Stuart Mitchell

For the year as a whole SIG delivered good like-for-like sales growth of 3.8%.

Stuart Mitchell Chief Executive

Like for like sales

SIG began the year strongly, benefiting from the mild weather and weak comparatives, increasing like-for-like ("LFL") sales by 7.1% in the first half, with good growth in both the UK & Ireland and Mainland Europe.

The Group's trading performance then moderated in the second half, with LFL sales increasing marginally, by 0.8%. While for the UK & Ireland this moderation was in line with SIG's expectations, and mainly due to stronger comparatives, Mainland Europe was weaker than anticipated due to a downturn in the macroeconomic environment.

For the year as a whole SIG delivered good LFL sales growth of 3.8%, with the Group experiencing marginal product price inflation of 0.1% and a volume increase of 3.7%. Given SIG estimates that the overall market, weighted according to the sectors in which it operates, was up by 1.0%, this equates to an outperformance of 2.8%.

Group sales from continuing operations, which exclude the disposals of Miller Pattison, German Roofing and Ice Energy, were up 2.5% to £2,602.9m (2013: £2,539.7m), despite the adverse effects of foreign exchange translation, which reduced sales by 3.1%.

In the UK & Ireland revenues from continuing operations increased 11.3% to £1,336.2m (2013: £1,200.3m), and were up 9.2% on a LFL basis, having been driven primarily by strong demand in the UK and Irish residential sectors. In the UK LFL sales increased by 8.9% and in Ireland were up by 14.7%.

Sales in Mainland Europe from continuing operations decreased by 5.4% to £1,266.7m (2013: £1,339.4m), due in part to the adverse effect of movements in foreign exchange rates. On a LFL basis sales in Mainland Europe declined by 1.0%.

The Group made strong progress on its Strategic Initiatives to improve business performance, delivering a net benefit after incremental costs of £10.1m, mainly sourced from procurement, well ahead of its original target. As a result SIG's underlying gross margin increased 50bps to 26.9% (2013: 26.4%).

Performance montage

Underlying operating profit increased 8.8% to £110.2m (2013: £101.3m) and underlying operating margin was up by 20bps to 4.2% (2013: 4.0%). Underlying net finance costs increased slightly to £12.1m (2013: £11.3m), which resulted in underlying profit before tax increasing by 9.0% to £98.1m (2013: £90.0m). Underlying basic earnings per share from continuing operations increased 11.2% to 11.9p (2013: 10.7p).

On a statutory basis profit before tax was £39.0m (2013: £2.1m) and basic earnings per share were 5.6p (2013: loss of 2.5p).

Net debt at 31 December 2014 was £126.9m, an increase of £5.7m compared to the prior year (2013: £121.2m). Net capital expenditure (excluding property disposals) was £36.6m (2013: £38.1m), 53% higher than depreciation of £24.0m (2013: £23.7m) and in line with guidance.

Like-for-like market outperformance


Like for like market outperformance

Continuing Sales

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(2013: 5.3%)

Continuing Sales

Gross margin



(2013: maintained)

Gross margin


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(2013: +110bps)

* Excluding profits/losses associated with divested businesses


Net operating cost inflation/ (deflation)


Net operating cost inflation / (deflation)

Number of branches


Number of branches

Underlying profit before tax

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(2013: 11.2%)

Underlying profit before tax

Average number of employees*

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(2013: 0.7%)

* On a continuing basis

Average number of employees

Net debt

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(2013: 15.1%)

Net debt

Number of acquisitions completed


* Excluding Ice Energy that was divested in 2014

Number of acquisitions completed

Return on Capital Employed

Post-tax Return on Capital Employed is the key metric for the Group and is calculated as underlying operating profit less tax, divided by average net assets plus average net debt.

In 2014 SIG's ROCE increased by 90bps to 10.3% (2013: 9.4%), 310bps higher than Group WACC of 7.2% (2013: 8.3%). The Group has therefore achieved its target of ROCE exceeding WACC by 300bps a year early, although in doing so it recognises that it has benefited from a lower WACC.

For 2015 SIG remains committed to its medium-term objective of achieving ROCE in excess of 11.0%. As well as taking a disciplined approach to its capital management, SIG seeks to achieve this target through further improvements in its gross and operating margins.


Lorry checklist

In 2014 SIG acquired 12 businesses for £20.9m together with a contingent consideration of up to £29.8m depending on future performance. Seven of the acquisitions were in the UK, three in France and one each in Germany and The Netherlands.

Since restarting its acquisition programme in 2012, newly acquired infill businesses are performing well and meeting their internal targets, with returns in aggregate higher than the Group's ROCE.

