PLAYING AN IMPORTANT ROLE
IN A CRITICAL INDUSTRY
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ANNUAL REPORT AND ACCOUNTS
for the year ended 31 December 2019
Welcome
SIG is a leading specialist distributor of
insulation and interior products and a
roofing merchant across Europe.
Our purpose is to enable safe and
sustainable living and working environments
in the communities in which we operate.
2019 financial overview
■■ Underlying gross margin up 60 bps
■■ Underlying profit before tax (including businesses
■■ Implementation of IFRS 16 from 1 January 2019
has had no economic impact on the Group but has
materially changed some of the Group’s reported
financial information. In order to allow clearer
comparisons with 2018, the Group has presented
key financial information for 2019 on both a pre and
post IFRS 16 basis
held for sale), pre IFRS 16, of £41.9m (2018: £74.5m),
consistent with previous guidance. Underlying profit
before tax, post IFRS 16, of £15.6m (2018: £52.2m)
■■ Statutory loss before tax from continuing operations
of £112.7m (2018: profit before tax of £10.3m),
reflecting £128.3m of Other items, including £90.9m
of impairments
■■ Operating costs, pre IFRS 16, lower by £6.0m (1.2%),
■■ Net debt, pre IFRS 16, at year end of £162.8m (2018:
reflecting the adoption of functional operating
models, reduction in footprint and continued cost
discipline
2019 operational overview
■■ Underlying revenue decline of 9.0%, impacted by
market share losses in UK and Germany due to poor
execution of transformation initiatives which the
Board believes disconnected the business from its
customers, suppliers and its front-line colleagues
£189.4m) and covenant leverage of 2.1x
■■ The Group’s other operating companies recorded
continued steady performance, with like-for-like
revenues up 1.4%
■■ Good operating progress made through the further
development of new technologies, e-commerce and
increased functionalisation
C
OVERVIEWAnnual Report and Accounts for the year ended 31 December 2019SIG plc
w
Contents
Overview
Welcome
Strategic Report
Chairman’s statement
SIG at a glance
Our business and markets
Our business model
Our case studies
Our history
Strategy 2020
Our KPIs
Business review
Financial review
Principal risks and uncertainties
Sustainability framework
Non-financial information statement
Sustainability:
Principles
People
Our culture
Environment, health and safety
Governance
Chairman’s Introduction
Board of Directors
Corporate Governance Report
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Board Evaluation
Audit, Risk and Internal Control
Directors’ Report Disclosures
Nominations Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Responsibilities Statement
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
Critical accounting judgements and key sources
of estimation uncertainty
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
IFC
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Statutory
revenue
£2,160.6m
(2018: £2,431.8m)
Underlying
revenue
£2,084.7m
(2018: £2,290.4m)
Statutory (loss)/profit
before tax
£(112.7)m
(2018: £10.3m profit)
Underlying profit before tax
(including businesses held for sale)*
£41.9m
(2018: £74.5m)
Net debt,
pre IFRS 16
£162.8m
(2018: £189.4m)
Net debt,
post IFRS 16
£455.4m
(2018: £189.4m)
Accident
incident rate
13.4
(2018: 13.1)
*Underlying profit before tax stated before IFRS 16 adjustments, including
profit before tax for the Air Handling division and Building Solutions
(National) Limited and excluding impairment and other non-underlying
profits and losses.
Notes to the Company Financial Statements
Group Companies
Company information
236
242
244
01
Company Statement of Significant Accounting Policies 232
OVERVIEWStock code: SHIwww.sigplc.com STRATEGIC REPORT STRATEGIC
REPORT
Chairman’s statement
SIG at a glance
Our business and markets
Our business model
Case studies
Our history
Strategy 2020
Our KPIs
Business review
Financial review
Principal risks and uncertainties
Sustainability framework
Non-financial information statement
Sustainability:
Principles
People
Our culture
Environment, health and safety
04
06
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10
12
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16
18
20
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44
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55
57
58
STRATEGIC REPORT Chairman’s statement
“ I am confident that the right actions are being taken to
put the Group on a firm financial footing with a strategy
to return SIG to profitable growth based on high-quality
customer service, partnership with suppliers and highly
engaged and motivated employees.”
Andrew Allner, Chairman
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Dear Shareholder,
I am sorry to report that 2019 has been a
disappointing year for your company. After
an encouraging start to the year, we saw an
initially gradual decline in sales accelerate
as, particularly in the UK, our customer
service fell short and price increases
were aggressively implemented. The new
operating model was executed too quickly
in the UK and to a lesser extent Germany,
without the necessary supporting systems
and processes, and in these countries
many of our experienced sales colleagues
became disillusioned and left the business,
in some cases taking their customers with
them. This, together with other factors,
culminated in a significant profit shortfall
against market expectations at the year end
and a downward trend in sales coming into
the new year.
Meinie Oldersma, Chief Executive Officer
(CEO) and Nick Maddock, Chief Financial
Officer (CFO) resigned on 24 February 2020
and we recruited Steve Francis, as CEO,
who is widely experienced with a strong
track record of returning businesses to
growth. We also appointed Kath Kearney-
Croft as interim CFO, who brings a wealth
of experience. The Board believes this new
leadership brings skills in driving rapid
operational performance improvements
through strong customer relationships,
excellence in customer service and creating
highly engaged teams.
A new strategy has been developed based
on SIG’s key differentiators of expertise,
proximity-led, high-quality service and
scale intelligence. The strategy will drive
re-established relationships with customers
and suppliers and engagement with
employees.
SIG retains its strong positions in its core
markets; it plays an important role in the
industry. The objective of the new strategy is
to return SIG to profitable growth.
COVID-19
The Board is monitoring the COVID-19
outbreak and the impact on the Group.
Regular updates are being provided by
management and the Board is holding
additional meetings to ensure that it is
updated on the situation on an ongoing
basis and is taking appropriate action.
The need to preserve the health and safety
of colleagues, customers and suppliers
has remained our primary concern during
the outbreak. The Board is ensuring that
the Group follows all local and national
instructions issued by government
authorities in its markets to curtail the
spread and impact of COVID-19. The Group
has kept the position under regular review in
every jurisdiction in which it operates. At the
same time, the Company is remaining open
where practicable in order to service its
customers, particularly in respect of critical
projects.
The impact of COVID-19 is still unfolding
but the Group believes that the decisive
actions led by the Board, taken across
finance, treasury, human resources, sales
and operations functions at all levels in the
business will help mitigate the operational
and financial impact.
Review of strategy
Over the last few years, SIG has been
embarking on a transformation plan,
predominantly in the UK businesses and in
SIG Germany. The cost and debt reduction
strategy drove the implementation of a new
operating model; re-aligning the Group
to more centralised functional structures
in each operating company, and thereby
increasing operational efficiency, lowering
inventory levels and restoring profitability.
However, the resulting growth in profitability
was a short-term gain and masked the
underlying damage to the Group in certain
geographies, particularly in respect of
worsening customer service, employee
morale and top line performance.
In the context of the deterioration in financial
performance towards the end of 2019, as
stated above, the Board determined that
it was appropriate to appoint new senior
leadership, focused on profitable growth and
recapturing lost market share, particularly in
the UK distribution business.
Following these changes, the Group has
moved swiftly to both define and execute
the new strategy to date, and it will gain
momentum over the coming months as the
new management team re-focus and re-
energise the business.
A renewed plan is being introduced across
both UK Distribution and UK Exteriors and
the businesses will create a unified divisional
leadership. Over the next few months they
will embark on a market share recovery plan.
SIG Germany will introduce a sales-led plan,
with attention to enhanced productivity as
growth targets are achieved. The rest of the
European businesses are completing the
functional-led approach and have stable
management teams in place and maintain
strong market positions, therefore are ready
for growth.
The new strategy is outlined on page 16.
Delivering shareholder value
The 2019 like-for-like sales were calculated
at (7.6%), reflecting loss of market share. The
results for 2019 show an underlying profit,
excluding IFRS 16 and including businesses
held for sale of £41.9m, down 44% from
the previous year (2018: £74.5m). As such,
the Group saw a decline in the underlying
earnings per share of 6.4p to -0.1p (2018:
6.3p).
Following the decrease in profitability in
2019 and the consequent impact from
declining sales trends on 2020 profitability,
and notwithstanding the receipt of proceeds
from the Air Handling disposal, it was clear,
even before COVID-19, that the level of
underlying net debt was too high and the
Group would need to renegotiate covenants
with its bankers. The impact of COVID-19 has
made the situation more acute.
Accordingly, in order to preserve the Group’s
liquidity position, and given the challenges
surrounding COVID-19, the Board took the
decision not to declare a full year dividend.
An interim dividend of 1.25p (2018: 1.25p)
was paid in November 2019 and therefore
the total dividend for the year is 1.25p (2018:
3.75p) per share.
During January 2020, we sold the Air
Handling division, a distribution-led
specialised provider of air handling projects
and solutions in Europe.
The Board is fully committed to delivering
shareholder value and the forward-facing
strategy will allow the business to leverage
its capacity to grow in different market
segments, enabled by a sales and proximity
led, customer-centric approach.
04
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT
Financing
I am pleased to unveil our proposed equity
raise of approximately £150m where we look
forward to working with Clayton, Dubilier
& Rice LLC (“CD&R”) who have agreed to
invest up to £85m in the Company as part
of the equity raise. The Board continues to
have constructive discussions with its banks
and private placement noteholders with a
view to resetting covenants and agreeing
other amendments to its financing facilities.
Further details will be provided in due
course.
PwC report
Following the Company’s full year Trading
Update published on 9 January 2020,
PwC were commissioned to undertake an
independent review in light of the disparity
between the forecast level of underlying
profit before tax for the financial year 2019
set out in the January Trading Update and
market consensus of forecast profit prior to
that announcement.
The evidence as presented in the PwC
Report indicates a number of issues with the
2019 forecasting process, with a principal
shortcoming being in the reporting to the
Board of information received by Group
from the operating companies. As a result,
the Board was unsighted as to the overall
picture. The PwC report makes clear that
the issues identified were not adequately
communicated to the Board in the reports
presented to it by the CFO.
The Board takes the findings of the PwC
report very seriously. Since SIG’s receipt of
the PwC report, in order to strengthen the
Group’s financial forecasting and internal
reporting, and Board has appointed KPMG
to assist the Audit Committee in ensuring
appropriate improvements are implemented
to the Company’s forecasting systems,
procedures and controls. Further detail can
be found on page 108.
Governance and Board
I believe that good governance comes
from a strong and effective Board which
provides real leadership to the Group and
is fully engaged with all its workforce and
other stakeholders. As an essential part of
this commitment, the Group supports high
standards in corporate governance.
Looking back at 2019 it is not easy to say,
with hindsight, that your Board has been
highly effective. The issues resulting in the
decline in performance were discussed at
the Board and assurances received from
the Executive Directors. The decline in sales
became an increasing and urgent concern
as the year progressed and action was taken
promptly once the full extent of the profit
shortfall became apparent. However, your
Board is aware that, with hindsight, action
could have been taken sooner.
The 2018 Board evaluation was externally
facilitated by Condign Board Consulting. This
year the evaluation has been led by our new
Company Secretary. Details of the evaluation
and its outcome are covered on page 87.
This year has seen changes to the Board
with the retirement of Janet Ashdown and
Cyrille Ragoucy, and Andrea Abt retired
in February 2020. During the year, the
Board was further strengthened with the
appointment of two new Directors, Kate
Allum and Gillian Kent in July 2019. They
each bring a range of skills and experience
which add value to our Board and will benefit
the Company as it moves forward with its
long-term vision and strategy.
In order to bring more industry experience
on to the Board, Simon King has been
appointed as a Non-Executive Director
with effect from 1 July 2020. Simon brings
extensive, hands-on experience from a
career spanning over 35 years, most recently
serving on the Travis Perkins Executive Board
and holding the position of Chief Operating
Officer for Wickes. Simon’s appointment is
invaluable in our efforts to build on SIG’s
leading market positions and return the
business back to profitable growth.
As noted, Meinie Oldersma and Nick
Maddock resigned from the Board on 24
February 2020 and Steve Francis, CEO, In
addition, Ian Ashton has been appointed as
permanent Group CFO with effect from 1
July 2020. Ian is a highly experienced senior
executive with a strong track record of
driving change and is an extremely valuable
addition to the team as we pursue our
new strategy for growth. Ian replaces Kath
Kearney-Croft, who assumed the role of
Interim CFO on 25 February 2020.
In October 2019, following the retirement
of Richard Monro, we welcomed a new
Company Secretary, Kulbinder Dosanjh, who
is bringing new ideas and energy to improve
some of our existing governance processes.
We continue to meet the disclosure
requirements and adopt best practices in
corporate governance, which are set out
on pages 70 to 95 of the Corporate
Governance report.
Health and safety
We continue to drive action against our Zero
Harm Policy with increased management
attention, however, 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 delivering the
highest levels of health and safety in SIG,
which we intend to improve upon in 2020
through a focus on eliminating the causes
of the most serious accidents and increased
expectations for managers on health and
safety leadership.
People and culture
The Group would like to thank all employees
of SIG for their continued commitment and
resilience in what has been a particularly
challenging year, both due to external
market conditions and the rapid pace of
transformational change. Their efforts over
the year, and latterly in supporting the
business during the COVID-19 pandemic
have been commendable and have
ensured we are prepared for the further
development of the Group in 2020.
In 2019, a Board workforce engagement
programme was developed, designed to
provide a direct communication channel
between the Board and employees. To
further strengthen engagement with
colleagues, the Board also appointed Kate
Allum as the designated Non-Executive
Director for workforce engagement with
effect from 1 January 2020. In addition, in
early 2020 a new culture programme was
launched to the business to develop a
culture aligned to shared behaviours and
encourage openness and transparency.
Whilst the impact of COVID-19 temporarily
hindered the progression of these
programmes, they remain a priority when we
resume normal business.
Outlook
The recent months have been
unprecedented with the departure of the
previous CEO and CFO and the uncertainty
of COVID-19 and it is evident that the
key objective for the Group in 2020 is to
establish a firm financial footing and deliver
a return to profitable growth as quickly as
possible and to focus on re-launching SIG as
a stronger business, building on our market
leading positions.
Whilst there are a number of actions being
taken by management to address financial
and operational performance, the Group
expects to report continuing like-for-like
sales declines in the first half of 2020 as the
immediate outlook for trading conditions in
many of our key markets and the impact of
COVID-19 remains uncertain.
Whilst much work needs to be done, I
remain confident that SIG will return to
growth and I am committed to leading the
Board and working on your behalf to ensure
delivery of the Group’s strategy and restore
value for shareholders.
Andrew Allner
Chairman
29 May 2020
0505
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT SIG at a glance
SIG is a leading supplier of specialist building products to trade customers across Europe,
with strong positions in its core markets.
SIG is well-qualified and trusted to protect and develop the brands and products of our key
suppliers with our local approach, efficient branches and high quality people. We play an
important role in connecting the construction industry, ensuring that our customers receive
the right product, in the right place, at the right time. Our main countries of operation are
the UK, France and Germany.
Underlying Group
revenue
£2,085m
(2018: £2,290m)
Specialist distribution
A market leading supplier
of insulation and interiors
solutions to the
construction industry.
£1,454.3m
(2018: £1,623.8m)
Roofing merchant
A specialist merchant of roofing
materials to small to medium
sized construction businesses.
£630.4m
(2018: £666.6m)
Our purpose
Our purpose is to enable safe and sustainable
living and working environments in the
communities in which we operate.
Our vision
Our vision is to be Europe’s leading supplier of
specialist solutions to the construction
industry.
Our culture
Our culture is underpinned by our bold, flexible
and agile approach and we work together to do
the right thing to make a positive difference.
06
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Key differentiators
of SIG
c6,452*
425
employees
trading sites
83%
revenue from
UK, France
and Germany
6
operating
locations
Proximity
Our network holds local and
long-standing relationships
across a fragmented market
of existing and potential
customers, small and large.
Expertise
Knowledgeable staff and
deep working relationships
with market-leading suppliers
give SIG the ability to provide
technical advice and support
specification across a wide
range of products.
Service
Our model provides high
levels of availability and
co-ordination of complex
deliveries that are seen
as critical by customers
along with flexible credit
management.
Scale
Our scale can provide
deep intelligence into
the developing needs of
the sector and provides
an excellent platform
for new specialisms and
technologies.
*Headcount as at 31 December 2019 (excluding Air Handling).
0707
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Our business and markets
SIG is a leading supplier of specialist building materials products and solutions to trade
customers across Europe, with our main countries of operation being the UK, France and
Germany. Our response to market conditions varies across geography and sector, but in
particular the growth within the construction industry, linked to economic growth, is an
important driver.
Specialist distribution
Specialist supplier of insulation and interior products
and solutions to the construction industry.
UK
Insulation and interiors
www.siginsulation.co.uk
www.siginteriors.co.uk
200
trading
sites
70%
Underlying
Group
revenue
Benelux
Insulation and interiors
www.sigbenelux.com
12%
18%
23%
Revenue
by market
32%
15%
New residential
New non-residential
RMI residential
RMI non-residential
Industrial
Poland
Insulation and
interiors
www.sig.pl
Ireland
Insulation and interiors,
construction accessories
www.sig.ie
France
Technical and
structural insulation
www.litt.fr
08
Germany
Technical insulation
and interiors
www.wego-vti.de
Market drivers
■■ Level of construction activity - new build and Repair
Maintenance and Improvement (RMI)
■■ Availability of skilled construction labour and labour impact of
immigration status
■■ Higher energy efficiency standards
■■ Environmental legislation, including NOx and PFAS in Benelux
■■ Levels of expected fit out standards
■■ Credit levels available to customers
Trends and opportunities
■■ Returning levels of confidence in the sector which is releasing
investment in major projects
■■ Suppliers are investing in increased capacity over the next
three years
■■ Changes in legislation for materials suitable for use in older
buildings
■■ Increasing focus on RMI investment to meet fire regulations
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT 225
trading
sites*
30%
Underlying
Group
revenue
1%
9%
Revenue
by market
40%
39%
11%
New residential
New non-residential
RMI residential
RMI non-residential
Industrial
Roofing merchant
Specialist merchant of roofing material and exterior
products to small and medium sized construction
businesses.
UK
Specialist roofing
www.sigroofing.co.uk
France
Specialist roofing
www.lariviere.fr
Market drivers
■■ Regulatory changes
■■ Level of construction activity (new build and RMI)
■■ Availability of skilled construction labour market
■■ Supply chain availability
Trends and opportunities
■■ Stability following UK General Election with improved
customer confidence
■■ Backlog of new housing required
■■ Investment in public sector refurbishment and new build
schemes
■■ Potential for consolidation within the merchanting sector
■■ Introduction of omni-channel approach
*includes 7 branches relating to the Building Solutions business
0909
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Our business model
SIG plays an important role in the construction industry supply chain, ensuring that our
customers receive the right product, in the right place, at the right time. We have c6,452*
employees and operate across the UK, Ireland and mainland Europe.
Key resources
What we do
People
Strong, sustainable and
capable teams with
specialist knowledge
Suppliers
Specialist building material
manufacturers and
suppliers
Customers
Developers,
contractors and
sub-contractors
Technology
Investment in technology
and digital channels to
support growth
Network
Distribution centres,
branches and
fleet vehicles
Warehouse
Management System
Full inventory control with
real-time barcode scanning
See our Case study on page 13
Suppliers
Warehouses
We receive products from
specialist suppliers and store
in our warehouses
Suppliers
Inventory
Management System
Instant visibility of stock
availability
See our Case study on page 12
10
*Headcount as at 31 December 2019 (excluding Air Handling).
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Our operating model is focused on driving an omni-channel customer and sales-led
organisation built around strong, local relationships and supported by our network of
specialists and well-invested national supply chains, utilising digitisation wherever possible.
Transport
Management System
System driven scheduling
and routing
See our Case study on page 12
Distribution
We deliver specialist products
to our trade customers
Customers
Value creation
■■
For our customers
Lorem ipsum dolor sit et, consectetur
adipiscing elit. In at lorem eu mauri
Right products, in the
right place, at the
right time
For our employees
Encourage talent, reward
collaboration and provide
training
For our suppliers
Partnering with our supply
chain to deliver value-add
solutions and expertise
For our shareholders
Creating long term
sustainable growth and
profitability
For our environment
Minimise impact of climate
change, carbon footprint,
supporting our communities
Branches
Our branch network provides
close proximity and availability
for our customer base
E-commerce
Industry leading e-commerce
platforms
See our Case study on page 13
Enablers for best-in-class customer service
1111
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Case studies
Effective partnerships
Modernised operating model
Managing inventory
and working capital
In 2019 UK Distribution implemented an inventory
management function to manage stock availability and
working capital levels, one of the key aims set out in the
transformation programme.
With few existing systems in place, the team launched a
project to implement an Inventory Management System.
In the space of only three months SAP IBP was put in place in
the UK as an initial implementation that delivered the ability
to plan stock levels and place orders with suppliers.
Further work is now ongoing to fully integrate this new
system into the ERP and to allow far greater forecasting
capability and inventory optimisation, which is on track to be
completed by the end of the year.
For this extremely rapid change in the business, the
team were proud to receive a silver award in the Fast
Implementation category at the annual SAP awards in 2019.
Introducing vehicle
routing software
Throughout the second half of 2019 we rolled out
Descartes On Demand, our brand new vehicle routing
and scheduling software across UK Exteriors and UK
Distribution. The system is fully integrated with our ERP
and our state of the art handheld devices. This provides
an end-to-end solution that is demonstrating best-in-class
customer service.
The software has created a more efficient planning
function and improved asset utilisation. Significantly
better management and KPI reporting will facilitate further
efficiencies. The back office benefits such as device enabled
vehicle safety checks, branch visibility and automated
invoicing have reduced overheads and accelerated the
order to payment process. Electronic proof of delivery and
real time delivery tracking is delivering a step change in our
service offering and customer experience.
More specifically, customers benefit from a simplified
order to delivery process with full visibility at every stage.
Flexibility to manage exceptions on site with electronic
proof of delivery emailed immediately on receipt of
goods is expected to significantly reduce the customer
administration.
We will shortly be introducing real time delivery
notifications via smartphone technology, providing
customers with certainty of the delivery window and
enabling effective management of contracts.
12
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT A leading market position
Modernised operating model
Launching an
e-commerce platform
SIG Poland launched an e-commerce platform in 2019,
where customers can purchase goods online direct
through the SIG website. During 2019, there has been an
average of 70,000 monthly visits to the website.
This has been an important step in the digitalisation of
the sales processes. Introducing an internet platform has
allowed customers to purchase goods through a variety
of methods. They can get seamless and consistent service
and information regardless of their chosen channel, at the
most convenient time and place for them.
We recognise that customer needs are changing in line
with the pace of technology advances, and the increasing
importance of the internet in our lives has also impacted
on the customers purchasing habits. By introducing
the e-commerce channel, we believe we are providing
customers with significantly improved service and as a
result have seen increased customer loyalty. We have also
seen positive impacts on results, with an average 40%
increase in the basket size in Poland.
Delivering inventory
control
In June 2019, we installed a new Warehouse Management
System (WMS) into our National Distribution Centre in
Dublin. The WMS is a bolt on to our existing ERP system.
By implementing WMS, the operation moved away from
paper-based processes and utilised barcode scanning
via RDTs to provide full inventory control with real-time
technology giving the business benefits in terms of
inventory visibility, fulfilment and accuracy.
The WMS starts with a simple goods in process, whereby
incoming pallets are given a tracking label that can be
scanned by a hand-held device. Once the goods inwards
process is completed, the system instructs the operator
on where to put the pallet. The operator then scans the
warehouse location and the pallet to confirm they have put
it away. This ensures every product is in the correct place.
In addition to the goods receipt and put away processes,
WMS provides functionality for managing all the other core
processes that take place within the warehouse, such as
picking, despatch, returns and stock taking.
The WMS is beginning to deliver significant operational
improvements, which we are converting into an improved
service offering to our customers, and we expect this to
progress further throughout the next year.
1313
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Our history
14
Our history
1957 – 2008
A growing federation of local branches
■■ Strong customer-centric
values: proximity, expertise,
service
■■ Deep partnerships with key
suppliers
■■ Sales and branch-led
■■ De-centralised, multi-brand
model
■■ Acquisition-driven growth
■■ New countries and product
markets
2020 strategy
Clarity of core businesses
and USPs
Culture and behaviours
Prioritisation between
growth and cost
Leadership
Financial forecasting and
controls
Role of central functions
Customer focus
Clarity of operating model
Disposal candidates and peripheral
business disposals based on cost
and debt reduction
Command and control culture
and unclear shared principles and
behaviours
Clear definition of vision and purpose and
clear USPs, active leadership in our industry
Commitment culture, led from the top with a
set of clearly defined behaviours
Main strategic focus on cost
reduction
Growth with controls and acquisitive
Senior leadership new to SIG/
industry (particularly in UK and
Germany)
Reactive profit warnings and
room for improvement in financial
reporting and processes
Increasing Group costs interventions,
reducing autonomy, accountability
and speed in operating companies
Optimised less stock and logistics
across fewer/larger locations (UK and
Germany only)
Blend of SIG and external talent acquisition
with industry experience
New growth-oriented KPIs and improved
financial reporting and processes as a priority
Group activities lean and smart
Sales-led focus on re-establishing customer
and supplier partnerships
Bias to centralisation causing service
levels to fall, expertise to reduce and
salesforce demotivation
Local B2B franchise model, open to
innovation and value-add acquisitions with
omni-channel approach
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT 2009 – 2013
Adjusting to austerity
2014 – 2016
Retail-isation
■■ 2009 equity raise
■■ Focus on debt reduction
and divestment of non-core
operations
■■ Business consolidation
■■ Reduced layers of
management and c3,700
reduction in employee
headcount
■■ c220 branches closed or
merged
■■ Acquisition strategy continues
■■ Continued focus on debt
and cost reduction at
expense of growth
■■ Ongoing divestment of non-
core operations
■■ Retail-like focus on reducing
cost of materials, risking
service levels
■■ Branch manning levels
reduced
2017 – 2019
Functionalisation and centralisation
■■ Ongoing divestment of non-
core operations
■■ Group strategy focused
on debt reduction and
functional ‘Target Operating
Model’
■■ Key commercial functions
centralised without adequate
supporting systems and tools
■■ Accountability of branches
■■ Market share erosion begins
unclear
■■ Loss of expertise,
proximity and service in UK
and Germany
■■ Price increases to offset
market share losses
Clarity of core businesses
and USPs
Culture and behaviours
Prioritisation between
growth and cost
Leadership
Financial forecasting and
controls
Role of central functions
Customer focus
Clarity of operating model
Returning to profitable growth
From
To
Disposal candidates and peripheral
business disposals based on cost
and debt reduction
Command and control culture
and unclear shared principles and
behaviours
Clear definition of vision and purpose and
clear USPs, active leadership in our industry
Commitment culture, led from the top with a
set of clearly defined behaviours
A leading market position
Main strategic focus on cost
reduction
Growth with controls and acquisitive
Senior leadership new to SIG/
industry (particularly in UK and
Germany)
Reactive profit warnings and
room for improvement in financial
reporting and processes
Increasing Group costs interventions,
reducing autonomy, accountability
and speed in operating companies
Optimised less stock and logistics
across fewer/larger locations (UK and
Germany only)
Blend of SIG and external talent acquisition
with industry experience
Modernised operating model
New growth-oriented KPIs and improved
financial reporting and processes as a priority
Effective partnerships
Group activities lean and smart
Sales-led focus on re-establishing customer
and supplier partnerships
High performing teams
Bias to centralisation causing service
levels to fall, expertise to reduce and
salesforce demotivation
Local B2B franchise model, open to
innovation and value-add acquisitions with
omni-channel approach
Responsible business
1515
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Strategy 2020
Our key focus areas
A leading
market position
Modernised
operating model
Effective
partnerships
■■ Target operating margin
of approximately 5% whilst
reinvesting in business efficiency
and innovation
■■ Growing our market share in our
chosen specialist markets
■■ Seeking new market
opportunities in the construction
industry that complement our
strategy
■■ Obtaining superior economies
of scale and skill through our
modernised supply chain and
continuously searching for
opportunities to digitise our
business
How we will
measure success
■■ Increased market share and cash
conversion
■■ Driving an omni-channel
customer and sales-led
organisation built around strong,
local relationships, supported by
our specialists and national supply
chain network
■■ Facilitating local accountability
for performance supported
by divisional teams with deep
functional expertise
■■ Operating a lean and efficient
Corporate and Group function,
which oversees performance, sets
policy, provides guidance and
ensures high governance standards
How we will
measure success
■■ Branch-level cash conversation
■■ Sales productivity, on time and in
full (OTIF)
■■ Minimised difference between
operating companies and Group
profit margins
■■ Strengthening customer
relationships through a consistent,
disciplined and proactive approach
to sales force management and
training, high-quality service and
expertise
■■ Developing indispensable
supplier relationships through
scale, coverage and an intimate
knowledge of their business and
our markets
How we will
measure success
■■ Customer, supplier and
employee satisfaction
Link to risks
■■ See page 48 on how the principal
risks link to the strategy.
Link to risks
■■ See page 48 on how the principal
risks link to the strategy.
Link to risks
■■ See page 48 on how the principal
risks link to the strategy.
Link to remuneration
■■ Longer term plans focused on
shareholder value creation
Link to remuneration
■■ Profit measures in annual bonus
scheme for senior management
and staff
Link to remuneration
■■ Profit measures in annual bonus
scheme for senior management
and staff
16
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT High performing
teams
Responsible
business
■■ Demonstrating passionate
leadership throughout our
business
■■ Developing talent in the business
and for the future
■■ Nurturing strong, sustainable and
capable teams
■■ Develop our culture to enable
bold, flexible and agile working, to
make a positive difference
■■ Driving health and safety
standards with determination,
energy and passion to achieve Zero
Harm
■■ Acting responsibly in our impact
on our communities and the
environment
■■ Fostering a community of diversity
and inclusion, where everyone is
valued
How we will
measure success
Tenure and expertise
■■
■■ Commitment behaviours
■■
Employee engagement index
How we will
measure success
■■
Zero accident incident rate
Link to risks
■■ See page 48 on how the principal
risks link to the strategy.
Link to risks
■■ See page 48 on how the principal
risks link to the strategy.
Link to remuneration
■■ Longer term plans focused on
shareholder value creation
Link to remuneration
■■ Safety gateway measure in
annual bonus scheme for senior
management and staff
1717
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Our KPIs
In 2020 we will be adopting a new set of KPIs however in this report we continue to illustrate the
previous, more financial KPIs. The KPIs are calculated based on underlying, continuing operations.
Like-for-like sales
(%)
Return on sales
(%)
Operating costs as a % of
revenue
Working capital as a % of
revenue
%
5
3
.
%
)
6
7
(
.
%
)
1
2
(
.
%
1
3
.
%
8
2
.
%
6
1
.
%
2
3
2
.
%
5
2
2
.
%
0
4
2
.
.
%
5
%8
4
8
.
%
8
4
.
17
18
19
17
18
19
17
18
19
17
18
19
Definition and importance
Definition and importance
Definition and importance
Definition and importance
The growth/(decline) in sales per day
(in constant currency) excluding any
current and prior year acquisitions
and disposals. Sales are not adjusted
for branch openings and closures.
This measure shows how the
Group has developed its revenue
for comparable business relative to
the prior period. As such it is a key
measure of the growth of the Group
during the year.
The ratio of underlying operating profit
(excluding property profits) pre IFRS
16, divided by underlying revenue.
The ratio of underlying operating
costs (excluding property profits) to
underlying revenue.
Return on sales provides the key
measure of the profit the Group can
deliver for a given level of sales.
This ratio enables the business to
track the delivery of its strategy of
improving operating and financial
performance, by reducing costs.
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.
Supporting performance
measures
Supporting performance
measures
Supporting performance
measures
Supporting performance
measures
Underlying revenue growth (%)
Underlying operating profit (£m)
Underlying revenue growth (%)
Inventory and receivables days
Underlying operating costs as % of
sales
Underlying operating profit (£m)
Inventory value (£m)
Payable days
2019 performance
2019 performance
2019 performance
2019 performance
Like-for-like sales have fallen by -7.6%
(2018: -2.1%), with a 8.8% reduction
seen in Distribution and a 4.3%
decrease in Roofing.
The reduction is led by ongoing
deterioration within the construction
industry and challenges sustaining
sales rates during a period of rapid
organisational change.
Read more on page 214.
2019 target: growth in line with
market
Return on sales have decreased by
120bps in the year to 1.6% (2018:
2.8%).
Underlying costs excluding property
profits represented 24.0% of revenue
(2018: 22.5%).
This reflects the challenges faced
during the year in relation to the
market share losses and poorly
executed centralisation strategy.
Read more on page 215.
2019 target: 5%
The underlying operating costs
(excluding property profits) are
£14.4m lower than in the previous
year, as a result of the cost reduction
initiatives.
Read more on page 214.
2019 target: n/a
The 2019 working capital as a % of
revenue dropped to 4.8% (2018:
8.4%) as management continue to
focus on improving working capital
levels.
The inventory management system
introduced during the year in the
UK has resulted in better inventory
control and lower inventory days.
Read more on page 213.
2019 target: n/a
Link to strategy
Link to strategy
Link to strategy
Demonstrates that our
modernised operating model
is effective
Demonstrates that our
focus on market leading
position has been delivered
Demonstrates that our
modernised operating model
is effective
Link to strategy
Demonstrates that our
partnerships have been
effective
Link to risks
Link to risks
Link to risks
Link to risks
Market downturn
Delivering business change
Supplier rebates
Delivering the customer experience
Market downturn
Delivering business change
Supplier rebates
Systems failure
Delivering business change
Systems failure
Delivering business change
Access to finance and liquidity
Link to remuneration
Link to remuneration
Link to remuneration
Link to remuneration
Profit measures in annual bonus
scheme for senior management
and staff
Profit measures in annual bonus
scheme for senior management
and staff
Capital measures (working capital and
ROCE) in annual bonus scheme for
senior management and staff
Capital measures (working capital
and ROCE) in annual bonus scheme
for senior management and staff
18
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Link to strategy
A leading market
position
Modernised
operating model
Effective
partnerships
High performing
people
Responsible
business
Covenant
leverage
Return on capital
employed (%)
Accident incident
rate
2020 strategy
KPIs
2.3×
2.1×
1.7×
%
3
0
1
.
%
9
8
.
%
1
6
.
.
1
3
1
.
4
3
1
9.9
13.1
13.40
9
9
.
17
18
19
17
18
19
17
18
19
Definition and importance
Definition and importance
Definition and importance
Definition and importance
In 2020 we will be adopting a
new set of KPIs which align the
business around our strategic
priorities: the focus on our USPs
(Expertise, Service & Proximity),
on market share growth
and industry influence, cash
conversion, environment and our
commitment culture.
In this report we continue to
illustrate the previous, more
financial KPIs.
Read about our 2020 strategy on
page 18.
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.
The ratio of underlying operating
profit less taxation divided by adjusted
average capital employed (average
net assets plus average net debt),
excluding the impact of IFRS 16.
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.
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.
Supporting performance
measures
Supporting performance
measures
Supporting performance
measures
Underlying operating profit (£m)
Underlying operating profit (£m)
Near misses
Trading cash (£m)
Net debt (£m)
Like-for-like working capital as a % of
sales
2019 performance
2019 performance
2019 performance
The covenant leverage closed the year
at 2.1x (2018: 1.7x).
This reflects a reduction in net debt
(excluding IFRS 16), driven by better
working capital management, but also
a reduction in EBITDA.
Read more on page 210.
2019 target: under 1.0x
ROCE excluding impact of IFRS 16
decreased by 420bps to 6.1% (2018:
10.3%)
Whilst the capital employed has
decreased during the year following
working capital improvements, the
reduction in ROCE is driven by the
lower underlying operating profit.
Read more on page 211.
2019 target: c.15%
Despite maintaining the highest
standards of health and safety across
the Group, we saw a 2% increase in
accident incident rates.
We continue to focus on our Zero
Harm programme and reissued the
‘Life Saving Rules’ during 2019.
Read more on page 61.
2019 target: zero accident in any given
period for all critical hazards
Link to strategy
Link to strategy
Link to strategy
Demonstrates that our
modernised operating model
is effective
Demonstrates that our
modernised operating model
is effective
Demonstrates our
responsible business focus
Read about our
strategy on page 14
Link to risks
Link to risks
Delivering business change
Access to finance and liquidity
Market downturn
Delivering business change
Access to finance and liquidity
Link to risks
Health and safety
Link to remuneration
Link to remuneration
Link to remuneration
Capital measures (working capital and
ROCE) in annual bonus scheme for
senior management and staff
Capital measures (working capital and
ROCE) in annual bonus scheme for
senior management and staff
Safety gateway in annual bonus
scheme for senior management
and staff
Longer term plans focused on
shareholder value creation
Read about our
risks on page 46
Read about our
remuneration
on page 116
1919
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Business review
” I am delighted to have taken on a leadership role
of SIG, a true pan-European leader in our industry
but also in its 63rd year carrying a proud Sheffield
originated heritage of trust and service. SIG plays
a leadership and balancing role in our industry,
protecting and developing the brands and products
of our major suppliers, and finding better solutions
for our customers. However, over the last several
years there has been over-emphasis on cost
reduction, disposals and inventory minimisation to
the detriment of the health of our Group and legacy
in some of our countries of operation.
Our EU businesses, with the exception of Germany,
have stable and experienced management and are
true to our traditional strengths. Their continued
steady performance reflects this. Unfortunately,
our UK and German businesses have seen too much
change with indelicate implementation leading,
ultimately, to significant market share loss. By the
time I arrived in February this year the Group’s
trading was poor and small losses were recorded.
We had lost our sense of identity and direction.
The COVID-19 pandemic has been challenging for
everyone and has brought to the fore the bravery
and passion of our teams. It has reminded us of our
core values and the great strengths we inherit.
Our new Growth and Recapitalisation strategy is
designed to refresh and re-energise our business,
reconnecting to our customers, suppliers and
colleagues and restoring our leading market
positions in every country of operation. It will
provide the basis, not only for the restoration of
profit and cash conversion but also as a foundation
to play a leading role in our industry in the years
to come.”
Steve Francis, Chief Executive Officer
W
E
I
V
R
E
V
O
S
S
E
N
I
S
U
B
20
NEW STRATEGY FOR GROWTH
New senior leadership
In the context of the deterioration of the
Group’s financial performance towards the
end of 2019 and the substantial completion
of the Group’s operational restructuring and
simplification, the Board determined that
it was appropriate to appoint new senior
leadership, focused on returning the business
back to profitable growth and recapturing
lost market share, particularly in the UK
Distribution and German businesses.
Steve Francis was appointed as a Director
and the interim Chief Executive Officer of
the Group on 25 February 2020 and was
appointed on a permanent basis on 24
April 2020. Steve is a widely experienced
CEO with a proven track record of driving
rapid performance improvement through
establishing strong customer relationships,
excellence in customer service and the
creation of highly engaged teams.
Kath Kearney-Croft joined the Group in
January 2020 initially to provide support
to the executive team during the leave
of absence of Meinie Oldersma and was
appointed as a Director and the interim Chief
Financial Officer of the Group on 25 February
2020. Kath has extensive experience from a
number of financial leadership roles and was
most recently Group Finance Director of The
Vitec Group plc.
As announced this morning, Ian Ashton will
be taking on the permanent CFO role with
effect from 1 July 2020. Ian has operated
in a wide variety of senior financial roles
around the globe. His breadth of financial
and operational experience, in differing public
company environments, will be of great value
to SIG as we improve and transform the
business.
A number of significant appointments have
also been made to strengthen leadership of
the Group’s operating companies, including
merging the leadership of the Group’s UK
businesses under a new, highly experienced
Managing Director, Phil Johns, who joins the
Group having over 30 years experience in
the construction sector, including 28 years
previously with SIG. Additionally, the Group’s
German and Benelux businesses will also
be managed under a single management
team by our current Benelux MD, Ronald
Hoozemans. These changes have been made
to help focus these teams on re-gaining
market share and returning the businesses to
winning ways.
New growth strategy
In order to return SIG to profitable growth
and win back market share, the Board has
developed a new, customer-centric strategy
that reprioritises sales.
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT
Fundamental to the new strategy is
the recognition that SIG is a sales-led
organisation, where the ability to win
and retain customers is critical. The
establishment of strong customer
relationships, by empowering and
energising key account and branch teams,
and promoting an entrepreneurial spirit
throughout the organisation is key to this
objective.
In France, Benelux, Poland and Ireland,
where the Group’s operational and financial
performance has been more stable, the
new strategy seeks to empower the Group’s
operating companies to move onto a growth
footing.
In the UK and Germany, where the Group’s
operational and financial performance has
seen greater deterioration, the new strategy
focuses on first repairing the foundations of
these businesses, creating the appropriate
platform from which market share can be
recaptured and profitable growth restored.
The Group’s new strategy comprises seven
key tenets:
■■ Local P&Ls within a “franchise-style”
operating model, supported by best in
class operations and systems;
■■ Rebalance the strategic focus between
growth and cost reduction;
■■ Strengthen sales-led culture by
accelerating salesforce rebuild and
augmenting commercial leadership
throughout the organisation…“everyone
sells”;
■■ Gain market share through enhanced
customer proximity and service, including
strengthening the branch network and
augmenting the digital offering;
■■ Generate economies of scale and of skill,
including re-establishing more strategic
and Board-led supplier partnerships;
■■ Re-establish specialist focus and
expertise; and
■■ Leaner, smarter corporate functions;
improve governance and financial
discipline.
These will be supported by new strategic key
performance indicators tracking progress on
each of the seven elements listed above.
Through the implementation of these
strategic initiatives and select additions
to the management team, alongside
the proposed capital raise, the Board is
confident that SIG will return to profitable
growth and achieve its vision to be the
leading B2B distributor of specialist
construction products in its key markets.
The Group’s medium
term vision
The Group has a robust plan in place to
deliver a return to profitable growth and
achieve the Board’s vision of establishing SIG
as the leading B2B distributor of specialist
construction products in its key markets.
In the medium term, the Group is targeting
the following key financial metrics:
■■ Margin: An operating margin of
approximately 5% within the Group’s
operating companies, and a Group
operating margin of approximately 3%,
trending towards approximately 5% in the
longer-term
■■ Leverage: Covenant leverage of <1.5x
■■ Dividend: Dividend cover of 2-3x once
appropriate leverage has been achieved
In summary, SIG remains a leading specialist
supplier for the building materials and
construction industries in its key markets.
It is primed for growth under a strong, new
management team, with a robust plan in
place and positive indications across all the
Group’s operating companies. SIG remains
engaged in a number of high growth end-
markets, with strong positions across its
European footprint. The traditional USPs
that supported SIG in its markets previously,
provide opportunities for SIG to grow even
further and capitalise on the economic
recovery following COVID-19.
People
The Board would like to thank all employees
of SIG for their continued commitment
and resilience in what was a particularly
challenging year in 2019, both due to
external market conditions and the rapid
pace of transformational change, and into
2020 with the challenges faced resulting
from COVID-19. Whilst the trading results of
the Group in 2019 have been disappointing,
their efforts have laid a strong foundation for
the next phase of SIG’s evolution as we focus
on building a stronger business with a high
performing workforce that is rewarded for
making a positive difference.
The Board recognises that safety must
always be its number one priority; for its
employees, its suppliers, customers, and
within the communities where we operate. A
key focus for the Group since the outbreak
of the COVID-19 pandemic has been
to ensure that within those operations
that remained open for business, all
necessary measures were taken in line with
government safety guidelines to protect the
health and safety of employees, suppliers
and customers.
In 2019, a Board workforce engagement
programme was developed, designed to
provide a direct communication channel
Like-for-like
sales
-7.6%
(2018: -2.1%)
Total underlying
Group revenue
£2,085m
(2018: £2,290m)
Return on
sales
1.6%
(2018: 2.8%)
2121
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Business review
■■ Government support: Relevant
government support is being accessed
in all countries of operation, across
employment support, tax and social
security deferrals and the business
is assessing whether to apply for
government loans (which are currently
being considered in France and
Germany, in coordination with the
Group’s existing financial arrangements).
Tax and social security deferrals have
been implemented where available
in the UK (PAYE/NIC, VAT), in France
(social charges, pension contributions),
Germany (VAT), Poland (corporation
tax), Belgium (VAT, payroll tax) and the
Netherlands (VAT, payroll tax). In the
aggregate, use of government support
schemes has enabled the Group to
defer approximately £15 million of cash
payments in the period through May
2020.
■■ Capital expenditure: Programmes that
require significant cash investment or do
not provide near-term business benefits
have been paused, including major IT
projects.
■■ Customers: The Group has maintained
a sharp focus on proactively managing
collections and monitoring overdue
payments.
■■ Trade suppliers: The Group has
conducted active discussions with large
trade suppliers, in order to maintain
continuity of supply while netting rebates
and agreeing slower payment plans
where possible.
■■ Non-trade suppliers: Deferral and
terms extension requests are being
managed across non-trade suppliers,
with a significant focus on IT, services
and property, with property rates being
deferred on UK properties and ‘empty’ or
‘retail’ relief claims submitted.
■■ Landlords: A number of UK landlords
have been approached to request that
the June rent quarter payment is spread
across the subsequent two quarters.
In other cases, lease extensions are
being offered in return for rent-free
periods. The Group’s business in Poland
has also approached landlords for rent
reductions.
■■ Fleet leases: Payment holidays have been
requested from fleet lease providers.
■■ Dividend: The Board took the decision not
to declare a full year 2019 dividend, nor
to consider any return to shareholders of
the proceeds of recent disposals.
The Group’s ability to maintain its liquidity
position during this period of extreme
uncertainty reflects the effectiveness of the
mitigating actions initiated by the Board, the
agility of the organisation and the experience
of the managers who enacted these
measures throughout the Group.
between the Board and employees. To
further strengthen engagement with
colleagues, the Board also appointed Kate
Allum as the designated Non-Executive
Director for workforce engagement with
effect from 1 January 2020. In addition,
in early 2020, a new culture programme
was launched to develop a culture aligned
to shared behaviours and encourage
openness and transparency. Whilst the
impact of COVID-19 temporarily hindered
the progression of these programmes, they
remain a priority for the Group.
COVID-19
The sudden rise of the COVID-19 pandemic
in early 2020 quickly redirected focus from
the implementation of the new strategy
to more immediate measures designed
to mitigate the effects of the pandemic.
This required the rapid development of a
coordinated and decisive response and
the operational agility of local managers to
implement the measures. Collective actions
across the Group’s finance, treasury, human
resource, sales, procurement and operations
functions at branch, regional and Group
management levels were implemented in a
coordinated and decisive manner to mitigate
the operational and financial impact.
The ability of the organisation to respond
effectively to the pandemic through these
measures demonstrates the Group’s
resilience and capacity for organisational
change, and points towards the successful
adoption of the new strategy as the Group
emerges from this period of business
disruption.
As a result of government restrictions that
were implemented to mitigate the spread
of COVID-19, large sections of SIG’s end-
markets experienced a severe reduction
in sales. During April, the fourteen-day
rolling average daily sales in the UK and
Ireland reduced to approximately 12% of
their average daily sales between January
and mid-March (i.e. pre COVID-19 levels),
reflecting the closure of the majority of SIG’s
trading sites in response to government
advice. By mid-May, the fourteen-day
average daily sales had recovered to over
50% of pre COVID -19 levels as the Group’s
sites and customers began to re-open. The
Group had re-opened over 80% of the UK
and Ireland sites by the middle of May.
In France, although trading continued from
all sites, the fourteen-day rolling average
daily sales had reduced to approximately
32% of pre COVID-19 levels by early April,
recovering to pre COVID-19 levels by the
middle of May. The impact was less severe
in Germany, Poland and Benelux, where
trading continued from all sites and revenue
fell to approximately 82% of pre COVID-19
levels. By the end of April, these countries
saw activity back to pre COVID-19 levels.
In response to the challenges posed by
the COVID-19 pandemic, the Group has
implemented a comprehensive set of actions
to reduce costs and manage liquidity. These
actions include, but are not limited, to:
■■ Employees: Over 2,000 employees were
furloughed under the UK government’s
scheme and the majority of trading
sites across the UK and Ireland were
temporarily closed. Remaining staff
agreed to take up to 20% temporary
pay reductions, with the salaries of all
members of the Board temporarily
reduced by 50% from 1 April to 30 June
2020. In mid-May, the Company re-
instated the executive Directors’ pay to
80% at the same time as other Group
employees were returning to work on
full pay. The furloughing of employees,
combined with other wage saving
initiatives, has enabled the Group to
retain an incremental c.£8m of cash in
the period to May 2020.
22
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT to targeted levels of revenue faster given its
strong existing platform in the region.
Management remains focused on the overall
levels of operating cost in the business which,
if properly controlled, can result in significant
operational gearing. The Group aims to grow
its market share over time to leverage its cost
base, which the Group seeks to supplement
with improved processes and systems
which the Board believes will improve Group
productivity. The new strategy will be focused
on growth with limited cost reductions
outside the merging of senior management
and central support functions in the UK
and Germany and Benelux. Management’s
medium term target is to restore an
operating margin of approximately 5% within
the Group’s operating companies and a
Group operating margin of approximately 3%,
trending towards approximately 5% in the
longer term.
Depreciation and amortisation as a
percentage of sales is expected to remain in
line with historical levels going forward, capital
expenditure is expected to run slightly ahead
of depreciation and as a percentage of sales
return to historic levels given management’s
strategic plan focusing on operational
improvements rather than requiring large
capex investment.
The loss of revenues in 2020 is expected
to impact profitability, cash generation and
therefore debt levels. The Group’s cash
conservation measures have resulted in
estimated cash savings of approximately
£23m through to May 2020, comprising
approximately £8m of wage savings under
the furlough schemes and other wage saving
initiatives and a further approximately £15m
of tax and other deferrals. As at 30 April 2020,
the Group had £155m of cash and a net debt
position, pre IFRS 16, of £114m. The unwind
of these cash conservation measures, as well
as the expected growth in sales, is expected
to lead to a higher working capital position by
the year end. As the Group returns to growth
it will also require more working capital
in the business, compared to its average
historic levels, both to improve the service to
customers and to support the Group’s sales
growth.
Notwithstanding the effectiveness of these
actions, the prolonged impact of COVID-19 is
anticipated to have significant consequences
on the Group’s financial performance in
2020, both in terms of profitability and cash.
CURRENT TRADING AND
OUTLOOK
Pre COVID-19 (January 2020
to February 2020)
Group revenue for the two months ended
29 February 2020 was £296.0m, down
£36.8m from the prior year (two months
ended 28 February 2019: £332.8m), a like-
for-like decline of c.11%. Trading in the UK
and Germany saw a continuation of the
challenging trends seen in the last quarter
of 2019, whilst trading activity in the rest of
Europe was relatively stable.
Due to reduced sales volumes in key
markets gross profit margin fell compared to
the prior year period (two months ended 28
February 2019).
As reported in the Group’s trading update
on 26 March 2020, the Group posted an
underlying operating loss of c.£9m, pre IFRS
16, in the first two months of the year.
COVID-19 period (March 2020
to April 2020)
Group revenue for the two months ended
30 April 2020 was £235.0m, down £138.9m
from the prior year (two months ended 30
April 2019: £373.9m). Revenues in the period
were significantly impacted by the COVID-19
outbreak, particularly in the UK, Ireland and
France.
On 30 March 2020, the Group announced
that large parts of its UK market had
seen sales fall away rapidly, in common
with the broader construction industry.
It was concluded that it was necessary
and appropriate to temporarily close UK
operations. Trading sites in Ireland were
also temporarily closed due to restrictions
implemented by the Irish Government.
The UK and Ireland businesses remained
open to service critical and emergency
projects only, such as for the NHS, energy and
food sectors. Revenue, during the closure
period in April, reduced to c.£0.4m per day
on average, a reduction of c.86% compared
to February. By mid-May, the fourteen-day
average daily sales had recovered to over
50% as the Group’s sites and customers
began to re-open. The Group had re-opened
over 80% of the UK and Ireland sites by the
middle of May.
Trading activity suffered a temporary setback
France following the short-term closure of
all branches for three days in mid-March,
with the fourteen-day rolling average daily
sales reduced to approximately 32% of pre
COVID-19 levels by early April. A staged
reopening throughout April and into early
May saw, on average, France trading at c.56%
of pre COVID-19 revenue levels in April,
recovering to pre COVID-19 levels by the
middle of May.
The Group’s operating companies in
Germany, Poland and Benelux were impacted
by government measures to a lesser extent,
where trading continued from all sites and
revenue fell to approximately 82% of pre
COVID-19 levels. By the end of April, these
countries saw activity back to pre COVID-19
levels.
Similar to the first two months, the Group’s
gross profit margin in March and April was
negatively impacted by the decline in overall
sales, combined with a shift in mix away from
the more profitable roofing merchanting
businesses in the UK and France.
During the period, the Group has taken
decisive cost actions in response to COVID-19
as well as accessing the government-
supported job retention schemes, resulting
in a reduction in its operating costs year-on-
year.
Outlook
As a result of the impacts of declining
revenues under the previous strategy and
COVID-19 on the construction industry across
Europe generally, management expects
revenues for 2020 to be approximately
£500m lower than 2019 as reported, post
the disposal of the Air Handling division.
Management is targeting a return to around
2019 levels of Group revenues (as reported,
post the disposal of the Air Handling division)
in 2022.
While those geographies that were less
severely impacted by COVID-19 are expected
to recover faster, those which need strategic
improvements may take longer to see the
impact of management actions. The focus
of the UK business through the second
half of 2020 will be to continue to put the
correct leadership structures and people
in place, and restructuring the organisation
to better position it to recapture market
share. The planned combination of the
leadership teams in UK Distribution and UK
Exteriors is expected to reduce and simplify
the central functions, resulting in a potential
reduction in operating costs within the UK
businesses of up to £4m, after investments in
front line sales to drive growth. In Germany
and Benelux, the consolidation of the
management structure is also intended
to return Germany to growth after recent
underperformance. In France, where the
Group has shown resilience over the last few
years, the business is expected to recover
2323
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Business review
2019 PERFORMANCE
Overall performance
The Group’s strategy of centralising certain
functions to gain consistency and economies
of scale continued at a rapid pace during
2019, on the back of a strong close to the
previous year and continued to demonstrate
an improvement in profit margins during the
first half of 2019 as less profitable products
were discontinued and branches were
closed or merged. However, this growth in
profitability masked underlying loss of market
share and damage to our sales capacity,
particularly in Distribution and Exteriors in
the UK and in Germany, resulting from rapid
change and centralisation, leading to an
erosion of key USPs for a fundamentally sales-
led organisation, namely customer proximity,
service and expertise. This contrasted with
other European markets which were relatively
more stable, where implementation of the
Group’s strategy had been better adapted to
local dynamics.
Whilst the first half performance delivered
significant operational and financial progress,
despite a ransomware attack affecting both
of the French businesses, LiTT and Lariviere,
the decline in sales accelerated during the
second half of 2019 in Germany (5.1% like-
for-like decline relative to H2 2018) and in
the Distribution and Exteriors businesses
in the UK (26.1% and 12.5% decline
respectively relative to H2 2018), the latter
two exacerbated by increasing political and
macro-economic uncertainty leading up to
the UK General Election.
The improvements in margins and reductions
to the cost base in H1 were insufficient to
stop a deterioration in bottom line profits,
resulting in full year underlying profit before
tax, post IFRS 16, of £15.6m, down 70.1%
on prior year (2018: £52.2m). Underlying
profit before tax (including businesses held
for sale), pre IFRS 16, was £41.9m (43.8%
down on prior year). Statutory loss before
tax from continuing operations was £112.7m
(2018: profit before tax of £10.3m), reflecting
£128.3m of Other items, including £90.9m of
impairment of goodwill and other intangibles.
Underlying profit before tax (including businesses held for sale)1
Less: Air Handling underlying profit before tax, pre IFRS 162
Less: Building Solutions underlying profit before tax, pre IFRS 163
Underlying profit before tax, pre IFRS 16
Underlying profit before tax, post IFRS 16
Further reductions in the level of working
capital have helped the Group to reduce its
net debt, pre IFRS 16, at 31 December 2019
to £162.8m (2018: £189.4m). The value of
the Group’s debt factoring facilities were also
reduced at the year end to £35.0m (2018:
£49.7m). Despite delivering a significant
reduction in net debt, the closing 2019 figure
being approximately 54% of the level that
it was at the end of 2016, the year-on-year
reduction in revenues and profits in 2019
resulted in the Group taking a backward step
in its progress towards its previously stated
medium term financial targets.
2019
£m
41.9
(19.1)
(2.2)
20.6
15.6
1: Underlying profit before tax stated before IFRS 16 adjustments, including profit before tax for the Air Handling division and Building Solutions (National) Limited and excluding impairment
and other non-underlying profits and losses.
2: Included within Discontinued operations in the Consolidated Income Statement
3: Included within Other items in the Consolidated Income Statement
24
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Marked deterioration in
second half performance
In early October, the Group first became
aware that a number of its businesses had
missed their revenue and profit forecasts
for September. The UK and German
businesses were suffering from a loss of
market share due to rapid change related to
a new centralised operating model with the
situation in the other European operating
companies (LiTT and Lariviere in France,
Ireland, Poland and Benelux) being more
positive as their implementation of the
Group’s strategy had been more selective in
the operational changes adopted, and were
introduced gradually and better adapted to
local dynamics. A trading performance update
was announced in October to realign investor
expectations for the Group’s underlying
profit before tax result for the year ending 31
December 2019.
Over the final trading quarter of 2019, a
number of short-term profit protection
measures instigated by the businesses
did not deliver sufficiently to offset the
continued deterioration in sales. December,
in particular, produced a very disappointing
result leading to the Group issuing a further
trading update on 9 January 2020, advising
that the Board anticipated underlying profit
before tax, pre IFRS 16, for the year ended 31
December 2019 of c.£42.0m (including the
trading results of Air Handling and Business
Solutions, and excluding any impairment and
other non-underlying profits and losses).
PwC investigation
Following the Company’s full year trading
update published on 9 January 2020
(“January Trading Update”), the Chairman
commissioned PricewaterhouseCoopers
LLP (“PwC”) to undertake an independent
review of the communication and level
of explanation of the Group’s underlying
financial forecasts and the associated risks
and opportunities in light of the disparity
between the forecast level of underlying
profit before tax for 2019 set out in the
January Trading Update and market
consensus of forecast profit prior to that
announcement.
Following a thorough and detailed review
of internal documents and interviews with
relevant employees, PwC delivered its
confidential written report to the Company
on 21 April 2020 (“PwC Report”).
The evidence as presented in the PwC
Report indicates a number of issues with the
2019 forecasting process, with a principal
shortcoming being in the reporting to the
Board of information received by Group
from the Operating Companies. Further, the
evidence indicates that in the latter part of
H2 2019 in particular, underlying forecasts
from certain operating companies were the
subject of material positive overlays at Group
level and, in addition, the attendant risks to
those underlying forecasts were both poorly
classified and poorly reported at Group level,
with the result that the Board was unsighted
as to the overall picture. The PwC Report
makes clear that the issues identified were
not adequately communicated to the Board
in the reports presented to it by the CFO.
The Board takes the findings of the PwC
Report very seriously. The Company
voluntarily notified the FCA of the progress
of the PwC review and has shared the PwC
Report with the FCA. Since SIG’s receipt of
the PwC Report, in order to strengthen the
Group’s financial forecasting and internal
reporting, KPMG has been appointed to
assist the Audit Committee in ensuring
appropriate improvements are implemented
to the Company’s forecasting systems,
procedures and controls, including those
recommended in the PwC Report.
Further details on the actions taken to date
(including as regards actions taken during
the course of the year in relation to cultural
changes) are included in the Corporate
Governance report on page 72 and further
background on the scope of the PwC review
and the remediation actions is set out in the
Audit Committee report on page 108.
Further organisational
progress
The Group continued to take measures
throughout 2019 to reduce its operating
cost base following structural changes made
in 2018, particularly in its two UK businesses,
where UK Distribution transformed its
organisational structure from a branch-
centric model to a centralised functional
model, and UK Roofing to a centrally
governed but locally adaptive model. During
2019, UK Distribution reduced its branch
network from 53 branches to 44, after
combining a number of existing sites (small
to medium sized) into large ‘hub’ branches,
emulating its Trafford Park, Manchester
Distribution Centre. UK Exteriors (including
Building Solutions) also reduced its branch
network during 2019, from 122 to 117
branches.
Germany (WeGo/VTi) witnessed a rapid
pace of change in 2019, moving to a more
integrated, functional operating model,
more closely akin to the ‘hub and spoke’
model of the Exteriors business in the
UK. Cost efficiencies from a lower branch
volume, regionalised inventory procurement
and sales team structures have already
commenced.
The process of closing branches, revising
branch network footprints and the disposal
(or closure) of nineteen businesses has
seen the number of trading sites across
the Group fall from 661 at the beginning
of 2017 to 425 (excluding Air Handling) at
31 December 2019. In parallel, headcount
has fallen c.38% from 10,328 in January
2017 to 6,452 (excluding Air Handling)
at 31 December 2019. It has become
apparent that the loss of senior sales people
directly resulted in the loss of much of the
associated customer volumes.
In October 2019, the Group announced
the disposal of Building Solutions (National)
Limited (“Building Solutions”) to Kingspan
Group for a consideration of £37.5m on
a cash free, debt free basis. The disposal
was conditional upon the approval of the
CMA. In April 2020, the CMA referred the
disposal for a Phase 2 investigation. In order
to carry out the Phase 2 investigation, the
long stop date of July 2020 in the sale and
purchase agreement would have required
being extended. As a result of the prevailing
market conditions, it was not possible for
the Company and Kingspan Group to agree
commercial terms for this extension and
accordingly the parties agreed to terminate
the disposal in May 2020. The Company is
currently reviewing a number of options
regarding the Building Solutions business.
2525
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Business review
Continued investment in
customer service
In 2019, SIG focused on investing in market-
leading software tools and associated
processes to enhance the service levels that
we offer our customer base in pursuit of our
desire to be ‘best in class’.
Having the inventory that our customers
require at the right place and at the right
time, for collection at a branch or delivered
to a site, is critically important for the
business. Software platforms such as a
Warehouse Management System, which has
been successfully introduced in SIG Ireland
and is to be rolled out into UK Distribution
and Germany in 2020, and new Inventory
Management Systems implemented in UK
Distribution, France and Poland during 2019,
provide our businesses with much greater
stock management capability and also allow
for greater accuracy on availability timelines
for our customers.
The introduction in the UK businesses
and Germany of a Transport Management
System has also enhanced our customers’
trading experience, as well as helping the
Group to deliver logistical efficiencies.
The enhanced electronic point-of-delivery
capability of these systems allows the
business to keep customers informed
of delivery details, along with providing
electronic proof of delivery, improving our
service offering and customer experience.
These supporting systems are providing SIG
with further opportunities of competitive
advantage and it intends to continue
to selectively invest in further software
tools, where appropriate, providing a solid
platform upon which the business can build
its customer base and grow future profits.
26
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT A leading market position
Increased capability and efficiencies in UK
Distribution
Throughout 2019, extensive work was undertaken in SIG Distribution to prepare an advanced warehouse in Heathrow, known as
UK Distribution West London. Fully operational from the end of May 2020, the facility covers 169,000 sq ft and provides enhanced
capability to ensure that we are well positioned to provide high levels of efficiency and improved customer service.
The team were proud to support customers from this facility during the ongoing challenges related to COVID-19.
Since his appointment in early 2020 as Managing Director, UK, Philip Johns has been working on supporting customers by the re-
opening of sites across the UK Distribution network. He commented, “We have to put the customer at the heart of everything we do,
which is a key focus on the UK strategy going forward. Our site network across the UK, supplemented by our flagship distribution
centres, in Manchester and now at Heathrow, offer a considerable stock holding across all of our product areas and ensures we can
supply the products our customers need when they need them.”
Philip Johns, Managing Director UK and Steve Francis, CEO at UK Distribution West London.
2727
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT
Financial review
” The Group saw an underlying revenue decline in 2019, primarily due to a tough economic
backdrop and a poor execution of a centralisation strategy in UK and Germany. However,
good operating progress was made through the further introduction of new technologies,
e-commerce and increased functionalisation.”
Kath Kearney-Croft, Chief Financial Officer
Underlying operations¹
Revenue
Like-for-like sales² growth
Gross margin
Underlying³ operating profit
Underlying³ profit before tax
2019
(Pre IFRS 16)
£2,084.7m
(7.6)%
25.9%
£33.5m
£20.6m
2018
(Restated,
pre IFRS 16)
£2,290.4m
(2.1)%
25.3%
£66.9m
£52.2m
Change
(9.0)%
(550)bps
60bps
(50.0)%
(60.5)%
2019
(Post IFRS 16)
£2,084.7m
(7.6)%
25.9%
£39.6m
£15.6m
Underlying profit before tax (including businesses held for sale)4
£41.9m
£74.5m
(43.8)%
£36.3m
Underlying³ basic earnings per share
Return on sales (excluding property profits)
Post-tax return on capital employed (ROCE)
Net debt
Covenant leverage (covenant net debt/covenant EBITDA)
0.6p
1.6%
6.1%
£162.8m
2.1x
6.3p
2.8%
10.3%
£189.4m
(90)%
(120)bps
(420)bps
14.0%
1.7x
(0.4)x
(0.1)p
1.9%
n/a
£455.4m
n/a
Revenue
Operating Profit
Profit/(loss) before tax5
Basic earnings/(loss) per share
Dividend per share
Statutory
2019
(Post IFRS 16)
2018
(Restated, pre
IFRS 16)
£2,160.6m
£(87.9)m
£(112.7)m
(21.0)p
1.25p
£2,431.8m
£26.2m
£10.3m
3.0p
3.75p
1 - Underlying operations excludes businesses divested or closed, or which the Board has resolved to divest or close by 31 December 2019.
2 - Like-for-like (LFL) is defined as sales per working day in constant currency excluding acquisitions and disposals completed or agreed in the prior year, or before announcement of the
Group’s results for the relevant period. Sales are not adjusted for branch openings or closures. LFL sales differ from the January trading statement primarily as a result of the reclassification
of non-core businesses.
3 - Underlying results are stated before the revenue and cost items of businesses that have been disposed of, 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 profits/(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.
4 - Per note 3 above, together with the underlying profit before tax for the Air Handling division (Discontinued operations) and Building Solutions (National) Limited (non-core business).
5 - Statutory results of Continuing operations only.
Overview and trading update comparison
The Group has been negatively impacted by the poor execution of transformation initiatives, which the Board believes disconnected the
business from its customers, suppliers and its front-line colleagues, particularly in Germany and the UK’s Distribution and Exterior businesses;
the latter two also being impacted by increased political and macro-economic uncertainty leading up to Brexit and the General Election.
2019 underlying profit before tax (including businesses held for sale), pre IFRS 16, was £41.9m (2018: £74.5m). This compares to the guidance
of c.£42.0m referenced in the Trading Updates issued in January and March 2020 and can be analysed as follows:
Underlying profit before tax (including businesses held for sale)¹
Less: Air Handling underlying profit before tax, pre IFRS 16²
Less: Building Solutions underlying profit before tax, pre IFRS 16³
Underlying profit before tax, pre IFRS 16
Underlying profit before tax, post IFRS 16
Full year 2019
£m
41.9
(19.1)
(2.2)
20.6
15.6
1 - Underlying profit before tax stated before IFRS 16 adjustments, including profit before tax for the Air Handling division and Building Solutions (National) Limited and excluding impairment
and other non-underlying profits and losses.
2 - Included within Discontinued operations in the Consolidated Income Statement
3 - Included within Other items in the Consolidated Income Statement
W
E
I
V
R
E
V
O
S
S
E
N
I
S
U
B
28
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT
During the year, the Group announced
the disposal of its Air Handling division.
The results from this business have been
excluded from the reported underlying
results and are shown as a discontinued
operation in order to provide a better
understanding of the Group’s underlying
performance in the continuing business.
Underlying profit before tax from continuing
operations, post IFRS 16, was £15.6m.
At a statutory level, the Group saw a loss
before tax from continuing operations of
£112.7m (2018: £10.3m profit), principally as
a result of impairment charges of £90.9m,
restructuring costs of £27.1m, and other
costs of £9.5m, including amortisation of
acquired intangibles and the investment
in omnichannel retailing. The restructuring
costs, including headcount reductions and
exiting a number of trading sites, were
incurred in connection with the Group’s
implementation of a new target operating
model in the UK and Germany.
Improved cash flows from trading and
reductions in working capital helped reduce
net debt, pre IFRS 16, to £162.8m (2018:
£189.4m). Net debt, post IFRS 16, was
£455.4m. Debt factoring facilities were
reduced by approximately 30% to £35.0m
(2018: £49.7m) at year end.
Revenue and gross margin
The Group saw lower revenues in the year
ended 31 December 2019, partly due to the
loss of market share following the decision
to increase prices in the UK against a tough
economic backdrop but also poor execution
of transformation initiatives resulting in
a loss of sales focus in both the UK and
Germany. Group revenue from underlying
operations fell 9.0% to £2,084.7m (2018:
£2,290.4m). Revenue generated in the
year by non-core businesses was £75.9m
(2018: £141.4m) which primarily relates
Building Solutions (National) Limited and
WeGo FloorTec GmbH. On a statutory basis
including the revenue from these non-core
businesses, Group revenue was down 11.2%
to £2,160.6m (2018: £2,431.8m).
LFL sales growth was one of the Group’s
key performance metrics and the Group
targeted over the medium term to grow
its LFL sales and recapture market share.
The decline in LFL sales over the year was
7.6%, with the Group continuing to reduce
exposure to low margin business.
Offset against the decline in revenue is
an increase in underlying gross margin,
which increased 60bps to 25.9% (2018:
25.3%). The actions around improving
gross margin levels that were introduced
across the Group during 2018 continued
through into 2019. Focus remained on
adopting a range of initiatives to optimise
pricing and margins, supported by software
systems in UK Distribution and Germany
that provide management with greater
degrees of control around such areas as
quantity breaks, spot pricing, end-to-end
margin visibility and centralised discount
management. Further margin uplift was
achieved by the continual review of the
levels of profitability by customer, updating
historical terms and conditions at current
levels wherever possible, along with the
introduction of new charging structures
for ancillary services across a number of
the businesses. Underlying gross margin
increased in Specialist Distribution to 25.9%
(2018: 25.1%) but dropped slightly in Roofing
Merchanting to 25.7% (2018: 25.8%).
The new pricing framework adopted by
Germany (WeGo/VTi) at the start of the
year is now fully embedded across all of its
network and enabled the business to grow
its gross margin by 80bps in 2019 but at
the cost of market share. The ransomware
attack in France delayed the rollout of a new
pricing framework until the second half of
the year when both businesses were seeing
growth in margins.
On a statutory basis, the Group’s gross
margin increased by 50bps to 25.9% (2018:
25.4%). Statutory gross profit fell from
£618.6m to £559.1m, partly as a result of the
disposal of businesses.
Operating costs and profit
At a Group level, underlying operating profit,
pre IFRS 16, dropped by 50% year-on-year
and decreased to £33.5m (2018: £66.9m).
The Group continued to reduce its operating
cost base following on from structural
changes made in 2018, particularly in its
two UK businesses, where UK Distribution
transformed their organisational structure
from a branch-centric model to a centralised
functional model, and UK Roofing to a
centrally governed but locally adaptive
model. These actions throughout the year
resulted in underlying operating costs, pre
IFRS 16, reducing by 1.2% to £505.8m (2018:
£511.8m).
Non-core businesses, reported a combined
operating profit (excluding exceptional
items) of £2.0m in the year (2018: £5.5m).
The underlying operating profit for
discontinued operations, which included
the Air Handling division, was £19.1m (2018:
£20.1m). For further detail on Divestments
and Discontinued operations, refer to notes
11 and 12.
Return on capital
employed
6.1%
(2018: 10.3%)
Covenant
leverage
2.1x
(2018: 1.7x)
2929
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
At a statutory level, the operating loss was £87.9m (2018: £26.2m profit), as a result of impairment charges and lost sales whilst delivering
transformation initiatives together with a challenging market. The Group reported £128.3m of Other items in the year, principally relating to
impairment charges (£90.9m), restructuring costs (£27.1m) and amortisation of acquired intangibles (£6.2m).
Underlying profit before tax, pre IFRS 16, was down 61% to £20.6m (2018: £52.2m) and reported a statutory loss before tax for the year of
£112.7m (2018: £10.3m profit) after a loss from non-underlying items of £128.3m (2018: £41.9m loss).
Specialist Distribution
As previously reported, the negative impacts from rapid transformation changes together with macro-uncertainties during 2019 resulted in
a significant fall in sales, notably in the second half of the year. These changes led to an underlying loss of market share and damage to the
sales performance primarily in the UK and Germany being key factors behind the lower LFL revenues in Specialist Distribution (8.8%).
UK Distribution1
France Distribution (LiTT)
Germany (WeGo/VTi)
Poland
Benelux
Ireland
Distribution before non-core
Non-core businesses
Distribution
Underlying
revenue (£m)
534.3
184.5
381.5
156.1
103.0
94.9
1,454.3
15.7
1,470.0
Change
(21.4%)
5.2%
(5.4%)
(0.3%)
(5.0%)
(5.0%)
(10.4%)
n/a
(13.6%)
LFL
change
Reported
revenue (£m)2
Gross
margin
(21.1%)
7.1%
(2.5%)
2.1%
(3.3%)
(3.3%)
(8.8%)
n/a
n/a
535.5
184.5
396.0
156.1
103.0
94.9
1,470.0
n/a
1,470.0
26.2%
27.5%
27.7%
20.3%
24.7%
25.0%
25.9%
n/a
25.9%
Change
150bps
(0)bps
80bps
30bps
100bps
(30)bps
80bps
n/a
0bps
1 Excludes SK Sales, which is now reported within the Air Handling division.
2 Reported revenue is shown on a segmental basis, including the operating result of the non-core businesses.
Underlying
operating
profit
(£m)
Pre IFRS 16
Underlying
operating
margin
5.8
10.8
3.4
4.2
5.1
6.2
35.5
0.1
35.6
1.1%
5.9%
0.9%
2.7%
5.0%
6.5%
2.4%
n/a
2.4%
As reported post IFRS 16
Underlying
operating
profit
(£m)
Underlying
operating
margin
Statutory
post IFRS 16
Reported
operating
profit/(loss)
(£m)2
7.9
11.2
4.4
4.3
5.2
6.8
39.8
n/a
39.8
1.5%
6.1%
1.2%
2.8%
5.0%
7.2%
2.7%
n/a
2.7%
(62.9)
11.2
4.5
4.3
4.8
4.7
(33.4)
n/a
(33.4)
Change
(230)bps
100bps
(100)bps
60bps
80bps
40bps
(90)bps
n/a
(60)bps
UK Distribution1
France Distribution (LiTT)
Germany (WeGo/VTi)
Poland
Benelux
Ireland
Distribution before non-core
Non-core businesses
Distribution
1 Excludes SK Sales, which is now reported within the Air Handling division.
2 Reported operating profit is shown on a segmental basis, including the operating result of the non-core businesses and after taking into account Other items.
UK Distribution, the core insulation and interiors business in the UK, saw a deterioration in profitability in 2019 with underlying operating
profit, pre IFRS 16, decreasing to £5.8m (2018: £23.0m). Underlying revenue fell by 21.1% on a LFL basis, however by maintaining the pricing
and profitability disciplines as reported previously, gross margin increased to 26.2% (2018: 24.7%). On a statutory basis, after taking into
account Other items, including £58.2m of impairment charges and £10.2m of restructuring costs, and adjusting for first time adoption of IFRS
16, UK Distribution reported an operating loss of £62.9m (2018: £9.8m profit).
France Distribution (LiTT), the structural insulation and interior business, suffered from the impact of a ransomware attack in the period. No
ransom was paid in relation to the attack. Despite this, France Distribution (LiTT) saw an increase of 7.1% LFL sales in the year, and delivered
a gross margin of 27.5%. Underlying operating profit was £10.8m, pre IFRS 16, and statutory operating profit after adjusting for first time
adoption of IFRS 16, in the year was £11.2m (2018: £8.6m).
Germany (WeGo/VTi), a leading specialist insulation and interiors distribution business in Germany, saw LFL sales decline by 2.5%, however
gross margins increased to 27.7% (2018: 26.9%). Germany (WeGo/VTi) started a step change in its organisational structure during the year
with further work ongoing into 2020. However, cost efficiencies did not all materialise, resulting in a lower underlying operating profit, pre IFRS
16, of £3.4m in the year (2018: £7.6m). On a statutory basis, after taking into account Other items, including £6.6m of restructuring costs, and
adjusting for first time adoption of IFRS 16, Germany (WeGo/VTi) reported an operating profit of £4.5m (2018: £2.6m).
