Chairmans Statement

The Group continues to make good progress on its Strategic Initiatives to improve business performance.

Stuart Mitchell Chief Executive

Revenues from continuing operations decreased 1.4% to £2,566.4m (2014: £2,602.9m), having been adversely affected by foreign exchange translation, with the average Euro to Sterling exchange rate depreciating by 10.9% to €1.383 in 2015 from €1.247 in 2014. Group sales increased 3.7% in constant currency and were ahead by 0.3% on a like-for-like ("LFL") basis, with acquisitions contributing 3.4% to revenue growth.

SIG experienced product price inflation of 0.5% and a 0.2% volume decrease in 2015. SIG estimates that its overall market, weighted according to the sectors in which it operates, declined by 1.3% in the period, corresponding to an outperformance of 1.6% by the Group.

In UK & Ireland revenues from continuing operations increased 5.7% to £1,412.9m (2014: £1,336.2m), and were up 1.5% on a LFL basis, with the UK up 0.8% and Ireland ahead by 12.7%.

Sales in Mainland Europe from continuing operations decreased 8.9% to £1,153.5m (2014: £1,266.7m), mainly due to movements in foreign exchange rates. On a LFL basis sales in Mainland Europe fell by 0.9% for the year, but showed an improved performance in Q4, increasing by 1.8%.

The Group continues to make good progress on its Strategic Initiatives to improve business performance, delivering an incremental net benefit of £12.6m in 2015. This gives a total cumulative net saving of £22.7m since the programme began, mainly sourced from procurement, and is ahead of schedule. SIG continues to expect to achieve at least another £10m incremental net benefit in 2016.

Although the Strategic Initiatives added 50bps to SIG's gross margin in 2015, weak trading conditions, which particularly impacted the Group's higher margin UK Exteriors business, changes in product mix and competitive pressures offset this improvement, resulting in the Group's gross margin declining by 10bps to 26.8% (2014: 26.9%).

Underlying operating profit declined 11.2% to £98.7m (2014: £111.2m) having been impacted by movements in foreign exchange rates and weak trading conditions, with underlying operating margin declining 50bps to 3.8% (2014: 4.3%). Underlying net finance costs decreased slightly to £11.3m (2014: £12.1m), which together with the decline in operating profit resulted in underlying profit before tax decreasing 11.8% to £87.4m (2014: £99.1m). Despite benefiting from a lower tax rate underlying basic earnings per share from continuing operations declined by 6.7% to 11.2p (2014: 12.0p).

On a statutory basis profit before tax increased 31.5% to £51.3m (2014: £39.0m) mainly due to a reduction in amortisation of acquired intangibles, and the prior year including costs associated with the sale of businesses, offset by business termination costs. Basic earnings per share increased 8.9% to 6.1p (2014: 5.6p).

Net debt at 31 December 2015 increased to £235.9m (31 December 2014: £126.9m) following net acquisition expenditure of £75.3m (2014: £21.0m) and net capital expenditure (excluding one-off sale of land) of £46.3m (2014: £36.6m). Net capital expenditure was 1.8x depreciation of £26.0m (2014: £24.0m), as the Group reinvested in the business, particularly IT and fleet.

Highlights Group Sales


Highlights Group Sales


Highlights Group Sales

before tax


In 2015 SIG acquired 12 infill businesses for a gross cash consideration of £78.1m, together with a contingent consideration of up to £14.2m providing future performance enhances Group returns.

Five of the acquisitions were regional infills in the UK roofing sector and one was a specialist in the UK technical insulation market. Five acquisitions were geographic and product infills in Mainland Europe, with activities in the air handling, interiors and insulation sectors. The Group also acquired an interiors business in the Middle East.

To date in 2016 SIG has acquired a further five infill businesses for a gross cash consideration of £14.6m in the air handling, exteriors and interiors sectors.

As previously stated going forward SIG is aiming to return leverage to c.1.5x in the medium-term by slowing the pace of acquisitions and moderating capital expenditure.

Return on Capital Employed

Post-tax Return on Capital Employed ("ROCE") 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 2015 SIG's ROCE decreased by 110bps to 9.3% (2014: 10.4%) mainly due to weaker trading conditions. Assuming a full year contribution from acquisitions completed in the year, ROCE would have been 40bps higher.

Going forward SIG remains committed to increasing ROCE. As well as taking a disciplined approach to its capital management, SIG seeks to achieve this through further improvements in its gross and operating margins.

Strategic Initiatives

SIG continues to make good progress on its Strategic Initiatives to improve business performance, delivering gross cumulative savings of £33.6m in 2015, of which £18.8m was in the UK & Ireland and £14.8m was in Mainland Europe. These savings were almost all sourced from its procurement initiative and are ahead of the Group's original schedule.

