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7
Building on our potential
ANNUAL REPORT AND ACCOUNTS
for the year ended 31 December 2017
Stock code: SHI
25690-AR2017 15-03-18 Proof Six25690-AR2017 15-03-18 Proof Six
Welcome
SIG is a leading European supplier of
specialist building materials.
OUR INVESTMENT CASE
Strong positions in our core markets of insulation & interiors,
roofing & exteriors and air handling
Read more on our locations on page 4
Focused on specialist distribution and merchanting for our business
customers across the construction industry
Read more on our business model on page 10
Bringing value to our customers as a specialist distributor
Read more on our markets on page 12
Experienced and passionate workforce operating with a
strong health and safety focus
Read more on our strategy on page 14
Our strategic goal is to deliver significantly improved operational
and financial performance as a leading European supplier of
specialist building materials
Read more on our sustainability on page 46
OUR STRATEGY IN ACTION
CUSTOMER SERVICE
CUSTOMER VALUE
OPERATIONAL EFFICIENCY
Read more on page 16
Read more on page 18
Read more on page 20
25690-AR2017 15-03-18 Proof Six25690-AR2017 15-03-18 Proof Six Highlights
Like-for-like sales
2,323.3
2,778.5
2,587.4
2,845.2
2,878.4
2,566.4
+3.8%
(2016:+0.4%)
Medium term target:
Growth in line with market
Return on sales
3.4%
(2016: 3.5%)
Medium term target: c.5%
Return on capital
employed
10.3%
(2016: 10.2%)
Medium term target: c.15%
2015
2016
2017
2015
2016
2017
UNDERLYING REVENUE (£m)*
TOTAL REVENUE (£m)
85.4
75.9
79.2
50.9
2015
2016
2017
UNDERLYING PROFIT
BEFORE TAX (£m)*
279.7
259.8
223.8
2015
2016
2017
(51.2)
(110.0)
STATUTORY PROFIT/(LOSS)
BEFORE TAX (£m)
2.0×
2.4×
1.9×
2015
2016
2017
NET DEBT (£m)
2015
2016
2017
HEADLINE FINANCIAL
LEVERAGE
FINANCIAL HIGHLIGHTS
Business performance stabilising, balance sheet strengthening and
portfolio being rationalised
Total revenue increased by 1.2% and like-for-like sales up 3.8%
Underlying* PBT ahead at £79.2m (including £13.7m property profits)
£51.2m statutory loss before tax, reflecting £130.4m non-underlying items
Return on capital employed improved to 10.3% (2016: 10.2%)
Headline financial leverage down to 1.9x
Final dividend of 2.5p bringing total for year to 3.75p (2016: 3.66p).
OPERATIONAL HIGHLIGHTS
New leadership team with Chairman, Chief Executive Officer and Chief
Financial Officer replaced during the year
Plans to deliver turnaround being implemented across the Group
Thorough review of strategy confirms considerable opportunity to
improve performance
Organisation right-sized and Group functions scaled back
Peripheral businesses divested or closed down
Operating costs stabilising, debt down
Legacy accounting issues addressed
Strong health and safety record maintained
* Before results attributable to businesses identified as non-core and Other items as disclosed in Notes 1 and 2
of the Financial Statements.
Prior years have been restated for the historic overstatements noted on page 31 and reclassified for businesses
identified as non-core since signing of the 2016 Annual Report and Accounts.
Contents
BUSINESS OVERVIEW
Welcome
Highlights
Chairman’s statement
SIG at a glance
STRATEGIC
Q&A
Our business model
Our marketplace
Our strategy
Our KPIs
Performance
Financial review
Principal risks and uncertainties
Sustainability
GOVERNANCE
Board of Directors
Introduction to governance
Corporate Governance report
Audit Committee report
Nominations Committee report
Directors’ remuneration report
IFC
01
02
04
08
10
12
14
22
24
28
42
46
58
60
61
73
78
80
Statement of Directors' responsibilities 97
FINANCIALS
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Cash Flow Statement
Statement of Significant
Accounting Policies
100
101
102
103
104
105
Critical Accounting Judgements and
Key Sources of Estimation Uncertainty 112
Notes to the Consolidated Financial
Statements
Independent Auditor’s Report
Five-Year Summary
Company Statement of
Comprehensive Income
Company Balance Sheet
Company Statement of
Changes in Equity
Company Statement of Significant
Accounting Policies
Notes to the Company
Financial Statements
Group Companies 2017
Company information
114
167
178
180
181
182
183
185
191
193
Read more on our Performance on page 24
and in our Financial Review on page 28
See Our KPIs on page 22 and Note 32 of the Financial
Statements for definitions of like-for-like sales, return on
sales and headline financial leverage.
01
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comBUSINESS OVERVIEW Chairman’s statement
Our strategic goal is to deliver significantly improved
operational and financial performance.
“ As one of Europe’s leading suppliers
of specialist building materials it is
essential that we continue to bring
value to our business customers
across the construction industry.
The changes we have made this
year to the leadership of the Group
and the plans we have begun to
implement provide the foundation
for lasting change.”
ANDREW ALLNER CHAIRMAN
DEAR SHAREHOLDER,
I am pleased to present my first report to you
as your Chairman following my appointment on
1 November 2017.
My initial impressions of SIG plc are that it is a strong
business, with leading market positions across our
core markets in Europe. With close to £3bn of annual
revenues and over 9,000 employees, SIG plays a
critical role in the construction supply chain, helping
manufacturers of building materials bring their
specialised products to a broad customer base across
major European markets. We have a loyal, skilled and
experienced workforce and through them we help the
construction industry to build offices, schools, hospitals
and homes by delivering the right product to the right
place at the right time.
However, over recent years, the business has struggled
to translate these strong market positions and the
potential of its people into robust financial performance.
SIG has not provided meaningful value to Shareholders
for a number of years and, in a challenging market
environment, failed to deliver against expectations in
2015 and 2016. In my view, this business lost focus, tried
to do too much, and has not been well managed for a
long time.
My arrival was the culmination of a series of changes
to the senior leadership of SIG last year, with the
appointment of Nick Maddock as Chief Financial Officer
in February 2017 and the appointment of Meinie
Oldersma as Chief Executive Officer in April 2017. In
Nick and Meinie, I believe we have a strong management
team with a clear sense of what it will take to drive
this business forward, and they are already putting
improvement plans into action.
02
Annual Report and Accounts
25690-AR2017 15-03-18 Proof SixSIG plc REVIEW OF STRATEGY
Following Meinie’s and Nick’s appointments, the
Board carried out a detailed review of our strategy.
This has confirmed the potential for the Group
to deliver a significantly improved operational
and financial performance, which is the Board’s
immediate priority. The conclusions of this review
were presented to Shareholders on 21 November
2017 and are available in the Presentation & results
section of our corporate website at www.sigplc.com.
We have reaffirmed our focus on our core business
of distribution and merchanting of specialist
products for our business customers across the
construction industry. We believe our specialist
focus brings us real advantages through our
product expertise and our ability to partner with
both suppliers and customers. We add value
through the building materials supply chain with the
depth and availability of stock we hold, our ability to
break bulk and our delivery and logistics capability.
Our customers benefit from our specialist and
technical advice, our product enhancement
capabilities and our provision of credit.
The implementation of our strategy, which
necessarily is prioritising medium term turnaround,
is focused on key strategic levers around customer
service, customer value and operational efficiency,
and management has put in place dedicated plans
around each of these. Highly disciplined execution
will be key to delivery and this will require focused
investment in key enablers around data, IT and
capability to support implementation. Whilst it
will not be a quick or easy transition, I believe
that 2017 has set the business on the path to
build on its potential and deliver a significantly
improved performance.
As we deliver progress in turning around the
performance of the business we shall continue to
develop our strategic thinking to create a long term
sustainable business that meets the requirements
of all our stakeholders and maximises long term
value for our Shareholders.
Read about our Strategy
on pages 14 to 21
BOARD AND GOVERNANCE
There were a series of changes to the Board in
2017. In addition to my appointment and the
arrivals of Meinie and Nick, as noted above, Ian
Duncan joined in January as Non-Executive Director
and consequently as Chair of the Audit Committee.
Ian has been an excellent addition to the Board.
Leslie van de Walle retired from the Board on my
appointment after seven years. He did not have
an easy time as Chairman but worked hard and
conscientiously to do the right thing. I would like to
thank him for his contribution.
One of my first priorities has been to assess the
structure and composition of the Board. Chris
Geoghegan’s third term, nine years in total, serving
as a Non-Executive Director of SIG, expires at the
Company’s 2018 Annual General Meeting on 10
May 2018. After consultation with the Company’s
Nominations Committee and in line with the
recommendations of the UK Corporate Governance
Code (April 2016), Chris has decided to retire in
advance of the Annual General Meeting and will
not be putting himself forward for re-election. Janet
Ashdown has assumed his responsibilities as Chair
of the Remuneration Committee, with effect from
19 December 2017 and Mel Ewell will take over
his responsibilities as Senior Independent Director
from 9 March 2018. Chris has given good service
to the Group over a number of years and I would
like to thank him for his substantial and valuable
contribution. Further, in light of succession planning,
it was agreed with Mel that he would also retire from
the Board, however would remain as a Director until
a new Non-Executive Director is appointed.
Following my appointment, I have conducted a
review of Board effectiveness with Non-Executive
and Executive Directors and with feedback from
some of the Group’s larger Shareholders. As a
result, I intend to make a number of changes to the
way that the Board operates. Specifically, I believe
the Board has become rather short term and
internal in its focus as the financial performance
has deteriorated over recent years. I am seeking to
set a more strategic agenda for the Board in 2018
that looks beyond the current turnaround, whilst
ensuring we continue to hold management to
account for delivery of the plans and targets in our
medium term strategy.
I am also looking at ways in which the Non-
Executive Directors can become closer to the
business with a better understanding of the
day-to-day operations of the Group, including a
programme of site visits and the regular attendance
at Board meetings of senior managers from across
the business. I am also keen that the Board has a
much greater focus on people and culture as they
will be critical to the future success of the Group.
The Board is planning an external review of Board
effectiveness in 2018 and I will report back formally
on the findings from that review in due course.
Under my Chairmanship, the Board will be
committed to strong corporate governance, doing
business the right way and improving standards of
environmental, social and sustainability practices.
SIG continues to comply with the UK Corporate
Governance Code (April 2016), except for running
an external Board evaluation process, as outlined in
our Corporate Governance Statement.
Read about Corporate Governance
on pages 61 to 72
The Board remains determined to hold itself and
the broader Group to the highest standards of
ethical and professional practices. We will not
tolerate any breach of these standards and I
support the robust action taken by management,
in conjunction with the Audit Committee, in relation
to the controls issues identified during the year.
We thoroughly investigated and reported the
historical overstatements identified, and I would
like to assure you that we have moved swiftly and
decisively to address these serious matters, which
are described further in the Financial Review and
Corporate Governance sections later in this Report.
Read about Financial Review
on pages 28 to 41
The Board is also supportive of management’s
focus on increasing the level of transparency
and openness with Shareholders and other
stakeholders. In this context, we continue to
enhance the Annual Report so that disclosures
represent a fair, balanced and understandable
assessment of the Group’s position and prospects
and we have made a number of improvements this
year with the purpose of improving the clarity of
the Strategic Report in particular. I hope that you
recognise and welcome these improvements.
DELIVERING
SHAREHOLDER VALUE
The Board is committed to delivering value to
Shareholders through the operational and financial
turnaround of the business. The primary measures
that the Board uses to track Shareholder value
are profit before tax and average return on capital
employed, which in 2017 improved by 10bps to
10.3%. Our stated target is to deliver a ROCE of
c.15% over the medium term.
SIG intends to pursue this goal whilst rebuilding a
strong balance sheet and is targeting a reduction in
headline financial leverage to below 1.0x over the
medium term from 1.9x at the year end. This target
is set in the context of the recent formalisation of
a robust capital allocation policy which recognises
cyclical risk.
In 2017, I am pleased to say that actions were being
taken to stabilise the business, and the Group
delivered an improved underlying earnings per
share in 2017 of 9.8p (2016: 9.7p), including the
significant benefit from property profits. Statutory
loss per share has improved to 10.1p (2016:
20.6p loss per share). As a result, the Board is
recommending payment of a final dividend for the
year of 2.50p (2016: 1.83p) per share. Together
with the interim dividend of 1.25p (2016: 1.83p)
per share, this gives a total dividend for the year
of 3.75p (2016: 3.66p) per share, in line with the
Group’s stated policy to target a dividend pay-out in
the range of 2-3x underlying earnings cover.
The reported results, which show a loss before
tax for the year of £51.2m (2016: £110.0m),
reflect the exceptional and largely non-cash costs
associated with business disposals, restructuring
and other actions aimed at refocusing the Group
back on its core business. This process is coming
to a conclusion and our objective is that such
exceptional costs and charges should not be
such a significant feature after the initial years of
our turnaround.
I look forward to leading the Board and working
on your behalf to ensure delivery of the Group’s
strategy and the targeted improvement in the
Group’s operational and financial performance.
ANDREW ALLNER
CHAIRMAN
8 March 2018
03
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comBUSINESS OVERVIEW SIG at a glance
Our locations
UK & IRELAND
MAINLAND EUROPE
UK &
IRELAND
FRANCE
GERMANY
OTHER
EUROPE
£1.3bn
£661m
£426m
£387m
234
207
59
85
Revenue
Branches
Principal
brands
Leading
market
positions
#1 insulation/
interiors in UK
#1 specialist roofing
in UK
#1 insulation/
interiors in Ireland
#1 specialist
roofing
#1 technical
insulation
#3 structural
insulation
#3 interiors
#1 technical
insulation
#3 structural
insulation
#3 interiors
#1 insulation/
interiors in Poland
#1 insulation/
interiors in Benelux
European specialist
market leader in Air
Handling
Read about Marketplace on
pages 12 to 13
04
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Our products
INSULATION & INTERIORS
ROOFING & EXTERIORS
AIR HANDLING
SIG is the largest supplier of
insulation products in Europe and also
the largest supplier of interiors fit out
products in Europe.
SIG is the largest and only national
specialist supplier of roofing products
in the UK and is the largest specialist
supplier in France.
Key products:
STRUCTURAL AND TECHNICAL INSULATION
CONSTRUCTION ACCESSORIES AND FIXINGS
CLADDING AND FAÇADE SYSTEMS
DRY LINING
CEILING TILES AND GRIDS
PARTITION WALLS AND DOORSETS
FLOOR COVERINGS
Key products:
TILES, SLATES, MEMBRANES AND
BATTEN FOR PITCHED ROOFS
SINGLE-PLY FLAT ROOF SYSTEMS
INDUSTRIAL ROOFING AND
CLADDING SYSTEMS
ROOM-IN-ROOF PANEL SYSTEMS
SIG is the largest pure-play
specialist distributor of air handling
products in Europe.
Key products:
AIR HANDLING UNITS AND FANS
DUCTS, COMPONENTS AND FIXINGS
VOLUME AND FIRE /
SMOKE DAMPERS
CLIMATE CEILINGS AND CONTROLS
GRILLS AND DIFFUSERS
W
E
I
V
R
E
V
O
S
S
E
N
I
S
U
B
62%
of Revenue
£1,719m
(2016: £1,571m)
29%
of Revenue
£815m
(2016: £809m)
9%
of Revenue
£245m
(2016: £207m)
NUMBER OF TRADING SITES:
NUMBER OF TRADING SITES:
NUMBER OF TRADING SITES:
311
of which 72 shared
with Air Handling
253
93
of which 72 shared
with Insulation & interiors
Market leader
Market participant
Market leader
Market participant
European specialist
market leader
www.siginsulation.co.uk
www.siginteriors.co.uk
www.sig.ie
www.litt.fr
www.ouestisol.fr
www.wego-systembaustoffe.de
www.wego-vti.de
www.sig.pl
www.sigbenelux.com
Read about Performance on
pages 24 to 27
www.sigroofing.co.uk
www.lariviere.fr
www.sigairhandling.com
www.ouestventil.fr
www.sksales.co.uk
05
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comBUSINESS OVERVIEW
STRATEGIC REPORT
06
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc In this section
Q&A
Our business model
Our marketplace
Our strategy
Our KPIs
Performance
Financial review
Principal risks and uncertainties
Sustainability
08
10
12
14
22
24
28
42
46
07
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.com Q&A
with the Chief Executive Officer
Highly disciplined execution will be key
to delivering our strategy.
MEINIE OLDERSMA CHIEF EXECUTIVE OFFICER
You’ve been with SIG for under a year.
What have been your first impressions
of the business?
Meinie Oldersma My view of SIG is that it is a very good
business with great people and strong market positions.
Of course, the Group’s performance has been disappointing
over the last couple of years and SIG hasn’t made the most
of its potential. Whilst the strategic direction was broadly
right during that period, execution proved challenging, and
a number of initiatives that were introduced simply added
complexity and distraction.
I know that there is a good opportunity to bring this
business back to health and, with the help of our people
and branches, I’m confident we can deliver a significantly
improved financial and operational performance over the
medium term.
Read more on our Marketplace on page 12
SIG now has its new leadership
in place, and recently also a new
Chairman. How is that working?
MO Nick Maddock and I are both relatively new to SIG,
but we and our Group Executive Committee are strongly
aligned on our strategy for moving SIG forward.
Andrew Allner has also recently joined the business as
Chairman and is very supportive of our strategic direction.
Along with the Board, he is fully involved and committed to
our ambition to return SIG to financial health and to the way in
which we’re working to deliver on our goal.
We all believe firmly that SIG is a very good business with
a great heritage. We’re all clear on how we see the future
for the Group and that our strategy is the right one for the
future of SIG.
Read more on our Strategy on page 14
08
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc How would you sum up your strategy
for SIG for the medium term?
MO As we outline on pages 14 and 15 of this report, our
strategy is to build on the potential that clearly exists within
SIG, to deliver a significantly improved operational and
financial performance. We’ll do this by focusing on what we
do best as a business, and in particular on customer service,
customer value and operational efficiency.
To enable the delivery of our strategy, we’re working to
improve our IT and our access to effective data. We’re also
going to make sure that our teams have the capability to help
us deliver. Our people and branches are key to our success,
and so it’s essential that every employee understands our
direction and is engaged with it, and that our leaders and
people managers are equipped and empowered to lead and
guide their teams to deliver the strategy.
You say that people and branches are
key to the success of the strategy. How
will you empower and incentivise them
to deliver?
MO Each of our countries and operating companies has
issued a bespoke branch charter to every one of its branches.
The charter provides a clear framework for branch managers’
responsibilities and authority levels, and also sets out key
Group-wide bonus measures, translated into specific targets,
which can be tailored to suit each part of the business. The
charter also identifies the key business levers, which will be
the focus for local delivery of the bonus measures.
Setting this out in a straightforward way, and with clarity and
transparency, is just one way in which we are enabling the
business to focus on what’s really important, empowering
people to own the strategy, incentivising them to deliver, and
facilitating robust performance management.
Read more on our Performance on page 24
SIG has introduced new strategic goals
and a new leadership team a couple
of times in recent years, but has still
continued to face challenging times.
What makes you think you will be
successful this time?
MO Firstly, our strategy is a very simple one. We’re focusing
on our core activities – the things which our business and our
people are very good at. We haven’t introduced numerous
new initiatives. Instead, we’re making sure we’re equipped to
deliver excellence across just three simple levers in support
of improved performance: customer service, customer value,
and operational efficiency.
Secondly, we’re investing in our people and our resources, to
equip our teams with the skills, tools, technology and support
to enable the successful delivery of the strategy.
And finally, our strategy has been designed ‘bottom up’, and
not ‘top down’. That is to say that our starting point in putting
our strategy together was to review the business with the
leadership teams in each of our countries and operating
companies. Each part of the Group developed its own
medium term plan, identifying opportunities for significantly
improved operational and financial performance in its own
area of operation.
These plans showed numerous synergies, and came together
to form our overall Group-wide strategy. From this, we’ve
developed detailed delivery plans and charters, which enable
the Group leadership team to ensure highly disciplined
execution and to carefully track progress. So, our strategy is
not one that has been imposed on the business, and it
is set out in a way that is clear and measurable. As such, it
has the buy-in of our people, and is perceived as being
genuinely achievable.
Read more on our Business Model on page 10
09
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our business model
Our business model
Our business model
SIG is focused on specialist distribution and
merchanting of specialist products for our business
customers across the construction industry.
Our suppliers
INSULATION & INTERIORS
Our branches
+
ROOFING & EXTERIORS
+
AIR HANDLING
Our value add
DEPTH AND AVAILABILITY OF STOCK
BREAK BULK
DELIVERY AND LOGISTICS
Our people
Advantages of specialist focus:
DEFINED PRODUCT FOCUS
KEY SUPPLY NICHE
10
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc We play a critical role in the construction industry
supply chain, ensuring that our customers receive the
right product, at the right place at the right time.
Our customers
DEVELOPERS
+
CONTRACTORS
+
SPECIALIST INSTALLERS
+
INDEPENDENT MERCHANTS
CREDIT PROVISION
SPECIALIST AND TECHNICAL ADVICE
PRODUCT ENHANCEMENT
PROJECTS FROM DESIGN TO SUPPLY
PARTNERSHIP WITH BOTH
SUPPLIERS AND CUSTOMERS
MARKET LEADERSHIP
LESS ASSET INTENSIVE THAN
TRADITIONAL MERCHANTS
11
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our marketplace
KEY DIFFERENTIATORS OF SIG
Defined product focus in partnership with both suppliers and customers
Unrivalled scale of offering and technical support to customers
Market leadership across geographically diverse business portfolio
Broad exposure across new build and repairs, maintenance and improvements (‘RMI’) markets
Technical, diligent and committed employees
MARKET DRIVERS
SIG is a leading distributor of specialist
construction products and operates
in a number of countries and sectors
across Europe. Each country and sector
demonstrates its own specific characteristics,
but all are influenced by common factors.
Economic growth is an important demand
driver for SIG as it stimulates building activity
and industrial output.
THE MARKET IN THE UK
The UK represents c.43% of the Group’s
underlying revenue. According to the
Construction Products Association (‘CPA’), total
year-on-year construction output volumes
slowed to 3.0% in 2017 (2016: 3.8%) and are
expected to remain broadly flat in 2018.
The residential construction sector, which
equates to c.53% of SIG UK's total revenue,
grew 4.8% in 2017. Despite the flat general
UK housing market, private housing grew
by 5% in 2017 as housebuilders continued
to increase supply and government policies
such as Help to Buy continued to have a
positive impact. Further growth outside
London is expected in 2018, offset by
falls in housebuilding in the capital. The
private housing repairs, maintenance and
improvement (‘RMI’) sector has also seen
growth in 2017, but this is expected to
remain flat in 2018, combined with reduced
spend on public RMI projects resulting in an
overall decline in the residential RMI market.
The non-residential commercial sector
(c.23% of SIG UK's total revenue) remained
buoyant in the major cities in the first
part of the year, however new orders,
particularly in central London, have begun
to slow. Activity levels in this sector lag new
orders by 12-18 months and are beginning
to show signs of weakening following a
decline in new contract awards since the
second half of 2016, post EU referendum
and following investor concerns regarding
high pricing. With reductions in activity for
commercial offices, retail and industrial
factories, together with reduced spend on
public sector construction, the overall non-
residential sector is forecast to decline by
3.2% in 2018.
12
CONSTRUCTION MARKET GROWTH FORECASTS
UK*
Ireland**
France**
Germany**
Poland**
Belgium**
The Netherlands**
Residential
Non-residential
2017
£m
4.8%
22.4%
5.1%
2.9%
7.4%
2.5%
8.4%
2018
£m
1.5%
18.7%
3.0%
1.0%
5.2%
2.6%
4.0%
2017
£m
1.3%
14.7%
2.8%
1.7%
5.7%
0.7%
4.9%
2018
£m
(3.2)%
6.3%
3.1%
0.5%
4.6%
2.2%
5.0%
* Construction Products Association ** Euroconstruct
THE MARKET IN EUROPE
The residential market in France performed strongly in 2017 (5.1% growth) supported by low
rates of borrowing and measures announced by the government. Following a buoyant year,
growth in this market is expected to slow, but remain positive. A positive macroeconomic
outlook is expected to generate growth of at least 3% in the non-residential sector, benefitting
in particular SIG France’s interiors and ventilation businesses.
In Germany, in line with a strong German economy, the residential sector continued to
perform well in 2017, however a reduction in build permits in 2017 is expected to result
in a slowdown in growth in 2018. The non-residential sector returned to growth in 2017,
performing better than expected, with new build performing significantly better than RMI.
This positive performance is expected to continue into 2018.
15%
21%
13%
Group
Revenue
26%
25%
New build residential
RMI residential
New build non-residential
RMI non-residential
Industrial
8%
9%
14%
5%
13%
19%
25%
38%
31%
65%
23%
11%
15%
27%
24%
26%
18%
12%
8%
9%
Read the Financial review
on pages 28 to 41
UK &
Ireland
France
Germany
Other
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc INSULATION
& INTERIORS
KEY MARKET DRIVERS AND OTHER FACTORS
Regulatory changes
Construction activity (mainly new build)
Higher energy efficiency standards
Increasingly stringent fire protection and acoustic standards
40% of energy consumption relates to buildings
Demand for higher standard interior fit outs
Clear need for distributors in the supply chain
ROOFING &
EXTERIORS
KEY MARKET DRIVERS AND OTHER FACTORS
Regulatory changes
Construction activity (mainly new build)
RMI of existing buildings (particularly residential)
Clear need for distributors in the supply chain
AIR HANDLING
KEY MARKET DRIVERS AND OTHER FACTORS
Regulatory changes
Construction activity (particularly non-residential)
Higher energy efficiency and air quality standards
More rigorous fire protection standards
Clear need for suppliers with expertise providing total solutions
in ventilation
WHAT THIS MEANS FOR SIG
Largely consolidated markets, with a relatively small number of large
key suppliers manufacturing products to service a large number of
small customers.
Broad product range across technical and structural insulation
and interiors; specialist distribution of both value-add and
commodity products.
Key focus for the business in the UK is on data quality to provide
visibility of end-to-end customer profitability and ensure greater
focus on quality sales.
Key uncertainty in the German market is the availability of skilled
labour in the construction market, however the strong market
should enable continued good performance with a focus on
stronger returns on sales.
Positive trends in the French economy expected to benefit in
particular the French interiors business and further gains in market
share expected.
Opportunity:
Drive performance with sustainable positions and clear strategic rationale
WHAT THIS MEANS FOR SIG
Leading specialist merchanting business in regionally-oriented and
fragmented market.
Strong performances relative to the market in the UK specialist
timber batten and flat roofing materials businesses through strong
service propositions.
Maintained share with local branch account customers in the UK
despite a challenging competitive environment. Market growth in
France expected to continue into 2018.
Sale of Building Plastics during the year reduced the business’s
exposure to the non-essential residential RMI segment whilst
improving the cash position of the Group.
Challenges in the UK within residential RMI and non-residential new
build. The business is focused on select initiatives to increase share
within local markets by enhancing the customer value proposition.
Opportunity:
Drive performance with sustainable positions in core markets
WHAT THIS MEANS FOR SIG
Highly unconsolidated market with many suppliers servicing many
customers.
Improved its leading position as an independent distributor with
unmatched product breadth.
Focus on branding and use of smart communication channels has
led to higher brand recognition of the European brand Cairox.
Sale of the business in Turkey due to unstable political and
economic conditions.
Focus in 2018 on developing ventilation solutions to target growth
in key markets including offices, education, residential and health.
Significant opportunity for continued growth with strong profit
trajectory.
Opportunity:
Highly profitable market potential with opportunity to invest and grow
Read about Performance
on pages 24 to 27
13
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our strategy
OUR STRATEGIC GOAL
Our goal is to deliver significantly
improved operational and financial performance
as a leading European supplier of specialist
building materials.
OUR STRATEGIC LEVERS
CS
CV
OE
CUSTOMER
SERVICE
CUSTOMER
VALUE
OPERATIONAL
EFFICIENCY
Sales and service
Pricing and products
Overhead control and
working capital management
KEY STRATEGIC ENABLERS
IT
DATA
CAPABILITY
Optimise ways of working
to deliver effective
solutions focused on
business priorities
Deliver improved reporting,
insight and ability to
make informed decisions
Raise talent levels across the
organisation, supported by
specialist short term change
management
DELIVERING OUR STRATEGY
SIMPLIFY
FOCUS
DELIVER
Reduce complexity and
get the basics right
Concentrate on what
we do best
Own our strategy and build
on our potential
14
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc OUR STRATEGIC LEVERS
The Group has identified three key strategic levers on which it is focusing to deliver its goal of improved operational and
financial performance: Customer Service; Customer Value; and Operational Efficiency. By concentrating on only a
small number of short term priorities, the Group can ensure discipline around delivery on each priority and ensure that
the transformation is embedded through the whole organisation, right down to branch level.
Our short term focus on operational improvement will ensure that SIG maintains its leading market positions in its three
core markets of insulation & interiors, roofing & exteriors and air handling, while maintaining our reputation for customer
service, technical excellence and added value, and delivering sustainable growth to Shareholders.
This step change in performance will be driven by a closer focus on operational and capital discipline in markets that
offer limited front office synergy and modest top-line growth. SIG aims to simplify the portfolio and enable a strong
balance sheet, targeting a headline financial leverage of less than 1.0x in the medium term (current position 1.9x), to
protect the business from any market downturn.
These strategic levers will ensure that SIG focusses on being a market leading, operationally excellent and low cost-to-
serve provider in its core distribution markets.
KEY STRATEGIC ENABLERS
Successful execution will require us to invest in three key strategic enablers.
SIG aims to focus on reducing the cost of IT service delivery but maintaining flexibility and choice. Investment will be
made in technology and systems that will help improve our understanding of our customers and our products.
Access to and the use of data is crucial in delivering on SIG’s strategy. By investing in the right tools that will improve
reporting capabilities, management will have the right information in the right place at the right time to make more
informed decisions quicker.
One of the key differentiators of SIG is its talented, loyal, committed people, and their success is our success. SIG aims
to raise the talent levels of all individuals within the organisation, through tailored training and development of existing
employees to support the strategy. We will develop our capability by investing in our skilled and talented people.
Overall this will allow SIG to become more agile and flexible in a changing world.
DELIVERING OUR STRATEGY
To deliver our strategy, we have provided clarity of purpose to the organisation and we are tracking real and measurable
actions to support highly disciplined execution. This requires us to simplify, reduce complexity and get the basics right
to provide our customers with what they need in the simplest possible way; to focus on the execution of customer
service, customer value and operational efficiency by concentrating on what we do best; and to deliver, by owning our
strategy and building on our potential.
15
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our strategy
Strategy in action
CUSTOMER SERVICE
SIG is bringing increased value to our business
customers across the construction industry by investing
in the service standards and effectiveness of our sales
force and branches.
EXECUTING OUR STRATEGY
Invest in trade counter, branch and sales staff training
Establish central telephony-enabled sales teams providing
consistent response levels
Create specialist customer retention teams
Restructure external sales teams to track performance and
increase accountability
Reduce administration distractions
Improve process for inbound leads and use of CRM to drive
quote prioritisation and conversion
Develop enhanced B2B ‘click and collect’ capability
LINK TO KPIs
Like-for-like sales
Return on sales
Return on capital employed
Headline financial leverage
Lost work day rate (UK & Ireland)
Read about our KPIs on
pages 22 and 23
16
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc INVESTING
IN BRANCHES
AND SALES
CASE STUDY:
Serving our Roofing customers
Plans to invest
£1.8m
75 LOCATIONS
Branch trials
10-30%
GROWTH
IN CASH SALES
Our customer service strategy in
our UK Roofing business is focused
on enhancing the effectiveness
of our sales force by increasing
investment in our branches, fleet
and staff training. The establishment
of off-site telephony-enabled sales
teams will provide consistent levels
of response to our customers’
orders and enquiries, as well as
providing a platform to support our
branches in customer retention.
Further development of our network
of IT systems, and in particular
CRM, will enable us to increase
the accountability of our sales
teams through improved data
management and performance
tracking, as well as facilitating
swift and robust quote conversion,
ensuring we bring value to our
Roofing customers.
www.sigroofing.co.uk
17
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our strategy
Strategy in action
CUSTOMER VALUE
SIG aims to deliver the right product to the right place
at the right price in support of its customers’ needs.
EXECUTING OUR STRATEGY
Expand coverage of specialist product offering
Further develop own-label brands and value-add
fabrication capability
Wider use of pricing tools and enhanced pricing data
Systematic and prioritised approach to renegotiate or exit
unprofitable or unattractive business
Review and manage spot pricing
Introduction of carriage and ancillary charges where appropriate
Management focus and training to drive compliance to target
price levels
LINK TO KPIs
Like-for-like sales
Return on sales
Return on capital employed
Headline financial leverage
Lost work day rate (UK & Ireland)
Read about our KPIs
on pages 22 and 23
18
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc DELIVERING
VALUE TO OUR
CUSTOMERS
CASE STUDY:
Delivering customer value in Air Handling
Our European Air Handling business
is building on its position as a
leading distributor with unmatched
product breadth through its focus
on distribution, service and value. An
expansion of the own-label products,
trading as Cairox and Sufix, coupled
with an extension of the e-commerce
offering is enabling the business to
deliver rapid sales growth supported
by the operational efficiency which
can be derived from leveraging the
existing platform.
Market
€7-8bn
AND GROWING
FY17 revenue
increased by
18.2%
FROM PRIOR
YEAR TO £245.1M
www.sigairhandling.com
19
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our strategy
Strategy in action
OPERATIONAL EFFICIENCY
SIG is targeting robust cost and capital discipline as it
strives for greater operational efficiency.
EXECUTING OUR STRATEGY
LINK TO KPIs
Downsize Group and functional structure
Organisation redesign across major operating companies to
allow for leaner structure and quicker decision-making
Return on sales
Return on capital employed
Headline financial leverage
Lost work day rate (UK & Ireland)
Process standardisation and system integration at operating
company level to generate front and back office synergies
Read about our KPIs on
pages 22 and 23
Optimise branch resource activity
Close sub-performing branches and centralise stock
around ‘hubs’
Short term levers to reduce working capital: changes to
purchasing rules, stockholding guidelines, number of SKUs,
centralised stock control
Medium term structural reduction in net working capital:
stock, rebates
20
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc ROBUST COST AND
CAPITAL DISCIPLINE
CASE STUDY:
Delivering operational excellence in France
Like-for-like
sales (LiTT)
c.10%
AHEAD OF
PRIOR YEAR
Underlying
operating profit
margin of LiTT up
by 120bps to
5%
In France, SIG is pursuing a change
programme aimed at leveraging
best practice across the three
French businesses. This is focused
on driving operational excellence
through organisational structure,
process standardisation and
data alignment supported by
the implementation of modern
systems. At LiTT this has started to
deliver demonstrable results with a
transformation of sales processes
and a diversification of customer
and product portfolios, delivering
strong sales performance in the
latter part of 2017.
www.litt.fr www.lariviere.fr
www.ouestisol.fr
21
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Our KPIs
How we measure performance
In setting our medium term strategy, SIG has identified
five key performance indicators against which we will
assess and measure the Group’s success.
LIKE-FOR-LIKE SALES (%)
£2,587.4m
£2,778.5m
£2,323.3m
3.8%
-0.4%
2015
0.4%
2016
2017
RETURN ON SALES (%)
4.2%
3.5%
3.4%
DEFINITION
WHY IS THIS KPI IMPORTANT?
SUPPORTING PERFORMANCE MEASURES
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 branch
openings and closures.
This measure shows how
the Group has developed
its revenue for comparable
business relative to the prior
period. As such it is a key
measure of the growth of the
Group during the year.
Underlying
revenue
Like-for-like
sales
Underlying revenue growth (%)
The ratio of underlying
operating profit divided by
underlying revenue.
Return on sales provides the
key measure of the profit the
Group can deliver for a given
level of sales.
Underlying gross margin (%)
Underlying operating costs as
% of sales
2015
2016
2017
RETURN ON CAPITAL EMPLOYED (%)
12.2%
10.2%
10.3%
2015
2016
2017
HEADLINE FINANCIAL LEVERAGE
Leverage
2.0×
2.4×
1.9×
2015
2016
2017
The ratio of underlying operating
profit less taxation divided
by adjusted average capital
employed (average net assets
plus average net debt).
Return on capital employed
(‘ROCE’) is a measure of value
creation for our stakeholders
and is a measure of how
efficiently the Group is using
the capital and resources it
has available.
Underlying operating profit (£m)
Like-for-like working capital as
% of sales
The ratio of covenant EBITDA
(earnings before interest, tax,
depreciation and amortisation) to
covenant net debt as defined in
the Group’s banking and private
placement arrangements.
This ratio is a bi-annual
covenant of the Group’s
principal medium and long
term funding facilities and has
a maximum permitted ceiling
of 3.0x.
Underlying operating profit (£m)
Trading cash (£m)
Net debt (£m)
As such it is a measure of
balance sheet strength
and resilience to economic
downturn.
All employees, customers
and suppliers should be able
to work in a safely managed
environment across every part
of the SIG Group.
n/a
LOST WORK DAY RATE (UK & IRELAND)
26.8
22.9
18.8
The ratio of lost working days
(due to accidents and incidents)
per 100 employees.
2015
2016
2017
22
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
RELEVANCE TO STRATEGY
CS
CV
CUSTOMER SERVICE
CUSTOMER VALUE
OE OPERATIONAL EFFICIENCY
PERFORMANCE
MEDIUM TERM TARGET
LINK TO STRATEGY
PRINCIPAL RISK
LINK TO REMUNERATION
The refocus on customers and scaling back
of internal initiatives, along with improving
construction market conditions across
Mainland Europe, has resulted in SIG
delivering like-for-like sales growth of 3.8%
for the year (2016: 0.4%), comprising 1.6% in
UK & Ireland and 5.9% in Mainland Europe.
On a statutory basis, SIG reported sales of
£2,878.4m, up 1.2% on the prior year.
Growth in line
with market
Maintain market
share
In a year of considerable change and challenge,
return on sales for the Group has decreased
slightly by 10bps to 3.4% (2016: 3.5%),
supported by property profits of £13.7m (2016:
£3.3m). Excluding these property profits, return
on sales decreased by 40bps to 2.9% (2016:
3.3%), due in part to a 20bps decrease in gross
margin, reflecting market pressures for UK
& Ireland and competitive and operational
challenges at SIGD.
ROCE increased 10bps to 10.3% (2016:
10.2%), reflecting an improved working capital
performance with like-for-like working capital to
sales down 90bps at 9.0% (2016: 9.9%). ROCE
for previous periods has been rebased to reflect
the impairments arising on the sale of closure of
non-core businesses. On an unadjusted basis,
ROCE increased from (12.3%) in 2016 to (5.4%),
reflecting the reduction in statutory operating
loss and the impact of impairments reducing
capital employed for the Group.
Headline financial leverage closed the year
at 1.9x, which is 50bps lower than 2.4x
(restated) reported for 31 December 2016.
This reduction reflects the short term strategy
implemented during 2017 to increase cash
generation from debt factoring, improved
working capital practices and from the sale of
owned assets. Levels of working capital and
debt vary through the year, with specific short
term actions taken to reduce working capital
and net debt around period ends.
The Group has been experiencing a sustained
decline in accident rates and continues to put
steps in place for further improvements.
However, the only acceptable result in all
locations is to experience a zero accident ratio.
c.5%
c.15%
Under 1.0x
Zero accidents in
any given period
Delivering the
change agenda
Systems and data
quality
Market conditions
Profit measures
in annual bonus
scheme for senior
management and staff.
Profit measures
in annual bonus
scheme for senior
management and staff.
Delivering the
change agenda
Systems and data
quality
Market conditions
Supplier rebate
income
Delivering the
change agenda
Systems and data
quality
Working capital and
cash management
Capital measures
(working capital and
ROCE) in annual bonus
scheme for senior
management and staff.
Longer term
plans focused on
Shareholder
value creation.
Delivering projects
aligned to strategy
Working capital and
cash management
Access to finance
Capital measures
in annual bonus
scheme for senior
management and staff.
Health and safety
Safety gateway
in annual bonus
scheme for senior
management and staff.
CS
CV
CS
CV
OE
CS
CV
OE
CS
CV
OE
CS
CV
OE
KPIs have been updated in 2017 to align with the new medium term strategy. In the prior year gross margin and like-for-like working capital
to sales were considered key performance measures; these are now included as supporting performance measures. The Group’s KPIs are
reconciled to the Financial Statements in Note 32 of the Financial Statements.
23
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Performance
We are beginning to make initial progress
towards the Group’s medium term
financial targets.
"We have achieved much
this year, beginning to
stabilise the business,
returning SIG Distribution
to underlying profitability
and rationalising the
loss-making Offsite
Construction division.
We have begun to get a
grip on operating costs
and working capital and
we have made significant
steps in refocusing the
portfolio, exiting from
eleven businesses as we
continue to strengthen our
balance sheet."
MEINIE OLDERSMA CHIEF EXECUTIVE OFFICER
24
Annual Report and Accounts
25690-AR2017 15-03-18 Proof SixSIG plc LIKE-FOR-LIKE SALES
3.8%
(2016: 0.4%)
Total Group revenue
£2,878.4m
(2016: £2,845.2m)
RETURN ON SALES
3.4%
(2016: 3.5%)
OVERALL PERFORMANCE
In 2017, the Group delivered its first improvement in underlying operating profit in three
years as well as an improvement in its underlying profit before tax (‘PBT’), up 4.3% to £79.2m
(2016: £75.9m). Progress has been made in the year against the Group's medium term
financial targets of like-for-like sales and headline financial leverage, with return on sales
and return on capital employed stabilised at similar levels to the prior year. Included in the
underlying PBT for the year is £13.7m (2016: £3.3m) of property profits relating to ongoing
property portfolio management.
On a statutory basis, the Group made a loss before tax of £51.2m in the year (2016: £110.0m
restated) after £130.4m (2016: £185.9m restated) of non-underlying items.
STABILISING THE BUSINESS
Following a disappointing 2016, the Group has taken a number of preliminary actions over
the past year to stabilise the business under its new leadership. In particular, management
has restored customer focus by reducing the distraction from internal initiatives, is
bringing cost increases under control, is starting to reduce levels of working capital and
debt (including through debt factoring), and is simplifying the business through ongoing
portfolio management.
Internal initiatives which have been stopped or slowed down during 2017, in order to free
time for branch employees to refocus on customers, include the suspension of the Group’s
Regional Distribution Centre programme and the completion of roll-out of a new ERP system
across the core UK businesses. In combination with improving construction market conditions
across Mainland Europe and Ireland, this renewed focus on our customers has helped the
Group to deliver LFL sales growth of +3.8% in 2017 (2016: +0.4%) and a 1.2% increase in total
revenue to £2,878.4m (2016: £2,845.2m).
The Group has also looked to address the rapid rise in costs across the business; eliminating
duplication and reducing discretionary expenditure. Group functions have been significantly
scaled back and a number of layers of management have been removed, including the
UK & Ireland executive management team. The back office support functions for both the
REPORTING OUR PROGRESS
Medium term
financial targets
Like-for-like sales growth (%)
Return on sales (%)
Return on capital employed (%)
Headline financial leverage (x)
Other indicators
of progress
Opex as % of sales
Working capital as % of sales
Key financial
outputs
Revenue (£m)
Underlying gross
margin (%)
Underlying PBT (£m)
Underlying EPS (p)
Dividend per share (p)
Net debt (£m)
insulation and roofing businesses in the UK
have been combined and co-located in a
single shared services centre in Sheffield.
A number of headcount reductions have
also been made in the back office team in
Germany. The Group has terminated the
lease on its corporate office in Paddington
and will move to smaller, fit-for-purpose
premises in April 2018. SIG’s historical head
office in Hillsborough, Sheffield, has been
sold and will be vacated later this year.
As a result, underlying operating costs
(excluding profits from property disposals)
have now begun to fall as a percentage
of underlying revenue to 23.3% in the
second half, from a peak of 23.9% in the
first half. Further progress is expected in
2018, benefitting from the full year impact
of actions taken in 2017 and some further
initiatives currently in progress.
Initial steps have also been taken to bring
levels of working capital under control.
Like-for-like working capital as a percentage
of sales fell from 9.9% at the end of 2016
to 9.0% at the end of 2017, benefitting
from a number of non-recourse factoring
arrangements and other short term actions
to improve the balance sheet. Management
continues to focus on delivering sustainable
improvements in the Group’s working capital,
in particular its levels of stock, with the aim
of reducing average working capital levels
throughout the year and beyond.
SUBDUED UK TRADING
ENVIRONMENT
The UK & Ireland business generated 1.6%
like-for-like sales growth, primarily reflecting
industry price inflation, with volumes falling
2.9%. Operating margins fell 50bps as
the business only partially recovered the
deterioration in performance seen in the
second half of 2016.
UK trading conditions have become
increasingly challenging in recent months,
reflecting increased macro uncertainty and
recent events in the construction industry.
Whilst new housing starts continued to grow,
RMI markets remained subdued and there
have been some delays to new starts in
commercial new build.
25
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Performance
RETURN TO UNDERLYING
PROFITABILITY IN SIG
DISTRIBUTION
On 1 February 2018, the Group announced
that it had identified accounting irregularities
relating to rebates and other potential
supplier recoveries at SIG Distribution, the
core insulation and interiors business in the
UK, resulting in an overstatement of profit
for the years ended 31 December 2016 and
31 December 2015, further details of which
are set out on page 31. In addition, the
business saw intensified competition and a
weaker performance during 2016, resulting
in the business falling into loss in the second
half of the year.
From this loss-making position, management
has made some initial progress during
2017 in restoring underlying profitability
to SIG Distribution. The business returned
to profitability in the first half of 2017 and
delivered full year underlying operating profit
of £9.9m (2016: restated £18.2m) on revenue
of £797.5m (2016: £781.2m).
The business has a new leadership team
which is placing particular focus on
operational efficiency through improved cost
and working capital control, and on customer
value from effective pricing pass-through
and improved management of customer
profitability. Following the accounting
irregularities identified during the year, the
team is also further developing the controls
environment within SIG Distribution.
Although there remain competitive pressures
in the UK specialist insulation and interiors
sector, the business is optimistic that it can
make further increases in profitability in 2018
at both a gross and operating margin level.
EUROPEAN RECOVERY
The Group’s Mainland Europe businesses
benefitted from improving construction
market confidence during 2017, with LFL
revenues increasing by 5.9% for the full year.
Underlying revenues increased by 12.8% to
£1,473.2m (2016: £1,305.9m). Margins were
largely in line with 2016 and, as a result,
underlying operating profit increased by
23.5% to £59.4m (2016: £48.1m).
In particular, SIG France posted an
improvement in underlying operating profit,
up £1.8m on 2016 at £26.2m. Underlying
revenues grew by 12.1% to £660.7m, with
LFL sales in France up by 5.9%. SIG operates
three market leading businesses in France,
and management anticipates all three
continuing to grow through 2018.
The Group’s Air Handling business also
finished the year on a record high, delivering
growth of 22.2% in underlying revenues,
benefitting from a healthy LFL sales growth
of 10.9%. Management expects the air
handling market to continue to outperform
the wider construction sector due to
continuing strong demand drivers,
including higher energy efficiency and air
quality standards.
As we move into 2018, the early signs are
that the market confidence witnessed across
our European business is continuing and we
do not expect any erosion in gross margin.
However, management recognises that
there were some indications of both labour
and capacity constraint during the second
half of 2017, and so will continue to monitor
developing trends closely.
ONGOING PORTFOLIO
MANAGEMENT
The Group’s medium term strategy
recognises that there are a number of
smaller businesses which are peripheral to
its core focus. Management has identified
a number of businesses as potential exit
candidates, representing around 13% or
£0.4bn, of the statutory Group revenues
(as reported at the FY 2016 results), either
because they have limited fit with Group
strategy or because their small scale is a
management distraction. In many cases,
these businesses are also suffering from
poor financial performance.
At the end of FY 2016, the Group announced
the disposal of Carpet & Flooring, a UK
distributor of floor covering products, as
well as the sale of its joint venture interest
in Drywall Qatar, an independent material
supplier and specialist installer of interior
finishing materials. During the first half
of 2017, the Group closed Metechno,
the offsite manufacturer of bathroom
pods and utility cupboards (part of its UK
Offsite Construction division) and exited
its small-scale Austrian operation, WeGo
Systembaustoffe Austria. During the year,
the Group also completed the disposal
of Building Plastics, a leading provider of
roofline, drainage and building plastics
products to the UK construction industry.
The sale of SIG’s majority shareholding in its
small Air Handling business in Turkey, ATC
Turkey was also finalised in December 2017.
In the same month, SIG Poland ceased the
processing of insulation product at its
Sitaco subsidiary.
RETURN
ON CAPITAL
EMPLOYED
10.3%
Since the 2017 year end, the Group has
confirmed the disposal of the trade and
assets of SIG Building Systems, its UK
modular offsite construction business,
and also of GRM, a small manufacturer
of phenolic pipe insulation serving UK
industrial and HVAC markets. The Group
has also disposed of IBSL, a UK fabricator
and supplier of cryogenic and high-
temperature insulation solutions used by
the petrochemical, power generation, and
offshore exploration industries. SIG has also
recently announced the exit from its Dubai-
based distribution business, SIG Middle
East, which will be completed over the
coming months.
A reconciliation of underlying revenue
to statutory revenue for 2017 as a result
of these portfolio changes is set out on
page 33 and in Note 32 of the Financial
Statements, together with the impact on
2016 comparatives.
In total, this means the Group has exited
11 businesses since 2016, representing
9.1% of statutory Group revenue reported
in the 2016 full year results. The Group
continues to review its ownership of a
number of other peripheral businesses
and will update on further changes to the
portfolio in due course.
RATIONALISATION OF UK OFFSITE
CONSTRUCTION DIVISION
As part of the portfolio rationalisation, the
Group has continued to review the potential
for sustainable profits from the UK Offsite
Construction division during the year and,
as a result, has now concluded an exit from
two of the three businesses in that division.
The only remaining offsite construction
business is RoofSpace, a panelised room-in-
roof manufacturer serving the UK new
build residential market, which continues
to deliver above-market growth at attractive
margins, and has been transferred into
SIG Distribution for management and
reporting purposes.
26
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc INITIAL PROGRESS ON LEVERAGE
At 31 December 2016, the Group reported
headline financial leverage of 2.1x, based
on net debt of £259.9m and made leverage
reduction a key priority for the Group during
2017. Management accordingly took a
number of short term actions to strengthen
the balance sheet, including asset disposals,
debt factoring and a tighter control over
cash, coupled with some short term working
capital improvements and temporary
constraints over capital expenditure. In the
first half of the year, this enabled the Group
to reduce headline financial leverage to 1.6x
(as reported at the half year).
On 9 January 2018, the Group announced
that it had identified a historical
overstatement of cash and trade payables
related to cash cut-off procedures in SIG
Distribution, associated with the issue of
cheques around previous period ends. This
resulted in a overstatement of net cash
of £19.8m at 31 December 2016, which,
when adjusted, led to a restated net debt at
31 December 2016 of £279.9m and headline
financial leverage of 2.4x. The restated
headline financial leverage at 30 June 2017
increased to 2.0x.
The Group ended 2017 with net debt of
£223.8m and headline financial leverage of
1.9x, an improvement of 0.5x on the restated
2016 closing position. A reconciliation of the
improvement in net debt in the year is set
out on page 34.
This is still considered by management to be
at a higher level than is desirable, taking into
account cyclical risk, and further leverage
reduction remains a key priority. Accordingly,
a number of actions have been initiated with
the aim of delivering sustainable reductions
in levels of working capital, as well as seeking
to monetise a number of businesses for
cash proceeds as part of the refocusing of
the portfolio.
These actions are expected to deliver further
reductions in net debt during 2018, which,
coupled with improvements in the level of
profitability, mean the Group continues to
target a 1.0-1.5x leverage range during 2018.
SIG's infill acquisition programme remains
suspended until leverage has been brought
under control and the Group continues
to target leverage below 1.0x over the
medium term.
SIGNIFICANT BENEFIT FROM
PROPERTY PROFITS
One of the actions taken by the Group to
reduce leverage during 2017 was the sale of
a number of properties across the Group’s
portfolio for a total net cash consideration
of £33.4m (£5.7m being received in January
2018), on which it realised an underlying
profit of £13.7m and a non-underlying profit
of £5.8m. The non-underlying element
relates to the unutilised proportion of
property and land and therefore not related
to the ongoing operations of the Group.
Excluding the underlying property profits,
SIG’s underlying PBT was £65.5m
(2016: £72.6m).
STRATEGY REVIEW – BUILDING
ON OUR POTENTIAL
In parallel with operational improvements
to stabilise the business, management
conducted a review of the Group’s strategy
during 2017. This review concluded that
there is considerable opportunity for a
significant improvement in the operational
and financial performance of the Group
over the medium term. To deliver that
improvement, management is focusing
on the execution of initiatives across the
operating companies in support of three key
strategic levers: customer service, customer
value and operational efficiency.
Customer service activities focus primarily
on investment in sales capability and the
effectiveness of the sales effort to deliver LFL
sales growth and gross margin improvement.
Customer value targets improved
management of pricing and customer
profitability, along with the development
of the Group’s specialist and own-label
product offerings to drive LFL sales growth
and gross margin improvement. Operational
efficiency seeks to deliver improved control
over operating costs and working capital,
to improve return on sales and return on
capital employed.
Delivery of these initiatives is being
supported by investment in three key
enablers: data, IT and capability. During
2018, SIG is rolling out a consistent data
foundation, making it easier to analyse and
improve performance. In IT, SIG is working
towards a common infrastructure and
central portfolio management, with projects
delivered under a standard framework,
building a platform for future integration.
In parallel, SIG is reinforcing the breadth
and depth of its management capability to
improve on a poor track record of delivering
successful changes to the business.
During the initial weeks of 2018, the
leadership team presented the strategy and
detailed action plans across the operating
companies to around 1,200 managers from
eleven countries, followed by a cascade of
the same key messages to all employees
across the Group. All parts of the business
have aligned around the key strategic
priorities, with robust messaging about
the need to simplify, focus and deliver.
Performance management mechanisms
have been revised to support the strategy,
with tools now in place for close monitoring
and support, and the realignment of reward
structures up and down the organisation.
There remains considerable work to be
done to improve returns over the medium
term and highly disciplined execution will be
critical to success.
CURRENT TRADING
AND OUTLOOK
2017 has been a year of challenge and
change for SIG, reporting an underlying
profit before tax of £65.5m (2016: £72.6m)
excluding property profits.
As the Group moves into 2018, we are
seeing increasingly confident markets across
Mainland Europe and Ireland, but also the
first signs of capacity and labour constraint
in buoyant construction markets. In contrast,
we are seeing an increasingly challenging
environment in the UK, created by macro
uncertainty and recent events in the
construction industry, such as the liquidation
of Carillion. Notwithstanding this outlook, we
see considerable potential for a significant
improvement in operational and underlying
financial performance, with execution largely
within management’s control, and we are
working to ensure effective delivery.
The Group will provide a further update on
trading and outlook on 10 May 2018, when it
will hold its Annual General Meeting.
Read about KPIs on pages 22 and 23
27
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
In a year of challenge and change, the Group
delivered its first improvement in underlying
operating profit in three years, including the
benefit of property profits.
" During the year, we have
brought operating cost
increases under control,
started to reduce levels of
working capital and debt,
and simplified the business
through ongoing portfolio
management.
We see considerable potential
for a significant improvement
in operational and financial
performance and are
working hard to ensure
effective delivery.”
NICK MADDOCK CHIEF FINANCIAL OFFICER
28
Annual Report and Accounts
25690-AR2017 15-03-18 Proof SixSIG plc RETURN ON
CAPITAL EMPLOYED
10.3%
(2016: 10.2%)
Headline
financial leverage
1.9x
(2016: 2.4x)
Results from
underlying operations*
2016
(Restated)**
£m Change
2017
£m
2017
£m
Statutory
2016
(Restated)**
£m Change
2,778.5
2,587.4
7.4% 2,878.4
2,845.2
736.5
691.1
6.6%
752.5
747.9
1.2%
0.6%
80.6
94.3
79.2
86.4
89.7
75.9
(6.7)%
5.1%
4.3%
(53.4)
(33.9)
(51.2)
(100.8)
(47.0)%
(94.7)
(64.2)%
(110.0)
(53.5)%
Revenue
Gross profit
Operating profit/(loss)
excluding property sales
Operating profit/(loss)
Profit/(loss) before tax
Net debt
223.8
279.7
(20.0)%
223.8
279.7
(20.0)%
Other performance measures
Like-for-like sales growth
Gross margin
Return on sales
Basic earnings/(loss) per
share (pence)
Total dividends per share
Working capital to sales
Post-tax return on capital
employed (‘ROCE’)
Headline financial leverage
(covenant net debt/
covenant EBITDA)
3.8%
26.5%
3.4%
9.8p
n/a
9.0%
0.4% 340bps
n/a
n/a
n/a
26.7% (20)bps
26.1%
26.3% (20)bps
3.5% (10)bps
(1.2)%
(3.3)% 210bps
9.7p
n/a
0.1p
(10.1)p
(20.6)p
10.5p
n/a
3.75p
3.66p
0.09p
9.9% (90)bps
8.8%
10.5% (170)bps
10.3%
10.2%
10bps
(5.4)%
(12.3)% 690bps
n/a
n/a
n/a
1.9x
2.4x
(0.5)x
* Underlying results are stated before the amortisation of acquired intangibles, impairment charges, losses on agreed sale
or closure of non-core businesses and associated impairment charges, net operating results attributable to businesses
identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, the defined benefit
pension scheme curtailment loss, other specific items, unwinding of provision discounting, fair value gains and losses on
derivative financial instruments, the taxation effect of Other items and the effect of changes in taxation rates.
Alternative performance measures are referred to as “underlying” and “like-for-like”. These are applied consistently
throughout this report and the calculations to these are found in Note 32 of the Financial Statements.
** Restated for the historic overstatements described on page 31.
OVERVIEW
The Group delivered higher revenues and like-for-like sales growth which, together with
return on sales at similar levels to 2016, enabled it to deliver an improved underlying
operating profit performance for the first time in three years and an increased dividend. Net
debt came down sharply, principally due to debt factoring and the sale of property, despite
the adverse impact of a historical overstatement of net cash, meaning that headline financial
leverage fell. Return on capital employed stabilised at a similar level to 2016.
During 2017 the Group undertook a strategic review of its operations and has made
significant operational steps to stabilise the business in preparation for sustainable medium
term growth. The Group Board believes that it can deliver and has set financial targets of a
c.5% return on sales and c.15% post tax return on capital employed in the medium term.
Key financial metric
Like-for-like sales
Return on sales
Return on capital employed
Headline financial leverage
Medium term
target
2017
Performance
2016
Performance
Market growth
5%
15%
<1.0x
3.8%
3.4%
10.3%
1.9x
0.4%
3.5%
10.2%
2.4x
REVENUE AND GROSS MARGIN
Group revenue from underlying operations
increased 7.4% to £2,778.5m (2016:
£2,587.4m), benefitting from foreign
exchange translation (+3.9%) and
acquisitions (+0.2%), though offset by fewer
working days (-0.5%). As a result LFL sales
were ahead by 3.8%. On a statutory basis
Group revenue was up 1.2% to £2,878.4m
(2016: £2,845.2m).
In the UK & Ireland, revenue from underlying
operations increased 1.9% to £1,305.3m
(2016: £1,281.5m), benefitting from
acquisitions (+0.2%) and foreign exchange
translation (+0.5%), offset by fewer working
days (-0.4%). LFL sales increased 1.6%. In
Mainland Europe revenue increased 12.8%
to £1,473.2m (2016: £1,305.9m), benefitting
from foreign exchange translation (+7.3%) and
acquisitions (+0.2%) offset by fewer working
days (-0.6%). LFL sales increased by 5.9%.
Underlying operations excludes the results
from the businesses divested during the year
or in the process of being divested as at 31
December 2017, in order to give a better
understanding of the underlying earnings
of the Group. These businesses reported a
combined operating loss of £14.3m in 2017
(2016: £7.9m) on revenue of £99.9m
(2016: £257.8m).
The Group’s underlying gross margin
declined by 20bps to 26.5% (2016: 26.7%),
due to a 40bps decrease in the UK & Ireland
to 25.5% (2016: 25.9%) and by a 10bps
decrease in Mainland Europe to 27.4%
(2016: 27.5%). On a statutory basis the
Group’s gross margin decreased by 20bps to
26.1% (2016: 26.3% restated). The decrease
in gross margin in the UK & Ireland is largely
attributable to the market and operational
challenges at SIG Distribution, which had a
significant impact on underlying profitability
in the business from the second half of 2016,
albeit with some initial recovery seen in 2017.
OPERATING COSTS AND PROFIT
SIG’s underlying operating costs, excluding
the benefits of property profits, increased by
£51.2m to £655.9m in 2017 (2016: £604.7m),
due to a foreign exchange translation cost
of £23.6m, the full year impact of additional
costs from 2016 acquisitions of £3.2m, and
other cost increases of £24.4m. As a result,
operating costs (excluding property profits) as
29
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
a percentage of sales increased from 23.4%
in 2016 to 23.6% in 2017. Costs peaked in the
first half of 2017 at 23.9% of revenue.
The LFL sales growth and the favourable
impact from the foreign exchange translation
of improved European profitability were
partially offset by lower gross margins and
higher costs. This meant that the Group’s
underlying operating profit increased
by 5.1% to £94.3m (2016: £89.7m) with
return on sales, one of the Group’s primary
performance metrics, decreasing 10bps to
3.4% (2016: 3.5%).
In the UK & Ireland, underlying operating
profit fell 9.2% to £47.6m (2016: £52.4m) and
underlying operating margin declined 50bps
to 3.6% (2016: 4.1%). In Mainland Europe,
underlying operating profit increased by
23.5% to £59.4m (2016: £48.1m), including a
£3.7m foreign exchange translation benefit,
with underlying operating margin increasing
slightly, up 30bps, to 4.0% (2016: 3.7%). The
Group made a statutory operating loss of
£33.9m in 2017 (2016: £94.7m).
SIG’s underlying net finance costs increased
by £1.3m to £15.1m (2016: £13.8m), mainly
due to higher average borrowings during
the year, which offset some of the increase
in operating profit, resulting in underlying
profit before tax increasing 4.3% to £79.2m
(2016: £75.9m). Excluding underlying
property profits, underlying profit before tax
declined 9.8% to £65.5m (2016: £72.6m).
On a statutory basis the Group made a
loss before tax of £51.2m (2016: £110.0m)
after non-underlying items of £130.4m
(2016: £185.9m).
Underlying basic earnings per share from
underlying operations increased by 0.1p to
9.8p (2016: 9.7p). On a statutory basis the
Group made a basic loss per share of 10.1p
(2016: loss per share 20.6p).
RETURN ON CAPITAL EMPLOYED
Post-tax return on capital employed (‘ROCE’)
is one of the Group’s primary performance
metrics and is calculated on a rolling
12 month basis as underlying operating
profit less tax, divided by average net assets
plus average net debt. As at 31 December
2017 Group ROCE was 10.3% (2016: 10.2%).
This improvement primarily reflects reduced
levels of working capital and debt at the
year end, with working capital falling from
9.9% of sales in 2016 to 9.0% of sales at
31 December 2017, and net debt falling from
£279.7m to £223.8m.
UK & IRELAND
Revenue
(£m) Change
LFL
change
Gross
margin
Change
Underlying
operating
profit (£m)
Underlying
operating
margin
Change
Reported
operating
profit/
(loss)
(£m)***
SIG
Distribution*
797.5
2.1% +2.3% 23.9% (60)bps
SIG Exteriors*
409.5 (1.3)% (1.1)% 28.6% (20)bps
Ireland &
Other UK*
98.3 15.0% +8.1% 25.0% (70)bps
UK & Ireland*
1,305.3
1.9% +1.6% 25.5% (40)bps
9.9
32.9
4.8
47.6
1.2% (110)bps
8.0% 60bps
(25.1)
2.8
4.9% 60bps
(39.9)
3.6% (50)bps
(62.2)
Non-core
businesses
80.3 (62.8)%
n/a 13.7% (780)bps
(13.7)
(17.1)%
n/a
n/a
UK & Ireland** 1,385.6 (7.5)%
n/a 24.8% (50)bps
33.9
2.4% (50)bps
(62.2)
* Before results attributable to businesses identified as non-core.
** On a statutory basis 2017 revenue was £1,385.6m, operating loss was £62.2m and operating margin was (4.5)%. The
Other division has been removed as it primarily related to SIG’s activities in the Middle East which are in the process of
being closed. SIG Spain, which was also part of Other and had revenue of £1.8m in 2017 (2016: £1.5m), is now reported
in SIG Distribution. The UK Offsite Construction division has also been removed as SIG has exited from two of the three
businesses in that division, with the remaining business, Roofspace, transferred to SIG Distribution for management and
reporting purposes. Roofspace had revenue of £17.6m in 2017 (2016: £15.0m).
*** Reported operating profits/(losses) are shown on a segmental basis including the operating result of non-core businesses
Underlying revenue in SIG Distribution (‘SIGD’), the Group’s market leading specialist UK
insulation and interiors distribution business, was up 2.1% to £797.5m (2016: £781.2m) and
by 2.3% on a LFL basis. The underlying operating margin for the full year of 1.2% represents
a decline on 2016 (2.3%). As a result, underlying operating profit for the full year of £9.9m
reflects a decline of 45.6% on 2016 (£18.2m). Excluding property profits, underlying operating
profit decreased by 36.6% to £9.0m (2016: £14.9m). On a statutory basis, after taking into
account Other items, SIGD reported an operating loss of £25.1m (2016: profit £5.7m).
SIG Exteriors (‘SIGE’), the market leading and only national specialist UK roofing business, saw
underlying revenues down by 1.3%, at £409.5m (2016: £414.8m), and by 1.1% on a LFL basis.
As expected at the half year, trading conditions in the second half continued to be weak in
the UK repairs, maintenance and improvement (‘RMI’) sector, to which the business has a high
degree of exposure. As a result, the business saw underlying operating profit fall by £5.3m
to £25.2m. Including £7.7m of property profits recognised by the division, total underlying
operating profit was £32.9m (2016: £30.5m).
In Ireland & Other UK, SIG grew underlying revenue by 15.0%, benefitting from foreign
exchange movements and by 8.1% on a LFL basis, as the business continues to benefit from
favourable market conditions in Ireland. This helped the business grow underlying operating
profit by £1.1m to £4.8m. On a statutory basis after taking into account Other items, Ireland &
Other UK reported an operating loss of £39.9m (2016: £49.3m).