30
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Poland, a market leading distributor of insulation and interiors, had a strong year with LFL sales up 2.1%, benefiting from economic stability
and growth in the construction markets. In this environment, Poland slightly improved its gross margin to 20.3% (2018: 20.0%) and effectively
managed its operating costs to deliver an improved operating margin of 2.7% (2018: 2.1%) and an underlying operating profit, pre IFRS 16,
of £4.2m (2018: £3.3m). On a statutory basis, after adjusting for first time adoption of IFRS 16, Poland reported an operating profit of £4.3m
(2018: £3.3m).
In the Benelux region, LFL sales decreased by 3.3% in the year reflecting a challenging market due to macro-economic trends and a reduction
in the construction output. However tight management of operating costs resulted in gross margins of 24.7% (2018: 23.7%) and increased
underlying operating profit, pre IFRS 16, of £5.1m (2018: £4.5m). On a statutory basis, after taking into account Other items and adjusting for
first time adoption of IFRS 16, Benelux reported an operating profit of £4.8m (2018: £3.0m).
In Ireland, where the Group’s operations predominantly comprise specialist distribution of insulation, interiors and other building products,
saw LFL revenue for the year decline by 3.3%. However, good cost control saw underlying operating profits, pre IFRS 16, marginally up at
£6.2m (2018: £6.1m). On a statutory basis, after taking into account other items and adjusting for first time adoption of IFRS 16, Ireland
reported an operating profit of £4.7m (2018: £3.7m).
Overall, Distribution delivered underlying revenue of £1,454.3m (2018: £1,623.8m) and underlying operating profit, pre IFRS 16, of £35.5m
(2018: £53.1m), at an operating margin of 2.4% (2018: 3.1%). On a statutory basis, after taking into account Other items and adjusting for first
time adoption of IFRS 16, Distribution reported an operating loss of £33.4m (£31.0m profit).
Roofing Merchanting
Similar to that reported in the Distribution business, trading conditions slowed in the construction markets in the second half of the year and
together with rapid transformation changes in UK Exteriors, this made trading difficult across the year. Revenues in France were affected
by the impact of the ransomware attack, as reported in the interim results. Overall, Roofing Merchanting delivered an underlying operating
profit, pre IFRS 16, of £15.7m (2018: £27.0m)
UK Exteriors
France Exteriors (Lariviere)
Roofing before non-core
Non-core businesses
Roofing
Underlying
revenue (£m)
288.2
342.2
630.4
60.2
690.6
Change
(10.5%)
(0.7%)
(5.4%)
n/a
(5.3%)
LFL
change
Reported
revenue (£m)2
(10.1%)
1.1%
(4.3%)
n/a
n/a
346.5
344.1
690.6
n/a
690.6
Gross
margin
28.4%
23.4%
25.7%
n/a
25.9%
1 Reported revenue is shown on a segmental basis, including the operating result of the non-core businesses.
Pre IFRS 16
As reported post IFRS 16
Underlying
operating
profit
(£m)
Underlying
operating
margin
7.7
8.0
15.7
1.9
17.6
2.7%
2.3%
2.5%
n/a
2.5%
Underlying
operating
profit
(£m)
Underlying
operating
margin
8.9
8.6
17.5
n/a
17.5
3.1%
2.5%
2.8%
n/a
2.8%
Change
(160)bps
(150)bps
(160)bps
n/a
(160)bps
UK Exteriors
France Exteriors (Lariviere)
Roofing before non-core
Non-core businesses
Roofing
Change
0bps
10bps
10bps
n/a
0bps
Statutory
post IFRS 16
Reported
operating
profit
(£m)2
(2.7)
(29.1)
(31.8)
n/a
(31.8)
1 Reported operating profit is shown on a segmental basis, including the operating result of the non-core businesses and after taking into account Other items.
UK Exteriors, a leading roofing merchant and specialist UK roofing business, saw LFL sales reduce by 10.1% in the year. Although pricing
disciplines were introduced in the prior year gross margins remained flat at 28.4% (2018: 28.4%). Underlying operating profit, pre IFRS 16,
at UK Exteriors ended the year at £7.7m (2018: £13.8m). On a statutory basis, after taking into account Other items, including £8.0m of
restructuring costs, and adjusting for first time adoption of IFRS 16 in the period, UK Exteriors reported an operating loss of £2.7m (2018:
£0.5m loss).
As previously reported, the business in France Exteriors (Lariviere), a market leading specialist roofing business suffered from the impact
of a ransomware attack in the period. No ransom was paid in relation to the attack. Despite this, France Exteriors (Lariviere) saw LFL sales
increase by 1.1% and delivered an improved gross margin of 23.4% and underlying operating profit, pre IFRS 16, of £8.0m (2018: £13.2m). On
a statutory basis, after taking into account Other items, including £2.1m of restructuring costs, and adjusting for first time adoption of IFRS 16
in the period, France Exteriors (Lariviere) reported an operating loss of £29.1m (2018: £8.9m profit) due to impairment charges (£32.2m) in
the year.
3131
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT
Financial review
Discontinued operations – Air Handling
The Group announced in October 2019 that an agreement had been reached to dispose of its Air Handling division. The Air Handling division
includes Ouest Isol & Ventil, a leading supplier of technical insulation and air handling products in France, and SK Sales, a specialist supplier of
heating, ventilation and air conditioning in the UK. The disposal completed on 31 January for an enterprise value of €222.7m (c.£187.0m) on a
cash free, debt free basis, which, prior to transaction costs, yielded a net cash inflow for the Group of c.£163m.
Air Handling1
Underlying
revenue (£m)
323.1
Change
4.2%
LFL
change
Reported
revenue (£m)
n/a
323.1
Gross
margin
37.5%
Change
0bps
1 Includes SK Sales, which was previously reported within SIG Distribution, and Ouest Isol & Ventil, which was previously reported within France.
Air Handling1
Underlying
operating
profit
(£m)
Underlying
operating
margin
19.1
5.9%
Change
60bps
Underlying
operating
profit
(£m)
Underlying
operating
margin
19.8
6.1%
5.0
Pre IFRS 16
As reported post IFRS 16
Statutory
post IFRS 16
Reported
operating
profit
(£m)2
1 Includes SK Sales, which was previously reported within SIG Distribution, and Ouest Isol & Ventil, which was previously reported within France.
2 Reported operating profit is stated after taking into account Other items.
The Air Handling division in France was also affected at an operating profit level by the ransomware attack described above, and in the UK by
losses in the early part of the year at SK Sales. As a result, Air Handling delivered a reduced underlying operating profit performance, pre IFRS
16, of £19.1m (2018: £19.4m). For further detail on Discontinued operations, refer to note 12.
Dividend
In 2019, the Group delivered underlying loss per share of 0.1p (2018: earnings per share of 6.3p). As announced on 26 March 2020, the
Board has taken the decision not to declare a final dividend for the year (2018: 2.5p), in the interest of preserving the Group’s liquidity
position. With an interim dividend of 1.25p (2018: 1.25p) per share having been paid in November 2019, this gives a total dividend for the
year of 1.25p (2018: 3.75p) per share.
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. ROCE (excluding the impact of IFRS 16) was 6.1%
at 31 December 2019 (2018: 10.3%), with the reduction in underlying operating profit more than offsetting lower average net assets and debt
(refer to note 33c).
32
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Cash flow and leverage
Management continued to pursue the reduction of the Group’s debt during 2019, prioritising reductions in the level of its working capital. As
a result, the Group generated £166.0m of net cash from operating activities (2018: £103.6m) during the year, together with £8.4m net cash
flow arising on the sale of businesses (2018: £35.8m), offset by lower proceeds of £7.6m from the sale of property, plant and equipment
(2018: £5.1m). After taking into account dividends paid and other cash flow from financing activities, net debt, pre IFRS 16, fell to £162.8m at
the year-end (2018: £189.4m). Net debt, post IFRS 16, is £455.4m.
Opening net debt
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
Movement in lease liabilities
Other (including fair value movements)
Movement in net debt
IFRS 16 on adoption at 1 January 2020
Movement in net debt
Closing net debt
Headline financial leverage
2019
£m
(189.4)
92.1
73.9
0.0
166.0
(35.3)
(22.2)
(34.5)
7.6
8.4
(0.9)
(55.2)
0.5
34.4
(300.4)
(266.0)
(455.4)
2.1x
2018
£m
(258.7)
73.5
29.1
1.0
103.6
(27.1)
(22.2)
(25.3)
5.1
35.8
2.6
–
(3.2)
69.3
–
69.3
(189.4)
1.7x
The Group’s covenant net debt as at 31 December 2019 was £168.5m, compared with covenant EBITDA for 2019 of £78.4m. Covenant
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 Group’s covenant leverage (the ratio of covenant net debt to covenant EBITDA) was 2.1x as at the same date, and
increased year-on-year as a result of lower EBITDA more than offsetting the benefit of lower net debt (refer to note 33b).
3333
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
IFRS 16
IFRS 16 is the 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 elected to adopt the standard using the modified retrospective approach, which means that 2019 is the first year impacted by
the accounting standard. 2018 has not been restated. On 1 January 2019, £306.2m of leases were recognised as liabilities on adoption of the
standard and £312.8m capitalised as right of use assets, including £18.0m previously included in property, plant and equipment in relation to
assets held under finance leases under the old standard.
The financial impacts of IFRS 16 on the underlying results for 2019 are set out in the table below.
Underlying operating profit
Net finance costs
Underlying profit before tax
Right-of-use assets
Property, plant & equipment
Other assets
Lease liabilities
Other liabilities
Net assets
Net debt
2019
(pre IFRS 16)
(£m)
Impact of
IFRS 16
(£m)
2019
(post IFRS 16)
(£m)
33.5
(12.9)
20.6
–
68.0
995.5
(15.2)
(748.0)
300.3
(162.8)
6.1
(11.1)
(5.0)
255.2
(9.4)
38.5
(260.4)
(30.0)
(6.1)
(292.6)
39.6
(24.0)
15.6
255.2
58.6
1,034.0
(275.6)
(778.0)
294.2
(455.4)
The changes in accounting resulting from the implementation of IFRS 16 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 (i.e. on a ‘frozen’ GAAP basis). As such,
covenant leverage will continue to be measured on a consistent basis in 2019 and the Group’s medium term vision is targeting covenant
leverage below 1.5x.
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
underlying 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 within its profit before tax for continuing operations as set out in the
following table:
Underlying profit before tax
Other items – impact operating profit:
Amortisation of acquired intangibles
Impairment charges of goodwill and other intangibles
Losses on agreed sale or closure of non-core businesses and associated impairment charges
Net operating profits attributable to businesses identified as non-core
Net restructuring costs
Other specific items
Other items – impact net finance costs:
Net fair value losses on derivative financial instruments and unwinding of provision discounting
Total Other items
Statutory (loss)/profit before tax
2019
£m
15.6
(6.2)
(90.9)
0.1
2.0
(27.1)
(5.4)
(0.8)
(128.3)
(112.7)
2018
£m
52.2
(6.9)
(4.0)
(6.3)
5.5
(27.7)
(1.3)
(1.2)
(41.9)
10.3
34
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Amounts reported in the Other items column of the Consolidated Income Statement which in total amounted to a loss before tax of £128.3m
(2018: £41.9m) are as follows:
■■ Amortisation of acquired intangibles of £6.2m (2018: £6.9m);
■■ Impairment charges of £90.9m (2018: £4.0m) principally relating to impairment of goodwill in relation to UK Distribution (£57.4m) and
France Exteriors (Lariviere) (£32.2m);
■■ Profit on agreed sale or closure of non-core businesses and associated impairment charges of £0.1m (2018: £6.3m loss);
■■ Net operating profits of £2.0m (2018: £5.5m) attributable to businesses identified as non-core;
■■ Net restructuring costs of £27.1m (2018: £27.7m) including property closure costs of £6.0m (2018: £5.5m), redundancy and related staff
costs of £9.5m (2018: £11.5m), impairment of non-current assets due to restructuring of £nil (2018: £0.6m) and £9.6m (2018: £10.1m)
in relation to restructuring consultancy costs and £2.0m other costs (2018: £nil), all mainly incurred in connection with the fundamental
restructuring of the target operating model of the major operating companies in the UK, Germany and France;
■■ A net cost of £5.4m (2018: £1.3m cost) in relation to other specific items including £5.7m (2018: £nil) investment in omni-channel retailing;
and
■■ Non-underlying finance costs, net fair value losses on derivative financial instruments and unwinding of provision discounting of £0.8m
(2018: £1.2m).
Impact of divestments and closure of non-core businesses
During the year, the Group has continued to exit a number of businesses which are deemed to be non-core to allow us to focus on our two
core markets. The revenue, profits and net debt of businesses that had been divested or closed, and which are therefore now being treated
as non-underlying, are set out in the table below.
2019
Revenue
Underlying profit/
(loss) before tax
Underlying Group as reported at 2018 full year results
FloorTec
Underlying Group as reported at 2019 half year results
Air Handling
Building Solutions
Maury
2,482.5
(14.5)
2,468.0
(323.1)
(58.3)
(1.9)
Underlying Group as included at 2019 full year results
2,084.7
38.2
(0.8)
37.4
(19.8)
(2.9)
0.9
15.6
2018
Underlying profit/
(loss) before tax
75.3
(1.5)
73.8
(19.5)
(2.8)
0.7
52.2
Revenue
2,683.2
(23.2)
2,660.0
(310.1)
(56.8)
(2.7)
2,290.4
Taxation
The Group’s approach to its worldwide tax affairs is to act in a responsible manner and in accordance with the laws and objectives of the
territories in which it operates. The Group seeks to pay, at the right time, the correct amount of taxes due, both direct and indirect, in
accordance with all relevant tax laws and regulations.
The Board has overall responsibility for managing and controlling risk, including tax risk, within the Group. The Group 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.
The Group takes appropriate advice from reputable professional advisers to ensure compliance with applicable rules and regulations, and to
consider potential mitigating actions in order to manage tax risks.
The Group pro-actively manages relationships with tax authorities, aiming to maintain transparent and constructive relationships, to comply
fully with regulatory obligations and to uphold its reputation as a responsible corporate citizen. In accordance with UK legislation the Group
publishes an annual tax strategy, which is available on the Group’s website (www.sigplc.com).
The effective tax rate for the Group on the total loss before tax of £108.9m is negative 14.3% (2018: 37.2%). The effective tax charge for the
Group on profit before tax excluding Other items of £19.4m is 103.3% (2018: 26.3%) which comprises a tax charge of 95.8% (2018: 26.6%)
in respect of current year profits and a tax charge of 7.5% (2018: credit of 0.3%) in respect of prior years. The increased current year rate is
predominantly due to unrecognised deferred tax assets (see Note 24) and expenses not deductible for tax purposes.
3535
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Shareholders’ funds and returns to shareholders
Shareholders’ funds decreased by £168.1m to £294.2m (2018: £462.3m). The decrease comprised the following elements:
Profit after tax attributable to equity holders of the Company
Other items – impact operating profit:
Exchange differences on assets and liabilities after tax
Gains on cash flow hedges
Impact of IFRS 16
Movements attributable to share options
Actuarial gain on pensions schemes (net of deferred tax)
Acquisitions of non-controlling interests
Transaction between equity holders
Dividends paid to equity holders of the Company
Decrease in Shareholders’ funds
£m
(124.5)
(14.8)
1.3
0.0
0.1
(8.0)
0.0
0.0
(22.2)
(168.1)
The Company pays dividends out of the Parent Company retained earnings. When required the Company can repatriate cash from its
subsidiaries to increase distributable reserves. Further details are included in Note 7 of the Company Financial Statements.
Fixed assets
Net capital expenditure (including computer software) was a net cash outflow of £27.1m (2018: £20.2m outflow), representing a capex to
depreciation ratio of 1.4x (2018: 0.8x). 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 £7.6m
(2018: £5.1m). Excluding these proceeds, the capex to depreciation ratio would be 1.8x (2018: 1.10x).
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:
Euro
Polish Zloty
Average rate
2019
1.1
4.9
2018
1.1
4.8
Movement
%
1%
2%
Closing rate
2019
1.2
5.0
2018
1.1
4.8
Movement
%
6%
5%
The impact of exchange rate movements on the translation of the Group’s overseas earning streams, net assets and net debt can be
summarised as follows:
Underlying revenue
Statutory revenue
Underlying operating profit
Statutory operating profit
Underlying profit before tax
Statutory profit before tax
Consolidated net assets
Net debt
Impact of currency
movements in 2019
£m
(18.8)
(19.0)
(0.6)
(0.3)
(0.6)
(0.3)
(15.3)
(6.8)
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 2019SIG 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, which was implemented in March 2018. The asset backed funding arrangement transfers
certain rights over a managed pool of certain customer receivables of one of the Group’s subsidiary companies to the partnership and
provides a mechanism to settle future funding commitments from receipts from higher quality trade receivables to ensure contributions to
the Plan of £2.5m per annum for up to 20 years (as may be required and subject to certain discretions).
The Group’s total pension charge for the year (from continuing operations), including amounts charged to interest and Other items, was
£7.0m (2018: £8.5m), of which a charge of £0.7m (2018: £1.5m) related to defined benefit pension schemes and £6.3m (2018: £7.9m) related
to defined contribution schemes.
The overall gross defined benefit pension schemes’ liability decreased during the year to £24.8m (31 December 2018: £28.7m).
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 30(c) of the Financial Statements on pages 203 to 206.
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 has continued to focus on strengthening the
balance sheet during 2019.
The main measure used to assess the appropriateness of the Group’s capital structure is its net debt to EBITDA (see Note 33(b) 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 28 May 2020, SIG’s share price closed at 28.0p per share, representing a market capitalisation of £165.6m 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 111.
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.
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)
Financial liabilities held for sale
Total
Derivative financial instruments (assets)
Gross debt (after derivative financial assets)
Cash at bank and on hand
Lease receivables
Deferred consideration
Financial assets held for sale
Net debt
2019
£m
275.6
–
99.6
175.5
–
2.9
2.1
45.3
601.0
(2.6)
598.4
(101.9)
(5.2)
–
(35.9)
455.4
2018
£m
23.4
4.5
56.5
185.6
0.9
1.1
4.1
–
276.1
(1.9)
274.2
(83.3)
–
(1.5)
–
189.4
3737
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
This reconciles to net debt used for covenant calculations as follows:
Net debt
Other covenant financial indebtedness
Foreign exchange adjustment
IFRS 16 adjustment
Covenant net debt
The Group’s gross financial liabilities can be further analysed as follows:
Gross financial liabilities with a maturity profile of greater than five years
Gross financial liabilities held on an unsecured basis
2019
£m
81.9
275.3
2019
%
14.8%
49.7%
2019
£m
455.4
5.4
0.3
(292.6)
168.5
2018
£m
111.0
262.9
2018
£m
189.4
10.9
(1.8)
–
198.5
2018
%
40.5%
95.8%
The liabilities with a maturity profile of greater than five years do not include Private Placement notes of £91.2m with a contractual maturity
date of 2026 which as at 31.12.2019 are shown as current. Details of this allocation and derivative financial instruments are shown in Note 19
of the Financial Statements on page 184.
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 minimise this risk, SIG seeks to balance
certainty of funding and a flexible, cost-effective borrowing structure. This is achieved by using a range of sources of funding, preventing 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 2019 is as follows:
Bank debt
Private placement loan notes
Private placement loan notes
Private placement loan notes
Private placement loan notes
Facility
amount
£m
233.3
25.4
16.9
42.3
91.2
409.1
Amount
drawn
£m
100.0
25.4
16.9
42.3
91.2
275.8
Amount
undrawn
£m
Date of
expiry
133.3
May 2021
–
–
–
–
133.3
Oct 2020
Oct 2021
Oct 2023
Aug 2026
As at 31 December 2019, the private placement notes of have been reclassified as a current liability (2018: non-current liability) on the
balance sheet. See Note 19 for details.
Interest rate risk
The Group has exposure to movements in interest rates on its outstanding debt, financial derivatives and cash balances. To reduce this risk
the Group monitors its mix of fixed and floating rate debt and, if required, transacts derivative financial instruments to manage this mix where
appropriate. SIG has a policy of aiming to fix between 50% and 75% of its average net debt over the medium term. The percentage of gross
debt at fixed rates of interest at 31 December 2019 is 87% (2018: 88%).
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 they
operate. 61% of SIG’s 2019 continuing revenues (2018: 60%) were in foreign currencies, being primarily Euros and Polish Zloty. SIG faces
a translation risk in respect of changes to the exchange rates between the reporting currencies of these operations and Sterling and has
decided not to hedge the income statement translational risk arising from these income streams.
SIG also faces a translation risk from the US Dollar in respect of the interest due on its private placement borrowings. This risk has been
eliminated with the use of cross currency swaps, which swap the US dollar private placement debt and associated interest payments into euros.
38
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Balance sheet
The Consolidated Balance Sheet of the Group is inherently exposed to movements in the Sterling value of its net investments in foreign
businesses. For currencies where the Group has significant exposure, SIG seeks to hold financial liabilities and derivatives in the same
currency to partially hedge the net investment values.
SIG had the following net debt denominated in foreign currencies, held partially to hedge the assets of overseas businesses (including cash
and cash equivalents):
Euro
PLN
Other currencies
Total
% of net debt
2019
Local
currency net
borrowings/
(cash)
LC’m
2019
Sterling
equivalent
borrowings/
(cash)
£m
2018
Sterling
equivalent
borrowings/
(cash)
£m
291.9
(40.4)
multiple
n/a
n/a
217.6
(8.0)
(7.2)
202.4
44.5%
134.3
(15.8)
(3.9)
114.6
61%
Euro net debt at 31 December 2019 represented 47.8% of Group net debt (2018: 71%).
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.
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 and 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 regular 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 2019 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 net worth, leverage and
interest cover. The Group has already sought and obtained a waiver of the Consolidated Net Worth (CNW) covenant contained in the private
placement notes in respect of any testing thereof in the period from 28 May 2019 until 1 August 2020 (subject to certain events not occurring
in that period) including the testing of the CNW covenant as at 31 December 2019 on the basis of these financial statements.
The ratio for each of the key debt covenants is set out below:
Consolidated net worth1
Interest cover ratio2
Leverage ratio3
Year
ended
31 December
2019
Year
ended
31 December
2018
Requirement
>£400m
£300.3m
£463.6m
>3.0x
<3.0x
4.5x
2.1x
6.6x
1.7x
1 The consolidated net worth covenant is applicable to the private placement debt only and is based on consolidated net assets.
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 33d to the accounts on page 211.
3939
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Viability statement
In accordance with the requirements of
the 2018 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 48 to 49. As such, the key
factors affecting the Group’s prospects are:
■■ Market positions: SIG retains strong
market positions in its two core
businesses, which the Board believes 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; and
■■ Capital structure: ability of the Group to
raise up to £150m in new equity and,
alongside the proposed equity raise, to
agree amended facilities in respect of the
Group’s RCF and private placement debt,
including a reset of financial covenants.
The Board has determined that a three-
year period to 31 December 2022 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 the Group’s
financing, to make a realistic viability
assessment. This also aligns with the new
growth plan 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 2022.
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
The key assumptions within the Group’s
financial forecasts include:
■■ Turnaround for the business: a new
strategy is in place based on growing
the stronger EU businesses whilst
maintaining margin and costs, and
delivering a market share recapture
plan in the UK. Turnaround in the
UK is focussed on back to basics and
re-establishing valuable customer and
supplier relationships.
■■ Return to profitable growth: a new
strategy is in place to return the Group to
profitable growth through focussing on:
i)
ii)
Leading market positions: maintaining
and growing our leading share
in chosen specialist markets and
obtaining economies of scale and skill
through a modernised supply chain
and opportunities to digitise our
business;
Modernised operating model: driving
an omni-channel customer and sales-
led organisation built around strong,
local relationships supported by
specialists and national supply chain
network; and
iii) Effective partnerships: strengthening
customer relationships with superior
service and expertise and developing
supplier relationships through scale,
coverage and knowledge of their
business and markets.
■■ Impact of COVID-19: financial forecasts
include the impact of COVID-19 in FY20,
in particular in the UK, French and Irish
businesses, with two main scenarios
considered and updated for trading
performances during March and April
and time required to return to normal
trading.
■■ Dividends: no final dividend for 2019 as
previously announced.
■■ Availability of financing: €50m of private
placement debt matures within the
viability assessment period and the
Group’s £233m Revolving Credit Facility
(‘RCF’) is due to expire in May 2021.
However, alongside the proposed
equity raising and having regard to the
3 year viability period, the Group is
currently engaged in discussions with
its RCF lenders and private placement
noteholders with a view to agreeing
amended facilities in respect of the
RCF and private placement debt,
including a reset of financial covenants
and an extension of the availability of
the RCF. Pending the entry into such
documentation, the Group has already
sought and obtained a waiver of the
Consolidated Net Worth (CNW) covenant
contained in the private placement
notes in respect of any testing thereof
in the period from 28 May 2020 until 1
August 2020 (subject to certain events
not occurring in that period) including
the testing of the CNW covenant as at
31 December 2019 on the basis of these
financial statements.
■■ Strengthening of balance sheet: a £150m
equity raise is in progress to strengthen
the Group’s balance sheet and enable
reductions in net debt and leverage.
In order to assess the resilience of the Group
to threats to its viability posed by those
risks in severe but plausible scenarios, the
Group’s financial forecasts were 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:
40
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Assessment of viability
Variant
Sensitivity analysis has been modelled on the basis that the return to profitability may take
longer than expected, with downside scenarios modelled for 2021 and 2022.
The implications of a challenging economic environment, in particular the continued
uncertainty in relation to COVID-19, have been modelled by assuming a severe but plausible
reduction in sales in FY20 due to temporary closure and reduced operations, in particular in
the UK, France and Ireland.
Link to principal risks and uncertainties
Delivering business change
Market downturn
Delivering business change
Market downturn
Access to finances and cash management
The impact of the competitive environment within which the Group’s businesses operate and
the interaction with the Group’s gross margin has been modelled by assuming a severe but
plausible reduction in revenue and gross margins throughout the period.
Delivering business change
Market downturn
The impact of the equity raise not being successful has been considered.
Access to finances and cash management
The resulting impact (of the first three factors
set out above) on key metrics was considered
with particular focus on solvency measures
including debt headroom and covenants.
The impact of a severe or extreme COVID-19
scenario may affect the carrying value of
the Group’s assets and impact the current
and (following documentation being agreed
with the Group’s RCF lenders and private
placement noteholders) future financial
covenants associated with the RCF and
private placement notes.
If the equity raise is not successful then this
would trigger an end to the CNW waiver
referred to above or, following documentation
being agreed with the Group’s RCF lenders
and private placement noteholders (and
based on the Group’s current expectations),
an event of default under such amended
documentation. In either case the Group
will have to take mitigating actions, including
further discussions with the RCF lenders and
the private placement noteholders regarding
any basis upon which they may be willing to
continue to support the Group (including
the need for covenant waivers and access to
further liquidity).
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, seeking support from
the RCF lenders and the private placement
noteholders, seeking alternative sources of
finance, making further business disposals
and/or a merger or acquisition transaction.
The financial statements for 2019 are
prepared on a going concern basis but noting
a number of material uncertainties which
may cast significant doubt over the Group’s
ability to continue as going concern. These
uncertainties relate to the success of the
equity raise, the need to agree amended
terms in respect of the RCF and private
placement debt, the impact on the Group’s
debt facilities if the equity raise does not go
ahead and the uncertainty regarding the
impact of COVID-19.
After conducting their viability review, and
taking into account the Group’s current
position and principal risks, and noting the
material uncertainties disclosed in relation
to going concern, 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 2022.
4141
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Financial review
Going concern basis
The Group closely monitors its funding
position throughout the year, including
monitoring compliance with covenants and
available facilities to ensure it has sufficient
headroom to fund operations.
During 2019, the Directors announced the
proposed sale of the Group’s Air Handling
division to France Air for an enterprise value
of €222.7m (£187.0m) to strengthen the
balance sheet and reduce working capital
facilities. The sale completed on 31 January
2020 with net cash proceeds of €180.9m
(£151.9m) being partly used to manage the
Group’s working capital, including providing
liquidity over the short term to support the
Group’s business through the Covid-19
uncertainty.
Following a challenging trading period in
2019 and a change in its Executive Directors
in February 2020, the Group undertook
an extensive review of its business and
operating strategy together with potential
growth opportunities. During these reviews,
it became clear that revised lower forecasts
for future earnings for 2020 to 2022, based
on an analytical review of recent sales
trends, were likely to leave the Group with
higher than anticipated leverage levels
during this period. In turn, these highlighted
that the Group’s capital structure needs to
be addressed and, as a result, the Group
needs to raise new equity in order to enable
the successful delivery of the Group’s new
strategy while at the same time managing
liquidity.
With this in mind the Group is proposing
to raise up to £150m of equity through a
firm placing and placing and open offer in
order to reduce net debt and strengthen
the Group’s balance sheet. Alongside
the proposed equity raising the Group is
currently engaged in discussions with its
Revolving Credit Facility (RCF) lenders and
private placement noteholders with a view
to agreeing amended terms in respect of the
Group’s RCF and private placement debt.
Detailed discussions with the Group’s RCF
lenders and private placement noteholders
are ongoing and we expect to reach
agreement on amended terms in respect of
the RCF and private placement debt, which
may include the following key conditions:
■■ An equity issuance timetable including
receipt of proceeds in an amount of at
least £100m by no later than 29th July
2020;
■■ An extension of the maturity of the RCF
in order to meet the Group’s on-going
working capital requirements;
■■ A new covenant package which will
support an equity raise;
■■ Dividend restrictions until leverage
reaches certain levels;
■■ An event of default if the Group’s equity
raising fails and/or related key milestones
are not reached, triggering a requirement
for the Group to present an alternative
deleveraging plan for consideration by
the RCF lenders and private placement
noteholders. A deleveraging plan could
result in, without limitation and if the
consent of the RCF lenders and private
placement noteholders is obtained,
potential disposals or a merger or
acquisition transaction to ensure an
acceptable deleveraging of the Group’s
Balance Sheet; and
■■ Opportunity to explore additional
Government funding facilities both in the
UK and in Europe to further support the
Group.
We have assumed that terms for the revised
financing structure will be agreed and
that the Group and its RCF lenders and
private placement noteholders are able
to successfully document such terms in
substantive and binding documentation.
Pending the entry into such documentation,
the Group has sought and obtained a
waiver of the Consolidated Net Worth (CNW)
covenant contained in the private placement
notes in respect of any testing thereof in
the period from 28 May 2020 until 1 August
2020 (subject to certain events not occurring
in that period). Such waiver includes, without
limitation, CNW as at 31 December 2019 on
the basis of the Group’s audited financial
statements in respect of the period ending
31 December 2019.
As outlined above, the Group is seeking to
raise up to £150m of equity through a firm
placing and placing and open offer in order
to reduce net debt and strengthen the
Group’s balance sheet. The equity raising
process is expected to complete by 8 July
2020 however will require prior approval by
shareholders. The additional funds raised
will seek to create an appropriate balance
sheet structure and prevent investment
being constrained and business decisions
being influenced by a focus on leverage
and covenant management, which could
otherwise lead to managing the business in
a manner that may cause detriment to the
longer term prospects and the interests of
the Group’s shareholders.
In parallel to the discussions with the RCF
lenders and private placement noteholders,
as outlined above, the Group has been in
discussions with, and received confirmation
from IKO, the Company’s largest shareholder
of their support for the equity raise and a
conditional commitment from CD&R, a new
cornerstone investor to participate in the
equity issuance.
IKO, which currently owns approximately 15
per cent of the issued ordinary share capital
of the Company, has confirmed that it is fully
supportive of the Company’s new strategy
and equity raise and are intending to take up
their pro-rata entitlements in full as part of
the open offer.
■■ CD&R, a leading global private equity
manager has agreed to invest up to
£85m as part of the equity raise, with
a guaranteed minimum of £72.5m,
provided that an acceptable deal with
the Group’s RCF lenders and private
placement noteholders is agreed. While
the exact percentage holding will be
determined in due course, CD&R will hold
approximately 25% of the total enlarged
issue share capital. The initial tranche of
its participation will be placed at 25p per
share. The residual quantum of its equity
investment will be placed as part of the
second tranche, a portion of which will
be firm placed and the outcome of the
remainder will be dependent on the take
up of the pre-emptive offer by existing
shareholders.
Whilst the Group has reason to believe that
the equity raise will be successful based on
the above confirmation of support from IKO
and conditional commitment from CD&R to
participate in the equity raise, at the time of
publication of this report the outcome of the
equity raising is uncertain.
If an equity raise in line with the above-
mentioned timing is not successful, then
the Group will have to take mitigating
actions, including further discussions with
the RCF lenders and the private placement
noteholders regarding the basis upon which
they may be willing to continue to support
the Group (including the need for covenant
waivers and access to further liquidity).
Alternatives could include the option to
conduct a post-summer equity raise (if
available) or further disposals of assets
(such as the disposal of one or more of the
Group’s operating businesses to facilitate
a reduction of the Group’s outstanding
indebtedness) or a merger or acquisition
transaction involving the Company (in each
case if the consent of the RCF lenders and
private placement noteholders is obtained).
There remains the possibility of other
investors interested in buying the company’s
shares outright should an alternative funding
scenario be required.
In addition to the matters set out above,
the COVID-19 virus has added additional
uncertainty to the Group’s liquidity position
as Government restrictions in the UK and
Ireland, applied from late March 2020,
resulted in swathes of construction activity
stopping and impacting the Group’s sales.
To protect the health, safety and wellbeing
of staff, the majority of the Group’s UK
42
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT 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 44 to 49 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 03
to 61) was approved by a duly authorised
committee of the Board of Directors on
29 May 2020 and signed on the Board’s
behalf by Steve Francis and Kath Kearney-
Croft.
Steve Francis
Chief Executive Officer
29 May 2020
Kath Kearney-Croft
Chief Financial Officer
29 May 2020
and Irish sites were substantially closed in
April although a phased return to work has
since begun. In March, the Group’s French
operating company was briefly closed
following government guidance although
sites were permitted to be reopened shortly
afterwards, and trading in France continues
to build to pre-COVID-19 levels. However,
the Directors believe the Group will be able
to continue to manage through the current
COVID-19 uncertainty, particularly given
the experience of the Group’s operating
companies in Benelux, Germany and Poland
which have continued to trade well despite
government lockdown guidance.
Comprehensive actions have been taken
across the Group to reduce costs and
manage liquidity, including the furloughing,
for April and much of May, of approximately
2000 employees across the UK and Ireland
during the shutdown period, short-time
working in France, maximising opportunities
to defer VAT, PAYE and other tax payments,
temporary Board and employee salary
reductions, stopping or postponing capex
investment and cancellation of the 2019
final dividend. Government loan support
both in the UK and Europe remains a route
potentially available if required. These
actions to reduce costs and manage liquidity
during the COVID-19 crisis have resulted in
the Group managing its liquidity position
with cashflow forecast projections improved
from initial expectations. Despite the
benefits of these actions, ongoing significant
revenue reductions beyond the scenarios
which have been modelled could lead to the
Group’s liquidity falling below the minimum
required levels such that alternative
deleveraging plans which have been
considered would need to be implemented.
Accordingly, at the time of signing these
financial statements, there remain several
material uncertainties related to events or
conditions that may cast significant doubt
on the Group’s ability to continue as a going
concern and, therefore, it may be unable to
realise its assets and discharge its liabilities
in the normal course of business.
In forming an assessment of the Group’s
ability to continue as a going concern,
the Board has identified the following
material uncertainties and made significant
judgements about:
■■ The Group successfully agreeing
outline terms with its RCF lenders and
private placement noteholders (and
the RCF lenders and private placement
noteholders obtaining credit approval of
the same).
■■ The Group, together with its RCF lenders
and private placement noteholders,
successfully documenting such terms in
substantive and binding documentation.
■■ Achieving a successful equity raise of
up to £150m in line with the above-
mentioned timing, which entails the
approval of a prospectus by the FCA,
approval by shareholders at a General
Meeting and securing appetite for the
necessary investment.
■■ Whether, in the event the Group does
not achieve a successful equity raise, the
RCF lenders and the private placement
noteholders will continue to support the
Group in the short term in order to allow
the Group to complete the execution
of alternative plans (a secondary equity
window or alternative deleveraging plans
including further disposals or a merger or
acquisition transaction).
■■ The forecast cashflow of the Group over
the next 12 months upon signing the
financial statements depends on the
Group’s ability to continue to successfully
manage through the current uncertain
trading environment related to Covid-19.
■■ The Group’s ability to implement the new
strategy and deliver a stronger business
which is more sales led in a relatively
short period and do so in a period of
economic uncertainty.
After careful consideration of these, and an
assessment of the likelihood of a positive
outcome, the Directors believe that it
is appropriate to prepare the financial
statements on a going concern basis. The
financial statements do not reflect any
adjustments that would be required to be
made if they were prepared on a basis other
than the going concern basis.
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
4343
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Principal risks and uncertainties
Risk management plays an integral part in SIG’s planning, decision making and management
processes. All employees have a responsibility to ensure they understand the risks in
their area of activity, ensure appropriate controls are in place and that they are operating
effectively to manage these risks. The Board maintains overall responsibility for ensuring risk
management and internal control systems are robust.
The Board
Executive Committee
Audit Committee
1ST LINE
Business operations
■■ Management controls
2ND LINE
Oversight functions
■■ Financial control
■■ Internal control measures
■■ Risk management
3RD LINE
Independent assurance
■■ Internal audit
■■ Health and 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 control
to be managed in the first
line. Conducts monitoring
to judge effectiveness of the
first line, and helps ensure
consistency of definitions
and measurement of risk.
Ensures that the first two
lines are operating effectively
and advise how they could
be improved. Tasked by, and
reporting to, the Board and
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 associated risks are
effectively identified and managed through
the implementation of the risk management
and control framework.
The Group employs a three lines of
defence model to provide a simple and
effective way to enhance the risk and
control management process and ensure
roles and responsibilities are clear. The
Board maintains oversight to ensure risk
management and control activities carried
out by the three lines of defence are
proportionate to the perceived degree of
risk and its own risk appetite across the
Group.
44
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT
Risk management framework
The SIG risk management framework is
based on the identification of risks through
regular discussion at local operating
company leadership and Executive
Committee meetings. New and emerging
risks are identified through the use of
horizon scanning, regular exercises with
the Executive Committee and attendance at
relevant forums. These risks are monitored
on an ongoing basis with thorough risk
assessments completed where needed, to
ensure that the Group is well positioned to
manage these risks should they crystallise.
Climate change impacts are also considered.
Group risks are owned by an Executive
Committee member and sponsored by
either the CEO or CFO. These risks are
assessed at both a gross and net level
using an agreed risk scoring methodology.
Mitigating controls currently in place are
documented and regularly assessed, and
any further actions required to bring the
risk within risk appetite are agreed with risk
owners with clear dates for completion.
Group risks are formally reviewed by risk
owners with updates reported back to the
Executive Committee and Board bi-annually.
This includes a review of the completeness
of risk registers and the appropriateness
of risk scoring. On a monthly basis, the
Executive Committee examines, in detail, a
‘spotlight risk’ from the Group risk register.
A similar risk management process occurs at
the operating company level where the risk
register contains risks to the achievement
of the local medium-term plan. The Group
Risk team periodically review these risks
with local management and perform a
reconciliation with the Group risk register.
Details of spotlight risks are presented at
each Audit Committee meeting, with a focus
on Brexit, pricing, working capital and cyber
in 2019.
In 2019, the Group risk process was
enhanced through development of risk
appetite statements. An exercise was
completed with the Board to define the
Group’s risk appetite for seven categories,
which were classified as Averse, Cautious,
Open or Entrepreneurial. Each Group
risk was then assigned to a risk category
to define how much risk the Group was
prepared to take in relation to a specific risk.
Setting risk appetite has allowed the Group
to determine the effort and resource it is
prepared to commit to manage its risks.
For example, the Group decided to review
its strategy for health and safety in order to
ensure it was committing resource in the
right areas. Agreed appetite levels are now
compared against current risk assessments
for each of the principal risks with action
plans agreed if a risk is operating outside of
Risk category
Risk appetite statement
Financial
Operational
Health and safety
SIG prefers options in its everyday business that limit the
possibility of financial loss even though rewards may be
restricted as a result.
SIG is prepared to accept some adverse impact on
operational performance in the short term if there is a clear
business case with defined benefits that will help achieve its
objectives.
SIG has a priority to ensure that no harm comes to
colleagues, customers and suppliers and that there are
zero reportable incidents. SIG invests heavily to achieve this
zero-tolerance culture.
Regulatory and
compliance
SIG is a compliant organisation and invests to ensure that
there is a robust control environment to maintain a high
level of compliance.
People
Strategy
SIG will be forward-thinking in its organisational structure
and is prepared to make decisions that may impact a
limited number of employees if there is a clear medium to
long term benefit.
SIG will actively look to take strategic decisions that
maximise shareholder value. The risks will be assessed,
documented and managed but an increased level of risk
may be tolerated if additional reward could be obtained.
Transformation
SIG is willing to conduct transformation activity that has
greater potential of risk to delivery and underlying business
if there is a high potential for reward.
the Board approved appetite. The agreed
risk appetite statements for each risk
category are set out in the above table.
The Group monitors Key Risk Indicators
(KRIs) for its principal risks which help
identify when a risk profile may be changing.
The KRIs are reported monthly through the
management accounts and monitored as
part of the Executive Committee and Board
monthly meetings.
Assurance activity
First and second line functions provide
comfort to management that controls are
designed appropriately and are working
effectively to mitigate the principal risks.
Examples include the programme of branch
inspections by the Health and Safety team
and the review of the key controls framework
in each operating company by the Group
Controls team.
Internal audit provides independent
assurance on both control design and
effectiveness and, where relevant, the activity
conducted by first and second line functions.
The annual internal audit plan comprises of
a core cyclical plan (which mandates a review
of key financial and IT controls on an annual
basis) and a risk-based plan that is aligned
to Group risks. 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 are obtained
through a co-source arrangement with KPMG.
The Internal Audit team and KPMG agree a
set of control improvements with executive
stakeholders for each assignment and
obtains regular updates on progress
towards completion. All actions completed
by management are verified by the Internal
Audit team to ensure they mitigate the risk
originally identified. The status of all actions
is presented each month to the Executive
Committee and on a quarterly basis to the
Audit Committee.
In 2019 a high-level assurance map was
developed to identify the level of assurance
activity taking place across the three lines of
defence in relation to the principal risks. The
preliminary assessment identified assurance
gaps which will be addressed as part of the
risk management process in 2020.
4545
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Principal risks and uncertainties
Developments in 2019
Key developments of the management of
risk and internal control in 2019 included:
■■ Updates to the risk management
framework.
■■ Development and agreement of the
Group’s risk appetite.
■■ Assurance mapping exercise to identify
potential gaps or inefficiencies in
assurance activity.
■■ Development by the Group Controls
team of the key controls framework to
include more detailed risk and control
matrices for significant risk areas.
■■ Roll out of an action tracking tool to
internal control.
■■ Accelerated program of enhancement of
the cyber security environment.
Improvements planned
for 2020
SIG will continue to improve its risk
management processes with a number of
initiatives in 2020:
■■ Further refinement, automation and
development of KRI reporting.
■■ Documentation of risk and controls
matrices for remaining key control areas.
■■ Further review of legacy systems in
SIG France, SIG Germany and the
UK to ensure the Group adopts the
right system and strengthens controls
accordingly.
■■ Incorporation of standard tests in all
risk-based audits, such as for IT general
controls and fraud.
■■ Independent review of the Group’s
forecasting process to establish greater
control, accountability and transparency.
Brexit risk
At 11pm on 31 January 2020 the UK entered
an 11-month transition period marking the
UK’s exit from the European Union. During
the transition, the UK remains subject to
EU law and remains part of the EU customs
union and single market.
The Board continues to regularly review the
potential impacts of the transition period
and beyond, to ensure its assessments of
risk to SIG’s businesses, particularly in the UK
and Ireland, remain appropriate.
Whilst the majority of the Group’s profits
are generated by its mainland European
businesses, a significant proportion are
derived from the UK and ROI, both of which
will face changes to the way they distribute
goods across borders. The potential impacts
of the changes on 1 January 2021, such as
the impact of trade agreements, tariffs and
quotas that result from forthcoming trade
negotiations, will continue to be monitored
on a regular basis. The major areas of
potential exposure 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. The ongoing
uncertainty over trade deals is likely to
perpetuate the delays to large projects
in the UK and Europe during the Brexit
negotiation period, impacting the
demand for materials. Market data is
continually monitored to ensure that
contingency plans are appropriate.
■■ Heightened borders – with the exact
nature of the UK/EU borders yet to be
confirmed there is a risk that goods
supplied from Europe (directly or
indirectly) may ultimately have longer
lead times, may be subject to tariffs or
become unavailable from 1 January 2021.
The majority of materials sold in the UK
are purchased in-country, however some
raw materials are sourced by suppliers
from the EU. Discussions with suppliers
have been held to identify potential
risk areas and targeted increases in
stockholding are under consideration.
Whilst the Irish business is considerably
smaller than that in the UK, there is a
greater potential risk of additional border
controls and considerable steps have
been taken to minimise disruption to the
supply of goods.
The business will maintain continued
dialogue with its customers as negotiations
develop and the Group will continue
to update its risk assessment on a
regular basis.
46
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT SIG has reviewed its principal risks in light of
the pandemic and made adjustments where
necessary. For example, the health risk for
employees and customers has increased
in likelihood. At this stage it is impossible to
estimate the impact of the pandemic on the
Group. However, SIG continues to model a
range of scenarios and refine its contingency
plans as the trajectory and severity of the
pandemic develops.
COVID-19
Since the outbreak of COVID-19 in Q1 2020,
SIG has continued to monitor the impact of
the unfolding situation and has implemented
mitigating measures to protect customers,
employees and suppliers to act within
government guidance.
In responding to the evolving risk of
COVID-19, the Board and Executive
Leadership Team have identified a number
of measures to manage the Group’s risks
across a range of areas, including liquidity,
people, supply chain and regulations. The
Group Executive Committee is meeting
regularly to provide updates on the situation
and to ensure that the actions that have
been taken are managing the threat.
Finance Directors are also meeting on a
regular basis to exchange ideas and resolve
issues particularly in relation to cashflow.
Additional business continuity plans are in
place in each operating company in order
for local leadership teams to ensure they
are responding quickly and effectively to the
local situation. Some of the measures taken
to date include:
Whilst the Group has significant cash
holding in the bank following its disposal
of the Air Handling business, it is also
exploring alternative sources of funding
to ensure it has cash available for the
longer term. The Group has developed
its cashflow forecasting model to ensure
it has the most accurate view possible of
future cashflows.
■■ Temporary closure of its UK and Irish
businesses and selected branches of
other operating companies in line with
local government advice, to protect its
people and to conserve cash. In the
UK, the business has continued to keep
open branches that service projects
essential to frontline services in the fight
against COVID-19 with staff briefed on
appropriate safety measures. In Ireland,
the business has continued to supply
critical and emergency projects where
required. We re-opened the majority of
the sites in the UK by mid-May.
■■ Scenario-planning for a range of
scenarios which vary both in time and
severity.
■■ Actions to manage the Group’s cash
■■ Purchase of additional laptops and VPN
requirements such as putting on hold
capex-intensive projects, entering
negotiations with suppliers on invoice
payments and exploring how the Group
in each of its jurisdictions can take
advantage of governmental support (in
the form of government guaranteed
loans, deferred payments or grants).
licences to support as many as people as
possible to work from home. Additional
fraud measures have also been put in
place as organised crime intensifies its
own activity to gain access to SIG systems.
Principal risks
The Board monitors 18 risks on the Group Risk Register,
which includes the ten 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 controls) are outlined in the adjacent
matrix and details of the risks, current mitigations and
planned improvements are included in the table on the
next page.
Principal risks
A
Access to finance
F
Market downturn
and liquidity
B
Retention of talent
C Cyber security
G System failure
H Supplier rebates
I
Health and safety
D
Delivering the customer
J
Delivering business
experience
E Business growth
change
t
c
a
p
m
I
4.
3.
2.
1.
C
D E
F
G
H I
J
A
B
1.
2.
3.
4.
Likelihood
4747
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT
Principal risks and uncertainties
Risk title
Description
Mitigations
Actions for 2020
A Access to
finance and
liquidity
N
Failure to secure
ongoing access
to finance and/ or
maximise working
capital and cash to
support ongoing
business and growth
strategies.
■■ Cash forecasting undertaken to manage
■■ Further development of business
short-term liquidity.
forecasting capabilities.
■■ Budgets set for all areas of the business with
accountability for performance established.
■■ Enhanced monitoring of cash flow
and liquidity forecasting.
■■ Key metrics reviewed regularly in
management accounts and at management
meetings.
■■ Borrowing requirements regularly
reforecast.
■■ Relationship maintained with banks and PP
holders through regular communications
and presentations.
■■ Monitoring conducted over compliance with
covenants.
■■ Regular MD and FD meetings to
refresh and implement working
capital strategies.
■■ Additional monitoring of working
capital requirements under
COVID-19.
■■ Regular discussions with debt
providers around loans and banking
facilities as necessary.
B Retention of
talent
Failure to attract and
retain people with the
right skills, drive and
capability to re-shape
and grow the business.
■■ Improved induction process.
■■ Roll out of an overarching
■■ Engagement survey completed with
associated action plan developed.
■■ Improved remuneration packages and
retention plans for critical roles.
improvement plan for recruitment,
reward, development and
communications.
■■ Launch of commitment culture.
C Cyber
security
Internal or external
cyber attack could
result in system
disruption or loss of
sensitive data.
■■ Training, communications and schedule to
■■ Enhance cyber attack monitoring.
ensure employee awareness of risks.
■■ Disaster recovery plans in place and secure
backups conducted to ensure continuity of
service.
■■ End point encryption installation.
■■ Introduce cyber KPIs in to monthly
reporting.
■■ Acceleration of specific initiatives
to address increased cyber risk
resulting from COVID-19.
D Delivering
the
customer
experience
N
Failure to deliver
consistent, high-quality
service to customers
and / or strengthen
relationships with
customers.
E Business
growth
N
SIG is unable to grow
sales and/ or land new
market opportunities
to grow market share
in line with strategy.
■■ Customer-centric training and development
programmes.
■■ Customer segmentation analysis.
■■ Investment in digitising order-to-delivery
processes.
■■ Development of loyalty programmes.
■■ Customer metrics are reported and
monitored regularly in management
accounts and at management meetings.
■■ Further development of induction
and training programme for sales
force.
■■ Further development of customer
satisfaction and net promoter score
surveys.
■■ Further digitisation of e-commerce
platforms and order-to-delivery
processes.
■■ Enhancements to complaints
handling procedures.
■■ Growth targets included in budgets for all
■■ Enhancement of business
business areas.
■■ Business performance is reported and
monitored regularly in management
accounts and at management meetings.
■■ Bespoke technical offerings and diverse
specialist product ranges give access to
specialist markets.
■■ Sales force innovation and diversification
activities.
■■ Regular MD and FD meetings to refresh and
implement growth strategies.
forecasting capabilities, with
increased focus on volumes.
■■ Define acquisition target profile and
conduct market screening.
■■ Development of major account
management framework.
■■ Ongoing monitoring of COVID-19
pandemic to ensure market forces
are accommodated in strategies.
48
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Risk title
Description
Mitigations
Actions for 2020
F Market
downturn
Volatility in the market
impacts the Group’s
ability to accurately
forecast and to meet
budget and City
expectations.
G Systems
failure
H Supplier
rebates
Systems become
heavily customised
and outdated and are
unable to support
critical business activity
and decision making.
The Group may not
be accessing and/or
maximising all available
rebate income.
I Health and
safety
Danger of incident or
accident, resulting in
injury or loss of life to
employees, customers
or the general public.
J Delivering
business
change
Failure to deliver
the change and
growth agenda in an
effective and efficient
manner, resulting in
management stretch,
compromised quality
and inability to meet
growth targets.
■■ 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 and KRIs monitored
monthly at a Group and operating company
level.
■■ Continue to monitor Brexit risk and
the impact of COVID-19, scenario
plan and develop mitigation plans
accordingly.
■■ Further develop KPI and KRI tracking
and market modelling functionality
to better assess the impact of
market changes.
■■ Regular and ongoing business performance
■■ Roll out of a Group wide forecast
reviews are conducted.
modelling tool.
■■ Enhance financial sales forecast
processes with fuller Group visibility.
■■ Detailed review of operating company
and Group forecast process.
■■ New IT strategy approved.
■■ Support from specialised third party
■■ Implement new HR system in the UK.
■■ Complete systems Cloud migration
experts.
plan.
■■ Review ERP in SIG France and
SIG Germany.
■■ Refresh of business continuity and
disaster recovery plans.
■■ Reducing the reliance on rebate income
■■ Full implementation of rebate
through off-invoice discounting.
■■ Rebate debtors and income regularly
reviewed by commercial and finance teams.
■■ Changes to rebate assumptions approved
by the rebates committee.
■■ Health and safety policies and procedures
in place and available to all employees.
■■ Well established training programme during
induction and on an ongoing basis.
■■ Monitoring and reporting on incidents and
investigations into root cause carried out to
continually improve processes.
■■ Health and safety inspections completed by
independent teams.
■■ Project Delivery Framework in place for IT
enabled projects.
■■ Governance process in place for delivery of
major projects.
■■ Transformation Directors appointed in
major operating companies.
management software in UK with
additional tools in SIG France and
SIG Germany.
■■ Develop and roll out of
comprehensive health and safety
strategy, which accommodates
additional COVID-19 measures.
■■ Roll out improved agile SIG-wide
Project Delivery Framework, with
increased accountability and further
monitoring of stage gates.
■■ Introduce improved forum for
Group-wide project prioritisation,
based on benefit and risk.
■■ Continue to prioritise business
change projects based on availability
of cash throughout the COVID-19
pandemic.
Relevance to strategy
Understanding movements in business risks
A leading market
position
High performing
people
Modernised
operating model
Responsible
business
Effective
partnerships
Increase
Decrease
No change
N
New
4949
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Our focus areas
Sustainability framework
SIG is committed to creating
long term sustainable value
for our stakeholders. To
achieve this goal, we have
aligned our operations with
the Sustainable Development
Goals, providing us with a
framework to map against.
Our chosen sustainability
framework
The Sustainable Development Goals (SDGs),
created by the United Nations (UN), are
the blueprint to achieve a better and more
sustainable future for all. They address the
global challenges we face, including those
related to inequality, climate change and
responsible consumption and production.
This is the first year SIG have reported
against the SDGs. We welcome the
framework as it is committed to solving
global issues, and these universal principles
support our commitment to responsible
business operations.
Peace, justice and strong institutions
SIG is committed to ethical trading, human rights, anti-bribery and corruption,
as well as tackling modern slavery.
SIG has a number of fundamental principles and values that it believes are
the foundation of sound and fair business practice.
Climate action
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.
Responsible consumption
and production
Where possible in the organisation, we focus on responsible consumption.
We aim for high levels of recycling across our business, and our Reduce,
Reuse, and Recycle policy supports our approach.
Industry, innovation and infrastructure
We support industry, innovation and infrastructure through our position
as leading supplier of specialist building materials. We support and enable
organisations to complete infrastructure projects that have a positive impact
upon the society it is created within.
Decent work and economic growth
Through a focus on the long term sustainable success of the organisation, SIG
provide decent work and economic growth for our employees and wider society.
Our focus on training and support for our employees enables the long-term
sustainability of SIG.
50
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT During the year, we reviewed the goals and
undertook a mapping exercise to establish
our focus areas. We have linked the goals to
our sustainability principles and operations.
The SDGs and the application of these by
SIG will create a wider business benefit,
and by utilising the SDGs we will drive a
sustainable agenda.
Our focus areas
3. Good health and well-being
4. Quality education
5. Gender equality
8. Decent work and economic growth
9.
10. Reduced inequalities
12. Responsible consumption and production
13. Climate action
16. Peace, justice and strong institutions
Industry, innovation and infrastructure
Our focus areas
Good health and wellbeing
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.
Quality education
We have a programme in place called RISE, to develop high potential
employees in the business, which aims to progress future leaders. Our
international graduate scheme develops valuable skills in teamwork,
leadership and problem solving, which supports graduates in their every
day roles. SIG also offers regular development activities and focuses on
continuous development of our employees.
Reduced inequalities
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. Our policy, available on our website demonstrates our
commitment to this area.
Gender equality
SIG is committed to equality and recognise the value that can be created
from diversity. In 2018, SIG defined the key areas of focus which will develop
diversity and inclusion across the Group. We have addressed our gender
pay gap further, challenged the processes around recruitment, provided
training and awareness raised awareness amongst management. We have
been working towards these goals in 2019 and will continue to articulate our
progression against these within our sustainability content.
5151
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT Non-financial information statement
We are required by law to provide additional
information and disclosures on non-financial
matters, and we recognise the impact of
this information and its importance for
stakeholders and regulators.
SIG continues to progressively integrate
corporate responsibility across the
Group, and we are committed to socially
responsible business practices for our
shareholders, employees, customers and
suppliers.
The table below summarises the
requirements and where relevant
information can be found within the Annual
Report and Accounts.
Further information on our sustainability
policies and corporate responsibility can be
found at www.sigplc.com.
Reporting requirement
Relevant policies and frameworks
Relevant risks
Where to read more
Environmental matters
Low Carbon Sustainability Policy
Health and safety
Waste management
Health Safety and Environment Policy
ISO14001 accreditation
People and social
Diversity and equal opportunities
Retention of talent
SIG Code of Conduct
Diversity and Inclusion Policy
Gender diversity
Employee engagement
Sustainability:
environment, health and safety
pages 58 to 61
Sustainability:
principles pages 53 to 54
Sustainability:
people pages 55 to 56
Human rights and
anti-bribery
Ethical Trading and Human Rights Policy
Legislative breach
Anti-Bribery and Corruption Policy
(non principal risk)
Sustainability:
principles pages 53 to 54
Our business model provides
insight into our key activities
and how we add value to our
stakeholders.
Principal risks and
uncertainties are managed
through the risk management
framework.
Read more on page 10
Read more on page 44
Our KPIs enable us to measure
the success of our strategic
objectives and performance.
Read more on page 18
Read more about our specific
people and environment KPIs
on pages 55 to 61
The section 172(1) Statement is set out on pages 78 to 80 of the Corporate Governance Report (providing information on
how the directors have performed their duty to promote the success of the Company) and is incorporated by reference into
the Strategic Report
52
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Sustainability:
Principles
Sustainability
SIG recognises its corporate responsibilities
towards its shareholders, employees,
customers and suppliers and is committed
to socially responsible business practice.
We are committed to creating long term
sustainable value for our stakeholders, and
to achieve this goal we have utilised the
Sustainable Development Goal framework.
The Group considers policies that include
social and environmental issues in its
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, corruption,
ethical trading and human rights. 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
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. If an employee
becomes disabled during our employment,
we make every effort to ensure that they can
continue in employment with us, by making
reasonable adjustments in the workplace
and by providing retraining for alternative
work where necessary.
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.
High performing teams
Launching a personal
development programme
SIG Poland launched a sales development programme in the year, based on
the Kurt Lewin change management model. This has been led through many
development forms such as workshops, gamifications, consultations, coaching
and mentoring, and has been available to managers and sales employees.
The development programme consisted of three parts, each with separate goals.
The first goal was to prepare and self-reflect. The second part of the programme
focused on increase of awareness, self-reflection and gathering new knowledge,
which included activities such as gamification, sales technique and negotiation
training. The third part was focused on increasing team management skills
delivered by development and coaching sessions with managers.
As the number of programme participants and their feedback shows, the
programme has been a great success and will be continued in subsequent years.
5353
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Principles
The policy sets out standards concerning:
■■ Safe and fair working conditions for
employees;
■■ Responsible management of social and
environmental issues within the Group;
and
■■ Standards in 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.
Anti-bribery and
corruption policy
SIG has a number of fundamental principles
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
standards required to ensure compliance
with legal obligations within the countries
in which SIG and its subsidiary companies
operate.
Anti-bribery and corruption training is
provided to all employees across the Group.
This training is provided via our online
training resource and 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).
Modern Slavery Act 2015
The Group has published its Group Modern
Slavery statement in respect of the year
ended 31 December 2018 on our 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 2019
statement will be published on our website
in compliance with the required deadline.
Payment practices
SIG publishes information about payment
practices and reporting as required by
the Reporting on Payment Practices and
Performance Regulations 2017 in the UK.
This is published on a government website
https://check-payment-practices.service.gov.
uk. This report is published every 6 months
as per the requirements and the last one
was submitted at the end of January for the
six months to 31 December 2019.
Links to SDGs
Responsible business
Introducing
the Lean
philosophy
During the year we introduced the Lean philosophy
to all employees at SIG Benelux, with the aim of doing
work right the first time to generate as much value
as possible. To achieve this, a number of processes
were mapped out and employees were trained in how
to identify the waste in these processes and which
could be removed. This training is the beginning of a
continuous improvement cycle within SIG Benelux.
A number of our employees in SIG Benelux have
also received training in the Green Belt certification
in Kaizen and hold regular improvement boards
to optimise processes and solve problems in a
sustainable way.
54
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Sustainability:
People
High performing teams
At SIG we strongly believe that our people
are our competitive advantage and are
key to the delivery of our strategy. Our aim
is to develop talent across the business
and nurture strong, sustainable and
capable teams. We also believe that the
underpinning advantage is the development
of a strong culture that encourages and
empowers employees to maximise their
contribution and reach their potential.
Throughout 2019, we have continued to focus
on ensuring that we have the right structure,
with the right people in the right roles to
support the operating model. On these
foundations, our focus moves to the further
strengthening of our capability through the
re-engagement of our people following what
has been a significant period of change.
In addition to the refining of our people
programmes, extensive work was undertaken
to define direction of our culture going
forward. Further information can be found on
our culture programme on page 57.
Diversity and inclusion
We recognise and celebrate the value that a
diverse workforce offers. We are committed
to developing a working environment that is
fair and inclusive, enabling all employees to
make their individual, valuable contributions
for the benefit of the business. We are also
committed to ensuring that we extend
this same principle to all our customers,
suppliers, business partners and the
communities in which we operate.
During the year, we initiated a Diversity and
Inclusion programme, in order to assess and
develop diversity across the Group. In the
first phase, conducted throughout 2019, we
focused on mapping our legal requirements
globally and defining our actions going
forward to ensure compliance.
Our action plan centres around three main
objectives:
■■ To develop diverse and inclusive
was supported by supplementary online
training, which was launched to the Board
of Directors, Executive Team, senior leaders
and subsequently the entire workforce.
Our Diversity and Inclusion Policy can be
found at www.sigplc.com.
Gender diversity and pay
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.
In January 2019, our Leadership team agreed
to our Gender Pay action plan. This detailed
plan comprises of a number of interventions
which all aim to have a positive impact on
our Gender Pay Gap and more widely on our
diversity across the Group.
Our plan includes:
■■ Taking steps to ensure that our recruitment
processes are robust and inclusive.
■■ Reviewing of our pay rates and employee
benefits to ensure that we appeal to and
retain a diverse workforce.
■■ A range of awareness activities which
aim to educate our managers and wider
workforce on diversity and inclusion.
We acknowledge that there will never be
a nil Gender Pay Gap and recognise that
although important, monitoring pay gaps
is one of many measures of diversity. SIG’s
average gender pay gap in 2019 of (6.3)% is
substantially lower than the national average
of 16.2%, and the average for the industry
at 11.9%. This also reflects a significant
reduction in the gender pay gap from 2018
5.4%. SIG will continue to take meaningful
action towards diversity in 2020 as we build
on the positive work undertaken in 2019.
Total
employees
Board
members
Senior
managers2
Senior
management3
Total1
6,452
Total1
8
Total1
13
Total1
21
approaches to attract and secure talent
from diverse backgrounds.
Female
■■ To develop our ways of working to ensure
SIG is an inclusive place to work.
■■ To develop our opportunities to all
to enable long term development,
progression and succession planning.
As part of this programme of activity, we also
created a monthly dashboard of statistics
which allows us to track and assess key
indicators across a range of demographics
in support of developing our approach to
diversity across the Group.
In addition, the Group’s standards and
expectations were further defined and
outlined in an updated Diversity and
Inclusion Policy. The policy was rolled out
in December 2019 across the Group and
19%
1,226
Male
38%
3
15%
2
29%
6
81%
5,226
62%
5
85%
11
71%
15
1. Headcount as at 31 December 2019, excluding Air
Handling employees
2. Data is as per s.414C(8) of the Companies Act and
includes subsidiary Directors
3. Data is as per provision 23 of the UK Corporate
Governance Code
Talent development
As part of the Talent Review process, the
senior leadership population is assessed in
order for us to identify the talent capability
and development areas for future potential.
We continued to develop the integration
with our succession planning process.
In addition, our programme dedicated to
developing high potential management
level employees in the business, RISE,
aims to identify and progress our future
senior leaders and support the delivery
of our strategic goals. In 2019, due to the
high volume of transformational activity
occurring across the organisation and the
significant change in leadership, we took
the opportunity to review the programme
to ensure it is refreshed and refocused
for a 2020 relaunch. Moving forwards, the
programme will consist of five extensive
development modules over the course of a
12 month programme, which will include a
nine-month language course and a stretch
project linked to our business strategy; the
programme culminating in a presentation to
the Group Executive Committee. Throughout
the programme, the participating employees
will be given access to one-to-one Executive
coaching and an internal mentor, to
continue and support their learning within
the workplace.
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.
Again, 2019 provided the opportunity for
us to review the scheme, and we have
restructured the programme in preparation
for a 2020 launch. The two year programme
offers graduates the opportunity to
experience working in a number of different
placements across SIG, from Finance,
Category Management, Marketing, Corporate
Development, Project Management,
Operations, Supply Chain to HR. To enable
participants to gain as much exposure
and experience in each area, they will now
complete longer placements of eight month
periods, providing more dedicated time to
the graduate’s learning and to support the
business more effectively throughout the
transformation of the organisation.
Alongside their placements, the graduates
will continue to take part in regular
development activities and modules outside
of the workplace, supported by our external
development partner.
In addition, as we bring senior leaders into
the business, it is important that we equip
them with the right knowledge and tools
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People
in order for them to perform in their roles
quickly and effectively. As we continue to
develop the business and improve our ways
of working, in conjunction with the Board
of Directors, the focus on compliance was
reiterated and renewed earlier in the year
through the through an extensive review and
relaunch of Group-wide compliance policies
and the launch of compliance e-learning
platform and training to drive awareness,
understanding and application of our
obligations.
Core compliance modules were launched
to all employees throughout the Group,
including Code of Conduct awareness,
GDPR, Gifts and Hospitality, Anti-Bribery
and Corruption, Alcohol and Substance
Misuse and a general level of health and
safety training. These core modules are
then incorporated into every new starter
induction programme when joining SIG.
Throughout 2020, as our Group policies
continue to be updated, training modules
will be created to support the cascade of the
policies out across the organisation.
Employee engagement
We continue to develop the ways in which
we engage with our employees, and offer
two way communication opportunities. Our
annual employee engagement survey, SIG
Listens, opened in March 2019 and was
completed by 70% of employees (2018: 66%)
and achieved an engagement index of 65%.
The survey was launched online in our key
languages, and from the results, we were
able to identify four areas of focus for action
planning and implementation. Following
the completion of the survey, the results
and insights were presented to the Board
and Executive Team and shared across the
Senior Leadership Team, for action planning
to take place at local levels. Throughout the
remainder of the year, leaders and dedicated
teams held focus groups to define the
actions to address each area and focused on
delivering the identified improvements.
Where possible, the results are compared
to the worldwide private sector benchmark
to ensure that we continually challenge
ourselves to improve. Throughout the
year we continued with our senior
leadership team engagement, with monthly
communication and materials to support
in cascading key business messaging
throughout the business.
In addition, the results highlighted that
our people were eager to understand the
vision and future focus of the business, and
develop further understanding of how they
play a part in the achievement of our goals,
which directly influenced the development of
a new strategy and culture framework.
Community
In the UK, our Matched Funding initiative
allows employees to request charitable
donations to match their personal or team
fundraising activities in local communities. In
2019, the Group donated £11,000 through
this scheme which has benefited a range of
local children’s, healthcare and community
charities. We continue to support our local
communities around the Group.
Links to SDGs
56
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Sustainability:
Our culture
Developing our cultural
framework
As we look towards the growth of the
business, in addition to defining the longer
term vision and strategy, the way in which
we work and the culture that we promote
is equally as important. Defining the next
phase of development for our culture is a
key step in achieving our goals.
Throughout the year, extensive work took
place to define a new strategic vision,
purpose statement and supporting culture
framework. Moving forward, our newly
defined behaviours will drive the consistent
and shared actions to drive performance
and conduct.
Our actionable behaviours
Working with an external specialist coaching
team, the Executive Team undertook a
number of two-day sessions to define the
behavioural requirements that would enable
success.
The Board was provided with regular updates
on the development of the cultural framework
and behaviours. Input and feedback was
provided ahead of the launch of the new
culture programme in January 2020.
Implementation in 2020
The launch of the new culture programme
began in January 2020 and implementation
will take place throughout 2020. The
programme will be supported by a full
communication and engagement plan across
the organisation, and preparation has begun
to integrate the framework into our key
people processes such as the performance
management programme, recruitment,
recognition and induction programmes.
In addition, measurement of the adoption
will take place throughout the year through
a series of pulse surveys and through our
quarterly business reviews.
Following the launch of our new culture
programme to the senior leadership
population in January, a pulse survey was
conducted across the Group to gain initial
feedback from employees on existing culture
traits and thoughts on the newly launched
framework.
The results have provided deeper insight
into the cultures that have organically
developed in each operating company
and established a benchmark on which to
plan tailored actions and measurement to
demonstrate tangible progress.
Our
behaviours
Be bold in what you do
We encourage our people to act
with ambition and determination,
offer and invite challenge to drive
action and success, and take
decisions and have the courage to
do the right thing.
Be flexible and agile
We encourage our people to look
towards the future pro-actively and
innovatively, leading change through
diverse thinking and seeking to
understand our markets, customers
and competitors, and respond
accordingly.
Make a positive
difference
We encourage our people to build
honest and considerate relationships
to set expectations and direction
and create commitment, and
develop themselves and others to
deliver excellence.
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Environment, health and safety
Climate change and
sustainability
SIG has held accreditation to the ISO14001
environmental management standard for its
UK operations since 2006. This has provided
us with a framework for our environmental
management system and helped us develop
our climate change and sustainability
strategy. The Board has also considered the
impact of climate change on the Group’s
business model. Some of our risks and
opportunities are detailed later and include:
External
■■ Political and legal: potential liability or
effects of forthcoming new and revised
legislation. Regulation and guidance is
assessed by the senior management to
develop policy.
■■ Technological changes: we strive to be the
market leader in new technologies and
advancements in products and materials.
This includes green and environmentally
sound technology to support suppliers,
customers and develop SIG’s place in the
market.
■■ Physical risk: the potential impact of
more extreme weather on our facilities
due to changes in weather patterns is
reviewed through our aspects and impact
assessments for new and existing premises.
Internal
■■ Greenhouse gas emissions: we target
efficiencies in vehicle fuel consumption,
which contributes to 74.7% of our carbon
footprint, through vehicle selection, driver
training and efficient driving assessment.
■■ Emissions: our emissions to atmosphere
from our manufacturing businesses are
minimised by use of water-based solvents
where practicable and filtered ventilation
systems.
Carbon management
The aim of our Low Carbon Sustainability
policy is to minimise the impact of our
operating on the environment. We achieve
this by minimising our carbon emissions
through reductions in energy and fuel
consumption and by minimising waste and
water consumption.
We measure and report on our carbon
footprint in accordance with the Streamlined
Energy and Carbon Reporting regulations
(SECR) and the accounting process for 2019
will be externally assessed to the ISO 14064-
3 standard.
As part of our compliance with the UK
Government’s statutory Energy Saving
Opportunities Scheme (ESOS), we have
benefited from energy efficiency audits
conducted at seven of our major locations
and our transport activities. The energy
saving opportunities identified have been
considered for the 2020 objectives.
Our carbon management KPIs and
performance are externally published
through the annual voluntary submission to
the Carbon Disclosure Project (CDP).
Through our ongoing consolidation
programme, investment in new buildings
and refurbishment of our existing buildings
we have introduced energy efficient lighting
and heating facilities. As a result of this
strategy and the progressive upgrading of
our road vehicle fleet, our greenhouse gas
emissions continue to reduce.
Transport
Emissions from road vehicle fuel
consumption makes up 74.7% of the Group’s
total carbon footprint and is our primary
KPI for reduction. Through the introduction
of energy efficient vehicles, the continual
focus on driver assessment and training
and efficient vehicle routing, we continue to
achieve annual reductions in emissions.
We have continued to focus on projects
designed to maximise the efficient use
of delivery vehicles, consolidate our
vehicle fleet and through better use of
communication technology reduce the miles
travelled by colleagues.
This year we have reduced our absolute
consumption of road vehicle fuel by 11.4%.
Energy
Carbon emissions from electricity
consumption accounted for 11.4% of our
Scope 1 and 2 emissions in 2019 (2018:
11.8%). This is our second highest priority for
carbon management with a focus on energy
efficient choices for new and refurbished
facilities, including installing movement and
daylight sensor LED lighting systems, efficient
heating and cooling systems and efficient
hand driers.
We audit our energy consumption and
work in close partnership with our external
partners to reduce our environmental
impact. In 2019 this process was enhanced
by the in-depth audits conducted through
our ESOS compliance. The opportunities
for improvement have been communicated
across the Group.
In 2019 our emissions from electricity
consumption reduced by 13.0%.
58
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Greenhouse gas (GHG) emissions
We are committed to providing full and accurate data for our carbon footprint, with minimal
reliance on estimates. In 2019, 92.8% of information is based on actual data (2018: 93.5%).
Estimates are prepared based on agreed and verified accounting processes. We continue
to improve our data collection and accounting processes, and the GHG information for
the period October 2018 to September 2019 has been verified by Carbon Intelligence to
international standard ISO14064-3 to a limited level of assurance.
Our carbon footprint includes emissions for which we are directly responsible such as vehicle
and heating fuel (Scope 1) and emissions by third parties from the generation of electricity
(Scope 2). We have also disclosed Scope 3 emissions over which the business has limited
control, including third party air and rail transportation.
In order to provide the appropriate time and resource to enable more accurate carbon
reporting and auditing of the process, our emission accounting period is non-coterminous
with the Group’s financial year. The current data year is to 30 September 2019.
This year we are pleased to report a decrease of 9.9% 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 9.8% in the last reporting year. Our carbon footprint includes all emission sources as
required under The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations
2013 regulations. Emission factors from the UK Government’s GHG Conversion Factors for
Company Reporting 2019 along with Factors from The International Energy Agency (IEA) list
for 2019 have been used to calculate our GHG disclosures.
CO2 emissions – Scope 1 – Direct
Road vehicle fuel emissions1
Plant vehicle fuel emissions2
Natural gas3
Coal/coke for heating4
Heating fuels (Kerosene & LPG)5
Total
Data source and collection methods
Metric
tonnes
2019
49,383
4,953
2,836
37
868
58,077
Metric
tonnes
2018
55,745
4,910
2,848
56
632
64,191
Metric
tonnes
2017
59,997
5,202
3,047
46
689
68,981
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
4
5
Consumption in kWh converted according to BEIS guidelines.
Purchases in tonnes converted according to BEIS guidelines.
Purchases in litres converted according to BEIS guidelines.
CO2 emissions – Scope 2 – Indirect
Electricity1
Data source and collection methods
Metric
tonnes
2019
7,455
Metric
tonnes
2018
Metric
tonnes
2017
8,567
10,129
1
Consumption in kWh converted according to BEIS guidelines.
CO2 emissions – Scope 3 – Other indirect
Third-party provided transport (air and rail)1
Data source and collection methods
1 Distance travelled converted according to BEIS guidelines.
Emissions per £m of revenue
Scope 1
Scope 2
Scopes 1 & 2 as required by GHG
Protocol
Scope 3
Scopes 1, 2 & 3
Metric
tonnes
2019
606
Metric
tonnes
2018
Metric
tonnes
2017
567
570
Metric
tonnes
2019
Metric
tonnes
2018
Metric
tonnes
2017
23.8
3.0
26.8
0.2
27.0
23.4
3.1
26.5
0.2
26.7
24.1
3.5
27.6
0.2
27.8
The data relating to CO2 emissions has been
collected, where practicable, from all the
Group’s material operations and is based
on a combination of actual and estimated
results where actual data is not available. The
2019 data includes the businesses classified
as non-core in the Financial Statements for
the year ended 31 December 2019.
