Nick Maddock
"The Group regards its most important short-term financial priority to be the need to reduce leverage"

Nick Maddock

Chief Financial Officer

Group performance

Gross margin26.7%27.0%(30)bps26.4%26.8%(40)bps
Operating profit91.399.9(8.6)%(91.0)65.9(238.1)%
Profit/(loss) before tax77.588.6(12.5)%(106.3)51.3(307.2)%
Basic earnings/(loss) per share (pence)9.7p11.3p(1.6)p(20.1)p6.1p(26.2)p
Total dividend per share (pence)n/an/an/a3.66p4.60p(0.94)p
Net debtn/an/an/a259.9235.910.2%
Cash inflow from tradingn/an/an/a98.999.8(0.9)%
Leverage (covenant net debt/covenant EBITDA)n/an/an/a2.1x1.8x0.3x
Working capital to sales9.9%9.0%90bps10.0%9.4%60bps
ROCE (post-tax)9.4%11.5%(210)bps(12.3)%6.1%(1,840)bps

* Underlying results are stated before the amortisation of acquired intangibles, goodwill and intangible impairment charges, profits and losses on agreed sale or closure of non-core businesses and associated impairment charges, net operating losses attributable to businesses identified as non-core in 2016, net restructuring costs, acquisition expenses and contingent consideration, the defined benefit pension scheme curtailment loss, other one-off items, unwinding of provision discounting, fair value gains and losses on derivative financial instruments, one-off recognition of deferred tax assets, the taxation effect of Other items and the effect of changes in taxation rates.


2016 has been a disappointing year for SIG, with the transformational change programme distracting the business. As a result, underlying profit before tax of £77.5m was £11.1m down on the prior year (2015: £88.6m).

The combination of investing and financing cash outflows in excess of operational cash inflows, and the impact of exchange rates has resulted in an increase of £24.0m in net debt to £259.9m (2015: £235.9m). Combined with the fall in profitability, this led to closing leverage at 31 December 2016 of 2.1x, higher than the preferred 1.0x – 1.5x range, but with headroom against the leverage covenant (less than 3.0x).

The Group regards its most important short-term financial priority to be the need to reduce leverage, which will be achieved through increased focus on cash generation and managing working capital, moderating capital expenditure, suspension of the infill acquisition programme and rebasing the dividend.

Performance over the year

Continuing revenue*2,739.82,463.111.2%
Revenue attributable to businesses identified for sale or closure:
Carpet & Flooring97.597.5
Drywall Qatar7.95.836.2%
Total statutory revenue2,845.22,566.410.9%

* Continuing revenue is excluding the revenue attributable to businesses identified for sale or closure.

Total Group sales on a statutory basis increased by £278.8m or 10.9% to £2,845.2m (2015: £2,566.4m).

Since the year end the Group has sold, subject to contract, two businesses that were deemed to be non-core at 31 December 2016 and which offered a low probability of significant improvements in performance over the medium term, namely its UK specialist flooring division, Carpet & Flooring, and Drywall Qatar, in which the Group has a 49% controlling share.

In order to provide a better guide to the underlying future performance of the Group, the results of the two non-core businesses have been classified as Other items within the Consolidated Income Statement.

On a continuing basis (ie excluding these non-core businesses), sales grew by 11.2%, or £276.7m in Sterling and by 4.4% on a constant currency basis. The incremental impact of acquisitions made in the current and prior year contributed 3.7% of this sales growth in the year, and therefore, excluding 2016 and 2015 acquisitions, the Group's sales on a constant currency basis were up 0.7%. The weighted number of trading days in the year ended 31 December 2016 was one day higher when compared to the prior year, which had the effect of increasing sales by 0.3%, meaning that on a like-for-like basis (ie excluding the effects of acquisitions, foreign exchange and the number of working days), sales grew by 0.4% for the Group as a whole.

