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SIGDelivering the
transformation
ANNUAL REPORT AND ACCOUNTS
for the year ended 31 December 2018
Welcome
SIG is a leading supplier
of specialist building
materials to trade
customers across Europe.
Our strategic focus is the transformation of
our businesses to deliver significantly improved
operational and financial performance.
Investment case
■ Strong positions in our core markets: as a specialist distributor of
insulation and interiors products, a merchant of roofing and exteriors
products and a pan-European specialist provider of air handling solutions
■ Partner of choice: we add value as the supply chain partner of choice for
specialist building materials across Europe
■ Experienced and passionate workforce: we have a capable and
experienced team, committed to partnership with our customers and
suppliers and with a strong focus on health and safety
■ Creating long term value: through delivery of the operational and
financial transformation of our businesses
Read more online at www.sigplc.com
Navigating the report
For further information within
this document and relevant
page numbers
Highlights
Like-for-like sales
2,534.1
2,716.4
2,683.2
2,845.2
2,878.4
2,741.9
-2.1%
(2017: +3.5%)
Medium term target:
Growth in line with market
Return on sales
3.3%
(2017: 2.7%)
Medium term target:
c.5%
Return on capital
employed
10.3%
(2017: 9.3%)
Medium term target:
c.15%
2016
2017
2018
2016
2017
2018
Underlying revenue (£m)*
Total revenue (£m)*
75.3
28.5
66.2
69.4
2016
2017
2018
(54.7)
(110.8)
Statutory profit/(loss)
before tax (£m)*
2016
2017
2018
Underlying profit
before tax (£m)*
279.7
258.7
Contents
Business overview
Welcome
Highlights
Chairman’s statement
SIG at a glance
Strategic report
Our markets
Our business model
Our strategy
Strategy in action
Our KPIs
Performance
Transformation in action
Financial review
Establishment of pan-European Air
Handling business
Principal risks and uncertainties
Sustainability
Governance
Board of Directors
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IFC
01
04
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22
27
28
42
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48
60
62
64
76
81
84
189.4
2.6×
2.3×
Introduction to governance
Corporate Governance report
1.7×
Audit Committee report
Nominations Committee report
Directors' remuneration report
2016
2017
2018
Statement of Directors’ responsibilities 106
2016
2017
Net debt (£m)*
2018
Headline financial
leverage (£m)*
Financial highlights
■ Underlying revenue down 1.2% due to challenging market conditions and focus on
profitability over volume
■ Underlying gross margin up 50bps and operating costs down
■ Underlying PBT (excluding property profits) up 25% to £72.7m (2017: £58.1m)
■ Return on sales (excluding property profits) up to 3.3% (2017: 2.7%)
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
108
109
110
111
112
113
Critical accounting judgements and
key sources of estimation uncertainty 124
■ Net debt sharply lower at £189.4m (2017: £258.7m) and headline financial leverage
Notes to the Financial Statements
down to 1.7x (2017: 2.3x)
Independent Auditor’s Report
■ ROCE up 100bps to 10.3% (2017: 9.3%). EPS up to 3.0p (2017: loss per share 10.2p)
Five-Year Summary
■ Final dividend of 2.5p, bringing the total for the year to 3.75p (2017: 3.75p)
Operational highlights
■ Significant operational and financial progress in the year as the transformation starts
to deliver
■ Strengthened senior leadership team and enhanced capability providing the platform
for the business to build on its potential
■ Improvement in operational efficiency reflected in reduced costs and working capital
■ Refocus of portfolio businesses largely complete; Air Handling fully integrated as pan-
European business
■ Improved IT and management information helping to sustain the transformation for
the longer term
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 2018
Company information
126
183
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200
206
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* 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 restatements noted on page 34 and businesses identified as
non-core since signing of the 2017 Annual Report and Accounts.
Read more on our Performance on page 22
and in our Financial Review on page 28
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Stock code: SHIwww.sigplc.com
Chairman’s statement
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We have made good progress this year with the
transformation of the Group, as we seek to deliver significantly
improved operational and financial performance for the
benefit of all our stakeholders.
Andrew Allner
Chairman
Our vision is to be the supply
chain partner of choice for
specialist building materials
across Europe.
Dear Shareholder,
I am pleased to present the Group’s Annual
Report for the year ended 31 December
2018, a year of rapid change as we moved
forward with the transformation of our
businesses. Following the appointment
of the new leadership team last year, the
Board set a medium term strategy for the
Group focused on the delivery of significantly
improved operational and financial
performance. This report demonstrates the
good progress made towards meeting these
strategic aims, against the backdrop of an
increasingly challenging trading environment
across the Group’s major markets.
Review of strategy
The medium term strategy set last year
refocused the Group on its core strength,
the supply of specialist building materials to
trade customers in the construction industry.
The vision of the Board is for SIG to be the
supply chain partner of choice for specialist
building materials across Europe, building
on the Group’s three lines of business as
a specialist distributor of insulation and
interiors products, a merchant of roofing
and exteriors products and a pan-European
specialist provider of air handling solutions.
In that context, the Group has continued to
exit from non-core businesses during the
year, including the disposal of VJ Technology,
Proteus and Roofspace, and the closure of
its operations in the Middle East.
In the specialist distribution and roofing
merchanting lines of business, the Group
has made progress with the transformation
of its operating model and the creation
of a genuine performance management
culture. New leadership is driving material
performance improvement, focused on the
key levers of margins, costs and capital. The
benefits of the transformation are showing up
most notably in the UK Distribution business,
where profitability has improved by £17.4m,
principally in the second half of the year, as
a result of measures to focus on profitability
over volume, manage pricing structures
more effectively and control operating costs.
Our initial focus on this business leading to
the step change in its performance during
2018 emphasises the potential for improved
performance across the Group’s other
operating companies, where transformation
plans are now being implemented. Increased
focus and improved controls around
inventory management have also seen
structural levels of working capital begin to
fall, and, as a result, net debt and headline
financial leverage are sharply lower.
In line with our strategic approach to simplify
the business, the Group has brought the last
of its air handling businesses formally into the
Air Handling division, which now additionally
incorporates Ouest Isol Ventil in France and
SK Sales in the UK. This creates an integrated
pan-European air handling solutions platform,
better able to leverage its scale, share best
practice and deliver an enhanced customer
proposition. As a result, we have initiated a
strategic review of our Air Handling division,
focused on demonstrating the value of this
integrated platform and its leading positions
across Europe, as well as exploring other
strategic options for the division.
The transformation of the Group will continue
in 2019, where further operational and
financial benefits will be seen from the step
changes made in the UK Distribution business
during 2018 and the strategies implemented
to deliver that step change will be rolled out
in other businesses. In particular, the Board
expects to see further substantial increase
in profit from actions already delivered or
in progress in the UK Exteriors business, in
France and in Germany.
In addition, we are starting to turn our
attention to the development of a longer
term vision and strategy for the Group which
will drive top line growth beyond the current
phase of business transformation.
02
Annual Report and Accounts for the year ended 31 December 2018SIG plc
8,000+
Employees
538
Branches
85%
Revenue from
UK, France and
Germany
www.sigplc.com Stock code: SHI
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BUSINESS OVERVIEW Chairman’s statement
I am pleased to be able to report that the
review fundamentally concluded that this
has been a much more functional and
effective Board in the last year and that it
comprises committed, experienced and
perceptive individuals.
Further details of the evaluation, including
areas for improvement, are set out on pages
68 to 89 of the Corporate Governance report.
Chris Geoghegan stepped down early
in 2018, and Mel Ewell also retired after
many years of service. I would like to thank
both Chris and Mel for their significant
contributions over a challenging period.
During the year, Alan Lovell joined the Board
as our new Senior Independent Director. In
addition, the Board was pleased to welcome
Cyrille Ragoucy. These new appointments
add extensive construction industry and
turnaround experience to the Board.
Janet Ashdown, a Non-Executive Director
and Chair of the Remuneration Committee,
will retire from the Board at the conclusion
of the forthcoming Annual General Meeting
on 8 May 2019. On behalf of the Board, I
would like to thank Janet for her significant
contribution and dedication over the last
eight years. We wish her well for the future.
The search for a new Non-Executive Director
and Chair of Remuneration Committee is
well advanced and an announcement will
be made in due course. I am confident that
SIG has an extremely bright future, and
look forward to leading the Board as we
complete the transformation of this Group.
Health and safety
The Group consolidated the risk
management elements of its Zero
Harm policy, and Life Saving Rules were
implemented on topics such as drugs and
alcohol, the provision and wearing of anti-
cut gloves, working from lorry beds and
forklift truck safe operations.
Despite this continuing work, and increased
management attention, the overall health
and safety performance of the Group, as
seen through the Accident and Incident
Rate, did not improve year-on-year. We
remain committed to fostering an exemplary
health and safety culture in SIG, which we
intend to drive in 2019 through a focus on
eliminating the causes of the most serious
accidents, and increased expectations for
managers on health and safety leadership.
People
I would like to thank all employees of SIG
for their commitment and resilience in
what has been a year of significant change.
I believe that their efforts have delivered
a step change in operational and financial
performance as the year progressed and
they have laid a strong foundation for the
further development of the Group in 2019
and beyond.
Following the appointment of Meinie
Oldersma and Nick Maddock in 2017, we
have worked to strengthen the senior
leadership team. We welcomed David
Walmsley as Managing Director of SIG
Distribution in March, Guy Bruce as
Managing Director of SIG Exteriors in July,
Ralf Hellwig as Managing Director of SIG
Germany in October and Julien Monteiro
as Managing Director of SIG France in
December, as well as appointing our Group
Chief Operating Officer, Christian Horn, as
Executive Chairman of our Air Handling
business, leading the delivery of value
creation across this division of business.
With these key appointments, we now have
the right leadership structure in place to
drive the business forward.
Outlook
The Group brings considerable financial
benefits into 2019 and the delivery of a step
change in performance in SIG Distribution
has given us confidence to accelerate the
pace of transformation in other major
Group businesses. Trading conditions
remain challenging, with the outlook in
many of our end markets uncertain, and
the Group expects continuing like-for-like
sales declines in the first part of the year.
Notwithstanding these headwinds, the
margin and cost actions taken in 2018
give us good visibility of further significant
progress in the current year. While much
work remains to be done, our delivery in
2018 and the momentum brought into 2019
confirm that our transformation of SIG is on
track.
Andrew Allner
Chairman
7 March 2019
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The Board is confident
that the Group will continue to
deliver improving operational and
financial performance as a result
of its ongoing transformation.
Delivering shareholder
value
As a Board, we recognise that sustained
reduction in the level of debt continues to be
a key priority for the Group’s shareholders.
I am pleased to report that net debt has
come sharply downward in the past year to
its lowest level since 2014 of £189.4m (2017:
£258.7m), leading to a reduction in headline
financial leverage from 2.3x last year to 1.7x
this year. Coupled with an improvement in
underlying earnings per share from 8.6p in
2017 to 9.3p this year, this has delivered a
marked improvement in ROCE, up to 10.3%
this year from 9.3% last year, moving the
business towards its medium term target
of 15%.
As a result of the positive impact seen to
date from the business transformation,
and our confidence in the further benefits
to come, the Board recommends payment
of a final dividend for the year of 2.50p per
share (2017: 2.50p per share), bringing the
total dividend for the year to 3.75p per share
(2017: 3.75p per share), in line with the
Group’s target of 2-3x underlying
earnings cover.
Governance and Board
I am a firm believer in doing business the
right way, taking account of the interests of
all our stakeholders, in order to deliver long
term sustainable value for shareholders.
Your Board is committed to the highest
possible standards of corporate governance,
which is essential to the effective running of
the business.
Last year I carried out a review of Board
effectiveness following my appointment
as Chairman. This year, we appointed
an external consultant, Condign Board
Consulting, to undertake a review of Board
effectiveness. We also focused on ensuring
that market perception of our progress
remains aligned with the rapid pace of
transformation we are currently seeing
across our Group.
04
Annual Report and Accounts for the year ended 31 December 2018SIG plc
www.sigplc.com Stock code: SHI
05
BUSINESS OVERVIEW SIG at a glance
SIG is a leading supplier of specialist building materials to trade customers across
Europe, with strong positions in its core markets as a specialist distributor of insulation
and interiors products, a merchant of roofing and exteriors products and a provider of
air handling solutions.
Specialist distributor
■ Market leading wholesale
distributor of insulation and
interiors to the construction
industry
■ Encompasses our structural and
technical insulation businesses
and our interiors businesses
Leading market positions
#1 insulation and interiors in the UK
and Ireland, Poland and Benelux
#1 technical / #3 structural
insulation in France
#1 technical / #3 structural
insulation in Germany
Trading sites
265*
Market leader
Market participant
£1,607m
revenue
(2017: £1,624m)
60%
of revenue
www.siginsulation.co.uk
www.siginteriors.co.uk
www.sig.ie
www.sig.pl
www.sigbenelux.com
www.wego-systemboustoffe.de
www.litt.fr
Roofing merchant
■ Specialist merchant of roofing
materials to small and medium
sized construction businesses
■ Encompasses our roofing and
exteriors businesses
Leading market positions
#1 specialist roofing in the UK
and France
Trading sites
236*
Market leader
Market participant
£766m
revenue
(2017: £791m)
28%
of revenue
www.sigroofing.co.uk
www.lariviere.fr
* Includes shared sites
Revenue relates to underlying operations and analysis by line of business
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Annual Report and Accounts for the year ended 31 December 2018SIG plc
We play a critical role in the construction industry, ensuring that our customers receive
the right product, in the right place, at the right time. We operate across the UK &
Ireland and mainland Europe, employing around 8,000 people. Our main countries of
operation are the UK, France and Germany.
Air Handling solutions
■ Pan-European specialist provider
of air handling solutions
Trading sites
98*
£310m
revenue
(2017: £301m)
12%
of revenue
Market leader
Market participant
www.sigairhandling.com
www.ouestventil.fr
www.sksales.co.uk
* Includes shared sites
Revenue relates to underlying operations and analysis by line of business
Analysis by line of business
Line of business
Specialist
distribution
Roofing
merchant
Underlying operations
£m Revenue
Trading sites
£m Revenue
£m Revenue
65
122
10
197
204
56
45
22
14
341
538
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SIG Distribution
SIG Exteriors
Ireland & Other
£701.2
£378.7
£99.9
UK & Ireland
£1,179.8
France
Germany
Poland
Air Handling
Benelux
Mainland Europe
Total revenue
Gross margin
£663.6
£426.6
£156.6
£148.2
£108.4
£1,503.4
£2,683.2
£716.7m
Gross margin %
26.7%
Operating profit
£103.8m
Return on sales %
3.9%
£680.1
–
£60.7
–
£175.0
£426.6
£156.6
–
£108.4
–
£1,607.4
£403.0m
25.1%
£55.1m
3.4%
–
£378.7
£39.2
–
£347.8
–
–
–
–
£765.7
£197.3m
25.8%
£29.3m
3.8%
Air Handling
solutions
£m Revenue
£21.1
–
–
–
£140.8
–
–
£148.2
–
£310.1
£116.4m
37.5%
£19.4m
6.3%
07
Stock code: SHIwww.sigplc.comBUSINESS OVERVIEW
Strategic report
08
Heading Our markets
Our business model
Our strategy
Strategy in action
Our KPIs
Performance
Transformation in action
Financial review
Establishment of pan-European Air
Handling business
Principal risks and uncertainties
Sustainability
10
12
14
16
18
22
27
28
42
44
48
Our markets
Key differentiators of SIG
■ We work in partnership with suppliers and customers to source specialist building materials
■ The scale of our offering is unrivalled, enabling the development of bespoke customer solutions
■ Market leader across a diverse portfolio, operating in the UK, Ireland and mainland Europe
■ Touch points across a range of sectors, including: new build and repairs, maintenance and improvement (RMI) markets
■ Strong and skilled workforce capable of providing expert advice
Market drivers
SIG is a leading supplier of specialist building materials to trade
customers, operating across a range of end markets within the
UK, Ireland and mainland Europe. Whilst our response to market
conditions varies depending on geography and sector, there are
overarching economic themes that influence our business case.
In particular, growth within the construction and civil engineering
sectors, usually linked more generally to economic growth, is an
important value driver for us.
Market in the UK & Ireland
The residential markets of new build and repair grew 2.3% year on
year. Construction activity in the second half of the year more than
compensated for adverse weather conditions in the first quarter.
Regional trends demonstrate growth in the north of the country,
fuelled by demand and the availability of government incentives such
as Help to Buy. This is offset by reduced activity in the southern /
London markets.
However, activity in the commercial construction market declined by
4.5% in 2018 as a result of the macro-economic uncertainty caused
by Brexit and the collapse of Carillion. Further decline is expected
in 2019, however the 2019 outlook for the market as a whole is
expected to be broadly flat.
Market in mainland Europe
Our largest markets in Europe are in France and Germany, but we
also operate in mainland Poland, Belgium and The Netherlands.
Markets across Europe have also softened this year.
SIG generated £663.6m revenue in France in 2018, which is 0.4%
higher than last year. As expected, the residential construction
market in France softened in 2018, with in year growth of just 1.9%.
Whilst government incentives to support lending to first time buyers
were extended, the remit of the incentives reduced and uptake
correspondingly declined. In addition, GDP in France grew by just
0.1%, and increases in household income lagged behind house price
inflation making home ownership a less affordable prospect. The non-
residential construction sector performed strongly in 2018 as a result
of ongoing government support. Growth of 3.9% achieved through the
construction of industrial and office buildings provides opportunity for
our Air Handling business, Ouest Isol & Ventil, in particular.
£426.6m of our revenue is generated in Germany, which is 0.4%
higher than last year. The residential construction market in
Germany grew modestly in 2018 (1.6% growth), outperforming
expectations 12 months ago. New home owners benefit from the
low interest rates seen in recent years. Demand for new housing
has increased as a result of a surge in immigration and internal
migration, with access to social housing being a key priority in certain
regions. Opportunity continues for SIG to support programmes to
refurbish existing older residential housing stock. The non-residential
construction market grew by 0.9% in 2018, impacted by the cyclical
nature of the requirement for new industrial buildings and a
shortage of skilled labour.
6%
13%
27%
9%
17%
23%
29%
23%
11%
22%
18%
Group
Revenue
23%
27%
New build residential
RMI residential
New build non-residential
26%
28%
RMI non-residential
Industrial
14%
25%
31%
18%
12%
25%
29%
28%
8%
10%
UK &
Ireland
France
Germany
Other
Residential construction markets in our smaller regions are growing
ahead of our larger territories and also present opportunities to us.
In Poland, increasing consumer demand and rising employment and
income levels are supportive of new build housing development.
The non-residential construction market in Poland is experiencing
growth as a result of government programmes to invest in public
infrastructure. Similar socio-economic trends are evident in Ireland,
with substantial public and private sector construction work planned
to cater for the growing economy.
Construction market growth forecasts
UK*
Ireland**
France**
Germany**
Poland**
Belgium**
The Netherlands**
Residential
Non-residential
2018
2019
2018
2019
2.3%
1.1%
(4.5)%
(3.9)%
19.3%
15.7%
(5.5)%
(8.8)%
1.9%
(2.1)%
1.6%
0.5%
3.9%
0.9%
10.2%
6.8%
10.5%
3.3%
6.0%
1.7%
(2.6)%
3.4%
6.4%
3.8%
(0.6)%
7.4%
1.4%
4.1%
* Construction Products Association ** Euroconstruct
10
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Specialist distribution
Roofing merchant
Air Handling market
Air Handling solutions
Key market drivers
■ Construction activity (mainly new build) and availability of skilled
construction labour market
■ Higher energy efficiency standards and government funding to
support home improvements
■ Increasingly stringent fire protection and acoustic standards
■ Demand for higher standard interior fit outs
What this means for SIG
■ Strong demand for distributors exists, to connect large
manufacturers and importers with a fragmented customer base
■ Our product range spans technical and structural insulation
and interiors; specialist distribution of both value-add and
commodity products
■ Transformation means that we increasingly use data to focus on the
quality of the sales we make to improve margins, over volume churn
Key market drivers
■ Regulatory changes
■ Level of construction activity (new build and RMI) and availability of
skilled construction labour market
■ Potential for consolidation and change within the merchanting sector
What this means for SIG
■ Market leading roofing merchant business in a regionally-oriented
and fragmented market
■ Specialist knowledge of timber batten and flat roofing materials
■ Physical presence in branches with trade counters adding value to
the customer experience
■ Opportunity to benefit from consolidation within the
merchanting sector
Key market drivers
■ Regulatory changes
■ Non-residential construction activity
■ Focus on improving energy efficiency and air quality standards
■ More rigorous fire protection standards
What this means for SIG
■ Clear need for suppliers with expertise providing total solutions in
ventilation
■ Our fastest growing business segment
■ Product breadth is unmatched, making the business a clear market
leader
■ Own brand products such as Cairox growing in popularity
■ Focus on innovation to deliver a service comprising design, supply
and installation
Read more on our Performance on page 22
11
STRATEGIC REPORTStock code: SHIwww.sigplc.com Our business model
SIG plays a critical role in the construction industry supply chain, ensuring that our customers
receive the right product, in the right place, at the right time. We operate across the UK & Ireland
and mainland Europe, employing around 8,000 people. Our main countries of operation are the
UK, France and Germany.
Our suppliers
■ A small number of large building materials
manufacturers
■ A larger number of smaller suppliers of specialist
building materials
Interiors
Exteriors
Heating, ventilation & air handling
We play a critical role in the construction
industry across Europe, as the supply chain
partner of choice for specialist building
materials
We add value through
■ Providing our suppliers with
convenient access to customers
across fragmented end markets
■ Inventory availability and ability
to break bulk supplies into
quantities more suited to our
customers’ needs
■ Efficient and cost-effective
logistics and delivery
■ Working in partnership with
suppliers and customers to
deliver innovative solutions,
leveraging our specialist
knowledge and expertise
■ Provision of credit to our
customers
Advantages of a
specialist focus
Defined product focus,
leveraging technical
expertise to deliver
innovative solutions
Market leadership,
allowing SIG to support
manufacturers supply
efficiently and cost effectively
12
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Our operating model is focused on partnering the construction industry supply chain, providing a
channel through which our suppliers can bring their products to our customers, conveniently and
efficiently. This includes SIG holding a breadth of inventory, breaking bulk supplies into quantities
that are more favourable to our small and medium sized contractor customers, assisting
customers with our specialist knowledge and expertise, and cost effective logistics and delivery.
Our customers
■ Developers, contractors and sub-contractors across the
construction industry
■ Designers and specialist installers of air handling solutions
■ Independent merchants
Developers
Contractors
Specialist installers
Independent merchants
Scale in key supply niches,
enabling SIG to respond
flexibly to customers’ needs
Genuine partnership
with both suppliers
and customers
We deliver value for
our stakeholders
Partnering with our
supply chain:
■ As a specialist distributor, flexible
and responsive to our customers
who can rely on us to deliver what
they need, when they need it,
helping them to reduce the total
cost of construction
■ As a roofing merchant, bringing
depth of knowledge, breadth of
inventory and a branch network
offering a local geographic
footprint
■ As a specialist provider of Air
Handling solutions, bringing
technical expertise and innovation
to deliver integrated air handling
solutions
Partnering with our people:
■ Giving our employees the tools
and training that allow them to
leverage their commitment to our
customers
■ Encouraging talent, providing clear
frameworks and empowering local
decisions, facilitating and rewarding
collaboration within our business
and across the supply chain
■ Building sustainable businesses
around great people, great
leadership and shared values
Delivering value for
our shareholders:
■ Focus on significantly improving
operating and financial
performance
■ Building on our market leading
businesses across Europe
■ Integrating and developing our air
handling division as a platform for
Less asset intensive
value creation
than traditional
■ Increasing profit and returns,
merchants
reducing debt and delivering a
progressive dividend
13
STRATEGIC REPORTStock code: SHIwww.sigplc.com Our strategy
Building on our potential
The strategic focus
Our strategic focus is the transformation of our businesses to deliver significantly
improved operational and financial performance as a leading European supplier of
specialist building materials to trade customers.
plify
er servi c
Sim
m
o
t
s
u
C
I
m
p
r
o
v
e
d
c
a
p
a
B e tter I.T.
e
Cu
st
o
m
e
r
v
a
l
u
e
Our Potential
O
p
e
rational e ffi c i e
b
ilit
y
n cy
I m prov
Our strategic levers
Following our detailed review of strategy in 2017, we identified three
levers which will deliver our goal of significantly improved operational and
financial performance:
F
o
c
u
s
Customer service:
Operational efficiency:
Customer value:
Investing in our people
and branches to improve
sales effectiveness and
consistently deliver
excellent customer service
Streamlining our ways
of working, targeting
improved inventory
management and cost
control
Right product, right price,
enhancing value through
specialist advice and
services
a
t
a
d d
e
Deliver
B e tter I.T.
e
Cu
st
o
m
e
r
v
a
l
u
e
Our Potential
plify
er servi c
Sim
m
o
t
s
u
C
I
m
p
r
o
v
e
d
c
a
p
a
O
p
e
rational e ffi c i e
b
ilit
y
n cy
I m prov
Deliver
B e tter I.T.
e
Cu
st
o
m
e
r
v
a
l
u
e
Our Potential
plify
er servi c
Sim
m
o
t
s
u
C
I
m
p
r
o
v
e
d
c
a
p
a
O
p
e
rational e ffi c i e
b
ilit
y
n cy
I m prov
Deliver
14
Key strategic enablers
Our strategic levers are supported by three key enablers:
F
o
c
u
s
IT:
Capability:
Data:
Updating our systems and
streamlining our project
delivery
Investing in our people
to help them deliver our
strategy and reach their
potential
Right tools delivering
the right information in
the right place, at the
right time, in support of
performance management
a
t
a
d d
e
a
t
a
d d
e
F
o
c
u
s
Delivering our strategy
Simplify:
Focus:
Deliver:
Getting the basics right
and concentrating on
what we do best
On the things that are
key to the success of our
customers, suppliers and
business
Delivering our
transformation and
building on our potential
Our safety focus
Zero harm: our continual focus on safety in everything we do
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT
Progress in delivering our strategy
Significant progress has been made in delivering our strategy during 2018.
STRATEGIC PLAN
PROGRESS AGAINST PLAN
NEXT STEPS
LINK TO KPI’S
■ Invest in trade counters, branch and
■ We have invested in the look and feel of many
■ We will
Like-for-like sales
Customer
service
sales staff training
■ Establish central telephony-enabled
sales providing consistent response
levels
■ Create specialist customer retention
teams
■ Restructure external sales teams
to track performance and increase
accountability
■ Reduce administration distractions
■ Improve progress for inbound leads
and use of CRM to drive quote
prioritisation and conversion
■ Develop enhanced B2B ‘click and
collect’ capability
Customer
value
■ 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
■ Alignment of management and branch
incentives
Operational
efficiency
■ Down-size Group and functional
structure
■ Organisational redesign across major
operating companies to allow for a
leaner structure and quicker decision
making
■ Process standardisation and system
integration at operating company
level to generate front and back office
synergies
■ 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
SKU’s, centralised stock control
■ Medium term structural reduction in
net working capital: stock, rebates
■ Alignment of branches and
management incentives
of our trade counters and display areas,
enabling us to improve our customer service.
See our case study on page 16 to see how
these changes have benefited SIG Exteriors
■ We have restructured and centralised our
sales teams to improve accountability and to
ensure a consistent customer experience
■ We have invested in technology to enable
us to improve our customer service journey,
including the introduction of electronic proof
of dispatch notes and the upgrading of
navigation software. In turn, this has improved
the safety of our drivers (see page 17 to see
how this has benefited our German business)
■ We have driven cultural change within our
businesses removing silos and reducing
hierarchy, resulting in an open and
collaborative working environment
■ We have taken simple steps to improve the
margin on our products, by reviewing what
we sell and how we sell it. The most notable
impact of this is in SIG Distribution, where
margins have improved by 200bps
■ As part of the renewed focus on margin
management, we have continued to withdraw
from unprofitable business, reducing revenue
but increasing gross margin and profit
■ We have continued to expand our coverage
of specialist products. For example, SIG
Distribution’s performance and technology
business was selected as the exclusive UK
distributor to a revolutionary product
■ Read our case study on page 43 that shows
how our Air Handling business has developed
its own label brands to improve capability
invest in our
customer facing
technology,
to reduce the
touch points
between our
business and
the customer,
and to improve
the customer
journey
Return on sales
Return on capital
employed
Accident incident
rate
Read about our
KPIs on pages 18
to 21
■ We will extend
the improved
pricing practices
implemented in
the UK across
our European
businesses
Like-for-like sales
Return on sales
Return on capital
employed
Working capital as
a % of revenue
Accident incident
rate
Read about our
KPIs on pages 18
to 21
■ We have invested in ensuring that we have the
right leadership in the right place, enabling us
to reduce headcount, locations and cost
■ We have outsourced our UK finance
processing centre, in order to save cost, and
improve processes and controls
■ We have reduced our inventory levels,
improving working capital. We have introduced
a new warehouse management system
in Ireland, and have set up a centralised
inventory management team in the UK for the
first time. Read what this has meant for us on
page 16
■ We have started to remove surplus vehicles
from our fleet in the UK and in Germany
■ We are developing reporting tools which
make better information available across the
organisation on a timely basis, enabling us to
make the right decisions more quickly
■ We are working
Return on sales
with our
suppliers to
improve up
front pricing
structures and
reduce our
reliance on
rebates
■ We will invest
in inventory
forecasting
tools to improve
control
Return on capital
employed
Operating costs as
a % of revenue
Working capital as
a % of revenue
Read about our
KPIs on pages 18
to 21
15
STRATEGIC REPORTStock code: SHIwww.sigplc.com Strategy in action
16
CASE STUDY
Customer service –
Refurbishing our roofing branches in SIG Exteriors
In support of our objective to provide customers with the best
possible experience when visiting an SIG Exteriors branch, 2018
saw us undertake an extensive refurbishment programme.
The programme extended the shop floor, with new trade
counters and additional display space giving customers greater
exposure to our product range. The programme created a
dynamic, welcoming and modern environment, enhancing the
in-store experience. As part of the refit, we considered
requirements at each branch through the customers’ eyes,
assessing each step of their journey and measuring performance
against the market and customer expectations. Our staff
received training on the best practice approach to trade counter
management, enabling us to deliver a consistent customer
experience. Each refurbishment was celebrated with an open day
for customers, suppliers and the local community.
CASE STUDY
Operational efficiency –
Managing inventory in SIG Distribution
Twelve months ago, SIG Distribution’s branches each controlled
their own inventory. This decentralised approach led to
insufficient control over purchasing which, combined with limited
forecasting capability in the branches, resulted in too many of
the wrong products being held in inventory, and tied up too
much working capital. It further meant that stock targets could
only be hit by understocking fast moving products, which in turn
impacted customer service.
Transformation in this area took the form of creating a
centralised inventory management team. This new team has sole
responsibility for the placement of orders for core products in the
UK, which provides continuity for our supply chain and ensures
that our inventory levels are appropriately controlled. It delivers
against new target inventory levels for availability as well as stock
levels and drives best practice in inventory management across
the SIG Distribution sites. Going forward, we intend to enhance
the capability of the central team by investing in technology to
support improved inventory forecasting.
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Strategic levers
Strategic enablers
CASE STUDY
Data –
New dashboard reporting across the Group
In order to improve our access to and use of data, we have
developed a data repository using cloud technology, which
we have linked to a business intelligence (BI) reporting tool.
The BI tool facilitates reporting from disparate ERP and
other systems, providing us with improved visibility of our
performance on a daily basis.
Performance measures around sales, profit and working
capital are now available through dashboards which can be
accessed remotely. This flexibility enables our senior leaders
to make decisions quickly and adjust activity at short notice
to meet changing circumstances.
CASE STUDY
IT –
Implementing electronic proof of delivery in Germany
In 2018, we rolled out an electronic proof of delivery (ePod)
system for the first time, improving the experience of our
customers and our own operational efficiency. The ePod system
integrates with a new telematics and navigation tool, which
together connect our drivers to the business on a real-time
basis. For SIG Germany, this has facilitated a more flexible
approach to distribution, reducing manual intervention and
enabling the business and drivers to respond quickly to new
orders and changes in the delivery schedule. In addition, with
improved telematics, the business is able to sustain a safer
working environment for drivers. The consistency of service
delivery to our customers has in turn improved. The ePod
system is capable of integrating with customer ERP systems,
removing the need for paper at the point of delivery. Customers
also have access to a portal providing the ability to track orders.
Going forward, we intend to introduce real time delivery updates
via smartphone technology, providing our customers with
certainty of the delivery window.
17
STRATEGIC REPORTStock code: SHIwww.sigplc.com Our KPIs
Following the 2017 review of the Group’s strategy, we identified four key performance
indicators against which we assess and measure our success, two additional
financial indicators of progress, and accident incident rate as a proxy for our focus
on safe operations.
Definition
The percentage growth/(decline)
in the Group’s sales per day (in
constant currency) excluding
any current and prior year
acquisitions and disposals. Sales
are not adjusted for branch
openings and closures
Why is this KPI
important?
Supporting performance
measures
Performance
Medium term
target
Link to
strategy
Principal
risk
Link to
remuneration
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 growth (%)
Like-for-like sales have reduced by 2.1% (2017:
Growth in line with
Market downturn
3.5%) overall, with a 5.6% reduction in the
market
UK and Ireland offset by a 0.7% increase in
Mainland Europe. The focus of transformational
activity has been in the UK this year, with a
change in strategy away from volume growth
and towards profitability
Maintain market
share
Delivering the change
agenda
Data quality
Profit measures in
annual bonus scheme
for senior management
and staff
The ratio of underlying operating
profit excluding property profits,
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 (%)
Return on sales excluding property profits has
c.5%
Underlying operating costs as %
of sales
increased by 60bps to 3.3% (2017: 2.7%), with
transformation delivering an improvement in
gross margin, particularly in the UK
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)
ROCE increased 100bps to 10.3% (2017: 9.3%),
c.15%
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
As such it is a measure of balance
sheet strength and resilience to
economic downturn
Underlying operating profit (£m)
Headline financial leverage closed the year at
Under 1.0x
Delivering the change
Capital measures in
Trading cash (£m)
Net debt (£m)
CS
CV
CS
CV
OE
CS
CV
OE
CS
CV
OE
Market downturn
Delivering the change
agenda
Supplier rebates
Data quality
Profit measures in
annual bonus scheme
for senior management
and staff
Market downturn
Delivering the change
agenda
Working capital
management
Capital measures
(working capital and
ROCE) in annual bonus
scheme for senior
management and staff
Longer term plans
focused on shareholder
value creation
agenda
Working capital
management
annual bonus scheme
for senior management
and staff
reflecting the impact of bringing working capital
under control, with inventory days reducing
from 43 in 2017 to 38 in 2018. 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 (5.2%) in 2017 to 4.9%,
reflecting the increase in statutory operating
profit
1.7x, which is 60bps lower than 2.3x reported
at 31 December 2017. This reflects a significant
reduction in net debt, following measures taken
to bring working capital under control and cash
generated from a shift in strategy away from
acquisition towards divestment
Like-for-like sales (%)
2,716.4
2,683.2
2,533.9
Underlying
revenue
Like-for-like
sales
3.5%
-2.1%
-0.2%
2016
2017
2018
Return on sales (%)
3.3
3.1
2.7
2016
2017
2018
Return on capital
employed (%)
10.3
9.0
9.3
2016
2017
2018
Headline financial
leverage
2.6×
2.3×
1.7×
2016
2017
2018
18
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Relevance to strategy
CS
CV
CUSTOMER SERVICE
CUSTOMER VALUE
OE OPERATIONAL EFFICIENCY
2,716.4
2,683.2
2,533.9
Underlying
revenue
Like-for-like
sales
3.5%
-2.1%
-0.2%
2016
2017
2018
2016
2017
2018
Return on capital
employed (%)
10.3
9.0
9.3
2016
2017
2018
Headline financial
leverage
2.6×
2.3×
1.7×
2016
2017
2018
Like-for-like sales (%)
The percentage growth/(decline)
This measure shows how the
Underlying revenue growth (%)
Definition
Why is this KPI
important?
Supporting performance
measures
in the Group’s sales per day (in
Group has developed its revenue
constant currency) excluding
any current and prior year
for comparable business relative
to the prior period. As such it is a
acquisitions and disposals. Sales
key measure of the growth of the
are not adjusted for branch
Group during the year
openings and closures
Performance
Like-for-like sales have reduced by 2.1% (2017:
3.5%) overall, with a 5.6% reduction in the
UK and Ireland offset by a 0.7% increase in
Mainland Europe. The focus of transformational
activity has been in the UK this year, with a
change in strategy away from volume growth
and towards profitability
Medium term
target
Link to
strategy
Principal
risk
Link to
remuneration
Growth in line with
market
Maintain market
share
CS
CV
Market downturn
Delivering the change
agenda
Data quality
Profit measures in
annual bonus scheme
for senior management
and staff
Return on sales (%)
The ratio of underlying operating
Return on sales provides the key
Underlying gross margin (%)
3.3
divided by underlying revenue
can deliver for a given level of
profit excluding property profits,
measure of the profit the Group
sales
Underlying operating costs as %
of sales
3.1
2.7
Return on sales excluding property profits has
increased by 60bps to 3.3% (2017: 2.7%), with
transformation delivering an improvement in
gross margin, particularly in the UK
c.5%
The ratio of underlying operating
Return on capital employed
Underlying operating profit (£m)
profit less taxation divided
by adjusted average capital
(ROCE) is a measure of value
creation for our stakeholders and
employed (average net assets
is a measure of how efficiently
plus average net debt)
the Group is using the capital and
resources it has available
Like-for-like working capital as %
of sales
c.15%
ROCE increased 100bps to 10.3% (2017: 9.3%),
reflecting the impact of bringing working capital
under control, with inventory days reducing
from 43 in 2017 to 38 in 2018. 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 (5.2%) in 2017 to 4.9%,
reflecting the increase in statutory operating
profit
The ratio of covenant EBITDA
(earnings before interest, tax,
This ratio is a bi-annual covenant
Underlying operating profit (£m)
of the Group’s principal medium
depreciation and amortisation) to
and long term funding facilities
covenant net debt as defined in
and has a maximum permitted
the Group’s banking and private
ceiling of 3.0x
placement arrangements
Trading cash (£m)
Net debt (£m)
As such it is a measure of balance
sheet strength and resilience to
economic downturn
Headline financial leverage closed the year at
1.7x, which is 60bps lower than 2.3x reported
at 31 December 2017. This reflects a significant
reduction in net debt, following measures taken
to bring working capital under control and cash
generated from a shift in strategy away from
acquisition towards divestment
Under 1.0x
Market downturn
Delivering the change
agenda
Supplier rebates
Data quality
Profit measures in
annual bonus scheme
for senior management
and staff
Market downturn
Delivering the change
agenda
Working capital
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 the change
agenda
Working capital
management
Capital measures in
annual bonus scheme
for senior management
and staff
CS
CV
OE
CS
CV
OE
CS
CV
OE
19
STRATEGIC REPORTStock code: SHIwww.sigplc.com Our KPIs
Operating costs as a
% of revenue
23.1%
23.5%
23.4%
Definition
The ratio of underlying operating
costs excluding property profits to
underlying revenue
Why is this KPI
important?
This ratio enables the business to
track the delivery of its strategy of
improving operating and financial
performance, by reducing costs
Supporting performance
measures
Underlying revenue growth (%)
Underlying operating profit (£m)
Performance
Medium term
target
Link to
strategy
Principal
risk
Link to
remuneration
Underlying operating costs excluding property
N/a
Delivering the change
Profit measures in
agenda
annual bonus scheme
for senior management
and staff
profits represented 23.4% of revenue in 2018
(2017: 23.5%). Underlying operating costs
are £8.7m lower in the year as the benefit
of cost reduction initiatives as part of the
transformation of the business begins to be
seen. Underlying revenue has decreased by
£33.2m due to a focus on improving profitability
The ratio of underlying working
capital to underlying revenue
This ratio is used to understand
how effectively the Group is using
the resources it has available
Inventory and receivables days
Working capital as a percentage of revenue was
N/a
Inventory value (£’m)
Payable days
8.1% (2017: 8.9%). Inventory management has
been a particular focus during the year, and
the progress made in this area is evidenced by
inventory days reducing by five days year on
year
Working capital
management
Delivering the change
agenda
Capital measures
(working capital and
ROCE) in annual bonus
scheme for senior
management and staff
The ratio per 1,000 employees
of work-related accidents and
incidents (lost time over three
days and major injury)
All employees, customers and
suppliers should be able to work
in a safely managed environment
across every part of the SIG
Group
Near misses
After several years of sustained decline in
accident rates, performance did not improve
in 2018; in order to revitalise its “Zero Harm”
program, the Group will focus on eliminating
accidents resulting from its four critical hazards
(those hazards known to cause serious injury)
Zero accident
in any given
period for all
critical hazards
(pedestrian and
forklift truck
interaction, fall
from height, road
traffic, contact
with machinery)
Health and safety
Safety gateway in
annual bonus scheme
for senior management
and staff
The Group’s KPIs are reconciled to the Financial Statements in Note 32 of the Financial Statements.
2016
2017
2018
Working capital
as a % of revenue
9.81%
8.9%
8.1%
2016
2017
2018
Accident incident rate
11.3
11.3
9.9
2016
2017
2018
20
CV
OE
CV
OE
OE
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Definition
Why is this KPI
important?
Supporting performance
measures
Operating costs as a
% of revenue
23.1%
23.5%
23.4%
The ratio of underlying operating
This ratio enables the business to
Underlying revenue growth (%)
costs excluding property profits to
track the delivery of its strategy of
Underlying operating profit (£m)
underlying revenue
improving operating and financial
performance, by reducing costs
The ratio of underlying working
This ratio is used to understand
Inventory and receivables days
capital to underlying revenue
how effectively the Group is using
the resources it has available
Inventory value (£’m)
Payable days
Accident incident rate
The ratio per 1,000 employees
All employees, customers and
Near misses
of work-related accidents and
incidents (lost time over three
days and major injury)
suppliers should be able to work
in a safely managed environment
across every part of the SIG
Group
2016
2017
2018
Working capital
as a % of revenue
9.81%
8.9%
8.1%
2016
2017
2018
11.3
11.3
9.9
2016
2017
2018
Relevance to strategy
CS
CV
CUSTOMER SERVICE
CUSTOMER VALUE
OE OPERATIONAL EFFICIENCY
Performance
Underlying operating costs excluding property
profits represented 23.4% of revenue in 2018
(2017: 23.5%). Underlying operating costs
are £8.7m lower in the year as the benefit
of cost reduction initiatives as part of the
transformation of the business begins to be
seen. Underlying revenue has decreased by
£33.2m due to a focus on improving profitability
Working capital as a percentage of revenue was
8.1% (2017: 8.9%). Inventory management has
been a particular focus during the year, and
the progress made in this area is evidenced by
inventory days reducing by five days year on
year
Medium term
target
Link to
strategy
Principal
risk
Link to
remuneration
N/a
N/a
CV
OE
CV
OE
Delivering the change
agenda
Profit measures in
annual bonus scheme
for senior management
and staff
Working capital
management
Delivering the change
agenda
Capital measures
(working capital and
ROCE) in annual bonus
scheme for senior
management and staff
After several years of sustained decline in
accident rates, performance did not improve
in 2018; in order to revitalise its “Zero Harm”
program, the Group will focus on eliminating
accidents resulting from its four critical hazards
(those hazards known to cause serious injury)
Zero accident
in any given
period for all
critical hazards
(pedestrian and
forklift truck
interaction, fall
from height, road
traffic, contact
with machinery)
OE
Health and safety
Safety gateway in
annual bonus scheme
for senior management
and staff
The Group’s KPIs are reconciled to the Financial Statements in Note 32 of the Financial Statements.
21
STRATEGIC REPORTStock code: SHIwww.sigplc.com Performance
Much work remains to be done, but our delivery in 2018
and the momentum brought into 2019 confirm that our
transformation of SIG is on track.
Meinie Oldersma
Chief Executive Officer
2018 saw the Group's
transformation strategy start to
deliver significant operational
and financial progress
Transformation on track
2018 saw the Group’s transformation
strategy start to deliver significant
operational and financial progress.
Underlying profit before tax (excluding
property profits) was up 25.1% to £72.7m
(2017: £58.1m).
Despite challenging market conditions
and lower revenue in the Group’s largest
markets, the Group’s focus on pricing and
profitability over volume enabled it to grow
gross margins and gross profit, particularly
in the UK insulation and interiors business,
SIG Distribution. In addition, actions taken to
reduce headcount and improve operational
efficiency brought operating costs under
tighter control, resulting in a reduction
during the year. As a result, the Group made
good progress during 2018 towards its
medium term financial targets, particularly in
the second half.
The Group has delivered higher underlying
gross margins, lower operating costs and
lower debt in 2018, albeit on reduced
revenues. This improved financial
performance enabled the Group to report its
first statutory profit before tax for three years
of £28.5m (2017: loss before tax of £54.7m).
Step change in performance
in second half of year
The transformation gathered pace in the
second half of the year, with higher margins
and lower operating costs enabling return
on sales (excluding property profits) to
increase from 2.5% in the first half to 4.0%.
As a result, underlying profit before tax
(excluding property profits) increased 81%
from £25.9m in the first half to £46.8m in
the second half. Statutory profit before tax
decreased from £19.7m in the first half to
£8.8m in the second half, reflecting higher
levels of Other items, including restructuring
costs, in the second half.
Notwithstanding the reduction in LFL sales,
which reduces the base of business brought
into 2019, the Group believes that the
margin and cost actions which underpin the
step change in performance delivered in the
second half of the year bring considerable
financial momentum into 2019.
Delivering the
transformation
Some fifteen months ago, the Group set
out the conclusions of its strategic review
with the announcement of its strategic
vision, “Building on our potential”. This
identified the considerable opportunity for
significant improvement in the operational
and financial performance of each major
operating company and across the Group
as a whole. The strategic review identified
that improvement would come from
focused delivery of three strategic levers
around customer service, customer value
and operational efficiency, supported by
investment in key enablers around data, IT
and capability.
Since then, the Group has taken substantial
actions to deliver rapid progress from this
transformation strategy . The overhaul of
SIG’s leadership is now largely complete,
following the departure during 2017 and
2018 of 51 out of 75 senior leaders across
the Group. The induction into the business
of new leaders from outside the Group is
improving capability, setting new standards
and delivering cultural change across the
organisation.
As part of this overhaul of Group leadership,
new Managing Directors were appointed
in 2018 at each of the Group’s four largest
operating companies: SIG Distribution, SIG
Exteriors, SIG France and SIG Germany.
These new Managing Directors are bringing
broader experience and perspectives and
an accelerated pace of transformation to
their businesses. As a result, the Group is
beginning to benefit from the establishment
of a genuine performance culture across
these businesses in support of improved
performance.
History highlights the significant challenge
in achieving lasting change across SIG and
there remains much work to be done to
complete the planned transformation. The
Group is working to leverage its improved
capability and ways of working to complete
the process of structural and cultural change
across the organisation. The step change
in operational and financial performance
delivered in 2018 provides reassurance that
this transformation of SIG is on track.
22
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Like-for-like sales
-2.1%
(2017: 3.5%)
Total Group revenue
£2,741.9m
(2017: £2,878.4m)
Return on sales
3.3%
(2017: 2.7%)
www.sigplc.com Stock code: SHI
23
STRATEGIC REPORT Performance
Customer service – investment in
capability, branches and technology
The Group’s strategic focus on customer service has seen it develop
its sales capability, branch experience and supporting technology
during the year. The sales teams in SIG Distribution and SIG Exteriors
have been restructured into dedicated sales functions and similar
changes are in hand at other operating companies. New sales and
customer relationship management tools have been introduced and
this is beginning to be reflected in improving conversion rates at
several businesses.
Investment has been made during the year in branch telephony,
transport management and electronic point of delivery capability,
with a view to reducing customer lead times and improving customer
service levels for delivery on time and in full. The programme of
trade counter upgrades has continued at SIG Exteriors and new
sales training has been developed and introduced in several
businesses. As the Group moves into 2019, the focus is on continued
development of sales capability and associated tools. The Group
is also looking to increase its investment in the development of its
eCommerce strategy and capability.
Customer value – optimising pricing
and profitability
The Group’s actions around customer value have primarily targeted
pricing and profitability initiatives during the year. SIG Distribution led
the way with the introduction of list price rises across a broad range
of products in the middle of the year. SIG Distribution has also been
at the forefront of action to reduce the Group’s exposure to low
margin business with an ongoing review of profitability by customer.
Other Group businesses have similarly begun to pursue a range
of initiatives to optimise pricing and margins. New pricing controls
have been implemented around quantity breaks and new charging
structures implemented for ancillary services. Historic customer
terms have been extensively reviewed at SIG Exteriors during the
year and a new pricing framework has been introduced in Germany
and is currently being piloted in France. The Group’s focus on pricing
is being supported by improved data analytics and the introduction
of new reporting, which provides better visibility on end-to-end
margin by branch and customer. This allows management to reduce
levels of discounting in the branches and improve compliance with
target prices.
The Group is targeting further significant progress on pricing and
margins in 2019, reflecting the benefit of specific actions taken in
2018, mostly in the second half, and the extension of these initiatives
across the Group.
Operational efficiency – reducing
operating costs
During 2018, the Group has taken further steps to reduce costs,
continuing to scale back Group functions and overheads, eliminate
duplicate spend and constrain discretionary expenditure, and
downsize corporate functions and the corporate office. Peripheral
and non-core businesses have been sold or closed, enabling the
removal of associated central costs.
Administrative costs have been significantly reduced, notably in
the UK, where the back office support functions for the Group’s
insulation and roofing businesses in the UK have been combined
and co-located in a single shared services centre in Sheffield. The
finance back office in the UK has largely been outsourced to a third
party provider and work is ongoing with the outsourcing partner
to optimise processes and enhance levels of financial control.
These changes have enabled the property portfolio in Sheffield to
be consolidated into a single location following the sale of SIG’s
historical head office in Hillsborough. The Group continues to reduce
management layers across the organisation.
As the year has progressed, the focus on costs has extended to
branch networks and the customer-facing organisation, where
operating models are being restructured with the twin aims of
improved customer service and lower costs.
SIG Distribution has transformed its organisational structure
during the year from a branch-centric model to a functional model,
centralising some of the functions historically managed within
branches and establishing dedicated cross-organisation capability in
sales, inventory, warehousing and transportation. As a result, it has
been able to eliminate significant regional costs, reorganise the sales
force and streamline distribution routing resulting in a reduction in
fleet numbers, whilst enhancing levels of customer service.
SIG Exteriors has optimised its network around a hub and spoke
model, resulting in some branch closures and the removal of surplus
vehicles from the fleet. It is now implementing tools to facilitate
improved transport management, including real time vehicle tracking
and electronic proof of delivery capability, bringing real benefits
to customers as well as reducing costs. Further changes are being
implemented in the Group’s other large operating companies in
France and Germany during 2019.
The optimisation of branch networks and disposals of businesses
have seen the number of trading sites fall from 661 at the beginning
of 2017 to 538 at 31 December 2018. In parallel, headcount has
fallen c.20% from 10,383 at the beginning of 2017 to 8,260 at 31
December 2018. Further headcount reductions are anticipated in
2019 as the Group continues to streamline its operating model and
ways of working.
Operational efficiency – reducing
working capital
In parallel with the reductions in operating costs, working capital is
beginning to respond to actions to reduce the level of stock, which
fell this year to £207.2m (2017: £243.5m). Management has revised
the Group’s approach to inventory management during the year,
implementing tighter controls around the purchase of stock and
re-orienting performance management mechanisms to incentivise
lower levels of working capital. SIG Distribution again led the way,
with the centralisation of inventory management facilitating a sharp
reduction in levels of inventory in the second half of the year. The
Group is seeking to build on the experience of SIG Distribution as it
seeks further reductions in inventory in 2019.
Key enablers – improved data and reporting
The business has made good progress in relation to the key enablers
necessary for delivery of its transformational plans around data,
IT and capability. The Group now has daily visibility of sales and
margin. Initiatives to improve sales effectiveness, manage pricing
and margins and reduce stock have all significantly benefited during
the year from new data analytics and reporting. A new master data
management system is being rolled out.
