the UK and Ireland in 2010 reflects the continued reduction in market demand as a direct result of the current economic downturn which first impacted the Group in the second half of 2008. However, overall the end markets in which SIG operates continued to stabilise in the second half of 2010, with like for like constant currency sales in H2 2010 for the UK and Ireland being down only 0.6% despite the extreme winter weather which severely impacted trading activity in November and December.

In Mainland Europe, the Group recorded a like for like constant currency sales increase of 2.0% in the full year. Similar to the UK and Ireland, sales performance in H2 2010 was much stronger than H1 2010, with like for like constant currency sales being up 5.0% in the second half of the year.

The geographical spread of the business provides the Group with diversity and an ability to manage risk. Whilst the Group has recorded an overall decline in like for like constant currency sales in each year since 2008, over the ten year period 2000–2010 the Group has averaged a like for like sales increase of 5.5%.

Despite the Group recording like for like sales declines in each of the last three years, management believes that most of its businesses have either held or grown its market share.

## 2. Underlying operating profit margin

Underlying operating profit margin 2.9%



The underlying operating profit margin is the ratio of underlying operating profit to sales. Underlying operating profit being before the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

SIG seeks to improve its underlying operating profit margin by managing its selling prices in the local markets in which it operates and by controlling the cost base through operational efficiencies.

The majority of operating costs in the business relate to people, property and transport and in light of the macroeconomic environment since late 2008, SIG took swift action to align these operating costs with the anticipated underlying market demand for its products.

Despite the incremental cost savings of £30m (£25m operating costs) being achieved in 2010 arising from the Group’s cost saving and restructuring programme, gross margin and inflationary cost pressures resulted in the Group’s underlying operating profit margin reducing slightly from 3.0% in 2009 to 2.9% in 2010.

On an ongoing basis the mix of sales between the Group’s two main regions will have an influence on the overall Group underlying operating profit margin. The table below shows the underlying operating profit margin achieved over the last three years:

<table><tr><td></td><td>2008</td><td>2009</td><td>2010</td></tr><tr><td>UK and Ireland</td><td>6.7%</td><td>2.9%</td><td>3.1%</td></tr><tr><td>Mainland Europe</td><td>4.9%</td><td>3.6%</td><td>3.1%</td></tr><tr><td>Group (after Parent Company costs)</td><td>5.6%</td><td>3.0%</td><td>2.9%</td></tr></table>

The Group’s current underlying operating profit margin at 2.9% is well below that historically achieved. Given the operational gearing impact of the business where the majority of operating costs are fixed, it is envisaged that the Group’s operating margins will improve once the Group begins to experience continued sales growth.



## 3. Working capital to sales



Working capital to sales is defined as the ratio of working capital (including provisions) to annualised sales (i.e. after adjusting for acquisitions and disposals in the current and prior year) on a constant currency basis.

The ability of the Group to manage its working capital in relation to the value of sales made by each business is essential to ensure that the Group generates cash from its operations. Cash generation is important to enable the Group to pay its taxes and to ensure that the Group complies with its debt covenants.

Following the significant reduction in working capital in 2009 of £103m, the Group has continued to focus on working capital management and as a result has further reduced its working capital to sales ratio to 9.0% in the year (2009: 9.3%). It is not envisaged that significant further improvement in the Group’s working capital to sales ratio will be achieved in 2011 given the anticipation of increased sales volumes.

## CASH CONVERSION

Cash conversion is defined as cash flow from operations divided by underlying operating profit. Cash conversion measures the Group’s ability to convert its underlying operating profits into cash.

Over the medium term, the Group aims to have a minimum average cash conversion ratio of 100%. However, as the Group begins to benefit from the upturn in construction markets, a small investment in working capital will be required making a cash conversion target of 100% more difficult to achieve.

Given the continued focus on working capital management, the cash conversion percentage in 2010 at 130% (2009: 215%) is above the Group’s long term average target of 100%.

## Cash conversion

## 130%



## RESHAPED FOR THE FUTURE: STABILISING MARKETS

Whilst overall in 2010 Group sales fell by 0.3% on a constant currency basis, the Group saw a gradual stabilisation in it's end markets following the extreme cold weather conditions in Q1 across all geographies.

Accordingly, despite the poor winter weather conditions which adversely impacted late November and December activity levels, Group sales in H2 2010 were up 2.3% on a constant currency basis. The sales growth in the second half was largely driven by the recovering residential sector, where activity levels have improved albeit from a low base.

Although market growth is expected to be modest in 2011, the continuing stabilisation of the Group’s markets will provide a platform for improving the Group’s return on sales, through sales volume and gross margin improvement and the continued tight management of operating costs. Stabilisation in the Group’s markets overall is illustrated in the graph below:



* The above graph shows the Group's monthly sales performance on a constant currency basis compared to the equivalent month in the prior year.






# 2010 BUSINESS REVIEW CONTINUED

# The Group continued to experience challenging market conditions through 2010 but, notably in the second half, there were signs that the operational improvements we have undertaken over the last two years were beginning to assist our overall performance.



## CHIEF EXECUTIVE'S REVIEW OF TRADING PERFORMANCE

The Group continued to experience challenging market conditions through 2010 but, notably in the second half, there were signs that the operational improvements we have undertaken over the last two years were beginning to assist our overall performance.

The Group experienced extreme winter weather conditions in all its geographies in the first quarter of 2010 which affected construction site activity and consequently demand for SIG’s products and services. Harsh weather was also a feature of the fourth quarter, with trading in December disrupted by what, in many of our territories, were the coldest temperatures for more than a century. However, overall the Group’s markets gradually stabilised as the year progressed, with modest growth in residential markets in the UK, France and Germany offsetting a continuing decline in non-residential construction activity.

Against this background, total Group turnover in 2010 was £2,668m, a decrease of 2% on the prior year. Underlying profit before tax was 3% higher at £62.5m.

One-off restructuring costs incurred in 2010 amounted to £21.8m, taking total exceptional costs since the start of the programme in mid-2008 to £98.8m. The restructuring programme in total has delivered annualised net cost savings of £110m, of which £10m is incremental in 2011.

Amortisation of acquired intangibles amounted to £28.5m (2009: £28.6m). In addition, following the decline of construction activity in the Group’s Interiors Manufacturing, Central European, UK Access Hire, UK Fixings and Irish businesses, when reviewing the carrying value of goodwill and intangibles associated with these business units, the Board has concluded that in light of the anticipated medium term view of profitability that these assets are impaired. As a result an impairment charge of £80.4m (2009: £30.0m) has been made. Non-cash amortisation charges relating to previously cancelled interest rate derivative financial instruments amounted to £12.6m (2009: £2.5m).

The restructuring we have undertaken over the last two and a half years is beginning to bring commercial benefits, in addition to targeted cost savings. Throughout the downturn our aim was to re-engineer our business both to improve its underlying operational efficiency and to drive competitive advantage; not least to leverage SIG’s strengths to enhance the quality and value of our offering to customers.

Most of the substantive organisational changes and divisional mergers which we announced between August 2009 and March 2010 have been successfully implemented, namely:

• the merger of SIG Insulations, CPD, Fixings and Construction Accessories to create SIG Distribution;

• the merger of our UK Roofing and Roofline operations;

• the full integration of our Polish operations; and

• a number of cross-divisional UK site cohabitation initiatives.

In all these cases, the businesses have responded well to restructuring and their subsequent performance has been in line with expectations. Further opportunities for organisational and operational fine-tuning were identified and implemented during the course of the year. In addition to actions previously announced, the latest programme of measures generated annualised cost savings of £10m, of which £6m has been carried forward into 2011.

The restructuring of the Interiors Manufacturing Division was considerably more challenging, with the move from twelve to six factories, which began at the end of 2009, coming against the backdrop of an ongoing steep deterioration in its non-residential markets.

Whilst management’s main focus in the year was on optimising revenue and gross margins and delivering cost savings and efficiencies in existing operations, the Group continued to allocate modest additional resources to core businesses where there were clear opportunities to extend market coverage on favourable commercial terms.

The combined effect of our rationalisation and investment initiatives was a net reduction of five in the total number of the Group’s trading locations to 748 at the end of December 2010 (2009: 753), comprising:

• 19 closures or mergers, of which 18 were in the UK and one in Hungary; and

- 14 new trading site openings, of which four were in the UK, six in France, two in Benelux (including Air Trade Centre) and two in Poland and Central Europe.



## TRADING HIGHLIGHTS

## UK AND IRELAND (48% OF TOTAL SALES)

• Total sales decreased by £38.9m (2.9%) to £1,281.2m (2009: £1,320.1m).

• In the UK, sales decreased by £29.1m (2.4%); H2 sales were down only 0.8%.

• Underlying operating profit increased by £2.3m (6.0%) to £40.0m (2009: £37.7m).

• Underlying operating profit margin was 20 basis points higher at 3.1% (2009: 2.9%).

• Operating loss increased by £6.3m to £67.9m (2009: operating loss of £61.6m).

• Four trading sites were added in the year organically, with 18 closures, taking the total at 31 December 2010 to 364 (31 December 2009: 378).

Our newly formed UK National Sales team made excellent progress in building supply chain arrangements with major contractors, working closely with them on major projects and promoting the full range of SIG's products and services to win incremental business for the individual Divisions.

Sales of the UK distribution business (i.e. excluding manufacturing and installation), were up 0.2% overall in the year and up 1.1% in H2 2010.

In Insulation and related products in the UK and Ireland, sales for the full year, excluding our Energy Management business Miller Pattison, were up 1.8%, on a gradually improving trend after the difficult start to the year.

Sales in our Energy Management business, whose main area of activity is retrofitting insulation in residential property, decreased by 21%, due entirely to power generating utilities holding back CERT funding until the Government's position on the future of the scheme was finalised. The necessary legislation to extend the CERT scheme was eventually passed into law in July 2010, and although the rate of decline reduced in H2 2010, the resulting increased funding will only feed through into improved sales volumes during the course of 2011.

The Exteriors Division is the most exposed of our businesses to the improving residential new build and RMI sectors and, notwithstanding weather related disruption in both the first and last months of the year, sales in the UK merchandising part of this business were ahead by 2.5% in the year, with growth rates reasonably consistent in H1 and H2. Within the Division's overall mix, demand for roofing and cladding products into the non-residential building sector was flat across the year.

Unlike the Exteriors Division, Interiors is weighted overwhelmingly towards non-residential construction, and the sales reduction was attributable to the continuing decline in overall market activity. A reduction in the rate of decline was experienced in H2, with sales down 5.6% in the period compared to a full year decline of 7.6%.
Our UK interiors distribution business, which benefited from a modest recovery in refurbishment activity in H2, saw a decline in sales of 3.1% whilst Interiors Manufacturing sales fell a further 17.2% compared to 2009.

Turnover in Specialist Construction Products, which supplies a wide range of specialist and niche products to building contractors, was down by 6.9% for the full year, but by only 2.8% in H2. Its performance improved during the year as a result of the divisional organisational and management changes implemented in the first quarter of 2010.

In Ireland, which accounts for around 3% of Group turnover, trading conditions remained difficult and local currency sales were down 8%. However, against weak prior year comparatives, constant currency sales moved into positive territory in each of the last four months of 2010.

## MAINLAND EUROPE (52% OF TOTAL SALES)

## Mainland Europe sales breakdown

<table><tr><td>Germany and Austria</td><td>41%</td></tr><tr><td>France</td><td>38%</td></tr><tr><td>Poland and Central Europe</td><td>11%</td></tr><tr><td>Benelux \( ^{*} \)</td><td>10%</td></tr></table>

* Includes international air handling business (Headquartered in Holland)



• Total sales in Sterling reduced by £1.6.2m (1.2%) to £1,386.8m (2009: £1,403.0m).

• Sales in constant currency increased by 2.0%; in H2 constant currency sales were up 5.0%.

• Underlying operating profit decreased by £7.7m (15.3%) to £42.5m (2009: £50.2m).

• Underlying operating profit margin fell 50 basis points to 3.1% (2009: 3.6%).

• Operating profit reduced by £16.4m to £19.7m (2009: £36.1m).



# 2010 BUSINESS REVIEW CONTINUED

# Our mix of market sectors means that we are later cycle than many of our peers, and against that backdrop our improving sales performance as we went through 2010 was encouraging.

## TRADING HIGHLIGHTS CONTINUED

## MAINLAND EUROPE (52% OF TOTAL SALES) CONTINUED

Following a difficult start to the year in which extreme weather on the continent severely reduced Q1 construction activity, trading improved in H2 across SIG's Mainland European businesses. Whilst non-residential construction activity remained weak in all of SIG's countries of operation, as in the UK, those businesses most exposed to residential construction moved into positive territory in Q2 and continued to show progressive improvement throughout the year.

Within SIG's Mainland European portfolio, France and Germany (79% of Mainland Europe sales) showed the best progress. Since the summer, the decline in volumes in the Poland and Central European region has also moderated and sales are now showing year-on-year growth.

In contrast, in Benelux, where the economic recession took hold later than elsewhere in Europe, trading remains difficult and sales have continued to decline.

In Germany and Austria (41% of sales in Mainland Europe) total sales were 1.7% behind prior year in Sterling and up 2.1% in Euros. Overall construction activity in the region in the Group's segments is estimated to have been down around 5% on 2009, although after several years of stagnation, the residential distribution sector is expected to have grown by around 4%. Whilst our German operations outperformed the market again in all segments, the development of the Roofing division was particularly encouraging, with sales in Euros up 7.5%. Sales in the insulation and interiors business in Euros were up 0.4%.

The number of trading sites remained unchanged at 82.

In France (38% of sales in Mainland Europe) total sales in Sterling grew 1.7% versus prior year, and by 5.6% in Euros. Larivière continued to strongly outperform the general French roofing market, with sales in Euros versus prior year up by 8.1% in a residential construction market which grew an estimated 0.5%. Incremental sales from trading sites opened in the previous four years, and from a further four trading sites opened in 2010, contributed significantly to the advance.

The Group’s French Insulation and Interiors operations traded exceptionally well in challenging conditions, achieving 2.5% growth in sales in local currency in non-residential construction and industrial insulation markets which are estimated together to have fallen around 4% versus 2009. As was the case with Larivière, these divisions benefited from organic sales growth from recently opened sites – in this case, those opened in the previous three years – as well as from a further two sites opened in 2010.
The number of trading sites increased by 6 to 181 at the end of December 2010.

In Poland and Central Europe (11% of sales in Mainland Europe), total sales in Sterling fell by 0.9% and fell by 3.9% in constant currency.

The larger core business in Poland, where the Group has traded since 1996 and which accounted for 8.9% of sales in Mainland Europe in 2010, saw sales in local currency reduce by 4.2% against a market decline estimated at around 9%. Trading conditions were extremely difficult in the first half with the severe winter conditions in Q1 being followed by flooding in Southern Poland in May and June. H2 showed evidence of steady improvement, with sales in this period up by 6.5% compared to 2009.

In Czech Republic, Slovakia and Hungary a combination of domestic political issues and adverse currency moves exacerbated the global macroeconomic pressures on the region, severely reducing construction activity and leading to further price deflation. Sales in local currency in this sub-region, which represented 2.1% of Mainland European sales in 2010, were down 3% against prior year, though as elsewhere in Mainland Europe there were signs of modest improvement later in the year, with H2 sales up 4% against very weak comparators.

The number of trading sites increased by 1 to 93 at the end of December 2010.

Sales in Benelux (6% of total sales in Mainland Europe) were down 7% in Euros against a market estimated to be around 11% lower. The core business in Benelux is focused on Industrial Insulation and Interiors, and both of these Divisions continued to outperform their difficult respective markets.

The number of trading sites increased by 1 to 15 at the end of December 2010.

Sales in Air Trade Centre, the pan-European air conditioning and air handling business headquartered in Benelux, amounted to 4% of total sales in Mainland Europe. This business provides SIG with a platform for growth in the energy management of buildings, with its target HVAC (Heating, Ventilation and Air Conditioning) business being highly complementary to the Group’s insulation, energy saving and carbon reduction activities. Sales in Euros in Air Trade Centre in 2010 were up 0.4%.

The number of Air Trade Centre trading sites at 31 December 2010 increased by 1 to 13.

Our new Middle East operation, SIG Emirates, began trading from an existing site in Q2 2010 and made good progress in establishing supply chain arrangements and winning business in its first year of operation.



## STRATEGY

With around one third of our business exposed to the gradually recovering residential construction segment, our mix of market sectors means that we are later cycle than many of our peers, and against that backdrop our improving sales performance as we went through 2010 was encouraging.

Of course macroeconomic uncertainties persist and management is alert to the possibility of a stalling in the gradual improvement in trading conditions which we have experienced in recent quarters. We believe that recovery in our markets will be slow and uneven, but our view is that, across the Group's range of segments and countries of operation, overall demand in 2011 is likely to be stable, if not mildly positive. Although we estimate that UK construction levels will be at best flat compared with 2010, the outlook on the Continent is slightly more optimistic, notably in Germany and France.

On a sectoral basis, whilst we anticipate that non-residential construction activity will decline in all our regions, driven in large measure by reductions in Government capital budgets, residential new build and RMI should continue to exhibit modest growth.

Since the middle of 2008 we have made major changes to our cost base and operating structure, not only to adjust our resources to markets which are substantially lower than at 2007/08 peak levels and look likely to remain so for some time to come, but also to enable us to enhance our commercial effectiveness and customer service levels. Whilst we have now completed all the major restructuring work, we will continue to fine-tune our operations as appropriate.

Our focus on cash management will continue, and with a healthy balance sheet and the recent refinancing of our bank debt we are in a strong financial position. Notwithstanding the substantial cost cutting measures we have implemented, throughout the downturn we have continued to selectively invest in organic development initiatives in core markets, filling in gaps in our geographical coverage and creating a platform for future development as markets recover.

During 2010 we completed extended trials of our "SIG Express" concept, with two trading sites offering a stripped down range of essential specialist products from across our UK divisions to new customers and in locations where there are gaps in our market coverage. The trials have gone well and we intend to proceed with a roll out of this model, starting with a small number of new locations in 2011. We also have further plans to add to our branch network in Mainland Europe.

We are focused on further extending our offering in the field of energy management of buildings, through SIG Energy Management, and as part of this strategy during 2010 we acquired a small stake in Ice Energy Technologies Limited, a designer and installer of heat pumps and solar PV systems. This investment was made to secure access to essential expertise and new products at a point in time where demand for sustainable energy solutions is set to grow as a result of the new Solar feed-in tariff and the anticipated Renewable Heat Incentive.

In summary, we believe we have the right strategy, a solid operational base and exceptional employees to take the Company forward.



# 2010 BUSINESS REVIEW CONTINUED

# On a constant currency basis, like for like sales fell by only 0.3%, despite the severe adverse winter weather conditions which hampered sales at the start and end of the year.



## FINANCIAL REVIEW

## REVENUE

Sales fell by 2% overall or £55m to £2,668m (2009: £2,723m). On a constant currency basis, like for like sales fell by only 0.3%, despite the severe adverse winter weather conditions which hampered sales at the start and end of the year. Whilst trading conditions for the Group remained challenging in 2010, overall the end markets in which SIG operates began to stabilise as the second half of the year progressed, with sales in H2 2010 being up 2.3% on a constant currency basis compared to the same period in 2009.

## MARGINS

Gross profit margin overall decreased slightly from 26.2% to 26.0%, which remains well below the Group’s historical average (gross margin 2005–2008 average = 27.9%). Whilst gross margin pressures are expected to remain in 2011, an improvement of gross margin remains of key importance to the Group. As the Group’s markets continue to stabilise and ultimately recover the Group’s long term aim is to improve gross margins back towards those achieved historically.

Underlying operating costs as a percentage of sales reduced slightly from 23.2% to 23.1% as the Group benefited from the comprehensive range of cost reduction programmes implemented since mid-2008. This benefit however was largely offset by inflationary cost pressures.

As detailed in the Key Performance Indicators section, the Group’s current operating profit margin at 2.9% is well below that historically achieved. Given the operational gearing impact of the business where the majority of operating costs are fixed, it is envisaged that the Group’s operating margins will improve once the Group begins to experience continued sales growth.

## OPERATING PROFIT

Underlying operating profit decreased by £4.8m or 6% to £76.1m, representing the continued difficult trading conditions faced by the Group and the subsequent sales and gross margin decline noted previously. The Group recorded an operating loss of £54.6m (2009: operating loss of £32.5m) reflecting a number of "Other items" that are described on page 21.

## FINANCE COSTS

Net finance costs before gains and losses on derivative financial instruments and financing items relating to our defined benefit pension schemes (i.e. net borrowing costs) reduced by £5.9m to £13.1m in 2010.

Net borrowing costs benefited from the significant reduction in net debt in the period, which reduced from £254.5m at 31 December 2009 to £185.0m at 31 December 2010. Details of the reduction in net debt of £69.5m in the year are provided in the “Cash Flow and Financial Position” section on page 23.

In addition, the continued low interest rate (UK and Euro base rates are currently 0.5% and 1.0% respectively) continued to have a beneficial impact on the Group’s interest charge in 2010. Further details of SIG’s interest rate policies are provided in the Interest Rate Risk section on page 29. Net finance costs relating to our defined benefit pension schemes amounted to £0.5m in 2010 (2009: net finance costs of £1.3m). Further details are provided in Note 28c to the Accounts on pages 107 to 109.

Finance costs included in the “Other items” column of the Consolidated Income Statement amounted to £12.6m (2009: £3.9m) as outlined below:

Following the Group’s equity issuance in H1 2009 and the subsequent reduction in the Group’s level of net debt, SIG cancelled certain interest rate derivative contracts at a cash cost of £32.2m. This termination payment did not increase the Group’s overall level of debt as this payment cancelled the mark-to-market liability already included in the Group’s Consolidated Balance Sheet. The associated amounts recorded in reserves are being amortised through the Consolidated Income Statement over the life of the associated debt to 2018 in line with relevant accounting standards. However, upon repayment of certain debt facilities in 2010, the amortisation was accelerated and as a result, the amortisation included within the “Other items” column amounted to £12.6m (2009: £3.9m). The remaining balance recorded in reserves in relation to the settlement of interest rate derivative contracts, which is to be amortised in the Consolidated Income Statement over a period of 7.5 years, is £15.7m (2009: 28.3m).

In 2009, a £1.4m finance income credit was also included within the “Other items” column of the Consolidated Income Statement to account for hedge ineffectiveness arising from the Group’s hedging structures. The Group took actions in late 2009 to ensure that no hedge ineffectiveness would arise on these structures going forward and as a result, no hedge ineffectiveness has been recognised in 2010.

## PROFIT BEFORE TAX

Underlying profit before tax increased by 3.1% or £1.9m to £62.5m (2009: £60.6m). Loss before tax increased by £25.5m to £80.8m (2009: loss before tax of £55.3m).



## FINANCIAL REVIEW CONTINUED

## OTHER ITEMS

Amounts included in the "Other items" column of the Consolidated Income Statement which in total amounted to £143.3m (2009: £115.9m) before tax are as follows:

• amortisation of acquired intangibles – £28.5m (2009: £28.6m). The Accounting Policies section on page 75 and Note 13 to the Accounts on page 93 provide details of what is included within intangible assets and over what periods the assets are amortised;

• impairment charges of £80.4m (2009: £30.0m). Following the decline of construction activity in the Group’s Interiors Manufacturing, Central European, UK Access Hire, UK Fixings and Irish businesses, when reviewing the carrying value of Goodwill and Intangibles associated with these business units, the Board has concluded that in light of the anticipated medium term view of profitability that these assets are impaired. These are considered in greater detail in the goodwill impairment section below and in Note 12 to the Accounts on pages 91 and 92;

• restructuring costs of £21.8m (2009: £54.8m). The Group has taken a number of actions to reduce operating costs in the year. These one-off actions have resulted in redundancy costs of £4.4m, property closure costs of £10.0m, asset write down costs of £3.8m and other items of £3.6m; and

• net finance costs of £12.6m (2009: £2.5m). The Finance Costs section on page 20 explains these items.

## FOREIGN CURRENCY TRANSLATION

Overseas earnings streams are translated at the average rate of exchange for the year whilst balance sheets are translated using closing rates. The table below sets out the principal exchange rates used:

<table><tr><td></td><td colspan="2">Average rate</td><td colspan="2">Closing rate</td></tr><tr><td></td><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Euro</td><td>1.17</td><td>1.12</td><td>1.16</td><td>1.12</td></tr><tr><td>Polish Zloty</td><td>4.67</td><td>4.89</td><td>4.63</td><td>4.62</td></tr><tr><td>Czech Koruna</td><td>29.52</td><td>29.86</td><td>29.28</td><td>29.72</td></tr><tr><td>Hungarian Forint</td><td>323.01</td><td>316.43</td><td>324.85</td><td>304.15</td></tr></table>

Fluctuations in exchange rates have and will continue to give rise to translation differences on overseas earnings streams when translated into Sterling. Sterling appreciated against the Euro during 2010 on both an average and year end basis.

As a result, the movement in average exchange rates compared to 2009 had an effect on total overseas earnings streams. Total sales decreased by £46.9m and underlying operating profit decreased by £1.7m due to foreign exchange rate movements. Conversely, the Group's reported net debt position benefited by £5.6m due to the strengthening of Sterling in the period. Further details of SIG's foreign exchange policies are detailed in the "Foreign currency risk" section on pages 29 and 30.

## TAXATION

The income tax charge on underlying profits amounts to £19.7m (2009: £18.0m) — which represents an underlying effective rate of 31.5% (2009: 29.7%). The Group's underlying effective tax charge increased by 1.8% in 2010, driven principally by the increased proportion of Group profits attributable to the Group's Mainland European countries of operation which on average have higher corporation tax rates than the UK. As anticipated, cash tax payments amounted to £13.4m, £6.3m below the £19.7m income tax charge on underlying profits primarily as a result of the restructuring costs incurred in the year included within "Other items" and the utilisation of the Group's brought forward tax losses also recorded within "Other items" which reduced UK taxable profits.

In 2011, the Group's underlying tax rate will depend on the mix of Group profits from different jurisdictions, although it is anticipated that the Group's underlying tax rate in 2011 will continue to be above 30%. The Group will seek to utilise brought forward tax losses arising principally from 2008 foreign exchange rate losses in order to reduce UK taxable profits in 2011 and beyond.

The effective income tax credit on the total loss before tax of £80.8m is 5.0% (2009: credit of 18.4%). These movements are a result of amounts included as "Other items" in the year. In both 2010 and 2009 tax relief was not obtained in respect of the goodwill impairment charge and certain restructuring costs.

## RESHAPED FOR THE FUTURE: EFFICIENT OPERATING STRUCTURE

Against a backdrop of much reduced construction activity, in mid-2008 the Group instigated a comprehensive range of measures aimed at reducing the Group’s operating cost base and realising commercial and operating efficiencies, whilst at the same time maintaining customer service and defending market position.

Since the inception of the restructuring and cost saving programme in 2008 to 31 December 2010, the Group has delivered total annualised cost savings amounting to £110m. Details of the restructuring and cost saving programme are as follows:

<table><tr><td></td><td>Branch closures</td><td>Headcount reduction</td><td>Exceptional costs £m</td><td>Annualised savings £m</td></tr><tr><td>UK and Ireland</td><td>149</td><td>2,727</td><td>90</td><td>98</td></tr><tr><td>Mainland Europe</td><td>22</td><td>437</td><td>9</td><td>12</td></tr><tr><td>Group</td><td>171</td><td>3,164</td><td>99</td><td>110</td></tr></table>

As can be seen from the above table, although cost savings were achieved in each country of operation, given the scale of the market decline and the density of market coverage, the impact of such measures was biased towards the UK and Ireland.

Notwithstanding continuing inflationary cost pressures, these carefully designed operating cost saving measures will stand the Group in good stead to benefit from the recovery in each of SIG's markets.

Incremental net savings benefit by period



## GOODWILL IMPAIRMENT

The Group has recognised an impairment charge of £80.4m in 2010. This is allocated as follows:

<table><tr><td>Cash-generating unit</td><td>Goodwill £m</td><td>Intangible assets £m</td><td>Total £m</td></tr><tr><td>UK Interiors Manufacturing</td><td>24.6</td><td>17.9</td><td>42.5</td></tr><tr><td>Central Europe</td><td>12.0</td><td>—</td><td>12.0</td></tr><tr><td>UK SCP - Access Hire</td><td>7.5</td><td>5.1</td><td>12.6</td></tr><tr><td>Ireland</td><td>7.1</td><td>5.5</td><td>12.6</td></tr><tr><td>UK Distribution (Cornish Fixings)</td><td>0.6</td><td>0.1</td><td>0.7</td></tr><tr><td>Total</td><td>51.8</td><td>28.6</td><td>80.4</td></tr></table>

Further information on the impairment charges noted above is disclosed in Note 12 to the Accounts on pages 91 and 92.



# 2010 BUSINESS REVIEW CONTINUED

# The continued focus on working capital management in 2010 resulted in a further reduction in the overall level of working capital in the Group.

## FINANCIAL REVIEW CONTINUED

## EARNINGS PER SHARE ("EPS")

Underlying basic EPS amounted to 7.2p (2009: 9.0p), which represents a decrease of 1.8p. Basic EPS amounted to a loss per share of 1.3p (2009: loss per share of 9.7p), which takes into account amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments. The weighted average number of shares in issue in the period rose by 121.4m to 590.8m (2009: 469.4m). This increase in the average weighted number of shares was primarily due to the annualised impact of the placing and open offer and firm placing of 455,047,973 ordinary shares approved by Shareholders on 9 April 2009.

## ACQUISITIONS

Whilst acquisitions remain a key component of SIG's long term growth strategy, as a result of the global financial crisis and difficult trading conditions in the majority of its markets, SIG temporarily ceased its acquisition programme in September 2008. The acquisition programme has remained on hold since that date and as a result, no acquisitions have been completed this year. The Board will be very careful in its consideration regarding the most appropriate time to recommence its acquisition programme.

In respect of prior period acquisitions, £0.9m was paid in 2010 relating to deferred/contingent consideration payments and also the purchase of a small non-controlling interest shareholding.

## INVESTMENT IN ASSOCIATE

On 4 May 2010 the Company made a strategic trade investment in Ice Energy Technologies Limited (a specialist designer and installer of heat pumps and Solar PV systems) by acquiring a 25% stake in the business for a consideration of £1.6m (including £0.1m of associated costs).

## SHAREHOLDERS' FUNDS

Shareholders' funds reduced by £80.1m to £749.5m (2009: £829.6m). The decrease comprised the following elements:

Loss after tax attributable to equity holders of the Company

Exchange differences on assets and liabilities after tax

Movements attributable to share options

Actuarial loss on pension schemes (net of deferred tax)

Effect of change in tax rate

Gains and losses on cash flow hedges

Purchase of non-controlling interest and recognition

of put options regarding non-controlling interests

Decrease in Shareholders' funds

## PENSION SCHEMES

In total, the Group operates five defined benefit pension schemes, the largest defined benefit pension scheme is a funded scheme held in the UK. The remaining four defined benefit pension schemes are unfunded book reserve schemes held in the Group's Mainland European businesses. Together the UK defined benefit scheme and the four book reserved schemes are referred to as “defined benefit pension schemes”.

In addition to the defined benefit pension schemes, the Group also operates a number of defined contribution pension schemes.

SIG contributed £2.8m (2009: £2.4m) into its five (2009: five) defined benefit pension schemes during the year. The total charge in respect of defined benefit pension schemes to the Consolidated Income Statement was £2.4m (2009: £2.9m); of this total £1.9m (2009: £1.6m) was charged to operating expenses and £0.5m was charged to net finance costs (2009: £1.3m).

The overall gross defined benefit pension schemes' liability increased during the year by £1.2m to £25.2m. This can be broken down as follows:

<table><tr><td></td><td>Increase/(decrease) in pension scheme liability £m</td></tr><tr><td>Actual return less expected return on assets</td><td>(5.4)</td></tr><tr><td>Change in financial assumptions in all schemes*</td><td>7.2</td></tr><tr><td>Profit and loss charge above cash contributions to the schemes</td><td>(0.4)</td></tr><tr><td>Exchange gain</td><td>(0.2)</td></tr><tr><td>Increase in pension scheme liability</td><td>1.2</td></tr></table>

* There have been a number of changes in financial assumptions in 2010, the key items being a decrease in the discount rate used to value the pension scheme liabilities from 5.7% to 5.4% and changes in the assumptions relating to the settlement of liabilities.

77.1 The Group continues to monitor the life expectancy assumptions used to value its pension scheme liabilities. For the UK defined benefit pension scheme, the life expectancy for a male employee beyond the normal retirement age of 60 is 28.5 years (2009: 28.5 years), which is considered appropriate for a scheme of this nature.

The cost of the Group’s defined contribution pension schemes increased by 12% (£0.5m) to £4.8m. Details of the pension schemes operated by SIG are set out in Note 28c to the Accounts on pages 107 to 109.



## FINANCIAL REVIEW CONTINUED

## CASH FLOW AND FINANCIAL POSITION

The Group has continued to reduce its level of net debt through strong cash generation during the year. The following table explains the movement in SIG's net debt:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Cash flow from operating activities</td><td>98.8</td><td>174.1</td></tr><tr><td>Interest and tax</td><td>(26.9)</td><td>(37.9)</td></tr><tr><td>Maintenance capital expenditure*</td><td>(12.0)</td><td>(9.5)</td></tr><tr><td>Free cash flow available for investment</td><td>59.9</td><td>126.7</td></tr><tr><td>Acquisition investment (including loan notes issued to vendors)</td><td>(2.5)</td><td>(3.9)</td></tr><tr><td>Dividends to non-controlling interests</td><td>(0.4)</td><td>(0.2)</td></tr><tr><td>Proceeds from issue of share capital</td><td>-</td><td>325.0</td></tr><tr><td>Foreign exchange gains</td><td>5.6</td><td>19.5</td></tr><tr><td>Other items (including fair value movements)</td><td>6.9</td><td>(24.5)</td></tr><tr><td>Movement in net debt</td><td>69.5</td><td>442.6</td></tr><tr><td>Opening net debt</td><td>(254.5)</td><td>(697.1)</td></tr><tr><td>Closing net debt</td><td>(185.0)</td><td>(254.5)</td></tr></table>

* Where capital expenditure is equal to or less than depreciation, all such capital expenditure is assumed to be maintenance capital expenditure. To the extent that capital expenditure exceeds depreciation, the balance is considered investment capital expenditure. No investment capital expenditure was incurred in 2010 or 2009. Capital expenditure shown above includes finance leases drawn down in each year.

Key points to note are:

- included within “Cash flow from operating activities” is a reduction in working capital of £5.5m (2009: £103.3m), which relates to a reduction in trade receivables and an increase in trade creditors, partially offset by an increase in stock;

- included within “Cash flow from operating activities” is a cash outflow representing the cash costs associated with the Group’s cost saving and restructuring programme amounting to £19.3m (2009: £27.1m);

- as trading conditions continued to remain challenging, the level of investment in new vehicles and new trading sites has remained relatively low in the year. Net capital expenditure amounted to £12.0m in 2010 (2009: £9.5m). For the year as a whole the net capital expenditure to depreciation ratio amounted to 0.33 times (2009: 0.24 times). Where possible the Group has redeployed certain assets from trading sites which have been closed as a result of the Group’s cost saving and restructuring programme; and

- as a result of the strengthening of Sterling versus SIG’s foreign currencies during 2010, the Group’s reported Sterling debt position benefited from an exchange gain of £5.6m (2009: £19.5m) during the year. The principal currency to which the Group has exposure is the Euro and this moved from €1.12 at the start of the year to €1.16 at the end of the year. In addition to these foreign exchange rate gains, Group net debt also benefited by fair value movements primarily associated with the Group’s private placement derivative financial instruments of £6.9m (2009: loss of £24.5m).

The Group’s cash flow from operating activities amounted to £98.8m (2009: £174.1m). This represents a trading cash conversion ratio of 130% (2009: 215%), which is above the Group’s stated long term average target of 100%. Trading cash conversion is defined as cash flow from operating activities divided by underlying operating profit and is a key measure that will continue to be a matter of high focus in 2011.

The key working capital ratios underlying the trading cash conversion are set out below on a like for like constant currency basis:

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Inventory days</td><td>41</td><td>40</td></tr><tr><td>Trade receivable days</td><td>43</td><td>44</td></tr><tr><td>Trade payable days</td><td>36</td><td>36</td></tr></table>

The continued focus on working capital management in 2010 resulted in a further reduction in the overall level of working capital in the Group.

## RESHAPED FOR THE FUTURE: REDUCED NET DEBT

Over the last two years, the Group has been resolutely focused on working capital management and the reduction of net debt. At 31 December 2010, net debt at £185.0m is £512.1m lower than the £697.1m reported at 31 December 2008. This reduction in net debt has been facilitated as follows:

- focus on cash management has generated £272.9m from operating activities since 1 January 2009 to 31 December 2010 through significant working capital reductions. Working capital has reduced by £108.8m during this two year period;

• deferral of all non-essential capital expenditure;

• reduced interest and taxation payments;

• in April 2009, the Group raised £325m via a placing and open offer and firm placing of new shares; and

- exchange differences and positive fair value movements have reduced debt by £7.5m in the two years ended 31 December 2010.

The significantly strengthened financial position of the Group, achieved through the reduction in net debt ensures that the Group has the financial stability to support the Group’s growth plans in the medium and longer term.

## Net debt reduction from 1 January 2009 to 31 December 2010



The Group’s bad debt charge (being both bad debts written off and the movement in the allowance for bad debt) amounted to 0.6% of sales (2009: 0.8% of sales).

The reduction in the Group’s bad debt charge as a percentage of sales in difficult trading conditions is testament to the Group’s strong credit control procedures. Despite this encouraging performance, the Group is very mindful of the risk of bad debts increasing as the economies in which it operates continue to remain weak, construction activity remains subdued and that the Group’s customer base is at risk of having credit withdrawn by banks. The Group’s credit control policies and procedures are regularly reviewed and a number of the Group’s businesses have credit insurance to protect them from bad debts rising above prescribed aggregate loss levels.



# 2010 BUSINESS REVIEW CONTINUED

# The Group has signed a new £250m four year revolving credit facility in Q1 2011, which replaces the Group’s existing UK bank debt facilities.

## FINANCIAL REVIEW CONTINUED

## DEBT COVENANTS AT 31 DECEMBER 2010

The Company’s debt facilities in place at 31 December 2010 contained a number of covenants to which the Group must adhere to. The Group’s debt covenants are tested at 30 June and 31 December each year, with the main covenants being leverage and interest cover.

The leverage covenant is a requirement to maintain a ratio of net debt to annualised EBITDA of less than 3.5 times. Annualised EBITDA is defined as operating profit before amortisation of acquired intangibles, impairment charges, depreciation and restructuring costs, plus interest receivable and adjusted if applicable to annualise the EBITDA of acquisitions made during the previous twelve months.

The interest cover covenant is a requirement to maintain a ratio of the previous twelve months' underlying operating profit to underlying net finance costs (excluding pension scheme finance income and costs) of greater than 3.0 times.

The actual ratio for each of the debt covenants is set out below:

<table><tr><td></td><td>Year ended 31 December 2010</td><td>Year ended 31 December 2009</td></tr><tr><td>Leverage covenant</td><td>£114.2m</td><td>£127.1m</td></tr><tr><td>Annualised EBITDA</td><td>£185.0m</td><td>£254.5m</td></tr><tr><td>Closing net debt</td><td>1.6x</td><td>2.0x</td></tr><tr><td>Leverage ratio</td><td>Year ended 31 December 2010</td><td>Year ended 31 December 2009</td></tr><tr><td>Interest cover covenant</td><td>£76.1m</td><td>£80.9m</td></tr><tr><td>Underlying operating profit</td><td>£13.1m</td><td>£19.0m</td></tr><tr><td>Underlying net finance costs*</td><td>5.8x</td><td>4.3x</td></tr></table>

* Excluding pension scheme finance income and costs.

As can be seen in the table opposite, the Company is in compliance with its financial covenants in all respects and has not requested or gained any waivers thereof.

As set out on page 29, subsequent to the balance sheet date the Group has signed a new £250m four year revolving credit facility in Q1 2011, which replaces the Group’s existing UK bank debt facilities. As a result of this successful refinancing, the Group’s ongoing debt covenant requirements differ slightly to those in place at 31 December 2010. The Group’s refinanced debt facilities and new covenants are detailed further on pages 29 and 30.

## CAPITAL STRUCTURE

The Group manages its capital structure to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 18, and cash equivalents and equity attributable to equity holders of the Parent Company, comprising issued capital, reserves and retained earnings as detailed in the Consolidated Statement of Changes in Equity on page 73.

The main measure used to assess the appropriateness of the Group’s capital structure is net debt to EBITDA ratio (i.e. leverage), thus ensuring that the Group’s capital structure is aligned to the Group’s debt covenants. The Group’s long term target is to manage its leverage within the range of 1.0x–1.5x. The Group’s leverage position has reduced from 2.0x at 31 December 2009 to 1.6x at 31 December 2010. The Group aims to continue to reduce leverage in the immediate short term in line with its long term target range.

## OUTLOOK

The Directors' view of the outlook and prospects for the Group are set out in the Chairman's Statement on page 5.








## RESOURCES

The Group is able to draw upon a number of key resources which allow SIG to take a leading position in most of the specialist markets in which it trades. These include the following:

## Employees

The commitment, drive and enthusiasm of all SIG's employees is key to the success of SIG meeting the demands of its customers, suppliers and Shareholders. Throughout SIG, regardless of country or sector, we believe our people are recognised as the best in their particular field. SIG's policy and strategy towards its employees is detailed further in the Corporate Responsibility Report on page 47. Staff turnover is monitored monthly, personal performance is managed on an ongoing basis and a formal appraisal programme is in place. Training, coaching and the opportunity for personal career advancement within the Company are important features of how SIG seeks to recruit, retain and develop skilled staff.

## Trading sites

SIG has an extensive network of trading sites as demonstrated in the table on page 13. These are an important resource and an important feature of the SIG business model in each country of operation, as they enable the local market surrounding each trading site to be serviced on an immediate availability basis. As a result of the Group's cost saving and restructuring programme, a further 19 trading sites have been closed in 2010 (171 since mid 2008). As part of the consultation process, when identifying trading sites for closure, particular attention has been focused on ensuring that the closure of these trading sites has not affected the Group's service offering to its customers. However, despite the downturn and the closure of a number of branches, the Group has also opened 75 new branches since 1 January 2008, representing the continued investment the Group has made in its trading site network.

For customers conducting work on a regional or national basis in each country, SIG can provide a full national service using locally held inventory, thus avoiding the time and cost penalties of shipping products over large distances.

## Competitive position

SIG aims to occupy leading positions as a specialist supplier in each of its main markets of insulation and building environments, exteriors, interiors and specialist construction products. A position of market leadership has been achieved in a number of specific markets. Operations in the other countries and market sectors are continuing to develop their position. SIG continually seeks to improve customer service, believing customer service plays a crucial role in maintaining a competitive advantage.

## Brand strength

SIG operates under a wide range of trading names in the respective markets and countries in which it has trading sites.

Many of these brands, including the original company name, Sheffield Insulations, are widely recognised throughout their respective market sectors or countries as the leading supplier, offering focused products and strong customer service.

SIG believes that the strength and market awareness of its brands are important assets.

## Inventory

Immediate availability of a wide range of specialist materials is vital to the customers served by SIG.

Materials are often required within hours on an emergency basis. For example, when a roof leaks and immediate repairs are necessary to prevent damage to the building and its contents, or in a chemical processing plant where a pipeline becomes dangerously overheated due to a breakdown of the insulation. In both of these examples, customers have an unplanned, emergency need for specific and specialist products in order to prevent substantial damage and costs.

A fundamental feature of SIG's position in the supply chain is having a wide range of these products, in depth, in strategically located trading sites to ensure customer requirements can be met.

## Fleet delivery capability

SIG uses a mix of own delivery vehicles and external hire to deliver goods to customers. This enables availability and service to customers to be maximised whilst ensuring that the cost base is flexible to cope with periods of higher or lower daily demand.

The direct ownership of a large proportion of the fleet and the management of this resource on a local basis is an important feature of the speed, flexibility and responsiveness that SIG offers to customers.



# 2010 BUSINESS REVIEW CONTINUED

## PRINCIPAL RISKS AND UNCERTAINTIES

Risk management is the identification and evaluation of risks and is the responsibility of the Group Board. The field of risk management is constantly evolving within SIG, and during 2010 a comprehensive review of the Group’s risk management processes was undertaken to ensure that the ongoing process is robust and emerging risks are identified, assessed and managed effectively. The review process involved the consideration of the objectives and targets of the strategic business plan, the development of a risk universe, and the identification of key strategic risks. These risks are then continually evaluated using a consistent measurement criteria, mitigating controls identified and opportunities for the enhancement of the Group’s control environment implemented.

Further information on our risk management procedures is included in the Corporate Governance section on pages 57 and 58.

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

## Principal Risks

## Nature of Risk

LEVEL OF MARKET
DEMAND IN SIG'S
OPERATING MARKETS
Approximately 90% of SIG’s sales are made to the building, construction and civil engineering industries. These industries are driven by both private and Government expenditure.

SIG is exposed to changes in the level of activity and therefore demand from these industries. Government policy and expenditure plans, private investor decisions, the general economic climate and both business and (to a lesser extent) consumer confidence are all factors which can influence the level of building activity and therefore the demand for many of SIG’s products.

## COMPETITORS AND MARGIN MANAGEMENT

SIG has a mix of both direct specialist competition and some overlap with more general suppliers (such as general builders merchants) in all its markets and countries of operation.

Challenging trading conditions further increase competition which in turn increases margin pressures faced by the Group.

## COMMERCIAL RELATIONSHIPS

Failure to negotiate competitive terms of business with our suppliers or failure to satisfy the needs of our customers could harm the Group’s business.

Customer or supplier consolidation and/or manufacturers dealing directly with customers.

## Key Controls and Mitigation Strategies

The Group continually reviews all available indicators of market activity including market data, economic forecasts, surveys and also has regular communication with key suppliers and customers to ensure that any fall in market demand is anticipated as early as possible. Early identification of reducing market demand ensures that the Group is able to act swiftly to changing market conditions.

The Group operates in a number of different countries and market sectors. This differentiation provides an element of protection against reduced market activity in any individual country or sector.

The Group Board’s portfolio review ensures that the Group’s capital is appropriately allocated to the geographies and markets which remain core to the Group and which have strong long term growth prospects.

The majority of products that are sold by SIG are relatively bulky and inexpensive in relation to their mass and the cost of transport. This means that the risk faced by SIG of price disruption and possible cross border or international trading having a detrimental impact on prices in any particular country is low.

Similarly, the risk posed by internet-based trading dependent upon parcel-carrier service is mitigated by the bulky nature of most of the products sold by SIG and the fact that specialist handling and delivery services are an important feature of the service provided by SIG to many customers.

The Group operates in a number of different countries and market sectors and has a strong trading presence in the majority of these markets. This strong market position and balanced portfolio provides an element of protection against increased competition in any individual country or sector.

Notwithstanding the above, the Group has a number of initiatives designed to improve the Group’s core competencies surrounding customer service, including enhanced sales support and training.

Operating profit margin is considered a key performance indicator by the Group (see page 14). In order to improve operating profit margin, the Group must reduce its operating costs as a percentage of sales and/or improve gross margins. The Group has a number of ongoing pricing and purchasing initiatives designed to improve gross margin on an ongoing basis.

It is a key task for the operational management in each country and business unit to maintain and develop their relationships with customers and suppliers. In particular, the following key tasks are undertaken:

## Suppliers:

Long term key supplier harmonisation and national account strategy planning. The Group purchases its products from a number of suppliers thereby ensuring it is not overly reliant upon any one supplier. In addition, each business performs alternative key suppliers scenario planning should product not be available from any one individual supplier.

Strategically important suppliers are reviewed globally to assess their financial health to ensure that any disruption to product supply is minimised.

## Customers:

Long term key customer harmonisation and national account strategy planning. Customer behaviour and performance is continually monitored and analysed.