Like-for-like constant currency sales performance^GroupUK &
First half0.7%2.5%(1.2)%
Second half0.2%(0.1)%0.5%
Full year0.4%1.2%(0.4)%
Statutory sales performanceGroupUK &
First half10.6%8.8%12.7%
Second half11.1%3.4%20.8%
Full year10.9%6.0%16.8%

^ Like-for-like constant currency sales performance represents the growth/(decline) in the Group's sales per day excluding any acquisitions and businesses identified for sale or closure in the current and prior year. Sales are not adjusted for organic branch openings and closures.

Whilst overall like-for-like sales in the Group's Mainland Europe segment declined over the full year, there was an improvement as the year progressed, with H2 like-for-like sales growth against the prior year of 0.5%, compared to the decline of 1.2% realised in the first half.

In contrast, whilst the Group's UK & Ireland segment started the year well with H1 like-for-like sales growth of 2.5%, trading conditions softened following the EU referendum and competition in the market intensified, leading to a H2 like-for-like sales decline of 10bps. As a result a 1.2% improvement in like-for-like full year sales compared to the prior year was reported.

The Group's procurement strategic initiative again delivered significant benefits in the year and helped to mitigate underlying gross margin declines resulting from these competitive pressures in a number of SIG's core markets. Whilst Mainland Europe reported a 20bps improvement in margins, the UK & Ireland was down 80bps against the prior year leading to an overall underlying gross profit margin of 26.7%, down 30bps on the prior year (2015: 27.0%).

On a statutory basis (ie including businesses identified as non-core), the Group's gross margin decreased by 40bps to 26.4% (2015: 26.8%).

Underlying operating profit2016
UK & Ireland53.262.2(14.5)%
Mainland Europe48.945.18.4%
Head office costs(10.8)(7.4)45.9%

On an underlying basis, operating profit decreased by £8.6m (8.6%) to £91.3m (2015: £99.9m). Overall, the Group's underlying operating profit margin at 3.3% was 80bps lower than the prior year (2015: 4.1%).

Acquisitions completed during 2016 and 2015, excluding Drywall Qatar, provided sales of £149.6m (2015: £52.4m) and made an underlying operating profit contribution of £15.3m (2015: £6.5m) in the year.

Statutory operating profit2016
UK & Ireland(13.5)38.6(135.0)%
Mainland Europe(66.7)34.7(292.2)%
Head office costs(10.8)(7.4)45.9%

On a statutory basis, the Group recognised an operating loss for the year of £91.0m (2015: profit of £65.9m) after recognising a number of Other items that are described below.

Finance costs

Net finance costs on a statutory basis increased by £0.7m to £15.3m (2015: £14.6m).

Net finance costs included in the Other items column of the Consolidated Income Statement amounted to £1.5m (2015: £3.3m).

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 amounts previously recorded in reserves are being amortised through the Consolidated Income Statement over the life of the associated debt to 2018 in line with the relevant accounting standards. The amortisation included within the Other items column amounted to £1.9m (2015: £1.9m). 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 two years, is £2.0m (2015: £3.9m).

In February 2014 the Group cancelled a further two interest rate derivative contracts that swapped floating rate debt into fixed rate debt at a cash cost of £2.0m. The amounts previously recorded in reserves are being amortised through the Consolidated Income Statement as an underlying item over the life of the associated debt to 2018 as this cancellation reflects the ongoing management of the Group's interest rate hedging policy. The amount amortised in 2016 was £0.4m (2015: £0.4m). 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 two years, is £0.7m (2015: £1.1m).

Also included within finance costs is a credit of less than £0.1m (2015: credit of less than £0.1m) relating to hedge ineffectiveness incurred on the Group's financial instruments and a net credit of £0.3m in respect of unwinding of provision discounting (2015: charge of £1.5m). A net credit of £0.4m on the unwinding of provision discounting has been included within Other items to reflect the fact that the related provisions are non-recurring in their nature (2015: charge of £1.4m).

Net finance costs before Other items (ie net borrowing costs) increased by £2.5m to £13.8m in 2016 (2015: £11.3m).