The next stage is focused on overhauling some of the Group’s
core underlying systems and associated processes, with the
implementation of improved transportation and inventory
management systems. There are also plans to upgrade and
standardise the Kerridge ERP system in the UK during 2019 and
initial preparations are underway for the replacement of dated and
inefficient systems in France and Germany.
24
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Turnaround at SIG Distribution well
underway
Progress has been most evident during 2018 in the turnaround in
performance at SIG Distribution, the Group’s specialist distributor of
insulation and interiors products in the UK. The business delivered
£20.9m of operating profit in 2018, up from £3.5m in 2017.
The turnaround of SIG Distribution was the Group’s most immediate
priority in the year. The Group appointed a new Managing Director
for the business, David Walmsley, early in 2018. David brought
extensive experience in business-to-business distribution, both
in the UK and internationally, and joined SIG Distribution from
Palletways, Europe’s largest pallet delivery network, where he was
UK Managing Director. Prior to that, he spent 25 years in a variety
of roles with Lyreco, the worldwide distributor of office supplies and
workplace products.
He inherited a business that was ineffectively managed, with poor
control over prices and costs and high levels of stock. Branch
employees were distracted by a proliferation of internal initiatives
and customer service was suffering as a result. The business was in
urgent need of rapid improvement.
The business took radical actions in 2018 to deliver a step change
in performance. It implemented price increases across key product
ranges from the middle of the year and reviewed profitability by
customer to reduce exposure to low margin business. As a result,
the business has seen gross margins increase by 200bps across the
year to 24.7% (2017: 22.7%).
The business restructured its branch organisation to a functional
model focused on sales, inventory, warehousing and transport and
removed significant unnecessary regional structures, as a result
of which headcount was reduced in 2018 by 441. The business
implemented new performance management tools in support
of sales effectiveness and operational efficiency. Improved stock
profiling, new inventory processes and central control reduced
inventory days from 32 in H2 2017 to 25 in H2 2018.
SIG Distribution delivered significant profit improvement as the year
progressed, with improved gross margins and lower operating costs
providing an increase in underlying operating profit from £4.6m
in the first half to £16.3m in the second half with a return on sales
(excluding property profits) in the second half of 4.9%. As a result,
the business brings considerable financial benefits from these profit
improvement actions into 2019.
The step change in performance at SIG Distribution has given
the Group confidence to accelerate the transformation in other
major Group businesses, notably SIG Exteriors in the UK and the
businesses in France and Germany. These businesses are expected
to see improving financial performance in 2019 as a result.
Balance sheet further strengthened
Leverage reduction remains a key priority and the Group has
continued to strengthen the balance sheet during the year. Tactical
actions to reduce debt, including the sale and lease back of property
and the factoring of debtor receivables, were largely completed in
2017. As anticipated, the focus in 2018 turned towards structural
reductions in levels of working capital, particularly stock. In addition,
the Group benefited from the disposal of peripheral businesses,
raising £35.8m in net proceeds. As a result, headline financial
leverage has fallen sharply to 1.7x (2017: 2.3x).
The Group has now reduced net debt by over a third since the start
of 2017 to £189.4m. Further significant progress is expected during
2019 towards the Group’s medium term target of headline financial
leverage below 1.0x.
Portfolio management continues at pace
The Group's medium term strategy recognised that it had a number
of smaller businesses which were peripheral to its core focus.
Management identified a number of these 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 had limited fit with Group strategy or because their small scale
was a distraction to management. In many cases, these businesses
were also delivering a poor financial performance.
The Group has continued to exit from these peripheral businesses
during the year. Ongoing management of the portfolio saw the
disposals in 2018 of:
■ SIG Building Systems, a modular offsite construction business in
the UK;
■ GRM, a manufacturer of phenolic pipe insulation serving the UK's
industrial and HVAC markets;
■ IBSL, a UK fabricator and supplier of cryogenic and high-
temperature insulation solutions used by the petrochemical,
power generation and offshore exploration industries;
■ VJ Technology, a UK distributor of technical fixings, fasteners
and consumables to the infrastructure, commercial and wider
construction industry;
■ Roofspace, the Group’s remaining UK offsite manufacturing
business; and
■ The trade and assets of Proteus, a UK-based façade panel systems
manufacturing business.
In addition, the Group closed SIG Cut Solutions, the Group’s German
insulation conversion business, and took the decision to exit from its
Commercial Drainage business in the UK.
The Group has now divested or closed businesses representing 11%
of FY 2016 statutory revenue. The Group continues to evaluate the
options for remaining potential exit candidates, in line with its stated
strategy.
Establishment of pan-European Air
Handling business
With the continuing disposal of peripheral businesses, the Group’s
activities now largely comprise three core lines of business: a
specialist distributor of insulation and interiors across Europe,
a roofing merchant in the UK and France, and a provider of air
handling solutions.
The Group has transferred the last of its air handling businesses
formally into the Air Handling division, incorporating the branch
network and manufacturing subsidiaries of Ouest Isol & Ventil, the
Group’s specialist distributor of ventilation, air conditioning and
technical insulation products in France, and SK Sales, the Group’s
specialist supplier of heating, ventilation and air conditioning
products in the UK.
The Air Handling division is a specialist provider of air handling
solutions operating in ten countries across Europe, with a track
record of attractive returns in fast-growing end markets. The
combination provides an integrated platform with potential for
continuing growth and significant profit enhancement.
The Board is reviewing strategic options for this business and has
engaged financial advisers to help with this review.
Read more on pages 42 and 43
25
STRATEGIC REPORTStock code: SHIwww.sigplc.com Reporting our progress
Medium term
financial targets
Key financial outputs
■ Like-for-like sales
■ Revenue (£m)
growth (%)
■ Underlying gross
■ Return on sales (%)
margin (%)
■ Return on capital
■ Underlying PBT (£m)
■ Underlying EPS (p)
■ Dividend per
share (p)
■ Net debt (£m)
employed (%)
■ Headline financial
leverage (x)
Other indicators
of progress
■ Opex as % of sales
■ Working capital as
% of sales
Performance
Dividend
In 2018, the Group delivered underlying earnings per share of 9.3p
(2017: 8.6p). As a result, the Board is recommending payment of a
final dividend for the year of 2.5p (2017: 2.5p) per share. Together
with the interim dividend of 1.25p (2017: 1.25p) per share, this gives
a total dividend for the year of 3.75p (2017: 3.75p) per share, in line
with the Group’s stated policy to target dividend cover in the range of
2-3x underlying earnings per share.
In determining the final dividend, the Board has reviewed progress
against its target of reducing headline financial leverage below 1.0x
over the medium term, particularly in the context of the weaker
trading conditions seen in the Group’s largest markets during the
latter part of 2018. It has also considered the current defined benefit
pension deficit and recovery plan agreed as part of the triennial
valuation finalised in March 2018. The Board remains confident that
delivery of the leverage target is on track.
Subject to approval at the Group’s Annual General Meeting, the final
dividend is expected to be paid on 5 July 2019 to shareholders on
the register at the close of business on 7 June 2019. The ex-dividend
date will be 6 June 2019.
People
The Group would like to thank all employees of SIG for their
commitment and resilience in what has been a year of significant
change. Their efforts have delivered a step change in operational
and financial performance as the year has progressed and they have
laid a strong foundation for the further development of the Group in
2019 and beyond.
Current trading and outlook
The Group brings considerable financial benefits into 2019 and the
delivery of a step change in performance in SIG Distribution has
given us confidence to accelerate the pace of transformation in other
major Group businesses. Trading conditions remain challenging, with
the outlook in many of our end markets uncertain, and the Group
expects continuing like-for-like sales declines in the first part of the
year. Notwithstanding these headwinds, the margin and cost actions
taken in 2018 give us good visibility of further significant progress in
the current year. While much work remains to be done, our delivery
in 2018 and the momentum brought into 2019 confirm that our
transformation of SIG is on track.
The Group will provide a further update on trading and outlook on 8
May 2019, when it will hold its Annual General Meeting.
26
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Transformation in
action
Transformation of SIG Distribution
Despite the challenging market conditions witnessed over the past twelve
months, SIG Distribution, the leading distributor of insulation and interior
products in the UK, posted a significant year-on-year improvement in
profits in 2018 of £21m (2017: £4m).
This major step-up was achieved by introducing radical changes across
a number of under-performing areas of the business; the first of which
was to address the calibre of the leadership personnel in the business,
resulting in significantly enhanced capability and the development of a ‘can
do’ attitude.
In May 2018, SIG Distribution embarked on transforming its pricing
processes and structures, along with carrying out a detailed review of
its customer base, consciously walking away from low margin and non-
profitable business where considered appropriate. Whilst this has inevitably
contributed toward the year-on-year drop in revenues, there has been a
marked improvement in gross margins and profitability, particularly in the
second half of the year, bringing significant financial benefits into 2019.
In addition, a restructure of the operating model during the year has turned
the historic ‘branch-centric’ business model into one that is ‘function-led’,
which has helped to drive a significant amount of overhead out of the
business, particularly in the areas of sales and inventory. SIG Distribution
has transformed the processes over its inventory management and the
move from branch to central control has allowed the business to maximise
efficiency through capable and effective management of its stock levels,
resulting in a year-on-year reduction of 15%.
The transformation is well underway in SIG Distribution, and a marked
step-up in financial performance indicators in the second half, return on
sales and opex as a % of sales, provides comfort that the business has the
necessary momentum to deliver further progress into 2019 and beyond.
www.sigplc.com Stock code: SHI
27
STRATEGIC REPORT Financial review
The Group delivered a significantly improved financial
performance in the year, with good progress towards
our medium term financial targets.
Nick Maddock
Chief Financial Officer
The margin and cost actions
taken in 2018 give us good
visibility of further significant
progress in the current year
Revenue
Gross profit
Operating profit/(loss) excluding property sales
Operating profit/(loss)
Profit/(loss) before tax
Net debt
Other performance measures
Like-for-like sales growth
Gross margin
Return on sales (excluding property profits)
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)
Results from
underlying operations*
2018
£m
2017
(Restated)**
£m
Statutory
2017
(Restated)**
£m
Change
2018
2,683.2
2,716.4
(1.2%)
2,741.9
2,878.4
716.7
711.7
88.0
90.6
75.3
74.3
85.6
69.4
0.7%
18.4%
5.8%
8.5%
734.9
752.5
40.6
44.3
28.5
(53.4)
(36.3)
(54.7)
Change
(4.7)%
(2.3)%
176.0%
222.0%
152.1%
189.4
258.7
(26.8)%
189.4
258.7
(26.8%)
(2.1)%
3.5%
(560)bps
26.7%
26.2%
3.3%
9.3p
n/a
8.1%
10.3%
1.7x
2.7%
8.6p
n/a
8.9%
9.3%
2.3x
50bps
60bps
8.1%
n/a
(80)bps
100bps
(0.6)
n/a
26.8%
1.5%
3.0p
3.75p
8.0%
4.9%
1.7x
n/a
26.1%
(1.9)%
n/a
70bps
340bps
(10.2)p
129.4%
3.75p
-
9.1%
(110)bps
(5.2)%
1010bps
2.3x
(0.6)
* 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 prior period restatements described on page 34.
Overview
The Group delivered a significantly improved financial performance in
the year, with underlying profit before tax (excluding property profits)
up 25.1% at £72.7m (2017: £58.1m). This performance reflected a
combination of lower revenues, more than offset by higher gross
margins, delivering improved underlying gross profit. Coupled with
tighter control over operating costs, the improvement in the Group’s
financial performance demonstrates the tangible delivery of financial
benefits from the Group’s transformation strategy.
During the year, the Group divested six non-core businesses. It also
closed SIG Cut Solutions in Germany and took the decision to close
the Commercial Drainage business in the UK. These businesses
have been excluded from underlying results in order to provide a
better understanding of underlying performance in the continuing
business. At a statutory level, the Group saw a 2017 loss before tax
of £54.7m become a profit before tax of £28.5m in 2018, helped
by the underlying performance improvement and by a reduction in
losses associated with the sale or closure of non-core businesses.
Key financial metric
Medium term
target
2018
Performance
2017
Performance
Like-for-like sales
Market growth
Return on sales
Return on capital employed
Headline financial leverage
5%
15%
<1.0x
(2.1%)
3.3%
10.3%
1.7x
3.5%
2.7%
9.3%
2.3x
In parallel with the increased profit, the Group saw significantly lower
28
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT
Return on
capital employed
10.3%
(2017: 9.3%)
Headline
financial leverage
1.7x
(2017: 2.3x)
www.sigplc.com Stock code: SHI
29
STRATEGIC REPORT Operating costs and profit
At a Group level, underlying operating profit improved by 5.8%
year-on-year, benefiting from the £5.0m increase in underlying gross
profit and a £8.7m reduction in underlying operating costs (excluding
property profits). Sustained actions to improve operational efficiency
and bring costs under control were reflected in underlying operating
costs (excluding property profits) falling to £628.7m in the year
(2017: £637.4m). The benefit of these actions accelerated as the
year progressed, with underlying operating costs (excluding property
profits) falling from £319.7m in the first half to £309.0m, equivalent
to 23.0% of second half sales.
Return on sales (ROS) is one of the Group’s primary performance
metrics and is calculated as underlying operating profit (excluding
property profits) divided by underlying revenue. The Group targets
an ROS of 5.0% over the medium term in each operating company
and across the Group as a whole. The improvement in underlying
operating profit helped ROS to increase to 3.3% in 2018 (2017:
2.7%), with the improvement accelerating as margins increased and
operating costs fell during the year. ROS increased to 4.0% in the
second half of the year.
Non-core businesses reported a combined operating profit of £1.2m
in the year (2017: £8.0m loss). At a statutory level, the 2017 operating
loss of £36.3m became a 2018 operating profit of £44.3m, as the
improvement in underlying operating profit was enhanced by a
significant reduction in the level of other items, particularly losses on
the sale or closure of non-core businesses.
There was a lower level of profit from the disposal of properties in
2018 of £2.6m (2017: £11.3m). The Group is not anticipating any
material profit from the disposal of properties in 2019.
Underlying profit before tax (excluding property profits) was up
25.1% to £72.7m (2017: £58.1m). The statutory profit before tax for
the year was £28.5m (2017: loss before tax of £54.7m).
Financial review
net debt and headline financial leverage. Net debt fell to £189.4m
(2017: £258.7m) as a result of cash flow generated from operating
activities, including reductions in the level of working capital, and
cash flow generated from the sale of businesses, offset by lower
proceeds from the sale of property, plant and equipment.
The Group is bringing considerable momentum into 2019 from the
actions taken on margin and costs in 2018.
Revenue and gross margin
The Group experienced lower revenues in the year ended 31
December 2018, reflecting challenging market conditions and the
decision to focus on pricing and profitability over volume. Group
revenue from underlying operations fell 1.2% to £2,683.2m (2017:
£2,716.4m), net of the benefit of foreign exchange translation (+0.7%)
and more working days (+0.2%).
LFL sales growth is one of the Group’s key performance metrics
and the Group targets over the medium term to grow its LFL sales
in line with market growth to maintain market share. The fall in LFL
sales over the year of 2.1% accelerated as the year progressed, with
trading conditions deteriorating in the Group’s largest markets and
the Group accelerating its strategy to increase profit by improving
pricing discipline and reducing its exposure to low margin business.
LFL sales was down 4.2% in the second half, resulting in the Group
carrying a smaller but more profitable base of business into 2019
than it brought into 2018.
Revenue generated in the year by non-core businesses was £58.7m
(2017: £162.0m). On a statutory basis including the revenue from
these non-core businesses, Group revenue was down 4.7% to
£2,741.9m (2017: £2,878.4m).
The decline in revenue was offset by significantly improved gross
margin in the year as a result of the Group’s increased focus on
pricing and profitability. Underlying gross margin increased 50bps
to 26.7% (2017: 26.2%) and continued to strengthen as the year
progressed, rising to 27.1% in the second half.
Underlying gross margin improved 110bps in the UK & Ireland to
25.9% (2017: 24.8%) and remained stable in Mainland Europe at
27.4% (2017: 27.4%). The improvement in the UK & Ireland was
primarily a reflection of actions taken at SIG Distribution from the
middle of the year, including price rises across a broad range of
products, resulting in a 200bps year-on-year increase in gross
margin to 24.7% (2017: 22.7%). As a result, underlying gross profit
increased by £5.0m to £716.7m (2017: £711.7m), despite the
weaker revenue. The Group is replicating elements of this approach
taken in SIG Distribution in other operating companies, notably SIG
Exteriors, France and Germany, and is targeting further gross margin
improvement across the Group in 2019.
On a statutory basis, the Group’s gross margin increased by 70bps
to 26.8% (2017: 26.1%). Statutory gross profit fell from £752.5m to
£734.9m as a result of disposals of businesses.
30
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT UK and Ireland
As previously reported, the UK construction market weakened during 2018 and became increasingly challenging towards the end of the year.
Commercial construction demand remained dampened by macro-economic uncertainty, house price inflation slowed and secondary housing
market transactions continued to fall. This weaker trading environment impacted on demand for SIG’s products and is a key factor behind the
lower LFL revenues in the UK and Ireland, down 5.6%. Revenues at SIG Distribution also reflected the focus on improving profitability, which
has delivered higher gross margins at the expense of lower revenue.
SIG Distribution1
SIG Exteriors1
Ireland and Other UK1
UK & Ireland1
Revenue
(£m)
701.2
378.7
99.9
1,179.8
Change
(5.5)%
(6.2)%
1.6%
(5.2)%
Non-core businesses
58.4
(58.7)%
UK and Ireland
1,238.2
(10.6)%
LFL
change
Gross
margin
Change
Underlying
operating
profit (£m)2
Underlying
operating
margin 2
Change
(5.8)%
(6.6)%
(0.1)%
(5.6)%
n/a
n/a
24.7%
200bps
228.3%
(10)bps
25.2%
25.9%
31.0%
26.1%
20bps
110bps
610bps
130bps
20.9
17.3
6.1
44.3
1.5
45.8
213.0%3
250bps
(290)bps
120bps
4.6%
6.1%
3.8%
2.6%
3.7%
70bps
11.5 10.4
740bps
140bps
n/a
10.4
Reported
operating
profit/(loss)
(£m)3
87.2
(0.5)(
3.7
1 Before results attributable to businesses identified as non-core and before transfer of SK Sales from SIG Distribution to Air Handling.
2 Underlying operating profit and underlying operating margin are shown including property profits.
3 Reported operating profits/(losses) are shown on a segmental basis including the operating result of the non-core businesses.
SIG Distribution, the core insulation and interiors business in the UK, delivered a substantial increase in profitability in 2018. Underlying
operating profit increased to £20.9m (2017: £3.5m), as the business took radical actions to deliver an operational and financial turnaround
under new leadership. Underlying revenue fell by 5.8% on a LFL basis, but this was more than compensated by increased gross margins, up
200bps to 24.7% (2017: 22.7%), reflecting price rises and reduced exposure to low margin business. The business also reduced costs and
inventory during the second half of the year, delivering a significant step up in profitability from £4.6m in the first half to £16.3m.
SK Sales, a specialist distributor of air handling products, reported as part of SIG Distribution in 2018, is being combined into the pan-
European Air Handling business in 2019. SK Sales generated an operating loss of c.£2.1m on revenue of c.£21.1m in 2018.
SIG Exteriors primarily comprises the Group’s market-leading roofing merchant in the UK. In addition, it includes SIG Building Solutions, a
small manufacturer and distributor of faҫades and claddings. SIG Exteriors saw LFL sales reduce by 6.6% in the year, with poor weather
conditions impacting performance at the start of the year and ongoing trading challenges in end markets weakening demand throughout
the year. Improved pricing discipline introduced by the new leadership in the second half enabled gross margins to recover to 28.3% (2017:
28.4%). Underlying operating profit at SIG Exteriors ended the year at £17.3m (2017: £30.1m), reflecting the revenue shortfalls, but also the
benefit in 2017 of £5.3m of operating profit related to a one-off sale of property that were not repeated in 2018.
Ireland & Other UK, predominantly comprising specialist distribution of insulation, interiors and other building products in Ireland from
a large Dublin hub, performed well under new leadership. LFL revenue for the year was in line at (0.1%), but underlying operating profit
increased to £6.1m (2017: £4.8m) as a result of higher gross margins up 20bps to 25.2% (2017: 25.0%) and operating cost discipline.
Overall, the UK & Ireland delivered underlying revenue of £1,179.8m (2017: £1,244.1m) and underlying operating profit of £44.3m (2017:
£38.4m), at a return on sales (excluding property profits) of 3.8% (2017: 2.6%).
31
STRATEGIC REPORTStock code: SHIwww.sigplc.com Financial review
Mainland Europe
As anticipated at the time of the interim results, trading conditions in construction markets across mainland Europe slowed in the second half
of the year, notably in France and Germany. Revenues in Germany were also affected by ongoing actions to reduce the Group’s exposure to
low margin business. In contrast, the Group currently continues to see robust demand and good top-line growth in Poland, Air Handling and
Benelux.
Revenue
(£m)
Change
France1
Germany1
Poland1
Air Handling1
Benelux
663.6
426.6
156.6
148.2
108.4
Mainland Europe1
1,503.4
0.4%
0.4%
9.7%
4.3%
6.6%
2.1%
Non–core businesses
0.3
(98.5)%
Mainland Europe
1,503.7
0.7%
LFL
change
(0.9)%
(0.8)%
8.5%
2.6%
5.7%
0.8%
n/a
n/a
Gross
margin
27.7%
26.7%(
20.1%
Change
10bps
30bps
10bps
38.1%
(30)bps
23.7%
(210)bps
Underlying
operating
profit (£m)2
Underlying
operating
margin2
Change
20bps
(70)bps
140bps
4.2%
2.1%
2.1%
10.0%
(10)bps
4.2%
(200)bps
27.8
9.1
3.3
14.8
4.5
27.4%
-
59. 59.5
4 4.0%
(10)bps
33.3%
650bps
(0.3)
(100)bps
(9,410)bps
27.4%
-
59.2
3.9%
-
Reported
operating
profit
(£m)3
24.0
2.6
3.3
14.2
3.0
47.1
n/a
47.1
1 Before results attributable to businesses identified as non-core and before transfer of Ouest Isol & Ventil from France to Air Handling.
2 Underlying operating profit and underlying operating margin are shown including property profits.
3 Reported operating profits/(losses) are shown on a segmental basis including the operating result of the non-core businesses.
The Group’s business in France comprises Larivière, the leading specialist roofing merchant, LiTT, a specialist distributor of insulation and
interiors and Ouest Isol & Ventil, a specialist provider, manufacturer and distributor of air handling and technical insulation products. France
saw a small decline in LFL sales in the year, down (0.9)% on weakening market conditions, which was compensated through improved pricing
discipline and higher gross margins, resulting in underlying operating profit of £27.8m (2017: £26.2m).
New leadership in France from December 2018 is looking at ways to build on the strong profit contribution from LiTT and Larivière
through initiatives around sales effectiveness, pricing management and working capital reduction, building on the developing success of
transformation at other Group businesses. Ouest Isol & Ventil, reported as part of France in 2018, is being combined into the pan-European
Air Handling business in 2019. Ouest Isol & Ventil generated an operating profit of c.£6.7m on revenue of c.£140.8m in 2018.
Following the success at SIG Distribution in improving prices and gross margin, Germany started to manage pricing and profitability more
actively towards the end of the year. LFL sales in Germany declined by 0.8%, but gross margins increased to 26.7% (2017: 26.4%), reflecting
some initial benefit from price increases and the commencement of an initiative to reduce the exposure to low margin business. As a result,
Germany delivered underlying operating profit of £9.1m in the year (2017: £12.0m), net of a reduction in underlying operating profit related
to one-off sales of properties to £1.6m (£2017: £4,5m). The arrival of new leadership in Germany from October should deliver further
transformation of that business in 2019.
The Group’s Polish business had a very strong year, with LFL sales up 8.5%, benefiting from economic stability, infrastructure investment and
corresponding growth in construction end markets. In this environment, the Polish management team maintained its gross margin at 20.1%
(2017: 20.0%) and managed its cost base effectively to deliver an underlying operating profit of £3.3m in 2018 (2017: £1.0m).
Air Handling, the Group’s specialist provider of air handling solutions, which is managed from The Netherlands and focused on the Benelux
and Central Europe, saw LFL sales growth of 2.6% in 2018. 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. The specialist focus of this
division enabled it to generate gross margins of 38.1% (2017: 38.4%). Air Handling delivered underlying operating profit in 2018, of £14.8m
(2017: £14.4m) at a return on sales (excluding property profits) of 10.0%.
In 2019, the Air Handling business is being combined with Ouest Isol & Ventil in France and SK Sales in the UK to establish a pan-European
specialist provider of air handling solutions. This creates an integrated platform with potential for growth and significant profit enhancement.
The combined business delivered underlying operating profit of c.£19.4m on revenue of c.£310.1m in 2018 at a return on sales (excluding
property profits) of c.6.3%. The Board is reviewing strategic options for this business.
LFL sales in the Benelux region increased by 5.7% in the year reflecting strong demand in its end markets. Adverse product mix towards
cheaper alternatives meant management was unable to capitalise effectively on this growth, resulting in a decline in gross margins to 23.7%
(2017: 25.8%) and underlying operating profit of £4.5m (2017: £6.3m).
Overall, mainland Europe delivered underlying revenue of £1,503.4m (2017: £1,472.3m) and underlying operating profit of £56.9m (2017:
£54.8m), at a return on sales (excluding property profits) of 3.8% (2017: 3.7%).
32
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT H1 / H2 performance
As the transformation has progressed, the Group has seen
significantly higher profitability across most of its businesses in the
second half of the year.
Underlying operating profit
(including property profits)
SIG Distribution
SIG Exteriors
Ireland & Other UK
UK & Ireland
France
Germany
Poland
Air Handling
Benelux
Mainland Europe
Group
H2
2018
£m
16.3
11.6
3.1
31.0
14.7
5.6
3.0
7.1
1.9
32.3
56.5
H1
2018
£m
4.6
5.7
3.0
13.3
13.1
3.5
0.3
7.7
2.6
27.2
34.1
FY
2018
£m
20.9
17.3
6.1
44.3
27.8
9.1
3.3
14.8
4.5
59.5
90.6
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. The Group continues to target a
significant improvement in ROCE to 15.0% over the medium term
and made progress towards that target in 2018 with ROCE up to
10.3% at 31 December 2018 (2017: 9.3%).
This improvement reflects both increased underlying operating profit
less tax and reduced levels of working capital and net debt at the
year end. Working capital fell to 8.1% of sales on a like-for-like basis
(2017: 8.9%), particularly helped by actions to reduce structural levels
of inventory, down to £207.2m at the year end (2017: £243.5m).
Cash flow and leverage
The Group generated £109.6m of net cash from operating activities
(2017: £93.4m) during the year, together with £35.8m net cash flow
arising on the sale of businesses (2017: £17.6m), offset by lower
proceeds of £5.1m from the sale of property, plant and equipment
(2017: £34.6m). As a result, after taking into account dividends paid
and other cash flow from financing activities, net debt fell sharply to
£189.4m at the year end (2017: £258.7m).
2018
£m
2017
Restated
£m
Opening net debt (restated)
(258.7)
(299.2)
Cash inflow from trading
Decrease/(increase) in working capital
Cash inflow from factoring arrangement
Cash inflow from operating activities
Interest and tax
Dividends paid to equity holders of the Company
Capital expenditure
Proceeds from sale of property, plant and
equipment
Cashflow from divested businesses
Acquisitions/contingent consideration
Other (including fair value movements)
Movement in net debt
Closing net debt
Headline financial leverage
65.6
43.0
1.0
109.6
(27.1)
(22.2)
(25.3)
5.1
35.8
(3.4)
(3.2)
69.3
45.2
(0.5)
48.7
93.4
(31.4)
(18.2)
(32.3)
34.6
17.6
(21.2)
(2.0)
40.5
(189.4)
(258.7)
1.7x
2.3x
Headline financial leverage is one of the Group’s primary performance
metrics and is calculated on the same basis as one of the primary
covenants to the Group’s revolving credit facility and private placement
notes. The monitoring of this covenant is an important element of
treasury risk management. The combination of increased profit and
reduced net debt enabled the Group to deliver a further sharp decline
in headline financial leverage in 2018 to 1.7x (2017: 2.3x). The Group
continues to target a reduction in headline financial leverage to less
than 1.0x over the medium term.
33
STRATEGIC REPORTStock code: SHIwww.sigplc.com Financial review
Reconciliation of statutory result to
underlying result
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. With
continuing extensive operational changes and portfolio management
carried out during the year, SIG has again sought to provide a clear
understanding of the underlying and continuing performance of
the businesses making up the Group, by separating and disclosing
significant non-underlying items as set out in the following table:
Underlying profit before tax
Other items – impact operating profit:
Amortisation of acquired intangibles
Impairment charges
2018
£m
75.3
(8.9)
(4.0)
2017
£m
69.4
(9.3)
(6.8)
Losses on agreed sale or closure of non-core
businesses and associated impairment charges
(6.7)
(72.4)
Net operating losses attributable to businesses
identified as non-core
Net restructuring costs
Acquisition expenses and contingent
consideration
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 profit/(loss) before tax
1.2
(27.7)
-
(0.2)
(8.0)
(21.1)
(9.8)
5.5
(0.5)
(2.2)
(46.8)
(124.1)
28.5
(54.7)
Amounts reported in the Other items column of the Consolidated
Income Statement which in total amounted to a loss before tax of
£46.8m (2017: £124.1m) are as follows:
■ Amortisation of acquired intangibles of £8.9m (2017: £9.3m);
■ Impairment charges of £4.0m (2017: £6.8m), of which £2.8m has
been recognised in relation to the Group’s former head office
which is no longer occupied and £1.2m in relation to software and
other assets no longer in use due to a change in digital strategy. In
the prior year an impairment of £6.8m was recognised in relation
to the carrying value of UK ERP system;
■ Losses on agreed sale or closure of non-core businesses and
associated impairment charges of £6.7m (2017: £72.4m);
■ Net operating profits/(losses) of £1.2m (2017: £8.0m losses)
attributable to businesses identified as non-core;
■ Net restructuring costs of £27.7m (2017: £21.1m) including
redundancy and related staff costs of £11.5m (2017: £3.9m),
property closure costs of £5.5m (2017: £2.8m), impairment of non-
current assets of £0.6m (2017: £nil) and £10.1m (2017: £2.7m) in
relation to third party restructuring consultancy costs;
■ Acquisition expenses and contingent consideration of £9.8m
incurred in the prior year in relation to the acquisition of HC Groep
by Air Handling in 2015;
■ A net cost of £0.2m (2017: £5.5m credit) in relation to other
specific items, mainly comprising income of £1.1m in relation to
profit on the sale of property in connection with the acquisition
of remaining 40% shares in ATC Bulgaria, offset by £1.0m charge
in respect of the liability for equalising Guaranteed Minimum
Pensions; and
■ Net fair value losses on derivative financial instruments and
unwinding of provision discounting of £0.5m (2017: £2.2m).
IFRS 16
IFRS 16 is a new standard relating to accounting for leases which
is 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 for lessees and introduces a single
lease 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 elected to adopt the standard using the modified
retrospective approach, which means that it has no impact on the
results announced in this Report. However, it will have an accounting
impact on the results of the Group in 2019. It is estimated that
implementation of IFRS16 at the 2018 year end would have
increased net debt by c.£291m, operating profit by c.£7m and
interest expense by c.£12m.
Accordingly it is anticipated that the implementation and application
of IFRS16 will have the effect of reducing the Group’s profit before
tax in 2019 by c.£4m.
The changes in accounting resulting from the implementation
of IFRS16 will not affect the way liquidity is assessed against the
Group’s banking covenants, which will continue to be assessed as
though the accounting rules had not changed. As such, headline
financial leverage will continue to be measured on a consistent basis
in 2019 and the Group will continue to target a headline financial
leverage, excluding the increase in leverage associated with the
implementation of IFRS16, below 1.0x over the medium term.
Prior period restatements
As previously reported, Ernst and Young LLP was appointed as the
Group’s new statutory Auditor in July 2018. As part of the transition
to the new Auditor, the Group has reviewed certain accounting
policies and judgements. This resulted in a number of errors
being corrected by prior year restatements to previously recorded
numbers, as announced in the Group’s 2018 Interim Report. In
addition, as part of the 2018 year end close, the Group corrected
its policy for accounting for future dilapidations costs on property
leases to account for the cost of reinstating capital modifications
on inception of the lease instead of accruing costs over the life of
the lease. This gives rise to a prior period restatement, resulting in
an increase to fixed assets of £2.6m and to liabilities of £7.9m at 31
December 2017.
Full details of these prior period restatements are described in
the Statement of Significant Accounting Policies and the effect on
each financial line item affected is shown in Note 33 of the Financial
Statements. In aggregate, these prior period restatements increased
net debt by £34.9m at 31 December 2017 and reduced underlying
profit before tax by £3.5m in the year ended 31 December 2017.
34
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Impact of non-core businesses and prior period restatements
The revenue and profits of businesses that had been divested or closed, or which the Board had resolved to divest or close, before 8 March
2018, and which are therefore now being treated as non-underlying, are set out in the table below. The table also shows the impact on profit
of the prior period restatements in order to derive comparatives for the underlying Group.
Underlying Group as reported at 2017 full year results
VJ Technology
Prior period restatements1
Revenue
£m
2,737.9
(17.0)
–
Underlying Group as reported at 2018 half year results
2,720.9
SIG Cut Solutions
Roofspace
Proteus
Commercial Drainage
Prior period restatements2
(0.3)
(24.0)
(3.4)
(10.0)
–
Underlying Group as included at 2018 full year results
2,683.2
2018
Underlying
profit/(loss)
before tax
£m
78.9
(3.1)
–
75.8
0.3
(2.1)
0.5
0.8
–
75.3
Net debt
189.4
–
–
Revenue
£m
2,778.5
(30.6)
–
189.4
2,747.9
–
–
–
–
–
(0.9)
(17.6)
(5.6)
(7.4)
–
189.4
2,716.4
2017
Underlying
profit/(loss)
before tax
£m
79.2
(5.0)
(3.0)
71.2
0.6
(2.0)
(0.6)
0.7
(0.5)
69.4
Net debt
223.8
–
34.9
258.7
-
-
-
-
-
258.7
1. Comprises the prior period restatements identified as part of the review of the accounting treatment of certain opening balances following the appointment of the Group's new statutory
Auditor as included in the 2018 Interim Report.
2. Comprises the prior period restatement in relation to dilapidations provisions identified and included in this Report.
3. Further details of the financial impact of these prior period restatements are included in Note 33.
Strategy in action
Portfolio management –
Selling VJ Technology and Roofspace
As part of the 2017 strategic review, the Group identified
businesses associated with 13% of 2016 Group statutory revenue
which it considered should be improved or exited, reflecting a
combination of small scale, limited strategic fit or poor financial
performance.
The Group has sold a number of businesses during the year,
including VJ Technology and Roofspace, following competitive
disposal processes. VJ Technology is a UK distributor of technical
fixings, fasteners and consumables to the infrastructure,
commercial and wider construction industry, and was part of SIG
Distribution. Roofspace was part of SIG Distribution and the last
remaining offsite manufacturing business of the Group.
The Group has now exited from 11% of the 13% of 2016
statutory revenue. A further 2% remains under review associated
with potential exit candidates. The Group has refocused the
remaining portfolio on its three core lines of business, as a
specialist distributor of insulation and interiors products, a
merchant of roofing and exteriors products and a pan-European
provider of specialist air handling solutions.
Key statistics:
■ Net proceeds from disposals: £35.8m (2017: £17.6m)
■ Proportion of 2016 Group statutory revenue exited in 2017
and 2018: 11%
35
STRATEGIC REPORTStock code: SHIwww.sigplc.com Financial review
Taxation
The Group takes a responsible approach to its tax affairs, acting in
accordance with the laws and objectives of the territories in which we
operate. We seek to pay our tax liabilities in full at the right time.
Where necessary, we take appropriate advice from 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 £19.8m (2017: £17.7m)
which represents an underlying effective rate of 26.3% (2017: 25.5%).
On the statutory profit before tax of £29.2m (2017: loss £54.7m),
the income tax charge of £10.6m (2017: £4.5m) represents an
effective rate of 36.3% (2017: 8.2% charge on loss of £54.7m). These
differences arise as a result of amounts included as Other items in
the year.
Cash tax payments amounted to £14.0m, £6.3m below the £19.8m
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.£3m gross utilised during the year).
The Group’s underlying effective tax rate in 2019 will be determined
by the mix of profits from different jurisdictions. It is anticipated that
the underlying effective tax rate in 2019 (excluding any prior year
effects) will be c.27%.
Shareholders’ funds and
returns to shareholders
Shareholders’ funds decreased by £6.7m to £462.9m (2017 restated:
£469.6m). The decrease comprised the following elements:
Profit 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)
Adoption of IFRS 15
Acquisition of non-controlling interest
Dividends paid to equity holders of the Company
Decrease in Shareholders’ funds
£m
17.9
2.1
1.3
0.4
0.2
(0.7)
(5.3)
(22.2)
(6.7)
The Company pays dividends out of the Parent Company retained
earnings and has sufficient distributable reserves to pay the
final dividend for 2018 and an appropriate interim dividend for
2019. 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 2018, the Group delivered an improved underlying earnings per
share of 9.5p (2017: 8.6p). As a result the Board is recommending
payment of a final dividend for the year of 2.50p (2017: 2.50p) per
share. Together with the interim dividend of 1.25p (2017: 1.25p)
per share, this gives a total dividend for the year of 3.75p (2017:
3.75p) 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 5 July 2019 to shareholders on the register at
the close of business on 7 June 2019. The ex-dividend date will be 6
June 2019.
Fixed assets
Net capital expenditure (including computer software) was a net
cash outflow of £20.2m (2017: £2.3m inflow), representing a capex
to depreciation ratio of 0.84x (2017: 0.08x). Capital expenditure
includes new vehicles, new brownfield sites, investment in plant and
machinery and computer software.
The capex to depreciation ratio is influenced by the level of proceeds
from the sale of property, plant and equipment, which were £5.1m
(2017: £34.6m). Excluding these proceeds, the capex to depreciation
ratio would be 1.05x (2017: 1.18x).
Foreign currency translation
Overseas earnings streams are translated at the average rate of
exchange for the year whilst balance sheets are translated using
closing rates. The table below sets out the principal exchange rates
used:
Average rate
Movement
Closing rate
Movement
2018
2017
%
2018
2017
%
Euro
Polish Zloty
1.13
4.82
1.14
4.85
(1.0)%
1.11
(0.6)%
4.78
1.13
4.70
(1.4)%
1.7%
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:
Impact of currency
movements in 2018
Underlying revenue
Statutory revenue
Underlying operating profit
Statutory operating profit
Underlying profit before tax
Statutory profit before tax
Consolidated net assets
Net debt
18.8m
18.8m
0.8m
0.7m
0.7m
0.6m
2.1m
2.0m
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 38.
36
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT 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”.
The last triennial valuation of the UK scheme ("the Plan") was
conducted at 31 December 2016 and concluded in the first quarter
of 2018. The Trustees and the Company agreed to fund the triennial
pension deficit and increase the security of the Plan using an asset
backed funding arrangement under a partnership arrangement.
The asset backed funding arrangement transfers certain rights
over a managed pool of the Group's customer receivables to the
partnership and the ongoing management of the receivables
provides income to meet contributions to the Plan of £2.5m per
annum for up to 20 years (as may be required and subject to certain
discretions).
Funding of operations
SIG finances its operations through a mixture of retained profits,
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
Other financial liabilities
Derivative financial instruments (liabilities)
2018
£m
23.4
4.5
56.5
185.6
0.9
1.1
4.1
2017
Restated
£m
23.2
29.6
84.2
204.2
17.0
8.0
3.5
The pension charge for the year includes £1.0m in relation to
the estimated liability impact of equalising Guaranteed Minimum
Pensions (GMP), which has been included within Other items in the
Consolidated Income Statement.
Total
276.1
369.7
Derivative financial instruments (assets)
(1.9)
(1.3)
Gross debt (after derivative financial assets)
274.2
368.4
The overall gross defined benefit pension schemes’ liability decreased
during the year by £1.7m to £28.7m (31 December 2017: £30.4m).
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 170 to 173.
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 2018.
The main measure used to assess the appropriateness of the
Group’s capital structure is its net debt to EBITDA (see Note 32 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 7 March 2019, SIG’s share price closed at 122.2p per share,
representing a market capitalisation of £723m 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 page 99.
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 Group Board on a regular basis. It is Group policy that no trading
in financial instruments or speculative transactions be undertaken.
Cash at bank and on hand
Deferred consideration
Net debt
(83.3)
(108.2)
(1.5)
(1.5)
189.4
258.7
This reconciles to net debt used for covenant calculations as follows:
Net debt
Other covenant financial indebtedness
Foreign exchange adjustment
Covenant net debt
2018
£m
2017
£m
189.4
258.7
10.9
(1.8)
11.8
(1.5)
198.5
269.0
The Group’s gross financial liabilities can be further analysed as
follows:
2018
£m
2018
%
2017
£m
2017
%
Gross financial liabilities with a
maturity profile of greater than
five years
Gross financial liabilities held on
an unsecured basis
111.0
40.5%
154.3
41.9%
262.9
95.8%
358.1
97.2%
Details of derivative financial instruments are shown in Note 19 of
the Financial Statements on pages 153 to 160.
37
STRATEGIC REPORTStock code: SHIwww.sigplc.com Financial review
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.
The maturity profile of the Group’s debt facilities at 31 December
2018 is as follows:
Bank debt
Private placement loan notes
Private placement loan notes
Private placement loan notes
Private placement loan notes
Facility
amount
£m
350.0
26.9
18.0
44.9
96.2
Amount
drawn
£m
Amount
undrawn
£m
Date of
expiry
56.5
26.9
18.0
44.9
96.2
293.5 May 2021
- Oct 2020
- Oct 2021
- Oct 2023
- Aug 2026
536.0
242.5
293.5
£20.0m of Private Placement loan notes were repaid on maturity in
November 2018.
SIG has no immediate refinancing requirements and has sufficient
funding headroom with existing facilities to support its medium
term plans.
Interest rate risk
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.
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. 60% of SIG’s 2018 continuing revenues
(2017: 58%) were in foreign currencies, being primarily Euros and
Polish Zloty. Less than 2% 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 sales 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.
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):
2018
Local
currency net
borrowings/
(cash)
LC’m
2018
Sterling
equivalent
borrowings/
(cash)
£m
2017
Sterling
equivalent
borrowings/
(cash)
£m
Euro
PLN
149.6
(75.8)
Other currencies
multiple
134.3
(15.8)
(3.9)
114.6
61%
147.6
(17.4)
1.5
131.7
51%
The percentage of gross debt at fixed rates of interest at 31
December 2018 is 88% (2017: 76%).
Total
% of net debt
n/a
n/a
Euro net debt at 31 December 2018 represented 71% of Group net
debt (2017: 57%).
Impact of foreign currency movements in 2018
The overall impact of foreign exchange rate movements on the
Group’s Consolidated Income Statement and Consolidated Balance
Sheet is disclosed on page 36 of this Strategic report.
38
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC 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 exposures where it makes commercial and economic
sense to do so. The Group currently has no commodity derivative
contracts in place.
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.
Debt covenants
The Company’s debt facilities in place at 31 December 2018
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:
Year
ended
31 December
2018
Year
ended
31 December
2017
Restated
Requirement
Consolidated net worth1
>£400m
£463.6m
£469.6m
Interest cover ratio2
Leverage ratio3
>3.0x
<3.0x
6.6x
1.7x
4.7x
2.3x
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 to the accounts on pages 174 to 180.
As can be seen in the table above, the Group is in compliance with its
financial covenants and has a satisfactory level of headroom.
Leverage reduced in 2018, despite the repayment of £20m of private
placement notes, with cash balances benefiting from proceeds
received from the divestment of non-core businesses and the
suspension of the Group’s acquisition strategy.
The Group continues to experience intra-year seasonal working
capital patterns, and it is anticipated that at 30 June 2019 leverage
will increase from the position at December 2018.
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 46 to 47. 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
2021 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.
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 2021. 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:
− Customer service: sales and service improvements
− Customer value: pricing and product, enhancing gross margin
for the Group and
− Operational efficiency: operating cost savings and working
capital reduction
■ Dividends: no change in the stated dividend policy.
■ Availability of financing: the Group's Revolving Credit Facility of
£350m matures in May 2021 and £44.9m of private placement
debt is due to be repaid in 2020 and 2021, within the viability
period. The Group does not foresee refinancing to be an issue
and expects to secure sufficient facilities to meet its future
requirements. On this basis it is assumed that SIG has sufficient
funding headroom and liquidity in place to support its plans over
the medium term.
39
STRATEGIC REPORTStock code: SHIwww.sigplc.com Financial review
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. The potential
implications of macro-economic uncertainty due to Brexit have also
been considered.
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.
The impact of a severe and prolonged economic downturn on the
Group’s financial results was modelled using a scenario based on
the 2008/2009 global financial crisis.
Link to principal risks and uncertainties
Delivery of the change agenda
Market downturn
Working capital management
Market downturn
Delivery of the change agenda
Market downturn
Market downturn
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 2021.
Going concern basis
In determining whether the Group’s 2018 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 46 to 47 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, including macro-economic uncertainty due to Brexit;
■ 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 2018
Annual Report and Accounts.
40
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT 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 46 to 47 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 57) was approved by
a duly authorised committee of the Board of Directors on 7 March
2019 and signed on the Board’s behalf by Meinie Oldersma and
Nick Maddock.
Meinie Oldersma
Chief Executive Officer
Nick Maddock
Chief Financial Officer
7 March 2019
7 March 2019
41
STRATEGIC REPORTStock code: SHIwww.sigplc.com Establishment of pan- European
Air Handling division
SIG’s integrated Air Handling division is the largest distribution-led specialist provider
of air handling products and solutions in Europe.
In line with our strategic approach to simplify the business and to place greater focus on our key business
activities, we have incorporated the branch network and manufacturing subsidiaries of Ouest Isol & Ventil, the
Group’s specialist distributor of ventilation, air conditioning and technical insulation products in France, and
SK Sales, our specialist supplier of heating, ventilating and air conditioning (HVAC) in the UK, into our existing
European Air Handling business.
Our offerings
We are market leaders in the delivery of specialist products and solutions, creating
sustained value for a wide range of customers. Our customer value proposition offers
whole-system solutions from design to supply, enhanced by a wide product offering,
e-commerce, own fabrication and own-label products.
Specialist distribution
Specialist distributor of air handling parts
and products, with a growing own-brand
and fabricated product offering, supplying
installers and building contractors with
tailored solutions. Our ‘hub and spoke’
business model provides a ‘one-stop-
shop’ for our customer base in the
distribution of 3rd party and private label
HVAC and complementary technical
insulation products.
Specialist projects
In conjunction with our distribution
offering, we provide technical solutions
for the design, supply and installation
of specialist air handling systems
across a multitude of sectors and
project sizes. We hold the leading
market position in the specialist, high
value niches of car park systems and
climate ceilings, with a proposition
that is exported worldwide.
Sales mix
■ Specialist distribution
■ Specialist projects
85%
15%
Our markets
United Kingdom
Belgium
France
Switzerland
Netherlands
Germany
SIG’s combined Air Handling
division now operates across:
92
sites and
10
European
countries
Diversified mix of end markets
Austria
Romania
Bulgaria
Hungary
Car parks
Shopping
malls
Sports
facilities
Industrial
Homes
Schools
Fabrication Facilities
Branch Depots
Project Offices
Hospitals
Offices
42
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Our products
The Air Handling business supplies a range of >15,000 products and HVAC related project solutions with
a strong and growing fabricated and own label range of products for end-to-end air handling systems
across a wide variety of internal settings.
CASE STUDY
Customer value –
Innovating for our customers
In 2018, we used innovation to
supplement our core product offering
for our customers in the development of
diffuser simulation software under our
own brand label, Cairox. The software
targets technical consultants, architects
and contractors by supporting their
design of a ventilated environment.
The software enables our customers
to visualise the impact a product will
have on a space, taking into account the
dimensions of a room and air flow. We
currently have more than 600 subscribers
in Belgium, driving a trend towards
repeat business within the user base,
and increasing sales of diffuser products.
Innovation in this way has enabled the Air
Handling business to respond flexibly to
changes in the trading environment and
the requirements of customers.
Key statistics:
■ Increase in sales of product category –
up 5.1% year on year
■ Number of active subscribers – 600
Our financials
Using the 2018 financial results as a guide,
on a consolidated proforma basis, the Air
Handling division’s revenues were in excess
of £300m. With the highest gross margins in
the Group, at c.38%, and a tight cost base, its
profits for the year were c.£19m, providing a
healthy return on sales of 6.3%.
Revenue
£148.2m
£140.8m
£310.1m
Operating profit/(loss)
£21.1m
£14.8m
£6.7m
£19.4m
£(2.1)m
Air Handling
Ouest Isol & Ventil
SK Sales
We now have the foundations on which the build a stronger platform to allow for improved customer
service, accelerated profitable growth and a strengthened value proposition. The integration of all of
our European Air Handling operations into a single line of business will allow us to strengthen our ability
to share best practice and capture synergies. We also see further value creation potential through
strengthening our air handling solutions platform across European markets.
43
STRATEGIC REPORTStock code: SHIwww.sigplc.com Principal risks and uncertainties
Risk management plays an integral part in SIG’s planning, decision
making and management processes. All colleagues have a
responsibility to ensure they understand the risks in their area of
activity and in ensuring controls to manage the risks are operating
effectively but the Board maintains overall responsibility for ensuring
risk management and internal control systems are robust.
THE BOARD
Executive Committee
Audit Committee
1ST LINE
2ND LINE
3RD LINE
Business operations
■ Management controls
Oversight functions
■ Financial control
■ Internal control measures
■ Risk management
Independent assurance
■ Internal audit
■ Health & safety
■ Branch compliance
■ Information security
■ Cyber security
E
x
t
e
r
n
a
l
A
u
d
i
t
l
R
e
g
u
a
t
o
r
s
1ST LINE OF DEFENCE
2ND LINE OF DEFENCE
3RD LINE OF DEFENCE
Comprises managers and
staff who take ownership for
identifying and managing risks
as part of their core roles.
Collectively, they should have
the necessary knowledge, skills,
information and authority to
carry out the relevant policies
and procedures of risk and
control.
Provides the policies,
frameworks, tools, techniques
and support to enable risk and
compliance to be managed
in the first line, conducts
monitoring to judge how
effectively they are doing it, and
helps ensure consistency of
definitions and measurement
of risk.
Ensure that the first two lines
are operating effectively and
advise how they could be
improved. Tasked by, and
reporting to the Board/Audit
Committee, it provides an
evaluation, through a risk-based
approach, on the effectiveness
of governance, risk management
and internal control.
The Board sets the strategy for the Group and ensures the risks for
the delivery of this strategy are effectively identified and managed
through the implementation of the risk management framework.
horizon scanning, attendance at risk forums and risk workshops held
with management teams. Emerging risks identified and monitored
throughout 2018 include Brexit.
The Group employs a three lines of defence model to provide a
simple and effective way to enhance the risk management process
and ensure roles and responsibilities are clear. Activity is coordinated
to ensure there are no gaps or duplication of controls.
Risk management framework
The SIG risk management framework is based on the identification of
Group risks through regular discussion at local operating company
leadership, Executive Committee and Transformation Committee
meetings. New and emerging risks are identified through the use of
Group risks are owned by an Executive Committee member and
sponsored by either the Chief Executive Officer or Chief Financial
Officer. These risks are assessed at both a gross and net level using
an agreed risk scoring methodology. Mitigating actions currently
in place are documented and regularly assessed. Where it is not
possible to manage risks to an acceptable level through existing
controls, risk owners identify actions to enhance the control
environment.
44
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT
On a monthly basis the Executive Committee examines, in detail, an
individual risk from the Group risk register, and all Group risks are
formally reviewed by the Group Risk Team with updates reported
back to the Executive Committee and Board twice annually. This
includes a review of whether the documented controls are in place
and an update of the actions required. The completeness of the risk
register and the appropriateness of the scoring are also reviewed at
this time.
The Group monitors Key Risk Indicators (KRIs) for its principal risks
which help identify when a risk profile may be changing. The KRIs
are monitored monthly through the management accounts and
considered as part of the Executive Committee monthly meetings.