<table><tr><td>Principal Risks</td><td>Nature of Risk</td><td>Key Controls and Mitigation Strategies</td></tr><tr><td>GOVERNMENT LEGISLATION</td><td>SIG operates in a number of countries across Europe, each with its own laws and regulations, encompassing environmental, legal, health and safety, employment and tax matters. Changes in these laws and regulations could impact on SIG&#x27;s ability to conduct its business, or make such conduct of business more costly.</td><td>The Group has continued to add to its resources dedicated to legal and regulatory compliance in order to further enhance its capability to identify and manage the risk of compliance failure. Policies, procedure and associated training schemes are in place, which are constantly reviewed with reference to changing legislation requirements. The Group has a number of affiliations with regulatory bodies and trade associations.</td></tr><tr><td>DEBT</td><td>Group net debt at 31 December 2010 amounted to £185m. The Group has to manage the following risks relating to its net debt: (1) Future availability of funding (2) Interest rate risk (3) Foreign currency risk (4) Compliance with debt covenants</td><td>The Group has a comprehensive treasury policy which covers the Group&#x27;s management of treasury risk. Further details of the Group&#x27;s policies and mitigation of treasury risk can be found in the &quot;Treasury Risk&quot; section on pages 28 to 30.</td></tr><tr><td>WORKING CAPITAL/CASH MANAGEMENT</td><td>Failure to effectively manage working capital may lead to a significant increase in the Group&#x27;s net debt, thereby reducing the Group&#x27;s funding headroom and liquidity.</td><td>Cash flow targets are agreed with each business unit as part of the annual budget process. All targets are reviewed to plan on a monthly basis. The Group has well established and stringent authorisation procedures which control all capital expenditure and working capital requirements.</td></tr><tr><td>IT INFRASTRUCTURE AND RESILIENCE</td><td>SIG uses a range of computer systems to provide order processing, inventory control and financial management within each country. Outages and interruptions could affect SIG&#x27;s ability to conduct day-to-day operations. Any lengthy failure or disruption to the IT system in any business unit or country would result in loss of sales and delays to cash flow.</td><td>Each operating business unit has a documented IT strategy with fully tested IT Disaster Recovery Plans in place for all major data centres. The Group employs dedicated internal IT support teams, together with external support service providers to monitor the IT systems. Technology, infrastructure, communications and application systems are regularly updated. The Group has advanced hardware/software security in place to ensure protection of commercial and sensitive data. For new IT projects, external consultants are utilised in conjunction with internal project management teams. New national IT platforms were put in place in Germany and Benelux in 2010. The final selection phase for a new fully-integrated IT platform for our UK Distribution businesses is currently ongoing.</td></tr><tr><td>AVAILABILITY OF KEY RESOURCES</td><td>Unavailability of key resources (i.e. assets such as property, stock and personnel) will impact on the ability of SIG to operate effectively and efficiently. Failure to retain key individuals, or the failure to attract and retain strong management and technical staff in the future, could have an adverse effect upon the Group&#x27;s business.</td><td>The Group has a series of review processes in place (including annual strategic reviews, budget reviews and rolling forecast reviews) which ensure that all key resource requirements are identified and managed accordingly. In respect of transportation costs (fuel), the Group continually monitors fuel price and availability, although no hedging is currently performed. In respect of key personnel, senior management succession planning is performed with a regular review of current and future management requirements. The Group also performs regional talent management programmes and management development initiatives which are reviewed regularly by the Group Board.</td></tr></table>



# 2010 BUSINESS REVIEW CONTINUED

# The reduction in Group net debt since 1 January 2009, driven largely by cash generation from trading activities and the raising of £325m in April 2009 via a placing and open offer and firm placing, significantly strengthens the financial position of the Group.

## TREASURY RISK MANAGEMENT

## TREASURY RISK – INTRODUCTION

SIG enters into derivative financial instruments (principally foreign currency and interest rate swaps) to hedge certain currency risks arising from SIG’s operations and to hedge interest expenses arising from SIG’s sources of finance. SIG’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items such as trade receivables and trade payables that arise directly from its operations.

SIG’s Finance and Treasury Policies set out the Company’s approach to managing treasury risk. These policies are approved by the Board on a regular basis. It is Company policy that no trading in financial instruments or speculative transactions be undertaken. To minimise the credit risk associated with derivative financial instruments, SIG only enters into derivative financial instruments with its principal UK banks.

SIG finances its operations through a mixture of retained profits, Shareholders' equity, bank, private placement and other borrowings. SIG uses derivative financial instruments to change the Group's currency and interest rate profile, so managing SIG's exposure to exchange rate and interest rate fluctuations. A small proportion of SIG's assets are funded using fixed rate finance lease contracts.

The Group’s financial liabilities (including derivative financial assets but excluding trade receivables and payables) at 31 December 2010 of £314.5m (2009: £473.9m) is made up of the following categories:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Finance lease contracts</td><td>7.2</td><td>9.4</td></tr><tr><td>Bank overdrafts</td><td>2.5</td><td>2.5</td></tr><tr><td>Bank loans</td><td>31.5</td><td>185.6</td></tr><tr><td>Private placement notes</td><td>312.7</td><td>299.2</td></tr><tr><td>Loan notes</td><td>-</td><td>0.1</td></tr><tr><td>Derivative financial instruments</td><td>12.6</td><td>15.7</td></tr><tr><td>Total</td><td>366.5</td><td>512.5</td></tr><tr><td>Derivative financial instruments (assets)</td><td>(52.0)</td><td>(38.6)</td></tr><tr><td>Net total</td><td>314.5</td><td>473.9</td></tr></table>

The Group’s gross financial liabilities as detailed above can be further analysed as follows:

<table><tr><td></td><td>2010£m</td><td>2010%</td><td>2009£m</td><td>2009%</td></tr><tr><td>Financial liabilities with a maturity profile of greater than 5 years</td><td>134.5</td><td>43%</td><td>141.3</td><td>30%</td></tr><tr><td>Financial liabilities held on an unsecured basis</td><td>304.2</td><td>97%</td><td>460.2</td><td>97%</td></tr></table>

In addition to the Group’s gross financial liabilities (including derivative financial assets) of £314.5m (2009: £473.9m), the Group also had £129.5m (2009: £219.4m) of positive cash held on deposit, bringing the net financial indebtedness (net debt) of the Group to £185.0m (2009: £254.5m). The Group’s net debt of £185.0m (2009: £254.5m) can be analysed as follows:

<table><tr><td></td><td>2010£m</td><td>2010%</td><td>2009£m</td><td>2009%</td></tr><tr><td>Financial liabilities denominated in foreign currencies, held partially to hedge the assets of our overseas businesses</td><td>82.6</td><td>45%</td><td>147.0</td><td>58%</td></tr><tr><td>Financial liabilities at fixed rates of interest</td><td>165.9</td><td>90%</td><td>151.2</td><td>59%</td></tr></table>

Details of derivative financial instruments are shown in Note 18 to the Accounts on pages 96 to 99

Treasury risk management incorporates liquidity risk, interest rate risk, foreign currency risk and debt covenants. These specific risks, and the Group’s management of them, are detailed below:

## LIQUIDITY RISK AND FINANCIAL FACILITIES

Liquidity risk is the risk that SIG is unable to meet its financial obligations as they fall due. In the longer term, a substantial reduction in operating performance and cash generation may result in the Group being unable to service its debt, which would have a material adverse effect on the Group’s business.

In order to mitigate the risk of not being able to meet its financial obligations, SIG seeks a balance between certainty of funding and a flexible, cost-effective borrowing structure, using a mixture of sources of funding in order to reduce the risk of being over reliant upon any one provider. The key sources of finance are private placement note providers, being mainly US-based pension funds and principal bank debt. The last private placement transaction completed on 1 November 2006 which increased the certainty of the Group’s debt funding, providing a committed 7, 10 and 12 year facility.

There is a risk that funding will not be made available to the Group or that the cost of accessing and servicing the funding may be prohibitive. The reduction in Group net debt since 1 January 2009, driven largely by cash generation from trading activities and the raising of £325m in April 2009 via a placing and open offer and firm placing, significantly strengthens the financial position of the Group.

In 2011 the Group has debt repayment obligations amounting to £78m. In order to meet this debt repayment obligation, at 31 December 2010 the Group had long term (2013) undrawn debt facilities of £75m and cash held on deposit of £129.5m, thereby creating a funding surplus at 31 December 2010 of £126.5m.



## TREASURY RISK MANAGEMENT CONTINUED

## LIQUIDITY RISK AND FINANCIAL FACILITIES CONTINUED

In order to secure longevity and certainty of funding and to support the Group’s medium term strategic plans, the Group has made the strategic decision to refinance its bank debt facilities.

The year end maturity profile and value of undrawn committed borrowing facilities are set out in Note 19 to the Accounts on pages 99 to 101.

## INTEREST RATE RISK

The Company’s interest costs in respect of its borrowings will increase in the event of rising interest rates. To reduce this risk the Company has a policy of aiming to fix between 60% and 85% of its net debt by entering into appropriate derivative financial instruments. As the Group’s net debt has reduced, the percentage level of net debt at fixed rates of interest has increased. In addition, the Group has entered into an interest rate derivative contract in 2010 which fixes a further £20m of debt at 1.385% (excluding borrowing margin).

At 31 December 2010, 90% (31 December 2009: 59%) of the Group’s net debt is at fixed rates of interest. Whilst the level of fixed rate debt at 90% is above the Group’s stated policy range, this has arisen as the Group has looked to benefit from the current low interest rate environment to minimise the Group’s interest charge but also reduce the Group’s exposure to future interest rate increases. In addition, the Group has taken advantage of the current low interest rate environment by entering into three forward starting interest rate derivative financial instruments which fix the interest rate on £50m of floating rate debt starting August 2011. These interest rate fixes will effectively replace the fixed rate private placement notes which mature in August 2011, thereby maintaining the level of fixed rate debt in the Group at that date. The blended rate achieved on these three interest rate derivative contracts was 2.75% (excluding borrowing margin), which compares favourably to the rate on the private placement notes which mature in August 2011 where the rate is 7.2%. Given that 90% of the Group’s net debt is subject to fixed rates of interest, the Group’s exposure to future interest rate increases is reduced.

## FOREIGN CURRENCY RISK

SIG has a number of overseas businesses whose revenues and costs are denominated in the currencies of the countries in which the operations are located. 55% of SIG’s 2010 (55% in 2009) revenues were in foreign currencies, being primarily Euros, Polish Zloty, Czech Koruna and Hungarian Forint. The vast majority of SIG’s sales and purchases are not cross-border. When cross-border transactions occur it is SIG’s policy to eliminate currency exposure at that time through forward currency contracts, if the exposure is considered to be material.

## RESHAPED FOR THE FUTURE: REFINANCED DEBT FACILITY

In 2011 the Group has debt repayment obligations amounting to £78m. In order to meet this debt repayment obligation, at 31 December 2010 the Group had long term (maturing in 2013) undrawn debt facilities of £75m and also cash held on deposit of £129.5m. At 31 December 2010, the Group therefore had a funding surplus of £126.5m.

Despite this funding surplus, in order to secure longevity and certainty of funding and to support the Group’s strategic plans, the Group decided to refinance its bank debt facilities. As a result, on 14 March 2011, the Group signed a new £250m four year revolving credit facility on favourable terms with Royal Bank of Scotland (“RBS”), Lloyds Banking Group (“Lloyds”), Barclays Bank (“Barclays”) and HSBC acting as joint mandated lead arrangers. Upon successfully completing the new £250m bank facility, the Group’s existing UK bank facilities were immediately cancelled and any borrowings repaid using cash held on deposit at that time. The Group’s existing private placement loan notes remain in place with maturities ranging from 2011 to 2018.

The continuing commitment of the Group’s existing relationship banks (RBS, Lloyds and Barclays) and the addition of a new relationship bank, HSBC, is a clear signal of their support of the Group and its long term prospects.

As well as providing the Group with greater longevity of funding, this new bank facility also provides additional headroom against the Group’s debt repayment obligations in the short to medium term. Together with the existing private placement loan notes, the Group’s committed debt facilities are as follows:

<table><tr><td></td><td>Total facilities £m</td></tr><tr><td>At 31 December 2010</td><td>490</td></tr><tr><td>Facility maturities/cancelled in 2011</td><td>(254)</td></tr><tr><td>New facilities</td><td>250</td></tr><tr><td>At 31 December 2011</td><td>486</td></tr></table>

The new £250m debt facility together with the Group’s reduced level of net debt at 31 December 2010 provides the Group with a strong financial platform to support future growth.



# 2010 BUSINESS REVIEW CONTINUED

## TREASURY RISK MANAGEMENT CONTINUED

## FOREIGN CURRENCY RISK CONTINUED

SIG faces a translation risk in respect of the local currencies of its primary foreign operations, being Euro, Polish Zloty, Czech Koruna and Hungarian Forint profits. SIG also faces a translation risk from the US Dollar in respect of its private placement borrowings, which was swapped into Sterling and Euro at the time the US Dollar private placement borrowings were transacted.

The Consolidated Balance Sheet of the Group is inherently at risk from movements in the Sterling value of its net investments in foreign businesses and the Sterling value of its foreign currency net debt.

For currencies where the Group has significant translational risk, SIG seeks to mitigate this risk by combining financial liabilities and derivatives in currencies that partially hedge the net investment values. The Group's policy is that for currencies where a material translational exposure exists, the Group will hold financial liabilities in that particular currency in proportion to the overall ratio of net debt to capital employed.

At 31 December 2010, SIG had the following net foreign currency borrowings (including cash and cash equivalents):

<table><tr><td></td><td>Local currency net borrowings/(cash) L€/m</td><td>Sterling equivalent borrowings/(cash) £m</td></tr><tr><td>Euro</td><td>110.4</td><td>95.2</td></tr><tr><td>HUF</td><td>64.9</td><td>0.2</td></tr><tr><td>PLN</td><td>(49.0)</td><td>(10.6)</td></tr><tr><td>CZK</td><td>(41.0)</td><td>(1.4)</td></tr><tr><td>Other currencies</td><td>various</td><td>(0.8)</td></tr><tr><td>Total</td><td></td><td>82.6</td></tr></table>

As noted above, net Euro borrowings at 31 December 2010 amounted to £95.2m and therefore represented 51% of Group net debt (2009: 63%).

Gearing, being net debt divided by net assets, decreased during the year from 30.6% to 24.6%, reflecting the £69.5m reduction in net debt.

The net after tax effect on the Consolidated Balance Sheet of currency transaction and translation differences relating to our overseas subsidiaries in 2010 was a reduction in net assets of £13.3m (2009: reduction of £40.6m). This reduction in net assets arose principally as a result of the 4% year on year appreciation of Sterling versus the Euro (£1.16/£ at 31 December 2010 versus £1.12/£ at 31 December 2009), thus decreasing the carrying value of SIG's net investments in its Euro denominated businesses.

## DEBT COVENANTS

SIG’s debt facilities provided by its private placement note holders and its relationship banks in the UK contain certain covenants. The key covenants are leverage and interest cover and are tested at 30 June and 31 December each year. At 31 December 2010, the Group’s principal covenants were as follows:

• Leverage covenant – net debt/annualised EBITDA must be less than 3.5x.

• Interest cover – underlying operating profit/underlying net finance costs (excluding pension scheme finance income and costs) must be greater than 3.0x.

At 31 December 2010, the Group's leverage was 1.6x (2009: 2.0x) and interest cover was 5.8x (2009: 4.3x), comfortably within the covenant levels detailed above.

As detailed on page 29, in Q1 2011 the Group successfully refinanced its UK bank debt facilities. As part of this, the Group's revised principal debt covenants are as follows:

• Leverage covenant – net debt/annualised EBITDA must be less than 3.0x.

• Interest cover – underlying operating profit/underlying net finance costs (excluding pension scheme finance income and costs) must be greater than 3.0x.

The new debt facilities also includes the following covenant which only applies should certain triggers points (leverage exceeds 2.25x and/or operating lease rentals exceed £90m per annum) be realised:

• Fixed charge cover – (EBITDA + operating lease rentals)/(operating lease rentals + underlying net finance costs) must be greater than 1.75x.

• SIG must manage its business and its capital structure so that it meets its debt covenants, thus ensuring it can meet its liabilities as they fall due.

## GAINS AND LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS

As detailed previously, the Group has a number of treasury hedging arrangements that attempt to eliminate foreign exchange, interest rate and associated tax risks under the terms of SIG's Treasury Policy. Where these hedges are deemed imperfect or where exceptional gains and losses arise, then these are included within "Other items" in the middle column of the Consolidated Income Statement. No instances arose in 2010 (2009: £1.4m income). Further details are set out in the Finance Costs section on page 20.

## OTHER MATTERS

## SHAREHOLDER RETURN

SIG has delivered a 5.6% return on capital employed in 2010 (2009: 5.3%), which remains below that historically achieved by the Group. Two important management KPIs are underlying operating margin and the Group's working capital to sales ratio. Whilst further significant improvements in the Group's working capital to sales ratio



## OTHER MATTERS CONTINUED

## GOING CONCERN BASIS

is unlikely, as markets begin to recover the Group anticipates an improvement in its underlying operating profit margin. Improvements in both of these ratios will drive an improvement in the Group’s return on capital employed and as a result, are of key management focus in 2011.

As at 16 March 2011, SIG's share price closed at £1.211 per share, representing a market capitalisation of £71.5m at that date. SIG monitors relative Total Shareholder Return ("TSR") for assessing relative financial performance. The Group's TSR performance has been detailed in the Directors' Remuneration Report on page 63.

In determining whether the Group’s 2010 Accounts can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities. These are set out in the Chairman’s Statement and Business Review on pages 4 to 31 and in the Notes to the Group Accounts.

The key factors considered by the Directors were as follows:

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

- the impact of the competitive environment within which the Group’s businesses operate;

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

- the credit risk associated with the Group’s trade receivable balances;

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

- the committed and renewed finance facilities available to the Group.

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

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group’s 2010 Accounts.

## CAUTIONARY STATEMENT

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

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

The forward looking statements should be read in particular in the context of the specific risk factors for the Group identified on pages 26 to 30 of this Business Review. The Company’s Shareholders are cautioned not to place undue reliance on the forward looking statements. This Business Review has not been audited or otherwise independently verified. The information contained in this Business Review 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 Business Review during the financial year ahead.



CHRIS DAVIES
CHIEF EXECUTIVE



GARETH DAVIES
FINANCE DIRECTOR



# INSULATION AND
BUILDING ENVIRONMENTS

SIG is the largest supplier of insulation and related products in Europe. Insulation products have three main applications, being thermal management, fire protection and sound control. In the longer term, demand for insulation products, driven by continued and more stringent government legislation and environmental issues, is expected to outperform overall construction demand.
Revenue

£1,020.6m
38%

Growth drivers

The need to reduce energy consumption

• More stringent Government regulation

• Government initiatives around renewable energy

The most widespread application for insulation is that of thermal management where insulation is most commonly used to retain heat within a building or industrial process. However, there are also applications, such as cold stores, where the requirement is to keep heat out. Fire protection is another important application for insulation where good design, material specification and installation are vital in protecting buildings from the ravages of fire and ultimately help save lives. The third application of insulation is that of sound control. Cities and towns are becoming increasingly dense and the ability to minimise the transmission of noise between dwellings is now an integral part of building design. The technical capabilities for this application are developing apace and the Group has positioned itself as a leader within this area as well as the wider insulation market.

High energy costs and environmental concerns drive the use of insulation products across a wide range of construction and industrial applications. In general, insulation is used to control the transfer of heat and sound and provide resistance to fire, all of which are subject to the specific Building Regulations in each country. In addition, the goal of reducing carbon emissions driven by government policy and regulation is placing increasing importance on the use of appropriate insulation materials and systems. As Building Regulations, environmental issues and modern methods of construction become ever more complex, customers increasingly rely upon the knowledge, support and impartial advice only a specialist distributor can provide. SIG's sales and technical staff receive continuous training in the latest legislation, building methods, products and applications.

Building methods and products are rapidly changing. SIG works closely with manufacturers to introduce wide ranges of new, specialist, sustainable products to progress innovative building methods.
The Group has 228 trading sites in Europe focused on the requirements of the insulation and building environment market and are able to provide expert advice, wide stock holding and rapid service and delivery. In the UK, the Group is also engaged in domestic insulation contracting, being predominantly the retrofitting of thermal insulation in the walls and lofts of houses, thus improving the efficiency of existing residential properties. Demand for domestic retrofitting of insulation is driven through a number of Government supported schemes such as the Carbon Emissions Reduction Target ("CERT"). SIG has built upon its extensive experience in the industrial and Heating, Ventilation and Air Conditioning ("HVAC") insulation market to develop into the adjacent and complementary area of air handling and air conditioning materials with activities spread across eight countries and thirteen trading sites across Europe. This market offers excellent growth prospects driven by increasing regulation on thermal efficiencies in the non-residential environment.











1 Pitched Roof Insulation
2 Loft Insulation
3 Breather Membranes
4 Cavity Wall Insulation
5 Acoustic Wall and Floor Insulation
6 Plasterboard/Metal Stud
7 Thermal Laminates
8 Floor Insulation

9 Vapour Control Layer/Polythene
10 Chip board
11 Damp Proof Courses
12 Chimneys/Dormers
13 Velux Windows
14 Cavity Closers/Insulation DPC
15 Foundation Systems

1 Heating/Ventilating/
Air Conditioning ("HVAC")
2 Flat Roof Insulation
3 Steel Framing System ("SFS")
4 Rainscreen Cladding

5 Underscreed Isolation Materials
6 External Renders
7 Fire Protection Boards
8 Heavy Duty Plasterboard Systems






## EXTERIORS

The roof is one of the most critical parts of any building. It protects the integrity of the building’s structure and the building’s contents from the elements. Repair and maintenance is often an urgent requirement and requires suitable products to be readily available on demand.

Revenue

£788.7m
30%



The 344 trading sites in this division offer materials from the leading manufacturers of roofing materials and supply products for pitched, flat, industrial and agricultural applications. As the largest specialist supplier of roofing materials in Europe, the Group is able to keep at the forefront of innovations and provide its customers with a level of technical know-how unrivalled in the market. In addition, for certain bespoke product solutions, the Group also has in-house manufacturing capability in the UK. As well as specialist roofing materials, each location offers a range of accessories such as tools and fixings, ventilation, access equipment, safety products and insulation materials. Many of these accessories are core product areas for other Group businesses and the Exteriors business is able to draw on the experience and technical knowledge of its sister businesses as well as taking advantage of Group procurement.
Growth drivers

• Essential RMI requirement

• Growth of specialist distribution as the main supply route

• New products

SIG is also a leading supplier in the UK of reclaimed and pre-used roof tiles and slates which have two key advantages over newly manufactured products. Firstly, they remove the need for energy consuming manufacture and secondly, their aged and worn character provides an aesthetically pleasing appearance that matches that of the local environment, something that is increasingly important to local communities and planning agencies.

The on-going need for repair or replacement of existing roofs, whether as the result of natural wear and tear or of storm damage, creates a resilient market for roofing materials. The emergency nature of some repairs requires materials to be readily available from local stock and these demands dictate the nature of the market, which is for a large number of depots holding a broad range of stock. For new-build applications, where consumers or designers require certain styles or finishes, SIG also provides “Roof Libraries” which offer a very wide selection of materials and facilitate the specification process. During the last few years, SIG has also broadened its product offering to include roofline products such as rainwater and guttering, soffit, fascia and barge boards.

SIG has also expanded its range of Photovoltaic products which are supplied through the Group’s trading sites in both France and Germany. The Group also sells Photovoltaic products in the UK, although these sales are predominantly made through the Group’s UK Energy Management division (included within Insulation). Government initiatives are expected to support and drive demand for these products going forward.











1 Single Skin Metal Sheeting, Fibre Cement Sheeting and Bituminous Sheeting
2 Guttering
3 Roof Lights
4 Flashings
5 Fixings
6 Purlins
7 Composite Panels, Insulated Metal Tile and Twin Skin Metal
8 Cladding/Composite Architectural Wall Panels



1 Waterproofing
2 Vents and Outlets
3 Roof Build Up
4 Roof Domes and Access Hatches

5 Promenade Tiles and Roof Paving
6 Vapour Barriers and Vapour Control Layers
7 Compounds and Sealants








## INTERIORS

SIG Interiors businesses are leading designers, manufacturers and specialist distributors of all products required for interior fit out projects. The interiors market place is demanding, sophisticated and fast moving with product innovation being essential to respond to changing legislation and standards. Emphasis is on achieving a balance between efficient utilisation of space and the quality and comfort of the working environment. There is also an added requirement of flexibility to meet the changing business requirements of today’s world.

Revenue

£661.3m
25%

Growth drivers

• Refurbishment of non-residential buildings (e.g. schools, offices, hospitals, retail)

• Improving standards of internal fit out

• Thermal, acoustic and safety standards

The Group has a combination of businesses within the Interiors market sector, incorporating both distribution and manufacturing based businesses.

The interiors products sold by the Group include ceilings, partitioning, dry lining, floor coverings, glass and specialist door systems used in non-residential buildings, together with a wide range of ancillary products supplied to support individual contracts. All types of non-residential buildings such as schools, hospitals, hotels, offices and shops are supplied with products for either new build or refurbishment projects. The Group supplies ceiling and dry lining products from leading suppliers and manufactures its own door and partitioning systems.

The Group has 219 trading sites (81 of which also supply insulation products) which blend the requirements of small, maintenance-oriented projects which require ready access to materials with those of larger, specification-based contracts where specialist advice, service and support are required to secure orders. Customer and client support may include technical design and development of visual appearance, together with logistics and delivery scheduling in order to meet the fit out requirements. Delivery service is an important element of project planning as city locations can often have difficult access and minimal space for holding stock. If materials are not available “on time” then contractors face lost “downtime” and potential time penalties.













1 Lighting
2 Integrated Pumping Systems
3 Washrooms
4 Doorsets (including emergency exits)
5 Suspended Ceilings

6 Partitioning
7 Graphics
8 Floor Coverings
9 Raised Access Flooring
10 Storage Wall



# SPECIALIST
CONSTRUCTION PRODUCTS

SIG’s Specialist Construction Products division distributes specialist, leading brand construction materials to a wide range of markets which are essential to the construction process. Detailed product knowledge and a keen understanding of specific technical applications are vital elements of customer support. A large part of SIG’s sales in this market sector are into new construction projects.
Revenue

£197.4m
7%



SIG supplies a wide portfolio of specialist construction products such as concrete accessories, waterproofing systems, construction chemicals and admixtures, brickwork support systems, specialist fixings, safety products and tools from 38 trading sites. Typically, products are supplied to large commercial or civil engineering projects. Examples include tunnels and bridges, schools and hospitals, retail developments, hotels and office buildings.
Growth drivers

• Investment in infrastructure and non-discretionary spending by utilities

Demand for high performance solutions and innovative products

- Supply chain efficiency and specific technical “just-in-time” project management

The products supplied by SIG are often of critical importance to the whole building programme and must perform to tight specifications and be available for use at the right time and right location. Consequently, relationships throughout the supply chain with manufacturers, major contractors and specialist sub-contractors are vital. The capability to resolve problems with expert technical advice and the ability to offer rapid delivery times to maintain workflows on large projects is a big point of differentiation on the critical projects. Public sector investment in large scale infrastructure projects together with non-discretionary spending by utility companies generates high levels of continuing opportunity for SIG's products in this sector.

Major construction contractors are increasingly looking to shrink their supplier base and to outsource more work to less suppliers. SIG’s extensive range of products and service make it ideally positioned to take advantage of this opportunity.













1 Scaffolding
2 PPE and Workwear
3 Temporary Fencing
4 Masonry Components
5 Mechanical and Electrical Products
6 Waterproofing
7 Groundwork Engineering
8 Specialist Fixings
9 Concrete Repair and Protection



# CORPORATE RESPONSIBILITY REPORT

SIG is continually developing its approach to Corporate Responsibility and is a constituent member of the FTSE4Good Index of socially responsible companies. As such, SIG fully recognises its corporate responsibilities to its Shareholders, employees, customers and suppliers and is committed to good practice in all its activities.



## FTSE4Good

FTSE Group confirms that SIG plc has been independently assessed according to the FTSE4Good criteria, and has satisfied the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index company FTSE Group, FTSE4Good is an equity index series that is designed to facilitate investment in companies that meet globally recognised corporate responsibility standards. Companies in the FTSE4Good Index Series have met stringent social and environmental criteria, and are positioned to capitalise on the benefits of responsible business practice.

Business in the

Community

SIG is a member of Business in the Community in the UK and has worked with that organisation to develop its approach and practices.













The SIG Board believes that the progressive integration of Corporate Responsibility (“CR”) across the Group and the inclusion of broader social and environmental issues into its decision making will help us to achieve our business goals and act as an essential building block for growth in Shareholder value.

SIG continues to be a constituent member of the FTSE4Good Index of socially responsible companies, and recognises its corporate responsibilities to its Shareholders, employees, customers and suppliers and is committed to good practice in all its activities. The Company continues to develop its approach to CR and is pleased to be able to inform its stakeholders of the measures which it is taking to continue to monitor and improve its CR performance reporting.

Through the CR Committee set up in 2009, the SIG Board takes regular account of the significance of social, environmental and ethical matters to the business of the Group and it has in place a comprehensive risk management and internal control process which identifies and assesses the significant risks to the Company’s short and long term value arising from such matters. The Board receives a report on CR issues at each of its Board meetings and reviews CR strategy. CR issues also form part of the overall internal control process and are covered in the training of Directors.

As a founder member of the Association for the Conservation of Energy, SIG is active in promoting and encouraging the raising of mandatory standards for thermal insulation.

SIG has in place a Group-wide Ethics Policy, which sets out a number of fundamental principles that all Group companies are required to follow. In addition we have in place a Group-wide Anti-corruption Policy and Ethical Trading and Human Rights Policy. These policies underpin our CR programme and support our business integrity.

The three year rolling CR plan, maintained by the CR Committee, continues to inform the objectives and target actions of the Group and drives continual improvement of its CR performance. The objectives provide valuable key performance indicators for the Group to focus its CR efforts and work to continually improve the Group’s index ratings.

The Group’s CR credentials have proven key to its commercial aspirations in 2010 providing access to tender lists for major contractors through formal assessment and Pre-qualification Questionnaires.

SIG has retained externally verified certification under ISO 14001:2004 (Environment) and OHSAS 18001:2007 (Health and Safety) across all of the Group’s UK sites with Moody International and BSI being the appointed Assessors.



## BUSINESS PRINCIPLES AND CODE OF ETHICS

SIG has a clear and unequivocal approach to business integrity and ethics which underlies the Group’s core values of openness, collaboration, mutual dependency, sustainable profitable growth, professional delivery and innovation. The Group’s Ethics Policy has been designed to ensure that SIG conducts all of its business to the highest ethical standards.

The Group’s Ethics Policy, which has been issued to all employees, sets out the standards and behaviours that all SIG employees are expected to meet throughout the Group’s operations. The policy makes clear a number of fundamental principles, which all Group companies are required to follow. The policy can be viewed on the Company’s website at www.sigclp.com. The Ethics and Anti-corruption Policies include the Company’s prohibition on the giving or receiving of bribes or other payments. The key business principles contained in the Ethics Policy are set out below:

● SIG’s policy is to operate within applicable laws;

● discrimination or harassment of any kind will not be tolerated;

● SIG aims to be a responsible partner within its local communities;

● the legal and moral rights of others will be taken into account in all SIG’s business transactions;

● we will maintain a safe and healthy environment for people to work in;

● we will be proactive in managing our responsibilities to the environment;

● we will not knowingly make misrepresentations;

● as a matter of policy, we do not make political donations;

● no bribes can be given or received;

● conflicts of interest must be avoided and in all cases must be reported; and

● employees are encouraged to report any suspected wrongdoings.

The Group operates a culture of openness and has in place a confidential hotline service so that employees can raise, on a confidential basis, any concerns about how we conduct our business. The service is provided by an independent third party and a full investigation is carried out on all matters raised and a report is prepared for feedback to the complainant. The confidential hotline service is available to all SIG employees.

## ENVIRONMENT

## ENVIRONMENTAL MANAGEMENT

SIG maintains a Health, Safety and Environmental Policy signed by the Group Chief Executive and operates an integrated Health, Safety and Environmental ("HS&E") Management system which in the UK is externally accredited to ISO14001 (Environment) and OHSAS 18001 (Health and Safety). The policy has been translated into local languages for display at all SIG locations.

The quantitative Environmental Audit process was again completed in the UK by the internal HS&E Advisers to include all SIG UK locations and the process was extended to include all Northern Ireland branches. The average score by branch again increased against the prior year.

This was also the second year of quantitative benchmarking carried out across the Mainland European and Ireland businesses. The rating for each business also improved in comparison to the prior year.

The Group has received no prosecutions relating to environmental matters during 2010 and received a clear report following an audit from the Environment Agency against SIG Interiors Manufacturing’s compliance with the PRO (Packaging Waste) Regulations.

The Group has identified the significant environmental impacts of its operations, which are summarised on pages 41 to 45.

## TRANSPORT

Vehicle fuel consumption forms a major part of the Group’s carbon footprint. Fuel cards are provided across the business to enable full and accurate measurement of consumption for company vehicles. All businesses operate a vehicle purchasing policy which includes information about the emissions of the vehicles. Vehicle servicing programs are tightly controlled to maintain efficiency.

An Occupational Road Risk Policy was developed in 2010 for the UK followed by a major information and training campaign whose aims included:

● an absolute reduction in fuel consumption;

● improving driving efficiency; and

● 20% reduction in accidents in 2011 compared to 2010.

Target actions included: SIG UK Logistics Specialists accredited to deliver CPC and Road Risk Policy training; a "City Initiative Project" which optimises vehicle use by sharing vehicles and consolidating loads and sharing trips to distant contracts; provision of Freight Best Practice guidance to all commercial drivers; and the introduction of an online driver assessment linked to a risk assessment programme.

## ENERGY

In the UK in 2010 an Energy Efficiency Manager was recruited to progress the Low Carbon Plan and identify best practice and energy reduction opportunities. Working with the Carbon Trust and energy efficient equipment providers, an internal Energy Audit procedure was developed and the internal audit team trained in its delivery. This forms a major part of the 2011 campaign for energy reduction across the Group.

Reducing energy consumption is a priority for all of our operations. As well as reducing the amount of vehicle fuel used in delivery, SIG has set objectives to increase the energy efficiency of heating and lighting and to maximise the use of natural light in the Group’s properties.

A best practice and awareness campaign which commenced in 2010 will continue in 2011 to include all UK locations and will be communicated across all Group businesses.

## WATER

Water consumption throughout the Group is minimal as the majority of consumption is from welfare use. At present SIG is unable to provide consumption information relating to the water used throughout its operations. However, as part of the ongoing data gathering process improvements it is envisaged that future reports will include this data.

## CARBON MANAGEMENT

SIG is registered with the UK’s CRC Energy Efficiency Scheme in 2010 and has set out its plan to meet the stringent requirements of the scheme, including assigning officer roles, adjusting data gathering procedures and compiling the Evidence Pack. In addition in response to the principles of the Scheme SIG has committed itself to become a Low Carbon Business through its policies and procedures.

The Low Carbon Committee which was formed in January 2010 advises on strategy, target actions and progress against the plan. A Low Carbon Policy (“LCP”) has been published signed by Mr. C.J. Davies, Chief Executive who is the Board Director responsible for the environmental performance of the Group. This policy supports the Group’s HS&E Policy with the overall aim to reduce the Company’s impact on the global environment and in particular climate change.

A key objective of the LCP for 2010 was to achieve the Carbon Trust Standard which was awarded in October. This is an important achievement for the business as it independently validates the UK’s reduction in carbon emissions and it demonstrates the Group’s ongoing commitment to reducing emissions year on year. This achievement is also evidence of the Group’s commitment to continual improvement as set out in the HS&E Policy and certification to ISO 14001 and OHSAS 18001 Management Systems.



# CORPORATE RESPONSIBILITY REPORT CONTINUED

SIG’s key objective over the past three years has been to improve the standards of measurement and data gathering to provide a verifiable Carbon Footprint. The introduction of IT systems and databases and the recruitment of key personnel, has lead to the achievement of the Carbon Trust Standard in 2010 and has provided the focus for our objectives for 2011.

## ENVIRONMENT CONTINUED

## CARBON MANAGEMENT CONTINUED

Best practice and information about opportunities is spread across the Group through sharing of information and communication. This was achieved in 2010 through a Group-wide Environmental Management Review covering all businesses which included carbon measurement, CR reporting, waste management and objectives and targets.

SIG’s key objective over the past three years has been to improve the standards of measurement and data gathering to provide a verifiable Carbon Footprint. This has been achieved through the introduction of IT systems and databases and the recruitment of key personnel. This investment has led to the achievement of the Carbon Trust Standard in 2010 and has provided the focus for our objectives for 2011 which include targets for reducing fuel and energy consumption.

## CARBON (CO \( _{2} \) ) EMISSIONS

SIG continues to improve the quality of data captured by working with local data champions for each region, auditing the data gathering processes, sharing best practice, improving take-up of national contracts and practical measures for instance carrying out meter readings to reduce reliance on estimated bills. In addition the Company has formal written procedures for data gathering. The disclosures of emission include all of its operations with the exception of the Air Trade Centre business which represents 2% of Group revenue.
SIG has reported CO \( _{2} \)  equivalent emissions by scope in accordance with the “Greenhouse Gas Protocol”. These include Scope 1 emissions for which businesses are directly responsible, Scope 2 emissions which are indirect emissions from the generation of supplied electricity and Scope 3 emissions over which the businesses have limited control. Reporting of Scope 3 emissions are limited to third-party provided air and rail transportation and waste management. However the Group’s objectives for carbon reduction will reduce non-reported Scope 3 emissions, for instance, road vehicle accident reduction targets will reduce emissions from repair companies and emergency services.

Recorded Scope 1, Scope 2 and Scope 3 emissions are included in the data reported below and on the opposite page.

The figures show a 1.1% reduction in carbon equivalent emissions per £million of revenue in 2010 in comparison to the prior year and an absolute reduction of 3.9%. The major reductions have been achieved in Scope 1 with emissions falling by 4.0% year on year, with a 4.5% absolute reduction in emissions from road vehicle fuel consumption.

CO \( _{2} \)  EMISSIONS – SCOPE I – DIRECT

<table><tr><td>Source</td><td>Definition</td><td>Data source and calculation methods</td><td>Metric tonnes (Group) 2010</td><td>Metric tonnes (Group) 2009</td></tr><tr><td>Road vehicle fuel</td><td>Emission from vehicle use</td><td>Fuel cards and direct purchase records in litres converted according to DEFRA guidelines</td><td>78,933</td><td>82,675</td></tr><tr><td>Plant vehicle fuel</td><td>Emission from vehicle use</td><td>Direct purchase records in litres converted according to DEFRA guidelines</td><td>2,059</td><td>1,973</td></tr><tr><td>Natural gas</td><td>Directly purchased gas, which generates greenhouse gases including CO2 emissions</td><td>Actual or estimated consumption in kWh converted according to DEFRA guidelines</td><td>4,386</td><td>4,481</td></tr><tr><td>Gas oil</td><td>Directly purchased gas oil, which generates greenhouse gases including CO2 emissions</td><td>Actual or estimated purchases in litres converted according to DEFRA guidelines</td><td>4,185</td><td>4,158</td></tr><tr><td>Coal/coke</td><td>Directly purchased coal/coke, which generates greenhouse gases including CO2 emissions</td><td>Actual or estimated purchases in tonnes converted according to DEFRA guidelines</td><td>61</td><td>55</td></tr><tr><td>Kerosene</td><td>Directly purchased Kerosene, which generates greenhouse gases including CO2 emissions</td><td>Actual or estimated purchases in litres converted according to DEFRA guidelines</td><td>52</td><td>38</td></tr><tr><td>Total</td><td></td><td></td><td>89,676</td><td>93,380</td></tr></table>

The data relating to  \( CO_{2} \)  emissions has been collected from all of the Group’s operations, with the exception of the Air Trade Centre businesses.

The above table does not include  \( CO_{2} \)  emission data relating to the wood burning (generation of heat) at the Crawley, Nottingham and Barnstaple operations as these operations are deemed to be carbon neutral.



<table><tr><td>Source</td><td>Definition</td><td>Data source and calculation methods</td><td>Metric tonnes (Group) 2010</td><td>Metric tonnes (Group) 2009</td></tr><tr><td>Electricity</td><td>Directly purchased electricity, which generates greenhouse gases including  \( CO_{2} \)  emissions</td><td>Actual or estimated consumption in kWh converted according to DEFRA guidelines</td><td>27,337</td><td>28,438</td></tr><tr><td>Total</td><td></td><td></td><td>27,337</td><td>28,438</td></tr></table>

The data above is based on  \( CO_{2} \)  emission data captured from businesses representing circa 98% of Group revenue for the year ended 31 December 2010.

CO \( _{2} \)  EMISSIONS – SCOPE 3 – OTHER INDIRECT

<table><tr><td>Source</td><td>Definition</td><td>Data source and calculation methods</td><td>Metric tonnes (Group) 2010</td><td>Metric tonnes (Group) 2009</td></tr><tr><td>Business travel</td><td>Third-party provided transport (air and rail)</td><td>Actual or estimated distance travelled converted according to DEFRA guidelines</td><td>323</td><td>244</td></tr><tr><td>Total</td><td></td><td></td><td>323</td><td>244</td></tr></table>

The data relating to business travel has been collected from all of the Group’s operations with the exception of the Air Trade Centre businesses.

<table><tr><td></td><td>Metric tonnes 2010</td><td>Metric tonnes 2009</td></tr><tr><td>Emissions per £m of revenue (Scope 1, 2 and 3)</td><td>44.9</td><td>45.4</td></tr></table>

## WASTE MANAGEMENT

SIG recognises its responsibilities to measure and minimise the waste generated by its business operations and has put in place waste segregation arrangements for the purpose of recycling materials across all its businesses. The policy has resulted in an increase in the amount of waste diverted from landfill overall from 42% in 2009 to 47% in 2010. Further strategies are in place to increase this figure to 50% in the medium term.

As well as providing for segregation of waste generated at its own sites and setting up national and local contracts with waste recycling businesses, SIG has developed close relationships with manufacturers to facilitate their obligations under the principles of “Producer Responsibility Obligations” to operate waste take-back schemes for its customers for plasterboard, uPVC and glass and is actively looking to develop further schemes for this purpose.

Waste minimisation is a key aspect of the Company’s management strategy and as a break bulk supplier, SIG recognises that the major impact of our organisation on environmental waste is through packaging and we have taken a proactive approach to minimise the amount of new packaging entering the market and the amount of waste generated at branch level. This is achieved by:

● purchasing recycled and recyclable packaging where practicable, including pallets and cartons;

● returning reusable pallets to suppliers and similarly returning transit pallets from deliveries to customers;

● reusing packaging opened at branch level for internal transfers and deliveries;

● actively taking part in recycling and reclamation schemes through the membership of compliance schemes and working with local authorities and waste carriers;

● carrying out pre-treatment activities at branch level including segregation of materials and baling for recycling through a third party; and

● objectives and targets are set at branch and national level to improve the Company’s waste management processes.
In addition SIG developed a 'Print Policy' in 2010 designed to reduce the amount of unnecessary printing of documents at all locations. This will help to save waste paper, ink and electricity. The key aspect of the policy is to reduce the number of personal printers and provide where practicable communal, energy efficient and multi-functional printer, copier, fax machines. To avoid an increase in Waste, Electrical and Electronic Equipment ("WEEE") the programme will be introduced as equipment becomes unserviceable.

SIG actively seeks to reduce the number of printed copies of its Annual Report and Accounts and will be actively encouraging Shareholders to elect to receive their communications from the Company in electronic form.

SIG’s commitment to environmental issues is reflected in this Annual Report which has been printed on Satimatt Green and Revive 50, both recycled paper stocks comprising 75% recycled fibre and 25% virgin fibre. This document was printed by CPG using vegetable-based inks and water soluble lacquers and all production processes used make the minimum demand on the environment and produce the minimum amount of waste. Both the printer and the paper mill are registered to ISA 14001 and FSC approved.

In addition improved paper and cardboard recycling has resulted in saving over 36,465 trees based on the calculation that one tonne of waste recycled is the equivalent of 17 trees saved. Waste data is divided into hazardous and non-hazardous.



# CORPORATE RESPONSIBILITY REPORT CONTINUED

SIG recognises its responsibilities to measure and minimise the waste generated by its business operations.

The Group has in place policies to ensure that its customers receive the level of service and the quality of product that they have come to expect from SIG.

<table><tr><td colspan="5">ENVIRONMENT CONTINUED
WASTE MANAGEMENT CONTINUED
HAZARDOUS WASTE</td></tr><tr><td></td><td>Definition</td><td>Data source and calculation methods</td><td>Absolute tonnes (Group) 2010</td><td>Absolute tonnes (Group) 2009</td></tr><tr><td>Landfill</td><td>Hazardous waste sent to landfill</td><td>Volume per annum converted to tonnes</td><td>2</td><td>34</td></tr><tr><td>Recycled</td><td>Hazardous waste diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>873</td><td>762</td></tr><tr><td>Incinerated</td><td>Hazardous waste incinerated</td><td>Volume per annum converted to tonnes</td><td>118</td><td>13</td></tr><tr><td>Total</td><td></td><td></td><td>993</td><td>809</td></tr><tr><td></td><td></td><td></td><td>Absolute (Group) tonnes 2010</td><td>Absolute (Group) tonnes 2009</td></tr><tr><td>Hazardous waste per £m of revenue</td><td></td><td></td><td>0.4</td><td>0.3</td></tr><tr><td colspan="5">NON-HAZARDOUS WASTE</td></tr><tr><td></td><td>Definition</td><td>Data source and calculation methods</td><td>Absolute tonnes (Group) 2010</td><td>Absolute tonnes (Group) 2009</td></tr><tr><td>Landfill</td><td>Non-hazardous waste to landfill</td><td>Volume per annum converted to tonnes</td><td>15,724</td><td>17,696</td></tr><tr><td>Incinerated</td><td>Non-hazardous waste incinerated</td><td>Volume per annum converted to tonnes</td><td>184</td><td>160</td></tr><tr><td>Total</td><td></td><td></td><td>15,908</td><td>17,856</td></tr><tr><td colspan="5">OTHER WASTE DIVERTED FROM LANDFILL</td></tr><tr><td></td><td>Definition</td><td>Data source and calculation methods</td><td>Absolute tonnes (Group) 2010</td><td>Absolute tonnes (Group) 2009</td></tr><tr><td>WEEE</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>8</td><td>11</td></tr><tr><td>Glass</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>194</td><td>194</td></tr><tr><td>Wood</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>5,926</td><td>5,260</td></tr><tr><td>Metal</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>1,209</td><td>1,157</td></tr><tr><td>Plasterboard</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>963</td><td>441</td></tr><tr><td>Paper/cardboard</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>2,145</td><td>2,113</td></tr><tr><td>Plastic</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>1,520</td><td>1,376</td></tr><tr><td>Other</td><td>Diverted from landfill</td><td>Volume per annum converted to tonnes</td><td>633</td><td>1,057</td></tr><tr><td>Total</td><td></td><td></td><td>12,598</td><td>11,609</td></tr><tr><td></td><td></td><td></td><td>Absolute tonnes (Group) 2010</td><td>Absolute tonnes (Group) 2009</td></tr><tr><td>Non-hazardous and other waste per £m of revenue</td><td></td><td></td><td>10.7</td><td>10.8</td></tr></table>

The data above comprises waste data captured from businesses representing circa 98% of Group revenue for the year ended 31 December 2010 and is based on a combination of actual and estimated data.



## HEALTH, SAFETY AND ENVIRONMENT

SIG employs a dedicated Health, Safety and Environmental (“HS&E”) Co-ordinator in each of the businesses. In the UK, Ireland, Poland and France, qualified competent HS&E personnel are employed to provide advice and support to the business. In all other regions and countries external consultants are employed.

All businesses have common written procedures with a training programme for managers. Local HS&E risk assessments have been completed and HS&E inspections are carried out across all businesses through the competent assistance. Inspection reports are provided detailing any defects and target actions. In the UK quantitative audits are carried out and scores have continued to improve in 2010 against the prior year.

The UK HS&E Training Manager has continued the internal HS&E Management training programme for Branch Managers and Directors to include new management in 2010.

The review of HS&E objectives carried out in 2010 across the Mainland Europe and SIG Ireland businesses identified a high level of compliance with minimum standards and SIG policy with an average score of 89% in 2010 compared to 77% in 2009.

2010 saw the launch of the first Group-wide “Accident Reduction” campaign. The “Slips Trips and Falls” campaign included posters translated into the eleven local languages across all businesses. Further campaigns are planned for 2011 in a similar format targeting traffic management in branch and manual handling.

Forklift and commercial driver training form an important part of SIG's Workplace Safety Policy, which impacts on reduced insurance costs, enhanced pedestrian and site safety and an improved working environment. Daily inspections complement periodic training to keep the vehicle and driver at peak performance.

The Group’s accident performance is monitored by the Board on a monthly basis. The overall rate of workplace accidents within the UK operations and the overall Group performance showed a slight improvement. The number of injury accidents reportable to the HS&E under the Reporting of Injuries, Diseases and Dangerous Occurrence Regulations (“RIDDOR”) reduced from 16.8 per 1,000 employees in 2009 to 15.5 per 1,000 employees in 2010. The equivalent rate for the Group also decreased from 21.4 per 1,000 employees in 2009 to 17.3 per 1,000 employees in 2010. Regrettably there was an increase in the number of major injuries in the UK.

## ACCIDENT AND INCIDENTS
UK

Major injury

Injury resulting in over three absence days from work

All RIDDORs

Average UK headcount

Lost work day rate – number of work days per 100 employees

## GROUP

Major injury

Injury resulting in over three absence days from work

All RIDDORs (equivalent) \( ^{*} \) 

Average Group headcount





RoSPA Award Scheme

Group HS&E Manager Kevin Moore and HS&E Advisor David Lee receive the RoSPA Silver Occupational Health and Safety Award on behalf of the Company at the award ceremony at the Birmingham Hilton Metropole, NEC Birmingham.



SIG's Health and Safety Managers and Advisors with the RoSPA Silver Occupational Health and Safety Award ahead of the quarterly management review meeting in May 2010.