Further details of SIG's interest rate policies are provided in the Interest Rate Risk section.

Reconciliation of statutory result to the continuing underlying trading performance

In order to provide an indication of the continuing earnings of the Group, the Group separately identifies Other items on the face of its Consolidated Income Statement. These items are separately reported due to their non-recurring, significant or unusual nature.

Underlying profit before tax77.588.6
Other items – impact operating profit
Amortisation of acquired intangibles(10.3)(10.3)
Goodwill and intangible impairment charges(110.6)
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges(40.1)
Net operating losses attributable to businesses identified as non-core in 2016(5.8)(1.2)
Net restructuring costs(13.3)(8.3)
Acquisition expenses and contingent consideration4.6(14.3)
Defined benefit pension scheme curtailment loss(0.9)
Other one-off items(5.9)0.1
Other items – impact operating interest
Net fair value losses on derivative financial instruments and unwinding of provision discounting(1.5)(3.3)
Total Other items(183.8)(37.3)
Statutory (loss)/profit before tax(106.3)51.3

Amounts reported in the Other items column of the Consolidated Income Statement which in total amounted to a loss before tax of £183.8m (2015: £37.3m) are as follows:

  • Amortisation of acquired intangibles – £10.3m (2015: £10.3m). Intangible amortisation is dependent upon the number and value of acquisitions made by the Company. The accounting policies section and Note 13 to the Accounts provide details of what is included within intangible assets and over what periods the assets are amortised.
  • Goodwill and intangible asset impairment charges – £110.6m (2015: £nil). A goodwill and intangible asset impairment charge of £100.4m associated with the Larivière Cash Generating Unit ("CGU") was recognised as a result of the annual impairment review. This followed continued challenging conditions in the French roofing market, and growing uncertainty around market growth, macroeconomic conditions and uncertainty within the European Union in the medium term. In addition, a goodwill impairment charge of £10.2m associated with the Poland CGU was recognised following a change in short-term forecast profitability.
  • Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges – £40.1m (2015: £nil). The non-recurring charge was recognised in respect of the agreed sale of the Group's Carpet & Flooring division and Drywall Qatar, in which SIG holds a controlling interest. Further detail of the nature and breakdown of this non-recurring charge can be found in the Divestments section below and Note 11 to the Accounts.
  • Net operating losses attributable to businesses identified as non-core in 2016 – £5.8m (2015: £1.2m). The 2016 results of Carpet & Flooring and Drywall Qatar, together with their 2015 comparatives have been reported as Other items on the basis of their non-recurring nature and to provide an indication of the continuing earnings of the Group.
  • Net restructuring costs – £13.3m (2015: £8.3m). The Group has taken a number of actions during the year to improve the efficiency of its fixed cost base. These have resulted in redundancy costs of £1.7m (2015: £0.9m), property closure costs of £4.4m (2015: £4.6m), rebranding of £0.5m (2015: £0.2m) and supply chain consultancy costs of £6.7m (2015: £2.6m).
  • Acquisition expenses (£0.8m) and contingent consideration (credit of £5.4m) – credit of £4.6m (2015: charge of £14.3m). Acquisition expenses and movements in contingent consideration linked to employment contracts or other targets where the measurement period has expired vary depending on the number, size and future profitability of acquisitions.
  • Defined benefit pension scheme curtailment loss – £0.9m (2015: £nil). On 30 June 2016 the UK defined pension scheme was closed to future benefit accrual. The change in assumptions associated with the closure resulted in a one-off curtailment loss of £0.9m. Further details can be found in Note 29c to the Accounts.
  • Other one-off items – £5.9m (2015: credit of £0.1m). Other one-off items include the impairment charge and other costs following the cessation of the UK eCommerce project of £9.7m (2015: £nil), a net charge arising as a result of movements in provisions associated with businesses disposed of in previous years of £0.5m (2015: £nil) and income from the sale of land of £2.8m (2015: £1.1m). They also include fair value gains on fuel hedging contracts of £0.4m (2015: losses of £0.4m), a credit of £0.7m arising as a result of the reassessment of the provision associated with the closure in 2015 of the Group's operations in the Kingdom of Saudi Arabia (2015: operating losses and closure costs of £3.6m) and other one-off credits of £0.4m (2015: £0.6m). In 2015, other one-off items also included a credit of £2.4m for the reversal of property provisions previously provided through Other items.
  • Net fair value losses on derivative financial instruments and unwinding of provision discounting – £1.5m (2015: £3.3m). The finance costs section above explains these items in more detail.

