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

Like-for-like sales

Total continuing sales

Like-for-like sales growth

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.

Like-for-like sales is a measure of the underlying performance of the Group.

Performance

2016 was a difficult year for SIG as its transformational change programme distracted the business and resulted in a loss of customer focus.

Like-for-like sales grew by 0.4% when compared to the prior year.

On a statutory basis (ie including the businesses highlighted as discontinued), SIG reported sales of £2,845.2m, 10.9% up on the prior year.

2017 Target

Like-for-like sales growth through a refocus on the customer and growing added-value sales offering.

Link to strategy

1

2

5

Principal risks

Market conditions
Government legislation
Commercial relationships

Gross margin

Statutory

Underlying

Definition*

The ratio of gross profit to sales.

Gross margin is a measure of sales and productivity improvement.

Performance

On a statutory basis, the gross margin has reduced by 40bps, being heavily affected by the high level of competition in the UK insulation and interiors market, and production challenges in the Group's offsite construction business.

The Group has delivered an underlying gross margin of 26.7%, which despite incremental benefits from the procurement programme, is c.30bps down on the prior year.

The decision to divest Carpet & Flooring and to exit Drywall Qatar has structurally improved the gross margin by 30bps, and represents the difference between the statutory and underlying results.

2017 Target

Continuous improvement through leveraging strength and scale of business in procurement.

Link to strategy

1

2

3

4

5

Principal risks

Competitors and margin management
Commercial relationships

Underlying operating margin

Definition*

The ratio of underlying operating profit to underlying sales (excluding non-core businesses).

Underlying operating margin is a measure of the profitability of the Group, excluding the impact of Other items.

Performance

The operating margin for the Group decreased by 80bps when compared to the prior year.

The decline in operating margin was a result of a 8.6% decline in operating profit to £91.3m (2015: £99.9m) arising from tough competitive trading conditions.

On a statutory basis, the Group reported an operating loss of £91.0m (2015: operating profit of £65.9m).

This represents a statutory operating margin of negative 3.2% (2015: positive 2.6%).

2017 Target

Continuous improvement through tight control of operating costs and reducing cost to serve by improving supply chain efficiency.

Link to strategy

1

2

3

4

5

Principal risks

IT infrastructure

Like-for-like working capital to sales®

Definition*

Like-for-like working capital to sales is defined as the ratio of closing 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.

Like-for-like working capital to sales is a measure of working capital investment in the Group's sales.

Performance

The Group recorded a like-for-like working capital to sales ratio of 9.9% at 31 December 2016 which was above the 2016 targeted range of no more than 9%.

70bps of the increase year-on-year represents the reduction in contingent consideration accrued and paid in respect of acquisitions in prior periods.

2017 Target

Improvement in working capital to sales year-on-year through working capital management and refocus on the customer.

Link to strategy

1

2

3

4

5

Principal risks

Working capital/credit management

Return on capital employed ®

Definition*

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

Post-tax ROCE is a measure of shareholder return.

Performance

The Group recorded a post-tax ROCE of 9.4% in 2016, 210bps below the prior year (11.5%) but 160bps above the Weighted Average Cost of Capital ("WACC") of 7.8%.

Going forward, the Group is committed to increasing ROCE and will achieve this by restoring our customer focus, placing an increased emphasis on sales growth, and reducing leverage.

On an unadjusted basis, the Group's ROCE for the year was a negative 12.3% (2015: positive 6.1%).

2017 Target

Improvement in the Group's ROCE through working capital management and profit growth.

Link to strategy

1

2

3

4

5

Principal risks

Market conditions
Competitors and margin management
Working capital/credit management

* Underlying is defined as being the Group's results before Other items as disclosed in the Financial Review. Note 32 to the Accounts provides further detail of the calculation of these indicators.

Relevance to strategy

1

Improving our customer focus

2

Innovation and value added sales

3

Supply chain

4

Procurement

5

People

Remuneration

Certain KPIs are used as a measure in the incentive plans for the remuneration of executives

These are identified with the symbol®.