Site inspection, supplier, China:
In support of the Group’s Ethical trading & Human Rights Policy, Dave Smith, European HR Manager, conducting an initial key supplier site audit based on the Ethical Trading Initiative Base Code at a Chinese supplier in Guang Dong Province

Rate per 1,000 employees

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>3.1</td><td>2.5</td><td>2.9</td><td></td></tr><tr><td>12.3</td><td>13.2</td><td>11.7</td><td></td></tr><tr><td>15.5</td><td>16.8</td><td>15.0</td><td></td></tr><tr><td>6,414</td><td>7,211</td><td>8,230</td><td></td></tr><tr><td>42.8</td><td>33.4</td><td>28.5</td><td></td></tr></table>

Rate per 1,000 employees

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>2.2</td><td>2.0</td><td>2.6</td><td></td></tr><tr><td>15.2</td><td>18.7</td><td>19.0</td><td></td></tr><tr><td>17.4</td><td>21.4</td><td>21.8</td><td></td></tr><tr><td>11,508</td><td>12,348</td><td>13,520</td><td></td></tr></table>

 \( ^{*} \) This includes accidents in non-UK businesses which would meet the criteria for reporting in the UK under RIDDOR.



# CORPORATE RESPONSIBILITY REPORT CONTINUED

The commitment, drive and enthusiasm of all SIG’s employees are key to the success of SIG meeting the demands of its customers, suppliers and Shareholders. Throughout SIG, regardless of country or sector, we believe our people are recognised as the best in their particular field.







## COMMUNITY

The Group endeavours to contribute to the communities in which it operates. Particularly those neighbouring its sites. SIG is a member of Business in the Community in the UK and has worked with that organisation to help to develop its approach and practices. This is mainly achieved through charitable donations and other initiatives that help the community.

2010 saw the third year for which SIG Insulations was the main sponsor for the Sheffield Half Marathon event, which raised £95,000 for good causes.

The Human Resources (“HR”) Director has responsibility for community issues within the Group and reports to the Chief Executive who is responsible for community issues at Board level.

## DONATIONS

During the year the Group made donations of £117,000 (2009: £138,000). It is the Group’s policy not to make political donations and no political donations were made in the year (2009: £nil).

The Group has a Charitable Donations Policy. The policy, in addition to supporting local causes where SIG employees are involved, is to provide support for three main charities for a period of three years. For the three years ending December 2010 the three main charities that the Group supported were:

• Henshaws College, www.henshaws.org.uk (a charity working with young people, all of whom are visually impaired with additional disabilities);

• Action For Kids, www.actionforkids.org.uk (a charity working with disabled and young people, their parents and carers); and

• St Lazarus Hospice, www.hospicjum.krakow.pl (a charity providing assistance for terminally ill individuals and help and support for families in Krakow, Poland).

SIG sponsored Henshaws for a six year period commencing in 2005.

From 2008, continuing in 2010, SIG’s donation was used to fund a Henshaw’s College Volunteer Co-ordinator. The role is currently filled by the ex-Mayor of Harrogate, John Fox.

2010 was the third year of SIG’s partnership with Action for Kids, a national charity working to create independence, provide opportunities and offer support to disabled children, young people and their families all around the UK.

SIG’s funding in 2010 was used to allow disabled young people to receive relevant training programmes focusing on office skills and preparation for entering the workplace.

## From top to bottom:

1: Finals for Emerging Manager of the Year at Dunboyne Castle Hotel, Dublin, January 2011.
2: The Chief Executive presented certificates to the successful candidates for the Institute of Leadership and Management Awards in July 2010.

3: Emerging Manager of the Year Award presented at the SIG Management Conference in February 2011 (L to R) Darren Swift, Sales Rep, Longs, Ireland (Winner), Susan Harris, Sales/Good Specialist, Carpet & Flooring (Runner up) and Mirko Habich, Sales Rep, Wego, Dresden (Runner up).



## DONATIONS CONTINUED

Access to SIG’s E-Learning programme was available for the charity’s employees to enhance their computer-based skills.

2010 was the third year of the Group’s support of St Lazarus Hospice in Krakow, Poland which was nominated by European employees. SIG’s continued support ensured that vital equipment was purchased. In 2010 this included water decalcifying devices, torches for diagnosis, pulse oximeters and new cabinets and doors.

2010 was the final year of SIG’s sponsorship with its three main charities. The Company is currently reviewing which charities to support in 2011 in line with its policy.

Staff are kept informed of charitable activities and are encouraged to attend events as appropriate, as a means of encouraging them to be personally associated with charitable work and in particular the causes supported by the Group. This has included sponsorship for individuals entering specific events and support in kind for building projects.

The Group has in place a Payroll Giving Scheme, which is available to all UK employees. Employees are free to choose one of the current SIG sponsored charities or any other charity of their choice. Donations of £25,000 were made through the scheme in 2010.

SIG has been awarded a Payroll Giving Quality Mark Silver Award in the UK for commitment to good causes and the local community.

Employees also undertake personal fundraising endeavours for a wide range of charities. The UK intranet, which is available at each location, has a dedicated forum for employees to highlight their fundraising efforts and receive support from their colleagues.

## EMPLOYEES

The commitment, drive and enthusiasm of all SIG's employees are key to the success of SIG meeting the demands of its customers, suppliers and Shareholders. Throughout SIG, regardless of country or sector, we believe our people are recognised as the best in their particular field. Staff turnover is monitored monthly, personal performance is managed on an on-going basis and a formal appraisal programme is in place. Training, coaching and the opportunity for personal career advancement within the Company are important features of how SIG seeks to recruit, retain and develop skilled staff.

During 2010 SIG celebrated 30 years of LiTT business (specialist interiors and product suppliers in France) as well as 10 years of SIG's presence in Benelux.

SIG is committed to ensuring that all employees and management know what is expected of them in their roles and that they receive the necessary training and development to be highly competent in what they do. An integrated approach to the identification of training needs and the development of talent is core to our people development strategy. To this end a UK Talent Manager was appointed to coordinate our activities in the UK.

Development activities are organised generally on a business-by-business or country-by-country basis depending on local priorities. However the Group continues to invest in its Executive Development Programme run in conjunction with Sheffield Hallam University. This has shown huge benefits, not least in the development of cross-company working at a senior level. Cohorts are increasingly attended by a variety of nationalities whose learning experiences benefit communication and working practice across the Group, making us a stronger and more connected organisation.
The Group has also launched an Executive Coaching and Mentoring Programme aimed at continuing the development of senior talent and reinforcing the values and behaviours that underpin our activities. This is being delivered with support from Sheffield Hallam University with courses and training designed in conjunction with SIG to ensure a real focus on the Company’s requirements and nurturing of talent.

Following on from the success of the New Manager of the Year Award in 2009 we have launched the Emerging Manager of the Year Award. This is aimed at identifying, encouraging and nurturing potential managers for the future. Nominees were put forward from the business and 12 successful candidates took part in a two-day assessment event in Dublin. The three finalists attended the SIG Management Conference where the overall winner was announced. All nominees' careers, as are those who attended the New Manager of the Year Award, will be monitored through the talent management process.

The Group continues to recruit and invest in commercial trainee and graduate talent to help feed our future management requirements. Ensuring our future management cadres have the mix of backgrounds and experience that is relevant to our customer base. The programmes have been designed to provide a 360 degree view of the business and to fully prepare graduates for working within SIG in a branch management, regional or functional role.

SIG relies on the expertise and commitment of its employees whose knowledge and experience differentiate it in the market place. During 2009 significant restructuring took place in the UK providing a wide range of opportunities for employees to take up new positions and work within new product streams. This was supported by dedicated personnel being appointed to focus and deliver tailor-made training to help employees learn about different product streams in a structured manner.

The Group’s policy is to provide equal opportunities to all existing and prospective employees. SIG recognises that its reputation is dependent on the quality, effectiveness and skill base of its employees and is committed to the fair and equitable treatment of all its employees and specifically to prohibit discrimination on the grounds of race, religion, gender, disability, sexual orientation, age, nationality or ethnic origin. A project to improve monitoring and reporting was undertaken within the UK during the year, from which organisational priorities have been established.

Employment opportunities are available to disabled persons in accordance with their abilities and aptitudes on equal terms with other employees. If an employee becomes disabled during employment the Group makes every effort to enable them to continue employment, by making reasonable adjustments in the workplace and with retraining for alternative work where necessary.

SIG recognises the importance of good communication with its employees and during the year Group-wide internal publications were introduced. Considerable effort was made in upgrading the Company website, www.sigplc.com, as well as the content of internal intranets. Directors in operating businesses tended to focus on local roadshows and presentations to communicate to a wider audience rather than focus on management conferences.

Employees are encouraged to become Shareholders in the Company. The Group introduced a Share Incentive Plan ("SIP") in November 2005 in place of the Save As You Earn Scheme. The Company gives one matching share for each share purchased by the employee up to a maximum of four matching shares per month. At 31 December 2010 there were 1,213 employees saving under the Company's SIP.

The Group operates a number of employee pension schemes across its businesses. In the UK it operates a defined contribution scheme, which is open to all employees. The Group's UK defined benefit scheme has been closed to new members since 1997.

The HR Director has responsibility for HR issues within the Group and reports to the Chief Executive who is responsible for HR issues at Board level.



# BOARD OF DIRECTORS



## LESLIE VAN DE WALLE HEC
NON-EXECUTIVE CHAIRMAN

Leslie Van de Walle (age 54) became a Non-Executive Director on 1 October 2010 and became Non-Executive Chairman on 1 February 2011. He is also Chairman of the Nominations Committee. He is a Non-Executive Director of Aviva plc, DCC plc and La Seda de Barcelona SA. Formerly he was Chief Executive Officer of Rexam plc, Executive Vice President of Global Retail, a division of Royal Dutch Shell plc and Non-Executive Director of Aegis Group plc. He has previously held a number of senior management positions with Cadbury Schweppes plc and United Biscuits Limited.



## JOHN CHIVERS
EXECUTIVE DIRECTOR

John Chivers (age 58) joined the Group in July 1975 and was appointed a Director of Sheffield Insulations in April 1989. He was appointed to the main Board in September 2001. He is Managing Director of UK Exteriors.



## JONATHAN NICHOLLS BA, ACA, FCT
NON-EXECUTIVE DIRECTOR

Jonathan Nicholls (age 53) became a Non-Executive Director on 6 November 2009 and is Chairman of the Audit Committee. He is a Non-Executive Director of DS Smith plc and Great Portland Estates plc. Most recently he was Group Financial Director of Old Mutual plc and prior to that he was Group Finance Director of Hanson plc.



## CHRIS DAVIES BA (OXON)
CHIEF EXECUTIVE

Chris Davies (age 57) joined Sheffield Insulations in 1994, having previously gained UK and overseas management experience of manufacturing, contracting and specialist distribution in the metals and construction industries. He moved to a Group role in 1996, and in 2001 took up the post of Managing Director Europe. He was appointed to the main Board on 12 February 2007 and was appointed Deputy Chief Executive on 10 January 2008. He was appointed Chief Executive on 1 July 2008.



## CHRIS GEOGHEGAN FRAES
NON-EXECUTIVE DIRECTOR

Chris Geoghegan (age 56) became a Non-Executive Director on 1 July 2009 and is Chairman of the Remuneration Committee. He is currently Chairman of Hampon Industries plc and E2V Technologies plc and a Non-Executive Director of Volex plc and Kier Group plc. Prior to his retirement he was Chief Operating Officer of BAE Systems plc with responsibility for all European joint ventures and UK defence electronics assets. He is a Fellow of the Royal Aeronautical Society and a past President of the Society of British Aerospace companies.



## GARETH DAVIES BA, ACA
FINANCE DIRECTOR

Gareth Davies (age 47) joined the Group in November 1993 as Group Financial Controller, having previously been a senior manager with Arthur Andersen. He was appointed to the main Board in August 2002 as Finance Director.



## VANDA MURRAY OBE, BA (HONS)
NON-EXECUTIVE DIRECTOR

Vanda Murray (age 50) became a Non-Executive Director on 1 July 2009. She is Deputy Chairman of the North West Regional Development Agency, Chairs Business Link North West and is a Non-Executive Director of Carillion plc, the Manchester Airport Group and Chairman of Vphase plc. She previously held Executive positions as Chief Executive Officer of Blick plc, President of Europe Stanley Security Solutions and Managing Director of Ultraframe (UK) Limited. She is a Fellow of the Chartered Institute of Marketing and was appointed OBE in 2002 for services to Industry and to Export.

Vanda Murray resigned as a Non-Executive Director on 16 March 2011.

## BOARD COMMITTEES

AUDIT COMMITTEE
Mr. J. C. Nicholls – Chairman
Mr. C. V. Geoghegan
Mrs. V. Murray

REMUNERATION COMMITTEE
Mr. C. V. Geoghegan – Chairman
Mrs. V. Murray
Mr. J. C. Nicholls

NOMINATIONS COMMITTEE
Mr. L. Van de Walle – Chairman
Mr. C. V. Geoghegan
Mrs. V. Murray
Mr. J. C. Nicholls
Mr. C. J. Davies



## COMPANY INFORMATION

PRESIDENT
Sir Norman Adsetts OBE, MA

SECRETARY
Richard Monro FCIS

REGISTERED NUMBER
Registered in England
998314

REGISTERED OFFICE
Hillsborough Works
Langsett Road
Sheffield S6 2LW
United Kingdom

Tel: 0114 285 6300
Fax: 0114 285 6349

Email: info@sigplc.com

CORPORATE OFFICE
Signet House
17 Europa View
Sheffield Business Park
Sheffield S9 1XH
United Kingdom

Tel: 0114 285 6300
Fax: 0114 285 6349

REGISTRARS AND
TRANSFER OFFICE
COMPUTERSHARE INVESTOR
SERVICES PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH

AUDITORS
DELOITTE LLP
I City Square
Leeds LS1 2AL

SOLICITORS
PINSENT MASONS
I Park Row
Leeds LS1 5AB

PRINCIPAL BANKERS
THE ROYAL BANK
OF SCOTLAND PLC
Corporate Banking
3rd Floor
2 Whitehall Quay
Leeds LS1 4HR

BARCLAYS BANK PLC
North East and Yorkshire
Larger Business Team
PO Box 190
I Park Row
Leeds LS1 5WU

LLOYDS TSB BANK PLC
Lloyds Bank Corporate Markets
2nd Floor, Lisbon House
116 Wellington Street
Leeds LS1 4LT

HSBC BANK PLC
Unit 4, Europa Court
Sheffield Business Park
Sheffield S9 1XE

LISTING DETAILS
MARKET UK Listed
REFERENCE SHI.L
SECTOR Support Services

COMPANY WEBSITE
www.sigplc.com

JOINT STOCKBROKERS
ORIEL SECURITIES LIMITED
125 Wood Street
London EC2V 7AN

PANMURE GORDON (UK) LIMITED
Moorgate Hall
155 Moorgate
London EC2M 6XB

FINANCIAL PR
FINANCIAL DYNAMICS LIMITED
Holborn Gate
26 Southampton Buildings
London WC2A 1PB

## SHAREHOLDERS' ENQUIRIES

Our share register is managed by Computershare, who can be contacted by:

0870 707 1293 (This is an SIG plc helpline that is available 24 hours a day, with operator assistance available between 08:30 and 17:30 each business day).

Number for overseas callers +44 870 707 1148.

Text phone for shareholders with hearing difficulties: 0870 702 0005.

Email: Access the Computershare website (www.uk.computershare.com/investor) and click on 'Contact us', from where you can e-mail Computershare.

Post: Computershare, The Pavilions, Bridgwater Road, Bristol BS13 8AE, United Kingdom.

## FINANCIAL CALENDAR

ANNUAL GENERAL MEETING - To be held on 11 May 2011

INTERIM RESULTS 2011 - Announcement August 2011

FULL YEAR RESULTS 2011 - Announcement March 2012

REPORT AND ACCOUNTS 2011 - Posted to Shareholders April 2012

## SHAREHOLDER ANALYSIS AT 31 DECEMBER 2010

<table><tr><td>Size of Shareholding</td><td>Number of Shareholders</td><td>%</td><td>Number of Ordinary Shares</td><td>%</td></tr><tr><td>0 - 999</td><td>1,144</td><td>35.50</td><td>527,521</td><td>0.09</td></tr><tr><td>1,000 - 4,999</td><td>1,169</td><td>36.28</td><td>2,501,478</td><td>0.42</td></tr><tr><td>5,000 - 9,999</td><td>266</td><td>8.26</td><td>1,765,492</td><td>0.30</td></tr><tr><td>10,000 - 99,999</td><td>365</td><td>11.33</td><td>10,477,737</td><td>1.77</td></tr><tr><td>100,000 - 249,999</td><td>79</td><td>2.45</td><td>12,884,555</td><td>2.18</td></tr><tr><td>250,000 - 499,999</td><td>65</td><td>2.02</td><td>23,031,723</td><td>3.90</td></tr><tr><td>500,000 - 999,999</td><td>45</td><td>1.40</td><td>31,108,768</td><td>5.27</td></tr><tr><td>1,000,000+</td><td>89</td><td>2.76</td><td>508,532,065</td><td>86.07</td></tr><tr><td>Total</td><td>3,222</td><td>100.00</td><td>590,829,339</td><td>100.00</td></tr></table>



## STATUTORY INFORMATION

## PRINCIPAL ACTIVITY AND BUSINESS REVIEW

The principal activity of the Group is the supply of specialist products to construction and related markets in the UK, Ireland and Mainland Europe. The main products supplied are insulation, exteriors, interiors and specialist construction products.

The Chairman’s Statement and Business Review on pages 4 to 31 contain a review of these activities and comments on the future outlook. The financial risk management objectives and policies of the Company are set out in the Business Review on pages 6 to 31.

As at the date of this report, there have been no important events affecting the business of the Company, or any of its subsidiaries, which have occurred since the end of the financial year other than on 14 March 2011 the Group signed a new £250m four year revolving credit facility with four banks. On completion of the new facility, the Group's existing UK bank facilities were immediately cancelled and any borrowings repaid using cash held on deposit. The Group's existing private placement notes remain in place with maturities ranging from 2011 to 2018. Details of the Group's borrowing facilities can be found on page 29.

Details of the Group’s policies in relation to employees (including disabled employees) and information on charitable and political donations are disclosed on pages 46 to 47.

Details of the Group’s policies in relation to corporate governance are disclosed on pages 55 to 58.

## GROUP RESULTS AND DIVIDENDS

The Consolidated Income Statement for the year ended 31 December 2010 is shown on page 69. The movement in the Group reserves during the year is shown on page 73 in the Consolidated Statement of Changes in Equity. Segmental information is set out in Note 1 on pages 80 to 81.

The Board is not recommending a final dividend for the year ended 31 December 2010 (2009: nil). The Board remains committed to a progressive dividend policy and, having ceased paying dividends after the interim payment in 2008, has announced its intention to resume dividend payments at the 2011 interim stage.

## DIRECTORS

The Directors who held office during the year were:

Mr. L. O. Tench Non-Executive Chairman (resigned 31 January 2011)

Mr. L. Van de Walle Non-Executive Chairman (appointed an independent Non-Executive Director on 1 October 2010 and Non-Executive Chairman on 1 February 2011)

Mr. C. J. Davies Chief Executive

Mr. G. W. Davies Finance Director

Mr. M. J. Chivers Executive Director

Mr. C. V. Geoghegan Senior Independent Non-Executive Director

Mrs. V. Murray Independent Non-Executive Director (resigned 16 March 2011)

Mr. J. C. Nicholls Independent Non-Executive Director

Mr. D. A. Haxby Senior Independent Non-Executive Director (resigned 13 May 2010)

Biographical details of the Directors holding office at the date of this report appear on page 48. Details of Committee memberships are set out on page 48.

Mrs V. Murray resigned as a Non-Executive Director of the Company on 16 March 2011. Mrs. V. Murray is also a Non-Executive Director of Carillion plc and her resignation was pursuant to that company's agreed offer for Eaga plc and her future potential conflict of interest as a result of that transaction in respect of SIG's energy management business. The Company has confirmed that it is in the process of seeking a replacement for Mrs. V. Murray with the intention of appointing a new independent Non-Executive Director as soon as possible in order that the Company will return to compliance with Code Provision A.3.2. of the Combined Code on Corporate Governance which requires that at least half of the Board (excluding the Chairman) should comprise Non-Executive Directors determined by the Board to be independent.

There is no maximum number of Directors but there shall at no time be less than two. Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board shall hold office only until the next Annual General Meeting and shall then be eligible for re-appointment by the Shareholders. The Board may from time to time appoint one or more Directors as Managing Director or to fulfil any other Executive function within the Company for such term, remuneration and other conditions of appointment as they may determine and may revoke such appointment (subject to the provisions of the Companies Acts).

## ELECTION AND RE-ELECTION OF DIRECTORS

All Directors are subject to election at the Annual General Meeting immediately following their appointment and to re-election every three years.

The Company may, by ordinary resolution, of which special notice has been given in accordance with the Companies Acts, remove any Director before the expiration of his/her period of office. The office of a Director shall be vacated if: (i) he/she ceases to be a Director by virtue of any provision of law or is removed pursuant to the Company's Articles of Association or he/she becomes prohibited by law from being a Director; (ii) he/she becomes bankrupt or compounds with his/her creditors generally; (iii) he/she becomes of unsound mind or a patient for any purpose of any statute relating to mental health and the Board resolves that his/her office is vacated; (iv) he/she resigns; (v) he/she fails to attend Board meetings for six consecutive months without leave of absence from the Board and the Board resolves that his/her office is vacated; (vi) his/her appointment terminates in accordance with the provisions of the Company's articles; (vii) he/she is dismissed from Executive office; (viii) he/she is convicted of an indictable offence and the Directors resolve that it is undesirable in the interests of the Company that he/she remains a Director; or (ix) the conduct of the Director is the subject of an investigation and the Directors resolve that it is undesirable in the interests of the Company that he/she remains a Director.

In accordance with a new provision included in the Governance Code, all continuing Directors will seek re-election at the forthcoming Annual General Meeting. Mr. L. Van de Walle will seek election having been appointed to the Board during the year.

It is the view of the Board that each of the Non-Executive Directors standing for election or re-election brings considerable management experience and an independent perspective to the Board's discussions and is considered to be independent of management and free from any relationship or circumstance that could affect, or appear to affect, the exercise of their independent judgement.

It is the view of the Board that each of the Executive Directors standing for re-election brings considerable management experience to the Board’s discussions.

Full details of Directors’ remuneration, interests in the share capital of the Company and of their share options are set out on pages 59 to 65 in the Directors’ Remuneration Report.



## RELATED PARTY TRANSACTIONS

Except for Directors' service contracts, the Company did not have any material transactions or transactions of an unusual nature with, and did not make loans to, related parties in the periods in which any Director is or was materially interested.

## DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND INDEMNITIES

The Company purchases liability insurance cover for Directors and Officers of the Company and its subsidiaries which gives appropriate cover for any legal action brought against them. The Company has also provided an indemnity for its Directors to the extent permitted by the law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a Director is proved to have acted fraudulently or dishonestly.

No claims or qualifying indemnity provisions and no qualifying pension scheme indemnity provisions have been made either during the year or by the time of approval of this Statutory Information Report.

## FINANCIAL INSTRUMENTS

Information on the Group's financial risk management objectives and policies and on the exposure of the Group to relevant risks of financial instruments is set out on pages 6 to 31 and in Note 18 to the Consolidated Financial Statements on pages 96 to 99.

## INVESTMENT IN ASSOCIATE

In May 2010 the Group made a strategic investment in Ice Energy Technologies Limited, a specialist designer and installer of heat pumps and Solar PV systems. Further details can be found in Note 11 to the Consolidated Financial Statements.

## SHARE CAPITAL

The Company has a single class of share capital which is divided into ordinary shares of 10p each. At 31 December 2010, the Company had a called up share capital of 590,829,339 shares of 10p each (2009: 590,829,339).

During the year ended 31 December 2010, no options were exercised pursuant to the Company’s share option schemes. No new ordinary shares have been allotted under these schemes since the end of the financial year to the date of this report. Details of outstanding options under the Group’s Employee and Executive Schemes are set out in Note 24 on page 105 which also contains details of options granted over unissued share capital.

## RIGHTS ATTACHING TO SHARES

The rights attaching to the ordinary shares are defined in the Company’s Articles of Association. The Articles of Association may be changed with the agreement of Shareholders. A Shareholder whose name appears on the Company’s Register of Members can choose whether his shares are evidenced by share certificates (i.e. in certificated form) or held in electronic (i.e. uncertificated) form in CREST (the electronic settlement system in the UK).

Subject to any restrictions below, Shareholders may attend any general meeting of the Company and, on a show of hands, every Shareholder (or his representative) who is present at a general meeting has one vote on each resolution and, on a poll, every Shareholder (or his representative) who is present has one vote on each resolution for every ordinary share of which they are the registered Shareholder. A resolution put to the vote of a general meeting is decided on a show of hands unless before or on the declaration of the result of a vote on a show of hands, a poll is demanded by the Chairman of the meeting, or by at least five Shareholders (or their representatives) present in person and having the right to vote, or by any Shareholders (or their representatives) present in person having at least 10% of the total voting rights of all Shareholders, or by any Shareholders (or their representatives) present in person holding ordinary shares in which an aggregate sum has been paid up of at least one tenth of the total sum paid up on all ordinary shares.

Shareholders can declare final dividends by passing an ordinary resolution but the amount of the dividends cannot exceed the amount recommended by the Board. The Board can pay interim dividends on any class of shares of the amounts and on the dates and for the periods they decide provided the distributable profits of the Company justify such payment. The Board may, if authorised by an ordinary resolution of the Shareholders, offer any Shareholder the right to elect to receive new ordinary shares, which will be credited as fully paid, instead of their cash dividend.

Any dividend which has not been claimed for twelve years after it became due for payment will be forfeited and will then belong to the Company, unless the Directors decide otherwise.

If the Company is wound up, the liquidator can, with the sanction of an extraordinary resolution passed by the Shareholders, divide among the Shareholders all or any part of the assets of the Company and he can value any assets and determine how the division shall be carried out as between the members or different classes of members. The liquidator can also transfer the whole or any part of the assets to trustees upon any trusts for the benefit of the members. No Shareholders can be compelled to accept any asset which would give them a liability.

## VOTING AT GENERAL MEETINGS

Any Form of Proxy sent by the Company to Shareholders in relation to any general meeting must be delivered to the Company, whether in written form or in electronic form, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment proposes to vote.

No Shareholder is, unless the Board decides otherwise, entitled to attend or vote either personally or by proxy at a general meeting or to exercise any other right conferred by being a Shareholder if he or any person with an interest in shares has been sent a notice under Section 793 of the Companies Act 2006 (which confers upon public companies the power to require information with respect to interests in their voting shares) and he or any interested person failed to supply the Company with the information requested within 14 days after delivery of that notice. The Board may also decide that no dividend is payable in respect of those default shares and that no transfer of any default shares shall be registered.

These restrictions end seven days after receipt by the Company of a notice of an approved transfer of the shares or all the information required by the relevant Section 793 notice, whichever is the earlier.



# STATUTORY INFORMATION CONTINUED

## TRANSFER OF SHARES

The Board may refuse to register a transfer of a certificated share which is not fully paid, provided that the refusal does not prevent dealings in shares in the Company from taking place on an open and proper basis. The Board may also refuse to register a transfer of a certificated share unless: (i) the instrument of transfer is lodged, duly stamped (if stampable), at the registered office of the Company or any other place decided by the Board accompanied by a certificate for the share which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; (ii) is in respect of only one class of shares; and (iii) is in favour of not more than four transferees.

Transfer of uncertificated shares must be carried out using CREST and the Board can refuse to register a transfer of an uncertificated share in accordance with the regulations governing the operation of CREST.

The Board may decide to suspend the registration of transfers, for up to 30 days a year, by closing the register of Shareholders. The Board cannot suspend the registration of transfers of any uncertificated shares without gaining consent from CREST. There are no other limitations on the holding of ordinary shares in the Company.

## VARIATION OF RIGHTS

If at any time the capital of the Company is divided into different classes of shares, the special rights attaching to any class may be varied or revoked either:

(i) with the written consent of the holders of at least 75% in nominal value of the issues shares of the class; or

(ii) with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the shares of the class.

The Company can issue new shares and attach any rights to them. If there is no restriction by special rights attaching to existing shares, rights attaching to new shares can take priority over the rights of existing shares, or the new shares and the existing shares are deemed to be varied (unless the rights expressly allow it) by a reduction of paid up capital or if another share of that same class is issued and ranks in priority for payment of dividend or in respect of capital or more favourable voting rights.

## AGREEMENTS WITH EMPLOYEES AND SIGNIFICANT AGREEMENTS

There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

The Company’s UK committed debt facilities are terminable upon a change of control of the Company.

## CREST

The Company’s ordinary shares are in CREST, the settlement system for stocks and shares.

## 2011 INTERIM REPORT

In 2007 the Company changed its Articles of Association to permit the use of electronic communications for all notices, documents and information to be sent to Shareholders, in accordance with Shareholder preference. This would enable the Company to use website communication with Shareholders as the default position. The Company has at this time not made any decision as to whether to move to electronic communication as the default position. Shareholders will therefore for the time being continue to receive paper copies of all the Group's Annual Report and Accounts. Current regulations do however permit the Company not to have to send copies of its Interim Reports to Shareholders and therefore Interim Reports will no longer be sent to Shareholders. The Interim Report will be published on the Company's website at www.sigplc.com.

## ACQUISITION BY THE COMPANY OF ITS OWN SHARES

Shareholder’s authority for the purchase by the Company of 59,082,930 of its own shares existed at the end of the year. The Company has made no purchases of its own shares pursuant to this authority. The Company will seek to renew this authority at the 2011 Annual General Meeting.

## SUBSTANTIAL SHAREHOLDINGS

As at 16 March 2011, the Company had received formal notification of the following material shareholdings pursuant to the Disclosure and Transparency Rules of the Financial Services Authority:

<table><tr><td>Shareholder</td><td>Number of ordinary shares of 10p each</td><td>% of issued voting share capital</td></tr><tr><td>Aviva plc</td><td>53,901,172</td><td>9.12</td></tr><tr><td>Blackrock Inc.</td><td>53,789,069</td><td>9.10</td></tr><tr><td>IKO Enterprises Limited</td><td>34,319,598</td><td>5.81</td></tr><tr><td>Schroders plc</td><td>24,485,481</td><td>4.14</td></tr><tr><td>Legal &amp; General plc</td><td>23,547,821</td><td>3.99</td></tr></table>

## PAYMENT TO SUPPLIERS

The Group follows the CBI's prompt payment code and operates and abides by a clearly defined policy, which has been agreed with all major suppliers. As at 31 December 2010 the Company had no trade creditors, as it does not trade in its own right. The Group's average number of days outstanding on a like for like constant currency basis as at 31 December 2010 in respect of trade payables was 36 (2009: 36).



## STATEMENT OF THE DIRECTORS ON THE DISCLOSURE OF INFORMATION TO AUDITORS

The Directors who held office at the date of approval of this Statutory Information confirm that:

● so far as they are each aware, there is no relevant audit information of which the Company’s Auditors are unaware; and

● each Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s Auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

## GOING CONCERN

After making enquiries the Directors have formed a judgement, at the time of approving the Accounts, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. The key factors considered by the Directors in making this statement are set out on page 31 of the Business Review.

## AUDITORS

On the recommendation of the Audit Committee in accordance with Section 489 of the Companies Act 2006, resolutions are to be proposed at the Annual General Meeting for the re-appointment of Deloitte LLP as Auditors of the Company and to authorise the Board to fix their remuneration. The remuneration of the Auditors for the year ended 31 December 2010 is fully disclosed in Note 4 to the Consolidated Financial Statements on page 83.

## ANNUAL GENERAL MEETING

The Notice convening the Annual General Meeting to be held at the Aston Hotel, Britannia Way, Catcliffe, Sheffield, S60 5BD at 12 noon on Wednesday 11 May 2011, together with explanatory notes on the resolutions to be proposed and full details of the deadlines for exercising voting rights, is contained in a circular to be sent to Shareholders with this report.

Signed on behalf of the Board



RICHARD MONRO

COMPANY SECRETARY

16 March 2011



# STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Parent Company financial statements, the Directors are required to:

● select suitable accounting policies and then apply them consistently;

● make judgements and accounting estimates that are reasonable and prudent;

● state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

● properly select and apply accounting policies;

● present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

● provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

● make an assessment of the Company’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

## DIRECTORS RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

● the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

● the management report, which is incorporated into the Statutory Information, 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 financial statements include a fair review of all related party transactions.



CHRIS DAVIES
DIRECTOR
16 March 2011



GARETH DAVIES
DIRECTOR
16 March 2011



## CORPORATE GOVERNANCE

SIG is committed to business integrity, high ethical values and professionalism in all of its activities. As an essential part of this commitment the Group supports the highest standards in corporate governance. The Board is accountable to the Company’s Shareholders for good governance and this report, the Directors’ Remuneration Report on pages 59 to 65 and the Report of the Audit Committee on pages 66 to 67 describe how the principles of good governance, set out in The Combined Code on Corporate Governance (“the Code”) of June 2008 as issued by the Financial Reporting Council (“FRC”), are applied within SIG. In June 2010, following lengthy review and consultation the FRC published a new code, the UK Corporate Governance Code (the “Governance Code”) which will replace the Code for financial years beginning on or after 29 June 2010. The FRC has stated that changes have been made to help company boards to become more effective and more accountable to shareholders. Where applicable, the Company has already adopted principles from the Governance Code.

## COMPLIANCE WITH THE COMBINED CODE

The Board considers that, throughout the year under review, the Company has complied with the governance rules and best practice provisions applying to UK listed companies as contained in Section I of the Code. The Combined code can be accessed at www.frc.org.uk/corporate/combinedcode.cfm, and the Governance Code can be accessed at www.frc.uk/corporate/ukcgcode.cfm.

The Company’s Auditors, Deloitte LLP, are required to review whether the above statement reflects the Company’s compliance with the nine provisions of the Code specified for their review by the Listing Rules of the UK Listing Authority and to report if it does not reflect such compliance. No such report has been made.

## THE BOARD

As at 31 December 2010, the Board was made up of eight members comprising the Non-Executive Chairman, three Executive Directors and four Non-Executive Directors.

Mr. D. A. Haxby retired as a Director at the conclusion of the Company’s Annual General Meeting on 13 May 2010. Mr. L. Van de Walle was appointed a Non-Executive Director on 1 October 2010 and became Non-Executive Chairman on 1 February 2011. Further details regarding Mr. L. Van de Walle are included in his biography on page 48. Mr. L.O. Tench retired as both Chairman of the Company and a Non-Executive Director on 31 January 2011.

Mrs. V. Murray resigned as a Non-Executive Director of the Company on 16 March 2011. Mrs Murray is also a Non-Executive Director of Carillion plc and her resignation was pursuant to that company’s agreed offer for Eaga plc and her future potential conflict of interest as a result of that transaction in respect of SIG’s energy management business. The Company has confirmed that it is in the process of seeking a replacement for Mrs Murray with the intention of appointing a new independent Non-Executive Director as soon as possible in order that the Company will return to compliance with Code Provision A.3.2. of the Combined Code on Corporate Governance which requires that at least half of the Board (excluding the Chairman) should comprise Non-Executive Directors determined by the Board to be independent.

The Non-Executive Directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. The Board has satisfied itself that there is no compromise to the independence of those Directors who have other appointments in outside entities. The Board considers that each of the Non-Executive Directors brings their own senior level of experience and expertise and that the balance between Non-Executive and Executive representation encourages healthy independent challenge to the Executive Directors and Senior Management. The Non-Executive Directors have been appointed for their specific areas of expertise and knowledge and their wide ranging experience and backgrounds ensure that they can debate matters constructively in relation to both the development of strategy and performance against objectives set out by the Board. Biographical details of each of the Directors, which illustrate their range of experience, are set out on page 48. The Company’s policy relating to the terms of appointment and remuneration of both the Executive and Non-Executive Directors is detailed in the Directors’ Remuneration Report on pages 59 to 65.

The division of responsibilities between the Chairman and Chief Executive is clearly established and is understood by the Board. The Chairman at the time of his appointment met and continues to meet the independence criteria set out in the Code.

The Senior Independent Director is currently Mr. C. V. Geoghegan. Mr. D. A. Haxby was the Senior Independent Director until 13 May 2010.

All Directors are subject to election at the Annual General Meeting immediately following their appointment and to re-election every three years. However in accordance with a new provision included in the Governance Code, all continuing Directors will be seeking re-election at the forthcoming Annual General Meeting.

## BOARD PROCEDURES

The Board meets regularly during the year, as well as on an ad hoc basis as required by time-critical business needs. The Board met formally on ten occasions during the year and individual attendance at those and the Board Committee meetings is set out in the table on page 56. All Board members are supplied with information in a form and of a quality appropriate to enable them to discharge their duties. Board and Committee papers are sent out seven days before meetings take place. There is an agreed schedule of matters reserved to the Board for collective decision and these include:

● determining the strategy and control of the Group;

● amendments to the structure and capital of the Company and Group;

● approval of financial reporting and controls;

● approval of capital and revenue expenditure of a significant size;

● acquisitions and disposals above a prescribed level; and

● corporate governance matters and approval of Group policies and risk management strategies.

The Board has formally delegated specific responsibilities to Board Committees, including the Nominations, Audit and Remuneration Committees. The Board will also appoint Committees to approve specific processes as deemed necessary. For example, during the year, Board Committees were established to approve bank documentation and the preliminary and interim announcements.

To enable the Board to perform its duties effectively all Directors have full access to all relevant information and to the services of the Company Secretary whose responsibility it is for ensuring that Board procedures are followed. The appointment and removal of the Company Secretary is a matter reserved for the Board. There is an agreed procedure whereby Directors wishing to take independent legal advice in the furtherance of their duties may do so at the Company’s expense. Directors have the right to ensure that any concerns they raise about the running of the Company or a proposed action will be recorded in the Board minutes. Further, on resignation, if a Non-Executive Director had any such concerns, the Chairman would invite him to provide a written statement for circulation to the Board.

All Board Committees are provided with sufficient resources to undertake their duties. Appropriate training is available to all Directors on appointment and on an ongoing basis as required.

The Terms of Reference for each of the Board Committees are available on request from the Company Secretary or on the SIG website (www.sigplc.com).



# CORPORATE GOVERNANCE CONTINUED

## BOARD PROCEDURES CONTINUED

From 1 October 2008, there has been a requirement that Directors must avoid a situation where they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company’s interests. Directors of public companies may authorise conflict and potential conflicts, where appropriate, if a company’s Articles of Association permit and Shareholders have approved appropriate amendments.

Procedures have been put in place for the disclosure by Directors of any such conflicts and also for the consideration and authorisation of any conflicts by the Board. These procedures allow for the imposition of limits or conditions by the Board when authorising any conflict, if they think this is appropriate. These procedures have been applied during the year and up to the date of this report and are included as a regular item for consideration by the Board at its meetings.

## ATTENDANCE AT BOARD AND COMMITTEE MEETINGS

The following table shows the attendance of Directors at meetings of the Board, Audit, Remuneration and Nominations Committees during the year to 31 December 2010:

<table><tr><td></td><td>Board (10 meetings)</td><td>Meetings eligible to attend</td><td>Audit Committee (4 meetings)</td><td>Meetings eligible to attend</td><td>Remuneration Committee (7 meetings)</td><td>Meetings eligible to attend</td><td>Nominations Committee (3 meetings)</td><td>Meetings eligible to attend</td></tr><tr><td>M. J. Chivers</td><td>10</td><td>(10)</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/ A</td></tr><tr><td>C. J. Davies</td><td>10</td><td>(10)</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>3</td><td>(3)</td></tr><tr><td>G. W. Davies</td><td>10</td><td>(10)</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/ A</td></tr><tr><td>C. V. Geoghegan</td><td>9</td><td>(10)</td><td>4</td><td>(4)</td><td>7*</td><td>(7)</td><td>3</td><td>(3)</td></tr><tr><td>D. A. Haxby</td><td>3</td><td>(4)</td><td>1</td><td>(1)</td><td>3</td><td>(4)</td><td>1</td><td>(1)</td></tr><tr><td>V. Murray</td><td>10</td><td>(10)</td><td>4</td><td>(4)</td><td>7</td><td>(7)</td><td>3</td><td>(3)</td></tr><tr><td>J. C. Nicholls</td><td>10</td><td>(10)</td><td>4*</td><td>(4)</td><td>7</td><td>(7)</td><td>3</td><td>(3)</td></tr><tr><td>L. O. Tench</td><td>10*</td><td>(10)</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>3*</td><td>(3)</td></tr><tr><td>L. Van de Walle</td><td>3</td><td>(3)</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>0</td><td>(0)</td></tr></table>

 \( ^{*} \)  Chairman.

This table only shows those meetings which each Director attended as a member rather than as an invitee.

Where N/A appears in the table the Director listed is not a member of that Committee.

All of the Directors in office at the date of the Annual General Meeting on 13 May 2010 were in attendance at that meeting.

Directors do not participate in meetings when matters relating to them are discussed.

The Chairman also holds meetings with the Non-Executive Directors without the Executive Directors present. The Senior Independent Director also meets with the other Independent Non-Executive Directors without the Chairman present.

The Board arranges to hold at least two Board meetings each year at Group business locations to help all Board members gain a deeper understanding of the business. This also provides Senior Managers from across the Group the opportunity to present to the Board as well as to meet the Directors on more informal occasions. Board members also attend divisional and Group management conferences whenever possible.

## BOARD EFFECTIVENESS

The effectiveness of the Board and its Committees is vital to the success of the Company and during the year, the Board continued its ongoing evaluation process to assess its performance and that of its three principal Committees.

In 2010, as part of this programme, the Board commissioned an independent third party to prepare a tailored Board Evaluation Questionnaire with the emphasis, in addition to the evaluation of the performance of the Board and its Committees, being targeted at identifying the future needs of the Board, including Board composition and succession planning. Each Director completed their questionnaire and these were then evaluated by the independent third party who then prepared a report for the Chairman. The Chairman and the independent third party presented the results of the evaluation to the Board, which discussed the results of the evaluation in detail. The discussions then focused on how the actions identified through the process should be implemented. The Board was satisfied that the evaluation of this performance was a worthwhile exercise and that the Directors had participated in an open and frank basis.

During the year a number of the Directors attended training courses and seminars on subjects and topics in conjunction with those that the Chairman had identified as being areas where training would increase the knowledge and effectiveness of the Director. The Board as a whole also undertook training in 2010. Further training is programmed for 2011.

The Non-Executive Directors, chaired by the Senior Independent Director, meet once a year without the Chairman present to assess his performance, taking into account the views of the Executive Directors.

## RELATIONS WITH SHAREHOLDERS

The Company recognises the importance of communicating with its Shareholders, including its employee Shareholders, to ensure that its strategy and performance is understood. This is achieved principally through the Annual Report and the Annual General Meeting. The Group’s annual and interim results, as well as all announcements issued to the London Stock Exchange, are published on the Company’s website. The Company issues regular trading updates to the market and these, together with copies of the presentations made to analysts can also be found on the Company’s website. In addition, a range of other corporate information is available to investors on the Company’s website (www.sigplc.com).



## RELATIONS WITH SHAREHOLDERS CONTINUED

The Chief Executive and Finance Director are primarily responsible for direct investor relations. The Board is kept informed of investors' views through distribution and regular discussion of analysts' and brokers' briefings and a summary of investor opinion feedback. In addition feedback from major Shareholders is reported to the Board by the Chairman and the Finance Director and discussed at its meetings. Formal presentations are made to institutional Shareholders following the announcement of the Company's annual and interim results. Contact is also maintained, where appropriate, with Shareholders to discuss overall remuneration plans and policies. The Chairman and the Senior Independent Director are available to discuss governance and strategy with major Shareholders if requested and both are prepared to contact individual Shareholders should any specific areas of concern or enquiry be raised. We respond throughout the year to correspondence received from Shareholders on a wide range of issues and also participate in a number of surveys and questionnaires submitted by a variety of investor research bodies. During the year the Chairman of the Remuneration Committee met with a number of the Company's major shareholders in connection with the review of the Company's senior executive Remuneration Policy. Although the other Non-Executive Directors have not been asked to meet the Company's Shareholders, they regularly attend presentations of the annual and interim results. The Board recognises that the Annual General Meeting is the principal forum for dialogue with private Shareholders and all Shareholders are invited to attend. All Directors attend the Annual General Meeting and are available to answer any questions that Shareholders may wish to raise. The Notice of Meeting is sent to Shareholders at least 20 working days before the meeting. The Company provides a facility for Shareholders to vote electronically and the Form of Proxy provides Shareholders with the option of withholding their vote on a resolution if they so wish.

Shareholders in attendance at the Annual General Meeting vote on a show of hands, unless a poll is validly called and after each such vote the number of Proxy votes received for or against the resolution together with the number of absolutions is announced. The Company Secretary ensures that votes are properly received and recorded. Details of the Proxies lodged on all resolutions are published on the Company's website immediately after the Annual General Meeting (www.sigplc.com).

## THE REMUNERATION COMMITTEE

The Remuneration Committee operates under written Terms of Reference which are consistent with current best practice. The Committee comprises only independent Non-Executive Directors. The Chairman of the Committee attends the Annual General Meeting to respond to any Shareholder questions that might be raised on the Committee’s activities. The Committee’s Report is set out on pages 59 to 65.

## NOMINATIONS COMMITTEE

The Nominations Committee operates under written Terms of Reference, which are consistent with current best practice. Its principal duty is the nomination of suitable candidates for the approval of the Board to fill Executive and Non-Executive vacancies on the Board. Members of the Committee are not involved in matters affecting their own positions. The Nominations Committee comprises the Chairman, Chief Executive and the independent Non-Executive Directors. The meetings of the Committee are chaired by the Non-Executive Chairman. The Committee meets as appropriate but at least once a year. A quorum is four members, at least two of whom shall be independent Non-Executive Directors.

The Committee reviews the structure, size, diversity, gender and composition, balance of skills, knowledge and experience of the Board and makes recommendations concerning the re-appointment of any Non-Executive Director at the conclusion of their specified term of office and in the identification and nomination of new Directors. The Committee retains external search and selection consultants as appropriate. The Committee also advises the Board on succession planning to ensure that processes are in place with regards to both Board and senior appointments although the Board itself is responsible for succession generally.

In general terms, when considering candidates for appointment as Directors of the Company, the Nominations Committee would, in conjunction with the Board, draft a detailed job specification and candidate profile. In drafting this, consideration would be given to the existing experience, knowledge and background of Board members as well as the strategic and business objectives of the Group. Once a detailed specification has been agreed with the Board, the Committee would then work with an appropriate external search and selection agency to identify candidates of the appropriate calibre and with whom an initial candidate shortlist could be agreed. The drawing up of this list is entirely consistent between external and internal candidates. Shortlisted candidates would then be invited to interview with members of the Committee and, if recommended by the Committee, would be invited to meet the entire Board before any decision is taken relating to the appointment. This process was followed in identifying Mr. L. Van de Walle as a candidate for appointment as a Non-Executive Director.

Following the appointment of a new Director, the Chairman, in conjunction with the Company Secretary, is responsible for ensuring that a full, formal and tailored induction to the Company is given. Such an induction programme was given to Mr. L. Van de Walle on his appointment as Non-Executive Director in October 2010.

## AUDIT COMMITTEE

The Audit Committee operates under written Terms of Reference, which are consistent with current best practice. The Committee comprises only independent Non-Executive Directors. The Chairman of the Committee attends the Annual General Meeting to respond to any Shareholder questions that might be raised on the Committee’s activities.

The Group does not have a dedicated internal audit function. The Board annually reviews the need for such a function. In 2006 the Audit Committee recommended and the Board accepted that the Group’s internal control and risk management systems would be further strengthened by the appointment of an outsourced internal audit function and Ernst & Young LLP were appointed in April 2006 to provide an outsourced internal audit function for the Group.

The Committee’s Report is set out on pages 66 to 67.

## RISK MANAGEMENT AND INTERNAL CONTROL

The Board has ultimate responsibility for the Group’s system of internal control and for reviewing its effectiveness. It is the role of management to implement the Board’s policies on risk and control through the design and operation of appropriate internal control systems. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can therefore only provide reasonable and not absolute assurance against material misstatement or loss.

The Audit Committee monitors and reviews the effectiveness of the Group’s internal control systems, accounting policies and practices, standards of risk management and risk management procedures and compliance controls.

The key elements of the existing systems of internal control, which accord with the revised Turnbull Guidance (2005), are as follows:

## OPEN CULTURE

The Board considers that the Group operates a risk-aware culture with an open style of communication. This facilitates the early identification of problems and issues, so that appropriate action is taken quickly to minimise any impact on the business.