Underlying profit before tax decreased by £11.1m, or 12.5%, to £77.5m (2015: £88.6m). On a constant currency basis underlying profit before tax decreased by £16.2m to £71.8m.

On a statutory basis, loss before tax was £106.3m (2015: profit of £51.3m).


The Group's approach to tax matters is to comply with all relevant tax laws and regulations, wherever it operates. The Group seeks to pay, at the right time, the correct amount of taxes due, both direct and indirect, in accordance with the laws of the territories in which it operates.

The Group takes appropriate advice from reputable professional advisers to ensure compliance with applicable rules and regulations, and to consider potential mitigating actions in order to manage tax risks.

The Group seeks to be transparent in its dealings with local tax authorities and aims to establish and maintain constructive relationships with all relevant tax authorities. Should a tax related dispute arise then we aim to promptly address and resolve the issue with the relevant tax authority, in a responsible, cooperative and timely manner.

The Board has overall responsibility for managing and controlling risk, including tax risk, within the Group. The Group has a Tax and Treasury Committee that provides regular updates to the Board, and this enables the Board to consider the tax implications of significant strategic decisions on a timely basis.

The UK Government has introduced legislation that requires large businesses to publish an annual tax strategy. Accordingly, the Group's tax strategy will be made available online during 2017.

The Group recorded an income tax charge on underlying profits from continuing operations amounting to £19.5m (2015: £21.4m) which represents an underlying effective rate of 25.2% (2015: 24.2%). Excluding the one-off effect of prior year credits, the underlying effective tax rate was 25.9%. On the statutory loss before tax of £106.3m (2015: profit of £51.3m), the income tax charge of £12.3m represents an effective rate of negative 11.6% (2015: 29.2%). These differences arise as a result of amounts included as Other items in the year.

Cash tax payments amounted to £9.6m, £9.9m below the £19.5m income tax charge on underlying profits, primarily as a result of the restructuring costs incurred in the year included within Other items and also the utilisation of the Group's brought forward UK non-trading tax losses (c.£20m gross utilised during the year).

The Group's underlying effective tax rate in 2017 will be determined by the mix of profits from different jurisdictions. It is anticipated that the underlying effective tax rate in 2017 (excluding any prior year effects) will increase to c.27%.

Earnings per share ("EPS")

Underlying basic EPS9.7p11.3p(1.6)p
Statutory basic EPS(20.1)p6.1p(26.2)p

Underlying basic EPS from continuing operations amounted to 9.7p (2015: 11.3p), which represents a decrease of 1.6p. Total basic loss per share amounted to 20.1p (2015: earnings per share of 6.1p), which takes into account Other items as described above. The weighted average number of shares in issue in the period was 591.4m (2015: 591.2m).


The Company has sufficient distributable reserves to pay dividends for a number of years and when required the Company can receive dividends from its subsidiaries to further increase distributable reserves.

On the back of a good first half performance where underlying operating profits were up 20%, SIG increased its interim dividend to 1.83p per share (2015: 1.69p).

With the weaker second half and resulting leverage of 2.1x at 31 December 2016, the Group has sought to rebase its final dividend.

In this context, SIG has proposed a final dividend of 1.83p per share (2015: 2.91p), taking the 2016 full year dividend to 3.66p per share (2015: 4.60p), representing a 20% decrease in total dividend year on year. A total dividend of 3.66p represents a dividend cover of 2.65x in 2016 on an underlying basis.