A similar process occurs at the operating company level where the
risk registers comprise risks for the local Medium Term Plans and
strategic objectives. Group Risk periodically reviews these risks with
local management and performs a reconciliation with the Group
risk register.
Assurance activity
Internal audit bases its annual audit plan on the Group and individual
operating company risk registers. It also reviews all key controls
(documented in the key controls framework) 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 2019 covers a number of Group
risks, with a significant focus on the change agenda.
The audit team obtains updates from management on progress
towards completion of agreed actions and collects evidence
to support successfully implemented actions. The status of
management agreed actions is monitored on a monthly basis
through the Executive Committee meeting and reported quarterly to
the Audit Committee.
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 and the review of the key controls
framework in each OpCo by the Group Controls Manager.
Developments in 2018
Key developments of the management of risk and internal control in
2018 included:
■ Documentation of risk management framework and internal audit
manual;
■ Implementation of a Transformation Governance Committee to
monitor projects effectively across the Group and identify the
associated project risks;
■ Appointment of a Chief Information Security Officer to further
enhance cyber security controls;
■ Appointment of a Group Controls Manager to improve the key
controls framework and ensure it is embedded across the Group.
An exercise was completed with a third party to document and
support improvement of financial reporting controls in larger
operating companies;
■ Implementation of a revised Delegation of Authority Policy to
reinforce authorisation principles for operating and capital
expenditure; and
■ Revision of the branch assurance activity in parts of the UK to give
greater first line assurance to senior management; and
■ Introduction of an online tool to track actions from internal audit
reviews.
Improvements planned for 2019
SIG will continue to improve its risk management processes with a
number of initiatives:
■ Further development of data quality and capabilities to improve
Group reporting and allow greater oversight by second line
functions;
■ Development of assurance mapping capabilities to identify any
gaps or inefficiencies;
■ Further automation and development of the KRI reporting;
■ Formal definition of risk appetite; and
■ Development of a Group-wide branch audit framework.
Brexit risk
There remains significant uncertainty around the timing and nature
of the terms on which the UK will exit the European Union. Since the
rejection by the House of Commons of the initial draft agreement,
there is a greater risk that the UK's departure is delayed or in the
worst case that the UK could leave the EU with No Deal. The Board
has regularly reviewed the potential impact of Brexit on its UK and
Irish businesses since the initial vote and impact assessments have
been completed for core areas of the Group that will be affected by
the exit and these have been updated as negotiations progress.
Whilst the majority of the Group’s profits are generated by its
mainland European businesses which are to a large extent not
expected to be affected by Brexit, a significant proportion is
derived from SIG Distribution, SIG Exteriors and SIG Ireland. The UK
businesses will potentially face challenges from the UK's exit from the
EU whilst SIG Ireland will potentially face challenges as a result of its
significant level of imports from the UK and its distribution activities
covering the whole island of Ireland (including Northern Ireland
within the UK).
The major potential areas of exposure to the UK business are
monitored on a regular basis and are considered to be:
■ Declining market conditions – the least quantifiable and most
uncertain of the risks that may have an impact on the Group is
the potential decline in market trading conditions. In a worst case
scenario, the UK market could decline abruptly and substantially.
The uncertainty of any potential terms of the final agreement
may mean large projects in the UK and Europe are postponed,
impacting demand for materials. Market data is continually
monitored to ensure that contingency plans are appropriate and
can be triggered if such a decline occurs.
■ Heightened borders – with the nature of the UK/EU borders yet
to be confirmed there is a risk that goods supplied from Europe
(directly or indirectly) may have longer lead times or become
unavailable immediately after the exit. The majority of materials
sold in the UK are purchased in-country but some raw materials
are sourced by suppliers from the EU. Discussions with suppliers
have been held to identify potential risk areas and plans have been
implemented to ensure stock levels can be increased prior to the
exit date to enable the business to continue to meet demand.
Whilst the Irish business is considerably smaller than those in the UK,
considerable steps have been taken to ensure continuity of supply,
product compliance with EU regulations and tariff pass through to
customers. The business has maintained continued dialogue with
its customers to help them understand its approach to maintaining
good customer service and value. The Group will update its risk
assessment on a regular basis as negotiations develop and will
continue to work to minimise any disruption to its operations.
45
STRATEGIC REPORTStock code: SHIwww.sigplc.com Principal risks and uncertainties
Principal risks
The Board monitors 15 risks on the Group Risk Register, which
includes the principal risks to the Group set out in this Report.
These risks, if they materialise, could have a significant impact on
the Group’s ability to meet its strategic objectives. The assessed net
risk scores (likelihood and impact of the risk occurring after taking
account of mitigating actions) are outlined in the adjacent matrix and
details of how the risks might materialise, what the current mitigating
actions in place are, as well as any planned improvements, are
included in the table below.
Principal risks
A
Delivery of the change agenda
F
Pricing management
B
Working capital management
G Systems capability
C Data quality
D
Cyber security
E Market downturn
H Supplier rebates
I
J
Retention of talent
Health and safety
D
B C
J
E
F G
H I
A
4.
3.
2.
1.
t
c
a
p
m
I
1.
2.
3.
4.
Likelihood
RISK TITLE
DESCRIPTION
KEY CONTROLS
ACTIONS FOR 2019
A
Delivery of the
change agenda
CS CV OE
Without appropriate and sufficient
capability, capacity and culture, the
Group could suffer initiative overload
resulting in management stretch and
failure to meet core objectives
B
Working capital
management
CS OE
Failure to manage working capital
effectively, leading to an increase
in net debt, reducing the Group’s
funding headroom and liquidity
C
Data quality
CS CV OE
D
Cyber security
CS OE N
Lack of availability and reliability of
data may have an adverse impact on
the ability of the business to make
properly informed and consistent
decisions
Internal or external cyber-attacks
could result in system disruption or
loss of sensitive data
■ Review of delivery framework
■ Further development of Group
communications
■ Appointment of transformation
directors at each operating
company level
■ Consultation with external
experts to aid project strategy
and implementation
■ Introduction of Group
transformation committee
meetings to govern project
portfolio
■ Budgets set for all areas of the
business with accountability for
performance established
■ Inventory task force set up to
manage stock effectively across the
Group
■ Key metrics and reporting reviewed
regularly in management accounts
and at management meetings
■ Further development of cash flow
forecasting capabilities
■ Further centralisation of
responsibility for inventory planning
in operating companies
■ Streamlining of shared service
processes to given greater control
over debtors and creditors
■ Implementation of data entry
■ Additional data to be introduced to
controls
data warehouse
■ Introduction of data warehouse
with controlled data sources
■ Introduction of new reporting tools
for operating companies
■ Appointment of experienced Chief
■ Upgrade antivirus software
■ Enhance cyber-attack monitoring
■ Cyber security strategy in place
Information Security Officer
■ Training, communications and
schedule to ensure staff awareness
of risks
■ Disaster recovery plans in place
and secure backups conducted to
ensure continuity of service
46
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT RISK TITLE
DESCRIPTION
KEY CONTROLS
ACTIONS FOR 2019
E
Market
downturn
CV OE
F
Pricing
management
CV N
G
Systems
capability
CS CV
H
Supplier
rebates
CV
I
Retention of
talent
CV
CS
N
J
Health and
safety
CS OE
Changes in the market impact the
Group’s ability to meet performance
expectations
■ The Group’s geographical diversity
across Europe reduces the impact
of changes in market conditions in
any one country
■ Cost reduction plans across the
Group to reduce cost base
■ Industry based KPIs monitored
monthly at a Group and operating
company level
■ Continue to monitor Brexit risk and
develop mitigation plans accordingly
■ Further development of
performance indicators and market
modelling to assess better the
impact of market changes
Prices cannot be adequately
controlled to remain both competitive
in the market and achieve margin
improvement targets
■ Implementation of pricing tools
and centralisation of control by
operating company
■ Further improvement in data
capabilities to provide greater
visibility
■ Review and monitoring of margin
by customer
Systems become heavily customised
and outdated and are unable to
support critical business activity and
decision making
■ Strategy to bring in new off-the-
shelf systems to fill existing gaps
■ Upgrade core ERP systems
■ Design Group roadmap for system
■ New systems and changes to
replacement or upgrade
existing systems require central
approval
Rebate income may not be
accurately accounted leading to an
overstatement or understatement of
profits
■ Reducing the reliance on rebate
■ Roll out of rebate management
income through off-invoice
discounting
software
■ Further reduction of the reliance on
■ Rebate debtors and income
long term rebate agreements
Failure to attract and retain people
with the right skills, drive and
capability to re-shape and grow the
business
Danger of incident or accident,
resulting in injury or loss of life to
employees, customers or the general
public
regularly reviewed by commercial
and finance teams
■ Changes to rebate assumptions
approved by the rebates committee
■ Appointment of a new Group HR
■ Development of an overarching
Director
■ Engagement survey completed with
associated action plan developed
■ Improved remuneration packages
and retention plans for critical roles
improvement plan for recruitment,
reward, talent development and
communications
■ Health and Safety policies and
■ Review of consistency and accuracy
of controls in targeted areas
procedures in place and available
to all staff
■ Well established training
programme during induction and
on an ongoing basis
■ Monitoring and reporting on
incidents and investigations
into route cause carried out to
continually improve processes
■ Health and Safety audits completed
by independent teams
Relevance to strategy
Understanding movements in business risks
CS
CV
CUSTOMER SERVICE
CUSTOMER VALUE
OE OPERATIONAL EFFICIENCY
Increase
Decrease
No change
N
New
47
STRATEGIC REPORTStock code: SHIwww.sigplc.com Sustainability:
Principles
Sustainability
SIG’s medium term strategy is to deliver significant improvement
in operational and financial performance. Strong progress has
been made this year to achieve this transformation, providing
the foundations for future long term value generation. Through
transformation, SIG are working to improve the experience of all of
its stakeholders, including its suppliers, customers, shareholders and
employees.
SIG recognises its corporate responsibilities towards its
shareholders, employees, customers and suppliers and is committed
to socially responsible business practice. In 2018 SIG continued to
integrate Corporate Responsibility across the Group.
The Group implements policies that include social and environmental
issues in our decision-making processes, 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 corporate
responsibility, including how it monitors and improves performance
reporting.
SIG code of conduct
SIG has a Code of Conduct which sets out our ethical standards and
expected behaviours from all employees around the Group. The
Code provides guidance on how to manage certain situations and
where to go for advice, and outlines our obligations across a number
of business policies, including anti-bribery and corruption and ethical
trading and human rights, amongst others. The Code is supported
by our Group and local policies, procedures and guidelines that are
designed to protect the business and our employees from legal,
financial and reputational risk.
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.
The Code of Conduct can be viewed on the Company’s website
(www.sigplc.com).
Diversity and equal opportunities policy
SIG aims to provide an inclusive and supportive working environment
for all, with equal opportunities for all existing and prospective
employees. SIG's priority is always to ensure that its business and its
processes do not discriminate against any individual, and promote a
culture of equal opportunity.
The Group’s diversity and equal opportunities policy can be found on
its website (www.sigplc.com).
Gender diversity
SIG are committed to equality and recognise the value that can be
created from diversity. As it operates in the construction industry,
SIG has typically attracted a higher population of male employees.
SIG's average gender pay gap in 2018 of 5.4% was significantly lower
than the national average of 17.1%, and the average for the industry
at 16.0%. This reflects a reduction in its gender pay gap from 2018
(7.9%). In 2018, SIG defined the key areas of focus which will develop
diversity and inclusion across the Group, and which seeks to address
its gender pay gap further, including challenging its recruitment
processes, developing its policies, the ongoing assessment of
remuneration and a focus on training and awareness particularly for
its management population. SIG will work towards these actions in
2019 to create a more diverse and inclusive organisation that helps it
to attract talent and maximise their potential.
The Gender Pay Report is published on the Company’s website
(www.sigplc.com).
E
L
A
M
E
F
E
L
A
M
Board
members
25%
Senior
managers
19%
Total
population
20%
Board
members
75%
Senior
managers
81%
Total
population
80%
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 sets out 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.
48
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Modern Slavery Act 2015
The Group has published its Group anti-slavery statement in
respect of the year ended 31 December 2017 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
2018. The statement will be uploaded to the Company website within
six months of the financial year end.
Sustainability:
Our people
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 sales people. 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.
Its aim, therefore, is to limit its exposure to bribery and corruption
by:
■ Setting out a clear policy on anti-bribery and corruption
■ Training all employees so that they can recognise and avoid the
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 resulting
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).
49
STRATEGIC REPORTStock code: SHIwww.sigplc.com Sustainability:
Our people
Vision and values
At SIG, our vision is Stronger Together, which is underpinned by six
values that guide the behaviours that we expect from our employees
and the way in which we work with colleagues, customers, suppliers
in the communities in which we operate.
These values are Trust, Respect, Integrity, Commitment, Teamwork
and Fun.
Improved capability
We recognise that our competitive advantage lies in fostering a
performance management culture that enables value to be created
for our customers, suppliers and communities in which we operate,
through employee contribution. In order to achieve this, we must
ensure that SIG has the right people, optimally deployed and
properly engaged to deliver the strategy and business results.
As part of our strategy, building on our potential, the capability
of our workforce is a key enabler. During the course of 2018, our
organisation went through significant transformation. In line with
our strategic approach, we took considerable steps to simplify the
organisation and increase opportunities for improved operational
efficiencies. The reduction in headcount across the business and
restructures in many of our operating companies have allowed us
to remove historical hierarchy and begin to drive improved ways of
working going forward.
In October 2018, we outsourced our UK Finance shared service
centre, providing the opportunity for us to re-evaluate our activities
and ways of working to improve efficiencies and finance controls. In
addition, a number of our operating companies centralised functions
from individual branches, such as sales and inventory management.
We are confident that these fundamental steps are providing us
with the right structure on which to develop our people capabilities
through strengthened functional accountability and dedicated
expertise.
Strengthened leadership
With operations across mainland Europe, we benefit from a broad
range of skills and experience and recognise that leveraging these
capabilities, and developing our people to reach their potential, is
fundamental in driving a performance management culture that
adds real value.
Throughout 2018 we saw a significant change in our leadership from
Board level down. We welcomed two new Board members in 2018,
bringing extensive knowledge of and experience in the construction
industry. In addition, a significant proportion of the senior leadership
team changed throughout the year, adding further skills and
capabilities. We believe that with this strengthened population, we
have the right leaders across the business to deliver our ambitious
transformation plans.
Talent development
The leadership population is assessed as part of our talent review
in order for us to identify the talent capability and development
areas for future potential. In addition, our programme dedicated to
developing high potential employees in the business, RISE, aims to
identify and progress our future leaders and support the delivery of
our strategic goals.
In 2018, the first cohort concluded this programme, with six
cohort members graduating from the scheme. After completing six
extensive development modules over the course of an 18 month
programme, which included a six-month language course and a
stretch project linked to delivery of our medium term plans, the
programme culminated in a presentation to the Group Executive
Committee. Following the completion of the programme, the
participating employees were then given access to one-to-one
executive coaching for a further six months, to take their learning
into the workplace.
In addition, as we bring senior leaders into the business, it is
important that we equip them with the right knowledge and tools in
order for them to perform in their roles quickly. As such, in 2018 we
launched a review of the senior leadership induction programme,
with the aim of identifying key areas of improvement.
Our international graduate programme continues to offer its
members the chance to develop valuable skills in learning, teamwork,
leadership and problem solving that will help support their work in
the business, and provides the business with a consistent pipeline
of new talent across a range of functions. The two year programme
offers graduates the opportunity to experience working in different
placements across SIG, from Finance, Category Management,
Marketing, Corporate Development, Project Management,
Operations, Supply Chain and HR, where they complete a six month
placement in an area of the business outside of their home country.
Alongside their placements, graduates also take part in regular
development activities and modules outside of the workplace.
50
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT CASE STUDY
Case study –
International graduate scheme
Claudia Cogliati – international graduate, France
Claudia joined the international graduate scheme in
September 2016. As part of the six monthly rotations, Claudia
worked across a number of functions, including marketing,
procurement and supply chain. Claudia now holds the position
of Buyer for exterior building materials in France.
“ Being part of the international graduate scheme at SIG has
provided me with an amazing opportunity to develop my
skills and experience across an international business.
I gained valuable experience from a number of functions
across the Group, and gained the most value in the
procurement and supply chain functions where I found
my passion for the negotiation and development of
procurement strategies. As a result, following the
completion of the scheme, I entered into the role of Buyer
for exterior building materials, managing a portfolio of
€30m.
Throughout the scheme, feedback and coaching from
leaders in the business has influenced my experience and
allowed me to explore areas for development that will shape
my career path going forward. I continue to gain valuable
experience from my role and see a number of opportunities
for roles that I could move into, for example, Category
Manager.
Recruiting graduates into the scheme means we are
constantly bringing a fresh perspective and new skills into
the business, and in turn, we can help them develop their
abilities in the workplace.
I’m looking forward to welcoming the next graduate cohort
to the business.”
Members of the RISE programme cohort who
completed their 18-month programme.
Fran Galbraith, Group Talent and Development
Director said: “A massive congratulations to the
colleagues on cohort one for completing our first
RISE programme. We’re committed to developing
our people at every stage in their career and
RISE is a dedicated programme which equips our
ambitious high performers with the tools they
need.”
The team then went on to participate in the one-
to-one leadership coaching for a further 6 months.
Cohort 1 completed their RISE programme during
the year. Left to right: Meinie Oldersma, Group Chief
Executive; Gemma Prince - Senior Procurement Manager
- Insulation, SIGD UK; Steve Pearson - Procurement
Director, SIGE UK (2018); Nick Maddock, Group Chief
Financial Officer; Bartosz Pilch - SIG Poland, eCommerce
Director, SIG Poland; Maarten van Evren - Manager, IT
and Business Control, SIG Air Handling
51
STRATEGIC REPORTStock code: SHIwww.sigplc.com Sustainability:
Our people
Engaging our people
In 2018 we conducted our annual engagement survey ‘SIG Listens’.
This was our third survey, which was delivered in eight languages
across the Group and aimed to provide data and insight into the
wider employee experience to help inform key strategic decisions.
The survey received a response rate of 66% and an engagement
index of 69%, thus providing a valuable baseline for us to build on
which to build in 2019.
Recognising our employees’ contributions is also a key element
of engaging and retaining our people. Our Values in Practice
recognition programme allows peer-to-peer recognition of
colleagues who have gone above and beyond in demonstrating
our values. Managers present the awards and the winners are then
recognised and celebrated through newsletters and intranet articles
across the organisation. In 2018, c.700 nominations were made and
we continue to encourage recognition in all areas of the business.
Embarking on and embedding transformation relies on the
contribution of each and every employee. Therefore, it is important
that we recognise performance and behaviours that drive us towards
realising our strategy.
It is important that we remain competitive in the employment
markets in which we operate. We adopt a fair and consistent
approach to remuneration throughout the organisation, and our
remuneration offerings are benchmarked regularly both internally
and externally. Throughout 2018, in line with the organisational
restructures, we simplified many job titles and families across the
Group and introduced clearer pay structures to support our fixed
and variable pay.
The bonus schemes we operate are designed to reward exceptional
performance and contribution across the business and focus
specifically on deliverables and local performance results.
In addition, the Share Incentive Plan (SIP) is open to all UK employees
and gives one matching share for each share purchased by the
employee up to a maximum of £20 per month. As at 31 December
2018, there were 527 employees participating in the SIP.
In 2018, we launched a new SIG plc Management Incentive Plan
(MIP) for our senior leadership population to better support strategy
execution. The MIP provides an integrated approach to incentives
and replaced the annual bonus and Long-Term Incentive Plans
(LTIP). The MIP consists of three elements – cash bonus, deferred
share award and restricted share award. The MIP strengthens the
link between performance and reward and allows a range of annual
performance conditions to be set based on financial, operational and
strategic requirements.
Leveraging our strategic enablers
Our strategic enablers focus on better IT, improved data and
improved capability. Our focus on improving our people capability
across the Group also relies on providing our leaders and employees
with key data and information in order to make effective and
informed decisions about the business and in the management of
our people.
In 2018 we embarked on a transformation project to replace our
core HR information systems which aims to streamline our processes
and provide enhanced data to our managers and employees, in
order for them to optimise performance and inform decision making.
Charity and community involvement
Across the SIG Group, our employees continue to participate in a
wide variety of charitable activities that add value to the communities
in which we operate.
In the UK, employees in SIG Exteriors in Cardiff and Swansea
took part in a charity football match, to raise money for Muscular
Dystrophy UK and Cancer Research UK. Between the teams, they
raised over £1,000 for the charities. Many employees have taken
on personal challenges, including midnight walks, 10k races, charity
treks, marathons, and an eight-day expedition race through 400km
of the Scottish Highlands undertaken by an employee in our SIG
Exteriors business. Through the efforts of our colleagues, and with
the support of the company’s matched funding scheme, we have
raised over £7,000 for local and national charities throughout the
year.
Employees in Ireland donated to a number of charities, dedicated
to providing funding and support for children with severe illnesses,
including CMRF Crumlin, Laura Lynn House, Template Street
Children’s University Hospital Foundation and Helping Hand.
SIG Poland contributed towards a number of charities through their
local branches and continue to offer their time to local volunteer
programmes. At the end of the year, the team participated in the
‘Noble Package’ scheme, which aims to provide families in need with
packages of food and appliances.
Employees in SIG Germany ran a month-long contest to encourage
usage and involvement with the new social intranet, launched locally
in September 2018. Whilst a prize was offered to the winners, the
eight members of the winning team donated the equivalent value
of the prizes to two charitable organisations; one supporting the
homeless and one supporting children and their families coping with
leukaemia. The business doubled the amount of each donation to
the charities.
Left to right: Sonja von der Hagen, Sabine Noack and Iwona Wagner, located at
our Service Centre in Bremen, Germany
52
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Sustainability:
Health, safety and the environment
We prioritise the health, safety and welfare of our employees, visitors,
contractors and members of the public who may be impacted by our
operations. We also have an obligation to care for the environment
through the prevention of pollution and the monitoring of good
environmental practices.
Health and safety
We have embedded a Zero Harm programme across the Group,
ensuring that we maintain the highest standards of health and
safety. As part of that programme, we have moved away from
reactive auditing towards a risk-based process, to ensure that local
management is held accountable for its actions.
Since the start of our Zero Harm programme in 2014, we have seen
significant improvements in the number and rate of accidents. In
2018, we continued to see an improvement in the Group's rate
for RIDDOR equivalent accidents and a 4% increase in the number
of accidents in the AIR* category with the rate disproportionately
affected by the reduction in employee numbers.
As part of Zero Harm, we commit to twelve ‘Life Saving Rules’,
developed to target our risk profile. We communicate frequently with
our people, through a combination of means, including for example:
tool box talks, workshops and e-learning. Further, we operate a
number of training programmes for our people, including a RoSPA
accredited modular training programme (the SIG certificate in
Health, Safety and Environmental Management), and other regional
training workshops including ‘Supervising Safely’, ‘Working Safely’ and
‘Working at Height’.
Since the launch of the Zero Harm programme, SIG has retained the
RoSPA Gold standard for occupational health and safety.
The Group uses a health and safety management system that
is modelled on the internationally recognised Health and Safety
Standard BS-OHSAS 18001:2007. The UK business’s management
system has been accredited to the standard for more than 10 years
through its partnership with Intertek.
Our dedicated Health, Safety and Environmental (HSE) professionals
assist in delivering the risk assessment and management review
programme. Our HSE programme ensures that we aim for
continuous improvement in the management of health and safety
risk. Our risk profile is reviewed annually, and informs our HSE
programme. This year, we targeted occupational road risk, deliveries
and traffic management, and improved safety with the introduction
of 360 degree vehicle cameras, providing driver awareness training
and improving vehicle management and driver engagement at
our branches.
Our accident review panel, involving senior management, ensures
that learning points from accidents and near misses are acted on.
Our accident review panel reviews accidents and statistics to identify
high-risk areas, to enable us to focus on enacting change when it is
needed. Significant issues are communicated to the Board and our
insurers.
Our policy is to take a zero tolerance approach to anyone being unfit
for work due to drugs or alcohol. We reserve the right to provide
for testing of individuals subject to the legislative constraints within
our operating countries. A routine programme of random testing is
provided in the UK & Ireland 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.
SIG Trading Limited was prosecuted by the HSE and fined £600k
plus costs of £24k on 1 February 2019 in Carlisle Crown Court.
The prosecution was in respect of an accident at A Steadman and
Son in Warnell, Cumbria, which occurred in October 2015. Whilst
using an electrically-powered folding machine to bend metal a
machine operator suffered a severe hand injury. An immediate and
thorough investigation was conducted at the time and the failings in
communication and implementation of risk controls were effectively
addressed. The Company accepts the findings of the court and the
safety of machining processes continues to be a primary focus for
the Group.
* The Accident Incident Rate (AIR) is calculated as per 1,000 for ‘over three day’
and ‘specified major injury’.
Occupational road risk
We recognise that driving is among the most hazardous tasks
performed by our employees. Our drivers are assessed for
competence and selected through an authorisation and licence
check procedure. We routinely inspect our vehicle fleet and audit
business compliance with fleet procedures. We manage our fleet
maintenance and inspection programme centrally.
We recognise that our drivers act as representatives for our business
whilst they are on the road and we promote a culture of safe and
courteous driving through our training programme.
We adopt road safety schemes, including the voluntary Fleet
Operator Recognition Scheme (FORS). As an active champion of the
Construction Logistics and Cyclist Safety Group, we aim to promote
the status of vulnerable road users. We consider their Safer Urban
Driving courses to be essential to our driver training, and we continue
to work with vehicle manufacturers in their development of solutions
to improve visibility towards other road users.
53
STRATEGIC REPORTStock code: SHIwww.sigplc.com Sustainability:
Health, safety and the environment
Accidents and incidents
UK and 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
Accident incident rate – injury resulting in over 3 absence days from work or major
injury 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
Accident incident rate – injury resulting in over 3 absence days from work or major
injury per 100 employees
Group
Major injury
Injury resulting in over three absence days from work
Group
All RIDDORs (equivalent)*
Average Group headcount
* This includes accidents in non-UK businesses that would meet the criteria for reporting in
the UK under RIDDOR.
Quality assurance and
management systems
We periodically review and audit our management systems to ensure
they are maintained to a high standard. Where possible, systems are
externally certificated to ISO 9001:2015, FSC0STD 40-004 and PEFC-
ST 2002:2013 standards. We also integrate these standards into our
daily business, ensuring that our products and services meet our
customers’ expectations. In turn, this ensures that we conduct our
procurement processes responsibly.
Environment
We commit to maintaining appropriate environmental management
standards across our operations to meet both our statutory
obligations and best practice. During 2018, our environmental legal
compliance record remained excellent, with no prosecutions or
actions from the authorities.
We operate a combined Health, Safety and Environmental (HSE)
Policy. Our management system is accredited to OHSAS 18001 for
health and safety and to ISO 14001 for the environment, and those
accreditations are externally verified by Intertek. Our ISO 14001
management system successfully migrated to 14001(2015) ahead of
renewal in 2018.
54
Rate per 1,000 employees
2018
2017
2016
1.7
7.5
6.3
4,121
23.0
1.6
6.4
5.8
4,968
19.2
2.3
6.8
6.5
5,569
22.2
2015
2.3
10.8
9.3
5,174
26.3
9.7
6.9
8.7
12.5
Rate per 1,000 employees
2018
1.3
12.8
10.4
4,601
24.9
12.9
2018
1.5
10.3
2018
8.5
8,722
2017
1.1
12.4
12.2
4,688
27.5
2016
1.7
12.6
11
4,746
28.1
2015
1.8
13.2
13
4,467
29.9
13.3
14.2
15.1
Rate per 1,000 employees
2017
1.3
9.3
2016
2
9.5
Rate per 1,000 employees
2017
8.9
9,674
2016
8.5
10,315
2015
2.1
11.9
2015
11
9,641
The Board member responsible for HSE is the Chief Executive
Officer, who places paramount importance on the safety of our
people. A copy of our HSE Policy is displayed in the local language at
each operating branch.
Our HSE programme encompasses environmental matters and is
reviewed annually to ensure that it aligns to our strategy. We aim to
improve continuously, and this is achieved through objectives set
at Group, operating company and local level with regular reviews
against key performance indicators, including those set out in this
report and on our website.
We regularly risk assess our business against qualitative and
quantitative, generic, model and task-specific criteria, via the Group’s
aspects and impacts register. Significant findings are communicated
to management and operatives. We operate a Group-wide audit
programme to ensure that the integrity of control measures is
maintained. Significant risks and progress made to address them are
reviewed at Board level.
Our aspects and impacts register and our corporate environmental
risk assessment set out the potential impact that our operations
could have on the local and global environment.
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Carbon management
We set our environmental objectives from our low carbon
sustainability policy, which aims to reduce our consumption of fuel,
energy, water and waste, thus reducing our environmental impact.
Our carbon footprint accounting process is annually verified to ISO
14064-3 to a limited level of assurance. 2018, represents our fifth
successive year of achieving the standard.
Our carbon accounting and reporting programme meets the
requirements of the UK Government's statutory Energy Saving
Opportunities Scheme (ESOS). Our business objectives take
into account any energy saving efficiencies identified during the
compliance process.
Our environmental metrics are published externally through the
voluntary Carbon Disclosure Project (CDP). CDP works with investors,
companies and governments to put in place environmental
disclosure and action that will deliver a sustainable economy, prevent
dangerous climate change and protect natural resources. We
achieved a performance rating of band 'C' for 2018.
As we invest in the refurbishment of our existing buildings and fit out
new sites, we seek energy efficient solutions. Our greenhouse gas
emissions have reduced in recent years as a result of pursuing this
strategy, along with progressively upgrading our road vehicle fleet.
Transport
Our primary metric is vehicle fuel consumption, as emissions from
road vehicle fuel consumption makes up 76.0% of the Group’s
total carbon footprint. This year, we have reduced our absolute
consumption of road vehicle fuel by 7.1%. We have achieved this
reduction through projects to consolidate the number of our
branches and the size of our vehicle fleet, the introduction of energy
efficient vehicles where possible and the continual upgrade of our
property portfolio.
We also provide driver eco training courses, designed to influence
driver behaviour, including the ‘Driver Certificate of Professional
Competence’ training programme. Trainers are also provided an
auditing and advice programme on a continual basis.
Energy
Our second highest priority for carbon management is electricity
consumption, accounting for 11.8% of our Scope 1 and 2 emissions
in 2018 (2017: 12.8%).
In compliance with both voluntary and statutory carbon accounting
schemes, we audit our energy consumption and work in close
partnership with our external partners to reduce our environmental
impact and improve our data collection and accounting processes.
As a result, we have achieved the ISO verification standard.
As we upgrade our locations, we make energy efficient choices,
including installing movement and daylight sensor LED lighting
systems, efficient heating and cooling systems and efficient hand
driers. As a result, emissions from electricity consumption reduced
by 15.4% in 2018.
Greenhouse gas (GHG) emissions
Our 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. Emission
factors from the UK Government’s GHG Conversion Factors for
Company Reporting 2014 along with factors from The International
Energy Agency (IEA) list for 2018 have been used to calculate our
GHG disclosures.
We are committed to providing full and accurate data for our carbon
footprint, with minimal reliance on estimates. For the fifth year in
succession we have achieved external verification of our carbon
account to the ISO 14064-3 standard.
Our 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. We have also disclosed Scope 3 CO2 emissions over
which the business has limited control, being third party air and rail
transportation.
Our emission accounting period is non-coterminous with the
Group’s financial year, with current year data reflecting the year to 30
September 2018. This enables us to dedicate the appropriate time
and resource to enable more accurate carbon reporting and to audit
the process. In 2018, 93.5% of calculations are based on actual data
(2017: 95.1%). Estimates are prepared on the basis of agreed and
verified accounting processes.
This year we are pleased to report a decrease of 8.0% in Scope 1
and 2 emissions in the last reporting year. Our overall footprint for
Scope 1, 2 and 3 emissions showed a decrease of 8.0% 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
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.
Metric
tonnes
2018
55,745
4,910
2,848
56
632
Metric
tonnes
2017
59,997
5,202
3,047
46
689
Metric
tonnes
2016
60,782
5,329
2,810
51
722
64,191
68,981
69,694
55
STRATEGIC REPORTStock code: SHIwww.sigplc.com Sustainability:
Health, Safety and the Environment
CO2 Emissions – Scope 2 – Indirect
Electricity6
Data source and collection methods
6. 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 and 2 as required by GHG Protocol
Scope 3
Scopes 1, 2 and 3
Metric
tonnes
2018
8,567
Metric
tonnes
2018
567
Metric
tonnes
2018
23.4
3.1
26.5
0.2
26.7
Metric
tonnes
2017
10,129
Metric
tonnes
2017
570
Metric
tonnes
2017
24.1
3.5
27.6
0.2
27.8
Metric
tonnes
2016
11,522
Metric
tonnes
2016
586
Metric
tonnes
2016
25.4
4.2
29.6
0.2
29.8
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 2018 data includes the businesses classified as non-core
in the Financial Statements for the year ended 31 December 2018.
Water consumption
We have two manufacturing sites in Southport (UK) and Alizay (France) that use a small amount of water as part of the manufacturing
process. Both installations maintain water filtering, recycling and reuse practices to minimise any wastage of potable water.
More than 95% of the Group’s water consumption is for welfare purposes. Water efficiency is a key requirement for new and refurbished
properties and facilities, including dual flush and cistern management systems for toilet facilities. We continue to identify significant
opportunities for water consumption efficiencies through the branch audit and bill validation process.
Litres
(‘000)
2018
Litres
(‘000)
2017
Litres
(‘000)
2016
Third-party provided water supply from national network for processes and welfare
113,306
114,113
116,122
The above data is based on a combination of actual and estimated data.
CASE STUDY
Health and safety
The Royal Society for the Prevention of Accidents (RoSPA) presented
us with a fourth consecutive Gold Award for our commitment to
safety. RoSPA Awards are prestigious and internationally recognised,
demonstrating well developed occupational health and safety
management systems and culture, outstanding control of risk and very
low levels of error, harm and loss.
The Gold Standard is an endorsement of our strong commitment to
health and safety standards. The award reflects the hard work of our
colleagues and shows great steps to our goal of Zero Harm.
56
Annual Report and Accounts for the year ended 31 December 2018SIG plcSTRATEGIC REPORT Waste management
We aim to reduce the amount of waste we produce. As a break bulk supplier of products, our primary source of waste is through packaging
opened on our premises. Where we can, we reuse these materials or return them to our supplier.
Where reuse is not an option, materials are segregated for recycling in partnership with waste management businesses. Our waste contracts
are managed and monitored centrally. Waste bailers and compactors are provided where practicable, to maximise waste segregation and
recycling opportunities and minimise storage and welfare hazards.
We also offer waste take-back schemes to our customers for ‘off-cut’ materials (including plasterboard, plaster products and fibre ceiling
tiles) and packaging, pallets and bearers. Where possible, we adopt paperless delivery processes, online activity reports, and we consolidate
printing and photocopying facilities.
As it is difficult to measure and quantify the amount of waste disposed of in a year, the performance metric for waste management remains
the percentage of waste diverted from landfill.
We are a member of the Valpak compliance scheme and we comply with our commitments under the Producer Responsibility Obligations
(Packaging Waste) Regulations.
Hazardous waste
Landfill
Recycled
Incinerated
Total
Absolute
tonnes*
2018
Absolute
tonnes*
2017
Absolute
tonnes*
2016
Absolute
tonnes*
2015
25.0
41.5
0.0
66.5
0.0
147.4
0.0
147.4
5.0
87.0
0.0
92.0
2.0
28.0
0.0
30.0
Absolute
tonnes*
2018
Absolute
tonnes*
2017
Absolute
tonnes*
2016
Absolute
tonnes*
2015
Hazardous waste per £m of revenue
0.02
0.05
0.03
0.01
Non-hazardous waste
Landfill
Incinerated
Total
Other waste diverted from landfill
WEEE (Waste, Electrical and Electronic Equipment)
Glass
Wood
Metal
Plasterboard^
Paper/cardboard
Plastic
Other
Total
Non-hazardous waste
Absolute
tonnes*
2018
Absolute
tonnes*
2017
Absolute
tonnes*
2016
Absolute
tonnes*
2015
1,660.41
3,635.35
4,426.00
4,469.00
12
0.00
8.00
15.00
1,672.41
3,635.35
4,434.00
4,484.00
Absolute
tonnes*
2018
1.04
4.20
1,735.00
1,459.10
293.70
723.50
208.40
Absolute
tonnes*
2017
1.80
0.20
1,893.00
870.00
461.00
970.00
295.00
Absolute
tonnes*
2016
7.00
5.00
1,586.00
1,072.00
195.00
1,212.00
267.00
Absolute
tonnes*
2015
2.00
1.00
1,145.00
1,249.00
973.00
747.00
353.00
6,167.22
10,643.00
8,601.00
8,284.00
10,592.16
15,134.00
12,945.00
12,754.00
Absolute
tonnes*
2018
Absolute
tonnes*
2017
Absolute
tonnes*
2016
Absolute
tonnes*
2015
Non-hazardous and other waste per £1m of revenue
3.9
6.5
6.1
5.0
* Volume per annum converted to tonnes.
^ Recycling facility withdrawn in 2015.
The above data is based on a combination of actual and estimated data.
57
STRATEGIC REPORTStock code: SHIwww.sigplc.com Governance
58
Board of Directors
Introduction to governance
Corporate governance report
Audit Committee report
Nominations Committee report
Directors’ remuneration report
60
62
64
76
81
84
Statement of directors’ responsibilities
106
Board of Directors
Andrew Allner BA FCA
Non-Executive Chairman
Age 65
Became Non-Executive Chairman on 1 November 2017.
External roles
Andrew is Chairman at The Go-Ahead Group plc and Fox
Marble Holdings plc.
Experience and past roles
Andrew has significant current listed company Board
experience as Chairman and as Non-Executive Director. He
was previously Chairman at Marshalls plc and Non-Executive
Director of Northgate plc, AZ Electronic Materials SA and CSR
plc. Previous executive roles include Group Finance Director
Meinie Oldersma
Chief Executive Officer
Age 59
Appointed a Director and Chief Executive Officer on 3 April
2017.
External roles
Meinie is 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
Nick Maddock MA, ACA
Chief Financial Officer
Age 48
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 re-listing on the
London Stock Exchange in November 2015. Before this, Nick
held senior finance roles at Centrica plc and was a Director
Alan Lovell MA, FCA
Senior Independent Non-Executive Director
Age 65
Became a Non-Executive Director on 1 August 2018.
External roles
Alan is Non-Executive Chairman of Safestyle UK plc and
National Chair of the Consumer Council for Water.
Experience and past roles
Alan has previously been the Chief Executive Officer of six
companies – Tamar Energy Limited, Infinis plc, Jarvis plc,
Dunlop Slazenger Group Ltd, Costain Group plc and
Conder Group plc. Alan was also previously Chairman of
Sepura plc and Flowgroup plc.
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.
Ingram Micro China Group. Meinie was also previously the
Non-Executive Chairman of Kondor HOLDCO Ltd and a
Non-Executive Director of Bunzl Plc and KidsFoundation
Holdings B.V.
Key strengths
Considerable executive management and distribution
experience combined with substantial operational and
financial turnaround track record.
in Mergers and Acquisitions at ING Barings. Nick trained as
a chartered accountant and chartered tax advisor at Ernst
& Young.
Key strengths
Extensive experience in delivering improved operational and
financial performance across a range of industries for public,
private and private equity shareholders.
Key strengths
Significant listed company Board experience. Extensive
construction industry and turnaround experience in the UK
and Europe.
60
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Andrea Abt MBA
Non-Executive Director
Age 58
Became a Non-Executive Director on 12 March 2015.
External roles
Andrea is a Non-Executive Director of John Laing Group plc
and Petrofac Limited, and is a member of the Supervisory
Board of Gerresheimer AG.
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 in
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.
Janet Ashdown BSc (Hons)
Non-Executive Director
Age 59
Became a Non-Executive Director on 11 July 2011.
External roles
Janet is the Senior Independent Non-Executive Director,
and Chair of the Remuneration Committee of Marshalls
plc. She is a Non-Executive Director and Chair of the Safety,
Security and Environment Committee of the Nuclear
Decommissioning Authority and a Non-Executive Director
of Victrex plc, where she also Chairs the Remuneration
Committee. Janet has been nominated for appointment
as a Non-Executive Director and Chair of the Sustainability
Committee of RHI Magnesita N.V. for which shareholder
approval will be sought at their 2019 Annual General Meeting.
Janet does not intend to seek re-election as a Non-Executive
Director of the Company and will therefore retire from the
Board at the AGM in May 2019.
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.
Ian Duncan MA, ACA
Non-Executive Director
Age 57
Became a Non-Executive Director on 1 January 2017.
External roles
Ian is the Senior Independent Non-Executive Director
and Chair of the Audit Committee of Bodycote plc and a
Non-Executive Director and Chair of the Audit Committee of
Babcock International plc.
Experience and past roles
Having developed a portfolio career since 2010, Ian was
previously a Non-Executive Director and Chair of the Audit
Cyrille Ragoucy MA
Non-Executive Director
Age 63
Became a Non-Executive Director on 1 August 2018.
External roles
Cyrille is Non-Executive Chairman and interim Chief
Executive of Balta Group NV. He is also the Non-Executive
Chairman of Chryso Group.
Experience and past roles
Cyrille was Chief Executive Officer of Tarmac Ltd until 2016.
Committee at WANdisco plc and Fiberweb plc. Ian’s last
executive role was as Group Finance Director of Royal Mail
Group plc.
Key strengths
Extensive financial and change management experience
(including recent and relevant financial experience).
Key strengths
25 years’ experience at senior levels in the European building
materials sector across the US, Canada, China, UK, France
and Spain. Highly international and trilingual in French,
English and Spanish.
Board Committees
Audit Committee
Mr I.B. Duncan – Chair
Ms A. Abt
Ms J.E. Ashdown
Mr A.C. Lovell
Mr C.M.P. Ragoucy
Remuneration Committee
Ms J.E. Ashdown – Chair
Ms A. Abt
Mr I.B. Duncan
Mr A.C. Lovell
Mr C.M.P. Ragoucy
Nominations Committee
Mr A.J. Allner – Chair
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr A.C. Lovell
Mr M. Oldersma
Mr C.M.P. Ragoucy
61
Stock code: SHIwww.sigplc.comGOVERNANCE Introduction to governance
Dear Shareholder,
I am pleased to introduce on behalf of the Board, SIG’s corporate
governance report for the financial year ended 31 December 2018,
and to update you on actions we have taken throughout the year.
As a Group we are committed to strong ethical values, integrity and
professionalism in everything we do. As a Board we recognise the
essential role that we play in embedding these values through strong
leadership underpinned by an effective governance structure.
This year has seen further changes to the Board with the retirement
of Chris Geoghegan and Mel Ewell after many years of service.
The Board has subsequently been further strengthened by the
appointment of Alan Lovell, our new Senior Independent Director,
and Cyrille Ragoucy, both of whom bring extensive construction
industry and turnaround experience in the UK and Europe. The
governance standards we wish to retain are part of the induction
process for all new directors.
As we disclosed in the 2017 Annual Report, accounting irregularities
were identified in two areas early in 2018 requiring adjustment to
the historic results for the year ended 31 December 2016 and prior
years. Following the appointment of Ernst & Young LLP, the Group
has identified additional prior period restatements set out in this
2018 Annual Report. Whilst the requirement to restate financial
results for a second year is not acceptable, the business has applied
significant effort throughout 2018 to ensure that material financial
reporting control weaknesses are identified and remedied. The
control environment has been significantly improved through
investment in internal resource and external support, the institution
of new processes including a key controls framework, and increased
senior management focus and attention. Further actions are planned
for 2019 in order to further improve the control environment within
the business to a high standard.
At the Company’s Annual General Meeting (AGM) on 10 May 2018,
Resolution 11 (Re-appointment of Deloitte LLP as the Company’s
Auditor) was not passed by shareholders and there was a significant
vote against Resolution 1 (To receive the Financial Statements for the
financial year ended 31 December 2017).
The Board acknowledged these voting outcomes in the
announcement of the results of the AGM, noting that it took the
views of shareholders extremely seriously, and confirmed that it was
committed to carrying out an EU Audit Regulation compliant tender
for the role of external Auditor, as soon as practicable (the 'Audit
Tender').
Through its engagement with key shareholders, the Board
understood that the AGM voting results were primarily attributable
to the accounting irregularities which the Group announced earlier
in 2018. The Board also engaged with key shareholders in relation to
the timing and process for the Audit Tender.
On 4 July 2018, the Company announced that Ernst & Young LLP
had been appointed as the Group’s external Auditor. The Board
believes that the completion of the Audit Tender (further detail on
which is set out in the Audit Committee report), and the appointment
of Ernst & Young LLP as auditors, addresses the concerns raised by
shareholders, but intends to keep the situation under review.
Your Board is
committed to the
highest possible
standards
of corporate
governance.
Good governance
is essential to the
effective running
of the business as
we continue the
turnaround and
deliver the strategy
for the future.
Andrew Allner
Chairman
62
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Compliance with the UK Corporate
Governance Code
The Board considers its corporate governance policies and
procedures are appropriate and that, throughout the year under
review, the Group has complied with the provisions of the 2016
UK Corporate Governance Code (the Code) issued by the Financial
Reporting Council (FRC) available at www.frc.org.uk.
The Board has considered in detail the requirements of the new
UK Corporate Governance Code published in July 2018 ("the 2018
Code") and supports the FRC’s approach to building long-term
sustainable growth in the UK economy. We note the emphasis on
businesses building trust by forging strong relationships with key
stakeholders and the call for companies to establish a corporate
culture that is aligned with the company purpose, business strategy,
promotes integrity and values diversity. The Board has taken a
number of actions to address the requirements of the 2018 Code
and, throughout 2019, work will continue on articulating and
embedding corporate culture, developing the succession pipeline
to achieve the diversity objectives of the business, and building on
existing mechanisms to better engage with the workforce and other
key stakeholders.
The Board has also considered the new reporting requirements
being introduced in relation to the performance of the directors'
Section 172 duty contained in the Companies Act 2006, employee
engagement and consideration of relationships with suppliers,
customers and others. In connection with these new reporting
requirements, the Board received training on Section
172 earlier this year and when making decisions, the Board ensures
that the interests of stakeholders are considered appropriately.
Preparations are underway to enable the Group to report in
accordance with these new reporting requirements in the Group's
next annual report.
Board evaluation
An external review of Board effectiveness was undertaken by
Condign Board Consulting during the year. I am pleased to be able
to report that the review fundamentally concluded that this has
become a much more functional and effective Board in the last
year and that it comprises committed, experienced and perceptive
individuals.
Further details of the evaluation, including areas for improvement,
are set out on pages 68 to 69 of this corporate governance report.
Diversity
The Board of SIG acknowledges the importance of diversity across
our colleague base and in the boardroom. Diversity encompasses
diversity of perspective, experience, background, psychological type
and personal attributes. The right mix of skills and experience on the
Board is essential for the Board to operate effectively and to deliver
the improvements we are seeking in the business.
Female representation on the Board has remained at 25%
throughout the year. This is something we keep under review and we
acknowledge the findings of the third Hampton-Alexander review on
FTSE women leaders and the target of 33% female representation on
FTSE 350 boards by the end of 2020.
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.
The Board diversity policy is published on the Group's website
(www.sigplc.com).
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 84 to 105, the
Audit Committee report on pages 76 to 80 and the Nominations
Committee Report on pages 81 to 83 describe how the principles of
good governance set out in the Code are applied within SIG.
The Group's external Auditor, Ernst & Young LLP, is required to
review whether the above statement reflects the Group'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
7 March 2019
Further details of the evaluation are set out on page 68 of this
corporate governance report.
Compliance statement
Our Governance sections over the
following pages explain how the
Group has applied the principles
and complied with the provisions
of the Code. We are fully compliant
with the Code.
1
Leadership
2
Effectiveness
3
Accountability
4
Relations with
shareholders
5
Remuneration
See pages 64-68
See pages 68-70
See pages 76-80
See pages 70-71
See pages 84-105
63
Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
The Board
At 31 December 2018, 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:
Biographical details of the directors holding office at the date of this
report, which illustrate their range of experience, appear on pages
60 and 61. Details of Committee memberships are set out on pages
67 and 68.
At 31 December 2018, SIG had two female Board members, equating
to 25% female representation of its directors.
Each of the Non-Executive Directors is 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.
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 84 to 105.
Mr A.J. Allner
Non-Executive Chairman
Mr M. Oldersma
Chief Executive Officer
Mr N.W. Maddock
Chief Financial Officer
Ms A. Abt
Independent Non-Executive Director
Ms J.E. Ashdown
Independent Non-Executive Director
Mr I.B. Duncan
Independent Non-Executive Director
Mr A.C. Lovell
Senior Independent Non-Executive Director (appointed 1 August 2018)
Mr C.M.P Ragoucy
Independent Non-Executive Director (appointed 1 August 2018)
Mr M. Ewell
Independent Non-Executive Director (retired 31 July 2018)
Mr C. V. Geoghegan
Independent Non-Executive Director (retired 9 March 2018)
Mr A.C. Lovell was appointed as the Senior Independent Non-
Executive Director with effect from 1 August 2018 succeeding Mr
M. Ewell who fulfilled the role following the retirement of Mr C.V.
Geoghegan on 9 March 2018. Mr M. Ewell retired from the Board on
31 July 2018. Mr C.M.P Ragoucy was appointed as a Non-Executive
Director on 1 August 2018.
Ms J.E. Ashdown intends to retire from the Board at the conclusion
of the AGM on 8 May 2019, as a Non-Executive Director and Chair of
the Remuneration Committee.
64
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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) shareholders
and other stakeholders 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.
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
2019 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. After reviewing
the outcome of performance evaluations, the Board confirms that the
contributions made by the directors offering themselves for election
or re-election at the AGM in May 2019 continue to be effective and
that the Group supports their re-election.
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 104 to 105. Full details
of directors’ remuneration, interests in the share capital of the
Company and of share options held are set out on pages 101 to 105
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 8 May 2019.
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 nine occasions during the year and individual attendance
at those and the Board committee meetings is set out in the table
on page 67. 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 typically 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 Group'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
The Senior Independent Director is Mr A.C. Lovell.
and Group;
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.
■ 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;
■ Corporate governance matters;
■ Whistleblowing arrangements and follow-up action;
■ Review of workforce policies and practices; and
■ Approval of Group policies and risk management strategies.
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
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.
The Board has formally delegated specific responsibilities to Board
committees, including the Nominations, Audit, Remuneration and
Defence 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.
■ The development and assessment of the Group’s health and safety
and corporate responsibility policies and performance.
The terms of reference for each of the Board committees are
available 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 to ensure 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 Group. 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.
The Group has operated a paperless meeting system for the Board,
Board Committees and Group Executive Committee for a number
of years, and currently uses Diligent software. Using an electronic
system for meeting packs supports our online drive across the
Group and is consistent with reducing the impact of our operations
on the environment.
66
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Attendance by directors at meetings of the Board and committees in 2018
The following table shows the attendance of directors at meetings of the Board, Audit, Remuneration and Nominations Committees during
the year to 31 December 2018:
A. Abt
A.J. Allner
J.E. Ashdown
I.B. Duncan
A.C. Lovell2
N.W. Maddock
M. Oldersma
C.M.P Ragoucy3
Mr M. Ewell4
Mr C.V. Geoghegan5
Board
(9 meetings)1
Audit
(6 meetings)
Remuneration
(5 meetings)
Nominations
(2 meetings)
9/9
9/9
9/9
9/9
5/5
9/9
9/9
4/5
4/4
3/3
6/6
N/A
6/6
6/6
3/3
N/A
N/A
3/3
3/3
2/2
5/5
N/A
5/5
5/5
3/3
N/A
N/A
3/3
2/2
2/2
2/2
2/2
2/2
2/2
–
N/A
2/2
–
2/2
1/1
1. The Board held a number of conference calls throughout the year to deal with specific matters arising between scheduled meetings. All Board members either attended the call or
alternatively, if unavailable, discussed the matter with the Chairman prior to the call, with the Chairman then being able to represent their views.