MAINLAND EUROPE
Revenue
(£m) Change
LFL
change
Gross
margin
Change
Underlying
operating
profit (£m)
Underlying
operating
margin
Change
Reported
operating
profit
(£m)***
France
660.7 12.1% 5.9% 27.6% (10)bps
Germany*
425.9 10.5% 4.8% 26.4% (50)bps
Poland
Benelux
142.8 24.1% 13.7% 20.0%
–
101.7
2.0% (4.3)% 25.8%
60bps
26.2
11.5
1.0
6.3
4.0% (10)bps
2.7%
70bps
0.7% (20)bps
6.2% 210bps
Air Handling*
142.1 22.2% 10.9% 38.4% 110bps
14.4
10.1%
90bps
25.2
9.1
–
1.5
5.2
Mainland
Europe*
Non–core
businesses
Mainland
Europe**
1,473.2 12.8% 5.9% 27.4% (10)bps
59.4
4.0%
30bps
41.0
19.6 (53.1)%
n/a
26.4% 140bps
(0.6)
(3.1)%
(560)
bps
n/a
1,492.8 10.8%
n/a
27.4%
–
58.8
3.9%
30bps
41.0
* Before results attributable to businesses identified as non-core.
** On a statutory basis 2017 revenue was £1,492.8m, operating profit was £41.0m and operating margin was 2.7%.
*** Reported operating profits/(losses) are shown on a segmental basis, including the operating result of non-core businesses
30
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The 2% increase in underlying revenue in Benelux reflects foreign exchange translations,
with LFL sales decreasing by 4.3%. Following a construction market recovery during 2016,
conditions became tougher in 2017, with increased price competition for interior products
and a weaker demand for technical insulation. However, robust cost management ensured
that underlying operating profit improved by £2.2m to £6.3m.
HISTORICAL OVERSTATEMENTS
On 9 January 2018, the Group announced that it had identified during initial year end close
processes, historical overstatements of net cash and trade payables related to cash cut-off
procedures associated with the issue of cheques around previous period ends. There was no
impact from this on the Consolidated Income Statement, but it resulted in an understatement
of net debt of £19.8m (comprising £19.5m in SIGD and £0.3m in Ireland) at 31 December
2016 and £27.2m at 30 June 2017 (£26.9m in SIGD and £0.3m in Ireland).
As a result, net debt has been restated to £279.7m at 31 December 2016 (previously
reported £259.9m) and to £193.4m at 30 June 2017 (previously reported £166.5m) and
headline financial leverage has been restated to 2.4x at 31 December 2016 (previously
reported 2.1x) and 2.0x at 30 June 2017 (previously reported 1.6x).
In addition on 1 February 2018, the Group announced that following a whistleblowing
allegation of potential accounting irregularity at SIGD, it had identified that a number of
balances relating to rebates and other potential supplier recoveries were overstated at
31 December 2016, in some cases intentionally. This resulted in an overstatement of profit
for the year ended 31 December 2016 of £3.7m, with a further £0.4m overstatement of profit
relating to the year ended 31 December 2015, and a further £2.5m overstatement of profit
for the half year ended 30 June 2017.
Both of these overstatements have been restated in the results presented in this Annual
Report. In response to these issues, the Group has implemented a number of priority controls
recommendations in relation to both rebates and cash. With support from KPMG, the Group
has completed a review of financial reporting controls at SIGD, which has identified no further
material accounting cause for concern, although it has made some controls recommendations
which are now being implemented. A number of employees are leaving the business following
disciplinary investigations into the circumstances. Further details on the overstatements and
actions taken are also included in the Corporate governance report on page 61.
SIG is in the process of formalising and rolling out a key controls framework across the Group,
which will provide additional discipline around the appropriate design and effective operation
of key controls going forward.
Revenue in France, where SIG operates
three businesses (Larivière, the market
leading specialist roofing business; LiTT, the
leading structural insulation and interior
business; and Ouest Isol / Ouest Ventil, a
leading supplier of technical insulation and
air handling products), increased by 12.1% to
£660.7m (2016: £589.2m), having benefitted
from foreign exchange translation. On a LFL
basis sales were up by 5.9%.
Improved market conditions in France have
helped revenue this year, particularly in the
residential sector which accounts for 64%
of revenue in the country. The business has
also benefitted from some of the actions
taken at LiTT to drive improved operational
performance, which are now also being
applied to the Larivière business. As a
result, SIG France overall had a strong year,
delivering £26.2m of underlying operating
profit, up £1.8m on 2016.
Underlying revenue in Germany grew by
10.5% to £425.9m (2016: £385.6m), as it
benefitted from foreign exchange translation.
LFL sales grew by 4.8%, as the Group sought
to improve its performance and reposition
the business towards the higher growth
segments of the German market, such as
the residential sector. Underlying operating
profit increased by £3.8m to £11.5m
(2016: £7.7m). Excluding property profits,
underlying operating profit decreased by
9.1% to £7.0m (2016: £7.7m)
In Poland, SIG grew revenues by 24.1%
to £142.8m, benefitting from strong
sales performance and foreign exchange
translation. Following last year’s subdued
performance, resulting from political and
economic uncertainty, construction markets
stabilised in the first quarter of 2017. There
was then significant improvement during the
remainder of the year, leading to a 13.7%
increase in SIG’s LFL sales growth for the
year. After operating cost inflation and other
cost increases, the business delivered an
underlying operating profit of £1.0m in 2017
(2016: £1.1m).
Air Handling, the largest pure-play specialist
air handling distributor in Europe, grew
underlying revenue by 22.2% as it benefitted
from a healthy LFL growth of 10.9%, and
from acquisitions and foreign exchange
translations. The air handling market
continues to grow at a faster rate than the
wider construction sector, due to strong
demand drivers, including higher energy
efficiency and air quality standards. As a
result, Air Handling delivered an improved
underlying operating profit performance up
£3.6m to £14.4m.
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RECONCILIATION OF STATUTORY RESULT TO THE UNDERLYING
TRADING PERFORMANCE
Income statement items are presented in the column of the Consolidated Income Statement
entitled Other items where they are significant in size and either they do not form part of the
trading activities of the Group or their separate presentation enhances understanding of the
financial performance of the Group.
Underlying profit before tax
Other items – impact operating profit:
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of non-core businesses and
associated impairment charges
Net operating losses attributable to businesses identified as non-core
Net restructuring costs
Acquisition expenses and contingent consideration
Defined benefit pension scheme curtailment loss
Other specific items
Other items – impact net finance costs:
Net fair value losses on derivative financial instruments and
unwinding of provision discounting
Total Other items
Statutory loss before tax
2017
£m
79.2
(9.3)
(6.8)
(72.4)
(14.3)
(21.1)
(9.8)
–
5.5
(2.2)
(130.4)
(51.2)
2016
£m
75.9
(10.3)
(110.6)
(40.1)
(7.9)
(13.3)
4.6
(0.9)
(5.9)
(1.5)
(185.9)
(110.0)
Amounts reported in the Other items column of the Consolidated Income Statement which in
total amounted to a loss before tax of £130.4m (2016: £185.9m) are as follows:
Amortisation of acquired intangibles
– £9.3m (2016: £10.3m). Intangible
amortisation is dependent upon the
number and value of acquisitions made
by the Group over time. The Accounting
Policies section on page 109 and Note 13
of the Financial Statements on page 135
provide details of what is included within
intangible assets and over what periods
the assets are amortised.
Impairment charges – £6.8m (2016:
£110.6m). An impairment of £6.8m
has been recognised in relation to the
carrying value of the UK ERP system,
Kerridge K8. In the prior year 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 following 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.
Losses on agreed sale or closure of
non-core businesses and associated
impairment charges - £72.4m (2016:
£40.1m). The charge was recognised
in respect of the agreed sale or exit of
businesses during the year. Further detail
of the nature and breakdown of this
charge can be found in Note 11
of the Financial Statements on pages
128 to 131.
Net operating losses attributable to
businesses identified as non-core in
2017 – £14.3m (2016: £7.9m). The 2017
results of businesses sold or agreed to
be sold or closed, together with their
2016 comparatives have been reported
as Other items on the basis of their
non-recurring nature and to provide an
indication of the underlying earnings of
the Group.
Net restructuring costs – £21.1m (2016:
£13.3m). The Group performed a strategic
review of its cost base and commenced a
series of restructuring actions during the
year to improve the efficiency of its fixed
cost base. These actions have resulted in
redundancy costs of £3.9m (2016: £1.7m),
property closure costs of £2.8m (2016:
£4.4m), rebranding of £nil (2016: £0.5m)
and other restructuring costs of £14.4m
(2016: £6.7m), comprising supply chain
review costs £11.7m (2016: £6.7m) and
redundancy consultancy costs £2.7m
(2016: £nil).
Acquisition expenses and contingent
consideration - £9.8m (2016: credit
of £4.6m) relating in particular to the
acquisition of HC Groep by Air Handling
in 2015. 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 – £nil (2016: £0.9m). 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
curtailment loss of £0.9m in 2016. Further
details can be found in note 29c to the
Financial Statements.
Other specific items – credit of £5.5m
(2016: £5.9m). Other specific items
include the profit on sale of non-
operational property of £5.8m (2016:
£2.8m) and other costs of £0.3m (2016:
credits of £0.4m). In 2016 Other specific
items also included impairment charges
and other costs following the cessation
of the UK eCommerce project of £9.7m,
a net charge arising as a result of
movements in provisions associated with
businesses disposed of in previous years
of £0.5m, fair value gains on fuel hedging
contracts of £0.4m and 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.
Net fair value losses on derivative financial
instruments and unwinding of provision
discounting – £2.2m (2016: £1.5m).
Amortisation of amounts previously
recorded in reserves from the cancellation
of certain interest rate derivative contracts
in 2009 are being amortised through the
Consolidated Income Statement over the
life of the associated debt to 2018 in line
with the relevant accounting standards
(2017: £1.8m; 2016: £1.9m). Also included
within finance costs is a credit of less than
£0.1m (2016: credit of less than £0.1m)
relating to hedge ineffectiveness incurred
on the Group’s financial instruments
and a net charge of £0.5m in respect of
unwinding of provision discounting (2016:
charge of £0.1m).
32
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc DIVESTMENTS AND CLOSURE OF NON-CORE BUSINESSES
Losses on agreed sale or closure of non-core businesses and
associated impairment charges
Net operating losses attributable to businesses identified
as non-core
Total
2017
£’m
(72.4)
(14.3)
(86.7)
2016
£’m
(40.1)
(7.9)
(48.0)
During the year the Group has exited or has resolved and is in the process of exiting a
number of businesses that are deemed to be non-core and which offered a low probability
of significant improvements in performance over the medium term. Total losses of £86.7m
(2016: £48.0m) have been recognised in Other items on the face of the Consolidated
Income Statement in relation to these. The revenue and profits/(losses) attributable to these
businesses are shown in the table below. The table also shows the impact on profit of the
historical overstatement in order to derive comparatives for the underlying Group.
2017
2016
Revenue
£m
Underlying
profit/(loss)
before tax
£m
Revenue
£m
Underlying
profit/(loss)
before tax
£m
Statutory Group revenue as
reported at 2016 full year
results
Drywall Qatar1
Carpet & Flooring1
Underlying Group as
reported at 2016 full year
results
Metechno2
WeGo Austria2
Building Plastics3
Middle East3
Underlying Group as
reported at 2017 half year
results
ATC Turkey4
Building Systems5
GRM Insulation5
IBSL6
Historical overstatement
Underlying Group at 2017
full year results
Not applicable
2,845.2
(1.2)
(11.4)
2,865.8
(1.3)
(7.6)
(34.5)
(19.5)
2,802.9
(12.0)
(8.0)
(2.6)
(1.8)
n/a
2,778.5
1.4
0.7
67.0
3.4
0.2
(0.9)
0.7
70.4
0.4
7.6
0.8
–
n/a
79.2
(7.9)
(97.5)
2,739.8
(3.3)
(27.6)
(63.0)
(30.4)
2,615.5
(14.2)
(9.2)
(2.6)
(2.1)
n/a
2,587.4
1 First announced at SIG’s 2016 full year results on 14 March 2017.
2 First announced in SIG’s AGM trading update on 11 May 2017.
3 First announced at SIG’s half year results on 8 August 2017.
4 First announced in SIG’s trading update on 9 January 2018.
5 First announced on 28 February 2018.
6 First announced on 9 March 2018.
Further details of these non-core businesses are included in Note 11 of the Financial
Statements on pages 128 to 131.
n/a
2.8
3.0
77.5
0.1
(0.6)
(2.9)
(0.9)
73.2
(0.2)
6.2
0.6
(0.2)
(3.7)
75.9
TAXATION
The Group’s approach to tax matters is to act
in a responsible manner and in accordance
with the laws and objectives of the territories
in which we operate. The Group seeks to pay,
at the right time, the correct amount of taxes
due, both direct and indirect, in accordance
with all relevant tax laws and regulations.
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 aims to establish and maintain
transparent and constructive relationships
with all relevant tax authorities. Should a tax
related dispute arise then we aim promptly
to 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 Board recognises
the importance of tax risk management as
part of the day-to-day management of the
business. The Group has a Tax and Treasury
Committee that provides regular updates
to the Board, which enables the Board to
consider the tax implications of significant
strategic decisions on a timely basis.
In accordance with UK legislation the
Group publishes an annual tax strategy,
which is available on the Group’s website
(www.sigplc.com).
The Group recorded an income tax charge on
underlying profits from ongoing operations
amounting to £20.5m (2016: £18.1m) which
represents an underlying effective rate of
25.9% (2016: 23.8%). On the statutory loss
before tax of £51.2m (2016: £110.0m), the
income tax charge of £7.4m represents an
effective rate of negative 14.5% (2016: 14.5%).
These differences arise as a result of amounts
included as Other items in the year.
Cash tax payments amounted to £18.8m,
£1.7m below the £20.5m 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.£8m gross utilised
during the year).
The Group’s underlying effective tax rate in
2018 will be determined by the mix of profits
from different jurisdictions. It is anticipated
that the underlying effective tax rate in 2018
(excluding any prior year effects) will be c.27%.
33
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
SHAREHOLDERS’ FUNDS AND
RETURNS TO SHAREHOLDERS
Shareholders’ funds decreased by £58.7m
to £476.8m (2016: £535.5m). The decrease
comprised the following elements:
CASH FLOW AND FINANCIAL POSITION
Taking into account the restatement of the opening net debt position, the Group ended 2017
with net debt of £223.8m and headline financial leverage of 1.9x. The £55.9m reduction in
net debt includes the benefit of £48.7m of receipts relating to non-recourse debt factoring
arrangements.
Loss after tax attributable to equity
holders of the Company
Exchange differences on assets and
liabilities after tax
Gains and losses on cash flow hedges
Movements attributable to share
options
Actuarial gain on pensions schemes
(net of deferred tax)
Dividends paid to equity holders of the
Company
Decrease in Shareholders’ funds
£m
(59.6)
11.7
2.5
0.5
4.4
(18.2)
(58.7)
The Company pays dividends out of the
Parent Company retained earnings and has
sufficient distributable reserves to pay the
final dividend for 2017 and an appropriate
interim dividend for 2018. When required
the Company can repatriate cash from
its subsidiaries to increase distributable
reserves. Further details are included in Note
12 of the Company Financial Statements.
In 2017, the Group delivered an improved
underlying earnings per share in 2017 of
9.8p (2016: 9.7p). As a result the Board is
recommending payment of a final dividend
for the year of 2.50p (2016: 1.83p) per
share. Together with the interim dividend
of 1.25p (2016: 1.83p) per share, this gives
a total dividend for the year of 3.75p (2016:
3.66p) per share, in line with the Group’s
stated policy to target a dividend pay-out
in the range of 2-3x earnings cover (on an
underlying earnings per share basis).
Subject to approval at the Group’s AGM, the
final dividend is expected to be paid on 6 July
2018 to Shareholders on the register at the
close of business on 8 June 2018. The ex-
dividend date will be 7 June 2018.
Cash inflow from trading
Cash inflow from factoring arrangements
Increase in working capital
Cash inflow from operations
Interest and tax
Maintenance capital expenditure*
Free cash flow available for investment
Investment capital expenditure
Proceeds from sale of property, plant and equipment
Cashflow from divested businesses
Acquisition investment (including deferred consideration)
Foreign exchange (losses)/gains
Issue of shares
Dividends paid to equity holders of the Company
Other items (including fair value movements)
Movement in net debt
Opening net debt (restated)
Closing net debt
2017
£m
62.8
48.7
(11.8)
99.7
(31.4)
(22.8)
45.5
–
34.6
17.6
(23.9)
(4.2)
0.1
(18.2)
4.4
55.9
2016
Restated
£m
95.2
–
(15.3)
79.9
(22.1)
(29.5)
28.3
(10.4)
39.5
–
(29.6)
(11.6)
–
(28.0)
(8.1)
(19.9)
(279.7)
(223.8)
(259.8)
(279.7)
* Where net capital expenditure is equal to or less than depreciation (including amortisation of computer software), all such
net 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.
This is still considered by management to be a higher level than desirable taking into account
cyclical risk and accordingly further leverage reduction remains a key priority. In particular,
management has initiated a number of actions to deliver sustainable reductions in levels of
working capital as well as seeking to monetise a number of businesses for cash proceeds as
part of the refocusing of the portfolio.
These actions are expected to deliver further reductions in net debt during 2018 which,
coupled with improvements in the level of profitability, mean the Group continues to target
a 1.0 – 1.5x headline financial leverage range during 2018. SIG’s infill acquisition programme
remains suspended until leverage has been brought under control and the Group continues
to target headline financial leverage below 1.0x over the medium term.
34
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Notwithstanding the current levels of headline financial leverage, the Group retains
considerable headroom against its financing facilities, with total debt facilities of £553m as
at 31 December 2017 (31 December 2016: £549m) and only £78m drawn from the Group’s
£350m Revolving Credit Facility at the year end (2016: £161.9m drawn).
FIXED ASSETS
Net capital expenditure (including computer software) was a net cash inflow of £11.8m
(2016: £0.4m outflow), representing a capex to depreciation ratio of negative 0.44x (2016:
positive 0.01x). 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 year by the level of
proceeds from the sale of property, plant and equipment, which were £34.6m (2016: £39.5m).
Excluding these proceeds, the capex to depreciation ratio would be 0.86x (2016: 1.35x).
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 rate
Movement
Closing rate
Movement
Euro
Polish Zloty
2017
1.14
4.85
2016
1.22
5.32
%
(6.6)%
(8.8)%
2017
1.13
4.70
2016
1.17
5.16
%
(3.4)%
(8.9)%
The impact of exchange rate movements on the translation of the Group’s overseas earning
streams, net assets and net debt can be summarised as follows:
Underlying revenue
Statutory revenue
Underlying operating profit
Statutory operating profit
Underlying profit before tax
Statutory profit before tax
Consolidated net assets
Net debt
Impact of currency movements
in 2017
£101.7m
£103.6m
£4.0m
£2.5m
£3.6m
£2.1m
£11.6m
£4.2m
3.8%
3.7%
4.5%
6.9%
4.7%
3.9%
2.5%
1.9%
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 on page 37.
PENSION SCHEMES
In total, the Group operates six defined
benefit pension schemes, the largest of
which is a funded scheme held in the UK
which was closed to future accrual on
30 June 2016. 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”.
At the last triennial valuation of the UK
scheme, the Trustees and the Company
agreed a long term funding plan where the
Company is paying contributions of £2.5m
a year to the UK defined benefit scheme.
The next triennial actuarial valuation is
effective as at 31 December 2016 and work
is underway. The Trustees are aiming to
conclude the valuation by the end of March
2018. The overall gross defined benefit
pension schemes’ liability decreased during
the year by £6.7m to £30.4m (31 December
2016: £37.1m).
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
of the Financial Statements on pages 153
to 156.
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 Group is focused on
strengthening the balance sheet as it has
accumulated losses at 31 December 2017.
The main measure used to assess the
appropriateness of the Group’s capital
structure is its net debt to EBITDA (see
Note 3 of the Financial Statements) ratio
(i.e. leverage), thus ensuring that the Group’s
capital structure is aligned to the Group’s
debt covenants.
As at 8 March 2018, SIG’s share price
closed at 149.8p per share, representing
a market capitalisation of £886m at that
date. SIG monitors relative Total Shareholder
Return (‘TSR’) for assessing relative financial
performance. This has been detailed in the
Directors’ Remuneration Report on pages 94
and 95.
35
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Treasury risk management
TREASURY RISK – INTRODUCTION
SIG’s Finance and Treasury Policies set out the Group’s approach to managing treasury risk. These policies are reviewed and approved by the
Board on a regular basis. It is Group policy that no trading in financial instruments or speculative transactions be undertaken.
FUNDING OF OPERATIONS
SIG finances its operations through a mixture of Shareholders’ equity, bank funding, private placement and other borrowings. A small
proportion of SIG’s assets are funded using fixed rate finance lease contracts.
The Group’s net debt is made up of the following categories:
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Derivative financial instruments (liabilities)
Total
Derivative financial instruments (assets)
Gross debt (after derivative financial assets)
Cash on deposit (restated)
Other financial assets
Deferred consideration
Net debt
This reconciles to net debt used for covenant calculations as follows:
Net debt
Other covenant financial indebtedness
Foreign exchange adjustment
Covenant net debt
The Group’s gross financial liabilities can be further analysed as follows:
Gross financial liabilities with a maturity profile of greater than five years
Gross financial liabilities held on an unsecured basis
2017
£m
141.7
336.8
2017
%
40.8%
97.0%
Details of derivative financial instruments are shown in Note 19 of the Financial Statements on pages 140 to 143.
2017
£m
9.9
29.6
84.2
204.2
17.0
3.5
348.4
(1.3)
347.1
(121.8)
–
(1.5)
223.8
2017
£'m
223.8
11.8
(1.5)
234.1
2016
£m
136.3
396.6
2016
Restated
£m
11.2
22.7
171.9
200.7
2.7
3.8
413.0
(4.5)
408.5
(127.0)
(1.1)
(0.7)
279.7
2016
£'m
279.7
3.5
(6.4)
276.8
2016
%
33.4%
97.1%
36
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc MANAGEMENT OF TREASURY RISKS
Treasury risk management incorporates liquidity risk, interest rate risk, foreign currency risk, commodity risk, counterparty credit risk and the
risk of breaching debt covenants. These specific risks, and the Group’s management of them, are detailed below.
LIQUIDITY RISK AND DEBT FACILITIES
Liquidity risk is the risk that SIG is unable to meet its financial obligations as they fall due.
In order to mitigate the risk of not being able to meet its financial obligations, SIG seeks a balance between certainty of funding and a flexible,
cost-effective borrowing structure, using a mixture of sources of funding in order to prevent over-reliance on any single provider. The key
sources of finance are private placement note investors, being mainly US-based pension funds, and principal bank debt. In addition the Group
commenced non-recourse factoring during the year.
The maturity profile of the Group’s debt facilities at 31 December 2017 is as follows:
Bank debt
Private placement loan notes
Private placement loan notes
Private placement loan notes
Private placement loan notes
Private placement loan notes
Facility
amount
£m
350.0
20.0
26.7
17.8
44.4
94.2
Amount
drawn
£m
Amount
undrawn
£m
Date of expiry
78.0
20.0
26.7
17.8
44.4
94.2
272.0
May 2021
–
–
–
–
–
November 2018
October 2020
October 2021
October 2023
August 2026
553.1
281.1
272.0
SIG has no immediate refinancing requirements, and can repay the £20.0m of Private Placement loan notes maturing in November 2018
through existing resources. SIG has sufficient funding headroom with existing facilities to support its medium term plans.
INTEREST RATE RISK
The Group’s interest costs in respect of its borrowings will increase in the event of rising interest rates. To reduce this risk the Group monitors
its mix of fixed and floating rate debt and enters into derivative financial instruments to manage this mix where appropriate. SIG has a policy of
aiming to fix between 50% and 75% of its average net debt over the medium term.
The percentage of net debt (on an average basis) at fixed rates of interest at 31 December 2017 is 81% (2016: 73%) and on a gross debt basis
is 75% (2016: 60%), which is within the Group’s targeted medium term range.
FOREIGN CURRENCY RISK
INCOME STATEMENT
SIG has a number of overseas businesses whose revenues and costs are denominated in the currencies of the countries in which the
operations are located. 57% of SIG’s 2017 underlying revenues (2016: 54%) were in foreign currencies, being primarily Euros and Polish Zloty.
Less than 3% of SIG’s sales and purchases are cross-currency. When cross-currency transactions occur, it is SIG’s policy to eliminate currency
exposure at that time through forward currency contracts, if the exposure is considered to be material.
SIG faces a translation risk in respect of the local currencies of its primary foreign operations, principally being Euro and Polish Zloty revenues
and profits. SIG does not hedge the income statement translational risk arising from these income streams.
SIG also faces a translation risk from the US Dollar in respect of interest on its private placement borrowings. This risk has been eliminated
through the use of cross-currency swaps, which swap the US Dollar private placement debt into Euros.
37
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Treasury risk management
BALANCE SHEET
The Consolidated Balance Sheet of the Group is inherently at risk from movements in the Sterling value of its net investments in foreign
businesses and the Sterling value of its foreign currency net debt.
For currencies where the Group has significant balance sheet translational risk, SIG seeks to mitigate this risk by holding financial liabilities
and derivatives in the same currency to partially hedge the net investment values. The Group’s policy is that for currencies where a material
balance sheet translational exposure exists, the Group will hold financial liabilities in that particular currency in proportion to the overall Group
ratio of net debt to capital employed.
SIG had the following net debt denominated in foreign currencies, held partially to hedge the assets of overseas businesses (including cash
and cash equivalents):
Euro
PLN
Other currencies
Total
% of net debt
2017
Local
currency net
borrowings/
(cash)
LC’m
2017
Sterling
equivalent
borrowings/
(cash)
£m
2016
Sterling
equivalent
borrowings/
(cash)
£m
163.9
(81.8)
multiple
145.6
(17.4)
1.5
129.7
58%
152.7
(14.6)
8.2
146.3
52%
Euro net debt at 31 December 2017 represented 65.1% of Group net debt (2016: 54.6%).
IMPACT OF FOREIGN CURRENCY MOVEMENTS IN 2017
The overall impact of foreign exchange rate movements on the Group’s Consolidated Income Statement and Consolidated Balance Sheet is
disclosed on page 35 of this Strategic Report.
COMMODITY RISK
The nature of the Group’s operations creates an ongoing demand for fuel and therefore the Group is exposed to movements in market fuel
prices. The Group enters into commodity derivative instruments to hedge such exposure where it makes commercial and economic sense to
do so.
In 2015 the Group entered into four commodity derivative instruments to hedge a portion of the UK, Polish and French fuel requirements for
2015 and 2016. At 31 December 2016 these commodity derivative instruments had matured, and the Group has not entered into any further
commodity derivative instruments.
COUNTERPARTY CREDIT RISK
SIG holds significant investment assets, being principally cash deposits and derivative assets. Strict policies are in place in order to minimise
counterparty credit risk associated with these assets.
A list of approved deposit counterparties is maintained. Counterparty credit limits, based on published credit ratings and CDS spreads, are in
place. These limits, and the position against these limits, are reviewed and reported on a monthly basis.
Sovereign credit ratings are also monitored, and country limits for investment assets are in place. If necessary, funds are repatriated to the UK.
38
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc DEBT COVENANTS
The Company’s debt facilities in place at 31 December 2017 contained a number of covenants to which the Group must adhere. The Group’s
debt covenants are tested at 30 June and 31 December each year, with the key financial covenants being leverage and interest cover.
The ratio for each of the debt covenants is set out below:
Consolidated net worth1
Interest cover ratio2
Leverage ratio3
Year
ended
31 December
2017
Year
ended
31 December
2016
Restated
Requirement
>£400m
£476.8m
£538.5m
>3.0x
<3.0x
5.0x
1.9x
6.2x
2.4x
1. The consolidated net worth covenant is applicable to the private placement debt only.
2.
Covenant interest cover is the ratio of the previous 12 months’ underlying operating profit (including the trading losses and profits associated with divested businesses) to net financing
costs (excluding pension scheme finance income and finance costs).
3. Covenant leverage is the ratio of closing net debt (at average exchange rates) to the underlying operating profit before depreciation, adjusted if applicable for the impact of acquisitions
and disposals during the previous 12 months (‘EBITDA’).
Detailed calculations of the interest cover ratio and leverage can be found in Note 32 of the Financial Statements on pages 158 to 164.
As can be seen in the table above, the Group is in compliance with its financial covenants and has a reasonable level of headroom.
The 2017 year end headline financial leverage has decreased as a result of short term prioritised actions undertaken by the Company, but
is still above the Group’s medium term target of below 1.0x. Going forward, the Group will continue to prioritise leverage reduction by more
tightly focusing on its cash generation, moderating capital expenditure and suspending its infill acquisition programme.
The Group is expecting leverage to increase at 30 June 2018 over the 1.9x reported at 31 December 2017 due to normal seasonal working
capital patterns.
VIABILITY STATEMENT
In accordance with the requirements of the 2016 UK Corporate Governance Code (‘the Code’), the Directors confirm that they have performed a
robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency
or liquidity. Details of the risk identification and management process and a description of the principal risks and uncertainties facing the Group
are included in this Strategic Report on pages 42 to 45. As such, the key factors affecting the Group’s prospects are:
Market positions: SIG retains top three positions in its core business, which will continue to offer sustainable positions over the
medium term.
Specialist business model: SIG is focused on specialist distribution and merchanting of specialist products for our business customers.
A defined product focus means SIG occupies a key supply niche, partnering both suppliers and customers to add value.
Sales mix: A diversified portfolio of products, market sectors and geographies means SIG has a resilient underlying portfolio of customers,
and as a result, competitors, diversifying the risk around sales for the Group.
The Board has determined that a three-year period to 31 December 2020 is the most appropriate time period for its viability review. This
period has been selected since it gives the Board sufficient visibility into the future, due to industry characteristics, business cycle and the
tenor of existing financing, to make a realistic viability assessment. This aligns with the turnaround plans for the business.
39
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Treasury risk management
THE ASSESSMENT PROCESS AND
KEY ASSUMPTIONS
As part of the Group’s strategic and financial
planning process a medium term business
plan including detailed financial forecasts for
the first three years was produced covering
the period to 31 December 2020. The process
included a detailed review of the plan, led by
the Chief Executive Officer and Chief Financial
Officer in conjunction with input from
divisional and functional management teams.
The Board participated fully in this process
by means of an extended Board meeting to
review and approve the plan.
The key assumptions within the Group’s
financial forecasts include:
Modest but realistic growth: The Group
is targeting top-line sales growth in line
with the market over the medium term.
Other than the strategic levers and the
impact of the annualising cost saving
actions taken in 2017, trading is assumed
in be on a ‘business as usual’ basis.
Strategic levers: Improvements are
assumed as a result of the delivery of the
three strategic levers:
— Operational efficiency:
operating cost savings and working
capital reduction;
— Customer value:
pricing and product, enhancing
gross margin for the Group; and
— Customer service:
sales and service improvements.
Dividends: No change in the stated
dividend policy.
Availability of financing: No change
in capital structure as the refinancing
undertaken in 2016 ensures that SIG has
sufficient funding headroom and liquidity
in place to support its plans over the
medium term.
ASSESSMENT OF VIABILITY
In order to assess the resilience of the Group to threats to its viability posed by those risks in
severe but plausible scenarios, this model was subjected to thorough multi-variant stress and
sensitivity analysis together with an assessment of potential mitigating actions. This multi-variant
stress and sensitivity analysis included scenarios arising from combinations of the following:
Variant
SIG’s recent track record highlights the challenge in
delivering lasting change. On this basis, the sensitivity
analysis has been modelled as if the improvements from
the Group’s strategic levers will not be achieved during the
assessment period.
The implications of both a challenging economic
environment and a growing market on the Group’s
revenues (both pricing and volume impacts) have been
modelled by assuming a severe but plausible reduction in
sales volume throughout the period.
Link to principal risks and
uncertainties
Delivering the change
agenda
Market conditions
Working capital and cash
management
Market conditions
The impact of the competitive environment within which
the Group’s businesses operate and the interaction with
the Group’s gross margin has been modelled by assuming
a severe but plausible reduction in revenue and gross
margins throughout the period.
Delivering the change
agenda
Market conditions
The impact of a severe and prolonged economic downturn
on the Group’s financial results was modelled using a
scenario based on the 2009 economic crisis.
Market conditions
The resulting impact on key metrics was considered with particular focus on solvency
measures including debt headroom and covenants such as leverage. The impact of a severe
prolonged downturn in the markets in which the Group operates would affect the carrying
value of the Group's assets and have an impact on the consolidated net worth covenant.
The Group has controls in place to monitor these risks. In the case of these scenarios
arising, various mitigating actions are available to the Group, including further cost reduction
programmes, a reduction in non-essential capital expenditure and a moderation of dividend
payments.
After conducting their viability review, and taking into account the Group's current position
and principal risks, the Directors confirm that they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the
three-year period of their assessment to 31 December 2020.
40
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc GOING CONCERN BASIS
In determining whether the Group’s 2017
Annual Report and Accounts can be
prepared on a going concern basis, the
Directors considered all factors likely to
affect its future development, performance
and financial position, including cash flows,
liquidity position and borrowing facilities
and the risks and uncertainties relating to its
business activities. These are set out in the
Chairman’s Statement and Strategic Report
on pages 2 to 45 and in the Notes to the
Financial Statements.
The key factors considered by the
Directors were:
the implications of the challenging
economic environment and the
continuing weak levels of market demand
in the building and construction markets
on the Group’s revenues and profits;
projections of working capital
requirements taking into account normal
seasonality trends and short term
working capital management;
the impact of the competitive
environment within which the Group’s
businesses operate;
the availability and market prices of the
goods that the Group sells;
the credit risk associated with the Group’s
trade receivable balances;
the potential actions that could be taken
in the event that revenues are worse than
expected, to ensure that operating profit
and cash flows are protected; and
the committed finance facilities available
to the Group.
Having considered all the factors above
impacting the Group’s businesses, including
downside sensitivities, the Directors are
satisfied that the Group will be able to
operate within the terms and conditions
of the Group’s financing facilities, and
have adequate resources to continue in
operational existence for the foreseeable
future. Accordingly, they continue to adopt
the going concern basis in preparing the
Group’s 2017 Annual Report and Accounts.
CAUTIONARY STATEMENT
This Strategic Report has been prepared to
provide the Company’s Shareholders with
a fair review of the business of the Group
and a description of the principal risks and
uncertainties facing it. It may not be relied
upon by anyone, including the Company’s
Shareholders, for any other purpose.
This Strategic Report and other sections
of this report contain forward-looking
statements that are subject to risk factors
including the economic and business
circumstances occurring from time to time
in countries and markets in which the Group
operates and risk factors associated with
the building and construction sectors. By
their nature, forward-looking statements
involve a number of risks, uncertainties
and assumptions because they relate to
events and/or depend on circumstances that
may or may not occur in the future and could
cause actual results and outcomes to differ
materially from those expressed in or implied
by the forward-looking statements. No
assurance can be given that the forward-
looking statements in this Strategic Report
will be realised. Statements about the
Directors’ expectations, beliefs, hopes, plans,
intentions and strategies are inherently
subject to change and they are based on
expectations and assumptions as to future
events, circumstances and other factors
which are in some cases outside the Group’s
control. Actual results could differ materially
from the Group’s current expectations. It
is believed that the expectations set out
in these forward-looking statements are
reasonable but they may be affected by a
wide range of variables which could cause
actual results or trends to differ materially,
including but not limited to, changes in risks
associated with the level of market demand,
fluctuations in product pricing and changes
in foreign exchange and interest rates.
The forward-looking statements should
be read in particular in the context of the
specific risk factors for the Group identified
on pages 42 to 45 of this Strategic Report.
The Company’s Shareholders are cautioned
not to place undue reliance on the
forward-looking statements. This Strategic
Report has not been audited or otherwise
independently verified. The information
contained in this Strategic Report has been
prepared on the basis of the knowledge and
information available to Directors at the date
of its preparation and the Company does not
undertake any obligation to update or revise
this Strategic Report during the financial
year ahead.
The Strategic Report (comprising pages
1 to 55) was approved by a duly authorised
committee of the Board of Directors on
8 March 2018 and signed on the Board’s
behalf by Meinie Oldersma and
Nick Maddock.
MEINIE OLDERSMA
CHIEF EXECUTIVE
OFFICER
NICK MADDOCK
CHIEF FINANCIAL
OFFICER
8 March 2018
8 March 2018
41
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Principal risks and uncertainties
The Group has this year formalised a three lines of defence model to provide a
simple and effective way to enhance communication on risk management and
control by clarifying essential roles and duties. By ensuring that there is effective
and sufficient control within each line, SIG management co-ordinates activity
effectively to ensure that there are neither ‘gaps’ in controls nor unnecessary
duplications of coverage.
THE BOARD
AUDIT COMMITTEE
GROUP EXECUTIVE COMMITTEE
1st line of defence
2nd line of defence
3rd line of defence
BUSINESS OPERATIONS
OVERSIGHT FUNCTIONS
INTERNAL TO SIG
EXTERNAL TO SIG
OWN &
MANAGE RISK
MANAGEMENT
CONTROLS
FINANCIAL CONTROLS
COMPLIANCE
RISK MANAGEMENT
INTERNAL
AUDIT
OTHER 3RD PARTY
ASSURANCE
PROVIDERS
1st line of defence
2nd line of defence
3rd line of defence
BUSINESS OPERATIONS
OVERSIGHT FUNCTIONS
INDEPENDENT ASSURANCE
Functions that own
and manage risks
In SIG this includes local senior
management in operating companies
and individual functions such as Sales
and Operations.
Functions that oversee or
who specialise in compliance
or the management of risk
In SIG this includes Financial
Controllers, the Group Risk Manager
and Health and Safety.
Functions that provide
independent assurance
In SIG this includes Group
Internal Audit.
RISK MANAGEMENT FRAMEWORK
A comprehensive risk management framework is necessary to ensure
that SIG is able to sufficiently manage its risks to deliver its three-
year strategic plan. The Board sets the strategy for the Group and
monitors performance in all key areas. It also assesses and monitors
risk through implementation of the SIG risk management framework.
During 2017 this framework was strengthened in several ways. The
framework is outlined below along with the improvements.
The SIG risk management framework is based on identification of
Group risks by the Group Executive Committee (‘GEC’). These risks
are aligned to the three-year strategic plan. Each risk is owned by a
GEC member and sponsored by either the Chief Executive Officer
or Chief Financial Officer who are also members of the Board. This
addition to the risk management framework in 2017 strengthened
risk management in the Group.
Risks are assessed at both a gross and net level using an agreed risk
scoring methodology. Each risk on the register is managed to an
acceptable level through a series of control activities identified by the
risk owner and, in some instances, Group policies which are included
in new starter inductions (through online tools) or implemented
through business as usual activities. This includes policies such
as those relating to fraud and theft, whistleblowing or gifts and
hospitality. Where it is not possible to manage risks effectively
through existing controls, the risk owners identify actions to enhance
the control environment and allocate owners for each action with
completion dates. These are followed up by the Group Risk Manager
and progress reported back to the GEC and Board. Whilst the risk
process at the GEC takes place formally every 6 months, the GEC also
examines in detail an individual risk from the Group Risk Register on
a monthly basis. This addition to the risk management framework
in 2017 strengthened risk management in the Group. Examples of
risks reviewed in this way in 2017 include the Delivering the Change
Agenda and the Working Capital and Cash Management risks.
42
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Once the Group Risk Register process has been completed by
the GEC, the Board reviews it to ensure that the right risks have
been identified and that the controls framework is sufficient and
proportionate to the level of risk. The overall process with the GEC
and Board is now well established.
In 2017 the Group has started to monitor Key Risk Indicators
(KRIs) for the seven risks on the Group Risk Register. KRIs are lead
indicators of risk, helping the Group to identify when a risk profile
may be changing. KRIs can lead to implementation of additional
measures to further manage risk or even prevent it from crystallising.
The KRIs are monitored on a monthly dashboard by the GEC and
shared with the Board on a quarterly basis. As an example of a KRI,
the Group monitors developing market conditions by tracking the
Purchasing Manager’s Index (a recognised measure of construction
sector economic health in specific countries).
A similar process occurs at the operating company level where the
risk register comprises risks based on the local Medium Term Plans
(MTP) which are aligned to the Group strategy. Local management
teams take into account Group risks during the risk identification
process. Local Key Risk Indicators are monitored by each operating
company management team.
ASSURANCE ACTIVITY
Internal Audit bases its annual audit plan on the Group and individual
operating company risk registers. It also reviews all key controls in
each operating company on a two-year cycle. Whilst most of the work
is performed by an in-house team of qualified auditors, expertise
for specialist areas such as IT and change programmes is obtained
through a co-source arrangement. The plan for 2018 includes a
Group-wide review of controls over the supplier rebates process,
following the issues identified during the year.
The audit team obtains updates from management on progress
towards completion of agreed actions and tests the controls where
management consider that the actions are complete. The status of
management agreed actions is monitored on a monthly basis by
the Chief Financial Officer and on a quarterly basis by the GEC and
the Audit Committee. The impact on the local risks of internal audit
findings is assessed by management.
Whilst independent assurance on control activity comes from Group
Internal Audit, second lines of defence provide additional comfort
to management that controls are designed appropriately and are
working effectively. Examples include the programme of branch visits
by the Health and Safety team or the Controls Self-Assessment for
key controls.
T
C
A
P
M
I
4
3
2
1
6
3
5
4
7
1
2
PRINCIPAL RISKS
The matrix opposite illustrates the seven principal risks
identified by the Board as having a potential material
impact on the Group. The risks have been plotted by net
impact and likelihood (after taking account of mitigating
actions). The risks are described in detail in the table on
pages 44 and 45.
1 DELIVERING THE CHANGE AGENDA
2 SYSTEMS AND DATA QUALITY
3 ACCESS TO FINANCE
4 WORKING CAPITAL AND CASH MANAGEMENT
5 MARKET CONDITIONS
6 HEALTH AND SAFETY
1
2
3
4
7 SUPPLIER REBATE INCOME
LIKELIHOOD
DEVELOPMENTS IN 2017
A number of developments for the management of risk have taken
place in the year. The highlights are:
IMPROVEMENTS PLANNED FOR 2018
SIG will continue to improve its risk management processes with a
number of initiatives:
Detailed focus at GEC and Board of specific strategic risks to
Implementation of new systems in operating companies as
promote risk awareness and management.
assessed on a case-by-case basis.
Hiring of an experienced Director of Risk and Internal Audit to
Creation of a Group data warehouse to improve Group reporting.
support and develop Group-wide risk management.
Development of a risk assurance map to identify assurance gaps
Approval of a new IT strategy, including a plan to enhance
and inefficiencies.
cybersecurity controls further.
The introduction of a Portfolio Management Review Board to
prioritise IT resource and identify and manage project risks.
The establishment of an information and data forum to improve
data management and security.
A Group-wide revision of the controls self-assessment process,
with a greater focus on key financial controls.
A revision of the Delegation of Authority Policy to reinforce
authorisation principles of operating and capital expenditure.
Roll-out of the new key controls framework.
The Board monitors approximately 18 risks on the Group Risk Register
which includes risks which are significant but not considered to be
principal, such as relating to legislative breaches or cybersecurity.
The key controls and planned future actions for all of the risks on the
Group Risk Register are documented and updated by the GEC and
reviewed by the Board on a regular basis. In view of the Group's new
strategy to re-affirm its focus on its core business of distribution and
merchanting of specialist products, principal risks were identified in
2017 which were different from the previous year but could still impact
its performance, future prospects and reputation. The management of
these risks will result in potentially stronger outcomes for the Group.
An example of this is the change agenda risk (included in the Principal
Risk table) which recognised the importance of executing key initiatives
across the Group.
43
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Principal risks and uncertainties
SIG assesses and monitors risk through the
implementation of the SIG risk management
framework.
RISK TITLE
RISK DESCRIPTION
RISK MOVEMENT
IN 2017
KEY MITIGATION ACTIVITIES
FOCUS FOR 2018
1 DELIVERING
THE CHANGE
AGENDA
CS
CV
Without appropriate
and sufficient capability
and capacity, the Group
will suffer initiative
overload resulting in
management stretch
and failure to focus on
core activities.
NEW
2 SYSTEMS
AND DATA
QUALITY
CS
CV
OE
Lack of appropriate
systems and availability
and reliability of data
and Management
Information have an
adverse impact on the
ability of the business to
make properly informed
decisions, identify
override/ weakness of
controls and to conduct
processes consistently
and accurately.
3 ACCESS
TO FINANCE
CS
CV
The Group may not
reduce its leverage
sufficiently in order to
gain access to funds for
further investment and
growth. This will impact
its ability to grow profits.
Medium term plans for each operating
company have been reviewed and
prioritised from the outset and KPIs
are monitored by senior management
through local and Group dashboards.
Appropriate resources and personnel
are brought in to deliver and support
initiatives, for example, consultants,
delivery directors and programme
managers.
Appointment of a Group Transformation
Director to support delivery of initiatives
in the operating companies.
There are adequate firewalls, offsite
back up and Disaster Recovery plans to
safeguard existing systems.
A dedicated team is responsible for
preparing appropriate management
information for the business.
A new IT strategy for the Group has
been approved by the Board.
New overlay systems in development to
fill the gaps that exist in diverse systems
and to define common master data.
Development of Group
dashboard to monitor delivery
of initiatives.
Incentive plans to be aligned to
delivery of change agenda.
Deliver the Group’s IT strategy, which
includes considerations around data
availability, consistency and reporting.
Select and implement new or
improved systems for specific
processes (such as supplier rebates)
or countries (such as France).
Define an upgrade approach for
stable applications and desktop/end-
user solutions.
Embed the new key controls
framework across the Group to
ensure that weaknesses in systems
or paucity of data is compensated by
a stronger control environment. GEC
members will assess the 'tone from
the top' in their individual operating
companies and make changes as
necessary.
The Group has strong relationships with
Leverage reduction strategy will
its banking partners.
be pursued.
Capex and other expenditure is tightly
controlled through robust planning,
budgeting, and monitoring controls at
operating company and Group level.
A Delegation of Authority policy is in
place to ensure expenditure is approved
at the right level.
Leverage position closely scrutinised
through a series of senior forums.
Working capital targets to be
tracked throughout 2018 against
budget at Group level.
Establishment of Group forums
to monitor operating costs.
Strengthening of performance
management team.
44
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc RELEVANCE TO STRATEGY
UNDERSTANDING MOVEMENTS IN BUSINESS RISKS
CS
CV
CUSTOMER SERVICE
CUSTOMER VALUE
OE OPERATIONAL EFFICIENCY
Increase
No change
Decrease
RISK TITLE
RISK DESCRIPTION
RISK MOVEMENT
IN 2017
KEY MITIGATION ACTIVITIES
FOCUS FOR 2018
4 WORKING
CAPITAL
AND CASH
MANAGEMENT
CS
Failure to manage
working capital
effectively may lead to
a significant increase
in the Group’s net
debt, thereby reducing
the Group’s funding
headroom and liquidity.
5 MARKET
CONDITIONS
CS
Market downturn,
impacting our ability to
meet budget and City
expectations.
6 HEALTH AND
SAFETY
Health and safety
risks, including major
injury or loss of life.
NEW
CS
CV
OE
7 SUPPLIER
REBATE
INCOME
Rebate income
recognised is not fully
supported by rebate
agreements.
NEW
Working capital forum has been
established to develop workstreams to
optimise stock, debtors and creditors.
Cash flow forecasting capabilities
to be improved in all operating
companies, following pilot.
Budgets set for all areas of the business,
with accountability for performance
established.
Stretch targets on inventory reduction
have been applied to all branches.
Working capital is closely monitored at
operating company and GEC level.
Weekly cash flow forecasting has been
developed and piloted in the UK.
Deliver targeted process
improvements across operating
companies for pay to procure and
order to cash cycles.
All operating companies will
eliminate use of manual cheques
with exceptions to be approved
by the Chief Financial Officer only.
The Group’s geographical diversity
reduces the impact of changes in
market conditions in any one business.
Development of mitigation
plans that can be triggered in
the event of a major downturn.
Further consideration of the
Brexit risk at the Board.
Continue to build balance sheet
strength across all operating
companies.
Ensure that key measures
around the direction of the
economy have been identified
within each country.
Monitor the potential impact of
the failure of Carillion and take
necessary steps; identify other
customers who have a similar
risk profile to that of Carillion.
Improve health and safety
controls in targeted areas.
Medium term plans for each operating
company include consideration of
forecast market conditions.
Cost reduction plans for each operating
company have been agreed and are
monitored monthly.
Industry-based KPIs are monitored
monthly at operating company and
Group level.
Health and safety policy and procedure
documents in place for use in all
branches and risk assessments
performed as appropriate.
The Group maintains its health and
safety accreditation for ISO 18001
management systems.
Targeted training and awareness is
delivered to relevant personnel.
Health and safety KPIs are monitored at
Group level.
Regular review of rebate income
Regular review of rebate
and rebate debtors by commercial
and finance teams in operating
companies.
Monthly reconciliations of rebate
debtor balances.
Rebate forecasts and assumptions
are reviewed monthly and changes
agreed between commercial and
finance teams.
income and rebate debtors by
commercial and finance teams
in operating companies.
Monthly reconciliations of
rebate debtor balances.
Rebate forecasts and
assumptions are reviewed
monthly and changes agreed
between commercial and
finance teams.
Review of rebate controls in all
operating companies as part of
the Internal Audit plan.
45
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Sustainability
Principles
SIG recognises its corporate responsibilities towards its Shareholders,
employees, customers and suppliers and is committed to socially
responsible business practice. In 2017 SIG continued to integrate
Corporate Responsibility ('CR') across the Group.
The Group implements policies that include social and environmental
issues in our decision-making process, and is investing in the
development and wellbeing of its people and communities. SIG
believes this approach supports the Group in achieving its business
goals as well as growing Shareholder value. As a constituent of the
FTSE4Good Index of socially responsible companies, SIG is pleased
to inform stakeholders of the measures it is taking to continually
develop its approach to CR, including how it monitors and improves
performance reporting.
ETHICAL TRADING AND HUMAN RIGHTS POLICY
The Ethical Trading and Human Rights Policy covers the main issues
that may be encountered in relation to product sourcing and sets
out the standards of professionalism and integrity which should be
maintained by employees in all Group operations worldwide.
The policy expresses the standards concerning: safe and fair working
conditions for employees; responsible management of social
and environmental issues within the Group; and the international
supply chain.
SIG promotes human rights through its employment policies and
practices, through its supply chain and through the responsible use
of its products and services.
BUSINESS PRINCIPLES AND CODE OF ETHICS
The Group has in place Group-wide Ethics, Anti-Bribery and
Corruption, and Ethical Trading and Human Rights policies. These
policies, which are regularly reviewed, underpin the Group’s CR
programme and support its business integrity.
ETHICS POLICY
SIG issues to all employees a Group-wide Ethics Policy which sets
out the standards and behaviours that are expected throughout
the Group’s operations. The policy is designed to ensure that the
business conforms to the highest ethical standards. The policy can be
viewed on the Company’s website (www.sigplc.com).
The policy sets out the following key principles:
To abide by the laws applicable to each country of operation.
Not to tolerate any kind of discrimination or harassment.
To be a responsible partner within local communities.
To take into account the legal and moral rights of others in
business transactions.
There is no separate policy in place which deals specifically with
human rights; however, SIG will keep under review the need for a
specific human rights policy over and above its existing policies.
ANTI-BRIBERY AND CORRUPTION POLICY
SIG has a number of fundamental principles and values that it
believes are the foundation of sound and fair business practice, one
of which is a zero tolerance position on bribery and corruption. The
Group’s Anti-Bribery and Corruption Policy clearly sets out the ethical
values required to ensure compliance with legal requirements within
countries in which SIG and its subsidiary companies operate.
Anti-bribery and corruption training is provided across the Group for
all senior management through to branch managers and external
salespeople. This training is provided via our online training resource,
and also includes modules on competition law.
SIG values its reputation for ethical behaviour, financial probity and
reliability. It recognises that over and above the commission of any
crime, any involvement in bribery will also reflect adversely on its
image and reputation.
To maintain a safe and healthy working environment.
Its aim therefore is to limit its exposure to bribery and corruption by:
To be proactive in managing responsibilities to the environment.
Setting out a clear policy on anti-bribery and corruption.
Not to knowingly make misrepresentations.
Training all employees so that they can recognise and avoid the
Not to make political donations.
Not to give or receive bribes.
To avoid, and in all cases report conflicts of interest.
Encourage employees to report any suspected wrongdoing.
A confidential and independent hotline service is available to all
employees so that they can raise any concerns about how the Group
conducts its business. SIG believes this is an important resource
which supports a culture of openness throughout the Group.
The service is provided by an independent third party with a full
investigation being carried out on all matters raised and a report
prepared for feedback to the concerned party.
DIVERSITY AND EQUAL OPPORTUNITIES POLICY
The Group has published its Diversity and Equal Opportunities Policy
on its website (www.sigplc.com). SIG is committed to developing a
working culture that is fair and inclusive, enabling all employees to
make their distinctive contributions to the benefit of the business.
use of bribery by themselves and others.
Encouraging employees to be vigilant and to report any suspicion
of bribery, providing them with suitable channels of communication
and ensuring sensitive information is treated appropriately.
Rigorously investigating instances of alleged bribery and
assisting the police and other appropriate authorities in any
resultant prosecution.
Taking firm and vigorous action against any individual(s) involved
in bribery or corruption.
A copy of the Anti-Bribery and Corruption Policy is available to view
on the Company’s website (www.sigplc.com).
MODERN SLAVERY ACT 2015
The Group has published its Group anti-slavery statement in respect of
the year ended 31 December 2016 on its website (www.sigplc.com),
in line with Home Office guidance. The Group continues to work with
its supply chain to ensure there is a zero tolerance policy to slavery.
The Board is in the process of reviewing progress in order to provide
an updated statement to 31 December 2017. The statement will be
uploaded to the Company website within six months of the financial
year end.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Sustainability
Our People
CASE STUDY
Developing our people
Colchester branch leads
the way for apprenticeships
SIG Distribution’s Colchester branch has no less than
six team members who are either on an apprenticeship
programme, or who have completed one.
The apprenticeship programme and the associated NVQ
training is of benefit not only to the apprentices themselves,
but also to longer-serving branch colleagues, who have
found that it can give them a different perspective on how
things are done in the work environment.
Nick Holliday, the Branch Director says: “Recruiting
apprentices brings new challenges, as some candidates
have no, or very little, work experience and in all cases
require closer support and more attention than someone
who has been working for years. However, the rewards
and benefits make it very worthwhile. There is so much
satisfaction in seeing these young people develop into skilled
and professional employees of whom the Company can be
exceedingly proud.”
The six past or current apprentices on the Colchester team
are Connor Aves (NVQ in Customer Service); Becky Cutmore
and Holly Birkett (NVQs in Business Admin and Customer
Service); Tom Blackiston (Warehouse and Distribution); Kurt
Excell (Business Admin); and Charlie Blackiston (currently
doing his NVQ in Customer Service).
OUR VISION AND VALUES
At SIG, our vision is Stronger Together, which is underpinned by six
values guiding the way we work with one another, with our customers
and suppliers, and also in our communities. These values are Trust,
Respect, Integrity, Commitment, Teamwork and Fun.
Our vision and values sit alongside and complement our strategy, with
its focus on our people as key to successful delivery across the Group.
INVESTING IN OUR PEOPLE AND CAPABILITY
We firmly believe that our people and our branches are central to our
success, and that their development is essential for them and for our
business. Ensuring that our people have the skills and capability to
take SIG forward is a key focus of our strategy to deliver excellence in
customer service, customer value and operational efficiency.
When new starters join the Group, their local induction programme
informs them about our history, culture, values and strategy.
Induction is an important part of welcoming a new joiner into the
business and explaining and embedding our Stronger Together ethos
and strategy. Over the last year, we have been reviewing our local
induction programmes to ensure that they are refreshed and reflect
the current direction of SIG, and to check that they are a valuable and
positive experience for all of our new joiners.
Our Performance Development Review (‘PDR’) process ensures
all managers and employees know what is expected of them in
their roles from year to year, and helps measure and manage their
performance. The PDR process also provides an opportunity for
employees to discuss their career aspirations, and set individual
development plans. 2017 has seen a review of our PDR processes
across the Group. SIG Benelux, Air Handling and the UK & Ireland
business have all revised their local processes to make sure they
provide the best support for their part of the Group and for their
people. We are currently reviewing our senior leadership PDR
process, with a view to refreshing it to provide the most effective
support for our needs.
The intention is to simplify the process and ensure there is a focus
on individuals’ developmental needs, to support them in their
careers, through in-depth conversations. We continue to support
our managers, with training and materials to help them conduct an
effective performance review, and over 80% of our colleagues now
benefit from an annual, and sometimes bi-annual, review.
Alongside our PDR process, our annual Talent Review is a key
mechanism for identifying our top performers, and those with
potential for growth. In 2017 we worked with the leaders of all
business areas across the Group to highlight our high performers
and also our high-growth-potential employees. The aim is to
develop these individuals through on-the-job experience, projects,
international assignments, coaching or mentoring from internal and
external managers, and also via our new programme specifically
created for our high-potential individuals - known as the RISE
programme. This scheme, which was launched in November 2016,
draws together our high-potential middle managers on an 18-month
development programme that is focused on:
creating a cohort of leaders equipped to drive the strategic growth
of SIG;
embedding a stronger culture of collaboration and understanding
across the Group; and
accelerating the development of high-potential managers,
ensuring that we significantly improve our talent pipeline and
support succession plans.
47
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Sustainability
Our People
The training and development of employees at all levels remains
a key investment area, to support our people and develop the
capability necessary for our future growth. We continue to invest
in e-learning solutions to give more of our people access to a
convenient and efficient learning opportunity. We are continuing
to develop our language skills across the Group, particularly at our
middle manager level.
GROWING OUR TALENT
Finding talented people, and developing and retaining them as they
begin their careers is key to our future success.
APPRENTICESHIPS
Apprentices continue to be an important source of new talent for
our business. We are committed to supporting the emerging careers
and development of people as they come into our business, through
a variety of local apprenticeship schemes. Following the launch of
the apprenticeship levy in the UK in 2017, we have had an increased
incentive to widen the apprenticeship offering in our business. The
UK now provides driver, administration, operations and commercial
trainee apprenticeships, and we are also considering offering
Executive MBA qualification support via a levy-funded scheme.
In 2017, eleven apprentices joined our UK business, and 26 new
apprentices joined us in SIG Germany. In the UK, our focus has been
on upskilling our existing workforce, and by the end of 2017, we had
signed up a further 33 employees from our existing workforce to
apprenticeship programmes.
GRADUATES
Our International Graduate Programme is well established within
the Group. The new recruits who joined us in September 2016 as
Cohort 2 moved through their programme and rotations throughout
2017. Cohort 1, who joined us in September 2015, completed their
programme in August of 2017. A number of them were retained in
roles within the business after the completion of the programme.
While we continue to recruit graduates directly into specific functional
areas on a country-by-country basis, the international graduate
programme provides successful applicants with greater insight and
exposure across our whole business. 2017 has seen international
graduates complete their overseas rotations in Germany, Belgium,
Poland, France, UK, and for the first time in the UAE. The two-year
programme is aimed at attracting high-calibre individuals who are
capable of becoming our leaders of the future. It involves four rotations
in different business areas and five extensive development modules
supported by both internal and external development expertise.
Alongside our internal work with graduates, we continued to support
Enactus as a Gold Sponsor throughout 2017, sponsoring a number
of aspects of the Enactus World Championships held in London in
September. Enactus is a community of students, academics and
business leaders that develops outreach projects to improve the lives
of people across the world.
48
CASE STUDY
Developing our people
The Gold standard
in respect
Paweł Strzelecki, Deputy Finance Director in
SIG Poland, won an SIG Stronger Together Gold
award in the Respect value category.
This category recognises colleagues who
encourage others to strive for high standards, act
as a role model, share knowledge and expertise
to support others, treat others well and inspire
admiration.
Paweł was given the award for showing that he
is a true ‘people person’, who is committed to
creating a positive and collaborative working
environment. Paweł prides himself on working
closely with all his colleagues across the Group
- from team mates at the Polish headquarters
in Krakow to operational colleagues in local
branches and colleagues from other operating
companies.
He was recognised for consistently striving to
find better ways of working, for encouraging
his peers to do the same, and for taking a
proactive approach in all his projects – from
the implementation of a standardised rebate
management system, to the introduction of a new
incentive scheme for sales and branch colleagues.
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc INTERNAL COMMUNICATION
Two-way internal communication is recognised as essential in
SIG and is well supported by our leadership. We reach our senior
leadership through interactive leadership conferences, broadcast
calls at least monthly, email bulletins, and face-to-face briefings. Our
leaders are responsible for cascading key messages and information
to their teams, in support of direct colleague communications.
Group-wide communications include a quarterly digital magazine
in employees’ local languages, direct emails, posters and intranet
articles, print materials and roadshow events, all of which support
local print, digital and face-to-face communications.
In 2017, we introduced a Group-wide communications campaign
week in support of our Stronger Together vision, with the intention of
a similar campaign week becoming an annual event.
A key communication campaign to engage employees with our
strategy also launched in 2017. The ‘Building on our Potential’
campaign introduced the key strategic levers, enablers and, more
importantly, behaviours underpinning the strategy across the Group,
through a leadership conference, a series of local country roadshows
and an onward cascade to all employees. This is set to form the basis
for our communications throughout 2018.
ENGAGED EMPLOYEES
‘SIG Listens’ is our employee engagement survey. It gives our people
the chance to have a voice and to tell us what we are doing well,
how we can improve, and how we can make SIG an even better place
to work.
In 2017, we continued to focus on the areas for improvement that
were highlighted in our last survey carried out in 2015, such as the
need for better communication across the Group. Our quarterly
e-zine was established and is shared across the business in five
different languages in response to this. Our Polish business created
focus groups, and in the Benelux a review of communications and
improved cascade mechanisms were carried out.
The SIG Listens survey also highlighted a need for improved induction
processes across the Group – which led to the creation of two
Induction Manager roles in the SIG Exteriors business.
During 2017, we ran a smaller SIG Listens pulse survey across a
randomly selected 20% of our population, to take a temperature
check of the business at a time of some change. We plan to run the
next full SIG Listens survey in the first quarter of 2018.
RECOGNISING OUTSTANDING PERFORMANCE
A key aspect of the SIG culture is to recognise and celebrate our
employees’ excellent performance and successes.
The SIG Awards, which cover employees across the Group, are
awarded on an annual basis, and give our leaders the chance
to nominate employees who have gone ‘above and beyond’ for
SIG. Senior leaders present the awards and the winners are then
recognised and celebrated through newsletters and intranet articles
across the organisation.
Following the introduction of our Values in Practice (ViP) recognition
programme in the UK last year, a number of our mainland European
businesses are also now interested in launching this programme.
This scheme allows peer-to-peer recognition of colleagues who have
demonstrated our values.
EMPLOYEE BENEFITS
We adopt a fair and consistent approach to both fixed and variable
pay throughout the organisation, and it is regularly benchmarked
both externally and internally.
The bonus schemes we have in place are designed to reward
exceptional performance across the business.
The bonus operates to an aligned reward framework across
the Group for our Senior Leadership population, and it focuses
specifically on Group-wide deliverables and performance outcomes.
The bonus awards are also made in the local operating businesses,
where they are aligned to local performance results. This year, we are
focusing in particular on aligning our bonus objectives to our medium
term planning process across the organisation, to ensure delivery of
key financial and operational improvements.
We also encourage all of our employees and new joiners to become
Shareholders in the Company. Our Long Term Incentive Plan operates
at the senior level, and across our whole UK organisation we operate a
Share Incentive Plan (SIP) that gives one matching share for each share
purchased by the employee up to a maximum of £20 per month. As at
31 December 2017, there were 768 employees participating in the SIP.
EQUAL OPPORTUNITIES
Throughout SIG, our policy is to provide equal opportunities to
all existing and prospective employees. We recognise that our
reputation is dependent upon fair and equitable treatment of all
our employees and we prohibit discrimination on the grounds of
race, religion, gender, disability, sexual orientation, age, nationality or
ethnic origin. Equal employment opportunities are available to all.
We value inclusion and diversity of thinking and see this as critical
in generating new innovative ideas and solutions for our business
and customers. Employment opportunities are available to disabled
people in accordance with their abilities and aptitudes, on equal
terms with other employees. If an employee becomes disabled
during our employment, we make every effort to ensure that they can
continue in employment with us, by making reasonable adjustments
in the workplace and also by providing retraining for alternative work
where necessary.
DIVERSITY
Across the total workforce as of 31 December 2017, 1,864 (20%)
of all employees are female and 7,351 (80%) are male. Two Board
members (25%) are female and six Board members (75%) are male.
Nine senior managers (16%) are female and 47 senior managers
(84%) are male. The Board considers SIG to be diverse in other areas
including age and race. In line with its Diversity Policy, published on
the Company's website (www.sigplc.com), SIG continues to work
towards improving all aspects of diversity across its workforce.
GENDER PAY GAP
SIG welcomes the UK Government’s requirement for large companies
to be more transparent on gender pay. This year, for the first time, UK
companies with over 250 staff have to report on their gender pay gap.
We’re committed to creating a diverse and inclusive place to work where
our people can be themselves and be at their best. SIG is confident
that its gender pay gap does not stem from paying men and women
differently for the same or equivalent work. Rather its gender pay gap
is the result of the roles in which men and women work within the
organisation and the salaries that these roles attract. The Gender Pay
Gap reporting is published on the Company’s website (www.sigplc.com).
49
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Sustainability
Health Safety
and Environment
HEALTH AND SAFETY
The Group’s Health and Safety management system is modelled on
the internationally recognised Health and Safety Standard BS-OHSAS
18001:2007 with the UK business’s management system accredited
to the standard for more than 10 years through its partnership
with Intertek.
SIG’s Zero Harm health and safety programme is fully embedded
across the Group. The programme has delivered on its aims to move
away from compliance based auditing to a risk based process and
to transfer ownership of health and safety back to management and
away from the technical support. Achieving these aims has brought
about significant benefits to the business including a 39% reduction
in the Accident Incident Rate (‘over three day’ and ‘specified major
injury’) (AIR) since its launch in 2014.
These achievements have resulted in SIG receiving the prestigious
RoSPA Gold standard for occupational health and safety in each year
since the launch of the Zero Harm programme. Retaining the Gold
Standard in 2017 for the third year running is external recognition
of SIG’s very high level of performance, with a well-developed
occupational health and safety management system, outstanding
control of risk and very low levels of error, harm and loss.
Despite this being a UK-based award scheme, the submission
represents the Group’s Health and Safety programme and the
achievement reflects the hard work and dedication of the Health
and Safety team across the Group, as well as the leadership of SIG’s
management at all levels in taking ownership of health and safety and
driving the key initiatives.
The SIG Charter for Zero Harm which commenced in 2016 provided
new impetus to the programme in 2017 with management and
colleagues committing to high standards of health and safety.
Within the programme is a commitment to twelve ‘Life Saving Rules’
developed to target SIG’s risk profile. A communication programme
including business presentations, tool box talks, workshops, posters,
e-learning and monthly information updates targeting the ‘rules’
commenced in 2017 and will continue in 2018.