Environment
Our environmental management system
for the UK operations has been accredited
to ISO 14001 standard since 2006.
Accreditation is externally verified by
Intertek. We operate an integrated health
safety and environmental (HSE) Policy, and
the Board member responsible for HSE is
the CEO. A copy of our HSE Policy is required
to be displayed in the local language at each
operating branch.
We commit to maintaining appropriate
environmental management standards
across our operations to meet both our
statutory and moral obligations and
best practice. Our environmental legal
compliance record remains excellent,
with no prosecutions or actions from the
authorities in 2019.
Our Aspects and Impacts Registers and
Corporate Environmental Risk Assessments
set out the potential impact that our
operations could have on the local and
global environment. We regularly risk
assess our business against qualitative and
quantitative, generic, model and task-specific
criteria. Significant risks and progress made
to address them are reviewed at Board level.
We maintain integrity of our control
measures through our operational audits
and inspection programmes. Significant
findings are communicated to management
and employees.
We maintain continuous improvement
through a programme of objectives set at
Group, business and local level with regular
reviews against key performance indicators
(KPIs), including those set out in this report
and on our website.
Water consumption
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.
Minimal water is used in the manufacturing
process at our two sites in France and
the UK. Both installations maintain water
filtering, recycling and reuse practices to
minimise any wastage of potable water.
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Environment, health and safety
Waste management
Our aim is to reduce the amount of waste
we generate through our operations and
reduce the amount we send to landfill. We
achieve this by reusing or returning used
packaging to our suppliers and encouraging
waste segregation and recycling at each of
our locations.
Our waste contracts are managed and
monitored centrally in each business. Waste
bailers and compactors are provided where
practicable, to maximise waste segregation
and recycling opportunities and minimise
storage and welfare hazards.
Office waste is minimised through the
adoption of paperless delivery processes,
online activity reports, and consolidating
printing and photocopying facilities.
As it is difficult to measure and quantify the
amount of waste disposed of in a year, the
KPI 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
1
5
1
7
4
1
Hazardous waste
per £m of revenue
6
0
0
.
5
0
0
.
7
6
2
0
0
.
Non-hazardous waste
Non-hazardous
waste per £m of revenue
5
3
6
3
,
1
3
0
3
,
2
7
6
1
,
W
0
5
6
.
0
3
4
.
0
9
3
.
1
8
19
(absolute tonnes)*
17
18
19
(absolute tonnes)*
17
18
19
17
(absolute tonnes)*
18
17
19
(absolute tonnes)*
Recycled
Landfill
Incinerated
Landfill
* Volume per annum converted to tonnes.
Responsible
business
Other waste diverted from landfill
WEEE (Waste, Electrical and Electronic
Equipment)
Glass
Wood
Metal
Plasterboard
Paper/cardboard
Plastic
Other
Total
Absolute
tonnes*
2019
Absolute
tonnes*
2018
Absolute
tonnes*
2017
0.8
5.1
1,649.2
1,246.3
128.5
908.4
252.3
1.0
4.2
1,735.0
1,459.1
293.7
723.5
208.4
1.8
0.2
1,893.0
870.0
461.0
970.0
295.0
6,358.2
6,167.2
10,643.0
10,548.8
10,592.1
15,134.0
The above data is based on a combination of actual and estimated data.
*Volume per annum converted to tonnes.
Water consumption
Third-party provided water supply from
national network for processes and welfare
The above data is based on a combination of actual and estimated data.
Litres
(‘000)
2019
Litres
(‘000)
2018
Litres
(‘000)
2017
89,448
113,306
114,113
Health & Safety
award
The Royal Society for the Prevention of
Accidents (RoSPA) presented us with a
fifth consecutive Gold Award. The Gold
Standard was achieved for the progress
of our Zero Harm health and safety
programme.
The RoSPA Awards are highly prestigious,
internationally recognised awards and
achieving the Gold Standard for a fifth
year running is a great endorsement of
our programme and our commitment to
continually improving health and safety
standards.
60
Annual Report and Accounts for the year ended 31 December 2019SIG plcSTRATEGIC REPORT Health and safety
SIG operates an integrated health safety
and environmental (HSE) Policy aligned to
the ISO 45001 standard with the UK health
and safety management system accredited
to the standard since 2006 through external
verification by Intertek. SIG migrated to ISO
45001 in January 2020.
The Board member responsible for HSE is
the CEO who is the signatory to our HSE
Policy statement. A copy of which is required
to be displayed in the local language at each
operating branch.
Accreditation and the development of our
Charter for Zero Harm health and safety
programme has enabled us to develop our
operations to be compliant with legislation,
industry standards and best practice and
deliver continuous improvement.
Our dedicated HSE professionals assist
in delivering the risk assessment and
management review programme. Our risk
profile is reviewed annually, and informs our
HSE Plan.
Our vision is to be the best-in-class for
the distribution industry, and through our
Zero Harm health and safety management
programme we aim to eliminate accidents
from our four critical hazards of pedestrian
and forklift truck interaction, road travel, work
at height, and contact with machinery.
Our objectives to achieve this aim are to
improve the standard of traffic management
in operational areas, target culture and
positive behaviour through management
and colleague interactions, improving the
management of the outcomes of incidents
and learnings and focusing on the common
Group standards across all operating
companies.
In support of these objectives our 12 ‘Life
Saving Rules’ targeting our primary risks are
published in five languages and were reissued
across the Group in 2019. We also derive and
communicate learning points from hazards
and incidents through our online reporting
procedure and senior management accident
and incident review processes.
Management and worker awareness of
their responsibilities, the hazards and risks
associated with the operation and safe ways
of working is promoted through the delivery
of training and communication programmes
managed locally in each country. These
include bespoke e-learning packages,
RoSPA accredited modules, workshops
for supervisors and workers, toolbox talks,
hazard alerts and safety bulletins.
The number of RIDDOR (Reporting of Injuries,
Diseases and Dangerous Occurrences
Regulation) equivalent accidents across the
Group continues to reduce, down 10.8%
since 2018, which was a significant factor in
the Group achieving the RoSPA Gold Medal
Award for Occupational Health and Safety in
2019. However, the Accident Incident Rate
(AIR), which is calculated as injury resulting in
over three absence days from work or major
injury per 1,000 employees, has increased
from 13.1 to 13.4 during the year.
We maintain our zero tolerance approach to
anyone being unfit for work due to drugs or
alcohol and mandate for testing of individuals
subject to the legislative constraints within
our operating companies.
Occupational road risk
Driving is among the most hazardous
tasks performed by our employees and
is one of the critical hazards of our safety
management programme. The competence
of our drivers and design and condition of
our vehicles is crucial to the safety of our
drivers and other road users.
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
Accidents and incidents – Group
l
s
e
e
y
o
p
m
e
0
0
0
1
r
e
p
e
t
a
R
,
12
10
8
6
4
2
0
.
1
0
1
6
7
.
.
3
0
1
5
8
.
3
9
.
9
8
.
6
1
.
5
1
.
3
1
.
2019
1
Average headcount
8,324
8
201
1
Average headcount
8,722
7
201
1
Average headcount
9,674
Major injury
Injury resulting in
over three absence
days from work
All RIDDORs
(equivalent)2
1 Average headcount
across all businesses,
including those held
for sale, to calculate
the accident and
injury rates
2 This includes accidents
in non-UK businesses
that would meet the
criteria for reporting in
the UK under RIDDOR.
training programmes. Drivers are assessed
for competence and selected through an
authorisation and licence check procedure.
We work in partnership with our vehicle
designers and manufacturers to develop
effective safety features for our vehicles. This
and the effective management of the routine
maintenance and inspection process is key
to vehicle safety.
Our drivers, vehicles and fleet management
are audited to ensure business compliance
with fleet procedures. Significant issues
are communicated to the Board and our
insurers.
We adopt road safety schemes, including
the voluntary Fleet Operator Recognition
Scheme (FORS) scheme. 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 will
continue to work with vehicle manufacturers
in their development of solutions to improve
visibility towards other road users.
Telematic vehicle management systems
are fitted to the Group’s fleet of vehicles.
Information is downloaded and used to
support drivers to improve their standard
of driving and fuel efficiency. Strict rules
apply to avoid driving distractions including
mobile phones and subject to the legislative
constraints driver drug and alcohol testing is
conducted within the Group.
Links to SDGs
Approval of the Strategic
Report
The Strategic Report set out on pages 03 to
61 was approved by the Board of Directors
on 29 May 2020 and signed on its behalf by
Steve Francis
Chief Executive Officer
29 May 2020
Kath Kearney-Croft
Chief Financial Officer
29 May 2020
6161
Stock code: SHIwww.sigplc.comSTRATEGIC REPORT
GOVERNANCE GOVERNANCE
Chairman’s Introduction
Board of Directors
Corporate Governance Report
Board Leadership and
Company Purpose
Division of Responsibilities
64
68
70
70
82
Composition, Succession and Evaluation 85
Audit, Risk and Internal Control
Directors’ Report Disclosures
Nominations Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Responsibilities Statement
89
91
96
101
111
133
GOVERNANCE Chairman’s Introduction
Board Membership (during 2019)
Mr A.J. Allner
Non-Executive Chairman
Mr M. Oldersma
Chief Executive Officer
(resigned 24 February 2020)
Mr N.W. Maddock
Chief Financial Officer
(resigned 24 February 2020)
Ms A. Abt
Independent
Non-Executive Director
(retired 12 February 2020)
Ms H.C. Allum (Kate)
Independent
Non-Executive Director
(appointed 1 July 2019)
Ms J.E. Ashdown
Independent Non-Executive
Director (retired 8 May 2019)
Mr I.B. Duncan
Independent
Non-Executive Director
Ms G.D.C. Kent
Independent
Non-Executive Director
(appointed 1 July 2019)
Mr A.C. Lovell
Senior Independent
Non-Executive Director
Mr C.M.P. Ragoucy
Independent Non-Executive
Director (retired 1 July 2019)
Purpose and aims
Promote the long-term sustainable success of the Company
and its subsidiaries, generating value for Shareholders and
contributing to wider society. The purpose is to enable modern
living and working environments in the communities in which
we operate. Our vision is to be Europe’s leading business
distributor of specialist construction products.
Key responsibilities
Establishing the Company’s purpose, vision, strategy and
behaviours, and satisfying itself that these and its culture are
aligned.
Ensuring that all Directors act with integrity, lead by example
and promote the desired culture.
Assessing and monitoring culture
Ensuring that the matters set out in section 172 of the Companies
Act 2006 are considered in Board discussions and decision making.
Ensuring that the necessary resources are in place for the
Company to meet its objectives and assessing the basis on which
the Company generates and preserves value over the long-term.
Reviewing whistleblowing arrangements and ensuring that
arrangements are in place for proportionate and independent
investigation and follow up action.
Terms of reference and matters reserved
During the year the Board developed and adopted terms of
reference and revised the matters reserved for its decision.
Both can be found on the Company’s website at
www.sigplc.com.
Evaluation
An internal evaluation was conducted for the Board, individual
Directors and its Committees in line with the 2018 UK
Corporate Governance Code (the “Code”). More details can be
found on page 87.
“ Your Board is committed to
high standards of governance.
This is essential as we focus on
developing the Group’s purpose
and vision, building on its leading
market positions and returning
the business to profitable growth
and delivery of the long-term
strategy for the future”
Andrew Allner
Chairman
Dear Shareholder,
I am pleased to present SIG’s corporate governance report for the
financial year ended 31 December 2019. At SIG, we believe that good
governance comes from a strong and effective Board, which provides
real leadership to the Group and is fully engaged with its workforce
and other stakeholders. As an essential part of this commitment,
the Group supports high standards in corporate governance. This
section of our report outlines how the Board ensures that those high
standards are maintained.
Looking back at 2019 it is not easy to say, with hindsight, that your
Board has been highly effective. The issues resulting in the decline
in performance were discussed at the Board and assurances
received from the Executive Directors. The decline in sales became
an increasing and urgent concern as the year progressed and action
was taken promptly once the full extent of the profit shortfall became
apparent. However, your Board is aware that, with hindsight, action
could have been taken sooner.
Meinie Oldersma, CEO and Nick Maddock, CFO resigned on
24 February 2020 and we recruited Steve Francis as CEO, with effect
from 25 February, who is widely experienced with a strong track
record of returning businesses to growth. In addition, Ian Ashton
has been appointed as permanent Group CFO with effect from 1 July
2020. Ian is a highly experienced senior executive with a strong track
record of driving change and is an extremely valuable addition to the
team as we pursue our new strategy for growth.
Ian replaces Kath Kearney-Croft, who assumed the role of Interim
64
65
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc CFO on 25 February 2020.
The Board believes this new leadership brings skills in driving rapid
operational performance improvements through strong customer
relationships, excellence in customer service and creating highly
engaged teams.
The year saw further changes to the Board with the retirement
of Janet Ashdown on 8 May and Cyrille Ragoucy on 1 July. On 18
December 2019, we announced the retirement of Andrea Abt
with effect from 12 February 2020. During the year, the Board was
strengthened with the appointment of two new Non-Executive
Directors, Kate Allum and Gillian Kent, in July 2019. They each bring
a range of skills and experience which add great value to our Board
and will significantly benefit the Company as we focus on returning
to profitable growth. Their appointment brought our ratio of female
representation on the Board to 37.5%, exceeding the target of
33% female representation set by the Hampton Alexander review
on FTSE women leaders. Our aspiration now is to endeavour to
maintain a ratio of at least 33% female representation and to have
at least one Director of colour by 2024, in line with the Parker
Review Committee recommendations. We acknowledge that the
Hampton Alexander review target of 33% female representation in
our Executive Leadership Team and direct reports to the Executive
Leadership Team has not yet been met but our aspiration is to
meet that target over the course of the next few years. This will
be a key aspect of the focus of our Nominations Committee as it
continues its review of succession planning and the promotion of
diversity and a diverse pipeline within the business.
In order to bring more industry experience on to the Board, Simon
King has been appointed as a Non-Executive Director with effect
from 1 July 2020. Simon brings extensive, hands-on experience
from a career spanning over 35 years, most recently serving on the
Travis Perkins Executive Board and holding the position of Chief
Operating Officer for Wickes. Simon’s appointment is invaluable in
our efforts to build on SIG’s leading market positions and return
the business back to profitable growth.
Following the retirement of our Company Secretary, Richard
Monro, in October 2019 we welcomed a new Company Secretary,
Kulbinder Dosanjh, who has been able to review our processes
and procedures from a fresh perspective, bringing new ideas and
energy to improve some of our existing governance processes.
Compliance with the 2018 UK Corporate
Governance Code
The Financial Reporting Council (FRC) published a revised UK
Corporate Governance Code (the “Code”) in July 2018. The Code can
be accessed at www.frc.org.uk. During 2018 and 2019 the Board
conducted detailed reviews of the Code requirements and put in
place a number of measures to ensure our compliance. Our work
has focused on assessing and monitoring our corporate culture
ensuring that this is aligned to our evolving Company purpose and to
our behaviours and strategy. At all levels of the organisation we have
been building on our engagement activities with colleagues and other
stakeholders, and the Board have been reviewing and monitoring
the framework of engagement. During the year we looked at the
structure of governance of the Board and Committees and many
of our corporate policies, making sure that all of these are aligned
to the Code and to the culture within the business. In particular, we
developed new terms of reference for the Board so that we clearly
articulate our collective role, responsibilities and duties in ensuring
the long-term sustainable success of the business.
Our governance sections over the following pages explain how the
64
6565
Stock code: SHIwww.sigplc.comGOVERNANCE Chairman’s Introduction
Group has applied the principles and complied with the provisions of
the Code and the work we have undertaken during the year. We also
explain how the Board has complied with the duties of Directors under
section 172 of the Companies Act 2006. My co-Directors and I take our
responsibilities under section 172 very seriously and in undertaking our
duties as Directors we are always mindful of the need to ensure that
decisions are made for the long-term, that the interests of our various
stakeholders are taken into consideration and that our high standards
of conduct are maintained.
During 2019 we were fully compliant with the Code except for
Provision 38, as pension contribution rates for Executive Directors
(15%) were not aligned with those of the wider workforce. As of 25
February 2020, we are fully compliant, as pensions contribution
rates for new Executive Directors (5%) are aligned/below those of the
wider workforce.
However, we recognise that there are further measures of
improvement that we will aim to make in 2020. In particular, we wish
to continue to improve on our engagement with colleagues and
this will remain a key focus over the next year. In December 2019,
we announced the appointment of Kate Allum as designated Non-
Executive Director for engagement with the Company’s workforce
with effect from 1 January 2020. We also have further work to do in
embedding our new vision, purpose, culture and required behaviours
within the business.
Board evaluation
Our 2018 Board evaluation was externally facilitated by Condign
Board Consulting. This year the evaluation has been led by our
new Company Secretary. Details of the process concerning this
evaluation and its outcome are covered on page 87 of this corporate
governance report.
Diversity and inclusion
The Board of SIG acknowledges the importance of diversity in its
broadest sense in the boardroom as a driver of Board effectiveness
and more generally within our business, and we remain committed
to improving inclusion and diversity. Our Board diversity policy was
reviewed and updated during the year and is published on the
Company’s website (www.sigplc.com). We report on our approach
in detail in our Nominations Committee Report on page 99.
Governance within SIG
As Chairman, I ensure that we maintain high standards of corporate
governance and that we always aspire to improve. 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 111 to 132, the Audit Committee
Report on pages 101 to 110 and the Nominations Committee Report
on pages 96 to 100 describe how the principles of good governance
set out in the Code are applied within SIG.
The Company’s external Auditor, Ernst & Young LLP, is required
to review whether the above governance statement reflects the
Company’s compliance with the provisions of the Code specified for
their review by the Listing Rules (as contained within the Financial
Conduct Authority’s Handbook) and to report if it does not reflect
such compliance. No such report has been made.
COVID-19
The Board is monitoring the COVID-19 outbreak and the potential
impact on the Company’s businesses across the Group. Regular
updates are being provided by management and the Board is
holding additional meetings to ensure that it is kept updated on the
situation on an ongoing basis. The need to preserve the health and
safety of our colleagues, customers and suppliers has remained
our primary concern during the outbreak. The Board is ensuring
that the Group follows all local and national instructions issued
by government authorities in its markets to curtail the spread and
impact of COVID-19. The Group is keeping the position under regular
review in every jurisdiction in which it operates.
The Group’s IT infrastructure has been strengthened to allow for
as many people to work from home as possible, and where home
working is possible, colleagues have been instructed to remain at
home. All meetings are now being held by video conference calls,
and the Board, the Executive Team and the Senior Leadership Team
have held regular video conference and telephone calls to monitor
the position. All meetings will continue to be held in this manner until
such time that restrictions are eased and lifted.
Where home working is not possible, stringent measures have
been put in place to maintain strict hygiene and social distancing
rules in each of our locations. Policies are in place in the event that
a colleague contracts the virus or has a family member showing
symptoms of the virus. Policies and procedures have also been put
in place for those that need to care for dependents, for example as a
result of school closures.
SIG has committed to do what it can to trade as normally as possible
within local government guidelines, allied to the need to preserve
the safety of colleagues, customers and suppliers. The Board
regularly reviewed the situation and made an announcement on
26 March 2020 regarding the early impact of COVID-19. Following
this announcement, large parts of our UK market saw sales fall
away rapidly, in common with the broader construction industry.
Therefore, the Board concluded and announced on 30 March
2020, that it was necessary and appropriate to temporarily close
the majority of our UK operations, specifically the Distribution and
Roofing businesses. In addition, the announcement of further
restrictions by the Irish Government resulted in the suspension of
construction activity in the Republic of Ireland. As a result, all Group
trading sites in Ireland also temporarily closed.
However, SIG remained open to service critical and emergency
projects, such as for the NHS, energy and food sectors, as well as
for safety reasons and to ensure that there was an orderly closure
programme.
The trading and governmental measures in other markets in which
we operate are diverse and evolving in different ways. Accordingly,
our businesses in France, Germany, Benelux and Poland, as well as
our Building Solutions business, continue to be open for trade.
The Board and management continuously reviewed Government
guidance and measures to support business continuity, as well
as market conditions. As demand started to increase across the
industry, the Group announced on 30 April 2020 that it commenced
re-opening selected sites across its Distribution and Roofing
businesses to provide greater support to our customers and offer
increased access to our products and services. 15 sites opened
across our Distribution business and 20 sites across our Roofing
business with the majority of its sites reopened by mid-May.
66
67
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc We have committed to support all our colleagues during this period
of temporary closure and ensured that our UK colleagues continued
to receive a proportion of their pay during a period of furlough and,
in that context, we welcome the introduction of the UK Government’s
Coronavirus Job Retention Scheme, which will help to support
this. Similar Government assistance to retain jobs in Ireland is also
welcomed. However, we asked all our UK and Ireland employees to
take lower pay during this period and it was therefore also deemed
appropriate for all members of the Board to take a pay reduction of up
to 50% at this time, and for the Group Executive Leadership Team to
take a pay reduction of up to 20% from 1 April 2020. As the majority
of sites reopened in mid-May, it was appropriate to re-instate the
Executive Directors’ pay to 80% (backdated to 1 April 2020) at the same
time as colleagues were returning to work on full pay.
Throughout this time, the Board has remained committed to
preserving the safety of its employees, customers and suppliers.
Where operations continue, Government guidelines are strictly
observed to ensure adherence to social distancing, cleaning and
hygiene standards.
Independent Review by PwC
As already mentioned on page 25, the Board instigated an
independent review through the Group Investigation Committee
commissioning PwC to undertake an independent review of the
Group’s forecasting and monthly management accounts processes
in light of the disparity between the forecast level of underlying
profit before tax for the financial year 2019 set out in the January
Trading Update and market consensus of forecast profit prior to that
announcement. The Board takes the findings of the PwC report very
seriously. The Company voluntarily notified the FCA of the progress
of the PwC review and has shared the PwC report with the FCA.
Since SIG’s receipt of the PwC report, in order to strengthen the
Group’s financial forecasting and internal reporting, KPMG has been
appointed to assist the Audit Committee in ensuring appropriate
improvements are implemented to the Company’s financial systems,
procedures and controls, including those recommended in the PwC
report.
Further details on the actions being taken (including actions taken
during the course of the year in relation to cultural changes) are
included in the Corporate Governance report on page 90. The Board
had already agreed that additional focus was required during 2020 to
embed the commitment culture, improve employee engagement and
morale. This work would also include the actions arising from the
review. Further background on the scope of the PwC review and the
actions the Company is implementing in response are set out in the
Audit Committee report on page 108.
2020 Annual General Meeting
In light of COVID-19 restrictions, it will not be possible to meet our
shareholders at the Annual General Meeting (AGM) on 30 June 2020,
therefore, if you have any questions, please email them to
cosec@sigplc.com. Your views are still important to us and therefore
we will be providing a means for you to be able to listen and ask
questions at the meeting using conference call facilities, and the
Board looks forward to meeting our shareholders in person at our
next shareholder meeting.
Andrew Allner
Chairman
29 May 2020
Compliance with the UK Corporate
Governance Code 2018
Our Governance sections set out over the following
pages explain how the Group has applied the principles
and complied with the provisions of the Code during the
financial year ended 31 December 2019. During 2019 we
were fully compliant with the Code except for Provision
38, as pension contribution rates for Executive Directors
(15%) were not aligned with those of the wider workforce.
As of 25 February 2020, we are fully compliant, as pensions
contributions rates for new Executive Directors (5%) are
aligned/below those of the wider workforce.
1. Board Leadership and
Company Purpose
See pages 68 to 81
2. Division of Responsibilities
See pages 82 to 84
3. Composition, Succession
and Evaluation
See pages 85 to 86
Nominations Committee Report
See pages 96 to 100
4. Audit, Risk and Internal
Control
See pages 89 to 91
Audit Committee Report
See pages 101 to 110
5. Remuneration
Directors’ Remuneration Report
See pages 111 to 132
66
6767
Stock code: SHIwww.sigplc.comGOVERNANCE Board of Directors
Andrew Allner BA, FCA, Non-Executive Chairman1
Appointed as the
Non-Executive Chairman on
1 November 2017.
External roles
Andrew is Chairman at Fox
Marble Holdings plc and the
Shepherd Building Group
Limited.
Experience and past roles
Andrew has significant current listed company Board experience
as Chairman and as a Non-Executive Director. He was previously
Chairman of The Go-Ahead Group plc and Marshalls plc, and a
Non-Executive Director at Northgate plc, AZ Electronic Materials
SA and CSR plc. Previous executive roles include Group Finance
Director of RHM plc and CEO of Enodis plc. He has also held senior
executive positions with Dalgety plc, Amersham International plc and
Guinness plc.
Key strengths
Substantial Board, strategic, accounting, corporate transactions,
international and general management experience.
Steve Francis MA, Chief Executive Officer
Appointed as a Director
and the Chief Executive
Officer on 25 February 2020.
External roles
Fellow of The Institute of
Turnaround.
Experience and past roles
Steve has previously been the Chief Executive Officer of Patisserie
Holdings PLC, Tulip Ltd and Danwood Group Holdings Ltd. He was
the Chief Financial Officer and subsequently Managing Director of
the largest division of Vion (formerly Grampian) Food Group Ltd
and Chief Financial Officer and member of the management buy-in
team of British Vita plc. He has worked with McKinsey, was a partner
at PwC and a banker at Barclays Capital and NatWest Investment/
County Bank.
Key strengths
Significant turnaround and leadership experience across a range
of multi-site international businesses, considerable executive
management experience including strategic consultancy, mergers
and acquisitions, corporate finance and banking.
Kath Kearney-Croft MBA, ACMA, Chief Financial Officer
Appointed as a Director
and the Chief Financial Officer
on 25 February 2020.
External roles
Kath does not have any
external roles.
Experience and past roles
Prior to joining SIG, Kath was Group Finance Director of the Vitec
Group. Prior to this she held a number of financial leadership roles
at Rexam PLC and was Group Finance Director prior to its acquisition
by Ball Corporation Inc. in July 2016. She also previously held a
number of operational finance roles in the UK and US at The BOC
Group plc. Kath is a chartered management accountant and holds
an MBA from Alliance Manchester Business School.
Key strengths
Highly commercial with a broad global experience in a series of
financial leadership roles. A strong track record of relationship
building and engagement.
Key:
Audit Committee
Chair of Committee
Remuneration Committee
I
Independent
Nominations
Committee
1. The chairman was independent
on appointment
Meinie Oldersma and Nick Maddock were Executive Directors
during the financial year. They resigned as Directors and as
Chief Executive Officer and Chief Financial Officer respectively on
24 February 2020.
Janet Ashdown, Cyrille Ragoucy and Andrea Abt were Non-
Executive Directors during the financial year. They stepped
down from the Board on 8 May 2019, 1 July 2019 and
12 February 2020 respectively.
68
69
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Kate Allum BSc Econ, Non-Executive Director
Appointed as a Non-Executive
Director and the Chair of the
Remuneration Committee on
1 July 2019.
Experience and past roles
Kate’s previous positions include being Chief Executive of Cedo
Limited and of First Milk Limited. Prior to that, she was Head of
European Supply Chain at McDonald’s Restaurants Limited.
Key strengths
Strong supply chain, culture, retail, B2B and people management
across a broad range of businesses.
External roles
Kate holds Non-Executive Director
roles at Republic of Ireland Origin
Enterprises plc, Cranswick plc and
Stock Spirits Group PLC. She is Chair
of the Remuneration Committee
of both Origin Enterprises plc and
Cranswick plc.
Ian Duncan MA, ACA, Non-Executive Director
I
I
Appointed as a Non-Executive
Director on 1 January 2017
and the Chair of the Audit
Committee on 31 March 2017.
External roles
Ian is 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 Committee at
WANdisco plc and Fiberweb plc. Ian’s last executive role was as
Group Finance Director of the Royal Mail Group plc.
Key strengths
Extensive financial and change management experience (including
recent and relevant financial experience).
Gillian Kent BA, CIM Diploma in Marketing, Non-Executive Director
I
Appointed as a Non-Executive
Director on 1 July 2019.
External roles
Gillian holds Non-Executive
Director roles at Mothercare
plc, Ascential plc, NAHL Group
plc and with three private
companies, Portswigger Ltd, KR
Group and Howsy Limited.
Experience and past roles
Gillian has had a broad executive career including being Chief
Executive of real estate portal Propertyfinder until its acquisition
by Zoopla, and 15 years with Microsoft including three years as
Managing Director of MSN UK. Gillian was a Non-Executive Director
of Pendragon PLC until April 2019.
Key strengths
Strong commercial, customer and digital experience across a broad
range of businesses.
Alan Lovell MA, FCA, Senior Independent Non-Executive Director
I
Appointed as a Non-Executive
Director and the Senior
Independent Director on
1 August 2018.
External roles
Alan is Non-Executive Chairman
of Safestyle UK plc, Interserve
and Progressive Energy Limited.
Experience and past roles
Alan has previously been 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, Flowgroup plc and Chair of the
Consumer Council for Water.
Key strengths
Significant listed company Board experience. Extensive construction
industry and turnaround experience in the UK and Europe.
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Board Leadership and Company Purpose
Board activities
An overview of the Board’s key activities during the year is
provided below.
Strategy and financing
■■ Strategic reviews in July and September 2019 including receiving
presentations from senior leaders and updates from external
advisers, considering the IT and digital strategy, divestment of the
Air Handling and Business Solutions businesses and the status of
the Group transformation
■■ Received ongoing updates from the operating company Managing
Directors on their transformation plans
■■ Received in depth briefings on SIG Germany, SIG France and UK
Exteriors from the relevant Managing Directors
■■ Agreed the investment in a new SAP ERP system for France and
Germany and considered in detail the associated governance
reporting processes
■■ Approved the payment of a final dividend (for the year ended
31 December 2018) and interim dividend (2019) to Shareholders
■■ Regularly reviewed the Group’s financial position
■■ Reviewed proposals for a new target operating model
Stakeholder engagement
■■ Analysed key stakeholders and existing methods of engagement
■■ Considered analyst feedback following the announcement of the
Company’s full year results on 8 March 2019, the interims and
Trading Updates
■■ Met Shareholders at the Annual General Meeting (AGM) held in
May 2019 and General Meeting (GM) in December 2019
■■ Received regular investor relations reports
■■ Approved the data sets to be submitted to the Board to enable it
to monitor culture on a continuing basis
■■ Received an analysis of the employee survey conducted in March
2019
■■ Considered how the transformation was being delivered in UK
Distribution by reference to customer value, customer service and
operational efficiency, with the focus for 2019 to include improved
purchasing and pricing
■■ Considered customer categories and issues within UK Distribution
and UK Exteriors
■■ Considered initiatives for collaborative working with suppliers in UK
Distribution
■■ Reviewed the 2019 HR strategy for UK Distribution, including
■■ Reviewed transformation governance and control and progress on
proposals for engagement with colleagues
Group transformation projects
■■ Appointed Ms Allum as the designated Non-Executive Director for
■■ Approved the new strategic vision, purpose and behaviours
workforce engagement
for the business
■■ Reviewed the agenda and plan for the SLT Leadership Conference
■■ Reviewed the development of a digital strategy for the business
held in January 2020
■■ Approved the proposal for an optimum logistics network exiting
from legacy sites and consolidating into a single distribution centre
in West London
■■ Approved the sale of the Group’s German raised access flooring
manufacturing business (see page 29)
Governance
■■ Approved the sale of the Air Handling division (see pages 29 and
■■ Reviewed and monitored the new requirements arising from the
71)
Risk management and
internal control
■■ Regularly reviewed the Group’s principal risks and considered
emerging risks and scenarios
■■ Focused on the risks arising from Brexit and in particular a ‘no deal’
exit
■■ Reviewed cyber security within the Group with specialistic support
from KPMG
■■ Received updates from the Audit Committee Chair on the key
areas discussed
■■ Received monthly reports on health and safety matters
■■ Received regular reports on internal control from the Chief
Financial Officer
Link to strategy:
A leading market position
High performing teams
Modernised operating model
Responsible business
Effective partnerships
2018 UK Corporate Governance Code introduced on
1 January 2019 and progress against the action plan
■■ Reviewed the report from Condign Board Consulting on Board
effectiveness
■■ Regularly received feedback from site visits made by Directors
■■ Agreed a revised Board diversity policy
■■ Reviewed talent and succession planning following Nominations
Committee assessment
■■ Approved a revised schedule of matters reserved for the Board
■■ Approved updated terms of reference for all Committees
■■ Developed and approved terms of reference for the Board
■■ Evaluated the performance of the Board, its Committees and all
Directors facilitated internally and agreed areas of priority for 2020
Corporate reporting and
performance monitoring
■■ Regularly reviewed the Group’s KPIs (see pages 18 and 19)
■■ Reviewed the 2019 full year forecast and outcome
■■ Reviewed the rolling forecast against the approved 2019 budget
■■ Received updates from the chairs of the Audit, Nominations and
Remuneration Committees on the key areas discussed
■■ Conducted a review of the Company’s viability over the next three-
year period
■■ Approved the year end (2018) and interim results (2019)
■■ Approved the release of trading updates in January, May, July and
October
■■ Reviewed the 2018 Annual Report and Accounts
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The following table shows the attendance of Directors at meetings of the Board, Audit, Remuneration and Nominations Committees during
the year to 31 December 2019:
Scheduled Board
(9 meetings)1
Additional Board
(4 meetings)
Audit
(7 meetings)
Remuneration
(5 meetings)
Nominations
(4 meetings)
A. Abt2
H.C. (Kate) Allum3
A.J. Allner
J.E. Ashdown4
I.B. Duncan
G.D.C. Kent3
A.C. Lovell
N.W. Maddock
M. Oldersma5
C.M.P. Ragoucy6
8
5
9
3
9
5
9
9
8
3
3
0
4
3
4
1
4
4
4
3
6
5
N/A
1
7
5
7
N/A
N/A
2
5
3
N/A
2
5
3
5
N/A
N/A
2
4
3
4
1
4
3
4
N/A
N/A
1
1.
There were four unscheduled Board meetings in 2019 listed as additional Board meetings above. The attendance at all the meetings is detailed above.
2. Ms A. Abt was unable to attend the meeting in July 2019 due to prior commitments. She provided comments for both this meeting and the ad-hoc meeting in January 2019 that she was
unable to attend.
3. Ms H.C. (Kate) Allum and Ms G.D.C. Kent were both appointed to the Board on 1 July 2019 and attended all scheduled meetings which they were entitled to attend.
4. Ms J.E. Ashdown resigned from the Board on 8 May 2019.
5. Mr M. Oldersma did not attend the meeting in December 2019 as he was on a leave of absence as announced by the Company on 18 December 2019.
6. Mr C.M.P Ragoucy resigned from the Board on 1 July 2019.
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 although may have attended the meetings, for example the Chairman attended all 7
Audit Committee meetings. 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. During 2019 at least four such
meetings were held. The Senior Independent Director also meets with the other independent Non-Executive Directors without the Chairman
present, in particular when the performance of the Chairman is being considered. During 2019 this meeting was held in November 2019. All
Directors attended the 2019 AGM and were available to answer any questions raised by the Shareholders. Directors who were available also
attended the General Meeting on 23 December 2019 to answer any questions on the disposal of Air Handling.
Directors have confirmed that they have no connection with Lygon
Group, the external search consultancy used for the appointment
of Ms Allum and Ms Kent. Directors have also confirmed they have
no connection with Savannah Group, the external search firm used
for the appointment of Mr Francis, other than they are also used for
other senior executive appointments.
From January 2020 all Directors are, in addition, required to
complete a gifts and hospitality form on a quarterly basis confirming
receipt of gifts or hospitality provided as a result of their directorship
of the Company.
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 and that the influence of third parties does not
compromise or override their independent judgment.
Directors’ conflicts
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. Provision 7 of the Code also requires the
Board to take action to identify and manage conflicts of interest,
including those resulting from significant shareholdings and to
ensure that the influence of third parties does not compromise or
override independent judgement. 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 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. As part of the review of conflicts this year,
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Culture and purpose
The Board considers that the Group operates a risk-aware culture with
an open style of communication which seeks to identify early problems
and issues wherever possible. Where issues are identified, the Board
endeavours to take action to remedy any areas of concern.
Annual employee survey
The Board began a detailed review of the culture within the business
with a survey of employee engagement. This was launched in March
2019. ORC International (a specialist global engagement consultancy)
supported production of the survey questions. These were designed
to elicit an understanding of the extent to which employees consider
that engagement within the business is working well and whether
workforce policies and practices are consistent with the Company’s
values and aligned to promote a healthy culture. Questions included
“I am proud to work for SIG”, “I would recommend SIG’s products
and services”, “SIG inspires me to ‘go the extra mile’ “, “I believe the
company values support the culture of SIG”, “I think SIG cares about
my health and wellbeing” and “I have a good understanding of the
mission and goals of the organisation”.
The survey identified that wellbeing is having the largest impact on
engagement for employees at SIG with those serving the longest
being less likely to believe that SIG cares for their health and
wellbeing. The top driver for employees is being able to strike the
right balance between work and home life with many employees
working long hours. The survey results showed that employees
understood their expected behaviours and work contribution, but
less so the mission and goals. Whilst staff were satisfied with their
jobs making good use of their skills and abilities, they were less
satisfied with the opportunities for job related training and career
development.
Focus following survey
Following the results of the survey the Executive Leadership Team
and the Board agreed that the key strategic focus areas for 2019
would be (1) Health and Safety – making sure employees all feel
supported and able to get the most out of working for SIG, (2)
Purpose and the Why – making sure all employees are aware of the
direction of the business and how they contribute to its success,
(3) Customer Focus – making sure everyone is equipped to deliver
the best customer service and (4) the Future/My Future – making
sure everyone is aware of the direction of the business and have
the opportunity to develop our skills and potential to support the
change.
Focus on data
During the course of the year the Board identified the data sets
which it would need to review to monitor culture and engagement
within the business. Using the guidelines produced by the FRC it
agreed that it would receive regular reports on the following:
■■ training data;
■■ recruitment;
■■ exit interviews;
■■ reward;
■■ promotion decisions;
■■ use of non-disclosure agreements;
■■ whistleblowing data;
■■ employee surveys;
■■ Board interaction with senior management and workforce;
■■ health and safety data, including near misses;
■■ promptness in payments to suppliers; and
■■ attitudes to regulators, internal audit and employees.
The Board agreed that a composite report analysing the agreed data
sets would be provided to the Board annually and that an interim
update would also be provided on the annual employee survey.
The Board receives regular reports as a matter of its regular
routine business items each meeting on turnover and absenteeism
rates, recruitment, whistleblowing data and health and safety
data including near misses. It also receives reports from individual
Board members and Managing Directors on their meetings with
employees. The Board also received feedback following the launch of
the Commitment Culture programme at the SLT conference held in
January 2020.
Work on a new SIG purpose, vision and behaviours
The Board, with the assistance of members of the Executive
Committee, commenced work during the year on articulating a new
SIG purpose and vision, and reviewing SIG’s culture and behaviours.
The revised purpose agreed by the Board is articulated as “To enable
modern living and working environments in the communities in
which we operate.”
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The SLT conference
January 2020
Our annual Senior Leadership conference in January 2020 was
well attended by 80 of our senior leaders from each of our
operating companies in the UK and Ireland, France, Germany,
Benelux and Poland. The conference provided the Executive
Leadership Team a chance to discuss opportunities, risks
and challenges in the operating companies and provided
a forum for any questions to be raised. In addition, a new
commitment culture programme was launched, including the
new behaviour framework.
Separate workshops explored how the business enablers
could be strengthened, through developing our ways of
working, focussing on the engagement and performance of
our people and driving our health and safety goal of ‘Zero
Harm’ with real passion and commitment. The sessions also
provided the opportunity for our senior leaders to define
the implementation of our commitment culture and take
ownership in driving our leading behaviours in all areas of the
business.
The feedback from the conference was extremely positive
with 100% of those attending feeling that they understood
the commitment culture framework. Colleagues found that
the conference was “energising and a great re-set for 2020”, “a
commitment building event”, and “a perfect platform to launch
the behaviours”. A full change and communications plan will
be delivered throughout 2020, supporting leaders as they
work to integrate our new culture framework into everyday
life at SIG.
Work on a commitment culture
Throughout the year, extensive work took place to define a
supporting culture framework. Moving forward, our newly defined
behaviours will drive the consistent and shared actions to drive
performance and conduct. The launch and implementation of the
new culture programme began in January 2020 and will take place
throughout 2020.
The commitment culture is a culture driven by a clear sense of
purpose with clearly defined behaviours that underpin it. According
to research by Damian Hughes, Professor of Organisational
Psychology and Change for Manchester Metropolitan University,
organisations who build a culture based on employees are more
likely to succeed.
The SIG behaviours have been articulated as “Be bold in what you
do”, “Be flexible and agile” and “Make a positive difference”. Read
more on page 57.
Engagement with colleagues
The Board agreed a communication strategy for engaging with
colleagues on the new vision, purpose, culture and behaviours to
ensure that this would have the necessary ‘buy in’ and understanding
within the business.
Focus groups were held with cross functional teams from across
the business to review and understand how the behaviours might
become embedded within the business. Taking account of the
feedback from the focus groups, the revised organisational culture
and behaviours were then defined and launched into the business
in January 2020 via the SLT business conference and operating
company roadshows. The SLT conference also provided an ideal
opportunity for Kate Allum, the designated Non-Executive Director
for workforce engagement, to set out her plans for engagement with
the workforce, see more about this on page 76.
Further work
Following the launch of the new purpose, vision and culture, revised
induction materials and performance management materials will
be used to embed the purpose, vision, culture and behaviours in
performance management moving forward.
The Board is aware from its regular reports that retention figures
require improvement and in certain areas there is low morale
after three years of transformation within the business. The Board
recognises that there is further work to be undertaken to improve
culture, morale and engagement within the business and embed the
commitment culture and align it to the new vision and purpose. This
will be an important area of focus for the Board during 2020 and
the Board will be closely monitoring key data sets to ensure that the
necessary improvements are made to the culture and to monitor
the behaviours rolled out to the Group to set the appropriate tone
from the top. Other actions the Company is implementing as a result
of the PwC report are set out on page 108 of the Audit Committee
Report.
Following his appointment, Steve Francis, the CEO, has also
commenced an in-depth review of customer, supplier and employee
feedback based upon structured interviews with customers and
suppliers, and feedback from employees at branch roadshows.
Pricing and loss of key relationships are raised as key issues for
customers whilst customer focus and product range are highlighted
by suppliers. Feedback from employees also highlights a need for
increased focus on building customer relationships and service
provision. The CEO will be closely monitoring actions being taken to
resolve these issues during 2020.
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Workforce engagement
At the beginning of the year under review, the Board considered how
it might enhance its engagement with the workforce and ensure full
participation from the workforce. The Board agreed that all Directors
should be focused on engagement with the workforce to ensure all
Directors could hear first-hand the views of colleagues as well as gain a
deeper knowledge of the business rather than allocating responsibility
to one designated Non-Executive Director, having a formal workforce
advisory panel or appointing a member of the workforce to the Board.
It developed a framework for engagement as well as agreeing that
Board meetings would be rotated by location with meetings being held
away from the London office and at least one Board meeting being
held in Europe. During 2019, Board meetings have been held in Paris,
Southampton and Munich and on those occasions the Board ensures
that it meets collectively with local management and other colleagues
and that it has the opportunity to visit a site. As well as their collective
visits to sites in Paris, Southampton and Munich, each of the Directors
has also visited at least two sites during the course of the year (see
schedule on page 75) and attended divisional and Group management
conferences whenever possible.
The annual SLT conference took place in January 2019 and the
former CEO and CFO also hosted the Group’s first ‘Town Hall’
in Sheffield which was very well attended. In addition, individual
operating companies held their annual conferences during the year.
More details on colleague engagement activities in each operating
company are set out in the schedule below.
In order to ensure that workforce policies and practices are consistent
with the Company’s purpose and behaviours and support its long-
term sustainable success, we committed during the year to update a
number of our most important policies and procedures. In October
2019, the Company published to all employees and contractors a
full suite of updated policies. These include our health and safety
procedures, GDPR, our code of conduct, anti-bribery and corruption,
our alcohol and substance misuse policy and gifts and hospitality
policy. Alongside the updated policies, videos were produced guiding
our employees and contractors on the requirements. All employees,
including the Board and contractors were then asked to complete
an online compliance training module covering each of the policies.
Completion of the modules is tracked with follow up reminders being
issued to ensure that training is completed.
Additionally, to ensure the voice of our employees is heard, we
canvass employee views through our engagement survey, SIG
Listens, and present the results to our employees via our local
communication channels. For 2020, we plan on giving our workforce
more meaningful communication and greater contact with our
Directors, through Q&As, town hall meetings and focused initiatives
derived from the results of the employee surveys.
The Directors consider that whilst workforce engagement improved
during the year, more could be done and to this end the Board
agreed that it would allocate responsibility for workforce engagement
to a Non-Executive Director. In December 2019 we announced the
appointment of Ms Kate Allum as Non-Executive Director responsible
for workforce engagement with effect from 1 January 2020. With
the assistance of the Company Secretary, Ms Allum is planning to
hold a number of round table sessions with colleagues and further
details are provided in the case study on page 76 and more about
the SLT conference is included on page 73. During 2020, the
Board will continue to rotate meetings and had agreed to visit sites
in Manchester, Dublin and Hanau, Germany, however as a result
of COVID-19, the visit to Manchester scheduled for May could not
go ahead. Once lockdown is lifted the Board will seek to re-instate
the remaining visits and all Directors will endeavour to continue
their individual site visits to listen to feedback from colleagues and
continually increase their knowledge of the business.
The Company is committed to investing in and rewarding its
workforce. It operates a sharesave scheme, provides regular
training opportunities, recognises achievements through the Values
in Practice recognition programme and enables flexible working
arrangements. Further information about the Company’s talent
development programmes is provided on page 55.
Operating companies across the Group are also engaged in a number of activities involving employees, details of which follow:
UK Distribution
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
UK Exteriors
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Ireland
Corporate
Benelux
Germany
France
Poland
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Air Handling
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
74
Key:
Newsletters, bulletins
and personal briefings
Annual roadshows, town halls and
conferences
People - annual and quartery performance
appraisals, vip awards, employee focus
groups and charity days
Newsletters, bulletins and personal briefings
Sales communication
Annual roadshows, town halls and conferences
People – annual and quarterly performance appraisals,
VIP award, employee focus groups and charity days
Social engagements
Workers council meetings
Branch manager meetings
Cross functional forums
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
We talked about our SAP IT project, the governance and decision
making process, and the critical importance of getting the upfront
planning right. I was able to take back some useful feedback for
the Group project team. In addition, I learnt more about the cyber
attack in France earlier in the year and some important lessons
for us.
Other discussions and questions focused on confidence in
delivering the 2019 forecast, the 2020 budget process, growth
opportunities, morale and sustainability.
This was my third visit to the French business and I came away
feeling that we had a strong management team and were making
good progress in improving the business.
Andrew Allner
Case study
Andrew Allner
Visit to Bobigny and Malakoff, France
As Chairman, prior to COVID-19 I had planned to visit each of our
major operating companies at least once a year. The purpose
of these visits is to spend time with the operating company
Managing Directors, members of the local management team
and colleagues at all levels in the organisation. This lets me learn
about our operations, see how strategy is being implemented on
the ground and hear first-hand about the opportunities, risks and
challenges the business faces.
In November 2019, following our Group Board meeting in
Munich, I visited our French business. I went to one of our
branches, Bobigny in North East Paris, and Malakoff, where the
French management team are based. I spent time with Julien
Monteiro, our French business Managing Director, met colleagues
from the Bobigny branch and held an open round table
discussion with the French management team.
At Bobigny I was able to see for myself the health and safety
issues around the movement of forklift trucks on site and discuss
with management actions taken and planned to improve the
health and safety culture and environment.
I was very pleased to see the strong customer focus in the
business, to hear that we were gaining market share and that
implementation of our target operating model is proceeding
cautiously so as not to impact adversely on customer service. It
was also encouraging to learn that Paris is an attractive market
for us and there are good opportunities coming through.
With the management team we spent time comparing the
France Distribution and France Exteriors businesses, which are
very different and require different core competencies to be
successful.
Board visits to sites during 2019
Andrew Allner
Dudley
Birmingham, Soho Hill
Tyseley
Ruislip
Heathrow
Ash Vale,
Paris
Krakow
Hanau-Steinheim
Kate Allum
Aberdeen
Ireland
Dundee
All
Paris
Munich
Southampton
Andrea
Abt
Kentish Town
Stratford
Ian Duncan
High Wycombe
Tyseley
Alan Lovell
Gillian Kent
Heathrow
Ruislip
Dresden
Hanau-Steinheim
Heathrow
Ruislip
Valor Park
Wokingham
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Case study
Kate Allum
“ I am looking forward to meeting as many people
working for SIG as possible. I’d like to understand
what they value about working for SIG and,
importantly, what they think we can improve.”
After joining the SIG Board in July 2019, I was delighted to
be appointed as the Non-Executive Director responsible for
workforce engagement from January 2020.
Aside from our obligations as part of the Corporate Governance
Code, colleague engagement is a key focus in the strategy
going forward, to ensure that our workforce is fully engaged
in driving towards achieving the vision and strategy. Building
upon the engagement activity that has taken place over the
last 12 months, including a group-wide employee engagement
survey, this is another opportunity to open a further channel of
communication between the Board and colleagues across the
organisation over and above the site visits.
I attended the Senior Leadership conference in January 2020
and ran a focus group to introduce my role and the plan to
meet with people working at all levels in the organisation. It was
explained to the Senior Leadership Team (SLT) that the aim was
to hold planning sessions with colleagues from the majority
of the operating companies and would welcome their help to
establish these initial sessions.
With the help of SLT members, a schedule of dates was agreed
in March and April 2020 to hold a number of planning sessions
around the business to understand what was important to our
employees, and which topics they would want to discuss. During
the first quarter of 2020, the intention was to visit sites in the UK,
France, Germany, Poland, Benelux and Ireland, to hold meetings
with small groups of employees, with representation from a
cross section of functions and levels in the business.
By holding small informal meetings, the aim had been to
encourage people to be open and transparent about the topics
of most interest. However, due to the COVID-19 crisis these
sessions were unable to go ahead.
Therefore, when the lockdown is lifted, the engagement
sessions will be re-instated as soon as possible, and if face to
face sessions cannot be held, video conferencing will be used
allowing me the opportunity to also outline in a more personal
way the vision and strategy for the business and how the Board
undertakes its responsibilities.
The aim is to make sure that the views and experiences of
people working for SIG are brought back into the boardroom so
we can ensure that we take these into account in our decision
making. Ultimately, the Board will be in a better position to
evaluate the impact of any proposals and developments on the
workforce. Additionally, it will also facilitate discussions with the
Executive Directors on any actions that they may need to take to
make SIG a really great business.
Of course, our plans for engagement with the workforce will
only truly work if any follow-on actions or outcomes and any
Board plans which may have consequences for the workforce
are reported back. The Board is committed to ensuring that this
is done.
Additionally, I am pleased to be appointed as the Board’s
Whistleblowing champion (with effect from 27 April 2020) and
will be agreeing a written remit and ensuring a robust plan is
in place to further enhance awareness and effectiveness of the
current whistleblowing arrangements. This role complements
my role as the designated Director for workforce engagement.
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Section 172 and
Stakeholder Engagement
The Directors consider that they have
performed their fiduciary duty, as
stipulated under section 172 of the
Companies Act 2006 in good faith to
promote the success of the Company
for the benefit of its members
as a whole. They have taken into
consideration, amongst other matters:
■■ the likely consequences of any
decision in the long-term;
■■ the interests of the Company’s
employees;
■■ the need to foster relationships
with suppliers, customers and
others;
■■ the desirability of the Company
maintaining a reputation for high
standards of business conduct;
and
■■ the need to act fairly between
members of the Company.
How the Directors have applied
their section 172 duties
The Board has considered its key
stakeholders and the methods of
engagement with each of those
stakeholders, both at Board level
and across the business. It receives
regular reports from management to
enable it to monitor the quality and
effectiveness of the arrangements
for stakeholder engagement. Specific
examples of the way in which the
Directors have performed their
fiduciary duty under section 172 are
provided in relation to the disposal of
the Air Handling business as well as the
Board ’s actions and decisions during
COVID-19. The Board has approved
a programme of training to ensure
that in preparing proposals for Board
consideration, managers are aware
of the section 172 requirements in
Director decision making, ensuring that
Directors will have the assurance that
all relevant stakeholder interests and
other relevant matters, are being set
out for their consideration. As indicated
on page 86 the Board as a whole also
received training from Herbert Smith
Freehills LLP.
Details of stakeholders, primary
methods of engagement, why Directors
consider engagement to be important,
issues raised by stakeholders and
actions taken as a result of the
engagement are detailed opposite.
Shareholders
Colleagues
Why we engage
The Directors consider that
Shareholders’ views are important as
part of their decision-making process
and welcome discussions with them
in particular in relation to strategy,
remuneration and governance.
Engagement activities
Annual and interim reports,
announcements, AGM and general
meetings, roadshows, analyst
presentations, individual meetings
with Directors.
Issues raised
■■ Support for strategy of
transformation
■■ Encouragement for continuing
debt reduction, including through
disposal of businesses
■■ Encouragement for continuing
profit improvement
Why we engage
The Directors consider that a
commitment culture, underpinned by
defined behaviours with a clear vision
and purpose for the future, is vital for
the future growth of the business and
that engagement with the workforce is
key to success of the business.
Engagement activities
Group communication cascades, SLT
broadcasts for onward transmission,
individual business communications
(newsletters), individual business
roadshows, employee engagement
surveys, annual wider leadership
management conference. See more on
page 73.
Issues raised
■■ Reward and target setting
■■ Knowledge drain with high churn
■■ Appetite for longer term vision and
■■ Concern over weaker market
strategy
conditions
■■ Concern over deterioration in
sales, especially in the UK
Actions taken subsequently
■■ Feedback reflected in emerging
strategy, focus on core operations
and developing investor
communications
■■ Investment in health and safety
■■ Investment in branches
■■ Communication and visibility of
leadership
■■ Systems and processes
■■ Target operating model
■■ Induction
Actions taken subsequently
■■ Reward structures simplified
■■ Additional internal and external
support provided to facilitate
cultural improvement
■■ Investments made in training and
development of staff
■■ Establishment and communication
of a purpose, culture and vision for
the Company
■■ Investments in health and safety
approved
■■ Refurbishment of branches in SIG
Roofing approved
■■ Relocation of branches in Germany,
Poland, Netherlands and France
■■ Investments in new target operating
model
■■ New CIO recruited, ERP SAP project
initiated, increased investment in IT
and data and end-to-end processes
■■ Communications improved
with comprehensive employee
engagement plan and greater
Board visibility at branches and
conferences
■■ Induction process improved
■■ Appointed Ms Allum as designated
Non-Executive Director for
workforce engagement
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Customers
Suppliers
Bankers
Why we engage
The profitability of the business is
underpinned by providing effective
partnerships with customers, so
understanding their needs and
requirements is extremely important.
Engagement activities
Website, dedicated customer
relationship manager for larger
customers, reward scheme.
Structured direct calls to obtain
feedback.
Why we engage
The Directors understand that SIG
adds value by operating as the supply
chain partner of choice.
Engagement activities
Dedicated category manager
responsible for relationship, top 60
suppliers invited to attend and exhibit
at bi-annual sales event, regular
(quarterly) meetings with top 20
suppliers. Structured interviews to
obtain feedback.
Issues raised
■■ Issues around stock, fulfilment and
Issues raised
■■ Supportive but concerns over loss
pricing
■■ Lack of quality in end-to-end
processes and therefore delivery
■■ Positive reception in technology
advances
■■ Openness to partner in new ways
of working together
■■ Lack of regular contact and staff
turnover/loss of key relationships
Actions taken subsequently
■■ Customer service has been and
continues to be prioritised
■■ Complaints followed up by CEO
■■ Steps being taken to improve
service and delivery
■■ Increased focus on customer
relationships especially during site
consolidations and other major
change activities
■■ Issues around stock, fulfilment and
pricing being addressed
■■ Digital implementation underway
■■ More e-commerce focus in certain
parts of the Group
of sales to SIG
■■ Expressed dissatisfaction with
routes to market and complicated
product portfolio management
■■ Loss of local engagement
■■ Perceived lack of adding value to
the supply chain
Actions taken subsequently
■■ Routes to market improved
■■ Improvements made to sales and
marketing functions
■■ New target operating model
implementation
■■ SAP ERP development commenced
■■ Structured recovery plans in place
with robust stocking policy in place
■■ Ongoing interactions and
communications on digitising the
business
Why we engage
The Directors recognise the value
of working in partnership with our
bankers to ensure that we have
the necessary financial capital and
resilience.
Engagement activities
Regular trading updates, face to face
meetings with the Group Treasurer,
covenant returns.
Issues raised
■■ Support for strategy of
transformation
■■ Encouragement for continuing
debt reduction, including through
disposal of businesses
■■ Encouragement for continuing
profit improvement
■■ Concern over weaker market
conditions
■■ Concern over deterioration in
sales, especially in the UK
■■ Appetite for reduction in revolving
credit facility commitments
Actions taken subsequently
■■ Increased the pace of change
■■ Feedback reflected in emerging
strategy and developing lender
communications
■■ Planning to make interim
reduction in revolving credit facility
commitments, pending fuller
review of financing structure in
2020
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Pension scheme members
and trustees
Why we engage
The Directors understand the
importance of keeping pension
scheme trustees and members
advised and consulted on significant
developments.
Engagement activities
Newsletter, circulation of annual
accounts and dialogue between
the Company and the Chair of the
Pension Trustees.
Issues raised
■■ Dialogue welcomed. Members
keen to maintain ongoing
communication around
implications for Company’s
covenant of transformational
change and business disposals
(particularly Air Handling).
Actions taken subsequently
■■ Maintaining ongoing dialogue
Local community
Government
Why we engage
The Directors appreciate that close
relationships with communities where
the business operates will foster the
long-term success of the business.
Engagement activities
Charitable events, consultation
around activities impacting the local
neighbourhood, engagement with
the University of Bath to support final
year student project, work experience
facilitated, DIY SOS support given
for materials for TV show, materials
provided for charity projects.
Issues raised
■■ Positive feedback around the level
of engagement
■■ Appreciation for support given
Actions taken subsequently
■■ Continuing support
Why we engage
Regular engagement with government
and regulatory bodies is important
to ensure that the strategy remains
appropriate and that the Company is
operating appropriately.
Engagement activities
Engagement with DVLA (road
safety), lobbying as a member of the
Consumer Protection Association
(CPA), input into insulation and quality
standards. Occasional contact with
FRC and FCA in relation to regulatory
matters.
Issues raised
■■ Company performance not
consistent
■■ Value proposition not always
understood
Actions taken subsequently
■■ Routes to market improved
■■ Ongoing dialogue
The Company recognises the importance of communicating with its
Shareholders, including its employee Shareholders, to ensure that its
strategy and performance is understood. This is achieved principally
through the Annual Report and Accounts and the AGM, which all
Directors attend.
The CEO and CFO are primarily responsible for direct investor
relations. The Board is kept informed of investors’ views through
distribution and regular discussion of analysts’ and brokers’ briefings
and a summary of investor opinion feedback. In addition, feedback
from major Shareholders is reported to the Board by the Chairman
and the CFO and discussed at its meetings. Formal presentations are
made to institutional Shareholders following the announcement of
the Company’s annual and interim results.
Following the Company’s trading update in October 2019, when
the Group reported lower underlying profitability for the full year
than previous expectations, the CEO and CFO updated major
Shareholders on medium term financial targets and the plans to
achieve these targets. The CFO also updated major shareholders
following the Trading Update in January 2020.
Each year, the Chairman offers one-to-one meetings with SIG’s
largest Shareholders. The Chairman has held a number of
discussions with SIG’s large institutional Shareholders during
the year. His meetings with Shareholders have enabled him to
understand their views on governance and performance against the
strategy of the business.
Contact is also maintained, where appropriate, with Shareholders to
discuss overall remuneration plans and policies. The Chairman and
the Senior Independent Director are available to discuss governance
and strategy with major Shareholders if requested, and both are
available for contact with individual Shareholders should any specific
areas of concern or enquiry be raised. The Chair of the Audit
Committee and the Chair of the Remuneration Committee are also
available for contact with Shareholders should there be any matters
raised which are relevant to their area of responsibility.
Throughout the year, the Company responds to correspondence
received from Shareholders on a wide range of issues and also
participates in a number of surveys and questionnaires submitted
by a variety of investor research bodies. Although the other Non-
Executive Directors are not at present asked to meet the Company’s
Shareholders, they regularly review the presentations of the annual
and interim results. The Chairman also ensures that the Board as a
whole has a clear understanding of the views of Shareholders and a
regular report is provided by the CFO on investor relations at each
Board meeting.
The AGM notice of meeting is sent to Shareholders at least 21 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. At the AGM in June 2020 Shareholders will be asked to vote
on a poll, rather than a show of hands, following best practice. The
Company Secretary ensures that votes are properly received and
recorded. Details of the proxies lodged on all resolutions and of all
abstentions are published on the Company’s website immediately
after the AGM.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Examples of how the Directors have applied their section 172 duties
Air Handling disposal
COVID-19
In considering the potential sale of the Air Handling business, the
Directors had regard to their duties under section 172 of the Act.
They considered the interests of a number of different stakeholders,
maintaining the Company’s reputation for high standards of
business conduct, relevant risks and mitigation before weighing up
whether the sale would lead to the success of the Company in the
longer term. They considered the interests of different stakeholders
in the following manner:
Shareholders
Development of a longer-term business case and case for the
disposal, planning for value creation, maximising proceeds
and determining the best use of the proceeds. Shareholders
consulted and feedback considered by the Board
Analysts and brokers
Commentary considered by the Board which included
the impact of the disposal on the balance sheet and the
Company’s net debt position
Colleagues
Communication plan for engagement, motivation and
information sharing
Consultation with the French works council and no job losses
on disposal
Consideration of the impact on share incentive arrangements
and the treatment of participating employees on disposal
Customers
Planning for best practice processes including centralised
pricing and salesforce effectiveness and recognising issues
raised by customers such as stock availability. Adoption of a
webshop model to provide complimentary services across the
network, opening of three new branches in under-represented
locations
Suppliers
Alignment of terms and centralised procurement
More focus on the core business enabling better management
of supplier relationships
Pension trustees
Engaged and consulted
Risks and mitigation
Value deterioration pending sale mitigated by robust planning and
consideration of alternative measures.
During the COVID-19 pandemic, the Board has met more frequently (bi-
monthly) and considered the needs of all stakeholders as the situation
unfolded and the long-term success of the Company. Management
was initially meeting on a daily basis and moved to bi-weekly, feedback
on these meetings was being provided to the Board on an ongoing
basis. The Board regularly reviewed the position keeping at the
forefront of their mind the need to preserve the safety of colleagues,
suppliers and customers. In making any decisions, the Board also
considered maintaining the Company’s reputation for high standards of
business conduct as well as its success in the longer term.
Stakeholders and matters considered during
the decision-making process:
■■ Health and wellbeing of colleagues, customers and suppliers
■■ Government guidance and support available
■■ Shareholders
■■ Banks and lenders
■■ The local community
Summary of actions taken as a result of
COVID-19 as at the date of this report are as
follows:
■■ Instigated home working and enhanced the IT capability by
purchasing additional laptops and VPN licences to facilitate as many
people as possible to work from home. Additional fraud measures
were put in place as organised crime intensified its own activity to gain
access to SIG systems. Moved all meetings to video conference calls.
■■ Enforced and adhered to the government’s strict hygiene,
social distancing and cleaning standards in all countries where
branches/sites remained open.
■■ Temporarily closed the majority of UK and Ireland operations but
remained open to service critical and emergency projects only,
such as for the NHS, energy and food sectors, and to ensure that
there was an orderly closure programme. Reopened the majority
of sites by mid-May.
■■ Furloughed circa 2,070 colleagues but committed to maintain a
proportion of pay. Colleagues voluntarily took a pay reduction
of up to 20% and the Board agreed to take up to 50% from 1
April 2020 for 3 months until 30 June 2020. In mid-May when
colleagues returned to work on full pay the CEO and CFO were
reinstated to 80% from 1 April 2020.
■■ In the UK, helplines have been set up so colleagues can get free
advice and support on mental health, financial and legal issues.
■■ Engagement with some of the Company’s major Shareholders by
the Chairman on the impact of the crisis and the steps it has taken
as a result. Announced that the Company would not be declaring a
final dividend for 2019, nor to consider any return to Shareholders
from the proceeds of the recent Air Handling disposal.
■■ Engagement with customers and suppliers by operating
companies to discuss the market environment, their needs/
concerns and stock demand and availability.
■■ The Board received updates from its financial advisors, lawyers
and brokers.
■■ Group Risk has designed and rolled out a crisis response checklist
to each operating company. The checklist comprises a set of short,
medium and long-term risks with activities for consideration by
management. Each operating company has been able to use the
schedule to ensure it has coverage of the fuller spectrum of risks
and to prompt consideration of additional activity, especially in
relation to changes in response by governments.
■■ The Board also regularly monitored the liquidity of the Group
and put in place strengthened cash control measures. The Group
has been able to preserve its liquidity position and the Group
remained in dialogue with its lending group in order to release
additional liquidity as required.
■■ SIG also made use of tax relief, as well as accessing other
available government measures.
■■ For more information on COVID-19 risks and mitigating actions
see page 47.
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Corporate Governance Report
Division of Responsibilities
Board and Committees
The Board has delegated certain responsibilities to its principal Committees. Each of the Committees operates under written terms of
reference which are consistent with current best practice. The terms of reference of each of the Committees were reviewed and updated by
the Board during the year and can be found on the Company’s website (www.sigplc.com). The Board also appoints Committees to approve
specific processes as deemed necessary. For example, during the year, Board Committees were established to approve the preliminary and
interim results announcements and the disposal of the Air Handling Division to France Air.
The Board
■■ Promotes the long-term sustainable success of the Company
and its subsidiaries, generating value for Shareholders and
contributing to wider society.
■■ Ensures that all Directors act with integrity, lead by example and
promote the desired culture.
■■ Ensures that the necessary resources are in place for the
■■ Establishes the Company’s purpose, vision and strategy and
satisfying itself that these and its culture are aligned.
Company to meet its objectives and assesses the basis on which
the Company generates and preserves value over the long-term.
■■ Assesses and monitors culture and behaviours.
■■ Reviews whistleblowing arrangements, ensuring that
■■ Ensures that the matters set out in section 172 of the
Companies Act 2006 are considered in Board discussions and
decision making.
arrangements are in place for proportionate and independent
investigation and follow up action.
Audit Committee
Nominations Committee
Remuneration Committee
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.
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 101 to 110.
Regularly reviews the structure, size and
composition of the Board and oversees
the development of a diverse pipeline
for orderly succession to the Board and
senior executive positions. Working
with HR, takes an active role in setting
and meeting diversity objectives and
strategies for the Company as a whole.
The Committee comprises the Chairman
and the independent Non-Executive
Directors. The CEO was a member of
the Committee until 8 May 2019. The
meetings of the Committee are chaired
by the Chairman. The Chairman of the
Committee attends the AGM to respond
to any shareholder questions that might
be raised on the Committee’s activities.
The Committee’s report is set out on
pages 96 to 100.
Agrees with the Board the framework
or broad policy of remuneration for the
Chairman, Executive Directors and senior
executives, and sets their remuneration
and reviews remuneration policies across
the Group ensuring the alignment of
workforce remuneration and incentives
with the Group’s culture and strategy.
The Committee comprises four
independent Non-Executive Directors
and the Chairman, (from 1 January 2020)
who was independent on appointment.
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 111 to 132.
Executive Leadership Team Committee
The Committee addresses operational issues and is responsible for implementing Group strategy and policies, day-to-day management
and monitoring performance. The Committee met 11 times during the year. Members include those individuals listed on page 84.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Board roles
Each of the Non-Executive Directors are considered by the Board to be independent of management and free of any relationship which could
materially interfere with the exercise of their independent judgement. The Chairman was assessed by the Board as being independent on
appointment. The composition of the Board is such that it includes an appropriate combination of Executive and independent Non-Executive
Directors and no one individual or group of individuals dominates the Board’s decision making. The roles of the Chairman and Chief Executive
Officer are separate and clearly defined and are undertaken by different individuals ensuring that there is a clear division of responsibilities
between the leadership of the Board and the executive leadership. More details of the roles and responsibilities can be found on the
company’s website at www.sigplc.com.
Chairman
Chief Executive Officer
Senior independent Director
Leading the Board, responsible for its
overall effectiveness in directing the
Company.
Responsible for proposing and then
delivering the strategy approved by the
Board.
Shaping the culture in the boardroom,
ensuring that all Directors, particularly
the Non-Executive Directors, make an
effective contribution.
Responsible for setting an example to the
Company’s workforce, for communicating
to them the expectations in respect of
the Company’s culture and for ensuring
that operational policies and practices
drive appropriate behaviour.
Available for approach by (or
representations from) Shareholders,
where communications through the
Chairman or Executive Directors may not
seem appropriate.
Leads the evaluation of the Chairman’s
performance at least once a year,
meeting with the Non-Executive
Directors, and without the Chairman
being present.
Non-Executive Directors
Group Company Secretary
Appointed for their wide-ranging experience and backgrounds.
Independent adviser to the Board.
They each provide constructive challenge, strategic guidance and
specialist advice, holding management and individual Executive
Directors to account against agreed performance objectives.
Ensures Board procedures are followed, and decisions
implemented.
Ensures best practice governance arrangements are followed.
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Division of Responsibilities
Executive Leadership Team as at 29 May 2020
Steve Francis
Chief Executive Officer
Seasoned CEO in turbulent times.
Key career highlights
■■ CEO, Patisserie Holdings PLC
■■ CEO, Tulip Ltd
■■ CEO, Danwood Group Holdings Ltd
Ronald Hoozemans
Managing Director Germany
and Benelux
Philip Johns
Managing Director SIG UK
Over 15 years’ experience in leadership
across the construction and healthcare
industry
Over 30 years’ experience in the
construction industry specialising in
merchanting and distribution.
Key career highlights
■■ Managing Director, Mediq
■■ Managing Director, Nutrica Advanced
Medical Nutrition (Danone)
■■ Operating Director, Nutrica
Key career highlights
■■ Chief Commercial Officer,
IBMG Group
■■ CEO, MKM Building Supplies
■■ Managing Director, SIGE
(2006 – 2015)
■■ Joined SIG in 1987
Kath Kearney-Croft
Chief Financial Officer
Julien Monteiro
Managing Director France
Marcin Szczygiel
Managing Director Poland
Kevin Windle
Managing Director Ireland
Over 20 years’ experience in the finance
industry, broad international global
experience in a series of financial
leadership roles in market leading
industrial and manufacturing companies.
Key career highlights
■■ Group Finance Director, Vitec Group plc.
■■ Group Finance Director, Rexam plc
■■ Director Group Planning & Finance,
Rexam plc
Over 12 years’ global experience in the
specialist industrial distribution industry.
Over 21 years’ experience in the specialist
construction distribution industry.
Key career highlights
■■ Managing Director, France, Brammer
Key career highlights
■■ Managing Director for SIG Poland
Group
since 1999
■■ Business Director and Sales Director,
Nacco Materials Group
■■ Managing Director, Sitaco
■■ Sales and Marketing Director, Isover
Poland
Over 20 years’ experience in finance
leadership roles in the building
merchanting industry.
Key career highlights
■■ Finance Director, SIG Ireland until
2019
■■ EMEA Finance Director, Glanbia
Performance Nutrition
■■ Finance Director, Grafton
Merchanting ROI
Kulbinder Dosanjh
Group Company Secretary
Clare Taylor
Group Human Resources
Director
Over 20 years’ global experience in
business administration across both
public and private companies.
Over 20 years’ experience in global HR
leadership roles across manufacturing
and distribution industries.
Key career highlights
■■ Group Company Secretary, Royal Mail
■■ Group Company Secretary, British
Airways
Key career highlights
■■ Group HR Director, Scapa
■■ Commercial HR Director, Ideal
Standard International
■■ Senior Global HR roles with
Smith & Nephew plc and SSL
International plc
Andrew Watkins
Group General Counsel
Over 17 years’ experience in legal
counsel across both public and private
companies.
Key career highlights
■■ General Counsel, Hyve Group
■■ General Counsel and Company
Secretary, Ebiquity plc
■■ General Counsel, Adapt Services Ltd
■■ Partner, Trowers and Hamlins LLP
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Composition, Succession and Evaluation
Time commitments
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. Prior to their
appointment, Directors are required to disclose their significant
other appointments and the Board is satisfied that each of the
Non-Executive Directors can dedicate sufficient time to their role
and responsibilities. Directors are aware that they must not take on
additional external appointments without the prior approval of the
Board. During 2019, approval was given to Mr Lovell prior to him
taking up the role of Chairman of Interserve and Progressive Energy
Limited in July 2019. Approval was also given to Mr Allner prior to
him taking up the role of Chairman of Shepherd Building Group
Ltd in January 2020. The Executive Directors do not have any FTSE
company Non-Executive Director appointments or other significant
appointments.
The Nominations Committee regularly reviews the other commitments
of Directors on appointment, on any proposal for re-appointment and
following any change in roles to ensure that the Directors have sufficient
time to undertake their role and responsibilities towards the Company.
Information and support
To enable the Board to perform its duties efficiently and 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
policies and processes are followed including the formal minuting of
any unresolved concerns that any Director may have in connection
with the operation of the Company. During the year there were no
such unresolved issues. Further, on resignation, if a Non-Executive
Director had any such concerns, the Chairman would invite him/her
to provide a written statement for circulation to the Board.
The Board and its 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, its
Committees and the 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.
The Board receives papers circulated through the Diligent portal
in advance of each Board meeting as well as information between
Board meetings on matters such as analyst and shareholding reports
and flash results. There is also a separate ‘Reading Room’ within
the Diligent portal where Directors are able to access information
such as corporate policies, the Articles of Association, Group and
organisational structure, Board dates and contact details.
The Company Secretary attends all Board meetings and is at hand
at all times to answer questions or offer independent advice or
expertise to Directors, should that be required.
Composition and succession
During the year, two new Directors, Ms Allum and Ms Kent, joined
the Board replacing Ms Ashdown and Mr Ragoucy. Lygon Group was
appointed to assist with the recruitment process which was led by
the Nominations Committee. As already stated, two new Executive
Directors, Mr Francis and Ms Kearney-Croft, joined the Board replacing
Mr Oldersma and Mr Maddock respectively. The Savannah Group was
appointed to assist with the interim Chief Executive position and Lygon
Group assisted with the permanent search of the aforementioned
role. Further details of this process, which the Board regards as formal,
rigorous and transparent, are included on pages 97 to 98.
The Board has also focused during the year on ensuring that
succession plans for the Board and senior management are robust
and that there is a pipeline of capable management in place. The HR
Director carried out talent and succession planning reviews during
May. These were calibrated by the Executive Leadership Team with
some gaps in succession planning identified. The results were then
reviewed and discussed by the Nominations Committee and the
Board in July 2019 and it was agreed that our high potential leadership
development programme (RISE) will be reinstated for leaders within
the organisation together with action plans to address gaps in
succession planning viewed as critical. RISE will commence in 2020.
Further details about the RISE programme are provided on page 55.
In addition to this programme, to support and improve the diversity
of our talent pipelines into senior leadership roles, a programme will
be created specifically focused on women in leadership throughout
SIG. This programme will focus on female leaders throughout the
organisation in order to develop their capability and potential to
progress into senior leadership and executive roles with confidence. A
mentoring programme is also being created, which will see individuals
from the Executive Leadership Team and other senior leaders trained
to be effective mentors, both for the RISE programme and the women
in leadership programme.
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. In accordance with Provision 18, the Board should set
out the skills and experience that each director has, and why their
contribution is and continues to be important to the Company’s
long-term sustainable success. The Board believes the success of
the Company going forward will be achieved by a new 2020 strategy
of returning to profitable growth by maintaining a leading market
position, with a modernised operating model, effective partnerships
with customers and suppliers, developing high performing people
and being a responsible business. The contribution of the whole
Board is essential in delivering the new strategy with a number of very
experienced Non-Executive Directors and Executive Directors. The
new Executive Directors have expertise in driving rapid operational
and performance improvements and restoring profitable growth.
The Chairman has considerable board and general management
experience with an in-depth understanding of corporate governance.
Mr Lovell has extensive construction sector experience in the Group’s
key markets, the UK, Ireland and Europe as well as turnaround
expertise. Ms Allum brings extensive people and change management
experience which is extremely important in her two additional board
roles (workforce engagement and whistleblowing champion) and
driving the people agenda. Mr Duncan brings extensive financial
and change management experience which will help to enhance the
financial performance and measurement within the Company. Ms
Kent brings valuable perspective in the development of ecommerce
and software businesses and building product markets and brands,
which will be hugely important in driving innovation and digitising our
business. Therefore, to enable Shareholders to make an informed
decision, the 2020 notice of AGM includes biographical details and
a more detailed statement as to why the Company believes that the
Directors should be elected/re-elected.