Given the Group's good cash conversion rates and strong financial position, going forward SIG is seeking to increase the pace at which it makes its acquisitions and is targeting larger infill businesses. It therefore is targeting to spend around £200m on infill acquisitions over the next three years, while maintaining its strict financial criteria and hurdle rates.

Lit warehouse
SIG materialy budowlane


During the year SIG divested three businesses whose returns were below the Group's WACC and whose prospects of significantly improving performance over the medium-term were considered unlikely. These disposals were:

  • The Group's German Roofing business, which was acquired by The Gores Group, a US private equity firm in February 2014;
  • Miller Pattison Limited, a residential insulation installation and contracting business, which was sold to Help-Link UK in April 2014; and
  • A 50.6% stake in Ice Energy Technologies Limited, a renewable energy solutions provider of air and ground source heat pumps, which was sold to the existing Ice Energy management team in October 2014.

In 2013, the last full year of SIG ownership, these three businesses reported combined sales of £180.1m and made an underlying operating loss of £1.8m.

UK & Ireland Trading Review

  • Sales from continuing operations increased 11.3% to £1,336.2m (2013: £1,200.3m)
  • Gross margin from continuing operations up 50bps to 26.7% (2013: 26.2%)
  • Underlying operating profit increased 31.0% to £65.9m (2013: £50.3m)
  • Underlying operating margin up 70bps to 4.9% (2013: 4.2%)
  • Statutory operating profit of £18.8m (2013: £24.1m)
Continuing operations2014
in gross
United Kingdom1,265.211.5%8.9%50bps
UK & Ireland1,336.211.3%9.2%50bps

United Kingdom

SIG large factory

The Group's overall outlook for the UK construction market this year is positive.

Stuart Mitchell Chief executive

Sales in the UK from continuing operations increased 11.5%, and by 8.9% on a LFL basis. Gross margin was up by 50bps principally due to savings from the Group's strategic procurement initiative, together with an improved performance in its roofing business compared to 2013, when margin was affected by market pricing and volume pressures.

The residential market experienced good growth in 2014, with the Construction Product Association reporting that the value of the private new build UK housing market grew by 18.0%. SIG expects continued robust growth in the sector in 2015, although the rate of expansion may slow somewhat compared to the prior year.

While trading conditions in the non-residential sector are improving, SIG has not yet benefited from this growth mainly due to its later cycle exposure. However, assuming this upturn continues, the Group anticipates that this should start to feed through into its sales performance during 2015.

Although the Group's overall outlook for the UK construction market this year is positive, it recognises that there are risks principally relating to the General Election and ongoing uncertainty in the Eurozone.

The roll out of the UK's new ERP system, Kerridge K8, continues to progress well and has now been completed across the back offices. The branch roll out is also well underway and is expected to be completed in 2016.


Sales in Ireland increased by 8.4%, and were up 14.7% on a LFL basis. Gross margin fell by 30bps due to pricing pressures in the market. SIG benefited from a strong recovery in the Irish residential market, which according to Euroconstruct was up by 17.5% compared to 2013. SIG anticipates that the market will remain robust in 2015, although growth is likely to slow from its 2014 level.

Mainland Europe trading review

  • Sales from continuing operations decreased 5.4% to £1,266.7m (2013: £1,339.4m)
  • Gross margin from continuing operations increased 50bps to 27.1% (2013: 26.6%)
  • Underlying operating profit declined 8.1% to £54.2m (2013: £59.0m)
  • Underlying operating margin down 10bps to 4.3% (2013: 4.4%)
  • Statutory operating profit of £44.3m (2013: loss of £0.7m)
Continuing operations2014
in gross
Germany & Austria412.2(5.8)%(0.3)%(40)bps
Mainland Europe1,266.7(5.4)%(1.0)%50bps

* Includes Air Trade Centre


Sales in France decreased by 2.1% on a LFL basis, and were down by 5.8% in Sterling due to movements in foreign exchange. However, gross margin increased 80bps having benefited significantly from the Group's procurement initiative.

The French construction market remained challenging during 2014, declining by 5.1%. The residential sector in particular performed poorly, with new housing starts down by 10%, falling back to around 300,000, a level not seen in France since 1998. Activity in the non-residential sector also continued to decline, although not to the same degree as the housing market.

However, SIG outperformed the French market in 2014, by 3.0%. The Group believes this is due to a number of factors including a continuing shift in the market away from generalists towards specialists, the strength of SIG's local management team and the increasing maturity of the Group's new branches.

SIG operates a lean business in France and despite market conditions continues to make good returns in this market. Although stable, the Group expects market conditions to remain weak in France during 2015.

