In order to evaluate success against the Group's financial and strategic objectives, the Board has identified six key performance indicators on which it monitors and assesses the Group's performance.

Their relevance to strategy and our performance against these measures are explained below

Relevance to strategy

  • 1 Outstanding Customer Service
  • 2 Sales Outperformance
  • 3 Gross Margin Enhancement
  • 4 Operational Efficiency
  • 5 Focus on Financial Returns
  • 6 Exceptional People

Remuneration

Some KPIs are used as a measure in the incentive phase for the remuneration of executives.

These are identified with the symbol ®.

Like-for-like sales

Like for like sales

Underlying gross margin

Underlying gross margin

Underlying operating margin

Underlying operating margin

Definition

The percentage growth/(decline) in the Group's sales per day (in constant currency) excluding any current and prior year acquisitions and disposals. Sales are not adjusted for organic branch openings and closures.

The ratio of underlying gross profit to underlying sales (excluding businesses divested, or agreed to be divested).

The ratio of underlying operating profit to underlying sales (excluding businesses divested, or agreed to be divested).

2014 Performance

SIG estimates that overall its markets grew by c.1.0% in 2014.

Like-for-like sales grew by 3.8% when compared to the prior year which equates to a market outperformance of c.2.8%.

The Group has delivered a gross margin of 26.9%, representing a 50bps improvement when compared to the prior year.

Excluding the incremental benefit of the Strategic Initiatives the gross margin remained flat when compared to the prior year (2013: 26.4%), a good solid performance in uncertain trading markets.

The operating margin for the Group improved by 20bps when compared to the prior year.

In order to provide the required infrastructure to support the continued organic growth of the business, the Group has invested in a number of initiatives and new branch openings, which increased the Group's operating costs by £6.4m year-on-year.

2015 Target

  • Market outperformance of c.2.0%-3.0%
  • Continuous improvement
  • Continuous improvement

Strategic focus

LIKE-FOR-LIKE SALES

  • 1
  • 2

UNDERLYING GROSS MARGIN

  • 1
  • 3
  • 5

UNDERLYING OPERATING MARGIN

  • 1
  • 2
  • 3
  • 4
  • 5

Principal risk

Market conditions

Government legislation

Commercial relationships

Competitors and margin management

Commercial relationships

IT infrastructure

Like-for-like working capital to sales®

Return on capital employed®

Employee engagement

Overall Engagement

2014:

74%

Definition

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

The ratio of underlying operating profit less taxation divided by average capital employed (average net assets plus average net debt).

ROCE is then compared to the Weighted Average Cost of Capital ("WACC"). The difference between ROCE and WACC determines whether the Group is creating an economic profit for its Shareholders.

The delivery of SIG's strategy depends on its exceptional people. The engagement of these individuals is therefore a key measure of performance of the Group.

Engagement is measured by considering "what our people 'say' about SIG", "are they committed to 'staying' in SIG" and "they 'strive' to go the extra mile".

2014 Performance

The Group recorded a working capital to sales ratio of 8.1% in 2014. This ratio benefited from the £12.6m of contingent consideration recognised in respect of current and prior year acquisitions (2013: £0.6m). The Group's working capital to sales at 31 December 2014 excluding contingent consideration was 8.6% (2013: 8.9%), in line with the Group's objective of no more than 9.0%.

The Group recorded a post-tax ROCE of 10.3% in 2014, 90bps above prior year (9.4%) and 310bps above WACC (7.2%). This has been achieved through a combination of increased operating profit, in part due to savings from the Group's Strategic Initiatives, and effective balance sheet management.

While this implies that SIG has met its medium-term target for ROCE to exceed its WACC by 300bps by 2015, the Group recognises that it has benefited from a reduced WACC.

SIG performed its first Group-wide employee engagement survey during 2014. Overall, 81% of employees took part in the survey, with 71% in UK & Ireland and 85% in Mainland Europe.

Of the responses, 74% of all employees reported as "being engaged", which aligns to industry benchmarks.

Following the survey, working groups have been established at Group and local level, with actions being implemented which focus on three key areas of communication, recognition and personal development.

2015 Target

  • Working capital to sales of no more than 9%
  • To further increase the Group's ROCE above 11%
  • 81% Completion rate
  • 74% Overall engagement *

* Target is to maintain existing overall engagement level in a year where significant change is planned

Strategic focus

LIKE-FOR-LIKE WORKING CAPITAL TO SALES®

  • 4
  • 5

RETURN ON CAPITAL EMPLOYED®

  • 1
  • 2
  • 3
  • 4
  • 5

EMPLOYEE ENGAGEMENT

  • 6

Principal Risk

Working capital and credit management

Market conditions

Competitors and margin management

Working capital and credit management

Availability and quality of key resources