The net cumulative benefit to the Group, after costs of £10.9m to deliver the programme, was £22.7m. Following a net benefit of £10.1m in 2014, the net incremental benefit to the Group of the Strategic Initiatives in 2015 was £12.6m. In constant currency the net benefit was £14.1m. SIG continues to expect to achieve at least another £10m incremental net benefit in 2016.

Supply Chain

One of the key themes of the Group's Capital Markets Day in November 2015 was the reshaping of SIG's supply chain by centralising supplier and customer deliveries to larger branches or Regional Distribution Centres ("RDCs").

In order to maximise returns whilst minimising risk to the business, SIG set out a two-step strategy to achieve these savings, with the first step involving a move to regional hubs utilising the Group's existing network where possible. SIG is targeting £20m savings from this first step, with a resulting exceptional charge of c.£10m.

In the UK, the Group's Exteriors business is currently rolling out its hub and spoke model with a target completion date of the end of Q2 2016. SIG Distribution is finalising plans to deliver the cultural and behavioural change programme that underpins its change plan and is rolling out improved functionality of the new K8 ERP system in forecasting, replenishment and warehouse management.

A Group-wide review of transport planning has also commenced to secure savings through improved vehicle scheduling and routing.

The second step of the Group's supply chain strategy is to trial RDCs, potentially working with third-party logistics providers. SIG is on track to open three new RDCs this year in the UK, France and Ireland.

Air Handling

The Group's first significant move into air handling came through the acquisition of Air Trade Centre in 2007, with the rationale being that this is an adjacent specialist distribution market, with similar environmental drivers as SIG's insulation and energy management business.

The business has grown rapidly over recent years, and increased sales by 17% in 2015 to €214m. On a pro forma basis, including full year contributions from the infill acquisitions the Group made in H2 2015 and January 2016, sales in this division would be c.€250m.

SIG is targeting sales of at least €400m by 2018, mainly through organic growth, with an operating margin in the range of 7-8%. In doing so the Group is aiming to increase its project offering of designing and delivering complete system solutions to customers.


The Group has three businesses, Insulshell, RoofSpace and Metechno (acquired 2016), which together provide a compelling single offsite construction proposition.

The segment of the offsite market which SIG is targeting is already worth over £1bn and is fast growing, having increased at a compound annual rate of 16% since 2008. This is due to strong customer demand drivers as traditional construction methods are displaced. Furthermore, it has the same customer base and end-markets as SIG's distribution businesses, and uses products that are supplied from the rest of the Group.

The Group is aiming to increase sales to at least £150m by 2018, with a double-digit operating margin, and is targeting a number one position in each of its markets.

UK & Ireland trading review

  • Sales from continuing operations increased 5.7% to £1,412.9m (2014: £1,336.2m)
  • Gross margin from continuing operations down 10bps to 26.6% (2014: 26.7%)
  • Underlying operating profit down 8.8% to £61.0m (2014: £66.9m)
  • Underlying operating margin declined 70bps to 4.3% (2014: 5.0%)
  • Statutory operating profit of £38.6m (2014: £18.8m)
Continuing operations2015 SalesChangeLFL changeChange in gross margin
United Kingdom£1,340.8m6.0%0.8%(20)bps
UK & Ireland£1,412.9m5.7%1.5%(10)bps

Sales from continuing operations in the UK increased 6.0%, benefiting from acquisitions, which added £63.9m of revenues in the period. Excluding acquisitions, on a LFL basis sales were ahead 0.8%.

The private new build residential sector was the strongest segment of the UK construction market in 2015, up 7.0% compared to prior year according to the Construction Products Association ("CPA"). SIG continues to expect robust growth in this sector in 2016, although the rate of expansion is likely to slow somewhat compared to 2015, with the CPA forecasting a growth rate of 5.0%.

In contrast the UK Repairs, Maintenance and Improvement ("RMI") residential sector was challenging during 2015, particularly in the second half of the year. This adversely affected the Group's Exteriors business, which has a relatively high exposure to this segment of the market, recording a LFL sales decline of 2.9% in the year, and down by 4.3% in H2 2015.

SIG believes that the weakness in the UK RMI market is correlated, with a time lag, with housing transactions and mortgage approvals, which declined during 2014 and into the first quarter of 2015. Since then transactions and approval rates have begun to recover, suggesting that the UK RMI market is likely to pick up as 2016 progresses.

SIGD's LFL sales were up 2.1% despite increased competition in the UK insulation and interiors market during 2015, particularly in more commoditised product areas. In order to improve performance in this market the Group has taken a number of actions aimed at further increasing its customer focus, and is already benefiting from these changes.