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance Report
Composition, Succession and Evaluation
It is the view of the Board that each of the Non-Executive Directors
standing for election or re-election brings considerable management
experience and an independent perspective to the Board’s
discussions, and is considered to be independent of management
and free from any relationship or circumstance that could affect, or
appear to affect, the exercise of their independent judgement.
The Chairman intends to confirm at the AGM that, as confirmed
by the 2019 Board evaluation process, the performance of each
individual continues to be effective, that each Director acts with
integrity, leads by example, promotes the desired culture and
demonstrates commitment to the role.
The terms of the Directors’ service contracts are disclosed in the
Directors’ Remuneration Report on page 132. Full details of directors’
remuneration, interests in the share capital of the Company and
of share options held are set out on page 131 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 2020 AGM.
Skills and experience
The Board evaluation review process detailed on pages 87 to
88 identified that the Board encompasses a wide range and
combination of different skills, experience and knowledge, ranging
from accounting to sales and marketing to digital. The Board
decided that they would seek to enhance the Board in 2020 with the
appointment of an additional Non-Executive Director who would
bring more industry sector experience. More details can be found on
page 65.
Training and induction
The Chairman regularly reviews and agrees with each Director their
training and development needs. During the year, a number of
the Directors attended training courses and seminars on various
subjects, including those that the Chairman had identified as being
areas where training would increase the knowledge and effectiveness
of the Director. The Board as a whole received training from Herbert
Smith Freehills LLP regarding corporate governance developments
and Directors’ duties under sections 171 to 177 of the Companies
Act 2006. The Board receives regular presentations from advisors
and senior management on a range of topical issues such as data
governance and class 1 transactions and responsibilities.
As part of the roll out of updated corporate policies mentioned on page
74, the Board undertook the online compliance training to enhance
their awareness of the various requirements of our corporate policies.
The Directors also report to the Board on any other training undertaken
and a schedule of Director training is kept by the Company Secretary.
On appointment, Directors receive a full induction to the Company.
This involves meetings with each of the Board members, members
of the Executive Committee, visits to a number of branch locations
and receipt of a full pack of corporate materials including corporate
policies and procedures, details of insurance, financial framework
and Shareholders. The programme ensures that they are fully briefed
on current key Board topic areas, the Company strategy, vision and
structure, stakeholder engagement activities, Group operations,
finance and the industry.
All Directors participated in a special training event in December 2019
when PwC, the Company’s appointed remuneration consultants, updated
the Directors on the latest developments in remuneration and reporting.
Diversity Policy
Whilst succession within the organisation is based on objective
performance criteria, the Board recognises that diversity of gender,
social and ethnic backgrounds and cognitive and personal strengths
are hugely important to the success of the organisation and a key
focus of the Nominations Committee working with the HR team will be
to develop diversity within the organisation going forward. In relation
to Board succession planning, the Board recently reviewed and
updated its Board diversity policy and reviewed the Board succession
plan. The Board diversity policy is available on the Company’s website
(www.sigplc.com). Further details can be found on page 99.
Induction undertaken with Kate Allum and Gillian Kent
“The induction
provided me with a
good understanding
of the business from
day one. Talking first
hand to branch
colleagues was
particularly
insightful.”
Gillian Kent
“The induction
provided me with
all the resources
I needed to start
in my role. It was
a well managed
and informative
process.”
Kate Allum
Meetings with Board and key members of
management team covering:
■■ Key Board topics
■■ Long-term strategy
■■ New vision, purpose and culture
■■ Group operations, finance and performance
■■ Industry and stakeholder engagement
■■ Key people and succession plans
Meeting with Company Secretary covering:
■■ Use of Diligent portal
■■ Structure of Board and Committees
■■ Governance framework
■■ Group structure and history
Branch visits:
as set out on page 75.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Corporate Governance Report
Board Evaluation
The effectiveness of the Board and its Committees and the skills,
experience and diversity of our Directors are vital to the long-
term sustainable success of the Company. During the year the
Board undertook an evaluation process to assess its performance,
that of its three principal Committees (Audit, Remuneration and
Nominations) and individual Directors.
in an unattributed manner, into a report produced by the Company
Secretary. The report was then circulated to the Chairman and Board
members and was discussed in detail by the Board at its meeting
in December 2019. The Chairman also held individual one-to-one
discussions with each of the Directors to discuss their individual
performance and appraisal.
Process
The Company Secretary, together with the Chairman, prepared a
questionnaire which was made available to Directors through the
Board portal. Directors were asked about the performance of the
Board, the Audit, Remuneration and Nominations Committees and
individual Directors. The Board was asked to confirm whether the
Chairman promotes relationships and open communication both
inside and outside the boardroom between Non-Executive Directors
and the Executive Team. They were also asked to consider what
further could be done to promote and encourage equal contribution,
candid discussion and critical thinking in the boardroom.
Skills matrix
At the same time, Directors completed a matrix detailing their skills
and experience covering a number of different areas including
stakeholder and workforce engagement, technology/digital, health
and safety, treasury management, accounting, international, property
management and corporate transactions. Responses were collated,
Assessment of Chairman’s performance
The Non-Executive Directors, chaired by the Senior Independent
Director, Alan Lovell, met without the Chairman present to assess
his performance, taking into account the views of the Executive
Directors. Following his conversations with other Board members,
the Senior Independent Director then met with the Chairman to
review his performance. Overall, Directors considered that the
Chairman demonstrated objective judgement and promoted a
culture of openness and debate within the boardroom, facilitating
the contribution of all of the Non-Executive Directors.
Progress with 2019 priorities
As part of the review process the Board considered the results of
the effectiveness review undertaken by Condign Board Consulting in
2018 and the progress made against Board priorities in 2019.
The progress against the 2019 priorities can be summarised as
follows:
2019 priorities and progress
1
Board administration and
business knowledge
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.
Progress
Progress has been made to improve the rigour and discipline
around Board administration. During the year, a new General
Counsel and a Company Secretary have been appointed.
Training events have been held for the Board and Board
members have undertaken several individual site visits
during the year to understand the business and ascertain
employee views.
There have been several opportunities for the Board to
engage collectively with employees with visits to Pantin in
Paris, the roofing and distribution branches in Southampton
and the Eching branch in Munich.
2
More strategic focus
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.
Progress
The Board’s focus on strategy has improved during the year. A
strategy Director was appointed to drive the Group’s strategic
planning with dedicated meetings being held to discuss
strategic issues including:
■■ Portfolio management;
■■ Digital;
■■ Future growth;
■■ Purpose, culture and values/behaviours;
■■ IT;
■■ Roll out of new ERP systems;
■■ Data; and
■■ Organisational capability.
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance Report
Board Evaluation
Current effectiveness and priorities for 2020
The review of effectiveness in 2019 identified the following as key areas of strength and key areas of priority for the Board during 2020:
Key strengths
Board priorities for 2020
1
2
3
4
The Board continues to operate effectively
and to a high standard
The Chairman leads the Board well and sets a good tone at
meetings, encouraging equal participation. Relationships
amongst Board members are constructive, open and
candid. The new Directors appointed during the year have
added new skills and insights particularly around people,
digital and culture.
Purpose, vision, strategic direction
understood and supported
The Board has spent time on articulating the Group’s
purpose, vision and culture. Adequate time was spent on
the strategy, where the Board was broadly supportive and
understood the strategy. The ability and capability of
management to execute the strategy was broadly effective
but much more focus was required to make a significant
difference to improving the performance. The Board’s
understanding of the business has improved as a result of
the numerous site visits and listening to colleague
feedback.
Robust Board information
and governance
The Board has made good progress with governance, for
example, by reviewing and updating the matters reserved
for the Board and Board diversity policy. Board papers and
support around meetings has improved. The Board is
receiving better information and being kept up to date on
key governance matters.
Board Committees are all considered
to be operating effectively
The Committees are generally considered to be effectively
chaired and managed. The Board considers the
Committees are effective at dealing with matters delegated
to them. In particular, the Audit Committee is rated highly
for leadership, its relationship with management, external
advisers and identifying and evaluating risks. The
Remuneration Committee is effective in setting and
reviewing the remuneration framework and policy for
Executive Directors and other senior managers. The new
Chair has made a good start in ensuring everyone
understands reward arrangements in the Group.
1
2
3
4
5
Culture
Although good progress has been made, more could be
achieved in embedding the culture across the organisation
and setting the tone from the top. Steps have been taken
to develop a dashboard to monitor culture which could be
enhanced further in 2020. More will be done to embed the
commitment culture and behaviours throughout the
Group with the Board setting the ‘tone from the top’.
Composition, talent and succession
Although the Board has been enhanced significantly during
the year with two new Non-Executive Director
appointments, the plan would be to enhance the
composition further in 2020. Two new Executive Directors
have joined given that the essential restructuring of the
Group had largely been completed, the Board believed
that it was time for a new leadership team, with skills in
driving rapid operational performance improvements
through strong customer relationships, excellence in
customer service and creating highly engaged teams. The
Board through the Nominations Committee would focus
more on talent, capability and succession of the Managing
Directors of the operating companies and their direct
reports. Improve the recruitment, retention of talent and
support the Company’s diversity and inclusion aims.
Employee and stakeholder engagement
More information and debate around people issues. The
appointment of a designated Non-Executive Director for
workforce engagement should formalise the process and
assist the Board to gain a deeper understanding of
colleague feedback. Continue with Board visits and
meetings with the management teams of the operating
companies in addition to engaging more with suppliers
and customers. Develop more understanding of who they
are, ensure effective understanding of their views and
develop KPIs/dashboard to monitor progress.
Board information and support
To continue to improve the rigour and discipline around
Board information and support. Ensure papers are
concise, distributed in a timely and user-friendly manner
through the digital portal. Continue embedding the
arrangements developed as a result of the Code. Develop
more robust procedures around Board and Committee
meetings.
Environment and sustainability strategy
Whilst SIG plc had again been recognised as a constituent
member of the FTSE4 Good Index Series demonstrating
strong environmental, social and governance practices,
there is a need for further clarity on the Group’s priorities
around environmental, social and governance and
sustainability matters and the rationale behind the
direction of travel.
88
89
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Corporate Governance Report
Audit, Risk and Internal Control
Risk management and internal control
The Board has ultimate responsibility for the Group’s risk
management and system of internal control and for reviewing its
effectiveness. It establishes the structure for risk management, sets
strategic objectives, sets the risk appetite and ensures that risk
management and internal control structure and frameworks are
robust. The Board delegates responsibility to the Audit Committee to
consider the adequacy of the risk management and internal control
framework and to agree the risk-based internal audit programme.
The Executive Committee has responsibility for ensuring that risk
management is embedded into all processes and for ensuring that
risk profile is in line with the approved risk appetite. Local Controls
Managers support process owners to develop controls and to test
their effectiveness. Group Internal Audit is responsible for providing
independent assurance on the quality of the risk management
processes, developing a risk-based internal audit programme
and providing independent assurance to the Board and the Audit
Committee that controls in place are designed appropriately and
operating effectively.
The Group Internal Audit function comprises of an in-house team
supported by a co-source arrangement with KPMG LLP who provide
input on specialist areas. BDO LLP have also been retained for
advisory work on controls for management. The Board regularly
reviews the need for the Group Internal Audit function and the
effectiveness of the co-source arrangement.
Information on audit can be found in the Audit Committee Report on
pages 101 to 107.
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 and Internal Control and Related Financial and Business
Reporting (September 2014) (FRC’s Guidance), are as follows:
Risk management
■■ The documented Group risk management framework, approved
by the Audit Committee, provides an overview of the agreed risk
management processes within the Group and gives practical
guidance to operating companies and individual functions on
the management of risk. Essentially it is a toolkit to help manage
strategic, financial, operating and compliance risk. The Group
risk management framework is supported by a simple pack of
slides (Managing Your Risks) which helps management to explain
the risk management system to their teams. The Group Risk and
Internal Audit teams support with practical assistance where
required. The Group risk management framework was updated
during the year and formally issued to leadership teams in
February 2019.
■■ In accordance with the Group risk management framework,
operating companies and central function leadership teams
maintain their own local risk registers.
■■ The Board maintains an overall Group risk register, the content of
which is determined and assessed through regular input from the
Audit Committee. A review of the Group’s principal risks and how
it manages or mitigates them is presented in the Strategic Report
on pages 44 to 49.
■■ The Group risk register contains the principal risks faced by the
Group and assesses the potential impact and likelihood at both
a gross level (before consideration of mitigating controls) and
net level (after consideration of mitigating controls). It outlines
the current controls in place to mitigate the risk and any further
actions required to bring the risk to within risk appetite. Each
Group risk is owned by a member of the Executive Leadership
Team and sponsored by either the Chief Executive or Chief
Financial Officer. New and emerging risks are identified through
horizon scanning, review of relevant media publications, external
insights, risk workshops held with management teams and
discussion with senior management and external advisers. Once
identified, emerging risks are assessed by identifying and mapping
out the core elements of the risk, identifying owners for each
element in the operating companies, holding workshops with risk
owners to assess the level of risk, identifying potential mitigating
actions that reduce the impact of the risk and seeking external
guidance if required. Potential emerging risks are monitored and
assessed at least twice a year by the Audit Committee and Board
for their relevance and significance.
The Board regularly assesses the Group’s emerging and principal
risks and considers that its assessment is robust.
Internal control
Key control activities include:
■■ A defined organisation structure with levels of approval governed
by the Group Delegation of Authority policy. This was updated in
January 2020 to accommodate changes in operating models and
organisational structures across the Group.
■■ In light of the changes to business practices as an impact of
COVID-19, there was a further tightening of approval levels for the
payment of invoices relating to non-trade, government payments
and capex projects. CFO approval was also required for any new
capex projects over a value of £100,000.
■■ 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 completed
with the CEO and CFO attending local management meetings to
discuss any significant changes and adverse variances against
budget.
■■ Monthly provision to the Board of relevant, accurate and timely
information including relevant key performance indicators.
■■ The Key Controls Framework (KCF) launched in 2018 utilised
across the Group setting out 33 control assertions across a
number of entity-level, financial, operational and IT control areas
against which operating companies are required to self-certify on
a quarterly basis using a RAG rating. Design and implementation
of the KCF control by leaders in the business represents the
first line of defence in the organisation. They rely on the Group
/ operating company Controls Managers, the second line of
defence, to advise on controls and to test these on a rolling
basis. Group Internal Audit, as the third line of defence, provides
independent assurance over those controls. This self-certification
process is reported to the Audit Committee on a quarterly basis.
The KCF was updated in quarter one in 2019. The three lines of
the defence model is addressed in further detail in the Strategic
Report at page 44, and further detail in relation to the KCF is
provided in the Audit Committee Report at page 106.
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Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance Report
Audit, Risk and Internal Control
■■ The KCF self-certifications received from operating companies
as at 31 March 2020 have been reviewed to understand the
potential heightening of risk due to COVID-19 and its impact
on working practices, i.e. relocation of staff and inaccessibility
of some locations. This review also looked to understand the
measures implemented across the Group to ensure an adequate
and appropriate level of control.
■■ Introduction of the documentation of the operating companies’
controls against a set of standardised risk schedules for key
processes (Risk and Control Matrices (RACMs)), such as supplier
rebates or bank and cash controls. These RACMs provide the
structure for further controls improvement and basis for
detailed controls testing by the Group Controls Team and Group
Internal Audit.
■■ The interim measures implemented include a communication
with suppliers and additional support provided by the UK Shared
Service Centre to ensure that supplier invoices are received and
processed in a timely manner in light of branch closures and a
review of customer credit limits to reflect the uncertainty around
cash collections from customers and to mitigate the risk of bad
debts. Some customer credit limits have been set to zero and
therefore customers are required to make advance payments
before orders can be raised.
■■ Regular monthly reports on risk management, KCF and internal
controls at each Board and Audit Committee meeting from the
CFO.
■■ Regular cash and treasury reporting to the CFO and periodic
reporting to the Board on the Group’s tax and treasury position.
Since COVID-19 the Board has been reviewing regular cash
forecasts at every meeting.
■■ Any significant issues or control weaknesses identified are reported
to the Executive Committee, Audit Committee and the Board.
COVID-19 controls
Due to the impact of the global COVID-19 crisis, the Board and
Executive Committee took swift action to put in place a number
of new controls to comply with governmental advice, protect the
business and its people and mitigate against the risks arising from
remote working. These include:
■■ Improved governance arrangements initially through daily
Executive Leadership Team calls (moved to bi-weekly) to
identify and resolve common issues in order to build resilience.
Instigation of bi-monthly Board meetings. Operating company
leadership teams also met several times a week to respond to
local issues.
■■ Strengthening of cyber security controls through acceleration of
plans to defend against the increased risk of phishing attacks.
■■ Measures in place in branches to protect employees, customers
and suppliers from risk of infection. Head office locations were
closed with many employees working remotely.
■■ The overall internal controls framework is regularly monitored by
■■ Introduction of a homeworking policy to ensure the safety and
the Audit Committee on behalf of the Board to ensure continuous
improvement.
■■ A structured and approved programme of audits undertaken
by Group Internal Audit, including regular visits to and
interaction with the operating companies across the Group. The
implementation of recommended actions is monitored as part
of a continuous programme of improvement. The Group Internal
Audit Manual approved by the Audit Committee in March 2019
was not updated during the year, as the overall methodology for
identifying audits, testing and reporting on controls was working
effectively. A Group internal Audit Effectiveness survey had been
conducted in January 2020 for the year ended 31 December 2019
and further details can be found in Audit Committee Report on
page 109.
Developments in 2019:
The following developments were made during the year:
■■ Introduction of formal policies including a Group Balance Sheet
Reconciliation and Review Policy; Group Month-End Reporting
Policy; Group Period-End Framework; and operating company
Month-End Checklist.
■■ Development and monitoring of control improvement plans
for all operating companies which are, in part, an output of the
KCF quarterly self-certification process, with all actions being
monitored through 4Action, the Group’s action-tracking software
to ensure actions are being tracked and closed.
■■ Hiring of additional resource to achieve a step change in the
control environment in the UK.
■■ A controls remediation dashboard introduced as a regular report
to the Audit Committee which sets out progress against control
weakness identified by the External Auditor, Group Internal
Auditor and KCF reviews.
well-being of employees working remotely.
In addition to these new measures, finance teams have focused on
improving the accuracy of weekly cash forecasting and the limits on
the Delegation of Authority have been decreased so that payments
are authorised at more senior levels. Controls have also been
strengthened over customer credit limits.
Financial reporting
■■ In addition to the general internal controls and risk management
processes described on pages 89 to 91, 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
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, which is regularly updated to include
changes to accounting and reporting policies such as IFRS 16.
Independent Review by PwC
As already mentioned on page 25, the Board instigated an
independent review through the Group Investigation Committee
commissioning PwC to undertake an independent review of the
Group’s forecasting and monthly management accounts processes
in light of the disparity between the forecast level of underlying
profit before tax for the financial year 2019 set out in the January
Trading Update and market consensus of forecast profit prior to that
announcement. The Board takes the findings of the PwC report very
seriously. The Company voluntarily notified the FCA of the progress
of the PwC report and has shared the PwC report with the FCA.
Since SIG’s receipt of the PwC report, in order to strengthen the
Group’s financial forecasting and internal reporting, KPMG has been
appointed to assist the Audit Committee in ensuing appropriate
improvements are implemented to the Company’s financial systems,
procedures and controls recommended in the PwC report.
90
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Further details on the actions being taken (including actions taken
during the course of the year in relation to cultural changes) are
included in the Corporate Governance report on pages 72 to 76.
The Board had already agreed that additional focus was required
during 2020 to embed the commitment culture, improve employee
engagement and morale. This work would also include the actions
arising from the review. Further background on the scope of the PwC
review and the actions the Company is implementing in response are
set out in the Audit Committee report on page 108.
Annual assessment of the effectiveness of
systems of risk management and internal
control systems
During 2019, the Board conducted a review of the effectiveness of
the Group’s system of risk management and internal controls. This
review covered all controls including operational, compliance and risk
management procedures, as well as financial controls.
To complete the review, the Board and Audit Committee requested,
received and reviewed reports from the Director of Risk and Internal
Audit (including from the in-house team and expert co-source
partner KPMG), the CFO and the external Auditor.
As noted on page 25 of the Strategic Report in relation to the PwC
Report, the Board was not fully sighted of all of the risks to the full
year profit forecast in 2019, however it considers that it is taking the
appropriate steps to improve forecasting controls and the culture
within which they operate. The approach to improving culture is
outlined in this section on pages 72 to 76 and the action plan in
relation to PwC’s findings as well as the Group’s approach to its
continued focus on controls is given in the Audit Committee section
on pages 106 to 108.
Other improvements in internal controls have been identified
throughout the year and action plans devised and put in place.
Progress towards completion of actions is regularly monitored by
management and the Board.
Save as identified by the PwC Report and the findings which are
being addressed, the Board considers that the information that
it receives is sufficient to enable it to review the effectiveness of
the Group’s risk management and internal controls in accordance
with the FRC’s Guidance. The Board considers that the framework
of controls in place is effective and enables risk to be assessed
and managed. The Board also considers its risk management and
internal control processes provide it with the assurance that all of
the necessary resources are in place for the Company to meet its
objectives and to measure performance against them for 2019 and
up to and including the date of this report.
Directors’ Report Disclosures
Substantial shareholdings
At the date of approval of the 2019 Annual Report and Accounts, the
Company had received notification of the following shareholdings
in its issued share capital pursuant to the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority as at
31 December 2019 and 29 May 2020. Information provided by the
Company pursuant to the DTRs is publicly available via the regulatory
information services and on the Company’s website.
Shareholder
Ninety One UK Ltd
Interests
disclosed to the
Company
as at 31
December 2019
Nature of holding as per
disclosure
%
Interests
disclosed to the
Company as at
29 May 2020
Interests disclosed to the
Company as at
29 May 2020
%
67,650,791
11.43
Indirect interest
0
Coltrane Asset Management
71,678,000
12.11
Equity CFD
IKO Enterprises Limited
40,539,710
6.854 Direct interest (4.5235%)
Indirect interest (2.3305%)
Direct interest
5.02
29,692,260
N/A
87,379,710
29,263,059
14.77 Direct interest (13.0428%)
Indirect interest (1.7284%)
Direct interest (4.95%)
4.95
Tameside MBC re Greater
Manchester Pension Fund
Templeton Investment Counsel LLC
Artemis Investment Management
LLP
Massachusetts Financial Services
Company
Schroder Investment Management
Limited
29,358,556
28,820,324
4.96
4.87
Direct interest
23,005,522
29,358,556
28,820,324
4.96
4.87
Indirect interest
Indirect interest
26,799,365
4.53
Indirect interest
26,799,365
4.53
Indirect interest
23,005,522
3.89
Indirect interest
23,005,522
3.89
Indirect interest
90
Norges Bank
19,786,142
3.34
Direct interest (3.03%)
Shares on loan (right to
recall) (0.32%)
18,046,028
2.83
Aberforth Partners LLP
Goldman Sachs International
JP Morgan Securities plc
38,723,309
34,049,953
6.55
5.76
44,445,536
7.52
Direct interest (2.64%)
Shares on loan (right to
recall) (0.19%)
Indirect interest
Indirect interest (0.01%)
Securities lending (2.47%)
Swap (2.32%)
CFD (0.96%)
Indirect interest (2.98%)
Right to recall (3.38%)
Cash-settled equity
swap (1.15%)
9191
Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance Report
Whistleblowing
The Group has in place a Whistleblowing Policy under which
employees may, in confidence, raise concerns about possible
wrongdoing in financial reporting or other matters. A copy of this
policy is available on the Company’s website (www.sigplc.com).
The Company also has in place a confidential hotline which is
available to all of the Group’s employees and provides a facility for
them to bring matters to management’s attention on a confidential
basis. The hotline is provided by an independent third party. During
2019 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. Where a whistleblowing
report has been investigated, an update is provided to the Audit
Committee as part of the Director of Risk and Internal Audit’s report.
The Company Secretary also reports to the Board each month
on reports made under the policy and the state of ongoing
investigations and conclusions reached. During 2019 Group
employees used this system to raise concerns about a number
of separate issues, all of which were appropriately responded to.
Additionally, following recommendations from the PwC report,
the Board has appointed Ms Allum as the Board Whistleblowing
champion (with effect from 27 April 2020) and will agree a written
remit and ensuring a robust plan is in place to further enhance
awareness and effectiveness of the current whistleblowing
arrangements. This role complements her role as the designated
Director for workplace engagement.
Statement of the Directors on the disclosure
of information to the Auditor
The Directors who held office at the date of approval of the Directors’
Report confirm that:
■■ So far as they are each aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
■■ Each Director has taken all steps that he/she ought to have taken
as a Director to make himself/herself aware of any relevant audit
information and to establish that the Company’s Auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Going concern
The going concern statement can be found on page 42 of the
Strategic Report.
Viability statement
The viability statement can be found on pages 40 to 41 of the
Strategic Report.
Independent Auditor
On the recommendation of the Audit Committee (see page 110), in
accordance with section 489 of the Companies Act 2006, resolutions
are to be proposed at the AGM for the re-appointment of Ernst &
Young LLP as Auditor of the Company and to authorise the Audit
Committee to fix its remuneration. The remuneration of the Auditor
for the year ended 31 December 2019 is fully disclosed in note 4 to
the Financial Statements on page 164.
Publication of annual report and
notice of AGM
Shareholders are to note that the SIG plc Annual Report 2019 together
with the notice convening the AGM have been published on the
Company’s website (www.sigplc.com). If Shareholders have elected
to receive Shareholder correspondence in hard copy, then the annual
report and notice convening the AGM will be distributed to them.
Principal activity
The principal activity of the Group is the supply of specialist products
to construction and related markets in the UK, Ireland and Mainland
Europe. The main product sectors supplied during the year are
insulation and interiors, roofing and exteriors and air handling.
The Chairman’s Statement and Strategic Report on pages 4 to 5
contain a review of these activities and comment on the future
outlook and developments. The financial risk management
objectives, policies and key performance indicators of the Company
are also set out in the Strategic Report.
Political donations
It is the Group’s policy not to make political donations and no
political donations were made during the year (2018: £nil).
Details of the Group’s policies in relation to Corporate Governance
are disclosed on pages 53 to 56.
Group results and dividends
The consolidated income statement for the year ended 31 December
2019 is shown on page 136. The movement in Group reserves
during the year is shown on page 139 in the consolidated statement
of changes in equity. Segmental information is set out in note 1a to
the financial statements on pages 157 to 160.
The Company announced on 26 March 2020 that in light of COVID-19,
the Board has taken the decision not to declare a final dividend for
the year (2018: 2.5p), recognising that this is in the best interest of
preserving the Group’s liquidity position. With an interim dividend of
1.25p (2018: 1.25p) per share having been paid in November 2019,
this gives a total dividend for the year of 1.25p (2018: 3.75p) per share.
Greenhouse gas emissions
Details of the Group’s greenhouse gas emissions are detailed in the
Strategic Report on pages 58 to 60 of the Sustainability Report.
Employees
Details of the Group’s policies in relation to employees (including
disabled employees) are disclosed in the Sustainability Report on
pages 53 to 56. Further information on employee engagement and
consultation can be found in the Strategic report on page 56 and the
Corporate Governance report on page 72.
Stakeholder engagement
Further information on stakeholder engagement, including on our
business relationships with suppliers, customers and others, can be
found in the corporate governance report on pages 78 to 81.
Post balance sheet events
Details of post balance sheet events are included in Note 34 on page
216 of the Financial Statements.
92
93
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Related party transactions
Except as disclosed in Note 31 to the financial statements on page
207 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.
Subject to any restrictions below, Shareholders may attend any
general meeting of the Company and, on a show of hands, every
Shareholder (or their representative) who is present at a general
meeting has one vote on each resolution and, on a poll, every
Shareholder (or their representative) who is present has one vote
on each resolution for every ordinary share of which they are the
registered Shareholder.
A resolution put to the vote of a general meeting is decided
on a show of hands unless before or on the declaration of the
result of a vote on a show of hands, a poll is demanded by the
Chairman of the meeting, or by at least five Shareholders (or their
representatives) present in person and having the right to vote, or by
any Shareholders (or their representatives) present in person having
at least 10% of the total voting rights of all Shareholders, or by any
Shareholders (or their representatives) present in person holding
ordinary shares in which an aggregate sum has been paid up of at
least one-tenth of the total sum paid up on all ordinary shares.
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 20 to
the financial statements on pages 185 to 191.
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.
Future developments
Possible future developments are disclosed in our strategy 2020
section of the Strategic report on page 16 to 17.
Acquisitions and disposals
Details of acquisitions made, and businesses identified for sale or
closure are covered in Note 15 on page 181 and Note 11 on page
172 of the financial statements.
Group companies
A full list of group companies (and their registered office addresses)
is disclosed on pages 242 to 243.
Share capital
The Company has a single class of share capital which is divided into
ordinary shares of 10p each. At 31 December 2019, the Company
had a called up share capital of 591,556,982 ordinary shares of 10p
each (2018: 591,556,982).
During the year ended 31 December 2019, options were exercised
pursuant to the Company’s share option schemes. 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 14 on pages 240 to 241, 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 their shares are evidenced by share certificates (i.e.
in certificated form) or held in electronic (i.e. uncertificated) form in
CREST (the electronic settlement system in the UK).
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.
Under the Company’s Share Incentive Plan (the “SIP”), the SIP trustee
holds shares on behalf of employee participants. In accordance with
the SIP trust deed and rules, the SIP trustee must act in accordance
with any directions given by a SIP participant in respect of their SIP
shares. In the absence of any such directions from a SIP participant
the SIP trustee will not take any action in respect of SIP shares.
Under the SIG employee benefit trust (the “EBT”), the EBT trustee
holds shares on behalf of employee participants, to be used for the
settlement of awards granted under the Company’s incentive plans.
The EBT trustee has, under the trust deed establishing the EBT,
waived all rights to vote in respect of any shares held in the EBT,
except any shares participants own beneficially, in respect of which
it will invite participants to direct how the trustee shall act in relation
to the shares held on their behalf. The number of shares held in the
EBT on 29 May 2020 was 152,197. The EBT trustee has also waived
dividends on shares held in the EBT.
Further information relating to the change of control provisions
under the Company’s incentive plans appears within the
Remuneration Policy available on the Company’s website.
92
9393
Stock code: SHIwww.sigplc.comGOVERNANCE Corporate Governance Report
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, no 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 they 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 they 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 their period of office. The office of a
Director shall be vacated if:
(i)
They cease to be a Director by virtue of any provision of law or
is removed pursuant to the Company’s Articles of Association or
he/she becomes prohibited by law from being a Director;
(ii) They become bankrupt or compounds with their creditors
generally;
(iii) They become of unsound mind or a patient for any purpose of
any statute relating to mental health and the Board resolves
that their office is vacated;
(iv) They resign;
(v) They fail to attend Board meetings for six consecutive months
without leave of absence from the Board and the Board resolves
that their office is vacated;
(vi) They appointment terminates in accordance with the provisions
of the Company’s Articles;
(vii) They are is dismissed from executive office;
(viii) They are convicted of an indictable offence and the Directors
resolve that it is undesirable in the interests of the Company
that they remains a Director; or
(ix) The conduct of the Director is the subject of an investigation
and the Directors resolve that it is undesirable in the interests of
the Company that they remain a Director.
The Board may, from time to time, appoint one or more Directors
as Managing Director or to fulfil any other executive function within
the Company for such term, remuneration and other conditions
of appointment as it may determine, and it may revoke such
appointment (subject to the provisions of the Companies Act).
Agreements with employees and significant
agreements (contracts of significance)
There are no agreements between the Company and its Directors
or employees providing for compensation for loss of office or
employment (whether through resignation, purported redundancy or
otherwise) that occurs because of a takeover bid.
The Company’s banking arrangements are terminable upon a change
of control of the Company. Certain other indebtedness becomes
repayable if a change of control leads to a downgrade in the credit
rating of the Company. Bank consent is required for any major
acquisition or disposal of assets.
Fixed assets
In the opinion of the Directors, there is no material difference
between the book value and the current open market value of the
Group’s interests in land and buildings.
CREST
The Company’s ordinary shares are in CREST, the settlement system
for stocks and shares.
2020 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.
94
95
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc For the purposes of LR 9.8.4C R, the information required to be
disclosed by LR 9.8.4R can be found in the following locations:
Section Topic
Location
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Interest capitalised
Not applicable
Publication of unaudited
financial information
Details of long-term
incentive schemes
Waiver of emoluments by
a Director
Waiver of future
emoluments by a Director
Non pre-emptive issues of
equity for cash
Item (7) in relation to major
subsidiary undertakings
Parent participation in a
placing by a listed subsidiary
Not applicable
Remuneration Committee
Report, page 119
Not applicable
Remuneration Committee
Report, page 118
Not applicable
Not applicable
Not applicable
Contracts of significance
Not applicable
Provision of services by
a controlling Shareholder
Shareholder waivers
of dividends
Shareholder waivers of
future dividends
Agreements with controlling
Shareholders
Not applicable
Not applicable
Not applicable
Not applicable
SIG has been mindful of the best practice guidance published by
Defra and other bodies in relation to environmental, community and
social KPIs when drafting the Strategic Report. The Board has also
considered social, environmental and ethical risks, in line with the
best practice recommendations of the Association of British Insurers.
Management, led by the CEO, 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 91 to 95 was approved by the
Board of Directors on 29 May 2020 and signed on its behalf by the
Company Secretary, Kulbinder Dosanjh.
Kulbinder Dosanjh
Company Secretary
29 May 2020
Authority to purchase own ordinary shares
Shareholders’ authority for the purchase by the Company of
59,155,698 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 2020 AGM, in line with institutional shareholder
guidelines.
Authority to allot ordinary shares
Shareholders’ authority to allot ordinary shares up to an aggregate
nominal amount of £39,437,132 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
2020 AGM, in line with institutional shareholder guidelines.
During the year ended 31 December 2019, no options were
exercised pursuant to the Company’s share option schemes,
resulting in the allotment of no 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 14 on pages 240 to 241 which also
contains details of options granted over unissued share capital.
Fair, balanced and understandable
The Directors have a responsibility for preparing the 2019 Annual
Report and Accounts and for making certain confirmations
concerning it. In accordance with provision 27 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, performance, business model and strategy. More
information can be found in the Audit Committee Report on page 110.
Cautionary statement
The cautionary statement can be found on page 43 of the
Strategic Report.
Content of Directors’ Report
The Corporate Governance Report (including the Board biographies),
which can be found on pages 68 to 69, the Audit Committee Report
on pages 101 to 110, the Nominations Committee Report on pages
96 to 100, and the Directors’ Responsibility Statement on page 133
are incorporated by reference and form part of this Directors’ Report.
The Directors’ Report, together with the Directors’ Remuneration
Report on pages 111 to 132 fulfils the requirements of the Corporate
Governance Statement for the purposes of DTR 7.2.6.
The Board has prepared a Strategic Report (including the Business
review) which provides an overview of the development and
performance of the Company’s business in the year ended
31 December 2019 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.
94
9595
Stock code: SHIwww.sigplc.comGOVERNANCE Nominations Committee Report
“ 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, Chairman of the Nominations Committee
Committee Membership (during 2019)
Mr A.J. Allner¹
Mr I.B. Duncan
Independent
Chairman
Non-Executive Director
Mr M. Oldersma
Chief Executive Officer
(until 8 May 2019)
Ms A. Abt
Independent
Non-Executive Director
(resigned 12 February 2020)
Ms H.C. Allum (Kate)
Independent
Non-Executive Director
(appointed 1 July 2019)
Ms J.E. Ashdown
Independent Non-Executive
Director (resigned 8 May
2019)
1 Independent on appointment
Ms G.D.C. Kent
Independent
Non-Executive Director
(appointed 1 July 2019)
Mr A.C. Lovell
Senior Independent
Non-Executive Director
Mr C.M.P. Ragoucy
Independent Non-Executive
Director (resigned 1 July
2019)
Purpose and aims
To lead the process for Board appointments, ensure plans
are in place for orderly succession to both Board and senior
management positions and oversee the development of a
diverse pipeline for succession.
The Committee aims to maintain the appropriate balance of
skills, knowledge, experience, diversity and independence
of the Board and its Committees to ensure their continued
effectiveness.
Key responsibilities
■■ To review the structure, size and composition (including the
skills, knowledge, experience and diversity) required of the
Board compared to its current position and in the light of
future challenges affecting the business.
■■ To make recommendations to the Board with regard to any
changes; to ensure that plans are in place for the orderly
succession and development of Directors and other senior
executives and to oversee the development of a diverse
pipeline for succession.
■■ Working with the Group HR Director, to take an active role
in setting and meeting diversity objectives and strategies for
the Group as a whole.
Terms of reference
During the year the Board adopted revised terms of reference.
These can be found on the Company’s website at
www.sigplc.com.
Evaluation
An internal evaluation was conducted for the Committee in line
with the Code. More details can be found on page 87.
Dear Shareholder,
I am pleased to present SIG’s Nominations Committee Report for the
financial year ended 31 December 2019 on behalf of the Board.
The composition of the Nominations Committee meets with the
requirements of the Code but, in line with good practice, membership
is reviewed annually and as a result it was agreed that following the
AGM on 8 May 2019 Mr Oldersma would no longer be a member of
the Committee.
During 2019, the Committee dealt with the recruitment of two new
Non-Executive Directors and I was delighted to welcome Ms H.C.
(Kate) Allum and Ms G.D.C. Kent to the Board on 1 July 2019. Ms Allum
replaced Ms Ashdown as chair of the Remuneration Committee. Ms
J.E. Ashdown retired from the Board as a Non-Executive Director and
Chair of the Remuneration Committee on 8 May 2019 and Mr C.M.P.
Ragoucy retired from the Board on 1 July 2019. On 18 December 2019
we also announced the retirement of Ms A. Abt with effect from 12
February 2020.
During 2020, the Committee also dealt with the resignation of the
Executive Directors, Mr M. Oldersma and Mr N. Maddock on 24
February 2020 as well as the recruitment of two new Executive
Directors, Mr S.R. Francis and Ms K.H.M. Kearney-Croft for an initial
period until 31 December 2019. We announced on 24 April 2020 that
Mr Francis would become the Chief Executive on a permanent basis.
Further detail on our recruitment process is provided later in this
report.
In addition, Ian Ashton has been appointed as permanent Group
CFO with effect from 1 July 2020. Ian is a highly experienced senior
executive with a strong track record of driving change and is an
extremely valuable addition to the team as we pursue our new strategy
for growth. Ian replaces Kath Kearney-Croft, who assumed the role of
Interim CFO on 25 February 2020.
In order to bring more industry experience on to the Board, Simon
King has been appointed as a Non-Executive Director with effect from 1
July 2020. Simon brings extensive, hands-on experience from a career
spanning over 35 years, most recently serving on the Travis Perkins
Executive Board and holding the position of Chief Operating Officer
for Wickes. Simon’s appointment is invaluable in our efforts to build
on SIG’s leading market positions and return the business back to
profitable growth.
In line with best practice the Committee recommended to the Board
my appointment to the Remuneration Committee to ensure adequate
Board oversight effective from 1 January 2020.
The Committee’s work for 2020 will be primarily focused on succession
planning and oversight of the Group’s talent development and diversity
strategy and objectives.
Andrew Allner
Chair of the Nominations Committee
29 May 2020
96
97
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Meetings and membership
During the year the Committee met on four occasions. The 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 2019, the Committee comprised of the Chairman
and the five independent Non-Executive Directors of the Company.
The Chief Executive Officer was a member of the Committee during
the early part of 2019, but, in line with the best practice, stepped
down from the Committee following the AGM on 8 May 2019.
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, knowledge and expertise will thus be
required on the Board in the future. During the year, the Committee
also reviewed the senior management succession plans and
leadership development but recognise that development of a talent
pipeline (including diversity) required more focus in 2020.
In anticipation of the retirement from the Board of Ms J.E. Ashdown
and Mr C.M.P. Ragoucy it was appropriate to review the composition,
structure, skills and diversity of the Board. The appointment of Ms
Allum and Ms Kent has enhanced female diversity on our Board and
the Committee is confident that their skills, knowledge and expertise
will be of great benefit to the business as it delivers its strategic goals
and priorities. Prior to proceeding with the appointment of Ms Allum
and Ms Kent, their other appointments were explored to ensure that
they would be able to devote the necessary time and commitment
to Board matters and the Committee is confident that their other
commitments will not prevent them from so doing. Ms Allum and Ms
Kent will offer themselves for election at the 2020 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.
Following feedback, during 2019, the Chairman significantly reduced
his external commitments. Following his retirement as Chairman
and Non-Executive Director of The Go-Ahead Group plc, he retains
his Chairmanship of Fox Marble Holdings plc. However, as a small
company traded on AIM, his time commitments in respect of Fox
Marble Holdings plc are relatively low. With effect from 1 January
2020 he also became Chairman of Shepherd Building Group Ltd,
which, as a private company, means his time commitments are again
not as extensive. Additionally, the Chairman has also demonstrated
a significant time commitment to SIG during the year through his
involvement in the appointment of two new Non-Executive Directors
and his engagement with key Shareholders during a difficult period
of trading for the Group. He has also been able to provide increased
levels of support to the former Chief Financial Officer and the
Executive Team during the leave of absence of the former Chief
Executive Officer, as announced on 18 December 2019. Additionally,
he has also made himself available to provide extra support (where
required) to the two new Executive Directors, Mr Francis and Ms
Kearney-Croft appointed on 25 February 2020 as well as during the
COVID-19 crisis along with all other Board members.
At the end of 2019, the Committee considered a proposal to
appoint Ms Allum as the designated Non-Executive Director with
responsibility for workforce engagement. The Committee gave very
careful consideration to this proposal, reviewing the necessary time
commitment for undertaking that responsibility and Ms Allum’s
other commitments and responsibilities outside of the Company.
Having weighed up those considerations it was the Committee’s
view that Ms Allum would have sufficient time to undertake the
additional workload and the Committee therefore recommended
the appointment to the Board. In addition, Ms Allum has also been
appointed as the Board’s whistleblowing champion with effect from
27 April 2020 which will complement her role as the designated Non-
Executive Director for workforce engagement.
The Committee also considered the re-appointment of Mr I.B.
Duncan. Mr Duncan was originally appointed on 1 January 2017 for
an initial three year term until the conclusion of the 2020 Annual
General Meeting. Having considered his other time commitments,
the Committee recommended his re-appointment to the Board for a
further three year term until January 2023.
Taking into account the above and having considered the time
commitments of the other Non-Executive Directors, in addition to the
Board evaluation review process detailed on page 87, the Committee
and the Board have confirmed they are satisfied that both the
Chairman and the other Non-Executive Directors have sufficient time
and the necessary skills and experience to fulfil our responsibilities
to the business.
All Directors will accordingly be put forward for election or re-election
at the 2020 AGM.
Board recruitment
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 ordinarily be invited to meet the entire Board before any
decision is taken relating to the appointment.
The process during the year under review, in connection with
the appointments of Ms H.C. (Kate) Allum and Ms G.D.C. Kent, is
described in detail on page 98.
The process for the appointment of Mr S.R. Francis was broadly
the same, the Savannah Group was involved in leading the search
for an interim CEO. Lygon Group was engaged to lead the search
process for a permanent CEO, both producing a short-list of
candidates matching the required skills. Interviews for the interim
candidates were held on this occasion with the Chairman and the
Senior Independent Director. Both firms have signed up to the
Executive Search Firms’ Voluntary Code of Conduct. Lygon Group
does not have any other connections with the Company whereas
the Savannah Group has been employed for senior executive
appointments.
Mr Francis and Ms Kearney-Croft will offer themselves for election at
the 2020 Annual General Meeting.
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Key activities during 2019
Process for recruitment of two additional
Non-Executive Directors
■■ Recommendation of appointment of Ms Allum and Ms Kent as
Non-Executive Directors
■■ Review of Board and senior management succession plans
and leadership development
■■ Approval of updated Committee terms of reference taking
into account the Committee’s wider responsibilities under the
Code, for recommendation to the Board
■■ Review of Board skills analysis
■■ Review of diversity policy and diversity more broadly within the
Group
■■ Review and updating of Board diversity and inclusion policy
and recommendation to the Board
■■ Recommendation of appointment of Ms Allum as designated
Non-Executive Director responsible for workforce engagement,
including reviewing her other time commitments
■■ Recommendation of re-appointment of Mr Duncan at the end
of his initial three term of office, including reviewing his other
time commitments
■■ Recommendation of appointment of Mr Allner as member of
Remuneration Committee
■■ Recommendation for re-election of Directors at 2019 AGM
■■ Review of Committee evaluation report and agreed areas of
focus for 2020
Areas of focus in 2020
■■ Structure and composition of the Board and its Committees,
taking account of succession planning for the Board, Directors’
other time commitments and the skills, knowledge and
experience of Directors
■■ Diversity initiatives within the Group and progress in achieving
diversity objectives
■■ Talent management within the Group and succession planning
for senior executives, taking into account Group strategy and
the challenges and opportunities facing the Group
The objective
In anticipation of the retirement of Ms Ashdown and Mr Ragoucy
during 2019, our objective was to recruit two new Non-Executive
Directors, one of whom would be appointed to act as chair of the
Remuneration Committee.
The brief
We constructed a detailed brief for recruitment consultants,
including a detailed candidate profile and job specification,
identifying the skills required of the new Non-Executive Directors,
having regard to the balance of skills, knowledge and experience
of existing Board members and the strategy and future challenges
and objectives of the business. The importance we place on
diversity within our Board was stressed within the brief.
The engagement
Lygon Group were engaged to lead the search process. They have
no other connection to the Group and are signatories to the Lord
Davies’ Voluntary Code of Conduct for Executive search firms
promoting diversity in recruitment. Diversity within our Board was
stressed within the brief.
The search
The Chairman and Chief Executive Officer reviewed a ‘long list’,
prepared by Lygon Group, of potential candidates whose skills
matched the criteria within the brief. The ‘long list’ contained a
high proportion of female candidates. Thereafter a ‘short list’ of
candidates was prepared containing only women.
The interviews
Interviews were held with the Chairman and the Chief Executive
Officer. The final two candidates then met with members of the
Committee and following the receipt of suitable references, were
thereafter recommended to the Board for appointment.
The induction
A structured and tailored induction took place for both of the newly
appointed Directors. Details of the induction are included on page 86.
98
99
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Diversity
Within the Board
The Board acknowledges the importance of diversity in its broadest
sense in the boardroom as a driver of board effectiveness. The
Board recognises that gender, ethnic, social and cultural diversity
of Boards are significant aspects of diversity and acknowledges the
role that women and those of different ethnic, social and cultural
backgrounds with the right skills, experience, cognitive and personal
strengths can play in contributing to diversity of perspective in the
boardroom.
The policy on Board diversity was reviewed and updated by the
Board during the year and is available on the Company’s website
(www.sigplc.com). An example of how the Board diversity policy
was implemented during 2019 is the process that led to the
appointment of the two new Non-Executives, diversity was key
element in the brief provided to the search firm which resulted in
a short list that contained only women. The Board recognises that
gender diversity is a significant aspect of diversity and acknowledges
the 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
the recommendations of the Parker Review on ethnic diversity
on UK boards. The Board intends to endeavour to maintain
female representation of at least 33% and aspires to achieve the
recommendation of the Parker Review Committee to have at least
one Director of colour by 2024.
The Committee will continue to consider diversity when
recommending any future Board appointments.
Within the Group
The Committee continues to monitor diversity and inclusion more
widely within the Group and particularly at senior management level.
Information on the gender balance of senior management and their
direct reports is on page 55.
During the year, the Committee initiated a review of the Company’s
approach to diversity and inclusion to understand where activity
needs to be increased and the efforts being undertaken to further
promote diversity across the Group.
As part of that review, the Committee reviewed statistics analysing
roles, functions and geographical areas within the UK businesses
enabling it to assess where particular groups are under-represented.
During 2020 it will extend this review to Group businesses outside
of the UK. It agreed a plan for 2020 to further promote diversity
and inclusion across the Group which includes further work on
recruitment processes, reviewing pay and award processes to
ensure they are applied equitably, training in unconscious bias,
implementation of a new applicant tracking system and the
introduction of targets for both applicants and appointed employees.
The Committee also agreed the terms of an updated Group
diversity and inclusion policy defining the Group’s standards and
expectations. The updated policy was issued to employees in
December 2019 and can be found at www.sigplc.com. Further
details can be found on page 53.
The Committee also noted that the new commitment culture
programme approved by the Board and launched in January 2020
includes behaviours designed to foster a commitment to diversity
and inclusion. These behavioural expectations will be integrated
into key people processes such as the performance management,
recruitment, recognition, and induction programmes. Further details
of the culture programme can be found on page 57.
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Committee performance
As part of corporate governance, the Committee reviews its own
performance annually and considers what improvements can
be made. The Committee’s performance and effectiveness was
reviewed in November 2019 as part of the annual evaluation of
the Board and Committee effectiveness which was undertaken by
the Company Secretary and further details can be found on page
87. The questionnaire focused on the following key areas: (1) the
effectiveness of the Committee in managing talent and succession
planning for the Executive Directors and senior management; and (2)
the performance of the Committee Chair.
The Committee was rated as reasonably effective in managing talent
and succession for the Executive Directors and senior management,
but members considered that more focus is required. The leadership
of the Committee was rated as effective.
Following this review the Committee determined that during 2020
it would:
■■ prioritise succession planning for the Board and senior
leadership team
■■ review talent management and capability of the Managing
Directors of the operating companies and their direct reports and
others within the senior leadership team
■■ develop a diverse pipeline for the senior leadership team.
Directors’ tenure (as at 31 December 2019)
2015
2016
2017
2018
2019
Andrea Abt
Andrew Allner
Kate Allum
Ian Duncan
Gillian Kent
Alan Lovell
Meinie Oldersma
Nick Maddock
4 years 9 months
2 years 2 months
6 months
3 years
6 months
1 year 5 months
2 years 9 months
2 years 11 months
Independence of Directors
as at 31 December 2019
Board Gender Diversity
as at 31 December 2019
Age of Directors
as at 31 December 2019
31
2
2
3
5
5
Independent Not Independent
1 The Chairman was independent on appointment
Female Male
40-50 50-60 60-70
4
Summary of Directors’ Skills as at 31 December 2019
8
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
Audit Committee Report
Committee Membership (during 2019)
Mr I.B. Duncan
Chairman
Ms A. Abt
Independent
Non-Executive Director
(resigned 12 February 2020)
Ms H.C. Allum (Kate)
Independent
Non-Executive Director
(appointed 1 July 2019)
Ms J.E. Ashdown
Independent Non-Executive
Director (resigned 8 May 2019)
Mr A.C. Lovell
Senior Independent
Non-Executive Director
Ms G.D.C. Kent
Independent
Non-Executive Director
(appointed 1 July 2019)
Mr C.M.P. Ragoucy
Independent Non-Executive
Director (resigned 1 July 2019)
Purpose and aims
To provide 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.
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.
The Committee’s aim is to ensure high standards of
corporate and regulatory reporting, an appropriate control
environment, a robust risk management framework and
effective compliance monitoring. The Committee believes that
excellence in these areas enhances the effectiveness and
reduces the risks of the business.
Key responsibilities
■■ The accounting principles, practices and policies applied in,
and the integrity of, the Group’s Financial Statements.
■■ The adequacy and effectiveness of the internal control
environment.
“ Progress has been made in
strengthening the control
environment although deficiencies
highlighted by the PwC report will
require focus during 2020.”
Ian Duncan
Chair of the Audit Committee
Dear Shareholder,
I am pleased to present SIG’s Audit Committee report for the financial
year ended 31 December 2019 on behalf of the Board.
The Committee has continued to focus this year on the Group’s internal
control environment. Progress was made last year in strengthening
the control environment in place, with enhanced levels of review and
strengthening of the controls framework, which has received a positive
response from management.
During 2019 our priorities have included:
■■ the control observations highlighted by the external Auditor, in
particular the weaknesses in the UK balance sheet reconciliation
process, which has been an area of considerable remedial focus;
■■ The effectiveness of the Group’s internal audit function.
■■ further standardisation of financial reporting procedures of the
■■ The appointment, independence, effectiveness and
remuneration of the Group’s external Auditor, including
the policy on non-audit services.
business;
■■ the provision of improved guidance around the reporting of
accounting judgements; and
■■ The conduct of any tender process for the Group’s external
■■ the extension of controls improvement into smaller operating
Auditor.
■■ External financial reporting and associated
announcements, including significant financial reporting
judgement contained in them.
■■ The Group’s risk management systems, processes and
performance.
■■ The Group’s compliance with the audit related provisions
of the UK Corporate Governance Code.
Terms of reference
During the year the Board adopted revised terms of reference.
These can be found on the Company’s website www.sigplc.
com.
Evaluation
An internal evaluation was conducted for the Committee in
line with the Code. More details can be found on page 87.
units and branches.
The Committee has worked to ensure that:
■■ a review of finance resource within each operating company has
been conducted so that investment in talent is made within the
business to enable adequate focus to be placed on controls. In
particular, the Group Risk and Internal Audit function has been
strengthened through the recruitment of experienced auditors
and continued use of a co-source arrangement with KPMG LLP
for targeted 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;
■■ a revised Group internal audit plan has been agreed to provide
greater assurance over controls relating to core processes in the
larger operating companies;
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■■ the business continues to self-assess the control environment
using the Key Controls Framework (KCF) developed in 2018. This
framework is being supported by detailed control frameworks
underpinned by detailed risk and control matrices;
■■ the businesses have also taken a remedial approach to controls
improvement, bringing together different streams of actions and
remedial activity identified by internal and external sources to
provide a more robust basis for controls reliance;
■■ risk management and a risk aware culture is embedded in daily
activities through the introduction of a Group risk management
framework developed to articulate the Group’s risk strategy
and provide a consistent means and common language for
managing risk on a daily basis. A new process, specifically for
highlighting emerging risks, has been introduced as part of the
risk management framework. We report further on emerging risks
identified during the year on page 45;
■■ the risks relating to the delivery of the new SAP ERP system in
France and Germany were being managed effectively; and
■■ the cyber environment in the Group is more robust after the cyber
attack in France in April 2019. Following an expert third party
investigation of control failure, a plan to improve controls has been
designed and implemented.
arrangement for the UK pension scheme, disclosure of the pre-tax
discount rate used in goodwill impairment calculations rather than
the post-tax rate; and clarification of the selection of cash generating
units (CGUs) covered by the sensitivity analysis. The FRC’s role is not to
verify the information provided but to consider compliance with the
reporting requirements, therefore, the review process does not provide
assurance that the 2019 Annual Report and Accounts are correct in all
material respects.
As a consequence of the FRC review, (which is now closed) we identified
the need for a prior year restatement to previously reported numbers.
As stated previously in the Strategic Report and Corporate Governance
Report, an independent review was undertaken by PwC, the actions
taken to date (including actions taken during the course of the year in
relation to cultural changes) are included in the Corporate Governance
Report on page 72 to 76. Further background on the scope of the PwC
review and the actions the Company is implementing in response are
set out in this report on page 108.
The Company has complied during the financial year ended 31
December 2019 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.
Although going concern is a matter for the whole Board (see page 42),
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 analysis.
Ian Duncan
Chair of the Audit Committee
29 May 2020
The Committee has sought to ensure that the audit process with
the external Auditor, Ernst & Young LLP, is conducted and managed
smoothly and efficiently, that there is collaborative communication
and engagement between management and the external Auditor and
that required information is provided in a timely fashion to enable
appropriate audit evidence to be compiled.
The Audit Quality Review Team of the FRC wrote to the Chair of
the Audit Committee setting out the scope of its review into Ernst
& Young’s audit of the financial statements for the year ended 31
December 2018, its principal findings and the actions which the
Auditors proposed to take in response. The review raised some
important matters and the Audit Committee considered the FRC’s
report and discussed the proposed actions with Ernst & Young,
noting in particular the planned enhancements to audit work in the
areas of oversight of the significant French Components, fraud risk
response and assessments and goodwill impairment assessment.
The Committee received feedback from across the Group that
Ernst & Young have sought to more fully involve management in
identification of audit risks and audit planning, and have challenged
management and undertaken more extensive testing following the
FRC’s review. A resolution to reappoint Ernst & Young as the Group’s
Auditor will be put to the forthcoming Annual General Meeting. An
assessment of both the external audit process and the external
Auditor for the year ended 31 December 2019 will be undertaken in
the latter half of 2020.
During the year, the Company received requests for information
from the Conduct Committee of the Financial Reporting Council (FRC)
following its review of the 2018 Annual Report and Accounts. Principally
the information required related to the partnership arrangement for
pension funding, the settlement of amounts payable for the previous
purchases of businesses and the measurement and disclosure
of recoverable amounts of cash generating units. We welcomed
the review and in correspondence with the FRC addressed areas
relating to classification of cash flows, discount rates used in goodwill
impairment and goodwill sensitivity disclosures. We also provided an
undertaking to include the following in the 2019 Annual Report and
Accounts: additional information in relation to the asset backed funding
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Key activities during 20191
March
■■ Review of going
concern basis of
accounting and
viability statement
■■ Review of material
audit issues and
judgements
■■ Review of new
June
■■ Internal audit plan for
H2 2019 and revised
2019 Group Internal
audit plan
■■ 2019 external audit
plan and approval of
2018 external audit
fee
accounting standard
IFRS 16 (lease
accounting)
■■ Internal controls
improvement plan
■■ Annual Senior
■■ Group Internal Audit
Manual approval
Accounting Officer
review
■■ Group risk
■■ Group and emerging
risk registers
management
framework approved
■■ KCF updated
■■ Review of 2018 audit
process and results
■■ Review of Audit
■■ Controls remediation
dashboard proposal
■■ New accounting
standard IFRS 16
■■ KCF overview and
■■ Going concern
initial assessment by
operating companies
Committee report
■■ Report of external
Auditor
■■ Review of finance
resource
■■ Consideration of
additional review
procedures at half
year following cyber
attack in France
Spotlight Risk
Review:
■■ Working capital
■■ Review of the 2018
external Auditor
report
■■ Review of the 2018
Annual Report
(including fair,
balanced and
understandable) and
preliminary results
announcement and
recommendation
to re-appoint Ernst
& Young LLP as
external Auditor
■■ Review of procedures
for confirming
disclosures of
information to the
auditors
■■ GDPR compliance
review
Spotlight Risk
Review:
■■ Brexit and pricing
management
1 Seven meetings were held during the year, in November the
Committee met to review its Terms of Reference.
2 Two meetings were held in September
July
■■ Gifts and hospitality
compliance follow up
■■ Approach to risk
appetite (engagement
of KPMG to develop)
■■ Brexit risk
■■ Review of
performance and
effectiveness of
external Auditor
■■ Forecast half year
outturn and issues
and material audit
judgements for the
half year
■■ Internal controls
update and review
of monthly controls
action dashboard
■■ Report of the external
Auditor for the period
ended 30 June 2019
September2
■■ Review of draft 2019
interim results and
presentation
■■ Review of remaining
outstanding audit
review areas
■■ IFRS 16, goodwill
and intangible assets
impairment review
■■ Review of going
concern basis of
accounting
■■ Review of the
external Auditor’s
interim review report
■■ Review of letter
from FRC regarding
information in
relation to 2018
Annual Report and
Accounts and draft
response
■■ Ernst & Young LLP
audit planning report
■■ Review of 2019 Ernst
& Young LLP audit
fee and delegation
to Chair and CFO to
approve
Spotlight Risk
Review:
■■ SAP ERP Review
■■ Review of Committee
terms of reference
(November)
December
■■ Internal audit 2019
plan update, audit
outcomes and 2020
proposed plan
■■ Review external
Auditor planning
report for year-end
audit
■■ Impairment review
of goodwill and
intangibles
■■ SAP ERP system
assurance review
■■ Review of accounting
changes and
new disclosure
requirements for
2019
■■ Review of going
concern
■■ Proposal for annual
internal audit
effectiveness review
■■ Group-wide KCF self-
certification report
■■ Assessment
of governance
provisions for risk
and control
Spotlight Risk
Review:
■■ Cyber risk
At every main meeting the Audit Committee also
considers:
■■ Report of the Chief Financial Officer
■■ Report of the external Auditor
■■ Report of the Director of Risk and Internal Audit, updating on risk,
internal audit and controls
■■ Minutes and actions from previous meetings
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Stock code: SHIwww.sigplc.comGOVERNANCE The Committee was rated highly in all areas and therefore the
Committee could conclude that it is being effectively chaired and
managed. The strengths of the Committee were considered to be:
■■ Leadership – the Chair of the Committee plays a strong role and
extracts the salient points making sure the Committee focuses on
what is important.
■■ Relationships – the Committee has an effective relationship
with the Director of Risk and Internal Audit and with the external
Auditors.
It was agreed that the key priorities for 2020 should be the
continued focus on assurance, insight and implementation of ERP
system as well as the continued coverage of key internal controls
including balance sheet reconciliations and rebate administration.
An additional priority is the implementation of the risk & control
matrices (RACMs), which supplement controls improvements
in the operating companies. The Committee will monitor the
implementation of the improvements recommended in the PwC and
KPMG reports.
Meetings
The Committee meets regularly throughout the year, with seven
meetings being held during 2019 along with the audit close meeting.
The audit close meeting is normally held in the early part of the year
following the year end, however this was done later than planned
in light of COVID-19 and the delay to the publication of the 2019
results. In addition, a further meeting was held at the end of April
2020 to review the progress of the audit. Its agenda is linked to
events in the Company’s financial calendar. Key matters considered
at meetings of the Audit Committee during the year are listed on
page 103.
Audit Committee Report
Audit Committee membership
The Board considers that each member of the Committee was
throughout the year, and remains, independent and there are
no circumstances which are likely to impair, or could impair,
their independence according to the factors set out in the Code
or otherwise. 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, as Chair
of the Committee, is a chartered accountant and has recent and
relevant financial experience for the purposes of the Code.
Attendance by individual members of the Committee is disclosed in
the table on page 71. The Committee Chair regularly invites senior
company executives to attend meetings of the Committee to discuss
or present specific items, and in particular the former Chief Financial
Officer, Mr N.W. Maddock, attended all of the meetings in 2019. The
external Auditor and the Director of Risk and Internal Audit also
attended all meetings of the Committee in 2019 and have direct
access to the Committee Chair.
The Committee meets regularly with the external Auditor and the
Director of Risk and Internal Audit without the Executive Directors
being present and the Committee Chairman also meets with the
external Auditor and the Director of Risk and Internal Audit in
advance of Committee meetings.
Audit Committee structure
The Committee operates under written 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 terms of reference were reviewed and
updated in November 2019 to ensure consistency with the Code.
The Committee has in its terms of reference the power to engage
outside advisers and to obtain its own independent external advice
at the Company’s expense, should it be deemed necessary. During
2019 the Committee engaged the services of KPMG LLP to provide
advice on the Company’s approach to risk appetite. KPMG LLP also
support the Group’s internal audit function providing specialist
support with targeted audits such as the governance, project and
change management assurance in relation to the upgrading of the
UK’s enterprise resource planning (ERP) system.
The Chair 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 part of corporate governance, the Committee reviews its own
performance annually and considers where improvements can be
made. The Committee’s performance and effectiveness was reviewed
in November 2019 as part of the review of Board and Committee
effectiveness conducted by the Company Secretary, further details
are on pages 87 to 88. The questionnaire focused on the following
key areas: (1) the Audit Committee’s ability to understand and give
appropriate consideration to internal control testing conducted by
management; (2) the ability of the Board in identifying and evaluating
significant risks; (3) Leadership of the Audit Committee; and (4) the
Audit Committee’s relationship with the Director of Risk and Internal
Audit and with the external Auditors.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Significant financial judgements
The Committee considered a number of significant issues during the year. These related to areas requiring management to exercise
particular judgement or a high degree of estimation. The Committee assesses whether the judgements and estimates made by management
are reasonable and appropriate. The issues and how they were addressed by the Committee are set out below:
Key financial reporting and significant financial judgements
considered in relation to the financial statements
The Group is required to assess if it has access to
sufficient resources to continue as a going concern and
assess the period of viability.
Going concern
basis and
viability
statement
Discontinued
operations
How the issue was addressed by the Committee
The Committee reviewed management’s assessment of
going concern and long-term viability with consideration
of forecast cash flows, including sensitivity to COVID-19
and sales improvement plans. The Committee
considered the forecasts together with the proposed
equity raise and debt facility arrangements and
recommended approval of the viability statement.
Following the announcement on 7 October 2019 to
sell the Air Handling and Building Solutions businesses,
the Committee considered the accounting treatment
and presentation of those businesses in the financial
statements.
The Committee ensured that there was a robust process
for ensuring that the Air Handling business meets
the criteria of IFRS 5 ‘non-current assets held for sale
and discontinued operations’ and that it may also be
classified as non-core.
Recognition and
measurement of
supplier rebate
income
Procedures and controls are 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.
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. The Group estimates a recoverable amount for
each individual cash generating unit based on forecast
revenues, operating margins and appropriate discount
rate risk adjusted where appropriate.
Capitalisation of
business project
costs
Key business projects include the implementation of SAP
ERP system in Germany and France, the implementation
of a new payroll and HR system and the development of
a SIG digital platform.
IFRS 16
IFRS 16 is effective for the first time for the 2019 financial
year. Adjustments and disclosures required on transition
at 1 January 2019 were recognised in the 2019 interim
financial statements.
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.
It also considered that the classification of the Building
Solutions business as non-core within Other items in the
consolidated income statement was appropriate.
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 internal review processes and the
technology introduced to assist in the calculation of
supplier rebate income.
The Committee considered the appropriateness of
the assumptions including the carrying value of the
assumptions used and the sensitivity analysis performed,
with specific focus being given to UK Distribution, UK
Exteriors and France Exteriors (Lariviere). The Committee
considered it appropriate to impair the goodwill by
£89.6m across UK Distribution and France Exteriors
(Lariviere).
The Committee considered the costs of IT/business
projects within the business and concluded that the
capitalisation treatment should be undertaken where
appropriate for SAP ERP system and the HR system.
The investment in SIG digital was considered more
appropriate to be expenses in Other items.
The Committee considered the adjustments and
disclosures required on transition at 1 January 2019
which had been recognised in the interim financial
statements and audited. The Committee considered that
it was appropriate for these to remain the same in the
Group Financial Statements.
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.
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Financial Reporting Council review and
prior year restatements
Following a review of the 2018 Annual Report and Accounts by the
FRC an error in the 2018 consolidated cash flow statement was
identified. This has been corrected by a prior year restatement to
previously reported numbers. The error relates to the classification
of cash flows in relation to the settlement of amounts payable for
previous purchases of business. £6.0m of the £17.2m cash outflow
in 2018 related to consideration dependent on vendors remaining
within the business and should have been classified as an operating
cash flow rather than an investing cash flow. The restatement results
in a reduction in cash generated from operating activities from
£109.6m to £103.6m and a reduction in settlement of amounts
payable for previous purchases of businesses within cash flows from
investing activities from £17.2m to £11.2m, resulting in a reduction in
net cash generated from operating activities from £95.6m to £89.6m
and a corresponding increase in net cash generated from investing
activities from £2.0m to £8.0m. There is no impact on profit before
tax, net assets or net cash flow.
Control deficiency
Internal control issues are presented to and discussed at every Audit
Committee and reported to each Board meeting and an active focus
on them has been continued throughout the year. The controls
remediation dashboard received as a regular report to the Audit
Committee allows the Committee to identify and assess progress
against any control weaknesses identified by the external Auditor,
through the audit process or the KCF.
One significant control deficiency was identified during the 2018
external audit, relating to the balance sheet reconciliation process
in the UK. A determined focus during the year has been to improve
the balance sheet reconciliations with BDO also providing support
and assistance with this process. Significant improvement has been
made in the ownership of the process with fewer reconciling items
when compared to 2018.
In addition to the internal controls improvement plan endorsed
by the Audit Committee in June 2019, which is discussed in further
detail later in this report, detailed control frameworks developed
during the year underpin the key assertions in the KCF, comprising
Group-wide risk schedules and operating company specific RACMs.
These frameworks now ensure that ownership of specific controls
sits with identified individuals, increasing accountability and
improving both control awareness and control implementation
across the Group. In particular, detailed frameworks for cash
management, supplier rebates and financial close have been
developed to map controls against the Group risks schedules and
a programme of testing against the cash management and supplier
rebate control frameworks has been completed across the Group.
Testing of further RACMs is planned.
KCF self-certifications are received from all operating companies and
all control improvement actions are logged on 4Action, the Group’s
action-tracking software. The results are presented to the Board in
summary form and reviewed by the Committee on a quarterly basis.
All high priority actions and overdue actions are reported through
the controls action dashboard at monthly Executive Committee
meetings and through regular reporting to the Audit Committee.
New controls managers have been and continue to be recruited in
the main operating companies to further develop and strengthen
their local controls. The Group Internal Audit team has been
strengthened to help implement and monitor the local controls.
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 42.
The Group had net debt of £162.8m at 31 December 2019 and
reported a covenant leverage of 2.1x for the period against the
covenant maximum of 3.0x.
The Committee reviewed management’s assessment of going
concern and long-term viability with consideration of forecast cash
flows, including sensitivity to COVID-19 and sales improvement plans.
The Committee considered the forecasts together with the proposed
equity raise and debt facility arrangements and recommended
approval of the viability statement.
In forming an assessment of the Group’s ability to continue as a
going concern and recommend approval of the viability statement,
it has identified the following material uncertainties and made
significant judgements about:
■■ The Group successfully agreeing outline terms with its RCF
lenders and private placement noteholders (and the RCF lenders
and private placement noteholders obtaining credit approval of
the same).
■■ The Group, together with its RCF lenders and private placement
noteholders, successfully documenting such terms in substantive
and binding documentation.
■■ Achieving a successful equity raise of up to £150m in line with
the above-mentioned timing, which entails the approval of a
prospectus by the FCA, approval by shareholders at a General
Meeting and securing appetite for the necessary investment.
■■ Whether, in the event the Group does not achieve a successful
equity raise, the RCF lenders and the private placement
noteholders will continue to support the Group in the short
term in order to allow the Group to complete the execution
of alternative plans (a secondary equity window or alternative
deleveraging plans including further disposals or a merger or
acquisition transaction).
■■ The forecast cashflow of the Group over the next 12 months
upon signing the financial statements depends on the Group’s
ability to continue to successfully manage through the current
uncertain trading environment related to COVID-19.
■■ The Group’s ability to implement the new strategy and deliver
a stronger business which is more sales led in a relatively short
period and do so in a period of economic uncertainty.
The Committee considered the likelihood of a positive outcome
and believe it is appropriate to prepare the financial statements
on a going concern basis, together with approval of the viability
statement.
Corporate culture
The Committee considered measures undertaken to transform
the culture of the business in 2018 including strengthening of the
senior management team and removal of historic working silos and
hierarchy. During 2019, the Committee endorsed further actions
to ensure that the necessary resources were in place to improve
controls. A permanent Group Head of Internal Audit was appointed
in April 2019 and additional internal audit managers were appointed
during the year. During 2019, the resource in the finance team and
UK shared service centre had been increased to enable focus on the
control environment. The Committee endorsed the strengthening
of both of these teams and the importance of building a strong and
sustainable senior leadership team. Since the introduction of the
new executive management team the quality and expertise of the
finance team had been enhanced further and will continue to be
progressed during 2020.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Oversight of risk management
and internal controls
The Audit Committee has responsibility for reviewing the adequacy
and effectiveness of the Group’s risk management systems. The
Committee receives reports from the Director of Risk and Internal
Audit on key issues in relation to the Group’s risk management
systems and processes at every meeting. These updates include
commentary on risk appetite, emerging risks, significant changes
to risk scores (and actions) and significant changes to the risk
management framework itself. All Group risks are assessed
systematically against the 4x4 risk matrix, as part of the Group’s
risk management framework and an assurance mapping exercise
is completed to identify assurance gaps for principal risks. Any risk
where the net score is above the agreed risk appetite has an action
plan documented to bring the risk within appetite and a review of
the completion of these action plans is reported annually to the
Committee.
The process for identifying, assessing and reporting on emerging risks
was reviewed by the Committee in June 2019. Any potential emerging
risks are included in a tracker and, where required, assessed in more
detail and added to the Group risk register for regular review and
updating. At its meeting in June 2019 the Committee agreed that
digital disruption was an emerging risk and would be added to the
Group risk register. Subsequently at its meeting in December 2019,
a potential emerging risk was identified that Group operations might
be impacted by new regulations on environmental standards. This
risk will be re-evaluated in 2020.
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The Board reviews the Group risks twice yearly for the level of and
type of risk, suitability of controls to manage those risks and the
actions planned to bring net risk to within appetite. The overall risk
appetite is reviewed for the Group at the half and full year. Group
risks feed into the creation of the Group’s internal audit plan.
Specific spotlight Group risks (such as relating to working capital or
cyber security) are presented quarterly to the Audit Committee and
followed with a report to the Board as well as being included in the
CFO’s Board report. Further detail in respect of risk management
processes and assurance is provided separately on page 89.
The Committee considered a report from the Director of Risk
and Internal Audit in relation to Provision 29 of the UK Corporate
Governance Code assessing the effectiveness of risk management
and internal controls in December 2019. The Committee noted
that whilst a number of improvements are ongoing, new actions
will be required to ensure best practice compliance. These include
documentation of financial risk and fraud risk assessments and
improvement in general IT controls. The Committee approved the
proposal to formalise Group financial and fraud risk assessment,
to ensure that process documentation is assessed in all audits,
to document general IT controls for in scope systems with clear
ownership at Group and operating company level and to include
general IT controls within the Group Internal Audit Plan in 2020.
The Committee also has responsibility for reviewing the adequacy
and effectiveness of the Group’s internal control systems. Reports
on the findings of the Internal Audit’s reviews, investigations and
management agreed actions are provided at every meeting. The
Committee also approves the group internal audit plan each year
and receives regular reports on progress with completing the plan
and any issues arising.
In June 2019 the Committee approved a plan to develop the
framework of internal controls. This focused on three streams of
activity. Firstly, detailed controls frameworks, including a ‘top down’
holistic approach to structured controls development, expanding the
KCF into a series of supporting controls frameworks, underpinned
by Group standard risk schedules and detailed RACMs in each
operating company. Secondly controls remediation, including a
‘bottom up’ remedial approach to controls improvement, bringing
together and tracking different streams of actions and remedial
activity identified by internal and external sources. Thirdly, longer-
term operating model and system improvements. Further detail in
respect of internal control systems is provided separately on pages
89 and 90.
KPMG has been appointed to work with the Audit Committee to
implement appropriate improvements to the Company’s financial
systems, procedures and controls, some of which were observed
and recommended in the PwC report.
PwC report
As outlined on page 25 of the Strategic Report PwC were
commissioned to undertake an independent review of the
communication and level of explanation of the Group’s underlying
financial forecasts and the associated risks and opportunities in light
of the disparity between the forecast level of underlying profit before
tax for the financial year 2019 set out in the January Trading Update
and market consensus of forecast profit prior to that announcement.
Following a thorough and detailed review of internal documents and
interviews with relevant employees, PwC delivered its confidential
written report to the Company on 21 April 2020.
The PwC report made recommendations as they relate to the
Groups’ processes, controls and wider organisational environment in
relation to four key areas linked to their findings.
The actions the Company is taking to implement the
recommendations are as follows:
■■ A strengthening of forecasting processes in Group
Finance through deployment of a new forecasting tool
to increase transparency and accountability. KPMG have
been appointed to review in detail the forecasting policy, process
and controls at Group level and remedial actions are expected
to be recommended by them which the Group will implement,
overseen by the Audit Committee.
■■ Better availability and consistency of data. The Board
now receives daily sales information against phrased forecasts
in order to understand Group performance within the month.
Further enhancements are planned, specifically full visibility of
operating company risks and sight of any added overlays.
■■ A continued embedding of the Group’s new commitment
to a culture where people are encouraged to be bold and
‘call out’ behaviours which are not consistent with the
expectations of the Group. The new senior management team
are committed to drive through necessary changes and set the
right ‘tone from the top’. The management style of members
of the Executive team will also be evaluated annually through
anonymous 360 degree feedback in order to identify if and where
the tone needs to improve.
■■ A refreshed approach to whistleblowing through
appointment of a Board-level whistleblowing champion.
A new Board whistleblowing champion has been appointed and
a simplified and more accessible whistleblowing policy has been
drafted. All employees will receive training with more targeted
input for specific functions/individuals. There will be improved
reporting of whistleblowing incidents and trend analysis of such
incidents to the Board.
