SIG plc (SIG), a leading distributor of insulation and interior products, has issued a Stock Exchange statement this morning revealing that the Group has identified a historical overstatement of profit relating to the year ended 31 December 2016 and prior years and relating to the half year ended 30 June 2017. However, the expectations for underlying profitability for the year ended 31 December 2017 remains unchanged.
The statement said that following a whistleblowing allegation of potential accounting irregularity at SIG Distribution in the UK, the Group, with support from its external auditors Deloitte and from KPMG, has conducted a forensic review of the recoverability of a number of balances recognised at 31 December 2016 in relation to rebates and other potential recoveries from suppliers.
Findings from this ongoing review were presented to the Audit Committee of the SIG Board yesterday and confirm that a number of these balances were overstated at 31 December 2016, in some cases intentionally. This resulted in an overstatement of profit for the year ended 31 December 2016 of up to c.£3.7m, with up to a further c.£0.4m overstatement of profit relating to years before 2016.
The review has also identified an overstatement of balances at 30 June 2017 relating to recoverable balances brought forward from 2016 and some additional receivables accrued in the first half of 2017. This resulted in up to a further c.£2.5m overstatement of profit for the half year ended 30 June 2017.
SIG said it intends to restate previous financial statements for these overstatements, which remain subject to audit, and is currently working with Deloitte to ensure the correct accounting treatment. A further update will be provided at the time of the Group’s full year results.
The Group is suspending from employment a number of individuals who are being placed under disciplinary investigation into the circumstances surrounding the accounting for these balances and the cash overstatement disclosed in the trading update issued by the Group on 9 January 2018. The Remuneration Committee of the Board is reviewing maIus and clawback provisions in relation to incentive payments made to certain individuals in relation to prior years.
In addition, the Group has identified a number of actions to remediate the control environment in SIG Distribution, including some specific additional controls around rebates and other supplier recoverables, which are being implemented with immediate effect. The Group has also engaged KPMG to conduct a detailed review of financial reporting controls at SIG Distribution to confirm the accounting treatment of other material items at 31 December 2017, prior to finalising the year end results.
As the overstatements relate to 2016 and prior years, and to an overstatement in the first half of 2017 which has been reversed in the second half, expectations for underlying profitability for the year ended 31 December 2017 remain unchanged.
SIG will announce its full year results on Friday 9 March 2018.