# CORPORATE GOVERNANCE CONTINUED

## RISK MANAGEMENT AND INTERNAL CONTROL CONTINUED

## ONGOING PROCESS FOR RISK IDENTIFICATION, EVALUATION AND MANAGEMENT

During 2010 the Board conducted a review of the effectiveness of the Group’s system of internal control. This review covered all controls including operational, compliance and risk management procedures, as well as financial. The review is undertaken on a six monthly basis. This process includes the following:

● a defined organisation structure with appropriate delegation of authority;

● formal authorisation procedures for all investments with clear guidelines on appraisal techniques and success criteria;

● clear responsibilities on the part of line and financial management for the maintenance of good financial controls and the production and review of detailed, accurate and timely financial management information;

● a comprehensive system of financial reporting. An annual budget for each operating company is prepared in detail and approved by the Chief Executive. The Board approves the overall Group’s budget and plans. Monthly actual results are reported against budget and prior year and the forecast for the year is revised where necessary. Any significant changes and adverse variances are questioned by the Board and remedial action is taken where appropriate. There is weekly cash and treasury reporting to the Finance Director and periodic reporting to the Board on the Group’s tax and treasury position;

● provision to management and the Board of relevant, accurate and timely information including relevant key performance indicators, based on reliable management information systems which are continually being improved and updated;

● monthly reports to the Board from the Chief Executive and Finance Director;

● regular business unit management Board meetings (periodically attended by the Chief Executive or Finance Director), executive Board meetings and company Board meetings at which existing, new and evolving operational, financial and other risks are discussed, and appropriate actions to manage these risks are agreed and followed up;

● discussion of any significant issues or control weaknesses identified and, if considered necessary, their inclusion in reports to the executive Board and company Board;

● the maintenance of business unit risk registers;

● the maintenance of a Group risk register which sets out the most significant risks facing the Group and the actions being taken in mitigation, regularly updated and reviewed by the Board, and summarised in the Business Review on pages 26 and 27;

● operating units, both trading sites and central functions, complete comprehensive Control Self Assessment (“CSA”) Questionnaires every six months. These questionnaires require managers to respond to questions about procedures and controls in the unit for which they have responsibility. These are analysed by local and Group management and all potential risks or control failure issues which are raised by the CSA process are classed in terms of escalation levels with any significant Group level issues being reported to the Audit Committee; and

● a structured and approved programme of internal audit visits with the implementation of recommendations made being monitored as part of a continual programme of improvement.

## ANNUAL ASSESSMENT OF THE EFFECTIVENESS OF SYSTEMS OF INTERNAL CONTROL

The Board and Audit Committee requested, received and reviewed reports from senior management, its advisers, Group internal audit and our external Auditors in order to assist the Board with their annual assessment of the effectiveness of the Group’s systems of internal controls. Through the ongoing processes outlined above, areas for improvement in internal controls are continually identified and action plans are devised. Progress towards completion of actions is regularly monitored by management and the Board. The Board considers that none of the areas of improvement identified constitute a significant failing or weakness. The Board considers that the information that it receives is sufficient to enable it to review the effectiveness of the Group’s internal controls in accordance with the internal control guidance for Directors on the Combined Code issued by the Turnbull Review Group.

## FINANCIAL REPORTING

In addition to the general internal controls and risk management processes described above, the Group also has specific internal controls and risk management systems to govern the financial reporting process and preparation of the annual financial statements. These systems include clear policies and procedures for ensuring that the Group’s financial reporting processes and the preparation of its consolidated accounts comply with all relevant regulatory reporting requirements. These are comprehensively detailed in the Group Finance Manual, which is used by the businesses in the preparation of their results. Financial control requirements are also set out in the Group Finance Manual.

## WHISTLEBLOWING

The Group has in place a Whistleblowing Policy under which employees may, in confidence, raise concerns about possible wrongdoing in financial reporting or other matters. A copy of this policy is available on the Company’s website (www.sigplc.com). The Company also has in place a confidential hotline which is available to all of the Group’s employees and provides a facility for them to bring matters to management’s attention on a confidential basis. The hotline is provided by an independent third party. During 2010 these systems were operational throughout the Group. A full investigation is carried out on all matters raised and a report is prepared for feedback to the complainant. The Company Secretary is required to report to the Audit Committee biannually on the integrity of these procedures, the state of ongoing investigations and conclusions reached. During 2010 Group employees used this system to raise concerns about a number of separate issues, all of which were appropriately responded to.
The risk framework, as outlined above, gives reasonable assurance that the structure of controls in operation is appropriate to the Group’s situation and that there is an acceptable level of risk throughout the business.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group that this has been in place for the year under review and up to the date of approval of the Annual Report and Accounts.






# DIRECTORS' REMUNERATION REPORT
INCLUDING THE STATEMENT OF REMUNERATION POLICY
FOR THE YEAR ENDED 31 DECEMBER 2010

## DEAR SHAREHOLDER

On behalf of the Board I am pleased to present the Remuneration Committee’s Report of the Directors’ remuneration for 2010 for which we will be seeking Shareholder approval at the Annual General Meeting in May.

The Board noted with disappointment the vote against the approval of the Directors' Remuneration Report at last year's Annual General Meeting. The opposition of Shareholders reflected concerns about the decision of the Committee to award a salary increase to the Chief Executive given the historical performance of the Company and the external environment. The Committee subsequently undertook extensive consultations with a number of the Company's major institutional Shareholders as part of a review of SIG remuneration for 2011. The key points noted in the discussions held with Shareholders were as follows:

● Executive Director salary increases in 2011 should be restricted;

● mandatory deferral of part of the annual bonus should be considered; and

● consideration should be given to incorporating an additional performance measure in the Long Term Incentive Plan.

Taking into account the views of our Shareholders, together with what the Committee believes to be appropriate for SIG, the Committee has determined the following approach for Executive Director remuneration in 2011:

● base salaries for the Executive Directors to be frozen at 2010 levels. For Shareholders' information, without prior knowledge of the Remuneration Committee's position, the Executive Directors had earlier in the year advised that they would decline any salary increase offered in 2011;

● no change in the total annual bonus opportunity which will remain at 100% of base salary;

● introduction of mandatory deferral for Executive Directors of one third of their annual bonus into SIG shares for three years, subject to potential clawback;

● opportunity to defer up to 50% of any post tax bonus into the 2004 Deferred Annual Bonus Scheme;

● no change in long term incentive award opportunity. The LTIP Award for the Executive Directors will remain at 100% of base salary; and

● in advance of each LTIP cycle, the Committee will review the use of additional performance measures (including TSR, both absolute and relative, and Return on Capital as well as the continuing appropriateness of EPS). At the current time, the Committee believes the use of EPS provides the best measure of performance for SIG.

The Committee considers the approach outlined above to be appropriate for executive remuneration in 2011. Our major institutional Shareholders were consulted before this approach was implemented and were supportive. We hope this will be formally endorsed by Shareholders in their vote on the Directors' Remuneration Report at the Annual General Meeting in May.



## CHRIS GEOGHEGAN

## CHAIRMAN OF THE REMUNERATION COMMITTEE

## INTRODUCTION

This report, prepared by the Remuneration Committee on behalf of the Board, sets out the policy and disclosures on remuneration for the Executive and Non-Executive Directors of the Board. It takes full account of the Combined Code and the latest ABI/NAPF guidelines and has been prepared in accordance with the provisions of the Companies Act 2006 (“the Act”), the Listing Rules of the Financial Services Authority and Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. The Act requires the Auditors to report to the Company’s Shareholders on the audited information within this report and to state whether, in their opinion, those parts of the report have been prepared in accordance with the Act. The Auditors’ opinion is set out on page 110 and those aspects of the report which have been subject to audit are clearly marked. A resolution will be put to Shareholders at the Company’s Annual General Meeting on 11 May 2011 inviting them to approve this report.

## THE REMUNERATION COMMITTEE

The Remuneration Committee (“the Committee”) comprises the following Non-Executive Directors: Mr. C. V. Geoghegan (who chairs the Committee), Mrs. V. Murray and Mr. J. C. Nicholls, all of whom are independent Non-Executive Directors within the definition set out in the Code. Mr. D. A. Haxby who retired as a Director of the Company on 13 May 2010 was a member of the Committee up to that date. Mrs. V. Murray was a member of the Committee until she resigned as a Director on 16 March 2011. Both the constitution and operation of the Remuneration Committee comply with the principles incorporated in the Combined Code. The fees paid to Non-Executive Directors are determined by the Board. The Non-Executive Directors do not participate in any way in connection with the determination of their own fees.

The role of the Committee is to determine on behalf of the Board, the salary and benefits received by the Chairman and the Executive Directors and for overseeing the remuneration of other Senior Executives. The Committee’s Terms of Reference, which are reviewed regularly, are set out on the Company’s website www.sigplc.com. Its key responsibilities are:

● to determine the remuneration policy for Executive Directors and such other members of the Executive Management as it is designated to consider;

● to design specific remuneration packages which include salaries, bonuses, equity incentives, pension rights and benefits;

● to review the Executive Directors' service contracts;

● to ensure that failure is not rewarded and that steps are always taken to mitigate loss on termination, within contractual obligations;

● to review remuneration trends across the Group; and

● to approve the terms of and recommend grants under the Group’s incentive plans.

The Chief Executive, Mr. C. J. Davies, is consulted on the remuneration of Executive Directors and attends meetings by invitation but does not participate when his own remuneration is discussed. The Chairman of the Board also attends meetings by invitation but does not participate in any way in connection with the determination of his own fee. The Company Secretary provides information to the Committee and is in attendance at meetings.

During the year the Committee met seven times. Attendance by individual members of the Committee is disclosed in the table on page 56. The Committee also takes independent professional advice, on an ad hoc basis, as required. Kepler Associates (“Kepler”) provided advice to the Committee in respect of the Group’s remuneration strategy and relevant market information for 2010. Kepler does not provide any other services to the Company.

The Committee reviews its own performance annually and considers where improvements can be made as appropriate.



# DIRECTORS' REMUNERATION REPORT CONTINUED
INCLUDING THE STATEMENT OF REMUNERATION POLICY
FOR THE YEAR ENDED 31 DECEMBER 2010

## POLICY ON REMUNERATION OF EXECUTIVE DIRECTORS

The Company’s policy is to provide remuneration packages that fairly reward the Executive Directors for the contribution they make to the business and that are appropriately competitive to attract, retain and motivate Executive Directors and Senior Managers of the right calibre. The policy is designed to incentivise the Directors to meet the Company’s financial and strategic objectives such that a significant proportion of remuneration is performance related. The Company’s financial and strategic objectives are set out in the Business Review on pages 11 to 31.

The Remuneration Committee has the discretion to consider the Company’s performance on environmental, social and governance issues when determining the overall reward for the Executive Directors. The Committee also takes into account pay and conditions across the Group when determining remuneration for the Executive Directors.

The bar chart below explains the relevant importance of the elements of the remuneration package that are performance related and those that are not:



For the purposes of the chart set out above, salary and benefits are the amounts received in 2010. Annual bonus, LTIP and DABS Awards are included on a fair value basis. Deloitte LLP, in their capacity as Auditors, are requested to examine outcomes for the Long Term Incentive Plan before any Awards vest.

The main components of Executive Directors' remuneration are given below:

## BASE SALARY AND BENEFITS (AUDITED)

Base salary and benefits are determined on an annual basis by the Committee based upon the recommendations of the Chief Executive and after a review of the individual's performance, experience and market trends. The Chief Executive does not make recommendations to the Committee in respect of his own remuneration. The Committee takes into account published remuneration information from circa 30 companies of similar size (excluding financial services and real estate companies) and salary policy within the rest of the Group.

For 2011 the Executive Directors' base salaries have been frozen at their 2010 levels. Base salaries across the rest of the SIG Group were increased by an average of 1.5%. Benefits comprise a company car, medical and permanent health insurance. The value of benefits is not pensionable.

The annual rates of base salary during the year are shown in the table below:

<table><tr><td>Name</td><td>Annual rate of salary 2010</td><td>Annual rate of salary 2011</td><td>Increase</td></tr><tr><td>C. J. Davies</td><td>£532,875</td><td>£532,875</td><td>0%</td></tr><tr><td>G. W. Davies</td><td>£305,000</td><td>£305,000</td><td>0%</td></tr><tr><td>M. J. Chivers</td><td>£275,000</td><td>£275,000</td><td>0%</td></tr></table>



## POLICY ON REMUNERATION OF EXECUTIVE DIRECTORS CONTINUED

## ANNUAL PERFORMANCE BONUS

The annual performance related bonus provides Executive Directors with an incentive to achieve annual performance targets, which are set at the beginning of a financial year. The performance metrics for the year under review and the following year are shown in the table below:

<table><tr><td>Name</td><td>Year</td><td>Debt management/ working capital improvement</td><td>Underlying profit before tax % of salary</td><td>Personal objectives % of salary</td><td>Maximum bonus of % of salary</td></tr><tr><td rowspan="2">C. J. Davies</td><td>2010</td><td>30%</td><td>50%</td><td>20%</td><td>100%</td></tr><tr><td>2011</td><td>20%</td><td>60%</td><td>20%</td><td>100%</td></tr><tr><td rowspan="2">G. W. Davies</td><td>2010</td><td>30%</td><td>50%</td><td>20%</td><td>100%</td></tr><tr><td>2011</td><td>20%</td><td>60%</td><td>20%</td><td>100%</td></tr><tr><td rowspan="2">M. J. Chivers</td><td>2010</td><td>30%</td><td>50%</td><td>20%</td><td>100%</td></tr><tr><td>2011</td><td>20%</td><td>60%</td><td>20%</td><td>100%</td></tr></table>

In an exceptionally difficult environment the Group’s underlying profit before tax in 2010 was sufficient for the entry level target of  \( £62 \)  to be achieved. This resulted in a payment of circa 12% of salary being earned by Mr. C. J. Davies and Mr. G. W. Davies. Mr. M. J. Chivers pre-determined performance targets relate to the profit performance of those businesses under his control as well as SIG Group as a whole and the profit performance of those elements has resulted in payment of 38.5% of salary in relation to the profit element. The debt management and working capital improvement targets were achieved in full resulting in payment in full for this element. Performance against pre-determined personal objectives varied by individual and resulted in overall bonuses of 59%, 56%, and 87% of salary for Mr. C. J. Davies, Mr. G. W. Davies and Mr. M. J. Chivers.

The Committee has agreed that for 2011 the maximum bonus that can be earned should remain at 100% of base salary for each Executive Director. Executive Directors will also be required to mandatorily defer one third of their annual bonus into SIG shares for a period of three years, subject to clawback. Also for 2011 the Committee has increased the weighting on the underlying profit before tax element of the bonus opportunity from 50% to 60% reflecting its increased importance. The working capital improvement element reduces from 30% to 20% and is based on achieving cash conversion targets.

## PENSION SCHEMES

All Executive Directors are members of the Group’s contributory defined benefit pension scheme, which enables members to retire at age 60 with a maximum pension after 40 years’ pensionable service equivalent to two thirds of final pensionable salary. Pensionable salary is basic salary, excluding bonuses. Final pensionable salary is the average of the highest three consecutive pensionable salaries in the last ten years before retirement. For service up to 3 I July 2002, pensions in payment are guaranteed to increase by 5% per annum compound. Following consultation with the active membership of the scheme, certain changes were made to the contribution levels and benefits in order to limit future liabilities and, consequently, for service from 1 August 2002, pensions in payment are guaranteed to increase by the lower of 5% per annum or the increase in the Retail Prices Index (“RPI”). On death before retirement, a lump sum equal to four times current salary is paid, together with a spouse’s pension of 50% of pensionable salary. As part of this scheme, all Executive Directors are covered by permanent health insurance.

In March 2006 the Board agreed that the rules of the Group’s contributory defined benefit pension scheme should be amended to permit continued accrual in the scheme to age 65. All members will be permitted to take their benefits at age 60 without abatement if they so wish.

## SHARE OPTION SCHEMES

## LONG TERM INCENTIVE PLANS (“LTIP”)

All Executive Directors are eligible to participate in the LTIP which was approved by Shareholders in 2004. Under the LTIP participating Directors and other designated Senior Managers are granted nil cost share options up to a maximum of 100% of base salary. Awards under the LTIP are not pensionable. Awards under the LTIP are exercisable between three and seven years from the date of grant but the right to exercise options terminates upon the employee ceasing to hold office with the Group, subject to certain exceptions and the discretion of the Remuneration Committee.

All LTIP Awards granted to date are subject to EPS performance conditions. The performance targets attaching to LTIP Awards that are still subject to performance are set out below.

In the case of the 2007 Award, the performance condition is based on real (in excess of RPI) annual compound growth in EPS as shown below. The three year performance period for Awards starts at the beginning of the financial year in which the Award is made. There is no facility for retesting the performance condition after the end of the three year performance period. The performance target for the 2007 Award was not met and consequently all of these Awards have lapsed.

<table><tr><td></td><td>Real annual compound growth in Group EPS over three years</td><td>Percentage of Award vesting</td></tr><tr><td>Threshold</td><td>5%</td><td>30%</td></tr><tr><td>Maximum</td><td>10%</td><td>100%</td></tr><tr><td>Between threshold and maximum</td><td>5% - 10%</td><td>Pro-rata between 30% and 100%</td></tr></table>



# DIRECTORS' REMUNERATION REPORT CONTINUED
INCLUDING THE STATEMENT OF REMUNERATION POLICY
FOR THE YEAR ENDED 31 DECEMBER 2010

## POLICY ON REMUNERATION OF EXECUTIVE DIRECTORS CONTINUED
SHARE OPTION SCHEMES CONTINUED

## LONG TERM INCENTIVE PLANS (“LTIP”) CONTINUED

In the case of the 2008 Award, the performance condition is based on real (in excess of RPI) annual compound growth in EPS as shown below. The three year performance period for Awards starts at the beginning of the financial year in which the Award is made. There is no facility for retesting the performance condition after the end of the three year performance period.

<table><tr><td></td><td>Real annual compound growth in Group EPS over three years</td><td>Percentage of Award vesting</td></tr><tr><td>Threshold</td><td>5%</td><td>30%</td></tr><tr><td>Maximum</td><td>12%</td><td>100%</td></tr><tr><td>Between threshold and maximum</td><td>5% - 12%</td><td>Pro-rata between 30% and 100%</td></tr></table>

In 2009, Awards were made under the LTIP to Mr. C. J. Davies and Mr. G. W. Davies with a value of 50% of base salary at 1 January 2009 and to Mr. M. J. Chivers with a value of 40% of base salary. These Awards are subject to a performance target relating to the underlying EPS of the Company for the year ending 31 December 2011. For 25% of the award to vest, the underlying EPS must be 10p and for the Award to vest in full then 13.5p must be achieved.

The Committee decided that for 2010 Award sizes should be made at their pre-2009 levels. Awards are subject to a performance target relating to the underlying EPS of the Company for the three years ending 31 December 2012. If the Company’s three year cumulative underlying EPS is less than or equal to 30p, no shares vest. Awards vest in full for a three year cumulative EPS of 40p or higher and vesting is on a straight line basis between these two points.

In 2011, the Committee intend to make Awards under this LTIP to Executive Directors of 100% of salary subject to a performance target relating to the underlying EPS of the Company for the three years ending 31 December 2013. The three year performance target will be set at the same level as that for the 2010 Award. If the Company's three year cumulative underlying EPS is less than or equal to 30p, no shares will vest. Awards will vest in full for a three year cumulative EPS of 40p or higher and vesting is on a straight line basis between these two points.

The Committee believes Earnings per Share (“EPS”) continues to be a key measure of long term performance and is appropriate for its share incentive schemes (i.e. LTIP and DABS) as it requires substantial improvements in the underlying financial performance of the Company in order to become exercisable. In advance of each LTIP cycle, the Committee will review the use of additional performance measures.

## DEFERRED ANNUAL BONUS SCHEME (“DABS”)

In 2004, Shareholders approved the introduction of the DABS. Participants (including Executive Directors) are invited to defer up to 50% of their annual performance related cash bonus (after income tax and national insurance) in respect of the preceding financial year in order to purchase shares in the Company. The purchased shares must be retained for three years. Participants purchasing such shares will be eligible to receive up to a maximum of one additional free matching share for every share purchased, providing certain pre-set real (in excess of RPI) annual compound EPS growth targets are met over a three year period. The performance target for the 2007 Award was not met and consequently all of these Awards have lapsed. For 2007 and 2008 the performance targets for the DABS are shown below:

<table><tr><td></td><td>Real annual compound growth in Group EPS over three years</td><td>Percentage of Award vesting</td></tr><tr><td>Threshold</td><td>3%</td><td>50%</td></tr><tr><td>Maximum</td><td>5%</td><td>100%</td></tr><tr><td>Between threshold and maximum</td><td>3% - 5%</td><td>Pro-rata between 50% and 100%</td></tr></table>

For 2009 the performance target set for the DABS was the same as that for the LTIP as described above.

No Awards under DABS were made in 2010.

The above performance conditions were chosen because they were believed to be challenging and not only take account of the need for long term performance and commitment but also are an important means of aligning the interests of executives and Shareholders. At the end of the relevant period the Remuneration Committee assesses whether the performance conditions have been satisfied.

Awards made under the DABS are not pensionable and are set out in the table on page 65.

Under the rules of the LTIP and the DABS outstanding Awards vest on termination for certain reasons, such as death, retirement and redundancy or on a change of control, on a time related, pro-rata basis subject to the satisfaction of the relevant performance criteria. If, however, the termination of employment is for a reason other than one of those specified in the rules, an individual's full award lapses.

## EMPLOYEE SHARE SCHEMES

The Executive Directors are also eligible to participate in the Company’s SIP, which commenced in November 2005 and is open to all UK employees of the Group. The SIP is an HMRC approved arrangement which entitles all employees to purchase shares and receive matching shares in a potentially tax-advantageous manner. The Company gives one matching share for each share purchased by the employee up to a maximum of four matching shares per month.

## NON-EXECUTIVE DIRECTORS

The Non-Executive Directors, including the Chairman, do not have service contracts. The Company’s policy is that Non-Executive Directors are appointed for specific terms of three years unless otherwise terminated earlier by and at the discretion of either party upon three months’ written notice. Non-Executive Directors’ appointments are reviewed at the end of each three year term. Non-Executive Directors will normally be expected to serve two three year terms, although the Board may invite them to serve for an additional period.

The Executive Directors are responsible for recommending to the Board the fees of Non-Executive Directors. The basic Non-Executive Director fee is calculated by reference to current market levels and takes account of the time commitment and the responsibilities of the Non-Executive Directors. Non-Executive Directors do not receive benefits from the Company and they are not eligible to join the Company’s pension scheme or participate in any bonus or incentive scheme or any of the Company’s share option schemes. Any reasonable expenses that they incur in the furtherance of their duties are reimbursed by the Company. The Chairman and Non-Executive Directors’ fees are reviewed in May each year with any increase being payable from 1 June. These fees were reviewed in May 2010 and were left unchanged.



## NON-EXECUTIVE DIRECTORS CONTINUED

The dates of their letters of engagement and annual entitlement to fees are set out below:

<table><tr><td></td><td>Original date of appointment</td><td>Date of letter of engagement</td><td>Basic fee</td><td>Senior Independent Director fee £</td><td>Chairman of Remuneration/ Audit Committee fee £</td><td>Total current annual fees £</td></tr><tr><td>L. Van de Walle*</td><td>01/10/2010</td><td>15/09/2010</td><td>145,000</td><td>-</td><td>-</td><td>145,000</td></tr><tr><td>C. V. Geoghegan</td><td>01/07/2009</td><td>08/05/2009</td><td>44,500</td><td>2,000</td><td>6,000</td><td>52,500</td></tr><tr><td>V. Murray</td><td>01/07/2009</td><td>08/05/2009</td><td>44,500</td><td>-</td><td>-</td><td>44,500</td></tr><tr><td>J. C. Nicholls</td><td>06/11/2009</td><td>08/05/2009</td><td>44,500</td><td>-</td><td>8,000</td><td>52,500</td></tr></table>

* Mr. L. Van de Walle was paid the basic fee of £44,500 per annum from the date of his appointment until 31 January 2011. From 1 February 2011 his basic fee was increased to £145,000 on his appointment as Non-Executive Chairman.

Mr. L. O. Tench resigned as a Non-Executive Director and Chairman on 31 January 2011. Mr. L. O. Tench was receiving a basic fee of £145,000 per annum for his services as Non-Executive Chairman up to the date of his resignation on 31 January 2011.

Mr. D. A. Haxby resigned as a Non-Executive Director on 13 May 2010.

Mrs. V. Murray resigned as a Non-Executive Director on 16 March 2011.

## SERVICE CONTRACTS

The Executive Directors have service contracts for a continuous term to retirement age providing for a rolling twelve months' notice period in writing by either party.

The service contracts for Mr. M. J. Chivers, Mr. G. W. Davies and Mr. C. J. Davies are dated 1 January 1995, 1 August 2002 and 28 January 2009 respectively. The Company can discharge any obligation in relation to the unexpired portion of their notice period or any notice required to be given under their service contracts by making a payment in lieu of notice subject to the deduction of tax and national insurance. If the Company terminates employment without giving notice or making a payment in lieu, any damages to which the Executive may be entitled is to be calculated in accordance with common law principles, including those relating to mitigation of loss and accelerated receipt. There are no agreements between the Company and its Directors or employees providing for additional compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that may occur in the event of a takeover.

## SHARE OWNERSHIP GUIDELINES

To ensure alignment between Executive Director interests and those of Shareholders, the Company has established the principle of requiring Executive Directors to build up and maintain a beneficial holding of shares in the Company equivalent to a minimum of one times basic salary. Under normal circumstances it is expected that this should be achieved within five years of 31 December 2004, or within five years of appointment, whichever is the later. It is anticipated that the satisfaction of this target will be mainly achieved by the vesting of shares through the Company’s share schemes.

## PERFORMANCE GRAPH

The graph below shows the Company’s TSR performance (share price plus dividends paid) compared with the performance of the FTSE All Share Support Services Index over the five year period to 31 December 2010. This index has been selected because the Company believes that the constituent companies comprising the FTSE All Share Support Services Index are the most appropriate for this comparison as they are affected by similar commercial and economic factors to SIG.

## I JANUARY 2006 TO 31 DECEMBER 2010

TSR (rebased = 100 at 1 January 2006)






# DIRECTORS' REMUNERATION REPORT CONTINUED
INCLUDING THE STATEMENT OF REMUNERATION POLICY
FOR THE YEAR ENDED 31 DECEMBER 2010

## DIRECTORS' INTERESTS IN THE SHARES OF SIG PLC (AUDITED)

The interests of the Directors in office at 31 December 2010 and of their families in the ordinary shares of the Company at the following dates were:

<table><tr><td></td><td>31 December 2010</td><td>I January 2010 or date of appointment</td></tr><tr><td>M. J. Chivers</td><td>137,868*</td><td>121,552*</td></tr><tr><td>C. J. Davies</td><td>134,501*</td><td>108,185*</td></tr><tr><td>G. W. Davies</td><td>168,346*</td><td>157,030*</td></tr><tr><td>C. V. Geoghegan</td><td>40,000</td><td>40,000</td></tr><tr><td>V. Murray (resigned 16 March 2011)</td><td>11,500</td><td>11,500</td></tr><tr><td>J. C. Nicholls</td><td>14,220</td><td>14,220</td></tr><tr><td>L. O. Tench (resigned 31 January 2011)</td><td>87,248</td><td>87,428</td></tr><tr><td>L. Van de Walle (appointed 1 October 2010)</td><td>Nil</td><td>Nil</td></tr></table>

* Includes shares purchased under the SIG plc SIP.

On 17 January 2011 Mr. G. W. Davies, Mr. C. J. Davies and Mr. M. J. Chivers acquired a further 84 shares each under the SIG plc SIP, on 15 February 2011, Mr. C. J. Davies, Mr. G. W. Davies and Mr. M. J. Chivers acquired a further 92 shares each under the SIP and on 15 March 2011, Mr. G. W. Davies, Mr. C. J. Davies and Mr. M. J. Chivers acquired a further 100 shares each under the SIP. All shareholdings were unchanged as at 16 March 2011.

## DIRECTORS' EMOLUMENTS (AUDITED)

<table><tr><td></td><td>Salary and fees £000</td><td>Annual performance related bonus £000</td><td>Benefits £000</td><td>2010 Total emoluments £000</td><td>2009 Total emoluments £000</td></tr><tr><td>Chairman</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>L. O. Tench (resigned 31 January 2011)</td><td>145</td><td>-</td><td>-</td><td>145</td><td>145</td></tr><tr><td>Executive</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>C. J. Davies</td><td>533</td><td>314</td><td>20</td><td>867</td><td>694</td></tr><tr><td>M. J. Chivers</td><td>275</td><td>239</td><td>24</td><td>538</td><td>394</td></tr><tr><td>G. W. Davies</td><td>305</td><td>171</td><td>22</td><td>498</td><td>457</td></tr><tr><td>Non-Executive</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>P. H. Blackburn (resigned 30 September 2009)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>39</td></tr><tr><td>M. J. C. Borlenghi (resigned 30 September 2009)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>33</td></tr><tr><td>C. V. Geoghegan (appointed 1 July 2009)</td><td>52</td><td>-</td><td>-</td><td>52</td><td>24</td></tr><tr><td>D. A. Haxby (resigned 13 May 2010)</td><td>17</td><td>-</td><td>-</td><td>17</td><td>52</td></tr><tr><td>V. Murray (appointed 1 July 2009, resigned 16 March 2011)</td><td>45</td><td>-</td><td>-</td><td>45</td><td>22</td></tr><tr><td>J. C. Nicholls (appointed 6 November 2009)</td><td>53</td><td>-</td><td>-</td><td>53</td><td>8</td></tr><tr><td>L. Van de Walle (appointed 1 October 2010)</td><td>11</td><td>-</td><td>-</td><td>11</td><td>-</td></tr><tr><td>Total</td><td>1,436</td><td>724</td><td>66</td><td>2,226</td><td>1,868</td></tr></table>

There were no expense allowances or compensation for loss of office payments.

The highest paid Director in the year was Mr. C. J. Davies.

Benefits relate to the estimated value of the provision of a company car and medical insurance premiums.

## DIRECTORS' PENSIONS (AUDITED)

The following Directors had retirement benefits accruing under the Company’s main contributory defined benefit scheme in respect of qualifying services during the year:

<table><tr><td></td><td>Increase in accrued benefits £000</td><td>Increase in accrued benefits net of inflation £000</td><td>Transfer value of increase in benefits net of inflation* £000</td><td>Accrued benefits at 31 December 2010 £000</td><td>Transfer value at 31 December 2010 £000</td><td>Transfer value at 1 January 2010 £000</td><td>Contributions made by Executive to the scheme in the year £000</td><td>Transfer value (decrease)/ increase after deducting Executive contributions £000</td></tr><tr><td>M. J. Chivers</td><td>6</td><td>(37)</td><td>(600)</td><td>123</td><td>3,757</td><td>3,811</td><td>10</td><td>(64)</td></tr><tr><td>C. J. Davies</td><td>60</td><td>11</td><td>99</td><td>109</td><td>2,505</td><td>2,167</td><td>40</td><td>298</td></tr><tr><td>G. W. Davies</td><td>7</td><td>8</td><td>89</td><td>86</td><td>1,398</td><td>1,212</td><td>23</td><td>163</td></tr></table>

 \( ^{*} \)  After deducting Executive contributions.

The transfer values disclosed above do not represent a sum paid or payable to the individual Director, but instead represent a potential liability of the pension scheme.

Mr. C. J. Davies stopped accruing pension benefit in the main registered scheme from 1 January 2009 and began accruing benefit in the Employer Financed Retirement Benefits Scheme ("EFRBS"). The figures quoted in the table above represent his total entitlement in both schemes.



## DIRECTORS' PENSIONS (AUDITED) CONTINUED

## NOTES RELATING TO PREVIOUS PAGE:

1. Pension accruals shown are the amounts which would be paid annually from normal retirement age based on service to the end of the year for Mr. C. J. Davies and Mr. G. W. Davies and service to date of leaving the Plan for Mr. M. J. Chivers.

2. Where members took cash or early retirement options during the year, the increase in accrued benefits is based on pension figures prior to commutation or early retirement factors being applied, whereas the remainder of the figures are based pension figures post-commutation and early retirement factors.

3. Mr. M. J. Chivers and Mr. C. J. Davies retired from the scheme during 2010 and commuted some of their benefits for tax-free cash. The disclosure amounts opposite at 31 December 2010 are in relation to pension only (i.e. does not include cash lump sums paid in addition to these amounts).

4. Transfer values have been calculated in accordance with the revised transfer value basis adopted by the Trustees in July 2009.

5. The figures in the second and third columns comply with the Greenbury requirements. The value of the net increase represents the incremental value to the Director of his service during the year, calculated on the assumption service terminated at the year-end. It is based on the accrued pension increase after deducting the Director’s contribution.

6. The change in the transfer value in the final column includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and Directors, such as market movements and also includes the effect of the change in the transfer value basis. It is calculated after deducting the Director’s contribution.

7. Voluntary contributions paid by Directors and resulting benefits are not shown in the table opposite.

## DIRECTORS' SHARE OPTIONS (AUDITED)

Mr. C. V. Geoghegan, Mr. D. A. Haxby, Mrs. V. Murray, Mr. J. C. Nicholls, Mr. L. Van de Walle and Mr. L. O. Tench, as Non-Executive Directors who held office during the year, did not hold or have granted any share options during the year.

The share options for the other Directors who held office at any time during the year ended 31 December 2010 are set out below:

<table><tr><td rowspan="2"></td><td rowspan="2"></td><td colspan="4">Number of shares</td><td colspan="3">Market price at date of:</td><td colspan="3">Exercise dates</td></tr><tr><td>At 1 January 2010</td><td>Granted</td><td>Exercised</td><td>Lapsed</td><td>At 31 December 2010</td><td>Exercise price per 10p share</td><td>Vesting</td><td>Exercise</td><td>Earliest vesting date</td><td>Date exercised</td></tr><tr><td>Deferred Annual Bonus</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>C. J. Davies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>17/04/2007</td><td>1,300.8p</td><td>1,298</td><td>-</td><td>-</td><td>(1,298)</td><td>-</td><td>Nil</td><td>-</td><td>-</td><td>17/04/2010</td><td>-</td><td>16/04/2017</td></tr><tr><td>Long Term Incentive Plan</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>M. J. Chivers</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>17/04/2007</td><td>1,300.8p</td><td>12,010</td><td>-</td><td>-</td><td>(12,010)</td><td>-</td><td>Nil</td><td>-</td><td>-</td><td>17/04/2010</td><td>-</td><td>16/04/2017</td></tr><tr><td>14/04/2008</td><td>801.1p</td><td>30,612</td><td>-</td><td>-</td><td>-</td><td>30,612</td><td>Nil</td><td>-</td><td>-</td><td>14/04/2011</td><td>-</td><td>13/04/2018</td></tr><tr><td>16/09/2009</td><td>138.2p</td><td>80,476</td><td>-</td><td>-</td><td>-</td><td>80,476</td><td>Nil</td><td>-</td><td>-</td><td>16/09/2012</td><td>-</td><td>15/09/2019</td></tr><tr><td>07/06/2010</td><td>110.0p</td><td>-</td><td>239,338</td><td>-</td><td>-</td><td>239,338</td><td>Nil</td><td>-</td><td>-</td><td>07,06,2013</td><td>-</td><td>06/06/2020</td></tr><tr><td>C. J. Davies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>17/04/2007</td><td>1,300.8p</td><td>10,474</td><td>-</td><td>-</td><td>(10,474)</td><td>-</td><td>Nil</td><td>-</td><td>-</td><td>17/04/2010</td><td>-</td><td>16/04/2017</td></tr><tr><td>14/04/2008</td><td>801.1p</td><td>55,178</td><td>-</td><td>-</td><td>-</td><td>55,178</td><td>Nil</td><td>-</td><td>-</td><td>14/04/2011</td><td>-</td><td>13/04/2018</td></tr><tr><td>08/09/2008</td><td>542.3p</td><td>11,168</td><td>-</td><td>-</td><td>-</td><td>11,168</td><td>Nil</td><td>-</td><td>-</td><td>08/09/2011</td><td>-</td><td>07/09/2018</td></tr><tr><td>16/09/2009</td><td>138.2p</td><td>173,248</td><td>-</td><td>-</td><td>-</td><td>173,248</td><td>Nil</td><td>-</td><td>-</td><td>16/09/2012</td><td>-</td><td>15/09/2019</td></tr><tr><td>07/06/2010</td><td>110.0p</td><td>-</td><td>463,772</td><td>-</td><td>-</td><td>463,772</td><td>Nil</td><td>-</td><td>-</td><td>07/06/2013</td><td>-</td><td>06/06/2020</td></tr><tr><td>G. W. Davies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>17/04/2007</td><td>1,300.8p</td><td>13,267</td><td>-</td><td>-</td><td>(13,267)</td><td>-</td><td>Nil</td><td>-</td><td>-</td><td>17/04/2010</td><td>-</td><td>16/04/2017</td></tr><tr><td>14/04/2008</td><td>801.1p</td><td>34,014</td><td>-</td><td>-</td><td>-</td><td>34,014</td><td>Nil</td><td>-</td><td>-</td><td>14/04/2011</td><td>-</td><td>13/04/2018</td></tr><tr><td>16/09/2009</td><td>138.2p</td><td>111,773</td><td>-</td><td>-</td><td>-</td><td>111,773</td><td>-</td><td>-</td><td>-</td><td>16/09/2012</td><td>-</td><td>15/09/2019</td></tr><tr><td>07/06/2010</td><td>110.0p</td><td>-</td><td>265,448</td><td>-</td><td>-</td><td>265,448</td><td>Nil</td><td>-</td><td>-</td><td>07/06/2013</td><td>-</td><td>06/06/2020</td></tr><tr><td>Total</td><td></td><td>533,518</td><td>968,558</td><td>-</td><td>(37,049)</td><td>1,465,027</td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

No price has been paid for any Awards of share options which were unexpired at any time in the financial year.

The market price of the shares at 31 December 2010 was 128.7p and the range during 2010 was 90.7p to 137.8p.

The aggregate of the total theoretical gains on options exercised by the Directors during 2010 amounted to €nil (2009: €nil). This is calculated by reference to the difference between the closing mid-market price of the shares on the date of exercise and the exercise price of the options, disregarding whether such shares were sold or retained on exercise and is stated before tax.

A resolution to approve this report will be proposed at the Annual General Meeting.

The Board of SIG plc has approved this Directors' Remuneration Report.

On behalf of the Board






# REPORT OF THE AUDIT COMMITTEE

## PURPOSE AND AIM

The purpose of the Audit Committee (“the Committee”) is to make recommendations on the reporting, control, risk management and compliance of the Directors’ and the Group’s responsibilities, providing independent monitoring, guidance and challenge to executive management in these areas.

Through this process its aim is to ensure the highest standards of corporate and regulatory reporting, controls risk management and compliance. The Committee believes that excellence in these areas enhances the effectiveness and reduces the risks of the business.

## STRUCTURE

The Committee operates under Terms of Reference which can be found on the Company’s website and which are available on application to the Company Secretary at the registered office. They are reviewed annually by the Committee and changes are recommended to the Board for approval.

The main duties of the Committee set out in its Terms of Reference are:

● monitoring the integrity of the Company’s Accounts including its Annual Report and Accounts and Interim Report;

● reviewing the consistency of accounting policies, including any changes;

● reviewing the effectiveness of the Company’s internal control and risk management systems;

● reviewing the Company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters;

● monitoring and reviewing the effectiveness of the Company’s outsourced internal audit function;

● reviewing the annual audit plan and receiving the Auditors' reports and the Company's response;

● considering and making recommendations to the Board in relation to the appointment, re-appointment and removal of the Company’s external Auditors;

● overseeing the relationship with the external Auditors, including (but not limited to) approving their remuneration, assessing annually their independence and objectivity, taking into account relevant professional and regulatory requirements and the relationship with the Auditors as a whole, including the provision of any non-audit services; and

● reporting to the Board and identifying any matters on which the Committee considers that action or improvement is needed and making recommendations as to the steps to be taken.

The Chairman of the Committee attends the Annual General Meeting to respond to any Shareholder questions that might be raised on the Committee’s activities.

The Committee has in its Terms of Reference the power to engage outside advisers and to obtain its own independent external advice at the Company’s expense, should it deem it necessary. During 2010 no member of the Committee, nor the Committee collectively, found it necessary to obtain such separate advice beyond the advice that is directly provided to the Committee by the external Auditors, Deloitte LLP, or from Ernst & Young LLP, who operate the Group’s outsourced internal audit function.

The Committee reviews its own performance annually and considers where improvements can be made.

## MEMBERSHIP

Throughout 2010, the Committee comprised the independent Non-Executive Directors of the Company. The Board considers that each member of the Committee is independent within the definition set out in the Combined Code. The Chairman of the Committee is Mr. J. C. Nicholls. He is a Chartered Accountant and was most recently Group Finance Director of Old Mutual plc and, prior to that, Group Finance Director of Hanson plc. He is Audit Committee Chairman for Great Portland Estates plc and DS Smith plc. The other members of the Committee, Mr. C. V. Geoghegan and Mrs. V. Murray, have a wide range of business experience, which is evidenced by their biographical summaries on page 48. Mr. D. A. Haxby was a member of the Committee until his retirement from the Board on 13 May 2010. Mrs. V. Murray was a member of the Committee until she resigned as Director on 16 March 2011. The Board is responsible for making appointments to the Committee, and the Company Secretary acts as Secretary to the Committee.

Members of the Committee undertake ongoing training as required.

## MEETINGS

The Committee meets regularly throughout the year with four planned meetings and its agenda is linked to events in the Company’s financial calendar. The agenda is mostly cyclical although each member of the Committee may request reports on matters of interest in addition to the regular items. In 2010 the Committee met four times. Attendance by individual members of the Committee is disclosed in the table on page 56. The Finance Director attended all four of the meetings by invitation of the Committee Chairman. The external Auditors attended meetings of the Committee on three occasions. The external Auditors have direct access to the Committee Chairman. The Chairman of the Board and the other Executive Directors attend certain of the meetings of the Committee at the invitation of the Committee Chairman. The external Auditors had confidential discussions with members of the Committee without the Chairman of the Board and the Executive Directors being present on two occasions in 2010 and in March 2011 before the signing off of the 2010 Annual Report and Accounts. Ernst & Young LLP, who provide an outsourced internal audit function for the Group, are invited to meetings to present their reports and attended on two occasions in 2010. The Committee also meets with Ernst & Young LLP without the Executive Directors present and did so on two occasions in 2010.



## WORK OF THE COMMITTEE

The main activities of the Committee in 2010 were as follows:

● with the assistance of reports received from management and the external Auditors, the critical review of the significant financial reporting issues in connection with the preparation of the Company’s financial statements;

● assessing the scope and effectiveness of the systems established to identify, assess, manage and monitor financial and non-financial risks. The Group’s risk identification and management process is fully set out on pages 26 to 30 of the Business Review;

● monitoring the integrity of the Company’s internal financial controls;

● monitoring and reviewing the plans, work and effectiveness of the internal audit function, including any actions taken following any significant failures in internal controls;

● reviewing, with the external Auditors, its terms of engagement, its audit plans, the findings of its work and at the end of the audit process reviewing its effectiveness;

● reviewing the independence and objectivity of the external Auditors; and

● reviews and makes a recommendation concerning the reappointment of the external Auditors.

The Chairman of the Committee reports to the subsequent meeting of the Board on the key issues covered by the Committee identifying any matters on which it considers that action or improvement is needed and makes recommendations on the steps to be taken. The Board also receives copies of the minutes of each meeting.

## INDEPENDENCE OF AUDITORS

The Board is aware of the need to maintain an appropriate degree of independence and objectivity on the part of the Group’s external Auditors. The external Auditors report to the Committee on the actions taken to comply with both professional and regulatory requirements and with best practice designed to ensure its independence.

The Group has an agreed policy with regard to the provision of audit and non-audit services by the external Auditors, which was operated during 2010. The policy is based on the principles that they should only undertake non-audit services where they are the most appropriate and cost-effective provider of the service, and where the provision of non-audit services does not impair, or is not perceived to impair, the external Auditors' independence and objectivity. It categorises such services between Auditor permitted services, Auditor excluded services and Auditor authorised services. The policy, which can be viewed on the Company's website (www.sigplc.com), defines the types of services falling under each category and sets out the criteria to be met and the internal approvals required prior to the commencement of any Auditor authorised services. The external Auditors cannot be engaged to perform any assignment where the output is then subject to their review as external Auditors. The Committee regularly reviews an analysis of all services provided by the external Auditors. The policy is reviewed annually by the Committee and is approved by the Board.

The total sum invoiced to the Group by its external Auditors for non-audit services provided in 2010 was £0.1m (2009: £0.9m). The total sum invoiced by them for audit services in respect of the same period was £1.2m (2009: £1.1m).

The external Auditors report to the Committee each year on the actions they have taken to comply with professional and regulatory requirements and best practice designed to ensure their independence, including the rotation of key members of the external audit team. Deloitte LLP have formally confirmed their independence to the Board in respect of the period covered by these financial statements. Having reviewed and expressed satisfaction with the level of fees, independence, objectivity, expertise, resources and general effectiveness of Deloitte LLP, the Committee recommends (and the Board agrees) that a resolution for the re-appointment of Deloitte LLP as Auditors of the Company will be proposed at the forthcoming Annual General Meeting.

As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its Terms of Reference and has ensured the independence and objectivity of the external Auditors.

On behalf of the Board



IONATHAN NICHOLLS
CHAIRMAN OF THE AUDIT COMMITTEE
16 March 2011



GROUP ACCOUNTS
69 CONSOLIDATED INCOME STATEMENT
70 CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
71 CONSOLIDATED BALANCE SHEET
72 CONSOLIDATED CASH FLOW STATEMENT
73 CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
74 STATEMENT OF SIGNIFICANT
ACCOUNTING POLICIES
79 CRITICAL ACCOUNTING JUDGEMENTS AND
KEY SOURCES OF ESTIMATION UNCERTAINTY
80 NOTES TO THE ACCOUNTS
110 INDEPENDENT AUDITOR REPORT
111 FIVE YEAR SUMMARY



## CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010

<table><tr><td></td><td>Note</td><td>Before other items* 2010 £m</td><td>Other items* 2010 £m</td><td>Total 2010 £m</td><td>Before other items* 2009 £m</td><td>Other items* 2009 £m</td><td>Total 2009 £m</td></tr><tr><td>Revenue</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td>1</td><td>2,668.0</td><td>-</td><td>2,668.0</td><td>2,723.1</td><td>-</td><td>2,723.1</td></tr><tr><td>Cost of sales</td><td>2</td><td>(1,975.4)</td><td>-</td><td>(1,975.4)</td><td>(2,010.0)</td><td>-</td><td>(2,010.0)</td></tr><tr><td>Gross profit</td><td></td><td>692.6</td><td>-</td><td>692.6</td><td>713.1</td><td>-</td><td>713.1</td></tr><tr><td>Other operating expenses</td><td>2</td><td>(616.5)</td><td>(130.7)</td><td>(747.2)</td><td>(632.2)</td><td>(113.4)</td><td>(745.6)</td></tr><tr><td>Operating (loss)/profit</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Continuing operations</td><td></td><td>76.1</td><td>(130.7)</td><td>(54.6)</td><td>80.9</td><td>(113.4)</td><td>(32.5)</td></tr><tr><td>Finance income</td><td>3</td><td>7.8</td><td>-</td><td>7.8</td><td>10.3</td><td>1.4</td><td>11.7</td></tr><tr><td>Finance costs</td><td>3</td><td>(21.4)</td><td>(12.6)</td><td>(34.0)</td><td>(30.6)</td><td>(3.9)</td><td>(34.5)</td></tr><tr><td>(Loss)/profit before tax</td><td>4</td><td>62.5</td><td>(143.3)</td><td>(80.8)</td><td>60.6</td><td>(115.9)</td><td>(55.3)</td></tr><tr><td>Income tax credit/(expense)</td><td>6</td><td>(19.7)</td><td>23.7</td><td>4.0</td><td>(18.0)</td><td>28.2</td><td>10.2</td></tr><tr><td>(Loss)/profit after tax</td><td></td><td>42.8</td><td>(119.6)</td><td>(76.8)</td><td>42.6</td><td>(87.7)</td><td>(45.1)</td></tr><tr><td>Attributable to:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity holders of the Company</td><td></td><td>42.5</td><td>(119.6)</td><td>(77.1)</td><td>42.1</td><td>(87.7)</td><td>(45.6)</td></tr><tr><td>Non-controlling interests</td><td></td><td>0.3</td><td>-</td><td>0.3</td><td>0.5</td><td>-</td><td>0.5</td></tr><tr><td>Earnings per share</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic (loss)/earnings per share</td><td>8</td><td>7.2p</td><td>(20.2p)</td><td>(13.0p)</td><td>9.0p</td><td>(18.7p)</td><td>(9.7p)</td></tr><tr><td>Diluted (loss)/earnings per share</td><td>8</td><td>7.2p</td><td>(20.2p)</td><td>(13.0p)</td><td>9.0p</td><td>(18.7p)</td><td>(9.7p)</td></tr></table>

* “Other items” relate to the amortisation of acquired Intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments. “Other items” have been disclosed separately in order to give an indication of the underlying earnings of the Group. Further information is provided within the Statement of Significant Accounting Policies on page 74.

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Consolidated Income Statement.



## CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Loss after tax</td><td>(76.8)</td><td>(45.1)</td></tr><tr><td>Other comprehensive income/(expense)</td><td></td><td></td></tr><tr><td>Exchange difference on retranslation of foreign currency Goodwill and intangibles</td><td>(8.8)</td><td>(33.1)</td></tr><tr><td>Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)</td><td>(6.8)</td><td>(21.2)</td></tr><tr><td>Exchange and fair value movements associated with borrowings and derivative financial instruments</td><td>3.2</td><td>16.5</td></tr><tr><td>Tax charge on exchange difference arising on borrowings and derivative financial instruments</td><td>(0.9)</td><td>(5.5)</td></tr><tr><td>Gains and losses on cash flow hedges</td><td>6.8</td><td>(20.1)</td></tr><tr><td>Transfer to profit and loss on cash flow hedges</td><td>12.6</td><td>1.3</td></tr><tr><td>Actuarial loss on defined benefit pension schemes</td><td>(1.8)</td><td>(4.7)</td></tr><tr><td>Deferred tax movement associated with actuarial loss</td><td>0.5</td><td>1.3</td></tr><tr><td>Effect of change in rate on deferred tax</td><td>(0.2)</td><td>—</td></tr><tr><td>Other comprehensive income/(expense)</td><td>4.6</td><td>(65.5)</td></tr><tr><td>Total comprehensive expense</td><td>(72.2)</td><td>(110.6)</td></tr><tr><td>Attributable to:</td><td></td><td></td></tr><tr><td>Equity holders of the Company</td><td>(72.5)</td><td>(111.1)</td></tr><tr><td>Non-controlling interests</td><td>0.3</td><td>0.5</td></tr><tr><td></td><td>(72.2)</td><td>(110.6)</td></tr></table>

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Consolidated Statement of Comprehensive Income.



## CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2010

<table><tr><td></td><td>Note</td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Non-current assets</td><td></td><td></td><td></td></tr><tr><td>Property, plant and equipment</td><td>10</td><td>183.6</td><td>213.5</td></tr><tr><td>Interest in associate</td><td>11</td><td>1.6</td><td>-</td></tr><tr><td>Goodwill</td><td>12</td><td>447.1</td><td>506.9</td></tr><tr><td>Intangible assets</td><td>13</td><td>92.2</td><td>150.6</td></tr><tr><td>Deferred tax assets</td><td>22</td><td>28.7</td><td>27.5</td></tr><tr><td>Derivative financial instruments</td><td></td><td>52.0</td><td>-</td></tr><tr><td></td><td></td><td>805.2</td><td>898.5</td></tr><tr><td>Current assets</td><td></td><td></td><td></td></tr><tr><td>Inventories</td><td>14</td><td>230.9</td><td>227.7</td></tr><tr><td>Trade receivables</td><td>15</td><td>373.9</td><td>385.8</td></tr><tr><td>Other receivables</td><td>15</td><td>24.8</td><td>28.0</td></tr><tr><td>Derivative financial instruments</td><td>15</td><td>-</td><td>38.6</td></tr><tr><td>Cash and cash equivalents</td><td></td><td>129.5</td><td>219.4</td></tr><tr><td></td><td></td><td>759.1</td><td>899.5</td></tr><tr><td>Total assets</td><td></td><td>1,564.3</td><td>1,798.0</td></tr><tr><td>Current liabilities</td><td></td><td></td><td></td></tr><tr><td>Trade and other payables</td><td>16</td><td>347.6</td><td>340.7</td></tr><tr><td>Obligations under finance lease contracts</td><td>16</td><td>1.7</td><td>2.3</td></tr><tr><td>Bank overdrafts</td><td>16</td><td>2.5</td><td>2.5</td></tr><tr><td>Bank loans</td><td>16</td><td>31.2</td><td>173.5</td></tr><tr><td>Private placement notes</td><td>16</td><td>49.1</td><td>-</td></tr><tr><td>Loan notes</td><td>16</td><td>-</td><td>0.1</td></tr><tr><td>Derivative financial instruments</td><td>16</td><td>4.9</td><td>0.1</td></tr><tr><td>Current tax liabilities</td><td>16</td><td>0.1</td><td>2.8</td></tr><tr><td>Provisions</td><td>16</td><td>12.7</td><td>9.5</td></tr><tr><td></td><td></td><td>449.8</td><td>531.5</td></tr><tr><td>Non-current liabilities</td><td></td><td></td><td></td></tr><tr><td>Obligations under finance lease contracts</td><td>17</td><td>5.5</td><td>7.1</td></tr><tr><td>Bank loans</td><td>17</td><td>0.3</td><td>12.1</td></tr><tr><td>Private placement notes</td><td>17</td><td>263.6</td><td>299.2</td></tr><tr><td>Derivative financial instruments</td><td>17</td><td>7.7</td><td>15.6</td></tr><tr><td>Deferred tax liabilities</td><td>17</td><td>26.5</td><td>38.9</td></tr><tr><td>Other payables</td><td>17</td><td>5.5</td><td>6.1</td></tr><tr><td>Retirement benefit obligations</td><td>17</td><td>25.2</td><td>24.0</td></tr><tr><td>Provisions</td><td>17</td><td>28.8</td><td>31.7</td></tr><tr><td></td><td></td><td>363.1</td><td>434.7</td></tr><tr><td>Total liabilities</td><td></td><td>812.9</td><td>966.2</td></tr><tr><td>Net assets</td><td></td><td>751.4</td><td>831.8</td></tr><tr><td>Capital and reserves</td><td></td><td></td><td></td></tr><tr><td>Called up share capital</td><td>24</td><td>59.1</td><td>59.1</td></tr><tr><td>Share premium account</td><td></td><td>447.0</td><td>447.0</td></tr><tr><td>Capital redemption reserve</td><td></td><td>0.3</td><td>0.3</td></tr><tr><td>Share option reserve</td><td></td><td>1.0</td><td>0.9</td></tr><tr><td>Hedging and translation reserve</td><td></td><td>32.8</td><td>46.1</td></tr><tr><td>Retained profits</td><td></td><td>209.3</td><td>276.2</td></tr><tr><td>Attributable to equity holders of the Company</td><td></td><td>749.5</td><td>829.6</td></tr><tr><td>Non-controlling interests</td><td></td><td>1.9</td><td>2.2</td></tr><tr><td>Total equity</td><td></td><td>751.4</td><td>831.8</td></tr></table>

The Accounts were approved by the Board of Directors on 16 March 2011 and signed on its behalf by:

C

CHRIS DAVIES
DIRECTOR

 \( x^{2}+y^{2}=r^{2} \) 

GARETH DAVIES
DIRECTOR

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Consolidated Balance Sheet.



## CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010

<table><tr><td></td><td>Note</td><td>2010£m</td><td>2009£m</td></tr><tr><td>Net cash flow from operating activities</td><td></td><td></td><td></td></tr><tr><td>Cash generated from operating activities</td><td>25</td><td>98.8</td><td>174.1</td></tr><tr><td>Borrowing costs paid</td><td></td><td>(15.6)</td><td>(27.4)</td></tr><tr><td>Interest received</td><td></td><td>2.1</td><td>6.0</td></tr><tr><td>Income tax paid</td><td></td><td>(13.4)</td><td>(16.5)</td></tr><tr><td>Net cash generated from operating activities</td><td></td><td>71.9</td><td>136.2</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td></tr><tr><td>Purchase of property, plant and equipment</td><td></td><td>(16.8)</td><td>(19.6)</td></tr><tr><td>Proceeds from sale of property, plant and equipment</td><td></td><td>4.8</td><td>10.1</td></tr><tr><td>Settlement of amounts payable for purchase of businesses</td><td></td><td>(0.9)</td><td>(3.9)</td></tr><tr><td>Investment in associate</td><td></td><td>(1.6)</td><td>-</td></tr><tr><td>Net cash used in investing activities</td><td></td><td>(14.5)</td><td>(13.4)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td></tr><tr><td>Proceeds from issue of ordinary share capital</td><td></td><td>-</td><td>325.0</td></tr><tr><td>Capital element of finance lease rental payments</td><td></td><td>(1.9)</td><td>(2.3)</td></tr><tr><td>Repayment of loans/settlement of derivative financial instruments</td><td></td><td>(143.4)</td><td>(278.6)</td></tr><tr><td>Dividend payments to non-controlling interests</td><td></td><td>(0.4)</td><td>(0.2)</td></tr><tr><td>Net cash (used)/generated in financing activities</td><td></td><td>(145.7)</td><td>43.9</td></tr><tr><td>(Decrease)/increase in cash and cash equivalents in the year</td><td>26</td><td>(88.3)</td><td>166.7</td></tr><tr><td>Cash and cash equivalents at beginning of year</td><td>27</td><td>216.9</td><td>52.9</td></tr><tr><td>Effect of foreign exchange rate changes</td><td></td><td>(1.6)</td><td>(2.7)</td></tr><tr><td>Cash and cash equivalents at end of year</td><td>27</td><td>127.0</td><td>216.9</td></tr></table>

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Consolidated Cash Flow Statement.



## CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2010

<table><tr><td></td><td>Called up share capital £m</td><td>Share premium account £m</td><td>Capital redemption reserve £m</td><td>Special reserve £m</td><td>Share option reserve £m</td><td>Hedging and translation reserve £m</td><td>Retained profits £m</td><td>Total £m</td><td>Non-controlling interests £m</td><td>Total equity £m</td></tr><tr><td>At 31 December 2008</td><td>13.6</td><td>167.5</td><td>0.3</td><td>22.1</td><td>2.6</td><td>89.4</td><td>321.5</td><td>617.0</td><td>1.9</td><td>618.9</td></tr><tr><td>Loss after tax</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(45.6)</td><td>(45.6)</td><td>0.5</td><td>(45.1)</td></tr><tr><td>Other comprehensive income/(expense):</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Exchange difference on retranslation of foreign currency goodwill and intangibles</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(33.1)</td><td>-</td><td>(33.1)</td><td>-</td><td>(33.1</td></tr><tr><td>Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(21.2)</td><td>-</td><td>(21.2)</td><td>-</td><td>(21.2</td></tr><tr><td>Exchange and fair value movements associated with borrowings and derivative financial instruments</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>16.5</td><td>-</td><td>16.5</td><td>-</td><td>16.5</td></tr><tr><td>Tax charge on exchange difference arising on borrowings and derivative financial instruments</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(5.5)</td><td>-</td><td>(5.5)</td><td>-</td><td>(5.5</td></tr><tr><td>Gains and losses on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(20.1)</td><td>(20.1)</td><td>-</td><td>(20.1</td><td>(20.1</td></tr><tr><td>Transfer to profit and loss on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>1.3</td><td>1.3</td><td>-</td><td>1.3</td><td>1.3</td></tr><tr><td>Actuarial loss on defined benefit pension schemes</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(4.7)</td><td>(4.7)</td><td>-</td><td>(4.7</td><td>(4.7</td></tr><tr><td>Deferred tax movement associated with actuarial loss</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>1.3</td><td>1.3</td><td>-</td><td>1.3</td><td>1.3</td></tr><tr><td>Total comprehensive (expense)/income</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(43.3)</td><td>(67.8)</td><td>(111.1)</td><td>0.5</td><td>(110.6</td></tr><tr><td>New share capital issued</td><td>45.5</td><td>279.5</td><td>-</td><td>-</td><td>-</td><td>-</td><td>325.0</td><td>-</td><td>325.0</td><td>-</td></tr><tr><td>Transfer between reserves</td><td>-</td><td>-</td><td>(22.1)</td><td>-</td><td>-</td><td>22.1</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Debit to share option reserve</td><td>-</td><td>-</td><td>-</td><td>(1.3)</td><td>-</td><td>-</td><td>(1.3)</td><td>-</td><td>(1.3</td><td>(1.3</td></tr><tr><td>Exercise of share options</td><td>-</td><td>-</td><td>-</td><td>(0.4)</td><td>-</td><td>0.4</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Dividend payment to non-controlling interest</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(0.2)</td><td>(0.2</td><td>(0.2</td></tr><tr><td>At 31 December 2009</td><td>59.1</td><td>447.0</td><td>0.3</td><td>-</td><td>0.9</td><td>46.1</td><td>276.2</td><td>829.6</td><td>2.2</td><td>831.8</td></tr><tr><td>Loss after tax</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(77.1)</td><td>(77.1)</td><td>0.3</td><td>(76.8</td><td>(76.8</td></tr><tr><td>Other comprehensive income/(expense):</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Exchange difference on retranslation of foreign currency goodwill and intangibles</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(8.8)</td><td>-</td><td>(8.8)</td><td>-</td><td>(8.8</td></tr><tr><td>Exchange difference on retranslation of foreign currency net investments (excluding goodwill and intangibles)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(6.8)</td><td>-</td><td>(6.8)</td><td>-</td><td>(6.8</td></tr><tr><td>Exchange and fair value movements associated with borrowings and derivative financial instruments</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>3.2</td><td>-</td><td>3.2</td><td>-</td><td>3.2</td></tr><tr><td>Tax charge on exchange difference arising on borrowings and derivative financial instruments</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(0.9)</td><td>-</td><td>(0.9)</td><td>-</td><td>(0.9</td></tr><tr><td>Gains and losses on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>6.8</td><td>6.8</td><td>-</td><td>6.8</td><td>-</td></tr><tr><td>Transfer to profit and loss on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>12.6</td><td>12.6</td><td>-</td><td>12.6</td><td>-</td></tr><tr><td>Actuarial loss on defined benefit pension schemes</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(1.8)</td><td>(1.8)</td><td>-</td><td>(1.8</td><td>(1.8</td></tr><tr><td>Deferred tax movement associated with actuarial loss</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>0.5</td><td>0.5</td><td>-</td><td>0.5</td><td>-</td></tr><tr><td>Effect of change in rate on deferred tax</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(0.2)</td><td>(0.2)</td><td>-</td><td>(0.2</td><td>(0.2</td></tr><tr><td>Total comprehensive (expense)/income</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(13.3)</td><td>(59.2)</td><td>(72.5)</td><td>0.3</td><td>(72.2</td></tr><tr><td>Credit to share option reserve</td><td>-</td><td>-</td><td>-</td><td>-</td><td>0.1</td><td>-</td><td>-</td><td>0.1</td><td>-</td><td>0.1</td></tr><tr><td>Current and deferred tax on share options</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>0.2</td><td>0.2</td><td>-</td><td>0.2</td><td>-</td></tr><tr><td>Recognition of put options regarding non-controlling interests</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(7.4)</td><td>(7.4)</td><td>-</td><td>(7.4</td><td>(7.4</td></tr><tr><td>Purchase of non-controlling interest shareholding</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(0.5)</td><td>(0.5)</td><td>(0.2)</td><td>(0.2</td><td>(0.7</td></tr><tr><td>Dividend payments to non-controlling interests</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(0.4)</td><td>(0.4</td><td>(0.4</td></tr><tr><td>At 31 December 2010</td><td>59.1</td><td>447.0</td><td>0.3</td><td>-</td><td>1.0</td><td>32.8</td><td>209.3</td><td>749.5</td><td>1.9</td><td>751.4</td></tr></table>

The special reserve arose as a result of a number of transfers from the Group's share premium reserve up until 1996. Goodwill arising on a number of historical acquisitions was then written off against this special reserve under the accounting convention at that time. The balance on the special reserve was transferred into retained profits in 2009.

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

The hedging and translation reserve represents movements in the Consolidated Balance Sheet as a result of movements in exchange rates which are taken directly to reserves as detailed in the Statement of Significant Accounting Policies on pages 74 to 78.

A liability of £7.4m has been recognised in the year for the put element of options that exist to purchase the remaining non-controlling interests of the Group.

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Consolidated Statement of Changes in Equity.



# STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in this Annual Report and Accounts for the year ended 31 December 2010 are set out below.

## BASIS OF PREPARATION

The Accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The Accounts have been prepared under the historical cost convention except for derivative financial instruments that are stated at their fair value.

The Accounts have been prepared on the basis of a going concern as set out on page 31.

The Group has applied IFRS 3 “Business Combinations” – revision effective for accounting periods beginning on or after 1 July 2009, in the year. IFRS 3 will impact upon the treatment of any acquisition-related costs (for instance finder’s fees, advisory, legal, accounting, valuation and other professional or consulting fees incurred on the acquisition of new businesses), with such costs being expensed in the period. IFRS 3 also impacts upon the treatment of contingent consideration associated with acquisitions. There has been no impact of the application of this standard in the current year. The impact on the Group’s Accounts in future periods will depend upon the number and significance of any acquisitions arising.

In addition to the standard detailed above, the following standards have been adopted in the current period, which have had no material impact on the Accounts:

IAS 24 (revised) “Related Party Disclosures”;

IAS 27 “Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate” – (revised), effective for accounting periods beginning on or after 1 July 2009; and

IAS 39 “Financial Instruments: Recognition and Measurement – Eligible Hedged Items” – revision applies retrospectively for accounting periods beginning on or after 1 July 2009.

At the date of authorisation of these Accounts, there are a number of new standards and interpretations issued but not yet effective (some of which are pending endorsement by the European Union), which the Group has not applied in these Accounts. These principally include:

IFRS 7 (amendment) “Financial instruments: Disclosures on derecognition” – effective for accounting periods beginning on or after 1 July 2011;

IAS 12 (amendment) “Deferred tax: Recovery of underlying assets” – effective for accounting periods beginning on or after 1 January 2012;

IAS 32 (amendment) “Financial instruments: Presentation on classification of rights issues” – effective for accounting periods beginning on or after 1 February 2010;

IFRIC 14 “Prepayments of a minimum funding requirement” – effective for accounting periods beginning on or after 1 January 2011;

IFRIC 19 “Extinguishing financial liabilities with equity instruments” – effective for accounting periods beginning on or after 1 July 2010;

IFRS 1 (amendment) “Severe hyperinflation and removal of fixed dates for first time adopters” – effective for accounting periods beginning on or after 1 July 2011;

IFRS 9 “Financial Instruments” – revision effective for accounting periods beginning on or after 1 July 2013; and

Improvements to IFRS 2010 – effective for accounting periods beginning on or after 1 January 2011, with certain aspects on or after 1 July 2010.

The adoption of these standards in future periods is not expected to have a material impact on the financial results of the Group.

## BASIS OF CONSOLIDATION

The Consolidated Accounts incorporate the Accounts of the Company and each of its subsidiary undertakings after eliminating all significant inter-company transactions and balances. The results of subsidiary undertakings acquired or sold are consolidated for the periods from or to the date on which control passed.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of their interest in the subsidiary's equity are allocated against the interest of SIG except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover the losses.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

## CONSOLIDATED INCOME STATEMENT DISCLOSURE

In order to give an indication of the underlying earnings of the Group, certain items are presented in the middle column of the Consolidated Income Statement entitled "Other items" together with the tax effect. These include:

● amortisation of acquired intangibles;

● impairment charges;

● one-off restructuring costs; and

● gains and losses on derivative financial instruments.



## GOODWILL AND BUSINESS COMBINATIONS

All business combinations are accounted for by applying the purchase method.

Goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group's interest in the fair value of identifiable assets (including intangible assets) and liabilities of the business acquired.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment, or more frequently when there is an indication that goodwill may be impaired. For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units ("CGU") expected to benefit from the synergies of the combination. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of remaining goodwill relating to the entity disposed of is included in the determination of any profit or loss on disposal.

Goodwill recorded in foreign currency is retranslated at each period end. Any movements in the carrying value of goodwill as a result of foreign exchange rate movements are recognised in the Consolidated Statement of Comprehensive Income.

Any excess of the fair value of net assets over consideration arising on an acquisition is recognised immediately in the Consolidated Income Statement.

## INTANGIBLE ASSETS

The Group recognises intangible assets at cost less accumulated amortisation and impairment losses. The Group recognises two types of intangible asset: acquired and purchased. Acquired intangible assets arise as a result of applying IFRS 3 which requires the separate recognition of intangible assets from goodwill on all business combinations. Purchased intangible assets relate primarily to software that is separable from any associated hardware.

Intangible assets are amortised on a straight line basis over their useful economic lives as follows:

Amortisation period

<table><tr><td>Customer relationships</td><td>Life of the relationship</td></tr><tr><td>Brands</td><td>Indefinite</td></tr><tr><td>Non-compete contracts</td><td>Life of the contract</td></tr><tr><td>Specific customer contracts</td><td>Life of the contract</td></tr><tr><td>Order books</td><td>Life of the order book</td></tr><tr><td>Software</td><td>Useful life of the software</td></tr></table>

The Group is currently amortising customer relationships and non-compete contracts on average over 7.4 years and 3.0 years respectively.

An indefinite useful life has been determined for brands on the basis that the brand is expected to be maintained indefinitely and is expected to continue to drive value for the Group. Brands are reviewed for impairment on at least an annual basis.

Following impairment reviews in the year, the brands previously recognised as intangible assets have been written down to £nil.

## INTEREST IN ASSOCIATE

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

Investments in associate businesses are recognised initially at cost less impairment charges. The Group then applies the equity method to investments in associates, whereby the interest is carried in the Consolidated Balance Sheet at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses in excess of the Group's interest in the associate are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

## REVENUE RECOGNITION

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue represents amounts receivable for goods net of allowances and value added tax. Revenue from the sale of goods is recognised when the goods have been received by the customer.

## BORROWING COSTS

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such a time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the Consolidated Income Statement in the period in which they are incurred.



# STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
CONTINUED

## PENSION COSTS

SIG operates five defined benefit pension schemes. The Group’s net obligation in respect of these defined benefit pension schemes is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in both current and prior periods. That benefit is discounted using an appropriate discount rate to determine its present value and the fair value of any plan assets is deducted.

Where the benefits of the plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the Consolidated Income Statement, on a straight line basis, over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately.

The full service cost of the pension schemes is charged to operating profit. The finance cost of liabilities and expected return on assets are included within finance costs and finance income respectively in the Consolidated Income Statement.

The actuarial gain or loss arising is charged through the Consolidated Statement of Comprehensive Income and is made up of the difference between the expected return on assets and those actually achieved, the difference between the actuarial assumptions for liabilities and actual experience in the period and any changes in the assumptions used in the valuations.

The pension scheme deficit is recognised in full and presented on the face of the Consolidated Balance Sheet. The associated deferred tax asset is recognised within non-current assets in the Consolidated Balance Sheet.

For defined contribution schemes the amount charged to the Consolidated Income Statement in respect of pension costs and other post-retirement benefits is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are included within either accruals or prepayments in the Consolidated Balance Sheet.

## SHARE-BASED PAYMENT TRANSACTIONS

The Group issues both equity-settled and cash-settled share-based payments (share options). Share options are measured at fair value at the date of grant based on the Group's estimate of shares that will eventually vest. The fair value determined is then expensed in the Consolidated Income Statement on a straight line basis over the vesting period, with a corresponding increase in equity (equity-settled share options) or in liabilities (cash-settled share options). The fair value of the options is measured by use of the Black-Scholes option pricing model.

The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Save As You Earn share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

## CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.

Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the Consolidated Cash Flow Statement.

## FINANCIAL ASSETS

Financial assets are measured initially at fair value and then subsequently at amortised cost using the effective interest rate method.

Financial assets (including trade receivables) are assessed for indicators of impairment on an ongoing basis. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows have been impacted. When there is objective evidence of impairment appropriate allowances are made for estimated irrecoverable amounts based upon expected future cash flows discounted by an appropriate interest rate where applicable. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Other financial assets are classified as either financial assets at fair value through profit or loss or loans and receivables. The classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition.

When determining the fair value of financial assets, the expected future cash flows are discounted using an appropriate interest rate.



## FINANCIAL LIABILITIES

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

Financial liabilities at fair value through profit or loss are initially measured and subsequently stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Other financial liabilities (including trade payables) are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method.

When determining the fair value of financial liabilities, the expected future cash flows are discounted using an appropriate interest rate.

## FOREIGN CURRENCY

Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates at the date of the transaction.

At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are reported at the rates of exchange prevailing at that date.

Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Consolidated Income Statement.

For the purpose of consolidation, income statements of overseas subsidiary undertakings are translated at the average rate and their balance sheets at the rates ruling at the balance sheet date.

Exchange differences arising on translation of the opening net assets, results of overseas operations and on foreign currency borrowings, to the extent that they hedge the Group's investment in such operations, are reported in the Consolidated Statement of Comprehensive Income.

## DERIVATIVE FINANCIAL INSTRUMENTS

The Group uses derivative financial instruments including interest rate swaps, forward foreign exchange contracts and cross-currency swaps to hedge its exposure to foreign currency exchange and interest rate risks arising from operational and financial activities. In accordance with its Treasury Policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivative financial instruments, or part thereof, that do not qualify for hedge accounting are accounted for as trading instruments. The fair values of derivatives are classified as a non-current asset or a non-current liability if the remaining maturity of the derivatives is more than twelve months and it is not expected to be realised or settled within twelve months. Other derivatives are presented as current assets or current liabilities.

Derivative financial instruments are recognised immediately at cost. Subsequent to their initial recognition, derivative financial instruments are then stated at their fair value. The fair value of derivative financial instruments is derived from "mark-to-market" valuations obtained from the Group's relationship banks.

Unless hedge accounting is achieved, the gain or loss on remeasurement to fair value is recognised immediately and is included as part of finance income or finance costs together with other losses on derivative financial instruments within the column of the Consolidated Income Statement entitled "Other items".

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting, or when the Group revokes the hedging relationship. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Consolidated Income Statement in the period.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

At the inception of the hedge relationship the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

## CASH FLOW HEDGES

When a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the Consolidated Statement of Comprehensive Income (i.e. equity). When the forecasted transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecasted transaction subsequently results in the recognition of a financial asset or financial liability, then the associated gains or losses that were previously recognised in the Consolidated Statement of Comprehensive Income (equity) are reclassified into the Consolidated Income Statement in the same period or periods during which the asset acquired or liability assumed affects the Consolidated Income Statement.

For cash flow hedges, the ineffective portion of any gain or loss is recognised immediately as gains or losses on derivative financial instruments and is included as part of finance income or finance costs within the column of the Consolidated Income Statement entitled "Other items".

## HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS

The portion of any gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in the Consolidated Statement of Comprehensive Income (i.e. equity). The ineffective portion of any gain or loss is recognised immediately as gains or losses on derivative financial instruments and is included as part of finance income or finance costs within the column of the Consolidated Income Statement entitled "Other items". Gains and losses deferred in the hedging and translation reserve are recognised immediately in profit or loss when the foreign operation is disposed of.

## FAIR VALUE HEDGES

For an effective hedge of an exposure to changes in the fair value, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry in the Consolidated Income Statement. Gains or losses from remeasuring the derivative financial instruments are recognised immediately in the Consolidated Income Statement.



# STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
CONTINUED

## TAXATION

Income tax on the profit or loss for the periods presented comprises both current and deferred tax. Income tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in the Consolidated Statement of Comprehensive Income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates that have been enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

In accordance with IAS 12, the following temporary differences are not provided for:

• goodwill not deductible for taxation purposes;

● the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and

● differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

## PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is shown at original cost to the Group less accumulated depreciation and any provision for impairment.

Depreciation is provided at rates calculated to write off the cost less estimated residual value of property, plant and equipment on a straight line basis over their estimated useful lives as follows:

Freehold buildings – 50 years

Leasehold buildings – period of lease

Plant and machinery (including motor vehicles) – 3 to 8 years

Freehold land is not depreciated.

Residual values, which are based on market rates, are reassessed annually.

## INVENTORIES

Inventories are stated at the lower of cost (including an appropriate proportion of attributable overheads, supplier rebates and discounts) and net realisable value. The cost formula used in measuring inventories is either on a Weighted Average Cost, or a First In First Out basis, depending on the most appropriate method for each particular business.

Net realisable value is based on estimated normal selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

## LEASES AND HIRE PURCHASE AGREEMENTS

The cost of assets held under finance leases and hire purchase agreements is capitalised with an equivalent liability categorised as appropriate under current liabilities or non-current liabilities. The asset is depreciated over its useful life.

Rentals under finance leases and hire purchase agreements are apportioned between finance costs and reduction of the lease obligation. The finance costs are charged in arriving at profit before tax. Lease charges are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Rentals under operating leases are charged to the Consolidated Income Statement on a straight line basis over the lease term.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight line basis over the lease term.

## PROPERTY PROVISIONS

The Group makes provisions in respect of onerous leasehold property contracts and leasehold dilapidation commitments where it is probable that a transfer of economic benefit will be required to settle a present obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation.

## TREATMENT OF EARLY SETTLEMENT DISCOUNTS

On transition to IFRS it was considered materially appropriate to continue to classify early settlement discounts granted and received within Other operating expenses. Having reflected on current practice, and in conjunction with a regular review of the Group's accounting policies and their application across our subsidiary businesses, the Directors consider that it would be more appropriate to disclose early settlement discounts granted as a reduction in Revenue, and early settlement discounts received as a reduction in Cost of sales in 2010 and going forward. The relevant comparative amounts presented have been restated in line with this change.

This change in treatment has resulted in Revenue being reduced by £20m (2009: £20m), Cost of sales being reduced by £40m (2009: £40m) and Other operating expenses increasing by £20m (2009: £20m). This change has had no effect on operating profit, cash flows or net assets.



# CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY

## IMPAIRMENT OF NON-CURRENT ASSETS

The Group tests goodwill, intangible assets and property, plant and equipment annually for impairment, or more frequently if there are indications that an impairment may exist.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for these value in use calculations are those regarding discount rates, sales growth rates and expected changes to selling prices and direct costs. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the individual CGU.

For the majority of CGUs, the Group performs goodwill impairment reviews by forecasting cash flows based upon the following year's budget and a projection of cash flows based upon industry growth expectations (0%-3%) over a period of five years. Where detailed five year forecasts for a CGU have been prepared and approved by the Board, which can include higher growth rates or varied results reflecting specific economic factors, these are used in preparing cash flow forecasts for impairment review purposes. After this period, the growth rates applied to the cash flow forecasts are no more than 1% and do not exceed the long term average growth rate for the industry or economy. The discount rates applied to all impairment reviews represent pre tax rates and range between 11% and 13%.

Assumptions regarding sales growth are considered to be the key area of judgement in the impairment review process, and appropriate sensitivities have been performed and disclosed in Note 12.

The carrying amount of non-current assets at 31 December 2010 was £805.2m (2009: £898.5m). As a result of impairment reviews performed on all CGUs in the year, a number of CGUs have been impaired to reflect their recoverable amounts. Details of the impairments are disclosed within Note 12 on pages 91 to 92.

## POST-EMPLOYMENT BENEFITS

The Group operates five defined benefit pension schemes. All post-employment benefits associated with these schemes have been accounted for in accordance with IAS 19 "Employee Benefits". As detailed within the Statement of Significant Accounting Policies on page 76, in accordance with IAS 19, all actuarial gains and losses have been recognised immediately through the Consolidated Statement of Comprehensive Income.

For all defined benefit pension schemes, pension valuations have been performed using specialist advice obtained from independent qualified actuaries. In performing these valuations, judgements, assumptions and estimates have been made. These assumptions have been disclosed within Note 28c on pages 107 to 109.

## TAXATION

Accruals for corporation tax contingencies require the Directors to make judgements and estimates as to the level of corporation tax that will be payable based upon the interpretation of applicable tax legislation on a country-by-country basis and an assessment of the likely outcome of any open tax computations. All such accruals are included within current liabilities.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Therefore, judgements are required to establish whether deferred tax balances should be recognised.

## SHARE-BASED PAYMENTS

The Company provides share-based payments under five separate schemes. In accordance with IFRS 2, share options are measured at fair value at the date of grant. The fair value determined is then expensed in the Consolidated Income Statement on a straight line basis over the vesting period, with a corresponding increase in equity. The fair value of the options is measured by use of the Black-Scholes option pricing model.

The valuation of these share-based payments requires several judgements to be made in respect of the number of options that are expected to be exercised. Details of the assumptions made in respect of each of the five share-based payment schemes are disclosed in Note 9 on pages 86 to 89.

## PROVISIONS

Using information available at the balance sheet date, the Directors make judgements based on experience of the level of provision required to satisfy all onerous lease and dilapidation commitments, to account for potential uncollectible receivables and unisable inventory.

## REBATES PAYABLE AND RECEIVABLE

The Group has a number of customer and supplier rebate agreements, with the payable and receivable often being subject to negotiation after the balance sheet date. At the balance sheet date, the Directors make judgements on the amount of rebate that will become both payable and due to the Group under these agreements.



## NOTES TO THE ACCOUNTS

## I REVENUE AND SEGMENTAL INFORMATION

## REVENUE

An analysis of the Group's revenue is as follows:

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Sale of goods</td><td>2,668.0</td><td>2,723.1</td></tr><tr><td>Total revenue</td><td>2,668.0</td><td>2,723.1</td></tr><tr><td>Finance income</td><td>7.8</td><td>11.7</td></tr><tr><td>Total income</td><td>2,675.8</td><td>2,734.8</td></tr></table>

## SEGMENTAL INFORMATION

## A) SEGMENTAL RESULTS

Following the adoption of IFRS 8 "Operating Segments", the Group has identified its reportable segments as those upon which the Group Board regularly bases its opinion and assesses performance. The Group has deemed it appropriate to aggregate its operating segments into two reported segments: UK and Ireland and Mainland Europe. The constituent operating segments have been aggregated as they have similar products and services; production processes; types of customer; methods of distribution; regulatory environments; and economic characteristics.

<table><tr><td></td><td>2010 UK and Ireland £m</td><td>2010 Mainland Europe £m</td><td>2010 Eliminations £m</td><td>2010 Total £m</td><td>2009 UK and Ireland £m</td><td>2009 Mainland Europe £m</td><td>2009 Eliminations £m</td><td>2009 Total £m</td></tr><tr><td>Revenue</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>External sales</td><td>1,281.2</td><td>1,386.8</td><td>-</td><td>2,668.0</td><td>1,320.1</td><td>1,403.0</td><td>-</td><td>2,723.1</td></tr><tr><td>Inter-segment sales*</td><td>0.1</td><td>4.3</td><td>(4.4)</td><td>-</td><td>0.5</td><td>3.9</td><td>(4.4)</td><td>-</td></tr><tr><td>Total revenue</td><td>1,281.3</td><td>1,391.1</td><td>(4.4)</td><td>2,668.0</td><td>1,320.6</td><td>1,406.9</td><td>(4.4)</td><td>2,723.1</td></tr><tr><td>Result</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Segment result before amortisation of acquired intangibles, impairment charges and restructuring costs</td><td>40.0</td><td>42.5</td><td>-</td><td>82.5</td><td>37.7</td><td>50.2</td><td>-</td><td>87.9</td></tr><tr><td>Amortisation of acquired intangibles and impairment charges</td><td>(87.4)</td><td>(21.5)</td><td>-</td><td>(108.9)</td><td>(49.5)</td><td>(9.1)</td><td>-</td><td>(58.6)</td></tr><tr><td>Restructuring costs</td><td>(20.5)</td><td>(1.3)</td><td>-</td><td>(21.8)</td><td>(49.8)</td><td>(5.0)</td><td>-</td><td>(54.8)</td></tr><tr><td>Segment operating (loss)/profit</td><td>(67.9)</td><td>19.7</td><td>-</td><td>(48.2)</td><td>(61.6)</td><td>36.1</td><td>-</td><td>(25.5)</td></tr><tr><td>Parent Company costs</td><td></td><td></td><td></td><td>(6.4)</td><td></td><td></td><td></td><td>(7.0)</td></tr><tr><td>Operating loss</td><td></td><td></td><td></td><td>(54.6)</td><td></td><td></td><td></td><td>(32.5)</td></tr><tr><td>Net finance costs</td><td></td><td></td><td></td><td>(13.6)</td><td></td><td></td><td></td><td>(20.3)</td></tr><tr><td>Net losses on derivative financial instruments</td><td></td><td></td><td></td><td>(12.6)</td><td></td><td></td><td></td><td>(2.5)</td></tr><tr><td>Loss before tax</td><td></td><td></td><td></td><td>(80.8)</td><td></td><td></td><td></td><td>(55.3)</td></tr><tr><td>Income tax credit</td><td></td><td></td><td></td><td>4.0</td><td></td><td></td><td></td><td>10.2</td></tr><tr><td>Non-controlling interests</td><td></td><td></td><td></td><td>(0.3)</td><td></td><td></td><td></td><td>(0.5)</td></tr><tr><td>Retained loss</td><td></td><td></td><td></td><td>(77.1)</td><td></td><td></td><td></td><td>(45.6)</td></tr><tr><td>Balance sheet</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Segment assets</td><td>677.2</td><td>785.7</td><td>-</td><td>1,462.9</td><td>800.4</td><td>826.0</td><td>-</td><td>1,626.4</td></tr><tr><td>Unallocated assets:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivative financial instruments</td><td></td><td></td><td></td><td>52.0</td><td></td><td></td><td></td><td>38.6</td></tr><tr><td>Cash and cash equivalents</td><td></td><td></td><td></td><td>47.2</td><td></td><td></td><td></td><td>132.7</td></tr><tr><td>Other items</td><td></td><td></td><td></td><td>2.2</td><td></td><td></td><td></td><td>0.3</td></tr><tr><td>Consolidated total assets</td><td></td><td></td><td></td><td>1,564.3</td><td></td><td></td><td></td><td>1,798.0</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Segment liabilities</td><td>262.5</td><td>182.7</td><td>-</td><td>445.2</td><td>260.4</td><td>188.0</td><td>-</td><td>448.4</td></tr><tr><td>Unallocated liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Bank loans and overdrafts</td><td></td><td></td><td></td><td>24.7</td><td></td><td></td><td></td><td>191.8</td></tr><tr><td>Private placement notes</td><td></td><td></td><td></td><td>312.7</td><td></td><td></td><td></td><td>299.2</td></tr><tr><td>Derivative financial instruments</td><td></td><td></td><td></td><td>12.6</td><td></td><td></td><td></td><td>15.6</td></tr><tr><td>Other items</td><td></td><td></td><td></td><td>17.7</td><td></td><td></td><td></td><td>11.2</td></tr><tr><td>Consolidated total liabilities</td><td></td><td></td><td></td><td>812.9</td><td></td><td></td><td></td><td>966.2</td></tr></table>

* Inter-segment sales are charged at the prevailing market rates.



## I REVENUE AND SEGMENTAL INFORMATION CONTINUED

## SEGMENTAL INFORMATION CONTINUED

A) SEGMENTAL RESULTS CONTINUED

<table><tr><td></td><td>2010 UK and Ireland £m</td><td>2010 Mainland Europe £m</td><td>2010 Total £m</td><td>2009 UK and Ireland £m</td><td>2009 Mainland Europe £m</td><td>2009 Total £m</td></tr><tr><td>Other segment information</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Capital expenditure on:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property, plant and equipment</td><td>9.6</td><td>7.2</td><td>16.8</td><td>10.7</td><td>8.9</td><td>19.6</td></tr><tr><td>Investment in associate</td><td>1.6</td><td>-</td><td>1.6</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Goodwill</td><td>(0.5)</td><td>-</td><td>(0.5)</td><td>(3.0)</td><td>1.7</td><td>(1.3)</td></tr><tr><td>Non-cash expenditure:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Depreciation</td><td>21.2</td><td>14.8</td><td>36.0</td><td>25.7</td><td>14.5</td><td>40.2</td></tr><tr><td>Impairment of property, plant and equipment</td><td>3.8</td><td>-</td><td>3.8</td><td>6.8</td><td>-</td><td>6.8</td></tr><tr><td>Amortisation of acquired intangibles</td><td>19.0</td><td>9.5</td><td>28.5</td><td>19.5</td><td>9.1</td><td>28.6</td></tr><tr><td>Impairment of goodwill and intangibles</td><td>68.4</td><td>12.0</td><td>80.4</td><td>30.0</td><td>-</td><td>30.0</td></tr></table>

## B) REVENUE BY PRODUCT GROUP

The Group focuses its activities into four product sectors: Insulation and Building Environments; Interiors; Exteriors; and Specialist Construction Products ("SCP").

The following table provides an analysis of Group sales by type of product:

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Insulation and Building Environments</td><td>1,020.6</td><td>1,078.3</td></tr><tr><td>Interiors</td><td>661.3</td><td>680.8</td></tr><tr><td>Exteriors</td><td>788.7</td><td>743.4</td></tr><tr><td>SCP</td><td>197.4</td><td>220.6</td></tr><tr><td>Total</td><td>2,668.0</td><td>2,723.1</td></tr></table>

## C) GEOGRAPHIC INFORMATION

The Group’s revenue from external customers and its non-current assets (i.e. property, plant and equipment, goodwill and intangible assets) by geographical location are as follows:

<table><tr><td rowspan="2">Country</td><td>2010</td><td>2010</td><td>2009</td><td>2009</td></tr><tr><td>Revenue £m</td><td>Non-current assets ^ £m</td><td>Revenue £m</td><td>Non-current assets ^ £m</td></tr><tr><td>United Kingdom</td><td>1,204.6</td><td>328.7</td><td>1,233.7</td><td>424.1</td></tr><tr><td>Ireland</td><td>76.6</td><td>1.1</td><td>86.4</td><td>13.4</td></tr><tr><td>France</td><td>528.4</td><td>252.8</td><td>519.8</td><td>267.1</td></tr><tr><td>Germany and Austria</td><td>565.0</td><td>62.9</td><td>575.0</td><td>70.6</td></tr><tr><td>Poland</td><td>123.1</td><td>19.8</td><td>122.7</td><td>21.3</td></tr><tr><td>Benelux*</td><td>142.4</td><td>44.2</td><td>155.8</td><td>45.9</td></tr><tr><td>Central Europe</td><td>27.9</td><td>15.0</td><td>29.7</td><td>28.6</td></tr><tr><td>Total</td><td>2,668.0</td><td>724.5</td><td>2,723.1</td><td>871.0</td></tr></table>

* Includes international air handling business (headquartered in Benelux).

 \( ^{*} \)  Excluding deferred tax assets and derivative financial instruments.

There is no material difference between the basis of preparation of the information reported above and the Accounting Policies adopted by the Group.



## NOTES TO THE ACCOUNTS CONTINUED

<table><tr><td>2 COST OF SALES AND OTHER OPERATING EXPENSES</td><td>2010£m</td><td>2009£m</td></tr><tr><td>Cost of sales</td><td>1,975.4</td><td>2,010.0</td></tr><tr><td>Other operating expenses:</td><td></td><td></td></tr><tr><td>- distribution costs</td><td>232.8</td><td>225.9</td></tr><tr><td>- selling and marketing costs</td><td>223.6</td><td>240.6</td></tr><tr><td>- administrative expenses</td><td>290.8</td><td>279.1</td></tr><tr><td></td><td>747.2</td><td>745.6</td></tr></table>

The administrative expenses above include £130.7m (2009: £113.4m) of "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. Other operating expenses and net finance costs included within "Other items" are as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Amortisation of acquired intangibles (Note 13)</td><td>(28.5)</td><td>(28.6)</td></tr><tr><td>Impairment charges (Note 12)</td><td>(80.4)</td><td>(30.0)</td></tr><tr><td>Restructuring costs</td><td>(21.8)</td><td>(54.8)</td></tr><tr><td>Other operating expenses</td><td>(130.7)</td><td>(113.4)</td></tr><tr><td>Net losses on derivative financial instruments</td><td>(12.6)</td><td>(2.5)</td></tr><tr><td>Loss before tax</td><td>(143.3)</td><td>(115.9)</td></tr><tr><td>Income tax credit</td><td>23.7</td><td>28.2</td></tr><tr><td>Loss after tax</td><td>(119.6)</td><td>(87.7)</td></tr></table>

Included within restructuring costs are redundancy costs of £4.4m (2009: £16.4m), property closure costs of £10.0m (2009: £23.2m), asset write down costs of £3.8m (2009: £6.8m) and other items of £3.6m (2009: £8.4m).

Included within impairment charges are £51.8m (2009: £30.0m) in respect of goodwill and £28.6m (2009: £nil) in respect of intangible assets.

## 3 FINANCE INCOME AND FINANCE COSTS

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Finance income</td><td></td><td></td></tr><tr><td>Interest on bank deposits</td><td>2.1</td><td>6.0</td></tr><tr><td>Finance income on pension scheme assets</td><td>5.7</td><td>4.3</td></tr><tr><td>Finance income before gains on derivative financial instruments</td><td>7.8</td><td>10.3</td></tr><tr><td>Fair value gains on derivative financial instruments</td><td>-</td><td>1.4</td></tr><tr><td>Total finance income</td><td>7.8</td><td>11.7</td></tr><tr><td>Finance costs</td><td></td><td></td></tr><tr><td>On bank loans, overdrafts and other items</td><td>2.8</td><td>9.9</td></tr><tr><td>On private placement notes</td><td>11.3</td><td>13.8</td></tr><tr><td>Interest on obligations under finance lease contracts</td><td>1.1</td><td>1.3</td></tr><tr><td>Finance charge on pension scheme liabilities</td><td>6.2</td><td>5.6</td></tr><tr><td>Finance costs before losses on derivative financial instruments</td><td>21.4</td><td>30.6</td></tr><tr><td>Fair value losses on derivative financial instruments</td><td>12.6</td><td>3.9</td></tr><tr><td>Total finance costs</td><td>34.0</td><td>34.5</td></tr><tr><td>Net finance costs</td><td>26.2</td><td>22.8</td></tr></table>



<table><tr><td>4 (LOSS)/PROFIT BEFORE TAX</td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>(Loss)/profit before tax is stated after crediting:</td><td></td><td></td></tr><tr><td>Foreign exchange rate gains*</td><td>0.1</td><td>1.4</td></tr><tr><td>Fair value gains on derivative financial instruments</td><td>-</td><td>1.4</td></tr><tr><td>Gains on disposal of property, plant and equipment</td><td>1.2</td><td>1.8</td></tr><tr><td>And after charging:</td><td></td><td></td></tr><tr><td>Cost of inventories recognised as an expense</td><td>1,947.8</td><td>1,928.7</td></tr><tr><td>Depreciation of property, plant and equipment:</td><td></td><td></td></tr><tr><td>- owned</td><td>33.6</td><td>37.1</td></tr><tr><td>- held under finance leases and hire purchase agreements</td><td>2.4</td><td>3.1</td></tr><tr><td>Amortisation of acquired intangibles</td><td>28.5</td><td>28.6</td></tr><tr><td>Operating lease rentals:</td><td></td><td></td></tr><tr><td>- land and buildings</td><td>52.3</td><td>48.3</td></tr><tr><td>- plant and machinery</td><td>7.3</td><td>6.4</td></tr><tr><td>Auditors&#x27; remuneration for audit services</td><td>1.2</td><td>1.1</td></tr><tr><td>Non-audit fees</td><td>0.1</td><td>0.1</td></tr><tr><td>Increase in provision for inventories</td><td>1.5</td><td>2.7</td></tr><tr><td>Increase in provision for receivables</td><td>10.8</td><td>9.2</td></tr><tr><td>Foreign exchange rate losses*</td><td>0.1</td><td>0.1</td></tr><tr><td>Fair value losses on derivative financial instruments</td><td>12.6</td><td>3.9</td></tr><tr><td>Impairment charges</td><td>80.4</td><td>30.0</td></tr><tr><td>Restructuring costs</td><td>21.8</td><td>54.8</td></tr><tr><td>Staff costs (Note 5)</td><td>359.9</td><td>376.4</td></tr></table>

* Excludes gains and losses incurred as a result of applying IAS 39 "Financial Instruments: Recognition and Measurement".

A more detailed analysis of Auditors' remuneration is provided below:

<table><tr><td></td><td>2010
Deloitte LLP
£m</td><td>2009
Deloitte LLP
£m</td></tr><tr><td>Audit services</td><td></td><td></td></tr><tr><td>Fees payable to the Company&#x27;s Auditors for the audit of the Company&#x27;s consolidated accounts</td><td>0.1</td><td>0.1</td></tr><tr><td>Fees payable to the Company&#x27;s Auditors and their associates for other services to the Group:</td><td></td><td></td></tr><tr><td>- for the audit of the Company&#x27;s subsidiaries pursuant to legislation</td><td>1.1</td><td>1.0</td></tr><tr><td>Total</td><td>1.2</td><td>1.1</td></tr><tr><td>Other services</td><td>0.1</td><td>0.1</td></tr><tr><td>Total other services</td><td>0.1</td><td>0.1</td></tr><tr><td>Total fees charged to profit before tax</td><td>1.3</td><td>1.2</td></tr><tr><td>Fees treated as a deduction to share premium</td><td>-</td><td>0.8</td></tr><tr><td>Total fees incurred</td><td>1.3</td><td>2.0</td></tr></table>

The report of the Audit Committee on pages 66 and 67 provides an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the Auditors.

## 5 STAFF COSTS

Particulars of employees (including Directors) are shown below:

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Employee costs during the year amounted to:</td><td></td><td></td></tr><tr><td>Wages and salaries</td><td>302.1</td><td>318.7</td></tr><tr><td>Social security costs</td><td>50.2</td><td>51.0</td></tr><tr><td>IFRS 2 share option charge/(credit)</td><td>0.4</td><td>(0.5)</td></tr><tr><td>Other pension costs (Note 28c)</td><td>7.2</td><td>7.2</td></tr><tr><td></td><td>359.9</td><td>376.4</td></tr></table>

Of the pension costs noted above, £2.4m (2009: £2.9m) relates to defined benefit schemes and £4.8m (2009: £4.3m) relates to defined contribution schemes.



## NOTES TO THE ACCOUNTS CONTINUED

## 5 STAFF COSTS CONTINUED

The average monthly number of persons employed by the Group during the year was as follows:

<table><tr><td></td><td>2010 Number</td><td>2009 Number</td></tr><tr><td>Production</td><td>1,684</td><td>2,105</td></tr><tr><td>Distribution</td><td>3,962</td><td>4,048</td></tr><tr><td>Sales</td><td>4,175</td><td>4,458</td></tr><tr><td>Administration</td><td>1,687</td><td>1,737</td></tr><tr><td></td><td>11,508</td><td>12,348</td></tr></table>

## DIRECTORS' EMOLUMENTS

Details of the individual Director's emoluments are given in the Directors' Remuneration Report on page 64.