A key element of the success to date has been the introduction of the
RoSPA accredited SIG Certificate in Health, Safety and Environmental
Management modular training programme, delivered to managers
and supervisors. The programme continued throughout 2017, and
has been supplemented with regionally-based training workshops
in ‘Supervising Safely’, ‘Working Safely’ and ‘Work at Height’, targeting
local supervisors and branch employees.
A robust Risk Assessment and Management Review process is in
place through dedicated Health, Safety and Environmental (‘HSE’)
professionals across the Group through which the key health and
safety risks are identified. This is supplemented by an Accident
Review Panel process involving senior management to identify
learnings from accidents and near misses.
SIG’s Risk Profile is reviewed annually to inform the Group’s HSE Plan.
Occupational road risk and deliveries, along with traffic management,
have been identified as areas of significant exposure to be targeted
in 2018. Manufacturing also remains an area of focus following
the growth of this area in the Group in 2016. A dedicated HSE
team provides competent support and manages the HSE plan for
continuous improvement for this group of businesses.
50
SIG has a zero tolerance to anyone being unfit for work due to drugs
or alcohol and reserves the right to provide for testing of individuals
subject to the legislative constraints within the countries where
it operates. A routine programme of random testing by in-house
testers is provided in the UK & Ireland businesses for employees
and others engaged in safety critical roles. ‘For cause’ testing is
also provided for instance following an accident or where there is
reasonable suspicion.
The Zero Harm programme continues to deliver significant
reductions in accidents, both in terms of numbers and the AIR per
1,000 employees for ‘over three day’ and ‘specified major injury’.
Since its launch in 2014, the AIR has fallen by 39% across the Group,
and the number of accidents in this category has fallen by 36%. The
rate of RIDDOR reportable accidents and equivalent has reduced
over that time by 35% for the Group, by 52% in the UK & Ireland and
by 22% in Mainland Europe businesses.
OCCUPATIONAL ROAD RISK
SIG recognises that its drivers represent the business and its values
whilst they are on the road and it promotes through its policy and
training the requirement for drivers to drive with due care and
courtesy to others and to obey the law and site rules.
The Group also recognises that driving is among the most hazardous
tasks performed by its employees. Drivers are assessed for
competence and selected through an authorisation and licence check
procedure. Road vehicles and the compliance of each business with
fleet procedures are subject to routine audits and inspections. A fleet
maintenance and inspection programme for commercial vehicles is
managed centrally.
Road traffic accidents and statistics are reviewed through the
Accident Review Panels to identify high-risk areas, to enable the
Group’s operational management to focus its attention accordingly.
Significant issues are communicated to Board level and the Group
shares this information with its insurers and brokers.
SIG is keen to adopt road safety schemes, including the voluntary Fleet
Operator Recognition Scheme (FORS) scheme which encompasses all
aspects of safety, fuel efficiency, economical operations and vehicle
emissions and is designed to help improve operators’ performance in
each of these areas. SIG is also an active champion of the Construction
Logistics and Cyclist Safety Group with the aim of minimising the risk to
vulnerable road users such as cyclists and pedestrians and has taken
part in Safer Urban Driving courses, which are essential to SIG drivers
in understanding the cyclist’s point of view. In support of this, new
innovative solutions are being tested, such as lower windows in vehicle
doors to improve visibility. SIG will continue to work with the major
manufacturers in developing new processes.
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc ACCIDENTS AND INCIDENTS
UK & IRELAND
Major injury
Injury resulting in over three absence days from work
All RIDDORs
Average UK & Ireland headcount*
Lost work day rate – number of work days per 100 employees
MAINLAND EUROPE
Major injury
Injury resulting in over three absence days from work
All RIDDORs (equivalent)**
Average Mainland Europe headcount
Lost work day rate – number of work days per 100 employees
GROUP
Major injury
Injury resulting in over three absence days from work
All RIDDORs (equivalent)*
Average Group headcount
2017
1.6
6.4
5.8
4,968
19.2
2017
1.1
12.4
12.2
4,688
27.5
2017
1.3
9.3
8.9
Rate per 1,000 employees
2016
2.3
6.8
6.5
5,569
22.2
2015
2.3
10.8
9.3
5,174
26.3
Rate per 1,000 employees
2016
1.7
12.6
11.0
4,746
28.1
2015
1.8
13.2
13.0
4,467
29.9
Rate per 1,000 employees
2016
2.0
9.5
8.5
2015
2.1
11.9
11.0
2014
2.5
12.1
10.9
4,880
32.9
2014
1.6
18.7
15.7
4,395
44.3
2014
2.0
15.2
13.2
9,674
10,315
9,641
9,275
* Includes Middle East ** This includes accidents in non-UK businesses that would meet the criteria for reporting in the UK under RIDDOR.
QUALITY ASSURANCE AND MANAGEMENT SYSTEMS
The Group’s management systems are maintained to a high
standard through management review and internal auditing. Where
it is commercially advantageous the quality and chain of custody
management systems are externally certificated to ISO 9001:2015 ,
FSC0STD 40-004 and PEFC-ST 2002:2013 standards. These universally
recognised standards are fully integrated into the daily operations of
the business and ensure that the products and services consistently
meet customers’ expectations. It also ensures that quality and
responsible procurement is constantly maintained and improved. The
Group’s ongoing commitment to maintaining the highest possible
quality standard is demonstrated by the successful transition from the
UK ISO 9001:2008 to the ISO 9001:2015 accreditation in July 2017.
ENVIRONMENT
SIG operates a combined Health, Safety and Environmental (HSE)
Policy and management system to OHSAS 18001 for health and
safety and ISO 14001 for the environment. SIG’s UK operations’
management systems are accredited to both standards through
external verification by Intertek.
The Board member responsible for HSE is the Chief Executive
Officer, who has stated that “The safety of our people is paramount
and will always be more important than anything else” and is the
signatory to the Group’s HSE policy, a copy of which is displayed in
the local language at each operating branch. The Group’s HSE plan
is reviewed annually and supports the objectives of the Group’s
strategic business plan. It is managed and supported by the Group
HSE Manager and a team of directly employed HSE professionals in
each part of the Group.
Continuous improvement is maintained through a programme of
objectives set at Group, operating company and local level with
regular reviews of associated key performance indicators (‘KPIs’),
including those set out in this report and on the Company’s website.
The risks associated with SIG’s operations are set out in qualitative
and quantitative, generic, model and task-specific risk assessments,
and the Group’s Aspects and Impacts Register and are regularly
reviewed. Significant findings are formally communicated to
management and operatives. Compliance and the integrity of
any control measures are reviewed through a Group-wide audit
programme and local management inspections, with significant risks
recorded and progress on actions reviewed up to Board level.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Sustainability
Health Safety
and Environment
ENVIRONMENTAL MANAGEMENT
The potential impact of SIG’s operations on the local and global
environment is set out in the Aspects and Impacts Registers provided
for the Group and its operating sites along with a Corporate
Environmental Risk Assessment.
SIG is committed to maintaining good environmental management
standards across its operations to meet its statutory obligations
and best practice, and has continued its excellent record of
environmental legal compliance and environmentally sound
operations throughout 2017 with no prosecutions or actions from
the authorities.
CARBON MANAGEMENT
The Group’s Low Carbon Policy supports its HSE Policy and is signed
by the Group’s Chief Executive Officer who is responsible for the
Group's environmental performance.
SIG’s carbon footprint accounting process is annually verified to
ISO 14064-3 to a limited level of assurance. In 2017, following a
detailed assessment, both qualitative and quantitative, of the Group’s
Greenhouse Gas ('GHG') emissions assertions, SIG has achieved the
standard for the fourth year in succession.
The emphasis for the Group’s environmental objectives for 2017 is
derived from its Low Carbon Business Policy, which aims to reduce
fuel, energy and water consumption as well as reduce waste. This
report details the progress made by the business.
In addition to internal scrutiny by the Group and the operating
companies and publication on the Group’s website, environmental
KPIs are published externally through the voluntary Carbon
Disclosure Project (‘CDP’) and the UK’s statutory Energy Savings
Opportunities Scheme (‘ESOS’).
CDP works with investors, companies, and governments to drive
environmental disclosure and action that will deliver a sustainable
economy, prevent dangerous climate change and protect natural
resources. SIG achieved a performance rating of band 'B' in 2017
against an average of all respondents and industry activity group
of band 'C'.
The Group continues its investment in both capital projects and
energy-efficient technology installations across the property portfolio,
including refurbishment of existing buildings, along with the fit out of
new sites. Together with the continued consolidation and upgrade of
the Group’s road vehicle fleet, this has contributed to the continued
reduction in the Group’s GHG emissions.
TRANSPORT
Vehicle fuel consumption is the primary KPI for SIG, with road vehicle
fuel consumption making up 75.6% of the Group’s total carbon
footprint emissions. The Group target in 2017 to reduce the absolute
consumption was achieved, with a reduction of 2.4% compared
to 2016.
Reductions in fuel consumption have been achieved through a
range of projects, including branch consolidation and fleet sharing
programmes; the installation of Masternaught Telematics in vehicles
across the Group providing accurate driving efficiency measurement;
a Group wide initiative to introduce a Vehicle Routing and Scheduling
System ('VRS') to improve journey planning; and the investment
in new Euro 6 standard vehicles fitted with fuel consumption
reducing features, enabling commercial vehicle access to ‘Low
Emissions Zones’.
Driver awareness and behaviour is a primary focus for the reduction
of fuel consumption. Driver eco training courses and the five-
year ‘Driver Certificate of Professional Competence’ (CPC) training
programme continued throughout 2017. Fleet management
driver trainers also provided an auditing and advice programme.
The highlight of the 2017 programme was the Driver of the Year
competition which reached its conclusion in June. Awards were
issued in several categories and the overall winner was Steven Miller
from SIG Distribution Eurocentral.
A review of the Company car policy within SIG has led to the
introduction of hybrid and Plug In Hybrid Electric Vehicles (‘PHEVs’) as
an option. The hybrid vehicles are more fuel efficient through the use
of on-board battery technology, when compared with their normal
diesel or petrol counterparts. These types of vehicle are also more
tax beneficial for the individual user.
ENERGY
Electricity consumption is SIG’s second highest priority for carbon
management, accounting for 12.9% of the Group’s Scope 1 and 2
emissions in 2017 (2016: 14.4%).
SIG has maintained a programme of energy auditing through internal
and external competent persons in compliance with both voluntary
and statutory carbon accounting schemes. Initially working with the
Carbon Trust (‘CT’) and achieving the CT Standard in compliance with
the CRC Energy Efficiency Scheme, for the past three years SIG has
worked in close partnership with Carbon Credentials to improve the
data accounting process, achieve the ISO verification standard and
continue the downward trend for carbon emissions.
SIG’s carbon accounting programme meets all the requirements of
the UK Government’s statutory Energy Saving Opportunities Scheme
(‘ESOS’) and the energy efficiency opportunities identified through
ESOS, and the ongoing internal audit processes continue to feed into
the objectives for the business for 2018 and beyond.
SIG continues to invest in capital projects, including energy efficient
movement and daylight sensored LED lighting systems, energy-
efficient heating and cooling systems and energy-efficient hand
driers. These systems are installed at both new sites and existing
sites undergoing refurbishment. In 2017 SIG invested £0.25m
on such energy efficient projects. This has not only improved
the efficiency of the building stock, but provided a safer working
environment. Emissions from electricity consumption reduced by
13.7% in 2017 compared to 2016.
GREENHOUSE GAS (‘GHG’) EMISSIONS
SIG’s carbon footprint includes all emission sources as required
under the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 as amended in August
2013, and in order to maintain accurate and consistent data, the
emission factors from the UK Government’s GHG Conversion
Factors for Company Reporting 2014 are applied to calculate its
GHG disclosures.
SIG is committed to providing full and accurate data for its carbon
footprint across all of its operational businesses. That is why for
the fourth year in succession in 2017 it has achieved external
verification of its carbon accounts by Carbon Credentials to the
ISO 14064-3 standard.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The Group’s carbon footprint includes Scope 1 CO2 emissions, for
which businesses are directly responsible, and Scope 2 CO2 emissions
from the generation of electricity by a third party resulting in indirect
emissions. The Group has also disclosed Scope 3 CO2 emissions over
which the business has limited control, being third party air and rail
transportation.
SIG is committed to providing full, accurate and actual data for its
footprint with minimal reliance on estimates. For this reason SIG’s
emission accounting period is non-coterminous with the Group’s
financial year, with current year data reflecting the year to 30
September 2017. This policy enables the Group’s businesses to
dedicate the appropriate time and resource to enable more accurate
carbon reporting and for a suitable audit of the process. In 2017,
95.1% of calculations are based on actual data (2016: 96%).
Estimates are prepared on the basis of agreed and verified
accounting processes.
Following a small increase in the emissions in 2016 due to an
increase in the number of operational sites, headcount and turnover,
SIG has recorded a decrease of 3.7% in Scope 1 and 2 emissions in
the last reporting year.
The overall footprint of the business for Scope 1, 2 and 3 emissions
showed a decrease of 3.7% in the last reporting year.
CO2 EMISSIONS – SCOPE 1 – DIRECT
Road vehicle fuel emissions1
Plant vehicle fuel emissions2
Natural gas3
Coal/coke for heating4
Heating fuels (Kerosene & LPG)5
Total
Data source and collection methods
Metric
tonnes
2017
62,950
5,287
3,072
46
689
Metric
tonnes
2016
64,510
5,335
2,894
51
722
Metric
tonnes
2015
63,352
4,562
2,772
45
801
72,044
73,512
71,532
4.
1. Fuel cards and direct purchase records in litres converted according to BEIS guidelines.
2. Direct purchase records in litres converted according to BEIS guidelines.
3. Consumption in kWh converted according to BEIS guidelines.
4. Purchases in tonnes converted according to BEIS guidelines.
5. Purchases in litres converted according to BEIS guidelines.
CO2 EMISSIONS – SCOPE 2 – INDIRECT
Electricity1
Data source and collection methods
1. Consumption in kWh converted according to BEIS guidelines.
CO2 EMISSIONS – SCOPE 3 – OTHER INDIRECT
Third-party provided transport (air and rail)1
Data source and collection methods
1. Distance travelled converted according to BEIS guidelines.
Emission per £m of revenue
Scope 1
Scope 2
Scopes 1 & 2 as required by GHG Protocol
Scope 3
Scopes 1, 2 & 3
Metric
tonnes
2017
10,677
Metric
tonnes
2016
12,371
Metric
tonnes
2015
12,307
Metric
tonnes
2017
570
Metric
tonnes
2017
25.1
3.7
28.8
0.2
29.0
Metric
tonnes
2016
586
Metric
tonnes
2016
25.8
4.4
30.2
0.2
30.4
Metric
tonnes
2015
352
Metric
tonnes
2015
27.9
4.8
32.7
0.1
32.8
The data relating to CO2 emissions has been collected, where practicable, from all of the Group’s material operations and is based on a
combination of actual and estimated results where actual data is not available. The 2017 data includes the Carpet and Flooring business and
the businesses classified as non-core in the Financial Statements for the year ended 31 December 2017.
53
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT Sustainability
Health Safety
and Environment
WATER CONSUMPTION
SIG has two manufacturing sites in Southport (UK) and Alizay (France)
that use a small amount of water as part of a manufacturing process.
Both installations maintain water filtering, recycling and reuse
practices to minimise any wastage of potable water.
In excess of 95% of the Group’s water consumption is consumed for
welfare purposes. Water efficiency is a key element of the specification
for new and refurbished properties and facilities, including dual flush
and cistern management systems for toilet facilities. SIG continues to
identify significant opportunities for water consumption efficiencies
through the branch audit and bill validation process.
Litres
(‘000)
2017
Litres
(‘000)
2016
Litres
(‘000)
2015
Third-party provided water
supply from national network for
processes and welfare
114,113
116,122
104,999
The above data is based on a combination of actual and estimated data.
WASTE MANAGEMENT
SIG’s main objective for waste management is to minimise the
production of waste. As a break bulk supplier of products, the
primary source of waste is through packaging opened on the
premises. Where practicable these materials, for instance cardboard
boxes, pallets and bearers, are reused or returned to the supplier.
Where reuse is not an option, materials are segregated for recycling
and for this purpose each of the Group’s businesses has partnered
with a waste management business. Waste contracts are managed
and monitored centrally and through the environmental audit and
inspections process. Waste bailers and compactors are provided
where practicable, to maximise waste segregation and recycling
opportunities and minimise storage and welfare hazards.
SIG also offers waste take-back schemes to its customers for ‘off-cut’
materials including plasterboard and plaster products and fibre
ceiling tiles as well as packaging return programmes for reusable
pallets and bearers.
Due to the difficulties in measuring and quantifying the amount of
waste disposed of in a year, the KPI for waste management remains
the percentage of waste diverted from landfill. However, the Group
continues its programme to reduce overall the amount of waste
generated, by adopting paperless delivery processes, online activity
reports and the consolidation of photocopying and printing facilities.
SIG is a member of the Valpak compliance scheme and continues
to comply with its commitments under the Producer Responsibility
Obligations (Packaging Waste) Regulations.
HAZARDOUS WASTE
Absolute
Absolute
Absolute
tonnes*
2017
tonnes*
2016
tonnes*
2015
0.0
147.4
–
147.4
5.0
87.0
–
92.0
2.0
28.0
–
30.0
Absolute
Absolute
Absolute
tonnes*
2017
tonnes*
2016
tonnes*
2015
0.05
0.03
0.01
Landfill
Recycled
Incinerated
Total
Hazardous waste per £m of
revenue
NON-HAZARDOUS WASTE
Landfill
Incinerated
Total
Absolute
Absolute
Absolute
Absolute
tonnes*
2017
tonnes*
2016
tonnes*
2015
tonnes*
2014
3,635.35
4,426.00
4,469.00
5,626.00
0.00
8.00
15.00
12.00
3,635.35
4,434.00
4,484.00
5,638.00
OTHER WASTE DIVERTED FROM LANDFILL
WEEE (Waste, Electrical and Electronic Equipment)
Glass
Wood
Metal
Plasterboard^
Paper/cardboard
Plastic
Other
Total
Non-hazardous and other waste per £1m of revenue
* Volume per annum converted to tonnes.
^ Recycling facility withdrawn in 2015.
The above data is based on a combination of actual and estimated data.
54
Absolute
tonnes*
2017
1.8
0.2
1,893.0
870.0
461.0
970.0
295.0
10,643.0
15,134.0
Absolute
tonnes*
2017
6.5
Absolute
tonnes*
2016
Absolute
tonnes*
2015
Absolute
tonnes*
2014
7.0
5.0
1,586.0
1,072.0
195.0
1,212.0
267.0
8,601.0
12,945.0
2.0
1.0
1,145.0
1,249.0
973.0
747.0
353.0
8,284.0
12,754.0
8.0
3.0
904.0
1,098.0
2,502.0
588.0
383.0
6,573.0
12,059.0
Absolute
tonnes*
2016
6.1
Absolute
tonnes*
2015
5.0
Absolute
tonnes*
2014
6.7
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Sustainability
Community
and charity
COMMUNITY
Across the SIG Group, we are committed to supporting the
communities in which we operate, in a wide variety of ways.
For example, in the UK, we have been working with business students
at Sheffield Hallam University as they study for a course module on
strategy, and our WeGo business in Germany was recognised during
the year for its support of AfB, a Social Enterprise employing people
with disabilities, which is engaged in recycling discarded IT hardware.
Our German business has also supported a community project to
construct a new building at a local fire station, and has donated
materials to aid the work.
In Belgium, our Air Handling business sponsors The Red Dragons –
the national Belgian men’s volleyball team.
With a focus on safety, SIG Poland took a significant role in the
annual industry-organised Safety Week campaign, by hosting safety
presentations at construction sites across the country.
CHARITABLE ACTIVITY
In 2017, SIG relaunched its charitable activity policy internally, with
the aim of encouraging colleagues to take part in activities to support
local and national charities. The policy encourages colleagues to ‘give
something back’ through team or individual volunteering, payroll
giving and fund raising.
During the year, colleagues took part in a diverse range of fund-raising
activities, individually and in teams. As a Group, we are committed to
supporting their efforts, by matching the amounts they raise by up
to £500 (or equivalent). We also help to publicise their fundraising
activities, and support them with branded clothing and materials.
Employees’ individual activities have ranged from running in the
London Marathon, to raise funds for charities like Cancer Research
UK and the Alzheimer’s Society, taking part in a 12k Iron Run race
for Macmillan Cancer Support, and supporting the Teenage Cancer
Trust and the Rainy Day Trust by driving through 10 countries in the
Pavestone Rally – to list but a few.
Our WeGo team in Germany has also once again supported the
Hanau Soapbox Derby, hosted by the not-for-profit Hanau Family
Network Association. Colleagues volunteered at the event and raised
funds, alongside a direct donation from WeGo.
Other charitable donations made by SIG as a business include
€30,000 given by SIG Air Handling as an element of its partnership
with the European Federation of Allergy and Airways Diseases
Patients’ Associations (EFA). Air Handling has also extended its
commitment to support EFA as a partner into 2018.
In all, in 2017, the Group donated £63,589 to charity (2016: £64,395),
including donations made through our matched funding scheme.
It is the Group’s policy not to make political donations and no such
donations were made in the year (2016: £nil).
Employees in the UK can also make charitable donations through
our payroll giving scheme. In 2017, £13,765 was raised through this
scheme (2016: £14,490).
55
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comSTRATEGIC REPORT GOVERNANCE
56
SIG plc
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017 In this section
Board of Directors
Introduction to governance
Corporate Governance report
Audit Committee report
Nominations Committee Report
Directors’ remuneration report
58
60
61
73
78
80
Statement of Directors’ responsibilities 97
57
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Board of Directors
ANDREW ALLNER
MEINIE OLDERSMA
NON-EXECUTIVE CHAIRMAN
AGE 64
CHIEF EXECUTIVE OFFICER
AGE 58
Became Non-Executive Chairman
on 1 November 2017.
Appointed a Director and Chief
Executive Officer on 3 April 2017.
NICK MADDOCK
MA, ACA
MEL EWELL
BSC (HONS)
CHIEF FINANCIAL OFFICER
AGE 47
NON-EXECUTIVE DIRECTOR
AGE 59
EXTERNAL ROLES
Andrew is Chairman at The Go-
Ahead Group plc and Fox Marble
Holdings plc, and a Non-Executive
Director at Northgate plc. While also
the current Chairman at Marshalls
plc, Andrew is due to stand down
from this at their AGM in May 2018.
EXPERIENCE AND PAST ROLES
Andrew has significant current
listed company Board experience as
Chairman and as a Non-Executive
Director. He was previously Non-
Executive Director of AZ Electronic
Materials SA and CSR plc. Previous
executive roles include Group
Finance Director of RHM plc and
CEO of Enodis plc. He has also held
Senior Executive positions with
Dalgety plc, Amersham International
plc and Guinness plc.
KEY STRENGTHS
Substantial Board and general
management experience.
EXTERNAL ROLES
Meinie is Non-Executive Chairman
of Kondor HOLDCO Ltd and a Non-
Executive Director of KidsFoundation
Holdings B.V. He is also the Director
of Oldersma Management &
Consultancy Ltd.
EXPERIENCE AND PAST ROLES
Meinie was previously the Group
Chief Executive of Brammer
Limited, Europe’s leading specialist
distributor of industrial maintenance,
repair and overhaul products. Prior
to that, Meinie was CEO at 20:20
Mobile Group and President of
Ingram Micro China Group. Meinie
was also previously a Non-Executive
Director of Bunzl Plc.
Appointed a Director and Chief
Financial Officer on 1 February 2017.
EXTERNAL ROLES
Nick does not currently hold any
external directorships.
EXPERIENCE AND PAST ROLES
Prior to joining SIG, Nick was Chief
Financial Officer of McCarthy &
Stone plc, steering it towards
its listing on the London Stock
Exchange in November 2015. Before
this, Nick worked as Finance Director
for Centrica’s upstream oil and gas
business, Financial Controller at
British Gas and a Director in Mergers
and Acquisitions at ING Barings. Nick
trained as a chartered accountant
and chartered tax advisor at Ernst
& Young.
KEY STRENGTHS
Considerable executive
management and distribution
experience combined with
substantial operational and financial
turnaround track record.
KEY STRENGTHS
Extensive experience in driving
improved operational and financial
performance across a range of
industries for public, private and
private equity Shareholders.
Became Interim Chief Executive
on 11 November 2016, having
previously been a Non-Executive
Director from 1 August 2011. Mel
resumed his Non-Executive Director
duties from 1 May 2017.
EXTERNAL ROLES
Mel is a Non-Executive Director of
High Speed Two (HS2) Limited and
The Manufacturing Technology
Centre Limited. He is also a trustee
of The Duke of Edinburgh’s Award.
EXPERIENCE AND PAST ROLES
Up until the end of March 2016, Mel
was Chief Executive and an Executive
Director of Amey Plc, one of the
UK’s leading infrastructure services
providers. Mel previously held a
number of senior management
positions for TNT International,
Xerox and ADI Group.
KEY STRENGTHS
Considerable executive
management experience.
BOARD COMMITTEES
AUDIT COMMITTEE
Mr I.B. Duncan – Chairman
Ms A. Abt
Ms J.E. Ashdown
Mr M. Ewell
Mr C.V. Geoghegan
58
REMUNERATION COMMITTEE
Ms J.E. Ashdown – Chair
Ms A. Abt
Mr C.V. Geoghegan
Mr I.B. Duncan
Mr M. Ewell
NOMINATIONS COMMITTEE
Mr A.J. Allner – Chairman
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan
Mr M. Oldersma
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
JANET ASHDOWN
BSC (HONS)
ANDREA ABT
MBA
IAN DUNCAN
MA, ACA
CHRIS GEOGHEGAN
BA (HONS), FRAES
NON-EXECUTIVE DIRECTOR
AGE 58
NON-EXECUTIVE DIRECTOR
AGE 57
NON-EXECUTIVE DIRECTOR
AGE 56
Became a Non-Executive Director on
11 July 2011.
Became a Non-Executive Director on
12 March 2015.
Became a Non-Executive Director on
1 January 2017.
EXTERNAL ROLES
Janet is a Non-Executive Director
of the Nuclear Decommissioning
Authority, Marshalls plc and most
recently Victrex plc where she is
the Chair of the Remuneration
Committee. She is also Chair of the
charity ‘Hope in Tottenham’.
EXPERIENCE AND PAST ROLES
Janet was previously a Non-Executive
Director of Coventry Building Society.
Previously and until the end of
2012, Janet was the Chief Executive
Officer of Harvest Energy Limited
and Blue Ocean Oil Trading Limited.
She previously worked for BP plc. for
30 years where her last role was as
Head of BP’s Retail and Commercial
Fuels business in the UK.
KEY STRENGTHS
Strong commercial experience
within global businesses.
EXTERNAL ROLES
Andrea is a Non-Executive Director
of Petrofac Limited, and is a
member of the Supervisory Board of
Gerresheimer AG.
EXTERNAL ROLES
Ian is a Non-Executive Director
and Chair of the Audit Committee
of Babcock International plc and
Bodycote plc.
EXPERIENCE AND PAST ROLES
Andrea was previously a Non-
Executive Director of Brammer plc.
Previously, Andrea has been Head of
Supply Chain Management and Chief
Procurement Officer of the Siemens
sector for Infrastructure & Cities
from 2011 to 2014. Since joining
Siemens in 1997, she held numerous
positions of Finance, Productivity
and Supply Chain Management in
Germany and internationally.
KEY STRENGTHS
Specialist knowledge of the
European market, together with
considerable knowledge of supply
chain and procurement.
EXPERIENCE AND PAST ROLES
Having developed a portfolio career
since 2010, Ian was previously a
Non-Executive Director and Chair of
the Audit Committee at WANdisco
plc and Fiberweb plc. Ian’s last
executive role was as Group Finance
Director of the Royal Mail Group plc.
KEY STRENGTHS
Extensive financial and change
management experience
(including recent and relevant
financial experience).
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
AGE 63
Became a Non-Executive Director
in July 2009, as such will complete
three full terms with SIG this year
and will retire on 9 March 2018.
EXTERNAL ROLES
Chris is a Fellow of the Royal
Aeronautical Society.
EXPERIENCE AND PAST ROLES
Previously and prior to his retirement,
Chris was Chief Operating Officer of
BAE Systems plc with responsibility
for all European joint ventures and
UK defence electronics assets. He
was past President of the Society
of British Aerospace companies.
Chris was formerly a Non-Executive
Director of Lakehouse plc and
Rentokil Initial plc.
KEY STRENGTHS
Commercial European
business experience.
59
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Introduction to governance
“ Your Board is responsible for ensuring
that the Group complies with its legal
obligations, as such I take my duty as
the head of the Group very seriously”
ANDREW ALLNER CHAIRMAN
DEAR SHAREHOLDER,
SIG is committed to business integrity,
high ethical values and professionalism in
all of its activities. At SIG, we believe that
good governance comes from an effective
Board which provides strong leadership
to the Group and engages well with both
management and stakeholders. As an
essential part of this commitment, the
Group supports the highest standards in
corporate governance. This section of our
report outlines how the Board ensures that
high standards of corporate governance are
maintained. Details of the overstatements
relating to cash and trade payables and of
profits for previous financial years, about
which we notified the market earlier this
year, are provided on page 61. The actions
taken by individuals are clearly unacceptable.
As your Chairman I take this very seriously
and have established Culture and People as
a key matter in the Board agenda.
COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE
The Board considers that throughout the
year under review, the Company has, except
for the Board evaluation explained below,
complied with the provisions of the UK
Corporate Governance Code (‘the Code’) of
April 2016 issued by the Financial Reporting
Council (‘FRC’).
The Code can be accessed at www.frc.org.uk.
BOARD EVALUATION
Under the Code, the Board is required to
undertake a formal and rigorous annual
evaluation of its own performance and that
of its Committees and individual Directors.
In January 2018 the Board conducted
such an evaluation. In accordance with the
requirements, this being the third year in
the cycle, the evaluation should have been
externally facilitated. However, due to the
number of recent Board changes, it was
felt that an internally facilitated evaluation
be undertaken at this time. Details of the
process concerning this evaluation and its
outcome are covered on page 66 of this
corporate governance report.
BOARD DIVERSITY
The Board of SIG acknowledges the
importance of diversity in its broadest
sense in the boardroom as a driver of
Board effectiveness. Diversity encompasses
diversity of perspective, experience,
background, psychological type and personal
attributes. The Board recognises that gender
diversity is a significant aspect of diversity
and acknowledges the role that women with
the right skills and experience can play in
contributing to diversity of perspective in the
boardroom. The Board also acknowledges
the work of Sir John Parker and his report
into the Ethnic Diversity of UK Boards. The
Board Diversity Policy is published on the
Company’s website (www.sigplc.com).
We reported in last year’s Annual Report
that female representation on the Board
had risen to 25%. The matter continues to
be reviewed, particularly in light of the
second Hampton-Alexander Report on
FTSE Women Leaders.
All appointments to the Board will continue
to be made on merit. However, differences
in background, skills, experience and other
qualities as well as gender and ethnicity will
be considered in determining the optimum
composition of the Board and the aim will be
to balance them appropriately.
GOVERNANCE WITHIN SIG
As Chairman, I take responsibility for
ensuring that good governance is operated
at SIG in order that we can maintain the
highest standards of corporate governance
to which we continually aspire. The Board is
accountable to the Company’s Shareholders
and overall to its stakeholders for good
governance and this Report, the Directors’
Remuneration Report on pages 80 to 96, the
Audit Committee Report on pages 73 to 77
and the Nominations Committee Report on
pages 78 to 79 describe how the principles
of good governance set out in the Code are
applied within SIG.
The Company’s external Auditor, Deloitte
LLP, is required to review whether the
above statement reflects the Company’s
compliance with the provisions of the Code
specified for their review by the Listing Rules
(as contained within the Financial Conduct
Authority’s Handbook) and to report if it does
not reflect such compliance. No such report
has been made.
ANDREW ALLNER
CHAIRMAN
8 March 2018
COMPLIANCE STATEMENT
Our Governance sections over the
following pages explains how the
Group has applied the principles and
complied with the provisions of the
Code. Except for the requirement to
have an externally facilitated Board
evaluation, as explained on page 66,
we are fully compliant with the Code.
60
1
LEADERSHIP
2
EFFECTIVENESS
3
ACCOUNTABILITY
4
RELATIONS WITH
SHAREHOLDERS
5
REMUNERATION
See pages 61-65
See pages 66-72
See pages 73-77
See page 68
See pages 80-96
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Corporate Governance report
The review had also identified an
overstatement of balances at 30 June 2017
relating to recoverable balances brought
forward from 2016 and some additional
receivables accrued in the first half of 2017.
This resulted in up to a further £2.5m
overstatement of profit for the half year
ended 30 June 2017. The Board considered
that these misstatements were qualitatively
material and required restatement under IAS
8. The Group has restated previous Financial
Statements for the overstatements in these
Financial Statements on pages 100 to 166,
which have been subject to audit.
A number of employees are leaving the
business following disciplinary investigations
into the circumstances. The Group has
also confirmed that, whilst no incentives
were paid in error as a result of the
overstatements, potential bonus payments
to certain individuals in relation to 2017 will
not be payable.
In addition, the Group identified a number
of actions to remediate the control
environment in SIG Distribution, including
some specific additional controls around
rebates and other supplier recoverables,
which were implemented with immediate
effect. The Group had also engaged KPMG
to conduct a detailed review of financial
reporting controls at SIG Distribution to
confirm the accounting treatment of other
material items at 31 December 2017, prior to
finalising the year end results.
THE BOARD
At 31 December 2017, the Board was
made up of eight members comprising the
Chairman, two Executive Directors and five
Non-Executive Directors. The Directors who
held office during the year were:
MR A.J. ALLNER
Non-Executive Chairman (appointed
1 November 2017)
MR M. OLDERSMA
Chief Executive Officer (appointed
3 April 2017)
MR N.W. MADDOCK
Chief Financial Officer
(appointed 1 February 2017)
MS A. ABT
Independent Non-Executive Director
MS J.E. ASHDOWN
Independent Non-Executive Director
MR I.B. DUNCAN
Independent Non-Executive Director
(appointed 1 January 2017)
MR M. EWELL
Independent Non-Executive Director
(served as Interim Chief Executive from 11
November 2016 until 31 March 2017)
MR C. V. GEOGHEGAN
Senior Independent Non-Executive Director
MR D. G. ROBERTSON
Group Finance Director
(retired 31 January 2017)
MR J. C. NICHOLLS
Independent Non-Executive Director
(retired 31 March 2017)
MR L. VAN DE WALLE
Non–Executive Chairman
(retired 31 October 2017)
OVERSTATEMENT OF CASH AND
TRADE PAYABLES
The Group reported in its Trading Update
on 9 January 2018 that during the initial
year end close processes, the Group
identified a historical overstatement of cash
and trade payables related to cash cut-off
procedures. This was associated with the
issue of cheques around previous period
ends whereby cheques had been written
and passed to suppliers but not accounted
for. There was no impact from this on the
Consolidated Income Statement, but it
resulted in an overstatement of cash of
£20m at 31 December 2016 and £27m at
30 June 2017. Internal Audit has completed
a review of the controls around cheque
issuance.
After adjusting for the overstatement, the
headline financial leverage at 31 December
2017 is 1.9x (2016: 2.4x). This did not impact
compliance with the Group’s covenants
but resulted in additional interest charges
of £0.4m. The Group continues to target a
1.0-1.5x leverage range during 2018 and is
aiming to maintain leverage below 1.0x over
the medium term.
OVERSTATEMENT OF PROFIT
On 1 February 2018, following a thorough
review, the Group released a stock exchange
announcement in relation to identification of
a historical overstatement of profit relating to
the year ended 31 December 2016 and prior
years and relating to the half year ended 30
June 2017.
Following a whistleblowing allegation of
potential accounting irregularity at SIG
Distribution, the core insulation and
interiors business in the UK, the Group,
with support from its external Auditor
Deloitte and from KPMG, conducted a
forensic review of the recoverability of
a number of balances recognised at
31 December 2016 in relation to rebates and
other potential recoveries from suppliers.
Findings from this ongoing review were
presented to the Audit Committee of the
Board on 31 January 2018 and confirmed
that a number of these balances were
overstated at 31 December 2016, in some
cases intentionally. This resulted in an
overstatement of profit for the year ended
31 December 2016 of £3.7m, with a further
£0.4m overstatement of profit relating to
years before 2016.
61
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
Mr I.B. Duncan was appointed a Non-
Executive Director with effect from
1 January 2017. Mr J.C. Nicholls retired
from the Board on 31 March 2017 as a
Non-Executive Director and Chair of the
Audit Committee. Mr Duncan succeeded
Mr Nicholls as Chair of the Audit Committee
following Mr Nicholls’ retirement on
31 March 2017.
Mr S.R. Mitchell stepped down from
the Board as Chief Executive by mutual
agreement on 11 November 2016. Mr
M. Ewell, a Non-Executive Director, was
appointed as Interim Chief Executive from
11 November 2016 on a full time basis while
the Board conducted an external search
for a new Chief Executive. Mr M. Oldersma
was appointed as Chief Executive Officer
on 3 April 2017. Mr Ewell stepped down as
Interim Chief Executive on 31 March 2017
and remained as an Executive Director until
30 April 2017. He resumed his Non-Executive
Director duties from 1 May 2017.
Mr D.G. Robertson retired from the Board
as Group Finance Director with effect
from 31 January 2017 and was succeeded
by Mr N.W. Maddock with effect from
1 February 2017.
Mr L. Van de Walle retired from the
Board as Non-Executive Chairman on
31 October 2017 and was succeeded by Mr
A.J. Allner with effect from 1 November 2017.
Biographical details of the Directors holding
office at the date of this report appear on
pages 58 and 59. Details of Committee
memberships are set out on page 65.
At 31 December 2017, SIG had two female
Board members, equating to 25% female
representation of its Directors.
Each of the Non-Executive Directors are
considered by the Board to be independent
of management and free of any relationship
which could materially interfere with the
exercise of their independent judgement.
The Board has satisfied itself that there is no
compromise to the independence of those
Directors who have other appointments in
outside entities. The Board considers that
each of the Non-Executive Directors brings
their own senior level of experience and
expertise and that the balance between
Non-Executive and Executive representation
encourages healthy independent challenge
to the Executive Directors and senior
management. The Board is also satisfied
that each of the Non-Executive Directors is
able to dedicate sufficient time to their role
and responsibilities.
The Non-Executive Directors have been
appointed for their specific areas of
expertise and knowledge. Their wide-ranging
experience and backgrounds ensure that
they can debate matters constructively in
relation to both the development of strategy
and performance of SIG against objectives
set out by the Board. Biographical details of
each of the Directors, which illustrate their
range of experience, are set out on pages 58
and 59.
The Company’s policy relating to the terms
of appointment and remuneration of both
the Executive and Non-Executive Directors
is detailed in the Directors’ Remuneration
Report on pages 80 to 96.
The roles of the Chairman and Chief
Executive Officer are separate and clearly
defined. The division of responsibilities is
set out in writing, reviewed by the Company
Secretary and agreed by the Board on a
regular basis. The Board approves any
necessary changes to reflect changes
in legislation, policy and practices. The
Chairman leads the Board and sets
its agenda, ensuring that all Directors,
particularly the Non-Executive Directors,
are able to make an effective contribution.
He also ensures that there is a constructive
relationship between the Executive and
Non-Executive Directors. The Chief Executive
Officer has responsibility for all operational
matters which include the implementation of
the Group’s strategy and policies approved
by the Board.
The roles for the Chairman, Chief Executive
Officer and the Senior Independent Director
are agreed and set out in writing; a summary
of their roles and division of responsibility is
set out below:
CHAIRMAN
Responsible for overall leadership
and governance of the Board
(including induction, development and
performance evaluation).
Ensures that the Directors have an
understanding of the views of the
Company’s major Shareholders.
Ensures a healthy culture of
challenge and debate at Board and
Committee meetings.
The Chairman, at the time of his appointment
met the independence criteria set out in
the Code.
CHIEF EXECUTIVE OFFICER
Responsible for the effective leadership of
the Group.
Strong and focused management and
development of the Group’s operations.
Implementation of the Group’s objectives
and strategy agreed by the Board.
Maintains good relationships and
communications with investors.
Works closely with the Chief Financial
Officer to ensure appropriate financial
controls are in place.
Develops and implements policies integral
to improving the business, including in
relation to Health & Safety and Corporate
Responsibility.
SENIOR INDEPENDENT DIRECTOR
Available for approach by (or
representations from) investors and
Shareholders, where communications
through the Chairman or Executive
Directors may not seem appropriate.
A sounding board for the Chairman and
an intermediary for the other Directors
when necessary,
Available to chair the Board in the
absence of the Chairman.
The Senior Independent Director is Mr C.V.
Geoghegan. Mr Geoghegan will complete
three full terms this year and in accordance
with the Code he has offered himself to
retire from the Board on 9 March 2018. Mr
M. Ewell will succeed Mr Geoghegan as the
Senior Independent Director until a new
Non-Executive Director is appointed.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Full details of delegated matters to the
Group Executive Committee and Terms of
Reference for each of the Board Committees
are available on request from the
Company Secretary or on the SIG website
(www.sigplc.com).
To enable the Board to perform its duties
effectively, all Directors have full access to all
relevant information and to the services of
the Company Secretary, whose responsibility
it is for ensuring that Board procedures are
followed. The appointment and removal
of the Company Secretary is a matter
reserved for the Board. There is an agreed
procedure whereby Directors wishing to
take independent legal advice in the
furtherance of their duties may do so at the
Company’s expense.
The Company Secretary is responsible
for ensuring that Board procedures are
followed including the formal minuting of
any unresolved concerns that any Director
may have in connection with the operation
of the Company. During the year there
were no such unresolved issues. Further,
on resignation, if a Non-Executive Director
had any such concerns, the Chairman would
invite him/her to provide a written statement
for circulation to the Board.
All Board Committees are provided with
sufficient resources to undertake their
duties. Appropriate training is available to all
Directors on appointment and on an ongoing
basis as required.
Following the successful roll-out of a secure
iPad based paperless meeting system in
2012, the Group moved from BoardPad to
the Diligent software system during 2017.
This further supports our online drive across
the Group and is consistent with reducing
the impact of our operations on
the environment.
There is no maximum number of Directors
but there shall at no time be less than two.
Directors may be appointed by the Company
by ordinary resolution or by the Board. A
Director appointed by the Board shall hold
office only until the next Annual General
Meeting (‘AGM’) and shall then be eligible for
reappointment by the Shareholders.
ELECTION AND RE-ELECTION
OF DIRECTORS
Under the Articles of Association, all
Directors are subject to election at the AGM
immediately following their appointment and
to re-election every three years. However, in
accordance with the Code, all Directors will
seek election or re-election at the Company’s
AGM each year. To enable Shareholders to
make an informed decision, the 2018 Notice
of AGM includes biographical details and a
statement as to why the Company believes
that the Directors should be re-elected.
It is the view of the Board that each of
the Non-Executive Directors standing for
election or re-election brings considerable
management experience and an
independent perspective to the Board’s
discussions and is considered to be
independent of management and free from
any relationship or circumstance that could
affect, or appear to affect, the exercise of
their independent judgement.
The Chairman intends to confirm at the AGM
that the performance of each individual
continues to be effective and demonstrates
commitment to the role.
The terms of the Directors’ service contracts
are disclosed in the Directors’ Remuneration
Report on pages 84 to 86. Full details of
Directors’ remuneration, interests in the
share capital of the Company and of share
options held are set out on pages 89 to 96 in
the Directors’ Remuneration Report.
Directors’ service contracts and the letters of
appointment of the Non-Executive Directors
are available for inspection at the Company’s
registered office and will be available at the
AGM, which is scheduled to take place on
10 May 2018.
BOARD PROCEDURES AND
RESPONSIBILITIES
The Board meets regularly during the year,
as well as on an ad hoc basis as required
by time-critical business needs. The Board
met formally on 15 occasions during the
year and individual attendance at those
and the Board Committee meetings is
set out in the table on page 64. All Board
members are supplied with information
in a form and of a quality appropriate to
enable them to discharge their duties.
Board and Committee papers are sent out
seven days before meetings take place. The
Directors are provided with opportunities
for training to ensure that they are kept
up to date on relevant new legislation and
regulation changes, corporate governance
developments and changing commercial
risks. There is an agreed schedule of matters
reserved for the Board for collective decision,
which can be viewed on the Company’s
website (www.sigplc.com).
These matters include:
Determining the strategy and control of
the Group.
Amendments to the structure and capital
of the Company and Group.
Approval of financial reporting.
Oversight of the Group’s internal controls.
Approval of capital and revenue
expenditure of a significant size.
Board membership and appointments.
Acquisitions and disposals above a
prescribed limit.
Corporate governance matters.
Approval of Group policies and risk
management strategies.
The Board has formally delegated specific
responsibilities to Board Committees,
including the Nominations, Audit and
Remuneration Committees. The Board also
appoints Committees to approve specific
processes as deemed necessary. For
example, during the year, Board Committees
were established to approve share
allotments, and the preliminary and interim
results announcements.
The Board has delegated the following
matters to the Group Executive Committee:
The development and implementation
of strategy, operational plans, policies,
procedures and budgets as agreed by the
Board.
The monitoring of operating and financial
performance.
The assessment and control of risk.
Consider proposed significant changes
to the Group’s capital structure,
management and control structures,
listings or status as a public limited
company.
The development and assessment of the
Group’s Health and Safety and Corporate
Responsibility policies and performance.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
ATTENDANCE BY DIRECTORS AT MEETINGS OF THE BOARD AND
COMMITTEES IN 2017
The following table shows the attendance of Directors at meetings of the Board, Audit,
Remuneration and Nominations Committees during the year to 31 December 2017:
Board
(15 meetings)1
Audit
(4 meetings)
Remuneration
(7 meetings)
Nominations
(6 meetings)
A. Abt
J.E. Ashdown
I.B. Duncan
M. Ewell2
C. V. Geoghegan
N.W. Maddock3
M. Oldersma4
A.J. Allner5
Mr L. Van de Walle6
Mr J.C. Nicholls7
15
14
15
15
15
14
10
3
13
6
4
4
4
3
4
N/A
N/A
N/A
N/A
1
7
7
7
4
7
N/A
N/A
N/A
N/A
2
6
6
6
6
6
N/A
4
1
3
2
1. There were seven unscheduled Board meetings in 2017. The attendance to all the meetings is detailed above.
2. Mr M. Ewell resumed his Non-Executive Director duties from 1 May 2017 and attended all meetings to which he was
entitled to attend.
3. Mr N.W. Maddock was appointed to the Board on 1 February 2017 and attended all meetings to which he was
entitled to attend.
4. Mr M. Oldersma was appointed to the Board on 3 April 2017 and attended all meetings to which he was entitled
to attend.
5. Mr A.J. Allner was appointed to the Board on 1 November 2017 and attended all meetings to which he was entitled
to attend.
6. Mr L. Van de Walle resigned from the Board on 31 October 2017.
7. Mr J.C. Nicholls resigned from the Board on 31 March 2017.
Of the 15 Board meetings held in 2017, seven were held by telephone conference call.
This table only shows those meetings which each Director attended as a member rather
than as an invitee. Where “N/A” appears in the table the Director listed is not a member of
the Committee. Directors do not participate in meetings when matters relating to them
are discussed.
The Chairman also holds meetings with the Non-Executive Directors without the Executive
Directors present. The Senior Independent Director also meets with the other Independent
Non-Executive Directors without the Chairman present. In general, the Board endeavours
to hold at least two Board meetings each year at Group business locations both in the UK
& Ireland and Mainland Europe to help all Board members gain a deeper understanding
of the business. This also provides senior managers from across the Group with the
opportunity to present to the Board as well as to meet the Directors on more informal
occasions. Board members also attend divisional and Group management conferences
whenever possible.
All Directors attended the 2017 AGM and were available to answer any questions raised by
the Shareholders.
DIRECTORS’ CONFLICTS
OF INTERESTS
Each Director has a duty under the
Companies Act 2006 (the ‘Act’) to avoid any
situation where they have, or can have, a
direct or indirect interest that conflicts, or
possibly may conflict, with the Company’s
interests. This duty is in addition to the
obligation that they owe to the Company
to disclose to the Board any transaction or
arrangement under consideration by the
Company in which they have, or can have,
a direct or indirect interest. Directors of
public companies may authorise conflicts
and potential conflicts, where appropriate,
if a company’s Articles of Association permit
and Shareholders have approved
appropriate amendments.
Procedures have been put in place for
the disclosure by Directors of any such
conflicts and also for the consideration and
authorisation of any conflicts by the Board.
These procedures allow for the imposition
of limits or conditions by the Board when
authorising any conflict, if they think this
is appropriate. These procedures have
been applied during the year and are now
included as a regular item for consideration
by the Board at its meetings. The Board
believes that the procedures established
to deal with conflicts of interest are
operating effectively.
The Board is aware of the other
commitments of its Directors and is satisfied
that these do not conflict with their duties as
Directors of the Company.
COMPLIANCE WITH S172 OF THE
COMPANIES ACT 2006
The Directors consider that they have
performed their fiduciary duty, as stipulated
under s172 of the Act in good faith to
promote the success of the Company for the
benefit of its members as a whole. They have
taken into consideration:
the likely consequences of any decision
in the long term;
the interests of the Company’s
employees;
the need to foster relationships with
suppliers, customers and others;
the desirability of the Company to
maintain a reputation for high standards
of business conduct; and
the need to act fairly between members
of the Company.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc GROUP BOARD
AUDIT COMMITTEE
NOMINATIONS COMMITTEE
REMUNERATION COMMITTEE
The Audit Committee operates under
written Terms of Reference, which are
consistent with current best practice.
The Committee comprises only
Independent Non-Executive Directors.
The Chairman of the Committee
attends the AGM to respond to any
Shareholder questions that might be
raised on the Committee’s activities.
The Committee’s report is set out on
pages 73 to 77.
The Group has an Internal Audit
function and additional outsourced
specialist support from KPMG LLP.
The Board annually reviews the
need for such a function and the
effectiveness of the outsourced
Internal Audit function.
DELEGATED AUTHORITIES:
Monitors the integrity of financial
reporting, the performance of the
external Auditor and reviews the
effectiveness of the Group’s systems
of internal control and related
compliance activities.
MEMBERS:
Mr I.B. Duncan (replaced Mr Nicholls
as Chair from 31 March 2017)
Ms A. Abt
Ms J.E. Ashdown
Mr M. Ewell
Mr C.V. Geoghegan (to 9 March 2018)
Mr J.C. Nicholls (to 31 March 2017)
The Nominations Committee operates
under written Terms of Reference,
which are consistent with current best
practice. The Committee comprises
the Chairman, the Chief Executive
Officer and the Independent Non-
Executive Directors. The meetings of
the Committee are chaired by the Non-
Executive Chairman. The Chairman
of the Committee attends the AGM
to respond to any Shareholder
questions that might be raised on the
Committee’s activities. The Committee’s
report is set out on pages 78 to 79.
DELEGATED AUTHORITIES:
Ensures that the Board and its
Committees have the optimum balance
of skills, knowledge and experience
by nominating suitable candidates for
approval by the Board to fill Executive
and Non-Executive vacancies.
MEMBERS:
Mr A.J. Allner (replaced Mr Van de Walle
as Chair from 1 November 2017)
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan (to 9 March 2018)
Mr M. Oldersma
Mr L. Van de Walle
(to 31 October 2017)
Mr J.C. Nicholls (to 31 March 2017)
The Remuneration Committee
operates under written Terms of
Reference, which are consistent with
current best practice. The Committee
comprises only Independent Non-
Executive Directors. The Chairman
of the Committee attends the AGM
to respond to any Shareholder
questions that might be raised
on the Committee’s activities. The
Committee’s report is set out on pages
80 to 96.
DELEGATED AUTHORITIES:
Sets remuneration and incentives
for the Executive Directors, approves
and monitors remuneration
and incentive plans for the
Group, and assesses and makes
recommendations to the Board on
the policy of Executive remuneration.
MEMBERS:
Ms J.E. Ashdown (replaced
Mr Geoghegan as Chair from
19 December 2017)
Ms A. Abt
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan (to 9 March 2018)
Mr J.C. Nicholls (to 31 March 2017)
GROUP EXECUTIVE COMMITTEE
GROUP TAX AND TREASURY COMMITTEE
The Executive Committee operates under written Terms of Reference, details of
which are provided on page 63. The Committee addresses operational issues and is
responsible for implementing Group strategy and policies, day-to-day management
and monitoring performance. The Committee met 27 times during the year.
MEMBERS:
Mr M. Oldersma (Chairman)
Chief Executive Officer
(from 3 April 2017)
Mr N.W. Maddock
Chief Financial Officer
(from 1 February 2017)
Mr R.T. Barclay
Managing Director, UK & Ireland
Mr A. Wakelin
Managing Director, Exteriors
Mr C. Horn
Group Operations Director
Mr P. Dénecé
Managing Director, France
Mr J. Neves
Managing Director, Benelux
Mr L. Hemels
Managing Director, Air Handling
Mr M. Szczgiel
Managing Director, Poland
Mr M. Chappell
Interim Group Transformation Director
(20 November 2017 to 2 March 2018)
Mr E. Hutt
Group Chief Information Officer
(from 1 September 2017)
Mrs L.H. Kennedy-McCarthy
Group Human Resources Director
(to 31 December 2017)
Ms G. Hannen
European Finance Director
(to 18 December 2017)
Mr L. Lvovich
Corporate Development Director
(to 15 September 2017)
Mr M. Pearson
Group Chief Information Officer and
Programmes Director
(to 15 September 2017)
Mr M. Hamori
Managing Director, Germany (to 7 July
2017)
Mr D.G. Robertson
Group Finance Director
(to 31 January 2017)
Mr M. Ewell
Interim Chief Executive
(to 31 March 2017)
The Treasury Committee operates
under the written Treasury Policy
Manual. The Committee considers
liquidity and funding, interest
rate risk management, tax risks,
foreign exchange risk management,
counterparty credit risk management
and any other current Group tax or
treasury issues.
MEMBERS:
Mr I. Jackson (Chairman)
Group Financial Controller
Mr N.W. Maddock
Chief Financial Officer
(from 1 February 2017)
Mr R.C. Monro
Company Secretary
Ms H. Jones
Group Treasurer
(from 29 August 2017)
Mr A. Gupta Group Director of Risk &
Internal Audit
(from 2 October 2017)
Mr I. Norris Risk & Financial Controller
(to 30 June 2017)
Mrs S. Clarke Group Treasurer (to 25
August 2017)
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE
Corporate Governance report
increasing Board focus on people,
culture, succession planning, employee
engagement and organisational
effectiveness.
ensuring the Non-Executive Directors
become closer to the business
through a programme of visits to
operations, attendance at leadership
team conferences, greater access to
management below Executive Director
level and improved Board information.
The Chairman regularly reviews and
agrees with each Director their training
and development needs. During the year a
number of the Directors attended training
courses and seminars on various subjects,
including those that the Chairman had
identified as being areas where training
would increase the knowledge and
effectiveness of the Director. The Board
received agenda specific training throughout
the year and as a whole received training
from its advisors on the Listing Rules. Further
training is programmed for 2018.
The Non-Executive Directors, chaired by the
Senior Independent Director, meet once a
year without the Chairman present to assess
his performance, taking into account the
views of the Executive Directors.
RISK MANAGEMENT AND
INTERNAL CONTROL
The Board has ultimate responsibility for
the Group’s system of internal control and
for reviewing its effectiveness. It is the role
of management to implement the Board’s
policies on risk and control through the
design and operation of appropriate internal
control systems. Such systems are designed
to manage, rather than eliminate, the risk
of failure to achieve the business objectives
and can therefore only provide reasonable
and not absolute assurance against material
misstatement or loss.
The Audit Committee monitors and reviews
the effectiveness of the Group’s internal
control systems, accounting policies and
practices, standards of risk management
and risk management procedures and
compliance controls.
The key elements of the existing systems of
internal control, which accord with the FRC’s
Guidance on Risk Management and Internal
Control and Related Financial and Business
Reporting (September 2014), are as follows:
OPEN CULTURE
The Board considers that the Group
operates a risk-aware culture with an open
style of communication. This facilitates the
early identification of problems and issues,
so that appropriate action is taken quickly
to minimise any impact on the business.
The details and processes in identifying the
overstated cash and trade payables and of
profits are provided on page 61.
ONGOING PROCESS FOR RISK IDENTIFICATION,
EVALUATION AND MANAGEMENT
This process includes the following:
The Board maintains an overall corporate
risk register, the content of which is
determined by regular discussions
between senior management, the Group
Board and the Audit Committee. This is
also formally reviewed twice yearly by
the Audit Committee and discussed with
the Board. The risk register contains
the significant risks faced by the Group
and identifies the potential impact and
likelihood at both a gross level (before
consideration of mitigating controls) and
net level (after consideration of mitigating
controls). This provides the Board with
the opportunity to review the level of risk
that the business is prepared to accept.
The register also contains the assurance
provided over current key mitigating
controls. Where further actions have
been identified to mitigate risks to a level
deemed acceptable, these are agreed
with specific timelines for delivery and are
monitored closely until fully implemented.
This is summarised in the Strategic Report
on pages 6 to 55:
The risk management process is cascaded
throughout the Group, with operating
subsidiary boards responsible for
maintaining their own risk registers and
assessing their internal control systems.
A defined organisation structure with
appropriate delegation of authority.
Formal authorisation procedures for
all investments with clear guidelines on
appraisal techniques and success criteria.
Clear responsibilities on the part
of financial management for the
maintenance of good financial controls
and the production and review of
detailed, accurate and timely financial
management information.
BOARD EFFECTIVENESS AND
PERFORMANCE EVALUATION
The effectiveness of the Board and its
Committees is vital to the success of the
Company. During the year the Board
continued its ongoing evaluation process to
assess its performance and that of its three
principal Committees (Audit, Remuneration
and Nominations).
Under the Code, the Board is required to
undertake a formal and rigorous annual
evaluation of its own performance and
that of its Committees and individual
Directors. In January 2018 an effectiveness
review of the Board and its Committees
(Audit, Remuneration and Nominations)
was undertaken. This was facilitated by
the Chairman, who conducted one-to-one
interviews. As a result, the summary report
was presented to the Board in January 2018.
The discussions then focused on how the
actions and improvements identified through
the process should be implemented. The
Board was satisfied that the evaluation of its
performance was a worthwhile exercise and
that the Directors had participated on an
open and frank basis.
In accordance with the requirements of the
Code, this being the third year in the cycle,
the evaluation should have been externally
facilitated. However, due to the number of
recent Board changes and more recently
the appointment of the new Chairman in
November 2017, it was felt that an internally
facilitated evaluation be undertaken by the
Chairman at this time.
Whilst concluding that the Board, its
individual Directors, and its Committees
continue to improve key processes and
effectiveness, the evaluation identified a
number of areas for improvement, including:
improved management information
at meetings to assist in making
informed decisions.
better understanding of the business
and its divisions.
increased emphasis on people and
culture.
strategic focus.
The proposed Board priorities for 2018
will cover:
monitoring the progress in executing
the medium term strategy and business
turnaround.
focusing on developing the
long term vision and strategy for
SIG beyond turnaround.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc A comprehensive system of financial
reporting. An annual budget for each
operating company is prepared in detail
and approved by the Chief Executive
Officer. The Board approves the overall
Group budget and plans. Monthly actual
results are reported against budget and
prior year and the forecast for the year
is revised where necessary. Any significant
changes and adverse variances are
questioned by the Board and remedial
action taken where appropriate. There is
also regular cash and treasury reporting
to the Chief Financial Officer and periodic
reporting to the Board on the Group’s tax
and treasury position.
Provision to management and the
Board of relevant, accurate and timely
information including relevant key
performance indicators, based on reliable
management information systems
which are continually being improved
and updated.
Monthly reports to the Board from
the Chief Executive Officer and Chief
Financial Officer.
Regular business unit management board
meetings (periodically attended by the
Chief Executive Officer or Chief Financial
Officer), Executive Board meetings and
the Company Board meetings at which
existing, new and evolving operational,
financial and other risks are discussed,
and appropriate actions to manage these
risks are agreed and followed up.
Discussion of any significant issues or
control weaknesses identified and, if
considered necessary, their inclusion in
reports to the Executive Board and the
Company Board.
Operating units, both trading sites
and central functions, completed
comprehensive Control Self-Assessment
(‘CSA’) questionnaires for the early part
of 2017. These questionnaires required
managers to respond to questions
about procedures and controls in the
unit for which they have responsibility.
These were analysed by local and Group
management and all potential risks
or control failure issues which were
raised by the CSA process were classed
in terms of escalation levels with any
significant Group level issues being
reported to the Audit Committee. As part
of the continually improving approach
to risk and internal audit, the control
self-assessment underwent a complete
refresh during the year and this has now
become the Key Controls Framework
process, which has been further
developed since year end giving Group
and local management an improved
oversight of procedures and controls.
The Key Controls Framework has greater
focus over cash and supplier rebates.
A structured and approved programme
of Internal Audit visits with the
implementation of recommendations
made being monitored as part of a
continuous programme of improvement.
FINANCIAL REPORTING
In addition to the general internal controls
and risk management processes described
on pages 66 to 67, the Group also has
specific systems and controls to govern the
financial reporting process and preparation
of the Annual Report and Accounts. These
systems include clear policies and the
procedures for ensuring that the Group’s
financial reporting processes and the
preparation of its Financial Statements
comply with all relevant regulatory reporting
requirements. These are comprehensively
detailed in the Group Finance Manual,
which is used by the businesses in the
preparation of their results. Financial control
requirements are also set out in the Group
Finance Manual.
ANNUAL ASSESSMENT OF THE EFFECTIVENESS
OF SYSTEMS OF INTERNAL CONTROL
During 2017 the Board conducted a review
of the effectiveness of the Group’s system
of internal control. This review covered all
controls including operational, compliance
and risk management procedures, as well
as financial controls. The Board will continue
to assess the effectiveness of systems of
internal control.
The Board and Audit Committee requested,
received and reviewed reports from Group
Internal Audit, senior management, its
advisors, the outsourced Internal Audit
function and our external Auditor in order
to assist the Board with their annual
assessment of the effectiveness of the
Group’s systems of internal controls.
Through the ongoing processes outlined on
pages 66 to 67, improvements in internal
controls are continuously identified and
action plans are devised. Progress towards
completion of actions is regularly monitored
by management and the Board.
The Board considers that the information
that it receives is sufficient to enable it to
review the effectiveness of the Group’s
internal controls in accordance with the
internal control guidance for Directors on the
Code issued by the FRC. There had been a
significant breakdown of internal controls in
relation to supplier rebates and presentation
of cash, which is discussed further on
page 61.
WHISTLEBLOWING
The Group has in place a Whistleblowing
Policy under which employees may, in
confidence, raise concerns about possible
wrongdoing in financial reporting or other
matters. A copy of this policy is available on
the Company’s website (www.sigplc.com).
The Company also has in place a confidential
hotline which is available to all of the Group’s
employees and provides a facility for them to
bring matters to management’s attention on
a confidential basis. The hotline is provided
by an independent third party. During 2017
these systems were operational throughout
the Group. A full investigation is carried
out on all matters raised and a report is
prepared for feedback to the complainant.
The Company Secretary is required to report
to the Audit Committee semi-annually on
the integrity of these procedures, the state
of ongoing investigations and conclusions
reached. During 2017 Group employees
used this system to raise concerns about a
number of separate issues, all of which were
appropriately responded to.
During the year a matter was raised
under the Whistleblowing Policy in respect
of supplier rebates and other supplier
receivables, which was fully investigated.
Details of the investigation and outcomes are
covered in this Report on page 61.
OVERALL ASSESSMENT
The risk framework, as outlined above, gives
reasonable assurance that the structure
of controls in operation is appropriate to
the Group’s situation and that there is an
acceptable level of risk throughout the
business, apart from the two significant
deficiencies as set out on page 61.
The Board confirms that there is an ongoing
process for identifying, evaluating and
managing the significant risks faced by the
Group and that this has been in place for
the year under review and up to the date of
approval of the Annual Report and Accounts.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
RELATIONS WITH SHAREHOLDERS
The Company recognises the importance
of communicating with its Shareholders,
including its employee Shareholders, to
ensure that its strategy and performance
is understood. This is achieved principally
through the Annual Report and Accounts
and the AGM. The Group’s annual and
interim results, as well as all announcements
issued to the London Stock Exchange, are
published on the Company’s website. The
Company issues regular trading updates to
the market and these, together with copies
of the presentations made to analysts, can
also be found on the Company’s website.
In addition, a range of other corporate
information is available to investors on the
Company’s website (www.sigplc.com).
The Chief Executive Officer and Chief
Financial Officer are primarily responsible
for direct investor relations. The Board is
kept informed of investors’ views through
distribution and regular discussion of
analysts’ and brokers’ briefings and a
summary of investor opinion feedback. In
addition, feedback from major Shareholders
is reported to the Board by the Chairman
and the Chief Financial Officer and discussed
at its meetings. Formal presentations are
made to institutional Shareholders following
the announcement of the Company’s annual
and interim results.
Following a review of strategy in 2017, the
Chief Executive Officer and Chief Financial
Officer met with the Shareholders in
November 2017 to update them on the
conclusions, the resulting medium term
financial targets and the plans to achieve
these targets.
Each year, the Chairman offers one-to-one
meetings with SIG’s largest Shareholders.
Following the November 2017 strategy
day, the Chairman met with SIG’s large
institutional Shareholders.
Contact is also maintained, where
appropriate, with Shareholders to discuss
overall remuneration plans and policies.
The Chairman and the Senior Independent
Director are available to discuss governance
and strategy with major Shareholders
if requested, and both are prepared to
contact individual Shareholders should any
specific areas of concern or enquiry be raised.
Throughout the year, the Company
responds to correspondence received from
Shareholders on a wide range of issues and
also participates in a number of surveys
and questionnaires submitted by a variety
of investor research bodies. Although the
other Non-Executive Directors are not
at present asked to meet the Company’s
Shareholders, they regularly review
the presentations of the annual and
interim results.
The Board recognises that the AGM is the
principal forum for dialogue with private
Shareholders and all Shareholders are invited
to attend. All Directors attend the AGM and
are available to answer any questions that
Shareholders may wish to raise.
The Notice of Meeting is sent to
Shareholders at least 20 working days before
the meeting. The Company provides a facility
for Shareholders to vote electronically and
the Form of Proxy provides Shareholders
with the option of withholding their vote on a
resolution if they so wish. Shareholders vote
on a show of hands, unless a poll is validly
called and, after each such vote, the number
of proxy votes received for or against the
resolution together with the number of
abstentions is announced. The Company
Secretary ensures that votes are properly
received and recorded. Details of the proxies
lodged on all resolutions are published on
the Company’s website immediately after
the AGM.