2. Mr A.C. Lovell was appointed to the Board on 1 August 2018 and attended all meetings to which he was entitled to attend.
3. Mr C.M.P Ragoucy was appointed to the Board on 1 August 2018. Mr Ragoucy was unable to attend one meeting due to a clash with a pre-existing commitment which was made known
to the Company prior to his appointment.
4. Mr M. Ewell resigned from the Board on 31 July 2018.
5. Mr C.V. Geoghegan resigned from the Board on 9 March 2018.
Of the nine Board meetings held in 2018, one was 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 in the UK & Ireland and Mainland Europe to help
all Board members gain a deeper understanding of the business. The
Board 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 senior
leadership Group management conferences whenever possible.
All directors in office at the date of the 2018 AGM attended the
meeting and were available to answer any questions raised by the
shareholders.
Group Board
Audit 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 Chair
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 76 to 80.
The Group has an internal audit function and co-sourced specialist
support from KPMG LLP. The Board annually reviews the need for
such a function and the effectiveness of the co-sourced 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 (Chair)
Ms A. Abt
Ms J.E. Ashdown
Mr A.C. Lovell (from 1 August 2018)
Mr C.M.P. Ragoucy (from 1 August 2018)
Mr M. Ewell (to 31 July 2018)
Mr C.V. Geoghegan (to 9 March 2018)
Nominations Committee
The Nominations Committee operates under written terms of
reference, which are consistent with current best practice. The
committee comprises the Chair, the Chief Executive Officer and
the independent Non-Executive Directors. The meetings of the
committee are chaired by the Non-Executive Chair. The Chair 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 81 to 83.
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 (Chair)
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr A.C. Lovell (from 1 August 2018)
Mr M. Oldersma
Mr C.M.P. Ragoucy (from 1 August 2018)
Mr M. Ewell (to 31 July 2018)
Mr C.V. Geoghegan (to 9 March 2018)
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
Remuneration Committee
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 Chair 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 84 to 105.
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 (Chair)
Ms A. Abt
Mr I.B. Duncan
Mr A.C. Lovell (from 1 August 2018)
Mr C.M.P. Ragoucy (from 1 August 2018)
Mr M. Ewell (to 31 July 2018)
Mr C.V. Geoghegan (to 9 March 2018)
Group Executive Committee
The Executive Committee operates under written terms of reference,
details of which are provided on page 66. The committee addresses
operational issues and is responsible for implementing Group
strategy and policies, day-to-day management and monitoring
performance. The committee met 20 times during 2018.
From 1 January 2019, the Executive Committee meeting structure
has been revised to improve efficiency in supporting the business
agenda. The changes will ensure that the core focus of the
committee is on reviewing health and safety, governance, strategy,
performance and transformation progress; that transformation
work-streams are aligned between business units; and that key
stakeholders are regularly updated on overall Group performance
and key developments.
Members:
Mr M. Oldersma (Chair)
Chief Executive Officer
Mr N.W. Maddock
Chief Financial Officer
Mr P. Alcaydé
Group Health, Safety & Environment Director (from 15 October 2018)
Mr G. Bruce
Managing Director, SIG Exteriors (from 24 July 2018)
Mr A. Doyle
Managing Director, SIG Ireland (from 4 September 2018)
Mr R. Hellwig
Managing Director, SIG Germany (from 1 October 2018)
Mr L. Hemels
Managing Director, SIG Air Handling
Mr C. Horn
Group Operations Director
Mr E. Hutt
Group Chief Information Officer
Mr J. Monteiro
Managing Director, France (from 11 December 2018)
Mr J. Neves
Managing Director, SIG Benelux
Mr M. Szczgiel
Managing Director, SIG Poland
Ms C. Taylor
Group Human Resources Director (from 1 August 2018)
Mr D. Walmsley
Managing Director, SIG Distribution (from 5 March 2018)
Mr R.T. Barclay
Managing Director, SIG UK & Ireland (to 31 March 2018)
Mr P. Dénecé
Managing Director, France (to 10 December 2018)
Mr A. Wakelin
Managing Director, SIG Exteriors (to 31 August 2018)
Group Tax and Treasury Committee
The Tax and Treasury Committee operates under the written
treasury policy. 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:
Ms V. George (Chair)
Group Financial Controller (from 3 September 2018)
Mr N.W. Maddock
Chief Financial Officer
Mr P. Mitchell
Interim Group Treasurer (from 11 May 2018)
Mr M. Wilson
Group Tax Manager
Mr R.C. Monro
Company Secretary
Mr I. Jackson
Group Financial Controller (to 3 September 2018)
Ms H. Jones
Group Treasurer (to 20 April 2018)
Board effectiveness and performance
evaluation
The Board reviews its own performance, and that of its committees
and directors, annually. In 2018, an external review of Board
effectiveness was undertaken by Duncan Reed of Condign Board
Consulting. Neither Duncan Reed nor Condign has any other
connection to the Company.
Effectiveness was assessed, and a number of key areas were
addressed. These were alignment of Board and business priorities,
Board dynamics including challenge and support, Board assurance
and independence, engagement with strategy, culture, resources
and motivation, Board governance and controls, Board’s use of time,
operating rhythm and information, shareholder relationships and
communications and succession planning.
The process was conducted via focused one-to-one interviews with
the directors, selected senior managers and external advisors, and
attendance at Board and committee meetings. The results were
presented to the Board in January 2019.
The review fundamentally concluded that this has become a
much more functional and effective Board in the last year, under
the Chairman’s leadership, and that it comprises committed,
experienced and perceptive individuals. Most of the actions from the
Chairman’s last internal review had been addressed, while a number
remain work in progress.
68
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE It also concluded that this is a Board which takes seriously its role
both to oversee the control functions of the business but also to
provide a framework of entrepreneurial leadership – as the Code
enjoins. In this sense, the ‘tone from the top’ is good, as a sense
of shared purpose is still evident even where roles, functions and
perspectives differ.
The review identified areas for improvement. These included:
communication across the business and the Board’s visibility within
the business; promoting as close an alignment as possible between
business and Board priorities in relation to the use of time and
agenda focus. It also confirmed the need for ongoing focus on
strategy, vision and culture.
The proposed Board priorities for 2019 will therefore be to improve
certain Board processes to support these areas, as well as to
progress work on strategy, vision and culture.
Condign made various specific recommendations, and examples
taken up by the Board as agreed action points include the following:
1. Greater discipline and rigour is required around the preparation
and maintenance of the Board’s planning calendar, including
topics to be discussed; attendance and presentations by
management below Executive Director level; attendance by
third parties; Board site visits; and training events. The planning
calendar should be regularly updated and used as a means to
ensure the Board is getting the assurance required from others
within the organisation and outside and that the Non-Executive
Directors have a good feel for the business and hear the views of
employees.
2. Greater clarity around the Group’s strategic planning process
is required. The current work to develop a purpose, vision, and
strategy for individual businesses (both in the UK and Europe)
needs to be brought to a conclusion, as does the work on the
Group's longer term Corporate strategy, together with a list of
strategic agenda issues to be incorporated into the Board planning
process at the appropriate time.
During the year the Board received specific training in connection
with the new Corporate Governance Code with a focus on their
Section 172 Directors Duties and stakeholder considerations.
Directors attend training courses and seminars on various subjects
that they identify as important to maintain their knowledge
and understanding or areas where training would increase the
knowledge and effectiveness of the director. In addition, the Non-
Executive Directors are required to carry out a number of visits to
the Group’s operating sites and are required to report back to the
Board on their findings and observations. This is in addition to the
offsite Board meetings held in the Group’s operating businesses.
Further training and site visits are programmed for 2019.
‘Peer-to-peer’ director evaluation was included in the review process.
Using the feedback gathered to support the usual annual process
and inputs to it, the Chairman has reviewed the performance of
individual directors. The Senior Independent Director, following a
meeting with the Non-Executive Directors other than the Chairman,
and obtaining feedback from the Executive Directors, reviewed the
performance of the Chairman.
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.
Annual assessment of the effectiveness of systems of risk
management and internal control systems
During 2018, the Board conducted a review of the effectiveness of
the Group’s system of risk management and internal control. This
review covered all controls including operational, compliance and risk
management procedures, as well as financial controls. The Board will
continue to regularly assess the effectiveness of systems of internal
control.
To complete the review the Board and Audit Committee requested,
received and reviewed reports from the Group Controls Manager,
Group Internal Audit, senior management, advisors and the external
Auditor. Through the ongoing processes outlined on pages 69 to
70, improvements in risk management and internal controls are
continuously identified with action plans appropriately designed and
communicated. 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 risk management
internal controls systems in accordance with the internal control
guidance for directors on the Code issued by the FRC.
Key elements of ongoing process for risk management
and internal control
The key elements of the existing systems for risk management and
internal control, in accordance with the FRC’s Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting (September 2014), are as follows:
Risk management
■ A risk management framework is in place to outline the core
responsibilities of each function and the processes that should be
in place to effectively manage risk in the Group.
■ The risk management process is cascaded throughout the
Group, with operating company leadership teams responsible for
maintaining their own risk registers.
■ The Board maintains an overall Group risk register, the content
of which is determined and assessed through regular discussions
between senior management, the Group Board and the Audit
Committee. This is also formally reviewed twice yearly by the Audit
Committee/the Board.
■ The Group risk register contains the principal risks faced by the
Group and assesses the potential impact and likelihood at both a
gross level and net level. It outlines the current controls in place
to mitigate the risk and any further actions required to bring the
risk to an acceptable level. These principal risks are outlined in the
Strategic report on pages 46 to 47.
■ New and emerging risks are identified through horizon scanning,
review of relevant media publications and risk workshops held
with management teams.
Internal control
■ A defined organisation structure with levels of approval governed
by the Group Delegation of Authority policy.
■ 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.
■ A comprehensive system of financial reporting which includes an
annual process for operating company budgets to be approved by
the CEO.
■ In-depth reviews of operating company performance are
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
completed with the CEO and CFO attending local management
meetings to discuss any significant changes and adverse variances
against budget.
■ Monthly provision to management and the Board of relevant,
accurate and timely information, including relevant key
performance indicators.
■ Regular monthly reports at each Board meeting from the CEO
and CFO.
■ Regular cash and treasury reporting to the CFO and periodic
employees used this system to raise concerns about a number
of separate issues, all of which were appropriately responded to.
In response to the 2018 UK Corporate Governance Code, future
reporting on whistleblowing will be to the Board.
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.
reporting to the Board on the Group’s tax and treasury position.
Overall assessment
■ Continued improvement and embedding of the key controls
framework which includes a number of control areas against which
operating companies are required to self-certify on a quarterly
basis. This self-certification process is administered by Group
Finance with a summary reported to the Audit Committee.
■ Development of control improvement plans which are, in part, an
output of the key controls framework self-certification process
and focus on continuous improvement of an operating company’s
internal control environment. The list of actions included in the
control improvement plans should be discussed regularly at
operating company management meetings.
■ Any significant issues or control weaknesses identified are
reported to the Audit Committee. Where appropriate, issues are
also included in reports to the Executive Committee and
the Board.
■ A structured and approved programme of audits is undertaken
by Group internal audit, which includes regular visits to and
interaction with the operating companies across the Group. The
implementation of recommended actions are 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 69 to 70, 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.
■ The policies and procedures are comprehensively detailed in the
Group Finance Manual, which is used by all businesses in the
preparation of their results.
■ Financial reporting control requirements are also set out in the
Group Finance Manual.
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 Group's website (www.sigplc.com).
The Group 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 2018 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 2018 Group,
Notwithstanding the prior period restatements, and the need for
further improvements to the control environment during 2019,
as set out in this Report, the systems and processes outlined in
this corporate governance report give reasonable assurance that
the structure of risk management and internal control systems
in operation is appropriate to the Group’s situation. 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.
Relations with shareholders
The Group/Board 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, the Chief Executive Officer and
the Chief Financial Officer and discussed at its meetings. Formal
presentations are made to institutional shareholders following the
announcement of the Group's annual and interim results. Informal
dialogue and meetings are held with shareholders and potential
investors throughout the year. The Board aims to maintain a
relationship of accessibility and transparency with its shareholders.
During the year, the Chairman and Chair of the Remuneration
Committee engaged with SIG’s largest institutional shareholders
to consult on the new directors’ remuneration policy which was
approved by shareholders at a General Meeting in November 2018.
Further detail is contained in the Directors’ Remuneration Report on
pages 84 to 105.
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.
70
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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 Group's
website immediately after the AGM.
Substantial shareholdings
At the date of approval of the 2018 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 2018 and 7 March 2019:
Interests
disclosed to the
Company as at
31 December
2018
58,891,526
40,539,710
29,955,004
29,241,877
29,358,556
29,358,556
28,820,324
26,799,365
23,890,830
23,005,522
19,786,142
Interests disclosed to
the Company as at
7 March 2019
%
9.96%
6.85%
5.06%
5.06%
4.96%
4.94%
4.87%
4.53%
4.03%
3.89%
3.34%
58,891,526
40,539,710
Below notifiable
threshold
29,241,877
29,358,556
29,358,556
28,820,324
26,799,365
51,525,026
23,005,522
19,786,142
%
9.96%
6.85%
n/a
5.06%
4.96%
4.94%
4.87%
4.53%
8.71%
3.89%
3.34%
Committee to fix its remuneration. The remuneration of the external
auditor for the year ended 31 December 2018 is fully disclosed in
Note 4 to the Financial Statements on page 134.
Publication of annual report and
notice of AGM
Shareholders are to note that the SIG plc Annual Report 2018
together with the Notice convening the AGM have been published
on the Group'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 offices
of Herbert Smith Freehills LLP, Exchange House, Primrose Street,
London, EC2A 2EG at 12 noon on Wednesday 8 May 2019, 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.
Shareholder
Investec Asset Management
IKO Enterprises Limited
FIL Limited
Tameside MBC re Greater Manchester Pension Fund
Templeton Investment Counsel LLP
Blackrock
Artemis Investment Management LLP
Massachusetts Financial Services Company
Coltrane Asset Management
Schroder Investment Management Limited
Norges Bank
Statement of the directors on the
disclosure of information to the external
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 external 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 external 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.
Going concern
The going concern statement can be found on page 40 of the
Strategic report.
Viability statement
The viability statement can be found on pages 39 to 40 of the
Strategic report.
Independent external auditor
On the recommendation of the Audit Committee (see page 80), in
accordance with Section 489 of the Companies Act 2006, resolutions
are to be proposed at the AGM for the appointment of Ernst &
Young LLP as external auditor of the Company (who have filled
the casual vacancy since 4 July 2018) and to authorise the Audit
71
Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
Directors’ report disclosures
Principal activity and business review
The principal activity of the Group is the supply of specialist materials
to trade customers in the construction sector across Europe. The
main markets supplied are insulation and interiors, roofing and
exteriors and air handling solutions.
The Chairman’s statement and Strategic report on pages 2 to 57
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 Group are
also set out in the Strategic report.
As at the date of this report, there have been no important events
affecting the business of the Company, or any of its subsidiaries,
which have occurred since the end of the financial year.
Political donations
It is the Group’s policy not to make political donations and no
political donations were made during the year (2017: £nil).
Details of the Group’s policies in relation to corporate governance
are disclosed on pages 48 to 49.
Group results and dividends
The Consolidated Income Statement for the year ended
31 December 2018 is shown on page 108. The movement in Group
reserves during the year is shown on page 111 in the Consolidated
Statement of Changes in Equity. Segmental information is set out in
Note 1 to the Financial Statements on pages 126 to 131.
The Board is recommending a final dividend of 2.50p per share
(2017: 2.50p) which, together with the interim dividend of 1.25p per
share (2017: 1.25p), makes a total for the year ended 31 December
2018 of 3.75p (2017: 3.75p). Payment of the final dividend, if
approved at the AGM, will be made on 5 July 2019 to shareholders
registered at the close of business on 7 June 2019.
Greenhouse gases
Details of the Group’s greenhouse gas emissions are detailed on
pages 55 to 56 of the corporate responsibility report.
Employees
Details of the Group’s policies in relation to employees (including
disabled employees) are disclosed in the corporate responsibility
report on pages 48 to 52.
Post balance sheet events
Details of post balance sheet events are included on page 113 of the
Financial Statements.
Related party transactions
Except as disclosed in Note 30 to the Financial Statements on page
173 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 38 to 39 and in Note 19 to
the Financial Statements on pages 153 to 160.
Acquisitions and disposals
Details of acquisitions made and businesses identified for sale or
closure are covered in Note 11 on pages 143 to 145 and Note 14 on
page 149 of the Financial Statements.
Group companies
A full list of Group companies (and their registered office addresses)
is disclosed on pages 206 to 207.
Share capital
The Company has a single class of share capital which is divided into
ordinary shares of 10p each. At 31 December 2018, the Company
had a called up share capital of 591,556,982 ordinary shares of 10p
each (2017: 591,548,235).
During the year ended 31 December 2018, options were exercised
pursuant to the Company’s share option schemes, resulting in the
allotment of 8,747 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 139 to 141 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.
72
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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.
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 in certain
circumstances set out in the Company’s articles.
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).
73
Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance report
Fair, balanced and understandable
The directors have a responsibility for preparing the 2018 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 80.
Cautionary statement
The cautionary statement can be found on page 41 of the
Strategic report.
Content of Directors’ report
The Corporate governance report (including the Board biographies),
which can be found on pages 60 to 74, the Audit Committee report
on pages 76 to 80, the Nominations Committee report on pages 81
to 83, and the Directors’ responsibility statement on page 106 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 2018 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:
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.
2019 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
59,154,823 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 2019 AGM.
Authority to allot ordinary shares
Shareholders’ authority to allot ordinary shares up to an aggregate
nominal amount of £39,436,549 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
2019 AGM.
During the year ended 31 December 2018, options were exercised
pursuant to the Company’s share option schemes, resulting in
the allotment of 8,747 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 139 to 141 which also contains details of
options granted over unissued share capital.
74
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Section
Topic
Interest capitalised
Publication of unaudited financial information
Location
Not applicable
Not applicable
Details of long-term incentive schemes
Directors’ remuneration report, pages 84 to 105
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre–emptive issues of equity for cash
Not applicable
Not applicable
Not applicable
Item (7) in relation to major subsidiary undertakings
Not applicable
Parent participation in a placing by a listed subsidiary
Not applicable
Contracts of significance
Not applicable
Provision of services by a controlling shareholder
Not applicable
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
Not applicable
Not applicable
Not applicable
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
SIG has been mindful of the best practice guidance published by Defra and other bodies in relation to environmental, community and social
performance indicators 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 60 to 106 was approved by the Board of Directors on 7 March 2019 and signed on its behalf by the
Company Secretary, Richard Monro.
Richard Monro
Company Secretary
7 March 2019
75
Stock code: SHIwww.sigplc.comGOVERNANCE Audit Committee report
strengthening the control environment and culture of the Group but
improvements must continue, and this will be a key focus in 2019. In
particular, the Committee has worked to ensure that:
■ Inconsistencies in the application of cash cut-off procedures and
the treatment of debt-like items were identified and the balance
sheet at 31 December 2017 was appropriately restated.
■ Controls in areas of particular weakness have been significantly
strengthened. Controls over supplier rebates within each
operating company have been a key area of focus. Intra-
department integrity meetings are now held in order to maintain
robustness in the recognition of supplier rebates, and tools have
been implemented to support their tracking.
■ Investment in talent is made within the business to enable
adequate focus to be placed on controls. In particular, the Group
Risk & Internal Audit function has been strengthened through
the recruitment of experienced auditors and targeted use of a
co-source arrangement with KPMG for subject specialist input.
The approach to planning has been revised and audits are now
more clearly aligned to risks identified on the Group risk register.
A new tracking tool has been introduced to ensure that actions to
address control weaknesses are completed. The Group risk and
internal audit function reports regularly to the Board and to the
Audit Committee.
■ The control environment has been evaluated and financial
reporting control weaknesses have been identified and remedied.
With the assistance of KPMG and BDO, the business has worked
to identify and remedy a number of material financial reporting
control weaknesses and standardise financial reporting processes.
The business employs designated internal resource focused on
improving and monitoring the effectiveness of financial controls.
During the year, a key controls framework was introduced,
enabling controls to be monitored through a system of quarterly
self-certification. Going forward, the key controls framework will be
audited by the Group internal audit function on a two year cyclical
cycle.
Priorities for the Committee in 2019 will initially focus on the control
observations highlighted by the external auditor, in particular the
weaknesses in the UK balance sheet reconciliation process. Priorities
will also include further standardisation of financial reporting
procedures of the business, the provision of improved guidance
around the reporting of accounting judgements, and the extension
of controls improvement into smaller operating units and branches.
Although going concern is a matter for the whole Board (see
page 40), 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.
Following the vote against the re-appointment of Deloitte LLP as
our external auditor at the 2018 Annual General Meeting, the Audit
Committee carried out an audit tender process, in accordance with
applicable legal and regulatory requirements. The Group announced
the appointment of Ernst & Young LLP as its external auditor on 4
July 2018 with immediate effect. Further detail on the audit tender
process is provided on page 78.
The Company has complied during the financial year ended 31
December 2018 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
Chair of the Audit Committee
7 March 2019
Progress has been
made this year in
strengthening the
control environment
and culture of
the Group but
improvements must
continue.
Ian Duncan
Chair of the Audit Committee
Dear Shareholder,
I am pleased to present the Audit Committee report for the
year ended 31 December 2018, on behalf of the Board.
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 (July
2018) ("the 2018 Code") but, in line with good practice,
membership is reviewed annually.
As expected, a significant area of focus of the Committee
this year has been on the Group’s internal control
environment. Progress has been made this year in
76
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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 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.
Audit Committee structure
The Committee operates under terms of reference which can be
found on the Company’s website (www.sigplc.com). They are
reviewed annually by the Committee 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
2018 the Committee engaged the services of BDO LLP to provide
advice on the adequacy of the Group’s internal controls environment,
to supplement services provided by the external auditor and by
KPMG LLP, who support the Group’s internal audit function.
Key responsibilities
■ The accounting principles, practices and policies applied in, and
the integrity of, the Group’s Financial Statements.
As part of corporate governance the Committee reviews its own
performance annually and considers where improvements can be
made. The Committee's performance was reviewed in January 2019
as part of the external review of Board and Committee effectiveness.
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.
Audit Committee evaluation
As required, the Committee's activities and effectiveness were
evaluated as part of the overall external Board evaluation as set out
on pages 68 to 69. Based on this evaluation, it was concluded that
the Committee acted in accordance with its terms of reference and
carried out its responsibilities effectively.
■ The adequacy and effectiveness of the internal control
environment.
■ The effectiveness of whistleblowing procedures.
■ The effectiveness of the Group’s internal audit function.
■ The appointment, independence, effectiveness and remuneration
of the Group’s external auditor, including the policy on 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 audit related provisions of the UK
Corporate Governance Code.
Audit Committee membership
As at 31 December 2018, the Committee comprised the five
independent Non-Executive Directors of the Company.
Chair of the Committee
Members
Mr I.B. Duncan
Ms A. Abt
Ms J.E. Ashdown
Mr A.C. Lovell
Mr C.M.P. Ragoucy
The Board considers that each member of the Committee was
throughout the year, and remains, 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 the Code.
77
Stock code: SHIwww.sigplc.comGOVERNANCE Audit Committee report
Meetings
The Committee meets regularly throughout the year, with six meetings being held during 2018 along with the audit close meeting in early
2019. Its agenda is linked to events in the Company’s financial calendar.
The Committee addressed the following key agenda items during its six meetings in 2018:
31-Jan-18
06-Mar-18
25-Jun-18
02-Aug-18
14-Sep-18
20-Dec-18
■ Consider forensic
■ Risk and internal audit update
reports concerning
the historical
overstatements of
profit and cash
■ Risk and internal
audit update
■ Risk and Internal
audit update
■ Review of 2018
interim results
■ Risk and internal
audit update
■ Update on risk
management
■ Review of going concern basis of
accounting and viability statement
■ Update on audit
tender process
■ Cyber risk review
■ Goodwill and
■ Change
intangible assets
impairment
review
■ Review of going
concern basis of
accounting
management
■ Internal controls
update
■ Review 2018 internal
■ Goodwill and intangible assets
audit plan
impairment review
■ Review of the
Committee’s
terms of
reference
■ Update on
interim audit
■ Internal control
■ Risk management and internal
■ Review of
■ Review of the
■ Review external
review
control review
whistleblowing
and non-audit
services policies
■ Review revised
■ Review of 2017 audit process and results
external audit plan
■ Review Audit Committee report
■ Review of the 2017 external auditor report
■ Review of the 2017 Annual Report
(including fair, balanced and
understandable) and preliminary results
announcement
audit plan
external auditor’s
interim work and
report and year
end planning
■ Group internal
controls review
■ Review non-audit
services policy
Attendance by individual members of the Committee is disclosed in the table on page 67. The Committee Chair 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 six of the meetings in 2018. The external auditor and the Director of Risk & Internal Audit also attended all six
meetings of the Committee in 2018 and has direct access to the Committee Chair. The Committee also meets with the external auditor and
the Director of Risk & Internal Audit without the Executive Directors being present. The Committee Chairman also meets with the external
auditor and the Director of Risk & Internal Audit in advance of Committee meetings. During the year, the Committee also held one additional
unscheduled meeting to discuss the external audit tender.
External audit tender
Following the vote against the re-appointment of Deloitte LLP as the
Group's external auditor at the 2018 Annual General Meeting, the
Audit Committee commenced the process of carrying out an audit
tender process in accordance with applicable law and regulation. The
Audit Committee initiated the tender process in May 2018 with an
accelerated timetable to ensure that the new external auditor would
be appointed as soon as possible.
The Audit Committee appointed an independent project leader and
an evaluation committee was formed, led by the Chairman of the
Audit Committee and comprising the Chief Financial Officer, Director
of Risk & Internal Audit, Group Financial Controller, Group Company
Secretary and Finance Director (Planning & Performance). Eight firms
were approached initially by the selection committee to take on the
role of external auditor and five were shortlisted, including candidates
from inside and outside the 'Big Four'.
The Audit Chairman, Group CFO and independent project lead then
met separately with the audit partner of each shortlisted firm in
advance of issuing an invitation to tender or Request for Proposal (RFP).
Four firms were subsequently invited to tender for the audit and
each firm was sent the RFP which set out the process, timescales,
requirements and evaluation criteria. The criteria included the
experience and knowledge of the lead partner and audit team,
the global account management capability, audit approach and
accounting policies, audit coverage and transition.
Each firm was invited to meet all of the senior team including the
Chairman, Audit Committee Chairman, Chief Executive Officer and
Chief Financial Officer as well as the relevant finance teams across
the material operations and at Group. Site visits were made to the
UK, France and Germany. Access was given to a comprehensive data
room with information to help them gain an understanding of SIG as
a business.
All four firms presented to the Audit Committee including a ‘question
and answer’ session. The Audit Committee later met to evaluate each
firm using agreed evaluation criteria and to reach its recommendation
to the Board.
At the conclusion of the process the Audit Committee (having
consulted with management) recommended to the Board two
choices for external auditor, with a reasoned preference that Ernst
& Young LLP be appointed as external auditors immediately for
the 2018 financial year. The Board accepted the Audit Committee’s
recommendation to appoint Ernst & Young LLP as external Auditor
on a casual vacancy basis and this was announced in July 2018.
Shareholders will be formally asked to approve their appointment at
the May 2019 Annual General Meeting.
The Audit Committee would like to thank all of the firms that
participated and specifically Deloitte LLP for their contribution to the
Group over the years.
78
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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 adequacy of work performed in the
year to strengthen the way in which the recoverability of supplier
rebates is controlled, including the institution of new internal
review processes and the introduction of technology to assist in the
calculation of supplier rebate income. The Committee supports the
external auditor in their decision to perform an enhanced review of
the valuation of the rebate receivable.
Carrying value of goodwill and intangible assets*
The carrying value of goodwill and intangible assets is 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,
SIG Distribution and SIG Exteriors. The Committee considered the
appropriateness of the assumptions including growth rates.
Recognition of cash in transit
During the year, the Group revised its policy in respect of the
presentation of cash, to ensure that funds in transit are only included
as cash if the Group has control of the funds at the balance sheet
date. The Committee considered the adequacy of this revised policy
and determined that it was appropriate. The Committee assessed
whether, as a result of the change in policy, restatement to prior year
results was required, and determined it was. The balance sheet as
at 31 December 2017 as presented in this Annual Report has been
accordingly restated to take account of this change in policy, with
cash reducing by £13.6m, and a corresponding increase in trade
receivables.
Prior year restatements
Through the transition to Ernst & Young LLP, the Group's accounting
policies and judgements were reviewed resulting in six restatements
to previously reported numbers. As part of the 2018 year end close,
the policy for accounting for future dilapidations costs on property
leases has also been reviewed. Restatements included within this
report comprise:
■ The inclusion of 'debt like' trade payable balances within the
calculation of net debt at 31 December 2017. Specifically, £8.0m
of supplier balances in SIG France settled through a credit card
working capital facility have been reclassified as a financial liability
within this report.
■ Our policy of including funds in transit as cash has been revised,
to ensure that only funds within the control of the Group are
included in cash at the balance sheet date. This report reflects
a restatement to reduce cash and increase trade payables by
£13.6m as a consequence.
■ The accounting for sale and leaseback transactions has been
reassessed and two transactions are now considered to meet the
criteria for recognition as a finance lease rather than an operating
lease.
■ The Group has reassessed its deferred tax asset position and has
recognised a deferred tax asset in relation to losses and fixed
asset timing differences.
■ The Group previously accounted for early settlement discounts
when paid, this has been corrected to recognise at the time of
recognition of the related revenue.
■ The policy for accounting for dilapidations costs has been
corrected to account for the cost of reinstating capital
modifications on inception of the lease instead of accruing costs
over the life of the lease. This has resulted in an increase to fixed
assets of £2.6m and to liabilities of £7.9m at 31 December 2017.
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.
Control deficiency
Regular reports on internal controls issues are presented to and
discussed at the Audit Committee and a follow up process in place
to ensure internal and external audit recommendations are fully
implemented. Ongoing progress and active focus, in particular
following the interim review, on the internal control process has
been continued throughout the year. The Group's external auditor
communicated, as part of their audit of the Financial Statements
several control deficiencies. The Board, in reviewing key control
observations, can confirm that actions are being undertaken to
remedy the weaknesses identified. One of the key areas identified
relates to a significant deficiency relating to balance sheet
reconciliation process in the UK. In response, the reconciliation
and review policy has been updated and reissued to all finance
employees to improve quality and reduce errors. The policy
reinforces that balance sheet account owners are to be assigned
to ensure the completeness and accuracy of reconciliations. During
2019, further work will be undertaken to implement better controls
in this area, establish enhanced levels of review and provide
additional training where required. These changes will be supported
by the internal risk and controls team to ensure improved awareness
and greater accountability.
* Items marked as such are areas where judgement is involved in arriving at the
accounting conclusion.
79
Stock code: SHIwww.sigplc.comGOVERNANCE Audit Committee report
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 £189.4m at 31 December 2018
and reported a headline financial leverage of 1.7x 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. The 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.
Corporate culture
The Committee considered measures undertaken to transform the
culture of the business in the year, launched partly in response to
the accounting irregularities that were identified in January 2018.
The Committee noted two changes in particular: firstly, significant
strengthening of the senior leadership team, and secondly, through
careful management, wider reorganisation to remove historic
working silos and hierarchy. The Committee is reassured by the
positive changes that have been made to date, but is also mindful
that cultural change will inevitably take time to embed.
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 capability of the internal audit function was improved in the
year through the appointment of additional, appropriately qualified
resource. 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.
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.
Oversight of external auditor
As mentioned on page 78, during the year the Audit Committee
commenced an audit tender process, ultimately resulting in the
appointment of Ernst & Young LLP as the Group’s auditor in July 2018.
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 2018. 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 auditor
in the last three consecutive financial years. The policy, which was
reviewed at the December 2018 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. In all cases, any instruction must be
pre-approved by the Chief Financial Officer and the Audit Committee
before the external auditors are engaged. 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.
The total fees payable by the Group to its external auditor for non-
audit services in 2018 were £0.4m, primarily the Interim Review
(2017: £0.1m). The total fees payable to them for audit services in
respect of the same period were £1.6m (2017: £1.6m). The ratio of
audit to non-audit fee was 4:1. 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 134.
A full breakdown of external auditor fees are disclosed in Note 4 to
the Financial Statements on page 134.
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. Ernst & Young LLP has formally confirmed its
independence to the Board in respect of the period covered by
these Financial Statements.
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.
On behalf of the Board
Ian Duncan
Chair of the Audit Committee
7 March 2019
80
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Nominations Committee report
Dear Shareholder,
I am pleased to present the Nominations Committee report for the
year ended 31 December 2018, on behalf of the Board.
The composition of the Nominations Committee meets with the
requirements of the UK Corporate Governance Code (July 2018)
("the Code") but, in line with good practice, membership is reviewed
annually.
During 2018, the Committee dealt with the recruitment of two new
Non-Executive Directors and I am delighted to welcome Mr A.C.
Lovell and Mr C.M.P. Ragoucy to the Board. Further detail on the
recruitment process is provided in this report.
Ms J.E. Ashdown will retire from the Board as a Non-Executive
Director and Chair of the Remuneration Committee, at the
conclusion of the forthcoming Annual General Meeting on
8 May 2019. The search for a new Non-Executive Director and Chair
of Remuneration Committee is well advanced.
The Committee’s work for 2019 will be focused on succession
planning, talent and diversity and we will carefully consider the
changes in the Committee’s remit arising from the new UK Corporate
Governance Code.
Andrew Allner
Chair of the Nominations Committee
7 March 2019
The Committee
understands the
importance of its
role in ensuring the
Board contains the
right mix of skills
and experience
to support the
business strategy.
Andrew Allner
Chair of the Nominations Committee
81
Stock code: SHIwww.sigplc.comGOVERNANCE Nominations Committee report
Purpose and aim
The terms of reference of the Nominations Committee, which
are reviewed regularly, are set out on the Company’s website
(www.sigplc.com). The Committee will be adopting new Terms of
Reference for 2019, in particular, to reflect its wider responsibilities
under the new UK Corporate Governance Code in relation to
succession planning and diversity across the Group. 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 two 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 2018, 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 A.C. Lovell
Mr M. Oldersma
Mr C.M.P. Ragoucy
During the year, the Nominations Committee considered the Board’s
structure and recommendations for re-election of directors at the
2018 AGM, and recommended the appointments of Mr A.C. Lovell
and Mr C.M.P. Ragoucy.
Board succession planning
The Nominations Committee gives full consideration to succession
planning for directors, both Non-Executive and Executive, and other
senior management 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.
Mr C.V. Geoghegan retired from the Board on 9 March 2018. Mr M.
Ewell replaced Mr Geoghegan as Senior Independent Director until
his subsequent retirement from the Board on 31 July 2018. This was
part of a succession process whereby Mr Ewell agreed to serve on
the Board until a new Non-Executive Director had been identified
and appointed. Mr A.C. Lovell was appointed the Senior Independent
Director on joining the Board on 1 August 2018. Mr C.M.P. Ragoucy
was also appointed a Non-Executive Director on 1 August 2018. Mr
Lovell and Mr Ragoucy will offer themselves for election at the May
2019 Annual General Meeting.
In making recommendations for the annual re-election of the
Chairman and Non-Executive Directors, the Committee considers
the skills, knowledge, experience, independence and also the time
commitments of each director to ensure that they have sufficient
time to fulfil their responsibilities to the business. During 2018,
I significantly reduced my external commitments following my
retirement as Chairman and Non-Executive Director of Marshalls
plc in May 2018 and as Non-Executive Director of Northgate plc in
December 2018. I retain my roles as Chairman of Fox Marble plc
and of The Go-Ahead Group plc. As a small company traded on AIM,
my time commitments in respect of Fox Marble plc are relatively
low. I have also demonstrated a significant time commitment to SIG
during the year through my involvement in the audit tender and the
shareholder consultation on a new Directors’ remuneration policy.
Following his appointment as a Non-Executive Director of SIG and
as discussed with the Company in advance, Mr Ragoucy has been
appointed interim CEO of Balta Group NV, where he also serves as
Chairman. This is a temporary position which will cease once a new
CEO for Balta Group NV is identified.
Taking into account the above and having considered the time
commitments of the other Non-Executive Directors, the Committee
and the Board have confirmed they are satisfied that I and the
other Non-Executive Directors have sufficient time to fulfil our
responsibilities to the business.
All directors will be put forward for re-election at the 2019 AGM with
the exception of Ms J.E. Ashdown who will retire at the conclusion of
the AGM.
82
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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.
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 A.C. Lovell and Mr C.M.P. Ragoucy, the Committee used the
services of Lygon Group (who have no other connection with the
Company).
The process described above was followed in respect of the
appointments of Mr A.C. Lovell and Mr C.M.P. Ragoucy as Non-
Executive Directors with effect from 1 August 2018.
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 & Internal Audit and Strategic & 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.
Diversity
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 policy on Board
diversity is available on the Company’s website (www.sigplc.com).
The policy states, amongst other things, that the Board will keep
under review and evaluate its balance and composition to ensure
that both it and its Committees have the appropriate mix of skills,
experience, independence and knowledge to ensure their continued
effectiveness. In doing so, the Board will take into account diversity,
including diversity of gender and cultural background, amongst other
relevant factors.
The Board recognises that gender diversity is a significant aspect
of diversity and acknowledges Hampton-Alexander Review
recommendations which aim to increase the number of women in
leadership positions in FTSE 350 companies, including a target of
33% representation of women on FTSE 350 company boards by
2020. The Board also notes recommendations of the Parker Review
on ethnic diversity on UK boards.
The Board supports the Hampton-Alexander recommendations and
Parker Review recommendations. Female representation on the
Board is currently at 25%. The Committee will continue to consider
diversity when recommending any future Board appointments. 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's performance was reviewed in January 2019
as part of the external review of Board and Committee effectiveness.
2019 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. The
Nominations Committee will also continue to closely monitor the
structure, membership and succession plans of senior management
and the Board Committees, making recommendations to the Board
where considered appropriate.
The proposed activities for the Committee in 2019 are:
■ review the succession plans for Board and senior management in
light of the requirements of the 2018 UK Corporate Governance
Code (the '2018 Code') to ensure that they are based on merit and
objective criteria and promote the Group’s diversity objectives;
■ review the Group’s talent objectives and pipeline;
■ review the Terms of Reference of the Committee to ensure they
reflect best practice under the 2018 Code;
■ continue to monitor and assess the Board’s composition and
diversity in light of the third report of the Hampton-Alexander
Review and the Parker Review; and
■ longer term succession planning.
Andrew Allner
Chair of the Nominations Committee
7 March 2019
83
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Where is the information?
Sections
Annual statement from the Chair of the Remuneration
Committee
Remuneration report at a glance
What is our Remuneration Policy?
Additional context on our Executive Directors’ pay
Page
86
90
92
95
Page
Fairness, diversity and wider workforce considerations
96
How do we cascade remuneration through
the Company?
How did we implement the Policy in 2018 and
how will we in 2019?
Additional information
96
92
104
Who is on the Committee, how many times did we meet and what did we do?
The Committee addressed the following key agenda items during its five meetings in 2018:
31 January 2018
6 March 2018
2 August 2018
27 November 2018
20 December 2018
Consideration of long-term
incentive plan structures
Review and approval of incentive
outcomes for the annual bonus
in respect of performance for the
year to 31 December 2017.
Shareholder consultation on long-
term incentive plan structure for
Executive Directors.
Review of Executive Director and
GEC member salaries.
Consideration of award levels
and performance targets for
2019 Management Incentive Plan
awards for participants below
Board.
Consideration and approval of the
Management Incentive Plan for
participants below Board.
Appointment of PwC as
Remuneration Committee
advisors.
Consideration of participants
under Management Incentive Plan
for 2019.
Review of 2018 Directors’
remuneration report.
Consideration of long-term
incentive plan structures for
Executive Directors.
Update on remuneration-related
sections of the new UK Corporate
Governance Code.
Update on approval of the new
Directors’ Remuneration Policy
at the General Meeting on 7
November 2018.
Consideration of the new
Corporate Governance Code.
Review and approval of the 2017
Directors’ remuneration report.
Consideration of external market
developments and best practice in
remuneration.
As at 31 December 2018, the Committee comprised the five independent Non-Executive Directors of the Company.
Chair of the Committee
Ms J.E. Ashdown
Members
Ms A. Abt
Mr I.B. Duncan
Mr A.C. Lovell
Mr C.M.P. Ragoucy
Departed during
the year (date)
Joined during
the year (date)
1 August 2018
1 August 2018
Mr M. Ewell
31 July 2018
Mr C.V. Geoghegan
9 March 2018
84
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Who supports the Committee?
Internal
During the year, we sought internal support from the CEO, CFO and
Group HR Director, whose attendance at Committee meetings was
by invitation from the Chair, to advise on specific questions raised
by the Committee and on matters relating to the performance
and remuneration of the senior management team. The Company
Secretary attended each meeting as Secretary to the Committee. No
director was present for any discussions that related directly to their
own remuneration.
External
Mercer Kepler, an independent firm of remuneration consultants
appointed by the Committee, was the remuneration advisor until
July 2018. On 2 August 2018 PwC LLP were appointed
remuneration advisor.
Both attended Committee meetings as required and provided advice
on remuneration for Executive Directors, analysis on all elements
of the Remuneration Policy and regular market and best practice
updates. Both report directly to the Committee Chair and are
signatories to, and abide 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. During the financial year PwC LLP
also provided advice relating to corporate tax, pensions, gender
pay, strategy consulting and distributable reserves. The Committee
is satisfied that the advice it received from Mercer Kepler and PwC
LLP is independent. Mercer Kepler’s fees for the year were charged
on a time and materials basis and totalled £8,316 in respect of 2018
(2017: £34,525). PwC’s fees were £45,000.
What are the Committee’s responsibilities?
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). The
Committee has adopted new Terms of Reference for 2019 to reflect
the wider responsibilities under the new UK Corporate Governance
Code in relation to wider workforce remuneration and the operation
of incentive plans throughout the Company.
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 183 to 192 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.
85
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual statement
Dear Shareholder,
I am writing to you as the Chair of SIG plc Remuneration Committee
and am pleased to set out in this report how the Committee has
carried out its objectives and responsibilities during 2018.
This report is divided into two; an introduction and a new “AT A
GLANCE” summary of our activities and our Annual remuneration
report, showing how our Policy was applied during the year and
outcomes for our Executive Directors. During the year we received
shareholder approval for a new Policy. I have, therefore, set out in my
Statement the link to the Company’s performance in 2018 with the
key remuneration outcomes for this year and then the background
to the new Policy, engagement with shareholders, and in the new “AT
A GLANCE” section the principal details of the new policy and how
the Committee is proposing to operate it for the 2019 financial year.
2018 performance
Financial highlights
■ Underlying revenue down 1.2% due to challenging market
conditions and focus on profitability over volume
■ Underlying gross margin up 50bps and operating costs down
■ Underlying PBT (excluding property profits) up 25% to £72.7m
(2017: £58.1m)
■ Return on sales (excluding property profits) up to 3.3% (2017:
2.7%)
■ Net debt sharply lower at £189.4m (2017: £258.7m) and headline
financial leverage down to 1.7x (2017: 2.3x)
■ ROCE up 100bps to 10.3% (2017: 9.3). EPS up to 3.0p
(2017: (10.2)p)
■ Final dividend of 2.5p, bringing the total for the year to 3.75p
(2017: 3.75p)
Operational highlights
■ Significant operational and financial progress in the year as the
transformation starts to deliver
■ Strengthened senior leadership team and enhanced capability
provide the platform for the business to build on its potential
■ Improvement in operational efficiency reflected in reduced costs
and working capital
■ Refocus of portfolio of businesses largely complete. Air Handling
fully integrated as pan-European business
■ Improved IT and management information helping to sustain the
transformation for the longer term
Please see Chairman’s statement on pages 2 to 4 for further
information.
It is against this background that the Committee has made its
decisions on remuneration for 2018.
2018 bonus
The bonus performance conditions for 2018 were:-
■ 50% Profit before Tax (PBT);
■ 50% Return on Capital Employed (ROCE);
■ Any bonus is subject to a health and safety gateway which has to
be met before any bonus can be earned.
Our aim is to ensure that
the remuneration
arrangements support
the strategic aims of the
Company and enable the
recruitment, motivation
and retention of senior
executives to deliver
sustainable long term
performance in line with the
purpose and culture of the
Company.
Janet Ashdown
Chair of the Remuneration Committee
86
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Performance against the targets is set out below in the following table:
Performance condition
Threshold
Target
Maximum
PBT
ROCE
£85m
11.3%
£90m
11.8%
£95m
12.3%
Actual
£72.7m
10.3%
% age of
salary earned
Bonus earned
CEO
Bonus earned
CFO
0
0
Total
0
0
0
0
0
0
* It should be noted that the health and safety gateway was satisfied for 2018.
2018 LTIP vesting
Mr M. Oldersma (the “CEO”) was appointed to the Board on 3
April 2017 and Mr N.W. Maddock (the “CFO”) on 1 February 2017.
Therefore, there were no LTIP awards capable of vesting during the
year for the Executive Directors.
■ The nature of the strategy implementation may result in the need
to adjust performance conditions during the standard 3 year LTIP
performance period; this process makes the targets and their
satisfaction opaque to all stakeholders including the participants
and shareholders;
■ It is the Board’s view that the key output of the effective
implementation of the strategy is substantial and sustained total
shareholder return. The Board does not feel it is appropriate
given the current position of the Company to reward Executive
Directors for the delivery of objectives which do not result in this;
■ There is a substantial risk of failure for the Executive Directors
given the unsuccessful attempts to turn around the Company in
the past; the Committee was therefore keen to ensure that there
is sufficient upside reward to balance this risk; and
■ Any incentive arrangement needs to incentivise and retain a highly
entrepreneurial CEO and CFO. It is the Committee’s view that it
is essential to lock in and incentivise the new Executive Directors
over the next period to enable them to implement the strategic
plan and generate sustainable long-term returns for shareholders.
In the Committee’s opinion the best way to measure the new
Executive Directors' success is to quantify the output of the new
strategy in maximising the long-term sustainable value of the
business through the delivery of absolute shareholder return.
The above principles were built into the Bonus Plan and 2018 LTIP
approved by shareholders, full details of which are set out in the
Notice of General Meeting dated 15 October 2018 and which are
summarised in the “AT A GLANCE” section following my statement on
page 90.
The Committee is also aware of the changes to the recently updated
UK Corporate Governance Code. The Committee has monitored the
updates with interest and was comfortable that the changes to the
Company’s Remuneration Policy and new incentive plans are in line
with the Code’s updated provisions in relation to remuneration.
New policy
At the General Meeting of the Company on 7 November 2018, a new
Remuneration policy was approved by shareholders which included
the new SIG plc bonus plan (the “Bonus Plan”) and the SIG plc 2018
Long Term Incentive Plan (the “2018 LTIP”). This followed extensive
consultation by me on behalf of the Committee during the year. At
the end of a successful consultation process for which I would like
to thank the Company’s shareholders and the main shareholder
representative bodies, the policy and its component parts received
strong shareholder support:
■ Remuneration policy – 85.45%
■ Bonus plan – 85.79%
■ 2018 LTIP – 87.67%
Background to the new policy
SIG plc has been through a turbulent period over the last few years
which has seen the make-up of its Board change significantly. A
new management team articulated the Company’s new plan at
the Group’s strategy day in November 2017 and has begun the
execution of this plan.
It is the view of the Board that the key measure of the success of
the implementation of the strategy over the next period will be the
generation of substantial and sustained total shareholder return.
The Board is under no illusion that the Company is in a turnaround
situation.
The Board believes that in the CEO and CFO they have a highly
entrepreneurial team who have the skills necessary to implement
the strategy and achieve a turn-around in the Company’s
performance.
The Remuneration Committee thought hard about the appropriate
way to incentivise the CEO, CFO and our core key management to
deliver the strategy over the next period. Any incentive arrangement
needed to deal with the following challenges:
■ Strategy implementation is not linear and priorities change over
the period therefore setting targets on the grant of a standard
3 year LTIP is extremely challenging as they may not be the right
targets during the performance period;
87
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual statement
Shareholder engagement on the new policy
The Committee consulted extensively with shareholders and the
main shareholder representative bodies on the amendments to
the Remuneration policy and new incentive plans and the original
proposals were changed materially as a result of the feedback
received.
The original approach of a value sharing plan proposed by the
Committee was changed to the Incentive Plans approved by
shareholders due to a desire by a number of the Company’s
shareholders to see an approach more in line with a standard
FTSE 250 Bonus Plan and LTIP with a reduced potential quantum
compared to the original value sharing plan. Whilst the majority
of shareholders recognised the Company was in a recovery stage
and therefore a leveraged plan focused on driving absolute total
shareholder return would be appropriate, there was a view that
there should be a number of comparative and absolute underpins
to any plan using this measure. All shareholders supported the
Committee’s desire for an incentive approach resulting in the
long-term build-up and retention of material shareholdings by the
Executive Directors.
The Committee and I felt that the shareholder engagement process
resulted in an approach that supported the Company’s objectives
and met the desires of the majority of the Company’s stakeholders
as demonstrated by the votes received at the November General
Meeting.
The following table sets out how the new incentive plans meet the
Committee’s objectives set out above and addressed the points
raised during the shareholder consultation:
Objective
Bonus Plan
LTIP
Simple
measurement of
success
The Committee will use the Bonus Plan to set short term financial, strategic
and operational performance conditions. This is designed to ensure that the
Executive Directors are incentivised to make the correct decisions today to
ensure the long-term sustainable future for the Company.
A significant proportion of the bonus is payable in shares subject to a five
year retention period which helps ensure that a material amount of the
value that Executive Directors receive will be dependent on whether the
operational changes and short term financial performance for which the
bonus was earned flows through to long-term sustainable shareholder value;
which will be reflected in the share price and therefore the ultimate value of
the deferred shares awarded to the Executive Directors.
Ensures a meaningful amount of the overall incentive opportunity is focused
on delivering the financial performance of the Company; recognising the
challenge of using the LTIP for this purpose given the requirement to set
multi-year performance targets and the lack of visibility.
Substantial and
sustained total
shareholder return
56% of the maximum bonus will be payable in shares which will not be fully
vested and released to participants for five years.
This results in a material long-term locked-in shareholding for the Executive
Directors ensuring they share the same ownership experience as other
shareholders over this period.
Lock-in & retention
56% of the maximum bonus is provided in long-term shares earned on an
annual basis. This means for new Executive Directors that they have the
potential to build up a material locked-in shareholding in a short period of
time. This shareholding will provide alignment with shareholders’ interests
and a retentive effect.
The long tail of shares from the operation of the Bonus Plan:
■ Provides a strong retentive component; and
■ Encourages long-term thinking from the Executive Directors to ensure that
the foundations build are maintained over the longer term and past their
departure from the Company.
The primary performance
condition for the LTIP is absolute
TSR. Therefore, if the value of the
Company increases the Executive
Directors will receive their LTIP
award (subject to the safeguards
built around the gateway conditions).
No LTIP award will be earned unless
absolute TSR performance targets
are met.
To ensure that this is a
comparatively strong level of
performance comparative TSR
performance conditions will have to
be satisfied.
To ensure that TSR is not at the
expense of financial stability a ROCE
performance condition has to be
satisfied.
Shares under the LTIP will not
be fully vested and released to
participants for five years, providing
a long-term lock-in of participants.
This is supported by a market
leading level of minimum
shareholding requirement of 300%
of salary.
Risk vs. reward
The Committee has set a total incentive opportunity at a maximum of 450% of salary. This has been set in the upper
quartile for the FTSE 250 to provide a substantial reward to the entrepreneurial Executive Directors if they deliver
above upper quartile absolute and comparative performance.
88
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Application of the new policy
The first award under the 2018 LTIP was made on 8 November 2018
(key terms are summarised in the “AT A GLANCE” section on page
90 with full details provided in the Annual Report on Remuneration
on page 101. The Bonus Plan will be operated for the first time in
respect of the 2019 financial year (key terms are summarised in the
“AT A GLANCE” section on page 90).
Wider workforce considerations
SIG is committed to creating an inclusive working environment and
to rewarding our employees throughout the organisation in a fair
manner. In making decisions on executive pay, the Remuneration
Committee considers wider workforce remuneration and conditions.