The employee costs include the following emoluments in respect of Directors of the Company:

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Directors&#x27; remuneration (excluding IFRS 2 share option charge/credit)</td><td>2.2</td><td>1.9</td></tr></table>

## 6 INCOME TAX

The income tax credit comprises:

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Current tax</td><td></td><td></td></tr><tr><td>UK corporation tax:</td><td></td><td></td></tr><tr><td>- on (losses)/profits for the year</td><td>(2.1)</td><td>(4.7)</td></tr><tr><td>- adjustments in respect of previous years</td><td>(0.2)</td><td>(0.4)</td></tr><tr><td></td><td>(2.3)</td><td>(5.1)</td></tr><tr><td>Overseas taxation:</td><td></td><td></td></tr><tr><td>- on (losses)/profits for the year</td><td>11.6</td><td>13.0</td></tr><tr><td>- adjustments in respect of previous years</td><td>(0.1)</td><td>(0.3)</td></tr><tr><td>Total current tax</td><td>9.2</td><td>7.6</td></tr><tr><td>Deferred taxation</td><td></td><td></td></tr><tr><td>Current year</td><td>(13.2)</td><td>(10.7)</td></tr><tr><td>Adjustments in respect of previous years</td><td>-</td><td>(7.0)</td></tr><tr><td>Deferred tax charge/(credit) in respect of pension schemes</td><td>0.2</td><td>(0.1)</td></tr><tr><td>Change in rate</td><td>(0.2)</td><td>-</td></tr><tr><td>Total deferred tax</td><td>(13.2)</td><td>(17.8)</td></tr><tr><td>Total income tax credit</td><td>(4.0)</td><td>(10.2)</td></tr></table>

The total tax credit for the year differs from that resulting from applying the standard rate of corporate tax in the UK of 28.0% (2009: 28.0%). The differences are explained in the following reconciliation:

<table><tr><td></td><td>2010 £m</td><td>2010 %</td><td>2009 £m</td><td>2009 %</td></tr><tr><td>Loss before tax</td><td>(80.8)</td><td></td><td>(55.3)</td><td></td></tr><tr><td>Tax at 28.0% (2009: 28.0%) thereon</td><td>(22.6)</td><td>28.0%</td><td>(15.5)</td><td>28.0%</td></tr><tr><td>Factors affecting the income tax credit for the year:</td><td></td><td></td><td></td><td></td></tr><tr><td>- non-deductible and non-taxable items</td><td>1.2</td><td>(1.5%)</td><td>1.4</td><td>(2.5%)</td></tr><tr><td>- impairment charges not deductible for tax</td><td>17.9</td><td>(22.1%)</td><td>8.4</td><td>(15.2%)</td></tr><tr><td>- losses not recognised</td><td>0.7</td><td>(0.9%)</td><td>0.4</td><td>(0.7%)</td></tr><tr><td>- losses utilised not previously recognised</td><td>(3.1)</td><td>3.8%</td><td>(5.8)</td><td>10.5%</td></tr><tr><td>- other adjustments in respect of previous years</td><td>(0.3)</td><td>0.4%</td><td>(1.9)</td><td>3.4%</td></tr><tr><td>- effect of overseas tax rates</td><td>2.4</td><td>(3.0%)</td><td>2.8</td><td>(5.1%)</td></tr><tr><td>- effect of change in rate</td><td>(0.2)</td><td>0.3%</td><td>-</td><td>-</td></tr><tr><td>Total income tax credit</td><td>(4.0)</td><td>5.0%</td><td>(10.2)</td><td>18.4%</td></tr></table>

The effective tax rate for the Group on the total loss before tax of £80.8m is 5.0% (2009: 18.4%). The effective tax charge for the Group on profit before tax before the amortisation of intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments of £143.3m is 31.5% (2009: 29.7%), which comprises a charge of 33.1% (2009: 33.0%) in respect of current year profits and a tax credit of 1.6% (2009: 3.3%) in respect of prior years.



## 6 INCOME TAX CONTINUED

The following factors that will affect the Group’s future total tax charge as a percentage of underlying profits are:

● the mix of profits between the UK and overseas; in particular, France/Germany/Belgium (corporate tax rates greater than 28%) and Ireland/Poland/Netherlands/Czech Republic/Slovakia (corporate tax rates less than 28%). If the proportion of profits from these jurisdictions changes, this could result in a higher or lower Group tax charge;

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

● 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 (see Note 22).

In addition to the amounts credited to the Consolidated Income Statement, the following amounts in relation to taxes have been credited/(charged) directly to the Consolidated Statement of Changes in Equity:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Deferred tax movement associated with actuarial loss</td><td>0.5</td><td>1.3</td></tr><tr><td>Current and deferred tax on share options</td><td>0.2</td><td>-</td></tr><tr><td>Tax charge on exchange difference arising on borrowings and derivative financial instruments</td><td>(0.9)</td><td>(5.5)</td></tr><tr><td>Change in rate</td><td>(0.2)</td><td>-</td></tr><tr><td></td><td>(0.4)</td><td>(4.2)</td></tr></table>

## CHANGE IN THE TAX RATE

On 28 June 2010, the Finance Bill 2010–11 was presented to the UK Parliament. The Bill proposed four annual reductions in the rate of corporation tax from 28% to 24% by 2014–15. At the balance sheet date, the reduction in the UK corporation tax rate to 27% from April 2011 had been enacted. The resulting net reduction in the deferred tax asset has been reflected in the Consolidated Balance Sheet as at 31 December 2010 and gave rise to a credit to the Consolidated Income Statement for the year ended 31 December 2010 of £0.2m. It is currently expected that each future Finance Bill enacted will reduce the UK corporation tax rate by 1% until the rate of 24% is reached.

## 7 DIVIDENDS

No distributions have been made to equity holders of the Company in the year (2009: £nil). No distributions to equity holders of the Company have been proposed after the year end (2009: £nil).

## 8 EARNINGS PER SHARE

The calculations of earnings per share are based on the following (losses)/profits and numbers of shares:

<table><tr><td rowspan="2"></td><td colspan="2">Basic and diluted</td></tr><tr><td>2010£m</td><td>2009£m</td></tr><tr><td>Loss after tax</td><td>(76.8)</td><td>(45.1)</td></tr><tr><td>Non-controlling interests</td><td>(0.3)</td><td>(0.5)</td></tr><tr><td></td><td>(77.1)</td><td>(45.6)</td></tr><tr><td></td><td></td><td></td></tr><tr><td></td><td></td><td>Basic and diluted before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments</td></tr><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Loss after tax</td><td>(76.8)</td><td>(45.1)</td></tr><tr><td>Non-controlling interests</td><td>(0.3)</td><td>(0.5)</td></tr><tr><td>Amortisation of acquired intangibles</td><td>28.5</td><td>28.6</td></tr><tr><td>Impairment charges</td><td>80.4</td><td>30.0</td></tr><tr><td>Restructuring costs</td><td>21.8</td><td>54.8</td></tr><tr><td>Gains and losses on derivative financial instruments</td><td>12.6</td><td>2.5</td></tr><tr><td>Tax credit relating to other items*</td><td>(23.7)</td><td>(28.2)</td></tr><tr><td></td><td>42.5</td><td>42.1</td></tr></table>

* "Other items" relate to the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

Weighted average number of shares:

<table><tr><td rowspan="2"></td><td rowspan="2">Before other items* 2010 Number</td><td rowspan="2">Total 2010 Number</td><td colspan="2">Before other items* 2009 Number</td><td rowspan="2">Total 2009 Number</td></tr><tr><td></td><td></td></tr><tr><td>For basic earnings per share</td><td>590,829,339</td><td>590,829,339</td><td>469,350,343</td><td>469,350,343</td><td></td></tr><tr><td>Exercise of share options^</td><td>2,333,789</td><td>-</td><td>897,421</td><td>-</td><td></td></tr><tr><td>For diluted earnings per share</td><td>593,163,128</td><td>590,829,339</td><td>470,247,764</td><td>469,350,343</td><td></td></tr></table>

The weighted average number of shares has been presented for earnings per share both before "Other items" and after "Other items". Due to the fact that the Group has recorded a loss after tax, any share options would be anti-dilutive, and as such in accordance with IAS 33 "Earnings per Share" the impact of the exercise of these share options has been removed from the weighted average number of shares when calculating diluted earnings per share after "Other items".



## NOTES TO THE ACCOUNTS CONTINUED

## 8 EARNINGS PER SHARE CONTINUED

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Total basic loss per share</td><td>(13.0p)</td><td>(9.7p)</td></tr><tr><td>Total diluted loss per share</td><td>(13.0p)</td><td>(9.7p)</td><nl><fcel>Earnings per share before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments<fcel></td><td></td><td></td></tr><tr><td>Total basic earnings per share</td><td>7.2p</td><td>9.0p</td></tr><tr><td>Total diluted earnings per share</td><td>7.2p</td><td>9.0p</td></tr></table>

Earnings per share before amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments is disclosed in order to present the underlying performance of the Group. The following disclosures reconcile these adjustments to the disclosures made on the face of the Consolidated Income Statement:

a) amortisation of acquired intangibles of £28.5m (2009: £28.6m) is included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

b) impairment charges of £80.4m (2009: £30.0m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

c) restructuring costs of £21.8m (2009: £54.8m) are included as part of operating expenses within the column of the Consolidated Income Statement entitled "Other items";

d) losses on derivative financial instruments of £12.6m (2009: net losses of £2.5m) are included as finance costs within the column of the Consolidated Income Statement entitled "Other items"; and

e) the amortisation of acquired intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments give rise to tax as disclosed in the table below:

<table><tr><td rowspan="2"></td><td colspan="3">2010</td><td colspan="3">2009</td></tr><tr><td>Other items £m</td><td>Tax impact £m</td><td>%</td><td>Other items £m</td><td>Tax impact £m</td><td>%</td></tr><tr><td>Amortisation of acquired intangibles</td><td>28.5</td><td>8.0</td><td>28.0</td><td>28.6</td><td>8.0</td><td>28.0</td></tr><tr><td>Impairment charges</td><td>80.4</td><td>4.3</td><td>5.3</td><td>30.0</td><td>-</td><td>-</td></tr><tr><td>Restructuring costs</td><td>21.8</td><td>4.8</td><td>22.0</td><td>54.8</td><td>13.3</td><td>24.3</td></tr><tr><td>Net losses on derivative financial instruments</td><td>12.6</td><td>3.5</td><td>28.0</td><td>2.5</td><td>1.1</td><td>44.0</td></tr><tr><td>Utilisation of losses not previously recognised</td><td>-</td><td>2.9</td><td>-</td><td>-</td><td>5.8</td><td>-</td></tr><tr><td>Effect of change in tax rates</td><td>-</td><td>0.2</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td></td><td>143.3</td><td>23.7</td><td>16.5</td><td>115.9</td><td>28.2</td><td>24.3</td></tr></table>

## 9 SHARE-BASED PAYMENTS

The Group had five share-based payment schemes in existence during the year ended 31 December 2010. The Group recognised a total charge of  \( £0.4m $  (2009: credit of  \( £0.5m \) ) in the year relating to share-based payment transactions issued after 7 November 2002 with a corresponding entry to the share option reserve. The weighted average fair value of each option granted in the year was  $ 89p $  (2009:  $ 12\ p \) ). Details of each of the schemes are provided below.

## A) SAVE AS YOU EARN (“SAYE”) SCHEME

The Company operates a SAYE scheme within the Republic of Ireland which is open to all employees and is linked to a monthly savings contract over three and five year periods. Options have been granted to scheme participants at a percentage of the prevailing market price. The market price is taken approximately one month prior to the official grant date. There are no performance conditions attached to the exercise of these options. These options may be exercised within a fixed six month period three or five years from the date of grant.

No SAYE options have been granted in the UK since 2005. Instead, the Company has operated a Share Investment Plan (“SIP”) in 2009 and 2010 as approved at the 2004 Annual General Meeting (see page 89).

SAYE OPTIONS (ISSUED AFTER 7 NOVEMBER 2002)

<table><tr><td rowspan="2"></td><td colspan="2">2010</td><td colspan="2">2009</td></tr><tr><td>Options</td><td>Weighted average exercise price (p)</td><td>Options</td><td>Weighted average exercise price (p)</td></tr><tr><td>Outstanding at beginning of year</td><td>99,216</td><td>315.0</td><td>332,337</td><td>285.3</td></tr><tr><td>Additional shares allocated on 14 April 2009 following open offer</td><td>-</td><td>-</td><td>69,136</td><td>287.1</td></tr><tr><td>Granted during the year</td><td>337,836</td><td>95.0</td><td>-</td><td>-</td></tr><tr><td>Lapsed during the year</td><td>-</td><td>-</td><td>(297,480)</td><td>277.8</td></tr><tr><td>Exercised during the year</td><td>-</td><td>-</td><td>(4,777)</td><td>165.0</td></tr><tr><td>Outstanding at end of year</td><td>437,052</td><td>144.9</td><td>99,216</td><td>315.0</td></tr></table>

Of the above share options outstanding at the end of the year, 1,549 (2009: 904) are exercisable at the balance sheet date.



## 9 SHARE-BASED PAYMENTS CONTINUED

## A) SAVE AS YOU EARN (“SAYE”) SCHEME CONTINUED

The SAYE options outstanding at the balance sheet date had a weighted average exercise price of 144.9p (2009: 315.0p) and a weighted average remaining contractual life of 2.5 years (2009: 1.9 years). No options were exercised in the year. The weighted average share price on options exercised in 2009 was 217p.

The assumptions used in the Black-Scholes model in relation to the SAYE options granted in the current and prior years are as follows:

<table><tr><td rowspan="2"></td><td colspan="3">Shares granted in</td></tr><tr><td>2010</td><td>2008</td><td>2007</td></tr><tr><td>Share price (on date of official grant)</td><td>100p (20 October 2010)</td><td>212p (24 November 2008)</td><td>1,028p (26 November 2007)</td></tr><tr><td>Exercise price</td><td>95p</td><td>330p</td><td>823p</td></tr><tr><td>Expected volatility</td><td>56.0%</td><td>38.0%</td><td>26.0%</td></tr><tr><td>Actual life</td><td>3 and 5 years</td><td>3 and 5 years</td><td>3 and 5 years</td></tr><tr><td>Risk free rate</td><td>4.5%</td><td>4.5%</td><td>4.5%</td></tr><tr><td>Dividend</td><td>0.0p</td><td>26.7p</td><td>20.5p</td></tr><tr><td>Expected percentage of options to be exercised versus granted as at date of grant:</td><td></td><td></td><td></td></tr><tr><td>- 3 years</td><td>50%</td><td>50%</td><td>65%</td></tr><tr><td>- 5 years</td><td>50%</td><td>50%</td><td>65%</td></tr><tr><td>Revised expectation of percentage of options to be exercised as at 31 December 2010:</td><td></td><td></td><td></td></tr><tr><td>- 3 years</td><td>50%</td><td>0%</td><td>0%</td></tr><tr><td>- 5 years</td><td>50%</td><td>0%</td><td>0%</td></tr></table>

The fair value of Save As You Earn options granted during the year was 43p.

The expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected percentage of total options exercised is based on the Directors’ best estimate for the effects of behavioural conditions.

## B) EXECUTIVE SHARE OPTION SCHEMES (“ESOS”)

Under the existing ESOS (for which the last options were granted in 2003), Directors and Senior Management can be awarded an annual grant of share options at market price, provided that the total amount payable by the individual to exercise options under the ESOS or any other share option scheme of the Group (excluding savings related schemes) granted during the immediately preceding ten years does not exceed four times base salary, bonus and benefits.

Share options under the ESOS are exercisable between three and ten years for the Inland Revenue approved scheme and three and seven years for the unapproved scheme from the date of grant. The award would vest in full if, over a consecutive three year period, the growth in the Group's earnings per share ("EPS") is 6% higher than the percentage increase in the Retail Prices Index ("RPI"). None of the award would vest if the growth in EPS is less than 6% above the percentage increase in the RPI over the same period.

ESOS (ISSUED AFTER 7 NOVEMBER 2002)

<table><tr><td rowspan="2"></td><td colspan="2">2010</td><td colspan="2">2009</td></tr><tr><td>Options</td><td>Weighted average exercise price (p)</td><td>Options</td><td>Weighted average exercise price (p)</td></tr><tr><td>Outstanding at beginning of year</td><td>41,159</td><td>169.7</td><td>35,489</td><td>169.7</td></tr><tr><td>Additional shares allocated on 14 April 2009 following open offer</td><td>-</td><td>-</td><td>7,486</td><td>169.7</td></tr><tr><td>Lapsed during the year</td><td>-</td><td>-</td><td>(1,816)</td><td>169.7</td></tr><tr><td>Outstanding at end of year</td><td>41,159</td><td>169.7</td><td>41,159</td><td>169.7</td></tr></table>

No ESOS options were granted in the period 2004 to 2010. The options outstanding at the balance sheet date had a weighted average exercise price of 169.7p (2009: 169.7p) and were all exercisable at both 31 December 2010 and 31 December 2009. No options were exercised in the year.

The assumptions used in the Black-Scholes model in relation to the ESOS options are as follows:

<table><tr><td colspan="2">2003 ESOS</td></tr><tr><td>Share price on 11 April 2003 (date of official grant)</td><td>205.5p</td></tr><tr><td>Exercise price</td><td>205.5p</td></tr><tr><td>Expected volatility</td><td>31.8%</td></tr><tr><td>Actual life</td><td>3 years</td></tr><tr><td>Risk free rate</td><td>4.2%</td></tr><tr><td>Dividend</td><td>11.6p</td></tr><tr><td>Expected percentage of options to be exercised versus granted as at date of grant:</td><td>95%</td></tr><tr><td>Revised expectation of percentage of options to be exercised as at 31 December 2010:</td><td>95%</td></tr></table>

The expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected percentage of total options exercised is based on the Directors’ best estimate for the effects of behavioural conditions.



# NOTES TO THE ACCOUNTS CONTINUED

## 9 SHARE-BASED PAYMENTS CONTINUED

## C) LONG TERM INCENTIVE PLAN (“LTIP”)

Under the existing LTIP policy, Executives can be awarded an annual grant of nil paid share options up to a maximum value of 100% of base salary.

## 2005 TO 2008 LTIP CRITERIA

Awards under the 2005 to 2008 LTIPs are exercisable between three and ten years from the date of grant. The award vests if the following criteria are met:

<table><tr><td rowspan="2"></td><td colspan="3">EPS % growth less RPI % growth over the three year vesting period</td></tr><tr><td>2008</td><td>2007</td><td>2005-2006</td></tr><tr><td>Percentage of award vesting:</td><td></td><td></td><td></td></tr><tr><td>- none of the award vests</td><td>&lt; 5% p.a.</td><td>&lt; 5% p.a.</td><td>&lt; 3% p.a.</td></tr><tr><td>- 30% of the award vests</td><td>5% p.a.</td><td>5% p.a.</td><td>3% p.a.</td></tr><tr><td>- award vests proportionately between 30% and 100%</td><td>5%—12% p.a.</td><td>5%—10% p.a.</td><td>3%—10% p.a.</td></tr><tr><td>- 100% of the award vests</td><td>12% p.a.</td><td>10% p.a.</td><td>10% p.a.</td></tr></table>

No retesting of the performance criteria will occur.

## 2009 LTIP CRITERIA

Awards under the 2009 LTIP are exercisable between three and ten years from the date of grant. None of the award vests if, at the end of the three year vesting period, the Group's underlying EPS is less than 10p. 25% of the award vests if the Group's underlying EPS is between 10p and 13.5p, with the full award vesting if the Group's underlying EPS is 13.5p or greater. Between the two limits, the awards vest proportionately. The right to exercise options terminates upon the employee ceasing to hold office with the Group, subject to certain exceptions and the discretion of the Board.

## 2010 LTIP CRITERIA

Awards under the 2010 LTIP are exercisable between three and ten years from the date of grant. None of the award vests if, over the three year vesting period, the Group’s cumulative underlying EPS is less than 30p. The award vests proportionately if the Group’s cumulative underlying EPS is between 30p and 40p, with the award vesting in full if the Group’s cumulative underlying EPS is 40p or greater. The right to exercise options terminates upon the employee ceasing to hold office with the Group, subject to certain exceptions and the discretion of the Board.

Awards have also been made in 2010 through a shadow Cash LTIP scheme that requires the Group to pay the intrinsic value of the share appreciation rights to the employee at the date of exercise. This scheme has exactly the same conditions and vesting criteria as the 2010 LTIP the difference being that the award is settled in the cash value of the equity in the event of the options being exercised, rather than through the issue of shares. This scheme has been accounted for in the same way as the equity-settled scheme, with the exception that the liability is recognised within accruals as opposed to equity.

LTIP OPTIONS (ISSUED AFTER 7 NOVEMBER 2002)

<table><tr><td rowspan="2"></td><td colspan="2">2010</td><td colspan="2">2009</td></tr><tr><td>Options</td><td>Weighted average exercise price (p)</td><td>Options</td><td>Weighted average exercise price (p)</td></tr><tr><td>Outstanding at beginning of year</td><td>814,574</td><td>0.0</td><td>335,461</td><td>0.3</td></tr><tr><td>Additional shares allocated on 14 April 2009 following open offer</td><td>-</td><td>-</td><td>57,965</td><td>0.4</td></tr><tr><td>Granted during the year</td><td>1,459,751</td><td>0.0</td><td>577,862</td><td>0.0</td></tr><tr><td>Lapsed during the year</td><td>(63,000)</td><td>0.0</td><td>(104,918)</td><td>0.0</td></tr><tr><td>Exercised during the year</td><td>-</td><td>-</td><td>(51,796)</td><td>2.4</td></tr><tr><td>Outstanding at end of year</td><td>2,211,325</td><td>0.0</td><td>814,574</td><td>0.0</td></tr></table>

Of the above share options outstanding at the end of the year, 5,707 (2009: 5,707) are exercisable at the balance sheet date.

The options outstanding at the balance sheet date had a weighted average exercise price of nil p (2009: nil p) and a weighted average remaining contractual life of 2.1 years (2009: 2.2 years). No options were exercised in the year. The weighted average share price on options exercised in 2009 was 130.0p.

The assumptions used in the Black-Scholes model in relation to the LTIP options are as follows:

<table><tr><td rowspan="2"></td><td colspan="3">Shares granted in</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Share price (on date of official grant)</td><td>110p (7 June 2010)</td><td>134p (15 September 2009)</td><td>785p (14 April 2008) and 537p (8 September 2008)</td></tr><tr><td>Exercise price</td><td>0.0p</td><td>0.0p</td><td>0.0p</td></tr><tr><td>Expected volatility</td><td>51.0%</td><td>46.0%</td><td>38.0%</td></tr><tr><td>Actual life</td><td>3 years</td><td>3 years</td><td>3 years</td></tr><tr><td>Risk free rate</td><td>4.5%</td><td>4.5%</td><td>4.5%</td></tr><tr><td>Dividend</td><td>0.0p</td><td>0.0p</td><td>26.7p</td></tr><tr><td>Expected percentage of options to be exercised versus granted as at date of grant:</td><td>50%</td><td>100%</td><td>99%</td></tr><tr><td>Revised expectation of percentage of options to be exercised as at 31 December 2010:</td><td>50%</td><td>33%</td><td>0%</td></tr></table>

The fair value of LTIP options granted during the year was 99p.

The expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected percentage of total options exercised is based on the Directors’ best estimate for the effects of behavioural considerations.



## 9 SHARE-BASED PAYMENTS CONTINUED

## D) DEFERRED ANNUAL BONUS SCHEME (“DABS”)

Options were granted under the DABS scheme for the first time in 2005. The DABS operates by inviting participants, including Executive Directors, to use up to 50% of their annual performance related cash bonus (after tax and national insurance) in respect of the preceding financial year to purchase shares in the Company. Providing certain criteria are met, participants purchasing such shares will be eligible to receive nil cost matching shares up to a maximum of one per share purchased by the participant. The criteria are as follows:

## 2005 TO 2008 DABS CRITERIA

Percentage growth in the Company’s EPS over the three year period from the commencement of the financial year in which the award is made exceeds the percentage growth in the RPI over the same period by:

– less than 3% per annum compounded

– 3% per annum compounded

– between 3% and 5% per annum compounded

– 5% per annum compounded

2009 DABS CRITERIA

Awards under the 2009 DABS are exercisable between three and ten years from the date of grant. None of the award vests if, at the end of the three year vesting period, the Group’s underlying EPS is less than 10p. 25% of the award vests if the Group’s underlying EPS is between 10p and 13.5p, with the full award vesting if the Group’s underlying EPS is 13.5p or greater. Between the two limits, the awards vest proportionately. The right to exercise options terminates upon the employee ceasing to hold office with the Group, subject to certain exceptions and the discretion of the Board.

## DABS OPTIONS (ISSUED AFTER 7 NOVEMBER 2002)

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Outstanding at beginning of year</td><td>82,847</td><td>59,046</td></tr><tr><td>Additional shares allocated on 14 April 2009 following open offer</td><td>-</td><td>10,507</td></tr><tr><td>Granted during the year</td><td>-</td><td>34,730</td></tr><tr><td>Lapsed during the year</td><td>(13,163)</td><td>(19,743)</td></tr><tr><td>Exercised during the year</td><td>-</td><td>(1,693)</td></tr><tr><td>Outstanding at end of year</td><td>69,684</td><td>82,847</td></tr></table>

All DABS are nil paid options and therefore options outstanding at 31 December 2010 and 31 December 2009 had a weighted average exercise price of nil p and a weighted average remaining contractual life of 0.7 years (2009: 1.5 years).

Of the above options outstanding at the end of the year, 5,184 (2009: 5,184) are exercisable at the balance sheet date. No options were exercised in the year. The weighted average share price on options exercised in 2009 was 130.0p.

The assumptions used in the Black-Scholes model in relation to the DABS options are as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Shares granted in</td></tr><tr><td>2009</td><td>2008</td></tr><tr><td>Share price (on date of official grant)</td><td>134p (15 September 2009)</td><td>785p (14 April 2008)</td></tr><tr><td>Exercise price of matching shares</td><td>0.0p</td><td>0.0p</td></tr><tr><td>Expected volatility</td><td>46.0%</td><td>38.0%</td></tr><tr><td>Actual life</td><td>3 years</td><td>3 years</td></tr><tr><td>Risk free rate</td><td>4.5%</td><td>4.5%</td></tr><tr><td>Dividend</td><td>0.0p</td><td>26.7p</td></tr><tr><td>Expected percentage of options to be exercised versus granted as at date of grant:</td><td>100%</td><td>100%</td></tr><tr><td>Revised expectation of percentage of options to be exercised as at 31 December 2010:</td><td>33%</td><td>0.0%</td></tr></table>

The expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected percentage of total options exercised is based on the Directors’ best estimate for the effects of behavioural considerations.

## E) SHARE INCENTIVE PLAN (“SIP”)

Shares were granted under the SIP scheme for the first time in 2005. The SIP is an HM Revenue and Customs approved scheme and operates by inviting participants, including Executive Directors, to purchase shares in the Company in a tax efficient manner on a monthly basis. For each share purchased by the employee, the Company will match one free share up to a maximum of four free shares per month. No performance criteria is attached to these matching shares other than to avoid forfeiture they must remain within the plan for a minimum of two years. In 2010, 48,622 (2009: 64,122) matching shares were granted during the year. Given the nature of the scheme, the fair value of the matching shares equates to the cost of the Company acquiring these shares.



## NOTES TO THE ACCOUNTS CONTINUED

## 10 PROPERTY, PLANT AND EQUIPMENT

The movements in the year and the preceding year were as follows:

<table><tr><td rowspan="2"></td><td colspan="3">Land and buildings</td><td rowspan="2">Total</td></tr><tr><td>Freehold £m</td><td>Short leasehold £m</td><td>Plant and machinery £m</td></tr><tr><td>Cost or valuation</td><td></td><td></td><td></td><td></td></tr><tr><td>At 1 January 2009</td><td>104.1</td><td>41.3</td><td>256.6</td><td>402.0</td></tr><tr><td>Exchange difference</td><td>(6.1)</td><td>(2.0)</td><td>(11.0)</td><td>(19.1)</td></tr><tr><td>Additions</td><td>1.1</td><td>0.9</td><td>17.6</td><td>19.6</td></tr><tr><td>Disposals</td><td>(6.2)</td><td>(1.1)</td><td>(22.5)</td><td>(29.8)</td></tr><tr><td>At 31 December 2009</td><td>92.9</td><td>39.1</td><td>240.7</td><td>372.7</td></tr><tr><td>Exchange difference</td><td>(2.2)</td><td>(0.8)</td><td>(4.1)</td><td>(7.1)</td></tr><tr><td>Additions</td><td>0.8</td><td>0.7</td><td>15.3</td><td>16.8</td></tr><tr><td>Disposals</td><td>(1.2)</td><td>(1.1)</td><td>(16.2)</td><td>(18.5)</td></tr><tr><td>At 31 December 2010</td><td>90.3</td><td>37.9</td><td>235.7</td><td>363.9</td></tr><tr><td>Accumulated depreciation and impairment</td><td></td><td></td><td></td><td></td></tr><tr><td>At 1 January 2009</td><td>16.3</td><td>11.5</td><td>114.9</td><td>142.7</td></tr><tr><td>Charge for the year</td><td>1.9</td><td>3.2</td><td>35.1</td><td>40.2</td></tr><tr><td>Impairment charges</td><td>-</td><td>2.4</td><td>4.4</td><td>6.8</td></tr><tr><td>Exchange difference</td><td>(1.7)</td><td>(1.0)</td><td>(6.3)</td><td>(9.0)</td></tr><tr><td>Disposals</td><td>(0.4)</td><td>(0.9)</td><td>(20.2)</td><td>(21.5)</td></tr><tr><td>At 31 December 2009</td><td>16.1</td><td>15.2</td><td>127.9</td><td>159.2</td></tr><tr><td>Charge for the year</td><td>1.9</td><td>2.9</td><td>31.2</td><td>36.0</td></tr><tr><td>Impairment charges</td><td>-</td><td>-</td><td>3.8</td><td>3.8</td></tr><tr><td>Exchange difference</td><td>(0.7)</td><td>(0.5)</td><td>(2.6)</td><td>(3.8)</td></tr><tr><td>Disposals</td><td>(0.5)</td><td>(0.6)</td><td>(13.8)</td><td>(14.9)</td></tr><tr><td>At 31 December 2010</td><td>16.8</td><td>17.0</td><td>146.5</td><td>180.3</td></tr><tr><td>Net book value</td><td></td><td></td><td></td><td></td></tr><tr><td>At 31 December 2010</td><td>73.5</td><td>20.9</td><td>89.2</td><td>183.6</td></tr><tr><td>At 31 December 2009</td><td>76.8</td><td>23.9</td><td>112.8</td><td>213.5</td></tr></table>

The net book value of plant and machinery includes an amount of £7.6m (2009: £9.3m) in respect of assets held under finance lease contracts.

Included within additions are net additions in relation to hire stock of £4.1m (2009: £2.2m).

The impairment charges of £3.8m (2009: £6.8m) relate to asset write downs arising from the Group’s cost saving and restructuring programme.

## II INTEREST IN ASSOCIATE

On 4 May 2010, the Company made a strategic trade investment in Ice Energy Technologies Limited ("Ice"), a company incorporated in the United Kingdom, by acquiring shares in that company from existing management. Ice is a specialist designer and installer of heat pumps and Solar PV systems. Consideration of £1.0m was paid to the shareholders of Ice and a further £0.5m was paid for new shares in the company, taking the total cost of the investment to £1.6m including costs of £0.1m. Following the investment, the Group holds a 25% stake in the company and as such this investment will be accounted for as an associate in accordance with IAS 28 "Investments in Associates".

In addition to this, at the date of signing this report, the Company has made a loan to Ice amounting to £1.2m which is included within trade receivables. The loan is due for repayment in 2013.

The Group’s share of operating income arising from this investment since 4 May 2010 has been positive but minimal. Given that the Group’s Consolidated Income Statement is reported in  \( \ell m \) ’s, in order for a figure to be separately disclosable the minimum threshold for recognition is  \( £50,000 \) , i.e.  \( £0.1m \) . As a result, no separate recognition of the Group’s share of income attributable to this associate has been made on the face of the Consolidated Income Statement. Accordingly no further analysis has been given in respect of Ice’s results or balance sheet position on the grounds of materiality.

The current accounting period for Ice ends on 31 March 2011. The company does not have the same accounting reference date as SIG plc as the company operates independently of SIG, and therefore may independently select the accounting reference date it considers most appropriate.



<table><tr><td colspan="2">12 GOODWILL</td></tr><tr><td></td><td>£m</td></tr><tr><td>Cost</td><td></td></tr><tr><td>At 1 January 2009</td><td>601.8</td></tr><tr><td>Exchange difference</td><td>(30.0)</td></tr><tr><td>Adjustments in respect of prior period acquisitions</td><td>(1.3)</td></tr><tr><td>At 31 December 2009</td><td>570.5</td></tr><tr><td>Exchange difference</td><td>(9.0)</td></tr><tr><td>Adjustments in respect of prior period acquisitions</td><td>(0.5)</td></tr><tr><td>At 31 December 2010</td><td>561.0</td></tr><tr><td>Accumulated impairment losses</td><td></td></tr><tr><td>At 1 January 2009</td><td>34.7</td></tr><tr><td>Impairment losses for the year</td><td>30.0</td></tr><tr><td>Exchange difference</td><td>(1.1)</td></tr><tr><td>At 31 December 2009</td><td>63.6</td></tr><tr><td>Impairment losses for the year</td><td>51.8</td></tr><tr><td>Exchange difference</td><td>(1.5)</td></tr><tr><td>At 31 December 2010</td><td>113.9</td></tr><tr><td>Net book value</td><td></td></tr><tr><td>At 31 December 2010</td><td>447.1</td></tr><tr><td>At 31 December 2009</td><td>506.9</td></tr></table>

Goodwill acquired in a business combination is allocated at the date of acquisition to the cash-generating units ("CGU") that are expected to benefit from that business combination.

## IMPAIRMENT REVIEW PROCESS

The Group tests Goodwill and the associated intangible assets and property, plant and equipment of CGUs annually for impairment, or more frequently if there are indications that an impairment may exist.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for these value in use calculations are those regarding discount rates, sales growth rates and expected changes to selling prices and direct costs. The Directors estimate discount rates using pre tax rates that reflect current market assessments of the time value of money and the risks specific to the individual CGU.

For the majority of CGUs, the Group performs Goodwill impairment reviews by forecasting cash flows based upon the following year's budget and a projection of cash flows based upon industry growth expectations (0%–3%) over a period of five years. Where detailed five year forecasts for a CGU have been prepared and approved by the Board, which can include higher growth rates or varied results reflecting specific economic factors, these are used in preparing cash flow forecasts for impairment review purposes. After this period, the growth rates applied to the cash flow forecasts are no more than 1% and do not exceed the long term average growth rate for the industry or economy. The discount rates applied to all impairment reviews represent pre tax rates and range between 11% and 13%.

## 2010 IMPAIRMENT REVIEW RESULTS

The most recent impairment reviews indicated potential impairments in a number of CGUs, as follows:

<table><tr><td>CGU</td><td>Goodwill £m</td><td>Intangible assets £m</td><td>Total £m</td></tr><tr><td>Interiors Manufacturing</td><td>24.6</td><td>17.9</td><td>42.5</td></tr><tr><td>Central Europe</td><td>12.0</td><td>—</td><td>12.0</td></tr><tr><td>UK SCP - Access Hire</td><td>7.5</td><td>5.1</td><td>12.6</td></tr><tr><td>Ireland</td><td>7.1</td><td>5.5</td><td>12.6</td></tr><tr><td>UK Distribution (Cornish Fixings)</td><td>0.6</td><td>0.1</td><td>0.7</td></tr><tr><td></td><td>51.8</td><td>28.6</td><td>80.4</td></tr></table>

The Interiors Manufacturing division has continued to experience significantly reduced levels of demand, and as such it is anticipated that the full benefits of the restructuring projects ongoing in that division will not be seen for some time. As a result of this, the value in use calculation has indicated an impairment in the Interiors Manufacturing CGU of £42.5m, which has been charged to the Consolidated Income Statement during the year. This impairment charge has been allocated to Goodwill (£24.6m) and to Intangible assets per Note 13 (£17.9m). This impairment charge reduces the carrying value of the Goodwill and intangible assets attributable to this CGU to £nil.

The Group’s Central Europe division has continued to perform poorly in an extremely challenging economic environment in particular in Hungary. The Group remains committed to the development of its Central European business, however, the economic recovery in these markets (in particular Hungary) is expected to take longer than originally anticipated. As a result, the Directors have reviewed the future cash flows and concluded that the carrying value of Goodwill is no longer fully supportable, with the Group’s value in use calculation indicating an impairment of £12.0m, which has been charged to the Consolidated Income Statement. The remaining Goodwill and Intangibles assets in respect of this CGU amounted to £13.0m (£7.3m Goodwill and £5.7m Intangible assets), which is supported by the value in use calculation.



# NOTES TO THE ACCOUNTS CONTINUED

## 12 GOODWILL CONTINUED

## 2010 IMPAIRMENT REVIEW RESULTS CONTINUED

The Access Hire business (a specific business within the UK SCP CGU) has also suffered from the recent UK economic downturn, such that a recovery to previous trading levels is considered unlikely in the near future. Further to this, the business' Shoring and Piling division was closed during 2010. As a result of this, the value in use calculation indicates that an impairment of £1.2m is necessary, split between Goodwill (£7.5m) and Intangible assets per Note 13 (£5.1m). This impairment charge reduces the carrying value of the Goodwill and Intangible assets attributable to this CGU to £nil.

Given the continuing challenging trading conditions experienced in Ireland, and the resulting restructuring programme that has significantly reduced the size of the Group’s operations in this region, the Directors have reviewed the future cash flows and concluded that the carrying value of the Ireland CGU is £nil, which results in an impairment charge of £1.2m, being £7.1m Goodwill and £5.5m Intangible assets (see Note 13).

Finally, in addition to the impairments noted above, following the disposal of Cornish Fixings in February 2011 (part of the UK Distribution CGU), the Directors have noted the Goodwill in respect of this business has been impaired in full, leading to a charge to the Consolidated Income Statement of £0.7m, allocated to Goodwill (£0.6m) and Intangible assets (£0.1m).

## SENSITIVITY ANALYSIS

The Group currently has 14 CGUs. The forecasts used in the annual impairment reviews have been prepared taking into account current economic conditions. Revenue is the key assumption in the forecasts used in the Goodwill impairment reviews, and therefore a 5% reduction in revenue has been determined as a reasonably possible change for the purposes of the disclosure requirements of IAS 36 "Impairment of Assets".

In the majority of cases, no impairment would arise from a 5% reduction in revenue in the forecast assumptions. If a 5% reduction in revenue were to arise from that forecast in the Goodwill impairment reviews, an impairment of £5.6m would arise in one CGU, Central Europe, being 1% of the total carrying value of Goodwill and Intangible assets held on the Group's Consolidated Balance Sheet.

An impairment charge based upon management forecasts has already been recognised in 2010 in respect of the Central Europe CGU, and therefore the reduction in revenue required to provide a breakeven position and the amount by which the recoverable amount exceeds the carrying value is zero. The average per annum increase in revenue in the management forecast in this CGU from that arising in 2010 is 8% in the first five years forecast.

## SUMMARY ANALYSIS

Following these impairments, the recoverable amounts of Goodwill in respect of all CGUs were fully supported by the value in use calculations in the year and are as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>UK Distribution</td><td>83.4</td><td>84.5</td></tr><tr><td>UK Roofing and External Elements</td><td>80.8</td><td>80.8</td></tr><tr><td>UK Specialist Construction Products</td><td>22.6</td><td>30.1</td></tr><tr><td>UK Interiors Manufacturing</td><td>-</td><td>24.6</td></tr><tr><td>Ireland</td><td>-</td><td>7.1</td></tr><tr><td>Poland</td><td>10.2</td><td>10.2</td></tr><tr><td>Larivière</td><td>170.4</td><td>177.1</td></tr><tr><td>German Roofing</td><td>19.6</td><td>20.4</td></tr><tr><td>Central Europe</td><td>7.3</td><td>20.1</td></tr><tr><td>Air Trade Centre</td><td>13.8</td><td>14.4</td></tr><tr><td>Total</td><td>408.1</td><td>469.3</td></tr><tr><td>Other CGUs</td><td>39.0</td><td>37.6</td></tr><tr><td>Total Goodwill</td><td>447.1</td><td>506.9</td></tr></table>



## 13 INTANGIBLE ASSETS

The intangible assets presented below relate entirely to acquired Intangibles. These arise as a result of applying IFRS 3 which requires the separate recognition of acquired Intangibles from Goodwill. As detailed in the Statement of Significant Accounting Policies, the Group has elected not to apply IFRS 3 retrospectively to acquisitions that took place before 1 January 2004. During 2009 and 2010, the Group owned other purchased intangible assets with an insignificant book value (mainly software separable from any associated hardware) and these have not been reclassified from property, plant and equipment on the grounds of materiality.

<table><tr><td></td><td>Customer relationships £m</td><td>Brands £m</td><td>Non-compete clauses £m</td><td>Order books £m</td><td>Total £m</td></tr><tr><td>Cost</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>At 1 January 2009</td><td>215.2</td><td>12.6</td><td>11.5</td><td>0.1</td><td>239.4</td></tr><tr><td>Exchange difference</td><td>(5.0)</td><td>-</td><td>(0.4)</td><td>-</td><td>(5.4)</td></tr><tr><td>At 31 December 2009</td><td>210.2</td><td>12.6</td><td>11.1</td><td>0.1</td><td>234.0</td></tr><tr><td>Exchange difference</td><td>(2.2)</td><td>-</td><td>(0.2)</td><td>-</td><td>(2.4)</td></tr><tr><td>At 31 December 2010</td><td>208.0</td><td>12.6</td><td>10.9</td><td>0.1</td><td>231.6</td></tr><tr><td>Amortisation</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>At 1 January 2009</td><td>50.8</td><td>-</td><td>5.1</td><td>0.1</td><td>56.0</td></tr><tr><td>Charge for the year</td><td>25.8</td><td>-</td><td>2.8</td><td>-</td><td>28.6</td></tr><tr><td>Exchange difference</td><td>(1.1)</td><td>-</td><td>(0.1)</td><td>-</td><td>(1.2)</td></tr><tr><td>At 31 December 2009</td><td>75.5</td><td>-</td><td>7.8</td><td>0.1</td><td>83.4</td></tr><tr><td>Charge for the year</td><td>25.9</td><td>-</td><td>2.6</td><td>-</td><td>28.5</td></tr><tr><td>Impairment losses for the year</td><td>16.0</td><td>12.6</td><td>-</td><td>-</td><td>28.6</td></tr><tr><td>Exchange difference</td><td>(1.0)</td><td>-</td><td>(0.1)</td><td>-</td><td>(1.1)</td></tr><tr><td>At 31 December 2010</td><td>116.4</td><td>12.6</td><td>10.3</td><td>0.1</td><td>139.4</td></tr><tr><td>Net book value</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>At 31 December 2010</td><td>91.6</td><td>-</td><td>0.6</td><td>-</td><td>92.2</td></tr><tr><td>At 31 December 2009</td><td>134.7</td><td>12.6</td><td>3.3</td><td>-</td><td>150.6</td></tr></table>

Amortisation of acquired Intangibles is included in the Consolidated Income Statement as part of operating expenses and is classified within "Other items".

The weighted average amortisation period for each category of intangible asset is disclosed in the Statement of Significant Accounting Policies on page 75.

As a result of the annual impairment reviews referred to in Note 12, the Directors have decided that the carrying value of the intangible assets in relation to the Group's Interiors Manufacturing division is no longer supportable. This has led to an impairment charge of £17.9m, of which £12.6m relates to the Leaderfluss + Shapland brand. The remaining £5.3m relates to customer relationship assets.

Further impairments have been booked in respect of Ireland (£5.5m) and UK SCP - Access Hire (£5.1m), both customer relationship assets. Furthermore, a £0.1m charge has been made in respect of UK Distribution (Cornish Fixings). The basis for the above impairments is discussed in detail in Note 12.

## 14 INVENTORIES

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Raw materials and consumables</td><td>10.2</td><td>9.4</td></tr><tr><td>Work in progress</td><td>1.0</td><td>1.0</td></tr><tr><td>Finished goods and goods for resale</td><td>219.7</td><td>217.3</td></tr><tr><td></td><td>230.9</td><td>227.7</td></tr></table>

The estimated replacement cost of inventories is not materially different from the balance sheet value stated above.



## NOTES TO THE ACCOUNTS CONTINUED

<table><tr><td colspan="3">15 TRADE AND OTHER RECEIVABLES</td></tr><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Trade receivables</td><td>373.9</td><td>385.8</td></tr><tr><td>VAT</td><td>3.3</td><td>2.1</td></tr><tr><td>Other receivables</td><td>6.0</td><td>6.8</td></tr><tr><td>Prepayments and accrued income</td><td>15.5</td><td>19.1</td></tr><tr><td>Other receivables</td><td>24.8</td><td>28.0</td></tr><tr><td>Derivative financial instruments</td><td>-</td><td>38.6</td></tr><tr><td></td><td>398.7</td><td>452.4</td></tr></table>

The average credit period on sale of goods and services on a like for like constant currency basis is 43 days (2009: 44 days). No interest is charged on receivables. An allowance has been made for estimated irrecoverable amounts from the sale of goods of £34.5m at 31 December 2010 (2009: £35.0m). This allowance has been determined by reference to past default experience.

Included within the Group’s trade receivable balance are debtors with a carrying amount of £103.8m (2009: £88.5m) which are past due at the reporting date for which the Group has not provided, as there has not been a significant change in credit quality and the Group considers that the amounts are still recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 28.0 days overdue (2009: 30.8 days).

AGEING ANALYSIS OF TRADE RECEIVABLES FOR WHICH NO PROVISION FOR IMPAIRMENT HAS BEEN MADE

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Neither past due or renegotiated</td><td>249.5</td><td>275.1</td></tr><tr><td>Renegotiated</td><td>-</td><td>0.2</td></tr><tr><td>Balances overdue which have no provision for impairment:</td><td></td><td></td></tr><tr><td>0-30 days</td><td>76.5</td><td>64.2</td></tr><tr><td>31-60 days</td><td>19.6</td><td>14.7</td></tr><tr><td>61-90 days</td><td>4.0</td><td>4.3</td></tr><tr><td>91-120 days</td><td>1.2</td><td>1.1</td></tr><tr><td>121-180 days</td><td>1.3</td><td>1.0</td></tr><tr><td>180+ days</td><td>1.2</td><td>3.2</td></tr><tr><td></td><td>103.8</td><td>88.5</td></tr><tr><td>Total trade receivables</td><td>353.3</td><td>363.8</td></tr></table>

MOVEMENT IN THE ALLOWANCE FOR DOUBTFUL DEBTS

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Beginning of year</td><td>(35.0)</td><td>(34.1)</td></tr><tr><td>Utilised</td><td>10.3</td><td>8.1</td></tr><tr><td>Charged to the Consolidated Income Statement</td><td>(10.8)</td><td>(9.2)</td></tr><tr><td>Exchange differences</td><td>1.0</td><td>0.2</td></tr><tr><td>End of year</td><td>(34.5)</td><td>(35.0)</td></tr></table>

In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date and makes a provision for impairment accordingly. The concentration of credit risk is limited due to the customer base being large and unrelated. The Directors therefore believe that no further credit provision is required in excess of the allowance for doubtful debts.

Included in the allowance for doubtful debts are trade receivables with a gross balance of £55.1m (2009: £57.0m) and a provision for impairment of £34.5m (2009: £35.0m). The provision for impairment represents the difference between the carrying amount of the specific trade receivable and the present value of the expected recoverable amount.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

## CREDIT RISK MANAGEMENT

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Trade receivable credit exposure is controlled by counterparty limits that are set, reviewed and approved by operational management on a regular basis.

Trade receivables consist of a large number of typically small to medium sized customers, spread across a number of different market sectors and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased.

The Group does not have any significant credit risk exposure to any single customer.



<table><tr><td>16 CURRENT LIABILITIES</td><td></td><td></td></tr><tr><td></td><td>2010</td><td>2009</td></tr><tr><td></td><td>£m</td><td>£m</td></tr><tr><td>Trade and other payables:</td><td></td><td></td></tr><tr><td>Trade payables</td><td>220.9</td><td>21.4</td></tr><tr><td>Bills of exchange payable</td><td>12.4</td><td>19.1</td></tr><tr><td>VAT</td><td>8.8</td><td>4.6</td></tr><tr><td>Social security and payroll taxes</td><td>15.5</td><td>14.0</td></tr><tr><td>Accruals and deferred income</td><td>90.0</td><td>91.6</td></tr><tr><td>Trade and other payables</td><td>347.6</td><td>340.7</td></tr><tr><td>Obligations under finance lease contracts (Note 23)</td><td>1.7</td><td>2.3</td></tr><tr><td>Bank overdrafts</td><td>2.5</td><td>2.5</td></tr><tr><td>Bank loans</td><td>31.2</td><td>173.5</td></tr><tr><td>Private placement notes</td><td>49.1</td><td>-</td></tr><tr><td>Loan notes</td><td>-</td><td>0.1</td></tr><tr><td>Derivative financial instruments</td><td>4.9</td><td>0.1</td></tr><tr><td>Current tax liabilities</td><td>0.1</td><td>2.8</td></tr><tr><td>Provisions (Note 21)</td><td>12.7</td><td>9.5</td></tr><tr><td>Current liabilities</td><td>449.8</td><td>531.5</td></tr></table>

£2.9m (2009: £3.9m) of the above Group bank loans and overdrafts are secured on the assets of subsidiary undertakings and £25.1m (2009: £170.8m) are guaranteed by certain companies of the Group. All of the above private placement notes are guaranteed by certain companies of the Group. The remaining balances are unsecured.