The Group's outlook for the UK market in 2016 is positive, with growth expected to continue to be driven by the residential sector, particularly in new build. 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. Assuming this continues, the Group anticipates that this should start to feed through into its sales performance during 2016. The CPA is forecasting an increase in UK building output of 2.9% in 2016.

SIG recorded a very strong performance in Ireland in 2015 with LFL sales up 12.7% and gross margin ahead by 150bps. However, having been adversely affected by the weakening Euro, sales in Sterling were only up 1.5%. The Group's growth was driven by a recovering Irish residential market, along with some more limited recovery in activity in the non-residential sector. Euroconstruct expects this strong recovery to continue in 2016.

Mainland Europe trading review

  • Sales from continuing operations decreased 8.9% to £1,153.5m (2014: £1,266.7m)
  • Gross margin from continuing operations increased 10bps to 27.2% (2014: 27.1%)
  • Underlying operating profit declined 16.8% to £45.1m (2014: £54.2m)
  • Underlying operating margin down 40bps to 3.9% (2014: 4.3%)
  • Statutory operating profit of £34.7m (2014: £44.3m)
Continuing operations2015 SalesChangeLFL changeChange in gross margin
Germany & Austria£368.3m(10.7)%(2.3)%(10)bps
Mainland Europe£1,153.5m(8.9)%(0.9)%10bps

* includes Air Trade Centre


Although sales in France decreased by 2.8% on a LFL basis, and were down by 11.7% in Sterling due to movements in foreign exchange, SIG outperformed the market by 2.1%.

The French construction market remained challenging during 2015, with the residential market, to which the Group has a high exposure, accounting for 61% of revenues, particularly weak. Activity in the non-residential sector also continued to decline, although not to the same degree as the housing market.

There were signs that French market conditions were beginning to improve towards the end of 2015, with SIG recording LFL sales growth of 2.5% in Q4. This was the Group's first positive LFL quarterly performance in France since Q1 2014. Furthermore, new housing starts have stabilised at around 350,000 on a rolling twelve month basis, following double-digit declines earlier in the year.

Given the improving housing data and a return to growth for SIG, the outlook for France is more positive although the trajectory of any recovery remains uncertain at this early stage. Euroconstruct is forecasting a strong bounce back in the French construction market in 2016, with total building output expected to increase by 5.2%.

Germany & Austria

Sales in Germany & Austria decreased by 2.3% on a LFL basis and were down 10.7% in Sterling.

While the new build residential sector was the strongest performing market in Germany, increasing by 5.5%, this sector only accounts for 13% of SIG's sales in the country.

SIG has a high exposure to the weaker non-residential and industrial sectors in Germany, which account for 76% of revenues. In particular SIG's technical insulation business, VTI, was adversely affected by the challenging trading conditions in the industrial sector, with LFL sales declining by 7.8%.

LFL sales in WeGo, the Group's interior and structural insulation business, decreased 1.5% in the year. This compares to a 1.8% decline in the non-residential market, according to Euroconstruct.

Looking ahead to 2016, Euroconstruct is forecasting a 1.9% increase in building output in Germany, with the residential sector (up 2.3%) again outperforming the non-residential market (up 1.2%).


Sales in Benelux (which includes Air Trade Centre) were up 5.1% and by 7.8% on a LFL basis. While the construction market in Belgium remains challenging in both the residential and non-residential sectors, The Netherlands continued to improve. This was led by growth in the residential sector, with the non-residential market, which had been in decline for a number of years, now stable.

For 2016 Euroconstruct is forecasting continued good growth in The Netherlands, with building output up by 4.8%, but Belgium continuing to be relatively weak, with output increasing by only 0.6%.


In Poland, following a challenging 2014, when LFL sales decreased 5.7%, the construction market recovered in 2015, with SIG recording a LFL sales growth of 2.3% and by 4.2% in the second half of the year. However, following a 160bps improvement last year, gross margin fell back by 30bps mainly due to changes in sales mix.

Euroconstruct expect the recovery in the Polish market to continue in 2016 and is forecasting a growth rate of 3.6%.

Group outlook

This year the Group continues to expect good growth in the UK new build construction market, primarily driven by the residential segment. Lead indicators also suggest that demand should pick up in the UK RMI sector as 2016 progresses.

In Mainland Europe, while the trajectory of any recovery at this stage remains uncertain, trading conditions in France have improved, with the housing market stabilising and a return to growth for SIG in Q4 2015.

Following an encouraging start to the year, with positive LFLs in both the UK & Ireland and Mainland Europe, the scope for further cost savings and growth opportunities within the Group mean that it expects to make progress in 2016.