We believe that employees throughout the Company should
be able to share in the success of the Company and in 2005 we
introduced a Share Incentive Plan for this purpose. We also believe
that employees should have the opportunity to save for their futures
and to this end we operate pension saving mechanisms for all
employees.
As part of our commitment to fairness, we have introduced a new
section to this Report (see page 96) which sets out more information
on our wider workforce pay conditions, our CEO to employee pay
ratio, our gender pay statistics, and our diversity initiatives. Whilst we
recognise there is much work still to do, we believe that transparency
is an important first step towards making improvements in relation
to these important issues.
Shareholders
I would like to thank our shareholders for their continued support
during the year. I will be available at the Company’s Annual General
Meeting on 8 May 2019 to answer any questions in relation to this
Remuneration report.
Janet Ashdown
Chair of the Remuneration Committee
7 March 2019
89
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual statement
Voting outcomes
The following table shows the results of the advisory vote on the Annual Report on Remuneration of the 2017 Directors’ remuneration report
at the 10 May 2018 AGM and the results of the binding vote on the Remuneration policy at the 7 November 2018 General Meeting:
Annual Report on Remuneration
Current Remuneration policy
Total number of votes
% of votes cast
Total number of votes
% of votes cast
For
Against
Total votes cast
Votes withheld
456,590,411
97.77%
454,060,422
85.45%
10,396,427
2.23%
77,305,353
14.55
466,986,838
100%
531,365,775
100%
38,130,624
204,667
At a glance
SIG Executive pay
components of
remuneration
The Remuneration Committee report
is colour coded as follows:
Business context
2018 out-turns
against KPIs
Salary
Pension
Benefits
Bonus
Long-Term Incentive Plan
Shareholding ownership
requirements
l
l
l
l
l
l
KPI and out-turn
Like-for-Like sales
Return on sales
ROCE
Headline financial leverage
AIR
£(2.1)%
3.3%
10.3%
1.7x
11.3
How do our incentive performance measures align to our strategy?
In executing our strategy, we aim to create value and positive outcomes for our shareholders and all other stakeholders. We continually
consider the performance measures we use for our incentives to ensure they support the delivery of our strategy.
Our strategic priorities
Strong positions in our core
markets: as a specialist
distributor of insulation and
interiors products, a merchant
of roofing and exteriors
products and a pan-European
specialist provider of air
handling solutions.
Partner of choice:
We add value as the supply chain
partner of choice for specialist
building materials across Europe.
Experienced and passionate
workforce:
We have a capable and
experienced team, committed to
partnership with our customers
and suppliers and with a strong
focus on health and safety.
Creating long-term value:
through delivery of the
operational and financial
transformation of
our businesses.
Our key performance indicators
Like-for-Like sales
Return on sales
ROCE
Headline financial leverage
Accident incident rate
Annual bonus
Long-Term Incentives
Measures
Link to strategy
Link to KPls
Measures
Link to strategy
Link to KPls
PBT
■ Focus on growth in sales and returns
■ Key measure of organic growth
■ Linked to shareholder value
ROCE
■ Focus on operational efficiency
■ Focus on sustainable investment
■ Linked to shareholder value
Health &
Safety
■ All employees, customers and
suppliers should be able to work in a
safely managed environment across
every part of the SIG Group
4
4
4
Absolute
TSR
Relative
TSR
ROCE
Shareholding
guidelines
■ Linked to the delivery of
long-term shareholder value/
dividend strategy
■ Focus on outperformance of
the market
■ Focus on operational efficiency
■ Focus on sustainable investment
■ Linked to shareholder value
■ Linked to shareholder value
4
4
4
4
90
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE
Long term performance
The following charts show the single figure of remuneration for 2013 to 2018 compared to the Company’s EPS and ROCE over the
same period (rebased to 100 as at 31 December 2013). The charts demonstrate a strong correlation between Company performance
demonstrated by these measures and the remuneration paid to our Executive Directors.
3
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
0
0
1
o
t
d
e
s
a
b
e
R
160
140
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
2018
CEO single figure Underlying EPS ROCE
Remuneration in respect of 2018
What did our Executive Directors earn during the year?
Fixed components
Mr M. Oldersma
Fixed components
Mr N.W. Maddock
Salary:
£568,400
Salary:
£365,400
Pension:
£85,260
Benefits:
£15,602
2018 Bonus out-turn
PBT
ROCE
Health & Safety
gateway
Actual:
72.7m
Actual:
10.3%
Met
LTIP out-turn
No LTIP award vested during the year.
Total single figure of
remuneration
2018
2017
Pension:
£54,810
Benefits:
£16,250
Threshold
(25% payable)
Target
(50% payable)
Maximum
(100% payable)
Outcome
(% salary)
CEO
Actual £’000
CFO
Actual £’000
Threshold:
£85m
Threshold:
11.3%
Target:
£90m
Target:
11.8%
Max:
£95m
Max:
12.3%
0
0
Total
0
0
0
0
0
0
CEO
Actual £’000
CFO
Actual £’000
CEO
£’000
669
794
CFO
£’000
436
626
91
Stock code: SHIwww.sigplc.comGOVERNANCE
Directors’ remuneration report
Directors’ remuneration policy
What is our Remuneration policy?
In this section we provide a summary of the key elements of the new Remuneration policy for Executive Directors approved by shareholders
at our 2018 General Meeting on 7 November 2018. In addition, we have set out how the current policy was operated in 2018 and how it is
intended that the new Remuneration policy is to be operated in 2019. You can find the full new Remuneration policy in the Company’s Notice
of General Meeting dated 15 October 2018 at www.sigplc.com/investors/information-for-shareholders/agm-notices-and-results.
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.
Element and link to strategy
Period over which earned
How we implemented the
current policy in 2018
How we will implement the new
policy in 2019
18 19 20 21 22 23 24
Salary
To attract and retain talent in
the labour market in which the
Executive Director is employed.
It is anticipated that salary
increases will generally be in
line with the general employee
population.
Pension
To provide retirement benefits
that are appropriately competitive
within the relevant labour market.
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.
Executive Director salaries for 2018
were as follows:
■ CEO – £568,400;
■ CFO – £365,400.
Salary increases were 1.5% in 2018, in
line with inflation and increases for UK
employees generally.
A salary increase of 1.5%
will be applied at the salary
review date. From 1 January
2019, Executive Director
salaries will be
■ CEO – £577,000;
■ CFO – £371,000.
The general employee base
salary increase was 1.5%.
The maximum Company contribution or
pension allowance is 15% of salary.
No change for current
Executive Directors.
When recruiting or
promoting new Executive
Directors the Committee
will aim at aligning the
pension contribution to
be provided to those of
employees.
No change.
Benefits may vary by role. The cost of
benefits may vary as a result of factors
outside the Company’s control (e.g.
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 the policy.
92
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Element and link to strategy
Period over which earned
How we implemented the
current policy in 2018
How we will implement the new
policy in 2019
18 19 20 21 22 23 24
Annual bonus
See page 88 for rationale behind
the new Bonus Plan.
Bonus operation for 2018
■ 2/3rds payable in cash;
■ 1/3rd payable in shares
deferred for 3 years and
subject to continued
employment.
Bonus operation for 2019
■ 2/3rds payable in cash up to a
maximum of 66% of salary;
■ 1/3rd payable in shares up to
100% of salary;
■ 100% of any bonus above
100% of salary deferred in
shares;
■ All shares deferred for
3 years and subject to
continued employment;
■ 2 year holding period following
vesting for deferred shares.
2018 Long-Term
Incentive Plan
See page 88 for rationale behind
the new 2018 LTIP.
■ Maximum Initial Award 200%
of salary with the ability to
increase by a multiple of 1.5x
for exceptional performance
giving an overall maximum
of 300%;
■ 3 year performance period;
■ 2 year holding period.
Maximum opportunity in 2018
was as follows:
Maximum opportunity in
2019 will be as follows:
■ CEO – 100% of base salary
■ CEO – 150% of base
■ CFO – 100% of base salary
salary
■ CFO – 150% of base
The performance measures were:
salary
■ EPS (50%)
■ ROCE (50%)
■ Any bonus is subject to a health and
safety gateway which has to be met
before any bonus can be earned
See page 101 for bonus outcomes for
2018.
The performance measures
remain the same as for
2018.
It is the view of the
Committee that the
targets for the bonus are
commercially sensitive as
they are primarily related
to budgeted future profit
and debt levels in the
Company and therefore
their disclosure in advance
is not in the interests of the
Company or shareholders.
The Committee will,
however, provide full
retrospective disclosure
to enable shareholders to
judge the level of award
against the targets set.
LTIP award granted in 2018
was as follows:
Proposed LTIP award for
2019:
■ CEO – Initial Award 200% of base salary
■ CEO – Initial Award 200%
of base salary
(with multiplier 300%);
■ CFO – Initial Award 200%
of base salary
(with multiplier 300%)
Same performance
conditions as for 2018
grant.
(with multiplier 300%)
■ CFO – Initial Award 200% of base salary
(with multiplier 300%)
Performance conditions:-
Initial Award:
■ Median TSR compared to the FTSE 250
or no award capable of vesting
■ ROCE of 10% p.a. or no award capable
of vesting
■ Vesting based on absolute TSR growth
8% p.a. (25% of the award vests) with full
vesting at 14% p.a.
Multiplier:
■ Upper quartile TSR compared to
the FTSE 250 or no award capable
of vesting
■ ROCE of 12.5% p.a. or no award
capable vesting
■ Initial Award multiplied by 1.0x for
absolute TSR growth of 14% p.a. with a
multiplier of 1.5x for 18% p.a.
See page 101 for further details of the
2018 LTIP grant.
93
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Directors’ remuneration policy
Element and link to strategy
Period over which earned
How we implemented the
current policy in 2018
How we will implement the new
policy in 2019
18 19 20 21 22 23 24
Share ownership
requirements
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. It is expected that
this should be achieved within
five years of the approval of the
new policy. In addition, there
is an intervening check in the
shareholding requirement that
at two years from the adoption
of the new policy, Executive
Directors should hold 100% of
salary in shares.
Chairman and
NED fees
To attract and retain NEDs of the
highest calibre with experience
relevant to the Company.
It is anticipated that increases
to Chairman and NED fee levels
will typically be in line with
market levels of fee inflation.
Share ownership requirements:
■ CEO – 200% of base salary;
■ CFO – 200% of base salary.
Share ownership
requirements:
■ CEO – 300% of base
salary;
■ CFO – 300% of base
salary.
Fees will be reviewed
in May 2019 and
reported in the Directors’
remuneration report
for 2019.
Fees were increased in May 2018
to the following:
■ Chairman £215,000
■ NED Fee £60,000
■ SID Fee £10,000
■ Rem Co Chair Fee £12,000
■ Audit Co Chair Fee £12,000
For actual fees paid during the year please
refer to the single figure table on page
102.
94
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Additional context to our Executive Directors’ pay
How does our target total compensation compare to our peers?
The following chart shows the relative position of salary and target total compensation for our Executive Directors compared to our peers.
Expected value of new policy vs FTSE250
£2,500
£2,000
£1,500
s
0
0
0
£
£1,000
£500
£0
FSTE 250 UQ
FSTE 250 Median
FSTE 250 LQ
SIG
CEO Salary
CEO Total Compensation
CFO Salary
CFO Total Compensation
When we set the target total compensation for the Executive Directors, one of the factors the Committee considers is the competitive market
for our Executive Directors, which we believe is the FTSE 250, and the size of the Company compared to these peers. The Committee hopes
the Executives will deliver above target performance.
The chart demonstrates the Committee’s policy of ensuring that salary and benefits are set at or below the market level with the incentives
allowing an overall above market positioning when the Company has performed.
What is our 2018 single figure compared to our current policy?
When shareholders approved our Remuneration policy in 2017, we set out scenarios for the potential remuneration to be earned by our
Executive Directors under the policy for various performance assumptions. We have set out the actual single figure of remuneration for
the Executive Directors for 2018 against these scenarios to demonstrate how the actual remuneration paid lines up with our policy.
£3,000,000
£2,700,000
£2,400,000
£2,100,000
£1,800,000
£1,500,000
£1,200,000
£900,000
£600,000
£300,000
£2,516,562
£2,090,262
CEO
£1,251,872
£1,800,000
£1,600,000
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£669,262
£669,262
CFO
£1,624,240
£1,350,190
£811,225
£436,690
£436,690
£0
Actual
Minimum On-Target Maximum Maximum
(with 50% LTIP
share price growth)
£0
Actual
Minimum On-Target Maximum Maximum
(with 50% LTIP
share price growth)
Fixed
Annual Bonus
LTIP
Equity growth on LTIP shares
Fixed
Annual Bonus
LTIP
Equity growth on LTIP shares
95
Stock code: SHIwww.sigplc.comGOVERNANCE
Directors’ remuneration report
Directors’ remuneration policy
What is our minimum share ownership requirement and has it been met?
The following table shows that our Executive Directors have not yet met their new minimum share ownership requirements, given its recent
adoption and their comparatively short tenure with the Company. In addition, the table shows the substantial amount of equity which can
potentially be earned by our Executive Directors over the next period, further increasing their exposure to the share price performance of the
Company and ensuring that their holdings will increase over time.
Minimum
Shareholding
Requirement
M. Oldersma
N. Maddock
Current Shareholding
Post tax value of unvested
share awards
New minimum Shareholding
0%
50%
100%
150%
200%
250%
300%
350%
Fairness, diversity and wider workforce considerations
Area
Considerations
Competitive pay
and cascade of
incentives
The Committee ensures that pay is fair throughout the Company and makes decisions in relation to the structure
of executive pay in the context of the cascade of pay structures throughout the business. The Committee’s remit
extends to Executive Directors and senior management for whom it recommends and monitors the level and
structure of remuneration.
Level (number)
Bonus Plan
LTIP
Executive Directors (2)
150% of salary
200% of salary (300%)
Senior Management (77)
Employees (543 current
participants)
Management Incentive
Plan (cash bonus,
deferred shares,
restricted shares)
Participation in all
employee equity plan
(Share Incentive Plan)
10% to 75% of salary
Partnership and
matching shares
Saving for the
future
The Group has pension savings mechanism for all employees.
Share Incentive
Plan
The SIG Share Incentive Plan encourages wider ownership of SIG shares across the entire workforce, which ensures
that the interests of employees remain firmly aligned with those of shareholders.
96
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE
Area
Considerations
Pay comparisons
CEO ratio
Our CEO to employee pay ratios for 2018 are set out in the table below:
Financial Year
Method Used
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
2018
Option B (Gender Pay data)
33:1
27.:1
20:1
For 2018, the Company has used Option B given the availability of data and on the basis that it is early adopting
this disclosure. The Company feels that using Gender Pay data ensures that these individuals are reasonably
representative of pay levels at the 25th, 50th and 75th percentiles. We have determined the individuals at the 25th,
50th and 75th percentiles as at 26 October 2018.
In determining the quartile figures the hourly rates were annualised using the same number of contractual hours
as the CEO. One employee with the relevant annual salary was then chosen for each quartile and the single total
remuneration figure was calculated for them to compare to the CEO.
For the purpose of the calculations the following elements of pay were included for all employees:
■ Annual basic salary
■ Private medical insurance value
■ Car/car allowance
■ Employer pension contribution
■ Bonus earned in the year in question
■ LTIP value
■ Management incentive plan value
■ Group Life Assurance value
In future years, we will provide context to the ratios and set out a table showing changes over time and narrative
explaining them, together with a chart tracking CEO to employee pay ratios alongside SIG’s TSR performance over
the same period. The Committee continues to be committed to ensuring that CEO pay is commensurate with
performance.
We are expecting there to be significant volatility in this ratio over time and we believe that this will be caused by the
following:
■ Our CEO pay is made up of a higher proportion of incentive pay than that of our employees, in line with the
expectations of our shareholders. This introduces a higher degree of variability in his pay each year which affects
the ratio. The value of long-term incentives which measure performance over three years is disclosed in pay in the
year it vests, which increases the CEO pay in that year, again impacting the ratio for that year;
■ Long-term incentives are provided in shares, and therefore an increase in share price over the three years
magnifies the impact of a long-term incentive award vesting in a year.
■ We recognise that the ratio is driven by the different structure of the pay of our CEO versus that of our employees,
as well as the make-up of our workforce. This ratio varies between businesses even in the same sector. What
is important from our perspective is that this ratio is influenced only by the differences in structure, and not by
divergence in fixed pay between the CEO and wider workforce.
■ Where the structure of remuneration is similar, as for the Executive Committee and the CEO, the ratio is much
more stable over time.
97
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Directors’ remuneration policy
Area
Considerations
Pay comparisons
continued
CEO pay in the last 10 years
This table shows how pay for the CEO role has changed in the last 10 years.
669
0
n/a
2009
£'000
2010
£'000
2011
£'000
2012
£'000
2013
£'000
2013
£'000
2014
£'000
2015
£'000
2016
£'000
2016
£'000
2017
£'000
2017
£'000
2018
£'000
C.J.
Davies
C.J.
Davies
C.J.
Davies
C.J.
Davies
C.J.
Davies1
S.R.
Mitchell2
S.R.
Mitchell
S.R.
Mitchell
S.R.
Mitchell4
M.
Ewell5
M.
Ewell
M.
Oldersma6
M.
Oldersma
1,354
1,087
1,065
1,024
1,031
987
968
765
581
100
150
794
Year
Incumbent
Single figure of
remuneration
% of maximum
annual bonus
earned
% of maximum LTIP
awards vesting
0
45
54
0
96
0
54
0
50
0
60.5
57
03
n/a
n/a
19.5
n/a
n/a
n/a
n/a
n/a
n/a
70
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 Officer 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 Officer 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.
5. Mr M. Ewell was appointed as Interim Chief Executive Officer with effect from 11 November 2016 and stepped down on 31 March 2017. He continued as
an Executive Director until 20 April 2017, and his remuneration relates to the period served as CEO. Mr M. Ewell did not participate in any Group incentive
schemes.
6. 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.
98
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Area
Considerations
Pay comparisons
continued
Total Shareholder Return
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 2018. 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.
400
350
300
250
200
150
100
50
8
0
0
2
r
e
b
m
e
c
e
D
1
3
m
o
r
f
R
S
T
d
e
s
a
b
e
R
0
2008
10 Year Company TSR Performance v FTSE All Share Support Services
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
SIG
FTSE All Share Support Services
Percentage change in CEO’s remuneration
The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2018 and
2017 compares with the percentage change in the average of each of those components of pay for the UK-based
employees of the Group as a whole.
Salary
£’000
Percentage
change
Taxable benefits
£’000
Percentage
change
Bonus2
£’000
Percentage
change
2018
568
2017
5601
%
1.5
2018
16
96,441
121,505
(20.6)
1,094
2017
241
6,593
%
2018
(33)
(83.4)
0
2,898
2017
3913
4,239
%
(100)
(31.6)
3,286
4,364
(24.7)
3,286
4,364
(24.7)
3,286
4,364
(24.7)
29.3
27.8
5.4
0.3
1.5
(77.9)
0.9
1.0
(10.0)
CEO pay
UK total pay
Number of
employees
Average per
employee
Notes:
1. Mr M. Oldersma was appointed Chief Executive Officer on 3 April 2017. The figures shown for 2017 represent his salary and taxable benefits on an annual
basis for comparative purposes. The actual salary and taxable benefits paid to Mr Oldersma for 2017 are disclosed in the single figure table on page 101.
2. The bonus figures are for UK-based employees who participate in a bonus arrangement.
3. The bonus figure shown above for 2017 is an annualised amount used for comparative purposes. The actual payment for 2017 was determined pro-rata
to period in office and is disclosed in the single figure table on page 101.
What is the year-on-year change in our CEO remuneration?
The Committee monitors the changes year-on-year between our CEO pay and average employee pay, shown in the
table. As per our policy, salary increases applied to Executive Directors will typically be in line with those of the wider
workforce.
99
Stock code: SHIwww.sigplc.comGOVERNANCE
Directors’ remuneration report
Directors’ remuneration policy
Area
Considerations
Gender pay
The UK Government Equalities Office legislation requires employers with more than 250 employees to disclose
annually information on their gender pay gap. The second disclosure of the pay gap will be based on amounts paid in
the April 2018 payroll. The bonus gap will be based on incentives paid in the year to 31st March 2018.
The mean gender pay gap at SIG is 5.4%. This is lower than the UK average and mostly due to demographics within
the Company. This can clearly be seen in the quartiles set out below
Upper
Upper middle
Lower middle
Lower
16.8%
83.2%
25.9%
74.1%
22.4%
77.6%
15.9%
84.1%
Female
Male
5.4%
Mean pay gap
47.8%
Mean bonus gap
More information can be found on page 48 of the Sustainability report.
More information on our Diversity and Inclusion plan can be found below.
Diversity
initiatives
Equality
The Group has policies that promote equality and diversity in the workforce as well as prohibiting discrimination in
any form. We welcome and give full and fair consideration to applications from individuals with recognised disabilities
to ensure they have equal opportunity for employment and development in our business. Wherever practicable we
offer training and make adjustments to ensure disabled employees are not disadvantaged in the workplace.
See Sustainability report for more information on pages 48 to 57.
100
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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
2018, and how the Remuneration Committee intends to implement the new Remuneration policy in 2019.
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 the year to 31 December 2018 and
the prior year:
Executive Director
Mr M. Oldersma7
Mr N.W. Maddock8
2018
2017
2018
2017
Base
salary1
£’000
568
420
365
330
Taxable
benefits2
£’000
Pension3
£’000
16
18
16
14
85
63
55
50
Annual
bonus4
£’000
0
293
0
232
LTIP5
£’000
0
0
0
0
Other 6
£’000
Total
remuneration
£’000
0
0
0.23
0.13
669
794
436
626
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 and medical insurance.
3. Pension: the Company’s pension contribution during the year of 15% of salary, an amount of which was paid by salary supplement.
4. Annual bonus: payment for performance during the year (including deferred portion). The Bonus is calculated as a percentage of base salary. For 2017 the payment was determined
pro-rata to period in office.
5. LTIP: There is no vesting in respect of either 2017 or 2018.
6. Other: includes SIP, value based on the face value of matching shares at grant.
7. Mr M. Oldersma was appointed as CEO on 3 April 2017. The figures for 2017 relate to the period following his appointment i.e. 3 April 2017 to 31 December 2017.
8. Mr N. Maddock was appointed as CFO on 1 February 2017. The figures for 2017 relate to the period following his appointment i.e. 1 February 2017 to 31 December 2017.
Incentive outcomes for 2018 (AUDITED)
Annual bonus in respect of 2018
See page 91.
Long Term Incentive Plan: 2016 Awards
No awards vested during the year for the current Executive Directors.
2018 Long Term Incentive Plan: 2018 Awards
On 8 November 2018, Mr M. Oldersma and Mr N.W. Maddock were granted awards under the LTIP of 1,494,478 and 960,735 shares
respectively; details are provided in the table below. The three-year period over which performance will be measured will be 8 November
2018 to 8 November 2021. See page 93 for details of the performance conditions.
Executive Director
Mr M. Oldersma
Mr N.W. Maddock
Date of grant
Shares subject
to award
Market price
at date of award
Face value
at date
of award
Face value
at date of award
(% of salary)
8 November 2018
1,494,478
8 November 2018
960,735
114.1p
114.1p
£1,705,200
£1,096,200
300%
300%
101
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual Report on Remuneration
Single total figure of remuneration for Non-Executive Directors (AUDITED)
The table below sets out the single total figure of remuneration received by each Non-Executive Director for services rendered to the
Company as a Non-Executive Director for the year to 31 December 2018 and the prior year:
Non-Executive Director
Mr A.J. Allner (Chairman)1
Ms A. Abt
Ms J.E. Ashdown2
Mr I.B. Duncan3
Mr A.C. Lovell4
Mr C.M.P. Ragoucy5
Mr L. Van de Walle6
Mr M. Ewell7
Mr C.V. Geoghegan8
Mr J.C. Nicholls9
Base
fee £’000
2018
202
56
56
56
25
25
–
31
9
–
Committee Chair/
Senior Independent Director
fees £’000
Additional Advisory Board
fees £’000
Total
fees £’000
2017
2018
2017
2018
2017
29
49
49
49
–
–
141
32
49
12
–
–
11
12
4
–
–
3
1
–
–
–
–
7
–
–
–
–
10
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25
–
2018
202
56
67
68
29
25
–
34
10
–
2017
29
49
49
56
–
–
141
32
84
15
1. Mr A.J. Allner was appointed as Chairman on 31 October 2017.
2. Ms J.E. Ashdown was appointed Chair of the Remuneration Committee with effect from 19 December 2017.
3. Mr I.B. Duncan was appointed Chair of the Audit Committee with effect from 1 April 2017.
4. Mr A.C. Lovell was appointed a Non-Executive Director and Senior Independent Director on 1 August 2018.
5. Mr C.M.P. Ragoucy was appointed a Non-Executive Director on 1 August 2018.
6. Mr L. Van de Walle retired as Chairman on 31 October 2017.
7. Mr M. Ewell retired as a Non-Executive Director and the Senior Independent Director (a position he held since Mr C.V. Geoghegan’s retirement on 9 March 2018) on 31 July 2018. The
figures for 2017 relate to fees paid to Mr Ewell in his capacity as a Non-Executive Director, a position he resumed from 1 May 2017 following a period as an interim Executive Director.
8. Mr C.V. Geoghegan retired as a Non-Executive Director and the Senior Independent Director on 9 March 2018. He received a fee of £25,000 in 2017 for his additional services as the
Non-Executive Chairman of the SIG Offsite Board.
9. Mr J.C. Nicholls retired as a Director and Chair of the Audit Committee on 31 March 2017.
Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends and share
buybacks) from the financial year ended 31 December 2017 to the financial year ended 31 December 2018.
Distribution to shareholders
Employee remuneration
2018
£m
22.2
366.1
2017
£m
18.2
398.2
% change
22%
(8%)
The directors are proposing a final dividend for the year ended 31 December 2018 of 2.50p per share (2017: 2.50p).
102
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE Directors’ interests in SIG shares (AUDITED)
The interests of the directors in office during the year to 31 December 2018, 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. Ewell1
Mr C.V. Geoghegan2
Mr A.C. Lovell3
Mr N.W. Maddock4
Mr M. Oldersma
Mr C.M.P. Ragoucy3
31 December
2018
1 January
2018
8,500
43,954
44,450
–
27,450
–
20,000
78,563
371,388
–
8,500
6,000
44,450
–
27,450
40,000
–
718
39,000
–
1. Mr M. Ewell retired as a director on 31 July 2018.
2. Mr C.V. Geoghegan retired as a director on 9 March 2018.
3. Mr A.C. Lovell and Mr C.M.P. Ragoucy were appointed as directors on 1 August 2018.
4.
Includes partnership and matching shares acquired under the SIP.
There have been no changes to shareholdings between 1 January 2019 and 7 March 2019 save that on 15 January 2019 and 15 February
2019 Mr N.W. Maddock acquired a further 127 and 125 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 below.
Directors’ shareholding (AUDITED)
The table below shows the shareholding of each director against their respective shareholding requirement as at 31 December 2018:
Shares held
Nil-cost options held
Vested
but subject
to holding
period
Vested
but not
exercised
Unvested
and
subject to
performance
conditions
Unvested
and
subject
to deferral
Shareholding
required
(% basic
salary)1
Current
shareholding
as a
percentage of
basic salary
Requirement
met2
–
–
–
–
2,448,481
1,420,700
70,476
56,924
300
300
79%
33%
No
No
Mr M. Oldersma
Mr N.W. Maddock
Ms A. Abt
Mr A.J. Allner
Ms J.E. Ashdown
Mr I.B. Duncan
Mr M. Ewell3
Mr C.V. Geoghegan4
Mr A.C. Lovell
Mr C.M.P. Ragoucy
Owned
outright or
vested
371,388
78,303
8,500
43,954
44,450
0
27,450
0
20,000
0
1. Executive Directors are expected to achieve target shareholding within 5 years of approval of the remuneration policy.
2. Based on SIG share price of 109.8p as at 31 December 2018. Note that both the Executive Directors were appointed in 2017, consequently they have not yet built up the required
holding.
3. Mr M Ewell retired as a director on 31 July 2018.
4. Mr C.V. Geoghegan retired as a director on 9 March 2018
103
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ remuneration report
Annual Report on Remuneration
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 period1
Exercise
period
LTIP
Mr M. Oldersma
Mr N.W. Maddock
Deferred Share
Bonus Plan
Mr M. Oldersma
Mr N.W. Maddock
24/04/2017
08/11/2018
24/04/2017
08/11/2018
117.4p
114.1p
117.4p
114.1p
954,003
1,494,478
459,965
960,735
1,120,000
1,705,200
540,000
1,096,200
01/01/2017–31/12/2019
08/11/2018–08/11/2021
24/04/2020–23/04/2027
08/11/2021-08/11/2028
01/01/2017–31/12/2019
08/11/2018–08/11/2021
24/04/2020–23/04/2027
08/11/2021-08/11/2028
11/04/2018
11/04/2018
138.67p
138.67p
70,476
56,924
97,729
11/04/2018–11/04/2021
11/04/2021–11/04/2028
78,937
11/04/2018–11/04/2021
11/04/2021–11/04/2028
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 2018.
The market price of shares at 31 December 2018 was 109.8p and the range during 2018 was 176.2p to 102.2p.
There were no options exercised by the directors in 2018 (2017: nil).
External directorships
During 2018 Mr M. Oldersma held external directorships at Kondor HOLDCO Ltd and KidsFoundation Holdings B.V. for which he received
£27,046 and £66,000 respectively, which he retained. Both directorships ceased during the year. He is also a director of Oldersma
Management & Consultancy Ltd which is a personal services company and was used to invoice KidsFoundation Holdings B.V.
Additional information
The following table sets out the additional information required in the Annual Report on Remuneration and where relevant its location:
Element
Payments for loss of office
Payment to former directors
Implementation of Remuneration policy in 2019
Percentage change in CEO remuneration
TSR performance graph
Information / Page
None
None
See pages 92 to 94
See page 99
See page 99
Executive Director service contracts
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.
Executive Director
Mr N.W. Maddock
Mr M. Oldersma
Date of service contract
6 October 2016
13 March 2017
104
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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
Mr A.J. Allner
Ms A. Abt
Ms J.E. Ashdown
Mr I.B. Duncan
Mr A.C. Lovell
Mr C.M.P. Ragoucy
Mr M. Ewell1
Mr C.V. Geoghegan2
Date of current letter of appointment
Effective date of appointment
Expiry of current term
10 October 2017
5 March 2015
3 April 2017
9 December 2016
28 June 2018
28 June 2018
2 May 2017
4 April 2016
1 November 2017
12 March 2015
11 July 2011
1 January 2017
1 August 2018
1 August 2018
1 August 2011
1 July 2009
12 May 2020
May 2021
12 May 2020
12 May 2020
May 2021
May 2021
n/a
n/a
1. Mr M. Ewell retired from the Board on 31 July 2018.
2. Mr C.V. Geoghegan retired from the Board on 9 March 2018.
Approval of the Directors’ remuneration report
The Directors’ remuneration report set out on pages 84 to 105 was approved by the Board of Directors on 7 March 2019 and signed on its
behalf by Janet Ashdown, Chair of the Remuneration Committee.
Janet Ashdown
Chair of the Remuneration Committee
7 March 2019
105
Stock code: SHIwww.sigplc.comGOVERNANCE Statement of Directors’ responsibilities
The directors are responsible for preparing the Annual Report and
the Financial Statements in accordance with applicable law and
regulations.
Responsibility statement
We confirm that to the best of our knowledge:
■ 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; and
■ 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.
This responsibility statement was approved by the Board of Directors
on 7 March 2018 and is signed on its behalf by:
Meinie Oldersma
Chief Executive Officer
Nick Maddock
Chief Financial Officer
7 March 2019
7 March 2019
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 assets, liabilities,
financial position and 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:
■ 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 IFRS 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 at that time 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.
106
Annual Report and Accounts for the year ended 31 December 2018SIG plcGOVERNANCE 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
108
109
110
111
112
113
Critical Accounting Judgements and
Key Sources of Estimation Uncertainty 124
Notes to the 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 2018
Company Information
126
183
193
195
196
197
198
200
206
208
Consolidated Income Statement
for the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Other operating expenses
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax
Income tax (expense)/credit
Profit/(loss) after tax
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings/(loss) per share
Underlying*
2018
£m
Other items**
2018
£m
Note
1
2
3
3
4
6
2,683.2
(1,966.5)
716.7
(626.1)
90.6
0.6
(15.9)
75.3
(19.8)
55.5
55.1
0.4
58.7
(40.5)
18.2
(64.5)
(46.3)
–
(0.5)
(46.8)
9.2
(37.6)
(37.6)
–
Basic and diluted earnings/(loss) per share
8
Underlying*
2017^
Restated
£m
Other items**
2017^
Restated
£m
2,716.4
(2,004.7)
711.7
(626.1)
85.6
0.5
(16.7)
69.4
(17.7)
51.7
50.7
1.0
162.0
(121.2)
40.8
(162.7)
(121.9)
0.1
(2.3)
(124.1)
13.2
(110.9)
(110.9)
–
Total
2018
£m
2,741.9
(2,007.0)
734.9
(690.6)
44.3
0.6
(16.4)
28.5
(10.6)
17.9
17.5
0.4
3.0p
Total
2017^
Restated
£m
2,878.4
(2,125.9)
752.5
(788.8)
(36.3)
0.6
(19.0)
(54.7)
(4.5)
(59.2)
(60.2)
1.0
(10.2)p
^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated.
The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
* 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, profits and losses on agreed sale or closure of non-core businesses and associated impairment
charges, net operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, 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 118 and 119.
All results are from continuing operations.
The 2017 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.
108
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
Note
29c
23
23
Profit/(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 (charge)/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 income/(expense)
Attributable to:
Equity holders of the Company
Non-controlling interests
2018
£m
17.9
0.1
0.1
–
0.2
1.3
(0.6)
1.8
(0.4)
–
2.0
(0.7)
3.4
3.6
21.5
21.1
0.4
21.5
2017^
Restated
£m
(59.2)
5.5
(0.9)
(0.2)
4.4
5.4
13.6
(9.2)
1.8
0.1
(1.6)
4.1
14.2
18.6
(40.6)
(41.6)
1.0
(40.6)
^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated.
The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
The 2017 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
Statement of Comprehensive Income.
109
Stock code: SHIwww.sigplc.comFINANCIALS Consolidated Balance Sheet
as at 31 December 2018
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
Contract assets
Current tax assets
Derivative financial instruments
Deferred consideration
Cash at bank and on hand
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Other financial liabilities
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
Cost of hedging reserve
Retained losses
Attributable to equity holders of the Company
Non-controlling interests
Total equity
Note
10
12
13
23
19
19
15
16
16
16
19
19
19
10
17
17
17
17
17
17
17
17
17
17
17
17
18
18
18
18
23
18
29c
18
25
2018
£m
105.4
293.9
46.2
14.6
1.9
0.7
462.7
207.2
477.7
1.8
5.5
–
0.8
83.3
1.9
778.2
1,240.9
428.3
1.6
3.2
4.5
56.5
–
0.9
1.1
0.3
4.9
11.0
–
512.3
20.2
–
185.6
3.8
1.4
5.6
28.7
20.4
265.7
778.0
462.9
59.2
447.3
0.3
1.7
21.7
1.0
(68.3)
462.9
–
462.9
2017^
Restated
£m
118.1
312.2
57.0
13.7
0.1
1.4
502.5
243.5
480.4
–
5.2
1.2
0.1
108.2
0.3
838.9
1,341.4
421.5
–
3.2
29.6
84.2
21.1
17.0
8.0
0.2
7.2
12.0
0.1
604.1
20.0
–
183.1
3.3
1.4
6.9
30.4
21.7
266.8
870.9
470.5
59.2
447.3
0.3
1.3
19.6
–
(58.1)
469.6
0.9
470.5
^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated.
The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
The 2017 Consolidated Balance Sheet has 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
Balance Sheet.
The Financial Statements were approved by the Board of Directors on 7 March 2019 and signed on its behalf by:
MEINIE OLDERSMA
Director
NICK MADDOCK
Director
Registered in England: 00998314
110
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
Called
up share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Share
option
reserve
£m
Hedging
and
translation
reserve
£m
Cost of
hedging
reserve
£m
Retained
(losses)/
profits
£m
Non-
controlling
Total
£m
interests Total equity
£m
£m
At 1 January 2017 (restated)^
59.1
447.3
0.3
1.1
Loss 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
Current and deferred tax on
share options
Dividends paid to non-
controlling interest
Dividends paid to equity
holders of the Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
7.9
–
11.7
11.7
–
–
–
–
–
–
At 31 December 2017 (restated)
59.2
447.3
0.3
1.3
19.6
Impact of adoption of IFRS 15
Impact of adoption of IFRS 9
Adjusted balance at 1 January
2018
Profit after tax
Other comprehensive income
Total comprehensive income
Share capital issued in the year
Credit to share option reserve
Exercise of share options
Current and deferred tax on
share options
Movement in reserves
Dividends paid to non-
controlling interest
Transaction between equity
holders
Dividends paid to equity
holders of the Company
–
–
–
–
–
–
–
–
–
–
59.2
447.3
0.3
1.3
19.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
–
2.1
2.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.9
0.9
–
0.1
0.1
–
–
–
–
–
–
–
–
13.2
528.9
(60.2)
6.9
(60.2)
18.6
0.8
1.0
–
529.7
(59.2)
18.6
(53.3)
(41.6)
1.0
(40.6)
–
–
–
0.1
0.2
–
0.2
0.2
–
–
–
–
0.1
0.2
–
0.2
–
–
(0.9)
(0.9)
(18.2)
(18.2)
–
(18.2)
(58.1)
469.6
0.9
470.5
(0.7)
(0.7)
(0.7)
0.2
(59.5)
469.1
17.5
1.4
18.9
–
–
–
(0.2)
(1.7)
17.5
3.6
21.1
–
0.4
–
(0.2)
(1.7)
–
–
0.9
0.4
–
0.4
–
–
–
–
1.7
(0.7)
0.2
470.0
17.9
3.6
21.5
–
0.4
–
(0.2)
–
–
–
(0.3)
(0.3)
(3.6)
(3.6)
(2.7)
(6.3)
(22.2)
(22.2)
–
–
(22.2)
462.9
At 31 December 2018
59.2
447.3
0.3
1.7
21.7
1.0
(68.3)
462.9
^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated.
The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
Total equity at 1 January 2017 and 31 December 2017 has been restated as set out in the Statement of Significant Accounting
Policies and Note 33.
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 118.
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.
111
Stock code: SHIwww.sigplc.comFINANCIALS Consolidated Cash Flow Statement
for the year ended 31 December 2018
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 previous purchases of businesses
Net cash flow arising on the sale of businesses
Net cash generated from investing activities
Cash flows from financing activities
Finance costs paid
Capital element of finance lease rental payments
Issue of share capital
Acquisition of non-controlling interests
Repayment of loans/settlement of derivative financial instruments
New loans
Dividends paid to equity holders of the Company
Dividends paid to non-controlling interest
Net cash used in financing activities
Decrease 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
2018
£m
109.6
(14.0)
95.6
1.0
(22.7)
5.1
(17.2)
35.8
2.0
(14.1)
(1.5)
–
(2.5)
(57.1)
–
(22.2)
(0.3)
(97.7)
(0.1)
78.6
0.3
78.8
2017^
Restated
£m
93.4
(18.8)
74.6
0.5
(19.9)
34.6
(6.9)
17.6
25.9
(13.1)
(3.5)
–
–
(87.9)
8.2
(18.2)
(0.9)
(115.4)
(14.9)
89.0
4.5
78.6
^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated.
The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
* Cash and cash equivalents comprise cash at bank and on hand of £83.3m (2017: £108.2m) less bank overdrafts of £4.5m (2017: £29.6m).
The 2017 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
Cash Flow Statement.
112
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Statement of Significant Accounting Policies
The significant accounting policies adopted in this Annual Report and
Accounts for the year ended 31 December 2018 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 consolidated 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 40.
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 37.
There are no post balance sheet events requiring disclosure in these
Financial Statements.
Prior year restatements
As part of the transition to new auditors, the Group has reviewed
certain accounting policies and judgements, resulting in a number
of errors being corrected by prior year restatements to previously
reported numbers. A summary of the changes made is provided
below. These have been restated in these Financial Statements and
full details of the effect on each financial line item affected are shown
in Note 33.
i) Definition of net debt
The Group’s previous definition of net debt, as included in the 2017
Annual Report and Accounts, included the following: Derivative
financial instruments (assets and liabilities), deferred consideration
assets, other financial assets, cash and cash equivalents, obligations
under finance lease contracts, bank overdrafts, bank loans, private
placement notes, loan notes and deferred consideration liabilities.
At 31 December 2017, £8.0m of supplier balances in SIG France had
been settled via a credit card working capital facility. As our previous
definition of net debt did not refer to such facilities, this balance was
included in trade payables at 31 December 2017.
It has been determined it would be more appropriate to treat such
solutions as other financial liabilities and include within net debt. The
Consolidated Balance Sheet at 31 December 2017 has therefore
been restated to reclassify these balances from trade payables to
other financial liabilities and to increase net debt by £8.0m, with no
overall impact to net assets.
This has no impact on the Consolidated Income Statement, but
resulted in a change in classification between working capital and
debt movements on the Consolidated Cash Flow Statement for
the year ended 31 December 2017. There was no impact on other
previously reported periods as there were no such arrangements in
place at previous period ends. There are no such arrangements in
place at 31 December 2018 and we have updated our definition of
net debt to incorporate other financial liabilities, including this type of
working capital facility.
ii) Cash in transit
The Group has reconsidered the appropriateness of its cash policy
in relation to the treatment of cash in transit by reference to current
guidance, acknowledging there may be mixed custom and practice in
this area. It has been determined that in some cases cash in transit
was being included in cash in advance of obtaining control of funds
or cheques.
The Group no longer considers this to be appropriate and has
determined that cash should only include electronic receipts that are
cleared funds and cheques that are physically received by the period
end date. Prior year figures have been restated accordingly. This has
resulted in a reduction in cash and an increase in trade receivables
of £15.3m at 1 January 2017 and £13.6m at 31 December 2017.
There is no impact on the Consolidated Income Statement or
net assets. The Consolidated Cash Flow Statement has also been
restated, with cash and cash equivalents reducing by £13.6m at 31
December 2017, resulting in an increase in net cash from operating
activities of £1.7m for the year ended 31 December 2017.
iii) Classification of lease arrangements
The accounting for sale and leaseback transactions, in particular
relating to property, has been reassessed. Two transactions, in
June 2017 and December 2016, are now considered to meet the
criteria for recognition as a finance lease rather than an operating
lease at the date of inception of the leaseback. The Consolidated
Income Statement for the year to 31 December 2017, and the
Consolidated Balance Sheet at that date, have been restated for this
reclassification.
The restatement results in an increase in tangible fixed assets and
finance lease liabilities of £13.1m at 31 December 2017.
The impact on the Consolidated Income Statement for the year
ended 31 December 2017 is a reduction in underlying operating
profit of £1.9m and an increase in finance costs of £0.7m, due to
the add back of operating lease rentals replaced by charges for
depreciation and interest, together with a change in the recognition
of the profit on the sale which is now spread over the life of the
finance lease instead of being recorded in full in the period of the
transaction.
iv) Provision for uncertain tax position
At 31 December 2017 there was a reported deferred tax asset of
£9.2m. The Group has reassessed its deferred tax asset position
and as a result believes that an increased deferred tax asset should
have been recognised in relation to losses and fixed asset timing
differences.
The impact of recognising this is to increase the deferred tax asset at
31 December 2017 to £12.0m, and to increase profit after tax for the
year ended 31 December 2017 by £2.8m.
v) Recognition of early settlement discounts
The Group previously accounted for early settlement discounts
when paid, however, under IAS 18 “Revenue”, revenue should take
into account expected discounts allowed. This has no impact on
the Consolidated Income Statement or Consolidated Cash Flow
Statement for the year ended 31 December 2017. The Consolidated
Balance Sheet has been restated at 1 January 2017 and 31
December 2017, resulting in an increase in retained losses of £1.0m
at each reporting date.
113
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
vi) Provision for leasehold dilapidations
The Group has corrected its policy for recognising provisions in
relation to contractual obligations to reinstate leasehold properties
to their original state of repair. Previously the provision was
calculated with reference to the expired portion of individual lease
agreements, where such a clause exists in the lease contract. The
Group has reviewed the contractual obligations and provisions and
considers that where a liability exists to rectify or reinstate leasehold
improvements and modifications carried out at the inception of the
lease, provision should be made at the inception of the lease, with
a corresponding asset recognised in fixed assets and depreciated
over the term of the lease. Provisions to rectify repairs and general
wear and tear continue to be recognised as incurred over the life of
the lease. Provisions for dilapidations are also required in Germany
which were not previously recognised. This prior period restatement
has resulted in an increase to fixed assets of £2.6m, an increase to
liabilities of £7.9m and an increase in retained losses of £5.3m at
31 December 2017, and a increase to the loss after tax for the year
ended 31 December 2017 of £0.5m.
vii) Review of operating segments
The operating segments disclosure has been expanded in a manner
consistent with the Group’s internal reporting. Other Mainland
Europe has been separated into Air Handling, Benelux and Poland,
and the comparatives for previous periods have been reclassified to
reflect this.
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. The overall impact of the restatements was
to increase net debt by £34.9m to £258.7m at 31 December 2017.
Additional interest payable as a result of the restatements has
been accrued in the relevant period (£0.4m for the year ended 31
December 2017).
New Standards, Interpretations and
Amendments adopted
The Group has initially applied IFRS 15 and IFRS 9 from 1 January
2018. A number of other new standards are also effective from 1
January 2018 but they do not have a material effect on the Group’s
Financial Statements.
Due to the transition methods chosen by the Group in applying
these standards, comparative information throughout these Financial
Statements has not been restated to reflect the requirements of the
new standards.
IFRS 15 “Revenue from contracts with customers”
The Group has adopted IFRS 15 using the modified retrospective
method approach and therefore the 2017 comparative information
has not been restated and the opening equity at 1 January 2018 is
adjusted for the cumulative effect of applying IFRS 15 at that date.
The comparative information continues to be reported under IAS 18
and IAS 11. The details of the significant changes and quantitative
impact of the changes are set out below.
IFRS 15 applies to all revenue arising from contracts with customers,
unless those contracts are in the scope of other standards. The new
standard establishes a five-step model to account for revenue arising
from contracts with customers. Revenue is measured based on the
consideration specified in a contract with a customer and excludes
amounts collected on behalf of third parties. The Group recognises
revenue when it transfers control over a product or service to a
customer.
In the comparative period, revenue was measured at the fair value
of the consideration received or receivable for goods or services,
net of discounts and customer rebates, VAT and other sales-related
taxes. Revenue from the sale of goods was recognised on receipt
of goods by the customer. Customer rebates were accounted for
as a separate component of the sales transaction, with a portion
of the fair value of the consideration allocated to customer rebates
and recognised in the period as earned. Revenue generated from
a contract to provide services was 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. Revenue from construction contracts was
recognised by reference to the stage of completion of the contract
activity at the reporting date. Stage of completion was normally
measured by the proportion of contract costs incurred for work
performed to date compared to the estimated total contract costs,
except where this would not be representative of the stage of
completion.
The cumulative catch-up adjustment to the opening balance of
retained earnings as at 1 January 2018 is shown in the Statement
of Changes in Equity for the year ended 31 December 2018 and
resulted in an increase in opening retained losses at 1 January
2018 of £0.7m. The Group elected to apply the cumulative catch-up
method only to contracts that were not completed at 1 January 2018.
The details of the significant changes and quantitative impact of the
changes are set out below.
a) Sale of goods
The majority of the Group’s revenue arises from contracts with
customers for the sale of goods, with one performance obligation.
Revenue is recognised at the point in time that control of the goods
passes to the customer, usually on delivery to the customer. The
adoption of IFRS15 did not have an impact on the timing of revenue
recognition in relation to the sale of goods, although the amount of
revenue recognised is impacted by the following:
Volume rebates
The Group provides retrospective volume rebates to certain
customers. Under IFRS 15, retrospective volume rebates give rise to
variable consideration.
Prior to the adoption of IFRS 15, the Group estimated the expected
volume rebates using an expected value approach and included
a provision for rebates as a reduction to trade receivables. This
continues to be appropriate under IFRS 15.
Early settlement discounts
Under IFRS15, early settlement discounts are estimated using
the expected value approach and recognised at the time of
recognising the revenue, subject to the constraint regarding variable
consideration that it is highly probable that a change in estimate
would not result in a significant reversal of the cumulative revenue
recognised. As part of our review of the application of IFRS 15 it was
considered that the previous treatment of early settlement discounts
under IAS 18 was inappropriate and this has been amended
accordingly by a restatement of the prior year reported numbers, as
noted in Prior year restatements (v) above.
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b) Construction contracts
The Group has the following revenue streams which fall under the
category of “construction contracts”:
i) Manufacture and installation of roofing systems
Prior to the adoption of IFRS 15, revenue was recognised in
two stages - on completion of manufacture and on installation.
Under IFRS 15, the Group has assessed that there is one
performance obligation, being the installation of the roofing
system, and that revenue can continue to be recognised over
time on a milestone basis, provided appropriate terms are
included in the contract to confirm entitlement to payment for
performance to date. Contract terms have been amended from
1 January 2018, but an adjustment is recorded on transition in
relation to contracts in progress under previous contract terms,
increasing retained losses at 1 January 2018 by £0.7m. The
business carrying out these contracts was sold in December
2018 and this revenue stream is not relevant going forward.
ii) Air Handling projects
The goods and services supplied as part of an air handling
contract are significantly integrated and considered to be one
performance obligation. The criteria for recognition over time
are considered to apply as the entity’s performance creates and/
or enhances an asset controlled by the customer, the assets
created do not have an alternative use as the installations are
on the customers’ premises, and the entity has an enforceable
right to payment for performance completed to date. Progress
towards completion is measured on the basis of costs incurred.
The adoption of IFRS 15 does therefore not have an impact on
the timing of revenue recognition for these contracts.
iii) Manufacture and supply of modular housing
Under IFRS 15 the Group has assessed that there is one
performance obligation, and that revenue is recognised
over time as control passes on a milestone basis as each
housing module is supplied. Progress towards completion is
measured based on the percentage of total costs incurred. The
adoption of IFRS 15 does not have an impact on the timing or
measurement of revenue recognition for these contracts. The
business carrying out these contracts was sold in February 2018
and this revenue stream is therefore not relevant going forward.
iv) Contracts for provision of industrial services
The Group’s Ireland & Other segment provides industrial
painting, coating and repair services. Under IFRS 15, the Group
concluded that revenue from these contracts will continue to be
recognised over time, as the entity’s performance enhances a
customer-controlled asset, using an output method to measure
progress towards completion depending on individual contract
terms.
Under IFRS 15, any earned consideration that is conditional
is recorded as a contract asset. A contract asset becomes a
receivable when receipt is conditional only on the passage of
time. Therefore, upon adoption of IFRS 15, revenue recognised
from construction contracts described above which has not yet
been invoiced is recognised as a contract asset, which is shown
as a separate line item on the Consolidated Balance Sheet
rather than as part of trade and other receivables.
v) Presentation and disclosure requirements
The Group has disaggregated revenue recognised from
contracts with customers into categories that depict how
the nature, amount, timing and uncertainty of revenue and
cash flows are affected by economic factors. The Group has
also disclosed information about the relationship between
the disclosure of disaggregated revenue and the revenue
information disclosed for each reportable segment. Refer to
Note 1 for the disclosure on disaggregated revenue.