The bank overdraft is repayable on demand and attracts a floating interest rate, which at 31 December 2010 was 3.0% (2009: 3.0%).

£31.0m (2009: £173.1m) of the bank loans and loan notes due within one year (after taking into account derivative financial instruments) are at variable rates of interest.

£0.2m (2009: £0.5m) of the bank loans and loan notes due within one year (after taking into account derivative financial instruments) attract an average fixed interest rate of 4.0% (2009: 3.7%).

The private placement notes due within one year (after taking into account derivative financial instruments) attract an average fixed interest rate of 6.6%.

Trade payables, accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases, on a like for like constant currency basis, is 36 days (2009: 36 days).

The Directors consider that the carrying amount of current liabilities approximates to their fair value.

<table><tr><td>17 NON-CURRENT LIABILITIES</td><td></td><td></td></tr><tr><td></td><td>2010</td><td>2009</td></tr><tr><td></td><td>£m</td><td>£m</td></tr><tr><td>Obligations under finance lease contracts (Note 23):</td><td></td><td></td></tr><tr><td>- due after one and within two years</td><td>1.7</td><td>1.7</td></tr><tr><td>- due after two and within five years</td><td>3.4</td><td>4.5</td></tr><tr><td>- due after five years</td><td>0.4</td><td>0.9</td></tr><tr><td>Bank loans</td><td>0.3</td><td>12.1</td></tr><tr><td>Private placement notes</td><td>263.6</td><td>299.2</td></tr><tr><td>Derivative financial instruments</td><td>7.7</td><td>15.6</td></tr><tr><td>Deferred tax liabilities (Note 22)</td><td>26.5</td><td>38.9</td></tr><tr><td>Other payables</td><td>5.5</td><td>6.1</td></tr><tr><td>Retirement benefit obligations (Note 28c)</td><td>25.2</td><td>24.0</td></tr><tr><td>Provisions (Note 21)</td><td>28.8</td><td>31.7</td></tr><tr><td></td><td>363.1</td><td>434.7</td></tr><tr><td></td><td>2010</td><td>2009</td></tr><tr><td></td><td>£m</td><td>£m</td></tr><tr><td>The bank loans included above are repayable as follows:</td><td></td><td></td></tr><tr><td>- due after one and within two years</td><td>0.1</td><td>11.9</td></tr><tr><td>- due after two and within five years</td><td>0.2</td><td>0.2</td></tr><tr><td></td><td>0.3</td><td>12.1</td></tr></table>

Of the above bank loans, £0.2m (2009: £0.4m) is secured on certain of the assets of subsidiary undertakings and is repayable by instalments. Of the debt noted above due after one year, which includes bank loans, private placement notes, loan notes and derivative financial instruments, £27.1m (2009: £314.8m) is guaranteed by certain companies of the Group.

£0.2m (2009: £0.3m) of the bank loans and loan notes due after one year (after taking into account derivative financial instruments) attract an average fixed rate of interest of 6.4% (2009: 6.1%). The remaining bank loans and loan notes due after one year of £0.1m (2009: £11.8m) are at variable rates of interest.



## NOTES TO THE ACCOUNTS CONTINUED

## 17 NON-CURRENT LIABILITIES CONTINUED

Details of the private placement notes (before applying associated derivative financial instruments) are as follows:

<table><tr><td rowspan="2"></td><td>2010</td><td>2010 Fixed interest rate</td><td>2009</td><td>2009 Fixed interest rate</td></tr><tr><td>£m</td><td>%</td><td>£m</td><td>%</td></tr><tr><td>Repayable in 2011</td><td>49.1</td><td>7.3%</td><td>47.7</td><td>7.2%</td></tr><tr><td>Repayable in 2013</td><td>87.2</td><td>4.9%</td><td>84.6</td><td>5.1%</td></tr><tr><td>Repayable in 2016</td><td>153.6</td><td>5.9%</td><td>146.9</td><td>5.8%</td></tr><tr><td>Repayable in 2018</td><td>22.8</td><td>5.1%</td><td>20.0</td><td>5.8%</td></tr><tr><td></td><td>312.7</td><td>5.8%</td><td>299.2</td><td>5.9%</td></tr></table>

The Directors consider that the carrying amount of non-current liabilities approximates to their fair value.

As noted in the Business Review on page 29, in March 2011 the Group signed a new £250m four year bank facility. Upon completion, the Group's existing UK bank debt facilities were cancelled and repaid using cash held on deposit.

## 18 FINANCIAL INSTRUMENTS

The “Treasury risk management” section of the Business Review on pages 28 to 30 includes a review of all treasury, liquidity, interest rate and foreign currency risks, and provides an explanation of the role that derivative financial instruments have had during the year in creating or changing the risks the Group faces in its activities. The capital structure of the Group is outlined in the Business Review on page 24.

The Group’s financial assets consist of trade and other receivables, cash at bank and derivative financial instruments. The following financial assets form part of the net debt of the Group:

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Cash at bank (including cash deposits repayable on demand)</td><td>129.5</td><td>219.4</td></tr><tr><td>Derivative financial instruments</td><td>52.0</td><td>38.6</td></tr><tr><td></td><td>181.5</td><td>258.0</td></tr></table>

The Directors consider the fair value of financial assets to approximate to their book value. The interest received on cash deposits is at variable rates of interest of up to 2%.

The Group’s credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit rating agencies.

Of the above cash at bank, £57.6m is denominated in Sterling, £58.8m in Euros, £10.6m in Polish Zloty, £1.4m in Czech Koruna, £0.3m in Hungarian Forints and £0.8m in other currencies.

## 2010 INTEREST RATE AND CURRENCY PROFILE

The interest rate and currency profile of the Group’s financial liabilities at 31 December 2010, after taking account of interest rate and currency derivative financial instruments (including derivative assets of £52.0m as noted above) was as follows:

<table><tr><td></td><td>Currency</td><td>Total £m</td><td>Floating rate £m</td><td>Fixed rate £m</td><td>Effective fixed interest rate %</td><td>Weighted average time for which rate is fixed Years</td><td>Amount secured £m</td><td>Amount unsecured £m</td></tr><tr><td>Private placement notes</td><td>Sterling</td><td>188.0</td><td>63.3</td><td>124.7</td><td>6.0%</td><td>2.9</td><td>-</td><td>188.0</td></tr><tr><td>Other borrowings</td><td>Sterling</td><td>0.5</td><td>0.4</td><td>0.1</td><td>1.0%</td><td>1.0</td><td>0.1</td><td>0.4</td></tr><tr><td>Finance lease contracts</td><td>Sterling</td><td>0.2</td><td>-</td><td>0.2</td><td>2.8%</td><td>0.9</td><td>0.2</td><td>-</td></tr><tr><td>Private placement notes</td><td>Euro</td><td>85.3</td><td>51.7</td><td>33.6</td><td>4.4%</td><td>2.8</td><td>-</td><td>85.3</td></tr><tr><td>Other borrowings</td><td>Euro</td><td>33.0</td><td>32.7</td><td>0.3</td><td>6.1%</td><td>3.4</td><td>2.5</td><td>30.5</td></tr><tr><td>Finance lease contracts</td><td>Euro</td><td>7.0</td><td>-</td><td>7.0</td><td>14.5%</td><td>2.0</td><td>7.0</td><td>-</td></tr><tr><td>Other borrowings</td><td>HUF</td><td>0.5</td><td>0.5</td><td>-</td><td>N/A</td><td>N/A</td><td>0.5</td><td>-</td></tr><tr><td>Total</td><td></td><td>314.5</td><td>148.6</td><td>165.9</td><td></td><td></td><td>10.3</td><td>304.2</td></tr></table>

In addition to the currency exposures above, the Group has entered into a short term currency derivative financial instrument, being a net investment hedge amounting to an asset of £28.7m and a liability of £33.3m. This derivative financial instrument was entered into on 31 December 2010 at market rates and therefore the fair value is deemed to equate to its book value of £nil. The Group's net debt at 31 December 2010 was £185.0m, of which £95.2m is denominated in Euros.

All of the above finance lease contracts, totalling £7.2m, are secured on the underlying assets.

The Directors consider the fair value of the Group’s floating rate financial liabilities to materially approximate to the book value shown in the table above. The fair value of the Group’s private placement notes approximates to the amount in the value of the financial liabilities above. The remaining fixed rate debt amounts to £7.6m and relates to finance lease contracts and fixed rate loans. The Directors consider the fair value of these remaining fixed rate debts to materially approximate to the book values shown above.



## 18 FINANCIAL INSTRUMENTS CONTINUED

## 2009 INTEREST RATE AND CURRENCY PROFILE

The interest rate and currency profile of the Group’s financial liabilities at 31 December 2009, after taking account of interest rate and currency derivative financial instruments (including derivative assets of £38.6m as noted opposite) was as follows:

<table><tr><td></td><td>Currency</td><td>Total £m</td><td>Floating rate £m</td><td>Fixed rate £m</td><td>Effective fixed interest rate %</td><td>Weighted average time for which rate is fixed Years</td><td>Amount secured £m</td><td>Amount unsecured £m</td></tr><tr><td>Private placement notes</td><td>Sterling</td><td>194.6</td><td>88.8</td><td>105.8</td><td>6.3%</td><td>4.0</td><td>—</td><td>194.6</td></tr><tr><td>Other borrowings</td><td>Sterling</td><td>100.1</td><td>100.1</td><td>—</td><td>N/A</td><td>N/A</td><td>—</td><td>100.1</td></tr><tr><td>Finance lease contracts</td><td>Sterling</td><td>0.4</td><td>—</td><td>0.4</td><td>7.9%</td><td>1.3</td><td>0.4</td><td>—</td></tr><tr><td>Private placement notes</td><td>Euro</td><td>88.8</td><td>53.6</td><td>35.2</td><td>4.7%</td><td>3.5</td><td>—</td><td>88.8</td></tr><tr><td>Other borrowings</td><td>Euro</td><td>80.6</td><td>79.8</td><td>0.8</td><td>2.4%</td><td>1.5</td><td>3.9</td><td>76.7</td></tr><tr><td>Finance lease contracts</td><td>Euro</td><td>8.9</td><td>—</td><td>8.9</td><td>13.7%</td><td>2.8</td><td>8.9</td><td>—</td></tr><tr><td>Finance lease contracts</td><td>PLN</td><td>0.1</td><td>—</td><td>0.1</td><td>4.8%</td><td>0.8</td><td>0.1</td><td>—</td></tr><tr><td>Other borrowings</td><td>HUF</td><td>0.4</td><td>0.4</td><td>—</td><td>N/A</td><td>N/A</td><td>0.4</td><td>—</td></tr><tr><td>Total</td><td>473.9</td><td>322.7</td><td>151.2</td><td></td><td></td><td>13.7</td><td>460.2</td><td></td></tr></table>

In addition to the currency exposures above, the Group had entered into a short term currency derivative financial instrument, being a net investment hedge amounting to an asset of  \( £38.2m \)  and a liability of  \( £42.8m \) . This derivative financial instrument was entered into on 31 December 2009 at market rates and therefore the fair value was deemed to equate to its book value of  \( £nil \) . The Group's net debt at 31 December 2009 was  \( £254.5m \) , of which  \( £160.2m \)  is denominated in Euros.

All of the above finance lease contracts, totalling £9.4m, are secured on the underlying assets.

The Directors considered the fair value of the Group’s floating rate financial liabilities to materially approximate to the book value shown in the table above. The fair value of the Group’s private placement notes approximates to the amount in the value of the financial liabilities above. The remaining fixed rate debt amounts to £10.2m and relates to finance lease contracts and fixed rate loans. The Directors considered the fair value of these remaining fixed rate debts to materially approximate to the book values shown above.

In both 2010 and 2009, the interest rate on floating rate financial liabilities is based upon appropriate local market rates.

## HEDGING RELATIONSHIPS

Included within financial assets are derivative financial instruments in designated hedge accounting relationships amounting to  \( £52.0m $  (2009:  \( £38.6m \) ) and loans and receivables (including cash and cash equivalents) of  \( £503.4m $  (2009:  \( £605.2m \) ).

Included within financial liabilities are derivative financial instruments in designated hedge accounting relationships amounting to  \( £12.6m $  (2009:  \( £15.7m \) ) and liabilities (including trade payables) at amortised cost of  \( £574.8m $  (2009:  \( £708.2m \) ).

The Group does not trade in derivative financial instruments for speculative purposes. Where the Group can demonstrate a hedge relationship under the rules of IAS 32 and IAS 39, movements in the fair values of these derivative financial instruments will be recognised in the Consolidated Statement of Comprehensive Income. Where the Group does not meet these rules, movements in the fair value will be recognised as gains and losses on derivative financial instruments in the Consolidated Income Statement in the column entitled "Other items".

In order to manage the Group’s exposure to interest rate and exchange rate changes, the Group utilises both currency and interest rate derivative financial instruments. The fair values of these derivative financial instruments are calculated by discounting the associated future cash flows to net present values using appropriate market rates prevailing at the balance sheet date.

The Group is required to analyse financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

● Level I fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

● Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All of the financial instruments entered into by the Group are categorised as Level 2.



## NOTES TO THE ACCOUNTS CONTINUED

## 18 FINANCIAL INSTRUMENTS CONTINUED

## HEDGING RELATIONSHIPS CONTINUED

## A) NET INVESTMENT HEDGES

As at 31 December 2010, the Group had entered into one (31 December 2009: one) cross-currency interest rate derivative financial instrument which swaps fixed Sterling denominated debt into fixed Euro denominated debt. In addition as at 31 December 2010, the Group had entered into one (31 December 2009: one) cross-currency forward contract which swaps Sterling denominated debt into Euro denominated debt. These derivative financial instruments form a net investment hedge of the Group's Euro denominated assets. Both of these derivative financial instruments are designated and effective as net investment hedges and the fair value movement has therefore been recognised in the Consolidated Statement of Comprehensive Income.

<table><tr><td>Hedge of the Group&#x27;s Euro denominated trade assets</td><td>2010£m</td><td>2009£m</td></tr><tr><td>Liability at 1 January</td><td>(9.2)</td><td>(37.8)</td></tr><tr><td>Fair value gains recognised in equity</td><td>1.5</td><td>5.8</td></tr><tr><td>Cash settlements in the year</td><td>-</td><td>22.4</td></tr><tr><td>Fair value gains recognised in the Consolidated Income Statement</td><td>-</td><td>0.4</td></tr><tr><td>Liability at 31 December</td><td>(7.7)</td><td>(9.2)</td></tr></table>

## B) CASH FLOW HEDGES

With regard to cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in equity and is subsequently removed and included in the Consolidated Income Statement within "Finance costs" in the same period the hedged item affects the Consolidated Income Statement. The cash flow hedges described below are expected to impact upon both profit and loss and cash flow annually over the life of the hedging instrument and the related debt as interest falls due and upon maturity of the debt and related hedging instrument.

As at 31 December 2010, the Group had entered into five (31 December 2009: five) cross-currency interest rate derivative financial instruments which swap fixed US Dollar denominated debt held in the UK into fixed Sterling denominated debt. In addition, as at 31 December 2010, the Group had entered into one (31 December 2009: one) cross-currency interest rate derivative financial instrument which swaps fixed rate US Dollar denominated debt held in the UK into variable rate Sterling denominated debt. These derivative financial instruments form a cash flow hedge as they fix the functional currency cash flows of the Group. All of these derivative financial instruments are designated and effective as cash flow hedges and the fair value movement has therefore been deferred in equity via the Consolidated Statement of Comprehensive Income. At 31 December 2010, the average maturity date of these swaps is 4.0 years (2009: 5.0 years).

<table><tr><td>Hedge of the Group&#x27;s functional currency cash flows</td><td>2010£m</td><td>2009£m</td></tr><tr><td>Asset at 1 January</td><td>25.0</td><td>64.0</td></tr><tr><td>Fair value gains/(losses) recognised in equity</td><td>11.6</td><td>(39.0)</td></tr><tr><td>Asset at 31 December</td><td>36.6</td><td>25.0</td></tr></table>

During the year ended 31 December 2010, the Group entered into four (31 December 2009: nil) interest rate derivative financial instruments which swap variable rate debt into fixed rate debt, thereby fixing the functional currency cash flows of the Group. All of these interest rate derivative financial instruments are designated and effective as cash flow hedges and the fair value movement has therefore been deferred in equity via the Consolidated Statement of Comprehensive Income. At 31 December 2010, the average maturity date of these swaps is 5.8 years.

<table><tr><td>Hedge of the Group&#x27;s functional currency cash flows</td><td>2010£m</td><td>2009£m</td></tr><tr><td>Liability at 1 January</td><td>-</td><td>(33.0)</td></tr><tr><td>Fair value gains recognised in equity</td><td>1.4</td><td>0.7</td></tr><tr><td>Cash settlements in the year</td><td>-</td><td>32.3</td></tr><tr><td>Asset at 31 December</td><td>1.4</td><td>-</td></tr></table>

As at 31 December 2009 the Group had entered into certain short term currency forward contracts which were designated and effective as cash flow hedges of the Group's functional currency cash flows. All of these contracts were settled during the year ended 31 December 2010.

<table><tr><td>Hedge of the Group&#x27;s functional currency cash flows</td><td>2010£m</td><td>2009£m</td></tr><tr><td>(Liability)/asset at 1 January</td><td>(0.1)</td><td>2.7</td></tr><tr><td>Cash settlements in the year</td><td>0.1</td><td>-</td></tr><tr><td>Fair value losses recognised in equity</td><td>-</td><td>(2.8)</td></tr><tr><td>Liability at 31 December</td><td>-</td><td>(0.1)</td></tr></table>



## 18 FINANCIAL INSTRUMENTS CONTINUED

## HEDGING RELATIONSHIPS CONTINUED

## B) CASH FLOW HEDGES CONTINUED

The following table reconciles the fair value gain recognised in equity on cash flow hedges as noted on page 98 of £13.0m (2009: loss of £41.1m) to the gain on cash flow hedges recorded in the Consolidated Statement of Comprehensive Income of £19.4m (2009: loss of £18.8m).

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Movement in cash flow hedges recognised in equity</td><td>13.0</td><td>(41.1)</td></tr><tr><td>Movement in the hedged item</td><td>(6.2)</td><td>25.6</td></tr><tr><td>Adjustment relating to fair value hedging instruments*</td><td>-</td><td>(7.2)</td></tr><tr><td>Spreading charge associated with cancellation of cash flow hedges*</td><td>12.6</td><td>3.9</td></tr><tr><td>Total movement relating to cash flow hedges included in the Consolidated Statement of Comprehensive Income</td><td>19.4</td><td>(18.8)</td></tr></table>

* In 2009, certain instruments were noted as being incorrectly classified as cash flow hedges and were consequently recategorised as fair value hedges.

Certain interest rate derivative financial instruments previously designated in cash flow hedging relationships were closed during 2009, with the balance deferred to reserves being recycled through the Consolidated Income Statement.

## C) FAIR VALUE HEDGES

As at 31 December 2010, the Group had entered into three (31 December 2009: three) derivative financial instruments which hedge the fair value of the fixed interest private placement debt drawn down on 1 February 2007. All of these interest rate derivative financial instruments are designated and effective as fair value hedges and the fair value movement has therefore been recognised immediately in the Consolidated Income Statement. This is offset by the change in fair value attributable to the hedged item which is also recognised immediately in the Consolidated Income Statement.

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Hedge of the fair value of fixed interest borrowings</td><td></td><td></td></tr><tr><td>Asset at 1 January</td><td>7.2</td><td>6.3</td></tr><tr><td>Fair value gains recognised in the Consolidated Income Statement</td><td>1.9</td><td>0.9</td></tr><tr><td>Asset at 31 December</td><td>9.1</td><td>7.2</td></tr></table>

## 19 MATURITY OF FINANCIAL ASSETS AND LIABILITIES

## MATURITY OF FINANCIAL LIABILITIES

The maturity profile of the Group’s financial liabilities (inclusive of derivative financial assets) at 31 December 2010 was as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>In one year or less</td><td>89.4</td><td>178.5</td></tr><tr><td>In more than one year but not more than two years</td><td>1.8</td><td>60.5</td></tr><tr><td>In more than two years but not more than five years</td><td>88.8</td><td>93.6</td></tr><tr><td>In more than five years</td><td>134.5</td><td>141.3</td></tr><tr><td>Total</td><td>314.5</td><td>473.9</td></tr></table>

## BORROWING FACILITIES

The Group had undrawn committed borrowing facilities at 31 December 2010 as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Expiring in less than one year</td><td>100.0</td><td>35.0</td></tr><tr><td>Expiring in more than one year but not more than two years</td><td>-</td><td>100.0</td></tr><tr><td>Expiring in more than two years but not more than five years</td><td>75.0</td><td>75.0</td></tr><tr><td>Total</td><td>175.0</td><td>210.0</td></tr></table>

As at 31 December 2010, the Group had £490m of UK committed facilities, of which £175m were undrawn as disclosed above. No further funds have been drawn down since the year end.

As noted in the Business Review on page 29, in March 2011 the Group signed a new £250m four year bank facility. Upon completion, the Group’s existing UK bank debt facilities were cancelled and repaid using cash held on deposit.



## NOTES TO THE ACCOUNTS CONTINUED

## 19 MATURITY OF FINANCIAL ASSETS AND LIABILITIES CONTINUED

## CONTRACTUAL MATURITY ANALYSIS OF THE GROUP'S FINANCIAL LIABILITIES, DERIVATIVE FINANCIAL INSTRUMENTS AND CASH AND CASH EQUIVALENTS

IFRS 7 requires disclosure of the maturity of the Group's remaining contractual financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the Group's financial assets and liabilities including interest that will accrue to those assets and liabilities except where the Group is entitled and intends to repay the liability before its maturity. Both the inclusion of future interest and the values disclosed being undiscounted results in the total position being different to that included in the Consolidated Balance Sheet.

## 2010 ANALYSIS

<table><tr><td rowspan="2"></td><td colspan="6">Maturity analysis</td></tr><tr><td>Balance sheet value £m</td><td>&lt; 1 year £m</td><td>1-2 years £m</td><td>2-5 years £m</td><td>&gt; 5 years £m</td><td>Total £m</td></tr><tr><td>Current liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Trade and other payables</td><td>347.6</td><td>347.6</td><td>-</td><td>-</td><td>-</td><td>347.6</td></tr><tr><td>Obligations under finance lease contracts</td><td>1.7</td><td>1.8</td><td>-</td><td>-</td><td>-</td><td>1.8</td></tr><tr><td>Bank overdrafts</td><td>2.5</td><td>2.5</td><td>-</td><td>-</td><td>-</td><td>2.5</td></tr><tr><td>Bank loans</td><td>31.2</td><td>31.5</td><td>-</td><td>-</td><td>-</td><td>31.5</td></tr><tr><td>Private placement notes</td><td>49.1</td><td>51.5</td><td>-</td><td>-</td><td>-</td><td>51.5</td></tr><tr><td>Derivative financial instruments ^</td><td>4.9</td><td>4.9</td><td>-</td><td>-</td><td>-</td><td>4.9</td></tr><tr><td>Total</td><td>437.0</td><td>439.8</td><td>-</td><td>-</td><td>-</td><td>439.8</td></tr><tr><td>Non-current liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Obligations under finance lease contracts</td><td>5.5</td><td>0.8</td><td>2.2</td><td>3.5</td><td>0.5</td><td>7.0</td></tr><tr><td>Bank loans</td><td>0.3</td><td>-</td><td>0.1</td><td>0.2</td><td>-</td><td>0.3</td></tr><tr><td>Private placement notes</td><td>263.6</td><td>15.3</td><td>15.3</td><td>122.5</td><td>188.1</td><td>341.2</td></tr><tr><td>Derivative financial instruments ^</td><td>7.7</td><td>1.6</td><td>1.6</td><td>36.0</td><td>-</td><td>39.2</td></tr><tr><td>Total</td><td>277.1</td><td>17.7</td><td>19.2</td><td>162.2</td><td>188.6</td><td>387.7</td></tr><tr><td>Total liabilities</td><td>714.1</td><td>457.5</td><td>19.2</td><td>162.2</td><td>188.6</td><td>827.5</td></tr><tr><td>Other</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivative financial instrument assets*</td><td>(52.0)</td><td>(7.4)</td><td>(7.4)</td><td>(23.2)</td><td>(27.0)</td><td>(65.0)</td></tr><tr><td>Cash and cash equivalents*</td><td>(129.5)</td><td>(129.5)</td><td>-</td><td>-</td><td>-</td><td>(129.5)</td></tr><tr><td>Derivative financial instruments ^</td><td>-</td><td>(1.5)</td><td>(1.5)</td><td>(28.4)</td><td>-</td><td>(31.4)</td></tr><tr><td>Total</td><td>(181.5)</td><td>(138.4)</td><td>(8.9)</td><td>(51.6)</td><td>(27.0)</td><td>(225.9)</td></tr><tr><td>Grand total</td><td>532.6</td><td>319.1</td><td>10.3</td><td>110.6</td><td>161.6</td><td>601.6</td></tr></table>

* Derivative financial instrument assets and cash and cash equivalents have also been disclosed in order to present a full analysis of the Group's financial assets and liabilities.

In accordance with IFRS 7, for all gross settled derivative financial instruments (i.e. £/€ net investment hedges), the pay leg has been disclosed within liabilities and the receive leg has been included within other.



## 19 MATURITY OF FINANCIAL ASSETS AND LIABILITIES CONTINUED

## CONTRACTUAL MATURITY ANALYSIS OF THE GROUP'S FINANCIAL LIABILITIES, DERIVATIVE FINANCIAL INSTRUMENTS AND CASH AND CASH EQUIVALENTS CONTINUED

2009 ANALYSIS

<table><tr><td rowspan="2"></td><td colspan="7">Maturity analysis</td></tr><tr><td>Balance sheet value £m</td><td>&lt; 1 year £m</td><td>1-2 years £m</td><td>2-5 years £m</td><td>&gt; 5 years £m</td><td>Total £m</td><td></td></tr><tr><td>Current liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Trade and other payables</td><td>340.7</td><td>340.7</td><td>-</td><td>-</td><td>-</td><td>340.7</td><td></td></tr><tr><td>Obligations under finance lease contracts</td><td>2.3</td><td>2.4</td><td>-</td><td>-</td><td>-</td><td>2.4</td><td></td></tr><tr><td>Bank overdrafts</td><td>2.5</td><td>2.5</td><td>-</td><td>-</td><td>-</td><td>2.5</td><td></td></tr><tr><td>Bank loans</td><td>173.5</td><td>174.1</td><td>-</td><td>-</td><td>-</td><td>174.1</td><td></td></tr><tr><td>Loan notes</td><td>0.1</td><td>0.1</td><td>-</td><td>-</td><td>-</td><td>0.1</td><td></td></tr><tr><td>Derivative financial instruments</td><td>0.1</td><td>0.1</td><td>-</td><td>-</td><td>-</td><td>0.1</td><td></td></tr><tr><td>Total</td><td>519.2</td><td>519.9</td><td>-</td><td>-</td><td>-</td><td>519.9</td><td></td></tr><tr><td>Non-current liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Obligations under finance lease contracts</td><td>7.1</td><td>0.4</td><td>2.1</td><td>5.0</td><td>0.9</td><td>8.4</td><td></td></tr><tr><td>Bank loans</td><td>12.1</td><td>0.4</td><td>5.1</td><td>7.4</td><td>-</td><td>12.9</td><td></td></tr><tr><td>Private placement notes</td><td>299.2</td><td>18.6</td><td>65.2</td><td>124.3</td><td>188.4</td><td>396.5</td><td></td></tr><tr><td>Derivative financial instruments</td><td>15.6</td><td>2.1</td><td>7.9</td><td>38.9</td><td>-</td><td>48.9</td><td></td></tr><tr><td>Total</td><td>334.0</td><td>21.5</td><td>80.3</td><td>175.6</td><td>189.3</td><td>466.7</td><td></td></tr><tr><td>Total liabilities</td><td>853.2</td><td>541.4</td><td>80.3</td><td>175.6</td><td>189.3</td><td>986.6</td><td></td></tr><tr><td>Other</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivative financial instrument assets*</td><td>(38.6)</td><td>(3.8)</td><td>(3.8)</td><td>(15.2)</td><td>(23.3)</td><td>(46.1)</td><td></td></tr><tr><td>Cash and cash equivalents*</td><td>(219.4)</td><td>(219.4)</td><td>-</td><td>-</td><td>-</td><td>(219.4)</td><td></td></tr><tr><td>Derivative financial instruments</td><td>-</td><td>(1.6)</td><td>(1.6)</td><td>(30.0)</td><td>-</td><td>(33.2)</td><td></td></tr><tr><td>Total</td><td>(258.0)</td><td>(224.8)</td><td>(5.4)</td><td>(45.2)</td><td>(23.3)</td><td>(298.7)</td><td></td></tr><tr><td>Grand total</td><td>595.2</td><td>316.6</td><td>74.9</td><td>130.4</td><td>166.0</td><td>687.9</td><td></td></tr></table>

* Derivative financial instrument assets and cash and cash equivalents have also been disclosed in order to present a full analysis of the Group's financial assets and liabilities.

In accordance with IFRS 7, for all gross settled derivative financial instruments (i.e. £/€ net investment hedges), the pay leg has been disclosed within liabilities and the receive leg has been included within other.

## 20 SENSITIVITY ANALYSIS

IFRS 7 requires the disclosure of a sensitivity analysis that details the effects on the Group's profit or loss and other equity of reasonably possible fluctuations in market rates.

This sensitivity analysis has been prepared to illustrate the effect of the following hypothetical variations in market rates on the fair value of the Group's financial assets and liabilities:

i) a 1% (100 basis points) increase or decrease in market interest rates; and

ii) a 10% strengthening or weakening of Sterling against all other currencies to which the Group is exposed.

## A) INTEREST RATE SENSITIVITY

The Group is currently exposed to Sterling, Euro and US Dollar interest rates. To a lesser extent the Group is also exposed to Polish Zloty, Czech Koruna and Hungarian Forint interest rates.

In order to illustrate the Group's sensitivity to interest rate fluctuations, the following table details the Group's sensitivity to a 100 basis point change in each respective interest rate. The sensitivity analysis of the Group's exposure to interest rate risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and other equity.

## 2010 ANALYSIS

<table><tr><td rowspan="2"></td><td colspan="2">GBP</td><td colspan="2">EUR</td><td colspan="2">USD</td><td colspan="2">PLN</td><td colspan="2">CZK</td><td colspan="2">HUF</td><td colspan="2">Total</td></tr><tr><td>+100bp £m</td><td>-100bp £m</td><td>+100bp £m</td><td>-100bp £m</td><td>+100bp £em</td><td>-100bp £m</td><td>+100bp £m</td><td>-100bp €m</td><td>+100bp £m</td><td>-100bp €m</td><td>+100bpe</td><td>-100bp €m</td><td>+100bp £m</td><td>-100bp £m</td></tr><tr><td>Profit or loss</td><td>(0.3)</td><td>0.3(0)</td><td>(0.7)</td><td>0.7(0)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(1.0)</td><td>1.0</td><td></td></tr><tr><td>Other equity</td><td>5.0</td><td>(5.4)(0)</td><td>0.8</td><td>(0.8)(0)</td><td>(9.1)</td><td>9.6(0)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(3.3)</td><td>3.4</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>4.7</td><td>(5.1)</td><td>0.1</td><td>(0.1)</td><td>(9.1)</td><td>9.6</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(4.3)</td><td>4.4</td></tr></table>



## NOTES TO THE ACCOUNTS CONTINUED

## 20 SENSITIVITY ANALYSIS CONTINUED

## A) INTEREST RATE SENSITIVITY CONTINUED

<table><tr><td rowspan="2"></td><td colspan="2">GBP</td><td colspan="2">EUR</td><td colspan="2">USD</td><td colspan="2">PLN</td><td colspan="2">CZK</td><td colspan="2">HUF</td><td colspan="2">Total</td></tr><tr><td>+100bp £m</td><td>-100bp £m</td><td>+100bp £m</td><td>-100bp £m</td><td>+100bp £n</td><td>-100bp £m</td><td>+100bp £m</td><td>-100bp €m</td><td>+100bp £m</td><td>-100bp €m</td><td>+100 bp £m</td><td>-100bp €m</td><td>+100bp £m</td><td>-1 00bp £m</td></tr><tr><td>Profit or loss</td><td>(0.9)</td><td>0.9 \( ^{(i)} \)</td><td>(0.8)</td><td>0.8 \( ^{(ii)} \)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(1.7)</td><td>1.7</td><td></td></tr><tr><td>Other equity</td><td>4.5</td><td>(4.8) \( ^{(i)} \)</td><td>1.3</td><td>(1.4) \( ^{(ii)} \)</td><td>(10.3)</td><td>10.9 \( ^{(i)} \)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(4.5)</td><td>4.7</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>3.6</td><td>(3.9)</td><td>0.5</td><td>(0.6)</td><td>(10.3)</td><td>10.9</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(6.2)</td><td>6.4</td></tr></table>

The movements noted above are described below, being mainly attributable to:

(i) floating rate Sterling debt;

(ii) mark-to-market valuation changes in the fair value of fully effective cash flow hedges;

(iii) floating rate Euro debt and Euro cash deposits; and

(iv) changes in the value of the Group’s Euro denominated assets and liabilities.

## B) FOREIGN CURRENCY SENSITIVITY

The Group is exposed to currency rate changes between Sterling and Euros, US Dollars, Polish Zloty, Czech Koruna and Hungarian Forints.

The following table details the Group's sensitivity to a 10% change in Sterling against each respective foreign currency to which the Group is exposed, indicating the likely impact of changes in foreign exchange rates on the Group's financial position. The sensitivity analysis of the Group's exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and other equity.

<table><tr><td></td><td colspan="2">EUR</td><td colspan="2">USD</td><td colspan="2">PLN</td><td colspan="2">CZK</td><td colspan="2">HUF</td><td colspan="2">Total</td></tr><tr><td></td><td>+10% £m</td><td>-10% £m</td><td>+10% £m</td><td>-10% £m</td><td>+10% €m</td><td>-10% €m</td><td>+10% €m</td><td>-10% €m</td><td>+10 % €m</td><td>-10% €m</td><td>+10% €m</td><td>-100% €m</td></tr><tr><td>Assets and liabilities under the scope of IFRS 7</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Profit or loss</td><td>0.4</td><td>(0.5) \( ^{(i)} \)</td><td>—</td><td>— \( ^{(v)} \)</td><td>—</td><td>— \( ^{(v)} \)</td><td>—</td><td>0.2</td><td>(0.5) \( ^{(vi)} \)</td><td>—</td><td>—</td><td>0.4</td></tr><tr><td>Other equity</td><td>1.4</td><td>(1.0) \( ^{(ii)} \)</td><td>(3.1)</td><td>3.8 \( ^{(ii)} \)</td><td>(1.2)</td><td>1.5 \( ^{(ii)} \)</td><td>(0.3)</td><td>0.3 \( ^{(ii)} \)</td><td>—</td><td>—</td><td>(3.2)</td><td>4.6</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>1.8</td><td>(1.5)</td><td>(3.1)</td><td>3.8</td><td>(1.2)</td><td>1.5</td><td>(0.3)</td><td>0.3</td><td>—</td><td>—</td><td>(2.8)</td><td>4.1</td></tr><tr><td>Total assets and liabilities*</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Profit or loss</td><td>(2.6)</td><td>2.0 \( ^{(iii)} \)</td><td>—</td><td>—</td><td>—</td><td>— \( ^{(iv)} \)</td><td>0.2</td><td>(0.5) \( ^{(vi)} \)</td><td>—</td><td>—</td><td>(2.4)</td><td>1.5</td></tr><tr><td>Other equity</td><td>(35.7)</td><td>45.6 \( ^{(iv)} \)</td><td>(3.1)</td><td>3.8 \( ^{(ii)} \)</td><td>(3.9)</td><td>4.7 \( ^{(iv)} \)</td><td>(0.6)</td><td>1.3 \( ^{(iv)} \)</td><td>—</td><td>—</td><td>(43.3)</td><td>55.4</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>(38.3)</td><td>47.6</td><td>(3.1)</td><td>3.8</td><td>(3.9)</td><td>4.7</td><td>(0.4)</td><td>0.8</td><td>—</td><td>—</td><td>(45.7)</td><td>56.9</td></tr></table>

* Certain assets and liabilities such as inventories, non-current assets and provisions do not come under the scope of IFRS 7. Therefore, in order to present a complete analysis of the Group’s exposure to movements in foreign currency exchange rates, the exposure on the Group’s total assets and liabilities has been disclosed.



## 20 SENSITIVITY ANALYSIS CONTINUED
B) FOREIGN CURRENCY SENSITIVITY CONTINUED

<table><tr><td rowspan="2"></td><td colspan="2">EUR</td><td colspan="2">USD</td><td colspan="2">PLN</td><td colspan="2">CZK</td><td colspan="2">HUF</td><td colspan="2">Total</td></tr><tr><td>+10% £m</td><td>-10% £m</td><td>+10% £m</td><td>-10% £m</td><td>+10% £n</td><td>-10% £m</td><td>+10% £m</td><td>-10% €m</td><td>+10% £m</td><td>-10% €m</td><td>+10%-10% €m</td><td>-10% €m</td></tr><tr><td>Assets and liabilities under the scope of IFRS 7</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Profit or loss</td><td>0.8</td><td>(0.9) \( ^{(i)} \)</td><td>-</td><td>- \( ^{(v)} \)</td><td>-</td><td>- \( ^{(v)} \)</td><td>0.2</td><td>(0.2) \( ^{(v)} \)</td><td>-</td><td>-</td><td>1.0</td><td>(1.1)</td></tr><tr><td>Other equity</td><td>5.5</td><td>(5.9) \( ^{(i)} \)</td><td>(2.6)</td><td>3.2 \( ^{(i)} \)</td><td>(1.3)</td><td>1.5 \( ^{(i)} \)</td><td>(0.7)</td><td>0.8 \( ^{(i)} \)</td><td>-</td><td>-</td><td>0.9</td><td>(0.4)</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>6.3</td><td>(6.8)</td><td>(2.6)</td><td>3.2</td><td>(1.3)</td><td>1.5</td><td>(0.5)</td><td>0.6</td><td>-</td><td>-</td><td>1.9</td><td>(1.5)</td></tr><tr><td>Total assets and liabilities*</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Profit or loss</td><td>(2.9)</td><td>1.8 \( ^{(ii)} \)</td><td>-</td><td>-</td><td>(0.1)</td><td>0.1 \( ^{(iv)} \)</td><td>0.3</td><td>(0.5) \( ^{(iv)} \)</td><td>-</td><td>-</td><td>(2.7)</td><td>1.4</td></tr><tr><td>Other equity</td><td>(33.7)</td><td>44.2 \( ^{(iv)} \)</td><td>(2.6)</td><td>3.2 \( ^{(iv)} \)</td><td>(3.8)</td><td>4.6 \( ^{(iv)} \)</td><td>(2.0)</td><td>3.0 \( ^{(iv)} \)</td><td>-</td><td>-</td><td>(42.1)</td><td>55.0</td></tr><tr><td>Total Shareholders&#x27; equity</td><td>(36.6)</td><td>46.0</td><td>(2.6)</td><td>3.2</td><td>(3.9)</td><td>4.7</td><td>(1.7)</td><td>2.5</td><td>-</td><td>-</td><td>(44.8)</td><td>56.4</td></tr></table>

* Certain assets and liabilities such as inventories, non-current assets and provisions do not come under the scope of IFRS 7. Therefore, in order to present a complete analysis of the Group's exposure to movements in foreign currency exchange rates, the exposure on the Group's total assets and liabilities has been disclosed.

The movements noted above are described below, being mainly attributable to:

(i) gains and losses on derivative financial instruments on the Group’s £/€ net investment hedges and retranslation of Euro interest flows;

(ii) mark-to-market valuation changes in the fair value of fully effective cash flow and net investment hedges and retranslation of assets and liabilities under the scope of IFRS 7;

(iii) retranslation of Euro profit streams and gains and losses on derivative financial instruments on the Group’s £/€ net investment hedges;

(iv) retranslation of foreign currency denominated assets and liabilities outside the scope of IFRS 7 and mark-to-market valuation changes in the fair value of fully effective cash flow and net investment hedges;

(v) retranslation of US Dollar, Polish Zloty and Czech Koruna interest flows; and

(vi) retranslation of Polish Zloty and Czech Koruna profit streams.

## 21 PROVISIONS FOR LIABILITIES AND CHARGES

<table><tr><td></td><td>2010
Onerous
leases
£m</td><td>2010
Leasehold
dilapidations
£m</td><td>2010
Contingent
consideration
£m</td><td>2010
Other
amounts
£m</td><td>2010
Total
£m</td></tr><tr><td>Beginning of year</td><td>20.1</td><td>16.2</td><td>1.0</td><td>3.9</td><td>41.2</td></tr><tr><td>Unused amounts reversed in the period</td><td>(0.5)</td><td>(1.0)</td><td>(0.5)</td><td>(0.1)</td><td>(2.1)</td></tr><tr><td>Utilised</td><td>(7.3)</td><td>(1.1)</td><td>(0.1)</td><td>(0.5)</td><td>(9.0)</td></tr><tr><td>New provisions</td><td>8.5</td><td>1.5</td><td>-</td><td>0.2</td><td>10.2</td></tr><tr><td>Transferred from accruals</td><td>-</td><td>1.3</td><td>-</td><td>0.1</td><td>1.4</td></tr><tr><td>Exchange difference</td><td>-</td><td>(0.1)</td><td>-</td><td>(0.1)</td><td>(0.2)</td></tr><tr><td>End of year</td><td>20.8</td><td>16.8</td><td>0.4</td><td>3.5</td><td>41.5</td></tr><tr><td></td><td></td><td></td><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Included in current liabilities</td><td></td><td></td><td></td><td>12.7</td><td>9.5</td></tr><tr><td>Included in non-current liabilities</td><td></td><td></td><td></td><td>28.8</td><td>31.7</td></tr><tr><td></td><td></td><td></td><td></td><td>41.5</td><td>41.2</td></tr></table>

## ONEROUS LEASES

The Group has provided for the rental payments due over the remaining term of existing operating lease contracts where a period of vacancy is ongoing. The provision has been calculated after taking into account both the periods over which properties are likely to remain vacant and the likely income from existing and future sub lease agreements on a contract-by-contract basis. The provision covers potential transfer of economic benefit over the full range of current lease commitments disclosed in Note 28b.

## LEASEHOLD DILAPIDATIONS

This provision relates to contractual obligations to reinstate leasehold properties into their original state of repair. The provision is calculated with reference to the expired portion of individual lease agreements where such a clause exists in the lease contract. The transfer of economic benefits will be made at the end of the leases as set out in Note 28b.

## CONTINGENT CONSIDERATION

Contingent consideration relates to the amounts due to vendors of prior year acquisitions providing certain future profit targets are met. The transfer of economic benefit is expected to be made within two years.

## OTHER AMOUNTS

Other amounts relate principally to claim provisions. The transfer of economic benefit is expected to be made between one and three years' time.



## NOTES TO THE ACCOUNTS CONTINUED

## 22 DEFERRED TAX

The net deferred tax asset/(liability) at the end of the year is analysed as follows:

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Deferred tax assets</td><td>28.7</td><td>27.5</td></tr><tr><td>Deferred tax liabilities</td><td>(26.5)</td><td>(38.9)</td></tr><tr><td>Net deferred tax asset/(liability)</td><td>2.2</td><td>(11.4)</td></tr></table>

## SUMMARY OF DEFERRED TAX

The different components of deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting period is analysed below:

<table><tr><td></td><td>Goodwill and intangibles £m</td><td>Property, plant and equipment £m</td><td>Tax assets £m</td><td>Retirement benefit obligations £m</td><td>Losses £m</td><td>Other £m</td><td>Total £m</td></tr><tr><td>As at 31 December 2008</td><td>(42.9)</td><td>(7.2)</td><td>13.9</td><td>3.9</td><td>1.0</td><td>0.5</td><td>(30.8)</td></tr><tr><td>Credit/(charge) to income</td><td>8.0</td><td>10.5</td><td>(1.1)</td><td>0.1</td><td>(0.4)</td><td>0.7</td><td>17.8</td></tr><tr><td>Credit to equity</td><td>-</td><td>-</td><td>-</td><td>1.3</td><td>-</td><td>-</td><td>1.3</td></tr><tr><td>Exchange difference</td><td>-</td><td>0.5</td><td>(0.2)</td><td>-</td><td>(0.2)</td><td>0.2</td><td>0.3</td></tr><tr><td>As at 31 December 2009</td><td>(34.9)</td><td>3.8</td><td>12.6</td><td>5.3</td><td>0.4</td><td>1.4</td><td>(11.4)</td></tr><tr><td>Credit/(charge) to income</td><td>13.1</td><td>0.4</td><td>1.2</td><td>(0.2)</td><td>0.8</td><td>(2.1)</td><td>13.2</td></tr><tr><td>Credit to equity</td><td>-</td><td>-</td><td>-</td><td>0.5</td><td>-</td><td>0.2</td><td>0.7</td></tr><tr><td>Exchange difference</td><td>-</td><td>0.1</td><td>(0.2)</td><td>-</td><td>-</td><td>-</td><td>(0.1)</td></tr><tr><td>Change of rate</td><td>-</td><td>-</td><td>-</td><td>(0.2)</td><td>-</td><td>-</td><td>(0.2)</td></tr><tr><td>As at 31 December 2010</td><td>(21.8)</td><td>4.3</td><td>13.6</td><td>5.4</td><td>1.2</td><td>(0.5)</td><td>2.2</td></tr></table>

The deferred tax credit for 2010 includes an exceptional credit of  \( £0.2m \)  arising from the reduction in the rate of UK corporation tax from 28% to 27% which comes into effect on 1 April 2011.

Given current and forecast trading the Directors consider that recognition of the deferred tax assets above is appropriate.

The Group has not taken account of excess non-trading losses associated with financial instruments in determining the above deferred tax asset at 31 December 2010. During the year, the Group has utilised £10m (gross) of previously unrecognised deferred tax on non-trading losses. In this respect, any future utilisation of the unrecognised deferred tax asset associated with the non-trading losses of £108m (2009: £118m) will result in a reduction of cash payments of tax and will also result in a profit and loss benefit in the year of utilisation.

There are other potential deferred tax assets in relation to tax losses totalling £8m (2009: £4m) that have not been recognised on the basis that the realisation of their future economic benefit is uncertain. The tax losses in the Czech Republic of £2m and Poland of £1m expire after five years. The remaining tax losses of £5m may be carried forward indefinitely.

The total gross value of unrecognised tax losses at 31 December 2010 therefore amounted to £116m (2009: £122m).

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries with a lower rate of corporation tax than that suffered in the UK, for which no deferred tax liabilities have been recognised, was £30m (2009: £31m). No liability has been recognised in respect of these differences as the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.

## 23 OBLIGATIONS UNDER FINANCE LEASE CONTRACTS

<table><tr><td rowspan="2"></td><td colspan="2">Minimum lease payments</td><td colspan="2">Present value of minimum lease payments</td></tr><tr><td>2010
£m</td><td>2009
£m</td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Amounts payable under finance lease contracts:</td><td></td><td></td><td></td><td></td></tr><tr><td>- within one year</td><td>1.8</td><td>2.4</td><td>1.7</td><td>2.3</td></tr><tr><td>- after one year and within five years</td><td>6.5</td><td>7.2</td><td>5.1</td><td>6.2</td></tr><tr><td>- after five years</td><td>0.5</td><td>1.2</td><td>0.4</td><td>0.9</td></tr><tr><td></td><td>8.8</td><td>10.8</td><td>7.2</td><td>9.4</td></tr><tr><td>Less: future finance charges</td><td>1.6</td><td>1.4</td><td></td><td></td></tr><tr><td>Present value of lease obligations</td><td>7.2</td><td>9.4</td><td></td><td></td></tr></table>

The Group leases certain of its motor vehicles, fixtures and equipment under finance lease contracts.

The average remaining lease term is 1.9 years (2009: 2.7 years). For the year ended 31 December 2010, the average effective borrowing rate was 14.2% (2009: 13.4%). Interest rates are fixed at the contract date.

The carrying amount of the Group's lease obligations approximates to their fair value.



<table><tr><td>24 CALLED UP SHARE CAPITAL</td><td>2010</td><td>2009</td></tr><tr><td>Authorised:</td><td>£m</td><td>£m</td></tr><tr><td>800,000,000 ordinary shares of 1Op each (2009: 800,000,000)</td><td>80.0</td><td>80.0</td></tr><tr><td>Allotted, called up and fully paid:</td><td></td><td></td></tr><tr><td>590,829,339 ordinary shares of 1Op each (2009: 590,829,339)</td><td>59.1</td><td>59.1</td></tr></table>

No shares were allotted between 1 January 2010 and 31 December 2010 (2009: 455,190,164 allotted).