The Audit Committee will track these actions, and the further
recommendations expected from KPMG, through the Group’s
standard process to ensure that they are delivered fully.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc COVID-19
In response to the COVID-19 pandemic, Group Risk has designed
and rolled out a crisis response checklist to each operating company.
The checklist comprises a set of short, medium and long-term risks
with activities for consideration by management. Each operating
company has been able to use the schedule to ensure it has
coverage of the fuller spectrum of risks and to prompt consideration
of additional activity, especially in relation to changes in response by
governments. The focus of the checklist has included key areas such
as liquidity and finance, supply chain, health and safety and cyber
risk. The checklist has been updated on a weekly basis. The Group’s
principal risks have also been re-evaluated, with a new risk for access
to finance and an increase in net rating for existing risks such as
market downturn and health and safety. Further details can be found
on page 47.
Group Internal Audit has targeted testing on payment controls
(including analytics for fraudulent payments), cyber security and
general IT Controls and maintained a focus on key financial controls
such as balance sheet reconciliations. The Group Internal Audit
plan has been kept under review and adjusted to take into account
the effects of the pandemic with the audit process being adapted
to the restrictions remaining in place for the remainder of 2020.
Group Internal Audit has continued to take advice from professional
services firms on how best to adapt its audit plan to the pandemic.
Details of changes to the control environment are given on pages 47
to 49.
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 a permanent Head of
Internal Audit and additional, appropriately qualified resource. KPMG
LLP continue to provide additional co-sourced support to the Group
to cover specialist areas.
The results of all assignments have been presented to the Audit
Committee during the year. Areas of weakness identified during the
year result in a detailed action plan and a follow-up audit check to
establish that actions had been completed appropriately.
The Committee agreed the process for the evaluation of the
performance of the Group’s internal audit function in December
2019. A questionnaire tailored for participants would be used and
the survey was completed in January 2020. The questionnaire was
sent to the Committee, Executive Directors, Managing Directors
and Finance Directors of the operating companies, the external
Auditors, and other key individuals in functional areas. The Director
of Risk and Internal Audit and Group Head of Internal Audit was
also asked to complete a questionnaire by way of self-assessment.
The evaluation confirmed that the internal audit function was
competent, adds value, reports on the right things, maintains its
independence, provides a broad range of assurance and is effective
overall. However, a few areas of focus for 2020 were agreed by the
Committee as follows:
■■ Internal audit reports should be provided in a timelier fashion,
setting out improved themes and trends as well as including a
scale rating; and
■■ The actions resulting from internal audit recommendations
should be achievable within a required timeframe.
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Stock code: SHIwww.sigplc.comGOVERNANCE The total fees payable by the Group to its external Auditor for non-
audit services in 2019 were £0.2m, primarily the Interim Review
(2018: £0.4m). The total fees payable to the external Auditor for audit
services in respect of the same period were £2.3m (2018: £1.6m).
The ratio of audit to non-audit fee was 11.5:1. 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 164.
A full breakdown of external Auditor fees are disclosed in Note 4 to
the Financial Statements on page 164.
Resolution to re-appoint External Auditor
The Committee recommends, and the Board agrees, that a
resolution for the re-appointment of Ernst & Young LLP as Auditor of
the Company for a further year will be proposed at the 2020 Annual
General Meeting.
Fair, balanced and understandable
The Board had the opportunity to review early drafts of the Annual
Report and Accounts and provided input. Following which 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, Company Secretariat, 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 advisers.
■■ A final draft is reviewed by the Audit Committee members prior to
consideration by the Board.
Ian Duncan
Chair of the Audit Committee
29 May 2020
Audit Committee Report
Oversight of External Auditor
Ernst & Young LLP were appointed as the Group’s Auditor in July
2018 following a tender process initiated in May 2018. Shareholders
formally approved their appointment at the May 2019 Annual
General Meeting. There is no intention to conduct any re-tendering
exercise currently, but this will be reviewed annually, taking into
account the performance and effectiveness of the Auditor, as
assessed by the Committee.
External Auditor performance evaluation
An evaluation of the performance and effectiveness of the external
Auditor was conducted by the Committee in July 2019 through
the use of a questionnaire issued to operating company Finance
Directors and members of the Group finance team for completion.
The questionnaire comprised 38 questions covering different
topics ranging from performance, communication, governance and
efficiency. Individuals were asked to evaluate the external Auditor’s
performance on a scale of 1 to 5 where 1 was very unsatisfied
and 5 was very satisfied. The external Auditor performance
and effectiveness was rated highest in terms of governance,
independence and firm reputation and lowest in terms of fees.
Planning and communication were raised as areas for improvement.
The Committee having reviewed the performance and effectiveness
of the external Auditor, were satisfied with the independence,
objectivity, expertise, resources and general effectiveness of Ernst
& Young LLP, and that the Group was subjected to a rigorous audit
process.
External Auditor independence assessment
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 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.
Policy on non-audit services
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 2019. The policy is based on the principle 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, and could not be
reasonably 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 was not changed
during 2019 and will be reviewed during 2020 and can be viewed on
the Company’s website (www.sigplc.com). It 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 CFO and the Audit Committee Chair 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.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Directors’ Remuneration Report
Committee Membership (during 2019)
Ms H.C. Allum (Kate)
Chair (from 1 July 2019)
Ms G.D.C. Kent
Independent
Non-Executive Director
(appointed 1 July 2019)
Mr A.C. Lovell
Senior Independent
Non-Executive Director
Mr C.M.P. Ragoucy
Independent Non-Executive
Director (retired 1 July 2019)
Ms A. Abt
Independent Non-Executive
Director (retired 12 February
2020)
Ms J.E. Ashdown
Independent Non-Executive
Director (retired from the
Board and as Chair on 8 May
2019)
Mr I.B. Duncan
Independent
Non-Executive Director
Purpose and aims
To provide effective oversight and governance over the
integrity of the Group’s remuneration arrangements
for senior executives to ensure that the interests of the
Company’s Shareholders are protected at all times.
The Committee’s aim is to ensure that remuneration
arrangements support the strategic aims of the Company
and enable the recruitment, motivation and retention of
senior leaders to deliver sustainable long term performance
in line with the purpose and culture of the business.
Key responsibilities
■■ Determining the Remuneration Policy for the Chairman,
Executive Directors and Senior Executives;
■■ Setting the remuneration of the Chairman, Executive
Directors and Senior Executives;
■■ Designing executive remuneration to link rewards
to corporate and individual performance, ensuring
performance related elements are transparent, stretching
and rigorously applied;
■■ Ensuring that failure is not rewarded and that steps
are always taken to mitigate loss on termination, within
contractual obligations;
■■ Reviewing remuneration trends across the Group; and
■■ Approving the terms of and recommending grants under
the Group’s incentive plans.
Terms of reference
During the year the Board adopted revised terms of reference.
These can be found on the Company’s website at
www.sigplc.com.
Evaluation
An internal evaluation was conducted for the Committee in
line with the Code. More details can be found on page 87.
“ Our Remuneration Policy
approved by Shareholders in 2018
aligns our executive remuneration
arrangements with our focus
on the long-term success of the
Company and sustained total
Shareholder return.”
Kate Allum
Chair of the Remuneration Committee
Dear Shareholder,
On behalf of my colleagues on the Remuneration Committee (the
‘Committee’) and the Board, I am pleased to present SIG’s Directors’
Remuneration Report for the financial year ended 31 December 2019.
I joined the Board of SIG on 1 July 2019 succeeding Ms Ashdown
as Chair of the Committee. It was pleasing to find that overall our
Remuneration Policy was working well, however it has become
apparent that as we move forward with the strategy of returning to
profitable growth, ongoing focus is required on how to incentivise the
Executive Directors and senior management to achieve longer term
sustainable value for the business.
In December 2019, we announced my appointment as the Non-
Executive Director responsible for workforce engagement with effect
from 1 January 2020. I consider this responsibility to be very well
aligned with my role as the Chair of the Committee.
As indicated in the Nominations Committee Report, in line with best
practice and to ensure adequate Board oversight, our Chairman
became a member of the Committee with effect from 1 January 2020.
Last year Ms Ashdown explained that our Remuneration Policy was
approved by Shareholders at a General Meeting of the Company on
7 November 2018. This included the new SIG plc Bonus Plan (the
‘Bonus Plan’) and the SIG 2018 Long Term Incentive Plan (the ‘LTIP’).
This year I report on how we have applied the Remuneration Policy
during 2019 and our key focus and priorities for 2020, which includes
consulting with Shareholders on the structure of the Long Term
Incentive Plan for our Executive Directors following our 2019 full year
results announcement.
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Departures
M. Oldersma (CEO) resigned on 24 February 2020. He received
no bonus for 2019 and his LTIP awards lapsed on cessation of
employment. No loss of office payments were made. He was paid
salary and benefits for his contractual notice period.
N.W. Maddock (CFO) resigned on 24 February 2020. He received
no bonus for 2019 and his LTIP awards lapsed on cessation of
employment. No loss of office payments were made. He was paid
salary and benefits for his contractual notice period.
Appointments
The following were appointed Executive Directors and their
remuneration determined in accordance with our Remuneration Policy:
Name
Steve Francis
Kath Kearney-Croft
CEO
£540,000
5%
Role
Base Salary
Employer Pension Contribution
Maximum Annual Bonus Potential 150%1
Maximum LTIP Award
Buy-outs
Notice period
Under review n/a
None
6 months
CFO
£371,000
5%
100%
None
Fixed term
contract until 31
December 2020
1 There will be special arrangements for 2020 which will be subject to Shareholder
consultation.
COVID-19
We have committed to support all our colleagues during the period of temporary closure of our business due to COVID-19. We have ensured
that our UK colleagues continued to receive a proportion of their pay during a period of furlough and, in that context, we welcome the
introduction of the UK Government’s Coronavirus Job Retention Scheme, which will help to support this. Similar Government assistance to
retain jobs in Ireland is also welcome.
However, we asked our UK and Ireland employees to take lower pay during this period, and it was therefore deemed appropriate for all
members of the Board to take a pay reduction of up to 50% at this time, with effect from 1 April 2020 for a period of three months until
30 June 2020. The Company announced on 30 April that the majority of sites in the UK would be open by mid-May, therefore, the Executive
Directors’ pay was reinstated to 80% from 1 April 2020 in line with colleagues returning to work.
The following table summarises the key components of executive remuneration and the decisions made by the Committee:-
Committee Decision
Rationale
To consider bonus in the normal manner with no adjustment for
COVID-19.
■■ The Company considered bonuses for all eligible
employees.
No salary increases were made for the Executive Directors.
■■ Both the Executive Directors were new
■■ The performance conditions were not satisfied, and
no bonus was payable to the Executive Directors.
As set out above the CEO and CFO have chosen to reduce their
salaries by up to 50% from 1 April 2020 for 3 months until 30
June 2020. CEO and CFO salaries were re-instated to 80% in mid-
May (backdated to 1 April 2020) in line with colleagues returning
to work on full pay.
The Committee has determined:
■■ To review the performance conditions to ensure they remain
appropriate.
■■ To maintain the current maximum bonus potential.
■■ To build in sufficient flexibility to ensure the bonus outcomes
are fair to all stakeholders.
2017 LTIP
vesting
The Committee is intending to allow the 2017 LTIP award to vest
without adjustment in 2020.
The performance conditions will not be met and therefore the
2017 LTIP award will not vest.
2020
Long-Term
Incentive
Awards
■■ The Committee is actively consulting with Shareholders
around the appropriate structure of long-term incentives for
the Executive Directors.
■■ Details of the proposals will be contained in the relevant
Notice of Meeting when the incentive arrangements and
associated Remuneration Policy will be put to Shareholders
for approval.
appointments.
■■ The Committee recognises the challenge
of operating the Bonus Plan in the current
circumstances of the Company and the general
environment.
■■ The Committee will take into account factors such
as the position of employees, Shareholders and
Government assistance provided to the Company
when exercising its discretion to depart from any
formulaic application of the bonus performance
conditions.
■■ The 2017 LTIP measures performance over three
years and therefore has only been marginally
impacted by COVID-19.
■■ The value of the shares on vesting will reflect the
share price experience of our Shareholders.
■■ The rationale for the proposed incentives and
associated Remuneration Policy will be set out in
full in the relevant Notice of Meeting.
Element of
Remuneration
2019 bonus
2020 salary
increases
2020 bonus
112
113
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
Committee’s remit
In line with the Code, the Committee updated its terms of reference to not only include the setting of remuneration of senior management but
also to formally take into account in our decision making process wider workforce policies and remuneration, the risk appetite of the Group and
the alignment of the Remuneration Policy to the Group’s purpose, culture and long-term strategy. Many of the principles underpinning the Code
were already present in our remuneration frameworks and the Committee will continue to review how the developing corporate governance and
remuneration environment, in particular the 2018 changes to the Code, might be reflected in the way the Committee operates.
Where is this information?
Sections
Page
Sections
Annual statement from the Chair of the Committee
111
Fairness, diversity and wider workforce
considerations
Remuneration report at a glance
116 How do we cascade remuneration through the
Company?
Page
122
125
What is our Remuneration Policy?
118 How did we implement the Remuneration Policy in
118 to 120
2019 and how will we in 2020?
Additional context on our Executive Directors’ pay
121
Additional information
131
Key activities during 2019
The Committee meets regularly throughout the year with five meetings being held during 2019. The agenda is linked to remuneration
requirements and the following key agenda items were addressed:
November 2019
■■ Approval of minor revisions
to the Committee’s terms
of reference to further align
with the Code.
March 2019
■■ Review of incentive
May 2019
■■ Review of Chairman’s fee.
October 2019¹
■■ Review of MIP
■■ Review of Shareholder and
investor views on 2018
Directors’ Remuneration
Report.
considerations for
employees in the Air
Handling division.
■■ Grant of awards under the
MIP.
■■ Update on remuneration
related sections of the
revised Code.
¹ Two meetings were held in October 2019.
outcomes for the annual
bonus in respect of
performance for the year
to 31 December 2018.
Decision not to award
bonus payments to the
Executive Directors.
■■ Approval of deferred
share awards in respect
of the 2018 Management
Incentive Plan (the ‘MIP’) for
participants below Board.
■■ Approval of share awards
under the 2019 MIP for
participants below Board.
■■ Approval of awards under
the LTIP to Executive
Directors.
■■ Review and approval
of the 2018 Directors’
Remuneration Report.
■■ Approval of updated
Committee terms of
reference.
In addition, the Committee’s appointed remuneration consultants, PwC LLP, gave a briefing to Committee members in December 2019. This
provided the Committee with additional guidance on the considerations to be taken into account when setting executive remuneration, new
or additional corporate governance matters the Committee will need to be aware of going forward and Shareholder reaction following the
annual general meetings (AGM’s) of other listed companies during 2019.
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Remuneration Committee evaluation
As part of good corporate governance, the Committee reviews its
own performance annually and considers where improvements
can be made. The Committee’s performance and effectiveness was
reviewed in November 2019 as part of the review of Board and
Committee effectiveness conducted by the Company Secretary. The
questionnaire focused on the following key areas:
(1) the effectiveness of the Committee in setting and reviewing the
remuneration framework and policy for Executive Directors and
other senior executives;
(2) the effectiveness of the Committee in aligning the remuneration
framework and policies to the delivery of the Company’s strategy and
long-term performance and driving behaviours consistent with the
Company’s purpose, values and strategy;
(3) whether when considering the remuneration framework,
the Committee has the appropriate risk appetite to support the
Company’s aims;
(4) leadership of the Committee’s; and
(5) the Committee’s relationship with the Group HR Director and
external advisors.
The Committee was broadly rated as satisfactory/effective in all
areas. With regard to leadership, the Chair of the Committee was
new to the role but had made an excellent start. The relationship
with the Group HR Director and external advisors was rated
satisfactory or above. The Committee could therefore conclude that
it was effective in dealing with the matters delegated by the Board.
It was agreed that the key areas of priority for 2020 could be broadly
summarised as follows:
■■ Remuneration to link more to purpose, culture and strategy
and driving the behaviours which support this, whilst ensuring
there was an appropriate balance between long and short-term
priorities;
■■ Motivation and retention of Executive Directors, senior
management and key employees in the absence of any bonuses/
LTIPs for three years; and
■■ More emphasis on broader workforce pay and their views in line
with the Code.
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 Committee 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 also attended each meeting as Secretary
to the Committee. No director or individual was present for any
discussions that related directly to their own remuneration.
External
PwC LLP were appointed in 2018 by the Committee following
a tender process as external remuneration consultants to the
Committee and continued in this capacity throughout 2019.
PwC attended Committee meetings as required and provided advice
on remuneration for Executive Directors, analysis on all elements
of the Remuneration Policy and provided regular market and best
practice updates. PwC reports directly to the Committee Chair and is
signatory to, and abides by, the Code of Conduct for Remuneration
Consultants of UK-listed companies (which can be found at
www.remunerationconsultantsgroup.com). During the financial year
PwC LLP also provided advice relating to Corporate and Employment
Tax, Transfer Pricing and Strategy Consulting. The Committee is
satisfied that the advice it received from PwC LLP is independent
and objective. PwC’s fees for the year were charged on a time and
materials basis and totalled £55,500 in respect of 2019 (2018:
£45,000). PwC has no connections with individual Directors, but the
Company does use PwC services in other parts of the business.
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, the Large and Medium-sized Companies and Groups
(Financial Statements and Reports) (Amendment) Regulations 2013
and the Companies (Miscellaneous Reporting) Regulations 2018. 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 page 226
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
applicable to UK-listed companies.
2019 performance
Financial highlights
■■ Underlying gross margin up 60 bps
■■ Implementation of IFRS 16 from 1 January 2019 has had no
economic impact on the Group but has materially changed some
of the Group’s reported financial information. In order to allow
clearer comparisons with 2018, the Group has presented key
financial information for 2019 on both a pre and post IFRS 16
basis
■■ Operating costs, pre IFRS 16, lower by £6.0m (1.2%), reflecting the
adoption of functional operating models, reduction in footprint
and continued cost discipline
■■ Underlying profit before tax (including businesses held for sale),
pre IFRS 16, of £41.9m (2018: £74.5m), consistent with previous
guidance. Underlying profit before tax, post IFRS 16, of £15.6m
(2018: £52.2m)
■■ Statutory loss before tax from continuing operations of £112.7m
(2018: profit before tax of £10.3m), reflecting £128.3m of Other
items, including £90.9m of impairments
■■ Net debt, pre IFRS 16, at year end of £162.8m (2018: £189.4m)
and covenant leverage of 2.1x
Operational highlights
■■ Underlying revenue decline of 9.0%, impacted by market
share losses in UK and Germany due to poor execution of
transformation initiatives which the Board believes disconnected
the business from its customers, suppliers and its front-line
colleagues
■■ The Group’s other operating companies recorded continued
steady performance, with like-for-like revenues up 1.4%
■■ Good operating progress made through the further development
of new technologies, e-commerce and increased functionalisation
Please see the Chairman’s statement on pages 04 to 05 for further
information. It is against this background that the Committee has
made its decisions on remuneration for 2019.
2019 bonus
The bonus performance conditions for 2019 (see page 118) were:
■■ 50% PBT;
■■ 50% ROCE;
■■ Any bonus is subject to a health and safety gateway which has to
be met before any bonus can be earned.
114
115
GOVERNANCE 2017 LTIP out-turn
Mr M. Oldersma was appointed to the Board as CEO on 3 April 2017 and Mr N.W. Maddock as CFO on 1 February 2017. Therefore, the first
LTIP awards granted to both Executive Directors in 2017 were due to vest in early 2020 based on performance over the three years to 31
December 2019. The table below sets out how the Company performed against the performance conditions and the resulting vesting level.
2017 LTIP out-turn
Underlying EPS
ROCE
Weighting
(%)
33.3%
66.6%
Actual
3.5p
6.1%
Threshold1
31.0p
10%
Maximum1
38.0p
13.5%
1 Award between Threshold (0%) and Maximum (100%) on a straight line basis
Outcome
(% salary)
0
0
Total
CEO
Actual
£’000
0
0
0
CFO
Actual
£’000
0
0
0
The performance conditions were not met and therefore no 2017
LTIP awards will vest. The Committee exercised no discretion in
determining the vesting and no adjustment was made to reflect
share price performance. The Committee felt that the formulaic
outcome accurately reflected the underlying performance of the
business over the period.
As part of our commitment to fairness, we have set out information
on our wider workforce pay conditions, our CEO to employee
pay ratio, and our gender pay statistics (see page 126). 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.
Application of Policy
The Committee has now granted two LTIP awards under the
Remuneration Policy. The second award was granted on 21 March
2019 (key terms are summarised in the “AT A GLANCE” section on
page 116 with full details provided on Remuneration on page 118).
The Bonus Plan was operated for the first time in respect of the
2019 financial year and the Committee is comfortable that the
Remuneration Policy has been applied as intended (key terms of the
Bonus Plan are summarised in the “AT A GLANCE” section on page
116). In addition, the Committee is satisfied that the Policy operated
as intended for the year being reported on.
The Policy approved by Shareholders in November 2018 included
many features in line with the updated Code, for example the
Committee has discretion to adjust Bonus Plan and LTIP outcomes
if it believes they are not a fair and accurate reflection of business
performance. In addition, during 2019 the Committee determined
that it would make further changes in relation to the operation of the
Policy, and how it reports on remuneration to align with the Code
and revised investor body guidelines which included the following:
■■ The Committee approved a post-employment shareholding
requirement for the Executive Directors of two years in respect of
the full minimum shareholding requirement which applies during
employment.
■■ The Committee is aware of the Code requirement in relation to
the alignment of executive pensions with the wider workforce.
Therefore, on an ongoing basis the pension contributions for
all Executive Directors are lower than the contribution made by
employees into the Group personal pension plan.
Wider workforce considerations
SIG is committed to creating an inclusive working environment and
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 (the ‘SIP’) for this purpose to our UK employees.
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 across the Group.
During the first quarter of 2020, a number of round table sessions
had been scheduled around the business to understand what was
important to our colleagues and which topics they would like to
discuss. These sessions would have also provided the opportunity
for me to explain how executive remuneration aligns with wider
Company pay policy, how this Committee operates, the extent to
which any discretion is applied to remuneration outcomes, giving the
reasons why and the opportunity for any questions on the Directors’
Remuneration Report and in particular on the fairness, diversity
and wider workforce considerations section. Unfortunately, in light
of COVID-19, it has not been possible to meet with colleagues. This
will be resumed when we are through the lockdown; if face to face
sessions cannot be held, video conferencing will be used, as I am
keen to understand the issues which are important to our colleagues
and feed their views back to the Board.
Shareholders
We engaged extensively with Shareholders during 2018 on the
development of our Remuneration Policy which was then approved
by our Shareholders in November 2018.
The Committee is actively consulting with Shareholders around
the appropriate structure of long-term incentives for the Executive
Directors. Details of the proposals will be contained in the relevant
Notice of Meeting when the incentive arrangements and associated
Remuneration Policy will be put to Shareholders for approval.
In light of COVID-19 restrictions, it will not be possible to meet our
Shareholders at the AGM on 30 June 2020, therefore if you have any
questions, please email them to cosec@sigplc.com.
I am also available to discuss any remuneration issues our other
stakeholders may wish to discuss with me.
Kate Allum
Chair of the Remuneration Committee
29 May 2020
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Annual statement
AT A GLANCE
Voting outcomes
The following table shows the results of the advisory vote on the 2018 Directors’ Remuneration Report at the AGM held on 8 May 2019 and the
results of the binding vote on the Remuneration Policy at the General Meeting held on 7 November 2018:
2019 Directors’ Remuneration
Report
Total number of votes
% of votes cast
Current Directors’ Remuneration
Policy
Total number of votes
% of votes cast
437,156,494
93.94%
454,060,422
85.45%
28,216,246
6.06%
77,305,353
14.55%
465,372,740
100%
531,365,775
100%
28,841,803
204,667
For
Against
Total votes cast1
Votes withheld
1.
The total votes cast is the for and against votes, a vote withheld is not a vote in law and not counted in this total.
SIG executive pay
The Directors’ Remuneration Report is colour
coded as follows: -
Business context
2019 out turns
against KPIs
SIG Executive pay
Components of
Remuneration
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
Accident Incident Rate
-7.6%
1.6%
6.1%
2.1x
13.4
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.
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
and
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
Total
Shareholder
Return (TSR)
■ Linked to the delivery of
long-term shareholder value/
dividend strategy
Relative
TSR
ROCE
Shareholding
guidelines
■ 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
116
117
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
Long term performance
The following charts show the single figure of remuneration for 2014 to 2019 compared to the Company’s EPS and ROCE over the
same period (rebased to 100 as at 31 December 2014). The charts demonstrate a strong correlation between Company performance
demonstrated by these measures and the remuneration paid to our Executive Directors.
4
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
120
100
80
60
40
20
0
2014
2015
2016
2017
20181
2019
CEO single figure Underlying EPS ROCE
1 The 2018 EPS has been restated.
Remuneration in respect of 2019
What did our Executive Directors earn during the year?
Mr M. Oldersma
Mr N.W. Maddock
Salary:
£577,000
Pension allowance:
£86,550
Benefits:
£24,435
2017 Awards
Salary:
£371,000
Pension allowance: £55,650
Benefits:
£21,406
Executive Director
Mr M. Oldersma
Date of grant
24 April 2017
Mr N.W. Maddock
24 April 2017
Shares subject
to award
Market price at
date of award
Face value at date
of award
Face value at
date of award
(% of salary)
954,003
459,965
117.4p
117.4p
£1,120,000
£540,000
200%1
150%
No discretion was exercised by the Committee in respect of the 2017 LTIP.
2017 LTIP out-turn
Performance
condition
EPS (cumulative
basis)
ROCE (average
basis)
Weighting
Actual
Threshold
(25% vesting)
Maximum
(100% vesting)
Outcome
(% maximum)
Outcome
(No. of shares
vesting
CEO Actual
£’000
CFO Actual
£’000
33.3%
3.5p
31.0p
38.0p
66.7%
6.1%
10%
13.5%
Total
0%
0%
0%
0
0
0
0
0
0
0
0
0
116
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Stock code: SHIwww.sigplc.comGOVERNANCE
Directors’ Remuneration Report
Annual statement
In 2019, the maximum potential bonus opportunity for Mr M. Oldersma (CEO) was £865,000 (150% of salary) and for Mr N.W. Maddock (CFO)
£556,500 (150% of salary). No discretion on the outcome was exercised by the Committee in respect of the 2019 bonus.
2019 Bonus out-turn
Performance
condition
PBT
ROCE
Health & Safety
gateway
Weighting
Actual
Threshold
(30% payable)
Target
(65% payable)
Maximum
(100% payable)
Outcome
(% salary)
CEO
Actual £’000
CFO
Actual £’000
50%
50%
£15.6m
£90m
£105m
£120m
12.2%
13.9%
15.6%
6.1%
Met
0
0
Total
0
0
0
0
0
0
What is our Remuneration Policy?
In this section we provide a summary of the key elements of the 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 Policy was operated in 2019 and how it is intended that
the Policy is to be operated in 2020. You can find the full current 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.
It should be noted that the Executive Directors employed during 2019, M. Oldersma (CEO) and N.W. Maddock (CFO) resigned on 24 February
2020. Therefore, the remuneration in 2020 relates to Steve Francis (the new CEO) and Kath Kearney-Croft (the new CFO).
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.
Period over
which earned
2019
How we implemented the
Policy in 2019
How we will implement
the Policy in 2020
Executive Director salaries for 2019
were as follows:
Executive Director salaries
for 2020 are as follows:
Element and link
to strategy
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.
■■ CEO – £577,000
■■ CFO – £371,000
Salary increases were 1.5% in 2019, in
line with inflation and increases for UK
employees generally.
Pension
To provide retirement benefits
that are appropriately competitive
within the relevant labour market.
2019
The maximum Company contribution or
pension allowance is 15% of salary.
When recruiting or promoting new
Executive Directors the Committee will
aim at aligning the pension contribution
to be provided to those of employees.
■■ CEO - £540,000
■■ CFO - £371,000
In light of COVID-19, the
Company announced on 30
March 2020 that all Board
members would be take a
50% reduction in pay with
effect from 1 April 2020 until
30 June 2020, re-instated to
80% for Executive Directors
from mid-May (backdated
to 1 April 2020) in line with
colleagues returning to work
on full pay.
The general employee base
salary increase was 1.5%.
From 1 January to 25
February, Executive
Directors received 15% of
pension allowance. From 25
February, the new Executive
Directors received 5% of
pension allowance which is
below the wider workforce
employee contribution.
118
119
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Element and link
to strategy
Benefits
To provide benefits that are
appropriately competitive within
the relevant labour market.
Benefits include (but are not
limited to) a company car,
life assurance, medical and
permanent health insurance.
Benefits are reviewed
annually, and their value is not
pensionable.
Annual bonus
Bonus operation for
2019 and 2020
■ 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.
Long-Term
Incentive Plan
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.
Period over
which earned
2019
2019 – 2022
deferral period
2022 – 2024
holding period
How we implemented the
Policy in 2019
How we will implement
the Policy in 2020
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.
Maximum opportunity in 2019
was as follows:
Maximum opportunity in
2020 will be as follows:
■■ CEO – 150% of base salary
■■ CEO – 150% of base
■■ CFO – 150% of base salary
The performance measures were:
■■ EPS (50%)
■■ ROCE (50%)
Any bonus is subject to a health and
safety gateway which must be met
before any bonus can be earned.
See page 118 for bonus outcomes for
2019.
salary
■■ CFO – 150% of base
salary
The performance measures
are being reviewed for 2020
and will be provided when
the revised Policy is put to
Shareholders at a General
Meeting of the Company.
The Committee is currently
consulting with Shareholders
on a new LTIP which will be
put to Shareholders at a
General Meeting.
2019 – 2022
performance period
LTIP Award granted in 2019 was as
follows:
2022 – 2025
holding period
■ CEO – Initial Award 200% of base
salary 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) 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 1x for
absolute TSR growth of 14% p.a. or
below with a multiplier of 1.5x for
18% p.a
See page 117 for further details of the
2019 LTIP grant.
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Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ Remuneration Report
Annual statement
Element and link
to strategy
Period over
which earned
How we implemented the
Policy in 2019
How we will implement
the Policy in 2020
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.
n/a
Share ownership requirements:
■ CEO – 300% of base salary
■ CFO – 300% of base salary
Share ownership
requirements:
The share ownership
requirements will now apply
for two years post cessation.
2019
Fees were increased in May 2019
in line with the general increase for
employees of 1.5% to the following:
■ Chairman
■ NED Fee
£218,255
£60,900
■ Senior Independent Director
£10,000
(no change)
■ Committee Chair
£12,000
(no change)
■ Audit Committee Chair
£12,000
(no change)
For actual fees paid during the year
please refer to the single figure table on
page 130.
The Board would ordinarily
review NED fees in May
2020, taking in to account
any increase agreed with the
general workforce, however
this will be deferred to
September 2020.
In light of COVID-19, the
Company announced on 30
March 2020 that all Board
members would be taking a
50% reduction in fees with
effect from 1 April 2020 for a
period of three months until
30 June 2020.
120
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc What is our 2019 single figure compared to our Policy?
When Shareholders approved our Remuneration Policy in 2018, 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 2019 against these scenarios to demonstrate how the actual remuneration paid lines up with our Policy.
,
5
8
4
4
8
2
3
£
,
CEO
,
5
8
9
7
8
6
£
,
5
8
9
7
8
6
£
£4,800,000
£4,500,000
£4,200,000
£3,900,000
£3,600,000
£3,300,000
£2,700,000
£2,400,000
£2,100,000
£1,800,000
£1,500,000
£1,200,000
£900,000
£600,000
£300,000
£0
,
0
6
0
9
3
5
1
£
,
,
5
8
9
9
4
1
4
£
,
CFO
,
1
8
2
5
9
9
£
,
6
5
0
8
4
4
£
,
6
5
0
8
4
4
£
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
,
6
5
5
7
1
1
2
£
,
,
6
5
0
4
7
6
2
£
,
Actual
Minimum
On-Target
Maximum
Maximum
(with 50% LTIP
share price growth)
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
Additional context to our Executive Director’s 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 in role during 2019
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
FTSE 250 UQ
FTSE 250 Median
FTSE 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 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.
120
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Stock code: SHIwww.sigplc.comGOVERNANCE
Directors’ Remuneration Report
Directors’ remuneration policy
What is our minimum share ownership
requirement, and has it been met?
The intention was that the Executive Directors would meet the
minimum share ownership requirements by November 2020, given
its relatively recent adoption (refer to page 120). The table shows
the shareholding values as at 31 December 2019 of the Executives
Directors employed during the year.
Remuneration principles
Our reward strategy is designed to support and reinforce SIG’s
purpose, vision, culture and behaviours and to reward all of our
employees for delivering against our strategic objectives. The
principles that we have developed apply across the Group.
Minimum
Shareholding
Requirement
M. Oldersma
N. Maddock
0%
100%
200%
300%
400%
500%
600%
Current
Shareholding
Post tax value of
unvested share awards
New minimum
shareholding
Fairness, diversity and wider workforce
considerations
Working at SIG
Over the past year, the Company has placed a greater focus on
making SIG a great place to work through increased openness and
inclusivity. This Report aims to demonstrate this through not only
our reward offering but through the overall employee experience.
In making decisions on reward, the Committee considers wider
workforce remuneration and conditions, and we believe that it is
important to be transparent about the link between the two.
As part of our commitment to fairness, we have included in this
section more information on:
■ The Committee’s remit
■ Remuneration principles
■ Wider workforce pay conditions
■ Our UK gender pay statistics
■ Remuneration and alignment with performance
The Committee’s remit
The Committee’s remit extends down to Executives Directors and
senior management for which it recommends and monitors the
level and structure of remuneration. In addition, in this section, we
provide context to our Director pay by explaining our employee
policies and our approach to fairness, including whether the
approach to executive remuneration is consistent and the incentives
operated by the Company are aligned to its culture and strategy.
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 wider workforce remuneration and the cascade of
incentives throughout the business.
Alignment and fairness
In action
■■ Clear and appropriate governance structures are in place
for decision making at all levels.
■■ Remuneration programmes and processes are run fairly,
with integrity and are supported with clear communication
to individuals.
■■ Pay arrangements are fair and equitable across the Group.
Rewarding contribution and
performance
In action
■■ Performance is assessed against the behaviours required
to support our commitment culture.
■■ Incentive plans reward the delivery of our business
strategy, targets are appropriately stretching, and
objectives are focused on value creation.
■■ Performance measures are reviewed regularly, personal
and strategic objectives are accurately assessed, and
targets are set relative to strategic priorities.
Transparency and participation
In action
■■ There is a focus on effectively communicating
remuneration decisions through stakeholder engagement.
■■ Incentive and benefits plans are clear, simple and
understood by participants to maximise engagement.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
The Code requires the Committee to determine the Policy and practices for Executive Directors in line with a number of factors set out in
Provision 40, and further details on our remuneration principles and how we have addressed the requirements are set out below:
Alignment of the current Policy to the provisions of the Code
Clarity
The Company’s performance remuneration is based on supporting the implementation of the Company’s
strategy measured through KPIs which are used for the Bonus Plan and LTIP. This provides clarity to all
stakeholders on the relationship between the successful implementation of the Company’s strategy and the
remuneration paid.
Simplicity
The Company operates a UK market standard approach to remuneration which is familiar to all stakeholders.
Risk
The Policy includes the following:
■■ Setting defined limits on the maximum awards which can be earned;
■■ Requiring the deferral of a substantial proportion of the incentives in shares for a material period of time,
helping to ensure that the performance earning the award was sustainable, and thereby discouraging short-
term behaviours;
■■ Aligning the performance conditions with the agreed strategy of the Company;
■■ Ensuring a focus on long-term sustainable performance through the LTIP; and
■■ Ensuring there is sufficient flexibility to adjust payments through malus and clawback and an overriding
discretion to depart from formulaic outcomes, especially if it appears that the behaviours giving rise to the
awards are inappropriate or that the criteria on which the award was based do not reflect the underlying
performance of the Company.
Shareholders were given full information on the potential values which could be earned under the Company’s
incentive plans on their approval.
In addition, all the checks and balances set out above under ‘Risk’ were disclosed at the time of Shareholder
approval.
The Company’s incentive plans clearly reward the successful implementation of the strategy, and through
deferral and measurement of performance over a number of years ensure that the Executive Directors have
a strong drive to ensure that the performance is sustainable over the long term. Poor performance cannot
be rewarded due to the Committee’s overriding discretion to depart from the formulaic outcomes under the
incentive plans if they do not reflect underlying business performance.
Predictability
Proportionality
Alignment to culture
The focus on ownership and long-term sustainable performance is also a key part of the Company’s culture, this
is reflected in the level of deferral required on incentives. In addition, the measures used for the incentive plans
are measures used to determine the success of the implementation of the strategy.
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Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ Remuneration Report
Directors’ remuneration policy
Wider workforce pay conditions
Delivery of our strategy depends on our success in attracting and recruiting an engaged workforce that have the right skills and demonstrate
the right behaviours to make a valuable contribution to our business. The Board as a whole are focused on workforce engagement and the
Committee specifically has oversight of workforce pay, policies and incentives to ensure that they are aligned to Remuneration Policy.
In order to do this, the Committee receives a report annually from the Company setting out key details of remuneration across the Group.
Overall, for 2019 we observed a structured and balanced approach to reward. Clearly the levels of remuneration and the types offered
will vary across the Company depending on the employee’s level of seniority, country of operation and role. There are minimal exceptions
to standard local practices across the Group and robust governance structures can be evidenced. The Committee is not looking for a
homogeneous approach; however, when conducting its review it is paying particular attention to:
■■ Whether the element of remuneration is consistent with the Company Remuneration Principles (see page 122);
■■ If there are differences, they are objectively justifiable; and
■■ If the approach seems fair and equitable in the context of other employees.
Summary of the remuneration structure for employees:
Pay Element
Pay Element
Executive Directors
Salary
We conduct an annual pay review for all employees. In
setting the budget consider many factors such as market
rates, economic context, business performance and
affordability.
Pensions and benefits We offer market-aligned benefits packages reflecting
normal practice in each country in which we operate.
Where appropriate, we offer benefit choices to our
employees.
Bonus Plan
Just over half of our workforce (55%) participate in a
cash bonus. The performance factors differ depending
on the role, level and country of operation.
LTIP
No LTIPs in operation for the wider workforce.
SIP
MIP
All UK employees are invited to participate in the SIP.
The Senior Leadership Team are invited to participate in
the MIP with performance measures aligned to Executive
Director bonuses. Awards are a combination of cash,
restricted share awards and deferred awards.
Salary increases are considered in the context of the
wider workforce review and performance of the Company.
When recruiting or promoting new Executive Directors
the Committee aims to align the pension contribution to
be provided to those of employees.
Benefits are aligned to the Senior Leadership Team in
the country of operation.
Annual bonus of 150% of base salary 2/3rds payable in
cash up to of 100% of salary; 1/3rd payable in shares
up to 100% of salary and all bonus in excess of 100% of
salary paid in shares.
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.
Executive Directors are invited to participate in the SIP.
Executive Directors do not participate in the MIP.
The Committee has the authority to ask for additional information from the Company in order to carry out its responsibilities.
Once the Committee has conducted its review of the wider workforce remuneration and incentives it considers the approach applied to the
remuneration of the Executive Directors and Senior Management. In particular, the Committee is focused on whether, within the framework
set out above, the approach to the remuneration of the Executive Directors and Senior Management is consistent with that applied to the
wider workforce.
Incentives
The majority of our employees have the ability to share in the success of the Company through incentive compensation. In line with market
practice the level of incentive compensation and whether it is paid solely in cash or in a mixture of cash and deferred shares depends on the
level of seniority of employee. The incentive approach applied to the Executive Directors aligns with the wider Company policy on incentives,
which is to have a higher percentage of at-risk performance pay with seniority of the role, and to increase the amount of incentive deferred,
provided in equity and / or measured over the longer term for roles with greater seniority.
The following table shows the cascade of incentives throughout the Company.
124
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Competitive pay and cascade of remuneration
Eligibility
Executive
Directors
Number of
employees covered
Remuneration
element
Purpose
2
LTIP
The LTIP reinforces the delivery of long-term creation of value.
Shareholding
guidelines (as a
% of salary)
Supports alignment of Executive Director interests with Shareholders.
Management
and Senior
Directors
54
MIP
The MIP drives performance of key management personnel with measures
aligned to Executive Director bonuses cascaded through our operating
businesses. Awards are a combination of cash, restricted share awards and
deferred awards.
All employees
6,452
Salary
Salaries are set to reflect market value of the role, and to aid
recruitment and retention.
Employees who are not on a training rate of pay (such as apprentices)
receive at least the National Minimum Wage.
We also monitor closely the rates of pay of people who are training with us
to make sure they remain fair and competitive.
The Group has pension saving mechanisms for all employees.
All employees are eligible to participate in their local benefits schemes
which are designed to support a positive work-life balance.
The SIP encourages wider ownership of SIG shares across the UK
workforce, which ensures that the interests of employees remain firmly
aligned with those of Shareholders.
Pension
Benefits
SIP
■■ Employee numbers as at 31 December 2019, excluding the Air Handling division headcount.
■■ Equity participation is offered to all UK employees of the Company through the SIP and to Senior Management through the MIP, each of
which involves the award of shares.
■■ In line with the Company’s wider policy on pay, all UK employees are eligible for enrolment in a company defined contribution pension
arrangement. The current UK standard contribution is 12.5% of salary (7.5% employer and 5% employee). Pension contributions for the
new Executive Directors are lower than the employee contribution in the Group Personal Pension Plan.
■■ In line with the wider Company policy on pay, the Company offers life assurance cover for death in service to all its UK employees. The
minimum lump sum benefit for all employees is 2x annual basic salary. Other benefits such as private medical cover are offered according
to the level of seniority of the role in line with market practice.
■■ Executive Directors are required to adhere to minimum shareholding guidelines.
In summary the Committee is satisfied that the approach to remuneration across the Company is consistent with the Company’s principles
of remuneration. Further, that in the Committee’s opinion the approach to executive remuneration aligns with the wider Company pay policy
and that there are no anomalies specific to the Executive Directors.
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Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ Remuneration Report
Directors’ remuneration policy
Our gender pay statistics
The UK Government Equalities Office legislation requires employers with more than 250 employees to disclose annually information on their
gender pay gap. The third disclosure of the pay gap will be based on amounts paid in the April 2019 payroll. The bonus gap will be based on
incentives paid in the year to 31 March 2019.
The mean gender pay gap at SIG (SIG Trading) is (6.3%) (2018: 5.4%) which is significantly lower than the UK average at 16.9%.
The main reasons for this change are an increase in the proportion of female employees who are amongst the highest paid together with
a relatively small number of changes at senior levels. These two factors have had a significant impact and we are proud that gender is not a
barrier to undertaking senior roles at SIG.
(6.3%)
Mean pay gap
41.2%
Mean bonus gap
More information can be found in our 2019 Gender Pay Gap Report published on www.sigplc.com.
Further information on our Diversity and Inclusion Plan can be found on page 55.
Remuneration and alignment with performance
CEO pay ratio
Our CEO to employee pay ratios for 2019 are set out in the table below:
Financial Year
Method Used
2019
Option B (Gender Pay data)
25th
percentile
pay ratio
50th
percentile
pay ratio
75th
percentile
pay ratio
32:1
28:1
20:1
For 2019, the Company has used Option B given the availability of data. 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 23 December 2019.
Basic salary
Benefits
Pension
Bonus Plan
LTIP
Total Pay
2019
2018
CEO
25th
50th
75th
CEO
25th
50th
75th
577,000
24,435
86,550
–
–
687,985
19,759
89
1,482
–
–
21,330
23,696
53
711
–
–
24,460
31,842
383
2,388
–
–
34,613
568,400
23,867
85,260
0
0
677,527
19,000
85
1,425
0
0
20,510
22,593
655
1,694
0
0
24,942
30,907
182
2,318
0
0
33,407
In determining the quartile figures the hourly rates were annualised using the same number of contractual hours as the CEO. One UK
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
■■ MIP value
■■ Group Life Assurance value
■■ Group Income Protection value
■■ Employer Share Incentive Plan (SIP) Contribution
No pay elements were omitted or adjusted to calculate CEO pay. Non-guaranteed overtime was omitted for employees due to its variable
nature.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
We set out below a table showing changes in the ratios over time, in the future as further data is built up, we will introduce a chart tracking
CEO to employee pay ratios alongside SIG’s TSR performance from 2018 onwards when we first disclosed the ratios.
120
110
100
90
80
70
60
50
40
2018
CEO vs 25th percentile employee
CEO vs 75th percentile employee
CEO vs Median employee
TSR rebased
2019
Financial Year
2019
2018
Method
B
B
25th percentile
pay ratio
32:1
50th percentile
pay ratio
28:1
75th percentile
pay ratio
20:1
33:1
27:1
20:1
The Committee continues to be committed to ensuring that CEO pay is commensurate with performance. In 2018 and the 2019 the ratios
have been relatively stable as a result of nil incentive outcomes. However, in the future 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 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, 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.
CEO pay in the last 10 years
This table shows how pay for the CEO role has changed in the last 10 years.
Year
Incumbent
2010
£’000
2011
£’000
2012
£’000
2013
£’000
2013
£’000
2014
£’000
2015
£’000
2016
£’000
C.J.
Davies
C.J.
Davies
C.J.
Davies
C.J.
Davies1
S.R.
Mitchell2
S.R.
Mitchell
S.R.
Mitchell
S.R.
Mitchell4
2016
£’000
M.
Ewell5
2017
£’000
2017
£’000
2018
£’000
2019
£’000
M.
Ewell
M.
Oldersma6
M.
Oldersma
M.
Oldersma
Single figure of
remuneration
% of max annual
bonus earned
% of max LTIP
awards vesting
1,087
1,065
1,024
1,031
987
968
765
581
100
150
794
677
688
54
96
54
50
60.5
57
03
n/a
n/a
n/a
70
0
0
0
0
0
n/a
n/a
19.5
n/a
n/a
n/a
n/a
n/a
0
0
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 CEO 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 CEO 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 CEO 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 CEO on 3 April 2017. The 2017 figure pertains to the period 3 April 2017 to 31 December 2017.
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Directors’ Remuneration Report
Directors’ remuneration policy
Total Shareholder Return
The graph below shows the Company’s (TSR) performance (share price plus dividends paid) compared with the performance of the FTSE All
Share Support Services Index over the ten-year period to 31 December 2019. 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.
10 Year Company TSR Performance v FTSE All Share Support Services
350
300
250
200
150
100
50
0
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
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
SIG
FTSE All Share Support Services
Percentage change in Director’s remuneration
The table below shows how the percentage change in each Director’s salary/fees, benefits and bonus between 2019 and 2018 compared 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. Disclosure
for all Directors in addition to the CEO has been added this year in line with new requirements under the EU Shareholder Rights Directive II
and over time a five-year comparison will be built up.
M. Oldersma (CEO)
N.W. Maddock (CFO)
A.J. Allner (Chairman)
A. Abt
I.B. Duncan
A.C. Lovell2 (SID)
K. Allum3
G. Kent3
UK total pay
Number of employees
Average per employee
Salary/fee
£’000
Percentage
change
Taxable benefits
£’000
Percentage
change
Bonus1
£’000
Percentage
change
2019
2018
577
371
217
60
73
71
73
61
568
365
202
56
68
70
–
–
%
1.5
1.5
7.7
7.6
7.3
0.8
–
–
2019
2018
%
2019
2018
%
24
21
–
–
–
–
–
–
24
21
–
–
–
–
–
–
0
0
–
–
–
–
–
–
0
0
–
–
–
–
–
–
0
0
–
–
–
–
–
–
0
0
–
–
–
–
–
–
89,804
96,441
(6.9)
4,393
2,865
3,286
(12.8)
2,865
31.2
29.3
6.5
1.5
4,998
3,286
1.54
(12.1)
2,713
(12.8)
2,865
2.6
1.0
2,898
3,286
0.9
(6.4)
(12.8)
11.1
1.
The bonus figures are for UK-based employees who participate in a bonus arrangement.
2. Mr. A.C. Lovell was appointed a Non-Executive Director (NED) and Senior Independent Director on 1 August 2018. His 2018 fees are presented on an annual basis for comparative
purposes.
3. Ms. K. Allum & Ms. G. Kent were appointed as NED’s on 1 July 2019, so no fee changes are available for this year. The fees are presented on an annual basis for comparative purposes.
4.
The 2018 total taxable benefit and average per employee has been restated.
The Committee monitors the changes year-on-year between our Executive Director 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.
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Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc
Annual Report on remuneration
The following section provides details of how SIG’s 2018 Remuneration Policy was implemented during the financial year ended 31 December
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 2019 and
the prior year:
Executive Director
Mr M. Oldersma
Mr N.W. Maddock
Base
salary1
£’000
Taxable
benefits2
£’000
LTIP3
£’000
Annual
bonus4
£’000
Pension5
£’000
Other6
£’000
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
2019
2018
2019
2018
577
568
371
365
24
24
21
21
0
0
0
0
0
0
0
0
87
85
56
55
0
0
0.2
0.2
688
677
448
441
688
677
448
441
0
0
0
0
The figures in the table above have been calculated as follows:
1.
2.
3.
4.
5.
Base salary: amount earned for the year.
Benefits: include, but are not limited to, company car (£15,000) or car allowance and private medical insurance, life assurance, income protection.
LTIP: There is no vesting in respect of either 2018 or 2019.
Annual bonus: payment for performance during the year (including any deferred portion). The bonus is calculated as a percentage of base salary. No bonus was due as the performance
measures were not achieved.
Pension: the Company’s pension contribution during the year of 15% of salary, an amount of which was paid by salary supplement.
6. Other: includes SIP, value based on the face value of matching shares at grant. As per HMRC guidance, there are no performance measures relating to the SIP.
Total single figure of
remuneration
2019
2018
2017
CEO
£’000
688
677
794
CFO
£’000
448
441
626
2018 LTIP: 2019 Awards (AUDITED)
On 21 March 2019, Mr M. Oldersma and Mr N.W. Maddock were granted awards in the form of nil-cost options under the LTIP of 1,192,148
and 766,528 shares respectively; details are provided in the table below. The three-year period over which performance will be measured will
be 21 March 2019 to 21 March 2022. See page 119 for details of the performance conditions.
Executive Director
Mr M. Oldersma
Mr N.W. Maddock
Date of grant
21 March 2019
21 March 2019
% of award
for minimum
performance
25%
Shares subject
to award
1,192,148
Market price
at date of
award1
145.7p
Face value
at date of award
£1,736,959
Face value
at date of award
(% of salary)
300%
25%
766,528
145.7p
£1,116,831
300%
7.
1 The closing share price on 20 March 2019 was used to calculate the number of shares subject to award.
It should be noted that the 2019 LTIP awards lapsed on the cessation of employment of Mr M. Oldersma and Mr N.W. Maddock on 24
February 2020.
No Directors exercised any share options during the year such that the aggregate gain on exercise was nil.
128
129129
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ Remuneration Report
Directors’ remuneration policy
Single total figure of remuneration for NED’s (AUDITED)
The table below sets out the single total figure of remuneration received by each NED for services rendered to the Company as a NED for the
year to 31 December 2019 and the prior year:
Base fee
£’000
2019
217
£’000
2018
202
61
61
61
30
30
21
30
–
–
56
56
25
–
–
56
25
31
9
Committee Chair /
Senior Independent
Director fees
£’000
2019
£’000
2018
Additional Advisory Board
fees
£’000
2019
£’000
2018
–
–
12
10
6
–
4
–
–
–
–
–
12
4
–
–
11
–
3
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total fees
£’000
2019
217
£’000
2018
202
61
73
71
36
30
25
30
–
–
56
68
29
–
–
67
25
34
10
NED
Mr A.J. Allner (Chairman)
Ms A. Abt
Mr I.B. Duncan1
Mr A.C. Lovell2
Ms K. Allum3
Ms G. Kent4
Ms J.E. Ashdown5
Mr C.M.P. Ragoucy5
Mr M. Ewell7
Mr C.V. Geoghegan8
1. Mr I.B. Duncan was appointed Chair of the Audit Committee with effect from 1 April 2017.
2. Mr A.C. Lovell was appointed a NED and Senior Independent Director on 1 August 2018.
3. Ms K. Allum was appointed as a NED on 1 July 2019.
4. Ms G. Kent was appointed as a NED and Chair of the Remuneration Committee on 1 July 2019.
5. Ms J.E. Ashdown retired as a Director and Chair of the Remuneration Committee on 8 May 2019.
6. Mr C.M.P. Ragoucy was appointed a NED on 1 August 2018 and retired from this role on 30 June 2019.
7. Mr M. Ewell retired as a NED and the Senior Independent Director (a position he held since Mr C.V. Geoghegan’s retirement on 9 March 2018) on 31 July 2018.
8. Mr C.V. Geoghegan retired as a NED and the Senior Independent Director on 9 March 2018.
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 2018 to the financial year ended 31 December 2019.
Distribution to Shareholders
Employee remuneration*
*Continuing operations employee remuneration.
2019£m
22.2
268.2
2018
£m
22.2
305.6
% change
0%
(12.2)%
The Company announced on 26 March 2020 that, in light of COVID-19, the Directors would not be declaring a dividend for the year ended
31 December 2019, (2018: 2.50p).
130
131
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Directors’ interests in SIG shares (AUDITED)
The interests of the Directors in office during the year to 31 December 2019, and their families, in the ordinary shares of the Company at the
dates below were as follows:
Shares held
Nil-cost options held
Owned
outright or
vested
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 %
of basic salary
Requirement
met2
Mr M. Oldersma
371,388
Mr N.W. Maddock
153,751
Ms A. Abt
Mr A.J. Allner
Ms K. Allum3
8,500
53,954
0
Ms J.E. Ashdown4
44,450
Mr I.B. Duncan
Ms G. Kent3
Mr A.C. Lovell
Mr C.M.P. Ragoucy5
0
0
20,000
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,640,629
70,476
2,187,228
56,924
300
300
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79
51
–
–
–
–
–
–
–
–
No
No
–
–
–
–
–
–
–
–
1.
2.
Executive Directors are expected to achieve target shareholding within 5 years of appointment.
Based on SIG share price of 123p as at 31 December 2019. Note that both the Executive Directors were appointed in 2017, consequently they have not yet built up the required holding.
3. Ms K. Allum and Ms G. Kent were appointed as Directors on 1 July 2019.
4. Ms J.E. Ashdown retired as a Director on 8 May 2019.
5. Mr C.M.P Ragoucy was appointed as a Director on 1 August 2018 and retired as a Director on 30 June 2019.
There have been no changes to shareholdings between 1 January 2020 and 21 May 2020, namely that on 15 January 2020 and 17
February 2020 Mr N.W. Maddock acquired a further 157 and 164 shares, respectively, under the SIP. There have been no other changes to
shareholdings of the Directors in office during that time.
The market price of shares at 31 December 2019 was 123p and the range during 2019 was 99p to 151p.
There were no options exercised by the Directors in 2019 (2018: nil).
It should be noted that rights to unvested shares lapsed on the cessation of employment of Mr M. Oldersma and Mr N.W. Maddock on
24 February 2020.
External directorships
During 2019 Mr M. Oldersma held an external directorship of Oldersma Management & Consultancy Ltd which is a personal services
company.
Additional information
The following table sets out the additional information required in the Annual Report on Remuneration and where relevant its location:
Element
Annual bonus in respect of 2019 (Audited)
LTIP: 2017 awards (Audited)
Payments for loss of office
Payment to former Directors
Information / Page
See page 118
See page 117
None
None
Implementation of Remuneration Policy in 2020
See pages 118 to 120
Percentage change in CEO remuneration
TSR performance graph
See page 127
See page 128
130
131131
Stock code: SHIwww.sigplc.comGOVERNANCE Directors’ Remuneration Report
Directors’ remuneration policy
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 CEO and on 12 months’ notice in the case of the CEO.
Executive Director
Mr N.W. Maddock
Mr M. Oldersma
Date of service contract
6 October 2016
13 March 2017
Termination date
25 February 2021
25 August 2020
NEDs
The 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. Abt3
Mr I.B. Duncan
Mr A.C. Lovell
Ms K. Allum
Ms G. Kent
Ms J.E. Ashdown1
Mr C.M.P. Ragoucy2
1. Ms J.E. Ashdown retired as a Director on 8 May 2019
2. Mr C.M.P Ragoucy retired as a Director on 1 July 2019
3. Ms A. Abt retired as a Director on 12 February 2020
Date of current letter
of appointment
10 October 2017
5 March 2015
9 December 2016
28 June 2018
5 June 2019
5 June 2019
3 April 2017
28 June 2018
Effective date
of appointment
1 November 2017
12 March 2015
1 January 2017
1 August 2018
1 July 2019
1 July 2019
11 July 2011
1 August 2018
Expiry of current term
November 2023
May 2021
January 2023
May 2021
May 2022
May 2022
n/a
n/a
Approval of the Directors’ Remuneration Report
The Directors’ Remuneration Report set out on pages 111 to 132 was approved by the Board of Directors on 29 May 2020 and signed on its
behalf by Kate Allum, Chair of the Remuneration Committee.
Kate Allum
Chair of the Remuneration Committee
29 May 2020
132
133
Annual Report and Accounts for the year ended 31 December 2019GOVERNANCESIG plc Directors’ responsibilities statement
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 29 May 2020 and is signed on its behalf by:
Steve Francis
Chief Executive Officer
29 May 2020
Kath Kearney-Croft
Chief Financial Officer
29 May 2020
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.
132
133133
Stock code: SHIwww.sigplc.comGOVERNANCE FINANCIALS FINANCIALS
Consolidated Income Statement
136
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Cash Flow Statement
Statement of Significant
Accounting Policies
137
138
139
140
141
Critical accounting judgements and
key sources of estimation uncertainty 154
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
Company information
156
217
227
229
230
231
232
236
242
244
FINANCIALS Consolidated Income Statement
for the year ended 31 December 2019
Underlying*
2019
£m
Other items**
2019
£m
Note
Total
2019
£m
Underlying*
2018^
Restated^^
£m
Other items**
2018^
Restated^^
£m
Total
2018^
Restated^^
£m
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating expenses
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax from
continuing operations
Income tax (expense)/credit
Profit/(loss) after tax from
continuing operations
Discontinued operations
Profit/(loss) after tax from
discontinued operations
Profit/(loss) after tax for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings/(loss) per share
Basic and diluted earnings/(loss) per
share
Basic and diluted earnings/(loss) per
share from continuing operations
1
2
3
3
4
6
12
8
8
2,084.7
(1,545.5)
539.2
(499.6)
39.6
0.5
(24.5)
15.6
(15.9)
75.9
(56.0)
19.9
(147.4)
(127.5)
–
(0.8)
(128.3)
4.5
2,160.6
(1,601.5)
559.1
(647.0)
(87.9)
0.5
(25.3)
(112.7)
(11.4)
(0.3)
(123.8)
(124.1)
–
(0.3)
(0.4)
(124.2)
(0.4)
(124.5)
(0.3)
–
(124.2)
–
(124.5)
–
2,290.4
(1,711.8)
578.6
(511.7)
66.9
0.5
(15.2)
52.2
(14.4)
37.8
–
37.8
37.4
0.4
141.4
(101.4)
40.0
(80.7)
(40.7)
–
(1.2)
(41.9)
8.2
(33.7)
13.8
(19.9)
(19.9)
–
(21.0)p
(21.0)p
2,431.8
(1,813.2)
618.6
(592.4)
26.2
0.5
(16.4)
10.3
(6.2)
4.1
13.8
17.9
17.5
0.4
3.0p
0.6p
^ The Group has initially applied IFRS 16 "Leases" using the modified retrospective method. Under this method, the comparative information is not restated. See the Statement of Significant
Accounting Policies for further details.
^^ The 2018 results have been restated in order to present the Air Handling business as a discontinued operation. See Note 12 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, investment in omnichannel retailing, 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
page 147.
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Income Statement.
136
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
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
Current tax movement associated with remeasurement of defined benefit pension liability
Note
30c
24
6
Items that may subsequently be reclassified to the Consolidated Income Statement:
Exchange difference on retranslation of foreign currency goodwill and intangibles
Exchange difference on retranslation of foreign currency net investments (excluding goodwill and
intangibles)
Exchange and fair value movements associated with borrowings and derivative financial
instruments
Tax credit on 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/(expense)
Total comprehensive income/(expense)
Attributable to:
Equity holders of the Company
Non-controlling interests
2019
£m
(124.5)
(1.8)
(6.6)
0.4
(8.0)
(7.4)
(16.1)
10.9
(2.1)
(0.1)
0.4
0.9
(13.5)
(21.5)
(146.0)
(146.0)
–
(146.0)
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
^ The Group has initially applied IFRS 16 "Leases" using the modified retrospective method. Under this method, the comparative information is not restated. See the Statement of Significant
Accounting Policies for further details.
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Statement of Comprehensive Income.
137
Stock code: SHIwww.sigplc.comFINANCIALS Consolidated Balance Sheet
as at 31 December 2019
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Lease receivables
Deferred tax assets
Derivative financial instruments
Deferred consideration
Current assets
Inventories
Lease receivables
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
Lease liabilities
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
Lease liabilities
Private placement notes
Derivative financial instruments
Other financial liabilities
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 reserves
Cost of hedging reserve
Retained losses
Attributable to equity holders of the Company
Non-controlling interests
Total equity
Note
10
25
13
14
25
24
20
20
16
25
17
17
17
20
20
20
11
18
18
18
18
18
18
18
18
18
18
18
11
19
19
19
19
24
19
30c
19
26
2019
£m
58.6
255.2
159.0
42.3
4.4
4.4
1.7
–
525.6
156.5
0.8
294.7
–
0.9
0.9
–
110.0
258.4
822.2
1,347.8
327.4
–
51.5
–
99.6
175.5
–
1.5
0.2
3.7
6.7
115.7
781.8
224.1
–
1.9
1.4
–
1.0
24.8
18.6
271.8
1,053.6
294.2
59.2
447.3
0.3
1.8
10.2
0.3
(224.9)
294.2
–
294.2
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
^ The Group has initially applied IFRS 16 "Leases" using the modified retrospective method. Under this method, the comparative information is not restated. See the Statement of Significant
Accounting Policies for further details.
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 29 May 2020 and signed on its behalf by:
Steve Francis
Director
Registered in England: 00998314
138
Kath Kearney-Croft
Director
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Called
up share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Share
option
reserve
£m
Hedging
and
translation
reserves
£m
Cost of
hedging
reserve
£m
Retained
(losses)/
profits
£m
59.2
–
–
59.2
–
–
447.3
–
–
447.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59.2
–
59.2
–
–
–
–
–
–
447.3
–
447.3
–
–
–
–
–
0.3
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
0.3
–
0.3
–
–
–
–
–
At 1 January 2018^
Impact of adoption of IFRS 15
Impact of adoption of IFRS 9
Adjusted balance at 1 January
2018
Loss after tax
Other comprehensive income
Total comprehensive income/
(expense)
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
At 31 December 2018^
Impact of adoption of IFRS 16
Adjusted balance at 1 January
2019
Profit after tax
Other comprehensive income
Total comprehensive income
Transfer of reserves
Credit to share option reserve
Current and deferred tax on
share options
Dividends paid to equity
holders of the Company
At 31 December 2019
1.3
–
–
1.3
–
–
19.6
–
–
19.6
–
2.1
–
–
0.9
0.9
–
0.1
(58.1)
(0.7)
(0.7)
(59.5)
17.5
1.4
Non-
controlling
interests
£m
0.9
–
–
0.9
0.4
–
Total
£m
469.6
(0.7)
0.2
469.1
17.5
3.6
Total
equity
£m
470.5
(0.7)
0.2
470.0
17.9
3.6
–
2.1
0.1
18.9
21.1
0.4
21.5
–
0.4
–
–
–
–
–
–
1.7
–
1.7
–
–
–
–
0.1
–
–
–
–
–
–
–
–
21.7
–
21.7
–
(12.8)
(12.8)
1.3
–
–
–
–
–
–
–
–
–
1.0
–
1.0
–
(0.7)
(0.7)
–
–
–
–
–
(0.2)
(1.7)
–
0.4
–
(0.2)
(1.7)
–
–
–
–
1.7
–
0.4
–
(0.2)
–
–
–
(0.3)
(0.3)
(3.6)
(3.6)
(2.7)
(6.3)
(22.2)
(68.3)
(0.6)
(68.9)
(124.5)
(8.0)
(132.5)
(1.3)
–
(22.2)
462.9
(0.6)
462.3
(124.5)
(21.5)
(146.0)
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
(22.2)
462.9
(0.6)
462.3
(124.5)
(21.5)
(146.0)
–
0.1
–
(22.2)
294.2
–
–
–
–
–
–
–
–
–
59.2
–
447.3
–
0.3
–
1.8
–
10.2
–
0.3
(22.2)
(224.9)
(22.2)
294.2
^ The Group has initially applied IFRS 16 "Leases" using the modified retrospective method. Under this method, the comparative information is not restated. See the Statement of Significant
Accounting Policies for further details.
The share option reserve represents the cumulative equity-settled share option charge under IFRS 2 "Share-based payments" less the value
of any share options that have been exercised.
The hedging and translation reserves represents movements in the Consolidated Balance Sheet as a result of movements in exchange
rates and movements in the fair value of cash flow hedges which are taken directly to reserves as detailed in the Statement of Significant
Accounting Policies on page 152. Amounts have been reclassified during the year to clarify the effects of hedging between retained(losses)/
profits and the cash flow hedging reserve and to separately identify the cash flow hedging reserve and foreign currency retranslation reserve.
See Note 20 for further details.
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.
139
Stock code: SHIwww.sigplc.comFINANCIALS Consolidated Cash Flow Statement
for the year ended 31 December 2019
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 not dependent on
vendors remaining within the business
Net cash flow arising on the sale of businesses
Net cash generated from investing activities
Cash flows from financing activities
Finance costs paid
Repayment of lease liabilities
Acquisition of non-controlling interests
Repayment of loans/settlement of derivative financial instruments
Loans drawn down
Dividends paid to equity holders of the Company
Dividends paid to non-controlling interest
Net cash used in financing activities
Increase/(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
27
11
7
28
29
29
29
2019
£m
166.0
(10.8)
155.2
0.6
(34.5)
7.6
–
8.4
(17.9)
(25.1)
(59.9)
(0.9)
–
42.4
(22.2)
–
(65.7)
71.6
78.8
(5.3)
145.1
2018^
Restated
£m
103.6
(14.0)
89.6
1.0
(22.7)
5.1
(11.2)
35.8
8.0
(14.1)
(1.5)
(2.5)
(57.1)
–
(22.2)
(0.3)
(97.7)
(0.1)
78.6
0.3
78.8
^ The Group has initially applied IFRS 16 "Leases" using the modified retrospective method. Under this method, the comparative information is not restated. See the Statement of Significant
Accounting Policies for further details.
* Cash and cash equivalents comprise cash at bank and on hand of £145.1m (31 December 2018: £83.3m) less bank overdrafts of £nil (31 December 2018: £4.5m).
The 2018 Consolidated Cash Flow Statement has been restated following a review of the 2018 Annual Report and Accounts by the Financial
Reporting Council. The restatement relates to the classification of cash flows in relation to the settlement of amounts payable for previous
purchases of businesses, with £6.0m reclassified between the net cash flow from operating activities and cash flows from investing activities.
Further details are included in the Statement of Significant Accounting Policies.
The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated
Cash Flow Statement.
140
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Statement of significant accounting policies
The significant accounting policies adopted in this Annual Report
and Accounts for the year ended 31 December 2019 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 42.
Going concern
The Group closely monitors its funding position throughout the
year, including monitoring compliance with covenants and available
facilities to ensure it has sufficient headroom to fund operations.
During 2019, the Directors announced the proposed sale of the
Group’s Air Handling division to France Air for an enterprise value
of €222.7m (£187.0m1) to strengthen the balance sheet and reduce
working capital facilities. The sale completed on 31 January 2020
with net cash proceeds of €180.9m (£151.9m1) being partly used
to manage the Group’s working capital, including providing liquidity
over the short term to support the Group’s business through the
COVID-19 uncertainty.
Following a challenging trading period in 2019 and a change in its
Executive Directors in February 2020, the Group undertook an
extensive review of its business and operating strategy together
with potential growth opportunities. During these reviews, it became
clear that revised lower forecasts for future earnings for 2020 to
2022, based on an analytical review of recent sales trends, were
likely to leave the Group with higher than anticipated leverage levels
during this period. In turn, these highlighted that the Group’s capital
structure needs to be addressed and, as a result, the Group needs
to raise new equity in order to enable the successful delivery of the
Group’s new strategy while at the same time managing liquidity.
With this in mind the Group is proposing to raise up to £150m of
equity through a firm placing and open offer in order to reduce
net debt and strengthen the Group’s balance sheet. Alongside
the proposed equity raising the Group is currently engaged in
discussions with its Revolving Credit Facility (RCF) lenders and private
placement noteholders with a view to agreeing amended terms in
respect of the Group’s RCF and private placement debt.
Detailed discussions with the Group’s RCF lenders and private
placement noteholders are ongoing and we expect to reach
agreement on amended terms in respect of the RCF and private
placement debt, which may include the following key conditions:
■■ An equity issuance timetable including receipt of proceeds of an
amount of at least £100m by no later than 29th July 2020;
■■ An extension of the maturity of the RCF in order to meet the
Group’s on-going working capital requirements;
■■ A new covenant package which will support an equity raise;
■■ Dividend restrictions until leverage reaches certain levels;
■■ An event of default if the Group’s equity raising fails and/or
related key milestones are not reached, triggering a requirement
for the Group to present an alternative deleveraging plan
for consideration by the RCF lenders and private placement
1 Based on GBP:EUR foreign exchange rate of 1.191, as at 31 January 2020
noteholders. A deleveraging plan could result in, without
limitation and if the consent of the RCF lenders and private
placement noteholders is obtained, potential disposals or a
merger or acquisition transaction to ensure an acceptable
deleveraging of the Group’s Balance Sheet; and
■■ Opportunity to explore additional Government funding facilities
both in the UK and in Europe to further support the Group.
We have assumed that terms for the revised financing structure
will be agreed and that the Group and its RCF lenders and private
placement noteholders are able to successfully document such
terms in substantive and binding documentation.
Pending the entry into such documentation, the Group has sought
to obtain a waiver of the Consolidated Net Worth (CNW) covenant
contained in the private placement notes in respect of any testing
thereof in the period from 28 May 2020 until 1 August 2020 (subject
to certain events not occurring in that period). Such waiver includes,
without limitation, CNW as at 31 December 2019 on the basis of the
Group’s audited financial statements in respect of the period ending
31 December 2019.
As outlined above, the Group is seeking to raise up to £150m of
equity through a firm placing and placing and open offer in order
to reduce net debt and strengthen the Group’s balance sheet.
The equity raising process is expected to complete by 8 July 2020
however will require prior approval by shareholders. The additional
funds raised will seek to create an appropriate balance sheet
structure and prevent investment being constrained and business
decisions being influenced by a focus on leverage and covenant
management, which could otherwise lead to managing the business
in a manner that may cause detriment to the longer term prospects
and the interests of the Group’s shareholders.
In parallel to the discussions with the RCF lenders and private
placement noteholders, as outlined above, the Group has been in
discussions with, and received confirmation from IKO, the Company’s
largest shareholder of their support for the equity raise, and a
conditional commitment from CD&R, a new cornerstone investor
to participate in the equity issuance.
■■ IKO, which currently owns approximately 15 per cent of the
issued ordinary share capital of the Company, has confirmed that
it is fully supportive of the Company’s new strategy and equity
raise and are intending to take up their pro-rata entitlements in
full as part of the open offer.
■■ CD&R, a leading global private equity manager has agreed to
invest up to £85m as part of the equity raise, with a guaranteed
minimum of £72.5m, provided that an acceptable deal with
the Group’s RCF lenders and private placement noteholders is
agreed. While the exact percentage holding will be determined
in due course, CD&R will hold approximately 25% of the total
enlarged issue share capital. The initial tranche of its participation
will be placed at 25p per share. The residual quantum of its
equity investment will be placed as part of the second tranche,
a portion of which will be firm placed and the outcome of the
remainder will be dependent on the take up of the pre-emptive
offer by existing shareholders.
Whilst the Group has reason to believe that the equity raise will be
successful based on the above confirmation of support from IKO
and conditional commitment from CD&R to participate in the equity
raise, at the time of publication of this report the outcome of the
equity raising is uncertain.
If an equity raise in line with the above-mentioned timing is not
successful, then the Group will have to take mitigating actions,
including further discussions with the RCF lenders and the private
placement noteholders regarding the basis upon which they may
be willing to continue to support the Group (including the need
141
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
for covenant waivers and access to further liquidity). Alternatives
could include the option to conduct a post-summer equity raise (if
available) or further disposals of assets (such as the disposal of one
or more of the Group’s operating businesses to facilitate a reduction
of the Group’s outstanding indebtedness) or a merger or acquisition
transaction involving the Company (in each case if the consent of the
RCF lenders and private placement noteholders is obtained). There
remains the possibility of other investors interested in buying the
company’s shares outright should an alternative funding scenario be
required.
In addition to the matters set out above, the COVID-19 virus has
added additional uncertainty to the Group’s liquidity position as
Government restrictions in the UK and Ireland, applied from late
March 2020, resulted in swathes of construction activity stopping
and impacting the Group’s sales. To protect the health, safety and
wellbeing of staff, the majority of the Group’s UK and Irish sites were
substantially closed in April although a phased return to work has
since begun. In March, the Group’s French operating company was
briefly closed following government guidance although sites were
permitted to be reopened shortly afterwards, and trading in France
continues to build to pre-COVID-19 levels. However, the Directors
believe the Group will be able to continue to manage through the
current COVID-19 uncertainty, particularly given the experience of
the Group’s operating companies in Benelux, Germany and Poland
which have continued to trade well despite government lockdown
guidance.
Comprehensive actions have been taken across the Group to
reduce costs and manage liquidity, including the furloughing, for
April and much of May, of approximately 2000 employees across
the UK and Ireland during the shutdown period, short-time working
in France, maximising opportunities to defer VAT, PAYE and other
tax payments, temporary Board and employee salary reductions,
stopping or postponing capex investment and cancellation of the
2019 final dividend. Government loan support both in the UK and
Europe remains a route potentially available if required. These
actions to reduce costs and manage liquidity during the COVID-19
crisis have resulted in the Group managing its liquidity position with
cashflow forecast projections improved from initial expectations.
Despite the benefits of these actions, ongoing significant revenue
reductions beyond the scenarios which have been modelled could
lead to the Group’s liquidity falling below the minimum required
levels such that alternative deleveraging plans which have been
considered would need to be implemented.
Accordingly, at the time of signing these financial statements, there
remain several material uncertainties related to events or conditions
that may cast significant doubt on the Group’s ability to continue as
a going concern and, therefore, it may be unable to realise its assets
and discharge its liabilities in the normal course of business.
In forming an assessment of the Group’s ability to continue as
a going concern, the Board has identified the following material
uncertainties and made significant judgements about:
■■ The Group successfully agreeing outline terms with its RCF
lenders and private placement noteholders (and the RCF lenders
and private placement noteholders obtaining credit approval of
the same).
■■ The Group, together with its RCF lenders and private placement
noteholders, successfully documenting such terms in substantive
and binding documentation.
■■ Achieving a successful equity raise of up to £150m in line with
the above-mentioned timing, which entails the approval of a
prospectus by the FCA, approval by shareholders at a General
Meeting and securing appetite for the necessary investment.
■■ Whether, in the event the Group does not achieve a successful
equity raise, the RCF lenders and the private placement
noteholders will continue to support the Group in the short
term in order to allow the Group to complete the execution
of alternative plans (a secondary equity window or alternative
deleveraging plans including further disposals or a merger or
acquisition transaction).
■■ The forecast cashflow of the Group over the next 12 months
upon signing the financial statements depends on the Group’s
ability to continue to successfully manage through the current
uncertain trading environment related to COVID-19.
■■ The Group’s ability to implement the new strategy and deliver
a stronger business which is more sales led in a relatively short
period and do so in a period of economic uncertainty.
After careful consideration of these, and an assessment of the
likelihood of a positive outcome, the Directors believe that it is
appropriate to prepare the financial statements on a going concern
basis. The financial statements do not reflect any adjustments that
would be required to be made if they were prepared on a basis
other than the going concern basis.
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 qualifying partnership, The SIG 2018 Scottish
Limited Partnership, which is included in these consolidated
financial statements, is entitled to exemption from the requirements
of Regulations 4 to 6 of Part 2 of The Partnerships (Accounts)
Regulations 2008 in relation to preparation and audit of annual
financial statements of the partnership.
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.