SUBSTANTIAL SHAREHOLDINGS
At the date of approval of the 2017 Annual Report and Accounts, the Company had received
notification of the following shareholdings in excess of 3% of its issued share capital
pursuant to the Disclosure and Transparency Rules of the Financial Conduct Authority as at
31 December 2017 and 8 March 2018:
Shareholder
Voting Rights as at
31 December 2017
%
Voting Rights
as at
8 March 2018
%
Investec Asset Management
70,084,874
11.86%
70,084,874
11.86%
IKO Enterprises Limited
40,539,710
6.85%
40,539,710
6.85%
Templeton Investment Counsel LLP
30,321,866
5.13%
30,321,866
5.13%
FIL Limited
29,955,004
5.06%
29,955,004
5.06%
Tameside MBC re Greater Manchester
Pension Fund
29,951,996
5.06%
29,951,996
5.06%
UBS Asset Management
29,578,718
5.00%
Below notifiable
threshold
n/a
Massachusetts Financial
Services Company
Kames Capital Plc
Schroder Investment
Management Limited
Norges Bank
26,799,365
4.53%
26,799,365
4.53%
29,196,351
4.93%
23,339,648
3.95%
23,005,522
3.89%
23,005,522
3.89%
18,163,702
3.07%
18,163,702
3.07%
STATEMENT OF THE DIRECTORS ON THE DISCLOSURE OF INFORMATION
TO THE AUDITOR
The Directors who held office at the date of approval of the Directors’ Report confirm that:
So far as they are each aware, there is no relevant audit information of which the
Company’s Auditor is unaware; and
Each Director has taken all steps that he/she ought to have taken as a Director to
make himself/herself aware of any relevant audit information and to establish that the
Company’s Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of
Section 418 of the Companies Act 2006.
68
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc GOING CONCERN
The Going Concern Statement can be found
on page 41 of the Strategic Report.
VIABILITY STATEMENT
The Viability Statement can be found on
pages 39 to 40 of the Strategic Report.
INDEPENDENT AUDITOR
On the recommendation of the Audit
Committee (see pages 76 to 77), in
accordance with Section 489 of the
Companies Act 2006, resolutions are to be
proposed at the AGM for the reappointment
of Deloitte LLP as Auditor of the Company
and to authorise the Audit Committee to
fix its remuneration. The remuneration
of the Auditor for the year ended
31 December 2017 is fully disclosed in Note
4 to the Financial Statements on page 121.
PUBLICATION OF ANNUAL REPORT
AND NOTICE OF AGM
Shareholders are to note that the SIG plc
Annual Report 2017 together with the Notice
convening the AGM have been published on
the Company’s website (www.sigplc.com).
If Shareholders have elected to receive
Shareholder correspondence in hard copy,
then the Annual Report and Notice convening
the AGM will be distributed to them.
ANNUAL GENERAL MEETING
The Notice convening the AGM, which is to
be held at the Mercure Sheffield Parkway
Hotel, Britannia Way, Catcliffe, Sheffield, S60
5BD at 12 noon on Thursday 10 May 2018,
together with explanatory notes on the
resolutions to be proposed and full details
of the deadlines for exercising voting
rights, will be circulated to all Shareholders
that have elected to receive Shareholder
correspondence in hard copy at least 20
working days before the meeting along
with this Report. The document will
also be available on the SIG plc website
(www.sigplc.com). All Shareholders are
invited to the Company’s AGM, at which they
will have the opportunity to put questions to
the Board.
OTHER STATUTORY DISCLOSURES
PRINCIPAL ACTIVITY AND
BUSINESS REVIEW
The principal activity of the Group is the
supply of specialist products to construction
and related markets in the UK, Ireland and
Mainland Europe. The main product sectors
supplied are insulation and interiors, roofing
and exteriors and air handling.
The Chairman’s Statement and Strategic
Report on pages 2 to 55 contain a review of
these activities and comment on the future
outlook and developments. The financial risk
management objectives, policies and key
performance indicators of the Company are
also set out in the Strategic Report.
POLITICAL DONATIONS
It is the Group’s policy not to make political
donations and no political donations were
made during the year (2016: £nil).
Details of the Group’s policies in relation
to Corporate governance are disclosed on
pages 46 to 49.
GROUP RESULTS AND DIVIDENDS
The Consolidated Income Statement for the
year ended 31 December 2017 is shown on
page 100. The movement in Group reserves
during the year is shown on page 103 in
the Consolidated Statement of Changes in
Equity. Segmental information is set out in
Note 1 to the Financial Statements on pages
114 to 118.
The Board is recommending a final dividend
of 2.50p per share (2016: 1.83p) which,
together with the interim dividend of 1.25p
per share (2016: 1.83p), makes a total for
the year ended 31 December 2017 of 3.75p
(2016: 3.66p). Payment of the final dividend,
if approved at the AGM, will be made on 6
July 2018 to Shareholders registered at the
close of business on 8 June 2018.
GREENHOUSE GASES
Details of the Group’s greenhouse gas
emissions are detailed on pages 52 to 53 of
the Corporate Responsibility Report.
EMPLOYEES
Details of the Group’s policies relating to
employees are detailed on pages 46 to 49 of
the Corporate Responsibility Report.
Details of the Group’s policies in relation to
employees (including disabled employees)
are disclosed in the Corporate Responsibility
Report on pages 46 to 49.
POST BALANCE SHEET EVENTS
Details of post balance sheet events are
included in Note 11 on page 131 of the
Financial Statements.
RELATED PARTY TRANSACTIONS
Except as disclosed in Note 30 to the
Financial Statements on page 157 and
except for Directors’ service contracts,
the Company did not have any material
transactions or transactions of an unusual
nature with, and did not make loans to,
related parties in the periods in which any
Director is or was materially interested.
DIRECTORS’ AND OFFICERS’ LIABILITY
INSURANCE AND INDEMNITIES
The Company purchases liability insurance
cover for Directors and Officers of the
Company and its subsidiaries which gives
appropriate cover for any legal action
brought against them. The Company has also
provided an indemnity which was in force
during the financial year for its Directors to
the extent permitted by the law in respect
of liabilities incurred as a result of their
office. The indemnity would not provide
any coverage to the extent that a Director
is proved to have acted fraudulently or
dishonestly.
No claims or qualifying indemnity provisions
and no qualifying pension scheme indemnity
provisions have been made either during
the year or by the date of approval of this
Directors’ Report.
FINANCIAL INSTRUMENTS
Information on the Group’s financial risk
management objectives and policies on
the exposure of the Group to relevant risks
arising from financial instruments is set out
on pages 36 to 39 and in Note 19 to the
Financial Statements on pages 140 to 143.
ACQUISITIONS AND DISPOSALS
Details of acquisitions made and businesses
identified for sale or closure are covered in
Note 11 on pages 128 to 131 and Note 14
on page 136 of the Financial Statements.
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GROUP COMPANIES
A full list of Group Companies (and their
registered office addresses) is disclosed on
pages 191 to 192.
SHARE CAPITAL
The Company has a single class of share
capital which is divided into ordinary shares
of 10p each. At 31 December 2017, the
Company had a called up share capital of
591,548,235 ordinary shares of 10p each
(2016: 591,460,301).
During the year ended 31 December 2017,
options were exercised pursuant to the
Company’s share option schemes, resulting
in the allotment of 87,934 new ordinary
shares. No new ordinary shares have been
allotted under these schemes since the
end of the financial year to the date of
this Report. Details of outstanding options
under the Group’s Employee and Executive
Schemes are set out in Note 9 on pages 126
to 127 which also contains details of options
granted over unissued share capital.
RIGHTS ATTACHING TO SHARES
The rights attaching to the ordinary shares
are defined in the Company’s Articles of
Association. The Articles of Association
may be changed by special resolution of
the Company. A Shareholder whose name
appears on the Company’s Register of
Members can choose whether his shares
are evidenced by share certificates (ie in
certificated form) or held in electronic (ie
uncertificated) form in CREST (the electronic
settlement system in the UK).
Subject to any restrictions below,
Shareholders may attend any general
meeting of the Company and, on a show
of hands, every Shareholder (or his
representative) who is present at a general
meeting has one vote on each resolution
and, on a poll, every Shareholder (or his
representative) who is present has one vote
on each resolution for every ordinary share
of which they are the registered Shareholder.
A resolution put to the vote of a general
meeting is decided on a show of hands
unless before or on the declaration of
the result of a vote on a show of hands, a
poll is demanded by the Chairman of the
meeting, or by at least five Shareholders
(or their representatives) present in person
and having the right to vote, or by any
Shareholders (or their representatives)
present in person having at least 10% of the
total voting rights of all Shareholders, or by
any Shareholders (or their representatives)
present in person holding ordinary shares in
which an aggregate sum has been paid up of
at least one-tenth of the total sum paid up
on all ordinary shares.
Shareholders can declare final dividends
by passing an ordinary resolution but the
amount of such dividends cannot exceed the
amount recommended by the Board. The
Board can pay interim dividends on any class
of shares of the amounts and on the dates
and for the periods they decide provided
the distributable profits of the Company
justify such payment. The Board may, if
authorised by an ordinary resolution of the
Shareholders, offer any Shareholder the
right to elect to receive new ordinary shares,
which will be credited as fully paid, instead of
their cash dividend.
Any dividend which has not been claimed for
12 years after it became due for payment
will be forfeited and will then belong to
the Company, unless the Directors decide
otherwise.
If the Company is wound up, the liquidator
can, with the sanction of an extraordinary
resolution passed by the Shareholders,
divide among the Shareholders all or any
part of the assets of the Company and he/
she can value any assets and determine
how the division shall be carried out as
between the members or different classes
of members. The liquidator can also transfer
the whole or any part of the assets to
trustees upon any trusts for the benefit
of the members. No Shareholders can be
compelled to accept any asset which would
give them a liability.
VOTING AT GENERAL MEETINGS
Any Form of Proxy sent by the Company
to Shareholders in relation to any general
meeting must be delivered to the Company,
whether in written form or in electronic
form, not less than 48 hours before the
time appointed for holding the meeting or
adjourned meeting at which the person
named in the appointment proposes to vote.
The Board may determine that the
Shareholder is not entitled to exercise any
right conferred by being a Shareholder if he/
she or any person with an interest in shares
has been sent a Notice under Section 793
of the Companies Act 2006 (which confers
upon public companies the power to require
information with respect to interests in their
voting shares) and he/she or any interested
person failed to supply the Company with the
information requested within 14 days after
delivery of that Notice. The Board may also
decide that no dividend is payable in respect
of those default shares and that no transfer
of any default shares shall be registered.
These restrictions end seven days after
receipt by the Company of a Notice of an
approved transfer of the shares or all the
information required by the relevant Section
793 Notice, whichever is the earlier.
TRANSFER OF SHARES
The Board may refuse to register a transfer
of a certificated share which is not fully
paid, provided that the refusal does not
prevent dealings in shares in the Company
from taking place on an open and proper
basis. The Board may also refuse to register
a transfer of a certificated share unless: (i)
the instrument of transfer is lodged, duly
stamped (if stampable), at the registered
office of the Company or any other place
decided by the Board accompanied by a
certificate for the share to which it relates
and such other evidence as the Board may
reasonably require to show the right of
the transferor to make the transfer; (ii) is in
respect of only one class of shares; and (iii) is
in favour of not more than four transferees.
Transfer of uncertificated shares must be
carried out using CREST and the Board
can refuse to register a transfer of an
uncertificated share in accordance with the
regulations governing the operation
of CREST.
70
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc VARIATION OF RIGHTS
If at any time the capital of the Company is
divided into different classes of shares, the
special rights attaching to any class may be
varied or revoked either:
(i) with the written consent of the holders
of at least 75% in nominal value of the
issued shares of the class; or
(ii) with the sanction of an extraordinary
resolution passed at a separate general
meeting of the holders of the shares of
the class.
The Company can issue new shares and
attach any rights to them. If there is no
restriction by special rights attaching to
existing shares, rights attaching to new shares
can take priority over the rights of existing
shares, or the new shares and the existing
shares are deemed to be varied (unless the
rights expressly allow it) by a reduction of
paid up capital, or if another share of that
same class is issued and ranks in priority for
payment of dividend, or in respect of capital
or more favourable voting rights.
ELECTION AND RE-ELECTION OF
DIRECTORS
The Company may, by ordinary resolution,
of which special notice has been given in
accordance with the Companies Act, remove
any Director before the expiration of his/her
period of office. The office of a Director shall
be vacated if:
(i) He/she ceases to be a Director by virtue
of any provision of law or is removed
pursuant to the Company’s Articles
of Association or he/she becomes
prohibited by law from being a Director;
(ii) He/she becomes bankrupt or
compounds with his/her creditors
generally;
(iii) He/she becomes of unsound mind or a
patient for any purpose of any statute
relating to mental health and the Board
resolves that his/her office is vacated;
(iv) He/she resigns;
(v) He/she fails to attend Board meetings for
six consecutive months without leave of
absence from the Board and the Board
resolves that his/her office is vacated;
(vi) His/her appointment terminates in
accordance with the provisions of the
Company’s Articles;
(vii) He/she is dismissed from Executive office;
(viii) He/she is convicted of an indictable
offence and the Directors resolve that
it is undesirable in the interests of
the Company that he/she remains a
Director; or
(ix) The conduct of the Director is the subject
of an investigation and the Directors
resolve that it is undesirable in the
interests of the Company that he/she
remains a Director.
The Board may, from time to time, appoint
one or more Directors as Managing Director
or to fulfil any other executive function within
the Company for such term, remuneration
and other conditions of appointment as
it may determine, and it may revoke such
appointment (subject to the provisions of the
Companies Act).
AGREEMENTS WITH EMPLOYEES
AND SIGNIFICANT AGREEMENTS
(CONTRACTS OF SIGNIFICANCE)
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of office
or employment (whether through resignation,
purported redundancy or otherwise) that
occurs because of a takeover bid.
The Company’s banking arrangements are
terminable upon a change of control of
the Company. Certain other indebtedness
becomes repayable if a change of control
leads to a downgrade in the credit rating of
the Company. Bank consent is required for
any major acquisition or disposal of assets.
FIXED ASSETS
In the opinion of the Directors, there is no
material difference between the book value
and the current open market value of the
Group’s interests in land and buildings.
CREST
The Company’s ordinary shares are in CREST,
the settlement system for stocks and shares.
2018 INTERIM REPORT
Current regulations permit the Company not
to send hard copies of its Interim Reports to
Shareholders and therefore the Company
intends to publish its Interim Report only on
its website at www.sigplc.com.
ACQUISITION BY THE COMPANY OF
ITS OWN ORDINARY SHARES
Shareholders’ authority for the purchase by
the Company of 59,146,030 of its own shares
existed at the end of the year. The Company
has made no purchases of its own ordinary
shares pursuant to this authority. The
Company will seek to renew this authority at
the 2018 AGM.
AUTHORITY TO ALLOT ORDINARY
SHARES
Shareholders’ authority to allot ordinary
shares up to an aggregate nominal amount
of £39,430,686 existed at the end of the year.
The Company has not issued any ordinary
shares pursuant to this authority. The
Company will seek to renew this authority at
the 2018 AGM.
During the year ended 31 December 2017,
options were exercised pursuant to the
Company’s share option schemes, resulting
in the allotment of 87,934 new ordinary
shares. No new ordinary shares have been
allotted under these schemes since the
end of the financial year to the date of
this Report. Details of outstanding options
under the Group’s Employee and Executive
Schemes are set out in Note 9 on pages 126
to 127 which also contains details of options
granted over unissued share capital.
FAIR, BALANCED AND
UNDERSTANDABLE
The Directors have a responsibility
for preparing the 2017 Annual Report
and Accounts and for making certain
confirmations concerning it. In accordance
with C.1.1 of the Code, the Board has
reviewed the contents of this year’s Annual
Report and Accounts and it considers that
the Annual Report and Accounts, taken as a
whole is fair, balanced and understandable,
and provides the information necessary
for Shareholders to assess the Company’s
position and performance, business model
and strategy. More information can be found
in the Audit Committee Report on page 77.
CAUTIONARY STATEMENT
The cautionary statement can be found on
page 41 of the Strategic Report.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE SIG has been mindful of the best practice
guidance published by Defra and other
bodies in relation to environmental,
community and social KPIs when drafting
the Strategic Report. The Board has also
considered social, environmental and
ethical risks, in line with the best practice
recommendations of the Association of
British Insurers. Management, led by the
Chief Executive Officer, has responsibility for
identifying and managing such risks, which
are discussed extensively in this Annual
Report and Accounts.
All the information cross-referenced is
hereby incorporated by reference into this
Directors’ Report.
APPROVAL OF THE
DIRECTORS’ REPORT
The Directors’ Report set out on pages 58 to
97 was approved by the Board of Directors
on 8 March 2018 and signed on its behalf by
the Company Secretary, Richard Monro.
RICHARD MONRO
COMPANY SECRETARY
8 March 2018
Corporate Governance report
CONTENT OF DIRECTORS’ REPORT
The Corporate governance report (including
the Board biographies), which can be found
on pages 58 to 72, the Audit Committee
Report on pages 73 to 77, the Nominations
Committee Report on pages 78 to 79, and
the Directors’ Responsibility Statement on
page 97 are incorporated by reference and
form part of this Directors’ Report.
The Board has prepared a Strategic Report
(including the Chief Executive Officer’s
Statement) which provides an overview
of the development and performance of
the Company’s business in the year ended
31 December 2017 and its position at the
end of the year, and which covers likely
future developments in the business of the
Company and Group. The Sustainability
Report forms part of the Strategic Report.
For the purposes of compliance with
DTR 4.1.8R, the required content of the
‘Management Report’ can be found in the
Strategic Report and this Directors’ Report,
including the sections of the Annual Report
and Accounts incorporated by reference.
For the purposes of LR 9.8.4C R, the information required to be disclosed by LR 9.8.4R can be
found in the following locations:
Section
Topic
Location
Interest capitalised
Publication of unaudited financial
information
Details of long term incentive schemes
Financial Statements, Note 13,
page 135
Not applicable
Directors’ remuneration report,
pages 91 to 92
Waiver of emoluments by a Director
Not applicable
Waiver of future emoluments by a Director
Not applicable
Non pre–emptive issues of equity for cash
Not applicable
Item (7) in relation to major subsidiary
undertakings
Parent participation in a placing by a listed
subsidiary
Contracts of significance
Provision of services by a controlling
Shareholder
Not applicable
Not applicable
Not applicable
Not applicable
Shareholder waivers of dividends
Not applicable
Shareholder waivers of future dividends
Not applicable
Agreements with controlling Shareholders
Not applicable
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
72
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Audit Committee report
“ It is vitally important that we
continually strengthen the
controls culture and operate
a robust control environment
throughout our operations.”
IAN DUNCAN CHAIRMAN OF THE AUDIT COMMITTEE
The Committee plans on building on the
programme in 2018 with continued focus
on areas of risk to the business to ensure
that the control environment is effective
and robust.
Although going concern is a matter for the
whole Board (see page 41), a review is made
by the Audit Committee of the Group’s
headroom under its covenants and undrawn
facilities in relation to the Group’s financial
forecasts and sensitivity analyses.
The Committee has again considered the
issue of external Auditor rotation and is
continuing to keep this under review.
The Company has complied during the
financial year ended 31 December 2017
with the provisions of The Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014 that are
applicable to it.
IAN DUNCAN
CHAIRMAN OF THE AUDIT COMMITTEE
8 March 2018
DEAR SHAREHOLDER,
I am pleased to present the Audit Committee
report for the year ended 31 December
2017, on behalf of the Board.
Areas of particular concern for the
Committee in relation to the overstatement
of both cash and trade payables and the
overstatement of profit issues have been:
I was appointed a Non-Executive Director
with effect from 1 January 2017. Jonathan
Nicholls retired as a Non-Executive Director
and Chair of the Audit Committee on
31 March 2017. I therefore succeeded Mr
Nicholls as Chair of the Audit Committee
from that date.
The Audit Committee provides effective
oversight and governance over the financial
integrity of the Group’s financial reporting to
ensure that the interests of the Company’s
Shareholders are protected at all times.
It assesses the quality of the internal and
external audit processes and ensures that
the risks which our businesses face are being
effectively managed.
The composition of the Audit Committee
meets with the requirements of the UK
Corporate Governance Code (April 2016)
(‘the Code’) but, in line with good practice,
membership is reviewed annually.
It is vitally important that we continually
strengthen the controls culture and operate
a robust control environment throughout
our operations. Accordingly, the Audit
Committee not only continually reviews
and updates our activities in line with new
legislation but also against the context of the
evolving nature of our operating businesses.
A major part of the Committee’s work this
year has been dominated by the discovery
of the overstatements in historical financial
information published by the Company. An
Investigation Committee, which I chaired, was
set up to investigate the allegations.
to understand how the overstatements
identified have accumulated over time,
how they have affected prior year’s
results, and to consider whether the
impact on past year’s results was such as
to require them to be restated;
to understand the circumstances
surrounding the breakdowns in controls,
as to why and how they happened and
what was done to resolve the issues; and
to satisfy itself, that the remedial steps
proposed to the Group’s financial
systems and internal controls and the
interim measures to be applied until
these new steps are fully implemented
are sufficient to avoid any repetition of
the issues that have emerged in relation
to the overstatements. This was done
in discussions with the Chief Executive
Officer and Chief Financial Officer and
the internal and external auditors and
advisors and included comprehensive
internal audit reviews of financial
reporting controls at SIG Distribution.
Further details about the overstatements
are set out on page 31 of the Financial
Review and on page 61 of the Corporate
Governance Report.
The Group’s Internal Audit function receives
specialist support, when required, from
KPMG. Management actions continued to
be taken to improve controls and bring
efficiencies across the business in 2017.
During the year KPMG performed reviews in
K8 Post-Implementation Review, UK Cashflow
Forecasting, SIG Distribution Margin
Management Review, UK Initiative Overload
and France ERP Pre-Implementation
Review to identify opportunities for further
improvements to the control environment.
73
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Audit Committee report
PURPOSE AND AIM
The purpose of the Committee is to make
recommendations on the reporting,
control, risk management and compliance
aspects of the Directors’ and the Group’s
responsibilities, providing independent
monitoring, guidance and challenge to
executive management in these areas.
Through this process the Committee’s aim is
to ensure high standards of corporate and
regulatory reporting, an appropriate control
environment, a robust risk management
framework and effective compliance
monitoring. The Committee believes that
excellence in these areas enhances
the effectiveness and reduces the risks
of the business.
KEY RESPONSIBILITIES
The accounting principles, practices and
policies applied in, and the integrity of, the
Group’s Financial Statements.
The adequacy and effectiveness of the
internal control environment.
The effectiveness of whistleblowing
procedures.
The effectiveness of the Group’s Internal
Audit function and co-sourced Internal
Audit function.
The appointment, independence,
effectiveness and remuneration of the
Group’s external Auditor, including the
policy on the award of non-audit services.
The supervision of any tender process for
the Group’s internal and external Auditor.
External financial reporting and
associated announcements.
The Group’s risk management processes
and performance.
The Group’s compliance with the UK
Corporate Governance Code.
The Audit Committee’s Terms of Reference
are available on the Company’s website
(www.sigplc.com).
AUDIT COMMITTEE MEMBERSHIP
As at 31 December 2017, the Committee
comprised the five independent Non-
Executive Directors of the Company.
Chairman of the
Committee
Mr I.B. Duncan
Members
Ms A. Abt
Ms J.E. Ashdown
Mr M. Ewell
Mr C.V. Geoghegan
The Board considers that each member
of the Committee is independent within
the definition set out in the UK Corporate
Governance Code (April 2016) (‘the Code’).
The knowledge and experience of the
Committee members means that the
Committee as a whole is competent in the
sector in which the Company operates. Mr
I.B. Duncan has recent and relevant financial
experience for the purposes of provision
C.1.3 of the Code.
AUDIT COMMITTEE STRUCTURE
The Committee operates under Terms
of Reference which can be found on the
Company’s website. They are reviewed
annually by the Committee, including
comparison against the Code, and changes
are recommended to the Board for approval.
The Committee has in its Terms of Reference
the power to engage outside advisors and to
obtain its own independent external advice
at the Company’s expense, should it be
deemed necessary. During 2017 no member
of the Committee, nor the Committee
collectively, found it necessary to obtain such
separate advice beyond the advice that is
directly provided to the Committee by the
external Auditor, Deloitte LLP or from KPMG
LLP, who operate the Group’s co-sourced
Internal Audit function.
As part of Corporate Governance the
Committee reviews its own performance
annually and considers where improvements
can be made. The Committee reviewed its
own performance in January 2018 and the
results of this review were reported to
the Board.
The Chairman of the Committee reports to
the subsequent meeting of the Board on
the key issues covered by the Committee,
identifying any matters on which it considers
that action or improvement is needed, and
makes recommendations on the steps to
be taken.
MEETINGS
The Committee meets regularly throughout
the year, with four meetings being held
during 2017. Its agenda is linked to events in
the Company’s financial calendar.
Attendance by individual members of the
Committee is disclosed in the table on page
64. The Committee Chairman regularly
invites senior company executives to attend
meetings of the Committee to discuss or
present specific items, and in particular the
Chief Financial Officer, Mr N.W. Maddock,
attended all four of the meetings in 2017.
The external Auditor also attended all four
meetings of the Committee in 2017 and has
direct access to the Committee Chairman.
The Committee also meets with the external
Auditor and the internal Auditors without
the Executive Directors being present. The
Committee Chairman also meets with the
internal Auditor and the external Auditor in
advance of Committee meetings.
74
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The Committee addressed the following key agenda items during its four meetings in 2017:
9 March 2017
7 June 2017
2 August 2017
18 December 2017
Internal Audit update
Review of the Internal Audit
Review of 2017 interim
Review of initial forensic
Review of going concern basis
of accounting and Viability
Statement
report
results
reports on supplier rebates
Review of the Committee’s
Goodwill and intangible
Review of internal control
Terms of Reference
assets impairment review
report
Goodwill and intangible
assets impairment review
Review of whistleblowing and
non-audit services policies
Review of going concern basis
Consideration of the risk
of accounting
management review process
Consideration of the risk
Discussion of the 2016
Review of the external
Review and approve the 2018
Annual Report compared to
best and emerging practice
Auditor’s interim work and
report and year end planning
Consideration of 2017 interim
results (including goodwill
and going concern)
Review Auditor plan for
interim review
Assessment of performance
of external Auditor
management review process
Internal control review
Review of 2016 audit process
and results, and discussion of
significant accounting matters
Review of the 2016 external
Auditor report
Review of the 2016
Annual Report (including
fair, balanced and
understandable) and
preliminary results
announcement
An additional meeting was held on 31 January 2018 in relation to the historical overstatement of profit and
considered forensic reports, reports from Internal Audit and a revised external audit plan. A further update
on the investigation of overstatement of profit was provided at the 6 March 2018 Committee meeting.
Internal Audit plan
Review of audit pre-close
accounting and reporting
issues
Goodwill and intangible
assets impairment discussion
Review of the updated year
end external audit planning
report
Agreement of 2017 audit
fee and review of Auditor
independence
Discussions regarding going
concern and the Viability
Statement
Review of policy on non-audit
services provided by external
Auditor
FINANCIAL REPORTING AND
SIGNIFICANT ACCOUNTING
MATTERS
The Committee considered the following
financial reporting and key accounting issues
with regard to the Financial Statements:
RECOGNITION AND MEASUREMENT
OF SUPPLIER REBATE INCOME*
The Committee examined the procedures and
controls in place to ensure that the reporting,
reviewing and accounting for supplier rebate
income is properly managed and that supplier
rebates are recognised appropriately in the
Group Financial Statements.
The Committee considered the work
performed in investigating the historical
overstatement of profit. It received and
reviewed reports from the Investigation
Committee, the forensic accountants
and the Auditor to enable the Committee
to understand the extent of the control
breakdowns. It considered the systems
that have subsequently been put in place
by management to strengthen the control
environment within SIG Distribution. The
Committee considered whether these issues
could impact other parts of the Group. The
Committee agreed with the Auditor that
the procedures performed over supplier
rebates should be enhanced to provide the
Committee with assurance over the valuation
of the rebate receivable.
The Committee has challenged and reviewed
the control remediation plan proposed
by management and considers that it is
appropriate.
The Committee considered the nature and
amount of the misstatements identified
and considered that they were qualitatively
material and that the Financial Statements
were to be restated.
CARRYING VALUE OF GOODWILL
AND INTANGIBLE ASSETS*
The carrying value of goodwill and intangible
assets are systematically reviewed at each
mid-year point and at year end. A consistent
methodology is applied to the individual cash
generating units, taking account of market
outlook, risk-adjusted discounted future
cash flows, sensitivities, and other factors
which may have a bearing on impairment
considerations. Specific focus has been
given to Larivière and SIG Distribution. The
Committee considered the appropriateness
of the assumptions including growth rates.
* Items marked as such are areas where judgement is
involved in arriving at the accounting conclusion.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE
Audit Committee report
PRESENTATION OF CASH
The Committee considered the work
performed by the Investigation Committee
into the cash processes undertaken across
the Group. The Committee assessed whether
the errors required restatement and
considered that this was appropriate.
The Committee considered the proposed
changes to internal control and determined
that they were appropriate.
DISCLOSURE OF OTHER ITEMS*
The Committee gave careful consideration
to the judgements made in the separate
disclosure of Other items. In particular,
the Committee sought to ensure that
the treatment followed consistent
principles and that reporting in the Group
Financial Statements is suitably clear and
understandable.
The Committee considered the nature of
items included/excluded within/from
Other items, including the presentation of
property profits and consider that the split
between underlying profit and Other items
is appropriate.
RECOGNITION AND MEASUREMENT
OF TRADE RECEIVABLES*
Methodologies and judgements applied in
establishing provisions for trade receivables
were examined to ensure consistent
application and appropriateness to the
trading position of the Group.
CORPORATE CULTURE
The Committee considered the
circumstances that led up to the accounting
irregularities that occurred, the cultural
backdrop and actions which allowed the
overstatements. This identified that senior
leadership of the organisation need to instill
a culture whereby improvement in financial
performance must come from underlying
improvement in operational performance.
The Committee endorsed the actions
identified by senior management to address
and embed this change in culture.
* Items marked as such are areas where judgement is
involved in arriving at the accounting conclusion.
76
OVERSIGHT OF EXTERNAL
AUDITOR
The Board is aware of the need to maintain
an appropriate degree of independence and
objectivity on the part of the Group’s external
Auditor. The external Auditor reports to the
Committee on the actions taken to comply
with both professional and regulatory
requirements and with best practice
designed to ensure its independence.
The Group has an agreed policy with regard
to the provision of audit and non-audit
services by the external Auditor, which was
operated throughout 2017. The policy is
based on the principles that they should
undertake non-audit services only where
they are the most appropriate and cost-
effective provider of the service, and where
the provision of non-audit services does
not impair, or is not perceived to impair,
the external Auditor’s independence and
objectivity. It categorises such services as
Auditor-permitted services, Auditor-excluded
services and Auditor-authorised services.
The fees permissible for non-audit services
should not exceed 70% of the average audit
fees paid to the Group’s external Auditors in
the last three consecutive financial years. In
all cases, any instruction above a project cost
of £20,000, or where the fee is contingent
in full or in part on success, must be pre-
approved by the Chief Financial Officer and
the Chairman of the Audit Committee before
the external Auditors are engaged. The
policy, which was reviewed at the December
2017 meeting and can be viewed on the
Company’s website (www.sigplc.com),
defines the types of services falling under
each category and sets out the criteria to
be met and the internal approvals required
prior to the commencement of any Auditor-
authorised services.
The external Auditor cannot be engaged to
perform any assignment where the output
is then subject to their review as external
Auditor. The Committee regularly reviews
an analysis of all services provided by the
external Auditor. The policy and the external
Auditor’s fees are reviewed and set annually
by the Committee and are approved by
the Board.
GOING CONCERN AND LONGER
TERM VIABILITY
The Group is subject to financial covenants
related to its committed bank facilities and
private placement notes as set out on
page 39. The Group had net debt of £223.8m
at 31 December 2017 and reported a
headline financial leverage of 1.9x for the
period against the covenant maximum of
3.0x. The Committee reviewed the Group’s
cash flow, net debt and leverage forecast
and note that there is sufficient headroom
forecast against the Group’s financial
covenants throughout the viability period.
Our assessment has placed additional focus
on the covenant test points of 30 June (with
particular reference to the working capital
seasonality of the business which would
ordinarily see leverage rise at the half year)
and 31 December. The Committee has also
reviewed the Group’s potential mitigating
actions to reduce leverage in the short
term and consider these to be achievable
and commercially viable. The Committee
is satisfied that the assumptions taken are
appropriate.
OVERSIGHT OF INTERNAL AUDIT
The Internal Audit function provides
independent assurance to senior
management and the Board on the
adequacy and effectiveness of SIG’s risk
management framework. Internal Audit
forms an independent and objective
assessment as to whether risks have been
adequately identified, adequate internal
controls are in place to manage those risks,
and those controls are working effectively.
The results of all assignments have been
reported to the Audit Committee during the
year. Areas of weakness that were identified
during the year prompted a detailed action
plan and a follow-up audit check to establish
that actions had been completed. No failings
or weaknesses were identified during the
year which had a material effect on the
Company’s financial performance, other than
those identified through the forensic review.
The Group Director of Risk & Internal
Audit was appointed on 2 October 2017,
reporting directly to the Chairman of the
Audit Committee. This is seen as a key
measure and commitment from the Board to
improve reporting and consequently control
systems. KPMG LLP who were appointed on
1 January 2014 as an outsourced Internal
Audit function, continue to provide additional
co-sourced support to the Group to cover
specialised areas.
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The total fees payable by the Group by its
external Auditor for non-audit services in
2017 were £0.1m, primarily the Interim
Review (2016: £0.1m). The total fees payable
to them for audit services in respect of the
same period were £1.6m (2016: £1.5m).
The ratio of audit to non-audit fee was
16:1. Details of each non-audit service and
reasons for using the Group’s external
Auditor are provided in Note 4 to the
Financial Statements on page 121.
A full breakdown of Auditor fees are
disclosed in Note 4 to the Financial
Statements on page 121.
The external Auditor reports to the
Committee each year on the actions taken
to comply with professional and regulatory
requirements and best practice designed
to ensure its independence, including the
rotation of key members of the external
audit team. Deloitte LLP has formally
confirmed its independence to the Board
in respect of the period covered by these
Financial Statements.
The Committee reviewed the performance
of the external Auditor at its meeting in
March 2017 and had been satisfied with
the independence, objectivity, expertise,
resources and general effectiveness of
Deloitte LLP, and that the Group was
subjected to a rigorous audit process.
More details of the tender plans are
reported below.
FAIR, BALANCED AND
UNDERSTANDABLE
The Committee has reviewed the contents of
this year’s Annual Report and Accounts and
advised the Board that, in its view, the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the necessary information to enable
Shareholders to assess the position and
performance, strategy and business model of
the Company.
In reaching this conclusion the Committee
has considered the following:
The preparation of the Annual Report
is a collaborative process between
Finance, Legal, Human Resources and
Communications functions within SIG,
ensuring the appropriate professional
input to each section. External guidance
and advice is sought where appropriate.
The coordination and project
management is undertaken by a
central team to ensure consistency and
completeness of the document.
An extensive review process is
undertaken, both internally and through
the use of external advisors.
A final draft is reviewed by the
Audit Committee members prior to
consideration by the Board.
As a result of its work during the year,
the Audit Committee has concluded
that it has acted in accordance with its
Terms of Reference and has ensured the
independence and objectivity of the external
Auditor.
On behalf of the Board
IAN DUNCAN
CHAIRMAN OF THE AUDIT COMMITTEE
8 March 2018
AUDIT TENDER
During the year, the Committee considered
the Group’s position on its Auditor services,
taking into account the Code, together with
the EU Audit Directive and Regulation and the
Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
Having previously acted as Auditor to parts
of the Group since 2003, Deloitte was invited
to tender for the entire Group audit in 2005
and this resulted in their appointment as the
Group’s external Auditor.
As noted previously, the Committee
continues to review the performance of the
external Auditor and has been satisfied with
the independence, objectivity, expertise,
resources and general effectiveness of
Deloitte LLP, and that the Group is subjected
to a rigorous audit process. The Committee
does not consider it necessary to conduct a
tender process for the appointment of the
Company’s Auditor at this time, although
the Committee will continue to keep this
under review.
The current lead audit partner, Simon
Manning, took over the audit for the year
ended 31 December 2013. The Committee
reported its view in its Report last year
that it was potentially more effective to
align the tender of the external Auditor
with the rotation of the current lead audit
partner. This is in line with the transition
arrangements outlined by the Financial
Reporting Council in relation to the Code.
The Committee has since reconsidered the
position. Given the recent appointment of
a new Chief Financial Officer, coupled with
the recent appointment of Mr Duncan as the
Chair of Audit Committee, the Committee
believes that it is appropriate to delay the
consideration of the audit tender until after
the 2018 audit. A new audit partner will
however be appointed at the conclusion of
the 2017 audit.
Therefore, the Committee recommends,
and the Board agrees, that a resolution
for the reappointment of Deloitte LLP as
Auditor of the Company for a further year
will be proposed at the forthcoming Annual
General Meeting.
77
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Nominations Committee report
“ It has been a busy year for the
Committee in terms of various new
appointments to your Board. The
Committee continues its work of
ensuring the Board composition is
right and supports good governance
of the Board”
ANDREW ALLNER CHAIRMAN OF THE NOMINATIONS COMMITTEE
PURPOSE AND AIM
The Terms of Reference of the Nominations
Committee, a copy of which is available on
the Company’s website (www.sigplc.com),
are closely modelled on those set out in the
UK Corporate Governance Code (April 2016)
(‘the Code’). The principal responsibility of
the Nominations Committee is to ensure
that, collectively and at any given time,
the members of the Board possess the
necessary balance of knowledge, skills
and experience to support and develop
the strategy of the Company. In seeking to
achieve this, the Nominations Committee
will recommend new Board appointments as
and when considered appropriate and will
ensure that appropriate succession planning
procedures are in place. In accordance with
our Terms of Reference, I, as the Chairman
of the Nominations Committee, report
our conclusions to the Board and it is the
Board as a whole which is responsible
for making new appointments upon our
recommendation.
The Committee keeps under review and
evaluates the composition of the Board and
its Committees to maintain the appropriate
balance of skills, knowledge, experience and
independence to ensure their continued
effectiveness. Appropriate succession
plans for the Non-Executive Directors,
Executive Directors and the Group’s senior
management are also kept under review.
MEETINGS AND MEMBERSHIP
During the year the Committee met on six
occasions. A quorum is three members,
the majority of whom must be independent
Non-Executive Directors. Members of the
Committee are not involved in matters
affecting their own position.
As at 31 December 2017, the Committee
comprised the Chairman, the Chief Executive
Officer and the five independent Non-
Executive Directors of the Company.
Chairman of the
Committee
Mr A.J. Allner
Members
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan
Mr M. Oldersma
BOARD SUCCESSION PLANNING
The Nominations Committee gives full
consideration to succession planning for
Directors, both Non-Executive and Executive,
and other Senior Executives of the Company
in the course of its work, taking into account
the challenges and opportunities facing the
Company and determining what skills and
expertise will thus be required on the Board
in the future.
It was intended that a consultation with
Shareholders concerning the Company’s
remuneration plans for Senior Management
would take place in early 2018 and noting
that Mr Geoghegan would have completed
three terms (nine years) as a Non-Executive
Director of the Company in May 2018 and
would therefore cease to be regarded
as independent as defined in the Code,
proposed that Ms Ashdown be appointed
Chair of the Remuneration Committee in
order that she could lead that consultation.
It was agreed that Ms Ashdown be appointed
Chair of the Remuneration Committee with
effect from 19 December 2017.
The Committee considered the position
of Ms A. Abt, who will complete her first
three-year period of office in March 2018,
and who was appointed to serve for a
further year of office expiring at the May
2018 Annual General Meeting (‘AGM’).
It was the Committee’s view that, noting
the skills and experience of Ms Abt and in
particular her knowledge of the European
market, it would be in the best interests
of the Company’s Shareholders, subject
to careful and rigorous review, for Ms Abt
to offer herself for re-election at the 2018
AGM. In the Committee’s view, Ms Abt brings
considerable management experience
and an independent perspective to the
Board’s discussions and is considered to
be independent of management and free
from relationship or circumstance that could
affect or appear to affect, the exercise of her
independent judgement, therefore providing
continued valuable support. Therefore,
Ms Abt has, subject to her re-election by
Shareholders at the AGM in May 2018, been
invited to serve for a further term of office
expiring at the May 2021 AGM.
Mr I.B. Duncan was appointed a Non-
Executive Director on 1 January 2017.
Mr D.G. Robertson retired from the Board as
Group Finance Director on 31 January 2017
and Mr N.W. Maddock was appointed as
Chief Financial Officer on 1 February 2017.
Mr J.C. Nicholls retired from the Board on
31 March 2017 as a Non-Executive Director
and Chair of the Audit Committee.
Mr I.B. Duncan succeeded Mr Nicholls as
Chair of the Audit Committee following
Mr Nicholls’ retirement.
Mr M. Oldersma was appointed as an
Executive Director and Chief Executive
Officer with effect from 3 April 2017.
Mr L. Van de Walle retired from the Board
as Non-Executive Chairman with effect
from 31 October 2017. I was appointed as
Non-Executive Chairman with effect from
1 November 2017 and will offer myself for
election at the May 2018 AGM.
78
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Mr C.V. Geoghegan is due to complete three
terms this year, and as such in line with the
Code he has offered to retire from the Board
on 9 March 2018 and will not offer himself
for re-election.
Taking the considerations mentioned above
and subject to annual re-election by
the Shareholders, Ms Ashdown was offered
to serve a further two years as a
Non-Executive Director.
A process to identify a new Non-Executive
Director has commenced. As part of the
succession process the Committee agreed
that Mr Ewell, who has been a Non-
Executive Director since 1 August 2011 and
served as the Interim Chief Executive from
11 November 2016 to 28 March 2017, would
continue to serve until a new Non-Executive
Director has been identified. Subject to
annual re-election by Shareholders, Mr Ewell
was offered to serve a further year as a
Non-Executive Director, expiring at the
May 2019 AGM.
It was the Committee’s view that Mr Ewell
continues to bring management experience
and independent perspective to the
Board’s discussions and is considered to
be independent of management and free
from relationship or circumstance that
could affect or appear to affect the exercise
of his independent judgement. Noting
the departure of Mr C.V. Geoghegan, the
Committee appointed Mr Ewell as the Senior
Independent Director until a new Non-
Executive Director is appointed.
GENERAL
In general terms, when considering
candidates for appointment as Directors of
the Company, the Nominations Committee,
in conjunction with the Board, drafts a
detailed job specification and candidate
profile. In drafting this, consideration
would be given to the existing experience,
knowledge and background of Board
members as well as the strategic and
business objectives of the Group.
Once a detailed specification has been
agreed with the Board, the Committee would
then work with an appropriate external
search and selection agency to identify
candidates of the appropriate calibre and
with whom an initial candidate shortlist could
be agreed. The consultants are required
to work to a specification that includes the
strong desirability of producing a full list of
candidates who meet the essential criteria,
whilst reflecting the benefits of diversity.
The Board will only engage such consultants
who are signed up to the voluntary code
of conduct on gender diversity on
corporate boards.
diversity of perspective in the boardroom.
The policy on Board diversity is available on
the Company’s website (www.sigplc.com).
Shortlisted candidates would then be invited
to interview with members of the Committee
and, if recommended by the Committee,
would be invited to meet the entire Board
before any decision is taken relating to
the appointment.
During the year under review, in connection
with the appointments of Mr I.B. Duncan,
Mr N.W. Maddock, and myself, the
Committee used the services of The Zygos
Partnership (who have no other connection
with the Company).
During the year under review, in connection
with the appointment of Mr M. Oldersma,
the Committee used the services of Korn
Ferry (who have no other connection with
the Company).
The process described above was
followed in respect of the appointments
of Mr I.B. Duncan as a Non-Executive
Director with effect from 1 January 2017,
Mr N.W. Maddock as Chief Financial
Officer with effect from 1 February 2017,
Mr M. Oldersma as Chief Executive Officer
with effect from 3 April 2017, and my own
appointment as Non-Executive Chairman
with effect from 1 November 2017.
Following the appointment of a new
Director, the Chairman, in conjunction with
the Company Secretary and the Group
Human Resources Director, is responsible
for ensuring that a full, formal and tailored
induction to the Company is given. Although
not an exhaustive list, the induction includes
one-to-one meetings with key management
(including HR, Finance, Risk and Corporate
Development) and an overview of the
Group’s structure and strategy (including site
visits and an overview of operations).
The Committee also carefully reviews and
makes recommendations concerning
the reappointment of any Non-Executive
Director at the conclusion of their specified
term of office.
The Board acknowledges the importance
of diversity in its broadest sense in
the boardroom as a driver of board
effectiveness. Diversity encompasses
diversity of perspective, experience,
background, psychological type and personal
attributes. The Board also recognises that
gender diversity is a significant aspect of
diversity and acknowledges the role
that women, with the right skills and
experience, can play in contributing to
SIG supports the principles of gender
diversity. Female representation on
the Board is 25%. The Committee will
continue to consider gender diversity
when recommending any future Board
appointments, and final appointments will
always be made on merit. The Committee is
seeking to increase female representation, in
particular at senior management level across
the Group.
As part of corporate governance, the
Committee reviews its own performance
annually and considers where improvements
can be made. The Committee reviewed
its own performance in January 2018 and
the results of this review were reported to
the Board. Details of the process and its
outcomes are covered on page 66 of the
Corporate Governance Report.
2018 OBJECTIVES
It is the Nominations Committee’s intention
to continue to oversee the composition
and structure of the Board, ensuring
that the Group is at all times structured
to successfully deliver its strategy and to
compete effectively in the marketplaces
within which it operates. During 2018 the
Nominations Committee will also continue to
closely monitor the structure, membership
and succession plans of its Committees and,
more generally, the leadership requirements
of our businesses, making recommendations
to the Board where considered appropriate.
The proposed activities for the Committee in
2018 are:
review the terms of reference of the
Committee to ensure they reflect best
practice;
review findings of the Parker Review on
ethnic diversity on the Board as well as
reporting against the recommendations
of the McGregor-Smith Review and
Hampton-Alexander Review;
continue to monitor and assess the
Board’s composition and diversity in light
of the second report of the Hampton-
Alexander Review; and
longer term succession planning.
ANDREW ALLNER
CHAIRMAN OF THE
NOMINATIONS COMMITTEE
8 March 2018
79
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual statement
“ Our aim is to ensure that
remuneration arrangements support
the strategic aims of the Company
and enable the recruitment,
motivation and retention of senior
executives while also complying with
the requirements of regulation.”
JANET ASHDOWN CHAIR OF THE REMUNERATION COMMITTEE
DEAR SHAREHOLDER,
On behalf of the Board, I am pleased to
present the Remuneration Committee’s
(‘the Committee’) Directors’ remuneration
report for 2017.
Having been a member of the Remuneration
Committee since 2011, I was duly appointed
Chair of the Committee on 19 December
2017 to replace Mr C.V. Geoghegan.
The change in chairmanship was agreed
with Mr Geoghegan in preparation for
the Company’s remuneration plans
for Senior Management in early 2018.
As Mr Geoghegan was due to complete
three terms (nine years) as a Non-Executive
Director in May 2018 he would cease to be
regarded as independent as defined in the
UK Corporate Governance Code (April 2016).
As in previous years, this report is split into
three sections: the Annual Statement, the
Remuneration Policy and the Annual Report
on Remuneration. SIG’s current Remuneration
Policy was approved by Shareholders with a
99.4% vote of support at the 11 May 2017
Annual General Meeting (‘AGM’) and is due
for renewal in 2020. Our Remuneration
Policy, detailed on pages 81 to 83, remains
consistent with that approved by Shareholders
at the 2017 AGM, and is reproduced in full
for both ease of reference and in order to
provide context to the decisions taken by the
Committee during the year.
REMENURATION COMMITTEE
MEMBERSHIP
As at 31 December 2017, the Committee
comprised the five independent Non-
Executive Directors of the Company.
Chair of the
Committee
Members
Ms J.E. Ashdown
Ms A. Abt
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan
80
REMUNERATION DECISIONS
IN 2017
SIG’s clear strategy over 2017 has been the
continued focus on seeking to grow its three
core markets of insulation and interiors,
roofing and exteriors and air handling by
combining the reputational strengths of
its local brands with the scale efficiencies
and know-how of a multinational group.
Furthermore, by working together more as
a Group, and by fully leveraging its scale
and presence in the marketplace, our aim
is to make SIG’s whole greater than the
sum of the parts, for example by improving
the way in which we conduct procurement.
However, while enacting our transformation
programme, we need to ensure that we
balance business change with the day-to-day
operations of the Group, and that we remain
focused on our customers.
For the year ended 31 December 2017,
underlying Profit Before Tax (‘PBT’) was
£79.2m and Group Working Capital to Sales
was 9.0%. The objectives linked to underlying
Profit Before Tax, Group Working Capital and
Health & Safety in the annual bonus were
achieved in part. The resulting annual bonus
outcome was therefore 70% of salary for Mr
N.W. Maddock and Mr M. Oldersma. This is
payable, two-thirds in cash and one-third
deferred as shares in the Company.
Based on performance to 31 December
2017, 100% of the awards granted under
the 2014 Long Term Incentive Plan (‘LTIP’)
in September 2015 will lapse. These awards
were based two-thirds on ROCE and one-
third on underlying earnings per share
(‘EPS’); targets were not met in respect of
either element.
DIRECTORATE CHANGES
Mr S.R. Mitchell stepped down from
the Board as Group Chief Executive
on 11 November 2016, and Mr D.G.
Robertson retired from the Board as Group
Finance Director on 31 January 2017. All
payments made to both individuals were
in line with the Company’s Remuneration
Policy in place at the time, and consistent
with their service agreements and statutory
employment rights. Further details of both
individuals’ exit payments and treatment of
outstanding equity awards may be found on
page 80 of the 2016 Annual Report and page
93 of this Report.
As replacements for the outgoing Group
Chief Executive and Group Finance
Director, Mr M. Oldersma was appointed
as Chief Executive Officer on 3 April 2017
and Mr N.W. Maddock was appointed as
Chief Financial Officer on 1 February 2017.
Further details of Mr M. Oldersma and
Mr N. W. Maddock’s remuneration packages
may be found on pages 84 to 85.
IMPLEMENTATION OF THE
REMUNERATION POLICY IN 2018
Towards the end of 2017 the Committee
reviewed the salaries of our Executive
Directors. This review took into account
a number of factors including individual
experience and performance, pay conditions
across the Group, economic factors and
the business environment. Following this
review, the Committee agreed that base
salaries for the Executive Directors would
increase by 1.5% for 2018. This is consistent
with the increase for members of the Senior
Leadership Team, and with the average
increase across the rest of the Group.
Following a review of the annual bonus in
2017, the Committee made a change to
the mix of performance measures to better
support the Company ethos of Stronger
Together, as reflected in the 2018 bonus
metrics. The metrics for the 2018 annual
bonus will be linked 50% to Group underlying
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc PBT and 50% to Group ROCE. Any bonus
payments will also be subject to a health &
safety gateway eg bonuses may be reduced
to nil at the Remuneration Committee’s
discretion in the event of a major health &
safety incident. One-third of the bonus will
continue to be deferred into shares for three
years for Executive Directors. Both annual
bonuses and LTIP awards are subject to
malus and clawback provisions.
The Remuneration Committee is conducting
a review of the incentive arrangements
for the Executive Directors and other Key
Executives of the Company. At the time of
this Report the Committee is consulting
with Shareholders on different incentive
approaches. At the end of the consultation
period, if the Committee determines to make
any changes to the incentive arrangements,
a revised Remuneration Policy will be put
to Shareholders at a General Meeting of
the Company.
If the Committee determines not to proceed
with a new plan, awards will be made to
Mr Oldersma and Mr Maddock in 2018
under the existing LTIP. The performance
measures will be determined closer to the
time and disclosed via a stock exchange
announcement and in next year’s report.
The Annual Report on Remuneration
will be subject to an advisory vote at the
forthcoming AGM. We continue to value any
feedback from Shareholders and hope to
receive your support at the AGM.
JANET ASHDOWN
CHAIR OF THE REMUNERATION COMMITTEE
8 March 2018
COMPLIANCE STATEMENT
This report, prepared by the Committee
on behalf of the Board, has been prepared
in accordance with the provisions of the
Companies Act 2006 (‘the Act’), the Listing
Rules of the Financial Conduct Authority and
the Large and Medium-sized Companies
and Groups (Financial Statements and
Reports) (Amendment) Regulations 2013.
The Act requires the Auditor to report to
the Company’s Shareholders on the audited
information within this report and to state
whether in their opinion those parts of the
report have been prepared in accordance
with the Act. The Auditor’s opinion is set out
on pages 167 to 177 and those aspects of
the report that have been subject to audit
are clearly marked.
It is considered that throughout the year
under review the Company has complied
with the governance rules and best practice
provisions applying to UK-listed companies.
REMUNERATION POLICY
The Directors’ Remuneration Policy was
approved by a binding vote at the 2017
AGM and took effect from the date of the
AGM. This section presents the full Policy, for
ease of reference. The sections presented
are as disclosed in the 2016 Directors’
Remuneration Report, save the following
changes:
References to financial years have been
updated where appropriate.
Pay scenario charts have been updated to
reflect the latest salaries.
Details of current Non-Executive
Directors’ letters of appointment.
The Company’s policy is to provide
remuneration packages that fairly reward
the Executive Directors for the contribution
they make to the business and that are
appropriately competitive to attract, retain
and motivate Executive Directors and
Senior Managers of the right calibre. A
significant proportion of remuneration
takes the form of variable pay, which is
linked to the achievement of specific and
stretching targets that align with the creation
of Shareholder value and the Company’s
strategic goals. The Group’s financial
and strategic objectives are set out in the
Strategic Report on pages 8 to 41.
The Remuneration Policy for Executive
Directors is summarised in the table overleaf:
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Directors’ remuneration policy
FIXED REMUNERATION
Element
Purpose and link
to strategy
Base salary
To attract and retain
talent in the labour
market in which the
Executive Director is
employed.
Operation and process
Opportunity
Performance metrics
Recovery of
sums (clawback)
Reviewed on an annual basis
(with effect from January) or
following a significant change
in responsibilities, taking
into account the individual’s
performance and experience,
with reference to published
remuneration information
from similar sized companies
(excluding financial services)
and companies operating in a
similar sector. The Committee
also takes account of the
annual salary review for the
rest of the Group.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
It is anticipated that salary
increases will generally be in
line with the general employee
population.
In certain circumstances
(including, but not limited to, a
significant increase in role size
or complexity, or no increase
for a number of years) the
Committee has discretion to
make appropriate adjustments
to salary levels.
Benefits may vary by role.
The cost of benefits may vary
as a result of factors outside
the Company’s control (eg
increases in healthcare
insurance premiums), though it
is not anticipated that the cost
of benefits will exceed £35,000
per annum per Executive
Director over the term of this
Policy.
The Committee retains the
discretion to approve a
higher cost in exceptional
circumstances (eg relocation).
Benefits
To provide benefits
that are appropriately
competitive within
the relevant labour
market.
Benefits include (but are
not limited to) a company
car, medical and permanent
health insurance. Benefits are
reviewed annually and their
value is not pensionable.
Pension
To provide retirement
benefits that are
appropriately
competitive within
the relevant labour
market.
The Company provides a
contribution to a defined
contribution pension scheme
(open to all UK-based
employees of the Group), or
provides a cash equivalent at
the request of the individual.
15% of base salary.
Not applicable.
Not applicable.
Maximum opportunity is in line
with HMRC limits.
Not applicable.
Not applicable.
Share
Incentive
Plan (‘SIP’)
To encourage share
ownership across all
UK-based employees
using HMRC tax-
advantaged schemes.
The SIP is an HMRC tax-
advantaged plan which
provides all UK-based
employees with a potentially
tax-efficient way of purchasing
shares and receiving matching
shares. The Company gives one
matching share for each share
purchased by the employee
up to a maximum of £20 each
month.
Executive Directors are entitled
to participate in the SIP on
the same terms as other
employees.
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Element
Purpose and link
to strategy
Operation and process
Opportunity
Performance metrics
Maximum opportunity is 100%
of salary.
For entry level and target
performance, the bonus
earned is up to 30% and up to
65% of maximum, respectively.
Annual bonus
and Deferred
Share Bonus
Plan (‘DSBP’)
To incentivise
and reward the
achievement of
annual financial
and non–financial
targets, in line with
the Company’s
strategic priorities.
Mandatory deferral of
part of the bonus into
shares to strengthen
shareholder
alignment.
The annual bonus is reviewed
annually prior to the start
of each financial year to
ensure bonus opportunity,
performance measures, targets
and weightings are appropriate
and continue to support the
strategy.
Executive Directors are
required to defer one–third
of any bonus earned into an
award over SIG shares for a
period of three years under the
DSBP. Dividend equivalents are
payable over the vesting period
in respect of the DSBP awards
which vest.
Long Term
Incentive
Plan (‘LTIP’)
To incentivise and
reward the delivery
of the Group’s long
term strategy whilst
providing strong
alignment with
Shareholders.
Executive Directors are granted
annual awards of nil-cost
options or conditional share
awards, which vest based on
performance over a minimum
of three years.
Awards normally vest after
three years, and a two-year
holding period applies for
vested awards, during which
time Executive Directors may
not sell shares save to cover
tax.
Dividend equivalents are
payable over the vesting and
holding periods in respect of
the awards which vest.
Maximum annual award is up
to 150% of salary.
In exceptional circumstances,
such as to facilitate the
recruitment or retention of
an executive, or to recognise
exceptional individual
performance which the
Committee considers has
generated significant value for
Shareholders, the Committee
may, in its absolute discretion,
exceed this maximum annual
opportunity, up to 200% of
salary.
Threshold performance will
result in vesting of no more
than 25% of the award.
Performance is
determined by the
Committee on an
annual basis by
reference to Group
financial measures
and non-financial
measures.
The personal/strategic
element will not be
weighted more than
30% of the total in
any year.
When assessing
financial performance,
the Committee
typically considers
underlying Profit
Before Tax (‘PBT’)
and Group working
capital, as well as
other indicators of
performance defined
at the start of the year.
Details of the
measures and
weightings applicable
for the financial
year under review
are provided in the
Annual Report on
Remuneration.
Vesting of LTIP awards
is subject to the
Group’s performance
measured over a
minimum of three
years.
The performance
measures and
respective weightings
may vary year-on-year
to reflect strategic
priorities, subject to
retaining an element
based on underlying
EPS growth and
Return On Capital
Employed (‘ROCE’).
Details of the
measures, weightings
and performance
targets used for
specific LTIP grants
are included in the
Annual Report on
Remuneration.
Recovery of
sums (clawback)
The annual
bonus is subject
to malus and
clawback, ie
forfeiture or
reduction of the
deferred portion
or recovery of
paid amounts,
in exceptional
circumstances.
Such
circumstances
may include (but
are not limited
to) material
misstatement
of the Group’s
financial
results or gross
misconduct.
LTIP awards are
subject to malus
and clawback,
ie forfeiture or
reduction of
unvested awards
or recovery of
vested awards,
in exceptional
circumstances
(eg material
misstatement
or gross
misconduct).
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Directors’ remuneration policy
The Committee is satisfied that the
Remuneration Policy on pages 81 to 83 is
in the best interests of Shareholders and
does not promote excessive risk-taking.
The Committee has discretion to adjust the
formulaic annual bonus and LTIP vesting
outcomes to ensure alignment of pay with
performance, ie to ensure the final outcome
is a fair and true reflection of underlying
business performance. Any adjustments will
be disclosed in the relevant Annual Report
on Remuneration. The Committee also
retains discretion to make non-significant
changes to the Policy without reverting
to Shareholders.
NOTES TO THE REMUNERATION
POLICY TABLE
PAYMENTS FROM EXISTING AWARDS
Executive Directors are eligible to receive
payment under any award made prior to the
approval and implementation of the 2017
Remuneration Policy including under the
existing LTIP.
SELECTION OF PERFORMANCE
MEASURES
Annual bonus and LTIP performance
measures used under the annual
performance bonus are selected annually to
reflect the Group’s main short and long term
strategic objectives and reflect financial and
non-financial priorities, as appropriate.
In respect of the annual bonus, Group PBT is
selected for the year as an objective as it is a
well understood measure of the Company’s
financial performance. The use of Group
ROCE helps reinforce delivery of other key
strategic goals.
In respect of the LTIP, the Committee
continues to believe that ROCE reinforces
the focus on capital efficiency and delivery of
strong returns for our Shareholders, thereby
further strengthening the alignment of
management’s incentives with SIG’s strategy.
The Committee also continues to believe that
underlying EPS is a key driver of long term
Shareholder value for SIG.
Performance targets are set to be stretching
and achievable, taking into account the
Group’s strategic priorities and the economic
environment in which the Company
operates. Targets are set taking into account
a range of reference points including the
Group’s strategic plan and broker forecasts
for both SIG and its peers. The Committee
believes that the performance targets set
are very challenging and that the maximum
outcomes are only available for truly
outstanding performance.
REMUNERATION POLICY FOR
OTHER EMPLOYEES
Our approach to salary reviews is consistent
across the Group, with consideration given
to the level of responsibility, experience,
individual performance, salary levels in
comparable companies and the Company’s
ability to pay. Remuneration surveys are
referenced, where appropriate, to establish
market rates.
Senior managers participate in a similar
annual bonus plan to that for the Executive
Directors, with performance measures
tailored to individual business areas. A
limited number of senior managers are also
eligible to receive LTIP awards. Performance
conditions are consistent for all participants,
while award sizes vary by organisational level.
All UK employees are eligible to participate in
the SIP on the same terms.
Pension and benefits arrangements are
tailored to local market conditions, and
so various arrangements are in place for
different populations within SIG. Executive
Directors participate in the same pension
scheme as other senior managers.
APPROACH TO RECRUITMENT
REMUNERATION
The Committee’s policy is to set pay for
new Executive Directors within the existing
Remuneration Policy in order to provide
internal consistency. The Committee aims
to ensure that the Company pays no more
than is necessary to appoint individuals of an
appropriate calibre.
When appointing a new Executive Director,
the Committee may use any element of
remuneration as set out in the Policy table.
Where an individual is appointed on an initial
salary that is below market, any shortfall may
be managed with phased increases over
a period of years, subject to the Executive
Director’s development in the role and
Company performance. This may result in
above-average salary increases during
this period.
The annual bonus is normally reduced on
a pro rata basis to reflect the proportion of
the year employed. The Committee retains
flexibility to apply different performance
measures and targets in the first year of
appointment, depending on the timing and
nature of the appointment. The maximum
level of variable remuneration which may be
granted to a new Executive Director is set
out in the Policy table.
In addition to the components of
remuneration included in the Policy table,
the Committee may also make additional
cash and/or share-based awards to a new
externally appointed Executive Director to
‘buy out’ incentive arrangements forfeited
on leaving a previous employer, when it
considers this to be in the best interests
of the Group and our Shareholders. The
Committee may exercise the discretion
available under the relevant Listing Rule
to facilitate this, ie in the event that a
different structure is required. In doing
so, the Committee will ensure that any
‘buyout awards’ have a fair value no higher
than that of the awards forfeited and will
consider relevant factors including any
performance conditions attached to these
awards, the likelihood of those conditions
being met, and the remaining vesting period
of these awards. Where, in the Committee’s
opinion, awards forfeited are still subject
(at date of appointment) to substantive
performance conditions, any awards made
in compensation will have SIG-specific
performance conditions attached.
Where an Executive Director is appointed
through internal promotion, and the
individual has contractual commitments
made prior to their promotion to the Board,
the Company will continue to honour these
arrangements.
SHARE OWNERSHIP GUIDELINES
To further align Executive Directors’
interests with those of Shareholders, the
Company has established the principle of
requiring Executive Directors to build up
and maintain a beneficial holding of shares
in the Company equivalent to a minimum
of 200% of base salary. Under normal
circumstances it is expected that this should
be achieved within five years of appointment.
It is anticipated that this guideline will be
achieved mainly by the vesting of shares
through the Company’s share plans.
EXECUTIVE DIRECTOR SERVICE
CONTRACTS
Subject to the considerations set out
overleaf, the Company’s policy is to limit
termination payments to pre-established
contractual arrangements. In the event that
the employment of an Executive Director
is terminated, any compensation payable
will be determined in accordance with the
terms of the service contract between the
Company and the Executive Director, as well
as the rules of any incentive plans.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Executive Directors have service agreements
with an indefinite term and which are
terminable by either the Group or the
Executive Director on six months’ notice in
the case of the Chief Executive Officer and
on 12 months’ notice in the case of the Chief
Financial Officer.
If employment is terminated by the Company,
the departing Executive Director may have a
legal entitlement (under statute or otherwise)
to additional amounts, which would need to
be met. In addition, the Committee retains
discretion to settle any claims by or on behalf
of the Executive Director in return for making
an appropriate payment and contributing
to the legal fees incurred by the Executive
Director in connection with the termination
of employment, where the Company wishes
to enter into a settlement agreement and the
individual must seek independent legal advice.
There is no provision in the Executive
Directors’ service contracts for compensation
to be payable on termination of their
contract over and above sums due in
respect of notice and accrued but untaken
holiday, and as outlined below regarding
annual bonus and LTIP. Executive Director
service contracts are available to view at the
Company’s registered office.
In certain circumstances, the Committee may
approve new contractual arrangements with
departing Executive Directors including (but
not limited to) settlement, confidentiality,
outplacement services, restrictive covenants
and/or consultancy arrangements. These
will be used sparingly and only entered into
where the Committee believes that it is in
the best interests of the Company and its
Shareholders to do so.
Executive Director
Date of service contract
Mr N.W. Maddock
6 October 2016
Mr M. Oldersma
13 March 2017
LEGACY ARRANGEMENTS
For the avoidance of doubt, it is noted that
the Company will honour any commitments
entered into that have been disclosed
previously to Shareholders.
LEAVER AND CHANGE OF CONTROL PROVISIONS
When considering termination payments under incentive plans, the Committee reviews all potential incentive outcomes to ensure they are
fair to both Shareholders and participants. The table below summarises how the awards under the annual bonus, the DSBP and the LTIP are
typically treated in specific circumstances, with the final treatment remaining subject to the Committee’s discretion.
Plan
Scenario
Timing and calculation of vesting/payment
Annual
bonus
Death, injury, ill health or disability, retirement, or
any other reason the Committee may determine.
The Committee will determine the bonus outcome based on
circumstances and the date of leaving. Performance against targets
is typically assessed at the end of the year in the normal way
and any resulting bonus will be prorated for time served during
the year. The cash element of the bonus is normally paid on the
normal payment date. The Committee has discretion to disapply
performance test and/or time prorating, and to accelerate payment.
Change of control.
The Committee will assess the most appropriate treatment for the
outstanding bonus period according to the circumstances.
All other reasons.
No bonus is paid.
Deferred
Share Bonus
Plan (‘DSBP’)
Death, injury, ill health or disability, retirement, or
any reason other than misconduct or circumstances
where the Company could have summarily
dismissed the Executive Director.
Awards vest on the normal vesting date, although the Committee
has discretion to accelerate vesting in certain circumstances as set
out in the rules of the DSBP.