Going forward, the Board is committed to a policy of increasing dividends whilst maintaining a dividend cover of 2x–3x (on an underlying basis) over the medium term.

Shareholders' funds

Shareholders' funds decreased by £109.9m to £538.8m (2015: £648.7m). The decrease comprised the following elements:

Loss after tax attributable to equity holders of the Company(119.1)
Exchange differences on assets and liabilities after tax50.3
Gains and losses on cash flow hedges(1.5)
Movements attributable to share options(0.9)
Actuarial gain on pension schemes (net of deferred tax)(10.2)
Effect of change in tax rates on deferred tax(0.5)
Dividends paid to equity holders of the Company(28.0)
Decrease in Shareholders' funds(109.9)

Cash flow and financial position

In 2016, the Group generated £98.9m of cash flow from trading to help support its strategy of investment in both organic and acquisition-based growth, and dividend policy. The following table explains the movement in SIG's net debt:

Cash inflow from trading98.999.8
Increase in working capital(23.1)(38.2)
Cash inflow from operations75.861.6
Interest and tax(22.1)(20.6)
Maintenance capital expenditure*(29.5)(26.0)
Free cash flow available for investment24.215.0
Investment capital expenditure(10.4)(24.1)
Proceeds from sale of property, plant and equipment39.54.9
Acquisition investment (including deferred consideration)(29.6)(75.3)
Foreign exchange (losses)/gains(11.6)0.8
Issue of shares0.1
Dividends paid to equity holders of the Company(28.0)(27.6)
Other items (including fair value movements)(8.1)(2.8)
Movement in net debt(24.0)(109.0)
Opening net debt(235.9)(126.9)
Closing net debt(259.9)(235.9)

* Where capital expenditure is equal to or less than depreciation (including amortisation of computer software), all such capital expenditure is assumed to be maintenance capital expenditure. To the extent that net capital expenditure exceeds depreciation, the balance is considered to be investment capital expenditure.

Working capital

The key working capital measures are set out below on a constant currency basis (continuing operations):

Inventory days4444
Trade receivable days4545
Trade payable days3938

The Group's working capital to sales ratio (on a constant currency basis for continuing operations) at 31 December 2016 was 9.9% (2015: 9.0%). The 90bps increase was driven by movements in creditors arising as a result of contingent consideration amounts on acquisitions (70bps). Working capital days decreased by one day to 50 days (2015: 51 days).

Fixed assets

Net capital expenditure (including computer software) decreased in the year by £44.8m to £0.4m (2015: £45.2m), representing a capex to depreciation ratio of 0.01x (2015: 1.74x). Capital expenditure includes new vehicles, new brownfield sites and investment in plant and machinery.

The capex to depreciation ratio has been strongly influenced in the period by the level of proceeds from the sale of property, plant and equipment, which were up £34.6m at £39.5m (2015: £4.9m) as part of the effort to manage leverage. Excluding these proceeds, the capex to depreciation ratio would be 1.35x (2015: 1.93x).

Foreign currency translation

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

Average rateMovementClosing rateMovement
Polish Zloty5.325.78(8.0)%5.165.82(11.3)%

The impact of exchange rate movements on the translation of the Group's overseas earnings streams, net assets and net debt can be summarised as follows:

Impact of currency
movements in
Continuing revenue£169.3m6.8%
Statutory revenue£170.3m6.6%
Underlying operating profit£6.3m6.3%
Statutory operating profit£5.0m7.6%
Underlying PBT£5.7m6.4%
Statutory PBT£4.4m8.6%
Consolidated net assets£50.3m7.7%
Net debt£11.6m4.9%

Fluctuations in exchange rates give rise to translation differences on overseas earnings streams when translated into Sterling. Further details of SIG's foreign exchange policies are detailed in the Foreign Currency Risk section within Treasury risk management.