Germany & Austria

Sales in Germany & Austria decreased marginally on a LFL basis, by 0.3%, broadly in line with the market, and were down by 5.8% in Sterling. Gross margin was down by 40bps, as savings from the Group's procurement initiative were offset by the downward impact of changes in product mix, particularly lower demand for industrial insulation. However, the longer-term trend has been positive with gross margin improving by 110bps over the last three years.

Following a good first half performance, when SIG reported LFL sales growth of 5.1%, the German construction market took an unexpected downturn in the third quarter, which was not helped by the crisis in Ukraine. As a result, the Group's LFL sales in Germany were down by 5.0% in the second half.

Although the market has stabilised, there are no signs yet of any improvement in trading conditions in SIG's markets in Germany.

Benelux and Poland

Sales in Benelux (which includes Air Trade Centre) were up 1.0% and by 5.1% on a LFL basis. While Belgium performed well in the first half of the year, and the construction market in The Netherlands was weak, in the second half the recovery in The Netherlands began, whereas Belgium weakened.

In Poland, sales decreased by 10.2%, and 5.7% on a LFL basis, outperforming the market by 1.1%. Sales were partly impacted by the closure of two loss-making branches towards the end of 2013, and deteriorating macroeconomic conditions as the year progressed, with business confidence being affected by the ongoing crisis in Ukraine.

Gross margin in both regions benefited from the Group's procurement initiative. In Poland gross margin was also helped by increased sales of higher margin own label products.

Group outlook

SIG group sign

The Group has made strong progress on its strategic initiatives to improve business performance.

Stuart Mitchell Chief executive

SIG anticipates that trading conditions will remain variable across the Group's countries of operation in 2015, with continued good growth in the UK & Ireland and uncertainty persisting in Mainland Europe.

While the Group also notes the continuing weakening of the Euro and potential adverse translational effect on profit, it expects this headwind to be partially offset by lower fuel costs.

With continued scope for self-help through market outperformance and the Strategic Initiatives, SIG is confident of achieving further progress this year, although strong H1 comparators mean that this will be weighted towards the second half.

Strategic Initiatives

The Group has made strong progress on its Strategic Initiatives to improve business performance, delivering a net profit benefit after incremental costs of £10.1m, well ahead of its original £1-5m target, in what was only the first full year of the programme. This was derived from gross savings of £16.9m, which represented a significant overdelivery on SIG's initial expectations, net of additional investment of £6.8m, which was in line with the Group's original cost estimate.

Going forward SIG continues to target a cumulative net benefit of c.£20m in 2015 and c.£30m in 2016. Given its strong start in 2014 the Group has a high degree of confidence in achieving these targets.

The delivery of the Group's Strategic Initiatives is underpinned by a significant culture change programme. Its operating businesses are now working more closely together to ensure the whole is greater than the sum of its parts.


During 2014 SIG made gross savings of £14.7m from its procurement initiative, significantly exceeding its expectations. These savings, of which £7.9m were in the UK & Ireland and £6.8m were in Mainland Europe, have resulted in a 50bps improvement in the Group's gross margin.

Procurement efficiencies have been obtained from all of SIG's six international category forums covering roofing, ceilings, technical insulation, structural insulation, air handling and dry lining, and are broadly proportionate to the Group's expenditure in each of these areas.

SIG is improving the utilisation of its commercial vehicles through the more effective use of technology. Telematics has been implemented in the Group's UK and French fleets, with the next roll-outs expected in Germany and Poland in 2015.

The Group is also improving the way it procures commercial vehicles, signing Group-wide purchasing agreements for its forklift trucks with Linde, and with Mercedes and DAF for its fleet.

The Group has made substantial progress consolidating its network over recent years, significantly reducing the number of its branches. This rationalisation included the opening of a new supersite in the North East of England in December 2013, which combined four branches into one. The supersite continues to perform well and was ahead of its budget in 2014.

The Group also scoped its ideal UK and German networks during 2014, concluding that there are further opportunities to rationalise its insulation and interiors businesses and that there is potential to grow its UK exteriors business either organically or through acquisitions. These plans are currently being implemented.

Concurrently, SIG is undertaking a comprehensive supply chain review, the findings of which will be reported in 2015.

The design phase of the Group's new UK eCommerce platform was completed on schedule in 2014. Further development is now planned for 2015. SIG is committed in the first half of 2016 to launching a market-leading online proposition that meets its customers' needs.

In Mainland Europe SIG is already successfully operating eCommerce sites and the Group will continue to develop these local solutions. The Air Trade Centre eCommerce proposition in Belgium is well established, while strong progress is being made in developing the platforms in both Germany and Poland. SIG will continue to evaluate the success of these propositions, further refining them while concurrently determining its longer-term strategy in support of the Group's vision of being Stronger Together.