The following tables summarise the impacts of adopting IFRS 15 on the Consolidated Financial Statements for the year ending 31 December
2018:
a) Consolidated Balance Sheet
At 31 December 2018
Trade and other receivables
Contract assets
Other assets
Total assets
Trade and other payables
Contract liabilities
Other liabilities
Total liabilities
Net assets
Retained losses
Other capital and reserves
Total equity
Impact of changes in accounting policies
As reported
£m
Adjustments
£m
Balances without
adoption of
IFRS 15
£m
477.7
1.8
761.4
1,240.9
428.3
1.6
348.1
778.0
462.9
(68.3)
531.2
462.9
2.2
(1.8)
–
0.4
1.8
(1.6)
–
0.2
0.2
0.2
–
0.2
479.9
–
761.4
1,241.3
430.1
–
348.1
778.2
463.1
(68.1)
531.2
463.1
115
Stock code: SHIwww.sigplc.comFINANCIALS
Statement of Significant Accounting Policies
b) Consolidated Income Statement and Other Comprehensive Income
Impact of changes in accounting policies
As reported
£m
Adjustments
£m
Balances without
adoption of
IFRS 15
£m
2,741.9
(2,007.0)
(690.6)
(10.6)
(15.8)
17.9
21.5
(2.1)
1.5
–
0.1
–
(0.5)
(0.5)
2,739.8
(2,005.5)
(690.6)
(10.5)
(15.8)
17.4
21.0
Impact of changes in accounting policies
As reported
£m
Adjustments
£m
Balances without
adoption of
IFRS 15
£m
(59.5)
17.9
504.5
462.9
0.7
(0.5)
–
0.2
(58.8)
17.4
504.5
463.1
The accounting for financial liabilities remains the same as it was
under IAS 39 and therefore this has not had an impact on the
Group’s accounting policies or Financial Statements.
b) Hedge accounting
The Group has chosen to apply the hedge accounting requirements
of IFRS 9 and has applied this prospectively. The new hedge
accounting rules require the Group to ensure that hedge accounting
relationships are aligned with its risk management objectives
and strategy and to apply a more qualitative and forward-looking
approach to assessing hedge effectiveness.
At the date of initial application, 1 January 2018, all existing hedging
relationships are eligible to be treated as continuing hedging
relationships under IFRS 9. The adoption of the hedge accounting
requirements of IFRS 9 has resulted in a reclassification within equity
between other reserves representing the deferred cost of hedging
(£0.9m reclassified to cost of hedging reserve at 1 January 2018).
Under IAS 39 all gains and losses arising from the Group’s cash flow
hedging relationships were eligible to be reclassified subsequently
to profit or loss. However, under IFRS 9, gains and losses arising on
cash flow hedges of forecast purchases of non-financial assets (for
example a fixed asset or inventory) need to be incorporated into the
initial carrying amounts of the non-financial assets. This change only
applies prospectively from the date of initial application of IFRS 9 and
has no impact on the presentation of comparative figures.
For the period ended 31 December 2018
Revenue
Cost of sales
Operating expenses
Income tax (expense)/credit
Other expense
Profit for the period
Total comprehensive income
c) Consolidated Statement of Changes in Equity
For the period ended 31 December 2018
Retained losses at 1 January 2018
Profit for the period
Other movements in equity
Total equity at 31 December 2018
IFRS 9 “Financial Instruments”
The Group has adopted IFRS 9 “Financial Instruments” with a date
of initial application of 1 January 2018. IFRS 9 replaces IAS 39
“Financial Instruments: Recognition and Measurement”, bringing
together all three aspects of the accounting for financial instruments:
classification and measurement; hedge accounting; and impairment.
With the exception of hedge accounting, which the Group has
applied prospectively, the Group has applied IFRS 9 retrospectively,
with the initial application date of 1 January 2018, but has chosen not
to restate comparative information.
The nature and effects of the key changes to the Group’s accounting
policies resulting from its adoption of IFRS 9 are summarised below.
a) Classification and measurement
Under IFRS 9, all financial assets are initially recognised at fair
value, plus or minus (in the case of a financial asset not at fair value
through profit or loss) transaction costs that are directly attributable
to the acquisition of the financial instrument. Debt financial assets
are subsequently measured at amortised cost, fair value through
profit and loss (FVPL) or fair value through other comprehensive
income (FVOCI). The classification is based on two criteria: the
Group’s business model for managing the assets and whether the
contractual cash flows represent “solely payments of principal and
interest” on the principal amount outstanding (the “SPPI criterion”).
This replaces the previous IAS 39 categories of held to maturity,
loans and receivables and available for sale.
The classification of the Group’s financial assets under IFRS 9 is as
follows:
■ Amortised cost: trade and other receivables and deferred
consideration
■ Fair value through profit and loss: derivative financial instruments
The above classification does not have any impact on the
classification, presentation or carrying value of financial assets on the
Consolidated Balance Sheet.
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Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
Impairment
c)
IFRS 9 replaces the ‘incurred losses’ model in IAS 39 with an
‘expected credit loss’ (ECL) model. The new impairment model
applies to financial assets measured at amortised cost, contract
assets and debt investments at FVOCI, but not to investments in
equity instruments. Under IFRS 9, credit losses are recognised earlier
than under IAS 39.
For contract assets and trade receivables, the Group has applied
the standard’s simplified approach and has calculated ECLs based
on lifetime expected credit losses. The Group has established a
provision matrix that is based on the Group’s historical credit loss
experience, adjusted for forward looking factors specific to the
debtors and economic environment.
The adoption of the ECL requirements of IFRS 9 has not resulted
in any material change to the impairment allowances for trade
receivables and contract assets.
Other amendments
Several other potentially relevant amendments and interpretations
apply for the first time in 2018, but do not have an impact on the
Financial Statements of the Group:
■ IFRIC Interpretation 22 “Foreign Currency Transactions and
Advance Considerations”
■ Amendments to IAS 40 “Transfers of Investment Property”
■ Amendments to IFRS 2 “Classification and Measurement of Share-
based Payment Transactions”
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 16 “Leases” – effective for accounting periods
beginning on or after 1 January 2019
The Group is required to adopt IFRS 16 “Leases” from 1 January
2019 which replaces IAS 17 “Leases”. The standard eliminates the
classification of leases as either operating leases or finance leases
for lessees and introduces a single lease 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.
At the commencement date of a lease, a lessee will recognise a
liability to make lease payments and an asset representing the right
to use the underlying asset during the lease term. 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.
In addition, the Group will no longer recognise provisions for
operating leases that it assesses to be onerous, instead, the Group
will include payments due under the lease in its lease liability and
impair the value of the right-of-use asset. Lessees will also be
required to remeasure the lease liability upon the occurrence of
certain events. The lessee will generally recognise the amount of the
re-measurement of the lease liability as an adjustment to the right-
of-use asset.
The Group plans to apply IFRS 16 initially on 1 January 2019, using
the modified retrospective approach. Therefore, the cumulative
effect of adopting IFRS 16 will be recognised as an adjustment to
the opening balance of retained earnings at 1 January 2019, with no
restatement of comparative information.
The Group will elect to use the exemptions proposed by the
standard on lease contracts for which the lease terms ends within 12
months as of the date of initial application, and lease contracts for
which the underlying asset is of low value.
The Group estimates that it will recognise a total lease liability
of c.£314m as at 1 January 2019, reflecting the total future lease
payments discounted to present value, and a “right-of-use asset” of
c.£308m based on the lease liability plus asset restoration costs less
impairment. Therefore, no significant change in overall net assets is
expected at 1 January 2019.
Due to the adoption of IFRS 16, Group operating profit for 2019 is
expected to increase by c.£7m as rent is removed and part replaced
by depreciation. Group profit before tax is expected to decrease by
c.£4m as total depreciation and interest is greater than the previous
rent cost due to the timing and maturity of the lease portfolio.
Net debt is expected to increase by c. £291m at 1 January 2019.
Financial covenants in relation to the debt facilities described in
Note 32 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.
Other Standards
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.
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.
117
Stock code: SHIwww.sigplc.comFINANCIALS
Statement of Significant Accounting Policies
All results are from continuing operations under International
Accounting Standards as the businesses classified as non-core
in 2018 or 2017 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
within Other items in the Consolidated Income Statement. The
comparatives for the year ended 31 December 2017 have been
re-analysed to present net operating profits of £6.3m attributable to
businesses classified as non-core during 2018 within Other items.
Goodwill and business combinations
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 value 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 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. Impairments of property, intangible
assets and other tangible fixed assets are included in Other items if
related to a fundamental restructuring project or other fundamental
project. Other impairments are included in underlying results.
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Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS ■ Profits and losses on agreed sale or closure of non-core
■ Taxation
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 continuing 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. 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 business prior to
signing the Annual Report and Accounts. The presentation is applied
retrospectively, so businesses classified as non-core subsequent
to the period end before the Financial Statements are signed are
included in the Other items column in the reporting period, and prior
year comparatives are restated for businesses identified as non-core
subsequent to signing of the prior year Annual Report and Accounts.
■ Net restructuring costs
Restructuring costs are classified as “Other items” if they relate to
a fundamental change in the organisational structure of the Group
or a fundamental change in the operating model of a business
within the Group. Costs may include redundancy, property closure
costs and consultancy costs, which are significant in size and will
not be incurred under the ongoing structure or operating model
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 fundamental
restructuring and changing the structure and operating model of
the business as opposed to costs incurred in the normal course of
business.
■ 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. This includes, for example, profit on
sale of property not related to ongoing operations (ie. related
to a branch or business closure) or property sold as part of a
fundamental restructuring programme. Profit on the sale of property
in connection with branch or office moves in the normal course
of business is included within underlying results. A full breakdown
of other specific items is included in Note 2 to the Consolidated
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 have ceased in 2018 as they have become fully recycled. The
unwinding of provision discounting for provisions that have been
included as “Other items” is included within “Other items” consistent
with the classification of the provision. Other provision discounting is
included within underlying finance costs.
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 2017 Financial Statements.
Revenue recognition
For the year ended 31 December 2018, revenue is recognised in
accordance with IFRS 15 “Revenue from contracts with customers”
as described in the section “New standards, interpretations and
amendments adopted”. This section also describes the policies
applied in the previous year and the changes as a result of adopting
IFRS 15 in the current year.
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.
119
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
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
Employees (including senior executives) of the Group receive
remuneration in the form of share-based payments, whereby
employees render services as consideration for equity instruments
(equity-settled transactions). Equity settled share based payments
are measured at fair value at the date of grant based on the Group’s
estimate of the number of shares that will eventually vest. The fair
value determined is then expensed in the Consolidated Income
Statement on a straight-line basis over the vesting period, with a
corresponding increase in equity. The fair value of the options is
measured using the Black-Scholes or Monte Carlo option pricing
model as appropriate.
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.
Service and non-market performance conditions are not taken into
account when determining the grant date fair value of awards, but
the likelihood of the conditions being met is assessed as part of the
Group’s best estimate of the number of equity instruments that will
ultimately vest. Market performance conditions are reflected within
the grant date fair value. Any other conditions attached to an award,
but without an associated service requirement, are considered to
be non-vesting conditions. Non-vesting conditions are reflected in
the fair value of an award and lead to an immediate expensing of an
award unless there are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest
because non-market performance and/or service conditions have
not been met. Where awards include a market or non-vesting
condition, the transactions are treated as vested irrespective of
whether the market or non-vesting condition is satisfied, provided
that all other performance and/or service conditions are satisfied.
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 years
Non-compete contracts
Life of the contract
3 years
Computer software
Useful life of the software 3-10 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:
Current estimate of useful life
Freehold buildings
50 years
Leasehold buildings
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.
Investment property
Investment properties are measured initially at cost, including
transaction costs. Subsequent to initial recognition, the Group has
chosen to apply the cost model. Investment properties are therefore
recognised at cost and depreciated over the useful life, and are
impaired when appropriate in accordance with IAS 16 “Property,
plant and equipment”.
Transfers are made to or from investment property only when
there is a change in use. If owner-occupied property becomes
an investment property, the Group accounts for such property
in accordance with the policy stated under property, plant and
equipment up to the date of change in use.
120
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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.
Financial assets
As described in the section “New standards, amendments and
interpretations”, financial assets are classified as either financial
assets at amortised cost or financial assets at fair value through
profit and loss in accordance with IFRS 9 from 1 January 2018. In
the previous financial year financial assets were classified as either
financial assets at fair value through profit or loss or loans and
receivables.
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.
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.
The classification at initial recognition depends on the financial
asset’s contractual cash flow characteristics and the Group’s
business model for managing them. With the exception of trade
receivables that do not contain a significant financing component or
for which the Group has applied the practical expedient, the Group
initially measures a financial asset at its fair value plus, in the case of
a financial asset not at fair value through profit or loss, transaction
costs. Trade receivables that do not contain a significant financing
component or for which the Group has applied the practical
expedient are measured at the transaction price determined under
IFRS 15.
The Group’s financial assets are all measured at amortised cost,
except for derivative financial instruments. The Group measures
financial assets at amortised cost if both of the following conditions
are met:
■ the financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
■ the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired. The Group’s financial assets
include trade receivables, deferred consideration and cash and cash
equivalents. In the previous financial year these were classified as
loans and receivables and were initially measured at fair value and
subsequently at amortised cost using the effective interest method,
consistent with IFRS 9.
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs)
for all debt instruments held at amortised cost. ECLs are based on
the difference between the contractual cash flows due in accordance
with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective
interest rate. For trade receivables and contract assets, the Group
applies the standard’s simplified approach and calculates ECLs
based on lifetime expected credit losses. The Group has established
a provision matrix that is based on the Group’s historical credit
loss experience, adjusted for forward looking factors specific to the
debtors and economic environment.
121
Stock code: SHIwww.sigplc.comFINANCIALS
Statement of Significant Accounting Policies
Previously, financial assets (including trade receivables) were
assessed for indicators of impairment on an ongoing basis. Financial
assets were impaired where there was 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
had been negatively impacted. When there was objective evidence
of impairment, appropriate allowances were 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 was reduced by the
impairment loss directly for all financial assets with the exception
of trade receivables, where the carrying amount was reduced
through the use of an allowance account. When a trade receivable
was considered to be uncollectible it was written off against the
allowance account. Subsequent recoveries of amounts previously
written off were credited to the Consolidated Income Statement.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or
part of a group of similar financial assets) is primarily derecognised
(i.e., removed from the Group’s consolidated statement of financial
position) when:
■ the rights to receive cash flows from the asset have expired; or
■ the Group has transferred its rights to receive cash flows from
the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a ‘pass-
through’ arrangement; and either (a) the Group has transferred
substantially all the risks and rewards of the asset, or (b) the Group
has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
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 cash flow.
Financial liabilities
Financial liabilities are classified at initial recognition as financial
liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in
an effective hedge, as appropriate. All financial liabilities, except for
derivative financial instruments (see below), are recognised initially at
fair value, net of transaction costs, and are subsequently measured
at amortised cost using the effective interest rate method.
Financial liabilities designated upon initial recognition at fair value
through profit or loss are designated at the initial date of recognition
and only if the criteria in IFRS 9 are satisfied. The Group has not
designated any financial liability as at fair value through profit or loss.
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.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
is reported in the Consolidated Balance Sheet if there is a currently
enforceable legal right to offset the recognised amounts and there is
an intention to settle on a net basis, to realise the assets and settle
the liabilities simultaneously.
Derivative financial instruments
The Group uses derivative financial instruments including interest
rate swaps, forward foreign exchange contracts, and cross-currency
swaps to hedge its exposure to foreign currency exchange and
interest rate 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 Other items in the Consolidated Income Statement.
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.
For the purposes of hedge accounting, hedges are classified as:
■ Fair value hedges when hedging the exposure to changes in the
fair value of a recognised asset or liability or an unrecognised
commitment
■ Cash flow hedges when hedging the exposure to variability in
cash flows that is either attributable to a particular risk associated
with a recognised asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognised firm
commitment
■ Hedges of a net investment in a foreign operation
At the inception of the hedge relationship the Group formally
designates and documents the hedge relationship to which it wishes
to apply hedge accounting, along with its risk management objectives
and its strategy for undertaking the hedging transaction.
Before 1 January 2018, the documentation includes identification
of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the Group will assess the
effectiveness of changes in the hedging instrument’s fair value in
offsetting the exposure to changes in the hedged item’s fair value or
cash flows attributable to the hedged risk. Such hedges are expected
to be highly effective in achieving offsetting changes in fair value or
122
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS cash flows and are assessed on an ongoing basis to determine that
they actually have been highly effective throughout the reporting
periods for which they were designated. From 1 January 2018, the
documentation includes identification of the hedging instrument,
the hedged item, the nature of the risk being hedged and how the
Group will assess whether the hedging relationship meets the hedge
effectiveness requirements (including the analysis of sources of
hedge ineffectiveness and how the hedge ratio is determined). A
hedging relationship qualifies for hedge accounting if it meets all of
the following effectiveness requirements:
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 interest 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.
■ There is ‘an economic relationship’ between the hedged item and
the hedging instrument
■ The effect of credit risk does not ‘dominate the value changes’ that
result from that economic relationship
■ The hedge ratio of the hedging relationship is the same as that
resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that
the Group actually uses to hedge that quantity of hedged item
Hedges that meet all the qualifying criteria for hedge accounting are
accounted for as described below:
Fair value hedges
The change in the fair value of the hedged item attributable to
the risk being hedged is recorded as part of the carrying value of
the hedged item and is recognised in the Consolidated Income
Statement within Other items. The change in the fair value of the
hedging instrument is also recognised in the Consolidated Income
Statement within Other items.
Cash flow hedges
The effective part of any gain or loss on the hedging instrument is
recognised directly in the Consolidated Statement of Comprehensive
Income in the hedging and translation reserve. 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 Other items in the Consolidated Income
Statement.
Hedges 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 Other items within the Consolidated Income
Statement. Gains and losses deferred in the hedging and translation
reserve are recognised immediately in the Consolidated Income
Statement when foreign operations are disposed of.
123
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
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 review of the Group’s internal reporting, the Group has
concluded that the appropriate reported operating segments are
SIG Distribution, SIG Exteriors, Ireland & Other, France, Germany,
Air Handling, Benelux and Poland. The prior year comparatives have
been restated to expand Mainland Europe into the constituent
components consistent with the current year presentation.
Critical accounting judgements
and key sources of estimation
uncertainty
In the application of the Group’s accounting policies, which are
described on pages 113 to 124, 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 or 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 to 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 to
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 2018 trade payables is presented net of £52.8m (2017:
£58.8m) 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 £59.3m (2017: £55.2m) due
in relation to supplier rebates where there is no right to offset
against trade payable balances. Of these balances, £25.9m 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.
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 123, 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 £2.7m as disclosed in Note
29c. At 31 December 2018 the Group’s retirement benefit obligations
were £28.7m (2017: £30.4m).
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.
124
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Dilapidations provisions
The Group has a significant number of leasehold properties with
contractual obligations to reinstate the properties to their original
state of repair at the end of the lease contract. The Group has
recognised a provision of £20.9m at 31 December 2018 in relation to
this obligation, with the 2017 liability restated to £20.5m as noted in
the Statement of Significant Accounting Policies. The total provision
includes both the estimated cost of rectifying or reinstating leasehold
modifications and improvements carried out, which is recognised
at the inception of the lease with a corresponding asset recognised
in fixed assets and depreciated over the term of the lease, together
with the estimated cost of rectifying general wear and tear which
is recognised as incurred over the life of the lease. Estimates are
based on a combination of a sample of assessments by third party
independent property surveyors, internal assessments by the
Group’s property experts and previous settlement history. Whilst the
directors consider the estimates to be reasonable based on latest
available information, actual amounts payable could be different
to the amount provided depending on specific circumstances of
individual properties and counterparties at the expiry of each lease
contract. Any difference is not expected to be material year on year.
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%-2.9%) 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,
there is no sales growth rates applied to the cash flow forecasts
and operating profit growth is no more than 2.5% in perpetuity. The
discount rates applied to all CGUs represent post-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.
The carrying amount of relevant non-current assets at 31 December
2018 is £445.5m (2017: restated £487.3m). The most recent results
of the impairment review process are disclosed in Note 12 and
indicate that the carrying value of non-current assets associated with
the Group’s CGU’s are supportable. Impairment reviews performed
during the year indicated that the carrying value of the Group’s
other non-current assets at 31 December 2018 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 2018 the Group has recognised trade receivables
with a carrying value of £384.3m (2017: restated £374.7m). The
Group recognises an allowance for expected credit losses (ECLs) in
relation to trade receivables. The Group has established a provision
matrix that is based on the Group’s historical credit loss experience,
adjusted for forward looking factors specific to the debtors and
economic environment. 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 2018. The total allowance for expected credit
losses recorded at 31 December 2018 is £31.4m (2017: £41.1m). 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.£5m. Further detail on trade receivables
and the allowance for expected credit losses recognised is disclosed
in Note 16.
125
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
1 Revenue and segmental information
Revenue
2018
Type of product
Interiors
Exteriors
Heating, ventilation and air
conditioning
Inter-segment revenue^
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland
& Other
£m
Total
£m
France Germany Poland
£m
£m
£m
678.2
–
60.6
738.8
242.6
426.6
151.0
Air
Handling Benelux
£m
£m
Total
£m
Eliminations
£m
Total
£m
–
–
108.4
928.6
–
347.8
– 1,667.4
–
765.7
–
–
378.7
39.2
417.9
347.8
23.0
10.2
–
3.7
0.1
0.6
23.1
14.5
73.2
9.5
–
–
5.6
148.2
–
227.0
–
250.1
0.2
–
0.2
0.3
10.2
(24.7)
–
Total underlying revenue
711.4
382.4
100.5 1,194.3
673.1
426.8
156.6
148.4
108.7 1,513.6
(24.7) 2,683.2
Revenue attributable to
businesses identified as non-
core*
Total
Nature of revenue
Goods for resale
51.5
3.4
3.5
58.4
–
0.3
–
–
–
0.3
–
58.7
762.9
385.8
104.0 1,252.7
673.1
427.1
156.6
148.4
108.7 1,513.9
(24.7) 2,741.9
738.9
385.8
96.0 1,220.7
673.1
427.1
156.6
122.8
108.7 1,488.3
(24.7) 2,684.3
Construction contracts
24.0
–
8.0
32.0
–
–
–
25.6
–
25.6
–
57.6
Total
Timing of revenue
recognition
Goods transferred at a point
in time
Goods and services
transferred over time
Total
762.9
385.8
104.0 1,252.7
673.1
427.1
156.6
148.4
108.7 1,513.9
(24.7) 2,741.9
738.9
385.8
96.0 1,220.7
673.1
427.1
156.6
122.8
108.7 1,488.3
(24.7) 2,684.3
24.0
–
8.0
32.0
–
–
–
25.6
–
25.6
–
57.6
762.9
385.8
104.0 1,252.7
673.1
427.1
156.6
148.4
108.7 1,513.9
(24.7) 2,741.9
^ Inter-segment revenue is charged at the prevailing market rates.
* Revenue attributable to businesses identified as non-core: £28.8m relates to exteriors and £29.9m relates to interiors product types.
UK & Ireland
Mainland Europe
SIG
Distribution
SIG
Exteriors
Ireland
& Other
Total
France Germany
Poland
Handling Benelux
Total
Eliminations
Total
Air
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
2017
Type of product
Interiors
Exteriors
Heating, ventilation and air
conditioning
Inter-segment revenue^
716.1
–
58.2
774.3
241.5
425.0
137.5
–
403.9
40.1
444.0
347.3
25.8
15.3
–
5.2
–
–
25.8
20.5
71.9
12.5
–
–
0.2
–
5.3
0.6
–
–
101.7
905.7
–
347.3
– 1,680.0
–
791.3
142.1
–
219.3
0.3
0.1
13.7
–
245.1
(34.2)
–
(34.2)
2,716.4
Total underlying revenue
757.2
409.1
98.3 1,264.6
673.2
425.2
143.4
142.4
101.8 1,486.0
Revenue attributable to
businesses identified as
non-core*
Total
Nature of revenue
Goods for resale
60.0
40.1
41.4
141.5
–
8.5
–
12.0
–
20.5
–
162.0
817.2
449.2
139.7 1,406.1
673.2
433.7
143.4
154.4
101.8 1,506.5
(34.2)
2,878.4
799.6
449.2
125.1 1,373.9
673.2
433.7
143.4
122.3
101.8 1,474.4
(34.2)
2,814.1
Construction contracts
17.6
–
14.6
32.2
–
–
–
32.1
–
32.1
–
64.3
Total
817.2
449.2
139.7 1,406.1
673.2
433.7
143.4
154.4
101.8 1,506.5
(34.2)
2,878.4
Timing of revenue recognition
Goods transferred at a point
in time
Goods and services
transferred over time
Total
799.6
449.2
125.1 1,373.9
673.2
433.7
143.4
122.3
101.8 1,474.4
(34.2)
2,814.1
17.6
–
14.6
32.2
–
–
–
32.1
–
32.1
–
64.3
817.2
449.2
139.7 1,406.1
673.2
433.7
143.4
154.4
101.8 1,506.5
(34.2)
2,878.4
^ Inter-segment revenue is charged at the prevailing market rates.
* Revenue attributable to businesses identified as non-core: £12.0m relates to heating, ventilation and air conditioning, £67.0m to exteriors and £83.0m relates to interiors product types.
126
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Segmental information
a) Segmental analysis
UK & Ireland
Mainland Europe
2018
Revenue
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland
& Other
£m
Total
£m
France Germany Poland
£m
£m
£m
Air
Handling* Benelux
£m
£m
Total
£m
Eliminations
£m
Total
£m
Underlying revenue
701.2
378.7
99.9 1,179.8
663.6
426.6
156.6
148.2
108.4 1,503.4
– 2,683.2
51.5
10.2
3.4
3.7
3.5
58.4
–
0.6
14.5
9.5
0.3
0.2
–
–
–
–
0.3
–
58.7
0.2
0.3
10.2
(24.7)
–
762.9
385.8
104.0 1,252.7
673.1
427.1
156.6
148.4
108.7 1,513.9
(24.7) 2,741.9
20.9
17.3
6.1
44.3
27.8
9.1
3.3
14.8
4.5
59.5
–
103.8
(1.4)
(3.9)
(4.8)
(0.4)
(6.6)
(0.8)
–
–
–
(3.9)
–
(0.1)
–
–
(1.3)
(0.2)
(2.3)
–
–
(0.1)
–
–
(8.9)
(4.0)
(1.8)
(4.8)
0.4
(6.2)
–
(0.1)
–
(0.4)
–
(0.5)
–
(6.7)
Net restructuring costs
(10.1)
(7.7)
(0.4)
(18.2)
(2.3)
4.0
(0.5)
(2.0)
1.5
–
(0.3)
(6.0)
–
–
–
–
–
–
–
(0.3)
(1.2)
(9.5)
–
–
–
1.1
(0.1)
0.3
–
–
–
–
–
–
(0.5)
(0.7)
–
–
(0.5)
3.7
10.4
24.0
2.6
3.3
14.2
3.0
47.1
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
Profits and 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)
–
(0.5)
7.2
Acquisition expenses and
contingent consideration (Note
14)
Other specific items
Segment operating profit
Parent Company costs
Operating profit
Net finance costs before Other
items
Net fair value losses on
derivative financial instruments
Unwinding of provision
discounting
Profit before tax
Income tax expense
Non-controlling interests
Profit for the year
^ Inter-segment revenue is charged at the prevailing market rates.
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
–
–
–
–
–
1.2
(27.7)
–
(0.2)
57.5
(13.2)
44.3
(15.3)
(0.3)
(0.2)
28.5
(10.6)
(0.4)
17.5
127
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other
£m
Total
£m
France Germany
£m
£m
Poland
£m
Air
Handling* Benelux
£m
£m
Total
£m
Eliminations
£m
Total
£m
2017
Revenue
Underlying revenue
741.9
403.9
98.3 1,244.1
660.7
425.0
142.8
142.1
101.7 1,472.3
– 2,716.4
Revenue attributable to
businesses identified as non-
core
Inter-segment revenue^
Total revenue
Result (restated)**
Segment result before Other
items
Amortisation of acquired
intangibles
Impairment charges
Profits and 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
5.5
(16.8)
(1.1)
0.1
Segment operating profit/(loss)
(25.2)
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
60.0
15.3
40.1
41.4
141.5
–
5.2
–
20.5
12.5
8.5
0.2
–
12.0
–
20.5
–
162.0
0.6
0.3
0.1
13.7
(34.2)
–
817.2
449.2
139.7 1,406.1
673.2
433.7
143.4
154.4
101.8 1,506.5
(34.2) 2,878.4
3.5
30.1
4.8
38.4
26.2
12.0
1.0
14.4
6.3
59.9
–
98.3
(2.0)
(6.8)
(4.9)
(0.1)
–
–
(7.0)
(6.8)
(0.8)
–
–
–
–
–
(1.3)
(0.2)
(2.3)
–
–
–
–
–
(9.3)
(6.8)
(7.6)
(28.6)
(31.9)
(68.1)
–
(1.2)
–
(3.1)
–
(4.3)
–
(72.4)
1.5
(1.3)
(1.6)
5.4
0.6
(13.8)
(6.8)
–
(0.8)
(18.9)
(0.2)
(0.8)
(1.0)
–
(0.9)
(0.4)
(0.1)
1.9
–
(0.8)
5.5
–
–
–
–
–
–
(9.0)
–
–
–
–
–
(1.2)
(2.2)
(9.0)
–
(39.9)
(64.5)
25.2
9.0
0.1
0.5
6.1
40.9
–
–
–
–
–
(8.0)
(21.1)
(9.8)
5.5
(23.6)
(12.7)
(36.3)
(16.2)
(1.7)
(0.5)
(54.7)
(4.5)
(1.0)
(60.2)
^ Inter-segment revenue is charged at the prevailing market rates.
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
** The 2017 results have been restated as set out in the Statement of Significant Accounting Policies and Note 33.
128
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 2018
Balance sheet
Assets
Segment assets
Unallocated assets:
Property, plant and equipment
Derivative financial instruments
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)
UK & Ireland
Mainland Europe
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other
£m
Total
£m
France Germany
£m
£m
Poland
£m
Handling* Benelux
£m
£m
Total
£m
Total
£m
Air
336.6
218.1
37.0
591.7
320.4
103.2
58.3
90.5
50.8
623.2
1,214.9
2.7
1.9
14.9
3.8
2.7
1,240.9
163.2
77.9
17.1
258.2
152.7
35.2
29.3
20.8
10.8
248.8
507.0
185.6
56.5
4.1
24.8
778.0
4.7
2.0
–
3.8
–
–
1.1
2.5
9.6
4.5
5.5
0.2
2.2
0.3
–
–
–
–
1.1
–
–
0.9
0.3
–
0.7
10.4
20.0
–
–
0.8
5.3
–
–
5.3
2.4
0.9
8.6
5.6
2.5
1.1
1.3
0.6
11.1
19.7
4.4
–
–
4.4
–
–
–
0.1
–
0.1
4.5
4.4
4.8
0.5
9.7
1.5
0.3
0.1
1.5
0.2
3.6
13.3
–
–
–
–
–
–
–
–
–
–
–
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
129
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
2017
Balance sheet
Assets (restated)**
Segment assets
Unallocated assets:
Property, plant and equipment
Derivative financial instruments
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
£m
Total
£m
France Germany
£m
£m
Poland
£m
Air
Handling*
£m
Benelux
£m
Total
£m
Total
£m
360.6
230.0
59.6
650.2
339.0
123.1
55.0
110.1
38.6
665.8
1,316.0
0.1
1.3
10.2
3.1
10.7
1,341.4
196.5
70.6
45.0
312.1
144.8
36.4
23.8
28.8
8.4
242.2
554.3
204.2
75.7
3.5
33.2
870.9
0.7
–
–
0.9
0.6
–
0.4
–
–
9.5
0.9
29.1
3.2
0.1
0.1
11.5
1.1
19.6
5.4
0.2
2.1
0.1
2.3
7.0
2.3
–
–
–
–
–
–
–
0.1
8.2
2.2
1.2
11.6
6.0
3.0
1.3
1.1
0.7
12.1
23.7
7.6
–
2.7
10.3
–
–
4.1
4.9
0.6
9.6
1.4
0.4
–
–
0.3
–
0.3
10.6
1.4
0.2
3.4
13.0
5.6
–
1.0
6.6
–
–
–
–
–
–
6.6
* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.
** 2017 has been restated for the historical overstatements, as noted in the Statement of Significant Accounting Policies and Note 33.
130
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS b) Geographic information
The Group's non-current operating 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.
2. Other operating expenses
2a. Analysis of other operating expenses
2018
Non-current
assets
£m
2017
Restated
Non-current
assets
£m
248.6
2.8
124.3
14.4
6.3
49.1
445.5
–
445.5
256.6
2.8
126.0
18.5
6.7
52.3
462.9
24.4
487.3
Other operating expenses:
- distribution costs
- selling and marketing costs
- management, administrative and central costs
- property profits
2018
2017
Before Other
items
£m
Other items
£m
Total
£m
Before Other
items
£m
Other items
£m
Total
£m
249.2
195.1
184.4
(2.6)
626.1
5.1
3.1
57.4
(1.1)
64.5
254.3
198.2
241.8
(3.7)
690.6
252.4
209.7
175.3
(11.3)
626.1
34.5
10.6
123.4
(5.8)
162.7
286.9
220.3
298.7
(17.1)
788.8
131
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
2b. Other items
Profit/(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 (as explained in the Statement of Accounting
Policies):
Other items
£m
2018
Tax impact
£m
Tax impact
%
Other items
£m
Amortisation of acquired intangibles (Note 13)
Impairment charges
Profits and losses on agreed sale or closure of
non-core businesses and associated impairment
charges (Note 11)
Net operating profits/(losses) attributable to
businesses identified as non-core (Note 11)
Net restructuring costs^
Acquisition expenses and contingent
consideration (Note 14)
Other specific items*
Impact on operating profit/(loss)
Net fair value losses on derivative financial
instruments
Unwinding of provision discounting
Impact on profit/(loss) before tax
Effect of change in rate on deferred tax
Other tax adjustments in respect of previous
years
Impact on profit/(loss) after tax
(8.9)
(4.0)
(6.7)
1.2
(27.7)
–
(0.2)
(46.3)
(0.3)
(0.2)
(46.8)
–
–
(46.8)
1.8
–
1.3
–
6.3
–
(0.5)
8.9
0.1
–
9.0
0.3
(0.1)
9.2
(20.2)
–
(9.3)
(6.8)
(19.4)
(72.4)
–
(22.7)
–
250.0
(19.2)
(33.3)
–
(19.2)
–
–
(8.0)
(21.1)
(9.8)
5.5
(121.9)
(1.7)
(0.5)
(124.1)
–
–
(19.7)
(124.1)
2017
Tax impact Tax impact
£m
1.9
1.3
2.0
1.5
4.1
–
(1.1)
9.7
0.3
–
10.0
(1.0)
4.2
13.2
%
(20.4)
(19.1)
(2.8)
(18.8)
(19.4)
–
(20.0)
(8.0)
(17.6)
–
(8.1)
–
–
(10.6)
^ Included within net restructuring costs are costs associated with supply chain review of £nil (2017: £11.7m), property closure costs of £5.5m (2017: £2.8m), redundancy and related staff
costs of £11.5m (2017: £3.9m), impairment of non-current assets due to restructuring of £0.6m (2017: £nil) and £10.1m (2017: £2.7m) in relation to restructuring consultancy costs, mainly
incurred in connection with the fundamental restructuring of the target operating model of the major operating companies in the UK, Germany and France.
*Other specific items comprises the following:
Profit on sale of property
Other specific costs
Impairment charge and other costs following the cessation of the UK eCommerce project
GMP equalisation (Note 29c)
Total other specific items
2018
£m
1.1
(0.3)
–
(1.0)
(0.2)
2017
£m
5.8
–
(0.3)
–
5.5
132
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
2018
2017 (restated)
Underlying
£m
Other items
£m
Total
£m
Underlying
£m
Other items
£m
0.6
–
0.6
6.9
6.8
1.4
15.1
0.5
–
0.3
15.9
15.3
–
–
–
–
–
–
–
–
0.2
0.3
0.5
0.5
0.6
–
0.6
6.9
6.8
1.4
15.1
0.5
0.2
0.6
16.4
15.8
0.5
–
0.5
7.4
7.0
1.2
15.6
0.7
–
0.4
16.7
16.2
–
0.1
0.1
–
–
–
–
–
0.6
1.7
2.3
2.2
Total
£m
0.5
0.1
0.6
7.4
7.0
1.2
15.6
0.7
0.6
2.1
19.0
18.4
^ Other associated items includes the amortisation of arrangement fees of £0.9m (2017: £0.8m).
* Fair value losses on derivative financial instruments before Other items includes £0.3m (2017: £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 £0.3m (2017: £1.7m)
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 is the last
year these losses are recognised as the amounts have now been fully recycled.
133
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
4. Profit/(loss) before tax
Profit/(loss) before tax is stated after crediting:
Unwinding of provision discounting
Net decrease in provision for inventories
Gains on disposal of property, plant and equipment
Net operating profits attributable to businesses identified as non–core (Note 11)
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 (Note 2)
Profits and 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)
2018
£m
–
5.3
7.5
1.2
–
1.7
2017
Restated
£m
0.1
–
17.8
–
1.9
5.8
2,673.0
2,118.4
–
3.1
16.0
3.7
8.9
4.4
53.6
20.2
1.6
0.4
5.2
0.1
0.6
0.2
4.0
6.7
–
27.7
–
1.9
20.0
3.7
9.3
3.7
52.7
19.2
1.6
0.1
16.8
0.5
2.1
0.6
6.8
72.4
8.0
21.1
9.8
0.3
Staff costs excluding contingent consideration treated as remuneration (Note 5)
366.1
390.1
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)^
Total non-audit fees
Total fees
2018
Ernst & Young
LLP
£m
2017
Deloitte LLP
£m
0.4
1.2
1.6
0.4
0.4
2.0
0.2
1.4
1.6
0.1
0.1
1.7
^ The audit-related assurance services in the current year relate to the interim review; it is usual practice for a company's Auditor to perform this work. In the prior year these related to the
interim review and grant claim assurance work.
The Audit Committee report on pages 78 to 80 provides an explanation of how Auditor objectivity and independence is safeguarded when
non-audit services are provided by the Auditor.
134
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
Pension costs (Note 29c)
Total staff costs excluding contingent consideration
Contingent consideration treated as remuneration (Note 14)
Total staff costs including contingent consideration
2018
£m
2017
£m
300.9
56.9
0.4
7.9
366.1
–
366.1
323.9
57.8
0.2
8.2
390.1
8.1
398.2
In addition to the above, redundancy costs of £11.5m (2017: £3.9m) have been included within Other items (Note 2).
Of the pension costs noted above, a charge of £0.1m (2017: £0.4m) relates to defined benefit schemes and a charge of £7.8m (2017: £7.8m)
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 150 staff that were employed in businesses classified as non-core (2017: 631).
Directors’ emoluments
Details of the individual directors' emoluments are given in the Directors' remuneration report on page 101 and 102.
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
2018
Number
544
2,938
3,472
1,768
8,722
2017
Number
910
2,811
3,944
2,009
9,674
2018
£m
1.6
–
1.6
2017
£m
2.1
–
2.1
135
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
6. Income tax
The income tax expense comprises:
Current tax
UK & Ireland:
- charge for the year
- adjustments in respect of previous years
Mainland Europe:
- 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
2018
£m
1.3
(0.2)
1.1
11.2
(0.7)
10.5
11.6
(2.0)
0.8
0.5
(0.3)
(1.0)
10.6
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:
Profit/(loss) before tax
Expected tax charge/(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
– release of deferred tax asset no longer recognised
– losses utilised not previously 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
2018
£m
28.5
8.8
3.5
(3.7)
2.7
–
0.3
(0.6)
(0.2)
0.1
(0.3)
%
30.9
12.3
(13.0)
9.5
–
1.1
(2.1)
(0.7)
0.4
(1.1)
10.6
37.2
2017
Restated
£m
(54.7)
(2.6)
3.9
(1.8)
9.1
0.5
–
–
(6.2)
0.6
1.0
4.5
^ The majority of the Group’s expenses that are not deductible for tax purposes are primarily in relation to the divestments of businesses, impairments of property and non-deductible
interest payments.
* The majority of the Group’s non-taxable income relates to the divestments of businesses and French employment tax credits.
** During the year the Group incurred disposal costs of £19.5m in relation to goodwill (2017: impairment charges of £6.0m and disposal costs of £39.5m) as set out in Note 12. These
impairment and disposal charges are not deductible for tax purposes.
136
2017
Restated
£m
0.6
0.1
0.7
13.8
0.5
14.3
15.0
(4.9)
(6.9)
0.3
1.0
(10.5)
4.5
%
4.8
(7.1)
3.3
(16.6)
(0.9)
–
–
11.3
(1.1)
(1.8)
(8.2)
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS The effective tax rate for the Group on the total profit before tax of £28.5m is 37.2% (2017: negative 8.2%). The effective tax charge for the
Group on profit before tax before Other items of £75.3m is 26.3% (2017: 25.5%), which comprises a tax charge of 26.6% (2017: 27.5%) in
respect of current year profits and a tax credit of 0.3% (2016: 2.0%) in respect of prior years.
Factors affecting 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;
- 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 re-measurement of defined benefit pension liabilities*
Deferred tax on share options
Tax credit/(charge) on exchange and fair value movements arising on borrowings and derivative financial
instruments
Impact of adoption of IFRS 15
Effect of change in rate on deferred tax*
Total
*These items will not subsequently be reclassified to the Consolidated Income Statement.
2018
£m
0.1
(0.2)
0.4
0.2
–
0.5
2017
Restated
£m
(0.9)
0.2
(1.8)
–
(0.2)
(2.7)
137
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
7. Dividends
An interim dividend of 1.25p per ordinary share was paid on 9 November 2018 (2017: 1.25p). The directors have proposed a final dividend
for the year ended 31 December 2018 of 2.5p per ordinary share (2017: 2.5p). 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 2017, were £22.2m (2017: £18.2m). No dividends have been paid between 31 December 2018
and the date of signing the Financial Statements.
At 31 December 2018 the Company has c.£43.4m 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 by appropriate repatriation of funds from subsidiary
undertakings.
8. Earnings/(loss) per share
The calculations of earnings/(loss) per share are based on the following profits/(losses) and numbers of shares:
Profit/(loss) after tax
Non-controlling interests
Profit/(loss) after tax
Non-controlling interests
Add back:
Other items (Note 2)
Weighted average number of shares
For basic and diluted earnings/(loss) per share
Earnings/(loss) per share
Basic and diluted earnings/(loss) per share
Earnings per share before Other items^
Basic and diluted earnings per share
Basic and diluted
2018
£m
17.9
(0.4)
17.5
2017
Restated
£m
(59.2)
(1.0)
(60.2)
Basic and diluted before
Other items
2018
£m
17.9
(0.4)
37.6
55.1
2017
Restated
£m
(59.2)
(1.0)
110.9
50.7
2018
Number
2017
Number
591,548,834
591,489,053
2018
2017
Restated
3.0p
(10.2)p
9.3p
8.6p
^ 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.
138
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 9. Share-based payments
The Group had four share-based payment schemes in existence during the year ended 31 December 2018 (2017: two). The Group
recognised a total charge of £0.4m (2017: charge of £0.2m) 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 73p
(2017: 106p). 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
EPS
33%
ROCE
67%
<31p
<10.0%
31p – 38p 10.0% – 13.5%
≥38p
0%
≥13.5%
0%
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.
On 8 November 2018, the new 2018 Long Term Incentive Plan was approved (2018 LTIP). Under this plan Executive Directors can be awarded
an annual grant of nil paid shares, with a maximum initial award of 200% and a potential multiplier on vesting of up to 300% of base salary.
There were 2,455,213 2018 LTIP awards in 2018. The initial award will vest at the end of a three year performance period provided that the
director remains employed at that date and the primary performance conditions are satisfied. The two primary performance conditions
are median TSR performance against the FTSE 250 and average Return on Capital Employed (ROCE) of 10% per annum over the three year
period. Once these gateways have been achieved, the vesting of the initial award is determined based on the Company's absolute TSR
performance as follows:
Vesting level of initial award:
- Does not vest
- Vests proportionately (25%)
- Vests in full
Straight-line vesting between 8% p.a. and 14% p.a.
Exercise period
* The 2018 awards vest after three years and are then subject to a further two year holding period.
2018 LTIP
Awards
Absolute TSR
growth
Below 8% p.a.
8% p.a.
14% p.a. or
above
3 – 10 years*
139
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
LTIP options (issued after 7 November 2002)
At 1 January
Granted during the year
Exercised during the year (Note 25)
Lapsed during the year
At 31 December
2018
2017
Weighted
average
exercise price
(p)
0.0
0.0
0.0
0.0
0.0
Options
3,198,249
2,455,213
(8,747)
(1,775,534)
3,869,181
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
Of the above share options outstanding at the end of the year nil (2017: 8,747) are exercisable at 31 December 2018. The options outstanding at
31 December 2018 had a weighted average exercise price of nil p (2017: nil p) and a weighted average remaining contractual life of 2.3 years (2017: 1.4
years). In the year, 8,747 options were exercised.
The assumptions used in the models used to calculate the fair value of the LTIP options are as follows:
Share price (on date of official grant)
Exercise price
Expected volatility
Actual life
Risk free rate
Dividend yield
Model used
Expected percentage options exercised versus granted at date of grant
Revised expectation of percentage of options to be exercised as at 31 December 2018
2018 LTIP
Award
116p
(8 November
2018)
0.0p
36.1%
2017
Award
117p
(24 April
2017)
0.0p
41.8%
3–5 years
3 – 5 years
0.9%
3.8%
1.1%
3.4%
Monte Carlo
Black Scholes
100%
100%
50%
34%
The weighted average fair value of LTIP options granted during the year, on a maximum number of awards basis, was 34p (2017: 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) Management Incentive Plan (MIP)
On 16 May 2018 the Management Incentive Plan (MIP) was approved. Under this Plan, senior leadership and wider leadership team members can
be awarded an annual grant of restricted and deferred share options up to a certain percentage of base salary. Restricted share options have no
performance conditions other than the employee remaining in employment for the three year vesting period. The deferred share options are formally
granted 12 months after the granting of the restricted share options, with the number of options granted based on the achievement of certain
performance criteria for the relevant financial year. The deferred share options vest after a further two years provided the employee remains in
employment. The vesting period for both options is considered to be the three years from the granting of the restricted share options as this is the
date on which both parties have a shared understanding of the terms and conditions of the arrangement. There were 1,529,155 awards of restricted
and deferred shares in 2018.
The criteria and vesting conditions of the MIP deferred share 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
2018 Awards
Local EBIT
and ROCE
Group PBT
Group ROCE
50%
25%
25%
Various*
<£85.5m
<11.5%
Various* £85.5m – 94.5m 11.5% – 12.5%
Various*
≥£94.5m
≥12.5%
25%
25%
25%
3 – 10 years
* There are different local targets for EBIT and ROCE for different businesses within the Group based on local budgets
140
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS MIP options
At 1 January
Granted during the year
Lapsed during the year
At 31 December
2018 Awards
Weighted
average
exercise price
(p)
0.0
0.0
0.0
Options
1,529,155
–
1,529,155
Of the above share options outstanding at the end of the year nil (2017: n/a) are exercisable at 31 December 2018. The options outstanding at 31
December 2018 had a weighted average exercise price of nil p (2017: n/a) and a weighted average remaining contractual life of 2.4 years (2017: n/a). In
the year, no options were exercised.
The assumptions used in the Black-Scholes model in relation to the MIP 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 2018
2018 MIP Awards
1 October 2018
15 May 2018
1.29p
0.0p
37.1%
1.38p
0.0p
38.4%
3 years
3 years
0.9%
3.4%
94%
94%
1.1%
3.4%
96%
96%
The weighted average fair value of LTIP options granted during the year, on a maximum number of awards basis, was 34p (2017: 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.
c) Share Incentive Plan (SIP)
The SIP is offered to UK employees. The SIP is a 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 2018, 69,619 (2017: 138,366) 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.
141
Stock 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 2017
Exchange differences
Additions
Reclassified as held for sale
Transfers
Disposals
At 31 December 2017
Exchange differences
Additions
Reclassified as held for sale
Reclassifications
Disposals
At 31 December 2018
Accumulated depreciation and impairment
At 1 January 2017
Charge for the year
Impairment charges
Exchange differences
On assets reclassified as held for sale
Disposals
At 31 December 2017
Charge for the year
Impairment charges
Exchange differences
Reclassifications
Disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Land and buildings
Freehold
£m
Leasehold
Restated
£m
Plant and
machinery
£m
Total
Restated
£m
59.6
2.6
0.4
(0.3)
–
(22.7)
39.6
0.3
1.6
(1.9)
4.7
(1.4)
42.9
17.6
1.6
1.6
1.3
(0.1)
(8.0)
14.0
0.9
–
0.2
4.2
(1.6)
17.7
25.2
25.6
59.9
1.3
12.8
–
–
(8.7)
65.3
0.2
5.9
–
1.5
(3.1)
69.8
31.4
4.7
0.4
1.2
–
(7.9)
29.8
3.6
3.2
0.1
4.8
(1.6)
39.9
29.9
35.5
209.0
328.5
7.9
15.9
–
2.7
(30.4)
205.1
0.8
12.5
–
(6.7)
(24.5)
187.2
145.2
17.4
1.8
6.4
–
(22.7)
148.1
15.2
0.2
0.7
(9.0)
(18.3)
136.9
50.3
57.0
11.8
29.1
(0.3)
2.7
(61.8)
310.0
1.3
20.0
(1.9)
(0.5)
(29.0)
299.9
194.2
23.7
3.8
8.9
(0.1)
(38.6)
191.9
19.7
3.4
1.0
–
(21.5)
194.5
105.4
118.1
The net book value of leasehold land and buildings at 31 December 2018 includes an amount of £9.7m (2017: £13.1m) and the net book
value of plant and machinery includes an amount of £9.6m (2017: £10.0m) 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 (2017: £0.1m).
Included with leasehold land and buildings is property held under a finance lease which has been classified as investment property during
the second half of the year as it is no longer being occupied for use by the Group. The Group has chosen to account for investment property
using the cost model. £nil has been recognised in rental income and £2.8m (2017: £nil) incurred in Other items during the year due to
impairment of the asset. The property is being depreciated on a straight-line basis over the term of the lease (25 years). The property had
a cost of £4.2m, accumulated deprecation of £0.3m and impairment of £2.8m on transfer to investment property and at the end of the
year. The fair value of the investment property at 31 December 2018 is estimated to be £1.1m based on future expected rental returns. No
independent third party valuation has been carried out.
At 31 December 2018 land in Germany previously included within freehold land and buildings with a net book value of £1.9m has been
classified as an asset held for sale in accordance with IFRS 5 "Non-current assets held for sale and discontinued operations" as it is being
marketed for sale and is expected to be sold during 2019. At 31 December 2017 fixed assets with a net book value of £0.2m were classified
as assets held for sale in connection with the divestment of the IBSL division of SIG Distribution (see Note 11).
Of the £3.4m impairment charges, £2.8m on leasehold properties is attributable to an asset no longer being held for use within the business.
The remaining impairment charges relate to impairments of assets due to the restructuring within the UK SIG Distribution business. Impairments
in 2017 relate to disposals of businesses subsequent to the year end and assets that were identified as being surplus to requirements.
142
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 11. Divestments and exit of non-core businesses
The Group has recognised a total charge of £6.7m (2017: £72.4m) 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.
Businesses disposed during the year
The Group has divested of the following businesses during the year:
GRM
As disclosed in the 2017 Annual Report and Accounts, on 2 February 2018 the Group completed the disposal of GRM Insulation Solutions
(GRM), a division of SIG Trading Limited and part of the SIG Distribution segment. In 2017 the goodwill, fixed assets and inventories were
impaired to reflect the recoverable amount indicated by the sale proceeds and the expected costs of the sale were accrued, resulting in a
loss on sale of £5.7m being recognised in 2017. During the period to 31 December 2018 inventory previously impaired has been sold and,
therefore, £0.2m of this provision has been released as a credit to Other items in 2018.
IBSL
As disclosed in the 2017 Annual Report and Accounts, 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 SIG Distribution segment. In 2017 the assets of the business were impaired to reflect
the recoverable amount indicated by the sale proceeds less costs to sell and a loss on sale of £1.9m recognised within Other items of the 2017
Consolidated Income Statement. The assets and liabilities were classified as held for sale at 31 December 2017 (comprising fixed assets of
£0.2m, inventories of £0.1m and liabilities of £0.1m). During the period to 31 December 2018, further costs of £0.1m have been recognised.