Change of control.
Awards vest immediately.
Misconduct or circumstances where the Company
could have summarily dismissed the Executive
Director.
Awards lapse.
Long Term
Incentive
Plan (‘LTIP’)
Death, ill health or disability, redundancy,
retirement, sale of the employing company or
business out of the Group or any other reason as
the Committee may determine.
Any outstanding awards will normally vest on the normal vesting
date subject to performance, and be prorated for time. The
Committee has discretion to disapply performance and/or time
prorating in exceptional circumstances, and to accelerate vesting.
Change of control.
Any outstanding awards will normally vest immediately subject
to performance up to the point of the change of control, and
be prorated for time. The Committee has discretion to disapply
performance and/or time prorating in exceptional circumstances.
All other reasons.
Awards lapse.
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Directors’ remuneration policy
PAY-FOR-PERFORMANCE: SCENARIO ANALYSIS
The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split
between the different elements of pay under three different performance scenarios: “minimum”, “on-target” and “maximum”. Potential reward
opportunities are based on SIG’s current Remuneration Policy (unchanged), applied to salaries as at 1 January 2018. Note that the projected
values exclude the impact of any share price movements.
Chief Executive Officer
Chief Financial Officer
Maximum
32%
27%
41%
£2,105k
Maximum
33%
27%
40%
£1,364k
On-target
61%
33%
6%
£1,124k
On-target
61%
32%
6%
£733k
Minimum
100%
£684k
Minimum
100%
£450k
Fixed remuneration
Annual bonus
Long term incentives
Assumptions underlying the scenarios:
— The “minimum” scenario includes base salary, pension and benefits only (ie fixed remuneration)
— The “on-target” scenario includes fixed remuneration as above, plus target bonus payout of 65% of maximum and threshold LTIP vesting of
up to 25% of maximum award
— The “maximum” scenario includes fixed remuneration, plus full bonus payout (100% of salary) and full LTIP vesting (150% of salary).
NON-EXECUTIVE DIRECTORS
The Non-Executive Directors (‘NEDs’), including the Chairman, do not have service contracts. The Company’s policy is that NEDs are appointed
for specific terms of three years unless otherwise terminated earlier in accordance with the Articles of Association or by, and at the discretion
of, either party upon three months’ written notice. NED appointments are reviewed at the end of each three-year term. NEDs will normally be
expected to serve two three-year terms, although the Board may invite them to serve for an additional period.
NED letters of appointment are available to view at the Company’s registered office.
Summary details of terms and notice periods for NEDs are included below:
NED
Date of current letter of appointment
Effective date of appointment
Expiry of current term
Mr A.J. Allner
Ms A. Abt
10 October 2017
5 March 2015
Ms J.E. Ashdown
3 April 2017
Mr I.B. Duncan
9 December 2016
Mr M. Ewell
2 May 2017
Mr C.V. Geoghegan1
4 April 2016
Mr L Van de Walle2
11 May 2016
Mr J.C. Nicholls3
4 April 2016
1.
2.
3.
Mr C.V. Geoghegan will retire from the Board on 9 March 2018.
Mr L. Van de Walle retired on 31 October 2017.
Mr J.C. Nicholls retired on 31 March 2017.
1 November 2017
12 March 2015
11 July 2011
1 January 2017
1 August 2011
1 July 2009
1 October 2010
6 November 2009
14 May 2020
15 May 2021
14 May 2020
14 May 2020
11 May 2019
10 May 2018
N/A
N/A
NEDs do not receive benefits from the Company and they are not eligible to join the Company’s pension scheme or participate in any bonus or
share incentive plan. Any reasonable expenses that they incur in the furtherance of their duties are reimbursed by the Company.
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25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Details of the Remuneration Policy on NED fees are set out in the table below:
Purpose and link to
strategy
Operation and process
Opportunity
To attract and
retain NEDs of the
highest calibre with
experience relevant
to the Company.
Fees are reviewed annually in May with any increase
effective from 1 May.
The fee paid to the Chairman is determined by the
Committee, and fees to NEDs are determined by the
Board. Fee levels are benchmarked against comparable
companies, and take account of the time commitment and
the responsibilities of the NEDs.
Other than for the Company Chairman, fees comprise
a base fee for acting as an NED of the Company, and
additional fees for acting as Senior Independent Director or
as Chairman of a Board Committee, as appropriate.
Additional fees may also be paid in respect of Company
advisory Boards.
It is anticipated that increases to Chairman and NED fee
levels will typically be in line with market levels of fee
inflation. In exceptional circumstances (including, but
not limited to, material misalignment with the market
or a change in the complexity, responsibility or time
commitment required to fulfil an NED role) the Board has
discretion to make appropriate adjustments to fee levels
to ensure they remain market competitive and fair to
the Director.
The maximum annual aggregate fee, for all Group NEDs,
is £500,000 as set out in the Company’s Articles of
Association.
EXTERNAL DIRECTORSHIPS
The Committee acknowledges that Executive Directors may be invited to become independent Non-Executive Directors of other quoted
companies which have no business relationship with the Company and that these duties can broaden their experience and knowledge to the
benefit of the Company.
Executive Directors are permitted to accept such appointments with the prior approval of the Chairman. Approval will be given only where
the appointment does not present a conflict of interest with the Group’s activities and the wider exposure gained will be beneficial to the
development of the individual. Where fees are payable in respect of such appointments, these would be retained by the Executive Director.
CONSIDERATIONS OF CONDITIONS ELSEWHERE IN THE GROUP
The Committee considers the pay and employment conditions elsewhere in the Group when determining remuneration for Executive
Directors, and the Company seeks to promote good relationships with employee representative bodies as part of its employee engagement
strategy. However, the Committee does not currently consult specifically with employees on the Executive Director Remuneration Policy.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into account the guidelines of investor bodies and Shareholder views. The Committee
is always open to feedback from Shareholders on the Remuneration Policy and arrangements, and commits to undertaking Shareholder
consultation in advance of any significant changes to the Remuneration Policy.
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Annual Report on remuneration
EXTERNAL ADVISORS
Mercer Kepler, an independent firm of
remuneration consultants appointed by
the Committee after consultation with the
Board, continued to act as the remuneration
advisor to the Committee during the
year. Mercer Kepler attends Committee
meetings as required and provides advice
on remuneration for executives, analysis
on all elements of the Remuneration Policy
and regular market and best practice
updates. Mercer Kepler reports directly to
the Committee Chairman and is a signatory
to, and abides by the Code of Conduct
for Remuneration Consultants of UK-
listed companies (which can be found at
www.remunerationconsultantsgroup.com).
Mercer Kepler’s parent, the MMC
Group, does not provide any other non-
remuneration-related services to the
Company. The Committee is satisfied that
the advice it receives from Mercer Kepler is
independent. Mercer Kepler’s fees for the
year were charged on a time and materials
basis and totalled £34,525 in respect of 2017
(2016: £22,950).
Deloitte LLP, external Auditor to the Group,
has, when requested, performed specific
procedures on the LTIP calculations at the
end of the respective performance periods.
Deloitte LLP were not asked to perform this
service in 2017.
ANNUAL REPORT ON
REMUNERATION
The following section provides details
of how SIG’s 2017 Remuneration Policy
was implemented during the financial
year ended 31 December 2017, and how
the Remuneration Committee intends to
implement the Remuneration Policy in 2018.
THE REMUNERATION COMMITTEE
The key responsibilities of the Remuneration
Committee are to:
determine the Remuneration Policy
for Executive Directors and such other
members of the Executive Management
as it is designated to consider;
design specific remuneration packages
which include salaries, bonuses, equity
incentives, pension rights and benefits;
review the Executive Directors’ service
contracts;
ensure that failure is not rewarded and
that steps are always taken to mitigate
loss on termination, within contractual
obligations;
review remuneration trends across the
Group; and
approve the terms of and recommend
grants under the Group’s incentive plans.
The Committee’s Terms of Reference, which
are reviewed regularly, are set out on the
Company’s website (www.sigplc.com).
As at 31 December 2017, the Committee
comprised five independent Non-Executive
Directors of the Company, all of whom
are considered to be independent within
the definition set out in the UK Corporate
Governance Code (April 2016) ('the Code’).
Chair of the Committee Members
Ms J.E. Ashdown
(from 19 December 2017)
Mr C.V. Geoghegan
(until 19 December 2017 and
Ms A. Abt
Mr I.B. Duncan
Mr M. Ewell
continued as a member)
During the year the Committee met seven
times. Attendance by individual members of
the Committee is disclosed in the Corporate
Governance section of the Directors’ Report
on page 64.
Only members of the Committee have the
right to attend Committee meetings. The
Chairman of the Board, Chief Executive
Officer, Chief Financial Officer, Group
Human Resources Director and Company
Secretary attend the Committee’s meetings by
invitation, but are not present when their own
remuneration is discussed. The Committee
also takes independent professional advice,
on an ad hoc basis, as required. See ‘External
advisors’ for more details.
The Committee reviews its own performance
annually and considers where improvements
can be made as appropriate.
KEY ACTIVITIES OF THE
COMMITTEE IN 2017
The Committee met seven times in 2017.
Its key activities included:
Review and approval of the 2016
Directors’ Remuneration Report.
Review and approval of incentive
outcomes for the annual bonus and LTIP
in respect of performance for the year to
31 December 2016.
Approval of opportunities/award levels
and performance targets for 2017 annual
bonus.
Review of Executive Director salaries and
total remuneration.
Review of the Non-Executive Chairman fee.
Review and approval of remuneration
packages and appointment terms for the
Chief Executive Officer.
Consideration and approval of
remuneration for leavers.
Consideration of external market
developments and best practice in
remuneration.
Review of the Remuneration Policy,
consideration of potential revisions and
related Shareholder consultation.
Preparation for the 2017 AGM.
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SHAREHOLDER VOTE AT THE 2017 AGM
The following table shows the results of the advisory vote on the Annual Report on Remuneration of the 2016 Directors’ Remuneration Report
and the results of the binding vote on the current Remuneration Policy at the 11 May 2017 AGM:
Annual Report on Remuneration
Total number of votes
471,280,940
2,847,372
474,128,312
1,860,948
Current Remuneration Policy
Total number of votes
472,863,033
3,111,554
475,974,587
% of votes cast
99.4%
0.6%
100%
% of votes cast
99.4%
0.6%
100%
0.0%
14,673
0.00%
For
Against
Total votes cast
Votes Withheld
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
The table below sets out the single total figure of remuneration received by each Executive Director for services rendered to the Company as
an Executive Director for the year to 31 December 2017 and the prior year:
Executive Director
Mr M. Oldersma7
Mr N.W. Maddock 8
Mr M. Ewell9
Mr D.G. Robertson10
2017
2016
2017
2016
2017
2016
2017
2016
Base salary1
£’000
Taxable
benefits2
£’000
Pension3
£’000
Annual
bonus4
£’000
LTIP5
£’000
420
–
330
–
200
100
28
336
18
–
14
–
–
–
3
31
63
–
50
–
–
–
4
50
293
–
232
–
–
–
nil
84
–
–
–
–
–
–
–
–
The figures in the table above have been calculated as follows:
1. Base salary/fee: amount earned for the year.
2. Benefits: include, but are not limited to, company car or car allowance, medical and permanent health insurance.
3. Pension: the Company’s pension contribution during the year of 15% of salary, an amount of which was paid by salary supplement.
Other 6
£’000
–
–
0.13
–
–
–
–
–
Total
remuneration
£’000
794
–
626
–
200
100
35
501
4. Annual bonus: payment for performance during the year (including deferred portion). The Bonus is calculated as a percentage of base salary, however, payment generated is pro rata for
the year for the Executive Directors.
5. LTIP: the value at vesting of awards vesting on performance over the three-year periods ended 31 December 2017 and 31 December 2016. There is no vesting in respect of either 2016 or 2017.
6. Other: includes SIP, value based on the face value of matching shares at grant.
7. Mr M. Oldersma was appointed as Chief Executive Officer on 3 April 2017.
8. Mr N.W. Maddock commenced employment on 23 January 2017 and was appointed as Chief Financial Officer on 1 February 2017. The figures relate to the period he served as an
Executive Director ie 1 February 2017 to 31 December 2017. The total bonus payable for his period of employment is £236,811.
9. Mr M. Ewell was appointed as Interim Chief Executive with effect from 11 November 2016, and received a fixed salary of £50,000 per month, and did
not participate in any incentive scheme or receive pension contributions or benefits. Mr Ewell stepped down as Interim Chief Executive on 31 March
2017 and continued to serve as an Executive Director for a handover to the new Chief Executive Officer, Mr M. Oldersma, until 30 April 2017. His base salary shown in the table reflects time
served as an Executive Director. Fees paid to Mr M. Ewell in respect of his service as a Non-Executive Director are shown in Non-Executive Director single total figure table on page 92.
10. Mr D.G. Robertson retired as a Executive Director on 31 January 2017 and ceased to be an employee on 28 February 2017. The figures relate to the period he served as an Executive
Director ie 1 January 2017 to 31 January 2017. He received £35,195.42 for his employment from 1 February 2017 to 28 February 2017.
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INCENTIVE OUTCOMES FOR 2017 (AUDITED)
ANNUAL BONUS IN RESPECT OF 2017
In 2017, the maximum bonus opportunity for Executive Directors was 100% of salary. 90% of bonus was based on financial performance (of
which 60% was linked to underlying Profit Before Tax (‘PBT’) and 30% on Group Working Capital) and 10% on Health & Safety.
Further details of the bonuses paid, including the financial and non-financial targets and objectives set and actual performance, are provided
in the tables below:
FINANCIAL ELEMENT
Measure
Weighting
(% of salary)
Threshold
Target
Stretch
Actual
performance
Payout
(% of salary)**
Performance targets
Original underlying PBT*
60%
£77.43m
£81.50m
£85.58m
n/a
Revised underlying PBT*
Group Working Capital to Sales
Total
60%
30%
90%
£71.10m
£74.90m
£78.60m
£79.20m
8.90%
8.40%
7.90%
9.00%
n/a
60%
nil
60%
* The underlying PBT targets stated above have been adjusted from those originally set at the commencement of the performance year, to reflect that certain of the Group’s businesses were
closed, divested or placed under review during the performance year. The underlying PBT targets were adjusted proportionately to account for these changes in the Group’s businesses.
The figures stated in the table above reflect the Group’s published underlying PBT for 2017 as stated in the Financial Statements on page 100 of this report, which do not factor in results
for business which were closed, divested or under review in 2017.
The Committee is satisfied that the adjusted targets are not materially easier or more difficult to achieve than the targets as originally set. The adjustment has resulted in 60% of the
proportion of annual bonuses referable to PBT vesting.
** The Bonus is calculated as a percentage of base salary however payment generated is pro rata for the year for the Executive Directors.
NON-FINANCIAL ELEMENT
For 2017, non-financial performance was measured through the Company’s Health & Safety performance, focusing on the Group’s Accident
Incident Rate (‘AIR’) and Health & Safety initiatives. The Committee reviewed performance and determined that the targets were achieved in
full, and 10% of bonus (out of a maximum of 10%) was payable.
OVERALL BONUS OUTCOMES
Based on performance in respect of both the financial and non-financial elements, an overall outcome of 70% (out of a maximum of 100%)
was warranted.
Mr N.W. Maddock and Mr M. Oldersma received bonuses of 70% of pro-rated salary for 2017. Two-thirds of the bonus will be paid in March
2018 and one-third will be deferred into shares, vesting in March 2021. As in previous years, bonus payments are subject to clawback (ie
forfeiture or reduction in exceptional circumstances).
Mr D.G. Robertson retired from the Board on 31 January 2017 and ceased as an employee on 28 February 2017. He was eligible to receive
a pro-rated bonus in respect of the period 1 January 2017 to 28 February 2017, subject to performance as determined and approved in the
normal manner. The Committee noted that investigations relating to the historical overstatement of profit had concluded that Mr Robertson
was not aware of or involved in the irregularities identified but decided that, due to his position of responsibility, no bonus should be
payable to Mr Robertson for 2017. The Committee concluded that there was no reason to apply clawback for previous years. Details of the
irregularities identified are fully described on page 61 of the Corporate Governance report.
Mr M. Ewell did not participate in any incentive plans during the period he served as Interim Chief Executive.
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On 17 September 2015, Mr D.G. Robertson received an award of 274,323 nil-cost options, under the 2015 LTIP. Vesting of the award was
dependent on three-year average Return on Capital Employed (‘ROCE’), defined as underlying operating profit after tax divided by average net
assets plus average net debt (two-thirds of the award), and three-year cumulative underlying EPS performance (one-third), in each case for the
period ending 31 December 2017. There was no retesting of performance. The performance targets are illustrated below:
ROCE element of the award (2/3rd)
EPS element of the award (1/3rd)
100%
g
n
i
t
s
e
v
%
0%
100%
g
n
i
t
s
e
v
%
25%
0%
11%
14%
38p
48p
Average ROCE 2015–2017
(operating profit after tax divided by the sum of total
equity plus net debt)
Cumulative underlying EPS 2015–2017
(pence)
For the ROCE element, if three-year average ROCE over the three financial years ended 31 December 2017 is less than or equal to 11%, no
shares will vest. Awards vest in full for ROCE of 14% or higher and vesting is on a straight-line basis between these two points.
For the EPS element, if cumulative underlying EPS over the three financial years ended 31 December 2017 is less than 38p, no shares will vest.
25% of the award will vest for EPS of 38p, and the award will vest in full for EPS of 48p or higher; vesting is on a straight-line basis between
these two points.
Actual average ROCE was 10.3% and cumulative underlying EPS was 9.8p which resulted in zero vesting for both elements. 100% of the total
award will therefore lapse.
LONG TERM INCENTIVE PLAN: 2017 AWARDS
On 24 April 2017, Mr M. Oldersma and Mr N.W. Maddock were granted awards under the LTIP of 954,003 and 459,965 shares respectively;
details are provided in the table below. The three-year period over which performance will be measured will be 1 January 2017 to
31 December 2019. The award is eligible to vest in its entirety on the third anniversary of the date of grant (ie 23 April 2020), subject to ROCE
and EPS performance. Executive Directors will additionally be required to hold any vested awards for a further two-year period, to encourage
long term decision-making and further improve Shareholder alignment.
Executive Director
Mr M. Oldersma
Mr N.W. Maddock
Date of grant
24 April 2017
24 April 2017
Shares subject to
award
Market price
at date of award
Face value
at date of award
Face value
at date of award
(% of salary)
954,003
459,965
117.4p
117.4p
£1,120,000
£540,000
200%1
150%
1.
Mr M. Oldersma received an LTIP award of 200% of salary in 2017 pursuant to the terms of his recruitment. It is intended that he will receive annual awards of 150% of salary in future
years, in line with the normal maximum under the Remuneration Policy.
These awards will vest based on three-year average ROCE (representing two-thirds of the award) and three-year cumulative underlying EPS
(representing one-third of the award). The performance targets are illustrated overleaf:
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Annual Report on remuneration
ROCE element of the award (2/3rd)
EPS element of the award (1/3rd)
100%
g
n
i
t
s
e
v
%
0%
100%
g
n
i
t
s
e
v
%
0%
10%
13.5%
31p
38p
Average ROCE 2017–2019
(operating profit after tax divided by the sum of total
equity plus net debt)
Cumulative underlying EPS 2017–2019
(pence)
For the ROCE element, if three-year average ROCE over the three financial years ending 31 December 2019 is less than or equal to 10%, no
shares will vest. Awards vest in full for ROCE of 13.5% or higher and vesting is on a straight-line basis between these two points.
For the EPS element, if cumulative underlying EPS over the three financial years ending 31 December 2019 is less than or equal to 31p,
no shares will vest. Awards vest in full for cumulative underlying EPS at 38p or higher and vesting is on a straight-line basis between these
two points.
As in previous years, the ROCE and EPS targets have been calibrated with reference to analysis based on internal and external data and the
Committee’s view of what it believes will provide an appropriate level of stretch.
As in previous years, malus and clawback provisions apply to LTIP awards. A two-year holding period also applies to vested awards, during
which time Executive Directors may not sell shares save to cover tax.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
The table below sets out the single total figure of remuneration received by each NED for services rendered to the Company as a Non-
Executive Director for the year to 31 December 2017 and the prior year:
Non-Executive Director
Mr L. Van de Walle1
Mr A.J. Allner (Chairman)2
Ms A. Abt
Ms J.E. Ashdown
Mr M. Ewell3
Mr C.V. Geoghegan4
Mr J.C. Nicholls5
Mr I.B. Duncan6
Base fee £’000
Committee Chair/
Senior Independent Director
fees £’000
Additional Advisory Board
fees £’000
Total fees £’000
2017
141
29
49
49
32
49
12
49
2016
168
–
48
48
40
48
48
–
2017
2016
2017
2016
–
–
–
–
–
10
3
7
–
–
–
–
–
10
10
–
–
–
–
–
–
25
–
–
–
–
–
–
–
17
–
–
2017
141
29
49
49
32
84
15
56
2016
168
–
48
48
40
75
58
–
1. Mr L. Van de Walle retired as Chairman on 31 October 2017.
2. Mr A.J. Allner was appointed as Chairman on 1 November 2017.
3. Mr M. Ewell received a salary for acting as Interim Chief Executive until 31 March 2017 and as an Executive Director for a further month to 30 April 2017 (see Executive Director single total
figure table on page 89). He resumed his Non-Executive Directorship fee from 1 May 2017. The figures shown in the table relate to fees paid to him in his capacity as a Non-Executive Director.
4. Mr C.V. Geoghegan received a fee of £25,000 in 2017 for his additional services as the Non-Executive Chairman of the SIG Offsite Board.
5. Mr J.C. Nicholls retired as a Director and Audit Committee Chair on 31 March 2017.
6. Mr I.B. Duncan was appointed a Director on 1 January 2017 and Audit Committee Chair with effect from 1 April 2017.
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CHAIRMAN AND NON-EXECUTIVE
DIRECTOR FEES
Mr A.J. Allner’s fee as Chairman of the Board
is £175,000. The basic fee payable to each
Non-Executive Director is £49,000 pa.
Upon appointment, Additional fees payable
for chairing the Audit and Remuneration
Committees are £10,000 and £8,000 pa
respectively. The additional fee paid for being
Senior Independent Director is £2,000 pa.
Non-Executive Director fees are reviewed in
May each year. Additional fees may also be
paid in respect of Company advisory Boards.
PERCENTAGE CHANGE IN
CHIEF EXECUTIVE OFFICER
REMUNERATION
The table overleaf shows the percentage
change in the Chief Executive Officer’s
remuneration from the prior year compared
to the average percentage change in
remuneration for the Senior Leadership
Team (‘SLT’).
Given that the Company operates across
a number of diverse economies with pay
levels and structures reflecting local market
conditions, the Committee believes that
using the SLT as a subset for purposes
of comparing Chief Executive Officer pay
against wider employee pay provides a
more meaningful comparison than using
pay data for all employees. To provide a
meaningful comparison, the analysis includes
only salaried employees and is based on a
consistent set of employees, ie the same
individuals appear in the 2017 and 2016
populations.
PENSION AND BENEFITS
The Executive Directors will continue to
receive pension contributions of 15% of
base salary and receive benefits in line with
the policy.
ANNUAL BONUS
The maximum annual bonus opportunity
for Executive Directors in 2018 will remain
unchanged at 100% of salary.
The 2018 bonus will be linked 100% to
financial performance (50% to Group
underlying PBT and 50% to Group ROCE).
Any bonus payments will be further subject
to a health & safety gateway, ie bonuses
may be reduced to nil at the Remuneration
Committee’s discretion in the event of a
considerable health & safety incident.
As in 2017 and in line with the Policy, one-
third of the annual bonus will be deferred in
SIG shares for a period of three years. Malus
and clawback provisions apply in exceptional
circumstances.
LTIP
In the event that the Committee determines
not to proceed with an alternative long
term incentive plan as referred to in the
Remuneration Chair’s Annual Statement
at pages 80 to 81, the intention would
be to grant awards under the existing
LTIP to Executive Directors following
either of the Remuneration Committee
meetings scheduled to take place in
April or September 2018. In such a case,
the Committee would determine the
performance measures and targets for such
LTIP awards closer to the time, and disclose
them in full in both the 2018 Annual Report
on Remuneration and the relevant RNS
announcement. Performance measures and
targets for any such LTIP awards would be
set in line with the prevailing Remuneration
Policy and would be no less challenging
in the circumstances than those attaching to
awards granted to Executive Directors
in 2017.
BOARD CHANGES
Mr M. Oldersma was appointed as Chief
Executive Officer on 3 April 2017, and his
remuneration package comprised a salary of
£560,000, and incentive opportunities and
pension contribution in line with the Policy.
Mr N. Maddock was appointed as Chief
Financial Officer on 1 February 2017, and his
remuneration package comprised a salary of
£360,000, and incentive opportunities and
pension contribution in line with the Policy.
PAYMENTS FOR LOSS OF OFFICE
Mr D.G. Robertson retired from the Board as
Group Finance Director on 31 January 2017
and remained an employee until 28 February
2017. Details of his termination payments
are set out in the 2016 Annual Report on
Remuneration.
In April 2017, 32,078 shares from Mr D.G.
Robertson’s 2014 DSBP award vested. He
also received an award of 24,797 shares
in 2017 under the DSBP in respect of his
annual bonus for the 2016 performance
year, which vest on 31 March 2020.
PAYMENTS TO FORMER
DIRECTORS
Following the end of his directorship, Mr
D.G. Robertson received payments totalling
£556,194 in 2017, which includes £35,195 for
his period of employment from 1st February
2017 to 28 February 2017.
Mr S.R. Mitchell received payments in
lieu of notice in monthly instalments until
November 2017 amounting to £710,212.
IMPLEMENTATION OF
REMUNERATION POLICY IN 2018
BASE SALARY
The Committee agreed that base salaries
for the Chief Executive Officer and Chief
Financial Officer would increase by 1.5% for
2018. Annual salaries for 2017 and 2018 are
shown in the table below. The average salary
increase for 2018 across the wider workforce
is 1.5%.
January
2018
salary
£
January
2017
salary
£
Executive Director
Mr M. Oldersma
568,400 560,000
Mr N.W. Maddock 365,400 360,000
%
change
1.5
1.5
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Annual Report on remuneration
Salary
Taxable benefits
Annual performance bonus (including deferred element)3
Chief Executive Officer £’000
Other
employees
20171
570
18
293
20162
584
25
–
% change
% change
-2.4%
-28.0%
1.9%
8.1%
n/a
120.6%
1. Based on the sum of remuneration paid to Mr M. Ewell from 1 January 2017 up to and including 31 March 2017 and to Mr M. Oldersma over the period 3 April 2017 to 31 December
2017.
2. Based on the sum of remuneration paid to Mr S.R. Mitchell from 1 January 2016 up to and including 11 November 2016 and to Mr M. Ewell over the period 11 November 2016 to 31
December 2016.
3. No comparison possible as a bonus was not paid to the Chief Executive Officer in 2016.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in total employee pay expenditure and Shareholder distributions (ie dividends and share
buybacks) from the financial year ended 31 December 2016 to the financial year ended 31 December 2017.
Distribution to Shareholders
Employee remuneration
2017
£m
18.2
398.5
2016
£m
28.0
373.0
% change
-35%
6.9%
The Directors are proposing a final dividend for the year ended 31 December 2017 of 2.50p per share (2016: 1.83p).
PAY-FOR-PERFORMANCE
The graph below shows the Company’s Total Shareholder Return (‘TSR’) performance (share price plus dividends paid) compared with the
performance of the FTSE All Share Support Services Index over the nine year period to 31 December 2017. This index has been selected
because the Company believes that the constituent companies comprising the FTSE All Share Support Services Index are the most appropriate
for this comparison as they are affected by similar commercial and economic factors to SIG. The table overleaf details the Chief Executive
Officer’s single figure of remuneration and actual variable pay outcomes over the same period.
HISTORICAL TSR PERFORMANCE
Growth in value of a hypothetical £100 holding over the nine years to 31 December 2017.
400
350
300
250
200
150
100
50
0
8
0
0
2
r
e
b
m
e
c
e
D
1
3
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
SIG FTSE All Share Support Services Index
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Incumbent
C.J. Davies
C.J. Davies
C.J. Davies
C.J. Davies
C.J. Davies
1
S.R. Mitchell
2
S.R. Mitchell
S.R. Mitchell
S.R. Mitchell
4
M. Ewell
5
M. Ewell
M. Oldersma
6
2009
2010
2011
2012
2013
2013
2014
2015
2016
2016
2017
2017
Chief Executive
Officer single figure of
remuneration (£’000)
Annual bonus outcome
(% of maximum)
LTIP vesting outcome
(% of maximum)
1,354
1,087
1,065
1,024
1,031
987
968
765
581
100
150
794
45%
54%
96%
54%
50%
60.5%
57.0%
0%3
n/a
n/a
n/a
70%
0%
0%
0%
0%
0%
n/a
n/a
19.5%
n/a
n/a
n/a
n/a
1. The figures shown pertain to the period 1 January 2013 to 31 December 2013 (includes remuneration in lieu of salary, pension and other benefits after 1 March 2013).
2. Mr. S.R. Mitchell was appointed to the Board on 10 December 2012 and became the Chief Executive on 1 March 2013. The 2013 figure pertains to the period 1 January 2013 to 31
December 2013.
3. Mr S.R. Mitchell took the decision to waive his entitlement to the 2015 annual bonus.
4. Mr S.R. Mitchell stepped down as Chief Executive with effect from 11 November 2016, and his remuneration relates to the period served. He did not receive a bonus for 2016, and his
outstanding LTIP awards lapsed.
4. Mr M. Ewell was appointed as Interim Chief Executive with effect from 11 November 2016 and stepped down on 31 March 2017. He continued as an Executive Director until 30 April 2017,
and his remuneration relates to the period served as CEO. Mr M. Ewell did not participate in any Group incentive schemes.
5. Mr M. Oldersma was appointed Chief Executive Officer on 3 April 2017. The 2017 figure pertains to the period 3 April 2017 to 31 December 2017.
DIRECTORS’ INTERESTS IN SIG SHARES (AUDITED)
The interests of the Directors in office during the year to 31 December 2017, and their families, in the ordinary shares of the Company at the
dates below were as follows:
Ms A. Abt
Mr A.J. Allner
Ms J.E. Ashdown
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan
Mr N.W. Maddock*
Mr M. Oldersma
31 December
2017
1 January
2017
8,500
6,000
44,450
–
27,450
40,000
718
39,000
8,500
–
44,450
–
27,450
40,000
–
–
* Includes partnership and matching shares acquired under the SIP.
There have been no changes to shareholdings between 1 January 2018 and 8 March 2018 save that on 15 January 2018 and 15 February 2018
when Mr N.W. Maddock acquired a further 89 and 106 shares, respectively, under the SIP.
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.
Details of Directors’ interests in shares and options under SIG long term incentives are set out overleaf.
95
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual Report on remuneration
DIRECTORS’ SHAREHOLDING (AUDITED)
The table below shows the shareholding of each Director against their respective shareholding requirement as at 31 December 2017:
Shares held
Nil-cost options held
Owned
outright or
vested
Vested
but subject
to holding
period
Unvested
and
subject to
performance
conditions
Unvested
and
subject
to deferral
Vested
but not
exercised
Shareholding required
(% basic salary)1
Current shareholding
as a percentage of
basic salary
Requirement
met2
–
–
–
–
954,003
459,965
200
200
12.08%
0.31%
No
No
Mr M. Oldersma
39,000
Mr N.W. Maddock
Ms A. Abt
Mr A.J. Allner
718
8,500
6,000
Ms J.E. Ashdown
44,450
Mr I.B. Duncan
Mr M. Ewell
Mr C.V. Geoghegan
0
27,450
40,000
1. Executive Directors are expected to achieve target shareholding within 5 years of appointment.
2. Based on SIG share price of 176.2p as at 31 December 2017. Note that both the Executive Directors were appointed in 2017, consequently they have not yet built up the required holding.
DIRECTORS’ INTERESTS IN SIG SHARES AND OPTION PLANS (AUDITED)
Date of grant
Share price
Number of nil-cost
options awarded
Face value at grant
£
Performance period 1
Exercise period
LTIP
Mr M. Oldersma
24/04/2017
Mr N.W. Maddock
24/04/2017
117.4p
117.4p
954,003
459,965
1,120,000
01/01/2017–31/12/2019
24/04/2020–23/04/2027
540,000
01/01/2017–31/12/2019
24/04/2020–23/04/2027
1. Pro rated from appointment as Executive Director.
Under the SIP, the Company matches up to
the first £20 of savings made each month
by the employee which is used to purchase
matching shares on a monthly basis.
Mr N.W. Maddock participated in the SIP
in 2017.
The market price of shares at
31 December 2017 was 176.2p and the
range during 2017 was 93.8p to 182p.
There were no options exercised by the
Directors in 2017 (2016: 129,167) and the
aggregate of the total theoretical gains on
options exercised by the Directors during
2017 amounted to £nil (2016: £131,033). This
is calculated by reference to the difference
between the closing mid-market price of
the shares on the date of exercise and the
exercise price of the options, disregarding
whether such shares were sold or retained on
exercise, and is stated before tax.
EXTERNAL DIRECTORSHIPS
Mr M. Oldersma holds external directorships
at Kondor HOLDCO Ltd and KidsFoundation
Holdings B.V. During 2017, he received
£72,000 for each directorship, which he
retained. He is also a Director of Oldersma
Management & Consultancy Ltd which is a
personal services company used to invoice
KidsFoundation Holdings B.V.
APPROVAL OF THE DIRECTORS’
REMUNERATION REPORT
The Directors’ Remuneration Report set
out on pages 80 to 96 was approved by the
Board of Directors on 8 March 2018 and
signed on its behalf by Janet Ashdown, Chair
of the Remuneration Committee.
JANET ASHDOWN
CHAIR OF THE REMUNERATION COMMITTEE
8 March 2018
96
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Statement of Directors’ responsibilities
The Directors are responsible for preparing
the Annual Report and the Financial
Statements in accordance with applicable law
and regulations.
Company law requires the Directors to
prepare Financial Statements for each
financial year. Under that law the Directors
are required to prepare the Group Financial
Statements in accordance with International
Financial Reporting Standards (IFRS) as
adopted by the European Union and Article
4 of the IAS Regulation and have elected
to prepare the Parent Company Financial
Statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards and applicable law), including FRS
101 “Reduced Disclosure Framework”. Under
company law the Directors must not approve
the Financial Statements unless they are
satisfied that they give a true and fair view of
the state of affairs of the Company and
of the profit or loss of the Company for
that period.
In preparing the Parent Company Financial
Statements, the Directors are required to:
select suitable accounting policies and
then apply them consistently;
make judgements and accounting
estimates that are reasonable and
prudent;
state whether applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed and
explained in the Financial Statements; and
prepare the Financial Statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
In preparing the Group Financial Statements,
International Accounting Standard 1 requires
that directors:
RESPONSIBILITY STATEMENT
We confirm that to the best of our
knowledge:
properly select and apply accounting
policies;
present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
provide additional disclosures when
compliance with the specific requirements
in IFRSs are insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and
financial performance; and
make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Group and enable them to ensure
that the Financial Statements comply with
the Companies Act 2006. They are also
responsible for safeguarding the assets
of the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of Financial Statements may
differ from legislation in other jurisdictions.
the Financial Statements, prepared in
accordance with the relevant financial
reporting framework, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole;
the Strategic Report includes a fair review
of the development and performance
of the business and the position of
the Company and the undertakings
included in the consolidation taken as a
whole, together with a description of the
principal risks and uncertainties that they
face; and
the Annual Report and Financial
Statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
Shareholders to assess the Company’s
position and performance, business
model and strategy.
This responsibility statement was approved
by the Board of Directors on 8 March 2018
and is signed on its behalf by:
MEINIE OLDERSMA
CHIEF EXECUTIVE
OFFICER
NICK MADDOCK
CHIEF FINANCIAL
OFFICER
8 March 2018
8 March 2018
97
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comGOVERNANCE FINANCIALS
98
SIG plc
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017 In this section
Consolidated Income Statement
100
Five-Year Summary
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Cash Flow Statement
Statement of Significant
Accounting Policies
101
102
103
104
105
Critical Accounting Judgements and
Key Sources of Estimation Uncertainty 112
Notes to the Financial Statements
Independent Auditor’s Report
114
167
Company Statement of
Comprehensive Income
Company Balance Sheet
Company Statement of
Changes in Equity
Company Statement of Significant
Accounting Policies
Notes to the
Company Financial Statements
Group Companies 2017
Company Information
178
180
181
182
183
185
191
193
99
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.com Consolidated Income Statement
for the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Other operating expenses
Operating (loss)/profit
Finance income
Finance costs
(Loss)/profit before tax
Income tax (expense)/credit
(Loss)/profit after tax
Attributable to:
Equity holders of the Company
Non-controlling interests
Loss per share
Basic and diluted loss per share
Underlying*
2017
£m
Other items**
2017
£m
Note
2,778.5
(2,042.0)
736.5
(642.2)
94.3
0.5
(15.6)
79.2
(20.5)
58.7
57.7
1.0
99.9
(83.9)
16.0
(144.2)
(128.2)
0.1
(2.3)
(130.4)
13.1
(117.3)
(117.3)
–
1
2
2
3
3
4
6
8
Total
2017
£m
Underlying*
2016
Restated
£m
Other items**
2016
Restated
£m
Total
2016
Restated
£m
2,878.4
2,587.4
257.8
2,845.2
(2,125.9)
(1,896.3)
752.5
(786.4)
(33.9)
0.6
(17.9)
(51.2)
(7.4)
(58.6)
(59.6)
1.0
691.1
(601.4)
89.7
1.2
(15.0)
75.9
(18.1)
57.8
57.3
0.5
(201.0)
56.8
(241.2)
(184.4)
0.5
(2.0)
(185.9)
6.5
(179.4)
(179.4)
–
(2,097.3)
747.9
(842.6)
(94.7)
1.7
(17.0)
(110.0)
(11.6)
(121.6)
(122.1)
0.5
(10.1)p
(20.6)p
* Underlying represents the results before Other items (see the Statement of Significant Accounting Policies for further details).
** Other items relate to the amortisation of acquired intangibles, impairment charges, losses on agreed sale or closure of non-core businesses and associated impairment charges, net
operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, the defined benefit pension scheme
curtailment loss, other specific items, unwinding of provision discounting, fair value gains and losses on derivative financial instruments, the taxation effect of Other items and the effect
of changes in taxation rates. Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group. Further details can be found in Note 2 and
within the Statement of Significant Accounting Policies on pages 107 and 108.
All results are from continuing operations.
The 2016 results have been restated as set out in the Statement of Significant Accounting Policies and Note 33.
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Income Statement.
100
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Note
29c
23
23
Loss after tax
Items that will not subsequently be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit pension liability
Deferred tax movement associated with remeasurement of defined benefit pension liability
Effect of change in rate on deferred tax
Items that may subsequently be reclassified to the Consolidated Income Statement:
Exchange difference on retranslation of foreign currency goodwill and intangibles
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and
intangibles)
Exchange and fair value movements associated with borrowings and derivative financial instruments
Tax credit on exchange and fair value movements arising on borrowings and derivative financial
instruments
Exchange differences reclassified to the Consolidated Income Statement in respect of the disposal of
foreign operations
Gains and losses on cash flow hedges
Transfer to profit and loss on cash flow hedges
Other comprehensive income
Total comprehensive expense
Attributable to:
Equity holders of the Company
Non-controlling interests
2017
£m
(58.6)
5.5
(0.9)
(0.2)
4.4
5.4
13.6
(9.2)
1.8
0.1
0.4
2.1
14.2
18.6
(40.0)
(41.0)
1.0
(40.0)
2016
Restated
£m
(121.6)
(12.5)
2.3
(0.5)
(10.7)
33.6
35.7
(25.3)
6.3
–
(3.8)
2.3
48.8
38.1
(83.5)
(84.0)
0.5
(83.5)
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Statement of Comprehensive Income.
101
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Consolidated Balance Sheet
as at 31 December 2017
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Deferred tax assets
Derivative financial instruments
Deferred consideration
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Deferred consideration
Other financial assets
Cash and cash equivalents
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Derivative financial instruments
Current tax liabilities
Provisions
Liabilities directly associated with assets classified as held for sale
Non-current liabilities
Obligations under finance lease contracts
Bank loans
Private placement notes
Derivative financial instruments
Deferred tax liabilities
Other payables
Retirement benefit obligations
Provisions
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Share option reserve
Hedging and translation reserve
Retained (losses)/profits
Attributable to equity holders of the Company
Non-controlling interests
Total equity
Note
10
12
13
23
19
19
15
16
16
19
19
19
19
11
17
17
17
17
17
17
17
17
17
11
18
18
18
18
23
18
18
18
25
2017
£m
102.4
312.2
57.0
22.6
0.1
1.4
495.7
243.5
468.0
5.2
1.2
0.1
–
121.8
0.3
840.1
1,335.8
429.0
3.1
29.6
84.2
21.1
17.0
0.2
7.2
12.0
0.1
603.5
6.8
–
183.1
3.3
13.4
3.8
30.4
13.8
254.6
858.1
477.7
59.2
447.3
0.3
1.3
19.6
(50.9)
476.8
0.9
477.7
2016
Restated
£m
127.3
352.7
76.9
17.2
4.4
–
578.5
250.6
512.8
3.2
0.1
0.7
1.1
127.0
15.6
911.1
1,489.6
421.6
3.1
22.7
171.6
–
2.7
0.2
8.4
14.5
15.6
660.4
8.1
0.3
200.7
3.6
15.2
5.5
37.1
22.4
292.9
953.3
536.3
59.1
447.3
0.3
1.1
7.9
19.8
535.5
0.8
536.3
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Balance Sheet.
The Financial Statements were approved by the Board of Directors on 8 March 2018 and signed on its behalf by:
MEINIE OLDERSMA NICK MADDOCK
DIRECTOR
DIRECTOR
Registered in England: 00998314
102
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
Called
up share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Share
option
reserve
£m
Hedging
and
translation
reserve
£m
Retained
(losses)/
profits
£m
Non-
controlling
interests
£m
Total
£m
At 31 December 2015 (restated)
59.1
447.3
0.3
1.4
(42.4)
182.7
648.4
(Loss)/profit after tax
Other comprehensive
income/(expense)
Total comprehensive
income/(expense)
Share capital issued in the year
Debit to share option reserve
Exercise of share options
Deferred tax on share options
Dividends paid to
non-controlling interest
Dividends paid to equity holders
of the Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
–
–
–
At 31 December 2016 (restated)
59.1
447.3
0.3
1.1
(Loss)/profit after tax
Other comprehensive income
Total comprehensive
income/(expense)
–
–
–
Share capital issued in the year
0.1
Credit to share option reserve
Exercise of share options
Deferred tax on share options
Dividends paid to non-controlling
interest
Dividends paid to equity holders
of the Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
Total
equity
£m
649.3
(121.6)
0.9
0.5
–
(122.1)
(122.1)
50.3
(12.2)
38.1
–
38.1
50.3
(134.3)
(84.0)
0.5
(83.5)
–
–
–
–
–
–
7.9
–
11.7
–
–
–
(0.6)
–
(0.3)
–
(0.6)
–
–
–
–
–
(0.3)
–
(0.6)
–
–
(0.6)
(0.6)
(28.0)
19.8
(59.6)
6.9
(28.0)
535.5
(59.6)
18.6
–
0.8
1.0
–
(28.0)
536.3
(58.6)
18.6
11.7
(52.7)
(41.0)
1.0
(40.0)
–
–
–
–
–
–
–
–
–
0.2
0.1
0.2
–
0.2
–
–
–
–
0.1
0.2
–
0.2
–
–
(0.9)
(0.9)
(18.2)
(50.9)
(18.2)
476.8
–
(18.2)
0.9
477.7
At 31 December 2017
59.2
447.3
0.3
1.3
19.6
The share option reserve represents the cumulative equity-settled share option charge under IFRS 2 “Share-based payment” less the value of
any share options that have been exercised.
The hedging and translation reserve represents movements in the Consolidated Balance Sheet as a result of movements in exchange rates
which are taken directly to reserves as detailed in the Statement of Significant Accounting Policies on page 107.
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Statement of Changes in Equity.
103
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Consolidated Cash Flow Statement
for the year ended 31 December 2017
Net cash flow from operating activities
Cash generated from operating activities
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Finance income received
Purchase of property, plant and equipment and computer software
Proceeds from sale of property, plant and equipment
Settlement of amounts payable for purchase of businesses
Net cash flow arising on the sale of businesses
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Finance costs paid
Capital element of finance lease rental payments
Issue of share capital
Repayment of loans/settlement of derivative financial instruments
New loans/settlement of derivative financial instruments
Dividends paid to equity holders of the Company
Dividends paid to non-controlling interest
Net cash used in financing activities
(Decrease)/increase in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
Note
26
25
7
27
28
28
28
2017
£m
99.7
(18.8)
80.9
0.5
(19.9)
34.6
(6.9)
17.6
25.9
(13.1)
(3.5)
–
(87.9)
0.2
(18.2)
(0.9)
(123.4)
(16.6)
104.3
4.5
92.2
2016
Restated
£m
79.9
(9.6)
70.3
1.2
(37.5)
39.5
(25.3)
–
(22.1)
(13.7)
(2.6)
–
(139.5)
166.1
(28.0)
(0.6)
(18.3)
29.9
62.8
11.6
104.3
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Cash Flow Statement.
104
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Statement of Significant Accounting Policies
The significant accounting policies adopted in this Annual Report and
Accounts for the year ended 31 December 2017 are set out below.
BASIS OF PREPARATION
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards (‘IFRS’) as adopted by the
European Union (‘EU’), and therefore the Financial Statements comply
with Article 4 of the EU IAS Regulation.
The Financial Statements have been prepared under the historical
cost convention except for derivative financial instruments which
are stated at their fair value. The principal accounting policies
applied in the preparation of these Financial Statements are set out
below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
The Financial Statements have been prepared on a going concern
basis as set out on page 41.
The following subsidiaries of the Company are entitled to exemption
from audit under s479A of the Companies Act 2006 relating to
subsidiary companies: Building Systems Limited (registered number:
07976470) and Metechno Limited (registered number: 06464338).
The Group is committed to managing its capital structure to
ensure that entities in the Group are able to continue as a going
concern while maximising the return to Shareholders through the
optimisation of the debt and equity balance. Further details can be
found on page 35.
The following standards were amended in the current period:
Annual Improvements to IFRSs 2014-2016 Cycle – various
standards (amendments to IFRS 12 “Disclosure of Interests in
Other Entities”)
Recognition of Deferred Tax Assets for Unrealised Losses
(amendments to IAS 12 “Income Taxes”)
Disclosure initiative (amendments to IAS 7 “Statement of
Cash Flows”)
Adoption of the above standards has not had a material impact on
the Financial Statements of the Group.
PRIOR YEAR RESTATEMENTS
Following a whistleblowing allegation in SIG Distribution, the core
insulation and interiors business in the UK, the Group has identified
a historical overstatement of profit relating to the years ended 31
December 2016 and 31 December 2015 due to overstatement
of balances recognised in relation to rebates receivable from
suppliers. This error has been corrected by restating the prior year
comparatives, reducing prepayments and accrued income (included
with trade and other receivables) by £3.3m and trade payables
(included within trade and other payables) by £0.8m at 31 December
2016 and by reducing prepayments and accrued income by £0.4m at
1 January 2016. The impact on the Consolidated Income Statement
for the year ended 31 December 2016 is an increase in cost of sales
(before Other items) of £3.7m resulting in an increase in operating
loss and loss before tax of £3.7m and an increase in loss after tax
of £3.0m. Net assets are £3.3m lower than previously reported at
31 December 2016 and £0.3m lower at 1 January 2016. There is no
impact on the Consolidated Cash Flow Statement for the year ended
31 December 2016. The restatement increased basic and diluted
loss per share from 20.1p per share to 20.6p per share for the year
ended 31 December 2016. Notes 1, 2, 6, 8, 16, 23, 26 and 32 have
also been restated, where relevant, to incorporate these changes.
During the 2017 year end close procedures the Group also
identified a historical overstatement of cash and trade payables
in relation to cash cut-off procedures associated with cheques
issued around previous period ends. This error has been corrected
by restating the prior year comparatives, reducing cash and cash
equivalents (reduction in cash £0.6m and increase in bank overdrafts
£19.2m) and trade payables by £19.8m at 31 December 2016. This
restatement had no impact on the reported Consolidated Income
Statement or net assets. The Consolidated Cash Flow Statement
has also been restated, with cash and cash equivalents at 1 January
2016 reduced by £23.9m to £62.8m and at 31 December 2016 by
£19.8m to £104.3m, resulting in an increase in net cash generated
from operating activities of £4.1m to £29.9m for the year ended 31
December 2016. Notes 1, 17, 19, 20, 21, 26, 27, 28 and 32 have also
been restated to incorporate this adjustment.
The effect of the prior year restatement on each financial line item
affected is shown in Note 33.
The above restatements impacted net debt and EBITDA which had
an impact on headline financial leverage and interest cover covenant
calculations, but the Group remained within covenant requirements
for all relevant periods. Additional interest payable as a result of the
restatements has been accrued for in these Financial Statements and
has subsequently been paid.
Further details regarding the restatements are provided in the Audit
Committee Report on page 73.
NEW STANDARDS, AMENDMENTS AND
INTERPRETATIONS NOT YET ADOPTED
At the date of authorisation of these Financial Statements, the
following significant standards and interpretations, which have not
been applied in these Financial Statements, were in issue but not yet
effective (and in some cases have not yet been adopted by the EU):
IFRS 9 “FINANCIAL INSTRUMENTS” – EFFECTIVE FOR
ACCOUNTING PERIODS BEGINNING ON OR AFTER 1
JANUARY 2018
The standard is applicable to financial assets and financial liabilities,
and covers the classification, measurement, impairment and
derecognition of financial assets and financial liabilities together with
introducing new rules for hedge accounting and a new impairment
model for financial assets.
The Group has reviewed its financial assets and liabilities and
does not expect the new guidance to affect their classification and
measurement. The key change for SIG is around the documentation
of policies, hedging strategy and new hedge documentation.
The new hedge accounting rules will align the accounting for hedging
instruments more closely with the Group’s risk management
practices. As a general rule, more hedge relationships might be
eligible for hedge accounting, as the standard introduces a more
principles-based approach. The Group has confirmed that its current
hedge relationships will qualify as continuing hedges upon the
adoption of IFRS 9 and updated hedge documentation is in place
from 1 January 2018.
The new impairment model requires the recognition of impairment
provisions based on expected credit losses (‘ECL’) rather than
only incurred credit losses as is the case under IAS 39. It applies
to financial assets classified at amortised cost, debt instruments
measured at fair value through other comprehensive income,
contract assets under IFRS 15 “Revenue from Contracts with
Customers”, lease receivables, loan commitments and certain
financial guarantee contracts. Based on the assessments undertaken
to date, the Group expects a very small increase in the loss allowance
for trade debtors which is not expected to be material (i.e. no more
than 5% of underlying pre-tax profit).
The new standard also introduces expanded disclosure requirements
and changes in presentation. These are expected to change the nature
and extent of the Group’s disclosures about its financial instruments,
particularly in the year of the adoption of the new standard.
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IFRS 15 “REVENUE FROM CONTRACTS WITH CUSTOMERS” –
EFFECTIVE FOR ACCOUNTING PERIODS BEGINNING ON OR
AFTER 1 JANUARY 2018
The new standard sets out the requirements for recognising
revenue from contracts with customers and replaces IAS 18 which
covers contracts for goods and services and IAS 11 which covers
construction contracts. The standard is based on the principle that
revenue is recognised when control of a good or service transfers
to a customer, with the transaction price receivable from customers
allocated to ‘distinct’ performance obligations, on a relative
standalone selling price basis, based on a five-step model. The Group
intends to adopt the standard using the modified retrospective
approach which means that the cumulative impact of the adoption
will be recognised in retained earnings as of 1 January 2018 and that
comparatives will not be restated.
Management has assessed the effects of applying the new standard
on the Financial Statements and has identified the following areas
that will be affected:
Prompt payment discounts given to customers are currently
accounted for when paid. Under IFRS 15, revenue is recognised
net of discounts expected to be taken, calculated based on
either an expected value or most likely amount method, to the
extent that it is probable that a significant reversal in the amount
of cumulative revenue recognised will not occur. Based on the
assessments undertaken to date this is not expected to have a
material (i.e. no more than 5% of underlying pre-tax profit) impact
on transition, and will have minimal impact on an annual basis
going forwards.
For a small number of contracts in the Offsite business, it will
need to be explicit in contract terms that the Group is entitled
to payment for performance to date in order to be able to
continue to recognise revenue over time. There is expected to
be an adjustment on transition on 1 January 2018 in relation to
contracts in progress under existing terms at that date, which will
reduce retained earnings at 1 January 2018 but then increase the
revenue and profit recognised in the year ending 31 December
2018. The estimated impact of this on retained earnings
at 1 January 2018 and profit before tax for the year ending
31 December 2018 is expected to be less than £1.0m. Contract
terms have been changed from 1 January 2018 and therefore this
is not expected to have an impact after the year of transition.
IFRS 16 “LEASES” – EFFECTIVE FOR ACCOUNTING PERIODS
BEGINNING ON OR AFTER 1 JANUARY 2019
The standard eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee
accounting model where the lessee is required to recognise assets
and liabilities for all leases unless the lease term is 12 months or less,
or the underlying asset is of low value.
The Group has completed an initial assessment of the potential
impact on its Financial Statements but has not yet completed its
detailed assessment. The actual impact of applying IFRS 16 on the
Financial Statements in the period of initial application will depend on
future economic conditions, including the Group’s borrowing rate at
1 January 2019, the composition of the Group’s lease portfolio at that
date, the Group’s latest assessment of whether it will exercise any
lease renewal options and the extent to which the Group chooses to
use practical expedients and recognition exemptions.
The standard will affect primarily the accounting for the Group’s
operating leases as the Group will recognise new assets and liabilities
for its operating leases of properties and fleet. As at 31 December
2017, the Group’s future minimum lease payments under non-
cancellable operating leases amount to £321.1m on an undiscounted
basis (see Note 29b).
In addition, the nature of expenses related to those leases will now
change as IFRS 16 replaces the straight-line operating lease expense
with a depreciation charge for right-of-use assets and interest
expense on lease liabilities. No significant impact (i.e. no more
than 5% of underlying pre-tax profit) is expected for the Group’s
finance leases.
Financial covenants in relation to the debt facilities described in
Note 18 are based on existing accounting standards until maturity
(impacting from October 2020) and therefore the adoption of IFRS 16
will not have an impact on compliance with existing covenants.
There are no other standards or interpretations issued but not yet
effective which are expected to have a material impact on the Group.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements incorporate the Financial
Statements of the Company and each of its subsidiary undertakings
after eliminating all significant intercompany transactions and
balances. The results of subsidiary undertakings acquired or sold
are consolidated for the periods from or to the date on which
control passed.
Non-controlling interests in the net assets of consolidated subsidiaries
are identified separately therein. Non-controlling interests consist
of the amount of those interests at the date of the original business
combination and the non-controlling interests’ share of changes in
equity since the date of the combination. Losses attributable to the
non-controlling interest in excess of their interest in the subsidiary’s
equity are allocated against the interest of SIG except to the extent
that the non-controlling interest has a binding obligation and is able to
make an additional investment to cover the losses.
Changes in the Group’s interests in subsidiaries that do not result
in a loss of control are accounted for as equity transactions. The
carrying amount of the Group’s interests and the non-controlling
interests are adjusted to reflect the changes in their relative interests
in the subsidiaries. Any difference between the amount by which
the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to the Shareholders of the Company.
Profit and loss on disposal is calculated as the difference between
the aggregate of the fair value of the consideration received and the
previous carrying amount of the net assets (including goodwill and
intangible assets) of the businesses.
All results are from continuing operations under IFRS as the
businesses identified as non-core did not meet the disclosure
criteria of being discontinued operations as they did not individually
or in aggregate represent a separate major line of business or
geographical area of operation. In order to give an indication of the
underlying earnings of the Group the results of these businesses
have been included in the column of the Consolidated Income
Statement entitled Other items.
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All business combinations are accounted for by applying the
purchase method. Goodwill arising on consolidation represents the
excess of the cost of the acquisition over the Group’s interest in
the fair value of identifiable assets (including intangible assets) and
liabilities of the business acquired.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is not amortised but is tested annually for impairment,
or more frequently when there is an indication that goodwill may
be impaired. For the purposes of impairment testing, goodwill is
allocated to each of the Group’s cash-generating units (‘CGUs’)
expected to benefit from the synergies of the combination. If the
recoverable amount of the CGU is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other
assets of the unit pro rata on the basis of the carrying amount of
each asset in the unit. An impairment loss recognised on goodwill is
not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of remaining
goodwill relating to the entity disposed of is included in the
determination of any profit or loss on disposal.
Goodwill recorded in foreign currencies is retranslated at each
period end. Any movements in the carrying value of goodwill as a
result of foreign exchange rate movements are recognised in the
Consolidated Statement of Comprehensive Income.
Any excess of the fair value of net assets over consideration arising
on an acquisition is recognised immediately in the Consolidated
Income Statement.
NON-CURRENT ASSETS (OR DISPOSAL GROUPS)
HELD FOR SALE
Non-current assets (or disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair values less costs
to sell.
Non-current assets (or disposal groups) are classified as held for sale
if their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the
local currency and converted at actual exchange rates at the date of
the transaction. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is included as an
exchange gain or loss in the Consolidated Income Statement.
At each balance sheet date, monetary assets and liabilities
denominated in foreign currencies are reported at the rates of
exchange prevailing at that date.
On consolidation, assets and liabilities of overseas subsidiary
undertakings are translated into Sterling at the rate of exchange
prevailing at the balance sheet date. Income and expense items are
translated into Sterling at the average rate of exchange for the year
as an approximation where actual rates do not fluctuate significantly.
Exchange differences arising on translation of the opening net
assets and results of overseas operations, and on foreign currency
borrowings, to the extent that they hedge the Group’s investment
in such operations, are reported in the Consolidated Statement of
Comprehensive Income.
On the disposal of a foreign operation, all of the exchange differences
accumulated in equity in respect of that operation are reclassified to
the Consolidated Income Statement.
CONSOLIDATED INCOME STATEMENT DISCLOSURE
Income statement items are presented in the middle column of the
Consolidated Income Statement entitled Other Items where they
are significant in size and nature, and either they do not form part
of the trading activities of the Group or their separate presentation
enhances understanding of the financial performance of the Group.
Items classified as Other items are as follows:
Costs related to acquisitions
The Group has made a number of acquisitions in previous years.
There are a number of specific costs relating to these acquisitions
which make comparison of performance of the businesses and
segments difficult. Therefore the following items are recorded as
Other items to provide a more comparable view of the businesses
and enhance the clarity of the performance of the Group and its
businesses to the readers of the Financial Statements. The Group
has grown both organically with the development of new operating
subsidiaries and through acquisition. However, there is significant
inconsistency between the accounting treatment of the goodwill and
intangibles associated with the acquisition of businesses and those
generated internally. On an unadjusted basis, a business acquired
under IFRS 3 would report substantially lower operating profits
and a lower return on capital than a business acquired prior to the
introduction of IFRS 3 and also to those businesses which have been
developed by the Group, thus making comparison of performance of
the businesses and segments difficult:
(i) amortisation of intangible assets acquired through business
combinations;
(ii) expenses related to contingent consideration required to be
treated as remuneration for acquired businesses;
(iii) costs and credits arising from the re-estimation of deferred and
contingent consideration payable in respect of acquisitions; and
(iv) costs related to the acquisition of businesses.
Impairment charges
Impairment charges related to non-current and current assets are
non-cash items and tend to be significant in size. The presentation
of these as Other items further enhances the understanding of the
ongoing performance of the Group.
Profits and losses on agreed sale or closure of non-core
businesses and associated impairment charges
The gain or loss on the sale or closure of businesses tends to be
significant in size and irregular in nature and is related to businesses
that will not be part of the ongoing Group. The gain or loss on the
sale or closure of these businesses is therefore included within Other
items.
Net operating losses attributable to businesses identified as
non-core
Operating results from businesses identified as non-core do not
form part of the ongoing trading activities of the Group and they are
therefore recorded separately in Other items in order to enhance the
understanding of the ongoing financial performance of the Group
and its businesses.
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Net restructuring costs
Costs associated with fundamental changes in the organisational
structure and operating model (supply chain review), such as
redundancies, property closure costs and consultancy costs are
significant in size and do not relate to ongoing operations of the
Group. These costs are therefore recorded as Other items in order to
provide a better understanding of the ongoing financial performance
of the Group. Careful consideration is applied by management in
assessing whether these costs relate to restructuring and changing
the shape and operations of the business as opposed to costs
incurred in the normal course of business.
Defined benefit pension scheme curtailment loss
The UK defined benefit pension scheme was closed to future benefit
accrual on 30 June 2016 which led to a curtailment loss being
recognised in 2016. This was recorded within Other items as it is not
related to the underlying operations of the Group.
Other specific items
Other specific items, for example profit on sale of property not
related to ongoing operations, are recorded in Other items where
they do not form part of the underlying trading activities of the Group
in order to enhance the understanding of the financial performance
of the Group. A full breakdown of such items is included in Note 2 to
the Financial Statements.
Other items within finance income and finance costs
The recycling of amounts previously recorded in reserves in respect
of interest rate derivative contracts cancelled following the Group’s
equity issuance in 2009 are recorded within Other items as the
amounts relate to a fundamental refinancing, rather than the
ongoing hedging activities of the Group. The amounts relating to
this are expected to cease in 2018 as they become fully recycled.
The unwinding of provision discounting is also included within Other
items as it is specific in nature and showing this separately enhances
the understanding of the underlying financing activities of the Group.
Taxation
The taxation effect of Other items, the effect of the change in rates of
taxation on deferred tax and tax adjustments in respect of previous
years’ Other items are shown within Other items in order to enhance
the understanding of the underlying tax position of the Group.
The prior year comparatives have been reclassified to include
in Other items the revenue, results and associated taxation of
businesses that have been identified as non-core since the signing of
the 2016 Financial Statements.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts
and customer rebates, VAT and other sales-related taxes. The Group
principally earns revenue from the distribution of construction
products and is able to recognise revenue on receipt of the goods
by the customer. Customer rebates are accounted for as a separate
component of the sales transaction in which they are granted. A
portion of the fair value of the consideration received is allocated to
customer rebates and recognised in the period as earned. Wherever
revenue is generated from a contract to provide services, it is
recognised by reference to the stage of completion of the specific
transaction and assessed on the basis of the actual service provided
as a proportion of the total services to be provided.
SUPPLIER REBATES
Supplier rebate income is significant to the Group’s result, with a
substantial proportion of purchases covered by rebate agreements.
Some supplier rebate agreements are non-coterminous with the
Group’s financial year, and firm confirmation of amounts due may not
be received until six months after the balance sheet date.
Where the Group relies on estimates, these are made with reference
to contracts or other agreements, management forecasts and
detailed operational workbooks. Supplier rebate income estimates
are regularly reviewed by senior management.
Outstanding amounts at the balance sheet date are included in trade
payables when the Group has the right to offset against amounts
owing to the supplier and therefore settles on a net basis, in line with
IAS 32 criteria. Where the supplier rebates are not netted off the
amounts owing to that supplier, the outstanding amount is included
within prepayments and accrued income. The carrying value of
inventory is reduced by the associated amount where the inventory
has yet to be sold at the balance sheet date.
OPERATING PROFIT
Operating profit is stated after charging distribution costs, selling
and marketing costs and administrative expenses, but before finance
income and finance costs.
TAXATION
Income tax on the profit or loss for the periods presented comprises
both current and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates
to items recognised directly in equity, in which case it is recognised
in the Consolidated Statement of Comprehensive Income or the
Statement of Changes in Equity.
Current tax is the expected tax payable on the taxable income for the
year, using tax rates that have been enacted by the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Current tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Deferred tax is provided using the balance sheet liability method,
providing for all temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
In accordance with IAS 12, the following temporary differences are
not provided for:
goodwill not deductible for taxation purposes;
the initial recognition of assets or liabilities that affect neither
accounting nor taxable profit; or
differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future and
the Group is able to control the reversal.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted by the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
SHARE-BASED PAYMENT TRANSACTIONS
The Group issues both equity-settled and cash-settled share-based
payments (‘share options’). Share options are measured at fair value
at the date of grant based on the Group’s estimate of the number
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expensed in the Consolidated Income Statement on a straight-line
basis over the vesting period, with a corresponding increase in equity
(equity-settled share options) or in liabilities (cash-settled share
options). The fair value of the options is measured using the Black-
Scholes option pricing model.
The amount recognised as an expense is adjusted to reflect the
actual number of share options that vest. For equity-settled share
options, at each balance sheet date the Group revises its estimate of
the number of share options expected to vest as a result of the effect
of non-market-based vesting conditions. The impact of the revision
of the original estimates, if any, is recognised in the Consolidated
Income Statement such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to equity reserves.
For cash-settled share options, a liability is recognised for the goods
or services acquired, measured initially at the fair value of the liability.
At each balance sheet date until the liability is settled, and at the
date of settlement, the fair value of the liability is remeasured, with
any changes in fair value recognised in the Consolidated Income
Statement, with a corresponding adjustment to liabilities.
INTANGIBLE ASSETS
The Group recognises intangible assets at cost less accumulated
amortisation and impairment losses. The Group recognises two types
of intangible asset: acquired and purchased. Acquired intangible assets
arise as a result of applying IFRS 3 “Business Combinations” which
requires the separate recognition of intangible assets from goodwill on
all business combinations. Purchased intangible assets relate primarily
to software that is separable from any associated hardware.
Intangible assets are amortised on a straight-line basis over their
useful economic lives as follows:
Amortisation period
Current estimate of
useful life
Customer relationships
Life of the relationship
7.4 years
Non-compete contracts
Life of the contract
3.0 years
Computer software
Useful life of the software 3.0-10.0 years
Assets in the course of construction are carried at cost, with
amortisation commencing once the assets are ready for their
intended use.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is shown at original cost to the Group
less accumulated depreciation and any provision for impairment.
Depreciation is provided at rates calculated to write off the cost less
the estimated residual value of property, plant and equipment on a
straight-line basis over their estimated useful lives as follows:
Freehold buildings
Leasehold buildings
Current estimate of useful life
50 years
Period of lease
Plant and machinery (including motor
vehicles)
3-8 years or length of lease
Freehold land is not depreciated.
Residual values, which are based on market rates, are reassessed
annually.
Assets in the course of construction are carried at cost, with
depreciation charged on the same basis as all other assets once
those assets are ready for their intended use.
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction
or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such a time as
the assets are substantially ready for their intended use or sale. All
other borrowing costs are recognised in the Consolidated Income
Statement in the period in which they are incurred.
Interest income is recognised when it is probable that the economic
benefits will flow to the Group and the amount of revenue can be
measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest
rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to
that asset’s net carrying amount on initial recognition.