142
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Prior year restatements
Following a review of the 2018 Annual Report and Accounts by the
Financial Reporting Council the Group has identified an error in
the 2018 Consolidated cash flow statement. This is corrected by
a prior year restatement to previously reported numbers in these
Financial Statements. The error relates to the classification of cash
flows in relation to the settlement of amounts payable for previous
purchases of business. £6.0m of the £17.2m cash outflow in 2018
related to consideration dependent on vendors remaining within
the business and should have been classified as an operating cash
flow rather than an investing cash flow. The restatement results in a
reduction in cash generated from operating activities from £109.6m
to £103.6m and a reduction in settlement of amounts payable for
previous purchases of businesses within cash flows from investing
activities from £17.2m to £11.2m, resulting in a reduction in net
cash generated from operating activities from £95.6m to £89.6m
and a corresponding increase in net cash generated from investing
activities from £2.0m to £8.0m. There is no impact on profit before
tax, net assets or net cash flow.
New standards, interpretations and
amendments adopted
The Group has applied IFRS 16 for the first time. The nature and
effect of the changes as a result of adoption of this new accounting
standard is described below.
Several other amendments and interpretations apply for the first
time in 2019, but do not have an impact on the consolidated
financial statements of the Group. The Group has not early adopted
any standards, interpretations or amendments that have been
issued but are not yet effective.
IFRS 16 “Leases”
IFRS 16 removes the distinction between finance and operating
leases and brings virtually all leases onto the balance sheet. The
standard has no effect on cash flows for the Group but does have
a significant impact on the way the assets, liabilities and the income
statement of the Group are presented, as well as the classification of
cash flows relating to lease contracts.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application is
recognised in retained earnings at 1 January 2019. Accordingly, the
comparative information for the 2018 reporting period has not been
restated, as permitted under the specific transitional provisions
in the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
As permitted by the standard, the Group has elected not to reassess
whether a contract is, or contains, a lease at the date of initial
application. Instead, for contracts entered into before the transition
date the Group relied on its assessment made applying IAS 17 and
IFRIC 4 Determining whether an Arrangement contains a Lease.
a) The Group’s leasing activities
The Group leases various offices, warehouses, branches, equipment
and cars. Rental contracts are typically made for fixed periods of 3 to
10 years but may have extension or early termination options. Lease
terms are negotiated on an individual basis and contain a wide
range of different terms and conditions. The lease agreements do
not impose any covenants.
b) How leases are accounted for
Prior to the transition of IFRS 16 the Group classified leases as either
finance or operating leases. Payments made under operating leases
(net of any incentives received from the lessor) were charged to
profit or loss on a straight-line basis over the period of the lease.
IFRS 16 eliminates the classification of leases as either operating
leases or finance leases for lessees and introduces a single lease
accounting model where leases are recognised as a right-of-use
asset and corresponding liability at the commencement date of a
lease. IFRS 16 replaces the straight-line operating lease expense
with a depreciation charge for right-of-use assets and an interest
expense on lease liabilities.
A lease liability is recognised based on the discounted present value
of total future lease payments, with a corresponding right-of-use
asset recognised and depreciated over the lease term. The lease
payments are discounted using the interest rate implicit in the
lease, or, if that rate cannot be determined, the lessee’s incremental
borrowing rate.
Where a lease liability relates to an onerous lease contract the
right-of-use asset is assessed for impairment. Payments due under
the lease continue to be included in the lease liability, therefore
a separate provision is no longer required. The lease liability is
also remeasured upon the occurrence of certain events, which is
generally also recognised as an adjustment to the right of-use asset.
Provisions for short-term onerous lease contracts continue to be
recognised.
i) Definition of a lease
A lease is a contract (i.e. an agreement between two or more parties
that creates enforceable rights and obligations), or part of a contract,
that conveys the right to control the use of an identified asset for
a period of time in exchange for consideration. It is determined
whether a contract is a lease or contains a lease at the inception of
the contract.
Under IFRS 16, an identified asset can be either implicitly or explicitly
specified in a contract.
ii) Lease term
In accordance with IFRS 16, the lease term is defined as the non-
cancellable period of the lease, together with:
■■ periods covered by an option to extend the lease if the lessee is
reasonably certain to exercise that option; and
■■ periods covered by an option to terminate the lease if the lessee
is reasonably certain not to exercise that option.
iii) Variable lease payments
Variable lease payments based on an index or a rate are part of the
lease liability. Variable lease payments are initially measured using
the index or the rate at the commencement date, or at 1 January
2019 on initial adoption. Forecast future changes in rates are not
included; these are only taken into account at the point in time at
which lease payments change.
The Group has a few property leases where rentals are based on an
index but with a cap and collar, and for such leases the minimum
future increase is included in the initial recognition of the lease
liability where relevant.
Other variable payments, for example additional costs based on
usage or vehicle mileage, are not included in the lease liability.
iv) Asset restoration costs
Where there is an obligation under a lease contract to dismantle
and/or restore the asset to its original condition, provision is made
for this in accordance with IAS 37, and the initial carrying amount of
this provision is added to the right-of-use asset on inception of the
lease. The liability continues to be recorded as a separate provision
on the balance sheet (i.e. it is not included in the IFRS 16 lease
liability).
143
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
v) Finance leases
The accounting for finance leases is consistent under IFRS 16 and the previous accounting standard, and under the transition rules of IFRS 16,
the lease liability and asset for leases previously classified as a finance lease is the carrying value of the lease liability and asset immediately
before the date of transition.
vi) Exemptions
The Group has certain assets with lease terms of 12 months or less and leases of equipment with low value. The Group applies the ‘short-
term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
c) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
■■ The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
■■ The accounting for lease contracts with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;
■■ The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
■■ The option to not reassess whether a contract is, or contains, a lease at 1 January 2019 Instead, the Group applied the standard only to
contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.
d) Adjustments recognised on adoption
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’
under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 January was 3.2%.
For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately
before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application.
Operating lease commitments disclosed as at 31 December 2018
Less: short-term leases recognised on a straight-line basis as an expense
Add: adjustments as a result of different treatment of extension and termination options
Effect from discounting using the lessee’s incremental borrowing rate at the date of initial application
Liabilities additionally recognised based on the initial application of IFRS 16 as at 1 January 2019
Lease liabilities as at 31 December 2018
Lease liabilities recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease
payments relating to that lease recognised in the balance sheet as at 31 December 2018. Right-of use-assets were then tested for
impairment at the date of initial application, in accordance with IAS 36 Impairment of Assets.
Amount of the initial measurement of lease liabilities recognised at 1 January 2019
Less: any rental prepayments/(accruals) made at or before the commencement date
Less: right-of-use assets derecognised due to subleases
Less: impairment of right-of-use assets on initial recognition
Right of use asset additionally recognised based on the initial application of IFRS 16 as of 1 January 2019
Add: assets from finance leases as at 31 December 2018
Right of use asset recognised as at 1 January 2019
2019
£m
295.5
(2.2)
74.8
(61.9)
306.2
23.4
329.6
57.1
272.5
2019
£m
306.2
(1.1)
(5.8)
(4.5)
294.8
18.0
312.8
144
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS The change in the accounting policy affected the following items on the balance sheet at 1 January 2019:
1 January 2019
Prior to IFRS 16
£m
IFRS 16 impact
£m
1 January 2019
Adjusted
£m
–
105.4
–
14.6
477.7
643.2
1,240.9
428.3
23.4
31.4
1.4
293.5
778.0
462.9
(68.3)
531.2
462.9
312.8
(18.0)
5.8
–
(3.7)
–
296.9
(4.8)
306.2
(3.9)
–
–
297.5
(0.6)
(0.6)
–
(0.6)
312.8
87.4
5.8
14.6
474.0
643.2
1,537.8
423.5
329.6
27.5
1.4
293.5
1,075.5
462.3
(68.9)
531.2
462.3
The impact on profit before tax for the year ended 31 December
2019 is as follows:
Continuing operations
Operating profit
Net finance costs
Underlying profit before tax
Other items
Profit before tax
As reported
£m
39.6
(24.0)
15.6
(128.3)
(112.7)
IFRS 16
Impact
£m
(6.1)
11.1
5.0
1.6
6.6
Excluding
IFRS 16
Impact
£m
33.5
(12.9)
20.6
(126.7)
(106.1)
Statutory loss per share increased by 0.9p per share and underlying
earnings per share decreased by 0.7p per share for the year to 31
December 2019 as a result of the adoption of IFRS 16.
Cash flow from operating activities increased by £67.9m and cash
outflows from financing activities increased by the same amount,
relating to the decrease in operating lease payments and increases
in principal and interest payments of lease liabilities. The interest
element of lease payments is included within finance costs paid.
Right-of-use assets
Property, plant and equipment
Lease receivables
Deferred tax assets
Trade and other receivables
Other assets
Total assets
Trade and other payables
Lease liabilities
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets
Capital and reserves
Retained losses
Other capital and reserves
Total equity
■■ Right-of-use assets were recognised and presented separately
in the statement of financial position. Lease assets recognised
previously under finance leases, which were included in Property,
plant and equipment, were reclassified to right-of-use assets,
with the exception of a finance lease classified as an investment
property which remains within Property, plant and equipment.
■■ Additional lease liabilities were recognised and presented in
the statement of financial position, in addition to lease liabilities
previously recognised in relation to obligations under finance
lease contracts.
■■ Lease receivables were recognised in relation to subleases
previously classified as operating leases
■■ Trade and other receivables and trade and other payables
related to previous operating leases were derecognised
■■ Retained earnings decreased due to the net impact of these
adjustments
e) Impact for the period
As a result of initially applying IFRS 16, in relation to the leases that
were previously classified as operating leases, the Group recognised
£244.4m of right-of-use assets and £260.5m of lease liabilities as at
31 December 2019 (excluding disposal groups held for sale at 31
December 2019), resulting in total right-of-use assets of £255.2m
and lease liabilities of £275.6m including leases that were previously
classified as finance leases.
In addition, in relation to those leases under IFRS 16, the Group has
recognised depreciation and interest costs, instead of an operating
lease expense. During the year ended 31 December 2019, the
Group recognised £50.3m of depreciation charges and £11.1m of
interest cost from these leases (underlying and from continuing
operations).
145
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
One business has been classified as a discontinued operation in
2019 as it represents a separate major line of business of the Group
and therefore meets the disclosure criteria under International
Accounting Standards. Other businesses classified as non-core in
2019 or 2018 are included within continuing operations. 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 2018 have been re-analysed to present net
operating profits of £4.3m attributable to businesses classified as
non-core during 2019 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. Right-of-use assets recognised on adoption
of IFRS 16 are included in the carrying amount of the CGU, with
cash flows and discount rates adapted accordingly to calculate value
in use on a consistent basis. 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.
Other amendments
The following other potentially relevant amendments and
interpretations apply for the first time in 2019, but have not had a
material impact on the Financial Statements of the Group:
■■ IFRIC Interpretation 23 “Uncertainty over Income Tax Treatment”
■■ Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
■■ Annual Improvements 2015-2017 Cycle
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
i)
The Interpretation addresses the accounting for income taxes when
tax treatments involve uncertainty that affects the application of IAS
12 Income Taxes. It does not apply to taxes or levies outside the
scope of IAS 12, nor does it specifically include requirements relating
to interest and penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:
■■ Whether an entity considers uncertain tax treatments separately;
■■ The assumptions an entity makes about the examination of tax
treatments by taxation authorities;
■■ How an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates; and
■■ How an entity considers changes in facts and circumstances.
The Group determines whether to consider each uncertain tax
treatment separately or together with one or more other uncertain
tax treatments and uses the approach that better predicts the
resolution of the uncertainty.
New standards, amendments and interpretations
not yet adopted
At the date of authorisation of these Financial Statements, there are
no significant standards and interpretations, which are in issue 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.
146
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Non-current assets (or disposal groups) held
for sale and discontinued operations
Non-current assets (or disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair values less costs
to sell. Assets and liabilities classified as held for sale are presented
separately as current items in the statement of financial position.
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.
A disposal group qualifies as a discontinued operation if it is a
component of an entity that has either been disposed of, or is
classified as held for sale, and:
■■ represents a separate major line of business or geographical
area of operations;
■■ is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations; or
■■ is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing
operations and are presented as a single amount as profit or loss
after tax from discontinued operations in the statement of profit
or loss. Additional disclosures are provided in Note 12. All other
notes to the financial statements include amounts for continuing
operations, unless indicated otherwise.
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.
147
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
■■ Profits and losses on agreed sale or closure of non-core
■■ Other items within finance income and finance costs
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 by 31
December 2019. 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.
■■ Costs incurred in connection with the agreed disposal of
the Air Handling business
Costs incurred in connection with the agreed disposal of the
Air Handling business, which is classified as a discontinued
operation in 2019, are significant in size and do not relate to the
ongoing trading activities of the Group. These costs are included
within Other items but are presented with the results of the Air
Handling business within the profit after tax from discontinued
operations in order to provide a better understanding of the
ongoing financial performance of the Group.
■■ Investment in omnichannel retailing
Costs incurred in the year in relation to the Group’s investment in
developing an omnichannel retailing platform have been included
within “Other items” as they are significant in size and do not
relate to the ongoing trading activities of the Group.
■■ Other specific items
Other specific items 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.
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.
■■ Taxation
The taxation effect of Other items, the effect of the change in
rates of taxation on deferred tax and tax adjustments in respect
of previous years’ Other items are shown within Other items
in order to enhance the understanding of the underlying tax
position of the Group.
The prior year comparatives have been reclassified to include
in Other items the revenue, results and associated taxation of
businesses that have been identified as non-core since the signing
of the 2018 Financial Statements.
Revenue 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.
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.
Standard payment terms vary across the different businesses but
generally range from 8 to 60 days from end of month. The amount
of revenue recognised is impacted by the following:
Volume rebates
The Group provides retrospective volume rebates to certain
customers, which give rise to variable consideration.
The Group estimates the expected volume rebates using
an expected value approach based on expected volumes
and thresholds in the contracts. The Group then applies the
requirements on constraining estimates of variable consideration
and revenue is only recognised to the extent that it is highly
probable that a significant reversal will not occur. Expected volume
rebates due to customers are recognised as a reduction to trade
receivables.
Early settlement discounts
Early settlement discounts are estimated using the expected value
approach based on past experience and are 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.
b) Construction contracts
The Group has the following revenue streams which fall under the
category of “construction contracts”:
i) 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 as this reflects the progress towards
satisfaction of the performance obligation.
148
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS
ii) Contracts for provision of industrial services
The Group’s Ireland segment provides industrial painting, coating
and repair services. Revenue from these contracts is recognised
over time, as the entity’s performance enhances a customer-
controlled asset, using an output method to measure progress
towards completion, based on agreed rates and/or valuation
schedules agreed with the customer which confirm the amounts
invoiced each month, depending on individual contract terms.
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, 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. Invoices are
raised as the contract progresses based on agreed milestones,
rates or valuation schedules depending on the terms of individual
contracts, with subsequent payment in accordance with agreed
payment terms.
iii) Manufacture and installation of roofing systems (2018 only)
There is considered to be one performance obligation, being the
installation of the roofing system. Revenue is recognised over time
on a milestone basis, as appropriate terms are included in the
contract to confirm entitlement to payment for performance to date.
The business carrying out these contracts was sold in December
2018 and this revenue stream is not relevant going forwards.
c) 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.
Supplier rebates
Supplier rebate income is significant to the Group’s result, with a
substantial proportion of purchases covered by rebate agreements.
Some supplier rebate agreements are non-coterminous with the
Group’s financial year, and firm confirmation of amounts due may
not be received until six months after the balance sheet date.
Where the Group relies on estimates, these are made with reference
to contracts or other agreements, management forecasts and
detailed operational workbooks. Supplier rebate income estimates
are regularly reviewed by senior management.
Outstanding amounts at the balance sheet date are included in
trade payables when the Group has the right to offset against
amounts owing to the supplier and therefore settles on a net basis,
in line with IAS 32 criteria. Where the supplier rebates are not netted
off the amounts owing to that supplier, the outstanding amount
is included within prepayments and accrued income. The carrying
value of inventory is reduced by the associated amount where the
inventory has yet to be sold at the balance sheet date.
Operating profit
Operating profit is stated after charging distribution costs, selling
and marketing costs and administrative expenses, but before
finance income and finance costs.
Taxation
Income tax on the profit or loss for the periods presented comprises
both current and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates
to items recognised directly in equity, in which case it is recognised
in the Consolidated Statement of Comprehensive Income or the
Statement of Changes in Equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates that have been enacted by the balance
sheet date, and any adjustment to tax payable in respect of previous
years.
Current tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Deferred tax is provided using the balance sheet liability method,
providing for all temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes.
In accordance with IAS 12, the following temporary differences are
not provided for:
■■ goodwill not deductible for taxation purposes;
■■ the initial recognition of assets or liabilities that affect neither
accounting nor taxable profit; or
■■ differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future and
the Group is able to control the reversal.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted by
the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will
be realised.
Share-based payment transactions
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.
149
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
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.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction
or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such a time as
the assets are substantially ready for their intended use or sale. All
other borrowing costs are recognised in the Consolidated Income
Statement in the period in which they are incurred.
Interest income is recognised when it is probable that the economic
benefits will flow to the Group and the amount of revenue can be
measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest
rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset
to that asset’s net carrying amount on initial recognition.
Leases and hire purchase agreements
For the year ended 31 December 2019, leases and hire purchase
agreements are recognised in accordance with IFRS 16 “Leases”
as described in the section “New standards, interpretations and
amendments adopted”. This section also describes the changes
as a result of adopting the new standard in the current year. The
new standard has been applied using the modified retrospective
approach and accordingly the comparative information for the year
ended 31 December 2018 has not been restated.
The policy applied for the year ended 31 December 2018 is as
follows:
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.
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
Customer relationships Life of the relationship
Non-compete contracts Life of the contract
Computer software
Useful life of the software 3-10 years
Current estimate
of useful life
7 years
3 years
Assets in the course of construction are carried at cost, with
amortisation commencing once the assets are ready for their
intended use.
Property, plant and equipment
Property, plant and equipment is shown at original cost to the Group
less accumulated depreciation and any provision for impairment.
Depreciation is provided at rates calculated to write off the cost less
the estimated residual value of property, plant and equipment on a
straight-line basis over their estimated useful lives as follows:
Freehold buildings
Leasehold buildings
Plant and machinery
(including motor vehicles)
Freehold land is not depreciated.
Current estimate of useful life
50 years
Period of lease
3-8 years or length of lease
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.
150
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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. Most businesses use weighted average, with the
exception of Poland and Ireland where first in first out is used.
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 20.
Financial assets
Financial assets are classified as either financial assets subsequently
measured at amortised cost, fair value through profit and loss
(“FVPL”) or fair value through other comprehensive income (“FVOCI”).
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 measures financial assets at amortised cost if both 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.
The Group’s financial assets are all measured at amortised cost,
except for derivative financial instruments.
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.
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.
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.
151
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
■■ 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 cash flow hedging 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. The Group designates only the spot element of
forward contracts as a hedging instrument. The forward element
is recognised in OCI and accumulated in a separate component of
equity under cost of hedging reserve.
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 foreign currency
translation reserve are recognised immediately in the Consolidated
Income Statement when foreign operations are disposed of.
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 probably 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.
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:
152
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Dividends
Dividends proposed by the Board of Directors that have not been
paid by the end of the year are not recognised in the Financial
Statements until they have been approved by the Shareholders at
the Annual General Meeting.
Segment reporting
In accordance with IFRS 8 “Operating Segments”, the Group identifies
its reportable segments based on the components of the business
on which financial information is regularly reviewed by the Group’s
Chief Operating Decision Maker (‘CODM’) to assess performance
and make decisions about how resources are allocated. For SIG, the
CODM is considered to be the Executive Committee. During the year
the Group has changed the way in which information is presented
and reviewed by the CODM in respect of the French operations
which is now reported as two segments France Distribution (LiTT)
and France Exteriors (Larivière) to reflect the line of business
analysis of Specialist Distribution and Roofing Merchanting. The
Group’s reported operating segments are UK Distribution, UK
Exteriors, Ireland, France Distribution (LiTT), France Exteriors
(Larivière), Germany (WeGo/VTi), Benelux and Poland. The Group
has also re-presented the analysis of operating segments by line of
business between Specialist Distribution and Roofing Merchanting,
previously grouped as UK & Ireland and Mainland Europe, to
better reflect the strategic direction of the Group. Air Handling was
previously a reported operating segment but has been classified as a
discontinued operation in 2019. Prior year comparatives have been
restated to be consistent with the current year presentation.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that a
transfer of economic benefit will be required to settle the obligation
and a reliable estimate can be made of the obligation. If the effect
of the time value of money is material, provisions are discounted
using a current pre-tax rate that reflects, when appropriate, the risks
specific to the liability. When discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
Leasehold dilapidations
Provisions are recognised in relation 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 a
corresponding fixed asset, and the liability to rectify general wear
and tear which is recognised as incurred over the life of the lease.
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 comprises 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.
153
Stock code: SHIwww.sigplc.comFINANCIALS Statement of Significant Accounting Policies
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are
described on pages 141 to 153, 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 are the critical judgements that the Directors have
made in the process of applying the Group’s accounting policies and
that have 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
33 of the Financial Statements) do not form part of the ongoing
trading activities of the Group and are therefore also recorded
separately in Other items in order to enhance the understanding
of the ongoing financial performance of the Group. The nature and
amounts of the items included in Other items, together with the
overall impact on the results for the year, is disclosed in Note 2 of
the Financial Statements.
Discontinued operations and assets held for sale
On 7 October 2019 the Group announced the sale of the Air
Handling and Building Solutions businesses. The sale of the Air
Handling business completed on 31st January 2020. The business
is considered to meet the criteria to be classified as held for sale at
31 December 2019 on the basis that a sale has been agreed and is
considered highly probable, which is confirmed by completion of the
sale subsequent to the year end. The Air Handling business is also
considered to meet the definition of a discontinued operation as it
is a major line of business of the Group. The results of the business
are therefore presented separately on the face of the Consolidated
Income Statement. Further information on the discontinued
operation is included in Note 12 of the Financial Statements.
The sale of the Building Solutions business was conditional upon
the approval of the UK Competition & Markets Authority (“CMA”).
Completion was considered highly probably at the balance sheet
date and the business is therefore recognised as held for sale at
31 December 2019. The business is not considered to meet the
definition of a discontinued operation as it is not a major line of the
business of the Group. On 21 May 2020 it was announced that the
parties have agreed to terminate the sale agreement as terms could
not be agreed for the extension of the agreement to enable the
completion of the CMA investigation, and the disposal will no longer
proceed. This is a non-adjusting post balance sheet event and the
business remains classified as held for sale at the balance sheet
date. Further information is included in Note 11 and Note 34 of the
Financial Statements.
Determining the lease term in accordance
with IFRS 16
The Group determines the lease term as the non-cancellable term of
the lease, together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease, if it is reasonably
certain not to be exercised. The Group has several lease contracts
that include extension and termination options. The Group applies
judgement in evaluating whether it is reasonably certain whether
or not to exercise the option to renew or terminate the lease,
considering all relevant factors that create an economic incentive
for it to exercise either the renewal or termination. After the
commencement date, the Group reassesses the lease term if there
is a significant event or change in circumstances that is within its
control and affects its ability to exercise or not to exercise the option
to renew or terminate. The Group has a number of property leases
with automatic right of renewal after the initial expiry date, with no
specific renewal term. The Group applies judgement in determining
the appropriate renewal period to include in the lease term,
considering all relevant factors including past experience, overall
property strategy and specific circumstances regarding individual
properties where appropriate. Refer to Note 25 for information on
potential future rental payments relating to periods following the
exercise date of extension and termination options that are not
included in the lease term.
Presentation of private placement debt
At 31 December 2019, private placement notes of £175.5m have
been reclassified as a currently liability on the balance sheet because
the covenant test of consolidated net worth at 31 December 2019
is below the threshold of £400m (see Note 33h of the Consolidated
Financial Statements). From an accounting perspective at the
balance sheet date the Company did not have an unconditional right
to defer settlement of the liability for at least 12 months. Therefore,
as required by IAS 1 “Presentation of financial statements”, the entire
private placement notes balance is presented as a current liability at
31 December 2019. Under the terms of the private placement note
agreement no event of default arose and testing of the covenant as
at 31 December 2019 has been waived and thus the notes did not
become repayable or capable of being declared immediately due
and payable, hence as at 31 December 2019 the only contractual
requirement to repay the debt in the next twelve months is the
scheduled loan repayment in October 2020.
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. The
Group has recognised income from supplier rebates of £245.2m
from continuing operations for the year ended 31 December 2019
(2018: £314.2m). At 31 December 2019 trade payables is presented
net of £38.0m (2018: £52.8m) 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 £42.4m
(2018: £59.3m) due in relation to supplier rebates where there is no
154
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS right to offset against trade payable balances. The majority of these
balances now relate to agreements which are coterminous with the
financial year end and therefore this reduces the level of estimation
involved. Based on experience in the current year, the amount
received is not expected to vary from the amount recorded by more
than £1.0m.
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 153, in accordance with IAS 19, all actuarial gains and losses
have been recognised immediately through the Consolidated
Statement of Comprehensive Income.
For all defined benefit pension schemes, pension valuations have
been performed using specialist advice obtained from independent
qualified actuaries. In performing these valuations, significant
actuarial assumptions have been made to determine the defined
benefit obligation, in particular with regard to discount rate, inflation
and mortality. Management considers the key assumption to be
the discount rate applied. In determining the appropriate discount
rate, the Group considers the interest rates of high quality corporate
bonds excluding university bonds. If the discount rate were to be
increased/decreased by 0.1%, this would decrease/increase the
Group’s gross pension scheme deficit by £3.1m as disclosed in
Note 30c. At 31 December 2019 the Group’s retirement benefit
obligations were £24.8m (2018: £28.7m).
Impairment of goodwill
The Group tests goodwill 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,
including all related assets. The key estimates made in the value
in use calculation are those regarding discount rates, sales growth
rates, and expected changes to selling prices and direct costs
to reflect the operational gearing of the business. The Directors
estimate discount rates using pre-tax rates that reflect current
market assessments of the time value of money for the Group.
For the majority of the CGUs, the Group performs goodwill
impairment reviews by forecasting cash flows based upon the
following year’s budget, which anticipates sales growth, and a
projection of cash flows based upon industry growth expectations
(1.5%-3.4%) over a further period of four years. Where detailed
three to five year forecasts for a CGU have been prepared and
approved by the Board, which can include higher growth rates or
varied results reflecting specific economic factors, these are used
in preparing cash flow forecasts for impairment review purposes.
After this period, the sales growth applied to the cash flow forecasts
and operating profit growth is no more than 2.7% in perpetuity. The
discount rates applied to all CGUs represent pre-tax rates.
Assumptions regarding sales and operating profit growth, gross
margin, and discount rate are considered to be the key areas of
estimation in the impairment review process, and appropriate
sensitivities have been performed and disclosed in Note 13.
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
2019 is £515.1m (2018: £445.5m) including right-of-use assets
recognised in accordance with IFRS 16 at 31 December 2019. The
most recent results of the impairment review process are disclosed
in Note 13. An impairment charge of £89.6m has been recognised
in relation to two CGUs, UK Distribution and France Exteriors
(Larivière). The carrying value of non-current assets associated
with the Group’s other CGU’s is 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 included in the Consolidated
Balance Sheet could become impaired further. The remaining
carrying value of goodwill after recognition of the impairment
charge is £159.0m. Sensitivities are disclosed in Note 13. These
indicate reasonably possible scenarios which could lead to further
impairment.
Provisions against receivables
At 31 December 2019 the Group has recognised trade receivables
with a carrying value of £223.6m (2018: £384.3m). 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 2019. The total allowance for expected credit
losses recorded at 31 December 2019 is £19.5m (2018: £31.4m).
The bad debt to sales ratio of the Group has varied by up to 0.1%
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 17.
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 £21.8m at 31 December 2019 (2018:
£20.9m) in relation to this obligation (see Note 23). 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. The amount payable is not expected to
be materially different to the amount provided in the following year
but there could be a material adjustment over a longer timescale.
The provision is reassessed each year on the basis of latest
information, which could also result in a change in the value of the
provision year on year of up to c.10% based on past experience.
Leases – estimating the incremental
borrowing rate
The Group cannot readily determine the interest rate implicit in
the lease, therefore, it uses its incremental borrowing rate (IBR)
to measure lease liabilities. The IBR is the rate of interest that the
Group would have to pay to borrow over a similar term and with a
similar security, the funds necessary to obtain an asset of a similar
value to the right-of-use asset in a similar economic environment.
The IBR therefore requires estimation when no observable rates are
available, such as for subsidiaries that do not enter into financing
transactions. The Group estimates the IBR using observable inputs,
such as market interest rates, when available and is required to
make certain entity-specific estimates, such as the subsidiary’s
stand-alone credit rating.
155
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
1 Revenue and segmental information
Revenue
Specialist Distribution
Roofing Merchanting
UK
Distribution
£m
Ireland
£m
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi)
£m
Poland
£m
Benelux
£m
Total
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total
£m
Eliminations
£m
Total
£m
515.4
–
56.4
38.5
184.5
–
381.5 149.6
–
–
103.0 1,390.4
38.5
–
–
288.2
–
342.2
–
630.4
–
–
1,390.4
668.9
18.9
11.9
–
–
–
0.1
–
1.0
6.5
–
–
0.1
25.4
13.1
–
9.1
–
0.2
–
9.3
–
(22.4)
25.4
–
546.2
94.9
184.6
382.5 156.1
103.1 1,467.4
297.3
342.4
639.7
(22.4)
2,084.7
1.2
547.4
–
94.9
–
184.6
14.5
–
397.0 156.1
–
15.7
103.1 1,483.1
58.3
355.6
1.9
344.3
60.2
699.9
–
(22.4)
75.9
2,160.6
547.4
–
547.4
88.7
6.2
94.9
184.6
–
184.6
397.0 156.1
–
397.0 156.1
–
103.1 1,476.9
6.2
103.1 1,483.1
–
355.6
–
355.6
344.3
–
344.3
699.9
–
699.9
(22.4)
–
(22.4)
2,154.4
6.2
2,160.6
547.4
88.7
184.6
397.0 156.1
103.1 1,476.9
355.6
344.3
699.9
(22.4)
2,154.4
–
547.4
6.2
94.9
–
184.6
–
–
397.0 156.1
–
6.2
103.1 1,483.1
–
355.6
–
344.3
–
699.9
–
(22.4)
6.2
2,160.6
2019
Type of product
Interiors
Exteriors
Heating, ventilation and
air conditioning
Inter-segment revenue^
Total underlying
revenue
Revenue attributable to
businesses identified as
non-core*
Total
Nature of revenue
Goods for resale
Construction contracts
Total
Timing of revenue
recognition
Goods transferred at a
point in time
Goods and services
transferred over time
Total
^ Inter-segment revenue is charged at the prevailing market rates.
* Revenue attributable to businesses identified as non-core: £15.7m relates to interiors and £60.2m to exteriors product types.
UK
Distribution
£m
Ireland
£m
Specialist Distribution
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi)
£m
Poland
£m
Benelux
£m
Total
£m
Roofing Merchanting
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total
£m
Eliminations
£m
Total
£m
680.1
–
60.6
39.2
175.4
–
403.4 151.0
–
–
108.4 1,578.9
39.2
–
–
321.9
–
344.7
–
666.6
–
–
1,578.9
705.8
–
10.2
0.1
0.6
–
–
–
0.2
5.6
–
–
0.3
5.7
11.3
–
3.7
–
9.5
–
13.2
–
(24.5)
5.7
–
690.3
100.5
175.4
403.6 156.6
108.7 1,635.1
325.6
354.2
679.8
(24.5)
2,290.4
51.5
741.8
3.5
104.0
–
175.4
23.5
–
427.1 156.6
–
78.5
108.7 1,713.6
60.2
385.8
2.7
356.9
62.9
742.7
–
(24.5)
141.4
2,431.8
717.8
24.0
741.8
96.0
8.0
104.0
175.4
–
175.4
427.1 156.6
–
427.1 156.6
–
108.7 1,681.6
32.0
108.7 1,713.6
–
385.8
–
385.8
356.9
–
356.9
742.7
–
742.7
(24.5)
–
(24.5)
2,399.8
32.0
2,431.8
717.8
96.0
175.4
427.1 156.6
108.7 1,681.6
385.8
356.9
742.7
(24.5)
2,399.8
24.0
741.8
8.0
104.0
–
175.4
–
–
427.1 156.6
–
32.0
108.7 1,713.6
–
385.8
–
356.9
–
742.7
–
(24.5)
32.0
2,431.8
2018 (Restated)^^
Type of product
Interiors
Exteriors
Heating, ventilation and
air conditioning
Inter-segment revenue^
Total underlying
revenue
Revenue attributable to
businesses identified as
non-core*
Total
Nature of revenue
Goods for resale
Construction contracts
Total
Timing of revenue
recognition
Goods transferred at a
point in time
Goods and services
transferred over time
Total
^ Inter-segment revenue is charged at the prevailing market rates.
^^ The 2018 results have been restated in order to present the Air Handling business as a discontinued operation. See Note 12 for further details.
* Revenue attributable to businesses identified as non-core: £78.5m to interiors and £62.9m relates to exteriors product types.
156
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Segmental Information
a) Segmental analysis
Specialist Distribution
Roofing Merchanting
UK
Distribution
£m
Ireland
£m
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi)
£m
Poland
£m
Benelux
£m
Total
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total
£m
Eliminations
£m
Total
£m
2019
Revenue
Underlying revenue
534.3
94.9
184.5
381.5
156.1
103.0
1,454.3
288.2
342.2
630.4
–
2,084.7
Revenue attributable to
businesses identified as
non-core
Inter-segment revenue^
1.2
11.9
–
–
–
0.1
14.5
1.0
–
–
–
0.1
15.7
13.1
58.3
9.1
1.9
0.2
60.2
9.3
Total revenue
547.4
94.9
184.6
397.0
156.1
103.1
1,483.1
355.6
344.3
699.9
7.9
6.8
11.2
4.4
4.3
5.2
39.8
8.9
8.6
17.5
(0.9)
(58.2)
–
–
–
–
–
–
–
(0.2)
(1.1)
–
(58.2)
(4.4)
(0.5)
(0.7)
(5.1)
(32.2)
(32.7)
(0.9)
(1.8)
–
6.0
–
–
3.3
(1.6)
(1.6)
(3.2)
–
0.1
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)
Net restructuring costs
Other specific items
0.2
(0.3)
(0.8)
(10.2)
–
–
–
–
–
0.8
(6.6)
(0.1)
–
–
–
–
–
(0.2)
(17.0)
–
(0.2)
2.9
(8.0)
–
(0.9)
(2.1)
(0.2)
2.0
(10.1)
(0.2)
(62.9)
4.7
11.2
4.5
4.3
4.8
(33.4)
(2.7)
(29.1)
(31.8)
Segment operating
profit/(loss)
Parent Company costs
Investment in
omnichannel retailing
Movement in fair value
of forward currency
option
Operating loss
Net finance costs before
Other items
Non-underlying finance
costs
Net fair value losses
on derivative financial
instruments
Unwinding of provision
discounting
Loss before tax
and discontinued
operations
Income tax expense
Profit from discontinued
operations
Non-controlling
interests
Loss for the year
^ Inter-segment revenue is charged at the prevailing market rates.
–
(22.4)
(22.4)
75.9
–
2,160.6
–
–
–
57.3
(6.2)
(90.9)
–
–
–
–
2.0
(27.1)
(0.4)
(65.2)
(17.7)
(5.7)
0.7
(87.9)
(24.0)
(0.8)
–
–
(112.7)
(11.4)
(0.4)
–
(124.5)
157
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
UK
Distribution
£m
Ireland
£m
£m
Specialist Distribution
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi)
£m
Roofing Merchanting
Poland
£m
Benelux
£m
Total
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
Total
£m
Eliminations
£m
Total
£m
2018 (Restated)^^
Revenue
Underlying revenue
680.1
99.9
175.4
403.4
156.6
108.4
1,623.8
321.9
344.7
666.6
–
2,290.4
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)
Net restructuring costs
Other specific items
Segment operating
profit/(loss)
Parent Company costs
Operating profit
Net finance costs before
Other items
Non-underlying finance
costs
Net fair value losses
on derivative financial
instruments
Unwinding of provision
discounting
Profit before tax
and discontinued
operations
Income tax expense
Profit from discontinued
operations
Non-controlling
interests
Profit for the year
51.5
10.2
3.5
0.6
–
–
23.5
0.2
–
–
–
0.3
78.5
11.3
60.2
3.7
2.7
9.5
62.9
13.2
741.8
104.0
175.4
427.1
156.6
108.7
1,713.6
385.8
356.9
742.7
–
141.4
(24.5)
(24.5)
–
2,431.8
23.0
6.1
8.6
7.6
3.3
4.5
53.1
13.8
13.2
27.0
(0.9)
(3.9)
(0.4)
–
–
–
–
(0.1)
–
–
(0.2)
–
(1.5)
(4.0)
(4.8)
–
(0.6)
–
(5.4)
–
–
–
–
80.1
(6.9)
(4.0)
(1.8)
0.4
–
(0.1)
–
–
(1.5)
(4.8)
–
(4.8)
–
(6.3)
4.0
(10.1)
(0.5)
(2.0)
(0.4)
–
–
–
–
1.2
(6.0)
–
–
–
–
–
(1.2)
(0.1)
3.2
(17.7)
(0.6)
3.0
(7.7)
–
(0.7)
(2.3)
(0.7)
2.3
(10.0)
(0.7)
9.8
3.7
8.6
2.6
3.3
3.0
31.0
(0.5)
8.9
8.4
–
–
–
–
5.5
(27.7)
(1.3)
39.4
(13.2)
26.2
(14.7)
(0.7)
(0.3)
(0.2)
10.3
(6.2)
13.8
(0.4)
17.5
^ Inter-segment revenue is charged at the prevailing market rates.
^^ The 2018 results have been restated in order to present the Air Handling business as a discontinued operation. See Note 12 for further details.
158
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 2019
Balance sheet
Assets
Segment assets
Unallocated assets:
Right-of-use assets
Property, plant and equipment
Derivative financial instruments
Cash and cash equivalents
Deferred tax assets
Assets held for sale (Note 11)
Other assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated liabilities:
Private placement notes
Bank loans
Derivative financial instruments
Liabilities held for sale (Note 11)
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 right-of-use assets
Impairment of property, plant and
equipment and computer software
Amortisation of acquired intangibles
and computer software
Impairment of goodwill and intangibles
(excluding computer software)
Specialist Distribution
Roofing Merchanting
UK
Distribution
£m
Ireland
£m
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi) Poland Benelux
£m
£m
£m
Total
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total
£m
Total
£m
268.3
56.0
57.5
154.0
66.5
51.6
653.9
204.1
211.1
415.2
1,069.1
2.9
0.4
2.6
(3.6)
4.4
258.4
13.6
1,347.8
196.9
36.1
54.8
96.4
35.7
16.4
436.3
83.5
97.4
180.9
617.2
175.5
99.6
2.1
115.7
43.5
1,053.6
2.4
5.1
0.7
0.4
–
–
0.8
–
–
1.3
0.1
–
2.2
0.3
–
–
–
–
7.7
5.6
6.5
1.2
–
–
0.9
–
–
7.4
1.2
15.1
6.8
–
–
2.8
5.2
13.8
3.5
2.4
46.8
–
–
–
–
–
–
0.5
0.9
10.6
0.5
10.0
20.6
0.5
1.0
67.4
1.5
–
–
–
0.9
19.1
0.5
0.9
3.5
57.4
–
–
–
–
–
–
–
–
0.1
0.1
0.2
3.9
4.5
0.7
5.2
9.1
–
–
–
57.4
–
33.3
33.3
90.7
159
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
2018 (Restated)^^
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
Specialist Distribution
Roofing Merchanting
UK
Distribution
Ireland
France
Distribution
(LiTT)
Germany
(WeGo/
VTi) Poland Benelux
Total
UK
Exteriors
France
Exteriors
(Larivière)
£m
£m
£m
£m
£m
£m
£m
£m
£m
Total
£m
Total
£m
329.4
37.0
65.6
103.2
58.3
50.8
644.3
218.1
190.4
408.5
1,212.7
2.7
1.9
14.9
3.8
4.9
1,240.9
160.2
17.1
37.7
35.2
29.3
10.8
290.3
77.9
87.1
165.0
507.0
185.6
56.5
4.1
24.8
778.0
4.7
2.0
1.1
2.5
–
–
2.4
–
–
2.2
0.3
–
1.1
0.7
12.2
3.8
–
–
–
–
4.8
–
–
–
3.1
0.2
6.9
0.2
20.0
5.3
–
–
–
5.3
0.9
1.0
2.5
1.1
0.6
11.4
2.4
4.6
7.0
19.7
Impairment of property, plant and
equipment and computer software
Amortisation of acquired intangibles
and computer software
4.4
–
4.4
0.5
–
–
–
–
–
4.4
–
–
–
4.5
0.3
0.1
0.2
5.5
4.8
1.5
6.3
13.3
160
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS
b) Geographic information
The Group's non-current operating assets (including property, plant and equipment, right-of-use assets, goodwill and intangible assets but
excluding deferred tax, derivative financial instruments and deferred consideration) by geographical location are as follows:
2019
Non-current
assets
£m
2018
Non-current
assets
£m
Country
United Kingdom
Ireland
France
Germany
Poland
Benelux
Total underlying
Attributable to businesses identified as non-core
Attributable to businesses held for sale (Note 11)
Total
283.4
15.7
112.0
66.2
14.2
23.4
514.9
0.2
112.9
628.0
*There is no material difference between the basis of preparation of the information reported above and the accounting policies adopted by the Group.
2 Other operating expenses
a) Analysis of other operating expenses
Other operating expenses:
- distribution costs
- selling and marketing costs
- management, administrative and
central costs
- property profits
Before Other
items
£m
2019
Other items
£m
200.9
175.4
123.6
(0.3)
499.6
34.2
7.2
106.0
–
147.4
Before Other
items
£m
2018 (Restated)
Other items
£m
217.1
161.6
135.6
(2.6)
511.7
14.6
6.5
59.6
–
80.7
Total
£m
235.1
182.6
229.6
(0.3)
647.0
248.6
2.8
124.3
14.4
6.3
49.1
445.5
–
–
445.5
Total
£m
231.7
168.1
195.2
(2.6)
592.4
161
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
b) 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):
Amortisation of acquired intangibles
(Note 1a)
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^^
Investment in omnichannel retailing
Other specific items*
Impact on operating profit/(loss)
Non-underlying finance costs
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
Other items
£m
2019
Tax impact
£m
Tax impact
%
Other items
£m
Tax impact
£m
Tax impact
%
2018 (Restated)
(6.2)
(90.9)
1.4
0.2
(22.6)
(0.2)
(6.9)
(4.0)
1.4
–
(20.3)
–
0.1
(0.8)
(800.0)
(6.3)
1.3
(20.6)
2.0
(27.1)
(5.7)
0.3
(127.5)
(0.8)
–
–
(128.3)
–
–
(128.3)
(0.4)
4.4
–
–
4.8
0.1
–
–
4.9
–
(0.4)
4.5
(20.0)
(16.2)
–
–
(3.8)
(12.5)
–
–
(3.8)
–
–
(3.5)
5.5
(27.7)
–
(1.3)
(40.7)
(0.7)
(0.3)
(0.2)
(41.9)
–
–
(41.9)
(1.0)
6.3
–
(0.2)
7.8
0.1
0.1
–
8.0
0.3
(0.1)
8.2
(18.2)
(22.7)
–
15.4
(19.2)
(14.3)
(33.3)
–
(19.1)
–
–
(19.6)
^ Impairment charges comprises £89.6m related to goodwill (Note 13), £0.3m software (Note 14) and £1.0m right-of-use assets (Note 25).
^^ Included within net restructuring costs are property closure costs of £6.0m (2018: £5.5m), redundancy and related staff costs of £9.5m (2018: £11.5m), impairment of non-current assets
due to restructuring of £nil (2018: £0.6m) and £9.6m (2018: £10.1m) in relation to restructuring consultancy costs and £2.0m other costs, all 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:
Movement in fair value of forward
currency option not hedged
Costs in relation to the cyber attack in France
GMP equalisation (Note 30c)
Other specific items
Total other specific items
2019
£m
0.7
(0.6)
–
0.2
0.3
2018
Restated
£m
–
–
(1.0)
(0.3)
(1.3)
The 2018 results have been restated in order to present the Air Handling business as a discontinued operation. See Note 12 for further
details.
162
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 3 Finance income and finance costs
Underlying
£m
2019
Other items
£m
Finance income
Interest on bank deposits
Total finance income
Finance costs
On bank loans, overdrafts and other
associated items^
On private placement notes
On obligations under 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
0.5
0.5
5.5
6.9
11.6
24.0
0.5
–
–
24.5
24.0
–
–
–
–
0.8
0.8
–
–
–
0.8
0.8
Total
£m
0.5
0.5
5.5
6.9
12.4
24.8
0.5
–
–
25.3
24.8
2018 (Restated)
Underlying
£m
Other items
£m
0.5
0.5
6.9
6.8
0.7
14.4
0.5
–
0.3
15.2
14.7
–
–
–
–
0.7
0.7
–
0.2
0.3
1.2
1.2
Total
£m
0.5
0.5
6.9
6.8
1.4
15.1
0.5
0.2
0.6
16.4
15.9
^ Other associated items includes the amortisation of arrangement fees of £0.7m (2018: £0.9m).
* Fair value losses on derivative financial instruments before Other items includes £nil (2018: £0.3m) 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 £nil (2018: £0.3m)
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.
163
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
4 Profit/(loss) before tax
Profit/(loss) before tax is stated after crediting:
Net increase in provision for inventories
Gains on disposal of property, plant and equipment
Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges
(Note 11)
Net operating profits attributable to businesses identified as non-core (Note 11)
Other specific items (Note 2)
And after charging:
Cost of inventories recognised as an expense
Depreciation of property, plant and equipment:
– owned
– held under finance lease agreements
Depreciation of right-of-use assets
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 17)
Foreign exchange rate (gains)/losses
Fair value losses on derivative financial instruments
Unwinding of provision discounting
Impairment charges (Note 2)
Net restructuring costs (Note 2)
Other specific items (Note 2)
Staff costs excluding contingent consideration treated as remuneration (Note 5)
A more detailed analysis of Auditor remuneration is provided below (continuing operations):
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 (continuing operations)
– Audit-related assurance services (including interim review)^
– Other services^
Total non-audit fees
Total fees
2019
£m
0.9
1.4
0.1
2.0
0.9
2018
Restated
£m
5.7
6.3
–
5.5
–
2,116.8
2,488.2
13.1
–
54.4
6.2
3.9
0.8
0.6
2.1
0.2
2.7
(1.3)
–
–
90.9
–
27.1
0.6
268.2
2019
£m
0.6
1.5
2.1
0.2
–
0.2
2.3
12.7
3.3
–
8.9
3.8
47.7
18.6
1.4
0.4
4.3
0.1
0.6
0.2
4.0
6.3
27.7
1.3
305.6
2018
Restated
£m
0.4
1.0
1.4
0.4
–
0.4
1.8
^ 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 101 and 110 provides an explanation of how Auditor objectivity and independence is safeguarded
when non-audit services are provided by the Auditor.
164
Annual Report and Accounts for the year ended 31 December 2019SIG 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 30c)
Redundancy costs
Total staff costs excluding contingent consideration
2019
£m
217.5
42.3
0.1
6.5
1.8
268.2
2018
Restated
£m
253.3
44.9
0.4
7.0
–
305.6
In addition to the above, redundancy and related staff costs of £9.5m (2018: £11.5m) have been included within Other items (Note 2).
Of the pension costs noted above, a charge of £0.2m (2018: £0.1m) relates to defined benefit schemes and a charge of £6.3m (2018: £6.9m)
relates to defined contribution schemes. See Note 30c 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 282 staff that were employed in businesses classified as non-core (2018: 412).
Directors’ emoluments
Details of the individual Directors' emoluments are given in the Directors' Remuneration Report on page 117.
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
6 Income tax
The income tax expense comprises:
Current tax
UK & Ireland corporation tax: - charge for the year
- adjustments in respect of previous years
Mainland Europe corporation
tax:
- charge for the year
- adjustments in respect of previous years
Total current tax
Deferred tax
Current year
Adjustments in respect of previous years
Deferred tax charge in respect of pension schemes
Effect of change in rate
Total deferred tax
Total income tax expense
2019
Number
170
2,555
2,686
1,660
7,071
2019
£m
1.7
–
1.7
2019
£m
0.8
(0.1)
0.7
6.8
2.7
9.5
10.2
5.3
0.8
(3.9)
(1.0)
1.2
11.4
2018
Restated
Number
302
2,641
2,976
1,549
7,468
2018
£m
1.6
–
1.6
2018
Restated
£m
1.3
(0.2)
1.1
6.3
(0.7)
5.6
6.7
(1.5)
0.8
0.5
(0.3)
(0.5)
6.2
165
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
As the Group’s profits and losses are earned across a number of tax jurisdictions an aggregated income tax reconciliation is disclosed,
reflecting the applicable rates for the countries in which the Group operates.
The total tax charge for the year differs from the expected tax using a weighted average tax rate which reflects the applicable statutory
corporate tax rates on the accounting profits/losses in the countries in which the Group operates. The differences are explained in the
following aggregated reconciliation of the income tax expense:
2019
2018 (Restated)
Profit/(loss) before tax from continuing operations
Profit/(loss) before tax from discontinued operations (Note 12)
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**
- deductible temporary differences not recognised for deferred tax purposes
- 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
Income tax expense reported in the consolidated income statement
Income tax attributable to a discontinued operation (Note 12)
%
21.3
(6.9)
4.1
(20.6)
(9.6)
–
(3.4)
(0.1)
0.8
(14.3)
£m
(112.7)
3.8
(108.9)
(23.2)
7.5
(4.5)
22.4
10.5
–
3.7
0.1
(0.9)
15.6
11.4
4.2
15.6
£m
10.3
18.2
28.5
8.8
3.5
(3.7)
2.7
0.3
(0.6)
(0.2)
0.1
(0.3)
10.6
6.2
4.4
10.6
%
30.9
12.3
(13.0)
9.5
1.1
(2.1)
(0.7)
0.4
(1.1)
37.2
^ The majority of the Group’s expenses that are not deductible for tax purposes are in relation to the divestments of businesses, internal restructuring and impairments of property.
* The majority of the Group’s non-taxable income relates to the divestments of businesses.
** During the year the Group incurred impairment charges of £90.3m in relation to goodwill (as set out in Note 13) which are not deductible for tax purposes.
The effective tax rate for the Group on the total loss before tax of £108.9m is negative 14.3% (2018: 37.2%). The effective tax charge for the
Group on profit before tax excluding 'other items' of £19.4m is 103.3% (2018: 26.3%) which comprises a tax charge of 95.8% (2018: 26.6%)
in respect of current year profits and a tax charge of 7.5% (2018: credit of 0.3%) in respect of prior years. The increased current year rate is
predominantly due to unrecognised deferred tax assets (see Note 24) and expenses not deductible for tax purposes.
Factors that will affect the Group's future total tax charge as a percentage of underlying profits are:
- the mix of profits and losses between the tax jurisdictions in which the Group operates; in particular the tax rates in France, Germany and
Belgium are relatively high when compared to the UK and so a higher proportion of profits in these jurisdictions could result in a higher
Group tax charge;
- the impact of non-deductible expenditure and non-taxable income;
- agreement of open tax computations with the respective tax authorities; and
- the recognition or utilisation (with corresponding reduction in cash tax payments) of unrecognised deferred tax assets (see Note 24).
On 25 April 2019, the European Commission ('EC') concluded its investigation into the UK’s controlled foreign company ('CFC') tax rules.
The EC concluded that the UK’s CFC rules, which provide an exemption for 75% of the CFC charge where the CFC is carrying out financing
activities, were in breach of EU State Aid. The UK Government disagrees with this conclusion and has applied to have this judgement annulled.
In the meantime, the Group is continuing to review the specific facts and circumstances of its position in conjunction with professional
advisors (having claimed the exemption in historic periods). Based on the initial assessment undertaken to date, a provision is not deemed
to be required. However, should the UK Government be unsuccessful in appeal and all CFC profits deemed taxable in the UK, this would give
rise to additional UK tax payable of up to a maximum of £5m (before interest and penalties).
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:
Deferred tax movement associated with re-measurement of defined benefit pension liabilities*
Deferred tax on share options
Tax (charge)/credit associated with re-measurement of defined benefit
pension liabilities*
Tax (charge)/credit on fair value movements arising on borrowings and derivative financial instruments
Effect of change in rate on deferred tax*
Total
* These items will not subsequently be reclassified to the Consolidated Income Statement.
166
2019
£m
(6.6)
–
0.4
(2.1)
–
(8.3)
2018
Restated
£m
0.1
(0.2)
–
0.4
–
0.3
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 7 Dividends
An interim dividend of 1.25p per ordinary share was paid on 8 November 2019 (2018: 1.25p), amounting to £7.4m (2018: £7.4m). There is no
final dividend proposed for the year ended 31 December 2019 (2018: 2.5p per share amounting to £14.8m). Total dividends paid during the
year were £22.2m (2018: £22.2m), comprising the 2019 interim dividend of £7.4m and the final dividend for 2018 of £14.8m. No dividends
have been paid between 31 December 2019 and the date of signing the Financial Statements.
At 31 December 2019 the Company has negative distributable reserves of £158.4m as set out in Note 14 of the Company Financial
Statements. Before the Group seeks to recommence its dividend payments it will be required to review its medium term plan and
distributable reserves position. The Directors intend to carry out a review of the structure of the Group during the coming year in order to
remedy this and optimise existing reserves.
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 from continuing operations
Non-controlling interests
Profit/(loss) attributable to ordinary equity holders of the parent for basic and diluted earnings per
share from continuing operations
Profit/(loss) attributable to ordinary equity holders of the parent from discontinued operations
Profit/(loss) attributable to ordinary equity holders of the parent for basic and diluted earnings per
share
Profit/(loss) after tax from continuing operations
Non-controlling interests
Add back:
Other items (Note 2)
Profit/(loss) attributable to ordinary equity holders of the parent for basic and diluted earnings per
share from continuing operations before other items
Weighted average number of shares
For basic and diluted earnings/(loss) per share
Profit/(loss) per share
Basic and diluted earnings/(loss) per share
Basic and diluted earnings/(loss) per share from continuing operations
Earnings per share before Other items^
Basic and diluted earnings per share from continuing operations before other items
Basic and diluted
2019
£m
(124.1)
–
(124.1)
(0.4)
(124.5)
2018
Restated
£m
4.1
(0.4)
3.7
13.8
17.5
Basic and diluted before Other items
2019
£m
(124.1)
–
123.8
(0.3)
2018
Restated
£m
4.1
(0.4)
33.7
37.4
2019
Number
2018
Number
591,556,982
591,548,834
2019
(21.0)p
(21.0)p
(0.1)p
2018
Restated
3.0p
0.6p
6.3p
^ 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.
167
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
9 Share-based payments
The Group had four share-based payment schemes in existence during the year ended 31 December 2019 (2018: four). The Group
recognised a total charge of £0.1m (2018: £0.4m) in the year relating to share-based payment transactions with a corresponding entry to
the share option reserve. The weighted average fair value of each option granted in the year was 103p (2018: 73p). Details of each of the
schemes are provided below.
a) Long Term Incentive Plan ('LTIP')
Under the 2017 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. 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%
≥13.5%
0%
≥38p
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 (on a maximum awards basis). 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 shown below. In 2019, 1,958,676 awards were granted under the 2018 LTIP. The primary
performance conditions are consistent with the 2018 awards but with an average ROCE gateway of 10.3% over the three year period. Once
the ROCE and relative TSR 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 awards vest after three years and are then subject to a further two year holding period.
2018 LTIP
2019 Awards
2018 Awards
Absolute TSR growth:
Below 8% p.a.
8% p.a.
14% p.a. or
above
Below 8% p.a.
8% p.a.
14% p.a. or
above
3 - 10 years*
3 - 10 years*
168
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS LTIP options
At 1 January
Granted during the year
Exercised during the year (Note 26)
Lapsed during the year
At 31 December
2019
2018
Options
3,869,181
1,958,676
–
–
5,827,857
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
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 (2018: nil) are exercisable at 31 December 2019. The options outstanding at
31 December 2019 had a weighted average exercise price of nil p (2018: nil p) and a weighted average remaining contractual life of 1.6 years
(2018: 2.3 years). In the year, nil (2018: 8,747) options were exercised. The weighted average share price as at the date of exercise of these
options was n/a (2018: 106p).
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 2019
2019 LTIP Award
(21 March
2019)
2018 Award
(8 November
2018)
2017 Award
(24 April
2017)
145p
0.0p
36.3%
3-5 years
0.7%
0.0%
Monte Carlo
100%
116p
0.0p
36.1%
117p
0.0p
41.8%
3-5 years
0.9%
0.0%
Monte Carlo
100%
3-5 years
1.1%
3.4%
Black Scholes
50%
0%
0%
0%
The weighted average fair value of LTIP options granted during the year, on a maximum number of awards basis, was 59p (2018: 34p). 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 2,287,530 awards of of restricted and deferred shares in 2019 (2018: 1,529,155).
The criteria and vesting conditions of the MIP deferred share options granted in 2019 are as follows:
Weighting of criteria
Vesting conditions:
- Does not vest
- Vests proportionately
- Vests in full
Proportion that vests at entry level
Exercise period
* There are different local targets for EBIT and ROCE for different businesses within the Group based on local budgets
2019 Awards
Local EBIT and
ROCE
Group PBT
Group ROCE
50%
25%
25%
Various*
<12.2%
<£90.0m
Various* £90.0m - 120.0m 12.2% - 15.6%
≥15.6%
≥120.0m
Various*
25%
25%
25%
3 - 10 years
3 - 10 years
3 - 10 years
169
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The criteria and vesting conditions of the MIP deferred share options granted in 2018 are as follows:
Weighting of criteria
Vesting conditions:
- Does not vest
- Vests proportionately
- Vests in full
Proportion that vests at entry level
Exercise period
* There are different local targets for EBIT and ROCE for different businesses within the Group based on local budgets
2018 Awards
Local EBIT and
ROCE
Group PBT
Group ROCE
50%
25%
25%
<11.5%
<£85.5m
Various*
Various* £85.5m - 94.5m 11.5% - 12.5%
≥12.5%
≥£94.5m
Various*
25%
25%
25%
3 - 10 years
3 - 10 years
3 - 10 years
MIP options
At 1 January
Granted during the year
Lapsed during the year
At 31 December
2019
2018
Options
1,529,155
2,287,530
(2,016,666)
1,800,019
Weighted average
exercise price (p)
0.0
0.0
0.0
0.0
Options
–
1,529,155
–
1,529,155
Weighted
average exercise
price (p)
–
0.00
–
0.00
Of the above share options outstanding at the end of the year nil (2018: nil) are exercisable at 31 December 2019. The options outstanding
at 31 December 2019 had a weighted average exercise price of nil p (2018: nil) and a weighted average remaining contractual life of 1.8 years
(2018: 2.4). 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 2019
2019 MIP Awards
2018 MIP Awards
9 October 2019
20 March 2019
1 October 2018
15 May 2018
101p
–
32.5%
3 years
0.3%
3.7%
94%
145p
–
35.5%
3 years
0.7%
3.4%
94%
129p
–
37.1%
3 years
0.9%
3.4%
94%
138p
–
38.4%
3 years
1.1%
3.4%
96%
94%
70%
94%
63%
The weighted average fair value of MIP options granted during the year was 141p (2018: 135p). 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 2019, 46,822 (2018: 69,619)
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.
170
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 10 Property, plant and equipment
The movements in the year and the preceding year were as follows:
Land and buildings
Freehold
£m
Leasehold
properties
£m
Plant and
machinery
£m
Cost
At 1 January 2018
Exchange differences
Additions
Reclassified as held for sale
Reclassifications
Disposals
At 31 December 2018
Impact of adoption of IFRS 16
Adjusted balance at 1 January 2019
Exchange differences
Additions
Reclassified as held for sale
Reclassifications
Disposals
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
Impairment charges
Exchange differences
Reclassifications
Disposals
At 31 December 2018
Impact of adoption of IFRS 16
Adjusted balance at 1 January 2019
Charge for the year
Impairment charges
Exchange differences
Reclassifications
Reclassified as held for sale
Disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
39.6
0.3
1.6
(1.9)
4.7
(1.4)
42.9
–
42.9
(2.8)
2.6
(11.6)
11.1
(0.4)
41.8
14.0
0.9
–
0.2
4.2
(1.6)
17.7
–
17.7
1.0
–
(1.3)
9.3
(4.7)
(0.2)
21.8
20.0
25.2
65.3
0.2
5.9
–
1.5
(3.1)
69.8
(9.2)
60.6
(1.5)
3.1
(3.0)
(1.5)
(0.4)
57.3
29.8
3.6
3.2
0.1
4.8
(1.6)
39.9
(0.6)
39.3
2.7
0.6
(1.2)
1.3
(2.0)
(0.3)
40.4
16.9
29.9
205.1
0.8
12.5
–
(6.7)
(24.5)
187.2
(20.6)
166.6
(5.8)
11.4
(42.8)
38.3
(19.1)
148.6
148.1
15.2
0.2
0.7
(9.0)
(18.3)
136.9
(11.3)
125.6
11.5
–
(4.6)
37.7
(29.3)
(14.0)
126.9
21.7
50.3
Total
£m
310.0
1.3
20.0
(1.9)
(0.5)
(29.0)
299.9
(29.8)
270.1
(10.1)
17.1
(57.4)
47.9
(19.9)
247.7
191.9
19.7
3.4
1.0
–
(21.5)
194.5
(11.9)
182.6
15.2
0.6
(7.1)
48.3
(36.0)
(14.5)
189.1
58.6
105.4
The net book value of leasehold properties at 31 December 2018 included an amount of £9.7m and the net book value of plant and
machinery included an amount of £9.6m in respect of assets held under finance lease contracts.
Leasehold properties includes properties held under finance lease contracts at 31 December 2018 and leasehold improvements. Also
included is a property held under a lease which is classified as an investment property 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 £nil
(2018: £2.8m) 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 2018. The fair value of the investment property at 31 December 2019 is estimated to
be £1.1m (2018: £1.1m) based on future expected rental returns. No independent third party valuation has been carried out.
At 31 December 2019, tangible fixed assets with a net book value of £21.3m have been transferred to assets held for sale in connection
with the disposal of the Air Handling and Building Solutions businesses (see Note 11).
At 31 December 2018, land in Germany previously included within freehold land and buildings with net book value of £1.9m was classified
as an asset held for sale in accordance with IFRS 5 "Non-current assets held for sale and discontinued operations" as it was being marketed
for sale and expected to be sold during 2019. The sale completed in April 2020.
Included within plant and machinery additions are assets in the course of construction of £nil (2018: £nil).
Of the £3.4m impairment charges in 2018, £2.8m on leashold properties is attributable to an asset no longer being held for use within the
business. The remaining impairment charges related to impairments of assets due to the restructuring within the UK SIG Distribution business.
171
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
11 Divestments and exit of non-core businesses
The Group has recognised a total gain of £0.1m (31 December 2018: charge of £6.3m) in respect of profits and losses on agreed sale or
closure of non-core businesses and associated impairment charges within Other items of the Consolidated Income Statement. This consists
of £6.0m gain on disposal of WeGo FloorTec during the year, £1.6m of costs in relation to the sale of Building Solutions (held for sale at 31
December 2019), £0.9m costs in relation to the Commercial Drainage business which was closed during the year, £1.6m impairment of
goodwill and right of use assets in relation to the Maury business in France, which is being sold or closed, and £1.8m in relation to prior year
divestments, all of which are explained further below.
Businesses disposed during the year
WeGo FloorTec
On 13 August 2019 the Group completed the sale of WeGo Floortec GmbH, the German raised access flooring division, for proceeds of
€13.5m plus settlement of intercompany balances. An overall gain on sale of £6.0m has been recognised within Other items, including
the reclassification of the cumulative exchange differences on the retranslation of the net assets from equity to the consoldiated income
statement, in accordance with IAS 21 "The effects of changes in foreign exchange rates".
The net assets at the date of disposal were as follows:
Attributable goodwill and intangible assets
Property, plant and equipment
Cash
Inventories
Trade and other receivables
Trade and other payables
Net assets
Other costs
Reclassification of cumulative exchange differences to consolidated
income statement
Gain on disposal
Sale proceeds
Satisfied by:
Cash and cash equivalents
At date of
disposal
£m
At 31 December
2018
£m
0.4
1.0
–
3.4
2.5
(0.6)
6.7
0.4
0.8
0.4
3.3
2.4
(2.4)
4.9
0.9
–
6.0
11.8
11.8
Disposal groups held for sale
Building Solutions
On 7 October 2019, the Group announced the sale of Building Solutions (National) Limited ("Building Solutions"), a subsidiary of SIG Trading
Limited, for proceeds of £37.5m. At 31 December 2019 the assets and liabilities are classified as held for sale on the Consolidated Balance
Sheet, as shown below. Costs of £1.6m in relation to the disposal are included in Other items in the Consolidated Income Statement. See
Note 34 for further information regarding the sale.
Air Handling
On 7 October 2019, the Group announced that it had agreed a sale of the Air Handling business and the sale completed on 31 January 2020.
This business is a major line of business of the Group and is therefore classified as a discontinued operation. See Note 12 for further details.
Total assets and liabilities held for sale at 31 December 2019 comprise the following:
172
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Goodwill and intangible assets
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Contract assets
Deferred tax asset
Deferred consideration
Cash at bank and on hand
Assets held for sale
Trade and other payables
Contract liabilities
Lease liabilities
Deferred tax liability
Corporation tax liability
Retirement benefit obligations
Provisions
Liabilities directly associated with assets held for sale
Net assets directly associated with disposal groups
Prior year divestments
Air Handling
£m
Building Solutions
£m
Other
£m
33.2
15.1
31.5
33.9
58.9
1.5
1.3
0.8
28.8
205.0
(46.0)
(1.5)
(31.9)
(1.0)
(1.2)
(3.4)
(1.5)
(86.5)
118.5
12.5
6.2
12.5
3.8
8.5
–
1.7
–
6.3
51.5
(15.3)
–
(13.4)
–
–
–
(0.5)
(29.2)
22.3
–
1.9
–
–
–
–
–
–
–
1.9
–
–
–
–
–
–
–
–
1.9
Total
£m
45.7
23.2
44.0
37.7
67.4
1.5
3.0
0.8
35.1
258.4
(61.3)
(1.5)
(45.3)
(1.0)
(1.2)
(3.4)
(2.0)
(115.7)
142.7
GRM
On 2 February 2018 the Group completed the disposal of GRM Insulation Solutions (GRM), a division of SIG Trading Limited and part of the
UK Distribution 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 was released as a credit to
Other items in 2018.
IBSL
On 2 March 2018 the Group completed the disposal of IBSL, a small industrial insulation division operated by SIG Trading Limited and part
of the UK Distribution 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 were recognised.
Building Systems
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 was recognised during the period to 31 December 2018, largely due to
the release of an onerous lease provision due to properties being sublet. Additional property costs of £0.9m have been recognised in 2019.
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 UK Distribution segment. Consideration for the sale less costs to sell was £29.3m resulting in a profit on disposal of £5.2m included within
Other items in the Consolidated Income Statement in 2018.
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 UK Distribution segment. Consideration for the sale was £14.6m, resulting in a loss on sale of
£7.1m which was included within Other items in the Consolidated Income Statement in 2018. Additional costs of £0.4m have been recognised
in 2019.
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 UK Exteriors segment, for consideration of £0.5m. The consideration was included within deferred
consideration at 31 December 2018 and was received in May 2019. The loss arising on the sale of £4.8m was included within Other items in
the Consolidated Income Statement in 2018.
Other
Additional expenses of £0.3m have also been recognised and included within Other items in relation to the divestments in previous years.
This largely relates to write offs for debts that are no longer deemed recoverable.
173
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
Other business closures
The Group has also exited or agreed to exit the following businesses:
Maury
In November 2019 the Group has approved the sale or closure of Maury NZ SAS (‘Maury’), the Group's high-end façade fabrication business
in France and part of the France Exteriors (Larivière) segment. The operating losses for the year have been included in Other items in the
Consolidated Income Statement and the associated goodwill and intangibles of £1.1m and right of use assets of £0.5m have been impaired.
SIG Cut Solutions
As disclosed in the 2018 Annual Report and Accounts, 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 in 2018.
Commercial Drainage
As disclosed in the 2018 Annual Report and Accounts, the Group announced the closure of its Commercial Drainage business, part of the UK
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. £0.9m of costs have also been incurred in 2019 and included in Other items.
Middle East
As disclosed in the 2018 Annual Report and Accounts, the Group continues with 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
and there have been various expenses incurred since associated with the costs of closure. During the year to 31 December 2019 a net
expense of £1.0m (2018: £0.9m) has been recognised in Other items, comprising additional costs associated with the closure and further
write-off of debtor balances no longer considered recoverable. On 22 January 2020 the business has been sold for AED1.
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 2019 and 31 December 2018 are as follows:
Building Systems
GRM
Middle East
IBSL
VJ Technology
Roofspace
Proteus
Commercial Drainage
SIG Cut Solutions
Businesses identified as non-core in 2018
WeGo Floortec
Building Solutions
Maury
Businesses identified as non-core in 2019
Total attributable to non-core businesses
2019
2018
Revenue
£m
Net operating
profit/(loss)
£m
Revenue
£m
Net operating
profit/(loss)
£m
–
–
–
–
–
–
–
1.2
–
1.2
14.5
58.3
1.9
74.7
75.9
–
–
–
–
–
–
–
(0.8)
–
(0.8)
0.8
2.9
(0.9)
2.8
2.0
1.4
0.3
2.1
0.2
17.0
24.0
3.4
10.0
0.3
58.7
23.2
56.8
2.7
82.7
141.4
(1.2)
(0.2)
(0.8)
(0.2)
3.1
2.1
(0.5)
(0.8)
(0.3)
1.2
1.5
3.5
(0.7)
4.3
5.5
174
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Cash flows associated with divestments and exit of non-core businesses
The net cash inflow in the year ended 31 December 2019 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)
Proteus
£m
WeGo FloorTec
£m
Other non-core
businesses
£m
0.5
–
–
0.5
11.8
(0.5)
(0.9)
10.4
0.3
–
(2.8)
(2.5)
Total
£m
12.6
(0.5)
(3.7)
8.4
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 Discontinued operations
On 7 October 2019, the Group announced that it had agreed a sale of the Air Handling business for consideration of €222.7m. The sale
was approved by shareholders at a general meeting on 23 December 2019 and completed on 31 January 2020. At 31 December 2019, Air
Handling is classified as a disposal group held for sale and as a discontinued operation as it represented a major line of business of the
Group. With Air Handling being classified as a discontinued operation, the Air Handling segment is no longer presented in the segment note.
The carrying amount of the disposal group is lower than its fair value less cost to sell and therefore no impairment loss is recognised.
The results of the Air Handling business for the year are presented below:
Revenue
Cost of sales
Gross profit
Other operating expenses
Underlying operating profit
Other items
Operating profit
Finance income
Finance costs
Profit before tax from discontinued operations before group other items
Costs incurred in connection with the agreed disposal of the Air Handling business
Amortisation of acquired intangibles
Profit before tax from discontinued operations
Income tax (expense)/credit
Profit after tax from discontinued operations
2019
£m
323.1
(202.0)
121.1
(101.3)
19.8
(0.7)
19.1
0.1
(1.3)
17.9
(12.2)
(1.9)
3.8
(4.2)
(0.4)
2018
£m
310.1
(193.8)
116.3
(96.9)
19.4
0.7
20.1
0.1
–
20.2
–
(2.0)
18.2
(4.4)
13.8
175
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The major classes of assets and liabilities of the Air Handling business classified as held for sale as at 31 December 2019 are as follows:
Goodwill and intangible assets
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Contract assets
Deferred tax asset
Deferred consideration
Cash at bank and on hand
Assets held for sale
Trade and other payables
Contract liabilities
Lease liabilities
Deferred tax liability
Corporation tax liability
Retirement benefit obligations
Provisions
Liabilities directly associated with assets held for sale
Net assets directly associated with disposal group
Amounts included in accumulated OCI are as follows:
Remeasurement of defined benefit pension liability
Deferred tax movement associated with remeasurement of defined benefit pension liability
Reserve of disposal group classified as held for sale
The net cash flows incurred by Air Handling are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow
Earnings per share:
2019
£m
33.2
15.1
31.5
33.9
58.9
1.5
1.3
0.8
28.8
205.0
(46.0)
(1.5)
(31.9)
(1.0)
(1.2)
(3.4)
(1.5)
(86.5)
118.5
2019
£m
(0.5)
0.1
(0.4)
2019
£m
26.5
(5.1)
(9.4)
12.0
2018
£m
0.1
–
0.1
2018
£m
10.5
(1.1)
(15.4)
(6.0)
Basic and diluted, (loss)/earnings per share from discontinued operations
2019
(0.00)p
2018
0.02p
176
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 13 Goodwill
Cost
At 1 January 2018
Business disposed
Adjustments in respect of prior period acquisitions
At 31 December 2018
Business disposed
Reclassified as held for sale
Exchange differences
At 31 December 2019
Accumulated impairment losses
At 1 January 2018
Business disposed
Exchange differences
At 31 December 2018
Impairment charges
Exchange differences
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
£m
503.8
(24.5)
(3.7)
475.6
(0.3)
(37.2)
(24.5)
413.6
191.6
(5.0)
(4.9)
181.7
90.3
(17.4)
254.6
159.0
293.9
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 (2018: 9). Consistent with the reportable segments disclosed
in Note 1, the Air Handling CGU now includes the Ouest Isol business in France (previously part of the France CGU) and SK Sales in the UK
(previously part of the UK Distribution CGU) and the goodwill associated with these businesses of £4.3m and £0.3m respectively has been
transferred to the Air Handling CGU. The 2018 analysis of the carrying value below has been restated to present on a consistent basis with
2019.
Summary analysis
The carrying value of goodwill in respect of all CGUs is set below. These are fully supported by either value in use calculations in the year or
the fair value less cost to sell for CGUs held for sale, as explained below.
UK Distribution
UK Exteriors
Building Solutions
France Exteriors (Larivière)
France Distrubution (LiTT)
Germany (WeGo/VTi)
Poland
Air Handling
Benelux
Total goodwill
Impairment review process
2019
£m
33.5
68.2
–
35.1
5.2
2.4
1.2
–
13.4
159.0
2018
£m
90.9
68.2
11.0
72.1
5.6
2.9
1.2
27.8
14.2
293.9
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 Air Handling and Building Solutions CGUs are classified as held for sale at 31 December 2019. The carrying value of these CGUs is fully
supported by the fair value less costs to sell based on agreed sales proceeds. The fair value measurement for both CGUs is categorised
within level 1 of the fair value hierarchy as it is based on agreed enterprise value for the businesses as included in the sale and purchase
agreements.
The recoverable amounts of the other CGUs are determined from value in use calculations. The key assumptions for these calculations are
those regarding discount rates, sales growth, gross margin and operating profit growth rates. These assumptions have been revised in the
year in light of the current economic environment. Discount rates represent the current market assessment of the risks specific to each CGU,
taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash
flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived
from its weighted average cost of capital (WACC), with adjustments made to factor in the amount and timing of future tax flows in order to
reflect a pre-tax discount rate. In respect of the other assumptions, external data and management's best estimates are applied as described
below. The 2019 impairment review is carried out before considering the impact of the COVID-19 pandemic on the forecast results as this is
a non-adjusting post balance sheet event.
177
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
For all the CGUs where the recoverable amount is determined from value in use, the Group performs impairment reviews by forecasting
cash flows based upon the following year's budget, which anticipates sales growth based on management's best estimates and external data
(construction PMI data and construction market growth forecasts), and gross margin assumptions based on management's best estimates
and previous experience, and a projection of sales and cash flows based upon country specific inflation expectations (0%-3.4%) over a further
period of four years. For four of the major CGUs, more detailed three to five-year forecasts have been prepared, including higher growth rates
or varied results reflecting specific economic factors, and 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 before the impact
of COVID-19. After this period, the long term country specific inflation rate is applied to the cash flow forecasts in perpetuity.
The key assumptions used for each CGU are shown in the table below.
2019 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 businesses and £5.0m
was recognised in relation to the post year end disposal of the GRM and IBSL businesses.