Building Systems
As disclosed in the 2017 Annual Report and Accounts, on 2 March 2018 the Group completed the disposal of the trade and assets of SIG
Building Systems Limited (Building Systems), a subsidiary of the Group. In 2017 the assets of the business were impaired to reflect the
recoverable amount indicated by the sale proceeds less costs to sell, resulting in a loss on sale of £7.9m. An additional credit of £1.2m has
been recognised during the period to 31 December 2018, largely due to the release of an onerous lease provision due to properties being
sublet.
VJ Technology
On 29 June 2018 the Group completed the disposal of the trade and assets of VJ Technology, a division of SIG Trading Limited UK and part
of the SIG Distribution segment. Consideration for the sale less costs to sell was £29.3m resulting in a profit on disposal of £5.2m which is
included within Other items in the Consolidated Income Statement.
Roofspace
On 14 December 2018 the Group completed the disposal of 100% of the share capital of SIG Roofspace Limited (Roofspace), a subsidiary of
SIG Trading Limited and included within the SIG Distribution segment. Consideration for the sale was £14.6m, resulting in a loss on sale of
£7.1m which is included within Other items in the Consolidated Income Statement.
Proteus
On 18 December 2018 the Group completed the disposal of the trade and assets of Proteus Engineered Facades (Proteus), a division of SIG
Trading Limited included within the SIG Exteriors segment, for consideration of £0.5m. The consideration is due for payment in May 2019 and
is included within deferred consideration at 31 December 2018. The loss arising on the sale of £4.8m is included within Other items in the
Consolidated Income Statement.
The net assets of the six businesses at the date of disposal were as follows:
Attributable goodwill
Property, plant and equipment
Cash
Inventories
Trade and other receivables
Trade and other payables
Net assets
Other costs
Total loss on disposals
Sale proceeds
Satisfied by:
Cash and cash equivalents
Deferred consideration (vendor loan note)
At date of
disposal
£m
At 31 December
2017
£m
22.2
2.0
2.3
6.7
15.6
(12.4)
36.4
21.5
2.7
6.8
7.7
16.7
(5.3)
50.1
0.3
(5.4)
45.0
44.5
0.5
45.0
143
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
Other business closures
The Group has also agreed to exit the following businesses:
SIG Cut Solutions
In June 2018 the Group closed SIG Cut Solutions, the Group's German insulation conversion business. The stock and fixed assets of the
business was sold and the associated goodwill written off leading to an expense of £0.1m recognised within Other items in the Consolidated
Income Statement.
Commercial Drainage
The Group has announced the closure of its Commercial Drainage business, part of the SIG Distribution segment. All assets are held at
recoverable value and the operating losses for the year have been included in Other items in the Consolidated Income Statement.
Prior year divestments
Middle East
As disclosed in the 2017 Annual Report and Accounts, the Group has commenced the closure of its business in the Middle East. The assets
of the business were impaired at 31 December 2017 to reflect the recoverable amount indicated by the period end impairment review
process, resulting in a total loss on wind down of £17.1m for the year ended 31 December 2017. During the period to 31 December 2018 a
net expense of £0.9m has been recognised in Other items, comprising additional costs associated with the closure, offset with the release of
a bad debt provision where amounts have been collected.
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'). The disposal led to a loss on disposal of £3.1m being included within Other
items in the Consolidated Income Statement at 31 December 2017. During the period to 31 December 2018 an additional expense of £0.4m
has been incurred due to the re-translation of the vendor loan which is repayable over 48 months from October 2018.
Other
Additional credits of £0.1m have been recognised and included within Other items in relation to the disposals of the Carpet & Flooring and
Metechno businesses in the prior year.
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 2018 and 31 December 2017 are as follows:
Carpet & Flooring
Drywall Qatar
Building Plastics
WeGo Austria
Air Handling Turkey
Building Systems
GRM
Metechno
Middle East
IBSL
Businesses identified as non-core in 2017
VJ Technology
Roofspace
Proteus
Commercial Drainage
SIG Cut Solutions
Businesses identified as non–core in 2018
Total attributable to non–core businesses
144
2018
2017
Revenue
£m
Net operating
profit/(loss)
£m
Revenue
£m
Net operating
profit/(loss)
£m
–
–
–
–
–
1.4
0.3
–
2.1
0.2
4.0
17.0
24.0
3.4
10.0
0.3
54.7
58.7
–
–
–
–
–
(1.2)
(0.2)
–
(0.8)
(0.2)
(2.4)
3.1
2.1
(0.5)
(0.8)
(0.3)
3.6
1.2
11.4
1.2
34.5
7.6
12.0
8.0
2.6
1.3
19.5
1.8
99.9
30.6
17.6
5.6
7.4
0.9
62.1
162.0
(0.7)
(1.4)
0.9
(0.2)
(0.4)
(7.6)
(0.8)
(3.4)
(0.7)
–
(14.3)
5.0
2.0
0.6
(0.7)
(0.6)
6.3
(8.0)
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Cash flows associated with divestments and exit of non-core businesses
The net cash inflow in the year ended 31 December 2018 in respect of divestments and the exit of non-core businesses is as follows:
Cash consideration received for
divestments
Cash at date of disposal
Other income received/(disposal costs
paid)
Net cash inflow/(outflow)
GRM
£m
0.1
–
0.2
0.3
IBSL
£m
0.3
–
(0.1)
0.2
Building
Systems
£m
VJ
Technology
£m
Roofspace
£m
Proteus
£m
Other
non-core
businesses
£m
0.2
–
1.0
1.2
29.3
(4.5)
(0.6)
24.2
14.6
(2.3)
(0.8)
11.5
0.5
–
–
0.5
–
–
(2.1)
(2.1)
Total
£m
45.0
(6.8)
(2.4)
35.8
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.
12. Goodwill
Cost
At 1 January 2017
Acquisitions
Businesses disposed
Adjustments in respect of prior period acquisitions
Exchange differences
At 31 December 2017
Businesses disposed
Exchange differences
At 31 December 2018
Accumulated impairment losses
At 1 January 2017
Impairment charges
Businesses disposed
Exchange differences
At 31 December 2017
Businesses disposed
Exchange differences
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
£m
554.4
0.1
(61.6)
–
10.9
503.8
(24.5)
(3.7)
475.6
201.7
6.0
(22.1)
6.0
191.6
(5.0)
(4.9)
181.7
293.9
312.2
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 9 CGUs (2017: 15), this reduction is due to disposals of businesses.
145
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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
2018
£m
91.3
68.2
11.0
72.1
10.7
2.9
1.2
22.3
14.2
–
2017
£m
97.5
68.2
12.7
71.5
10.6
3.3
1.2
22.1
14.1
11.0
293.9
312.2
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%-2.9%) 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 2.5% in perpetuity.
UK
France
Germany
Poland
Air Handling
Benelux
Long-term
operating profit
growth rate (%)
Post-tax discount
rate (%)
2.0
1.9
2.0
2.5
2.1
2.1
9.8
8.4
7.8
10.3
8.5
8.5
2018 impairment review results
In the prior year, a goodwill impairment charge of £1.0m was recognised in relation to the wind down of the Metechno business and £5.0m was
recognised in relation to the post year end disposal of the GRM and IBSL businesses.
The results of the 2018 impairment review indicate that the carrying values of all ongoing CGUs remain supportable.
146
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Sensitivity analysis
A number of reasonably possible sensitivities have been performed on the Group's CGUs to highlight the changes in market conditions
that would lead to the value in use equalling the carrying value. For the more sensitive CGUs, 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:
2018
UK Distribution
UK Exteriors
Building Solutions
Larivière
Germany
2017
UK Distribution
UK Exteriors
Building Solutions
Larivière
Germany
Poland
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
£175.8m
£48.5m
£26.2m
€39.5m
€43.4m
2.0
(0.2)
14.5
1.7
2.7
(11.7)
(5.9)
(15.0)
(4.1)
(3.2)
9.8
9.8
9.8
8.4
7.8
9.4
3.6
8.6
2.0
5.3
25.1
29.6
28.7
24.9
28.0
(2.4)
(1.5)
(3.6)
(0.8)
(0.8)
2.0
2.0
2.0
1.9
2.0
(18.3)
(5.3)
(15.8)
(2.7)
(7.8)
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)
9.2
9.2
9.2
8.7
8.1
10.7
1.2
6.6
2.3
0.5
2.5
4.4
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)
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, no impairments would arise. If this
was combined with a 200bps reduction in sales, the Larivière CGU would show an impairment of €3.6m.
Brexit uncertainty has resolved the Construction Products Association (CPA) to downgrade its UK construction output forecast from growth
of 2.3% (in autumn 2018) to 0.3%, driven largely by a decline in the commercial sector, partially offset by continued growth in private housing
construction. As such, a decline in trading profit per annum of 2% was modelled across the UK and Ireland CGUs and this showed no
impairment across the Group.
The extent to which these risks materialise will depend on the nature of the eventual Brexit deal and it is considered that there is sufficient
headroom in the UK businesses to cover the increased risk and uncertainty from Brexit. For further details on the considerations of Brexit on
the business see page 45.
The Board has actively reviewed the forecasts associated with the CGUs 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.
147
Stock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
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 which is recognised separately from
associated hardware.
Cost
At 1 January 2017
Additions
Disposals
Transfers
Exchange differences
At 31 December 2017
Additions
Disposals
Reclassifications
Exchange differences
At 31 December 2018
Amortisation
At 1 January 2017
Charge for the year
Impairment charges
Disposals
Exchange differences
At 31 December 2017
Charge for the year
Impairment charges
Disposals
Reclassifications
Exchange differences
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Customer
relationships
£m
Non-compete
clauses
£m
Computer
software
£m
Total
£m
239.0
12.1
53.7
304.8
–
(0.4)
–
3.7
242.3
–
(13.0)
–
(1.2)
–
–
–
–
12.1
–
(0.4)
–
–
3.2
(0.6)
(2.7)
–
3.2
(1.0)
(2.7)
3.7
53.6
308.0
5.3
(0.7)
0.5
–
5.3
(14.1)
0.5
(1.2)
228.1
11.7
58.7
298.5
188.5
8.9
0.6
(0.1)
3.2
11.7
0.4
–
–
–
27.7
3.7
6.8
(0.4)
–
227.9
13.0
7.4
(0.5)
3.2
201.1
12.1
37.8
251.0
8.9
–
(10.5)
–
(1.2)
–
–
(0.4)
–
–
4.4
1.1
(0.3)
(0.5)
(0.2)
13.3
1.1
(11.2)
(0.5)
(1.4)
198.3
11.7
42.3
252.3
29.8
41.2
–
–
16.4
15.8
46.2
57.0
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 120.
Included within computer software additions are assets in the course of construction of £nil (2017: £0.3m).
The £0.6m customer relationships impairment charge in the prior year relates to the post year end disposal of IBSL (see Note 11).
The computer software impairment charge is in relation to the TM1 data warehouse which is no longer being used due to the change in IT
digital strategy and in relation to reduced utilisation of the UK ERP system following certain business disposals. The prior year charge related
to the review of the utilisation of the UK ERP system, Kerridge K8, which identified that certain modules were not being used.
148
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 14. Acquisitions
The Group has not made any business acquisitions during 2018 or 2017.
During 2017 a charge of £9.8m relating to contingent consideration payable to vendors of businesses previously acquired was recognised
within the Consolidated Income Statement and presented within the column entitled Other items. This amount was settled during 2018.
During 2018 £17.2m was paid as settlement of amounts payable for previous purchases of businesses. This included the £17.0m deferred
consideration at 31 December 2018 (Note 28) and £0.2m exchange movements on this during the year.
On 12 April 2018 the Group acquired the non-controlling interest of the Bulgaria Air Handling business for total consideration of £6.3m,
comprising £2.5m cash, £2.9m in relation to property transferred as part of the transaction and £0.9m contingent on the results of the
business for the period to 31 December 2018. £0.8m is included within deferred consideration at 31 December 2018 as the performance
criteria have been met.
Contingent on vendors remaining within the business (below)
Re-assessment of post-acquisition performance of acquired businesses
Total charge to Consolidated Income Statement
2018
£m
–
–
–
2017
£m
8.1
1.7
9.8
Consideration dependent on vendors remaining within the business
Amounts which may be paid to the vendors of recent acquisitions who are employed by the Group and are contingent upon the vendors
remaining within the business are, as required by IFRS 3, treated as remuneration and charged to the Consolidated Income Statement as
earned. There were no such amounts paid during 2018 and no amounts outstanding at 31 December 2018.
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.
2018
£m
–
0.9
–
–
–
(0.8)
(0.1)
–
2018
£m
3.2
0.7
203.3
–
207.2
2017
£m
4.4
10.3
–
(2.7)
(2.2)
(9.8)
–
–
2017
£m
4.8
0.9
237.9
(0.1)
243.5
149
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
16. Trade and other receivables
Trade receivables
Amounts due from construction contract customers
VAT
Other receivables
Prepayments and accrued income
Trade and other receivables
Contract assets
Current tax assets
Assets classified as held for sale (Note 10)
Total receivables
2018
£m
2017
Restated
£m
384.3
374.7
–
9.3
9.2
74.9
477.7
1.8
5.5
1.9
6.2
5.2
13.5
80.8
480.4
–
5.2
0.3
486.9
485.9
The contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date on made-
to-order products. In previous years these were included in Trade and other receivables and £4.0m related to the Roofspace and Building
Systems businesses which have been sold during the year (see Note 11). IFRS 15 has been adopted using the modified retrospective method,
therefore prior year comparatives have not been restated (see Statement of Significant Accounting Policies).
Included within prepayments and accrued income is £59.3m (2017: £55.2m) 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.
Trade receivables are non-interest bearing and are generally on terms of 30 to 90 days. The average credit period on sale of goods and
services for underlying operations on a constant currency basis is 44 days (2017: 39 days).
An allowance has been made for estimated credit losses from trade receivables and contract assets of £31.4m at 31 December 2018
(2017: £41.1m).
Movement in the allowance for expected credit losses
At 1 January
Utilised
Unused amounts released to the Consolidated Income Statement
Released on disposal of non-core businesses (Note 11)
Charged to the Consolidated Income Statement
Exchange differences
At 31 December
2018
£m
(41.1)
15.6
9.4
–
(14.6)
(0.7)
(31.4)
2017
£m
(33.9)
9.3
3.0
0.9
(19.8)
(0.6)
(41.1)
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables and contract assets.
The expected loss rates have been assessed by each operating segment and are based on the payment profiles of sales over a period prior
to 31 December 2018, the availability of credit insurance and the historical credit losses experiences within this period. The historical loss
rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to
settle the receivables and 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.
150
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
31 December 2018
Days past due
Expected credit loss rate
Total gross carrying amount
Expected credit loss
< 30 days
30-60 days
61-90 days
> 91 days
£m
0.4%
271.4
1.1
£m
2.0%
65.7
1.3
£m
3.8%
26.5
1.0
£m
51.9%
53.9
28.0
The 2017 allowance for bad debts under IAS39 on an incurred loss basis was as follows:
31 December 2017
Days past due
Allowance as a percentage of gross carrying
amount
Total gross carrying amount
Allowance for bad debt
< 30 days
30-60 days
61-90 days
> 91 days
£m
£m
£m
£m
0.5%
340.3
1.7
5.3%
20.8
1.1
10.4%
19.3
2.0
87.3%
41.6
36.3
Total
£m
417.5
31.4
Total
£m
422.0
41.1
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
£49.7m (2017: £48.7m) have been derecognised from the Consolidated Balance Sheet, because the Group has transferred the risks and
rewards.
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.
151
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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
Contract liabilities
Obligations under finance lease contracts (Note 24)
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Other financial liabilities
Derivative financial instruments
Current tax liabilities
Provisions (Note 22)
Liabilities directly associated with assets classified as held for sale
Current liabilities
2018
£m
2017
Restated
£m
308.1
283.7
–
–
20.1
27.1
73.0
1.3
4.5
23.4
18.3
90.3
428.3
421.5
1.6
3.2
4.5
56.5
–
0.9
1.1
0.3
4.9
11.0
–
512.3
–
3.2
29.6
84.2
21.1
17.0
8.0
0.2
7.2
12.0
0.1
604.1
The contract liabilities primarily relate to the advance consideration received from customers for construction of air handling units, for which
revenue is recognised over time. In previous years these were included in Trade and other payables. IFRS 15 has been adopted using the
modified retrospective method, therefore prior year comparatives have not been restated (see Statement of Significant Accounting Policies).
Trade payables is presented net of £52.8m (2017: £58.8m) due from suppliers in respect of supplier rebates where the Group has the right to
net settlement.
£nil (2017: £0.4m) 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 £56.5m (2017: £83.7m) 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 2018 ranged from 0.55% to 1.5%
(2017: between 0.0% and 1.9%).
£27.6m (2017: £38.4m) of the bank loans and deferred consideration due within one year (after taking into account derivative financial
instruments) are at variable rates of interest.
£28.9m (2017: £62.8m) 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 3.0% (2017: 3.1%).
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 47 days (2017: 42 days).
The directors consider that the carrying amount of current liabilities approximates to their fair value.
152
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
2018
£m
2.7
4.4
13.1
–
2017
Restated
£m
2.7
4.3
13.0
–
185.6
183.1
3.8
1.4
5.6
28.7
20.4
265.7
3.3
1.4
6.9
30.4
21.7
266.8
All of the above private placement notes and derivative financial instruments are guaranteed by certain companies of the Group.
Details of the private placement notes (before applying associated derivative financial instruments and prepaid arrangement fees) are as follows:
Repaid in 2018
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
2018
2017
Fixed interest
rate
%
–
3.7
3.9
4.2
3.3
3.6
£m
–
26.9
18.0
44.9
96.2
186.0
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
The £23.5m (2017: £22.2m) 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 2018 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 £183.8m as disclosed in Note 19 Financial assets and financial liabilities.
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 155.
19. Financial assets and financial liabilities
The Group's principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main
purpose of these financial liabilities is to finance the Group's operations. The Group's principal financial assets include trade receivables,
deferred consideration and cash and cash equivalents that derive directly from its operations.
The Group is exposed to credit risk, liquidity risk, interest rate and foreign currency risk. The Group Board oversees the management of
these risks. The Board manages the risks through implementation of the Group Treasury Policy, supported by the Group Tax and Treasury
Committee, which monitors and reviews the activities of the Group Treasury Function to ensure they are performed in accordance with the
policy and reports to the Group Board on a regular basis. The "Treasury risk management" section of the Financial Review on pages 37 and
38 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 37. Credit risk is discussed further in Note 16.
153
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
a) Financial assets
The Group holds the following financial assets:
Financial assets at amortised cost
Trade receivables
Deferred consideration
Cash at bank and on hand
Note
2018
£m
16
384.3
1.5
83.3
1.9
–
2017
£m
374.7
1.5
108.2
1.3
–
Derivative financial instruments designated as hedging instruments
19(c)
Derivative financial instruments not designated as hedging instruments
Total
471.0
485.7
Included within cash at bank and on hand is cash restricted for use of £4.1m (2017: £6.1m) relating to cash received in relation to factoring
arrangements. The interest received on cash deposits is at variable rates of interest of up to 1.5% (2017: 1.6%).
The directors consider that the fair values of cash at bank and on hand, trade receivables and deferred consideration approximate their
carrying value, largely due to the short term maturities of these instruments. All of the deferred consideration relates to vendor loan notes in
connection with the sale of businesses in 2017 and 2018 (Note 11). The fair value is not significantly different to the carrying amount.
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. Information about the Group's exposure to credit risk in relation to trade receivables
is given in Note 16.
Of the above cash at bank on hand, £20.1m (2017: restated £27.7m) is denominated in Sterling, £41.2m (2017: restated £59.8m) in Euros,
£18m (2017: £16.9m) in Polish Zloty, and £4.0m (2017: £3.8m) in other currencies. Of the deferred consideration, £0.5m (2017: £nil) is
denominated in Sterling and £1.0m (2017: £1.5m) in other currencies.
b) Financial liabilities
The Group holds the following financial liabilities:
Financial liabilities at amortised cost
Trade and other payables*
Borrowings
Loan notes and deferred consideration
Derivative financial instruments designated as hedging instruments
Derivative financial instruments not designated as hedging instruments
Total
* Excluding non-financial liabilities
Note
17
19(c)
2018
£m
381.1
271.2
0.9
4.1
–
2017
£m
379.8
349.2
17.0
3.5
–
657.3
749.5
The directors consider that the fair values of trade and other payables and loan notes and deferred consideration approximate their carrying
value due to their short term nature. The fair value of borrowings is considered below.
154
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
2018 interest rate and currency profile
The interest rate and currency profile of the Group’s financial liabilities at 31 December 2018, after taking account of interest rate and
currency derivative financial instruments (including derivative assets of £1.9m as noted above) was as follows:
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Polish Zloty
Polish Zloty
Total
£m
21.3
61.0
13.3
162.5
5.8
8.2
0.2
2.0
274.3
Floating
rate
£m
Fixed rate
£m
Effective
fixed
interest rate
%
Weighted
average time
for which
rate is fixed
Years
Amount
secured
£m
Amount
unsecured
£m
–
28.0
–
–
4.9
–
0.2
–
33.1
21.3
33.0
13.3
162.5
0.9
8.2
–
2.0
241.2
4.2
3.0
3.5
3.5
–
4.4
–
3.8
7.6
2.2
23.2
5.4
0.3
6.1
–
4.5
–
–
0.1
–
0.9
8.2
0.2
2.0
21.3
61.0
13.2
162.5
4.9
–
–
–
11.4
262.9
Private placement notes
Other borrowings
Finance lease contracts
Private placement notes
Other borrowings
Finance lease contracts
Other borrowings
Finance lease contracts
Total
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2018 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 net liability of £3.5m which is included in the Sterling value of other borrowings in the table above. The Group’s net debt at
31 December 2018 was £189.4m and, after taking account of these cross-currency derivatives, the Group had net Euro financial liabilities of
£159.1m.
Of the above finance lease contracts, £10.3m (2017: £9.9m), 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 2018 is estimated to be £217.3m (2017: c.£240m) and
is classified as a Level 2 fair value measurement for disclosure purposes. The remaining fixed rate debt amounts to £57.4m (2017: restated
£89.4m) 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.
2017 interest rate and currency profile (restated)
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:
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Polish Zloty
Polish Zloty
US Dollar
Total
£m
42.1
116.2
13.4
160.9
17.8
7.6
0.3
2.2
7.9
Floating
rate
£m
20.0
66.9
–
–
0.8
–
0.3
–
–
Fixed rate
£m
Effective fixed
interest rate
%
Weighted
average time
for which
rate is fixed
Years
Amount
secured
£m
Amount
unsecured
£m
22.1
49.3
13.4
160.9
17.0
7.6
–
2.2
7.9
4.2
2.8
6.9
3.5
3.0
5.0
n/a
3.5
4.0
8.6
2.0
24.1
6.4
1.0
4.8
–
4.3
0.1
–
–
0.1
–
0.1
7.6
0.3
2.2
–
10.3
42.1
116.2
13.3
160.9
17.7
–
–
–
7.9
358.1
368.4
88.0
280.4
Private placement notes
Other borrowings
Finance lease contracts
Private placement notes
Other borrowings
Finance lease contracts
Other borrowings
Finance lease contracts
Other borrowings
Total
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2017 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 £2.7m which is included in the Sterling value of other borrowings in the table above.
The Group’s net debt at 31 December 2017 was £258.7m and, after taking account of these cross-currency derivatives, the Group had net
Euro financial liabilities of £142.1m.
In both 2018 and 2017, the interest rate on floating rate financial liabilities is based upon appropriate local market rates.
155
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
c) Hedging activities and derivatives
The Group is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative instruments
are foreign currency risk and interest rate risk. The Group's risk management strategy and how it is applied to manage risk is explained in the
'Management of treasury risks' section of the Financial review.
The Group does not trade in derivative financial instruments for speculative purposes. Where derivatives meet the hedge accounting criteria
under the rules of IFRS 9, movements in the fair values of these derivative financial instruments (for cash flow and net investment hedges)
are recognised in the Consolidated Statement of Comprehensive Income. Where the criteria for hedge accounting are not met, they are
accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be
settled within 12 months after the end of the reporting period.
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.
i) Net investment hedges
The Group has investments in Euro-denominated subsidiaries. As at 31 December 2018 the Group held two (31 December 2017: 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. Fair value changes on
those derivatives are recognised in other comprehensive income (hedging and translation reserve) to offset any gains or losses on translation
of the net investments in the subsidiaries.
At 31 December 2018 the Group also held €185.0m (2017: €181.0m) of direct Euro-denominated debt through its revolving credit facility
and bilateral private placement debt. This borrowing is being used to hedge the Group's exposure to the Euro foreign exchange risk on
investments in Euro-denominated subsidiaries. Gains or losses on retranslation of the borrowing are transferred to other comprehensive
income to offset any gains or losses on translation of the net investments in the subsidiaries.
There is an economic relationship between the hedged item and the hedging instruments as the net investment in Euro-denominated assets
creates a translation risk that will match the foreign exchange risk on the Euro-denominated debt. The Group has established a hedge ratio
of 1:1 as the underlying risk of the hedging instrument is identical to the hedged risk component. Hedge ineffectiveness will arise when the
amount of the investment in Euro-denominated subsidiaries becomes lower than the amount of the cross-currency derivative.
The impact of the hedging instruments on the statement of financial position is as follows:
At 31 December 2018
Cross-currency swap
Foreign currency denominated borrowing
Foreign currency denominated borrowing
At 31 December 2017
Cross-currency swap
Foreign currency denominated borrowing
Foreign currency denominated borrowing
Notional
amount
€m
Carrying
amount
£m
Line item in the statement of
financial position
Change in fair value
used for measuring
ineffectiveness for the
period
£m
26.6
181.0
4.0
26.6
181.0
–
3.5
Derivative financial instruments
162.5
3.6
2.7
160.9
–
Private placement notes
Bank loans
Derivative financial instruments
Private placement notes
Bank loans
0.8
1.6
–
0.6
6.5
1.8
156
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS £m
–
2017
£m
(2.1)
(0.6)
(2.7)
The impact of the hedged item on the Statement of Financial Position is as follows:
31 December 2018
31 December 2017
Net investment in foreign subsidiaries
Change in fair value
used for measuring
ineffectiveness
Hedging and
translation
reserve
Cost of hedging
reserve
£m
2.4
£m
2.0
£m
–
Change in fair value
used for measuring
ineffectiveness
£m
8.9
Hedging and
translation
reserve
Cost of hedging
reserve
£m
7.4
The hedging gain recognised in OCI before tax is equal to the change in fair value used for measuring effectiveness. There is no
ineffectiveness recognised in profit or loss.
Hedge of the Group's Euro-denominated assets
Liability at 1 January
Fair value losses recognised in equity
Liability at 31 December
ii) Cash flow hedges
2018
£m
(2.7)
(0.8)
(3.5)
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.
Foreign currency risk
The Group faces a translation risk from the US Dollar in respect of interest on its private placement borrowings. As at 31 December 2018,
the Group held two (31 December 2017: 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. 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 2018, the
weighted average maturity date of these swaps is 7.6 years (2017: 8.6 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
2018
£m
0.1
1.8
–
1.9
2017
£m
2.5
(2.4)
–
0.1
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.
The Group also uses foreign exchange forward contracts to manage the exposures arising from cross-currency transactions. At 31 December
2018 the Group held a number of short term forward contracts designated as hedging instruments in cash flow hedges of forecast purchases
in Euros. The forecast transactions are highly probable. Foreign exchange forward contract balances vary with the level of expected foreign
currency transactions and changes in foreign exchange forward rates.
Included within current assets are derivative financial instruments of £nil (2017: £0.1m) relating to forward foreign exchange contracts.
Interest rate risk
The Group has floating rate debt and its interest rate costs will increase in the event of rising interest rates. As at 31 December 2018, the
Group held one (31 December 2017: two) interest rate derivative financial instrument which swaps variable rate debt into fixed rate debt
thereby fixing the functional currency cash flows of the Group. This interest rate derivative financial instrument is designated and effective
as a cash flow hedge and the fair value movement has therefore been deferred in equity via the Consolidated Statement of Comprehensive
Income. At 31 December 2018, the weighted average maturity date of these swaps is 1.6 years (2017: 2.1 years).
Hedge of the Group's interest cash flows
Liability at 1 January
Fair value gains/(losses) recognised in equity
Liability at 31 December
2018
£m
(0.8)
0.5
(0.3)
2017
£m
(1.5)
0.7
(0.8)
157
Stock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
There is an economic relationship between the hedged items and hedging instruments as the terms of the cross-currency and interest
rate swaps match the terms of the debt (i.e. notional amount, maturity and payment dates) and the terms of the foreign exchange forward
contracts match the terms of the highly probably forecast transactions (i.e. notional amount and expected payment date). The Group has
established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the cross-currency swaps, interest rate swap and
foreign exchange forward contracts are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the
hypothetical derivative method and compares the changes in fair value of the hedging instruments against the changes in fair value of the
hedged items attributable to the hedged risks.
Hedge ineffectiveness can arise from differences in the timing of the cash flows of the hedged items and the hedging instruments; the
counterparties' credit risk differently impacting the fair value movements of the hedging instruments and hedge items; and changes to the
forecasted amount of cash flows of hedged items and hedging instruments.
The Group is holding the following cross-currency swaps, interest rate swaps and foreign exchange forward contracts:
At 31 December 2018
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
At 31 December 2017
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
Notional
amount
$m
Notional
amount
€m
Carrying
amount
£m
Maturity
Average
hedged rate
Average
forward rate
30.0
n/a
n/a
30.0
n/a
4.5
n/a
n/a
111.0
n/a
n/a
28.6
(20.9)
(30.0)
(106.4)
(20.9)
(40.0)
(25.3)
2026
2020
2019
2026
2020
2018
n/a
1.58%
n/a
n/a
1.87%
n/a
1.4354
n/a
1.0430
1.4354
n/a
1.1304
The impact of the hedging instruments on the statement of financial position is as follows:
Carrying
amount
£m
Line item in the statement of
financial position
Change in fair value used for
measuring ineffectiveness for
the period
£m
At 31 December 2018
Cross-currency swaps
Interest rate swap
1.9 Derivative financial instruments
(0.3) Derivative financial instruments
Foreign exchange forward contracts
(0.2) Derivative financial instruments
At 31 December 2017
Cross-currency swap
Interest rate swap
Foreign exchange forward contracts
0.1
(0.8)
0.1
Derivative financial instruments
Derivative financial instruments
Derivative financial instruments
The impact of the hedged item on the statement of financial position is as follows:
31 December 2018
Change in fair value
used for measuring
ineffectiveness
£m
Hedging and
translation
reserve
£m
31 December 2017
Cost of
hedging
reserve
£m
Change in fair value
used for measuring
ineffectiveness
£m
Hedging and
translation
reserve
£m
Cross-currency swaps
Interest rate swap
1.8
0.5
1.7
0.5
Foreign exchange forward contracts
(0.3)
(0.3)
0.1
–
–
(2.4)
0.7
0.3
(2.4)
0.7
0.3
1.8
0.5
(0.3)
(2.4)
0.7
0.3
Cost of
hedging
reserve
£m
–
–
–
158
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS The effect of the cash flow hedges in the statement of profit or loss and other comprehensive income is as follows:
Total hedging gain/
(loss) recognised
in OCI
€m
Ineffectiveness
recognised in profit
or loss
€m
Line item in the
statement of profit
or loss
Amount reclassified
from OCI to profit
or loss
€m
Line item in the
statement of profit
or loss
€m
At 31 December 2018
Cross-currency swaps
Interest rate swap
Foreign exchange forward contracts
At 31 December 2017
Cross-currency swap
Interest rate swap
Foreign exchange forward contracts
–
–
–
–
–
–
–
–
–
–
–
–
Finance costs
Finance costs
Finance costs
Finance costs
Finance costs
Finance costs
1.3
–
–
(2.0)
–
–
Operating
expenses
Finance costs
Operating
expenses
Operating
expenses
Finance costs
Operating
expenses
Derivatives not designated as hedging instruments
The Group also uses some foreign exchange forward contracts to manage some of its transaction exposures which are not designated as cash flow
hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally within one month.
iii) Fair value hedges
The Group does not have any fair value hedges at 31 December 2018. At 31 December 2017, the Group held one derivative financial
instrument, which was used to hedge against changes in the fair value of the fixed interest private placement notes drawn down on 1
February 2007 attributable to movements in market interest rates. This interest rate derivative financial instrument was designated and
effective as a fair value hedge and the fair value movement was therefore recognised in the Consolidated Income Statement.
There was an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swap matched
the terms of the fixed rate loan (notional amount, maturity and payment dates). To test the hedge effectiveness, the Group used the
hypothetical derivative method and compared the changes in the fair value of the hedging instrument against the changes in fair value of
the hedged item attributable to the hedged risk. Hedge ineffectiveness could arise from different interest rate curve applied to discount the
hedged item and hedging instrument; differences in timing of cash flows of the hedged item and hedging instrument; and the counterparties'
credit risk differently impacting the fair value movements of the hedging instrument and the hedged item. The ineffectiveness recognised in
the Consolidated Income Statement was immaterial.
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
2018
£m
1.1
(1.1)
–
2017
£m
2.0
(0.9)
1.1
159
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
iv) Impact of hedging on equity
Set out below is the reconciliation of each component of equity and the analysis of other comprehensive income:
Retained (losses)/profits
Hedging and translation reserve
Cost of hedging reserve
At 1 January ^
Effective portion of changes in fair value arising
from:
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
Amount reclassified to profit or loss
Foreign currency revaluation of foreign
currency denominated borrowing
Foreign currency revaluation of net foreign
operations
Tax effect
Exchange differences reclassified to the
Consolidated Income Statement in respect of
the disposal of foreign operations
Other movements not associated with hedging
At 31 December
2018
£m
(59.5)
1.7
0.5
(0.3)
–
–
–
–
–
2017
£m
13.2
(2.4)
0.7
0.3
–
–
–
–
–
(10.7)
(68.3)
(70.6)
(58.8)
2018
£m
19.6
–
–
–
–
1.8
0.7
(0.4)
–
–
21.7
2017
£m
7.9
–
–
–
–
(9.2)
19.0
1.8
0.1
–
19.6
2018
£m
0.9
0.1
–
–
–
–
–
–
–
–
1.0
2017
£m
–
–
–
–
–
–
–
–
–
–
–
^ The Group has applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See the Statement of Significant Accounting Policies for further details.
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
Amounts reclassified from OCI to profit and loss on cash flow hedges
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
2018
£m
1.1
(1.1)
(1.3)
–
0.6
(0.7)
2017
£m
0.9
(0.9)
2.0
–
2.1
4.1
* £0.3m (2017: £0.4m) of the £0.6m (2017: £2.1m) spreading charge has been recognised within Finance Costs before Other items.
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 2018 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 £323.6m (2017: restated £283.7m).
2018
£m
66.4
29.6
67.2
111.0
274.2
2017
Restated
£m
162.1
2.7
49.3
154.3
368.4
160
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Borrowing facilities
The Group had undrawn committed borrowing facilities at 31 December 2018 as follows:
Expiring in more than two years but not more than five years
Total
2018
£m
293.5
293.5
2017
£m
272.0
272.0
At 31 December 2018 the Group had £536m of committed facilities, of which £293.5m were undrawn as disclosed above. Since 31 December 2018, a
maximum of £148.9m 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.
2018 Analysis
Current liabilities
Trade and other payables
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Derivative financial instruments
Other financial liabilities
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
381.1
3.2
4.5
56.5
0.3
1.1
0.9
< 1 year
£m
381.1
3.3
4.5
56.6
0.3
1.1
0.9
447.6
447.8
20.2
–
185.6
3.8
209.6
657.2
(1.9)
(83.3)
(1.5)
(477.7)
(564.4)
92.8
1.2
–
3.5
0.1
4.8
452.6
(0.3)
(83.3)
(0.7)
(477.7)
(562.0)
(109.4)
Maturity analysis
1-2 years
£m
2-5 years
£m
> 5 years
£m
–
–
–
–
–
–
–
–
3.9
–
30.4
(0.2)
34.1
34.1
(0.2)
–
(0.3)
–
(0.5)
33.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.4
22.9
70.8
(0.5)
77.7
77.7
(0.7)
–
(0.5)
–
(1.2)
76.5
100.2
2.4
125.5
125.5
(3.3)
–
–
(3.3)
122.2
Total
£m
381.1
3.3
4.5
56.6
0.3
1.1
0.9
447.8
35.4
–
204.9
1.8
242.1
689.9
(4.5)
(83.3)
(1.5)
(477.7)
(567.0)
122.9
The table above includes: cross-currency interest rate swaps in relation to derivative financial assets with a fair value at 31 December 2018 of £1.8m
(2017: £0.1m) and derivative financial liabilities of £3.5m (2017: £2.7m) 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 2018 of £0.6m (2017: £0.1m)
and derivative financial liabilities of £nil (2017: £nil) that will be settled gross, the final exchange on these derivatives will be total receipts of €111m
(2017: €28.6m), PLN 31m (2017: PLN 14.0m) and $nil (2017: $4.5m) and corresponding payments of £106.4m (2017: £31.6m).
161
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements:
As at 31 December 2018
Derivative financial assets
Derivative financial liabilities
Total
2017 Analysis (restated)
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
Private placement notes
Derivative financial instruments
Total
Total liabilities
Other
Derivative financial instrument assets
Cash at bank and on hand
Deferred consideration
Trade and other receivables
Total
Grand total
Gross amounts
of recognised
financial
assets/
(liabilities)
£m
Amounts
available to
offset through
netting
agreements
£m
1.9
(4.1)
(2.2)
(1.6)
1.6
–
Net amount
£m
0.3
(2.5)
(2.2)
Balance sheet
value
£m
421.5
3.2
29.6
84.2
21.1
0.2
17.0
< 1 year
£m
421.5
4.2
29.6
84.6
21.2
0.2
17.0
576.8
578.3
20.0
183.1
3.3
206.4
783.2
(1.3)
(108.2)
(1.5)
(480.4)
(591.4)
191.8
2.2
6.6
0.2
9.0
587.3
(1.3)
(108.2)
(0.3)
(480.4)
(590.2)
(2.9)
Maturity analysis
1-2 years
£m
2-5 years
£m
> 5 years
£m
–
–
–
–
–
–
–
–
5.7
6.6
–
12.3
12.3
–
–
–
–
–
–
–
–
12.2
61.7
(0.5)
73.4
73.4
–
–
–
–
–
–
–
–
26.0
152.8
1.9
180.7
180.7
(0.2)
(0.5)
(1.9)
(0.5)
–
(0.7)
11.6
(1.2)
–
(1.7)
71.7
–
–
(1.9)
178.8
Total
£m
421.5
4.2
29.6
84.6
21.2
0.2
17.0
578.3
46.1
227.7
1.6
275.4
853.7
(3.9)
(108.2)
(2.0)
(480.4)
(594.5)
259.2
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements:
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)
As at 31 December 2017
Derivative financial assets
Derivative financial liabilities
Total
162
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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.
2018 analysis
Profit or loss
Other equity
Total Shareholders' equity
2017 analysis
Profit or loss
Other equity
Total Shareholders' equity
GBP
EUR
USD
Total
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
(0.2)
0.5
0.3
0.2 (i)
(0.5)
(ii)
(0.3)
(0.1)
1.9
1.8
0.1 (iii)
(2.1)
(iv)
(2.0)
–
(1.7)
(1.7)
–
1.8 (ii)
1.8
(0.3)
0.7
0.4
0.3
(0.8)
(0.5)
GBP
EUR
USD
Total
+100bp
-100bp
+100bp
-100bp
+100bp
-100bp
+100bp
-100bp
£m
(0.5)
0.8
0.3
£m
0.5 (i)
(0.8) (ii)
(0.3)
£m
–
2.2
2.2
£m
– (iii)
(2.3) (iv)
(2.3)
£m
–
(1.8)
(1.8)
£m
–
2.0 (ii)
2.0
£m
(0.5)
1.2
0.7
£m
0.5
(1.1)
(0.6)
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
163
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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.
2018 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
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
EUR
USD
PLN
Total
+10%
£m
-10%
£m
+10%
£m
-10%
£m
+10%
£m
-10%
£m
+10%
£m
-10%
£m
0.6
3.4
4.0
(0.3)
(22.7)
(23.0)
(0.2) (i)
(2.9) (ii)
(3.1)
0.2 (iii)
29.8 (iv)
30.0
–
–
–
0.5
–
0.5
–
(0.1) (ii)
(0.1)
(1.7) (v)
(0.1) (iv)
(1.8)
–
3.4
3.4
(0.1)
0.5
0.4
–
(4.1) (ii)
(4.1)
0.1 (vi)
(0.6) (iv)
(0.5)
0.6
6.8
7.4
0.1
(22.2)
(22.1)
EUR
+10%
£m
-10%
£m
USD
+10%
£m
-10%
£m
PLN
+10%
£m
-10%
£m
Total
+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)
(0.2)
(7.1)
(7.3)
(1.4)
29.1
27.7
-10%
£m
(0.7)
(4.0)
(4.7)
2.1
23.1
25.2
* 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
164
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 22. Provisions for liabilities and charges
Onerous
leases
£m
Leasehold
dilapidations
£m
Other
amounts
£m
At 1 January 2018 (restated)
Unused amounts reversed in the period
Utilised
Reclassified
New provisions
Unwinding of provision discounting
Exchange differences
At 31 December 2018
Included in current liabilities
Included in non-current liabilities
Total
Onerous leases
7.8
(2.8)
(3.8)
(1.7)
6.9
0.1
(0.1)
6.4
20.5
(6.0)
(0.7)
1.7
5.5
0.1
(0.5)
20.9
5.4
(0.5)
(3.0)
–
2.1
0.1
4.1
2018
£m
11.0
20.4
31.4
Total
£m
33.7
(9.3)
(7.5)
–
14.5
0.2
(0.5)
31.4
2017
Restated
£m
12.0
21.7
33.7
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 (2017: 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
based on both the liability to rectify or reinstate leasehold improvements and modifications carried out on the inception of the lease
(recognised on inception with corresponding fixed asset) and the liability to rectify general wear and tear which is recognised as incurred
over the life of the lease. The transfer of economic benefits will be made both at the end of the leases as set out in Note 29b (reinstated) and
during the lease term (wear and tear).
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.
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
2018
£m
14.6
(1.4)
13.2
2017
Restated
£m
13.7
(1.4)
12.3
The prior year presentation of the deferred tax assets and deferred tax liabilities has been restated so that, in accordance with IAS 12,
deferred tax assets and deferred tax liabilities arising in the same tax jurisdiction have been offset.
165
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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
£m
Other
£m
At 1 January 2017
(10.7)
Credit/(charge) to income
(Charge)/credit to equity
Exchange differences
Change of rate charged to equity
At 31 December 2017
Credit/(charge) to income
(Charge)/credit to equity
Exchange differences
Change of rate charged to equity
2.1
–
(0.1)
–
(8.7)
2.6
–
–
–
(1.3)
13.0
–
(0.1)
–
11.6
(1.4)
–
–
–
3.9
0.4
–
–
–
4.3
(0.8)
–
–
–
At 31 December 2018
(6.1)
10.2
3.5
7.2
(0.3)
(0.9)
0.1
(0.2)
5.9
(0.6)
0.1
–
–
5.4
4.6
(1.8)
–
0.1
–
2.9
0.4
–
–
–
(1.4)
(2.9)
0.7
(0.1)
–
(3.7)
0.8
(0.2)
–
–
3.3
(3.1)
13.2
Total
£m
2.3
10.5
(0.2)
(0.1)
(0.2)
12.3
1.0
(0.1)
–
–
The deferred tax charge within the Consolidated Income Statement for 2018 includes a credit of £0.3m (2017: charge £1.0m) arising from the
change in domestic tax rates in the countries in which the Group operates.
Of the deferred tax asset of £14.6m, £3.3m 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 results 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.
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 (2017: £1.7m).
At the balance sheet date, no deferred tax liability is recognised on temporary differences relating to £163m of 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.
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
Present value of
minimum lease payments
2018
£m
4.5
11.2
22.9
38.6
(15.2)
23.4
2017
Restated
£m
4.5
10.9
23.6
39.0
(15.8)
23.2
2018
£m
3.2
7.1
13.1
23.4
2017
Restated
£m
3.2
7.0
13.0
23.2
The Group leases certain motor vehicles, fixtures and equipment under finance lease contracts, which are denominated in Sterling, Euros
and Polish Zloty. The Group also has two properties under leasing arrangements that are considered to meet the criteria for recognition as a
finance lease, which are both denominated in Sterling.
The average remaining lease term for motor vehicles, fixtures and equipment is 4.4 years (2017: 4.7 years) and for property is 22.3 years
(2017: 23.3 years). For the year ended 31 December 2018, the average effective borrowing rate for motor vehicles, fixtures and equipment
was 4.3% (2017: 4.7%) and for property was 6.9% (2017: 6.9%). Interest rates are fixed at the contract date.
The carrying amount of the Group’s lease obligations approximates to their fair value.
166
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 25. Called up share capital
Authorised:
800,000,000 ordinary shares of 10p each (2017: 800,000,000)
Allotted, called up and fully paid:
591,556,982 ordinary shares of 10p each (2017: 591,548,235)
2018
£m
2017
£m
80.0
80.0
59.2
59.2
There were 8,747 shares allotted during 2018 (2017: 87,934).
The Company has one class of ordinary share which carries no right to fixed income.
26. Reconciliation of profit/(loss) before tax to cash generated from operating activities
Profit/(loss) before tax
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^ (Note 11)
Profit on sale of property, plant and equipment
Share-based payments
Decrease in provisions
Working capital movements:
- Decrease/(increase) in inventories
- Decrease in receivables
- Increase in payables
Cash generated from operating activities
2018
£m
28.5
19.7
4.4
8.9
1.1
3.4
–
6.7
(7.5)
0.4
(1.9)
30.1
9.3
6.5
109.6
2017
Restated
£m
(54.7)
23.7
3.7
9.3
6.8
3.8
6.6
63.6
(17.8)
0.2
(5.0)
(0.3)
46.8
6.7
93.4
^ In 2017 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 £3.1m (2017:
£2.5m).
Of the total profit on sale of property, plant and equipment, £1.1m (2017: £5.8m) has been included within Other items of the Consolidated
Income Statement (see Note 2).
Included within working capital movements are payments of £nil (2017: £2.7m) in settlement of contingent consideration dependent upon
the vendors remaining with the business.
167
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
27. Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash and cash equivalents in the year
Cash flow from decrease in debt
Decrease in net debt resulting from cash flows
Debt relating to divested businesses
Recognition of loan notes and deferred consideration
Non-cash items^
Exchange differences
Decrease 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 is defined as follows:
Non-current assets:
Derivative financial instruments
Deferred consideration
Current assets:
Derivative financial instruments
Deferred consideration
Cash at bank and on hand
Current liabilities:
Obligations under finance lease contracts
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Other financial liabilities
Derivative financial instruments
Non-current liabilities:
Obligations under finance lease contracts
Private placement notes
Derivative financial instruments
Net debt
168
2018
£m
(0.1)
75.5
75.4
0.1
(0.9)
(3.3)
(2.0)
69.3
(258.7)
(189.4)
2018
£m
1.9
0.7
–
0.8
83.3
(3.2)
(4.5)
(56.5)
–
(0.9)
(1.1)
(0.3)
(20.2)
(185.6)
(3.8)
(189.4)
2017
Restated
£m
(14.9)
86.0
71.1
3.1
(17.0)
(12.5)
(4.2)
40.5
(299.2)
(258.7)
2017
Restated
£m
0.1
1.4
1.2
0.1
108.2
(3.2)
(29.6)
(84.2)
(21.1)
(17.0)
(8.0)
(0.2)
(20.0)
(183.1)
(3.3)
(258.7)
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 28. Analysis of net debt
At
31 December
2017
Restated
£m
Net debt
movements
attributable to
disposals
£m
Recognition
of loan notes
and deferred
consideration
£m
Cash flows
£m
Non-cash
items*
£m
Exchange
differences
£m
At
31 December
2018
£m
Cash at bank and on hand
Bank overdrafts
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
108.2
(29.6)
78.6
1.5
1.5
1.3
(130.5)
(186.4)
(23.2)
(338.8)
(258.7)
(25.2)
25.1
(0.1)
(0.1)
(0.1)
–
74.1
–
1.5
75.6
75.4
–
–
–
0.1
0.1
–
–
–
–
–
0.1
–
–
–
–
–
–
(0.9)
–
–
(0.9)
(0.9)
–
–
–
–
–
(0.7)
(1.0)
0.1
(1.7)
(3.3)
(3.3)
0.3
–
0.3
–
–
1.3
(0.5)
(3.1)
–
(2.3)
(2.0)
83.3
(4.5)
78.8
1.5
1.5
1.9
(58.8)
(189.4)
(23.4)
(269.7)
(189.4)
* 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.
^ The £74.1m cash flow in relation to debts due within one year includes £17.0m settlement of deferred consideration.
29. Guarantees and other financial commitments
a) Capital commitments
The purchase of property, plant and equipment contracted but not provided for
b) Lease commitments
2018
£m
1.7
2017
£m
2.3
The Group leases a number of its premises under operating leases which expire between 2019 and 2029, 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
2018
£m
50.5
124.8
75.9
251.2
2017
£m
50.8
127.9
75.7
254.4
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
2018
£m
16.0
26.4
1.9
44.3
2017
£m
19.9
45.5
1.6
67.0
169
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
c) Pension schemes
The Group operates a number of pension schemes, six (2017: six) of which provide defined benefits based on final pensionable salary. Of
these schemes, one (2017: one) has assets held in a separate trustee-administered fund and five (2017: 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 104.9% as at 31 December 2018 (2017: 103.4%). No change was made to
the pension premium percentage of 22.2% (2017: 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.
The Group's total pension charge for the year, including amounts charged to interest and Other items, was £9.4m (2017: £8.9m), of which
a charge of £1.5m (2017: £1.1m) related to defined benefit pension schemes and £7.9m (2017: £7.8m) 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 2016 and showed that the market value of the scheme’s assets was £164.1m and their actuarial value covered
97% of the benefits accrued to members after allowing for expected future increases in pensionable salaries.
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.
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
Interest rate risk
Longevity risk
Salary 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.
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.
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 £0.4m (2017: £0.7m) relating to the defined benefit pension
schemes, was £1.5m (2017: £1.1m). This charge also includes £1.0m in relation to the estimated liability impact of equalising Guaranteed
Minimum Pensions (GMP), which has been calculated by the pensions management company using the C2 methodology as set out in the
Lloyds Bank High Court Case judgement. This estimated increase in the liability has been charged to Other items within the Consolidated
Income Statement.
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 2018 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 five overseas book reserve schemes
remain open to new members.
170
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
2018
£m
(28.7)
5.4
(23.3)
2017
£m
(30.4)
5.9
(24.5)
The actuarial gain of £0.1m (2017: £5.5m) for the year, together with the associated deferred tax credit of £0.1m (2017: charge of £0.9m) has
been recognised in the Consolidated Statement of Comprehensive Income. In addition, a deferred tax charge of £0.6m (2017: £0.3m) has
been recognised in the Consolidated Income Statement. In the prior year there was an additional deferred tax charge of £0.2m in respect of
the change in the French standard rate of corporation tax.
Of the above pension liability before taxation, £17.2m (2017: £19.1m) relates to wholly or partly funded schemes and £11.5m (2017: £11.3m)
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
GMP equalisation ruling
Actuarial gain
Effect of changes in exchange rates
Pension liability at 31 December
2018
£m
(30.4)
(0.1)
–
3.1
(0.4)
(1.0)
0.1
–
2017
£m
(37.1)
(0.4)
0.3
2.5
(0.7)
–
5.5
(0.5)
(28.7)
(30.4)
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 contribution during 2018 was higher due to S75 debt in respect of the departure of
SIG Trading Ireland from the plan.
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
2018
%
n/a
1.7
3.0
3.0
3.2
2017
%
n/a
1.7
3.0
2.6
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 21.9 years (2017: 22.1 years). The
life expectancy on retirement at age 65 of a male employee currently aged 45 years is 23.3 years (2017: 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, whilst 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 £2.7m. If the rate of inflation increased/decreased by 0.1% this would
increase/decrease the Group's gross pension scheme deficit by £1.3m. If the life expectancy for employees increased by one year the Group's
gross pension scheme deficit would increase by £6.7m. 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 2018 is 19 years (2017: 19 years).