LEASES AND HIRE PURCHASE AGREEMENTS
The cost of assets held under finance leases and hire purchase
agreements is capitalised with an equivalent liability categorised as
appropriate under current liabilities or non-current liabilities. The asset
is depreciated over the shorter of the lease term or its useful life.
Rentals under finance leases and hire purchase agreements are
apportioned between finance costs and reduction of the lease
obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. The finance costs are charged in
arriving at profit before tax.
Rentals under operating leases are charged to the Consolidated
Income Statement on a straight-line basis over the lease term.
In the event that lease incentives are received to enter into operating
leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense
on a straight-line basis over the lease term.
INVENTORIES
Inventories are stated at the lower of cost (including an appropriate
proportion of attributable overheads, supplier rebates and discounts)
and net realisable value. The cost formula used in measuring
inventories is either a weighted average cost, or a first in first out
basis, depending on the most appropriate method for each
particular business.
Net realisable value is based on estimated normal selling price, less
further costs expected to be incurred up to completion and disposal.
Provision is made for obsolete, slow-moving or defective items where
appropriate.
CONSTRUCTION CONTRACTS
Where the outcome of a construction contract can be estimated
reliably, revenue and costs are recognised by reference to the stage
of completion of the contract activity at the reporting date. Stage of
completion is normally measured by the proportion that contract
costs incurred for work performed to date bear to the estimated total
contract costs, except where this would not be representative of the
stage of completion. Variations in contract work, claims and incentive
payments are recognised only to the extent that the amount can be
measured reliably and its receipt is considered probable.
Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of contract
costs incurred where it is probable they will be recoverable. Contract
costs are recognised as expenses in the period in which they are
incurred.
When it is probable that total contract costs will exceed total
contract revenue, the total expected loss is recognised as an
expense immediately.
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When contract costs incurred to date plus recognised profits less
recognised losses exceed progress billings, the surplus is shown as
amounts due from construction contract customers. For contracts
where progress billings exceed contract costs incurred to date plus
recognised profits less recognised losses, the surplus is shown as
amounts due to construction contract customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and call deposits
with an original maturity of three months or less.
Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component
of cash and cash equivalents for the purposes of the Consolidated
Cash Flow Statement.
Cash held but not available for use by the Group is disclosed as
restricted cash within Note 19.
FINANCIAL ASSETS
Financial assets are classified as either financial assets at fair value
through profit or loss or loans and receivables. The classification
depends on the nature and purpose of the financial asset and is
determined at the time of initial recognition.
Financial assets at fair value through profit or loss are initially
measured and subsequently stated at fair value, with any resultant
gain or loss recognised in the Consolidated Income Statement. When
determining the fair value of financial assets, the expected future
cash flows are discounted using an appropriate discount rate.
Loans and receivables are measured initially at fair value and then
subsequently at amortised cost using the effective interest rate
method. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the
debt instrument, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Financial assets (including trade receivables) are assessed for
indicators of impairment on an ongoing basis. Financial assets are
impaired where there is objective evidence that, as a result of one
or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows have been negatively
impacted. When there is objective evidence of impairment, appropriate
allowances are made for estimated irrecoverable amounts based upon
expected future cash flows discounted by an appropriate interest
rate where applicable. The carrying amount of the financial asset is
reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced
through the use of an allowance account. When a trade receivable is
considered to be uncollectible it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are
credited to the Consolidated Income Statement.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed through the Consolidated
Income Statement to the extent that the carrying amount of the asset
at the date the impairment is reversed does not exceed what the
amortised cost would have been had the impairment not
been recognised.
Trade receivables that are factored out to banks and other financial
institutions without recourse to the Group are derecognised at the
point of factoring as the risks and rewards of the receivables have
been fully transferred. In assessing whether the receivables qualify
for derecognition the Group has considered the receivables and
receivable insurance contracts as two separate units of account.
Therefore the insurance is not included as part of the derecognition
assessment on the basis that the insurance is not similar to the
receivables. The Group has elected to recognise cash inflows from
the sale of factored receivables as an operating cashflow.
FINANCIAL LIABILITIES
Financial liabilities are classified as either financial liabilities at fair
value through profit or loss or other financial liabilities.
Financial liabilities at fair value through profit or loss are initially
measured and subsequently stated at fair value, with any resultant
gain or loss recognised in the Consolidated Income Statement. The
net gain or loss recognised in the Consolidated Income Statement
incorporates any interest paid on the financial liability.
Other financial liabilities (including trade and other payables) are
initially measured at fair value, net of transaction costs, and are
subsequently measured at amortised cost using the effective interest
rate method.
When determining the fair value of financial liabilities, the expected
future cash flows are discounted using an appropriate interest rate.
Debt and equity instruments are classified as either financial liabilities
or as equity in accordance with the substance of the contractual
arrangement.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments including interest
rate swaps, forward foreign exchange contracts, cross-currency
swaps and commodity hedging instruments to hedge its exposure to
foreign currency exchange, interest rate and fuel price risks arising
from operational and financing activities. In accordance with its
Treasury Policy, the Group does not hold or issue derivative financial
instruments for trading purposes. However, any derivative financial
instruments that do not qualify for hedge accounting are accounted
for as trading instruments. Derivatives are classified as non-current
assets or non-current liabilities if the remaining maturity of the
derivatives is more than 12 months and they are not expected to be
otherwise realised or settled within 12 months. Other derivatives are
presented as current assets or current liabilities.
Derivative financial instruments are recognised immediately at fair
value. Subsequent to their initial recognition, derivative financial
instruments are then stated at their fair value. The fair value of
derivative financial instruments is derived from ‘mark-to-market’
valuations obtained from the Group’s relationship banks.
Unless hedge accounting is achieved, the gain or loss on
remeasurement to fair value is recognised immediately and is
included as part of finance income or finance costs, together with
other fair value gains and losses on derivative financial instruments,
within the column of the Consolidated Income Statement entitled
Other items.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, exercised, no longer qualifies
for hedge accounting, or when the Group revokes the hedging
relationship. At that time, any cumulative gain or loss on the hedging
instrument recognised in equity is retained in equity until the forecast
transaction occurs. If a hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognised in equity is
transferred to the Consolidated Income Statement in the period.
At the inception of the hedge relationship the Group documents
the relationship between the hedging instrument and the hedged
item, along with its risk management objectives and its strategy
for undertaking various hedging transactions. Furthermore, at
the inception of the hedge and on an ongoing basis, the Group
documents whether the hedging instruments that are used in
hedging transactions are highly effective in offsetting changes in fair
values or cash flows of the hedged items.
110
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc FAIR VALUE HEDGES
For an effective hedge of an exposure to changes in fair value, the
hedged item is adjusted for changes in fair value attributable to the
risk being hedged with the corresponding entry in the Consolidated
Income Statement within Other items. Fair value gains or losses from
remeasuring the derivative financial instruments are recognised
immediately in the Consolidated Income Statement within Other items.
CASH FLOW HEDGES
When a derivative financial instrument is designated as a hedge
of the variability in cash flows associated with a recognised asset
or liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised directly in the Consolidated Statement of Comprehensive
Income (i.e. equity). When the forecast transaction subsequently
results in the recognition of a non-financial asset or non-financial
liability, the associated cumulative gain or loss is removed from
equity and included in the initial cost or other carrying amount of
the non-financial asset or liability. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or
financial liability, the associated gains or losses that were previously
recognised in the Consolidated Statement of Comprehensive Income
are reclassified into the Consolidated Income Statement in the
same period or periods during which the asset acquired or liability
assumed affects the Consolidated Income Statement.
For cash flow hedges, the ineffective portion of any gain or loss is
recognised immediately as fair value gains or losses on derivative
financial instruments and is included as part of finance income
or finance costs within the column of the Consolidated Income
Statement entitled Other items.
HEDGE OF NET INVESTMENT IN FOREIGN
OPERATIONS
The portion of any gain or loss on an instrument used to hedge
a net investment in a foreign operation that is determined to be
an effective hedge is recognised in the Consolidated Statement of
Comprehensive Income. The ineffective portion of any gain or loss
is recognised immediately as fair value gains or losses on derivative
financial instruments and is included as part of finance income
or finance costs within the column of the Consolidated Income
Statement entitled Other items. Gains and losses deferred in the
hedging and translation reserve are recognised immediately in
the Consolidated Income Statement when foreign operations are
disposed of.
PROPERTY PROVISIONS
The Group makes provisions in respect of onerous leasehold
property contracts and leasehold dilapidation commitments where
it is probable that a transfer of economic benefit will be required to
settle a present obligation. The amount recognised as a provision is
the best estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks and
uncertainties surrounding the obligation. Provisions are measured
at the present value of the expenditures expected to be required to
settle the obligation.
PENSION SCHEMES
SIG operates six defined benefit pension schemes. The Group’s net
obligation in respect of these defined benefit pension schemes is
calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service
in both current and prior periods. That benefit is discounted using an
appropriate discount rate to determine its present value and the fair
value of any plan assets is deducted.
Where the benefits of the plan are improved, the portion of the
increased benefit relating to past service by employees is recognised
as an expense in the Consolidated Income Statement, at the earlier
of when the plan amendment or curtailment occurs and when the
entity recognises related restructuring costs or termination benefits.
The full service cost of the pension schemes is charged to operating
profit. Net finance costs on defined benefit pension schemes are
recognised in the Consolidated Income Statement. Discretionary
contributions made by employees or third parties reduce service
costs upon payment of these contributions into the plan.
Any actuarial gain or loss arising is charged through the Consolidated
Statement of Comprehensive Income and is made up of the
difference between the expected returns on assets and those
actually achieved, any changes in the actuarial assumptions for
demographics and any changes in the financial assumptions used in
the valuations.
The pension scheme deficit is recognised in full and presented on
the face of the Consolidated Balance Sheet. The associated deferred
tax asset is recognised within non-current assets in the Consolidated
Balance Sheet.
For defined contribution schemes the amount charged to the
Consolidated Income Statement in respect of pension costs and
other post-retirement benefits is the contributions payable in the
year. Differences between contributions payable in the year and
contributions actually paid are included within either accruals or
prepayments in the Consolidated Balance Sheet.
DIVIDENDS
Dividends proposed by the Board of Directors that have not been
paid by the end of the year are not recognised in the Financial
Statements until they have been approved by the Shareholders at the
Annual General Meeting.
SEGMENT REPORTING
In accordance with IFRS 8 “Operating Segments”, the Group identifies
its reportable segments based on the components of the business
on which financial information is regularly reviewed by the Group’s
Chief Operating Decision Maker (‘CODM’) to assess performance
and make decisions about how resources are allocated. For SIG,
the CODM is considered to be the Group Executive Committee.
Following certain operational and strategic changes undertaken
during the year, the Group has concluded that the appropriate
reported operating segments are SIG Distribution, SIG Exteriors,
Ireland & Other UK, France, Germany and Other Europe, compared
to UK & Ireland and Mainland Europe in prior years. The prior year
comparatives have been restated to expand UK & Ireland and
Mainland Europe into the constituent components consistent with
the current year presentation. The constituent operating segments
of Other Europe have been aggregated as they have similar products
and services, types of customer, methods of distribution and
economic characteristics and do not meet the quantitative thresholds
for separate disclosure. The economic characteristics that have been
assessed include long term growth rates and expected long term
average gross margins.
111
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Critical accounting judgements and
key sources of estimation uncertainty
POST-EMPLOYMENT BENEFITS
The Group operates six defined benefit pension schemes. All post-
employment benefits associated with these schemes have been
accounted for in accordance with IAS 19 “Employee Benefits”. As
detailed within the Statement of Significant Accounting Policies on
page 111, in accordance with IAS 19, all actuarial gains and losses
have been recognised immediately through the Consolidated
Statement of Comprehensive Income.
For all defined benefit pension schemes, pension valuations have
been performed using specialist advice obtained from independent
qualified actuaries. In performing these valuations, significant
actuarial assumptions have been made to determine the defined
benefit obligation, in particular with regard to discount rate, inflation
and mortality. Management considers the key assumption to be
the discount rate applied. In determining the appropriate discount
rate, the Group considers the interest rates of high quality corporate
bonds excluding university bonds. If the discount rate were to be
increased/decreased by 0.1%, this would decrease/increase the
Group’s gross pension scheme deficit by £3.4m as disclosed in Note
29c. At 31 December 2017 the Group’s retirement benefit obligations
were £30.4m (2016: £37.1m).
IMPAIRMENT OF NON-CURRENT ASSETS
The Group tests goodwill, intangible assets and property, plant and
equipment annually for impairment, or more frequently if there are
indications that an impairment may be required.
Determining whether goodwill is impaired requires an estimation of
the value in use of the CGUs to which goodwill has been allocated.
The key estimates made in the value in use calculation are those
regarding discount rates, sales growth rates, and expected changes
to selling prices and direct costs to reflect the operational gearing
of the business. The Directors estimate discount rates using pre-tax
rates that reflect current market assessments of the time value of
money for the Group.
For the majority of the CGUs, the Group performs goodwill impairment
reviews by forecasting cash flows based upon the following year’s
budget, which anticipates sales growth, and a projection of cash flows
based upon industry growth expectations (0%-3.4%) over a further
period of four years. Where detailed five-year forecasts for a CGU have
been prepared and approved by the Board, which can include higher
growth rates or varied results reflecting specific economic factors,
these are used in preparing cash flow forecasts for impairment review
purposes. After this period, the sales growth rates applied to the cash
flow forecasts are no more than 1% and operating profit growth no
more than 3.4% in perpetuity. The discount rates applied to all CGUs
represent pre-tax rates.
Assumptions regarding sales and operating profit growth, gross
margin, and discount rate are considered to be the key areas of
estimation in the impairment review process, and appropriate
sensitivities have been performed and disclosed in Note 12.
Impairments are allocated initially against the value of any goodwill
and intangible assets held within a CGU, with any remaining
impairment applied to property, plant and equipment on a pro
rata basis.
In the application of the Group’s accounting policies, which are
described on pages 105 to 111, the Directors are required to make
judgements (other than those involving estimates) that have a
significant impact on the amounts recognised and to make estimates
and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the change takes place if the revision affects only
that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
CRITICAL JUDGEMENTS IN APPLYING THE GROUP’S
ACCOUNTING POLICIES
The following is the critical judgement that the Directors have made
in the process of applying the Group’s accounting policies and
that has had a significant effect on the amounts recognised in the
Financial Statements. The judgements involving estimations are dealt
with separately below.
CLASSIFICATION OF OTHER ITEMS IN THE CONSOLIDATED
INCOME STATEMENT
As described in the Statement of Significant Accounting Policies,
certain items are presented in the separate column of the
Consolidated Income Statement entitled Other items where they
are significant in size and nature, and either they do not form part
of the trading activities of the Group or their separate presentation
enhances understanding of the financial performance of the Group.
Operating results from businesses identified as non-core (see Note
32 of the Financial Statements) do not form part of the ongoing
trading activities of the Group and are therefore also recorded
separately in Other items in order to enhance the understanding
of the ongoing financial performance of the Group. The nature and
amounts of the items included in Other items, together with the
overall impact on the results for the year, is disclosed in Note 2 of the
Financial Statements.
KEY SOURCES OF ESTIMATION UNCERTAINTY
The key estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying value of the assets and
liabilities within the next financial year are detailed below.
REBATES RECEIVABLE
Supplier rebate income is significant to the Group’s result, with a
substantial proportion of purchases covered by rebate agreements.
Supplier rebate income affects the recorded value of cost of sales,
trade payables, trade and other receivables, and inventories. The
amounts payable under rebate agreements are often subject to
negotiation after the balance sheet date. A number of agreements
are non-coterminous with the Group’s financial year, requiring
estimation over the level of future purchases and sales. At the
balance sheet date the Directors estimate the amount of rebate
that will become payable by and due to the Group under these
agreements based upon prices, volumes and product mix. At 31
December 2017 trade payables is presented net of £58.8m (2016:
£72.6m restated) due from suppliers in respect of supplier rebates
where the Group has the right to net settlement, and included within
prepayments and accrued income is £55.2m (2016: £52.8m restated)
due in relation to supplier rebates where there is no right to offset
against trade payable balances. Of these balances, £19.6m relates
to agreements which are non-coterminous with the financial year
end and therefore involves estimates regarding future purchase
and sales, and the amount received could therefore vary from the
amount recorded, positively or negatively by c.£5m.
112
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The carrying amount of relevant non-current assets at 31 December
2017 is £471.6m (2016: £556.9m). The most recent results of the
impairment review process are disclosed in Note 12 and indicated
that the carrying value of non-current assets associated with the
Group’s Building Systems, GRM, IBSL and Metechno CGUs were no
longer supportable and the non-current assets have been impaired
to reflect the recoverable amount expected from associated sale
proceeds or other amounts. Impairment reviews performed during
the year indicated that the carrying value of the Group’s other non-
current assets at 31 December 2017 were considered supportable.
Whilst the Directors consider the assumptions used in the
impairment review to be realistic, if actual results are different from
expectations then it is possible that the value of goodwill and other
intangible assets included in the Consolidated Balance Sheet could
become impaired. These sensitivities are disclosed in Note 12.
PROVISIONS AGAINST RECEIVABLES
At 31 December 2017 the Group has recognised trade receivables
with a carrying value of £362.3m (2016: £417.0m). Using information
available at the balance sheet date, the Directors make detailed
estimates based on experience regarding the level of provision
required to account for potentially uncollectible receivables. Changes
in the economic environment or customer-specific circumstances
could have an impact on the recoverability of amounts included on
the Consolidated Balance Sheet at 31 December 2017. The total
provision recorded at 31 December 2017 is £41.1m (2016: £33.9m).
The bad debt to sales ratio of the Group has varied by up to 0.2%
over recent periods, therefore this gives an indication that the
bad debt experience could vary by c.£6m. Further detail on trade
receivables and the allowance for doubtful accounts recognised is
disclosed in Note 16.
113
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
1. REVENUE AND SEGMENTAL INFORMATION
REVENUE
An analysis of the Group’s revenue is as follows:
Sale of goods
Revenue from construction contracts
Total revenue
Finance income
Total income
SEGMENTAL INFORMATION
A) SEGMENTAL ANALYSIS
Segment revenues and results
2017
Revenue
2017
£m
2016
£m
2,814.1
2,786.8
64.3
58.4
2,878.4
2,845.2
0.6
1.7
2,879.0
2,846.9
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
Total
£m
France
£m
Germany
£m
Other
Europe
£m
Total
£m
Eliminations
£m
Total
£m
Underlying revenue
797.5
409.5
98.3
1,305.3
660.7
425.9
386.6
1,473.2
–
2,778.5
Revenue attributable to businesses
identified as non-core
Inter-segment revenue^
Total revenue
Result
Segment result before Other items
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of
non-core businesses and associated
impairment charges (Note 11)
Net operating losses attributable to
businesses identified as non-core
(Note 11)
Net restructuring costs
Acquisition expenses and contingent
consideration (Note 14)
Other specific items
Segment operating (loss)/profit
Parent Company costs
Operating loss
Net finance costs before Other items
Net fair value losses on derivative
financial instruments
Unwinding of provision discounting
Loss before tax
Income tax expense
Non-controlling interests
Loss for the year
4.4
15.3
34.5
5.2
41.4
–
80.3
20.5
–
12.5
7.6
0.2
12.0
19.6
–
99.9
0.6
13.3
(33.8)
–
817.2
449.2
139.7
1,406.1
673.2
433.7
399.2
1,506.1
(33.8)
2,878.4
9.9
(2.0)
(6.8)
32.9
4.8
47.6
26.2
11.5
21.7
59.4
(4.9)
(0.1)
–
–
(7.0)
(6.8)
(0.8)
–
–
–
(1.5)
(2.3)
–
–
–
–
–
107.0
(9.3)
(6.8)
(7.6)
(28.6)
(31.9)
(68.1)
–
(1.2)
(3.1)
(4.3)
–
(72.4)
(0.8)
(16.8)
(1.1)
0.1
(25.1)
0.9
(1.3)
(1.6)
5.4
2.8
(13.8)
(13.7)
(0.8)
(18.9)
–
(0.2)
(0.2)
(1.0)
(0.4)
(1.0)
(0.6)
(2.2)
1.9
(0.8)
–
5.5
–
–
–
–
(9.0)
(9.0)
–
–
(39.9)
(62.2)
25.2
9.1
6.7
41.0
–
–
–
–
–
(14.3)
(21.1)
(9.8)
5.5
(21.2)
(12.7)
(33.9)
(15.1)
(1.7)
(0.5)
(51.2)
(7.4)
(1.0)
(59.6)
^ Inter-segment revenue is charged at the prevailing market rates.
114
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Revenue
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
Total
£m
France
£m
Germany
£m
Other
Europe
£m
Total
£m
Eliminations
£m
Total
£m
Underlying revenue
781.2
414.8
85.5
1,281.5
589.2
385.6
331.1
1,305.9
–
2,587.4
Revenue attributable to businesses
identified as non-core
Inter-segment revenue^
Total revenue
Result (restated)*
4.7
13.9
63.0
2.0
148.3
216.0
–
27.6
14.2
41.8
–
257.8
0.3
16.2
12.5
0.2
1.9
14.6
(30.8)
–
799.8
479.8
234.1
1,513.7
601.7
413.4
347.2
1,362.3
(30.8)
2,845.2
Segment result before Other items
18.2
30.5
Amortisation of acquired intangibles
Impairment charges
(2.2)
–
(4.9)
–
3.7
(1.0)
–
52.4
(8.1)
(0.8)
–
(100.4)
24.4
7.7
16.0
48.1
(1.4)
(2.2)
(10.2)
(110.6)
–
–
–
100.5
(10.3)
(110.6)
–
–
(40.1)
(40.1)
–
–
–
–
(40.1)
–
–
–
(0.4)
(8.8)
2.9
(0.2)
(11.2)
(8.7)
(1.6)
(10.6)
–
(1.5)
0.6
(0.7)
0.2
(0.5)
0.8
(2.7)
5.3
(2.0)
1.4
4.7
(0.9)
(5.5)
5.7
–
–
–
(0.5)
(0.9)
(6.0)
26.3
(49.3)
(17.3)
(78.3)
7.6
–
–
–
–
–
–
(0.1)
(0.1)
–
0.1
4.1
–
0.1
(66.6)
Losses on agreed sale or closure of
non-core businesses and associated
impairment charges (Note 11)
Net operating losses attributable to
businesses identified as non-core
(Note 11)
Net restructuring costs
Acquisition expenses and contingent
consideration (Note 14)
Defined benefit pension scheme
curtailment loss (Note 29c)
Other specific items
Segment operating (loss)/profit
Parent Company costs
Operating loss
Net finance costs before Other items
Net fair value losses on derivative
financial instruments
Unwinding of provision discounting
Loss before tax
Income tax expense
Non-controlling interests
Loss for the year
^ Inter-segment revenue is charged at the prevailing market rates.
* 2016 has been restated for the historical overstatement of profit, as noted in the Statement of Significant Accounting Policies and Note 33.
–
–
–
–
–
–
(7.9)
(13.3)
4.6
(0.9)
(5.9)
(83.9)
(10.8)
(94.7)
(13.8)
(1.9)
0.4
(110.0)
(11.6)
(0.5)
(122.1)
115
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
Total
£m
France
£m
Germany
£m
Other
Europe
£m
Total
£m
Total
£m
360.0
221.0
59.6
640.6
343.4
124.4
204.1
671.9
1,312.5
0.1
1.3
–
–
10.2
0.2
11.5
1,335.8
190.5
59.0
45.0
294.5
149.2
36.0
61.4
246.6
541.1
204.2
75.7
3.5
33.6
858.1
6.5
2.3
–
7.7
7.6
4.1
2.3
1.1
–
–
–
–
9.9
2.3
–
5.4
0.2
2.1
0.1
2.0
0.6
9.5
0.9
19.4
3.2
–
0.1
–
0.1
0.1
1.9
1.2
10.8
6.0
3.0
3.1
12.1
22.9
–
2.7
10.3
–
–
0.3
0.3
10.6
4.9
0.6
9.6
1.4
0.4
1.6
3.4
13.0
5.6
–
1.0
6.6
–
–
–
–
6.6
2017
Balance sheet
Assets
Segment assets
Unallocated assets:
Property, plant and equipment
Derivative financial instruments
Deferred consideration
Other financial assets
Cash and cash equivalents
Deferred tax assets
Other assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated liabilities:
Private placement notes
Bank loans
Derivative financial instruments
Other liabilities
Consolidated total liabilities
Other segment information
Capital expenditure on:
Property, plant and equipment
Computer software
Goodwill and intangible assets
(excluding computer software)
Non-cash expenditure:
Depreciation
Impairment of property, plant and
equipment and computer software
Amortisation of acquired
intangibles and computer software
Impairment of goodwill and
intangibles (excluding computer
software)
116
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2016
Balance sheet
Assets (restated)*
Segment assets
Unallocated assets:
Property, plant and equipment
Derivative financial instruments
Deferred consideration
Other financial assets
Cash and cash equivalents
Deferred tax assets
Other assets
Consolidated total assets
Liabilities (restated)*
Segment liabilities
Unallocated liabilities:
Private placement notes
Bank loans
Derivative financial instruments
Other liabilities
Consolidated total liabilities
Other segment information
Capital expenditure on:
Property, plant and equipment
Computer software
Goodwill and intangible assets
(excluding computer software)
Non-cash expenditure:
Depreciation
Impairment of property, plant and
equipment and computer software
Amortisation of acquired intangibles
and computer software
Impairment of goodwill and
intangibles (excluding computer
software)
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
Total
£m
France
£m
Germany
£m
Other
Europe
£m
Total
£m
Total
£m
391.9
283.0
109.4
784.3
351.3
130.0
201.1
682.4
1,466.7
0.9
4.5
0.7
–
14.5
2.3
–
1,489.6
186.9
85.5
62.2
334.6
143.9
34.5
52.6
231.0
565.6
200.7
158.8
3.8
24.4
953.3
14.2
4.6
3.4
0.1
4.1
0.1
21.7
4.8
3.9
0.6
5.3
0.5
2.8
0.3
12.0
1.4
33.7
6.2
6.1
4.1
0.4
10.6
1.4
–
6.5
7.9
18.5
10.5
2.4
1.5
14.4
5.1
3.4
3.1
11.6
26.0
8.2
–
3.8
12.0
–
–
–
–
12.0
4.4
5.0
1.5
10.9
1.0
0.3
1.6
2.9
13.8
–
–
22.0
22.0
100.4
–
10.2
110.6
132.6
* 2016 has been restated for the historical overstatements, as noted in the Statement of Significant Accounting Policies and Note 33.
117
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
B) REVENUE BY PRODUCT GROUP
The Group focuses its activities into three product sectors: insulation and interiors; roofing and exteriors; and air handling, as set out on
page 5.
The following table provides an analysis of Group revenue by type of product:
Insulation and interiors
Roofing and exteriors
Air handling
Total underlying
Attributable to businesses identified as non-core (Note 11)
Total
2017
£m
2016
£m
1,718.9
1,571.1
814.5
245.1
808.9
207.4
2,778.5
2,587.4
99.9
257.8
2,878.4
2,845.2
C) GEOGRAPHIC INFORMATION
The Group’s revenue from external customers and its non-current assets (including property, plant and equipment, goodwill and intangible
assets but excluding deferred tax, derivative financial instruments and deferred consideration) by geographical location are as follows:
Country
United Kingdom
Ireland
France
Germany
Poland
Benelux*
Total underlying
Attributable to businesses identified as non-core (Note 11)
Total
* Includes the air handling business managed from The Netherlands.
2017
Revenue
£m
1,207.0
98.3
660.7
425.9
142.8
243.8
2,778.5
99.9
2,878.4
2017
Non-current
assets
£m
265.0
2.8
126.0
18.5
6.7
52.3
471.3
0.3
471.6
2016
Revenue
£m
1,196.0
85.5
589.2
385.6
115.1
216.0
2,587.4
257.8
2,845.2
2016
Non-current
assets
£m
298.0
2.7
124.6
21.7
6.9
52.3
506.2
50.7
556.9
There is no material difference between the basis of preparation of the information reported above and the accounting policies adopted by
the Group.
118
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 2. COST OF SALES AND OTHER OPERATING EXPENSES
Cost of sales (2016 restated)
Other operating expenses:
– distribution costs*
– selling and marketing costs*
– administrative expenses
Before Other
items
£m
2,042.0
257.3
213.9
171.0
642.2
2017
Other
items
£m
83.9
29.6
6.4
108.2
144.2
Total
£m
Before Other
items
£m
2016
Other
items
£m
Total
£m
2,125.9
1,896.3
201.0
2,097.3
286.9
220.3
279.2
786.4
234.1
205.1
162.2
601.4
39.4
10.5
191.3
241.2
273.5
215.6
353.5
842.6
* The prior year figures have been reclassified to present on a consistent basis with the current year, reducing selling and marketing costs (before Other items and Total) by £17.3m and
increasing administrative expenses (before Other items and Total) by the same amount.
Loss after tax includes the following Other items which have been disclosed in a separate column within the Consolidated Income Statement
in order to provide a better indication of the underlying earnings of the Group:
Amortisation of acquired intangibles (Note 13)
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges (Note 11)
Net operating losses attributable to businesses identified as non-core (Note 11)
Net restructuring costs^
Acquisition expenses and contingent consideration (Note 14)
Defined benefit pension scheme curtailment loss (Note 29c)
Other specific items*
Impact on operating loss
Net fair value losses on derivative financial instruments
Unwinding of provision discounting
Impact on loss before tax
Income tax credit on Other items
Effect of change in rate on deferred tax
Other tax adjustments in respect of previous years
Impact on loss after tax
2017
£m
(9.3)
(6.8)
(72.4)
(14.3)
(21.1)
(9.8)
–
5.5
2016
£m
(10.3)
(110.6)
(40.1)
(7.9)
(13.3)
4.6
(0.9)
(5.9)
(128.2)
(184.4)
(1.7)
(0.5)
(1.9)
0.4
(130.4)
(185.9)
9.9
(1.0)
4.2
5.9
0.2
0.4
(117.3)
(179.4)
^ Included within net restructuring costs are costs associated with supply chain review of £11.7m (2016: £6.7m), property closure costs of £2.8m (2016: £4.4m), redundancy costs of £3.9m
(2016: £1.7m) and £2.7m in relation to redundancy consultancy costs. There were no rebranding costs in the current year (2016: £0.5m).
* Other specific items are split as follows:
Profit on sale of property
Other specific credits
Impairment charge and other costs following the cessation of the UK eCommerce project
Net charge arising as a result of movements in provisions associated with businesses disposed of in previous years
Fair value gains on fuel hedging contracts
Reassessment of the provision associated with the closure in 2015 of the Group’s
operations in the Kingdom of Saudi Arabia
Total other specific items
2017
£m
5.8
–
(0.3)
–
–
–
5.5
2016
£m
2.8
0.4
(9.7)
(0.5)
0.4
0.7
(5.9)
119
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
3. FINANCE INCOME AND FINANCE COSTS
Finance income
Interest on bank deposits
Unwinding of provision discounting
Total finance income
Finance costs
On bank loans, overdrafts and other associated
items^
On private placement notes
On obligations under finance lease contracts
Total interest expense
Net finance charge on defined benefit pension
schemes
Unwinding of provision discounting
Fair value losses on derivative financial
instruments*
Total finance costs
Net finance costs
Underlying
£m
2017
Other
items
£m
Total
£m
Underlying
£m
2016
Other
items
£m
0.5
–
0.5
7.0
7.0
0.5
14.5
0.7
–
0.4
15.6
15.1
–
0.1
0.1
–
–
–
–
–
0.6
1.7
2.3
2.2
0.5
0.1
0.6
7.0
7.0
0.5
14.5
0.7
0.6
2.1
17.9
17.3
1.2
–
1.2
5.0
8.5
0.5
14.0
0.5
0.1
0.4
15.0
13.8
–
0.5
0.5
–
–
–
–
–
0.1
1.9
2.0
1.5
Total
£m
1.2
0.5
1.7
5.0
8.5
0.5
14.0
0.5
0.2
2.3
17.0
15.3
^ Other associated items includes the amortisation of arrangement fees of £0.8m (2016: £0.7m).
* Fair value losses on derivative financial instruments before Other items includes £0.4m (2016: £0.4m) relating to the recycling of amounts previously recorded in reserves in respect of
two interest rate derivative contracts cancelled in 2015 as part of the ongoing management of the Group’s interest rate hedging policy. Included within Other items is £1.7m (2016: £1.9m)
relating to the recycling of amounts previously recorded in reserves in respect of interest rate derivative contracts cancelled following the Group’s equity issuance in 2009. 2018 will be the
last year these losses are recognised as the amounts become fully recycled.
120
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 4. LOSS BEFORE TAX
Loss before tax is stated after crediting:
Foreign exchange rate gains
Unwinding of provision discounting
Gains on disposal of property, plant and equipment
Acquisition expenses and contingent consideration (Note 14)
Other specific items (Note 2)
And after charging:
Cost of inventories recognised as an expense
Net increase in provision for inventories
Depreciation of property, plant and equipment:
– owned
– held under finance leases and hire purchase agreements
Amortisation of acquired intangibles
Amortisation of computer software
Operating lease rentals:
– land and buildings
– plant and machinery
Auditor remuneration for audit services
Non-audit fees
Net increase in provision for receivables (Note 16)
Foreign exchange rate losses
Fair value losses on derivative financial instruments
Unwinding of provision discounting
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges (Note 11)
Net operating losses attributable to businesses identified as non-core (Note 11)
Net restructuring costs (Note 2)
Acquisition expenses and contingent consideration (Note 14)
Other specific items (Note 2)
Defined benefit pension scheme curtailment loss (Note 29c)
2017
£m
–
0.1
20.2
1.9
5.8
2016
Restated
£m
0.3
0.5
8.5
10.9
4.3
2,118.4
2,089.0
3.1
0.1
20.0
2.9
9.3
3.7
53.6
19.2
1.6
0.1
16.8
0.5
2.1
0.6
6.8
72.4
14.3
21.1
11.7
0.3
–
22.8
3.2
10.3
3.5
56.4
18.3
1.5
0.1
5.0
–
2.3
0.2
110.6
40.1
7.9
13.3
6.3
10.2
0.9
Staff costs excluding contingent consideration treated as remuneration (Note 5)
390.1
373.3
A more detailed analysis of Auditor remuneration is provided below:
Fees payable to the Company’s Auditor and their associates for the audit of the Company and Group Financial
Statements
Fees payable to the Company's Auditor and their associates for other services to the Group:
– The audit of the Company's subsidiaries
Total audit fees
– Audit-related assurance services (including interim review)^
– Other services^
Total non-audit fees
Total fees
2017
Deloitte LLP
£m
2016
Deloitte LLP
£m
0.2
1.4
1.6
0.1
–
0.1
1.7
0.1
1.4
1.5
0.1
–
0.1
1.6
^ The audit-related assurance services relate to the interim review and grant claim assurance work, it is usual practice for a company’s Auditor to perform this work. Other services comprise
£29,000 in relation to technical accounting workshops and £20,000 in relation to an accounting opinion on a proposed structure. Accounting workshops and opinions of this nature are
typically provided by a company’s Auditor.
The Audit Committee Report on pages 76 and 77 provides an explanation of how Auditor objectivity and independence is safeguarded when
non-audit services are provided by the Auditor.
121
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
5. STAFF COSTS
Particulars of employees (including Directors) are shown below:
Employee costs during the year amounted to:
Wages and salaries
Social security costs
IFRS 2 share option charge/(credit)
Pension costs (Note 29c)
Total staff costs excluding contingent consideration
Contingent consideration treated as remuneration (Note 14)
Total staff costs including contingent consideration
2017
£m
323.9
57.8
0.2
8.2
390.1
8.1
398.2
2016
£m
312.8
52.5
(0.3)
8.3
373.3
(0.3)
373.0
In addition to the above, redundancy costs of £3.9m (2016: £1.7m) have been included within Other items (Note 2).
Of the pension costs noted above, a charge of £0.4m (2016: £2.0m) relates to defined benefit schemes and a charge of £7.8m (2016: £6.3m)
relates to defined contribution schemes. See Note 29c for more details.
The average monthly number of persons employed by the Group during the year was as follows:
Production
Distribution
Sales
Administration
Total
The average numbers above include 398 staff that were employed in businesses classified as non-core (2016: 944).
DIRECTORS’ EMOLUMENTS
Details of the individual Directors’ emoluments are given in the Directors’ Remuneration Report on pages 89 to 92.
The employee costs shown above include the following emoluments in respect of Directors of the Company:
Directors' remuneration (excluding IFRS 2 share option charge)
Directors' compensation for loss of office
Total
2017
Number
910
2,811
3,944
2,009
9,674
2016
Number
887
3,186
4,155
2,087
10,315
2017
£m
2.1
–
2.1
2016
£m
1.4
0.8
2.2
122
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 6. INCOME TAX
The income tax expense comprises:
Current tax
UK & Ireland corporation tax:
– charge for the year
– adjustments in respect of previous years
France corporation tax:
– charge for the year
– adjustments in respect of previous years
Germany corporation tax:
– charge for the year
– adjustments in respect of previous years
Other corporation tax:
– charge for the year
– adjustments in respect of previous years
Total current tax
Deferred tax
Current year
Adjustments in respect of previous years
Deferred tax charge in respect of pension schemes*
Effect of change in rate
Total deferred tax
Total income tax expense
* Includes a charge of £nil (2016: £0.1m) in respect of the change in rate.
2017
£m
2016
Restated
£m
0.6
0.2
0.8
7.0
(0.2)
6.8
2.8
0.2
3.0
4.0
0.5
4.5
0.1
–
0.1
6.5
–
6.5
1.8
–
1.8
3.1
(0.6)
2.5
15.1
10.9
(2.1)
(6.9)
0.3
1.0
(7.7)
7.4
1.1
(0.3)
0.2
(0.3)
0.7
11.6
123
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
As the Group’s profits and losses are earned across a number of tax jurisdictions an aggregated income tax reconciliation is disclosed,
reflecting the applicable rates for the countries in which the Group operates.
The total tax charge for the year differs from the expected tax using a weighted average tax rate which reflects the applicable statutory
corporate tax rates on the accounting profits/losses in the countries in which the Group operates. The differences are explained in the
following aggregated reconciliation of the income tax expense:
Loss on ordinary activities before tax
Expected tax credit
Factors affecting the income tax expense for the year:
– expenses not deductible for tax purposes^
– non-taxable income*
– impairment and disposal charges not deductible for tax purposes**
– losses arising in the year not recognised for deferred tax purposes
– other adjustments in respect of previous years***
– tax on branch profits
– effect of change in rate on deferred tax
Total income tax expense
2017
£m
(51.2)
(2.5)
3.9
(1.8)
9.1
3.3
(6.2)
0.6
1.0
7.4
%
4.9
(7.6)
3.5
(17.9)
(6.4)
12.1
(1.2)
(1.9)
(14.5)
2016
Restated
£m
(110.0)
(31.1)
9.0
(5.5)
38.9
1.4
(1.1)
0.2
(0.2)
%
28.3
(8.1)
5.0
(35.4)
(1.3)
1.0
(0.2)
0.2
11.6
(10.5)
^ The majority of the Group’s expenses that are not deductible for tax purposes are primarily in relation to the divestments of businesses and contingent consideration adjustments.
* The majority of the Group’s non-taxable income relates to French employment tax credits and to contingent consideration adjustments.
** During the year the Group incurred impairment charges of £6.0m and disposal costs of £39.5m in relation to goodwill (2016: £127.9m) as set out in Note 12. These impairment and
disposal charges are not deductible for tax purposes.
*** In the prior year the Group was in the process of disposing of a number of businesses and the tax deductibility and utilisation of the write downs was uncertain. Following an investigation
of these matters with the Group’s tax advisors it was determined that these expenses were tax deductible.
The effective tax rate for the Group on the total loss before tax of £51.2m is negative 14.5% (2016: negative 10.5%). The effective tax charge
for the Group on profit before tax before Other items of £79.2m is 25.9% (2016: 23.8%), which comprises a tax charge of 27.9% (2016: 24.5%)
in respect of current year profits and a tax credit of 2.0% (2016: 0.7%) in respect of prior years.
The factors that will affect the Group’s future total tax charge as a percentage of underlying profits are:
the mix of profits and losses between the tax jurisdictions in which the Group operates; in particular the tax rates in France, Germany
and Belgium are relatively high when compared to the Group’s underlying effective rate and so if the proportion of profits from these
jurisdictions changes, this could result in a higher or lower Group tax charge;
the impact of non-deductible expenditure and non-taxable income;
agreement of open tax computations with the respective tax authorities; and
the recognition or utilisation (with corresponding reduction in cash tax payments) of unrecognised deferred tax assets (see Note 23).
On 26 October 2017, the European Commission (‘EC’) announced an investigation into the UK’s controlled foreign company (‘CFC’) rules.
The UK’s CFC rules provide an exemption for 75% of the CFC charge where the CFC is carrying out financing activities. The EC is investigating
whether the UK’s exemption is in breach of EU State Aid rules. This exemption has been claimed by SIG and the Group is monitoring
developments in relation to the EC’s investigation. The Group does not currently consider that a provision against the potential liability is
required.
In addition to the amounts charged to the Consolidated Income Statement, the following amounts in relation to taxes have been recognised in
the Consolidated Statement of Comprehensive Income with the exception of deferred tax on share options which has been recognised in the
Consolidated Statement of Changes in Equity.
Deferred tax movement associated with remeasurement of defined benefit pension liabilities*
Deferred tax on share options
Tax (charge)/credit on exchange and fair value movements arising on borrowings and derivative financial instruments
Effect of change in rate on deferred tax*
Total
* These items will not subsequently be reclassified to the Consolidated Income Statement.
2017
£m
(0.9)
0.2
(1.8)
(0.2)
(2.7)
2016
Restated
£m
2.3
(0.6)
6.3
(0.5)
7.5
124
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
7. DIVIDENDS
An interim dividend of 1.25p per ordinary share was paid on 3 November 2017 (2016: 1.83p). The Directors have proposed a final dividend
for the year ended 31 December 2017 of 2.5p per ordinary share (2016: 1.83p). The proposed final dividend is subject to approval by
Shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements. Total dividends paid during
the year, including the final dividend for 2016, were £18.2m (2016: £28.0m). No dividends have been paid between 31 December 2017 and
the date of signing the Financial Statements.
At 31 December 2017 the Company has c.£53m of distributable reserves, as set out in Note 12 to the Company Financial Statements,
and when required the Company can further increase these distributable reserves from appropriate repatriation of funds from subsidiary
undertakings. Whilst the level of distributable reserves is sufficient to support the Group’s dividend policy over the short term, the Directors
intend to carry out a review during the coming year in order to optimise existing reserves.
8. (LOSS)/EARNINGS PER SHARE
The calculations of (loss)/earnings per share are based on the following (losses)/profits and numbers of shares:
Loss after tax
Non-controlling interests
Loss after tax
Non-controlling interests
Other items:
Amortisation of acquired intangibles (Note 13)
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges (Note 11)
Net operating losses attributable to businesses identified as non-core (Note 11)
Net restructuring costs
Acquisition expenses and contingent consideration (Note 14)
Defined benefit pension scheme curtailment loss (Note 29c)
Other specific items
Net fair value losses on derivative financial instruments
Unwinding of provision discounting
Tax credit relating to Other items
Effect of change in rate on deferred tax
Other tax adjustments in respect of previous years
Weighted average number of shares
For basic and diluted earnings per share
Loss per share
Basic and diluted loss per share
Earnings per share before Other items^
Basic and diluted earnings per share
Basic and diluted
2017
£m
(58.6)
(1.0)
(59.6)
2016
Restated
£m
(121.6)
(0.5)
(122.1)
Basic and diluted before
Other items
2017
£m
(58.6)
(1.0)
9.3
6.8
72.4
14.3
21.1
9.8
–
(5.5)
1.7
0.5
(9.9)
1.0
(4.2)
2016
Restated
£m
(121.6)
(0.5)
10.3
110.6
40.1
7.9
13.3
(4.6)
0.9
5.9
1.9
(0.4)
(5.9)
(0.2)
(0.4)
57.7
57.3
2017
Number
2016
Number
591,489,053
591,365,906
2017
2016
Restated
(10.1)p
(20.6)p
9.8p
9.7p
^ Earnings per share before Other items (also referred to as underlying earnings per share) has been disclosed in order to present the underlying performance of the Group.
125
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The impact of Other items on the Consolidated Income Statement, along with their associated tax impact, is disclosed in the table below:
Other items
£m
2017
Tax impact
£m
Tax impact
%
Other items
£m
Tax impact
£m
Tax impact
%
2016 Restated
Amortisation of acquired intangibles (Note 13)
Impairment charges
Losses on agreed sale or closure of non-core
businesses and associated impairment charges
(Note 11)
Net operating losses attributable to businesses
identified as non-core (Note 11)
Net restructuring costs
Acquisition expenses and contingent
consideration (Note 14)
Defined benefit pension scheme curtailment
loss (Note 29c)
Other specific items
Impact on operating loss
Net fair value losses on derivative financial
instruments (Note 3)
Unwinding of provision discounting (Note 3)
Impact on loss before tax
Effect of change in rate on deferred tax
Other tax adjustments in respect of previous
years
Impact on loss attributable to equity holders
of the Company
9.3
6.8
72.4
14.3
21.1
9.8
–
(5.5)
128.2
1.7
0.5
130.4
–
–
1.9
1.3
2.0
1.4
4.1
–
–
(1.1)
9.6
0.3
–
9.9
(1.0)
4.2
20.4
19.1
2.8
9.8
19.4
–
–
20.0
7.5
17.6
–
7.6
–
–
10.3
110.6
40.1
7.9
13.3
(4.6)
0.9
5.9
184.4
1.9
(0.4)
185.9
–
–
130.4
13.1
10.0
185.9
2.1
–
0.9
(0.1)
2.9
–
0.2
(0.5)
5.5
0.4
–
5.9
0.2
0.4
6.5
20.4
–
2.2
(1.3)
21.8
–
22.2
(8.5)
3.0
21.1
–
3.2
–
–
3.5
9. SHARE-BASED PAYMENTS
The Group had two share-based payment schemes in existence during the year ended 31 December 2017 (2016: two). The Group recognised
a total charge of £0.2m (2016: credit of £0.3m) in the year relating to share-based payment transactions issued after 7 November 2002 with
a corresponding entry to the share option reserve. The weighted average fair value of each option granted in the year was 106p (2016: n/a).
Details of each of the schemes are provided below.
A) LONG TERM INCENTIVE PLAN (‘LTIP’)
Under the existing LTIP policy, Executive Directors can be awarded an annual grant of nil paid share options up to a maximum value of 200%
of base salary.
There were 1,413,968 LTIP awards in 2017 and no options awarded in 2016. The criteria and vesting conditions of the LTIP options are as follows:
Weighting of criteria
Vesting conditions:
Does not vest
Vests proportionately
Vests in full
Proportion that vests at entry level
Exercise period
2017 Awards
2015 Award
EPS
33%
ROCE
67%
EPS
33%
ROCE
67%
<31p
<10.0%
<38p
<11.0%
31p - 38p 10.0% - 13.5%
38p - 48p 11.0% - 14.0%
≥38p
0%
≥13.5%
0%
≥48p
25%
≥14.0%
0%
3–10 years*
3–10 years
* The 2017 awards vest after three years and are then subject to a further two year holding period.
The right to exercise options terminates upon the employee ceasing to hold office with the Group, subject to certain exceptions and the
discretion of the Board.
Previously awards were made annually since 2011 through a shadow Cash LTIP scheme that requires the Group to pay the intrinsic value of
the share appreciation rights to the employee at the date of exercise. There have been no awards made in 2017 or 2016. This scheme has
exactly the same conditions and vesting criteria as the LTIP, the difference being that the award is settled at the cash value of the equity in the
event of the options being exercised, rather than through the issue of shares. This scheme has been accounted for in the same way as the
equity-settled scheme, with the exception that the liability is recognised within accruals as opposed to equity.
126
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc LTIP OPTIONS (ISSUED AFTER 7 NOVEMBER 2002)
At 1 January
Granted during the year
Exercised during the year (Note 25)
Lapsed during the year (Note 25)
At 31 December
2017
2016
Weighted
average exercise
price (p)
0.0
0.0
0.0
0.0
0.0
Options
3,335,562
1,413,968
(87,934)
(1,463,347)
3,198,249
Weighted
average exercise
price (p)
0.0
0.0
0.0
0.0
0.0
Options
5,437,788
–
(113,153)
(1,989,073)
3,335,562
Of the above share options outstanding at the end of the year, 8,747 (2016: 96,681) are exercisable at 31 December 2017.
The options outstanding at 31 December 2017 had a weighted average exercise price of nil p (2016: nil p) and a weighted average remaining
contractual life of 1.4 years (2016: 1.2 years). In the year, 87,934 options were exercised.
The assumptions used in the Black-Scholes model in relation to the LTIP options are as follows:
Share price (on date of official grant)
Exercise price
Expected volatility
Actual life
Risk free rate
Dividend
Expected percentage options exercised versus granted at date of grant
Revised expectation of percentage of options to be exercised as at
31 December 2017
2017
Award
117p
(24 April
2017)
0.0p
41.8%
2015
Awards
2014
Award
138p
(4 December
2015)
184p
(17 September
2015)
177p
(18 September
2014)
0.0p
25.4%
0.0p
25.4%
3 - 5 years
3 - 5 years
3 - 5 years
1.1%
3.08p
50%
66%
1.8%
4.67p
12%
0%
1.8%
4.67p
50%
0%
0.0p
32.3%
3 years
1.8%
3.82p
50%
0%
The weighted average fair value of LTIP options granted during the year was 106p.
The expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two years. The
expected percentage of total options exercised is based on the Directors’ best estimate for the effects of behavioural considerations.
B) SHARE INCENTIVE PLAN (‘SIP’)
The SIP is offered to UK employees. The SIP is an HM Revenue & Customs approved scheme and operates by inviting participants, including
Executive Directors, to purchase shares in the Company in a tax efficient manner on a monthly basis. The Company gives one matching share
for each share purchased by the employee up to a maximum of £20 each month. No performance criteria are attached to these matching
shares, other than to avoid forfeiture the participants must remain within the plan for a minimum of two years. In 2017, 138,366 (2016:
167,546) matching shares were granted during the year. Given the nature of the scheme, the fair value of the matching shares equates to the
cost of the Company acquiring these shares.
127
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
10. PROPERTY, PLANT AND EQUIPMENT
The movements in the year and the preceding year were as follows:
Cost
At 1 January 2016
Exchange differences
Additions
Added on acquisition
Disposals
At 31 December 2016
Exchange differences
Additions
Reclassified as held for sale
Transfers
Disposals
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2016
Charge for the year
Impairment charges
Exchange differences
Disposals
At 31 December 2016
Charge for the year
Impairment charges
Exchange differences
On assets reclassified as held for sale
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Land and buildings
Freehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Total
£m
63.4
7.9
1.5
0.3
(13.5)
59.6
2.6
0.4
(0.3)
–
(22.7)
39.6
15.6
1.7
–
3.2
(2.9)
17.6
1.6
1.6
1.3
(0.1)
(8.0)
14.0
25.6
42.0
41.6
2.5
6.8
–
(1.7)
49.2
1.3
3.3
–
–
(8.7)
45.1
22.5
3.4
1.1
2.2
(1.5)
27.7
3.9
0.4
1.2
–
(7.9)
25.3
19.8
21.5
203.3
308.3
19.6
25.4
1.7
(41.0)
209.0
7.9
15.9
–
2.7
(30.4)
205.1
127.5
20.9
3.0
14.7
(20.9)
145.2
17.4
1.8
6.4
–
(22.7)
148.1
57.0
63.8
30.0
33.7
2.0
(56.2)
317.8
11.8
19.6
(0.3)
2.7
(61.8)
289.8
165.6
26.0
4.1
20.1
(25.3)
190.5
22.9
3.8
8.9
(0.1)
(38.6)
187.4
102.4
127.3
The net book value of plant and machinery at 31 December 2017 includes an amount of £10.0m (2016: £9.3m) in respect of assets held under
finance lease contracts.
Included within plant and machinery additions are assets in the course of construction of £0.1m (2016: £0.2m).
Of the £3.8m impairment charges, £2.1m relates to the impairment of the assets of Building Systems and £0.1m relates to the assets of GRM
to reflect the recoverable amount indicated by the consideration received in respect of the sale post year end. These charges are included
within losses on agreed sale or closure of non-core businesses and associated impairment charges (Note 11). Other impairments relate to
other assets identified as being surplus to requirements. The impairment charges have been charged to administrative expenses within the
respective segments.
11. DIVESTMENTS AND EXIT OF NON-CORE BUSINESSES
The Group has recognised a total charge of £72.4m (2016: £40.1m) in respect of losses on agreed sale or closure of non-core businesses and
associated impairment charges within Other items of the Consolidated Income Statement.
DIVESTED BUSINESSES
The Group has divested of the following businesses during the year:
CARPET & FLOORING
As disclosed in the 2016 Annual Report and Accounts, at 31 December 2016 the Group Board had resolved to dispose of its UK specialist
flooring distribution operation, Carpet & Flooring, and because a loss was anticipated the net assets of the business were impaired to reflect
the estimated net proceeds. The disposal was completed on 28 February 2017 for consideration of £7.2m and resulted in a further loss on
disposal within Other items in the Consolidated Income Statement in 2017 of £2.3m.
128
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc DRYWALL QATAR
As disclosed in the 2016 Annual Report and Accounts, at 31 December 2016 the Group Board had resolved to exit the Drywall Qatar business,
and because a loss was anticipated the goodwill and fixed assets of the business were impaired. The disposal was completed on 27 March
2017. The Group has recognised further costs relating to the sale in the period ended 31 December 2017, and in accordance with IAS 21 “The
Effects of Changes in Foreign Exchange Rates” the cumulative exchange differences on the retranslation of the net assets and goodwill and
intangibles of the business (£1.2m credit) have been reclassified to the Consolidated Income Statement, resulting in an overall net loss on
disposal within Other items in the Consolidated Income Statement of £0.4m.
WEGO AUSTRIA
In May and June 2017 the Group sold certain trade and assets of WeGo Systembaustoffe Austria GmbH (‘WeGo Austria’) for consideration of
£1.7m, and the entity has subsequently been liquidated, resulting in an overall loss on disposal within Other items in the Consolidated Income
Statement of £1.2m.
BUILDING PLASTICS
On 3 August 2017 the Group disposed of its UK building plastics distribution business (‘Building Plastics’), part of the UK Exteriors division, for
consideration of up to £20.3m, comprising an initial cash payment of £18.0m plus up to £2.3m of future consideration contingent on future
performance of the business and payable in July 2019. The loss arising on disposal of £28.6m has been disclosed within Other items in the
Consolidated Income Statement.
AIR HANDLING TURKEY
On 21 December 2017 the Group disposed of its shareholding in Air Trade Centre East BV and A.T.C. Air Trade Centre Havealandirma
Sistemieri Ticaret Limited Sirketi (together, ‘Air Handling Turkey’). Consideration for the sale was £3.1m, comprising an initial cash payment
of £1.6m and £1.6m converted to a vendor loan repayable over 48 months from October 2018 which is recognised at the present value
of future cash payments of £1.5m. The loss arising on disposal of £1.8m has been included within Other items in the Consolidated Income
Statement. In addition, in accordance with IAS 21 “The Effects of Changes in Foreign Exchange Rates”, the cumulative exchange differences on
the retranslation of the net assets of the business (£1.3m debit) have been reclassified to the Consolidated Income Statement, resulting in an
overall net loss on disposal within Other items in the Consolidated Income Statement of £3.1m.
The net assets of the five businesses at the date of disposal were as follows:
Building Plastics
Other
At date of
disposal
£m
At
31 December
2016
£m
At date of
disposal
£m
At
31 December
2016
£m
Attributable goodwill
Property, plant and equipment
Cash
Inventories
Trade and other receivables
Trade and other payables
Provisions
Bank and other loans
Net assets
Other costs
Provision release
Reclassification of cumulative exchange differences to Consolidated Income
Statement
Loss on disposal
Sale proceeds
Satisfied by:
Cash and cash equivalents
Deferred consideration (vendor loan note)
39.0
39.0
1.0
–
4.4
0.5
–
–
–
44.9
0.5
–
5.8
0.7
–
–
–
46.0
1.8
(1.2)
–
(28.6)
18.0
18.0
–
18.0
0.8
1.3
8.6
4.4
13.8
(9.6)
–
(1.6)
17.7
1.2
–
0.1
(7.0)
12.0
10.5
1.5
12.0
–
1.5
0.1
13.6
19.7
(22.9)
(0.1)
(0.1)
11.8
129
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
OTHER NON-CORE BUSINESSES
The Group has also divested of or agreed to exit/divest from the following businesses:
BUILDING SYSTEMS
On 28 February 2018 the Group agreed terms to sell the trade and assets of SIG Building Systems Limited (‘Building Systems’), the Group’s
offsite manufacturer of modular housing, to Urban Splash House Limited and the sale completed on 2 March 2018. The assets of the business
have been impaired to reflect the recoverable amount indicated by the consideration received in respect of the sale. The write-downs and
provisions recognised in anticipation of the sale of the business of £7.9m have been disclosed within Other items in the Consolidated Income
Statement. The business did not meet the criteria under IFRS 5 to be classified as held for sale at 31 December 2017.
The associated assets and liabilities of the Building Systems business were as follows:
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net (liabilities)/assets
At 31 December 2017
Recoverable
value
£m
Impairment
and asset
write-down
£m
Original
carrying
value
£m
At
31 December
2016
£m
–
–
2.9
(4.3)
(1.4)
(2.1)
(1.1)
(0.9)
(1.3)
(5.4)
2.1
1.1
3.8
(3.0)
4.0
2.5
0.2
4.0
(1.1)
5.6
In addition to the impairment and asset write-down above, £2.5m of provisions have been recorded in the Consolidated Balance Sheet in
relation to ongoing property costs to be incurred by the Group, resulting in a total loss arising in anticipation of the sale of £7.9m.
GRM
On 2 February 2018 the Group completed the disposal of GRM Insulation Solutions (‘GRM’), a division of SIG Trading Limited and part of the UK
Distribution Cash Generating Unit (‘CGU’). The goodwill, fixed assets and inventories associated with the business of £4.4m have been impaired
to reflect the recoverable amount indicated by the sale proceeds and further costs of £1.3m have been accrued in relation to the sale. The
loss arising on the agreed sale of £5.7m has been disclosed within Other items in the Consolidated Income Statement. The business did not
meet the criteria under IFRS 5 to be classified as held for sale at 31 December 2017. The recoverable value of net assets of GRM at the balance
sheet date, after the impairments and write downs noted above, is £0.1m of fixed assets.
METECHNO
On 27 March 2017 the Directors of Metechno Limited (‘Metechno’), a subsidiary of the Group, commenced the orderly wind down of
Metechno. The assets of the business and associated goodwill have been impaired to reflect the recoverable amount indicated by the
period end impairment review process, resulting in a total loss on wind down of £4.2m included in Other items in the Consolidated Income
Statement.
MIDDLE EAST
The Group has announced the closure of its business in the Middle East. The assets of the business and associated goodwill have been
impaired to reflect the recoverable amount indicated by the period end impairment review process, resulting in a total loss on wind down of
£17.1m (principally relating to provisions for trade receivables, provisions for inventories and other closure costs) included in Other items in
the Consolidated Income Statement. The closing net liabilities in relation to the Middle East business included in the Consolidated Balance
Sheet at 31 December 2017 are £5.1m (2016: net assets of £7.6m).
IBSL
On 2 March 2018 the Group completed the disposal of IBSL, a small industrial insulation division operated by SIG Trading Limited and part of
the UK Distribution CGU. The assets of the business have been impaired to reflect the recoverable amount indicated by the sale proceeds less
costs to sell of £0.1m, resulting in an impairment of goodwill and intangible assets associated with the business of £1.6m and write down of
inventories of £0.2m. The assets and liabilities have been classified as held for sale on the Consolidated Balance Sheet at 31 December 2017
(comprising fixed assets of £0.2m, inventories of £0.1m and liabilities of £0.1m). The total loss arising on the agreed sale of £1.9m has been
disclosed within Other items in the Consolidated Income Statement.
MANUFACTURING IN POLAND
In December 2017 the Group ceased the processing of insulation product at its Sitaco subsidiary in Poland. Costs in relation to the closure of
£0.9m have been recognised and included within Other items in the Consolidated Income Statement. It is not possible to separately identify
the revenue and operating results in relation to this closure as the business continues to perform some distribution activities. Therefore no
amounts have been included in Other items in relation to revenue and operating profit/loss in either of the 2017 or 2016 periods.
130
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc CONTRIBUTION TO REVENUE AND OPERATING LOSS
The results of the above businesses for the current and prior periods have been disclosed within Other items in the Consolidated Income
Statement in order to provide an indication of the underlying earnings of the Group. The revenue and net operating profit/(loss) of the non-
core businesses for the years ended 31 December 2017 and 31 December 2016 are as follows:
2017
2016
Carpet & Flooring
Drywall Qatar
Businesses identified as non-core in 2016
Building Plastics
WeGo Austria
ATC Turkey
Building Systems
GRM
Metechno
Middle East
IBSL
Businesses identified as non-core in 2017
Total attributable to non-core businesses
Revenue
£m
Net operating
profit/(loss)
£m
11.4
1.2
12.6
34.5
7.6
12.0
8.0
2.6
1.3
19.5
1.8
87.3
99.9
(0.7)
(1.4)
(2.1)
0.9
(0.2)
(0.4)
(7.6)
(0.8)
(3.4)
(0.7)
–
(12.2)
(14.3)
Revenue
£m
97.5
7.9
105.4
63.0
27.6
14.2
9.2
2.6
3.3
30.4
2.1
152.4
257.8
CASH FLOWS ASSOCIATED WITH DIVESTMENTS AND EXIT OF NON-CORE BUSINESSES
The net cash inflow in the year ended 31 December 2017 in respect of divestments and the exit of non-core businesses is as follows:
Cash consideration received for divestments
Cash at date of disposal
Disposal costs paid
Net cash (outflow)/inflow
Carpet &
Flooring
£m
Drywall
Qatar
£m
WeGo
Austria
£m
Building
Plastics
£m
Air Handling
Turkey
£m
7.2
(6.6)
(0.6)
–
–
(0.1)
(0.1)
(0.2)
1.7
–
(0.5)
1.2
18.0
–
(1.1)
16.9
1.6
(1.9)
–
(0.3)
Net operating
profit/(loss)
£m
(3.0)
(2.8)
(5.8)
2.9
0.6
0.2
(6.2)
(0.6)
(0.1)
0.9
0.2
(2.1)
(7.9)
Total
£m
28.5
(8.6)
(2.3)
17.6
The losses arising on the agreed sale or closure of non-core businesses and associated impairment charges, along with their results for the
current and prior periods have been disclosed within Other items in the Consolidated Income Statement in order to present the underlying
earnings of the Group.
EVENTS AFTER THE BALANCE SHEET DATE
The disposals of the Building Systems, GRM and IBSL businesses completed after the balance sheet date, as disclosed above. There are no
other post balance sheet events.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
12. GOODWILL
Cost
At 1 January 2016
Acquisitions
Adjustments in respect of prior period acquisitions
Exchange differences
At 31 December 2016
Acquisitions
Business disposed
Adjustments in respect of prior period acquisitions
Exchange differences
At 31 December 2017
Accumulated impairment losses
At 1 January 2016
Impairment charges
Exchange differences
At 31 December 2016
Impairment charges
Business disposed
Exchange differences
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
£m
505.5
10.8
1.3
36.8
554.4
0.1
(61.6)
–
10.9
503.8
68.0
127.9
5.8
201.7
6.0
(22.1)
6.0
191.6
312.2
352.7
Goodwill acquired in a business combination is allocated at the date of acquisition to the Cash Generating Units (‘CGUs’) that are expected to
benefit from that business combination. The Group currently has 15 CGUs (2016: 17).
SUMMARY ANALYSIS
The recoverable amounts of goodwill in respect of all CGUs are fully supported by the value in use calculations in the year and are as follows:
UK Distribution
UK Exteriors
Building Solutions
Larivière
France
Germany
Poland
Air Handling
Benelux
Other CGUs
Total goodwill
132
2017
£m
97.5
68.2
12.7
71.5
10.6
3.3
1.2
22.1
14.1
11.0
2016
£m
102.5
106.9
12.7
68.7
10.2
3.0
1.2
22.0
13.5
12.0
312.2
352.7
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc IMPAIRMENT REVIEW PROCESS
The Group tests goodwill and the associated intangible assets and property, plant and equipment of CGUs annually for impairment, or more
frequently if there are indications that an impairment may be required.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for these calculations are those
regarding discount rates, sales and operating profit growth rates. These assumptions have been revised in the year in light of the current
economic environment. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of
money for the Group. In respect of the other assumptions, external data and management’s best estimates are applied.
For all the CGUs, the Group performs goodwill impairment reviews by forecasting cash flows based upon the following year’s budget, which
anticipates sales growth, and a projection of sales and cash flows based upon industry growth expectations (0%-3.4%) over a further period
of four years. Where detailed five-year forecasts for a CGU have been prepared and approved by the Board, which can include higher growth
rates or varied results reflecting specific economic factors, these are used in preparing cash flow forecasts for impairment review purposes.
The forecasts used in the annual impairment reviews have been prepared taking into account current economic conditions. After this period,
the sales growth rates applied to the cash flow forecasts are no more than 1% and operating profit growth no more than 3.4% in perpetuity.
The discount rates applied to all impairment reviews represent pre-tax rates.
UK
France
Germany
Poland
Air Handling
Benelux
Long term
operating profit
growth rate
(%)
Pre-tax
discount rate
(%)
1.8
1.4
1.4
3.4
1.6
1.6
11.1
11.6
11.6
13.2
10.6
10.6
2017 IMPAIRMENT REVIEW RESULTS
During the year the Group commenced the wind down of the Metechno business and thus the associated goodwill of £1.0m has been
impaired. Subsequent to the year end the Group has completed the disposal of the GRM and IBSL businesses and as a result the goodwill of
£5.0m associated with these CGUs has been impaired in full based on the agreed sale proceeds. These impairments have been charged to the
UK Distribution segment.
In the prior year, a goodwill impairment charge of £100.4m was recognised in relation to the Larivière CGU and £10.2m in relation to the
Poland CGU. These were charged to the France and Other Europe segments respectively.