The results of the 2019 impairment review indicated that the carrying value of goodwill associated with the UK Distribution and France
Exteriors (Larivière) CGUs was no longer supportable. Challenging market conditions and an ongoing deterioration during the year in the level
of construction activity in key markets in the UK and continued review of the forecasts for the Larivière business compared to actual results
has led to the lowering of expectations in the future sales and profitablity of these two CGUs. As a result, a goodwill impairment charge of
£57.4m in UK Distribution and £32.2m in France Exteriors (Larivière) has been recognised. Both CGUs are reportable segments as disclosed
in Note 1, and the charge has been included within Other items in the Consolidated income statement. The recoverable amount of the UK
Distribution CGUs is £161.7m and France Exteriors (Larivière) is £104.5m, both based on value in use calculations. An impairment charge
of £0.7m has also been recognised in relation to the Maury business, part of the Lariviere CGU, based on fair value less cost to sell, as the
business is in the process of being sold or closed. The charge is included within 'Profits and loss on the agreed sale or closure of non-core
businesses and associated impairment charges' within Other items in the Consolidated income statement. The goodwill has been impaired in
full as no value is expected to be obtained for this (categorised within Level 3 of the fair value hierarchy). The carrying value of all other CGUs
remains supportable.
Sensitivity analysis
A number of 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. The table below sets out the amount that each assumption would have to change by, all other
assumptions remaining the same, for the carrying value of goodwill, intangible assets and property, plant and equipment to equal recoverable
amount for each CGU. In the prior year the disclosure included the information for only the more significant and/or sensitive CGUs. UK
Distribution and France Exteriors (Larivière) have been impaired to recoverable amount based on the assumptions applied, therefore any
change in a key assumption would cause further impairment of the carrying value of goodwill for these two CGUs. Separate analysis is
provided below of the key assumptions applied in the calculation of recoverable amount and the additional impairment that could arise from
a reasonably possible change in assumption.
2019
UK Exteriors
France Distribution
(LiTT)
Germany (WeGo/
VTi)
Poland
Benelux
Headroom*
£20.4m
£92.8m
£10.5m
£22.4m
£26.7m
Like-for-like market volume
growth (%)
Pre-tax discount rate (%)
Gross margin (%)
Long-term operating
profit growth rate
(average % per annum)
Change
required
for carrying
value to
equal
recoverable
amount
Assumption
used in
value in use
calculation
Change
required
for carrying
value to
equal
recoverable
amount
Assumption
used in
value in use
calculation
Change
required
for carrying
value to
equal
recoverable
amount
Assumption
used in
value in use
calculation
Change
required
for carrying
value to
equal
recoverable
amount
Assumption
used in
value in use
calculation
(0.1)
(2.4)
0.1
0.5
0.7
0.6
(19.9)
(1.2)
(8.0)
(11.1)
9.9
9.9
10.0
10.2
10.5
1.4
29.3
41.2
28.0
1.3
10.3
21.1
27.4
20.3
24.8
(0.6)
(4.7)
(0.3)
(1.3)
(2.2)
2.0
(3.4)
1.7
(180.3)
2.1
2.7
1.9
(1.5)
(30.8)
(8.5)
* compared to carrying value of goodwill, intangible assets and property, plant and equipment
178
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 2018
Like-for-like market volume
(average % per annum)
Pre tax discount rate (%)
Gross margin (%)
Long-term operating
profit growth rate
(average % per annum)
Change
required
for carrying
value to equal
recoverable
amount
Assumption
used in value in
use calculation
Change
required
for carrying
value to equal
recoverable
amount
Assumption
used in value in
use calculation
Change
required
for carrying
value to equal
recoverable
amount
Assumption
used in value in
use calculation
Change
required
for carrying
value to equal
recoverable
amount
Assumption
used in value in
use calculation
2.0
(0.2)
14.5
1.7
2.7
(11.7)
(5.9)
(15.0)
(4.1)
(3.2)
11.4
11.5
11.4
10.6
10.5
11.5
4.4
10.4
2.6
7.6
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)
UK Distribution
UK Exteriors
Building Solutions
France Exteriors
(Larivière)
Germany (WeGo/
VTi)
Headroom*
£175.8m
£48.5m
£26.2m
£33.5m
£38.9m
* compared to carrying value of goodwill, intangible assets and property, plant and equipment
Of the above sensitivities, management considers the % changes in revenue growth and gross margin to be reasonably possible for the UK
Exteriors and Germany (WeGo/VTi) CGUs, which would lead to an impairment of goodwill of £20.4m for UK Exteriors and £2.9m for Germany.
The other % changes in assumptions shown above are not considered to be reasonably possible scenarios (prior to the impact of COVID-19),
but this additional voluntary information over and above that required by IAS36 has been included in order to provide a full picture of the
level of headroom and sensitivity to changes in assumptions for each CGU.
The above assumption for sales growth relates to the forecasts for 2020. For UK Exteriors and Germany (WeGo/VTi) CGUs the detailed
forecasts for 2021 and 2022 include further sales growth, with other assumptions remaining consistent with the above. For UK Exteriors
the forecasts include further revenue growth from 2020 of 6.2% in 2021 and 6.3% in 2022. If the sales growth in 2021 is reduced to 4.4%
this would cause the recoverable amount of the CGU to equal carrying value. For Germany (WeGo/VTi) revenue growth of 3.3% and 6.8%
is included for 2021 and 2022. If the revenue growth in 2021 is only 2.3%, this would cause the recoverable amount of the CGU to equal
carrying amount. These changes in revenue growth assumptions are considered to be reasonably possible scenarios.
UK Distribution and France Exteriors (Larivière)
The table below sets out the key assumptions used in the value in use calculation and the additonal impairment that could arise from a
reasonably possible change in each of the key assumptions:
2019
UK Distribution
France Exteriors (Larivière)
Like-for-like market volume growth
Pre tax discount rate
Gross margin
Long-term operating profit growth rate (average % per
annum)
Assumption
used in
value in use
calculation
(%)
Reasonably
possible
change in
assumption
(%)
(12.6)
10.9
22.7
2.0
(2.0)
1.0
(0.3)
(0.2)
Assumption
used in
value in use
calculation
(%)
Reasonably
possible
change in
assumption
(%)
Additional
impairment
caused by
reasonably
possible
change
(%)
20.7
17.1
14.3
3.3
11.0
23.4
2.6
1.7
Additional
impairment
caused by
reasonably
possible
change
(%)
12.8
12.9
8.2
2.0
(2.0)
1.0
(0.3)
(0.2)
The above assumption for sales growth relates to the forecasts for 2020. For UK Distribution the forecasts include further revenue growth of
16.8% in 2021 and 14.4% in 2022 following a year of a reduced revenue base in 2020. If sales growth of only 12.9% is achieved from budget
2020 to 2021 this would cause the remaining value of goodwill of £33.5m to be fully impaired. For France Exteriors (Larivière), the forecast
revenue growth included is 1.2% for 2021 and 1.5% for 2022. If no revenue growth is included for 2021 this would result in additional
impairment of £16.4m. These are considered reasonably possible scenarios.
The Group continues to monitor the potential impact of Brexit. The major areas of potential exposure are considered to be declining market
conditions and heightened border restrictions which may disrupt the supply of goods for the UK and Ireland businesses. Sensitivities in
relation to sales growth assumptions are covered in the information above.
Subsequent to the year end the UK and global economy has been impacted significantly by the onset of the COVID-19 pandemic. This will
have an impact on the actual financial results of the Group for 2020, in particular in the UK and Ireland where government restrictions
resulted in the temporary closure of the majority of trading sites during April and May, and with reduced trading in certain other CGUs. The
impact on forecast results has not been reflected in the assessment above and further impairments may arise a result of this.
The Board has actively reviewed the forecasts associated with the CGUs noting the assumptions used, the sensitivity analysis performed
and the ability of the businesses to adapt to challenging economic environments in which they operate, and is satisfied that no further
impairments are necessary at 31 December 2019.
179
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
14 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 2018
Additions
Disposals
Transfers
Exchange differences
At 31 December 2018
Additions
Disposals
Reclassifications
Exchange differences
Assets transferred to held for sale (Note 11)
At 31 December 2019
Amortisation
At 1 January 2018
Charge for the year
Impairment charges
Disposals
Reclassifications
Exchange differences
At 31 December 2018
Charge for the year
Impairment charges
Disposals
Reclassifications
Exchange differences
Assets transferred to held for sale (Note 11)
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Customer
relationships
£m
Non-compete
clauses
£m
Computer
software
£m
242.3
–
(13.0)
–
(1.2)
228.1
–
(0.1)
–
–
(38.9)
189.1
201.1
8.9
–
(10.5)
–
(1.2)
198.3
8.1
0.4
–
–
0.3
(31.9)
175.2
13.9
29.8
12.1
–
(0.4)
–
–
11.7
–
–
–
–
–
11.7
12.1
–
–
(0.4)
–
–
11.7
–
–
–
–
–
–
11.7
–
–
53.6
5.3
(0.7)
0.5
–
58.7
17.5
(0.2)
(3.7)
(1.1)
(4.7)
66.5
37.8
4.4
1.1
(0.3)
(0.5)
(0.2)
42.3
4.5
0.3
(0.1)
(4.9)
(0.8)
(3.2)
38.1
28.4
16.4
Total
£m
308.0
5.3
(14.1)
0.5
(1.2)
298.5
17.5
(0.3)
(3.7)
(1.1)
(43.6)
267.3
251.0
13.3
1.1
(11.2)
(0.5)
(1.4)
252.3
12.6
0.7
(0.1)
(4.9)
(0.5)
(35.1)
225.0
42.3
46.2
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 150.
Included within computer software additions are assets in the course of construction of £11.1m (2018: £nil).
The impairment charge in relation to customer relationships in 2019 relates to the impairment of intangible assets associated wtih the
Maury business which is classified as non-core and is included within 'Profits and losses on agreed sale or closure of non-core businesses
and associated impairment charges' within Other items (see Note 11). The impairment of computer software relates to the SK Sales business
which has been sold as part of the Air Handling business and is included in 'Impairment charges' within Other items. The computer software
impairment charge in the prior year was in relation to the TM1 data warehouse which is no longer being used due to the IT digital change
strategy and in relation to reduced utilisation of the UK ERP following some business disposals.
180
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 15 Acquisitions
The Group has not made any business acquisitions during 2019 or 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 2017 and £0.2m exchange movements on this during the year. £6.0m of this is included as an operating
cashflow in 2018 as it related to consideration dependent on vendors remaining within the business, as noted in the Statement of Significant
Accounting Policies.
On 12 April 2018 the Group acquired the non-controlling interest of the Bulgaria Air Handling business for total consideration of £6.2m,
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. £0.9m was included within deferred consideration at 31 December 2018 as the performance
criteria have been met. This was paid during 2019 and included as a financing cash flow in the Consolidated Cash Flow Statement.
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 2019 and no amounts outstanding at 31 December 2019.
At 1 January
New amounts accrued
Interest accrued
Amounts paid
Accruals released
Transferred to deferred consideration
Exchange differences
At 31 December
16 Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
At 31 December
The estimated replacement cost of inventories is not materially different from the balance sheet value stated above.
2019
£m
–
–
–
–
–
–
–
–
2019
£m
–
0.3
156.2
156.5
2018
£m
–
0.9
–
–
–
(0.8)
(0.1)
–
2018
£m
3.2
0.7
203.3
207.2
181
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
17 Trade and other receivables
Trade receivables
VAT
Other receivables
Prepayments and accrued income
Trade and other receivables
Contract assets
Lease receivables
Current tax assets
Assets classified as held for sale (Note 11)
Total receivables
2019
£m
226.4
6.8
4.4
57.1
294.7
–
0.8
0.9
258.4
554.8
2019
£m
384.3
9.3
9.2
74.9
477.7
1.8
–
5.5
1.9
486.9
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.
Included within prepayments and accrued income is £42.4m (2018: £59.3m) 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 42 days (2018: 44 days).
Trade receivables are stated net of allowance for estimated credit losses and provisions for sales credit notes and customer rebates. An
allowance has been made for estimated credit losses from trade receivables and contract assets of £19.5m at 31 December 2019 (2018:
£31.4m). The allowance for credit losses has reduced during the year in line with significantly reduced trade receivables.
Movement in the allowance for expected credit losses
At 1 January
Utilised
Unused amounts released to the Consolidated Income Statement
Classified as held for sale (Note 11)
Charged to the Consolidated Income Statement
Exchange differences
At 31 December
2019
£m
(31.4)
8.9
8.3
4.0
(10.5)
1.2
(19.5)
2018
£m
(41.1)
15.6
9.4
–
(14.6)
(0.7)
(31.4)
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 assesed by each operating segment and are based on the payment profiles of sales over a period prior to
31 December 2019, 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. In calculating expected credit losses, a loss is either a debt written off or overdue by more than
12 to 24 months depending on the business and/or expected likelihood of recovery. Debts are generally written off following official notice of
insolvency, conclusion of legal proceedings or when there is no reasonable expectation of recovery.
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.
182
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS
31 December 2019
Expected credit loss rate
Total gross carrying amount
Expected credit loss
< 30 days
£m
0.7%
214.6
1.6
Days past due
30-60 days
£m
61-90 days
£m
10.6%
16.0
1.7
10.0%
4.0
0.4
> 91 days
£m
51.0%
31.0
15.8
Total
£m
265.6
19.5
The 2018 expected credit loss was as follows:
31 December 2018
Days past due
Allowance as a percentage of gross
carrying amount
Total gross carrying amount
Allowance for bad debt
< 30 days
£m
30-60 days
£m
61-90 days
£m
> 91 days
£m
Total
£m
0.4%
271.4
1.1
2.0%
65.7
1.3
3.8%
26.5
1.0
51.9%
53.9
28.0
417.5
31.4
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Included within trade receivables is a managed pool of customer balances of £34.5m (2018: £48.0m) pledged as security in relation to the
asset backed funding arrangement implemented in relation to the UK defined benefit pension plan. See Note 30(c) for further details.
Transfer of trade receivables
The Group sold without recourse trade receivables to banks and other financial institutions for cash proceeds. These trade receivables of
£35.0m (2018: £49.7m) 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 to determine whether
the credit risk has increased since inital recogntion. Where appropriate, credit guarantee insurance cover is purchased.
The Group does not have any significant credit risk exposure to any single customer.
18 Current liabilities
Trade payables
VAT
Social security and payroll taxes
Accruals and other payables
Trade and other payables
Contract liabilities
Lease liabilities (Note 25)
Bank overdrafts
Bank loans
Private placement notes (Note 19)
Loan notes and deferred consideration
Other financial liabilities
Derivative financial instruments
Current tax liabilities
Provisions (Note 23)
Liabilities directly associated with assets classified as held for sale (Note 11)
Current liabilities
2019
£m
239.3
11.8
18.0
58.3
327.4
–
51.5
–
99.6
175.5
–
1.5
0.2
3.7
6.7
115.7
781.8
2018
£m
308.1
20.1
27.1
73.0
428.3
1.6
3.2
4.5
56.5
–
0.9
1.1
0.3
4.9
11.0
–
512.3
The contract liabilities in the prior year primarily related to the advance consideration received from customers for construction of air
handling units, for which revenue is recognised over time. This revenue has been recognised in 2019 within the results from discontinued
operations.
Trade payables is presented net of £38.0m (2018: £52.8m) due from suppliers in respect of supplier rebates where the Group has the right to
net settlement.
183
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
£nil (2018: £nil) of the above bank loans and overdrafts are secured on the assets of subsidiary undertakings, all of the lease liabilities (2018:
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 £99.6m (2018: £56.5m) 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. There were no overdraft balances attracting interest at 31
December 2019.
£69.6m (2018: £27.6m) of the bank loans (after taking into account derivative financial instruments) are at variable rates of interest.
£30.0m (2018: £28.9m) 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 1.58% (2018: 3.0%).
The private placement notes have been reclassified as a current liability at 31 December 2019. See Note 19.
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 56 days (2018: 47 days).
The Directors consider that the carrying amount of current liabilities approximates to their fair value.
19 Non-current liabilities
Lease liabilities (Note 25):
– due after one and within two years
– due after two and within five years
– due after five years
Private placement notes
Derivative financial instruments
Other financial liabilities
Deferred tax liabilities (Note 24)
Other payables
Retirement benefit obligations (Note 30c)
Provisions (Note 23)
Non-current liabilities
2019
£m
48.3
94.1
81.7
–
1.9
1.4
–
1.0
24.8
18.6
271.8
2018
£m
2.7
4.4
13.1
185.6
3.8
–
1.4
5.6
28.7
20.4
265.7
All of the above private placement notes and derivative financial instruments are guaranteed by certain companies of the Group.
Details of the contractual repayment profile of the private placement notes (before applying associated derivative financial instruments and
prepaid arrangement fees) are shown below. At 31 December 2019, the private placement notes have been reclassified as a current liability on
the balance sheet because the covenant test of consolidated net worth at 31 December 2019 is below the threshold of £400m (see Note 33h).
From an accounting perspective at the balance sheet date the Company did not have an unconditional right to defer settlement of the liability
for at least 12 months. Therefore, as required by IAS 1 "Presentation of financial statements", the entire private placement notes balance is
presented as a current liability at 31 December 2019. Under the terms of the private placement note agreement no event of default arose and
testing of the covenant at 31 December has been waived and thus the notes did become repayable or capable of being declared immediately
due and payable, hence as at 31 December 2019 the only contractual requirement to repay the debt in the next twelve months is the scheduled
loan repayment in October 2020.
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
2019
2018
Fixed interest
rate
%
3.7
3.9
4.2
3.3
3.6
£m
25.4
16.9
42.3
91.2
175.8
Fixed interest
rate
%
3.7
3.9
4.2
3.3
3.6
£m
26.9
18.0
44.9
96.2
186.0
£22.6m (2018: £23.5m) 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 2019 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.
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 20 on page 186.
184
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 20 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
39 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 17.
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
Derivative financial instruments designated as hedging instruments
Derivative financial instruments not designated as hedging instruments
Total
Note
17
20c
2019
£m
226.4
–
110.0
1.9
0.7
339.0
2018
£m
384.3
1.5
83.3
1.9
–
471.0
Included within cash at bank and on hand is cash restricted for use of £0.8m (2018: £4.1m) relating to cash received from customers in
relation to trade receivable balances derecognised under factoring arrangements and which is therefore owed to the factor. Also included
in the above cash balance in 2019 is £8.1m (2018: £nil) relating to cash held and restricted for use in relation to the asset backed funding
arrangement in connection with the UK defined benefit pension scheme. The interest received on cash deposits is at variable rates of interest
of up to 1.5% (2018: 1.5%).
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. The fair value is not significantly different to the carrying amount.
All of the deferred consideration in 2018 related to vendor loan notes in connection with the sale of the Turkish Air Handling business in
2017. This has been classified seperately in 2019 within assets held for sale.
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 17.
Of the above cash at bank on hand, £14.5m (2018: £20.1m) is denominated in Sterling, £76.9m (2018: £41.2m) in Euros, £17.2m (2018: £18m)
in Polish Zloty, and £1.4m (2018: £4.0m) 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
- Lease liabilities
Derivative financial instruments designated as hedging instruments
Derivative financial instruments not designated as hedging instruments
Total
* Excluding non-financial liabilities
Note
18
20c
2019
£m
297.6
278.0
–
275.6
2.1
–
853.3
2018
£m
381.1
247.8
0.9
23.4
4.1
–
657.3
185
Stock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
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.
2019 interest rate and currency profile
The interest rate and currency profile of the Group’s financial liabilities at 31 December 2019, after taking account of interest rate and
currency derivative financial instruments (including derivative assets of £2.6m as noted above) but excluding prepayment of arrangement fees
of £0.7m was as follows:
Private placement notes
Other borrowings
Lease contracts
Private placement notes
Other borrowings
Lease contracts
Other borrowings
Lease contracts
Lease contracts
Total
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Polish Zloty
Polish Zloty
Other
Total
£m
Floating rate
£m
Fixed rate
£m
Effective fixed
interest rate
%
20.9
101.2
136.8
153.2
2.8
128.2
0.1
9.0
1.4
553.6
–
70.0
–
–
1.0
–
0.1
2.6
–
73.7
20.9
31.2
136.8
153.2
1.8
128.2
–
6.4
1.4
479.9
4.2
1.6
0 – 6.2
3.5
2.8
1.7 – 7.3
n/a
3.2 – 8.3
3.9
Weighted
average time
for which rate
is fixed
Years
6.6
0.6
0.1 – 89.8
4.4
3.0
0.08 – 15.8
n/a
0.2 – 76.6
6.0
Amount
secured
£m
Amount
unsecured
£m
0
0
136.8
0.0
2.8
128.2
0.1
9.0
1.4
278.3
20.9
101.2
0.0
153.2
0.0
0.0
0.0
0.0
0.0
275.3
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2019 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. These derivatives also further
reduce the fixed interest payable of the Sterling private placement notes from 4.2% to 2.9%. The fair value of these derivatives was a net
liability of £1.9m which is included in the Sterling value of other borrowings in the table above. The Group’s net debt at 31 December 2019
was £455.4m (including IFRS16 adjustments) and, after taking account of these cross-currency derivatives, the Group had net Euro financial
liabilities of £229.7m.
All of the above lease contracts 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 2019 is estimated to be £200.2m (2018: £217.3m) and is
classified as a Level 2 fair value measurement for disclosure purposes. The remaining fixed rate debt amounts to £305.7m (2018: £57.4m)
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.
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:
Private placement notes
Other borrowings
Finance lease contracts
Private placement notes
Other borrowings
Finance lease contracts
Other borrowings
Finance lease contracts
Total
Currency
Sterling
Sterling
Sterling
Euro
Euro
Euro
Polish Zloty
Polish Zloty
Total
£m
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
21.3
61.0
13.3
162.5
5.8
8.2
0.2
2.0
274.3
–
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
11.4
21.3
61.0
13.2
162.5
4.9
–
–
–
262.9
In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2018 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 £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.
In both 2019 and 2018, the interest rate on floating rate financial liabilities is based upon appropriate local market rates.
186
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS c) Hedging activities and derivatives
The Group is exposed to foreign currency and interest rate risks relating to its ongoing business operations. 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.
In order to manage the Group's exposure to exchange rate and interest rate 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 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 are recognised in the Consolidated Statement
of Comprehensive Income. Where the criteria for hedge accounting are not met, movements are accounted for at fair value through profit or
loss. Financial instruments 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.
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. At 31 December 2019 the Group held €181m (2018: €181m) of direct Euro-
denominated debt through its 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 OCI to
offset any gains or losses on translation of the net investments in the subsidiaries.
As at 31 December 2019 the Group held two (31 December 2018: two) cross-currency derivative financial instruments which receive fixed
£20.9m and pay fixed €26.6m. These derivative financial instruments were designated as hedging instruments as part of the net investment
hedge of the Group’s Euro-denominated net assets. Fair value changes on these derivatives are recognised in other comprehensive income
(in the hedging and translation reserve) 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 2019
Cross-currency swap
Foreign currency denominated borrowing
Foreign currency denominated borrowing
At 31 December 2018
Cross-currency swap
Foreign currency denominated borrowing
Foreign currency denominated borrowing
Notional
amount
Carrying
amount
(Liability)
Line item in the
statement of finanical
position
€m
£m
26.6
1.9
181.0
–
153.2
–
Derivative financial
instruments
Private placement
notes
Bank loans
26.6
3.5
181.0
4.0
162.5
3.6
Derivative financial
instruments
Private placement
notes
Bank loans
Change in fair value
used for measuring
ineffectiveness for the
period
£m
1.6
9.3
–
0.8
1.6
–
187
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
The impact of the hedged item on the statement of financial position is as follows:
Net investment in foreign subisidiaries
31 December 2019
31 December 2018
Change in fair value
used for measuring
ineffectiveness
Foreign
currency
translation
reserve
Cost of
hedging
reserve
Change in fair value
used for measuring
ineffectiveness
Hedging and
translation
reserve
Cost of
hedging
reserve
£m
10.9
£m
8.7
£m
0.2
£m
2.4
£m
2.0
£m
–
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
2019
£m
(3.5)
1.6
(1.9)
2018
£m
(2.7)
(0.8)
(3.5)
ii) Cash flow hedges
With regard to cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in equity and is
subsequently removed and included in the Consolidated Income Statement within Finance costs in the same period that the hedged item
affects the Consolidated Income Statement. The cash flow hedges described below are expected to impact upon both profit and loss and
cash flow annually over the life of the hedging instrument and the related debt as interest falls due, and upon maturity of the debt and related
hedging instrument.
Foreign currency risk
The Group faces a translation risk from the US Dollar on its private placement borrowings in respect of payments of interest and the principal
amount. As at 31 December 2019, the Group held two (31 December 2018: two) cross-currency interest rate swaps which swap fixed
US Dollar-denominated debt (and the associated interest) 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 6.6 years (2018: 7.6 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
2019
£m
1.9
(0.2)
–
1.7
2018
£m
0.1
1.8
–
1.9
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
2019 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 derivative financial instruments is £0.2m (2018: £nil) relating to forward foreign exchange contracts.
Interest rate risk
The Group has floating rate debt as part of the revolving credit facility which means interest rate costs will increase in the event of rising
interest rates. As at 31 December 2019, the Group held one (31 December 2018: one) 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 2019, the maturity date of this swap is 0.6 years (2018: 1.6 years).
Hedge of the Group's interest cash
flows
Liability at 1 January
Fair value gains/(losses) recognised in equity
Liability at 31 December
2019
£m
(0.3)
0.1
(0.2)
2018
£m
(0.8)
0.5
(0.3)
188
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS For the cash flow hedges, 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). 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.
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 2019
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
At 31 December 2018
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
Notional
amount
$m
Notional
amount
€m
Notional
Amount
£m
Maturity
Average
hedged rate
Average
forward rate
30.0
n/a
n/a
30.0
n/a
n/a
n/a
n/a
30.5
n/a
n/a
111.0
20.9
30.0
25.7
(20.9)
(30.0)
(106.4)
2026
2020
2020
2026
2020
2019
4.17%
1.58%
n/a
n/a
1.58%
n/a
1.436
n/a
1.186
1.435
n/a
1.043
The impact of the hedging instruments on the statement of financial position is as follows:
At 31 December 2019
Cross-currency swaps
Interest rate swap
Foreign exchange forward contracts
At 31 December 2018
Cross-currency swap
Interest rate swap
Foreign exchange forward contracts
Carrying amount
£m
Line item in the statement
of finanical position
Change in fair value used
for measuring ineffectiveness
for the period
£m
1.7 Derivative financial instruments
(0.2) Derivative financial instruments
0.2 Derivative financial instruments
1.9
(0.3)
(0.2)
Derivative financial instruments
Derivative financial instruments
Derivative financial instruments
(0.1)
0.1
0.4
1.8
0.5
(0.3)
The impact of the hedged item on the statement of financial position is as follows:
Cross-currency swaps
Interest rate swap
Foreign exchange forward contracts
31 December 2019
31 December 2018
Change in fair value
used for measuring
ineffectiveness
Cash flow
hedging
reserve
Cost of
hedging
reserve
Change in fair value
used for measuring
ineffectiveness
Hedging and
translation
reserve
Cost of
hedging
reserve
£m
(0.1)
0.1
0.4
£m
0.8
0.1
0.4
£m
(0.9)
–
–
£m
1.8
0.5
(0.3)
£m
1.7
0.5
(0.3)
£m
0.1
–
–
The effect of the cash flow hedges in the statement of profit or loss and other comprehensive income is as follows:
189
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
At 31 December 2019
Cross-currency swaps
Interest rate swap
Foreign exchange forward contracts
At 31 December 2018
Cross-currency swap
Interest rate swap
Foreign exchange forward contracts
Total
hedging
gain/(loss)
recognised
in OCI
€m
Ineffective-
ness
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
(0.1)
0.1
0.4
–
–
–
–
–
–
–
–
–
Finance
costs
Finance
costs
Finance
costs
Finance
costs
Finance
costs
Finance
costs
–
– Operating
expenses
Finance
costs
– Operating
expenses
–
1.3 Operating
expenses
Finance
costs
– Operating
expenses
Deriviatives not designated as hedging instruments
The Group also uses some foreign exchange forward contracts which are not designated as cash flow hedges to manage some of its
transaction exposures and are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally
within one month. As at the year end there were two (2018: zero) such items with a total carrying amount of £0.7m (2018: £nil). This primarily
related to an option to pay Euros at a fixed rate to coincide with the receipt of the proceeds from the Air Handling sale.
iii) Impact of hedging on equity
Set below is the reconciliation of each component of equity and the analysis of other comprehensive income:
Retained (losses)/profits
Cash flow hedging reserve
2019
£m
(68.9)
2018
£m
(59.5)
2019
£m
–
(1.3)
–
1.3
2018
£m
–
–
Foreign currency
translation
reserve
2019
£m
21.7
2018
£m
19.6
Cost of hedging reserve
2019
£m
1.0
2018
£m
0.9
–
–
–
–
At 1 January
Transfer to cash flow hedging
reserve*
Effective portion of changes in fair
value arising from:
Net Investment Swaps
Cross-currency swaps
Interest rate swaps
Foreign exchange forward contracts
–
–
–
–
–
–
1.7
0.5
(0.3)
–
–
0.8
0.1
0.4
0.9
–
–
–
–
–
1.4
–
–
–
–
–
–
–
–
–
0.2
(0.9)
–
–
–
–
0.1
–
–
–
–
–
–
–
9.3
–
–
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
1.0
At 31 December
* Amounts have been reclassified during the year to clarify the effects of hedging and separately identify the cash flow hedging reserve and
foreign currency retranslation reserve. The cash flow hedging reserve and foreign currency translation reserve are included together as
"Hedging and Translation Reserves" in the Consolidated Statement of Changes in Equity.
(154.7)
(224.9)
(23.5)
(2.1)
(11.3)
(68.9)
–
21.7
–
3.5
0.7
(0.4)
–
6.7
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
1.8
(0.1)
–
–
–
–
–
–
–
–
–
190
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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.
Gains on derivative financial instruments recognised directly in the Consolidated Income Statement
Losses 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
* 2018: £0.3m of the £0.6m spreading charge has been recognised within Finance costs before other items.
2019
£m
0.7
–
–
–
–
0.7
2018
£m
1.1
(1.1)
(1.3)
–
0.6
(0.7)
21 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 2019 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
2019
£m
327.4
48.8
95.0
81.9
553.1
2018
Restated
£m
66.4
29.6
67.2
111.0
274.2
The table above is presented consistent with the balance sheet presentation and includes the private placement notes as a current liability
rather than based on contractual maturity, as explained in Note 19. The table excludes trade payables of £235.6m (2018: £308.1m).
Borrowing facilities
The Group had undrawn committed borrowing facilities at 31 December 2019 as follows:
Expiring in more than one years but
not more than two years
Expiring in more than two years but not more than five years
Total
2019
£m
133.3
–
133.3
2018
£m
–
293.5
293.5
At 31 December 2019 the Group had £409.1m of committed facilities, of which £133.3m were undrawn as disclosed above, this has reduced
from the prior year as a result of the Group reducing its Revolving Credit Facility (RCF) facility from £350m to £233.3m. Since 31 December
2019, a maximum of £160.0m has been drawn down against the £233.3m 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.
191
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
2019 Analysis
Current liabilities
Trade and other payables
Lease liabilities
Bank overdrafts
Bank loans
Private placement notes
Derivative financial instruments
Other financial liabilities
Loan notes and deferred
consideration
Total
Non-current liabilities
Lease liabilities
Private placement notes
Derivative financial instruments
Other Financial Liabilities
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
297.6
51.5
–
99.6
175.5
0.2
1.5
–
625.9
224.1
–
1.9
1.4
227.4
853.3
(2.6)
(110.0)
–
(294.7)
(407.3)
446.0
< 1 year
£m
297.6
62.4
–
100.4
31.8
0.2
1.5
–
493.9
0.5
–
(0.2)
–
0.3
494.2
(1.4)
(110.0)
–
(294.7)
(406.1)
88.0
Maturity analysis
2-5 years
£m
–
–
–
–
54.9
–
–
–
54.9
110.3
–
(0.6)
1.0
110.7
165.6
(0.6)
–
–
–
(0.6)
165.0
1-2 years
£m
–
–
–
–
22.4
–
–
–
22.4
55.0
–
(0.2)
0.4
55.2
77.6
(0.2)
–
–
–
(0.2)
77.4
> 5 years
£m
–
–
–
–
97.1
–
–
–
97.1
114.8
–
1.2
–
116.0
213.1
(2.1)
–
–
–
(2.1)
211.0
Total
£m
297.6
62.4
–
100.4
206.2
0.2
1.5
–
668.3
280.6
–
0.2
1.4
282.2
950.5
(4.3)
(110.0)
–
(294.7)
(409.0)
541.5
At 31 December 2019, the private placement notes have been reclassified in the balance sheet as a current liability as explained in Note 19.
The contractual maturity profile is unaffected and details of the contractual repayment profile of the private placement notes are shown in
Note 19. The table above reflects the contractual maturity for repayments of principal and interest.
The table above includes: cross-currency interest rate swaps in relation to derivative financial assets with a fair value at 31 December 2019
of £1.7m (2018: £1.8m) and derivative financial liabilities of £1.9m (2018: £3.5m) that will be settled gross, the final exchange on these
derivatives will be a payment of €26.6m and receipt of $30.0m in August 2026; and other derivative financial assets with a fair value at 31
December 2019 of £0.9m (2018: £0.6m) and derivative financial liabilities of £0.2m (2018: nil) that will be settled gross, the final exchange
on these derivatives will be total receipts of €30.5m (2018: €111m), PLN 31m (2018: PLN 31m) and £62.3m (2018: £nil) and corresponding
payments of £31.8m (2018: £106.4m) and €72.5m (2018: €nil).
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements:
As at 31 December 2019
Derivative financial assets
Derivative financial liabilities
Total
Gross amounts
of recognised
financial assets/
(liabilities)
£m
Amounts
available to offset
through netting
agreements
£m
2.6
(2.1)
0.5
(1.7)
1.7
–
Net amount
£m
0.9
(0.4)
0.5
192
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 2018 Analysis
Current liabilities
Trade and other payables
Obligations under finance lease
contracts
Bank overdrafts
Bank loans
Derivative financial instruments
Other financial lliabilities
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 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
447.6
20.2
185.6
3.8
209.6
657.2
(1.9)
(83.3)
(1.5)
(477.7)
(564.4)
92.8
< 1 year
£m
381.1
3.3
4.5
56.6
0.3
1.1
0.9
447.8
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
70.8
(0.5)
77.7
77.7
(0.7)
–
(0.5)
–
(1.2)
76.5
–
–
–
–
–
–
–
–
22.9
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 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
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)
193
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
22 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.
2019 analysis
Profit or loss
Other equity
Total Shareholders' equity
2018 analysis
GBP
EUR
USD
Total
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
(1.1)
0.1
(1.0)
1.1 (i)
– (ii)
1.1
–
1.7
1.7
– (iii)
(1.7) (iv)
(1.7)
–
(1.5)
(1.5)
–
1.6 (ii)
1.6
(1.1)
0.3
(0.8)
1.1
(0.1)
1.0
GBP
EUR
USD
Total
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
+100bp
£m
-100bp
£m
Profit or loss
Other equity
Total Shareholders' equity
(0.2)
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)
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
194
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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.
2019 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
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
EUR
+10%
£m
-10%
Em
USD
+10%
£m
-10%
£m
PLN
+10%
£m
-10%
£m
Total
+10%
£m
-10%
£m
(0.7)
0.1
(0.6)
–
(6.0)
(6.0)
0.9 (i)
(1.3) (ii)
(0.4)
– (iii)
7.3 (iv)
7.3
–
–
–
–
(2.0)
(2.0)
–
– (ii)
–
– (v)
2.5 (iv)
2.5
–
(1.4)
(1.4)
–
(3.5)
(3.5)
–
1.8 (ii)
1.8
– (vi)
4.4 (iv)
4.4
(0.7)
(1.3)
(2.0)
–
(11.5)
(11.5)
0.9
0.5
1.4
–
14.2
14.2
EUR
+10%
£m
-10%
£m
USD
+10%
£m
-10%
£m
PLN
+10%
£m
-10%
£m
Total
+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)
(0.2)
(7.1)
(7.3)
(1.4)
29.1
27.7
* 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
195
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
23 Provisions for liabilities and charges
Onerous
leases
£m
Leasehold
dilapidations
£m
Other
amounts
£m
At 1 January 2019
Impact of adoption of IFRS 16
Adjusted balance at 1 January 2019
Unused amounts reversed in the period
Utilised
Reclassified
New provisions
Exchange differences
Provisions classified as held for sale (Note 11)
At 31 December 2019
Included in current liabilities
Included in non-current liabilities
Total
6.4
(3.9)
2.5
–
(3.7)
(0.3)
3.9
(0.1)
–
2.3
20.9
–
20.9
–
(1.9)
0.3
3.1
(0.1)
(0.5)
21.8
4.1
–
4.1
(0.3)
(1.8)
–
0.9
(0.2)
(1.5)
1.2
2019
£m
6.7
18.6
25.3
Total
£m
31.4
(3.9)
27.5
(0.3)
(7.4)
–
7.9
(0.4)
(2.0)
25.3
2018
£m
11.0
20.4
31.4
Onerous leases
In the year ended 31 December 2018, the Group provided for the rental payments due over the remaining term of existing operating lease
contracts where a period of vacancy is ongoing until 2029. The provision was 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 covered potential transfer of economic benefit over the full range of lease commitments disclosed in Note 30b. On
adoption of IFRS 16 on 1 January 2019, the future rental payments due over the remaining term of existing lease contracts is included in the
lease liability, with the right-of-use asset impaired to reflect the future cost not covered through sublease income. The remaining onerous
lease provision relates to other non-rental costs due over the remaining lease term.
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 25 and 30b
(reinstatement) 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.
196
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 24 Deferred tax
The net deferred tax asset at the end of the year is analysed as follows:
Deferred tax assets:
- Continuing operations
- Disposal groups held for sale (Note 11)
Deferred tax liabilities:
- Continuing operations
- Disposal groups held for sale (Note 11)
Net deferred tax asset
2019
£m
4.4
3.0
–
(1.0)
6.4
2018
Restated
£m
14.6
–
(1.4)
–
13.2
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:
At 1 January 2018
Credit/(charge) to income
Credit/(charge) to equity
Exchange differences
Change of rate charged to equity
At 31 December 2018
Impact of adoption of IFRS 16
Adjusted balance at 1 January 2019
Credit/(charge) to income
Credit/charge to equity
Exchange differences
Change of rate charged to equity
Attributable to discontinued
operations
At 31 December 2019
Goodwill and
intangibles
£m
Property, plant
and equipment
£m
Short term
timing
differences
£m
Retirement
benefit
obligations
£m
Losses
£m
Other
£m
(8.7)
2.6
–
–
–
(6.1)
(6.1)
1.4
–
–
–
0.6
(4.1)
11.6
(1.4)
–
–
–
10.2
–
10.2
(5.3)
–
–
–
0.1
5.0
4.3
(0.8)
–
–
–
3.5
3.5
(1.4)
–
(0.1)
–
0.3
2.3
5.9
(0.6)
0.1
–
–
5.4
5.4
3.9
(6.6)
(0.1)
–
0.1
2.7
2.9
0.4
–
–
–
3.3
3.3
–
–
(0.1)
–
–
3.2
(3.7)
0.8
(0.2)
–
–
(3.1)
(3.1)
0.2
–
0.2
–
–
(2.7)
Total
£m
12.3
1.0
(0.1)
–
–
13.2
–
13.2
(1.2)
(6.6)
(0.1)
–
1.1
6.4
The deferred tax charge within the Consolidated Income Statement for 2019 includes a charge of £1.0m (2018: credit £0.3m) arising from the
change in domestic tax rates in the countries in which the Group operates.
Given current and forecast trading the Directors consider that recognition of the deferred tax assets above is appropriate.
The majority of the deferred tax asset associated with the retirement benefit obligations is in respect of the French and German defined
benefit schemes. 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 £87.7m of deductible temporary differences relating to property, plant and equipment; short term
timing differences; UK retirement benefit obligations and 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 items is £15.2m (2018: £1.7m).
At the balance sheet date, no deferred tax liability is recognised on temporary differences relating to undistributed profits of the overseas
subsidiaries which aggregate to £204m (2018: £163m). 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.
At 31 December 2019, a net deferred tax asset of £1.7m in respect of property, plant and equipment was recognised in respect of the
Building Solutions business. Since the business was to be sold after the balance sheet date and would no longer be part of the SIG Group,
it was considered appropriate to recognise this asset on the basis that the business was able to provide evidence of suitable future taxable
profits against which the asset would unwind.
197
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
25 Leases
The Group as a lessee
The Group has lease contracts for various properties, vehicles and other equipment used in its operations. Information on the nature and
accounting for lease contracts, together with the impact on adoption of the new standard at 1 January 2019, is provided in the Statement of
Accounting Policies.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
On adoption of IFRS 16 at 1 January 2019
Foreign currency movement
Additions
Disposals
Impairment
Depreciation expense
Classified as held for sale
At 31 December 2019
Buildings
£m
Vehicles
£m
Equipment
£m
272.9
(10.3)
54.6
(2.8)
(1.5)
(48.5)
(43.2)
221.2
38.2
(1.0)
8.8
(0.4)
–
(12.0)
(0.8)
32.8
1.7
–
–
–
–
(0.5)
–
1.2
Set out below are the carrying amounts of lease liabilities and the movements during the year:
On adoption of IFRS 16 at 1 January 2019
Foreign currency movement
Additions
Disposals
Accretion of interest
Payments
Classified as held for sale
At 31 December 2019 (Note 21)
Current
Non-current
The following are the amounts recognised in profit or loss (from continuing operations):
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases (included in operating expenses)
Impairment of right-of-use assets (included in other items)*
Total amount recognised in profit or loss
Total
£m
312.8
(11.3)
63.4
(3.2)
(1.5)
(61.0)
(44.0)
255.2
2019
£m
329.6
(10.4)
63.4
(3.1)
13.9
(72.5)
(45.3)
275.6
51.5
224.1
275.6
2019
£m
54.4
12.0
1.4
1.5
69.3
* £1.0m is included within 'Impairment charges' within Other items and £0.5m relating to the Maury business is included within 'Profits and
losses on agreed sale or closure of non-core businesses and associated impairment charges' within Other items.
The Group had total cash outflows for leases of £67.8m in 2019. The Group also had non-cash additions to right-of-use assets and lease
liabilities of £nil in 2019. The future cash outflows relating to leases that have not yet commenced are disclosed in Note 30b.
The Group has several lease contracts that include extension and termination options. These options are negotiated by management to
provide flexibiity in managing the lease-asset portfolio and align with the Group's business needs. Management exercises judgement in
determining whether these extension and termination options are reasonably certain to be exercised (as disclosed in the Statement of
Significant Accounting policies on page 143).
Set out below are the undiscounted potential future rental payments relating to periods following the expiry date of extension and
termination options that are not included in the lease term.
Extension options expected not to be exercised
Termination options expected to be exercised
198
Within five
years
£m
More than
five years
£m
23.6
9.1
32.7
0.1
0.3
0.4
Total
£m
23.7
9.4
33.1
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Prior to the transition of IFRS 16 the Group classified leases as either finance or operating leases. The amounts recognised in the prior year in
relation to finance leases were as follows:
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
2018
£m
Present value of
minimum lease
payments
2018
£m
3.2
7.1
13.1
23.4
4.5
11.2
22.9
38.6
(15.2)
23.4
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 at 31 December 2018 was 4.4 years and for property was 22.3
years. For the year ended 31 December 2018, the average effective borrowing rate for motor vehicles, fixtures and equipment was 4.3% and
for property was 6.9%. Interest rates are fixed at the contract date.
The carrying amount of the Group's lease obligations approximates to their fair value.
The Group as a lessor
The Group is an intermediate lessor of a number of property leases which are subleased to a third party. In accordance with IFRS 16 these
subleases have been reassessed and a number that were previously classified as operating leases are now classified as finance leases. This
resulted in recognition of lease assets receivable of £5.8m on adoption at 1 January 2019 and £5.2m at 31 December 2019. These leases
have terms of between 1 and 11 years. Rental income recogised by the Group during the year is £1.0m.
Future lease payments receivable from sub-leases classified as finance leases at 31 December 2019 are as follows:
Within one year
After one year but not more than five years
More than five years
Less: future finance charges
Lease assets receivable
Future minimum rentals receivable under non-cancellable operating leases at 31 December 2019 are as follows:
Within one year
After one year but not more than five years
More than five years
26 Called up share capital
Authorised:
800,000,000 ordinary shares of 10p each (2018: 800,000,000)
Allotted, called up and fully paid:
591,556,982 ordinary shares of 10p each (2018: 591,556,982)
There were no shares allotted during 2019 (2018: 8,747).
The Company has one class of ordinary share which carries no right to fixed income.
2019
£m
80.0
59.2
2019
£m
1.0
3.7
1.5
6.2
(1.0)
5.2
2019
£m
0.2
0.8
0.2
1.2
2018
£m
80.0
59.2
199
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
27 Reconciliation of profit/(loss) before tax to cash generated from operating activities
Profit/(loss) before tax from continuing operations
Profit/(loss) before tax from discontinued operations
Profit/(loss) before tax
Depreciation of property, plant and equipment (Note 10)
Depreciation of right-of-use assets (Note 25)
Net finance costs
Amortisation of computer software (Note 14)
Amortisation of acquired intangibles (Note 14)
Impairment of computer software (Note 14)
Impairment of property, plant and equipment (Note 10)
Impairment of goodwill (Note 13)
Impairment of right-of-use asset
Profit on agreed sale or closure of non-core businesses (Note 11)
Profit on sale of property, plant and equipment
Settlement of amounts payable for previous purchases of business dependent on vendors remaining
within the business
Share-based payments
Net foreign exchange differences
Decrease in provisions
Working capital movements:
- Decrease in inventories
- (Increase)/decrease in receivables
- Increase/(decrease) in payables
Cash generated from operating activities
2019
£m
(112.7)
3.8
(108.9)
15.2
61.0
26.3
4.5
8.1
0.3
0.6
89.6
1.0
(0.1)
(1.4)
–
0.1
(1.3)
(2.9)
1.7
95.6
(23.4)
166.0
2018
Restated
£m
10.3
18.2
28.5
19.7
–
15.8
4.4
8.9
1.1
3.4
–
–
6.7
(7.5)
(6.0)
0.4
–
(1.9)
30.1
(6.5)
6.5
103.6
Included within the cash generated from operating activities is a defined benefit pension scheme employer's contribution of £2.5m (2018:
£3.1m).
Of the total profit on sale of property, plant and equipment, £nil (2018: £1.1m) has been included within Other items of the Consolidated
Income Statement (see Note 2).
200
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 28 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
Impact of adoption of IFRS 16 at 1 January 2019
Net debt at 31 December
2019
£m
71.6
(37.6)
34.0
–
–
(6.4)
6.8
34.4
(189.4)
(300.4)
(455.4)
2018
£m
(0.1)
75.5
75.4
0.1
(0.9)
(3.3)
(2.0)
69.3
(258.7)
–
(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 and cash restricted for use in relation to the asset
backed funding arrangement implemented in relation to the UK defined benefit pension plan. The £8.1m restricted cash is included within cash and cash equivalents on the consolidated
balance sheet but is deducted in arriving at net debt above as shown in Note 28. See Note 30c for further details.
Net debt is defined as follows:
Non-current assets:
Derivative financial instruments
Deferred consideration
Lease receivables
Current assets:
Derivative financial instruments
Lease receivables
Deferred consideration
Cash at bank and on hand
Less restricted cash in relation to asset backed funding arrangement
Financial assets held for sale
Current liabilities:
Lease liabilities
Bank overdrafts
Bank loans
Private placement notes
Loan notes and deferred consideration
Other financial liabilities
Derivative financial instruments
Lease liabilities directly associated with liabilities classified as held for sale
Non-current liabilities:
Lease liabilities
Private placement notes
Derivative financial instruments
Other financial liabilties
Net debt
2019
£m
1.7
–
4.4
0.9
0.8
–
110.0
(8.1)
35.9
(51.5)
–
(99.6)
(175.5)
–
(1.5)
(0.2)
(45.3)
(224.1)
–
(1.9)
(1.4)
(455.4)
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)
201
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
29 Analysis of net debt
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
Lease liabilities
Net debt
At 31
December
2018
£m
Impact of
adoption of
IFRS 16
£m
At 1 January
2019
£m
Cash flows
£m
Non-cash
items*
£m
Exchange
differences
£m
83.3
(4.5)
78.8
1.5
1.5
1.9
(58.8)
(189.4)
(23.4)
(269.7)
(189.4)
83.3
(4.5)
78.8
7.3
7.3
1.9
(58.8)
(189.4)
(329.6)
(575.9)
(489.8)
67.1
4.5
71.6
(0.8)
(0.8)
–
(41.5)
–
4.7
(36.8)
34.0
(8.1)
–
(8.1)
(0.5)
(0.5)
1.0
(178.3)
176.0
3.5
2.2
(6.4)
(5.3)
–
(5.3)
–
–
(0.3)
1.6
10.2
0.6
12.1
6.8
5.8
5.8
(306.2)
(306.2)
(300.4)
At 31
December
2019
£m
£m
137.0
–
137.0
6.0
6.0
–
2.6
(277.0)
(3.2)
(320.8)
(598.4)
(455.4)
* 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 and cash restricted for use in relation to the asset
backed funding arrangement implemented in relation to the UK defined benefit pension plan. The £8.1m restricted cash is included within cash and cash equivalents on the consolidated
balance sheet but is deducted in arriving at net debt above as shown in Note 28. See Note 30c for further details.
^ The £41.6m cash flow in relation to debts due within one year includes £0.9m settlement of deferred consideration.
30. Guarantees and other financial commitments
a) Capital commitments
The purchase of property, plant and equipment contracted but not provided for
2019
£m
6.3
2018
£m
1.7
At 31 December 2019 the Group is also committed to further licence costs of £12.3m which will be recognised in the income statement over
the period 2021 to 2023.
b) Lease commitments
The Group has various lease contracts that have not yet commenced as at 31 December 2019. The future lease payments for these non-
cancellable lease contracts are £0.9m within one year, £1.0m within five years and £0.7m thereafter.
Information on the Group's leasing arrangements is included in Note 25. Prior to the transition to IFRS 16 on 1 January 2019 the Group
classified leases as either finance or operating leases. The disclosures provided in the prior year in relation to commitments under operating
leases are as follows:
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
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
202
2018
£m
50.5
124.8
75.9
251.2
2018
£m
16.0
26.4
1.9
44.3
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS
c) Pension schemes
The Group operates a number of pension schemes, six (2018: six) of which provide defined benefits based on final pensionable salary. Of
these schemes, one (2018: one) has assets held in a separate trustee administered fund and five (2018: five) are overseas book reserve
schemes. Two of the overseas schemes are within the Air Handling business and are therefore classified within assets and liabilities held for
sale and not included below. 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 is classified 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 decreased to 97.7% as at 31 December 2019 (2018: 104.9%). No change was made
to the pension premium percentage of 22.2% (2018: 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 Company's participation in this scheme represents c.0.1% of the total
members. The Company is not liable for other participants' obligations, and there is no agreed allocation of surplus or deficit on withdrawal
from the scheme or on winding up of the scheme. The Company is not aware of any planned changes to contributions or benefits at the
current time.
The Group's total pension charge for the year (from continuing operations), including amounts charged to interest and Other items, was
£7.0m (2018: £8.5m), of which a charge of £0.7m (2018: £1.5m) related to defined benefit pension schemes and £6.3m (2018: £7.9m) 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. On 30 June 2016 the UK
defined benefit pension scheme was closed to future benefit accrual.
Following the last triennial valuation of the UK scheme ("the Plan"), the Company and the Trustees agreed to fund the triennial pension deficit
and increase security of the Plan using an asset backed funding arrangement under a partnership arrangement, which was implemented in
March 2018. The asset backed funding arrangement transfers certain rights over a managed pool of certain customer receivables of one of
the Group's subsidiary companies to the partnership and provides a mechanism to settle future funding commitments from receipts from
higher quality trade receivables to ensure contributions to the Plan of £2.5m per annum for up to 20 years (as may be required and subject
to certain discretions). The partnership is controlled by the Group and is therefore included within the consolidated financial statements.
The receivables continue to be recognised on the consolidated balance sheet, and the Plan’s interest in the partnership is a non-transferable
financial asset issued by the Group, and therefore does not constitute a plan asset for the Group. Distribution of income to the partners
of the partnership, which forms the contribution to the Plan, is at the discretion of the General Partner, a subsidiary of the Group. There is
however a guarantee in place which ensures that the Group's subsidiary, SIG Trading Limited, will make an equivalent contribution to the
Plan if the partnership does not effect the discretionary distribution. The Group is therefore committed to making a contribution of £2.5m
per annum until the structure terminates at the end of 20 years or earlier if the funding level of the Plan increases to greater than 115% of
Technical Provisions before the end of the term. The contribution during 2018 was higher due to S75 debt in respect of the departure of SIG
Trading Ireland from the plan.
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.
203
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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 £0.5m (2018: £0.4m) relating to the defined benefit pension
schemes, was £0.7m (2018: £1.5m). In 2018 this charge also included £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 was charged to Other Items within the Consolidated
Income Statement in 2018.
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 2019 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.
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
2019
£m
(24.8)
2.7
(22.1)
2018
£m
(28.7)
5.4
(23.3)
The actuarial loss of £1.8m (2018: £0.1m gain) for the year, together with the associated deferred tax charge of £6.6m (2018: credit of £0.1m)
has been recognised in the Consolidated Statement of Comprehensive Income. In addition a deferred tax credit of £3.9m (2018: charge of
£0.6m) has been recognised in the Consolidated Income Statement.
Of the above pension liability before taxation, £15.9m (2018: £17.2m) relates to wholly or partly funded schemes and £8.9m (2018: £11.5m)
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
Transfer to liabilities associated with assets held for sale
Effect of changes in exchange rates
Pension liability at 31 December
204
2019
£m
(28.7)
(0.5)
–
2.6
(0.5)
–
(1.8)
3.4
0.7
(24.8)
2018
£m
(30.4)
(0.1)
–
3.1
(0.4)
(1.0)
0.1
–
–
(28.7)
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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
2019
%
n/a
1.6
2.9
2.1
3.0
2018
%
n/a
1.7
3.0
3.0
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 21.8 years (2018: 21.9 years). The
life expectancy on retirement at age 65 of a male employee currently aged 45 years is 23.1 years (2018: 23.3 years). The life expectancy for
a female employee beyond the normal retirement age of 65 is 23.6 years (2018: 23.8 years). The life expectancy on retirement at age 65 of a
female employee currently aged 45 years is 25.2 years (2018: 25.4 years).
The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the
end of the reporting period, while holding all other assumptions constant. If the discount rate were to be increased/decreased by 0.1%, this
would decrease/increase the Group's gross pension scheme deficit by £3.1m. If the rate of inflation increased/decreased by 0.1% this would
increase/decrease the Group's gross pension scheme deficit by £1.5m. If the life expectancy for employees increased by one year the Group's
gross pension scheme deficit would increase by £8.2m. 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 2019 is 19 years (2018: 19 years).
The fair value of assets held at the balance sheet date were:
Equities
Corporate and government bonds
Investment funds
Property
Cash and net current assets
Total fair value of assets
2019
£m
59.6
80.1
15.3
7.6
0.9
2018
£m
52.8
70.2
13.8
8.7
0.6
163.5
146.1
All equity and debt instruments have quoted prices in active markets and can be classified as Level 2 instruments, other then property which
is Level 3.
The amount included in the Consolidated Balance Sheet arising from the Group's obligation in respect of its defined benefit schemes is as
follows:
Fair value of assets
Present value of scheme liabilities
Net liability recognised in the Consolidated Balance Sheet
2019
£m
163.5
(188.3)
(24.8)
2018
£m
146.1
(174.8)
(28.7)
The overall expected rate of return is based upon market conditions at the balance sheet date.
Amounts recognised in the Consolidated Income Statement (from continuing operations) 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
2019
£m
0.2
–
0.5
0.7
2018
£m
0.1
1.0
0.4
1.5
205
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
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
2019
£m
18.9
1.8
(22.5)
–
(1.8)
The remeasurement of the net defined benefit liability is included within the Consolidated Statement of Comprehensive Income.
Movements in the present value of the schemes' liabilities were as follows:
Present value of schemes' liabilities at 1 January
Current service cost
Interest on pension schemes' liabilities
Benefits paid
Payment of unfunded benefits
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
Transfer of liabilities associated with assets held for sale
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
Transer of assets held for sale
Fair value of schemes' assets at 31 December
2019
£m
(174.8)
(0.5)
(4.7)
7.3
–
0.7
–
1.8
(22.5)
–
4.4
(188.3)
2019
£m
146.1
4.2
18.9
2.6
(7.3)
(1.0)
163.5
2018
£m
(10.9)
0.9
10.1
–
0.1
2018
£m
(191.7)
(0.1)
(4.5)
12.4
–
–
(1.0)
0.9
9.2
–
–
(174.8)
2018
£m
161.3
4.1
(10.0)
3.1
(12.4)
–
146.1
d) Contingent liabilities
As at the balance sheet date, the Group had outstanding obligations under customer guarantees, claims, standby letters of credit and
discounted bills of up to £13.4m (2018: £11.0m). Of this amount, £8.0m (2018: £8.0m) 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 £2.1m. 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.
As disclosed on page 90 the Company referred itself to the FCA regarding the circumstances leading to the trading update issued on 9
January 2020. Since such self-referral the Company has provided to the FCA a copy of the report prepared by PricewaterhouseCoopers LLP.
The FCA has wide-ranging powers to investigate potential breaches of market rules and regulations, including the power to require disclosure
of documents and to compel witnesses to be interviewed. The FCA also has wide-ranging powers to impose sanctions in the event it finds an
issuer has breached market rules or regulations, including censuring issuers and imposing financial sanctions. There is no certainty whether
the FCA will open an investigation into the Company; how long any such investigation would take to conclude; the findings of the FCA and any
remedy imposed by the FCA. At this point, the Company considers this to be a possible obligation whose existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company and, accordingly, no
provision has been recognised. The Company does not believe it is possible to make a reliable estimate of the potential financial effect in the
event that the Company was determined to have any liability that may arise from this matter.
206
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 31 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 and net trade payables in respect of the co-operative
amounted to £8.0m at 31 December 2018. This is not a related party for 2019.
In 2019, SIG incurred expenses of £0.4m (2018: £0.2m) on behalf of the SIG plc Retirement Benefits Plan, the UK defined benefit pension
scheme.
Remuneration of key management personnel
The total remuneration of key management personnel of the Group, being the Group Executive Committee members and the Non-Executive
Directors (see page 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/(credit)
2019
£m
4.3
0.4
0.1
4.8
2018
£m
4.8
0.5
0.4
5.7
32 Subsidiaries
Details of the Group's subsidiaries, all of which have been included in the Financial Statements, are shown on pages 242 to 243.
207
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
33 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 by 31 December 2019.
These measures are used by management for performance analysis, planning, reporting and incentive setting purposes and remain
consistent year-on-year.
Information regarding covenant calculations (Notes 33b, 33d and 33h) is provided to show the financial measures used to calculate financial
covenants as defined by the banking agreements.
In 2019 a number of these measures also reconcile the reported numbers to what would have been reported prior to the adoption of IFRS
16, in order to allow comparison between periods and to reconcile to numbers used in covenant calculations which are prepared on a frozen
GAAP basis.
a) Underlying operating profit and profit before tax excluding impact of IFRS 16
A number of the alternative performance measures use underlying operating profit and underlying profit before tax excluding the impact of
IFRS 16, in order to allow comparison with the previous year and to reconcile to numbers used in covenant calculations.
Continuing operations
Operating profit from continuing operations
Operating lease rentals
Additional depreciation from adoption of IFRS 16
Impairment of right-of-use assets and onerous lease adjustment
Adjustment due to treatment of sale and leaseback transaction
Operating profit excluding impact of IFRS 16
Add back:
Other items
Less right-of-use asset impairment and onerous lease costs included in Other items
Underlying operating profit excluding impact of IFRS 16
Net finance costs
Add back:
Additional underlying net finance costs from adoption of IFRS 16
Non-underlying finance costs
Net fair value losses on derivative financial instruments
Unwinding of provision discounting
Underlying profit before tax excluding impact of IFRS 16
Income tax expense
Reduction in tax expense from adoption of IFRS 16
Add back:
Tax credit associated with Other items, excluding items on adoption of IFRS 16
Underlying profit after tax excluding impact of IFRS 16
2019
£m
(87.9)
(57.5)
50.9
1.6
0.4
(92.5)
127.5
(1.5)
33.5
(24.8)
11.1
0.8
–
–
20.6
(11.4)
(1.5)
(4.1)
3.6
2018
Restated
£m
26.2
–
–
–
–
26.2
40.7
–
66.9
(15.9)
–
0.7
0.3
0.2
52.2
(6.2)
–
(8.2)
37.8
208
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Discontinued operations
Operating profit from discontinued operations
Operating lease rentals
Additional depreciation from adoption of IFRS 16
Operating profit from discontinued operations excluding impact of IFRS 16
Add back:
Other items
Underlying operating profit from discontinued operations excluding impact of IFRS 16
Net finance costs
Add back:
Additional net finance costs from adoption of IFRS 16
Underlying profit before tax from discontinued operations excluding impact of IFRS 16
Income tax expense
Reduction in tax expense from adoption of IFRS 16
Add back:
Tax credit associated with Other items
Underlying profit after tax from discontinued operations excluding impact of IFRS 16
Other business held for sale
Operating profit from business held for sale
Operating lease rentals
Additional depreciation from adoption of IFRS 16
Operating profit from business held for sale excluding impact of IFRS 16
Net finance costs
Add back:
Additional net finance costs from adoption of IFRS 16
Underlying profit before tax from business held for sale excluding impact of IFRS 16
Note
12
Note
11
Underlying profit before tax excluding IFRS 16 including businesses held for sale
Underlying profit before tax from continuing operations excluding impact of IFRS 16
Underlying profit before tax from discontinued operations excluding impact of IFRS 16
Underlying profit before tax from other business held for sale excluding impact of IFRS 16
Underlying profit before tax including businesses held for sale (post IFRS 16)
Underlying profit before tax from continuing operations
Underlying profit before tax from discontinued operations
Underlying profit before tax from other business held for sale
2019
£m
19.1
(7.4)
6.7
18.4
0.7
19.1
(1.2)
1.2
19.1
(4.2)
(0.1)
0.7
15.5
2019
£m
2.9
(0.8)
0.7
2.8
(0.8)
0.2
2.2
2019
£m
20.6
19.1
2.2
41.9
2019
£m
15.6
18.6
2.1
36.3
2018
Restated
£m
20.1
–
–
20.1
(0.7)
19.4
0.1
–
19.5
(4.4)
–
0.3
15.4
2018
£m
3.5
–
–
3.5
(0.7)
–
2.8
2018
£m
52.2
19.5
2.8
74.5
2018
£m
52.2
19.5
2.8
74.5
209
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
b) Covenant leverage
Covenant leverage 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 from continuing operations excluding impact of IFRS 16
Underlying operating profit from discontinued operations held for sale excluding impact
of IFRS 16
Underlying operating profit from other disposal group held for sale excluding impact of
IFRS 16
Add back:
Depreciation prior to adoption of IFRS 16
Amortisation of computer software
Reversal of restatement on net operating losses attributable to businesses identified as
non-core*
Depreciation attributable to businesses identified as non-core*
Covenant EBITDA
Note
33a
33a
10
14
11
2019
£m
33.5
19.1
2.8
18.7
4.5
–
(0.2)
78.4
* The 2018 covenant calculation has not been restated to reflect the decisions made to exit non-core businesses after the signing of the 2018 Financial Statements (Note 11).
Reported net debt
Lease liabilities recognised in accordance with IFRS 16
Lease receivables recognised in accordance with IFRS 16
Other financial liabilities recognised in accordance with IFRS 16
Net debt excluding the impact of IFRS 16
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.
Covenant leverage (covenant net debt to covenant EBITDA - maximum 3.0x)
Note
28
2019
£m
455.4
(296.0)
5.2
(1.8)
162.8
5.4
0.3
168.5
2019
2.1x
2018
Restated
£m
66.9
19.4
3.5
19.7
4.4
0.8
(0.3)
114.4
2018
£m
189.4
–
–
–
189.4
10.9
(1.8)
198.5
2018
1.7x
c) Post-tax Return on Capital Employed ('ROCE')
Return on capital employed is the ratio of operating profit less taxation divided by average capital employed (average net assets plus average
net debt). The ratio is used to understand the value creation to shareholders and to understand how effectively the Group is using the capital
and resources it has available.
Operating profit from continuing operations excluding the impact of IFRS 16
Income tax expense excluding the impact of IFRS 16
Operating (loss)/profit after tax from continuing operations excluding impact of IFRS 16
Operating profit from discontinued operations excluding impact of IFRS 16
Income tax expense from discontinued operations excluding the impact of IFRS
Operating (loss)/profit after tax from discontinued operations excluding impact of IFRS 16
Total operating profit after tax excluding impact of IFRS 16
Note
33a
33a
33a
33a
Note
Underlying operating profit from continuing operations excluding impact of IFRS 16
Income tax expense excluding impact of IFRS 16
Tax credit associated with Other items excluding impact of IFRS 16
Underlying operating profit after tax from continuing operations excluding impact of IFRS 16
Underlying operating profit after tax from discontinued operations excluding impact of
IFRS 16
Underlying operating profit after tax from other disposal group held for sale excluding impact of IFRS 16
Total underlying operating profit after tax excluding impact of IFRS 16
33a
2b
33a
2019
£m
(92.5)
(12.9)
(105.4)
18.4
(4.3)
14.1
(91.3)
2019
£m
33.5
(12.9)
(4.1)
16.5
15.5
2.3
34.4
2018
Restated
£m
26.2
(6.2)
20.0
20.1
(4.4)
15.7
35.7
2018
Restated
£m
66.9
(6.2)
(8.2)
52.5
15.4
3.0
70.9
210
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Opening reported net assets
Opening reported net debt
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
Closing reported net debt
Lease liabilities recognised in accordance with IFRS 16
Lease receivables recognised in accordance with IFRS 16
Other financial liabilities recognised in accordance with IFRS 16
Other net asset adjustments recognised in accordance wtih IFRS 16
Closing capital employed excluding impact of IFRS 16
Computer software impairment charges*
Profits and losses on agreed sale or closure of non-core businesses and associated
impairment charges*
Adjusted closing capital employed excluding impact of IFRS 16
Average capital employed excluding impact of IFRS 16
Adjusted average capital employed excluding impact of IFRS 16*
Note
11
28
2019
£m
462.9
189.4
652.3
(0.3)
0.1
652.1
294.2
455.4
(296.0)
5.2
(1.8)
9.9
466.9
–
–
466.9
559.6
559.5
2018
£m
470.5
258.7
729.2
(1.4)
(6.2)
721.6
462.9
189.4
–
–
–
–
652.3
(0.3)
0.1
652.1
690.8
686.9
* 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 excluding impact of IFRS 16 (operating profit after tax to
average capital employed)
ROCE excluding impact of IFRS 16 (underlying operating profit after tax to
adjusted average capital employed)
2019
2018
Restated
(16.3)%
5.2%
6.1%
10.3%
d) 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 excluding impact of IFRS 16
Add back:
Net operating losses attributable to businesses identified as non-core
Underlying operating profit from discontinued operations excluding impact of IFRS 16
Consolidated EBITA (earnings before interest, tax and amortisation for covenant
purposes)
Underlying net finance costs excluding impact of IFRS 16
Net finance cost of disposal groups held for sale, excluding impact of IFRS 16
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)
Note
11
3
3
3
2019
£m
33.5
1.9
19.1
54.6
12.9
0.6
(0.5)
(0.8)
12.2
4.5x
2018
Restated
£m
66.9
5.5
19.4
91.8
14.7
0.6
(0.5)
(0.9)
13.9
6.6x
211
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Financial Statements
e) Underlying profit before tax excluding impact of IFRS 16 and property profits
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 from continuing operations
Underlying profit before tax impact of IFRS 16 for the period
Underlying property profits
Underlying profit before tax from continuing operations excluding impact of IFRS 16 and
property profits
Note
2019
£m
15.6
(4.9)
(0.3)
10.4
2018
Restated
£m
52.2
–
(2.6)
49.6
f) Effective tax rates
The effective tax rate is a ratio of income tax expense to profit/(loss) before tax and is used to assess SIG's contribution to corporate taxation
across the tax jurisdictions in which the Group operates.
(Loss)/profit before tax from continuing operations
Other items
Underlying profit before tax from continuing operations
Income tax expense on continuing operations
Tax credit associated with Other items
Underlying tax charge on continuing operations
Effective tax rate (income tax expense to (loss)/profit before tax) on continuing
operations
Underlying effective tax rate (underlying tax charge to underlying profit before tax) on
continuing operations
2019
£m
(112.7)
128.3
15.6
(11.4)
(4.5)
(15.9)
2018
Restated
£m
10.3
41.9
52.2
(6.2)
(8.2)
(14.4)
(10.1)%
60.2%
101.9%
27.6%
212
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS g) 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
Contract assets
Trade and other payables
Contract liabilties
Provisions
Non-current:
Other payables
Provisions
Reported working capital
Working capital for non-core businesses*
Foreign exchange adjustment
Adjusted working capital
Note
16
17
17
18
18
18
19
19
2019
£m
156.5
294.7
–
(327.4)
–
(6.7)
(1.0)
(18.6)
97.5
0.8
2.8
101.1
2018
Restated
£m
207.2
477.7
1.8
(428.3)
(1.6)
(11.0)
(5.6)
(20.4)
219.8
(25.7)
(1.6)
192.5
*Working capital is translated at average rather than period end rates. 2018 ahas been djusted to include working capital for businesses held for sale at 31 December 2019 to be consistent
with the revenue from continuing operations below.
Reported revenue from continuing operations
Revenue attributable to business identified as non-core
Adjusted revenue
Reported working capital to reported revenue
Like-for-like working capital to sales ratio (adjusted working capital to adjusted revenue)
Note
11
2019
£m
2,160.6
(75.9)
2,084.7
2019
4.5%
4.8%
2018
£m
2,431.8
(141.4)
2,290.4
2018
Restated
9.0%
8.4%
h) Consolidated net worth
Consolidated net worth is one of the primary covenants applicable to the the private placement notes. The monitoring of this covenant is
therefore an important element of treasury risk management for the Group.
Net assets
Lease liabilities recognised in accordance with IFRS 16
Right-of-use assets recognised in accordance with IFRS 16
Lease receivables recognised in accordance with IFRS 16
Other financial liabilities recognised in accordance with IFRS 16
Other net asset adjustments recognised in accordance wtih IFRS 16
Less: non-controlling interests
Consolidated net worth excluding impact of IFRS 16
i) Cash inflow from trading
This is used to understand how the Group is generating cash from trading activities.
Cash generated from operating activities
Add back:
Working capital movements:
- Decrease/(increase) in inventories
- (Decrease)/Increase in receivables
- Decrease/(Increase) in payables
Cash inflow from trading
2019
£m
294.2
296.0
(279.8)
(5.2)
1.8
(6.7)
–
300.3
2019
£m
166.0
(1.7)
(95.6)
23.4
92.1
2018
£m
462.9
–
–
–
–
–
–
462.9
2018
Restated
£m
103.6
(30.1)
6.5
(6.5)
73.5
Note
27
213
Stock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
j) Like-for-like sales
Like-for-like sales is calculated on a constant currency basis, and represents the growth in the Group's sales per day excluding any
acquisitions or disposals completed or agreed in the current and prior year. Revenue is not adjusted for branch openings and closures. This
measure shows how the Group has developed its revenue for comparable business relative to the prior period. As such it is a key measure of
the growth of the Group during the year.
Statutory revenue 2019
Non-core businesses
Underlying revenue 2019
Statutory revenue 2018
Non-core businesses
Underlying revenue 2018
% change year on year:
Underlying revenue
Impact of currency
Impact of acquisitions
Impact of working days
Like-for-like sales
UK
Distribution
£m
535.5
(1.2)
534.3
731.6
(51.5)
680.1
Ireland
£m
94.9
–
94.9
103.4
(3.5)
99.9
(21.4)% (5.0)%
1.3%
–
0.4%
(21.1)% (3.3)%
–
–
0.3%
France
Distribution
(LiTT)
£m
Germany
(WeGo/
VTi)
£m
Poland
£m
Benelux
£m
Total
Specialist
Distribution
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total Roofing
Merchanting
£m
Group
£m
184.5
–
184.5
175.4
–
175.4
5.2%
1.5%
–
0.4%
7.1%
396.0
(14.5)
381.5
426.9
(23.5)
403.4
156.1
–
156.1
156.6
–
156.6
103.0
–
103.0
108.4
–
108.4
1,470.0
(15.7)
1,454.3
1,702.3
(78.5)
1,623.8
346.5
(58.3)
288.2
382.1
(60.2)
321.9
(5.4)% (0.3)% (5.0)%
1.3%
2.0%
1.3%
–
–
–
0.4%
0.4%
1.6%
(3.3)%
2.1%
(2.5)%
(10.4)% (10.5)%
–
0.9%
–
–
0.7%
0.4%
(8.8)% (10.1)%
344.1
(1.9)
342.2
347.4
(2.7)
344.7
(0.7)%
1.4%
–
0.4%
1.1%
690.6 2,160.6
(75.9)
630.4 2,084.7
(60.2)
729.5 2,431.8
(141.4)
2,290.4
(62.9)
666.6
(5.4)% (9.0)%
0.8%
0.7%
–
–
0.4%
0.6%
(4.3)% (7.6)%
k) Gross margin
Gross margin is the ratio of gross profit to revenue and is used to understand the value the Group creates from its trading activities.
UK
Distribution
%
Ireland
%
France
Distribution
(LiTT)
%
Germany
(WeGo/
VTi)
%
Poland
%
Benelux
%
Total
Specialist
Distribution
%
UK
Exteriors
%
France
Exteriors
(Larivière)
%
Total Roofing
Merchanting
%
Group
%
Statutory gross margin
2019
Impact of non-core
businesses
Underlying gross margin
2019
Statutory gross margin
2018
Impact of non-core
businesses
Underlying gross margin
2018
26.2%
25.0%
27.5%
27.6% 20.3% 24.7%
25.9%
28.3%
23.3%
25.9% 25.9%
–
–
–
0.1%
–
–
–
0.1%
0.1%
(0.2)%
–
26.2%
25.0%
27.5%
27.7% 20.3% 24.7%
25.9%
28.4%
23.4%
25.7% 25.9%
25.3%
23.8%
27.5%
26.8% 20.0% 23.7%
25.2%
28.3%
23.3%
25.9% 25.4%
(0.6)%
1.5%
–
0.1%
–
–
(0.1)%
0.1%
–
(0.1)% (0.1)%
24.7%
25.3%
27.5%
26.9% 20.0% 23.7%
25.1%
28.4%
23.3%
25.8% 25.3%
l) 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.
Six months ended
30 June 2019
£m
Six months ended
31 December
2019
£m
Year ended
31 December
2019
£m
Six months ended
30 June 2018
£m
Six months ended
31 December
2018
£m
Year ended
31 December
2018
£m
Statutory revenue
Non-core businesses
Underlying revenue
Operating costs (statutory)
Other items
Underlying operating costs
Property profits
Underlying operating costs excluding
property profits
Operating costs as a percentage of
statutory revenue
Underlying operating costs excluding
property profits as a percentage of
underlying revenue
1,272.6
(41.8)
1,230.8
326.1
(32.3)
293.8
–
888.0
(34.1)
853.9
320.9
(115.1)
205.8
0.3
2,160.6
(75.9)
2,084.7
647.0
(147.4)
499.6
0.3
1,381.7
(89.0)
1,292.7
338.6
(27.0)
311.6
0.3
1,050.1
(52.4)
997.7
253.8
(53.7)
200.1
2.3
2,431.8
(141.4)
2,290.4
592.4
(80.7)
511.7
2.6
293.8
206.1
499.9
311.9
202.4
514.3
25.6%
36.1%
29.9%
24.5%
24.2%
24.4%
23.9%
24.1%
24.0%
24.1%
20.3%
22.5%
214
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Operating costs excluding impact of IFRS 16
Underlying operating costs
Operating lease rentals
Additional depreciation from adoption of IFRS 16
Adjustment due to treatment of sale and leaseback transaction
Underlying operating costs excluding impact of IFRS 16
2019
£m
499.6
57.5
(50.9)
(0.4)
505.8
2018
£m
511.7
–
–
–
511.7
m) Return on sales
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.