Pension schemes

In total, the Group operates six defined benefit pension schemes, the largest of which is a funded scheme held in the UK. The remaining five 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 five book reserve schemes are referred to as "defined benefit pension schemes".

On 30 June 2016, the UK defined benefit scheme was closed to future benefit accrual. The change in assumptions associated with the closure resulted in a curtailment loss of £0.9m which has been charged within Other items in the Consolidated Income Statement.

The overall gross defined benefit pension schemes' liability increased during the year by £13.3m to £37.1m (31 December 2015: £23.8m). This can be analysed as follows:

in pension
scheme liability
Actual return above expected return on assets(25.4)
Change in financial and demographic assumptions in all schemes37.9
Amounts recognised in the income statement1.6
Cash contributions to the scheme and other movements(3.1)
Curtailment loss0.9
Effect of change in exchange rates1.4
Increase in pension scheme liability13.3

In addition to the defined benefit pension schemes, the Group also operates a number of defined contribution pension schemes. Further details of the pension schemes operated by SIG are set out in Note 29c to the Accounts.


The Group slowed the pace of its acquisition programme during the year and has now suspended the programme in order to focus on improving leverage. In total the Group made six acquisitions in 2016 for a gross consideration of £21.1m. Three of those acquisitions were in the United Kingdom, and there were also acquisitions in France, Germany and Austria. Consideration of £11.4m was paid in the year in respect of acquisitions made during 2013 to 2015.

Contingent consideration relating to the 2016 acquisitions not specific to employment criteria of £0.4m has been recognised and included within goodwill. Including contingent consideration, the total spend on 2016 acquisitions would increase from £21.1m to £31.9m.

Acquisitions remain subject to strict financial return criteria, with all acquisitions required to achieve a post-tax Return on Capital Employed in excess of the Group's Weighted Average Cost of Capital in the first full year of ownership.

Further details of the Group's acquisitions can be found in Note 14.


As noted above, in the final quarter of the year the Group Board approved the exit of two businesses which were deemed to be non-core to the Group and where it was considered a low probability that performance would improve significantly over the medium term.

On 28 February 2017 the Group completed the sale of its UK specialist flooring division, Carpet & Flooring, to Endless LLP, a UK based private equity investor, for a gross consideration of £7.2m.

At the December 2016 Group Board Meeting it was resolved that the Drywall Qatar business (49% shareholding with a controlling interest) was deemed non-core and that the business would either be sold or closed. In March 2017 the sale of the business was agreed, subject to contract.

The following results have been included in the Other items column of the Group's Consolidated Income Statement in order to provide an indication of the continuing earnings of the Group.

Carpet & FlooringDrywall QatarTotal
Trading results
Operating (loss)/profit(3.0)(2.3)(2.8)1.1(5.8)(1.2)
Other items
Impairment of goodwill and intangible assets(17.3)(4.7)(22.0)
Impairment on property, plant and equipment(3.6)(0.2)(3.8)
Write down of working capital(14.3)(14.3)
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges(35.2)(4.9)(40.1)
Total Other items impact on operating profit(38.2)(2.3)(7.7)1.1(45.9)(1.2)

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 shareholders through the optimisation of the debt and equity balance.

The main measure used to assess the appropriateness of the Group's capital structure is its net debt to EBITDA ratio (ie leverage), thus ensuring that the Group's capital structure is aligned to the Group's debt covenants. The Group's leverage position at 31 December 2016 was 2.13x (31 December 2015: 1.78x). Going forward the Group is prioritising leverage reduction in order to return the leverage ratio back to the Group's medium-term target range of 1.0x–1.5x. Gearing, being net debt divided by net assets, increased during the year from 36.3% to 48.2%.

As at 13 March 2017, SIG's share price closed at 107.2p per share, representing a market capitalisation of £634.0m at that date. SIG monitors relative Total Shareholder Return ("TSR") for assessing relative financial performance. This has been detailed in the Directors' Remuneration Report under the Relative importance of spend on pay section and the Historical TSR performance section.


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