The results of the 2017 impairment review indicate that the carrying values of all ongoing CGUs remain supportable.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
SENSITIVITY ANALYSIS
A number of reasonably possible sensitivities have been performed on the Group’s significant CGUs to highlight the changes in market
conditions that would lead to the value in use equalling the carrying value. The table below sets out the amount that the assumption would
have to change by for there to be no headroom. The results are as follows:
2017
UK Distribution
UK Exteriors
Building Solutions
Larivière
Germany
Poland
2016
Like-for-like market
volume
(average % per annum)
Discount rate (%)
Gross margin (%)
Long term operating profit
growth rate
(average % per annum)
Headroom Assumption
Sensitivity Assumption
Sensitivity Assumption
Sensitivity Assumption
Sensitivity
£22.8m
£88.6m
£6.3m
€9.3m
€20.3m
PLN 20.3m
0.2
(1.8)
(2.6)
0.9
0.9
–
(1.4)
(9.2)
(3.2)
(1.1)
(1.8)
(1.9)
11.1
11.1
11.1
11.6
11.6
13.2
1.4
8.0
2.7
0.7
3.6
5.4
24.0
29.5
29.9
23.4
26.8
19.4
(0.3)
(2.3)
(0.8)
(0.2)
(0.4)
(0.3)
1.8
1.8
1.8
1.4
1.4
3.4
(1.1)
(6.3)
(2.2)
(0.7)
(2.4)
(4.2)
Like-for-like market volume
(average % per annum)
Discount rate (%)
Gross margin (%)
Long term operating profit
growth rate
(average % per annum)
Headroom
Assumption
Sensitivity
Assumption
Sensitivity
Assumption
Sensitivity
Assumption
Sensitivity
UK Distribution
UK Exteriors
£35.5m
£95.2m
Germany and Austria*
€42.7m
0.2
(1.8)
0.1
(1.9)
(6.8)
(3.6)
9.4
9.4
11.1
1.8
5.1
7.0
24.7
29.9
26.9
(0.4)
(1.8)
(1.1)
1.8
1.8
1.3
(1.5)
(4.1)
(4.6)
* The recoverable amount of goodwill in respect of Germany and Austria at 31 December 2016 is £3.0m (2015: £2.6m).
The sensitivities noted above are the amounts by which the related assumption would have to vary before an impairment is indicated.
Gross margin is the key assumption in the forecasts used in the goodwill impairment reviews, and therefore a 50bps reduction in gross margin
has been determined as a reasonably possible change for the purposes of the disclosure requirements of IAS 36 “Impairment of Assets”.
If a 50bps reduction in gross margin were to arise from that forecast in the goodwill impairment reviews, an impairment would arise in four
CGUs, UK Distribution (£21.2m), Larivière (€13.3m or £11.8m), Germany (€4.2m or £3.8m) and Poland (PLN 14.1m or £3.0m). The Board has
actively reviewed the forecasts associated with UK Distribution, Larivière, Germany and Poland noting the conservative assumptions used,
the continued pattern of strong results in challenging economic environments in which they operate, and is satisfied that no impairments are
necessary.
134
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 13. INTANGIBLE ASSETS
The intangible assets presented below relate to acquired intangibles that arise as a result of applying IFRS 3 “Business Combinations” (which
requires the separate recognition of acquired intangibles from goodwill and computer software from any associated hardware).
Cost
At 1 January 2016
Acquisitions
Additions
Adjustment in respect of prior period acquisitions
Disposals
Exchange differences
At 31 December 2016
Acquisitions
Additions
Disposals
Transfers
Exchange differences
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
Impairment charges
Disposals
Exchange differences
At 31 December 2016
Charge for the year
Impairment charges
Disposals
Exchange differences
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Customer
relationships
£m
Non-compete
clauses
£m
Computer
software
£m
Total
£m
219.9
12.1
47.8
279.8
6.8
–
(0.4)
–
12.7
239.0
–
–
(0.4)
–
3.7
0.1
–
(0.1)
–
–
12.1
–
–
–
–
–
242.3
12.1
163.9
9.8
4.7
–
10.1
188.5
8.9
0.6
(0.1)
3.2
11.2
0.5
–
–
–
11.7
0.4
–
–
–
–
6.2
–
(0.3)
–
53.7
–
3.2
(0.6)
(2.7)
–
53.6
6.9
6.2
(0.5)
(0.3)
12.7
304.8
–
3.2
(1.0)
(2.7)
3.7
308.0
16.5
191.6
3.5
7.9
(0.2)
–
27.7
3.7
6.8
(0.4)
–
13.8
12.6
(0.2)
10.1
227.9
13.0
7.4
(0.5)
3.2
201.1
12.1
37.8
251.0
41.2
50.5
–
0.4
15.8
26.0
57.0
76.9
Amortisation of acquired intangibles is included in the Consolidated Income Statement as part of operating expenses and is classified within
Other items.
The weighted average amortisation period for each category of intangible asset is disclosed in the Statement of Significant Accounting Policies
on page 109.
Included within computer software additions are assets in the course of construction of £0.3m (2016: £0.9m).
The £0.6m customer relationships impairment charge in the current year relates to IBSL (see Note 11). The £4.7m customer relationships
impairment charge in the prior year related to the Group’s Drywall Qatar business.
The computer software impairment charge in the current year relates to the review of the utilisation of the UK ERP system, Kerridge K8, which
identified that certain modules were not being used. The prior year charge relates to the cessation of the UK eCommerce project.
135
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
14. ACQUISITIONS
The Group has not made any acquisitions during 2017.
In accordance with IFRS 3 “Business Combinations”, acquisition expenses of £nil (2016: £0.8m) in relation to recent acquisitions have been
recognised within the Consolidated Income Statement and in accordance with the Group’s policy, as noted in the Statement of Significant
Accounting Policies, these have been presented within the column entitled Other items. In addition, a total charge of £9.8m (2016:
credit £5.4m) relating to contingent consideration payable to vendors of businesses previously acquired has been recognised within the
Consolidated Income Statement and has been presented within the column entitled Other items.
Contingent on vendors remaining within the business (below)
Re-assessment of post-acquisition performance of acquired businesses
Acquisition expenses
Total charge/(credit) to Consolidated Income Statement
2017
£m
8.1
1.7
9.8
–
9.8
2016
£m
(0.3)
(5.1)
(5.4)
0.8
(4.6)
CONSIDERATION DEPENDENT ON VENDORS REMAINING WITHIN THE BUSINESS
Dependent upon future profits, a further £nil (2016: £15.5m) may be paid to the vendors of recent acquisitions who are employed by the
Group. These payments were contingent upon the vendors remaining within the business and, as required by IFRS 3, were treated as
remuneration and were charged to the Consolidated Income Statement as earned.
At 1 January
New amounts accrued
Interest accrued
Amounts paid
Accruals released
Transferred to deferred consideration
Exchange differences
At 31 December
15. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Inventories classified as part of a disposal business held for sale (Note 11)
The estimated replacement cost of inventories is not materially different from the balance sheet value stated above.
16. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts due from construction contract customers
VAT
Other receivables
Prepayments and accrued income
Trade and other receivables
Current tax assets
Assets classified as held for sale (Note 11)
Total receivables
136
2017
£m
4.4
10.3
–
(2.7)
(2.2)
(9.8)
–
–
2017
£m
4.8
0.9
237.9
(0.1)
243.5
2017
£m
362.3
6.2
5.2
13.5
80.8
468.0
5.2
0.3
473.5
2016
£m
11.8
4.2
0.1
(6.1)
(4.5)
(1.6)
0.5
4.4
2016
£m
4.7
0.7
245.2
–
250.6
2016
Restated
£m
417.0
12.9
4.7
2.8
75.4
512.8
3.2
15.6
531.6
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Included within prepayments and accrued income is £55.2m (2016: restated £52.8m) due in relation to supplier rebates where there is no
right to offset against trade payable balances. The remainder of the balance relates to prepayments.
The average credit period on sale of goods and services for underlying operations on a constant currency basis is 39 days (2016: 45 days). No
interest is charged on receivables. An allowance has been made for estimated irrecoverable amounts from the sale of goods of £41.1m at 31
December 2017 (2016: £33.9m). This allowance has been determined by reference to past default experience.
Included within the Group’s trade receivable balance are debtors with a carrying amount of £123.6m (2016: £114.3m) which are past due at
the reporting date for which the Group has not provided, as there has not been a significant change in credit quality and the Group considers
that the amounts are still recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 38
days overdue (2016: 35 days).
AGEING ANALYSIS OF TRADE RECEIVABLES FOR WHICH NO PROVISION FOR IMPAIRMENT HAS BEEN MADE
Neither past due nor renegotiated
Renegotiated
Balances overdue which have no provision for impairment:
1 – 30 days
31 – 60 days
61 – 90 days
91 – 120 days
121 – 180 days
180+ days
Total trade receivables overdue which have no provision for impairment
Total trade receivables for which no provision for impairment has been made
MOVEMENT IN THE ALLOWANCE FOR DOUBTFUL DEBTS
At 1 January
Utilised
Unused amounts released to the Consolidated Income Statement
Added on acquisition
Released on disposal of non-core businesses (Note 11)
Charged to the Consolidated Income Statement
Exchange differences
At 31 December
2017
£m
254.5
0.1
80.3
16.8
15.0
5.1
3.4
3.0
123.6
378.2
2017
£m
(33.9)
9.3
3.0
–
0.9
(19.8)
(0.6)
(41.1)
2016
£m
288.5
2.7
80.0
16.1
6.1
6.5
2.7
2.9
114.3
405.5
2016*
£m
(31.7)
6.8
8.3
(0.1)
–
(13.3)
(3.9)
(33.9)
* In prior years movements in the provision were presented as a net charge or credit to the Consolidated Income Statement. In addition, certain balances fully provided for were shown on
a net basis. In the current year these balances have been shown on a gross basis to show a fairer presentation of the total provision. As a result, movements in the provision have been
presented gross to show separately amounts released and amounts charged to the Consolidated Income Statement during the year and the net amount charged to the Consolidated
Income Statement of £5.0m presented in the prior year has been represented accordingly. The prior year provision at 1 January 2016 and 31 December 2016 has been increased by
£12.8m. There is no impact on the net trade receivables balance disclosed at 31 December 2016.
In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the
date credit was initially granted up to the reporting date and makes a provision for impairment accordingly. The concentration of credit risk
is limited due to the customer base being large and unrelated. The Directors therefore believe that no further credit provision is required in
excess of the allowance for doubtful debts.
Included in the allowance for doubtful debts are trade receivables with a gross balance of £51.1m (2016: £45.4m) and a provision for
impairment of £41.1m (2016: £33.9m). The provision for impairment represents the difference between the carrying amount of the specific
trade receivable and the present value of the expected recoverable amount. The large increase during the year is mainly attributable to the
closure of business in the Middle East and has been included within losses on agreed sale or closure of non-core businesses and associated
impairment charges (Note 11).
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
TRANSFER OF TRADE RECEIVABLES
The Group sold without recourse trade receivables to banks and other financial institutions for cash proceeds. These trade receivables of
£48.7m (2016: £nil) have been derecognised from the Consolidated Balance Sheet, because the Group has transferred the risks and rewards.
137
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
CREDIT RISK MANAGEMENT
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Trade receivable
credit exposure is controlled by counterparty limits that are set, reviewed and approved by operational management on a regular basis.
Trade receivables consist of a large number of typically small to medium sized customers, spread across a number of different market sectors
and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate,
credit guarantee insurance cover is purchased. The Group does not have any significant credit risk exposure to any single customer.
17. CURRENT LIABILITIES
Trade payables
Amounts due to construction contract customers
Bills of exchange payable
VAT
Social security and payroll taxes
Accruals and other payables
Trade and other payables
Obligations under finance lease contracts (Note 24)
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Derivative financial instruments
Current tax liabilities
Provisions (Note 22)
Liabilities directly associated with assets classified as held for sale (Note 11)
Current liabilities
2017
£m
291.2
1.3
4.5
23.4
18.3
90.3
429.0
3.1
29.6
84.2
21.1
17.0
0.2
7.2
12.0
0.1
603.5
2016
Restated
£m
301.0
2.5
0.3
23.1
15.2
79.5
421.6
3.1
22.7
171.6
–
2.7
0.2
8.4
14.5
15.6
660.4
Trade payables is presented net of £58.8m (2016: restated £72.6m) due from suppliers in respect of supplier rebates where the Group has
the right to net settlement.
£0.4m (2016: £0.5m) of the above bank loans and overdrafts are secured on the assets of subsidiary undertakings, all of the above finance
lease contracts are secured on the underlying assets and the remaining balances are unsecured. All of the above private placement notes,
derivative financial instruments, and £83.7m (2016: £170.2m) of the bank loans are guaranteed by certain companies of the Group.
The bank overdrafts are repayable on demand and attract floating rates of interest, which at 31 December 2017 ranged from 0.0% to 1.9%
(2016: between 0.0% and 2.2%).
£38.4m (2016: £122.3m) of the bank loans and deferred consideration due within one year (after taking into account derivative financial
instruments) are at variable rates of interest.
£62.8m (2016: £52.0m) of the bank loans and deferred consideration due within one year (after taking into account derivative financial
instruments) attract an average fixed interest rate of 3.1% (2016: 3.1%).
£21.1m (2016: £nil) of the private placement notes due within one year (after taking into account derivative financial instruments) were at a
fixed interest rate of 5.5%. This debt is denominated in sterling and was swapped from fixed to floating rate debt using an interest rate swap.
Trade payables, accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases for underlying operations on a constant currency basis is 43 days (2016: 45 days).
The Directors consider that the carrying amount of current liabilities approximates to their fair value.
138
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 18. NON-CURRENT LIABILITIES
Obligations under finance lease contracts (Note 24):
– due after one and within two years
– due after two and within five years
– due after five years
Bank loans
Private placement notes
Derivative financial instruments
Deferred tax liabilities (Note 23)
Other payables
Retirement benefit obligations (Note 29c)
Provisions (Note 22)
Non-current liabilities
The bank loans included above are repayable as follows:
– due after one and within two years
– due after two and within five years
Total
2017
£m
2.6
3.8
0.4
–
2016
£m
2.7
4.8
0.6
0.3
183.1
200.7
3.3
13.4
3.8
30.4
13.8
3.6
15.2
5.5
37.1
22.4
254.6
292.9
2017
£m
–
–
–
2016
£m
0.3
–
0.3
Of the above bank loans due after more than one year, £nil (2016: £0.2m) are secured on certain assets of subsidiary undertakings. All of the
above private placement notes and derivative financial instruments are guaranteed by certain companies of the Group.
Of the above bank loans due after more than one year, £nil (2016: £0.2m) attract variable rates of interest and £nil (2016: £0.1m) attract an
average fixed interest rate of 2.4% (2016: 4.2%).
Details of the private placement notes (before applying associated derivative financial instruments) are as follows:
Repayable in 2018
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
2017
2016
Fixed
interest rate
%
5.5
3.7
3.9
4.2
3.3
£m
21.1
26.7
17.8
44.4
94.2
£m
22.0
25.6
17.1
42.7
93.3
204.2
3.8
200.7
Fixed
interest rate
%
5.3
3.7
3.9
4.2
3.3
3.8
The private placement debt repayable in 2018 is denominated in Sterling. The debt was swapped from fixed to floating rate debt using an
interest rate swap. The £22.2m (2016: £24.3m) of private placement debt repayable in 2026 that was denominated in US Dollar was swapped
into Sterling through the use of cross-currency swaps. The remainder of the private placement debt at 31 December 2017 is denominated in
Euros. The private placement debt in the table above is valued before application of the cross-currency swaps associated with the US Dollar
denominated debt but after application of the interest rate swap associated with the Sterling denominated private placement debt, and
therefore differs from the value of private placement debt of £203.0m as disclosed in Note 19 Financial Instruments.
The Directors consider that the carrying amount of non-current liabilities approximates to their fair value, with the exception of the private
placements notes, the fair value of which is disclosed in Note 19 on page 140.
139
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
19. FINANCIAL INSTRUMENTS
The ‘Treasury risk management’ section of the Financial Review on pages 36 to 40 includes a review of all treasury, liquidity, interest rate and
foreign currency risks, and provides an explanation of the role that derivative financial instruments have had during the year in creating or
changing the risks the Group faces in its activities. The capital structure of the Group is outlined in the Financial Review on page 35.
The Group’s financial assets consist of trade and other receivables, cash at bank and derivative financial instruments. The following financial
assets form part of the net debt of the Group:
Cash and cash equivalents ^
Other financial assets
Deferred consideration
Derivative financial instruments
Total
2017
£m
121.8
–
1.5
1.3
2016
Restated
£m
127.0
1.1
0.7
4.5
124.6
133.3
^ Included within cash and cash equivalents for 2017 is cash restricted for use of £6.1m.
The Directors consider the fair value of financial assets to approximate to their book value. The interest received on cash deposits is at variable
rates of interest of up to 1.6% (2016: 1.2%).
The Group’s credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit
ratings assigned by international credit rating agencies.
Of the above cash at bank, £40.7m (2016: restated £39.9m) is denominated in Sterling, £56.3m (2016: restated £66.8m) in Euros, £19.9m
(2016: £17.4m) in Polish Zloty, and £4.9m (2016: £2.9m) in other currencies. Of the other financial assets, £nil (2016: £1.1m) is denominated in
United Arab Emirates Dirhams. Of the deferred consideration, £nil (2016: £0.7m) is denominated in Sterling and £1.5m (2016: £nil) in
other currencies.
2017 INTEREST RATE AND CURRENCY PROFILE
The interest rate and currency profile of the Group’s financial liabilities at 31 December 2017, after taking account of interest rate and currency
derivative financial instruments (including derivative assets of £1.3m as noted above) was as follows:
Private placement notes
Other borrowings
Finance lease contracts
Private placement notes
Other borrowings
Finance lease contracts
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Other borrowings
Polish Zloty
Finance lease contracts
Polish Zloty
Other borrowings
US Dollar
Total
£m
42.1
116.2
0.1
160.9
9.8
7.6
0.3
2.2
7.9
Floating
rate
£m
20.0
66.9
–
–
0.8
–
0.3
–
–
Fixed
rate
£m
22.1
49.3
0.1
160.9
9.0
7.6
–
2.2
7.9
Total
347.1
88.0
259.1
Effective
fixed
interest rate
%
Weighted
average time
for which
rate is fixed
Years
Amount
secured
£m
Amount
unsecured
£m
2.9
2.8
5.8
3.5
3.0
5.0
n/a
3.5
4.0
9.6
3.0
2.8
7.4
2.0
5.8
–
5.3
1.1
–
–
0.1
–
0.1
7.6
0.3
2.2
–
10.3
42.1
116.2
–
160.9
9.7
–
–
–
7.9
336.8
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2017 which alter the
currency profile of the Group’s financial liabilities. These amount to an asset of £20.9m and a liability of €26.6m. The fair value of these
derivatives was a liability of £2.7m which is included in the Sterling value of other borrowings in the table above.
The Group’s net debt at 31 December 2017 was £223.8m and, after taking into account the cross-currency derivatives, the Group has net Euro
financial liabilities of £145.6m.
All of the above finance lease contracts, £9.9m (2016: £11.2m), are secured on the underlying assets.
The Directors consider the fair value of the Group’s floating rate financial liabilities to materially approximate to the book value shown in the
table above. The fair value of the Group’s private placement notes at 31 December 2017 is estimated to be c.£240m (2016: c.£241m) and is
classified as a Level 2 fair value measurement for disclosure purposes. The remaining fixed rate debt amounts to £76.1m (2016: £67.0m) and
relates to finance lease contracts, fixed rate loans (after applying derivative financial instruments) and deferred consideration. The Directors
consider the fair value of these remaining fixed rate debts to materially approximate to the book values shown above.
140
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 2016 INTEREST RATE AND CURRENCY PROFILE
The interest rate and currency profile of the Group’s financial liabilities at 31 December 2016, after taking account of interest rate and
currency derivative financial instruments (including derivative assets of £4.5m as noted above), was as follows:
Private placement notes
Other borrowings (restated)
Finance lease contracts
Private placement notes
Other borrowings
Finance lease contracts
Other borrowings
Finance lease contracts
Other borrowings
Other borrowings
Total
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Polish Zloty
Polish Zloty
US Dollar
Other
Total
£m
41.8
154.6
0.3
154.5
34.0
8.3
0.2
2.6
11.2
1.0
408.5
Floating
rate
£m
20.0
111.2
–
–
33.8
–
0.2
–
–
–
165.2
Fixed
rate
£m
21.8
43.4
0.3
154.5
0.2
8.3
–
2.6
11.2
1.0
243.3
Effective fixed
interest rate
%
Weighted
average time
for which rate
is fixed
Years
Amount
secured
£m
Amount
unsecured
£m
3.3
3.1
6.1
3.5
4.2
5.3
n/a
3.3
3.0
n/a
9.6
3.1
2.7
7.4
–
3.8
–
4.5
0.3
–
–
–
0.3
–
0.4
8.3
0.2
2.6
0.1
–
11.9
41.8
154.6
–
154.5
33.6
–
–
–
11.1
1.0
396.6
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments which altered the currency
profile of the Group’s financial liabilities. These amounted to an asset of £20.9m and a liability of €26.6m. The fair value of these derivatives
was a liability of £2.1m which is included in the Sterling value of other borrowings in the table above.
The Group’s net debt at 31 December 2016 was £279.7m (restated) and, after taking into account the cross-currency derivatives, the Group
has net Euro financial liabilities of £152.7m (restated).
In both 2017 and 2016, the interest rate on floating rate financial liabilities is based upon appropriate local market rates.
HEDGING RELATIONSHIPS
Included within financial assets are derivative financial instruments in designated hedge accounting relationships amounting to £1.3m (2016:
£4.5m) and loans and receivables (including cash and cash equivalents) of £586.1m (2016: restated £641.0m).
Included within financial liabilities are derivative financial instruments in designated hedge accounting relationships amounting to £3.5m (2016:
£3.6m) and liabilities (including trade payables) at amortised cost of £732.2m (2016: restated £792.8m).
The Group does not trade in derivative financial instruments for speculative purposes. Where the Group can demonstrate a hedge
relationship under the rules of IAS 32 and 39, movements in the fair values of these derivative financial instruments (for cash flow and net
investment hedges) will be recognised in the Consolidated Statement of Comprehensive Income. Where the Group does not meet these rules,
movements in the fair value will be recognised as gains and losses on derivative financial instruments in the Consolidated Income Statement in
the column entitled Other items.
In order to manage the Group’s exposure to interest rate and exchange rate changes, the Group utilises both currency and interest rate
derivative financial instruments. The fair values of these derivative financial instruments are calculated by discounting the associated future
cash flows to net present values using appropriate market rates prevailing at the balance sheet date.
The Group is required to analyse financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1
to 3 based on the degree to which the fair value is observable:
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
All of the financial instruments below are categorised as Level 2.
141
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A) NET INVESTMENT HEDGES
As at 31 December 2017 the Group held two (31 December 2016: two) cross-currency derivative financial instruments which receive fixed
£20.9m and pay fixed €26.6m. These derivative financial instruments were designated as the hedging instruments in the net investment hedge
of the Group’s Euro-denominated net assets. The hedge relationships were fully effective and the fair value changes on those derivatives were
recognised in equity (hedging and translation reserve). As at 31 December 2016 the Group held one cross-currency forward contract that was
designated as a net investment hedge.
Hedge of the Group’s Euro denominated assets
Liability at 1 January
Fair value losses recognised in equity
Liability at 31 December
2017
£m
(2.1)
(0.6)
(2.7)
2016
£m
–
(2.1)
(2.1)
Additionally, as at 31 December 2017 the Group held €181.0m (2016: €216.0m) of direct Euro-denominated debt through its revolving
credit facility and bilateral private placement debt. This is designated and effective as a net investment hedge of the Group’s Euro-
denominated assets.
B) CASH FLOW HEDGES
With regard to cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in equity and is
subsequently removed and included in the Consolidated Income Statement within finance costs in the same period that the hedged item
affects the Consolidated Income Statement. The cash flow hedges described below are expected to impact upon both profit and loss and
cash flow annually over the life of the hedging instrument and the related debt as interest falls due, and upon maturity of the debt and related
hedging instrument.
As at 31 December 2017, the Group held two (31 December 2016: two) cross-currency derivative financial instruments which swap fixed US
Dollar-denominated debt held in the UK into fixed Sterling-denominated debt. These derivative financial instruments form a cash flow hedge
as they fix the functional currency cash flows of the Group. All of these derivative financial instruments are designated and effective as cash
flow hedges and the fair value movement has therefore been deferred in equity via the Consolidated Statement of Comprehensive Income. At
31 December 2017, the weighted average maturity date of these swaps is 8.6 years (2016: 9.6 years).
Hedge of the Group’s functional currency cash flows
Asset at 1 January
Fair value (losses)/gains recognised in equity
Cash settlement on maturity of cash flow hedges
Asset at 31 December
2017
£m
2.5
(2.4)
–
0.1
2016
£m
33.4
26.0
(56.9)
2.5
The cash flows associated with the cross-currency interest rate swaps are expected to occur every six months in line with the underlying
interest payments on the loans which are recorded in the Consolidated Income Statement.
As at 31 December 2017, the Group held two (31 December 2016: two) interest rate derivative financial instruments which swap variable
rate debt into fixed rate debt thereby fixing the functional currency cash flows of the Group. Both of these interest rate derivative financial
instruments are designated and effective as cash flow hedges and the fair value movement has therefore been deferred in equity via the
Consolidated Statement of Comprehensive Income. At 31 December 2017, the weighted average maturity date of these swaps is 2.1 years
(2016: 3.1 years).
Hedge of the Group’s interest cash flows
Liability at 1 January
Fair value gains/(losses) recognised in equity
Liability at 31 December
2017
£m
(1.5)
0.7
(0.8)
2016
£m
(0.7)
(0.8)
(1.5)
The Group purchases diesel fuel on a floating price basis and therefore is exposed to changes in diesel prices, of which the most significant
element is crude oil price risk. The Group had no fuel price derivative financial instruments at 31 December 2017 and 31 December 2016.
During 2016, two fuel price derivative instruments matured, one of which was designated and effective as a cash flow hedge and the fair
value movement deferred in equity via the Consolidated Statement of Comprehensive Income. The remaining fuel price derivative financial
instrument was not designated as a cash flow hedge and the fair value credit of £0.4m in 2016 was credited through Other items in the
Consolidated Income Statement (Note 2).
142
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Hedge of the Group’s fuel costs
Liability at 1 January
Fair value gains recognised in equity
Liability at 31 December
2017
£m
–
–
–
2016
£m
(0.9)
0.9
–
Included within current assets are derivative financial instruments of £0.1m (2016: £nil) relating to forward foreign exchange contracts.
The following table reconciles the net fair value gain/(loss) recognised in equity on cash flow hedges as noted above of £1.6m loss (2016:
£26.1m gain) to the gain/(loss) on cash flow hedges recorded in the Consolidated Statement of Comprehensive Income of £2.5m gain (2016:
£1.5m loss).
Movement in cash flow hedges recognised in equity
Amounts reclassified to the Consolidated Income Statement
Spreading charge associated with the cancellation of cash flow hedges*
Total movement relating to cash flow hedges included in the Consolidated Statement of Comprehensive Income
2017
£m
(1.6)
2.0
0.4
2.1
2.5
2016
£m
26.1
(29.9)
(3.8)
2.3
(1.5)
* Of the £2.1m (2016: £2.3m) spreading charge associated with cancellation of cash flow hedges in 2017, £1.7m (2016: £1.9m) is reported in Other items in the Consolidated Income
Statement.
C) FAIR VALUE HEDGES
As at 31 December 2017, the Group held one (31 December 2016: one) derivative financial instrument which hedges the fair value of the fixed
interest private placement notes drawn down on 1 February 2007. This interest rate derivative financial instrument is designated and effective
as a fair value hedge and the fair value movement has therefore been recognised immediately in the Consolidated Income Statement.
Hedge of the fair value of fixed interest borrowings
Asset at 1 January
Net fair value losses recognised in the Consolidated Income Statement
Asset at 31 December
2017
£m
2.0
(0.9)
1.1
2016
£m
3.4
(1.4)
2.0
The following table reconciles the net losses on derivative financial instruments recognised directly in the Consolidated Income Statement, to
the movements in derivative financial instruments noted above.
Fair value net losses on derivative financial instruments recognised in the Consolidated Income Statement
Fair value net gains attributable to the hedged item recognised in the Consolidated Income Statement
Hedge ineffectiveness credit recognised in the Consolidated Income Statement
Spreading charges associated with cancellation of cash flow hedges*
Total net losses on derivative financial instruments included in the Consolidated Income Statement
* £0.4m (2016: £0.4m) of the £2.1m (2016: £2.3m) spreading charge has been recognised within finance costs before Other items.
2017
£m
0.9
(0.9)
–
2.1
2.1
2016
£m
1.5
(1.5)
–
2.3
2.3
20. MATURITY OF FINANCIAL ASSETS AND LIABILITIES
MATURITY OF FINANCIAL LIABILITIES
The maturity profile of the Group’s financial liabilities (inclusive of derivative financial assets) at 31 December 2017 was as follows:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total
The table above excludes trade payables of £291.2m (2016: £301.0m).
2017
£m
154.0
2.6
48.8
141.7
347.1
2016
Restated
£m
200.2
23.4
48.6
136.3
408.5
143
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
BORROWING FACILITIES
The Group had undrawn committed borrowing facilities at 31 December 2017 as follows:
Expiring in more than two years but not more than five years
Total
2017
£m
272.0
272.0
2016
£m
188.1
188.1
At 31 December 2017 the Group had £553.1m of committed facilities, of which £272.0m were undrawn as disclosed
above. Since 31 December 2017, a maximum of £175m has been drawn down against the £350m Revolving Credit Facility.
CONTRACTUAL MATURITY ANALYSIS OF THE GROUP’S FINANCIAL LIABILITIES, DERIVATIVE FINANCIAL INSTRUMENTS,
OTHER FINANCIAL ASSETS, DEFERRED CONSIDERATION AND CASH AND CASH EQUIVALENTS
IFRS 7 requires disclosure of the maturity of the Group’s remaining contractual financial liabilities. The tables below have been drawn up based
on the undiscounted contractual maturities of the Group’s financial assets and liabilities including interest that will accrue to those assets and
liabilities except where the Group is entitled and intends to repay the liability before its maturity. Both the inclusion of future interest and the
values disclosed being undiscounted results in the total position being different to that included in the Consolidated Balance Sheet. Given
this is a maturity analysis all trade payables (including amongst other items payroll and sales tax accruals which are not classified as financial
instruments) have been included.
2017 Analysis
Current liabilities
Trade and other payables
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Derivative financial instruments
Loan notes and deferred consideration
Total
Non-current liabilities
Obligations under finance lease contracts
Bank loans
Private placement notes
Derivative financial instruments
Total
Total liabilities
Other
Derivative financial instrument assets
Cash and cash equivalents^
Deferred consideration
Trade and other receivables
Total
Grand total
Balance
sheet value
£m
387.3
3.1
29.6
84.2
21.1
0.2
17.0
< 1 year
£m
387.3
3.2
29.6
84.6
21.2
0.2
17.0
542.5
543.1
6.8
–
183.1
3.3
193.2
735.7
(1.3)
(121.8)
(1.5)
(462.8)
(587.4)
148.3
0.3
–
6.6
0.2
7.1
550.2
(1.3)
(121.8)
(0.3)
(462.8)
(586.2)
(36.0)
Maturity analysis
1–2 years
£m
2–5 years
£m
> 5 years
£m
–
–
–
–
–
–
–
–
2.9
–
6.6
–
9.5
9.5
(0.2)
–
(0.5)
–
(0.7)
8.8
–
–
–
–
–
–
–
–
4.0
–
61.7
(0.5)
65.2
65.2
(0.5)
–
(1.2)
–
(1.7)
63.5
–
–
–
–
–
–
–
–
0.4
–
152.8
1.9
155.1
155.1
(1.9)
–
–
–
(1.9)
153.2
Total
£m
387.3
3.2
29.6
84.6
21.2
0.2
17.0
543.1
7.6
–
227.7
1.6
236.9
780.0
(3.9)
(121.8)
(2.0)
(462.8)
(590.5)
189.5
^ Included within cash and cash equivalents for 2017 is cash restricted for use of £6.1m.
The table above includes: cross-currency interest rate swaps in relation to derivative financial assets with a fair value at 31 December 2017 of
£0.1m (2016: £2.5m) and derivative financial liabilities of £2.7m (2016: £2.1m) that will be settled gross, the final exchange on these derivatives
will be payment of €26.6m and receipt of $30.0m in August 2026; and other derivative financial assets with a fair value at 31 December 2017
of £0.1m (2016: £0.1m) and derivative financial liabilities of £nil (2016: £0.2m) that will be settled gross, the final exchange on these derivatives
will be total receipts of €28.6m (2016: €16.5m), PLN 14m (2016: PLN 22.7m) and $4.5m (2016: $5.4m) and corresponding payments of £31.6m
(2016: £19.0m).
144
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements:
As at 31 December 2017
Derivative financial assets
Derivative financial liabilities
Total
2016 Analysis
Current liabilities
Trade and other payables (restated)
Obligations under finance lease contracts
Bank overdrafts (restated)
Bank loans
Private placement notes
Derivative financial instruments
Loan notes and deferred consideration
Total
Non-current liabilities
Obligations under finance lease contracts
Bank loans
Private placement notes
Derivative financial instruments
Total
Total liabilities
Other
Derivative financial instrument assets
Cash and cash equivalents (restated)
Other financial assets
Deferred consideration
Trade and other receivables (restated)
Total
Grand total
Gross amounts
of recognised
financial assets/
(liabilities)
£m
Amounts
available to
offset through
netting
agreements
£m
1.3
(3.5)
(2.2)
(0.3)
0.3
–
Net amount
£m
1.0
(3.2)
(2.2)
Balance
sheet value
£m
383.6
3.1
22.7
171.6
–
0.2
2.7
< 1 year
£m
383.6
3.1
22.7
172.2
–
0.2
2.7
583.9
584.5
8.1
0.3
200.7
3.6
212.7
796.6
(4.5)
(127.0)
(1.1)
(0.7)
(512.2)
(645.5)
151.1
0.4
–
7.7
0.4
8.5
593.0
(1.4)
(127.0)
(1.1)
(0.7)
(512.2)
(642.4)
(49.4)
Maturity analysis
1–2 years
£m
2–5 years
£m
> 5 years
£m
–
–
–
–
–
–
–
–
3.1
0.3
27.7
0.3
31.4
31.4
–
–
–
–
–
–
–
–
5.1
0.1
61.3
(0.2)
66.3
66.3
–
–
–
–
–
–
–
–
0.6
–
155.2
0.7
156.5
156.5
(1.3)
(0.8)
(4.6)
–
–
–
–
(1.3)
30.1
–
–
–
–
(0.8)
65.5
–
–
–
–
(4.6)
151.9
Total
£m
383.6
3.1
22.7
172.2
–
0.2
2.7
584.5
9.2
0.4
251.9
1.2
262.7
847.2
(8.1)
(127.0)
(1.1)
(0.7)
(512.2)
(649.1)
198.1
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements:
As at 31 December 2016
Derivative financial assets
Derivative financial liabilities
Total
Gross amounts
of recognised
financial assets/
(liabilities)
£m
Amounts
available to
offset through
netting
agreements
£m
4.5
(3.8)
0.7
(2.8)
2.8
–
Net amount
£m
1.7
(1.0)
0.7
145
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
21. SENSITIVITY ANALYSIS
IFRS 7 requires the disclosure of a sensitivity analysis that details the effects on the Group’s profit or loss and other equity of reasonably
possible fluctuations in market rates.
This sensitivity analysis has been prepared to illustrate the effect of the following hypothetical variations in market rates on the fair value of the
Group’s financial assets and liabilities:
(i) a 1% (100 basis points) increase or decrease in market interest rates; and
(ii) a 10% strengthening or weakening of Sterling against all other currencies to which the Group is exposed.
A) INTEREST RATE SENSITIVITY
The Group is currently exposed to Sterling, Euro and US Dollar interest rates. The Group also has a minimal exposure to Polish Zloty interest
rates. In order to illustrate the Group’s sensitivity to interest rate fluctuations, the following table details the Group’s sensitivity to a 100 basis
point change in each respective interest rate. The sensitivity analysis of the Group’s exposure to interest rate risk at the reporting date has
been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A
positive number indicates an increase in profit or loss and other equity.
2017 analysis
Profit or loss
Other equity
Total Shareholders' equity
2016 analysis
GBP
EUR
USD
Total
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
(0.5)
0.8
0.3
0.5 (i)
(0.8) (ii)
(0.3)
–
2.2
2.2
– (iii)
(2.3) (iv)
(2.3)
–
(1.8)
(1.8)
–
2.0 (ii)
2.0
(0.5)
1.2
0.7
0.5
(1.1)
(0.6)
GBP
EUR
USD
Total
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
Profit or loss
Other equity
Total Shareholders' equity
(0.9)
1.3
0.4
0.9 (i)
(1.0) (ii)
(0.1)
(0.1)
2.5
2.4
0.1 (iii)
(2.5) (iv)
(2.4)
–
(2.2)
(2.2)
–
2.5 (ii)
2.5
(1.0)
1.6
0.6
1.0
(1.0)
–
The movements noted above are mainly attributable to:
(i) floating rate Sterling debt and cash deposits
(ii) mark-to-market valuation changes in the fair value of effective cash flow hedges
(iii) floating rate Euro debt and Euro cash deposits
(iv) changes in the value of the Group’s Euro-denominated assets and liabilities
146
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc B) FOREIGN CURRENCY SENSITIVITY
The Group is exposed to currency rate changes between Sterling and Euros, US Dollars and Polish Zloty.
The following table details the Group’s sensitivity to a 10% change in Sterling against each respective foreign currency to which the Group
is exposed, indicating the likely impact of changes in foreign exchange rates on the Group’s financial position. The sensitivity analysis of the
Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the
financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and other equity.
2017 analysis
Assets and liabilities under
the scope of IFRS 7
Profit or loss
Other equity
Total Shareholders' equity
Total assets and liabilities*
Profit or loss
Other equity
Total Shareholders' equity
2016 analysis
Assets and liabilities under
the scope of IFRS 7
Profit or loss
Other equity
Total Shareholders' equity
Total assets and liabilities*
Profit or loss
Other equity
Total Shareholders' equity
EUR
+10%
£m
-10%
£m
USD
+10%
£m
-10%
£m
PLN
+10%
£m
Total
-10%
£m
+10%
£m
-10%
£m
0.5
3.5
4.0
(2.7)
(17.7)
(20.4)
(0.7) (i)
(4.3) (ii)
(5.0)
3.3 (iii)
21.6 (iv)
24.9
–
1.9
1.9
1.1
1.9
3.0
–
(2.2) (ii)
(2.2)
(1.3) (v)
(2.2) (iv)
(3.5)
–
(2.0)
(2.0)
(0.1)
(3.0)
(3.1)
–
2.5 (ii)
2.5
0.1 (vi)
3.7 (iv)
3.8
0.5
3.4
3.9
(1.7)
(18.8)
(20.5)
EUR
+10%
£m
-10%
£m
USD
+10%
£m
-10%
£m
PLN
+10%
£m
-10%
£m
Total
+10%
£m
0.5
1.7
2.2
(3.3)
(20.1)
(23.4)
(0.6) (i)
(2.3) (ii)
(2.9)
4.3 (iii)
24.5 (iv)
28.8
–
(0.4)
(0.4)
1.2
(0.4)
0.8
–
0.7 (ii)
0.7
(1.5) (v)
0.7 (iv)
(0.8)
–
(1.6)
(1.6)
(0.1)
(4.2)
(4.3)
–
2.0 (ii)
2.0
0.1 (vi)
3.4 (iv)
3.5
0.5
(0.3)
0.2
(2.2)
(24.7)
(26.9)
(0.7)
(4.0)
(4.7)
2.1
23.1
25.2
-10%
£m
(0.6)
0.4
(0.2)
2.9
28.6
31.5
* Certain assets and liabilities such as inventories, non-current assets and provisions do not come under the scope of IFRS 7. Therefore, in order to present a complete analysis of the Group’s
exposure to movements in foreign currency exchange rates, the exposure on the Group’s total assets and liabilities has been disclosed.
The movements noted above are mainly attributable to:
(i)
retranslation of Euro interest flows
(ii) mark-to-market valuation changes in the fair value of effective cash flow and net investment hedges and retranslation of assets and
liabilities under the scope of IFRS 7
(iii) retranslation of Euro profit streams and transaction exposure relating to purchases in Euros
(iv) retranslation of foreign currency denominated assets and liabilities outside the scope of IFRS 7 and mark-to-market valuation changes in
the fair value of effective cash flow and net investment hedges
(v) transaction exposure relating to purchases in US Dollars
(vi) retranslation of Polish Zloty profit streams
147
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
22. PROVISIONS FOR LIABILITIES AND CHARGES
Onerous
leases
£m
Leasehold
dilapidations
£m
Contingent
consideration
£m
Other
amounts
£m
At 1 January 2017
Unused amounts reversed in the period
Utilised
New provisions
Unwinding of provision discounting
Added/(released) on divestment of businesses
Transferred to deferred consideration
Exchange differences
At 31 December 2017
Included in current liabilities
Included in non-current liabilities
Total
8.7
(0.4)
(5.3)
2.9
0.1
1.7
–
0.1
7.8
13.7
(2.9)
(1.9)
4.2
0.1
(0.4)
–
(0.2)
12.6
9.7
–
(4.1)
1.5
0.2
–
(7.2)
(0.1)
–
4.8
(0.4)
(1.7)
2.5
0.1
–
–
0.1
5.4
2017
£m
12.0
13.8
25.8
Total
£m
36.9
(3.7)
(13.0)
11.1
0.5
1.3
(7.2)
(0.1)
25.8
2016
£m
14.5
22.4
36.9
ONEROUS LEASES
The Group has provided for the rental payments due over the remaining term of existing operating lease contracts where a period of vacancy
is ongoing until 2029 (2016: 2029). The provision has been calculated after taking into account both the periods over which the properties
are likely to remain vacant and the likely income from existing and future sub-lease agreements on a contract-by-contract basis. The provision
covers potential transfer of economic benefit over the full range of current lease commitments disclosed in Note 29b.
LEASEHOLD DILAPIDATIONS
This provision relates to contractual obligations to reinstate leasehold properties to their original state of repair. The provision is calculated
with reference to the expired portion of individual lease agreements where such a clause exists in the lease contract. The transfer of economic
benefits will be made at the end of the leases as set out in Note 29b.
CONTINGENT CONSIDERATION
Contingent consideration relates to the amounts due to vendors of completed acquisitions providing certain future profit targets are met.
The provision is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss. The fair value is
measured using level 3 inputs and is sensitive to changes in one or more unobservable inputs. There are no remaining contingent amounts at
31 December 2017.
OTHER AMOUNTS
Other amounts relate principally to claims and warranty provisions. The transfer of economic benefit is expected to be made between one and
four years’ time.
148
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 23. DEFERRED TAX
The net deferred tax asset at the end of the year is analysed as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
2017
£m
22.6
(13.4)
9.2
2016
Restated
£m
17.2
(15.2)
2.0
SUMMARY OF DEFERRED TAX
The different components of deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior
reporting period are analysed below:
Goodwill and
intangibles
£m
Property, plant
and equipment
£m
Short term
timing
differences
£m
Retirement
benefit
obligations
£m
Losses
Restated
£m
Other
£m
At 31 December 2015
Credit/(charge) to income
Charge to equity
Added on acquisition
Exchange differences
Change of rate charged to equity
At 31 December 2016
Credit/(charge) to income
(Charge)/credit to equity
Exchange differences
Change of rate charged to equity
At 31 December 2017
(11.3)
2.6
–
(1.5)
(0.5)
–
(10.7)
2.1
–
(0.1)
–
(8.7)
(1.2)
0.4
–
(0.1)
(0.4)
–
(1.3)
11.4
–
(0.1)
–
10.0
5.0
(2.1)
–
–
0.7
–
3.6
0.5
–
–
–
4.1
5.2
(0.2)
2.3
–
0.4
(0.5)
7.2
(0.3)
(0.9)
0.1
(0.2)
5.9
5.7
(1.4)
–
0.2
0.1
–
4.6
(3.1)
–
0.1
–
1.6
(0.5)
–
(0.6)
–
(0.3)
–
(1.4)
(2.9)
0.7
(0.1)
–
(3.7)
Total
£m
2.9
(0.7)
1.7
(1.4)
–
(0.5)
2.0
7.7
(0.2)
(0.1)
(0.2)
9.2
The deferred tax charge within the Consolidated Income Statement for 2017 includes a charge of £1.0m (2016: credit £0.2m) arising from the
change in domestic tax rates in the countries in which the Group operates.
Of the deferred tax asset of £9.2m, £1.6m relates to unused tax losses carried forward which have been recognised on the basis that
realisation of the related tax benefit through future taxable profits is probable. The Directors have considered whether it is appropriate to
recognise deferred tax assets given the losses incurred in the current and prior year. Given current and forecast trading the Directors consider
the recognition of deferred tax assets to be appropriate.
The majority of the deferred tax asset associated with the retirement benefit obligations is in respect of the UK defined benefit scheme.
Payments against the deficit will be deductible for tax purposes on a paid basis and the Group expects to receive the tax benefit, therefore the
associated deferred tax asset has been recognised.
There is an unprovided deferred tax asset of £2.8m to reflect uncertainty associated with the usage of tax attributes in the current period.
Additionally, deferred tax has not been recognised on £7m of tax losses being carried forward on the basis that the realisation of their future
economic benefit is uncertain. The unrecognised potential deferred tax asset in relation to these tax losses is £1.7m (2016: £2.8m).
At the balance sheet date, no deferred tax liability is recognised on temporary differences relating to undistributed earnings of overseas
subsidiaries as the Group is in a position to control the timing of the reversal of these temporary differences and it is probable that they will
not reverse in the foreseeable future.
149
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
24. OBLIGATIONS UNDER FINANCE LEASE CONTRACTS
Amounts payable under finance lease contracts:
– within one year
– after one year and within five years
– after five years
Less: future finance charges
Present value of lease obligations
Minimum lease
payments
2017
£m
3.5
6.8
0.4
10.7
(0.8)
9.9
2016
£m
3.5
8.2
0.6
12.3
(1.1)
11.2
Present value of
minimum lease payments
2017
£m
3.1
6.4
0.4
9.9
2016
£m
3.1
7.5
0.6
11.2
The Group leases certain motor vehicles, fixtures and equipment under finance lease contracts, which are denominated in Sterling, Euros and
Polish Zloty.
The average remaining lease term is 4.7 years (2016: 5.1 years). For the year ended 31 December 2017, the average effective borrowing rate
was 4.7% (2016: 4.8%). Interest rates are fixed at the contract date.
The carrying amount of the Group’s lease obligations approximates to their fair value.
25. CALLED UP SHARE CAPITAL
Authorised:
800,000,000 ordinary shares of 10p each (2016: 800,000,000)
Allotted, called up and fully paid:
591,548,235 ordinary shares of 10p each (2016: 591,460,301)
There were 87,934 shares allotted during 2017 (2016: 113,153).
The Company has one class of ordinary share which carries no right to fixed income.
At 31 December 2017 the following share options were outstanding:
2017
£m
2016
£m
80.0
80.0
59.2
59.1
Scheme and date of grant
Number of shares
Exercise dates
Granted
Exercised
Lapsed
At
31 December
2017
Original
option
price
per 10p
share
Date from
which option
may be
exercised
Date on
which option
expires
At
31 December
2016
7,057
89,624
1,396,741
1,842,140
–
–
–
–
(3,136)
(84,798)
–
–
3,921
4,826
0.00p
03/10/2015
02/10/2022
0.00p
18/04/2016
17/04/2023
–
–
–
(1,396,741)
–
0.00p
18/09/2017
17/09/2024
(66,606)
1,775,534
0.00p
17/09/2018
16/09/2025
–
1,413,968
0.00p
24/04/2020
24/04/2027
–
1,413,968
3,335,562
1,413,968
(87,934)
(1,463,347)
3,198,249
Long Term Incentive Plan
03/10/2012
18/04/2013
18/09/2014
17/09/2015
24/04/2017
Total
150
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 26. RECONCILIATION OF OPERATING LOSS TO CASH GENERATED FROM OPERATING ACTIVITIES
Operating loss
Depreciation (Note 10)
Amortisation of computer software (Note 13)
Amortisation of acquired intangibles (Note 13)
Impairment of computer software (Note 13)
Impairment of property, plant and equipment (Note 10)
Goodwill and intangible impairment charges (excluding computer software)
Losses on agreed sale or closure of non-core businesses^
Profit on sale of property, plant and equipment
Share-based payments
Working capital movements:
Increase in inventories
Decrease/(increase) in receivables
Increase in payables
Cash generated from operating activities
2017
£m
(33.9)
22.9
3.7
9.3
6.8
3.8
6.6
63.6
(20.2)
0.2
(0.3)
30.3
6.9
99.7
2016
Restated
£m
(94.7)
26.0
3.5
10.3
7.9
0.3
110.6
40.1
(8.5)
(0.3)
(0.5)
(27.6)
12.8
79.9
^ The total losses on agreed sale or closure of non-core businesses of £72.4m (Note 11) includes the £63.6m above, together with £6.6m in relation to impairment of goodwill (Note 12) and
£2.2m in relation to impairment of property, plant and equipment (Note 10).
Included within the cash generated from operating activities is a defined benefit pension scheme employer’s contribution of £2.5m (2016:
£2.5m).
Of the total profit on sale of property, plant and equipment, £5.8m (2016: £2.8m) has been included within Other items of the Consolidated
Income Statement (see Note 2).
Included within working capital movements are payments of £2.7m (2016: £6.1m) in settlement of contingent consideration dependent upon
the vendors remaining with the business.
Receivables have decreased due to debt factoring of £48.7m (2016: £nil).
27. RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
(Decrease)/increase in cash and cash equivalents in the year
Cash flow from decrease/(increase) in debt
Decrease in net debt resulting from cash flows
Debt added on acquisition
Debt relating to divested businesses
Recognition of loan notes
Non-cash items^
Exchange differences
Decrease/(increase) in net debt in the year
Net debt at 1 January
Net debt at 31 December
^ Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow.
Net debt has decreased by £48.7m (2016: £nil) due to debt factoring.
2017
£m
(16.6)
93.9
77.3
–
3.1
(17.0)
(3.3)
(4.2)
55.9
(279.7)
(223.8)
2016
Restated
£m
29.9
(19.5)
10.4
(1.6)
–
(2.7)
(14.4)
(11.6)
(19.9)
(259.8)
(279.7)
151
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
Net debt is defined as follows:
Non-current assets:
Derivative financial instruments
Deferred consideration
Current assets:
Derivative financial instruments
Deferred consideration
Other financial assets
Cash and cash equivalents
Current liabilities:
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Derivative financial instruments
Non-current liabilities:
Obligations under finance lease contracts
Bank loans
Private placement notes
Derivative financial instruments
Net debt
28. ANALYSIS OF NET DEBT
2017
£m
0.1
1.4
1.2
0.1
–
2016
Restated
£m
4.4
–
0.1
0.7
1.1
121.8
127.0
(3.1)
(29.6)
(84.2)
(21.1)
(17.0)
(0.2)
(6.8)
–
(183.1)
(3.3)
(223.8)
(3.1)
(22.7)
(171.6)
–
(2.7)
(0.2)
(8.1)
(0.3)
(200.7)
(3.6)
(279.7)
Cash and cash equivalents (restated)
Bank overdrafts (restated)
Other financial assets and deferred
consideration
Liabilities arising from financing activities
Financial assets – derivative financial
instruments
Debts due within one year
Debts due after one year
Finance lease contracts
Net debt
At 31
December
2016
£m
127.0
(22.7)
Cash
flows
£m
(9.8)
(6.8)
104.3
(16.6)
1.8
1.8
(0.3)
(0.3)
4.5
(174.5)
(204.6)
(11.2)
(385.8)
(279.7)
–
90.7
–
3.5
94.2
77.3
Net
debt
movements
attributable
to disposals
£m
Reclassification
of debts
£m
Reclassification
of contingent
to loan notes
£m
Non-cash
items*
£m
Exchange
differences
£m
At 31
December
2017
£m
–
–
–
1.5
1.5
–
1.6
–
–
1.6
3.1
–
–
–
–
–
–
(21.3)
21.3
–
–
–
–
–
–
–
–
–
(17.0)
–
–
(17.0)
(17.0)
–
–
–
(1.5)
(1.5)
(1.2)
(1.1)
2.1
(1.6)
(1.8)
(3.3)
4.6
(0.1)
4.5
–
–
(2.0)
(0.8)
(5.3)
(0.6)
(8.7)
(4.2)
121.8
(29.6)
92.2
1.5
1.5
1.3
(122.4)
(186.5)
(9.9)
(317.5)
(223.8)
* Non-cash items relate to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow.
152
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 29. GUARANTEES AND OTHER FINANCIAL COMMITMENTS
A) CAPITAL COMMITMENTS
The purchase of property, plant and equipment contracted but not provided for
2017
£m
2.3
2016
£m
3.4
B) LEASE COMMITMENTS
The Group leases a number of its premises under operating leases which expire between 2018 and 2049, some contracts contain options to
extend for a further lease term at the then prevailing market rate.
The rentals payable are subject to renegotiation at various dates. The total future minimum lease rentals under the foregoing leases are as
follows:
Minimum lease rentals due:
– within one year
– after one year and within five years
– after five years
2017
£m
50.8
127.9
75.7
254.4
2016
£m
53.0
146.8
88.6
288.4
The Group also leases certain items of plant and machinery whose total future minimum lease rentals under the foregoing leases are as
follows:
Minimum lease rentals due:
– within one year
– after one year and within five years
– after five years
2017
£m
19.9
45.5
1.6
67.0
2016
£m
16.2
31.6
1.8
49.6
C) PENSION SCHEMES
The Group operates a number of pension schemes, six (2016: six) of which provide defined benefits based on final pensionable salary. Of
these schemes, one (2016: one) has assets held in a separate Trustee administered fund and five (2016: five) are overseas book reserve
schemes. The Group also operates a number of defined contribution schemes, all of which are independently managed.
The Trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The
Trustees of the pension fund are responsible for the investment policy with regard to the assets of the fund.
In The Netherlands, the Company participates in the industry-wide pension plan for the construction materials industry (‘BPF HiBiN’). The
pension plan classifies as a multi-employer defined benefit scheme under IAS 19, but is recognised in the Financial Statements as a defined
contribution scheme since the pension fund is not able to provide sufficient information to allow SIG’s share of the assets and liabilities to
be separately identified. Therefore, the Group’s annual pension expense for this scheme is equal to the required contribution each year. The
coverage ratio of the multi-employer union plan increased to 103.4% as at 31 December 2017 (2016: 97.6%). No change was made to the
pension premium percentage of 22.2% (2016: 22.2%). The coverage ratio is calculated by dividing the fund’s assets by the total sum of pension
liabilities and is based upon market interest rates.
In Belgium, the Company provides pensions for employees through a defined contribution scheme which, following a change in Belgian
legislation, has a minimum guaranteed rate of return and is accounted for as a defined benefit scheme under IAS 19. The Company has
insured its liabilities. At 31 December 2017 the scheme has gross assets and liabilities of approximately £0.4m (2016: £0.4m).
The Group’s total pension charge for the year, including amounts charged to interest, was £8.9m (2016: £8.8m), of which a charge of £1.1m
(2016: £2.5m) related to defined benefit pension schemes and £7.8m (2016: £6.3m) related to defined contribution schemes.
DEFINED BENEFIT PENSION SCHEME VALUATIONS
In accordance with IAS 19 the Group recognises all actuarial gains and losses in full in the period in which they arise in the Consolidated
Statement of Comprehensive Income.
The actuarial valuations of the defined benefit pension schemes are assessed by an independent actuary every three years who recommends
the rate of contribution payable each year. The last formal actuarial valuation of the SIG plc Retirement Benefits Plan, the UK scheme, was
conducted at 31 December 2013 and showed that the market value of the scheme’s assets was £131.4m and their actuarial value covered
90% of the benefits accrued to members after allowing for expected future increases in pensionable salaries. The next triennial actuarial
valuation is effective as at 31 December 2016. The Trustees are aiming to conclude the valuation by the end of March 2018. The Board has
considered the ongoing discussions in relation to the valuation and recovery plan in determining the final dividend for the year.
The other five schemes are book reserve schemes whereby the sponsoring company does not hold any separate assets to fund the pension
scheme but makes a reserve in its accounts. Therefore, these schemes do not hold separate scheme assets. The liabilities of the schemes are
met by the sponsoring companies.
153
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The schemes typically expose the Group to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk. The risk
relating to benefits to be paid to the dependants of scheme members on death in service is reinsured by an external insurance company.
Investment risk
The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high
quality corporate bond yields; if the return on plan assets falls below this rate, it will create a plan deficit. Currently the plan has
relatively balanced investments in line with the Trustees' Statement of Investment Principles between equity securities and debt
instruments. Due to the long term nature of the plan liabilities, the Trustees of the pension fund consider it appropriate that a
reasonable portion of the plan assets should be invested in growth assets to leverage the return generated by the fund.
Interest rate risk
A decrease in the bond interest rate will increase the plan liability but this will be partially offset by an increase in the return on
the plan’s bond holdings.
Longevity risk
Salary risk
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan
participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the
plan’s liability.
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As
such, an increase in the salary of the plan participants will increase the plan’s liability. However, a pensionable salary cap was
introduced from 1 July 2012 of 2.5% per annum.
CONSOLIDATED INCOME STATEMENT CHARGES
The pension charge for the year, including amounts charged to interest of £0.7m (2016: £0.5m) relating to the defined benefit pension
schemes, was £1.1m (2016: £2.5m, including a curtailment loss of £0.9m). On 30 June 2016 the UK defined benefit pension scheme was closed
to future benefit accrual. The change in assumptions associated with the closure resulted in a curtailment loss of £0.9m which was charged
within Other items in the Consolidated Income Statement within 2016.
In accordance with IAS 19, the charge for the defined benefit schemes has been calculated as the sum of the cost of benefits accruing in the
year, the increase in the value of benefits already accrued and the expected return on assets. The actuarial valuations described previously
have been updated at 31 December 2017 by a qualified actuary using revised assumptions that are consistent with the requirements of IAS
19. Investments have been valued, for this purpose, at fair value.
The UK defined benefit scheme is closed to new members and has an age profile that is rising. The four overseas book reserve schemes
remain open to new members.
CONSOLIDATED BALANCE SHEET LIABILITY
The balance sheet position in respect of the six defined benefit schemes can be summarised as follows:
Pension liability before taxation
Related deferred tax asset
Pension liability after taxation
2017
£m
(30.4)
5.9
(24.5)
2016
£m
(37.1)
7.2
(29.9)
The actuarial gain of £5.5m (2016: loss of £12.5m) for the year, together with the associated deferred tax charge of £0.9m (2016: credit of
£2.3m) and deferred tax charge of £0.2m (2016: £0.5m) in respect of the change in the France standard rate of corporation tax from 33.33%
to 25.00% from 1 January 2022 (2016: change in the UK standard rate of corporation tax to 19% from 1 April 2017 and 17% from 1 April 2020)
has been recognised in the Consolidated Statement of Comprehensive Income. In addition a deferred tax charge of £0.3m (2016: £0.2m) has
been recognised in the Consolidated Income Statement.
Of the above pension liability before taxation, £19.1m (2016: £26.8m) relates to wholly or partly funded schemes and £11.3m (2016: £10.3m)
relates to the overseas unfunded schemes.
The movement in the pension liability before taxation in the year can be summarised as follows:
Pension liability at 1 January
Current service cost
Payment of unfunded benefits
Contributions
Net finance cost
Curtailment loss
Actuarial gain/(loss)
Effect of changes in exchange rates
Pension liability at 31 December
154
2017
£m
(37.1)
(0.4)
0.3
2.5
(0.7)
–
5.5
(0.5)
(30.4)
2016
£m
(23.8)
(1.1)
–
3.1
(0.5)
(0.9)
(12.5)
(1.4)
(37.1)
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc On 30 June 2016 the UK defined benefit pension scheme was closed to future benefit accrual. However, the Group is contracted to pay
contributions of £2.5m per annum to January 2019.
The principal assumptions used for the IAS 19 actuarial valuation of the schemes were:
Rate of increase in salaries*
Rate of fixed increase of pensions in payment
Rate of increase of LPI pensions in payment
Discount rate
Inflation assumption
2017
%
n/a
1.7
3.0
2.6
3.2
2016
%
n/a
1.7
3.1
2.8
3.2
* Upon closure of the UK defined benefit scheme to future benefit accrual the accrued benefits of active members ceased to be linked to their final salary and will instead revalue in
deferment broadly in line with movements in the Consumer Price Index.
Deferred pensions are revalued to retirement in line with the schemes’ rules and statutory requirements, with the inflation assumption used
for LPI revaluation in deferment.
Within the principal plan the life expectancy for a male employee beyond the normal retirement age of 65 is 22.1 years (2016: 22.2 years). The
life expectancy on retirement at age 65 of a male employee currently aged 45 years is 23.5 years (2016: 23.5 years).
The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the
end of the reporting period, while holding all other assumptions constant. If the discount rate were to be increased/decreased by 0.1%, this
would decrease/increase the Group’s gross pension scheme deficit by £3.4m. If the rate of inflation increased/decreased by 0.1% this would
increase/decrease the Group’s gross pension scheme deficit by £1.0m. If the life expectancy for employees increased by one year the Group’s
gross pension scheme deficit would increase by £8.7m. The sensitivity analysis presented above may not be representative of the actual
change in the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of
the assumptions may be correlated.
The average duration of the defined benefit scheme obligation at 31 December 2017 is 19 years (2016: 20 years).
The only assets held are within the SIG plc Retirement Benefits Plan. The fair value of these at each balance sheet date were:
Equities
Corporate and government bonds
Investment funds
Property
Cash and net current assets
Total fair value of assets
2017
£m
73.1
63.9
15.9
8.1
0.3
2016
£m
78.1
62.9
15.5
7.5
0.3
161.3
164.3
All equity and debt instruments have quoted prices in active markets and can be classified as Level 2 instruments, other then property which
is Level 3.
The amount included in the Consolidated Balance Sheet arising from the Group’s obligation in respect of its defined benefit schemes is as
follows:
Fair value of assets
Present value of scheme liabilities
Net liability recognised in the Consolidated Balance Sheet
The overall expected rate of return is based upon market conditions at the balance sheet date.
Amounts recognised in the Consolidated Income Statement in respect of these defined benefit schemes are as follows:
Current service cost
Curtailment loss
Net finance cost
Amounts recognised in the Consolidated Income Statement
2017
£m
161.3
(191.7)
(30.4)
2017
£m
0.4
–
0.7
1.1
2016
£m
164.3
(201.4)
(37.1)
2016
£m
1.1
0.9
0.5
2.5
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
Analysis of the actuarial gain/(loss) recognised in the Consolidated Statement of Comprehensive Income in respect of the schemes:
Actual return less expected return on assets
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Impact of liability experience
Remeasurement of the defined benefit liability
2017
£m
10.0
0.9
(4.7)
(0.7)
5.5
2016
£m
25.4
(1.0)
(37.6)
0.7
(12.5)
The remeasurement of the net defined benefit liability is included within the Consolidated Statement of Comprehensive Income.
Movements in the present value of the schemes’ liabilities were as follows:
Present value of schemes' liabilities at 1 January
Current service cost
Interest on pension schemes' liabilities
Benefits paid
Payment of unfunded benefits
Curtailment loss
Effect of changes in exchange rates
Remeasurement gains/(losses):
Actuarial gain/(loss) arising from changes in demographic assumptions
Actuarial loss arising from changes in financial assumptions
Actuarial (loss)/gain due to liability experience
Present value of schemes' liabilities at 31 December
Movements in the fair value of the schemes’ assets were as follows:
Fair value of schemes' assets at 1 January
Finance income
Actual return less expected return on assets
Contributions from sponsoring companies
Benefits paid
Fair value of schemes' assets at 31 December
2017
£m
2016
£m
(201.4)
(166.6)
(0.4)
(5.1)
19.9
0.3
–
(0.5)
0.9
(4.7)
(0.7)
(1.1)
(5.8)
12.3
–
(0.9)
(1.4)
(1.0)
(37.6)
0.7
(191.7)
(201.4)
2017
£m
164.3
4.4
10.0
2.5
(19.9)
161.3
2016
£m
142.8
5.3
25.4
3.1
(12.3)
164.3
D) CONTINGENT LIABILITIES
As at the balance sheet date, the Group had outstanding obligations under customer guarantees, claims, standby letters of credit and
discounted bills of up to £12.1m (2016: £17.1m). Of this amount, £9.0m (2016: £9.0m) relates to a standby letter of credit issued by HSBC Bank
plc in respect of the Group’s insurance arrangements.
As disclosed in the Statement of Significant Accounting Policies, Metechno Limited and SIG Building Systems Limited have taken advantage
of the exemption available under Section 479A of the Companies Act 2006 in respect of the requirement for audit. As a condition of the
exemption, the Company has guaranteed the year end liabilities of the relevant subsidiaries until they are settled in full. The liabilities of the
subsidiaries at the year end were £8.1m (2016: £4.4m).
As part of the disposal of Building Plastics a guarantee has been provided to the landlord of the leasehold properties transferred with the
business covering rentals over the remaining term of the leases in the event that the acquiring company enters into administration before the
end of the lease term. The maximum liability that could arise from this would be approximately £7.4m. No provision has been made in these
Financial Statements as it is not considered likely that any loss will be incurred in connection with this.
156
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 30. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and have therefore
not been disclosed.
SIG has a shareholding of less than 0.1% in a German purchasing co-operative. Net purchases from this co-operative (on commercial terms)
totalled £318.5m in 2017 (2016: £283.8m). At the balance sheet date net trade payables in respect of the co-operative amounted to £10.1m
(2016: £11.7m).
In 2017, SIG incurred expenses of £0.2m (2016: £0.3m) on behalf of the SIG plc Retirement Benefits Plan, the UK defined benefit pension
scheme.
REMUNERATION OF KEY MANAGEMENT PERSONNEL
The total remuneration of key management personnel of the Group, being the Group Executive Committee members and the Non-Executive
Directors (see page 65), is set out below in aggregate for each of the categories specified in IAS 24 “Related Party Disclosures”.
Short term employee benefits
Termination and post-employment benefits
IFRS 2 share option charge/(credit)
2017
£m
6.2
2.4
0.2
8.8
2016
£m
3.9
0.8
(0.1)
4.6
31. SUBSIDIARIES
Details of the Group’s subsidiaries, all of which have been included in the Financial Statements, are shown on pages 191 to 192.
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25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
32. NON-STATUTORY INFORMATION
The Group uses a variety of alternative performance measures, which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful historical financial information to help investors evaluate the underlying
performance of the business.
These measures, as shown below, are used to improve the comparability of information between reporting periods and geographical units,
to adjust for Other items (as explained in further detail within the Statement of Significant Accounting Policies) or to adjust for businesses
identified as non-core to provide information on the ongoing activities of the Group. This also reflects how the business is managed and
measured on a day-to-day basis. Non-core businesses are those businesses that have been closed or disposed of or where the Board has
resolved to close or dispose of the businesses prior to signing the Annual Report and Accounts.
These measures are used by management for performance analysis, planning, reporting and incentive setting purposes and remain consistent
year-on-year.