The Company has one class of ordinary share which carries no right to fixed income.

At 31 December 2010 the following share options were outstanding:

<table><tr><td rowspan="2">Scheme and date of grant</td><td colspan="4">Number of shares</td><td colspan="3">Exercise dates</td></tr><tr><td>At 31 December 2009</td><td>Granted</td><td>Exercised</td><td>Lapsed</td><td>At 31 December 2010</td><td>Option price per 10p share</td><td>Date from which option may be exercised</td></tr><tr><td>Deferred Annual Bonus Scheme</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>19/04/2005</td><td>5,184</td><td>-</td><td>-</td><td>-</td><td>5,184</td><td>0.00p</td><td>19/04/2008</td></tr><tr><td>17/04/2007</td><td>13,163</td><td>-</td><td>-</td><td>(13,163)</td><td>-</td><td>0.00p</td><td>17/04/2010</td></tr><tr><td>14/04/2008</td><td>29,770</td><td>-</td><td>-</td><td>-</td><td>29,770</td><td>0.00p</td><td>14/04/2011</td></tr><tr><td>15/09/2009</td><td>34,730</td><td>-</td><td>-</td><td>-</td><td>34,730</td><td>0.00p</td><td>15/09/2012</td></tr><tr><td>Long Term Incentive Plan</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>19/04/2005</td><td>5,707</td><td>-</td><td>-</td><td>-</td><td>5,707</td><td>0.00p</td><td>19/04/2008</td></tr><tr><td>17/04/2007</td><td>54,640</td><td>-</td><td>-</td><td>(54,640)</td><td>-</td><td>0.00p</td><td>17/04/2010</td></tr><tr><td>14/04/2008</td><td>165,199</td><td>-</td><td>-</td><td>(8,360)</td><td>156,839</td><td>0.00p</td><td>14/04/2011</td></tr><tr><td>08/09/2008</td><td>11,166</td><td>-</td><td>-</td><td>-</td><td>11,166</td><td>0.00p</td><td>08/09/2011</td></tr><tr><td>15/09/2009</td><td>577,862</td><td>-</td><td>-</td><td>-</td><td>577,862</td><td>0.00p</td><td>15/09/2012</td></tr><tr><td>07/06/2010</td><td>-</td><td>1,459,751</td><td>-</td><td>-</td><td>1,459,751</td><td>0.00p</td><td>07/06/2013</td></tr><tr><td>Executive Share Option Scheme</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>19/04/2002</td><td>23,342</td><td>-</td><td>-</td><td>(23,342)</td><td>-</td><td>265.05p</td><td>19/04/2005</td></tr><tr><td>11/04/2003</td><td>41,159</td><td>-</td><td>-</td><td>-</td><td>41,159</td><td>169.68p</td><td>11/04/2006</td></tr><tr><td>Savings Related Schemes</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>21/10/2005</td><td>904</td><td>-</td><td>-</td><td>-</td><td>904</td><td>471.50p</td><td>01/11/2008</td></tr><tr><td>10/11/2006</td><td>645</td><td>-</td><td>-</td><td>-</td><td>645</td><td>658.10p</td><td>01/01/2010</td></tr><tr><td>26/11/2007</td><td>9,305</td><td>-</td><td>-</td><td>-</td><td>9,305</td><td>679.60p</td><td>01/01/2011</td></tr><tr><td>24/10/2008</td><td>88,362</td><td>-</td><td>-</td><td>-</td><td>88,362</td><td>272.50p</td><td>01/01/2012</td></tr><tr><td>20/10/2010</td><td>-</td><td>337,836</td><td>-</td><td>-</td><td>337,836</td><td>95.00p</td><td>01/12/2013</td></tr><tr><td>Total</td><td>1,061,138</td><td>1,797,587</td><td>-</td><td>(99,505)</td><td>2,759,220</td><td></td><td></td></tr></table>

25 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATING ACTIVITIES

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Operating loss</td><td>(54.6)</td><td>(32.5)</td></tr><tr><td>Depreciation charge</td><td>36.0</td><td>40.2</td></tr><tr><td>Impairment of property, plant and equipment</td><td>3.8</td><td>6.8</td></tr><tr><td>Amortisation of acquired intangibles</td><td>28.5</td><td>28.6</td></tr><tr><td>Goodwill and intangible impairment charges</td><td>80.4</td><td>30.0</td></tr><tr><td>Profit on sale of property, plant and equipment</td><td>(1.2)</td><td>(1.8)</td></tr><tr><td>Share-based payments</td><td>0.4</td><td>(0.5)</td></tr><tr><td>Working capital movement:</td><td></td><td></td></tr><tr><td>Loan issued to associate</td><td>(1.2)</td><td>-</td></tr><tr><td>(Increase)/decrease in inventories</td><td>(7.7)</td><td>26.1</td></tr><tr><td>Decrease in receivables</td><td>9.1</td><td>67.8</td></tr><tr><td>Increase in payables</td><td>5.3</td><td>9.4</td></tr><tr><td>Cash generated from operating activities</td><td>98.8</td><td>174.1</td></tr></table>

Included within the cash generated from operating activities is cash paid in respect of current year and prior year exceptional costs of £19.3m (2009: £27.1m).



## NOTES TO THE ACCOUNTS CONTINUED

<table><tr><td colspan="3">26 RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT</td></tr><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>(Decrease)/increase in cash and cash equivalents in the year</td><td>(88.3)</td><td>166.7</td></tr><tr><td>Cash flow from decrease in debt</td><td>145.3</td><td>280.9</td></tr><tr><td>Decrease in net debt resulting from cash flows</td><td>57.0</td><td>447.6</td></tr><tr><td>Non-cash items \( ^{2} \)</td><td>6.9</td><td>(24.5)</td></tr><tr><td>Exchange difference</td><td>5.6</td><td>19.5</td></tr><tr><td>Decrease in net debt in the year</td><td>69.5</td><td>442.6</td></tr><tr><td>Net debt at beginning of year</td><td>(254.5)</td><td>(697.1)</td></tr><tr><td>Net debt at end of year</td><td>(185.0)</td><td>(254.5)</td></tr></table>

^ 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.

## 27 ANALYSIS OF NET DEBT

<table><tr><td></td><td>At 31 December 2009 £m</td><td>Cash flows £m</td><td>Non-cash items \( ^{2} \)  £m</td><td>Exchange difference £m</td><td>At 31 December 2010 £m</td></tr><tr><td>Cash and cash equivalents</td><td>219.4</td><td>(88.3)</td><td>-</td><td>(1.6)</td><td>129.5</td></tr><tr><td>Overdrafts</td><td>(2.5)</td><td>-</td><td>-</td><td>-</td><td>(2.5)</td></tr><tr><td></td><td>216.9</td><td>(88.3)</td><td>-</td><td>(1.6)</td><td>127.0</td></tr><tr><td>Financial assets - derivative financial instruments</td><td>38.6</td><td>(0.1)</td><td>6.9</td><td>6.6</td><td>52.0</td></tr><tr><td>Debts due within one year</td><td>(173.7)</td><td>88.3</td><td>-</td><td>0.2</td><td>(85.2)</td></tr><tr><td>Debts due after one year</td><td>(326.9)</td><td>55.2</td><td>-</td><td>0.1</td><td>(271.6)</td></tr><tr><td>Finance lease contracts</td><td>(9.4)</td><td>1.9</td><td>-</td><td>0.3</td><td>(7.2)</td></tr><tr><td></td><td>(254.5)</td><td>57.0</td><td>6.9</td><td>5.6</td><td>(185.0)</td></tr></table>

^ 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.

## 28 GUARANTEES AND OTHER FINANCIAL COMMITMENTS

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Contracted but not provided for</td><td>2.1</td><td>1.0</td></tr></table>

## B) LEASE COMMITMENTS

The Group leases a number of its premises under operating leases which expire between 2011 and 2049.

The rentals payable are subject to renegotiation at various dates. The total future minimum lease rentals under the foregoing leases are as follows:

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Minimum lease rentals due:</td><td></td><td></td></tr><tr><td>- within one year</td><td>46.8</td><td>33.6</td></tr><tr><td>- after one year and within five years</td><td>118.6</td><td>87.2</td></tr><tr><td>- after five years</td><td>105.9</td><td>135.8</td></tr><tr><td></td><td>271.3</td><td>256.6</td></tr></table>

The Group also leases certain items of plant and machinery whose total future minimum lease rentals under the foregoing leases are as follows:

<table><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Minimum lease rentals due:</td><td></td><td></td></tr><tr><td>- within one year</td><td>8.9</td><td>8.7</td></tr><tr><td>- after one year and within five years</td><td>17.1</td><td>19.2</td></tr><tr><td>- after five years</td><td>0.4</td><td>0.6</td></tr><tr><td></td><td>26.4</td><td>28.5</td></tr></table>



## 28 GUARANTEES AND OTHER FINANCIAL COMMITMENTS CONTINUED

## C) PENSION SCHEMES

The Group operates a number of pension schemes, five (2009: five) of which provide defined benefits based on final pensionable salary. Of these schemes, one (2009: one) has assets held in a separate trustee administered fund and four (2009: four) are overseas book reserved schemes. The Group also operates a number of defined contribution schemes all of which are independently managed.

The pension charge for the year amounted to £7.2m (2009: £7.2m), of which £2.4m (2009: £2.9m) related to defined benefit pension schemes and £4.8m (2009: £4.3m) related to defined contribution schemes.

## DEFINED BENEFIT PENSION SCHEME VALUATIONS

In accordance with the amendment to IAS 19 which was issued on 16 December 2004, the Group has elected to recognise all actuarial gains and losses in full in the period in which they arise in the Consolidated Statement of Comprehensive Income.

The actuarial valuations of the defined benefit pension schemes are assessed by an independent actuary every three years who recommends the rate of contribution payable each year.

The last formal actuarial valuation of the SIG plc Retirement Benefits Plan, the UK scheme, was conducted at 31 December 2007 and showed that the market value of the scheme's assets was £75.0m and their actuarial value covered 83% of the benefits accrued to members after allowing for expected future increases in pensionable salaries.

The other four schemes are book reserved schemes whereby the sponsoring company does not hold any separate assets to fund the pension scheme but makes a reserve in its accounts. Therefore, these schemes do not hold separate scheme assets. The liabilities of the schemes are met by the sponsoring companies.

## CONSOLIDATED INCOME STATEMENT CHARGES

The pension charge for the year relating to the defined benefit pension schemes was £2.4m (2009: £2.9m). In accordance with IAS 19 “Employee Benefits”, the charge for the defined benefit schemes has been calculated as the sum of the cost of benefits accruing in the year, the increase in the value of benefits already accrued and the expected return on assets.

The actuarial valuations described previously have been updated at 31 December 2010 by a qualified actuary using revised assumptions that are consistent with the requirements of IAS 19. Investments have been valued, for this purpose, at fair value.

The UK defined benefit scheme is closed to new members, has an age profile that is rising and therefore, under the projected unit method, the current service cost will increase as the members of the scheme approach retirement. The four overseas book reserved schemes remain open to new members.

## CONSOLIDATED BALANCE SHEET LIABILITY

The balance sheet position in respect of the five defined benefit schemes can be summarised as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Pension liability before taxation</td><td>(25.2)</td><td>(24.0)</td></tr><tr><td>Related deferred tax asset</td><td>5.4</td><td>5.3</td></tr><tr><td>Pension liability after taxation</td><td>(19.8)</td><td>(18.7)</td></tr></table>

The actuarial loss of £1.8m (2009: £4.7m) for the year, together with the associated deferred tax credit of £0.5m (2009: £1.3m) and deferred tax charge of £0.2m in respect of the change in the UK standard rate of tax from 28% to 27% effective from 1 April 2011, has been recognised in the Consolidated Statement of Comprehensive Income. The remaining deferred tax charge of £0.2m (2009: credit of £0.1m) has been recognised in the Consolidated Income Statement.

The cumulative actuarial gains and losses gross of deferred tax (from 2004 onwards) recognised in the Consolidated Statement of Comprehensive Income amounted to a loss of £18.2m (2009: £16.4m).

Of the above pension liability before taxation, £20.2m (2009: £19.0m) relates to wholly or partly funded schemes and £5.0m (2009: £5.0m) relates to unfunded schemes.

The movement in the pension liability before taxation in the year can be summarised as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Pension liability at beginning of year</td><td>(24.0)</td><td>(19.1)</td></tr><tr><td>Current service cost</td><td>(1.9)</td><td>(1.6)</td></tr><tr><td>Contributions</td><td>2.8</td><td>2.4</td></tr><tr><td>Net finance cost</td><td>(0.5)</td><td>(1.3)</td></tr><tr><td>Actuarial loss</td><td>(1.8)</td><td>(4.7)</td></tr><tr><td>Exchange difference</td><td>0.2</td><td>0.3</td></tr><tr><td>Pension liability at end of year</td><td>(25.2)</td><td>(24.0)</td></tr></table>

Contributions of approximately £2.7m are expected to be paid to the plan during the annual period beginning 1 January 2011.

The principal assumptions used for the IAS 19 actuarial valuation of the schemes were:

<table><tr><td></td><td>2010%</td><td>2009%</td><td>2008%</td></tr><tr><td>Rate of increase in salaries</td><td>3.9</td><td>4.5</td><td>4.7</td></tr><tr><td>Rate of fixed increase of pensions in payment</td><td>3.9</td><td>4.5</td><td>4.7</td></tr><tr><td>Rates of increase LPI pensions in payment</td><td>3.4</td><td>3.5</td><td>2.7</td></tr><tr><td>Discount rate</td><td>5.4</td><td>5.7</td><td>6.2</td></tr><tr><td>Inflation assumption</td><td>3.4</td><td>3.5</td><td>2.7</td></tr></table>



## NOTES TO THE ACCOUNTS CONTINUED

## 28 GUARANTEES AND OTHER FINANCIAL COMMITMENTS CONTINUED

## C) PENSION SCHEMES CONTINUED

## CONSOLIDATED BALANCE SHEET LIABILITY CONTINUED

Deferred pensions are revalued to retirement in line with the schemes' rules and statutory requirements, with the inflation assumption used for LPI revaluation in deferment.

The life expectancy for a male employee beyond the normal retirement age of 60 is 28.5 years (2009: 28.5 years).

If the discount rate was to be increased/decreased by 0.25%, this would decrease/increase the Group's gross pension scheme deficit by £5.3m.

The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each balance sheet date were:

<table><tr><td></td><td>2010%</td><td>2010£m</td><td>2009%</td><td>2009£m</td><td>2008%</td><td>2008£m</td><td>2007%</td><td>2007£m</td><td>2006%</td><td>2006£m</td></tr><tr><td>Equities</td><td>7.2</td><td>55.0</td><td>7.5</td><td>50.7</td><td>6.4</td><td>40.3</td><td>6.7</td><td>48.7</td><td>6.7</td><td>44.0</td></tr><tr><td>Bonds</td><td>5.0</td><td>37.0</td><td>5.3</td><td>36.7</td><td>5.2</td><td>34.3</td><td>4.7</td><td>28.0</td><td>4.6</td><td>23.7</td></tr><tr><td>Other</td><td>5.2</td><td>6.2</td><td>N/A</td><td>-</td><td>N/A</td><td>-</td><td>6.2</td><td>0.1</td><td>5.5</td><td>0.2</td></tr><tr><td>Total fair value of assets</td><td></td><td>98.2</td><td></td><td>87.4</td><td></td><td>74.6</td><td></td><td>76.8</td><td></td><td>67.9</td></tr><tr><td>Present value of scheme liabilities</td><td></td><td>(123.4)</td><td></td><td>(111.4)</td><td></td><td>(93.7)</td><td></td><td>(92.5)</td><td></td><td>(91.5)</td></tr><tr><td>Deficit in the scheme</td><td></td><td>(25.2)</td><td></td><td>(24.0)</td><td></td><td>(19.1)</td><td></td><td>(15.7)</td><td></td><td>(23.6)</td></tr><tr><td>Related deferred tax asset</td><td></td><td>5.4</td><td></td><td>5.3</td><td></td><td>3.9</td><td></td><td>3.4</td><td></td><td>6.7</td></tr><tr><td>Pension liability after taxation</td><td></td><td>(19.8)</td><td></td><td>(18.7)</td><td></td><td>(15.2)</td><td></td><td>(12.3)</td><td></td><td>(16.9)</td></tr></table>

The UK Government has announced that statutory pension increases and revaluation would be based on the Consumer Prices Index (“CPI”) measure of price inflation rather than the Retail Prices Index (“RPI”) measure. The effect of this change on the Group’s UK defined benefit pension scheme in the current year has been an additional gain through equity of £2.0m.

The overall expected rate of return is based upon market conditions at the balance sheet date.

Analysis of the amount charged to operating profit under IAS 19 in relation to the schemes:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Current service cost</td><td>1.9</td><td>1.6</td></tr></table>

Analysis of the amount charged to finance income and finance charges under IAS 19 in relation to the schemes:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Finance income - being expected return on pension scheme assets</td><td>5.7</td><td>4.3</td></tr><tr><td>Finance costs - being interest on pension scheme liabilities</td><td>(6.2)</td><td>(5.6)</td></tr><tr><td>Net finance cost</td><td>(0.5)</td><td>(1.3)</td></tr></table>

The actual gain on scheme assets was £11.1m (2009: gain of £12.2m).

Analysis of the actuarial loss recognised in the Consolidated Statement of Comprehensive Income in respect of the schemes:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Actual return less expected return on assets</td><td>5.4</td><td>7.9</td></tr><tr><td>Changes in assumptions</td><td>(7.2)</td><td>(12.6)</td></tr><tr><td>Actuarial loss recognised</td><td>(1.8)</td><td>(4.7)</td></tr></table>

Movements in the present value of the schemes' liabilities were as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Fair value of schemes&#x27; liabilities at beginning of year</td><td>(111.4)</td><td>(93.7)</td></tr><tr><td>Current service cost</td><td>(1.9)</td><td>(1.6)</td></tr><tr><td>Interest on pension schemes&#x27; liabilities</td><td>(6.2)</td><td>(5.6)</td></tr><tr><td>Changes in assumptions</td><td>(7.2)</td><td>(12.6)</td></tr><tr><td>Contributions from schemes&#x27; members</td><td>(0.6)</td><td>(0.6)</td></tr><tr><td>Exchange differences</td><td>0.2</td><td>0.3</td></tr><tr><td>Benefits paid</td><td>3.7</td><td>2.4</td></tr><tr><td>Fair value of schemes&#x27; liabilities at end of year</td><td>(123.4)</td><td>(111.4)</td></tr></table>



## 28 GUARANTEES AND OTHER FINANCIAL COMMITMENTS CONTINUED

## C) PENSION SCHEMES CONTINUED

## CONSOLIDATED BALANCE SHEET LIABILITY CONTINUED

Movements in the fair value of the schemes' assets were as follows:

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Fair value of schemes&#x27; assets at beginning of year</td><td>87.4</td><td>74.6</td></tr><tr><td>Expected return on assets</td><td>5.7</td><td>4.3</td></tr><tr><td>Actual return less expected return on assets</td><td>5.4</td><td>7.9</td></tr><tr><td>Contributions from sponsoring companies</td><td>2.8</td><td>2.4</td></tr><tr><td>Contributions from schemes&#x27; members</td><td>0.6</td><td>0.6</td></tr><tr><td>Benefits paid</td><td>(3.7)</td><td>(2.4)</td></tr><tr><td>Fair value of schemes&#x27; assets at end of year</td><td>98.2</td><td>87.4</td></tr></table>

History of experience of gains and losses:

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td></tr><tr><td>Difference between the expected and actual return on schemes&#x27; assets:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amount (£m)</td><td>5.4</td><td>7.9</td><td>(1.5.3)</td><td>0.4</td><td>0.5</td></tr><tr><td>Percentage of schemes&#x27; assets</td><td>5.5%</td><td>9.0%</td><td>(20.5%)</td><td>0.5%</td><td>0.7%</td></tr><tr><td>Experience gains and losses on schemes&#x27; liabilities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amount (£m)</td><td>-</td><td>-</td><td>5.5</td><td>(4.4)</td><td>(9.0)</td></tr><tr><td>Percentage of the present value of schemes&#x27; liabilities</td><td>0.0%</td><td>0.0%</td><td>5.9%</td><td>(4.9%)</td><td>(9.9%)</td></tr><tr><td>Total amount recognised in the Consolidated Statement of Comprehensive Income:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amount (£m)</td><td>(1.8)</td><td>(4.7)</td><td>(10.6)</td><td>6.2</td><td>3.3</td></tr><tr><td>Percentage of the present value of the schemes&#x27; liabilities</td><td>(1.5%)</td><td>(4.2%)</td><td>(11.3%)</td><td>6.7%</td><td>6.3%</td></tr></table>

## D) CONTINGENT LIABILITIES

As at the balance sheet date, the Group had outstanding obligations under customer guarantees, claims, standby letters of credit and discounted bills of up to £12.7m (2009: £12.0m). Of this amount, £10.1m (2009: £10.6m) related to standby letters of credit issued by The Royal Bank of Scotland plc in respect of the Group's insurance arrangements.

## 29 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.

During the year, the Group acquired a non-controlling shareholding in Ice Energy Technologies Limited. Further disclosure of transactions between the Group and Ice Energy Technologies Limited are disclosed in Note 11.

## REMUNERATION OF KEY MANAGEMENT PERSONNEL

The remuneration of the Directors who are the key management personnel of the Group is provided in the audited part of the Directors' Remuneration Report on pages 59 to 65. In addition, the Group recognised a share-based payment charge under IFRS 2 in respect of the Directors of £0.1m (2009: credit of £0.4m).

## 30 SUBSIDIARIES

Details of the Group's principal trading subsidiaries, all of which have been included in the Consolidated Accounts, are shown on page 121.



# INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF SIG plc

We have audited the Group financial statements of SIG plc for the year ended 31 December 2010 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity, the Statement of Significant Accounting Policies, the Critical Accounting Judgments and Key Sources of Estimation Uncertainty and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

## RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

## SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

## OPINION ON FINANCIAL STATEMENTS

In our opinion the group financial statements:

give a true and fair view of the state of the Group’s affairs as at 31 December 2010 and of its loss for the year then ended;

have been properly prepared in accordance with IFRS as adopted by the European Union; and

have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

## OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion the information given in the Directors' Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

## MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

certain disclosures of directors’ remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

the directors' statement, contained within the Statutory Information, in relation to going concern; and

the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review;

certain elements of the report to shareholders by the Board on directors' remuneration.

## OTHER MATTER

We have reported separately on the parent Company financial statements of SIG plc for the year ended 31 December 2010 and on the information in the Directors' Remuneration Report that is described as having been audited.



CHRISTOPHER POWELL FCA (SENIOR STATUTORY AUDITOR)

FOR AND ON BEHALF OF DELOITTE LLP

CHARTERED ACCOUNTANTS AND STATUTORY AUDITOR

LEEDS, UK

16 MARCH 2011



## FIVE YEAR SUMMARY

<table><tr><td rowspan="3"></td><td colspan="5">IFRS</td></tr><tr><td colspan="5">Continuing operations ^</td></tr><tr><td>2006
£m</td><td>2007
£m</td><td>2008
£m</td><td>2009
£m</td><td>2010
£m</td></tr><tr><td>Revenue*</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Underlying** operating profit</td><td>1,846.2</td><td>2,438.6</td><td>3,032.7</td><td>2,723.1</td><td>2,668.0</td></tr><tr><td>Operating profit/(loss)</td><td>121.4</td><td>159.4</td><td>169.8</td><td>80.9</td><td>76.1</td></tr><tr><td>Finance income</td><td>114.5</td><td>142.2</td><td>107.0</td><td>(32.5)</td><td>(54.6)</td></tr><tr><td>Finance costs</td><td>7.4</td><td>10.6</td><td>11.9</td><td>11.7</td><td>7.8</td></tr><tr><td>Underlying** profit before tax</td><td>(19.2)</td><td>(28.5)</td><td>(85.8)</td><td>(34.5)</td><td>(34.0)</td></tr><tr><td>Profit/(loss) before tax</td><td>108.3</td><td>140.1</td><td>137.3</td><td>60.6</td><td>62.5</td></tr><tr><td>Profit/(loss) after tax</td><td>102.7</td><td>124.3</td><td>33.1</td><td>(55.3)</td><td>(80.8)</td></tr><tr><td>Underlying** earnings per share</td><td>71.8</td><td>87.1</td><td>6.8</td><td>(45.1)</td><td>(76.8)</td></tr><tr><td>Earnings/(loss) per share</td><td>61.3p</td><td>74.8p</td><td>58.9p</td><td>9.0p</td><td>7.2p</td></tr><tr><td>Dividend per share</td><td>58.1p</td><td>66.3p</td><td>3.8p</td><td>(9.7p)</td><td>(13.0p)</td></tr><tr><td></td><td>20.5p</td><td>26.7p</td><td>8.3p</td><td>nil p</td><td>nil p</td></tr></table>

 \( ^{\wedge} \)  SIG sold its USA business on 20 November 2006. Figures stated are from continuing operations (i.e. excluding the USA business).

 \( ^{*} \)  Restated, see Accounting Policies on page 78 for details.

** Underlying figures are stated before the amortisation of acquired Intangibles, impairment charges, restructuring costs and gains and losses on derivative financial instruments.

A more detailed five year summary can be found in the investor section of the Company’s website (www.sigplc.com).



COMPANY ACCOUNTS
PREPARED IN ACCORDANCE WITH UK GAAP

COMPANY ACCOUNTS
113 COMPANY BALANCE SHEET
114 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
115 NOTES TO THE COMPANY ACCOUNTS
119 INDEPENDENT AUDITOR REPORT
120 PRINCIPAL ADDRESSES
121 PRINCIPAL TRADING SUBSIDIARIES



## COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2010

<table><tr><td></td><td>Note</td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Fixed assets</td><td></td><td></td><td></td></tr><tr><td>Investments</td><td>5</td><td>466.3</td><td>580.1</td></tr><tr><td>Interest in associate</td><td>6</td><td>1.6</td><td>-</td></tr><tr><td>Tangible fixed assets</td><td>7</td><td>0.1</td><td>0.1</td></tr><tr><td></td><td></td><td>468.0</td><td>580.2</td></tr><tr><td>Current assets</td><td></td><td></td><td></td></tr><tr><td>Debtors - due within one year</td><td>8</td><td>34.3</td><td>392.5</td></tr><tr><td>Debtors - due after more than one year</td><td>8</td><td>743.1</td><td>301.3</td></tr><tr><td>Cash at bank and in hand</td><td></td><td>47.2</td><td>132.7</td></tr><tr><td></td><td></td><td>824.6</td><td>826.5</td></tr><tr><td>Creditors: amounts falling due within one year</td><td>9</td><td>(225.3)</td><td>(274.7)</td></tr><tr><td>Net current assets</td><td></td><td>599.3</td><td>551.8</td></tr><tr><td>Total assets less current liabilities</td><td></td><td>1,067.3</td><td>1,132.0</td></tr><tr><td>Creditors: amounts falling due after one year</td><td>10</td><td>(343.1)</td><td>(401.5)</td></tr><tr><td>Net assets</td><td></td><td>724.2</td><td>730.5</td></tr><tr><td>Capital and reserves</td><td></td><td></td><td></td></tr><tr><td>Called up share capital</td><td>12</td><td>59.1</td><td>59.1</td></tr><tr><td>Share premium account</td><td>12</td><td>447.0</td><td>447.0</td></tr><tr><td>Merger reserve</td><td>12</td><td>21.7</td><td>21.7</td></tr><tr><td>Capital redemption reserve</td><td>12</td><td>0.3</td><td>0.3</td></tr><tr><td>Share option reserve</td><td>12</td><td>1.0</td><td>0.9</td></tr><tr><td>Exchange reserve</td><td>12</td><td>(0.2)</td><td>(0.2)</td></tr><tr><td>Profit and loss account</td><td>12</td><td>195.3</td><td>201.7</td></tr><tr><td>Shareholders&#x27; funds (all equity)</td><td></td><td>724.2</td><td>730.5</td></tr></table>

The Accounts were approved by the Board of Directors on 16 March 2011 and signed on its behalf by:





CHRIS DAVIES
DIRECTOR

GARETH DAVIES
DIRECTOR

The accompanying Statement of Significant Accounting Policies and Notes to the Accounts are an integral part of this Company Balance Sheet.

Registered in England: 998314



# STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

## BASIS OF ACCOUNTING

The separate Accounts of the Company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards (UK GAAP).

The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year.

The Company has taken the exemption from FRS 29 "Financial Instruments: Disclosures" provided for a parent company's single entity financial statements.

## SHARE-BASED PAYMENTS

The accounting policy for share-based payments (FRS 20) is consistent with that of the Group as detailed on page 76.

## FINANCIAL INSTRUMENTS

The accounting policy for financial instruments is consistent with that of the Group as detailed on page 77.

## FINANCIAL ASSETS AND LIABILITIES

The accounting policy for financial assets and liabilities is consistent with that of the Group as detailed on pages 76 and 77.

## INVESTMENTS

Fixed asset investments in subsidiaries are shown at cost less provision for impairment.

## FOREIGN CURRENCY

Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end.

Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Profit and Loss Account.

## INTEREST IN ASSOCIATE

The accounting policy for the interest in an associate is consistent with that of the Group as detailed on page 75.



## NOTES TO THE COMPANY ACCOUNTS

## I PROFIT FOR THE YEAR

As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own Profit and Loss Account for the year. SIG plc reported a loss for the financial year ended 31 December 2010 of £25.8m (2009: profit of £45.5m).

The Auditors' remuneration for audit services to the Company was £0.1m (2009: £0.1m).

## 2 SHARE-BASED PAYMENTS

The Company had five share-based payment schemes in existence during the year ended 31 December 2010. The Company recognised a total charge of £0.4m (2009: credit of £0.5m) in the year relating to share-based payment transactions issued after 7 November 2002. Details of the valuations of each of the five share-based payment schemes can be found in Note 9 to the Group Accounts on pages 86 to 89.

## 3 DIVIDENDS

The Directors have proposed no final dividend for the year ended 31 December 2010 (2009: £nil).

## 4 STAFF COSTS

Particulars of employees (including Directors) are shown below:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Employee costs during the year amounted to:</td><td></td><td></td></tr><tr><td>Wages and salaries</td><td>2.8</td><td>2.1</td></tr><tr><td>Social security costs</td><td>0.3</td><td>0.4</td></tr><tr><td>FRS 20 share option charge/(credit)</td><td>0.4</td><td>(0.5)</td></tr><tr><td>Pension costs</td><td>0.3</td><td>0.2</td></tr><tr><td></td><td>3.8</td><td>2.2</td></tr></table>

The average monthly number of persons employed by the Company during the year was as follows:

<table><tr><td></td><td>2010Number</td><td>2009Number</td></tr><tr><td>Administration</td><td>22</td><td>21</td></tr></table>

## 5 FIXED ASSET INVESTMENTS

Fixed asset investments comprise investments in subsidiary undertakings, as follows:

<table><tr><td></td><td>2010£m</td><td>2009£m</td></tr><tr><td>Cost:</td><td></td><td></td></tr><tr><td>Beginning of year</td><td>656.8</td><td>519.5</td></tr><tr><td>Additions</td><td>0.2</td><td>137.5</td></tr><tr><td>Disposals</td><td>(0.3)</td><td>(0.2)</td></tr><tr><td>End of year</td><td>656.7</td><td>656.8</td></tr><tr><td>Provisions at beginning of year</td><td>(76.7)</td><td>(0.1)</td></tr><tr><td>Movement in provision</td><td>(113.7)</td><td>(76.6)</td></tr><tr><td>Provisions at end of year</td><td>(190.4)</td><td>(76.7)</td></tr><tr><td>Net book value, beginning of year</td><td>580.1</td><td>519.4</td></tr><tr><td>Net book value, end of year</td><td>466.3</td><td>580.1</td></tr></table>

During the year, the Company made an additional contribution to the share capital of SIG International Trading Limited of £0.2m. Before and after the transaction, the Company directly owned 100% of the share capital of that company.

On 4 January 2010, the Company sold its 100% shareholding in Fitzpatrick Doors Limited to SIG Manufacturing Limited, a 100% indirectly wholly owned subsidiary undertaking of SIG plc, for a consideration of £0.3m.

During the year the Company reduced the carrying value of its investment in LS Group Limited to its recoverable amount through the recognition of an impairment loss of £38.4m.

Following the receipt of a dividend from SIG Financing (Jersey) Limited of £3.65 per ordinary share, totalling £77.0m, the Company reduced the carrying value of its investment to its recoverable amount through the recognition of an impairment loss of £75.3m.

Details of the Company’s principal trading subsidiaries are shown on page 121. The Group has taken advantage of the exemption in Section 409 of the Companies Act 2006 whereby the disclosure of a full list of all subsidiary companies is not required where this would result in information of excessive length being given in the notes to the Accounts.

## 6 INTEREST IN ASSOCIATE

On 4 May 2010, the Company made a strategic trade investment in Ice Energy Technologies Limited by acquiring 25% of the share capital for a total consideration of £1.6m (including £0.1m associated costs). In addition, at the date of signing this report, the Company has made a loan amounting to £1.2m to Ice Energy Technologies Limited. Further details can be found in Note 11 to the Group Accounts.



## NOTES TO THE COMPANY ACCOUNTS CONTINUED

## 7 TANGIBLE FIXED ASSETS

The movement in the year was as follows:

<table><tr><td></td><td>Freehold land and buildings £m</td><td>Plant and machinery £m</td><td>Total £m</td></tr><tr><td>Cost</td><td></td><td></td><td></td></tr><tr><td>Beginning and end of year</td><td>0.1</td><td>0.3</td><td>0.4</td></tr><tr><td>Depreciation</td><td></td><td></td><td></td></tr><tr><td>Beginning of year</td><td>0.1</td><td>0.2</td><td>0.3</td></tr><tr><td>Charge for the year</td><td>-</td><td>-</td><td>-</td></tr><tr><td>End of year</td><td>0.1</td><td>0.2</td><td>0.3</td></tr><tr><td>Net book value, beginning of year</td><td>-</td><td>0.1</td><td>0.1</td></tr><tr><td>Net book value, end of year</td><td>-</td><td>0.1</td><td>0.1</td></tr></table>

## 8 DEBTORS

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Amounts owed by subsidiary undertakings</td><td>720.7</td><td>645.7</td></tr><tr><td>Corporation tax recoverable</td><td>-</td><td>0.5</td></tr><tr><td>Deferred tax assets (Note 11)</td><td>1.8</td><td>2.3</td></tr><tr><td>Derivative financial instruments</td><td>52.0</td><td>38.6</td></tr><tr><td>Other debtors (Note 14)</td><td>1.2</td><td>-</td></tr><tr><td>Prepayments and accrued income</td><td>1.7</td><td>6.7</td></tr><tr><td></td><td>777.4</td><td>693.8</td></tr></table>

Of the total amount owed to the Company, £743.1m (2009: £301.3m) is due after more than one year, of which £52.0m (2009: £nil) related to derivative financial instruments with the remaining £691.1m (2009: £301.3m) being amounts owed by subsidiary undertakings.

## 9 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Bank overdrafts</td><td>32.5</td><td>21.0</td></tr><tr><td>Bank loans</td><td>25.1</td><td>170.8</td></tr><tr><td>Private placement notes</td><td>49.1</td><td>-</td></tr><tr><td>Amounts owed to subsidiary undertakings</td><td>101.2</td><td>69.4</td></tr><tr><td>Derivative financial instruments</td><td>4.9</td><td>0.1</td></tr><tr><td>Accruals and deferred income</td><td>12.0</td><td>13.4</td></tr><tr><td>Corporation tax</td><td>0.5</td><td>-</td></tr><tr><td></td><td>225.3</td><td>274.7</td></tr></table>

All of the Company's bank loans and overdrafts are unsecured.



<table><tr><td colspan="3">10 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR</td></tr><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Private placement notes</td><td>263.6</td><td>299.2</td></tr><tr><td>Bank loans</td><td>—</td><td>7.2</td></tr><tr><td>Derivative financial instruments</td><td>7.7</td><td>15.6</td></tr><tr><td>Amounts owed to subsidiary undertakings</td><td>71.8</td><td>79.5</td></tr><tr><td></td><td>343.1</td><td>401.5</td></tr></table>

Details of the private placement notes (before applying associated derivative financial instruments) are as follows:

<table><tr><td rowspan="2"></td><td>2010</td><td>2010 Fixed interest rate</td><td>2009</td><td>2009 Fixed interest rate</td></tr><tr><td>£m</td><td>%</td><td>£m</td><td>%</td></tr><tr><td>Repayable in 2011</td><td>49.1</td><td>7.3%</td><td>47.7</td><td>7.2%</td></tr><tr><td>Repayable in 2013</td><td>87.2</td><td>4.9%</td><td>84.6</td><td>5.1%</td></tr><tr><td>Repayable in 2016</td><td>153.6</td><td>5.9%</td><td>146.9</td><td>5.8%</td></tr><tr><td>Repayable in 2018</td><td>22.8</td><td>5.1%</td><td>20.0</td><td>5.8%</td></tr><tr><td></td><td>312.7</td><td>5.8%</td><td>299.2</td><td>5.9%</td></tr></table>

All Group derivative financial instruments disclosed in Note 18 on pages 96 to 99 have been entered into by the Company and therefore disclosures have not been repeated within this note.

As noted in the Business Review on page 29, in March 2011 the Group signed a new £250m four year bank facility. Upon completion, the Group's existing UK bank debt facilities were cancelled and repaid using cash held on deposit.

## II DEFERRED TAX

<table><tr><td></td><td>2010
£m</td><td>2009
£m</td></tr><tr><td>Deferred tax assets</td><td>1.8</td><td>2.3</td></tr><tr><td>The deferred tax assets above relate to short term timing differences.</td><td></td><td></td></tr><tr><td>The movement during the year was as follows:</td><td></td><td></td></tr><tr><td>Beginning of year</td><td>2.3</td><td>2.3</td></tr><tr><td>Charge for the year</td><td>(0.5)</td><td>—</td></tr><tr><td>End of year</td><td>1.8</td><td>2.3</td></tr></table>

Given the current profitability of the Company (excluding the impairment of investments and dividend income), the Directors consider that the recognition of the deferred tax assets above is appropriate.

The Company has not taken account of excess non-trading losses associated with financial instruments in determining the above deferred tax asset as at 31 December 2010. See Note 22 of the Group Accounts for details.



## NOTES TO THE COMPANY ACCOUNTS CONTINUED

<table><tr><td colspan="3">12 CAPITAL AND RESERVES</td></tr><tr><td></td><td>2010 £m</td><td>2009 £m</td></tr><tr><td>Called up share capital</td><td>59.1</td><td>59.1</td></tr><tr><td>Share premium account</td><td>447.0</td><td>447.0</td></tr><tr><td>Merger reserve</td><td>21.7</td><td>21.7</td></tr><tr><td>Capital redemption reserve</td><td>0.3</td><td>0.3</td></tr><tr><td>Share option reserve</td><td>1.0</td><td>0.9</td></tr><tr><td>Exchange reserve</td><td>(0.2)</td><td>(0.2)</td></tr><tr><td>Profit and loss account</td><td>195.3</td><td>201.7</td></tr><tr><td>Total reserves</td><td>724.2</td><td>730.5</td></tr></table>

The movement in reserves during the year was as follows:

<table><tr><td></td><td>Called up share capital £m</td><td>Share premium account £m</td><td>Share option reserve £m</td><td>Retained profits £m</td></tr><tr><td>Beginning of year</td><td>59.1</td><td>447.0</td><td>0.9</td><td>201.7</td></tr><tr><td>Credit to share option reserve</td><td>-</td><td>-</td><td>0.1</td><td>-</td></tr><tr><td>Fair value movement on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>6.8</td></tr><tr><td>Transfer to profit and loss on cash flow hedges</td><td>-</td><td>-</td><td>-</td><td>12.6</td></tr><tr><td>Loss for the period</td><td>-</td><td>-</td><td>-</td><td>(25.8)</td></tr><tr><td>End of year</td><td>59.1</td><td>447.0</td><td>1.0</td><td>195.3</td></tr></table>

There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year.

Details of the Company’s share capital can be found in Note 24 of the Group Accounts on page 105.

## 13 GUARANTEES AND OTHER FINANCIAL COMMITMENTS

## A) GUARANTEES

The Company has cross guaranteed overdrafts of subsidiary undertakings amounting to £nil (2009: £0.5m).

## B) CONTINGENT LIABILITIES

As at the balance sheet date, the Company had outstanding obligations under standby letters of credit of up to £10.1m (2009: £10.6m). These standby letters of credit, issued by The Royal Bank of Scotland plc, are in respect of the Group’s insurance arrangements.

## 14 RELATED PARTY TRANSACTIONS

The Company owns 94.6% of the share capital of Air Trade Centre International B.V., a distributor of air handling equipment. At the date of signing this report, the Company has made a loan of  \( £0.9m \)  to Air Trade Centre, repayable in 2013.

On 4 May 2010 the Company made a strategic trade investment in Ice Energy Technologies Limited, a company incorporated in the United Kingdom, by acquiring shares in that company from existing management. Further details are provided in Note 11 of the Group Accounts.



# INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF SIG plc

We have audited the parent Company financial statements of SIG plc for the year ended 31 December 2010 which comprise the Parent Company Balance Sheet, Statement of Significant Accounting Policies and the related notes 1 to 14. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

## RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

## SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

## OPINION ON FINANCIAL STATEMENTS

In our opinion the parent company financial statements:

• give a true and fair view of the state of the Company’s affairs as at 31 December 2010;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

## OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent Company financial statements.

## MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

- the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

## OTHER MATTER

We have reported separately on the group financial statements of SIG plc for the year ended 31 December 2010.



CHRISTOPHER POWELL FCA (SENIOR STATUTORY AUDITOR)

FOR AND ON BEHALF OF DELOITTE LLP

CHARTERED ACCOUNTANTS AND STATUTORY AUDITOR

LEEDS, UK

16 MARCH 2011



## PRINCIPAL ADDRESSES

SIG plc
CORPORATE OFFICE
Signet House
17 Europa View
Sheffield Business Park
Sheffield S9 1XH

REGISTERED OFFICE
Hillsborough Works
Langsett Road
Sheffield S6 2LW

REGISTERED NUMBER
Registered in England
998314

## UNITED KINGDOM

SIG TRADING LIMITED, CURRENTLY TRADING AS:

SIG INSULATIONS
Hillsborough Works
Langsett Road
Sheffield S6 2LW

SPECIALIST CONSTRUCTION
PRODUCTS
Hillsborough Works
Langsett Road
Sheffield S6 2LW
SIG ROOFING SUPPLIES
Harding Way
St Ives
Cambridge PE27 3YJ

CPD DISTRIBUTION
Hillsborough Works
Langsett Road
Sheffield S6 2LW

CARPET AND FLOORING
Arrow Valley
Claybrook Drive
Redditch B98 0FY

A STEADMAN & SON
Warnell
Welton
Carlisle
Cumbria CA5 7HH

## SIG MANUFACTURING LIMITED, CURRENTLY TRADING AS:

LEADERFLUSH + SHAPLAND
Milnay Road
Langley Mill
Nottingham NG16 4AZ

SIG GLAZING SERVICES
Milnay Road
Langley Mill
Nottingham NG16 4AZ

SIG ENERGY MANAGEMENT LIMITED
Unit 6 Park Square
Thorncliffe Park
Chapeltown
Sheffield S35 2PH

IRELAND
SIG BUILDING PRODUCTS
LIMITED
42 O'Casey Avenue
Parkwest Industrial Estate
Nangor Road
Dublin 12
Ireland
KOMFORT WORKSPACE
Milnay Road
Langley Mill
Nottingham NG16 4AZ

INSULATION DISTRIBUTORS
LIMITED
42 O'Casey Avenue
Parkwest Industrial Estate
Nangor Road
Dublin 12
Ireland

MAINLAND EUROPE
WEGO SYSTEMBAUSTOFFE
GMBH
Maybachstrasse 14
D-63456 Hanau-Steinheim
Germany

OUEST ISOL SAS/
LITT DIFFUSION SAS
Zone Industrielle B.P.I 5
27460 Alizay
France

AIR TRADE CENTRE
INTERNATIONAL B.V.
Eerste Tochtweg 11
29 13 LN Nieuwkerk a/d IJssel
The Netherlands
MELLE DACHBAUSTOFFE
GMBH
An der unteren Sose 36
37520 Osterode
Germany

LARIVIÈRE SAS
36 bis rue Delaège
BP 40446
49004 Angers
France

BEK BAUSTOFFE
SLOVAKIA S.R.O.
SK–830 03 Bratislava
Odborarska 52
Slovakia
SIG SP. Z O.O.
ul. Wadowicka 8W/14
30–415 Krakow
Poland

SIG NEDERLAND B.V.
Bedrijfsweg 15
5061 I JX Oisterwijk
The Netherlands

PANNON II KERESKEDELMI
ES SZOLGÁLTATÓ KFT
2083 Solymár
Várhegy U. 4–6
Hungary

SIG CZECH S.R.O.
K Jezu 586/1
326 00 Plzen
Czech Republic



## PRINCIPAL TRADING SUBSIDIARIES

The Company’s principal trading subsidiaries, all of which are wholly owned except where stated, are currently as follows:

<table><tr><td></td><td>Insulation and Building Environments</td><td>Exteriors</td><td>Interiors</td><td>SCP</td></tr><tr><td>United Kingdom</td><td></td><td></td><td></td><td></td></tr><tr><td>SIG Trading Limited</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>SIG Energy Management Limited</td><td>✓</td><td></td><td></td><td></td></tr><tr><td>SIG Manufacturing Limited</td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Ireland</td><td></td><td></td><td></td><td></td></tr><tr><td>SIG Building Products Limited</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Insulation Distributors Limited</td><td>✓</td><td></td><td></td><td></td></tr><tr><td>Germany</td><td></td><td></td><td></td><td></td></tr><tr><td>WeGo Systembaustoffe GmbH</td><td>✓</td><td></td><td>✓</td><td>✓</td></tr><tr><td>Melle Dachbaustoffe GmbH</td><td></td><td>✓</td><td></td><td>✓</td></tr><tr><td>France</td><td></td><td></td><td></td><td></td></tr><tr><td>Société de l&#x27;Ouest des Produits Isolants SAS</td><td>✓</td><td></td><td></td><td>✓</td></tr><tr><td>LITT Diffusion SAS</td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Larivière SAS</td><td></td><td>✓</td><td></td><td></td></tr><tr><td>Benelux</td><td></td><td></td><td></td><td></td></tr><tr><td>SIG Nederland B.V.</td><td>✓</td><td></td><td>✓</td><td></td></tr><tr><td>SIG Meldertse Plafonneerartikelen N.V.</td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Air Trade Centre Belgium N.V.</td><td>✓</td><td></td><td></td><td></td></tr><tr><td>Poland</td><td></td><td></td><td></td><td></td></tr><tr><td>SIG Sp z o.o.</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Czech Republic</td><td></td><td></td><td></td><td></td></tr><tr><td>SIG Czech s.r.o.</td><td>✓</td><td></td><td>✓</td><td></td></tr><tr><td>Slovakia</td><td></td><td></td><td></td><td></td></tr><tr><td>BEK Baustoffe Slovakia s.r.o.</td><td>✓</td><td></td><td>✓</td><td></td></tr><tr><td>Hungary</td><td></td><td></td><td></td><td></td></tr><tr><td>Pannon II Kft</td><td>✓</td><td></td><td>✓</td><td></td></tr></table>

All of the above companies are registered in the country referred to above, with the exception of SIG Trading Limited, SIG Energy Management and SIG Manufacturing Limited that are registered in England and Wales.

SIG European Investments Limited and SIG European Holdings Limited together hold the beneficial ownership of SIG Building Products Limited, WeGo Systembaustoffe GmbH, Melle Dachbaustoffe GmbH, Société de l'Ouest des Produits Isolants SAS, LITT Diffusion SAS, Larivière SAS, SIG Nederland B.V., SIG Meldertse Plafonneerartikelen N.V., Air Trade Centre Belgium N.V., SIG Sp. z o.o., SIG Czech s.r.o., BEK Baustoffe Slovakia s.r.o. and Pannon II Kft.

The Group owns 80% of the ordinary share capital of Insulation Distributors Limited, via SIG Trading Limited. The Group also owns 95% of Air Trade Centre International B.V., that itself owns 100% of Air Trade Centre Belgium N.V.



## SGF

## CORPORATE OFFICE

Signet House
17 Europa View
Sheffield Business Park
Sheffield S9 IXH
tel: +44 (0) 114 285 6300
fax: +44 (0) 114 285 6349
e-mail: info@sigplc.com
web: www.sigplc.com

## REGISTERED OFFICE

Hillsborough Works
Langsett Road
Sheffield S6 2LW

## REGISTERED NUMBER

Registered in England
998314

SIG’s commitment to environmental issues is reflected in this Annual Report which has been printed on Satimatt Green and Revive 50, both recycled paper stocks comprising 75% recycled fibre and 25% virgin fibre. This document was printed by CPG using vegetable-based inks and water-soluble lacquers and all production processes used make the minimum demand on the environment and produce the minimum amount of waste. Both the printer and the paper mill are registered to ISO 14001 and FSC \( ^{®} \)  approved.