171
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The only assets held are within the SIG plc Retirement Benefits Plan and the defined contribution pension plans in place at SIG Air Handling.
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
2018
£m
52.8
70.2
13.8
8.7
0.6
2017
£m
73.1
63.9
15.9
8.1
0.3
146.1
161.3
All equity and debt instruments have quoted prices in active markets and can be classified as Level 2 instruments, other than 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
2018
£m
146.1
(174.8)
(28.7)
2017
£m
161.3
(191.7)
(30.4)
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
GMP equalisation ruling
Net finance cost
Amounts recognised in the Consolidated Income Statement
2018
£m
0.1
1.0
0.4
1.5
Analysis of the actuarial gain 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
2018
£m
(10.9)
0.9
10.1
–
0.1
2017
£m
0.4
–
0.7
1.1
2017
£m
10.0
0.9
(4.7)
(0.7)
5.5
The remeasurement of the net defined benefit liability is included within the Consolidated Statement of Comprehensive Income.
172
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
Effect of changes in exchange rates
GMP equalisation ruling
Remeasurement gains/(losses):
Actuarial gain arising from changes in demographic assumptions
Actuarial loss arising from changes in financial assumptions
Actuarial loss 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
d) Contingent liabilities
2018
£m
2017
£m
(191.7)
(201.4)
(0.1)
(4.5)
12.4
–
–
(1.0)
0.9
9.2
–
(0.4)
(5.1)
19.9
0.3
(0.5)
–
0.9
(4.7)
(0.7)
(174.8)
(191.7)
2018
£m
161.3
4.1
(10.0)
3.1
(12.4)
146.1
2017
£m
164.3
4.4
10.0
2.5
(19.9)
161.3
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 £11.0m (2017: £12.1m). Of this amount, £8.0m (2017: £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.
As part of the disposal of Building Plastics a guarantee was 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.
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 had a shareholding of less than 0.1% in a German purchasing co-operative up until termination of the contract on 31 December 2018. Net
purchases from this co-operative (on commercial terms) totalled £266.1m in 2018 (2017: £318.5m). At the balance sheet date net trade payables in
respect of the co-operative amounted to £8.0m (2017: £10.1m).
In 2018, SIG incurred expenses of £0.2m (2017: £0.2m) on behalf of the SIG plc Retirement Benefits Plan, the UK defined benefit pension scheme.
173
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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 68), 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
2018
£m
4.8
0.5
0.4
5.7
2017
£m
6.2
2.4
0.2
8.8
31. Subsidiaries
Details of the Group's subsidiaries, all of which have been included in the Financial Statements, are shown on pages 206 to 207.
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.
Information regarding covenant calculations (Notes 32a, 32c and 32g) 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.
Underlying operating profit
Add back:
Depreciation
Amortisation of computer software
Reversal of restatement of net operating losses attributable to businesses identified as non-core*
Depreciation attributable to businesses identified as non-core*
Covenant EBITDA
Note
10
13
11
2018
£m
90.6
19.7
4.4
–
(0.3)
2017
Restated
£m
85.6
23.7
3.7
6.3
(0.8)
114.4
118.5
*The 2017 covenant calculation has not been restated to reflect the decisions made to exit non-core businesses after the signing of the 2017 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
2018
£m
189.4
10.9
(1.8)
198.5
2018
1.7x
2017
Restated
£m
258.7
11.8
(1.5)
269.0
2017
Restated
2.3x
174
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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.
Statutory operating profit/(loss)
Income tax expense
Operating profit/(loss) after tax
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*
Profits and losses on agreed sale or closure of non-core businesses and associated
impairment charges*
Adjusted opening capital employed
Closing reported net assets (2017 restated)
Closing reported net debt (2017 restated)
Closing capital employed
Computer software impairment charges*
Profits and 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
6
2
Note
27
13
11
27
13
11
2018
£m
44.3
(10.6)
33.7
2018
£m
90.6
(10.6)
(9.2)
70.8
2018
£m
470.5
258.7
729.2
(1.1)
(6.7)
721.4
462.9
189.4
652.3
–
–
652.3
690.7
686.8
2017
Restated
£m
(36.3)
(4.5)
(40.8)
2017
Restated
£m
85.6
(4.5)
(13.2)
67.9
2017
£m
529.7
299.2
828.9
(7.9)
(79.1)
741.9
470.5
258.7
729.2
(1.1)
(6.7)
721.4
779.1
731.6
* 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 profit/(loss) after tax to average capital employed)
ROCE (underlying operating profit after tax to adjusted average capital employed)
2018
4.9%
10.3%
2017
Restated
(5.2)%
9.3%
175
Stock 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.
Underlying Operating profit
Add back:
Net operating profits/(losses) attributable to businesses identified as non-core (Note 11)
Contingent consideration*
Consolidated EBITA
Underlying finance costs
Underlying finance income
Less:
Interest costs arising on the defined benefit pension scheme
Acceptance commission
Covenant net interest payable
Interest cover ratio (consolidated EBITA to covenant net interest payable)
* This relates to the element of contingent consideration that is disallowed in the covenant calculation.
d) Underlying profit before tax excluding property profits
Note
13
3
3
3
2018
£m
90.6
1.2
–
91.8
15.9
(0.6)
(0.5)
(0.9)
13.9
6.6x
2017
Restated
£m
85.6
(8.0)
(8.3)
69.3
16.7
(0.5)
(0.7)
(0.8)
14.7
4.7x
This is used to enhance understanding of the underlying financial performance of the Group and to provide further comparability between
reporting periods.
Underlying profit before tax
Underlying property profits
Underlying profit before tax excluding property profits
e) Effective tax rates
2018
£m
75.3
(2.6)
72.7
2017
Restated
£m
69.4
(11.3)
58.1
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.
Profit/(loss) before tax
Other items
Underlying profit before tax
Income tax expense
Tax credit associated with Other items
Underlying tax charge
Note
2
6
6
2018
£m
28.5
46.8
75.3
(10.6)
(9.2)
(19.8)
2017
Restated
£m
(54.7)
124.1
69.4
(4.5)
(13.2)
(17.7)
Effective tax rate (income tax expense to profit/(loss) before tax)
Underlying effective tax rate (underlying tax charge to underlying profit before tax)
37.2%
26.3%
(8.2)%
25.5%
176
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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
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
Note
11
2018
£m
207.2
477.7
(428.3)
(11.0)
(5.6)
(20.4)
219.6
(0.6)
(2.0)
217.0
2017
Restated
£m
243.5
480.4
(421.5)
(12.0)
(6.9)
(21.7)
261.8
(17.4)
(0.8)
243.6
2018
£m
2017
£m
2,741.9
2,878.4
(58.7)
–
(162.0)
18.7
2,683.2
2,735.1
2018
8.0%
8.1%
2017
Restated
9.1%
8.9%
g) Consolidated net worth
Consolidated net worth 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.
Net assets
Less: non-controlling interests
Consolidated net worth
2018
£m
462.9
–
462.9
2017
Restated
£m
470.5
(0.9)
469.6
177
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
h) 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:
- Decrease/(increase) in inventories
- Decrease in receivables
- Increase in payables
Cash inflow from trading
i) Like-for-like sales
2018
£m
109.6
(30.1)
(9.3)
(6.5)
63.7
2017
Restated
£m
93.4
0.3
(46.8)
(6.7)
40.2
26
26
26
26
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
SIG
Exteriors
Ireland &
Other UK
UK &
Ireland
France Germany
Poland
Air
Handling* Benelux
Mainland
Europe
Group
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Statutory revenue 2018
Non-core businesses
752.7
382.1
103.4 1,238.2
663.6
426.9
156.6
148.2
108.4
1,503.7
2,741.9
(51.5)
(3.4)
(3.5)
(58.4)
–
(0.3)
–
–
–
(0.3)
(58.7)
Underlying revenue 2018
701.2
378.7
99.9
1,179.8
663.6
426.6
156.6
148.2
108.4
1,503.4
2,683.2
Statutory revenue 2017
Non-core businesses
Underlying revenue 2017
% change year on year:
Underlying revenue
Impact of currency
Impact of acquisitions
Impact of working days
Like-for-like sales
801.9
444.0
139.7 1,385.6
660.7
433.5
142.8
154.1
101.7
1,492.8
2,878.4
(60.0)
(40.1)
(41.4) (141.5)
–
(8.5)
–
(12.0)
–
(20.5)
(162.0)
741.9
403.9
98.3 1,244.1
660.7
425.0
142.8
142.1
101.7
1,472.3
2,716.4
–
–
–
–
(5.5)% (6.2)%
1.6% (5.2)% 0.4%
0.4% 9.7%
4.3% 6.6%
2.1%
(1.3)% (0.1)% (1.2)%
(1.2)% (0.8)%
(1.3)% (1.3)%
(1.2)%
(0.3)% (0.4)%
(0.4)% (0.3)% (0.1)%
–
–
–
–
–
–
–
–
(0.4)%
(0.4)% 0.4%
(5.8)% (6.6)%
(0.1)% (5.6)% (0.9)%
(0.8)% 8.5%
2.6% 5.7%
–
(0.1)%
0.8%
(1.2)%
(0.7)%
-
(0.2)%
(2.1)%
* Air Handling segment represents the business managed from The Netherlands, with further air handling product category trading results incorporated within other operating segments.
178
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
j) 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
%
Handling* Benelux
%
%
Air
Mainland
Europe
%
Group
%
Statutory gross margin 2018
Impact of non-core businesses
Underlying gross margin 2018
Statutory gross margin 2017
Impact of non-core businesses
Underlying gross margin 2017
25.3
(0.6)
24.7
23.9
(1.2)
22.7
28.3
–
28.3
28.9
(0.5)
28.4
23.8
1.4
25.2
16.8
8.2
25.0
26.1
(0.2)
25.9
24.8
–
27.7
–
27.7
27.6
–
24.8
27.6
26.8
(0.1)
26.7
26.3
0.1
26.4
20.1
–
20.1
20.0
–
20.0
38.1
23.7
–
38.1
38.2
0.2
38.4
–
23.7
25.8
–
25.8
27.4
–
27.4
27.4
–
27.4
26.8
(0.1)
26.7
26.1
0.1
26.2
* Air Handling segment represents the business managed from The Netherlands, with further air handling product category trading results incorporated within other operating segments.
k) Operating cost 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
Six months
ended 30 June
2018
Six months
ended
31 December
2018
Year ended
31 December
2018
Six months
ended 30 June
2017
Restated
Six months
ended
31 December
2017
Restated
Year ended
31 December
2017
Restated
£m
£m
£m
1,381.7
1,360.2
2,741.9
(41.0)
(17.7)
(58.7)
1,340.7
1,342.5
2,683.2
338.6
(19.2)
319.4
0.3
319.7
352.0
(45.3)
306.7
2.3
309.0
690.6
(64.5)
626.1
2.6
628.7
£m
1,439.2
(107.2)
1,332.0
384.1
(73.4)
310.7
5.8
316.5
£m
1,439.2
(54.8)
1,384.4
404.7
(89.3)
315.4
5.5
320.9
£m
2,878.4
(162.0)
2,716.4
788.8
(162.7)
626.1
11.3
637.4
Operating costs as a percentage of statutory revenue
24.5%
25.9%
25.2%
26.7%
28.1%
27.4%
Underlying operating costs excluding property profits
as a percentage of underlying revenue
23.8%
23.0%
23.4%
23.8%
23.2%
23.5%
179
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
l) Operating profit (excluding property profits) / Return on sales (excluding 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.
2018
SIG
Distribution
£m
SIG
Exteriors
£m
Ireland &
Other
£m
Total UK
& Ireland
£m
France
£m
Germany
£m
Poland
£m
Air
Handling*
£m
Benelux
£m
Total
Mainland
Europe
£m
Parent
Company
costs
£m
Total
Group
£m
Underlying revenue
701.2
378.7
99.9
1,179.8
663.6
426.6
156.6
148.2
108.4
1,503.4
–
2,683.2
Underlying operating
profit (Note 1^)
20.9
17.3
6.1
44.3
27.8
9.1
3.3
14.8
4.5
59.5
(13.2)
90.6
Property profits
–
–
–
–
(1.0)
(1.6)
–
–
–
(2.6)
–
(2.6)
Underlying operating
profit before property
profits
20.9
17.3
6.1
44.3
26.8
7.5
3.3
14.8
4.5
56.9
(13.2)
88.0
^Underlying operating profit equals segmental result before Other items.
Return on sales*
3.0%
4.6%
6.1%
3.8%
4.2%
2.1%
2.1%
10.0%
4.2%
4.0%
n/a
3.4%
Return on sales
(excluding property
profits)*
3.0%
4.6%
6.1%
3.8%
4.0%
1.8%
2.1%
10.0%
4.2%
3.8%
n/a
3.3%
* Return on sales is also referred to as underlying operating margin.
2017 (restated)
Underlying revenue
741.9
403.9
98.3
1,244.1
660.7
425.0
142.8
142.1
101.7
1,472.3
–
2,716.4
Underlying operating
profit (Note 1^)
3.5
30.1
4.8
38.4
26.2
12.0
Property profits
(0.9)
(5.3)
–
(6.2)
(0.5)
(4.5)
1.0
–
14.4
6.3
59.9
(12.7)
85.6
(0.1)
–
(5.1)
–
(11.3)
Underlying operating
profit before property
profits
2.6
24.8
4.8
32.2
25.7
7.5
1.0
14.3
6.3
54.8
(12.7)
74.3
^Underlying operating profit equals segmental result before Other items.
Return on sales*
0.5%
7.5%
4.9%
3.1%
4.0%
2.8%
0.7%
10.1%
6.2%
4.1%
n/a
3.2%
Return on sales
(excluding property
profits)*
0.4%
6.1%
4.9%
2.6%
3.9%
1.8%
0.7%
10.1%
6.2%
3.7%
n/a
2.7%
* Return on sales is also referred to as underlying operating margin.
m) Other non-statutory measures
In addition to the alternative performance measures noted above, the Group also uses underlying earnings/(loss) per share (EPS), as set out in Note 8,
and underlying net finance costs, as set out in Note 3.
180
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 33. Prior year restatements
As disclosed in the Statement of Significant Accounting Policies, following the transition to the new Auditor certain accounting policies and
judgements have been reviewed and refined, resulting in a number of restatements to previously reported numbers. 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 2018
Property, plant and equipment
Deferred tax assets
Trade and other receivables
Cash and cash equivalents
Other assets
Total assets
Obligations under finance lease contracts
Non-current other payables
Trade and other payables
Other financial liabilities
Provisions
Deferred tax liability
Other liabilities
Total liabilities
Net assets
Retained losses
Other capital and reserves
Total equity
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
102.4
22.6
468.0
121.8
621.0
1,335.8
9.9
3.8
429.0
–
25.8
13.4
376.2
858.1
477.7
(50.9)
528.6
477.7
15.7
(8.9)
12.4
(13.6)
–
5.6
13.3
3.1
(7.5)
8.0
7.9
(12.0)
–
12.8
(7.2)
(7.2)
–
(7.2)
118.1
13.7
480.4
108.2
621.0
1,341.4
23.2
6.9
421.5
8.0
33.7
1.4
376.2
870.9
470.5
(58.1)
528.6
470.5
The adjustments to cash and cash equivalents, obligations under finance leases and other financial liabilities resulted in a £34.9m increase to net debt.
b) Consolidated Income Statement and Other Comprehensive Income
For the year ended 31 December 2017
Revenue
Cost of sales
Other operating expenses
Net finance costs
Loss before tax
Income tax expense
Loss after tax
Attributable to Equity holders of the Company
Loss after tax attributable to equity holders of the Company
Total comprehensive expense
Loss per share
Impact of restatements
As previously
reported
£m
2,878.4
(2,125.9)
(786.4)
(17.3)
(51.2)
(7.4)
(58.6)
(1.0)
(59.6)
(40.0)
Adjustments
£m
As restated
£m
–
–
(2.4)
(1.1)
(3.5)
2.9
(0.6)
–
(0.6)
(0.6)
2,878.4
(2,125.9)
(788.8)
(18.4)
(54.7)
(4.5)
(59.2)
(1.0)
(60.2)
(40.6)
(10.1)p
0.1p
(10.2)p
181
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
c) Consolidated Cash Flow Statement
For the year ended 31 December 2017
Net cash generated from operating activities
Cash flows from financing activities
Other cash flows
Decrease 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 2017
Total equity at 31 December 2015
Loss after tax
Other movements in equity
Total equity at 31 December 2016
Profit after tax
Other movements in equity
Total equity at 31 December 2017
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
99.7
(123.4)
7.1
(16.6)
104.3
4.5
92.2
(6.3)
8.0
–
1.7
(15.3)
–
(13.6)
93.4
(115.4)
7.1
(14.9)
89.0
4.5
78.6
Impact of restatements
As previously
reported
£m
Adjustments
£m
As restated
£m
649.3
(121.6)
8.6
536.3
(58.6)
–
477.7
(5.3)
(1.3)
–
(6.6)
(0.6)
–
(7.2)
644.0
(122.9)
8.6
529.7
(59.2)
–
470.5
182
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Independent Auditor’s Report
To the members of SIG plc
Opinion
In our opinion:
■ SIG plc’s Group financial statements and parent company financial statements (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 2018 and of the Group’s profit for the year then ended;
■ the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
■ the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as
applied in accordance with the provisions of the Companies Act 2006; 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 which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 December 2018
Consolidated statement of comprehensive income for the year ended
31 December 2018
Consolidated balance sheet as at 31 December 2018
Company statement of comprehensive income for the year
ended 31 December 2018
Company balance sheet as at 31 December 2018
Company statement of changes in equity for the year ended
31 December 2018
Consolidated statement of changes in equity for the year ended
31 December 2018
Related Notes 1 to 14 to the financial statements including a
summary of significant accounting policies
Consolidated cashflow statement for the year ended 31 December 2018
Related notes 1 to 33 to the financial statements, including a summary of significant
accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (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” (United Kingdom Generally Accepted Accounting Practice).
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 below.
We are independent of the Group and 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us to report to
you whether we have anything material to add or draw attention to:
■ the disclosures in the annual report (set out on page 46-47) that describe the principal risks and explain how they are being managed or
mitigated;
■ the directors’ confirmation (set out on page 44-45) in the annual report that they have carried out a robust assessment of the principal
risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
■ the directors’ statement (set out on page 40) in the financial statements 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 entity’s ability to continue to do
so over a period of at least twelve months from the date of approval of the financial statements;
■ whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
■ the directors’ explanation (set out on page 40) in the annual report as to how they have assessed the prospects of the entity, 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 entity 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.
183
Stock code: SHIwww.sigplc.comFINANCIALS Independent Auditor’s Report
To the members of SIG plc
Overview of our audit approach
Key audit matters
■ Prior year adjustments
■ Supplier rebates
■ Classification of Other items in the Income Statement
■ Cash cut-off
■ Impairment of Goodwill, Intangible assets and Property, Plant and Equipment
Audit scope
■ We performed an audit of the complete financial information of 8 components and audit procedures on
specific balances for a further 6 components.
■ The components where we performed full or specific audit procedures accounted for 94% of Underlying
Profit before Tax and property profits, 92% of Revenue and 95% of Total Assets.
Materiality
■ Overall Group materiality of £3.6m which represents 5% of Underlying Profit before Tax, excluding property
profits.
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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 our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Our audit procedures were designed and performed to allow us to conclude
whether the circumstances and evidence available could give rise to adjustments
which would require retrospective restatement under IAS 8: ‘Accounting Policies,
Changes in Accounting Estimates and Errors’.
Our response to the risk of material misstatement in the opening Balance Sheet
included the following audit procedures:
■ Review of the 2017 Annual Report and Accounts, audit workpapers of the
predecessor auditor and Group Accounting policies.
■ Obtaining SIG plc’s accounting papers, associated contractual and legal
documents, and journal entries in relation to one-off transactions impacting
the 2017 Result and Net Debt position. These transactions included property
sale and leaseback transactions and supply chain financing. We examined
the underlying documentation to assess whether these transactions had
been accounted for appropriately. Obtaining SIG plc’s accounting papers in
relation to uncertain tax positions, including associated correspondence with
the relevant tax authorities. We examined the underlying documentation to
assess whether provisions were appropriately recorded in the Balance Sheet.
Key observations communicated to
the Audit Committee
The audit procedures we performed
identified material misstatements
which required prior year
adjustment in accordance with the
requirements of IAS 8.
The nature of these prior year
adjustments, and the financial
impact upon the Income Statement
and Balance Sheet at each reporting
date, are detailed in Note 33 to the
Annual Report. These adjustments
relate to the:
Restatement of two property
sale and leaseback transactions,
previously treated as operating
leases, now accounted for as finance
leases.
■ Performing substantive tests of detail over cut-off in relation to cash and
net debt as at 31 December 2017, with a particular focus on cheque and
BACS payments and receipts. Our audit procedures included obtaining
bank confirmation letters for all accounts within the UK Distribution and UK
Exteriors operating companies.
Reclassification of supply chain
financing transactions from Trade
Payables to within Other Financial
Liabilities and inclusion within Net
Debt.
■ Obtaining detail of all property leases within UK Distribution and UK Exteriors
operating companies, including SIG plc’s assessment of the existence of
contractual obligations which require a provision for dilapidations to be
recognised. We performed audit procedures which included confirming
a sample of leases back to contracts to confirm whether dilapidation
obligations were present. We obtained SIG plc’s accounting paper in relation
to the valuation of any such liabilities and critically challenged the significant
assumptions within this assessment. We performed tests of detail to
corroborate settlement costs incurred in 2018 and previous reporting periods.
■ Obtaining and critically challenging SIG plc’s accounting papers against the
requirements of the new standard in relation to the transition to IFRS 15,
including the treatment of early settlement discounts.
Release of provisions for uncertain
tax positions where it was not
probable that a liability would arise.
Restatement of cash to exclude
cash in transit where SIG was not in
control of the asset.
Recognition of a provision and
related asset for contractual
obligations in respect of dilapidation
costs within property leases in the
UK and Germany.
Recognition of early settlement
discounts at point of sale rather than
when settled.
Prior Year Adjustments
Refer to Accounting policies
(page 113); and Note 33 of
the Consolidated Financial
Statements (page 181)
Our appointment as
auditors to SIG plc
followed the reporting
of significant prior year
adjustments relating to
2016 and earlier which
were reported within the
2017 Annual Report and
Accounts. These prior year
adjustments highlighted
weaknesses in SIG plc’s
control environment and
underlying IT systems.
Our Interim review for the
6-month period ended 30
June 2018 identified further
prior year adjustments
relating to the 31
December 2017 Balance
Sheet. In this context, we
undertook additional audit
procedures in relation to
the comparative amounts
and opening balances.
184
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Key observations communicated to
the Audit Committee
The results of our testing were
satisfactory and we therefore
conclude that supplier rebate
amounts are appropriately
recognised in the Income
Statement and Balance Sheet
and the disclosures included are
appropriate.
Risk
Our response to the risk
Supplier Rebates
Refer to Accounting policies
(page 119); and Note 16
& 17 of the Consolidated
Financial Statements (pages
150 & 152)
The Group recognised
supplier rebate income in
the year of £318.1m (2017:
363.2m) with a receivable
balance as at 31 December
2018 of £112.1m (2017:
£114.0m).
The Group’s supply chain
pricing structure includes
rebate arrangements with
suppliers. The terms of
agreements with suppliers
can be complex and varied.
Estimation uncertainty
is present in relation
to supplier rebates, in
particular where amounts
receivable are tiered based
on volumes purchased
or where volumes are
estimated, for example
where arrangements
span the year end. There
is opportunity through
management override
of controls or error to
overstate the balance
of supplier rebates
recognised.
We focused our audit procedures on the areas where Management apply
judgement, where the processing is either manual or more complex and
where the value in supplier rebate terms of agreements is high, such as non-
coterminous year ends.
We performed walkthroughs to understand the key processes used to record
supplier rebate transactions and identify key controls.
We performed analytical review procedures to understand unusual movements
in income statement and balance sheet accounts period on period, including
ageing analysis.
We selected a sample of suppliers in order to obtain independent confirmations
to confirm key terms, income and year end receivable.
We reconciled income recognised in the period, for the sample of suppliers,
based on agreed arrangement terms, income and receivable as confirmed by the
supplier. Using confirmed amounts we ensured the appropriate tier was applied.
Where third party vendor confirmation could not be obtained for the sample we:
■ Obtained and reviewed the agreement signed by both parties.
■ Validated the purchase volumes used in the calculation of income through
sample testing to supporting documentation.
■ Recalculated the year end rebate receivable and income recognised in the
year based on the validated volumes and the terms of the signed agreement.
Using data extracted from the accounting system, we tested the appropriateness
of a sample of journal entries and other adjustments to supplier rebate accounts
in the Balance Sheet and Income Statement.
We reviewed the appropriateness of the critical accounting judgements and
key sources of estimation uncertainty disclosure in respect of supplier rebate
amounts recorded in the income statement and balance sheet.
We performed the above audit procedures over this risk area at 8 full and
specific scope locations, which covered 97% of the risk amount.
185
Stock code: SHIwww.sigplc.comFINANCIALS Key observations communicated to
the Audit Committee
As a result of our audit procedures
we requested that adjustments
amounting to £0.8m be made
to reclassify costs to underlying.
The Group’s disclosures are in
compliance with the Group’s
accounting policy, consistent with
the guidance in IAS 1 and has been
applied consistently.
Independent Auditor’s Report
To the members of SIG plc
Risk
Our response to the risk
We performed walkthroughs to understand the key processes used to record
Other items and identify key controls.
We obtained evidence of a sample of the Other items to understand the nature
of these items and have challenged the appropriateness of separately presenting
these items within Other items in line with the Group’s accounting policy.
We have considered the consistency of SIG plc’s approach with reference to
Other Items in the prior year.
Where an item related to a restructuring project, we inspected the build-up to
ensure that the costs were:
■ Attributable to the restructuring project;
■ Incremental in nature, either directly or indirectly;
■ Qualify for recognition in the financial statements for the period;
■ Have been correctly categorised as a cost or as an Other item in line with the
accounting policy.
We have recalculated the amortisation charge in the year and confirmed this is
consistent with the Group accounting policy.
We obtained calculations of profit or loss on divestment. We agreed divestments
to sale agreements and validated the calculation of profit/loss on sale to
supporting documentation. We performed analytical review procedures to
understand unusual movements in the income statements of divested and non-
core businesses separately presented as an Other item.
We reviewed management’s accounting policy disclosure in respect of Other
item classification in the Income Statement.
We performed the above audit procedures over this risk area at all full and
specific scope locations, which covered 100% of the risk amount.
Classification of Other
items in the Income
Statement
Refer to Accounting policies
(page 118); and Note 2 of
the Consolidated Financial
Statements (page 132)
Other items in 2018 totals
£46.8m (2017: £124.1m).
Key components include:
restructuring costs £27.7m,
amortisation of goodwill
and intangibles £8.9m,
divestments £6.7m, net
operating profit of non-
core businesses (£1.2m)
and other items £4.7m.
Other items are not
defined by IFRS and
therefore judgement is
required in determining
the appropriateness of
such classification guided
by IAS 1. Consistency in
items treated as separately
disclosed is important
to maintain comparability
of reporting year-on-year.
Underlying profit is a key
performance measure of
the Group. There exists a
risk through management
override of controls or
bias of judgement of
inappropriate classification
of these items separately to
overstate underlying profit.
186
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Our response to the risk
Key observations communicated to
the Audit Committee
We performed walkthroughs to understand the key processes used to record
cash transactions and identify key controls including visiting and performing
procedures at the outsourced shared service centre in Chennai.
Our audit procedures identified cash
cut off audit adjustments in the UK
components.
We obtained bank confirmations for all bank accounts at in scope locations as at
31 December 2018 and agreed the bank confirmation amount to the year end
bank reconciliation.
We obtained and inspected bank reconciliations for material reconciling items
and confirmed that all items were recognised in the appropriate accounting
period.
We tested a sample of consolidation and sub consolidation adjustments to cash
to address the risk of management override in cash recognition.
We performed full and specific scope audit procedures over this risk area in 11
locations, which covered 84% of the risk amount. We also performed central
procedures over Cash, which covered 13% of the risk amount.
These adjustments, decreased cash
by £3.7m and increased receivables.
Our journal entry testing procedures
did not identify any instances of
inappropriate management override
in the recognition of cash across
the Group.
Risk
Cash cut-off
Refer to Accounting policies
(page 121); and Note 19 of
the Consolidated Financial
Statements (page 153)
The Group has cash of
£83.3m (2017: £108.2m)
and net debt of £189.4m
(2017: £258.7m).
The timing of the
recognition of payments
and receipts is relevant
to the reported cash and
net debt position of the
Group, and is directly linked
to financial covenants.
Our Interim review for the
6-month period ended
30 June 2018 identified
prior year adjustments
relating to cash on the 31
December 2017 Balance
Sheet.
There is opportunity
through management
override or error to
misstate the allocation of
cash between periods.
187
Stock code: SHIwww.sigplc.comFINANCIALS Key observations communicated to
the Audit Committee
We agreed with management’s
conclusion that no impairments
were required, based on the results
of our work.
Goodwill relating to the Lariviere
CGU in France is most sensitive to
reasonably possible changes in key
assumptions.
We consider the disclosures made in
note 12 to be appropriate.
Independent Auditor’s Report
To the members of SIG plc
Risk
Our response to the risk
We obtained and understood the method applied by management in performing
its impairment test for each of the relevant Cash Generating Units (“CGUs”) and
identified key controls.
We performed detailed testing to assess critically and corroborate the key inputs
to the valuations, including:
■ Evaluating the identification of CGUs against the requirements of IAS 36;
■ Analysing the historical accuracy of budgets to actual results for a 3-year
period to determine whether forecast cash flows are reliable based on past
experience;
■ Assessing the appropriateness of the method of the impairment model;
■ Testing the integrity of the model and underlying data to board approved
budgets;
■ Benchmarking the discount rate calculation applied, using our internal
valuation experts to assist in our testing of whether management’s
assumptions are within an acceptable range based on comparative market
data; and
■ Validating that growth rates have been appropriately adjusted to reflect the
change in Group strategy.
For all CGUs we calculated the degree to which the key inputs and assumptions
would need to fluctuate before an impairment was triggered and considered the
likelihood of this occurring. We performed our own sensitivities on the Group’s
forecasts and determined whether adequate headroom remained also taking
into consideration the position reported in the parent company balance sheet.
We assessed the disclosures in the intangible assets note against the
requirements of IAS 36 Impairment of Assets, in particular the requirement to
disclose further sensitivities for CGUs where a reasonably possible change in a
key assumption would cause an impairment. In the current year this includes a
Brexit sensitivity.
We performed the above audit procedures over this risk area at a Group level
covering 100% of the risk amount.
Impairment of Goodwill,
Intangible assets and
Property, Plant and
Equipment (PPE)
Refer to Accounting policies
(page 120); and Note 12 of
the Consolidated Financial
Statements (page 145)
The Group’s Balance
Sheet includes goodwill,
intangible assets and PPE
totalling £445.5m at 31
December 2018 (2017:
£487.3m).
In line with the
requirements of IAS 36:
“Impairment of Assets”,
Management test goodwill
balances annually
for impairment, this
assessment includes both
intangible assets and PPE.
The annual impairment
test includes areas of
estimation uncertainty
and judgement over the
future performance of
the business for example
forecast future trading
results and cashflows,
specific assumptions such
as discount rates and long-
term growth rates.
Changes to these
assumptions or adverse
performance could have a
significant impact on the
available headroom and
any impairment that may
be required. Especially
sensitive are the CGUs; UK
Distribution, UK Exteriors
and Lariviere.
There is an associated
risk in the company only
balance sheet over the
potential impairment of
investments in subsidiary
undertakings.
188
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account
size, risk profile, the organisation of the Group and effectiveness of group-wide controls, changes in the business environment and other
factors such as recent Internal audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 66 reporting components of the Group, we selected 14 components covering entities
within each of the eight principal countries which the Group operates, which represent the principal business units within the Group.
Of the 14 components selected, we performed an audit of the complete financial information of 8 components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining 6 components (“specific scope components”), we performed
audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant
accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 94% of the Group’s Underlying Profit before tax, 92% of
the Group’s Revenue and 95% of the Group’s Total assets. For the current year, the full scope components contributed 170% of the Group’s
Underlying Profit before tax (offset by the specific scope locations), 84% of the Group’s Revenue and 90% of the Group’s Total assets. The
specific scope components contributed negative 76% of the Group’s Underlying Profit before tax, 8% of the Group’s Revenue and 5% of the
Group’s Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will
have contributed to the coverage of significant accounts tested for the Group.
Full scope
Specific scope
Full and specific scope coverage
2018
% Group
underlying
Profit before
tax
% Group
Revenue
% Group Total
assets
170%
(76%)
94%
84%
8%
92%
90%
5%
95%
Number
8
6
14
Of the remaining 52 components that together represent 5% of the Group’s Underlying Profit before tax, none are individually greater than
5% of the Group’s Underlying Profit before tax. For these components, we performed other procedures, including analytical review and/or
‘review scope’ components, testing of consolidation journals, intercompany eliminations and foreign currency translation recalculations to
respond to any potential risks of material misstatement to the Group financial statements.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under
our instruction. Of the 8 full scope components, audit procedures were performed on 7 of these directly by the component audit teams in
the UK, France, Germany, Poland, Ireland and Belgium. For the 6 specific scope components, where the work was performed by component
auditors in the UK, Poland, Netherlands and Bulgaria, we determined the appropriate level of involvement to enable us to determine that
sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.
At the start of the audit, a Group wide Team Planning Event was held with representatives from all full and specific scope component teams
in attendance. During the current year’s audit cycle, visits were undertaken by the primary audit team to the component teams in the UK,
France, Germany, Poland, Netherlands, Belgium and Bulgaria. These visits involved discussing the audit approach with the component team
including any issues arising from their work, meeting with local management, attending planning and closing meetings and reviewing key audit
working papers on risk areas. The primary team interacted regularly with the component teams where appropriate during various stages
of the audit, reviewed key working papers and were responsible for the scope and direction of the audit process. This, together with the
additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.
189
Stock code: SHIwww.sigplc.comFINANCIALS Independent Auditor’s Report
To the members of SIG plc
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and
in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £3.6 million, which is 5% of Underlying Profit before Tax, excluding property profits. We believe
that Underlying Profit before Tax, excluding property profits provides us with an appropriate basis for materiality. Underlying Profit before Tax
is a key metric used by management and investors. We have excluded property profits from the measure used as the basis for materiality as
they do not relate to the core trading activities of the Group.
When using an earnings-related measure to determine overall materiality, the norm is to apply a benchmark percentage of 5% of the pre-tax
measure, we use Underlying Profit before Tax and remove property profits to establish a measure of normalised earnings.
We determined materiality for the Parent Company to be £3.6 million, which is 2% of Equity, capped at the materiality of the Group.
During the course of our audit, we reassessed initial materiality and amended for final Underlying Profit before Tax, excluding property
profits.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 50% of our planning materiality, namely £1.8m. We have set performance materiality at this percentage due to
this being an initial audit and the outcome of our risk assessment.
Audit work at component locations, for the purpose of obtaining audit coverage over significant financial statement accounts, is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative
scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. The range of
performance materiality allocated to components was £1.2m to £0.4m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.2m, which is set at 5% of
planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, set out on pages 1 to 106, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
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 the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:
■ Fair, balanced and understandable (set out on page 74) – 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 performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
■ Audit committee reporting (set out on page 76) – 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 (set out on page 63) – 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.
190
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
■ 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 and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
■ certain disclosures of directors’ remuneration specified by law are not made; or
■ we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement (set out on page 106), 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 and 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.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and
management.
Our approach was as follows:
■ We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting
framework (IFRS, the Companies Act 2006 and UK Corporate Governance Code) and the relevant tax compliance regulations in each of the
eight principle countries of operation.
■ We understood how SIG plc is complying with those frameworks by making enquiries of management, Internal Audit, those responsible for
legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes and
papers provided to the Audit Committee.
■ We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by meeting
with management from various parts of the business to understand where it considered there was a susceptibility to fraud. We also
considered performance targets and their propensity to influence efforts made by management to manage earnings. We considered the
programmes and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud;
and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed
audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide
reasonable assurance that the financial statements were free from fraud and error.
191
Stock code: SHIwww.sigplc.comFINANCIALS Independent Auditor’s Report
To the members of SIG plc
■ Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved journal entry testing, with a focus on manual consolidation journals, and journals indicating large or unusual transactions based
on our understanding of the business; enquiries of Legal Counsel, Group management, Internal Audit, subsidiary Management at all full
and specific scope components; and focused testing, as referred to in the key audit matters section above. In addition, we completed
procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with the requirements of the relevant
accounting standards, UK legislation and the UK Corporate Governance Code 2016.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report
Other matters we are required to address
■ We were appointed by the company on 4th July 2018 to audit the financial statements for the year ending 31 December 2018 and
subsequent financial periods.
■ The period of total uninterrupted engagement including previous renewals and reappointments is one year, covering the year ending
31 December 2018.
■ The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain
independent of the Group and the parent company in conducting the audit.
■ The audit opinion is consistent with the additional report to the Audit Committee.
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.
Colin Brown (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
7 March 2019
Notes:
1. The maintenance and integrity of the SIG plc web site is the responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
192
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Five-Year Summary
Statutory basis
Revenue
Operating (loss)/profit
Finance income
Finance costs
Profit/(loss) before tax
Profit/(loss) 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
2014
£m
Total
2015
£m
2,633.9
2,566.4
52.7
1.0
(15.2)
38.5
34.0
5.5p
4.40p
65.0
1.0
(15.6)
50.4
35.4
6.0p
4.60p
Total
2016
Restated
£m
2,845.2
(96.0)
1.7
(17.0)
(111.3)
(122.9)
(20.9)p
3.66p
Total
2017
Restated
£m
2,878.4
(36.3)
0.6
(19.0)
(54.7)
(59.2)
(10.2)p
3.75p
Total
2018
£m
2,741.9
45.0
0.6
(16.4)
28.5
17.9
3.0p
3.75p
Underlying*
Underlying*
Underlying*
Underlying*
2014
£m
2015
£m
2,360.3
2,284.8
104.5
0.9
(13.0)
92.4
65.5
92.4
1.0
(12.3)
81.1
60.2
11.0p
10.3p
2016
Restated
£m
2,533.9
81.2
1.2
(15.0)
67.4
49.3
8.3p
2017
Restated
£m
2,716.4
Underlying*
2018
£m
2,683.2
85.6
0.5
(16.7)
69.4
51.7
8.6p
90.6
0.6
(15.9)
75.3
55.5
9.3p
* Underlying figures are stated before amortisation of acquired intangibles, goodwill and intangible impairment charges, profits and losses on agreed sale or closure of non-core businesses
and associated impairment charges, net operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, 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.
^ All underlying numbers are stated excluding the trading results attributable to businesses identified as non-core.
193
Stock code: SHIwww.sigplc.comFINANCIALS Company Financial Statements
Company Statement of Comprehensive
Income
195
Company Balance Sheet
Company Statement of Changes in
Equity
Company Statement of Significant
Accounting Policies
Notes to the Company Financial
Statements
Group Companies 2018
Company Information
196
197
198
200
206
208
194
SIG plc
Annual Report and Accounts for the year ended 31 December 2018
FINANCIALS Company Statement of Comprehensive Income
for the year ended 31 December 2018
Loss 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
2018
£m
(6.7)
2.0
(0.7)
1.3
(5.4)
(5.4)
2017
Restated
£m
(7.5)
(1.6)
4.1
2.5
(5.0)
(5.0)
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.
www.sigplc.com
Stock code: SHI
195
Stock code: SHIwww.sigplc.comFINANCIALS Company Balance Sheet
as at 31 December 2018
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: amounts falling due after one year
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
2018
£m
443.2
2.9
446.1
2017
Restated
£m
443.0
0.3
443.3
866.9
938.4
5.1
0.4
14.9
887.3
400.8
0.2
401.0
486.3
932.4
261.6
0.4
670.4
59.2
447.3
21.7
0.3
1.7
(0.2)
140.4
670.4
3.3
0.3
10.2
952.2
438.0
1.6
439.6
512.6
955.9
258.0
0.3
697.6
59.2
447.3
21.7
0.3
1.3
(0.2)
168.0
697.6
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 2018 of £6.7m (2017: restated £7.5m).
The Financial Statements were approved by the Board of Directors on 7 March 2019 and signed on its behalf by:
MEINIE OLDERSMA
Director
NICK MADDOCK
Director
Registered in England: 00998314
196
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS Company Statement of Changes in Equity
for the year ended 31 December 2018
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
Restated
£m
Shareholders’
funds
Restated
£m
59.1
447.3
21.7
0.3
1.1
(0.2)
191.2
720.5
At 1 January 2017
Profit after tax (restated)
Other comprehensive expense
Total comprehensive income
Credit to share option reserve
Share capital issued in the year
Dividends paid to equity holders of the
Company
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
(7.5)
2.5
(5.0)
–
–
(18.2)
At 31 December 2017
59.2
447.3
21.7
0.3
1.3
(0.2)
168.0
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
–
–
–
(6.7)
1.3
(5.4)
–
–
–
(22.2)
At 31 December 2018
59.2
447.3
21.7
0.3
1.7
(0.2)
140.4
(7.5)
2.5
(5.0)
0.2
0.1
(18.2)
697.6
(6.7)
1.3
(5.4)
–
0.4
–
(22.2)
670.4
There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year. During 2018 the Company allotted 8,747
shares (2017: 87,934) 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.
197
Stock code: SHIwww.sigplc.comFINANCIALS Company Statement of Significant Accounting Policies
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 page 120.
Derivative financial instruments
The accounting policy for derivative financial instruments is
consistent with that of the Group as detailed on pages 122 and 123.
Financial assets and liabilities
The accounting policy for financial assets and liabilities is consistent
with that of the Group as detailed on pages 121 and 122.
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 120.
Foreign currency
The accounting policy for foreign currency is consistent with that of
the Group as detailed on page 118.
Taxation
The accounting policy for taxation is consistent with that of the
Group as detailed on page 119.
Dividends
Dividends proposed by the Board of Directors that have not been
paid by the end of the year are not recognised in the Accounts until
they have been approved by the shareholders at the Annual General
Meeting.
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 Group Accounts on page 156.
The separate Financial Statements have been prepared in
accordance with Financial Reporting Standard 101, “Reduced
Disclosure Framework” (FRS 101) and the Companies Act 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 Company has initially applied IFRS 9 from 1 January 2018, the
nature and effects of the key changes to the Company’s accounting
policies in relation to this are as set out in the Group Accounts
on pages 116 and 117. In addition, the Company has assessed
on a forward looking basis the expected credit losses associated
with Amounts owed by subsidiary undertakings. The impairment
methodology applied depends on the ability to repay amounts
repayable on demand and whether there has been any significant
change in credit risk.
The adoption of IFRS 9 has not resulted in any adjustment to the
amount recognised in the Company Financial Statements in relation
to the impairment allowance for Amounts owed by subsidiary
undertakings.
A number of other new standards are also effective, including IFRS
15, from 1 January 2018 but they do not have a material effect on
the Company’s Financial Statements.
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:
198
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
Company Statement of Significant Accounting Policies
Prior year restatements
As detailed on page 113, as part of the transition to new auditors,
the Group has reviewed certain accounting policies and judgements,
resulting in a number of errors being corrected by prior year
restatements to previously reported numbers. The 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. The Company accounts have been restated to show the
additional interest payable of £0.4m at December 2017 and the
related deferred tax asset adjustment of £0.1m as a result of the
restatements, increasing the loss after tax by £0.3m for the year
ended 31 December 2017.
In addition, as part of the 2018 year end close, the Group corrected
its policy for accounting for future dilapidations costs on property
leases to account for the cost of reinstating capital modifications on
inception of the lease instead of accruing costs over the life of the
lease. This gives rise to a prior period restatement, resulting in an
increase to fixed assets of £0.2m and to provisions of £0.2m at 31
December 2017, with no impact to the Company Income Statement
for the year ended 31 December 2017.
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 £443.2m
(2017: £443.0m) with no impairment loss recognised in 2018 or
2017. Of the £443.2m net book value, £435m (2017: £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.
Impairment of amounts owed by subsidiary undertakings
At 31 December 2018 the Group has recognised amounts owed by
subsidiary undertakings of £866.4m (2017: £936.4m). The Group
recognises an allowance for expected credit losses (ECLs) in relation
to amounts owed by subsidiary undertakings based on the ability
to repay amounts repayable on demand and whether there has
been any significant change in credit risk. Changes in the economic
environment or circumstances specific to individual subsidiaries
could have an impact on the recoverability of amounts included on
the Company Balance Sheet at 31 December 2018.
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.
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.
199
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
1. Loss 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 2018 of £6.7m (2017: restated £7.5m).
The Auditor's remuneration for audit services to the Company was £0.4m (2017: £0.2m).
2. Share-based payments
The Company had four share–based payment schemes in existence during the year ended 31 December 2018. The Company recognised
a total charge of £0.2m (2017: charge of £0.2m) in the year relating to share–based payment transactions issued after 7 November 2002.
Details of each of the share–based payment schemes can be found in Note 9 to the Group Accounts on pages 139 to 141.
3. Dividends
An interim dividend of 1.25p per ordinary share was paid on 9 November 2018 (2017: 1.25p). The directors have proposed a final dividend
for the year ended 31 December 2018 of 2.5p per ordinary share (2017: 2.5p). 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 2017, were £22.2m (2017: £18.2m). No dividends have been paid between 31 December 2018
and the date of signing the Accounts.
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
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
Additions
At 31 December
Accumulated impairment charges
At 1 January and 31 December
Net book value
At 1 January and 31 December
2018
£m
5.7
0.6
0.3
0.2
6.8
2017
£m
7.6
0.7
0.2
0.2
8.7
2018
Number
48
2017
Number
48
2018
£m
2017
£m
650.2
0.2
650.4
650.2
–
650.2
207.2
207.2
443.2
443.0
Details of the Company's subsidiaries are shown on pages 206 to 207.
The £0.2m additions of investments in the year relate to the share based payment charge settled by SIG plc but relating to other subsidiary companies.
Of the £443.2m (2017: £443.0m) investment net book value, £435m (2017: £435m) relates to SIG Trading Limited, the largest UK trading
subsidiary. At 31 December 2018, 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 £165.5m exists. For there to be no headroom, sales would have to
reduce by 6.6% or gross margin would have to reduce by 150bps. The Group considers that a reasonably possible scenario would be a 50bps
reduction in gross margin. If this arose, no impairment would be required.
A more detailed sensitivity analysis of the Group's significant CGUs is given on page 147, Note 12 of the Consolidated Financial Statements.
200
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 6. Tangible fixed assets
The movement in the year was as follows:
Cost
At 1 January 2017
Additions (restated)
Disposals
At 1 January 2018
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2017
Charge for the year
Impairment
Disposals
At 1 January 2018
Charge for the year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Land and buildings
Freehold land
and buildings
£m
Short leasehold
£m
Plant and
machinery
£m
Total
£m
0.1
–
–
0.1
–
–
0.1
0.1
–
–
–
0.1
–
0.1
–
–
0.8
0.2
(0.8)
0.2
0.3
–
0.5
0.2
0.1
0.5
(0.8)
–
–
–
0.5
0.2
0.9
–
(0.3)
0.6
2.6
(0.1)
3.1
0.6
0.1
0.1
(0.3)
0.5
0.2
0.7
2.4
0.1
1.8
0.2
(1.1)
0.9
2.9
(0.1)
3.7
0.9
0.2
0.6
(1.1)
0.6
0.2
0.8
2.9
0.3
The impairment charge in 2017 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 2018 or 2017 as there were no further indications of impairment.
7. Debtors
Amounts owed by subsidiary undertakings
Derivative financial instruments
Prepayments
Debtors - due within one year
Amounts owed by subsidiary undertakings
Derivative financial instruments
Debtors - due after more than one year
Total
31 December
2018
£m
31 December
2017
£m
866.4
936.4
–
0.5
1.2
0.8
866.9
938.4
3.2
1.9
5.1
3.2
0.1
3.3
872.0
941.7
Amounts owed by subsidiary undertakings are measured at amortised cost and bear interest at rates between 0.0% and 8.0%.
201
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
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
2018
£m
31 December
2017
Restated
£m
–
56.6
7.5
21.1
75.7
1.6
323.3
325.8
0.3
10.0
3.1
0.2
12.8
0.8
400.8
438.0
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
2018
£m
31 December
2017
£m
185.6
3.8
72.2
261.6
183.1
3.3
71.6
258.0
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 and prepaid arrangement fees) are as follows:
Repayable in 2018*
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
31 December 2018
31 December 2017
Fixed interest
rate
Fixed interest
rate
£m
–
26.9
18.0
44.9
96.2
186.0
%
–
3.7
3.9
4.2
3.3
£m
21.1
26.7
17.8
44.4
94.2
204.2
%
5.5
3.7
3.9
4.2
3.3
* The private placement notes repayable in 2018 were included within creditors: amounts falling due within one year at 31 December 2017.
202
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS 10. Provisions
At 1 January 2017
New provisions
Unwinding of provision discounting
Utilised
At 31 December 2017
Released
Utilised
At 31 December 2018
Amounts falling due within one year
Amounts falling due after one year
Total
Warranty
Claims
£m
Dilapidations
Restated
£m
Total
Restated
£m
2.1
–
0.1
(1.1)
1.1
–
(0.9)
0.2
–
0.8
–
–
0.8
(0.4)
–
0.4
2.1
0.8
0.1
(1.1)
1.9
(0.4)
(0.9)
0.6
31 December
2018
£m
31 December
2017
Restated
£m
0.2
0.4
0.6
1.6
0.3
1.9
The transfer of economic benefit in respect of the warranty provision is expected to be made within the next financial year.
11. Deferred tax
Deferred tax assets
31 December
2018
£m
31 December
2017
Restated
£m
0.4
0.3
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 2017
Credit to income (restated)
Utilised
At 31 December 2017
Credit to income
At 31 December 2018
Losses
£m
2.3
0.1
(2.3)
0.1
–
0.1
Other
£m
–
0.2
–
0.2
0.1
0.3
Total
£m
2.3
0.3
(2.3)
0.3
0.1
0.4
Given the future expected profitability of the Company, the directors consider that the recognition of the deferred tax assets above is appropriate.
203
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
12. Capital and Reserves
There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year. During 2018 the Company
allotted 8,747 shares (2017: 87,934) following the exercising of share options.
31 December
2018
£m
31 December
2017
Restated
£m
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 2017
Exercise of share options
Credit to share option reserve
Fair value movement on cash flow hedges
Transfer to profit and loss on cash flow hedges
Issue of share capital
Loss for the period (restated)
Dividends
At 31 December 2017
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 2018
59.2
447.3
21.7
0.3
1.7
(0.2)
140.4
670.4
Called up share
capital
£m
Share premium
account
£m
Share option
reserve
£m
59.1
447.3
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
59.2
447.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.1
–
0.2
–
–
–
–
–
1.3
–
0.4
–
–
–
–
–
59.2
447.3
1.7
59.2
447.3
21.7
0.3
1.3
(0.2)
168.0
697.6
Retained
profits
£m
191.2
–
–
(1.6)
4.1
–
(7.5)
(18.2)
168.0
–
–
–
2.0
(0.7)
(6.7)
(22.2)
140.4
There was no movement in the merger reserve, capital redemption reserve and exchange reserve in the year. During 2018 the Company
allotted 8,747 shares (2017: 87,934) following the exercising of share options.
At 31 December 2018 the Company has c.£43.4m of distributable reserves and when required the Company can further increase these
distributable reserves from appropriate repatriation of funds from subsidiary undertakings. While 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 Group Accounts on page 167.
204
Annual Report and Accounts for the year ended 31 December 2018SIG plcFINANCIALS
13. Guarantees and other financial commitments
a) Guarantees
At 31 December 2018 the Company had provided guarantees of £nil (2017: £14.4m) 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 £8.0m (2017: £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 101 to 103. In addition, the Company recognised a share-based charge
under IFRS 2 of £0.3m (2017: charge of £0.2m).
205
Stock code: SHIwww.sigplc.comFINANCIALS Group Companies 2018
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)
The 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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