Information regarding covenant calculations (Notes 32A and 32C) is provided to show the financial measures used to calculate financial
covenants as defined by the banking agreements.
A) HEADLINE FINANCIAL LEVERAGE COVENANT
The headline financial leverage covenant is one of the primary covenants applicable to the Revolving Credit Facility and the private placement
notes. The monitoring of this covenant is therefore an important element of treasury risk management for the Group.
Operating loss
Depreciation
Amortisation of computer software
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges
Net operating losses attributable to businesses identified as non-core*
Depreciation attributable to businesses identified as non-core*
Net restructuring costs
Acquisition expenses and contingent consideration
Defined benefit pension scheme curtailment loss
Other specific items
Annualised EBITDA impact of acquisitions
Covenant EBITDA
Note
10
13
13
2
11
11
2
14
2
2
2017
£m
(33.9)
22.9
3.7
9.3
6.8
72.4
14.3
(0.8)
21.1
9.8
–
(5.5)
–
2016
Restated
£m
(94.7)
26.0
3.5
10.3
110.6
40.1
5.8
(0.5)
13.3
(4.6)
0.9
5.9
0.3
120.1
116.9
* The 2016 covenant calculation has not been restated to reflect the decisions made to exit non-core businesses after the signing of the 2016 Financial Statements (Note 11).
Reported net debt
Other covenant financial indebtedness
Foreign exchange adjustment*
Covenant net debt
* For the purpose of covenant calculations, leverage is calculated using net debt translated at average rather than period end rates.
Headline financial leverage (covenant net debt to covenant EBITDA - maximum 3.0x)
Note
27
2017
£m
223.8
11.8
(1.5)
234.1
2017
1.9x
2016
Restated
£m
279.7
3.5
(6.4)
276.8
2016
2.4x
158
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc B) POST-TAX RETURN ON CAPITAL EMPLOYED (‘ROCE’)
Return on capital employed is the ratio of operating profit less taxation divided by average capital employed (average net assets plus average
net debt). The ratio is used to understand the value creation to Shareholders and to understand how effectively the Group is using the capital
and resources it has available.
Operating loss
Income tax expense
Operating loss after tax
Operating loss
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges
Net operating losses attributable to businesses identified as non-core
Net restructuring costs
Acquisition expenses and contingent consideration
Defined benefit pension scheme curtailment loss
Other specific items
Underlying operating profit
Income tax expense
Tax credit associated with Other items
Underlying operating profit after tax
Opening reported net assets (restated)
Opening reported net debt (restated)
Opening capital employed
Computer software impairment charges*
Goodwill and intangible impairment charges*
Losses on agreed sale or closure of non-core businesses and associated impairment charges*
Adjusted opening capital employed
Closing reported net assets (2016 restated)
Closing reported net debt (2016 restated)
Closing capital employed
Computer software impairment charges*
Losses on agreed sale or closure of non-core businesses and associated impairment charges*
Adjusted closing capital employed
Average capital employed
Adjusted average capital employed*
Note
6
Note
13
2
11
11
2
14
2
2
6
2
Note
27
13
12
11
27
13
11
2017
£m
(33.9)
(7.4)
(41.3)
2017
£m
(33.9)
9.3
6.8
72.4
14.3
21.1
9.8
–
(5.5)
94.3
(7.4)
(13.1)
73.8
2017
£m
536.3
279.7
816.0
(6.8)
–
(72.4)
736.8
477.7
223.8
701.5
–
–
701.5
758.8
719.2
2016
Restated
£m
(94.7)
(11.6)
(106.3)
2016
Restated
£m
(94.7)
10.3
110.6
40.1
7.9
13.3
(4.6)
0.9
5.9
89.7
(11.6)
(6.5)
71.6
2016
£m
649.3
259.8
909.1
(14.7)
(110.6)
(112.5)
671.3
536.3
279.7
816.0
(6.8)
(72.4)
736.8
862.6
704.1
* Capital employed has been adjusted to take into account the normalised impact of the goodwill and intangible impairment charges, the losses on agreed sale or closure of non-core
businesses and associated impairment charges.
Unadjusted ROCE (operating loss after tax to average capital employed)
ROCE (underlying operating profit after tax to adjusted average capital employed)
2017
(5.4)%
10.3%
2016
Restated
(12.3)%
10.2%
159
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
C) COVENANT INTEREST COVER RATIO
The covenant interest cover ratio is one of the primary covenants applicable to the Revolving Credit Facility and the private placement notes.
The monitoring of this covenant is therefore an important element of treasury risk management for the Group.
Operating loss
Add back:
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges
Net restructuring costs
Defined benefit pension scheme curtailment loss
Contingent consideration*
Other specific items^
Consolidated EBITA
Finance costs
Finance income
Less:
Finance costs included within Other items
Finance income included within Other items
Interest costs arising on the defined benefit pension scheme
Covenant net interest payable
Interest cover ratio (consolidated EBITA to covenant net interest payable)
Note
13
2
11
2
2
2
3
3
3
3
3
2017
£m
(33.9)
9.3
6.8
72.4
21.1
–
1.5
(5.5)
71.7
17.9
(0.6)
(2.3)
0.1
(0.7)
14.4
5.0x
2016
Restated
£m
(94.7)
10.3
110.6
40.1
13.3
0.9
(4.7)
6.3
82.1
17.0
(1.7)
(2.0)
0.5
(0.5)
13.3
6.2x
* This relates to the element of contingent consideration that is disallowed in the covenant calculation.
^ Other specific items in 2016 is adjusted for the charge relating to fair value gains and losses on fuel hedging contracts of £0.4m. There were no contracts in 2017 and therefore the charge
in 2017 is £nil.
D) UNDERLYING PROFIT BEFORE TAX EXCLUDING PROPERTY PROFITS
This is used to enhance understanding of the underlying financial performance of the Group and to provide further comparability between
reporting periods.
Loss before tax
Amortisation of acquired intangibles
Impairment charges
Losses on agreed sale or closure of non-core businesses and associated impairment charges
Net operating losses attributable to businesses identified as non-core
Net restructuring costs
Acquisition expenses and contingent consideration
Defined benefit pension scheme curtailment loss
Other specific items
Net fair value losses and derivative financial instruments
Unwinding of provision discounting
Underlying profit before tax
Underlying property profits
Underlying profit before tax excluding property profits
Note
13
2
11
11
2
14
2
2
3
3
2017
£m
(51.2)
9.3
6.8
72.4
14.3
21.1
9.8
–
(5.5)
1.7
0.5
79.2
(13.7)
65.5
2016
Restated
£m
(110.0)
10.3
110.6
40.1
7.9
13.3
(4.6)
0.9
5.9
1.9
(0.4)
75.9
(3.3)
72.6
160
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc E) EFFECTIVE TAX RATES
The effective tax rate is a ratio of income tax expense to profit/(loss) before tax and is used to assess SIG’s contribution to corporate taxation
across the tax jurisdictions in which the Group operates.
Loss before tax
Other items
Underlying profit before tax
Income tax expense
Tax credit associated with Other items
Underlying tax charge
Effective tax rate (income tax expense to loss before tax)
Underlying effective tax rate (underlying tax charge to underlying profit before tax)
Note
2
(d) above
Note
6
2
Note
6
2017
£m
(51.2)
130.4
79.2
2017
£m
(7.4)
(13.1)
(20.5)
2017
(14.5)%
25.9%
2016
Restated
£m
(110.0)
185.9
75.9
2016
Restated
£m
(11.6)
(6.5)
(18.1)
2016
Restated
(10.5)%
23.8%
F) LIKE-FOR-LIKE WORKING CAPITAL TO SALES RATIO
Like-for-like working capital to sales ratio is the ratio of closing working capital (including provisions but excluding pension scheme obligations)
to annualised revenue (after adjusting for any acquisitions and disposals in the current and prior year) on a constant currency basis. The ratio
is used to understand how effectively the Group is using the resources it has available.
Current:
Inventories
Trade and other receivables
Trade and other payables
Provisions
Non-current:
Other payables
Provisions
Reported working capital
Working capital for non-core businesses
Foreign exchange adjustment*
Adjusted working capital
* Working capital is translated at average rather than period end rates.
Reported revenue
Revenue attributable to business identified as non-core
Pre-acquisition revenue of the current year acquisitions for the period from 1 January to the
acquisition dates
Foreign exchange adjustment
Adjusted revenue
Reported working capital to reported revenue
Like-for-like working capital to sales ratio (adjusted working capital to adjusted revenue)
Note
15
16
17
22
18
22
11
2017
£m
243.5
468.0
(429.0)
(12.0)
(3.8)
(13.8)
252.9
1.1
(2.9)
251.1
2016
Restated
£m
250.6
512.8
(421.6)
(14.5)
(5.5)
(22.4)
299.4
(37.7)
5.0
266.7
Note
2017
£m
2016
£m
2,878.4
2,845.2
11
(99.9)
(257.8)
–
–
4.9
96.0
2,778.5
2,688.3
2017
8.8%
9.0%
2016
Restated
10.5%
9.9%
161
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
G) NET CAPITAL EXPENDITURE AND NET CAPITAL EXPENDITURE TO DEPRECIATION RATIO
Net capital expenditure to depreciation ratio is the ratio of capital expenditure to depreciation. The ratio is used to understand how investment
in capital compares to the use of existing assets.
Maintenance capital expenditure
Property, plant and equipment additions
Computer software additions
Capital expenditure
Depreciation
Amortisation of computer software
Depreciation (including amortisation of computer software)
Maintenance capital expenditure*
Note
10
13
10
13
2017
£m
(19.6)
(3.2)
2016
£m
(33.7)
(6.2)
(22.8)
(39.9)
(22.9)
(3.7)
(26.6)
(22.8)
(26.0)
(3.5)
(29.5)
(29.5)
* 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 capital expenditure exceeds depreciation, the balance is considered to be investment capital expenditure.
Investment capital expenditure
Property, plant and equipment additions
Computer software additions
Capital expenditure
Less:
Maintenance capital expenditure
Investment capital expenditure
Net capital expenditure
Maintenance capital expenditure (above)
Investment capital expenditure (above)
Proceeds from sale of property, plant and equipment
Net capital expenditure
Gross capital expenditure to depreciation ratio
Net capital expenditure to depreciation ratio
Note
10
13
Note
2017
£m
(19.6)
(3.2)
2016
£m
(33.7)
(6.2)
(22.8)
(39.9)
22.8
–
2017
£m
(22.8)
–
34.6
11.8
2017
0.86x
(0.44)x
29.5
(10.4)
2016
£m
(29.5)
(10.4)
39.5
(0.4)
2016
1.35x
0.01x
H) GEARING
Gearing is the ratio of net debt to net assets. It is used to understand the funding structure of the Group and is an important part of the
treasury risk management of the Group.
Net assets
Net debt
Gearing (net debt to net assets ratio)
Note
27
2017
£m
477.7
223.8
46.8%
2016
Restated
£m
536.3
279.7
52.2%
162
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc I) CASH INFLOW FROM TRADING
This is used to understand how the Group is generating cash from trading activities.
Cash generated from operating activities
Add back:
Increase in inventories
(Decrease)/increase in receivables
Increase in payables
Cash inflow from trading
Note
26
26
26
26
2017
£m
99.7
0.3
(30.3)
(6.9)
62.8
2016
Restated
£m
79.9
0.5
27.6
(12.8)
95.2
J) LIKE-FOR-LIKE SALES
Like-for-like sales is calculated on a constant currency basis, and represents the growth in the Group’s sales per day excluding any acquisitions
or disposals completed or agreed in the current and prior year. Revenue is not adjusted for branch openings and closures. This measure
shows how the Group has developed its revenue for comparable business relative to the prior period. As such it is a key measure of the
growth of the Group during the year.
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
UK &
Ireland
£m
France
£m
Germany
£m
Poland
£m
Benelux
£m
Air
Handling*
£m
Mainland
Europe
£m
Group
£m
Statutory revenue 2017
801.9
444.0
139.7
1,385.6
660.7
433.5
142.8
101.7
154.1
1,492.8
2,878.4
Non-core businesses
(4.4)
(34.5)
(41.4)
(80.3)
–
(7.6)
–
–
(12.0)
(19.6)
(99.9)
Underlying revenue 2017
797.5
409.5
98.3
1,305.3
660.7
425.9
142.8
101.7
142.1
1,473.2
2,778.5
Statutory revenue 2016
785.9
477.8
233.8
1,497.5
589.2
413.2
115.1
99.7
130.5
1,347.7
2,845.2
Non-core businesses
(4.7)
(63.0)
(148.3)
(216.0)
–
(27.6)
–
–
(14.2)
(41.8)
(257.8)
Underlying revenue 2016
781.2
414.8
85.5
1,281.5
589.2
385.6
115.1
99.7
116.3
1,305.9
2,587.4
% change year on year:
Underlying revenue
2.1%
(1.3)%
15.0%
1.9%
12.1%
10.5%
24.1%
2.0%
22.2%
12.8%
7.4%
Impact of currency
–
–
Impact of acquisitions
(0.2)%
(0.2)%
Impact of working days
Like-for-like sales
0.4%
2.3%
0.4%
(1.1)%
(7.2)%
(0.1)%
0.4%
8.1%
(0.5)%
(7.0)%
(7.0)% (10.8)%
(6.3)%
(7.6)%
(7.3)%
(3.9)%
(0.2)%
0.4%
1.6%
0.4%
0.4%
5.9%
–
–
1.3%
0.4%
–
–
4.8%
13.7%
(4.3)% 10.9%
(3.7)%
(0.2)%
(0.2)%
–
0.6%
5.9%
0.5%
3.8%
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
K) GROSS MARGIN
Gross margin is the ratio of gross profit to revenue and is used to understand the value the Group creates from its trading activities.
SIG
Distribution
%
SIG
Exteriors
%
Ireland &
Other UK
%
UK &
Ireland
%
France
%
Germany
%
Poland
%
Benelux
%
Air
Handling*
%
Mainland
Europe
%
Group
%
Statutory gross margin 2017
Impact of non-core businesses
Underlying gross margin 2017
Statutory gross margin 2016
Impact of non-core businesses
Underlying gross margin 2016
23.9
–
23.9
24.4
0.1
24.5
28.9
(0.3)
28.6
29.2
(0.4)
28.8
16.8
8.2
25.0
20.2
5.5
25.7
0.7
25.5
25.3
0.6
27.6
27.7
–
25.9
27.7
26.4
26.6
0.3
26.9
20.0
20.0
25.8
25.2
–
–
20.0
25.2
24.8
27.6
26.3
20.0
25.8
–
0.1
–
–
37.7
0.7
38.4
36.4
0.9
37.3
27.4
26.1
–
0.4
27.4
27.4
0.1
26.5
26.3
0.4
27.5
26.7
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
163
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
L) OPERATING COSTS AS A PERCENTAGE OF SALES
This is a measure of how effectively the Group’s operating cost base is being used to generate revenue.
Statutory revenue
Non-core businesses
Underlying revenue
Operating costs (statutory)
Other items
Underlying operating costs
Property profits
Underlying operating costs excluding property
profits
Operating costs as a percentage of statutory
revenue
Underlying operating costs excluding property
profits as a percentage of underlying revenue
Six months
ended
30 June
2017
£m
Six months
ended
31 December
2017
£m
Year ended
31 December
2017
£m
Six months
ended
30 June
2016
£m
Six months
ended
31 December
2016
£m
Year ended
31 December
2016
£m
1,439.2
(77.2)
1,362.0
381.9
(64.6)
317.3
8.2
1,439.2
(22.7)
1,416.5
404.5
(79.6)
324.9
5.5
2,878.4
(99.9)
2,778.5
786.4
(144.2)
642.2
13.7
1,375.2
(122.6)
1,252.6
325.4
(39.6)
285.8
2.5
1,470.0
(135.2)
1,334.8
517.2
(201.6)
315.6
0.8
2,845.2
(257.8)
2,587.4
842.6
(241.2)
601.4
3.3
325.5
330.4
655.9
288.3
316.4
604.7
26.5%
28.1%
27.3%
23.7%
35.2%
29.6%
23.9%
23.3%
23.6%
23.0%
23.7%
23.4%
M) OPERATING PROFIT BEFORE PROPERTY PROFITS
This is used to enhance understanding and comparability of the underlying financial performance of the Group by period and segment,
excluding the benefit of property profits which can have a significant effect on results in a particular period.
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other UK
£m
Total UK &
Ireland
£m
France
£m
Germany
£m
Other
Europe
£m
Total
Mainland
Europe
£m
Parent
Company
costs
£m
Total
Group
£m
2017
Underlying revenue (Note 1)
Underlying operating profit
(Note 1^)
Property profits
Underlying operating profit
before property profits
797.5
409.5
98.3
1,305.3
660.7
425.9
386.6
1,473.2
–
2,778.5
9.9
(0.9)
32.9
(7.7)
4.8
–
47.6
(8.6)
26.2
(0.5)
11.5
(4.5)
21.7
(0.1)
59.4
(5.1)
(12.7)
–
94.3
(13.7)
9.0
25.2
4.8
39.0
25.7
7.0
21.6
54.3
(12.7)
80.6
^ Underlying operating profit equals segmental result before Other items
Return on sales*
Return on sales (excluding
property profits)*
2016
Underlying revenue (Note 1)
Underlying operating profit
(Note 1^)
Property profits
Underlying operating profit
before property profits
1.2%
8.0%
4.9%
3.6%
4.0%
2.7%
5.6%
4.0%
n/a
3.4%
1.1%
6.2%
4.9%
3.0%
3.9%
1.6%
5.6%
3.7%
n/a
2.9%
781.2
414.8
85.5
1,281.5
589.2
385.6
331.1
1,305.9
–
2,587.4
18.2
(3.3)
30.5
–
3.7
–
52.4
(3.3)
24.4
–
7.7
–
16.0
48.1
(10.8)
–
–
–
89.7
(3.3)
14.9
30.5
3.7
49.1
24.4
7.7
16.0
48.1
(10.8)
86.4
^ Underlying operating profit equals segmental result before Other items
Return on sales*
Return on sales (excluding
property profits)*
2.3%
7.4%
4.3%
4.1%
4.1%
2.0%
4.8%
3.7%
1.9%
7.4%
4.3%
3.8%
4.1%
2.0%
4.8%
3.7%
n/a
n/a
3.5%
3.3%
* Return on sales is also referred to as underlying operating margin.
N) OTHER NON-STATUTORY MEASURES
In addition to the alternative performance measures noted above, the Group also uses underlying EPS (as set out in Note 8) and underlying
net finance costs (as set out in Note 3).
164
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
33. PRIOR YEAR RESTATEMENTS
During 2017, the Group discovered that profit had been overstated in relation to rebates receivable from suppliers and cash had been
overstated in relation to cash cut-off procedures. As a consequence, cost of sales and the related assets and liabilities have been overstated.
The errors have been corrected by restating each of the affected financial statement line items for prior periods. The following tables
summarise the impacts on the Group’s Financial Statements.
A) CONSOLIDATED BALANCE SHEET
At 1 January 2016
Deferred tax assets
Trade and other receivables
Cash and cash equivalents
Other assets
Total assets
Trade and other payables
Bank overdrafts
Other liabilities
Total liabilities
Retained profits
Other capital and reserves
Total equity
At 1 January 2017
Deferred tax assets
Trade and other receivables
Cash and cash equivalents
Other assets
Total assets
Trade and other payables
Bank overdrafts
Other liabilities
Total liabilities
Retained profits
Other capital and reserves
Total equity
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
21.0
468.1
146.2
955.2
1,590.5
417.7
59.5
463.7
940.9
183.0
466.6
649.6
0.1
(0.4)
(23.9)
–
(24.2)
(23.9)
–
–
(23.9)
(0.3)
–
(0.3)
21.1
467.7
122.3
955.2
1,566.3
393.8
59.5
463.7
917.0
182.7
466.6
649.3
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
16.4
516.1
127.6
832.6
1,492.7
440.6
3.5
509.0
953.1
23.1
516.5
539.6
0.8
(3.3)
(0.6)
–
(3.1)
(19.0)
19.2
–
(0.2)
(3.3)
–
(3.3)
17.2
512.8
127.0
832.6
1,489.6
421.6
22.7
509.0
953.3
19.8
516.5
536.3
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B) CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2016
Cost of sales
Income tax expense
Other income/(expense)
Loss after tax
Total comprehensive expense
Loss per share
C) CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016
Net cash generated from operating activities
Other cash flows
Increase in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
D) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Total equity at 31 December 2014
Profit after tax
Other movements in equity
Total equity at 31 December 2015
Loss after tax
Other movements in equity
Total equity at 31 December 2016
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
(2,093.6)
(12.3)
1,987.3
(118.6)
(80.5)
(20.1)p
(3.7)
0.7
–
(3.0)
(3.0)
(0.5)p
(2,097.3)
(11.6)
1,987.3
(121.6)
(83.5)
(20.6)p
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
66.2
(40.4)
25.8
86.7
11.6
124.1
4.1
–
4.1
(23.9)
–
(19.8)
70.3
(40.4)
29.9
62.8
11.6
104.3
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
664.3
36.3
(51.0)
649.6
(118.6)
8.6
539.6
–
(0.3)
–
(0.3)
(3.0)
–
(3.3)
664.3
36.0
(51.0)
649.3
(121.6)
8.6
536.3
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To the members of SIG plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
IN OUR OPINION:
the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31
December 2017 and of the Group’s loss for the year then ended;
the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group Financial Statements, Article 4 of the IAS Regulation.
We have audited the Financial Statements of SIG plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) which comprise:
the Consolidated Income Statement;
the Consolidated and Parent Company Statements of Comprehensive Income;
the Consolidated and Parent Company Balance Sheets;
the Consolidated Cash Flow Statement;
the Consolidated and Parent Company Statements of Changes in Equity;
the Consolidated and Parent Company Statement of Significant Accounting Policies;
Critical accounting judgements and key sources of estimation uncertainty; and
the related Group notes 1 to 33 and Parent Company notes 1 to 14.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the Parent Company Financial Statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the
Financial Statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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To the members of SIG plc
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
the valuation of the supplier rebate receivables;
the valuation of the goodwill and intangible assets of UK Distribution and Larivière;
the classification of Other items in the Consolidated Income Statement; and
management override of controls.
Within this report, any new key audit matters are identified with
same as the prior year identified with
.
and any key audit matters which are the
The materiality that we used in the current year was £3.15m which was determined on the basis of 5% of
forecast adjusted pre-tax profit. Adjusted pre-tax profit is defined as loss before tax before adding back
goodwill and intangible impairment charges, profit and loss on agreed sale of closure of non-core businesses,
net operating losses attributable to businesses identified as non-core and restructuring costs.
The Group audit and audit of the consolidation is performed at the Group’s head office in Sheffield. The
accounting records of the trading businesses within the Group are spread across the countries in which the
Group operates. We perform audit work in the UK, France, Germany and Ireland which represent 81% of
Group revenues and 82% of loss before tax.
Materiality
Scoping
Significant changes
in our approach
We presented our initial audit plan to the Audit Committee in August 2017. This included a planned
reduction in full/review scope audits in Ireland, Poland, Benelux and Bulgaria with an increase in focused
audit procedures due to our assessment of the reduced risk of material misstatement in these businesses.
Reflecting the increase in the Group’s covenant headroom for leverage and interest cover we no longer
consider going concern to be a key audit matter.
As a result of the control breakdowns and intentional misstatements noted on page 73, we updated our
risk assessment. In doing this we considered the causal factors and the risk of misstatement in each of the
Group’s locations, and also considered the findings of the Group’s own investigations, led by the Investigation
Committee. This resulted in us refining our audit approach with an increased level of focus on management
override of controls and on the valuation of rebate receivables. We refined the scope of work in those
locations that exhibited an enhanced risk as follows:
Further procedures over the valuation of supplier rebates and cash cut-off; and
Revisions to the significant risks, key audit matters and procedures in relation to both management
override of controls and financial presentation of Other items.
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We confirm that we have nothing material to
report, add or draw attention to in respect
of these matters.
We confirm that we have nothing material to
report, add or draw attention to in respect
of these matters.
GOING CONCERN
We have reviewed the Directors’ statement contained within the Strategic Report on
page 41 about whether they considered it appropriate to adopt the going concern basis
of accounting in preparing them and their identification of any material uncertainties to
the Group’s and Company’s ability to continue to do so over a period of at least twelve
months from the date of approval of the Financial Statements.
We are required to state whether we have anything material to add or draw attention
to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with our knowledge obtained in the audit.
PRINCIPAL RISKS AND VIABILITY STATEMENT
Based solely on reading the Directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and
the Company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
the disclosures on pages 42 to 45 that describe the principal risks and explain how
they are being managed or mitigated;
the Directors’ confirmation on page 41 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; or
the Directors’ explanation on page 41 as to how they have assessed the prospects
of the Group, over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the Directors’ statement relating to the
prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with
our knowledge obtained in the audit.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
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VALUATION OF SUPPLIER REBATES RECEIVABLES
Key audit matter
description
The valuation of supplier rebate receivables is considered to have the potential for fraud, reflecting the
complexity of the arrangements and the ability of management to manipulate the reported result. At
31 December 2017 the Group has rebate receivables of £114m (2016: £125m).
As described in Note 1 (accounting policies) to the Financial Statements, the Group has agreements with
suppliers whereby volume-related allowances and other discounts (including marketing support) are
received in connection with the purchase of goods for resale from those suppliers.
In accordance with IFRS, supplier rebate receivables should only be recognised as a deduction from trade
payables, when the performance conditions associated with it have been met.
In some cases, supplier rebate calculations are complex and span non-coterminous trading periods.
Judgement is therefore required in determining estimates of future volumes and the related receivables.
As set out on page 112, there is a risk that key clauses in the rebate agreements are not interpreted
correctly resulting in errors in the calculation of the rebate receivable. Further, there is a risk that
inappropriate assumptions are made over the status of contractual arrangements with the Group’s
suppliers, and estimates of future purchase volumes. This could result in inappropriate valuation of the
Group’s supplier rebate receivable.
Following a whistleblowing event in the final quarter of 2017, the Group’s Investigation Committee led a
forensic review performed by Internal Audit together with independent support from KPMG. This review
was to determine the recoverability of supplier rebate amounts specifically recognised by SIG Distribution.
This review led to the identification of adjustments, and in determining the age of them, management
established that they may have been reflective of circumstances that existed at 31 December 2016 and
therefore merit consideration for a prior year restatement. On 1 February 2018 the Group announced that
there has been an error in its recording and accounting for supplier rebates of £4.5m with some of this
being intentional.
IAS 8, "Accounting Policies, Changes in Accounting Estimates and Errors", defines a prior period error as
an omission from, and misstatement in, the entity’s Financial Statements for one or more prior periods
resulting from a failure to use, or misuse of, reliable information that was available when the Financial
Statements were authorised for issue and could reasonably have expected to have been obtained and
taken into account. IAS 8 defines a material misstatement as one that could, individually, or collectively,
influence the economic decisions that users make on the basis of the Financial Statements.
The review concluded that £4.5m of adjustments constituted prior period errors under IAS 8. As a result
of this review our audit in 2017 also considered the impact on the prior period financial statements of the
issues identified during the year.
Further explanation is given on page 105 in the Statement of Significant Accounting Policies. The
consideration made by the Audit Committee is set out on page 75.
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audit responded to the
key audit matter
We updated our risk assessment and in doing so obtained an understanding of the scope and the results of
work led by the Investigation Committee using Internal Audit and KPMG. In performing our risk assessment we
considered the risk of contagion across the Group locations.
In responding to the risk we considered the relative size and profile of rebate receivables, together with the relative
risk arising from non-coterminous arrangements and consequential level of estimation.
We used our specialist forensic knowledge to help assess the misstatement of rebate income announced by the
Group and to identify the portion which related to previous accounting periods. We further used them to assess
the reliability of support provided by management.
We performed procedures in those locations that exhibited an enhanced risk on this basis, with our testing
designed to ensure we appropriately addressed the risk of material misstatement.
Our audit approach and the results of our work on the valuation of the rebate receivables were discussed on a
number of occasions with the Audit Committee, including consideration of bias in management’s judgements.
ASSESSMENT OF CONTROLS
We evaluated the design and implementation of key controls related to the valuation of supplier rebate
receivables, together with the completeness of the population of rebate suppliers;
ANALYSIS TO IDENTIFY UNUSUAL BALANCES FOR FURTHER TESTING
We discussed rebate arrangements with the commercial managers to understand the complexities and
judgements that may exist over valuation of supplier rebate balances;
We reviewed the year on year movements in rebates recognised in the Consolidated Income
Statement and rebate receivables by supplier. Where a significant or unusual variation was identified,
we investigated to understand the variance in trends between income statement and balance sheet
accounts;
PROCEDURES TO CONFIRM EXISTENCE AND VALUATION OF REBATE RECEIVABLE
We circularised suppliers to confirm a sample of amounts receivable, including all rebate receivables
greater than £0.1m;
Where supplier rebate responses were not returned, we had direct independent correspondence with
suppliers to validate rebate contract existence, assumptions and calculations;
We compared post year end cash receipts to identify any misstatement in the year end receivable;
We reviewed post year end credit notes to validate subsequent recovery;
We re-performed a sample of management’s calculations of supplier rebate receivables, agreeing
purchase volumes for the year through to purchasing records and correspondence from suppliers or to
other available documentation;
We agreed supplier rebate percentages applied through to a signed contract where available or to other
supplier correspondence;
We reviewed correspondence with the supplier and considered the historical accuracy of the rebate
income recognised;
Where management recognised income in respect of back claims we considered the appropriateness of
the judgements with reference to signed agreements, correspondence with the supplier and historical
recovery of these balances;
We tested the integrity of management’s supplier rebate calculations using our computer assisted
analytical tools;
CONSIDERATION OF ACCOUNTING POLICIES
We challenged whether the recognition policies and estimates were appropriate, particularly when there
were non-coterminous trading periods and renegotiated rebate agreements; and
We challenged management’s assessment of whether a prior year restatement was required under IAS
8, considering both the quantitative and qualitative factors.
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Key observations
We agreed with the Directors’ assessment (see page 31) that the misstatements identified were qualitatively
material and that the Financial Statements required restatement.
We consider the receivable balances recognised (within both trade payables and receivables) and the
related disclosures given, to be appropriate on the Consolidated Balance Sheet at 31 December 2017.
Significant control deficiencies were identified in the rebate process, including the review process followed
by each business which requires formalisation and could be strengthened through documentation of the
key judgements taken. The report of the Audit Committee on page 61 provides details of the actions that
management will take to strengthen the controls in this area.
THE VALUATION OF GOODWILL AND INTANGIBLE ASSETS OF SIG DISTRIBUTION AND LARIVIÈRE
Key audit matter
description
The goodwill and intangible assets (excluding computer software) of SIG Distribution and Larivière of
£177m represent 13% of total assets and 36% of non-current assets.
How the scope of our
audit responded to the
key audit matter
As set out in the Audit Committee report on page 75 there are significant judgements in relation to the
financial forecasts of the business units, discount rates and perpetuity growth rates used to determine the
value in use of the cash generating units. These judgements are subjective and are described in the Critical
accounting judgements and key sources of estimation uncertainty on page 112 and Note 12 to the Financial
Statements.
The valuation of goodwill has been identified as a key audit matter in the light of the continued challenging
trading environments in the UK and France that has adversely impacted gross margin and heightens this
risk for these CGUs. The intentional misstatement of rebate receivables in UK Distribution heightens this
risk further.
We evaluated the design and implementation of key controls relating to the assessment of the carrying
value of goodwill and intangible assets;
We assessed the appropriateness of management’s assumptions used in the impairment model for
goodwill and intangible assets, performing sensitivity analysis against the key assumptions which include
cash flow forecasts, discount rates and perpetuity growth rates. We have compared these to industry
forecasts, the Group’s historical performance, budgeting accuracy, benchmarking against comparator
Groups and our understanding of the future prospects of the business;
We considered whether there was evidence of bias in management’s forecasts;
We utilised specialists in assessing the appropriateness of the methodology applied by management in
calculating the discount rate for each cash generating unit;
We tested the integrity of management’s model using our computer assisted analytical tools; and
We considered whether the Group’s disclosures including sensitivity analysis were in line with the
requirements of IAS 36.
Key observations
Management’s forecasts reflect appropriate downside risks and, whilst we note further actions are required by
the Group to achieve the forecasts over the medium term, we concluded that the assumptions applied in the
impairment models are within an acceptable range.
The Group’s impairment review process shows limited headroom, where reasonably possible changes in
performance could result in impairment as set out in Note 12. We consider that the Group’s description of the key
factors in determining the carrying value of the CGUs and sensitivity analysis has been appropriately disclosed.
THE CLASSIFICATION OF OTHER ITEMS IN THE CONSOLIDATED INCOME STATEMENT
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description
The Group has consistently used a three column approach for the classification of the Consolidated
Income Statement to identify separately certain income/costs which are non-underlying in nature. The
inappropriate or inconsistent inclusion/exclusion of income/costs within Other items could distort the
underlying profit disclosed.
Management’s incentives are determined based on the underlying performance of the business which
results in a potential risk of fraud and bias in management’s judgement to present these items separately.
The Group has incurred and presented separately net restructuring costs of £21.1m. As these have been
recurring over a number of years we have focused on these to understand the nature of the restructuring
and whether it is significant enough for separate presentation.
The Group sold a number of properties during 2017, generating a profit on disposal of £19.5m of which
£13.7m has been recognised in underlying and £5.8m within Other items. We have focused on whether the
classification is appropriate and whether the benefit has been clearly disclosed in the Annual Report and
Accounts.
The Group’s definition for separate presentation within Other items is set out in the Statement of Significant
Accounting Policies on pages 107 and 108. The net losses associated with Other items is £117.3m and
increases the Group’s underlying profit after tax as shown in the Consolidated Income Statement.
We assessed the design and implementation of key controls related to the classification of Other items;
We assessed other quality of earnings matters to determine whether they should be included/excluded
from Other items and challenged whether they met the Group’s definition for separate presentation;
Where income/costs have been presented as Other items, we obtained evidence to assess whether this
presentation is appropriate and whether the separate presentation by management is indicative of bias;
We performed detailed substantive testing for a sample of the costs/income by verifying these against
supporting invoices, agreements and other records as appropriate;
We tested the movement in non-underlying provisions including determining whether releases/
additional charges have been made through Other items and should instead be through the underlying
results; and
We assessed the nature of the costs charged to Other items and whether there are indicators that the
costs should have been charged to underlying.
How the scope of our
audit responded to the
key audit matter
Key observations
We consider the items recognised in Other items to meet the Group’s definition for separate presentation and the
related disclosures are appropriate.
The items drawn out by management have been consistently presented within Other items each year.
Amortisation has been included in Other items which is consistent with industry practice and analyst reports.
Consistent with historical treatment, management have not included property profits arising from the sale and
leaseback of operating sites within Other items. This has benefited the underlying profit by £13.7m. Profits from
non-operating sites of £5.8m have been included within Other items.
MANAGEMENT OVERRIDE OF CONTROLS
Key audit matter
description
As described on page 170 the misstatements of rebate income (which has been identified as a separate
key audit matter above) and cash are considered to be significant breakdowns in the Group’s internal
control environment.
We considered the impact of the override of controls relating to those matters and the risk of bias in
management’s judgements. We focused our testing on this area and our testing was designed to ensure we
appropriately addressed the risk of material misstatement.
The challenges faced by the Group this year have caused the Directors to examine closely those areas of
the Financial Statements where higher levels of management judgement is required, for example accruals
and provisions or where there is a risk that controls can be bypassed. There is a risk that other judgements
taken by management indicate earnings management in response to the misstatements identified within
supplier rebates. We considered this risk when auditing judgemental areas, and in our overall review of
whether the Financial Statements presented a true and fair view.
Refer to the Strategic Report on pages 31 and 61 and the Audit Committee Report on page 73.
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MANAGEMENT OVERRIDE OF CONTROLS
How the scope of our
audit responded to the
key audit matter
We assess the overall control environment of the Group with a particular focus on the governance and
oversight process of those charged with governance. In response to the risk we made corroborative
enquiries of management to understand the use of cheque payments to suppliers and therefore to assess
the risk of contagion across the Group. This identified the UK and Ireland as the key locations where
cheques were most commonly used and where our specific procedures relating to cash cut off were
performed. Our procedures considering bias were performed at all locations in scope for the Group audit,
with enhanced procedures in SIG Distribution as described below.
We utilised specialists with forensic expertise to perform walkthroughs of management’s process. Our
procedures included:
PROCEDURES OVER CASH CUT-OFF
Performing a forensic review of cheques paid to suppliers around the reporting dates assessing whether
the cheques have been recognised in the correct accounting period;
Reviewing bank and cheque stub records to identify where further payments could be recognised in the
incorrect period;
Making enquiries of the arrangements with suppliers and of the existence of further side agreements;
Assessing the misstatement determined by management and consequential impact on the Group’s
disclosures;
PROCEDURES CONSIDERING BIAS
Understanding the bonus entry points for the business (senior management and wider business
targets) and how the results reported compare to those and consider whether bias has impacted the
achievement of the targets; and
Testing manual journal entries (including focus on those posted by key individuals to key account
balances where the risk of manipulation is higher) and incorporating an element of unpredictability in
the timing of our work and the selection of our samples in our testing plan.
We examined the significant accounting estimates and judgements related to the Financial Statements
for evidence of bias by the Directors that represented a risk of material misstatement. These estimates
included the areas of impairment and presentation of Other items in the Consolidated Income Statement
as set out in the key audit matters above. Further to this we performed the following procedures in respect
of SIG Distribution where the risk of bias was higher:
Considering reductions in accruals in excess of £0.1m, including changes in assumptions for indicators
of bias. Where assumptions have changed, we assessed the appropriateness of the change and whether
there was sufficient evidence to support the change;
Comparing the listing of prepayments to the prior year listing to identify changes to increase the
prepayments in excess of £0.1m. Understood the changes and performed detailed testing to validate
the balances;
Performing additional testing of direct sales to determine whether they have been recognised in the
correct period; and
Using computer aided audit techniques we have gained an understanding of the nature of journals
posted by key individuals and profiled and tested journals where the level of risk is considered to be
higher e.g. postings to rebate codes in the general ledger.
Key observations
We were satisfied that management’s judgements are considered reasonable.
As set out by management on page 77 a number of deficiencies in the Group’s internal controls were identified
during the period, most notably in respect of the valuation of the rebate receivable and the recognition of cash.
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We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group materiality
£3.15m (2016: £3.10m).
Basis for determining
materiality
4.6% of adjusted pre-tax profit.
Rationale for the
benchmark applied
We have used adjusted pre-tax profit (as defined on page 168) as the benchmark for determining materiality as
this is a key metric for users of the Financial Statements.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.16m (2016: £0.15m), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
Parent Company materiality applied was £3.0m (2016: £2.9m), which was determined on the basis of 0.4% of Parent Company net assets.
The other component materialities applied ranged from 40% to 60% of Group materiality (£1.3m to £1.9m) (2016: 50% to 61% or £1.5m to
£1.9m), dependent on our assessment of risks specific to each location and based on the component’s revenue and underlying pre-tax profit
contribution.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group Audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing
the risks of material misstatement at a Group level. The Parent Company audit and audit of the consolidation is performed at the Group’s
head office in Sheffield. The accounting records of the trading businesses within the Group are spread across the countries in which the
Group operates. We perform audit work in each of the eight principal countries of operation.
Full scope audits were performed for the principal business units in the United Kingdom, Germany and France covering 78% of the Group’s
total revenue (2016: 84%) and 80% of pre-tax loss (2016: 79%). A further 3% of the Group’s total revenue (2016: 13%) and 2% of pre-tax loss
(2016: 19%) were subject to specified audit procedures where the extent of our audit testing was based on our assessment of the risks of
material misstatement. This took into account previous audit findings, our consideration of the control environment in those locations and of
the materiality of the Group’s operations at those locations. Our specified procedures were performed for the location where we considered
that there was a greater risk of fraud and error. The locations were selected to provide an appropriate basis for undertaking audit work to
address the risks of material misstatement identified above. Our full scope audits and the specified audit procedures were executed at levels
of materiality applicable to each individual entity which were lower than Group materiality. In the prior year we performed full scope audits in
Ireland and Poland. Our assessment of the risk of material misstatement in these businesses led us to revise our scope.
At the Parent entity level we also tested the consolidation process, including testing on the acquisitions which are significant to the Group’s
result and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the
aggregated financial information of the remaining components not subject to audit or audit of specified account balances.
Our audit work has included the use of component Auditors, which form part of the Deloitte member firm network. We planned and reviewed
the component Auditor’s work, issuing referral instructions to them and evaluating the results of the work performed. Senior members of the
Group audit team visited each of the significant locations including Germany, France and the United Kingdom. We worked closely with our
component teams, increasing the frequency of communication and detail of our review responding to the risks identified above.
We plan to visit all principal components at least on an annual basis.
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OTHER INFORMATION
The Directors are responsible for the other information. The other information comprises the
information included in the annual report other than the Financial Statements and our Auditor’s
report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the Financial Statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
Fair, balanced and understandable – the statement given by the Directors that they consider the
annual report and Financial Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for Shareholders to assess the Group’s position and
performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
Audit Committee reporting – the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee; or
Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the
Auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to
enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue
as a going concern, disclosing as applicable matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an Auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s report.
USE OF OUR REPORT
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
176
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are
prepared is consistent with the Financial Statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
ADEQUACY OF EXPLANATIONS RECEIVED AND ACCOUNTING RECORDS
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect of
these matters.
we have not received all the information and explanations we require for our audit;
or
adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company Financial Statements are not in agreement with the accounting
records and returns.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are also required to report if, in our opinion, certain
disclosures of Directors’ remuneration have not been made or the part of the Directors’
Remuneration Report to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of
these matters.
OTHER MATTERS
AUDITOR TENURE
Following the recommendation of the Audit Committee, we were appointed by management to audit the Financial Statements for the year
ending 31 December 2002 and subsequent financial periods. Our appointment was subsequently ratified at the Annual General Meeting of
the Company. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 16 years, covering
the years ending 31 December 2002 to 31 December 2017.
CONSISTENCY OF THE AUDIT REPORT WITH THE ADDITIONAL REPORT TO THE AUDIT COMMITTEE
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
SIMON MANNING FCA (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
STATUTORY AUDITOR
Leeds, UK
8 March 2018
177
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Five-Year Summary
Statutory basis
Revenue
Operating (loss)/profit
Finance income
Finance costs
(Loss)/profit before tax
(Loss)/profit after tax
(Loss)/earnings per share
Total dividend per share
Underlying basis^
Revenue
Operating profit
Finance income
Finance costs
Profit before tax
Profit after tax
Earnings per share
Total
2013
£m
Total
2014
£m
2,719.8
2,633.9
15.4
1.6
(14.8)
2.1
(14.3)
(2.5)p
3.55p
53.2
1.0
(15.2)
39.0
34.5
5.6p
4.40p
Total
2015
Restated
£m
2,566.4
65.5
1.0
(15.6)
50.9
35.9
6.1p
4.60p
Total
2016
Restated
£m
2,845.2
(94.7)
1.7
(17.0)
(110.0)
(121.6)
(20.6)p
3.66p
Total
2017
£m
2,878.4
(33.9)
0.6
(17.9)
(51.2)
(58.6)
(10.1)p
3.75p
Underlying*
2013
£m
Underlying*
2014
£m
Underlying*
2015
Restated
£m
Underlying*
2016
Restated
£m
Underlying*
2017
£m
2,335.2
2,385.8
2,323.3
2,587.4
2,778.5
95.5
1.4
(12.7)
84.2
59.2
108.1
0.9
(13.0)
96.0
69.1
96.7
1.0
(12.3)
85.4
64.5
10.0p
11.7p
10.9p
89.7
1.2
(15.0)
75.9
57.8
9.7p
94.3
0.5
(15.6)
79.2
58.7
9.8p
* Underlying figures are stated before amortisation of acquired intangibles, goodwill and intangible impairment charges, losses on agreed sale or closure of non-core businesses and
associated impairment charges, net operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, the
defined benefit pension scheme curtailment loss, other specific 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.
^ All underlying numbers are stated excluding the trading results attributable to businesses identified as non-core.
178
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc
COMPANY FINANCIAL
STATEMENTS
In this section
Company Statement of
Comprehensive Income
Company Balance Sheet
Company Statement of
Changes in Equity
Company Statement of Significant
Accounting Policies
Notes to the
Company Financial Statements
Group Companies 2017
Company Information
180
181
182
183
185
191
193
179
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Company Statement of Comprehensive Income
for the year ended 31 December 2017
(Loss)/profit after tax
Items that may subsequently be reclassified to the Company Income Statement
Gains and losses on cash flow hedges
Transfer to profit and loss on cash flow hedges
Other comprehensive income/(expense)
Total comprehensive (expense)/income
Attributable to:
Equity holders of the Company
2017
£m
(7.2)
0.4
2.1
2.5
(4.7)
2016
£m
16.8
(3.8)
2.3
(1.5)
15.3
(4.7)
15.3
The accompanying Statement of Significant Accounting Policies and Notes to the Company Financial Statements are an integral part of this
Company Statement of Comprehensive Income.
180
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Company Balance Sheet
as at 31 December 2017
Fixed assets
Investments
Tangible fixed assets
Current assets
Debtors – due within one year
Debtors – due after more than one year
Deferred tax assets
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Provisions: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after one year
Provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Capital redemption reserve
Share option reserve
Exchange reserve
Retained profits
Shareholders' funds
Note
5
6
7
7
11
8
10
9
10
12
12
12
12
12
12
12
2017
£m
443.0
0.1
443.1
2016
£m
443.0
0.9
443.9
938.4
915.1
3.3
0.2
10.2
952.1
437.6
1.6
439.2
512.9
956.0
258.0
0.1
697.9
59.2
447.3
21.7
0.3
1.3
(0.2)
168.3
697.9
7.6
2.3
14.5
939.5
385.5
1.0
386.5
553.0
996.9
275.3
1.1
720.5
59.1
447.3
21.7
0.3
1.1
(0.2)
191.2
720.5
The accompanying Statement of Significant Accounting Policies and Notes to the Company Financial Statements are an integral part of this
Company Balance Sheet.
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own Company Income Statement for the
year. SIG plc reported a loss after tax for the financial year ended 31 December 2017 of £7.2m (2016: profit of £16.8m).
The Financial Statements were approved by the Board of Directors on 8 March 2018 and signed on its behalf by:
MEINIE OLDERSMA
DIRECTOR
NICK MADDOCK
DIRECTOR
Registered in England: 00998314
181
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Company Statement of Changes in Equity
for the year ended 31 December 2017
At 1 January 2016
Profit after tax
Other comprehensive expense
Total comprehensive income
Exercise of share options
Debit to share option reserve
Share capital issued in the year
Dividends paid to equity holders of the
Company
At 31 December 2016
Loss after tax
Other comprehensive income
Total comprehensive expense
Exercise of share options
Credit to share option reserve
Share capital issued in the year
Dividends paid to equity holders of the
Company
Called up
share capital
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Share option
reserve
£m
Exchange
reserve
£m
Retained
profits
£m
Total
Equity
£m
59.1
447.3
21.7
0.3
1.4
(0.2)
203.9
733.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
–
–
–
–
–
–
–
–
16.8
(1.5)
15.3
–
–
–
16.8
(1.5)
15.3
–
(0.3)
–
(28.0)
(28.0)
59.1
447.3
21.7
0.3
1.1
(0.2)
191.2
720.5
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
(7.2)
2.5
(4.7)
–
–
–
(7.2)
2.5
(4.7)
–
0.2
0.1
(18.2)
168.3
(18.2)
697.9
At 31 December 2017
59.2
447.3
21.7
0.3
1.3
(0.2)
There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year. During 2017 the Company
allotted 87,934 shares (2016: 113,153) following the exercising of share options.
The accompanying Statement of Significant Accounting Policies and Notes to the Company Financial Statements are an integral part of this
Company Statement of Changes in Equity.
182
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Company Statement of Significant Accounting Policies
BASIS OF ACCOUNTING
The separate Financial Statements of the Company are presented
as required by the Companies Act 2006. They have been prepared
under the historical cost convention (except for the revaluation
of financial instruments which are held at fair value as disclosed
below). Historical cost is generally based on the fair value of the
consideration given in exchange for the goods and services.
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the
Company takes into account the characteristics of the asset or
liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date.
Fair value for measurement purposes in these Financial Statements
is determined on such a basis, except for share-based payment
transactions that are within the scope of IFRS 2, leasing transactions
that are within the scope of IAS 17, and measurements that have
some similarities to fair value but are not fair value, such as net
realisable value in IAS 2 or value in use in IAS 36. Categorisation of
fair value is set out in the Financial Statements on page 141.
The separate Financial Statements have been prepared in
accordance with Financial Reporting Standard 101, “Reduced
Disclosure Framework” (FRS 101) and the Companies Acts 2006 as
applicable to companies using FRS 101. FRS 101 sets out a reduced
disclosure framework for a qualifying entity that would otherwise
apply the recognition, measurement and disclosure requirements of
EU-adopted IFRS. The Company is a qualifying entity for the purposes
of FRS 101.
The following new and revised Standards and Interpretations have
been adopted in the current period:
Annual Improvements to IFRSs 2014-2016 Cycle – various
standards (amendments to IFRS 12 “Disclosure of Interests in
Other Entities”)
Recognition of Deferred Tax Assets for Unrealised Losses
(amendments to IAS 12 “Income Taxes”)
Disclosure initiative (amendments to IAS 7 “Statement of Cash
Flows”)
The application of these specific Standards and Interpretations has
not had a material effect on the Company.
The following exemptions from the requirements of IFRS have
been applied in the preparation of these Financial Statements, in
accordance with FRS 101:
— the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2
“Share-based Payment”
— the requirements of IFRS 7 “Financial Instruments: Disclosures”
— the requirements of paragraphs 91 to 99 of IFRS 13 ”Fair Value
Measurement”
— the requirement in paragraph 38 of IAS 1 “Presentation of
Financial Statements” to present comparative information in
respect of:
(i) paragraph 79(a)(iv) of IAS 1 and
(ii) paragraph 73(e) of IAS 16 “Property, Plant and Equipment”
— the requirements of paragraphs 10(d), 10(f), 16, 38A to 38D, 40A
to 40B, 111, and 134 to 136 of IAS 1 “Presentation of Financial
Statements”
— the requirements of IAS 7 “Statement of Cash Flows”
— the requirements of paragraphs 30 and 31 of IAS 8 “Accounting
Policies, Changes in Accounting Estimates and Errors”
— the requirements of paragraph 17 of IAS 24 “Related Party
Disclosures”
— the requirements in IAS 24 “Related Party Disclosures” to disclose
related party transactions entered into between two or more
members of a group
— the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to 134(f)
and 135(c) to 135(e) of IAS 36 “Impairment of Assets”.
SHARE-BASED PAYMENTS
The accounting policy for share-based payments (IFRS 2) is consistent
with that of the Group as detailed on pages 108 and 109.
DERIVATIVE FINANCIAL INSTRUMENTS
The accounting policy for derivative financial instruments is
consistent with that of the Group as detailed on pages 110 and 111.
FINANCIAL ASSETS AND LIABILITIES
The accounting policy for financial assets and liabilities is consistent
with that of the Group as detailed on page 110.
INVESTMENTS
Fixed asset investments in subsidiaries are shown at cost less
provision for impairment.
TANGIBLE FIXED ASSETS
The accounting policy for tangible fixed assets is consistent with that
of the Group as detailed on page 109.
FOREIGN CURRENCY
The accounting policy for foreign currency is consistent with that of
the Group as detailed on page 107.
TAXATION
The accounting policy for taxation is consistent with that of the Group
as detailed on page 108.
DIVIDENDS
Dividends proposed by the Board of Directors that have not been
paid by the end of the year are not recognised in the Financial
Statements until they have been approved by the Shareholders at the
Annual General Meeting.
183
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Company Statement of Significant Accounting Policies
CRITICAL ACCOUNTING JUDGEMENTS AND KEY
SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Company’s accounting policies, which are
described above, the Directors are required to make judgements
(other than those involving estimates) that have a significant impact
on the amounts recognised and to make estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the change takes place if the revision affects only
that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
In the course of preparing the Financial Statements, no judgements
have been made in the process of applying the Group’s accounting
policies that have had a significant effect on the amounts recognised
in the Financial Statements, other than those involving estimations
(detailed below).
The key estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying value of the assets and
liabilities recognised by the Company within the next financial year
are detailed below.
IMPAIRMENT OF FIXED ASSET INVESTMENTS
Determining whether the Company’s investments are impaired
requires an estimation of the investments’ value in use. The key
estimates made in the value in use calculation in relation to trading
subsidiaries are those regarding discount rates, sales growth rates,
and expected changes to selling prices and direct costs to reflect the
operational gearing of the business. The Directors estimate discount
rates using pre-tax rates that reflect current market assessments of
the time value of money for the Group.
The Group performs investment impairment reviews by forecasting
cash flows based upon the following year’s budget as a base, taking
into account current economic conditions. The carrying amount of
investments in subsidiaries at the balance sheet date was £443m
(2016: £443m) with no impairment loss recognised in 2017 or 2016.
Of the £443m net book value, £435m (2016: £435m) relates to SIG
Trading Limited, the largest UK trading subsidiary, and therefore
assumptions regarding sales, gross margin and operating profit
growth of this subsidiary are considered to be the key areas of
estimation in the impairment review process. Appropriate sensitivities
in relation to this have been performed and disclosed in Note 5.
DEFERRED TAX ASSETS
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Therefore, estimates are made to establish
whether deferred tax balances should be recognised, in particular in
respect of non-trading losses.
184
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Notes to the Company Financial Statements
1. (LOSS)/PROFIT FOR THE YEAR
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own Company Income Statement for the
year. SIG plc reported a loss after tax for the financial year ended 31 December 2017 of £7.2m (2016: profit £16.8m).
The Auditor’s remuneration for audit services to the Company was £0.2m (2016: £0.2m).
2. SHARE-BASED PAYMENTS
The Company had two share-based payment schemes in existence during the year ended 31 December 2017. The Company recognised a
total charge of £0.2m (2016: credit of £0.3m) in the year relating to share-based payment transactions issued after 7 November 2002. Details
of each of the two share-based payment schemes can be found in Note 9 to the Financial Statements on pages 126 and 127.
3. DIVIDENDS
An interim dividend of 1.25p per ordinary share was paid on 3 November 2017 (2016: 1.83p). The Directors have proposed a final dividend
for the year ended 31 December 2017 of 2.5p per ordinary share (2016: 1.83p). The proposed final dividend is subject to approval by
Shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements. Total dividends paid during
the year, including the final dividend for 2016, were £18.2m (2016: £28.0m). No dividends have been paid between 31 December 2017 and
the date of signing the Financial Statements.
See Note 12 for further details on distributable reserves.
4. STAFF COSTS
Particulars of employees (including Directors) are shown below:
Employee costs during the year amounted to:
Wages and salaries
Social security costs
IFRS 2 share option charge/(credit)
Pension costs
Total
The average monthly number of persons employed by the Company during the year was as follows:
Administration
5. FIXED ASSET INVESTMENTS
Fixed asset investments comprise investments in subsidiary undertakings, as follows:
Cost
At 1 January and 31 December
Accumulated impairment charges
At 1 January and 31 December
Net book value
At 1 January and 31 December
2017
£m
2016
£m
7.6
0.7
0.2
0.2
8.7
6.4
0.9
(0.3)
0.4
7.4
2017
Number
2016
Number
48
60
2017
£m
2016
£m
650.2
650.2
207.2
207.2
443.0
443.0
Details of the Company’s subsidiaries are shown on pages 191 and 192.
Of the £443.0m (2016: £443.0m) investment net book value, £435m (2016: £435m) relates to SIG Trading Limited, the largest UK trading
subsidiary. At 31 December 2017, a review of the future operating cashflows of SIG Trading Limited using the following year’s budget as a base,
taking into account current economic conditions, a headroom of £14m exists. For there to be no headroom, sales would have to reduce by
0.5% or gross margin would have to reduce by 10bps. The Group considers that a reasonably possible scenario would be a 50bps reduction in
gross margin. If this arose, an impairment of £60m would be required.
A more detailed sensitivity analysis of the Group’s significant CGUs is given on page 134, Note 12 of the Financial Statements.
185
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
6. TANGIBLE FIXED ASSETS
The movement in the year was as follows:
Cost
At 1 January 2016
Additions
Disposals
At 1 January 2017
Additions
Disposals
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 1 January 2017
Charge for the year
Impairment
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Land and buildings
Freehold land
and buildings
£m
Short
leasehold
£m
Plant and
machinery
£m
0.1
–
–
0.1
–
–
0.1
0.1
–
–
0.1
–
–
–
0.1
–
–
0.8
–
–
0.8
–
(0.8)
–
0.1
0.1
–
0.2
0.1
0.5
(0.8)
–
–
0.6
0.7
0.2
–
0.9
–
(0.3)
0.6
0.4
0.2
–
0.6
0.1
0.1
(0.3)
0.5
0.1
0.3
Total
£m
1.6
0.2
–
1.8
–
(1.1)
0.7
0.6
0.3
–
0.9
0.2
0.6
(1.1)
0.6
0.1
0.9
The impairment charge of £0.6m relates to the assessment of the fair value less costs to sell of the London office prior to the disposal. No
additional impairment review was performed in 2017 or 2016 as there were no further indications of impairment.
7. DEBTORS
Amounts owed by subsidiary undertakings
Derivative financial instruments
Prepayments and accrued income
Deferred consideration
Debtors – due within one year
Amounts owed by subsidiary undertakings
Derivative financial instruments
Debtors – due after more than one year
Total
31 December
2017
£m
31 December
2016
£m
936.4
913.5
1.2
0.8
–
0.1
0.8
0.7
938.4
915.1
3.2
0.1
3.3
3.2
4.4
7.6
941.7
922.7
Amounts owed by subsidiary undertakings are measured at amortised cost and bear interest at rates between 0.0% and 8.0%.
186
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Private placement notes
Bank loans
Bank overdrafts
Amounts owed to subsidiary undertakings
Derivative financial instruments
Accruals and deferred income
Corporation tax
Total
31 December
2017
£m
31 December
2016
£m
21.1
75.7
1.6
325.8
0.2
12.4
0.8
–
158.8
3.7
211.1
0.2
10.2
1.5
437.6
385.5
All of the Company’s bank loans and overdrafts are unsecured. The bank loans are guaranteed by certain companies of the Group.
Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and 4.0%.
9. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
Private placement notes
Derivative financial instruments
Amounts owed to subsidiary undertakings
Total
31 December
2017
£m
31 December
2016
£m
183.1
3.3
71.6
258.0
200.7
3.6
71.0
275.3
Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and 4.0%.
Details of the private placement notes (before applying associated derivative financial instruments) are as follows:
Repayable in 2018*
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
31 December 2017
31 December 2016
Fixed
interest rate
%
5.5
3.7
3.9
4.2
3.3
3.8
£m
21.1
26.7
17.8
44.4
94.2
204.2
Fixed
interest rate
%
5.3
3.7
3.9
4.2
3.3
3.8
£m
22.0
25.6
17.1
42.7
93.3
200.7
* The private placement notes repayable in 2018 are included within creditors: amounts falling due within one year at 31 December 2017.
187
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
10. PROVISIONS
At 1 January 2016
New provisions
Unwinding of provision discounting
Utilised
At 31 December 2016
New provisions
Unwinding of provision discounting
Utilised
At 31 December 2017
Amounts falling due within one year
Amounts falling due after one year
Total
Warranty
Claims
£m
Dilapidations
£m
2.0
1.3
–
(1.2)
2.1
–
0.1
(1.1)
1.1
–
–
–
–
–
0.6
–
–
0.6
Total
£m
2.0
1.3
–
(1.2)
2.1
0.6
0.1
(1.1)
1.7
31 December
2017
£m
31 December
2016
£m
1.6
0.1
1.7
1.0
1.1
2.1
The transfer of economic benefit in respect of the warranty provision is expected to be made within two years' time.
11. DEFERRED TAX
Deferred tax assets
31 December
2017
£m
31 December
2016
£m
0.2
2.3
The different components of deferred tax assets and liabilities recognised by the Company and movements thereon during the current and
prior reporting period are analysed below:
At 1 January 2016
Credit/(charge) to income
Utilised
At 31 December 2016
Credit to income
Utilised
At 31 December 2017
Losses
£m
Other
£m
3.9
2.5
(4.1)
2.3
–
(2.3)
–
0.1
(0.1)
–
–
0.2
–
0.2
Total
£m
4.0
2.4
(4.1)
2.3
0.2
(2.3)
0.2
Given the future expected profitability of the Company, the Directors consider that the recognition of the deferred tax assets above is
appropriate.
188
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc 12. CAPITAL AND RESERVES
Called up share capital
Share premium account
Merger reserve
Capital redemption reserve
Share option reserve
Exchange reserve
Retained profits
Total reserves
The movements in reserves during the year were as follows:
At 1 January 2016
Exercise of share options
Debit to share option reserve
Fair value movement on cash flow hedges
Transfer to profit and loss on cash flow hedges
Issue of share capital
Profit for the period
Dividends
At 31 December 2016
Issue of share capital
Credit to share option reserve
Exercise of share options
Fair value movement on cash flow hedges
Transfer to profit and loss on cash flow hedges
Loss for the period
Dividends
At 31 December 2017
31 December
2017
£m
31 December
2016
£m
59.2
447.3
21.7
0.3
1.3
(0.2)
168.3
697.9
Called up share
capital
£m
Share premium
account
£m
Share option
reserve
£m
59.1
447.3
–
–
–
–
–
–
–
59.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
447.3
–
–
–
–
–
–
–
1.4
–
(0.3)
–
–
–
–
–
1.1
–
0.2
–
–
–
–
–
59.2
447.3
1.3
59.1
447.3
21.7
0.3
1.1
(0.2)
191.2
720.5
Retained
profits
£m
203.9
–
–
(3.8)
2.3
–
16.8
(28.0)
191.2
–
–
–
0.4
2.1
(7.2)
(18.2)
168.3
There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year. During 2017 the Company
allotted 87,934 shares (2016: 113,153) following the exercising of share options.
At 31 December 2017 the Company has c.£53m of distributable reserves and when required the Company can further increase these
distributable reserves from appropriate repatriation of funds from subsidiary undertakings. Whilst the level of distributable reserves is
sufficient to support the Group’s dividend policy over the short term, the Directors intend to carry out a review during the coming year in
order to optimise existing reserves.
Details of the Company’s share capital can be found in Note 25 of the Financial Statements on page 150.
189
25690-AR2017 15-03-18 Proof SixStock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
13. GUARANTEES AND OTHER FINANCIAL COMMITMENTS
A) GUARANTEES
At 31 December 2017 the Company had provided guarantees of £14.4m (2016: £18.2m) on behalf of its subsidiary undertakings.
B) CONTINGENT LIABILITIES
As at the balance sheet date, the Company had outstanding obligations under a standby letter of credit of up to £9.0m (2016: £9.0m). This
standby letter of credit, issued by HSBC Bank plc, is in respect of the Group’s insurance arrangements.
14. RELATED PARTY TRANSACTIONS
REMUNERATION OF KEY MANAGEMENT PERSONNEL
The total remuneration of the Directors of the Group Board, who the Group considered to be its key management personnel, is provided in
the audited part of the Directors’ Remuneration Report on pages 89 to 92. In addition, the Company recognised a share-based charge under
IFRS 2 of £0.2m (2016: credit of £0.3m).
190
25690-AR2017 15-03-18 Proof SixAnnual Report and Accounts for the year ended 31 December 2017SIG plc Group Companies 2017
FULLY OWNED SUBSIDIARIES
(UNITED KINGDOM)
A. M. Proos & Sons (Birmingham) Limited (England) (ii)
A. M. Proos & Sons Limited (England) (ii)
A. M. Proos (South) Limited (England) (ii)
A. Steadman & Son (Holdings) Limited (England) (ii)
A. Steadman & Son Limited (England) (ii)
Aaron Roofing Supplies Limited (England) (ii)
Acoustic and Insulation Manufacturing Limited (England) (ii)
Acoustic and Insulation Materials Limited (England) (ii)
ADB Industrial Gloves & Clothing Limited (England) (ii)
Advanced Cladding & Insulation Group Limited (England) (ii)
Ainsworth Insulation Limited (England) (ii) (xi)
Ainsworth Insulation Supplies Limited (England) (ii) (xiii)
Air Trade Centre UK Limited (England) (ii)
AIS Insulation Supplies Limited (England) (ii)
Alltrim Plastics (Stoke) Limited (England) (ii)
Alltrim Plastics Limited (England) (ii)
Asphaltic Properties Limited (England) (ii)
Asphaltic Roofing Supplies Limited (England) (ii)
Auron Limited (England) (ii) (xix)
BBM (Materials) Limited (England) (ii)
Blueprint Construction Supplies Limited (England) (ii)
Bondec Boards Limited (England) (ii)
Bowller Group Limited (England) (ii)
Builders-Express Limited (England) (ii)
Buildspan Holdings Limited (England) (ii) (vii)
Buildspan Limited (England) (ii)
C. P. Supplies Limited (England) (ii)
Cairns Roofing and Building Merchants Limited (England) (ii)
#Capco (Northern Ireland) Limited (Northern Ireland) (ii) (vii)
Capco Interior Supplies Limited (England) (ii) (xv)
Capco Slate & Tile Limited (England) (ii)
Capco UK Holdings Limited (England) (ii) (xiv)
Carpet and Flooring (South West) Limited (England) (ii)
Ceilings Distribution Limited (England) (i) (ii)
+Central Refractories Scotland Limited (Scotland) (ii)
Cheshire Roofing Supplies Limited (England) (ii)
Classicbond Limited (England) (ii)
+Clyde Insulation (Contracts) Limited (Scotland) (ii)
+Clyde Insulation Supplies Limited (Scotland) (ii)
Clydesdale Roofing Supplies (Leyland) Limited (England) (ii)
C.M.S. Acoustic Solutions Limited (England) (ii) (x)
CMS Danskin Acoustics Limited (England) (ii)
C.M.S. Vibration Solutions Limited (England) (ii) (xv)
Coleman Group Limited (England) (ii) (xviii)
Coleman Roofing Supplies Limited (England) (ii)
Conservatory Village Limited (England) (ii)
Construction Material Specialists Limited (England) (ii) (xvi)
Coxbench IP Limited (England) (ii)
CPD Distribution Plc (England) (ii)
Dane Weller Glass and Blinds Limited (England) (ii)
Dane Weller Holdings Limited (England) (ii)
+Danskin Flooring Systems Limited (Scotland) (ii)
Dataplus Software Limited (England) (ii)
Davies & Tate Installations Limited (England) (ii)
Davies & Tate Replacement Window Systems Limited (England) (ii)
Davies and Tate plc (England) (ii)
Daylight Domes Limited (England) (ii)
Drainage Online Limited (England) (ii)
Drainex Limited (England) (ii) (viii)
Dyfed Roofing Centre Limited (England) (ii)
Eurisol Limited (England) (ii)
Euroform Products Limited (England) (ii)
Eviee Limited (England) (ii)
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