UK
Distribution
£m
Ireland
£m
France
Distribution
(LiTT)
£m
£m
Germany
(WeGo/
VTi)
£m
Poland
£m
Benelux
£m
Total
Specialist
Distribution
£m
UK
Exteriors
£m
France
Exteriors
(Larivière)
£m
Total Roofing
Merchanting
£m
Parent
company
costs
£m
Group
£m
2019
Underlying revenue
(Note 1)
Underlying operating
profit (Note 1^)
IFRS 16 adjustment to
underlying operating
profit
Underlying operating
profit excluding impact
of IFRS 16
Property profits
Underlying operating
profit excluding
property profits and
impact of IFRS 16
Operating margin
Underlying operating
margin excluding
impact of IFRS 16
Return on sales
(excluding IFRS 16 and
property profits)
2018
Underlying revenue
(Note 1)
Underlying operating
profit (Note 1^)
Property profits
Underlying operating
profit excluding
property profits
Operating margin
Return on sales
(excluding property
profits)
534.3
94.9
184.5
381.5 156.1 103.0
1,454.3
288.2
342.2
630.4
– 2,084.7
7.9
6.8
11.2
4.4
4.3
5.2
39.8
8.9
8.6
17.5
(17.7)
39.6
(2.1)
(0.6)
(0.4)
(1.0)
(0.1)
(0.1)
(4.3)
(1.2)
(0.6)
(1.8)
–
(6.1)
5.8
–
6.2
–
10.8
–
3.4
–
4.2
(0.3)
5.1
–
35.5
(0.3)
7.7
–
8.0
–
15.7
–
(17.7)
–
33.5
(0.3)
5.8
6.2
1.5% 7.2%
10.8
6.1%
3.4
5.1
3.9
1.2% 2.8% 5.0%
7.7
35.2
2.7% 3.1%
8.0
2.5%
15.7
2.8%
(17.7)
n/a
33.2
1.9%
1.1% 6.5%
5.9%
0.9% 2.7% 5.0%
2.4% 2.7%
2.3%
2.5%
n/a
1.6%
1.1% 6.5%
5.9%
0.9% 2.5% 5.0%
2.4%
2.7%
2.3%
2.5%
n/a
1.6%
680.1
99.9
175.4
403.4 156.6 108.4
1,623.8
321.9
344.7
666.6
– 2,290.4
23.0
–
6.1
–
8.6
(1.0)
7.6
(1.6)
3.3
–
4.5
–
53.1
(2.6)
13.8
–
13.2
–
27.0
–
(13.2)
–
66.9
(2.6)
23.0
6.1
3.4% 6.1%
7.6
4.9%
6.0
3.3
4.5
1.9% 2.1% 4.2%
50.5
3.3%
13.8
4.3%
13.2
3.8%
27.0
4.1%
(13.2)
n/a
64.3
2.9%
3.4% 6.1%
4.3%
1.5% 2.1% 4.2%
3.1%
4.3%
3.8%
4.1%
n/a
2.8%
^ Underlying operating profit equals segmental result before Other items.
215
Stock code: SHIwww.sigplc.comFINANCIALS
Notes to the Financial Statements
n) Underlying EPS excluding impact of IFRS 16
Weighted average number of shares (number)
Underlying profit after tax from continuing operations excluding impact of IFRS 16 (£m)
Underlying earnings per share from continuing operations excluding impact of IFRS 16 (p)
Note
8
33a
2019
2018
591,556,982
3.6
0.6p
591,548,834
37.8
6.4p
o) Other non-statutory measures
In addition to the alternative performance measures noted above, the Group also uses underlying EPS (as set out in Note 8) and underlying
net finance costs (as set out in Note 3).
34 Post balance sheet events
Sale of Air Handling
The sale of the Air Handling business completed on 31 January 2020 for an enterprise value of €222.7m. The business is presented as a
discontinued operation held for sale at 31 December 2019. Further details on the results for the year and the assets and liabilities of the
business at 31 December 2019 are provided in Note 12.
Sale of Building Solutions
The sale of the Building Solutions business was conditional upon the approval of the UK Competition & Markets Authority ("CMA"). On 21 May
2020 it was announced that the parties have agreed to terminate the sales agreement as terms could not be agreed for the extension of the
agreement to enable the completion of the CMA investigation, and the disposal will no longer proceed. This is a non-adjusting post balance
sheet event and the business remains classified as held for sale at the balance sheet date. Given the current economic climate a sale is no
longer likely to proceed and the business is not expected to be classified as held for sale going forward.
COVID-19
The COVID-19 outbreak subsequent to the year end is having a significant effect on the global and UK economies and will have an impact
on the Group's results for 2020. As a result of government restrictions implemented to mitigate the spread of COVID-19, large sections of
the Group's end-markets experienced a severe reduction in sales, resulting in the temporary closure of the majority of the Group's trading
sites in the UK and Ireland during April and reduced revenue levels in other countries. The Group has implemented a comprehensive set of
actions to reduce costs and manage liquidity during this period but the full impact of the pandemic remains uncertain as the situation is still
unfolding. Any prolonged period of uncertainty or potential second waive of COVID-19 could have material adverse consequences on the
Group's financial performance.
Further details of the potential impact of changes in assumptions regarding forecast results on the carrying value of non-current assets is
provided in Note 13.
Financing
As a result of the Group's reduced earnings together with the impact of COVID-19 on forecast results and net debt for 2020, the Group has
engaged with its Lenders and amended the terms of its RCF and private placement note agreements. This includes a short-term waiver of
covenants during 2020 and renegotiation of future covenants from 31 December 2020, and an extension of the RCF facility for a further 2
years to May 2023. Further details are provided in the Basis of preparation section of the Statement of Significant Accounting Policies.
Implementation of SAP 1Hana
In light of the current circumstances regarding COVID-19, change of senior management and strategy and renegotiation of debt facilities, the
project to implement SAP 1Hana in Germany and France has been paused. Costs of £9.0m are included within software costs in intangible
assets (disclosed as assets in the course of construction) at 31 December 2019. This will be reviewed over the coming months to determine
the future direction and feasibility of the project.
216
Annual Report and Accounts for the year ended 31 December 2019SIG 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 2019 and of the group’s loss 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 United Kingdom Accounting Standards,
including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice) 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 2019
Company statement of comprehensive income for the year-
ended 31 December 2019
Consolidated income statement for the year ended 31 December 2019
Company balance sheet as at 31 December 2019
Consolidated balance sheet as at 31 December 2019
Company statement of changes in equity for the year ended
31 December 2019
Consolidated statement of changes in equity for the year ended 31 December
2019
Related notes 1 to 16 to the financial statements including a
summary of significant accounting policies
Consolidated cash flow statement for the year ended 31 December 2019
Related notes 1 to 34 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.
Material uncertainty relating to going concern
We draw attention to the Statement of Significant Accounting Policies on pages 141 and 232 in the financial statements, which indicate that
the ability of the group and company to continue as a going concern is subject to a number of material uncertainties. The group announced
its intention on 29 May 2020 to strengthen its capital structure with a planned £150m equity raise in the coming weeks. Discussions are
ongoing with lenders to reset covenants and agree other amendments to its financing facilities. The group continues to operate in an
uncertain trading environment and is implementing a new strategy. This gives rise to a number of material uncertainties:
■■ The Group successfully agreeing outline terms with its RCF lenders and private placement noteholders (and the RCF lenders and private
placement noteholders obtaining credit approval of the same);
■■ The Group, together with its RCF lenders and private placement noteholders, successfully documenting such terms in substantive and
binding documentation;
■■ Achieving a successful equity raise of up to £150m in line with the above-mentioned timing, which entails the approval of a prospectus by
the FCA, approval by shareholders at a General Meeting and securing appetite for the necessary investment;
■■ Whether, in the event the Group does not achieve a successful equity raise, the RCF lenders and the private placement noteholders will
continue to support the Group in the short term in order to allow the Group to complete the execution of alternative plans (a secondary
equity window or alternative deleveraging plans including further disposals or a merger or acquisition transaction);
■■ The forecast cashflow of the Group over the next 12 months upon signing the financial statements depends on the Group’s ability to
continue to successfully manage through the current uncertain trading environment related to COVID-19; and
■■ The Group’s ability to implement the new strategy and deliver a stronger business which is more sales led in a relatively short period and
do so in a period of economic uncertainty.
217
Stock code: SHIwww.sigplc.comFINANCIALS Independent Auditor’s Report
To the members of SIG plc
As a result, material uncertainties exist that may cast significant doubt on group and company’s ability to continue as a going concern and,
therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. Our opinion is not modified in
respect of these matters.
We describe below how our audit responded to the risk relating to going concern:
■■ The audit engagement partner increased his time directing and supervising the audit procedures on going concern and utilised corporate
finance specialists to assist in assessing the going concern model and assumptions;
■■ We obtained agreements for the Revolving Credit Facility and the Private Placement Notes and reviewed the nature of facilities, repayment
terms, covenants and attached conditions;
■■ We reviewed draft terms being negotiated with Lenders and discussed key terms with the company and its advisors;
■■ We obtained and inspected covenant waiver letters;
■■ We discussed the feasibility of the proposed equity raise and alternative deleveraging plans with the directors and the company’s advisors
and corroborated this to board presentations and minutes;
■■ We inspected the agreement with Clayton Dubilier and Rice for an equity investment of up to £85m;
■■ We obtained the cash flow and latest covenant forecasts and sensitivities prepared by Management and tested for arithmetical accuracy
of the models;
■■ We challenged the appropriateness of Management’s forecasts prepared for the purposes of the equity raise and negotiations with
lenders, challenged Management’s consideration of a reasonable worst-case scenario including the actual impact to date of COVID-19
and the future forecast impact and applied further sensitivities, including reverse stress testing, to understand the impact on liquidity and
forecast covenant compliance;
■■ We reviewed the terms of Government support being accessed in the UK, including employment support, tax and social security deferrals.
We discussed with the interim group CFO and external advisors the group’s plans to explore additional funding in the form of Government
loans in the UK and Mainland Europe, if required, and inspected pre-approvals obtained from banks relating to the loan support
arrangements in France; and
■■ We assessed the disclosures in the Annual Report & Accounts relating to going concern, including the material uncertainties, to ensure
they were fair, balanced and understandable and in compliance with IAS1.
We draw attention to the viability statement in the Annual Report on page 40, which indicates that an assumption to the statement of viability
is based upon the success of the equity raise, the need to agree amended terms in respect of the RCF and private placement debt, the impact
on the Group’s debt facilities if the equity raise does not go ahead and the uncertainty regarding the impact of COVID-19. The Directors
consider that the material uncertainties referred to in respect of going concern may cast significant doubt over the future viability of the
group and company should these events not complete. Our opinion is not modified in respect of this matter.
Conclusions relating to principal risks, going concern and viability statement
Aside from the impact of the matters disclosed in the material uncertainty related to going concern section, 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 44 that describe the principal risks and explain how they are being managed or
mitigated;
■■ the directors’ confirmation set out on page 40 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;
■■ whether the directors’ statement in relation to going concern and their assessment of the prospects of the company 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.
Overview of our audit approach
Key audit matters
■■ Independent Review by PwC
■■ Impairment of Goodwill, Intangible assets and Property, Plant and Equipment
■■ Supplier rebates
■■ Classification of Other items in the income statement
■■ Cash cut-off
Audit scope
■■ We performed an audit of the complete financial information of 9 (2018: 8) components and audit procedures on
specific balances for a further 4 components (2018: 6)
■■ The components where we performed full or specific audit procedures accounted for 90% of Underlying Profit
before Tax, 94% of Revenue and 89% of Total assets.
Materiality
■■ Overall group materiality of £2.0m (2018: £3.6m) which represents 5% of Underlying Profit before Tax, plus
discontinued operations and operations held for sale, but excluding IFRS 16 adjustments.
218
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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.
Key observations
communicated to the
Audit Committee
We reviewed the disclosures
on this matter in the annual
report and accounts including
the contingent liability in
note 30d and are satisfied
they are fair, balanced
and understandable by
comparing the disclosure to
the knowledge gained during
the audit.
From the procedures
performed, nothing came
to our attention that gave
concern over our ability to
place reliance on current
Management.
We have not identified
any specific matters with
a material impact to bring
to the Audit Committee’s
attention in relation to our
incremental test of details.
Risk
Independent Review by PwC
Refer to Chairman’s Statement (page
5), Corporate Governance Report
(page 90), Audit Committee Report
(page 108), Contingent Liability note
30d (page 206)
Our response to the risk
Overview and status of the investigation
Our work programme comprised Management and legal enquiries,
inspection of documentation relevant to the investigation and the
group’s response, and other testing procedures in response to
the specific identified risks. Our procedures were supported by EY
Forensics & Integrity specialists.
The Board instigated an
independent review in light of
the disparity between the 2019
forecast and actuals announced
in the 9 January 2020 Trading
Update.
The independent review findings
raise the possibility of financial
claims and or regulatory fines
which could have a material
impact on the financial
statements. The potential override
of controls by senior management
raises questions in relation
to Management integrity and
our ability to place reliance on
Management.
We performed an assessment of the adequacy of the scope of the
PwC investigation in the context of our audit. We reviewed the PwC
report and followed up on matters of importance to the audit. We met
with PwC to discuss the findings and recommendations.
We met with group General Counsel and external legal advisors
to understand the nature of correspondence with the FCA and to
understand the range of possible financial claims and or regulatory
fines that might arise including any possible liabilities relating to
representations given to stakeholders as part of the disposal of the Air
Handling business.
We reviewed agendas, supporting papers and actions from meetings
of the group Investigation Committee responsible for oversight of the
group’s response to the investigation to obtain an understanding of
the progress of the investigation.
Internal control environment
We made enquiries of the Chairman, Audit Committee Chairman,
group General Counsel, group Director of Risk and Internal Audit, PwC
and external legal advisors and inspected relevant documentation
including PwC interview minutes and company emails to understand
whether there was any evidence that SIG employees may have
committed an offence, and therefore may lead us to question reliance
placed on Management.
We sought to identify whether there had been any management
override of controls relating to the reported results for the year ended
31 December 2019 and performed incremental test of details. We
extended our review of manual journal entry testing at group finance
and operating company level including searching on key words and
preparer IDs. We performed additional testing of consolidation
journals to a lower threshold. We performed incremental testing on
“Other items” in the income statement including a review of items
originally posted in underlying profit, but then transferred to “Other
items” in Q4. We reviewed key “risks and opportunities” identified in
the Q4 2019 forecasts to understand the outcome of such items in
the actual results.
We extended our post year-end testing of manual journal entries to
identify any unusual reversals which reinstated accruals or provisions
released in 2019.
We met with various operating company Finance Directors and senior
members of group finance to discuss the PwC findings and the output
from our procedures.
Disclosure
We assessed whether there was any evidence that would require a
provision to be recognised in the financial statements, rather than
a contingent liability disclosure. We considered the adequacy of
disclosure in the Chairman’s statement, Governance report, Audit
Committee report and the contingent liability disclosure in note 30d.
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To the members of SIG plc
Risk
Our response to the risk
Impairment of Goodwill,
Intangible assets and Property,
Plant and Equipment (PPE)
Refer to Accounting policies (page
146); and Notes 13 and 14 of the
Consolidated Financial Statements
(pages 177 to 180)
The group’s balance sheet
includes goodwill, intangible
assets and PPE totalling £259.9m
at 31 December 2019 (2018:
£445.5m).
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,
Lariviere and Germany.
There is also an associated risk
in the company only balance
sheet over the potential
impairment of investments in
subsidiary undertakings and the
recoverability of receivables due
from subsidiary undertakings.
Valuation model
We obtained, understood and tested the methodology applied
by Management in performing its impairment test for each of
the relevant Cash Generating Units (“CGUs”) as compared to the
requirements of IAS 36, Impairment of Assets and identified key
controls. This included the appropriateness of the forecast period,
the allocation of central overheads and the mathematical accuracy of
Management’s model.
We analysed the historical accuracy of budgets to actual results for
a 3-year period and other forecast risk factors to determine whether
forecast cash flows are reliable.
We evaluated the identification of CGUs against the requirements of
IAS 36
Key assumptions in the valuation
We evaluated the key underlying assumptions within the value in use
calculation including the growth rates, margin and the discount rate
applied;
We inspected CGU business plans, especially focusing on the
UK Distribution turnaround. We challenged key features such
as recovering market share losses and maintaining margin and
corroborated the plans to previous performance, underlying data and
progress reporting of initiatives;
We benchmarked the discount rate calculation and long-term growth
rates applied, using our internal valuation experts. We considered if
Management’s assumptions are within an acceptable range based
on comparative market data and with reference to independently
calculated forecast risk premiums; and
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.
Disclosures
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.
Impairment of investments and recoverability of
intercompany in the Parent Company accounts
We challenged the basis on which Management’s calculations are
formed and whether the growth rate and discount rates were
appropriate.
We compared the forecasts and discount rates to our Goodwill testing
to confirm these had been consistently applied.
We compared the investment carrying value to the net assets of the
subsidiary and the discounted future cashflow forecasts. Where a
shortfall was noted we confirmed that an impairment was posted
through the parent company accounts.
We compared the intercompany receivables to the ability of the
counterparty to settle on demand. Where a shortfall in liquid assets
was identified we assessed the future cashflows and discounted these
to account for the timing of settlement.
Key observations
communicated to the
Audit Committee
Management’s initial
impairment model resulted
in an impairment of £31m
across SIGD (£27m) and
Lariviere (£4m).
An additional impairment of
£59m across SIG D (£31m)
and Lariviere (£28m) has
been recognised in respect
of our audit findings.
Management has adjusted
the discount rate towards the
middle of EY’s forecast risk
adjusted range and amended
the cashflows to reflect the
audit teams challenge over
the risk of execution of
forecast growth, margin and
market outperformance.
Goodwill relating to the UK
Distribution, UK Exteriors,
Lariviere and Germany CGUs
is sensitive to reasonably
possible changes in key
assumptions. The appropriate
sensitivity disclosures have
been made in Note 13.
We consider the other
disclosures made in Note 13
to also be appropriate.
The investment carrying value
for SIG Trading could not be
supported giving rise to a
£66.4m impairment identified
by Management. We
challenged the carrying value
of investments in a dormant
subsidiary and raised a £0.2m
adjustment. Management
has corrected this within the
parent company balance
sheet.
Management’s assessment
of the recoverability of
intercompany receivables
from European Investments
Limited (£503.8m) and
European Holdings Limited
(£198.4m) indicates that
the balances cannot be
settled on demand. We
challenged the recoverability
and expected credit loss
provision. Following the audit
challenge Management has
recognised an incremental
expected credit loss provision
of £190.6m.
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Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Key observations
communicated to the
Audit Committee
The income recognised in
the year and the balance
sheet position at year end are
appropriately recorded.
We identified that the supplier
rebate income and receivable
was understated by £0.2m,
which was corrected by
Management.
We consider the disclosures
in the financial statements to
be appropriate.
Risk
Supplier Rebates
Refer to Accounting policies (page
149); and Note 17 & 18 of the
Consolidated Financial Statements
(pages 182 to 184)
The group recognised supplier
rebate income from continuing
operations in the year of £245.2m
(2018: £318.1m) with a receivable
balance as at 31 December 2019
of £80.4m (2018: £112.1m).
The terms of rebate agreements
with suppliers can be complex
and varied. Estimation uncertainty
is present in relation to supplier
rebates, in particular where the
amounts receivable are tiered
based on purchase volumes 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.
Our response to the risk
We focused our audit procedures on the areas where Management
apply judgement, where the processing is either manual or more
complex and on suppliers where the year-end rebate value is high
due to 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 confirmations 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 9 full
and specific scope locations, which covered 96% of the risk amount
associated to supplier rebate income and 95% of the risk associated
to supplier rebates receivable
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Risk
Classification of Other items in
the income statement
Refer to Accounting policies (page
147 and 148); and Note 2b of the
Consolidated Financial Statements
(page 162)
Other items in 2019 totals
£128.3m (2018: £46.8m). Key
components include: impairment
charges £90.9m, net restructuring
costs £27.1m, amortisation of
acquired intangibles £6.2m
and investment in omnichannel
retailing £5.7m, offset by £2.1m
operating profits of non-core
businesses.
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.
Cash cut-off
Refer to Accounting policies
(page 151); and Note 20 of the
Consolidated Financial Statements
(page 185)
The group has cash of £110.0m
(2018: £83.3m) and covenant net
debt of £168.5m (2018: £198.5m).
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.
There is opportunity through
management override of controls
or error to misstate the allocation
of cash between periods.
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 Other items 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
within Other items.
We reviewed costs relating to investment in omnichannel retailing
and verified the amounts recognised. We assessed that the costs had
been correctly categorised within Other items.
We reviewed Management’s accounting policy disclosure in respect of
Other items classification in the income statement.
We performed the above audit procedures over this risk area at all
full and specific scope locations and additional testing by the primary
team to cover 100% of the balance.
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.
We obtained bank confirmations for all bank accounts at in scope
locations as at 31 December 2019 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 of
controls in cash recognition.
We performed full and specific scope audit procedures over this risk
area at 13 components, which covered 57% of the risk amount. We
performed additional procedures at a selection of our review scope
components, which covered a further 41% of the group’s year-end
cash balance.
Key observations
communicated to the
Audit Committee
Management corrected
audit adjustments totalling
£4.8m. This includes £0.4m
to reclassify costs from Other
items to Underlying and a
further £3.8m to release
accrued costs associated with
business disposals where
the service had not been
incurred, or the contingent
fee trigger had not been met,
at the year- end.
The group’s disclosures are
consistent with both the
group’s accounting policy and
the guidance in IAS 1.
Our audit procedures did not
identify any material issues.
In the prior year, our auditor’s report included a key audit matter in relation to prior year adjustments arising in our first-year audit of the
group. As this is no longer an initial audit, we have removed this key audit matter.
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Annual Report and Accounts for the year ended 31 December 2019SIG 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 47 reporting components of the group, we selected 13 components covering entities
within each of the eight principal countries within which the group operates, which represent the principal business units within the group.
Full Scope
Specific Scope
Full and specific scope coverage
% of Group
Underlying Profit
Before Tax
Number
% of Group
Revenue
% of Group total
assets
9
4
13
75%
15%
90%
82%
12%
94%
77%
12%
89%
Of the 13 components selected, we performed an audit of the complete financial information of 9 components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining 4 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 90% (2018: 94%) of the group’s Underlying Profit before tax,
94% (2018: 92%) of the group’s Revenue and 89% (2018: 95%) of the group’s Total assets. For the current year, the full scope components
contributed 75% (2018: 170%) of the group’s Underlying Profit before tax, 82% (2018: 84%) of the group’s Revenue and 77% (2018: 90%) of
the group’s Total assets. The specific scope component contributed 15% (2018: -76%) of the group’s Underlying Profit before tax, 12% (2018:
8%) of the group’s Revenue and 12% (2018: 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.
Of the remaining 34 components that together represent 10% 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.
Changes from the prior year
Due to a reduction in materiality compared to the prior year there has been an additional specific scope component identified in the UK,
and the number of significant accounts tested at each specific scope component has increased. Further, following separation of a French
component ahead of the sale of Air Handling, an additional full scope component was identified. This separation did not impact our coverage
but separated 1 component in 2018 to 2 components in 2019.
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 9 full scope components, audit procedures were performed on 8 of these directly by the component audit teams
in Belgium, France, Germany, Ireland and the UK. For the 4 specific scope components, audit procedures were performed directly by the
component audit teams in Bulgaria, Netherlands, Poland and the UK. We considered 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 financial statements 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 team
in attendance through video conferencing. During the current year’s audit cycle, visits were undertaken in Germany, Ireland and the UK.
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 papers on risk areas. A planned visit to France was
cancelled due to travel restrictions as a result of the COVID-19 pandemic. Our review of the component team’s workpapers was subsequently
completed using electronic and video review.
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.
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.
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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 £2.0 million (2018: £3.6 million), which is 5% (2018: 5%) of Underlying Profit before tax (£15.6m),
plus Air Handling discontinued operations (£18.4m) and Building Solutions operations held for sale (£2.2m), but excluding the impact of IFRS
16 (£5.7m). We believe that this basis provides the most relevant performance measure to the stakeholders of the group, and therefore an
appropriate basis for materiality. We have included underlying profit before tax from discontinued operations and other operations held for sale
on the basis these transactions did not complete in 2019 and were included in the most relevant performance measure monitored by the key
stakeholders. We have excluded the impact of IFRS 16 on the basis that it is not representative of the underlying performance of the group. For
2018 our materiality was based on underlying profit before tax, excluding property profits. In 2018 there were no underlying profits from either
discontinued activities or operations held for sale and IFRS 16 had not been adopted by 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. However, we use Underlying Profit before tax, including discontinued operations, profits of non-underlying operations held for sale
and excluding IFRS 16 adjustments to establish a measure of normalised earnings.
We determined materiality for the parent company to be £2.0 million (2018: £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, plus discontinued
operations and operations held for sale, but excluding IFRS 16 adjustments.
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% (2018: 50%) of our planning materiality, namely £1.0m (2018: £1.8m). We have set performance materiality
at this percentage due to the level of misstatements identified in the prior year 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. In the current year,
the range of performance materiality allocated to components was £0.2m to £0.4m (2018: £0.4m to £1.2m).
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 £0.1m (2018: £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.
The reduction from 2018 is as a result of the reduced planning materiality to £2.0m (2018: £3.6m) mentioned above.
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 245, 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.
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Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 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 95) – 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 101) – 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 65) – 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.
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 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
■■ a Corporate Governance Statement has not been prepared by the company.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 133, 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.
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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.
■■ 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 two years, covering the years ending
31 December 2018 and 31 December 2019.
■■ 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
29 May 2020
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.
226
Annual Report and Accounts for the year ended 31 December 2019SIG 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 (loss)/profit
Finance income
Finance costs
Profit/(loss) before tax
Profit/(loss) after tax
(Loss)/earnings per share
Total
2015
£m
Total
2016
£m
Total
2017
£m
Total
2018
Restated^
£m
2,566.4
2,845.2
2,878.4
2,431.8
65.0
1.0
(15.6)
50.4
35.4
6.0
4.60p
(96.0)
1.7
(17.0)
(111.3)
(122.9)
(20.9)
3.66p
(36.3)
0.6
(19.0)
(54.7)
(59.2)
(10.2)
26.2
0.5
(16.4)
10.3
4.1
3.0
3.75p
3.75p
Total
2019^
£m
2,160.6
(87.9)
0.5
(25.3)
(112.7)
(124.1)
(21.0)
1.25p
Underlying
2015
£m
Underlying
2016
£m
Underlying
2017
£m
Underlying
2018
Restated^
£m
2,230.8
2,478.1
2,654.3
2,290.4
Underlying
2019^
£m
2,084.7
86.0
1.0
(12.3)
74.8
59.1
10.0p
74.4
1.2
(14.8)
60.6
45.2
7.6p
81.3
0.5
(16.6)
65.3
48.6
8.2p
66.9
0.5
(15.2)
52.2
37.8
6.4p
39.6
0.5
(24.5)
15.6
(0.3)
(0.1)p
^ Results for 2019 and 2018 reflect continuing operations only with the Air Handling business classified as a discontinued operation in these periods. See Note 12 for further information.
* Underlying figures are stated before 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, 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.
227
Stock code: SHIwww.sigplc.comFINANCIALS 228
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Company Statement of Comprehensive Income
for the year ended 31 December 2019
(Loss)/profit after tax
Items that may subsequently be reclassified to the Company Income Statement
Gains and losses on cash flow hedges
Transfer to profit and loss on cash flow hedges
Other comprehensive income
Total comprehensive (expense)/income
Attributable to:
Equity holders of the Company
2019
£m
(259.8)
0.4
0.9
1.3
(258.5)
(258.5)
2018
Restated
£m
7.2
2.0
(0.7)
1.3
8.5
8.5
The 2018 Company Statement of Comprehensive Income has been restated to correct a prior period error as disclosed in the Company
Statement of Significant Accounting Policies.
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.
229
Stock code: SHIwww.sigplc.comFINANCIALS Company Balance Sheet
as at 31 December 2019
Fixed assets
Investments
Tangible fixed assets
Right-of-use assets
Intangible 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
Cash flow hedging reserve
Cost of hedging reserve
Retained profits
Shareholders' funds
Note
5
6
11
7
8
8
13
9
12
10
12
14
14
14
14
14
14
14
14
14
2019
£m
376.8
0.4
1.6
11.6
390.4
539.3
1.7
–
9.1
550.1
533.1
–
533.1
17.0
407.4
3.5
0.2
403.7
59.2
447.3
11.5
0.3
1.8
(0.2)
3.5
(0.1)
(119.6)
403.7
2018
Restated
£m
443.2
2.9
–
–
446.1
880.8
5.1
0.4
14.9
901.2
400.8
0.2
401.0
500.2
946.3
261.6
0.4
684.3
59.2
447.3
21.7
0.3
1.7
(0.2)
–
–
154.3
684.3
The 2018 Company Balance Sheet has been restated to correct a prior period error as disclosed in the Company Statement of Significant
Accounting Policies.
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 2019 of £259.8m (2018: restated £7.2m profit).
The Financial Statements were approved by the Board of Directors on 29 May 2020 and signed on its behalf by:
Steve Francis
Director
Registered in England: 00998314
Kath Kearney-Croft
Director
230
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Company Statement of Changes in Equity
for the year ended 31 December 2019
Called
up share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Share
option
reserve
£m
Exchange
reserve
£m
Cash flow
hedging
reserve
Cost of
hedging
reserve
Restated
£m
At 1 January 2018
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
At 31 December 2018
(restated)
Loss after tax
Other comprehensive income
Total comprehensive expense
Transfer of merger reserve
Transfer of hedging reserves
Exercise of share options
Credit to share option reserve
Share capital issued in the
year
Dividends paid to equity
holders of the Company
At 31 December 2019
59.2
–
–
–
–
–
–
59.2
–
–
–
–
–
–
–
447.3
–
–
–
–
–
–
447.3
–
–
–
–
–
–
–
21.7
–
–
–
–
–
–
21.7
–
–
–
(10.2)
–
–
–
–
59.2
–
447.3
–
11.5
0.3
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
0.3
1.3
–
–
–
–
0.4
–
1.7
–
–
–
–
–
0.1
–
–
1.8
(0.2)
–
–
–
–
–
–
(0.2)
–
–
–
–
–
–
–
–
(0.2)
–
–
–
–
–
–
–
–
2.2
2.2
–
1.3
–
–
–
–
3.5
Retained
profits/
(losses)
168.0
7.2
1.3
8.5
–
Total
Equity
697.6
7.2
1.3
8.5
–
–
0.4
(22.2)
(22.2)
154.3
(259.8)
–
(259.8)
10.2
(2.1)
–
–
684.3
(259.8)
1.3
(258.5)
–
–
–
0.1
–
–
–
–
–
–
–
–
(0.9)
(0.9)
–
0.8
–
–
–
–
–
–
(0.1)
(22.2)
(119.6)
(22.2)
403.7
The 2018 Company Statement of Changes in Equity has been restated to correct a prior period error as disclosed in the Company Statement
of Significant Accounting Policies.
There was no movement in the capital redemption reserve and exchange reserve in the year. During 2019 the Company allotted no shares
(2018: 8,747) from the exercise of share options.
Following a revision of past acquisitions an amount of £10.2m has been transferred between merger reserve and retained profits in relation to
the Company's holdings in the Freeman Group.
Amounts have been reclassified during the year to clarify the effects of hedging between retained (losses)/profits, the cash flow hedging
reserve and the cost of hedging reserve. See Note 14 for further details.
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.
231
Stock code: SHIwww.sigplc.comFINANCIALS Company Statement of Significant Accounting Policies
Basis of accounting
The separate Financial Statements of the Company are presented as required by the Companies Act 2006. They have been prepared
under the historical cost convention (except for the revaluation of financial instruments which are held at fair value as disclosed on page
141). 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 187.
The separate Financial Statements have been prepared in accordance with Financial Reporting Standard 101, “Reduced Disclosure
Framework” (FRS 101) and the Companies Acts 2006 as applicable to companies using FRS 101. FRS 101 sets out a reduced disclosure
framework for a qualifying entity that would otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS.
The Company is a qualifying entity for the purposes of FRS 101.
Going concern
The Company closely monitors its funding position throughout the year, including monitoring compliance with covenants and available
facilities to ensure it has sufficient headroom to fund operations.
During 2019, the Directors announced the proposed sale of the Group’s Air Handling division to France Air for an enterprise value of €222.7m
(£187.0m1) to strengthen the balance sheet and reduce working capital facilities. The sale completed on 31 January 2020 with net cash
proceeds of €180.9m (£151.9m1) being partly used to manage the Group’s working capital, including providing liquidity over the short term to
support the Group’s business through the COVID-19 uncertainty.
Following a challenging trading period in 2019 and a change in its Executive Directors in February 2020, the Group undertook an extensive
review of its business and operating strategy together with potential growth opportunities. During these reviews, it became clear that revised
lower forecasts for future earnings for 2020 to 2022, based on an analytical review of recent sales trends, were likely to leave the Group with
higher than anticipated leverage levels during this period. In turn, these highlighted that the Group’s capital structure needs to be addressed
and, as a result, the Group needs to raise new equity in order to enable the successful delivery of the Group’s new strategy while at the same
time managing liquidity.
With this in mind the Group is proposing to raise up to £150m of equity through a firm placing and placing and open offer in order to reduce
net debt and strengthen the Group’s balance sheet. Alongside the proposed equity raising the Group is currently engaged in discussions with
its Revolving Credit Facility (RCF) lenders and private placement noteholders with a view to agreeing amended terms in respect of the Group’s
RCF and private placement debt.
Detailed discussions with the Group’s RCF lenders and private placement noteholders are ongoing and we expect to reach agreement on
amended terms in respect of the RCF and private placement debt, which may include the following key conditions:
■■ An equity issuance timetable including receipt of proceeds in an amount of at least £100m by no later than 29th July 2020;
■■ An extension of the maturity of the RCF in order to meet the Group’s on-going working capital requirements;
■■ A new covenant package which will support an equity raise;
■■ Dividend restrictions until leverage reaches certain levels;
■■ An event of default if the Group’s equity raising fails and/or related key milestones are not reached, triggering a requirement for the Group
to present an alternative deleveraging plan for consideration by the RCF lenders and private placement noteholders. A deleveraging plan
could result in, without limitation and if the consent of the RCF lenders and private placement noteholders is obtained, potential disposals
or a merger or acquisition transaction to ensure an acceptable deleveraging of the Group’s Balance Sheet; and
■■ Opportunity to explore additional Government funding facilities both in the UK and in Europe to further support the Group.
We have assumed that terms for the revised financing structure will be agreed and that the Group and its RCF lenders and private placement
noteholders are able to successfully document such terms in substantive and binding documentation.
Pending the entry into such documentation, the Group has sought and obtained a waiver of the Consolidated Net Worth (CNW) covenant
contained in the private placement notes in respect of any testing thereof in the period from 28 May 2020 until 1 August 2020 (subject
to certain events not occurring in that period). Such waiver includes, without limitation, CNW as at 31 December 2019 on the basis of the
Group’s audited financial statements in respect of the period ending 31 December 2019.
As outlined above, the Group is seeking to raise up to £150m of equity through a firm placing and placing and open offer in order to
reduce net debt and strengthen the Group’s balance sheet. The equity raising process is expected to complete by 8 July 2020 however will
require prior approval by shareholders. The additional funds raised will seek to create an appropriate balance sheet structure and prevent
investment being constrained and business decisions being influenced by a focus on leverage and covenant management, which could
otherwise lead to managing the business in a manner that may cause detriment to the longer term prospects and the interests of the Group’s
shareholders.
1 Based on GBP:EUR foreign exchange rate of 1.191, as at 31 January 2020
232
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS In parallel to the discussions with the RCF lenders and private placement noteholders, as outlined above, the Group has been in discussions
with, and received confirmation from IKO, the Company’s largest shareholder of their support for the equity raise, and a conditional
commitment from CD&R, a new cornerstone investor to participate in the equity issuance.
■■ IKO, which currently owns approximately 15 per cent of the issued ordinary share capital of the Company, has confirmed that it is fully
supportive of the Company’s new strategy and equity raise and are intending to take up their pro-rata entitlements in full as part of the
open offer.
■■ CD&R, a leading global private equity manager has agreed to invest up to £85m as part of the equity raise, with a guaranteed minimum
of £72.5m, provided that an acceptable deal with the Group’s RCF lenders and private placement noteholders is agreed. While the exact
percentage holding will be determined in due course, CD&R will hold approximately 25% of the total enlarged issue share capital. The
initial tranche of its participation will be placed at 25p per share. The residual quantum of its equity investment will be placed as part of
the second tranche, a portion of which will be firm placed and the outcome of the remainder will be dependent on the take up of the pre-
emptive offer by existing shareholders.
Whilst the Company has reason to believe that the equity raise will be successful based on the above confirmation of support from IKO and
conditional commitment from CD&R to participate in the equity raise, at the time of publication of this report the outcome of the equity
raising is uncertain.
If an equity raise in line with the above-mentioned timing is not successful, then the Group will have to take mitigating actions, including
further discussions with the RCF lenders and the private placement noteholders regarding the basis upon which they may be willing to
continue to support the Group (including the need for covenant waivers and access to further liquidity). Alternatives could include the
option to conduct a post-summer equity raise (if available) or further disposals of assets (such as the disposal of one or more of the Group’s
operating businesses to facilitate a reduction of the Group’s outstanding indebtedness) or a merger or acquisition transaction involving the
Company (in each case if the consent of the RCF lenders and private placement noteholders is obtained). There remains the possibility of
other investors interested in buying the company’s shares outright should an alternative funding scenario be required.
In addition to the matters set out above, the COVID-19 virus has added additional uncertainty to the Group’s liquidity position as
Government restrictions in the UK and Ireland, applied from late March 2020, resulted in swathes of construction activity stopping and
impacting the Group’s sales. To protect the health, safety and wellbeing of staff, the majority of the Group’s UK and Irish sites were
substantially closed in April although a phased return to work has since begun. In March, the Group’s French operating company was briefly
closed following government guidance although sites were permitted to be reopened shortly afterwards, and trading in France continues
to build to pre-COVID-19 levels. However, the Directors believe the Group will be able to continue to manage through the current COVID-19
uncertainty, particularly given the experience of the Group’s operating companies in Benelux, Germany and Poland which have continued to
trade well despite government lockdown guidance.
Comprehensive actions have been taken across the Group to reduce costs and manage liquidity, including the furloughing, for April and
much of May, of approximately 2000 employees across the UK and Ireland during the shutdown period, short-time working in France,
maximising opportunities to defer VAT, PAYE and other tax payments, temporary Board and employee salary reductions, stopping or
postponing capex investment and cancellation of the 2019 final dividend. Government loan support both in the UK and Europe remains a
route potentially available if required. These actions to reduce costs and manage liquidity during the COVID-19 crisis have resulted in the
Group managing its liquidity position with cashflow forecast projections improved from initial expectations. Despite the benefits of these
actions, ongoing significant revenue reductions beyond the scenarios which have been modelled could lead to the Group’s liquidity falling
below the minimum required levels such that alternative deleveraging plans which have been considered would need to be implemented.
Accordingly, at the time of signing these financial statements, there remain several material uncertainties related to events or conditions that
may cast significant doubt on the Company and Group’s ability to continue as a going concern and, therefore, it may be unable to realise its
assets and discharge its liabilities in the normal course of business.
In forming an assessment of the Company and Group’s ability to continue as a going concern, the Board has identified the following material
uncertainties and made significant judgements about:
■■ The Group successfully agreeing outline terms with its RCF lenders and private placement noteholders (and the RCF lenders and private
placement noteholders obtaining credit approval of the same).
■■ The Group, together with its RCF lenders and private placement noteholders, successfully documenting such terms in substantive and
binding documentation.
■■ Achieving a successful equity raise of up to £150m in line with the above-mentioned timing, which entails the approval of a prospectus by
the FCA, approval by shareholders at a General Meeting and securing appetite for the necessary investment.
■■ Whether, in the event the Group does not achieve a successful equity raise, the RCF lenders and the private placement noteholders will
continue to support the Group in the short term in order to allow the Group to complete the execution of alternative plans (a secondary
equity window or alternative deleveraging plans including further disposals or a merger or acquisition transaction).
■■ The forecast cashflow of the Group over the next 12 months upon signing the financial statements depends on the Group’s ability to
continue to successfully manage through the current uncertain trading environment related to COVID-19.
■■ The Group’s ability to implement the new strategy and deliver a stronger business which is more sales led in a relatively short period and
do so in a period of economic uncertainty.
After careful consideration of these, and an assessment of the likelihood of a positive outcome, the Directors believe that it is appropriate to
prepare the financial statements on a going concern basis. The financial statements do not reflect any adjustments that would be required
to be made if they were prepared on a basis other than the going concern basis.
233
Stock code: SHIwww.sigplc.comFINANCIALS Company Statement of Significant Accounting Policies
New standards, interpretations and amendments adopted
The Company has applied IFRS 16 for the first time. The nature and effect of the changes as a result of adoption of this new accounting
standard is described below.
Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the financial statements of
the Company. The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet
effective.
IFRS 16 “Leases”
The nature and effect of the key changes to the Company’s accounting policies in relation to IFRS 16 are set out in the Group Statement of
Significant Accounting Policies on pages x to x. The Company has one lease contract for a property with a remaining term of 8 years with
a break option after 2 years. This was previously recognised as an operating lease. On adoption of IFRS 16 at 1 January 2019 the Company
has recognised a lease liability of £2.0m based on the present value of the remaining lease payments, discounted using the Company’s
incremental borrowing rate of 5.0%, and a corresponding right-of-use asset of £1.9m. There was no impact on retained earnings as a result of
these adjustments.
The impact on profit before tax for the year ended 31 December 2019 is as follows:
Operating loss
Net finance income
Loss before tax
As reported
£m
IFRS 16 Impact
£m
(288.3)
31.1
(257.2)
–
0.1
0.1
Excluding
IFRS 16 Impact
£m
(288.3)
31.2
(257.1)
Exemptions applied in accordance with FRS 101
The following exemptions from the requirements of IFRS have been applied in the preparation of these Financial Statements, in accordance
with FRS 101:
■■ the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 “Share-based Payment”
■■ the requirements of IFRS 7 “Financial Instruments: Disclosures”
■■ the requirements of paragraphs 91 to 99 of IFRS 13 ”Fair Value Measurement”
■■ the requirement in paragraph 38 of IAS 1 “Presentation of Financial Statements” to present comparative information in respect of:
i) paragraph 79(a)(iv) of IAS 1 and
ii) paragraph 73(e) of IAS 16 “Property, Plant and Equipment”
■■ the requirements of paragraphs 10(d), 10(f), 16, 38A to 38D, 40A to 40B, 111, and 134 to 136 of IAS 1 “Presentation of Financial
Statements”
■■ the requirements of IAS 7 “Statement of Cash Flows”
■■ the requirements of paragraphs 30 and 31 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”
■■ the requirements of paragraph 17 of IAS 24 “Related Party Disclosures”
■■ the requirements in IAS 24 “Related Party Disclosures” to disclose related party transactions entered into between two or more members
of a group
■■ the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 “Impairment of Assets”.
Share-based payments
The accounting policy for share-based payments (IFRS 2) is consistent with that of the Group as detailed on page 149.
Derivative financial instruments
The accounting policy for derivative financial instruments is consistent with that of the Group as detailed on page 152.
Financial assets and liabilities
The accounting policy for financial assets and liabilities is consistent with that of the Group as detailed on page 151. 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.
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 150.
Intangible assets
The accounting policy for intangible fixed assets is consistent with that of the Group as detailed on page 150.
Foreign currency
The accounting policy for foreign currency is consistent with that of the Group as detailed on page 147.
234
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Taxation
The accounting policy for taxation is consistent with that of the Group as detailed on page 149.
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.
Prior year restatements
An error has been identified in the 2018 Company balance sheet and disclosed loss after tax. The loss after tax was overstated by £13.9m
due to the recognition of a duplicate provision against an intercompany balance. This is corrected by a prior year restatement to previously
reported numbers in these Financial Statements. The restatement results in an increase in profit/(loss) after tax of £13.9m from a loss after
tax of £6.7m to a profit after tax of £7.2m, and an increase in debtors owed by subsidiary undertakings and net assets of £13.9m.
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 following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that
have had a significant effect on the amounts recognised in the Financial Statements. The judgements involving estimations are dealt with
separately below.
Presentation of private placement debt
At 31 December 2019, private placement notes of £175.5m have been reclassified as a currently liability on the balance sheet because the
covenant test of consolidated net worth at 31 December 2019 is below the threshold of £400m (see Note 33h of the Consolidated Financial
Statements). From an accounting perspective at the balance sheet date the Company did not have an unconditional right to defer settlement
of the liability for at least 12 months. Therefore, as required by IAS 1 “Presentation of financial statements”, the entire private placement
notes balance is presented as a current liability at 31 December 2019. Under the terms of the private placement note agreement no event of
default arose and testing of the covenant at 31 December 2019 has been waived and thus the notes did not become repayable or capable of
being declared immediately due and payable, hence as at 31 December 2019 the only contractual requirement to repay the debt in the next
twelve months is the scheduled loan repayment in October 2020.
The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of the assets and
liabilities recognised by the Company within the next financial year are detailed below.
Impairment of fixed asset investments
Determining whether the Company’s investments are impaired requires an estimation of the investments’ value in use. The key estimates
made in the value in use calculation in relation to trading subsidiaries are those regarding discount rates, sales growth rates, gross margin
and long term operating profit growth. 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 £376.8m (2018:
£443.2m) after an impairment loss recognised in 2019 of £66.8m.
Of the £376.8m net book value at 31 December 2019, £370.0m relates to the Company’s investment in 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. At 31 December 2019, a review of the future operating cashflows of SIG
Trading Limited using the following year’s budget as a base indicated that the carrying value of the investment was not recoverable, resulting
in the impairment charge recognised.
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 the investment included in the Balance Sheet could become impaired further. Further details on the
assumptions and sensitivities in relation to the forecast future cash flows of this subsidiary are provided in Note 13 of the Consolidated
Financial Statements.
Impairment of amounts owed by subsidiary undertakings
At 31 December 2019 the Group has recognised amounts owed by subsidiary undertakings of £537.0m (2018: £880.3m restated). 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. An ECL provision of £190.6m has
been recognised at 31 December 2019 based on estimates regarding the future cash flows from subsidiaries and taking account of the
time value of money. Changes in the economic environment or circumstances specific to individual subsidiaries could have an impact on
recoverability of amounts included on the Company Balance Sheet at 31 December 2019 and level of ECL provision required in the future.
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. Deferred tax assets have not been recognised at 31 December 2019 on the basis that the realisation of their future economic
benefit is uncertain.
235
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 2019 of £259.8m (2018 restated: £7.2m profit).
The Auditor's remuneration for audit services to the Company was £0.6m (2018: £0.4m).
2 Share-based payments
The Company had four share-based payment schemes in existence during the year ended 31 December 2019. The Company recognised a
total credit of £0.2m (2018: charge of £0.3m) in the year relating to share-based payment transactions. Details of each of the share-based
payment schemes can be found in Note 9 to the Group Accounts on pages 168 to 170.
3 Dividends
An interim dividend of 1.25p per ordinary share was paid on 8 November 2019 (2018: 1.25p). The Directors are not proposing a final dividend
for the year ended 31 December 2019 (2018: 2.5p per ordinary share). Total dividends paid during the year, including the final dividend for
2018, were £22.2m (2018: £22.2m) comprising the 2019 interim dividend of £7.4m and the final dividend for 2018 of £14.8m. No dividends
have been paid between 31 December 2019 and the date of signing the Financial Statements.
See Note 14 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
Impairment charge
At 31 December
Net book value
At 31 December
At 1 January
2019
£m
5.3
1.0
(0.2)
0.3
6.4
2018
£m
5.7
0.6
0.3
0.2
6.8
2019
Number
56
2018
Number
48
2019
£m
650.4
0.4
650.8
207.2
66.8
274.0
376.8
443.2
2018
£m
650.2
0.2
650.4
207.2
–
207.2
443.2
443.0
Details of the Company's subsidiaries are shown on pages 242 to 243.
The £0.4m 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 £376.8m (2018: £443.2m) investment net book value, £370.0m (2018: £435m) relates to SIG Trading Limited, the largest UK trading
subsidiary. At 31 December 2019, 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, indicated that the carrying value of the investment was not recoverable and an
impairment charge of £66.8m has been recognised in relation to this and other smaller investments.
A more detailed sensitivity analysis of the Group’s significant CGUs is given on page178, Note 13 of the Consolidated Financial Statements.
236
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS 6 Tangible fixed assets
The movement in the year was as follows:
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Additions
Reclassifications
Disposals
At 31 December 2019
Depreciation
At 31 January 2018
Charge for the year
At 31 December 2018
Reclassifications
Charge for the year
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Land and buildings
Freehold land and
buildings
£m
Leasehold
improvements
£m
Plant and
machinery
£m
0.1
–
–
0.1
–
–
–
0.1
0.1
–
0.1
–
–
0.1
–
–
0.2
0.3
–
0.5
–
–
–
0.5
–
–
–
–
0.1
0.1
0.4
0.5
0.6
2.6
(0.1)
3.1
–
(2.5)
–
0.6
0.5
0.2
0.7
(0.1)
–
0.6
–
2.4
Total
£m
0.9
2.9
(0.1)
3.7
–
(2.5)
–
1.2
0.6
0.2
0.8
(0.1)
0.1
0.8
0.4
2.9
Software costs previously included within plant and machinery with cost of £2.5m and accumulated depreciation of £0.1m at 31 December
2018 have been reclassified as intangible assets during the year (see Note 7).
7 Intangible fixed assets
The movement in the year was as follows:
Cost
At 1 January and 31 December 2018
Reclassifications (Note 6)
Additions
At 31 December 2019
Depreciation
At 1 January and 31 December 2018
Reclassifications (Note 6)
Charge for the year
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Included within computer software additions are assets in the course of construction of £9.4m (2018: £nil).
Computer
software
£m
–
2.5
10.0
12.5
–
0.1
0.8
0.9
11.6
–
Total
£m
–
2.5
10.0
12.5
–
0.1
0.8
0.9
11.6
–
237
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
8 Debtors
Amounts owed by subsidiary undertakings
Derivative financial instruments
Current tax asset
Prepayments
Debtors - due within one year
Amounts owed by subsidiary undertakings
Derivative financial instruments
Deferred consideration
Debtors - due after more than one year
Total
£m
537.0
0.9
0.4
1.0
539.3
–
1.7
–
1.7
541.0
Restated
£m
880.3
–
–
0.5
880.8
3.2
1.9
–
5.1
885.9
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. An ECL provision of £190.6m
has been recognised at 31 December 2019 based on estimates regarding the future cash flows from subsidiaries and taking account of the
time value of money.
Amounts owed by subsidiary undertakings are measured at amortised cost and bear interest at rates between 0.0% and 8.0%.
9 Creditors: amounts falling due within one year
Lease liabilities
Private placement notes (Note 10)
Bank loans
Bank overdrafts
Amounts owed to subsidiary undertakings
Derivative financial instruments
Accruals and deferred income
Corporation tax
Total
31 December
2019
£m
31 December
2018
Restated
£m
0.2
175.5
99.5
12.7
218.4
0.2
26.6
–
533.1
–
–
56.6
7.5
323.3
0.3
10.0
3.1
400.8
All of the Company's bank loans and overdrafts are unsecured. The bank loans are guaranteed by certain companies of the Group. The
private placement notes have been reclassified as a current liability at 31 December 2019. See Note 10.
Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and
4.0%.
10 Creditors: amounts falling due after one year
Lease liabilities
Private placement notes
Derivative financial instruments
Amounts owed to subsidiary undertakings
Total
31 December
2019
£m
31 December
2018
£m
1.6
–
1.9
–
3.5
–
185.6
3.8
72.2
261.6
Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and 4.0%.
238
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Details of the private placement notes (before applying associated derivative financial instruments and prepaid arrangement fees) are shown
below. At 31 December 2019, the private placement notes have been reclassified as a currently liability on the balance sheet because the
covenant test of consolidated net worth at 31 December 2019 is below the threshold of £400m (see Note 33h of the Consolidated Financial
Statements). From an accounting perspective at the balance sheet date the Company did not have an unconditional right to defer settlement
of the liability for at least 12 months. Therefore, as required by IAS 1 "Presentation of financial statements", the entire private placement
notes balance is presented as a current liability at 31 December 2019. Under the terms of the private placement note agreement no event of
default arose and testing of the covenant as at 31 December 2019 has been waived and thus the notes did not become repayable or capable
of being declared immediately due and payable, hence as at 31 December 2019 the only contractual requirement to repay the debt in the
next twelve months is the scheduled loan repayment in October 2020.
Repayable in 2020
Repayable in 2021
Repayable in 2023
Repayable in 2026
Total
31 December 2019
31 December 2018
Fixed interest
rate
Fixed interest
rate
£m
25.4
16.9
42.3
91.2
175.8
%
3.7
3.9
4.2
3.3
£m
26.9
18.0
44.9
96.2
186.0
%
3.7
3.9
4.2
3.3
11 Leases
The Company as a lessee
The Company has a lease contract for a property. Information on the nature and accounting for lease contracts, together with the impact on
adoption of the new standard at 1 January 2019, is provided in the Statement of Significant Accounting Policies.
Set out below is the carrying amount of the right-of-use asset recognised and the movement during the period:
On adoption at 1 January 2019
Depreciation expense
At 31 December 2019
Set out below is the carrying amount of the lease liability and the movement during the year:
Buildings
£m
1.8
(0.2)
1.6
On adoption at 1 January 2019
Accretion of interest
Payments
At 31 December 2019
Current
Non-current
The following are the amounts recognised in profit or loss:
Depreciation expense of right-of-use asset
Interest expense on lease liability
Total amount recognised in profit or loss
Total
£m
1.8
(0.2)
1.6
2019
£m
2.0
0.1
(0.3)
1.8
0.2
1.6
1.8
2019
£m
0.2
0.1
0.3
The Company had total cash outflows for leases of £0.3m in 2019. The Company had no non-cash additions to right-of-use assets and lease
liabilities in 2019. There are no future cash outflows relating to leases that have not yet commenced.
239
Stock code: SHIwww.sigplc.comFINANCIALS Notes to the Company Financial Statements
12 Provisions
At 1 January 2018
Released
Utilised
At 31 December 2018
Released
Utilised
At 31 December 2019
Amounts falling due within one year
Amounts falling due after one year
Total
Warranty
Claims
£m
Dilapidations
£m
1.1
–
(0.9)
0.2
(0.2)
–
–
0.8
(0.4)
–
0.4
–
(0.2)
0.2
Total
£m
1.9
(0.4)
(0.9)
0.6
(0.2)
(0.2)
0.2
31 December
2019
£m
31 December
2018
£m
–
0.2
0.2
0.2
0.4
0.6
The transfer of economic benefit in respect of the dilapidations provision is expected to be made on expiry of the lease in eight years time.
13 Deferred tax
Deferred tax assets
£m
31 December
2019
£m
31 December
2018
£m
–
0.4
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 2018
Credit to income
At 31 December 2018
Charge to income
At 31 December 2019
Losses
£m
0.1
–
0.1
(0.1)
–
Other
£m
0.2
0.1
0.3
(0.3)
–
Total
£m
0.3
0.1
0.4
(0.4)
–
Deferred tax has not been recognised on £1.4m of deductible temporary differences relating to property, plant and equipment, on the
basis that the realisation of their future economic benefit is uncertain. At the balance sheet date, no deferred tax liability is recognised on
temporary differences relating to undistributed profits of the Company's subsidiaries. The Company is in a position to control the timing of
the reversal of these temporary differences and it is probable that they wil not reverse in the foreseeable future.
14 Capital and Reserves
Called up share capital
Share premium account
Merger reserve
Capital redemption reserve
Share option reserve
Exchange reserve
Cash flow hedging reserve
Cost of hedging reserve
Retained profits
Total reserves
240
31 December
2019
£m
31 December
2018
Restated
£m
59.2
447.3
11.5
0.3
1.8
(0.2)
3.5
(0.1)
(119.6)
403.7
59.2
447.3
21.7
0.3
1.7
(0.2)
–
–
154.3
684.3
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS The movements in reserves during the year were as follows:
At 1 January 2018
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 (restated)
Dividends
At 31 December 2018 (restated)
Issue of share capital
Credit to share option reserve
Exercise of share options
Transfer of hedging reserves
Transfer from Merger reserve
Fair value movement on cash flow hedges
Transfer to profit and loss on cash flow
hedges
Profit for the period
Dividends
At 31 December 2019
Called up share
capital
£m
Share premium
account
£m
Share option
reserve
£m
Cash flow
hedging reserve
£m
Cost of hedging
reserve
£m
Retained
profits
£m
59.2
–
–
–
–
–
–
–
59.2
–
–
–
–
–
–
–
–
–
59.2
447.3
–
–
–
–
–
–
–
447.3
–
–
–
–
–
–
–
–
–
447.3
1.3
–
0.4
–
–
–
–
–
1.7
–
0.1
–
–
–
–
–
–
–
1.8
–
–
–
–
–
–
–
–
–
–
–
–
1.3
–
1.3
0.9
–
–
3.5
–
–
–
–
–
–
–
–
–
–
–
–
0.8
–
(0.9)
–
–
–
(0.1)
168.0
–
–
–
2.0
(0.7)
7.2
(22.2)
154.3
–
–
–
(2.1)
10.2
–
–
(259.8)
(22.2)
(119.6)
There was no movement in the capital redemption reserve and exchange reserve in the year. During 2019 the Company allotted no shares
(2018: 8,747) from the exercise of share options.
Amounts have been reclassified during the year to clarify the effects of hedging between retained(losses)/profits, the cash flow hedging
reserve and cost of hedging reserve.
At 31 December 2019 the Company has negative distributable reserves of £158.4m. The Company is not proposing a final 2019 dividend
in 2020. Before the Group seeks to recommence its dividend payments it will be required to review its medium term plan and distributable
reserves position. The Directors intend to carry out a review of the structure of the Group during the coming year in order to remedy this
and optimse existing reserves.
Details of the Company's share capital can be found in Note 26 of the Group Accounts on page 199.
15 Guarantees and other financial commitments
a) Guarantees
At 31 December 2019 the Company had provided guarantees of £nil (2018: £nil) 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 (2018: £8.0m). This
standby letter of credit, issued by HSBC Bank plc, is in respect of the Group’s insurance arrangements.
16 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 111 to 132. In addition, the Company recognised a share-based credit
under IFRS 2 of £0.2m (2018: charge of £0.3m).
241
Stock code: SHIwww.sigplc.comFINANCIALS
Group Companies 2019
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)
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 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)
Building Solutions (National) Limited (England)
Buildspan Holdings Limited (England) (ii) (vii)
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)
Ceilings Distribution Limited (England) (i) (ii)
Cheshire Roofing Supplies Limited (England) (ii)
Classicbond Limited (England) (ii)
+Clyde Insulation Supplies Limited (Scotland) (ii)
Clydesdale Roofing Supplies (Leyland) Limited
(England) (ii)
C.M.S. Acoustic Solutions Limited (England) (ii) (x)
CMS Danskin Acoustics Limited (England) (ii)
C.M.S. Vibration Solutions Limited (England) (ii) (xv)
Coleman Roofing Supplies Limited (England) (ii)
Construction Material Specialists Limited
(England) (ii) (xvi)
Coxbench IP Limited (England) (ii)
CPD Distribution Plc (England) (ii)
Dane Weller Holdings Limited (England) (ii)
+Danskin Flooring Systems Limited (Scotland) (ii)
Dataplus Software Limited (England) (ii)
Davies & Tate plc (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)
+Fastplas Limited (Scotland) (ii)
Fibreglass Insulations Limited (England) (ii)
Fireseal (North West) Limited (England) (ii)
Firth Powerfix Limited (England) (ii) (vii)
Flex-R Limited (England) (xv)
Formerton Limited (England) (ii)
Formerton Sheet Sales Limited (England) (ii)
Franklin (Sussex) Limited (England) (ii)
Freeman Group Limited (England) (i) (ii)
Freeman Holdings Limited (England) (ii)
General Fixings Limited (England) (ii)
G.S. Insulation Supplies Limited (England) (ii)
Gutters & Ladders (1968) Limited (England) (ii)
Harris Roofing Supplies Gloucester Limited (England) (ii)
>HHI Building Products Limited (Northern Ireland) (ii)
Hillsborough Investments Limited (England) (i) (ii) (iii)
Impex Avon Limited (England) (ii) (xv)
Insulation and Machining Services Limited (England) (ii)
Insulslab Limited (England) (ii)
+J. Danskin & Company Limited (Scotland) (ii)
John Hughes (Roofing Merchant) Limited (England) (ii)
John Hughes (Wigan) Limited (England) (ii)
Jordan Wedge Limited (England) (ii)
K.D. Insulation Supplies Limited (England) (ii)
Kem Edwards Limited (England) (ii)
Kent Flooring Supplies Limited (England) (ii)
Kesteven Roofing Centre Limited (England) (ii)
Kitson’s Thermal Supplies Limited (England) (ii) (v)
Landsdon Holdings Limited (England) (ii) (xv)
Landsdon Limited (England) (ii) (x)
Leaderflush + Shapland Holdings Limited (England)
Lee and Son Limited (England) (ii)
Lifestyle Partitions and Furniture Limited (England) (ii) (vi)
London Insulation Supplies Limited (England) (ii)
>Long Construction Services (Northern Ireland) Limited
(Northern Ireland) (ii)
+MacGregor & Moir Limited (Scotland) (ii)
Marvellous Fixings Limited (England) (ii)
Mayplas Limited (England) (ii) (ix)
M.C. Insulation Supplies Limited (England) (ii)
Metall Architektur Limited (England)
Metechno Limited (England)
Ockwells Limited (England) (ii) (vii)
Omni Plastics Limited (England) (ii)
Omnico (Developments) Limited (England) (ii)
Omnico Plastics Limited (England) (ii)
One Stop Roofing Centre Limited (England) (ii)
Orion Trent Holdings Limited (England) (ii) (xvii)
Orion Trent Limited (England) (ii) (xvii)
Parking Ventilation Equipment Limited (England) (xv)
Penkridge Holdings Limited (England) (ii)
Plastic Pipe Supplies Limited (England) (ii)
Polytech Systems Limited (England) (ii) (xvii)
Pre-Pour Services Limited (England) (ii) (xv)
Procurewide Limited (England) (ii)
Proos Roofing Centres Limited (England) (ii)
Rinus International Limited (England) (ii)
R.J. & T. Wormwell Limited (England) (ii)
Roberts & Burling Roofing Supplies Limited (England) (ii)
Roof Care (Northern) Limited (England) (ii)
Roof Fitters Mate Limited (England) (ii)
Roof Shop Limited (England) (ii)
Roofers Mate Limited (England) (ii)
Roofing Centre Group Limited (England) (ii)
Roofing Material Supplies Limited (England) (ii)
Roplas (Humberside) Limited (England) (ii)
Roplas (Lincs) Limited (England) (ii)
Ryan Roofing Supplies Limited (England) (ii) (viii)
Safety Direct Limited (England) (ii)
SAS Direct and Partitioning Limited (England) (ii)
Scotplas Limited (England) (ii)
Scotwarm Insulations Limited (England) (i)
S.G. Insulation Supplies Limited (England) (ii)
Sheffield Insulations Limited (England) (i) (ii) (iii)
Shropshire Roofing Supplies Limited (England) (ii)
SIG Air Handling UK Limited (England)
SIG Building Solutions Limited (England) (ii)
SIG Building Systems Limited (England)
SIG Construction Accessories Limited (England) (ii)
SIG Digital Limited (England)
SIG Distribution Limited (England) (ii)
SIG Dormant Company Number Eight Limited
(England) (ii) (iv)
SIG Dormant Company Number Eleven Limited
(England) (ii)
SIG Dormant Company Number Fourteen Limited (ii)
SIG Dormant Company Number Nine Limited
(England) (i) (ii)
SIG Dormant Company Number Seven Limited
(England) (i) (ii)
SIG Dormant Company Number Six Limited
(England) (ii)
SIG Dormant Company Number Sixteen Limited
(England) (ii)
SIG Dormant Company Number Ten Limited
(England) (i) (ii) (xvii)
SIG Dormant Company Number Thirteen Limited
(England) (ii)
SIG Dormant Company Number Three Limited
(England) (i) (ii)
SIG Dormant Company Number Twelve Limited
(England) (ii)
SIG Dormant Company Number Two Limited
(England) (i) (ii) (iv)
SIG Energy Management Limited (England) (i) (ii)
SIG EST Trustees Limited (England) (i) (ii)
SIG European Holdings Limited (England) (i)
SIG European Investments Limited (England)
SIG Express Limited (England) (ii)
SIG Fixings Limited (England) (ii)
SIG Green Deal Provider Company Limited
(England) (i) (ii)
SIG Group Life Assurance Scheme Trustees Limited
(England) (ii)
SIG Hillsborough Limited (England)
SIG (IFC) Limited (England)
SIG Insulations Limited (England) (ii)
SIG International Trading Limited (England) (i)
SIG Logistics Limited (England) (ii)
SIG Manufacturing Limited (England)
SIG Offsite Limited (England) (ii)
SIG Retirement Benefits Plan Trustee Limited
(England) (i) (ii)
SIG Roofing Supplies Limited (England) (i) (ii)
SIG Scots Co Limited (Scotland) (i)
SIG Specialist Construction Products Limited
(England) (ii)
SIG Sustainable Solutions Limited (England) (ii)
SIG Trading Limited (England) (i)
SIG Trading (KSA) Limited (England) (ii)
Solent Insulation Supplies Limited (England) (ii)
South Coast Roofing Supplies Limited (England) (ii)
Southern Roofing Warehouse Limited (England) (ii)
Southwest Roofing Supplies Limited (England) (ii) (viii)
Specialised Fixings Limited (England) (ii)
Specialist Fixings and Construction Products Limited (ii)
Summers PVC (Essex) Limited (England) (ii)
Summers PVC Limited (England) (ii)
Support Site Limited (England) (i) (ii)
T A Stephens (Roofing) Limited (England) (ii)
TD Insulation Supplies Limited (England) (ii)
Tenon Partition Systems Limited (England) (ii)
The Coleman Group Limited (England) (ii) (xviii)
The Greenjackets Roofing Services Limited
(England) (ii) (xv)
The Window Village Limited (England) (ii)
Thomas Smith (Roofing Centres) Limited (England) (ii)
Tolway East Limited (England) (ii)
Tolway Fixings Limited (England) (ii)
Tolway Holdings Limited (England) (ii)
Tooltray.com Limited (England) (ii)
Trent Insulations Limited (England) (ii)
Trimform Products Limited (England) (ii)
TSS Plastics Centre Limited (England) (ii)
Undercover Holdings Limited (England) (ii)
Undercover Roofing Supplies Limited (England) (ii)
United Roofing Products Limited (England) (ii)
United Trading Company (UK) Limited (England) (ii) (vii)
Universal Roofing Supplies Limited (England) (ii)
Valley Sealants Limited (England) (ii)
W.W. Fixings Limited (England) (ii) (xvi)
Walkwell Flooring Supplies Limited (England) (ii)
Warm A Home Limited (England) (ii) (xx)
Warren Insulation plc (England) (ii)
Weymead Holdings Limited (England) (ii) (xv)
Wedge Roofing Centres Holdings Limited (England) (ii)
Wedge Roofing Centres Limited (England) (ii)
Westway Insulation Supplies Limited (England) (ii)
White & Taylor (Tunstall) Limited (England) (ii) (xii)
William Smith & Son (Roofing) Limited (England) (ii)
Window Fitters Mate Limited (England) (ii)
Wood Floor Sales Limited (England) (ii)
Woods Insulation Limited (England) (ii)
Workspace London Limited (England) (ii)
Zip Screens Limited (England) (i) (ii)
242
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Fully owned limited partnership
+ The 2018 SIG Scottish Limited Partnership (Scotland)
(xxi)
Controlling interests
(United Kingdom)
Passive Fire Protection (PFP) UK Limited (England)
(51%) (ii)
+ Registered Office Address: Coddington Crescent,
Holytown, Motherwell, ML1 4YF, United Kingdom
> Registered Office Address: 6-8 Balmoral Road, Balmoral
Industrial Estate, Belfast, Northern Ireland, BT12 6QA,
United Kingdom
Fully owned subsidiaries
(overseas) (including registered
office addresses)
Air Trade Centre Netherlands B.V. (The Netherlands) -
1e Tochtweg 11, 2913 LN Nieuwerkerk aan den IJsel,
The Netherlands
Asimex Klimaattechniek B.V. (The Netherlands) -
Leeghwaterstraat 12, 3316 EC Dordrecht, The
Netherlands
Barcol-Air B.V. (The Netherlands) - Cantekoogweg 10,
1442 LG Purmerend, The Netherlands
Beleggingsmij Interland Techniek B.V. (The Netherlands)
- Tielenstraat 19, 5145 RC Waalwijk, The Netherlands
BLH Bauelemente für Lüftungstechnik Hennen GmbH
(Germany) –
Johann-Philipp-Reis-Strasse 1, 54293 Trier, Germany
Climaline Ceiling Solutions GmbH (Germany) -
Gneisenaustrasse 10-11, 97074 Würzburg, Germany
Elthisol S.A.R.L. (France) – Parc d’activité de la
Chauvelière, Rue Charles Lindbergh - 35150 Janzé,
France
Gate Pizzaras SL (Spain) - Ponferrada, Villamartin
Leon, Spain
HCKP B.V. (The Netherlands) - Tielenstraat 19, 5145 RC
Waalwijk, The Netherlands
Hillsborough (Guernsey) Limited (Guernsey) - Martello
Court, PO Box 119, Admiral Park, St Peter Port,
HY1 3HB, Guernsey
Hillsborough Investments (Guernsey) Limited
(Guernsey) - Martello Court, PO Box 119, Admiral Park,
St Peter Port, HY1 3HB, Guernsey
Holland Conditioning B.V. (The Netherlands) -
Tielenstraat 19, 5145 RC Waalwijk, The Netherlands
Holland Conditioning Parkeersystemen B.V. (The
Netherlands) - Tielenstraat 19, 5145 RC Waalwijk,
The Netherlands
Houdstermaatschappij Gisama B.V. (The Netherlands) -
Tielenstraat 19, 5145 RC Waalwijk, The Netherlands
Isolatec b.v.b.a. (Belgium) - Scheepvaartkaai 5, Hasselt
3500, Belgium
Interland Techniek B.V. (The Netherlands) - Tielenstraat
19, 5145 RC Waalwijk, The Netherlands
J S McCarthy Limited (Ireland) - Ballymount Retail Centre,
Ballymount Road Lower, Dublin 24, Ireland
Larivière S.A.S. (France) - 36 bis rue delaage, 49100
Angers, France
LITT Diffusion S.A.S. (France) - 8-16 rue Paul Vaillant
Couturier
92240 Malakoff, France
Maury S.A.S. (France) - Chemin de la Plaisse, 73370 Le
Bourget-du-Lac, France
Meldertse Plafonneerartikelen N.V. (Belgium) -
Bosstraat 60, 3560 Lummen, Belgium
MIT International Trade S.L (Spain) – Carretera Sarria a
Vallvidrera 259, Local 08017, Barcelona, Spain
MPA BXL N.V. (Belgium) - Bosstraat 60, 3560 Lummen,
Belgium
Multijoint SA (Switzerland) - Route des Jeunes 6, Gare
CFF-La Praille porte 48, 1227 Carouge GE, Switzerland
Profant Lufttechnik Handels GmbH (Austria) -
Statteggerstrasse 131, 8045 Graz, Austria
Saftair Ventilation S.A.S. (France) - 15 rue du Levant,
76590 Torcy Le Petit, France
Sebemex S.A.S. (France) - 21 rue du Luxembourg,
37100 Tours, France
SIG Aftbouwspecialist B.V. (The Netherlands) Het
Sterrenbeeld 52, 5215 ML ‘s-Hertogenbosch, The
Netherlands
SIG Air Handling Bulgaria EOOD (Bulgaria) 301
Tsarigradsko Shosse Blvd, 1582 Bulgaria
SIG Air Handling N.V. (Belgium) – 180 Hoogstraat, 1930
Zaventem, Belgium
SIG Air Handling Sp. z.o.o. (Poland) - ul. Kamienskiego
51, 30-644 Krakow, Poland
SIG Air Handling Hungary Kft (Hungary) - Gyár u. 2,
2040 Budaörs, Hungary
SIG Air Handling International B.V. (The Netherlands) -,
Tielenstraat 17, 5145 RC Waalwijk The Netherlands
SIG Air Handling Netherlands B.V. (The Netherlands) -
Tielenstraat 17, 5145 RC Waalwijk, The Netherlands
SIG Air Handling Romania Srl (Romania) - Bucharest,
sector 1, 307-309 Sos. Odai, module – right section,
2nd floor, room 1, Romania
SIG Belgium Holdings N.V. (Belgium) - Bosstraat 60,
3560 Lummen, Belgium
SIG Building Products Limited (Ireland) (ii) - Ballymount
Retail Centre, Ballymount Road Lower, Dublin 24,
Ireland
SIG Central Services B.V. (The Netherlands) - Bedrijfweg
15, 5061 JX Oisterwijk, The Netherlands
SIG Construction GmbH (Germany) - Maybachstrasse 14,
63456 Hanau-Steinheim, Germany
SIG Financing (Jersey) Limited (Jersey) - 44 Esplanade,
St Helier, JE4 9WG, Jersey
SIG France S.A.S. (France) - 8-16 rue Paul Vaillant
Couturier, 92240 Malakoff, France
SIG Germany GmbH (Germany) - Maybachstrasse 14,
63456 Hanau-Steinheim, Germany
SIG Holdings B.V. (The Netherlands) - Bedrijfweg 15,
5061 JX Oisterwijk, The Netherlands
SIG International Trading FZE (Dubai) - Jabel Ali, Dubai
SIG Nederland B.V. (The Netherlands) - Bedrijfweg 15,
5061 JX Oisterwijk, The Netherlands
SIG Property GmbH (Germany) - Maybachstrasse 14,
63456 Hanau-Steinheim, Germany
SIG Technische Isolatiespecialist B.V. (The Netherlands)
- Touwbaan 24-26, 2352 TZ Leiderdorp , The
Netherlands
SIG Services Limited (Jersey) - 44 Esplanade, St Helier,
JE4 9WG, Jersey
SIG Stukadoorsspecialist B.V. (The Netherlands) -
Hoogeveenenweg 160, Nieuwerkerk a.d. Ussel, 2913
LV, The Netherlands
SIG Trading (Ireland) Limited (Ireland) (viii) - Ballymount
Retail Centre, Ballymount Road Lower, Dublin 24,
Ireland
SIG Sp. z.o.o. (Poland) - ul. Kamienskiego 51, 30-644
Krakow, Poland
Sitaco Sp. z.o.o. (Poland) - ul. Kamienskiego 51, 30-644
Krakow, Poland
Sitaco Sp. z.o.o. Spolka Komandytowa (Poland) - ul.
Kamienskiego 51, 30-644 Krakow, Poland
Societe Industrielle de l’Ouest des Produits Isolants
S.A.S. (France) - Chemin de Rouville, 27460 Alizay,
France
Technische Handelmaatschappij “Inatherm” B.V. (The
Netherlands) - Tielenstraat 17, 5145 RC Waalwijk, The
Netherlands
WeGo Systembaustoffe GmbH (Germany) -
Maybachstrasse 14,
63456 Hanau-Steinheim, Germany
WeGo Systembaustoffe Austria GmbH (Austria) -
Ruthnergasse 28, 1210 Wien, Austria
Controlling interests
(overseas) (including
registered office addresses)
SIG Middle East LLC (UAE) (49%) - P.O. Box 215851,
Dubai, UAE
Insulation and Dry Lining Trading L.L.C (Qatar) (49%) –
P.O. Box 18698, Doha, Qatar – in liquidation
(v)
(x)
(vi)
(ix)
(vii)
(viii)
Directly owned by SIG plc
Notes
(i)
(ii) Dormant company
(iii) Ownership held in cumulative preference shares
Ownership held in ordinary shares and 12%
(iv)
cumulative redeemable preference shares
Ownership held in ordinary shares and preference
shares
Ownership held in ordinary shares and deferred
ordinary shares
Ownership held in ordinary shares and class A
ordinary shares
Ownership held in ordinary shares and class B
ordinary shares
Ownership held in ordinary shares, class A ordinary
shares and class B ordinary shares
Ownership held in ordinary shares, class B ordinary
shares and class C ordinary shares
Ownership held in ordinary shares, class A ordinary
shares, class B ordinary shares and class C ordinary
shares
Ownership held in ordinary shares and class E
ordinary shares
Ownership held in ordinary shares, class A ordinary
shares, class B ordinary shares, class C ordinary
shares, class E ordinary shares, class F ordinary
shares and class G ordinary shares
Ownership held in class A ordinary shares
Ownership held in class A ordinary shares and class B
ordinary shares
Ownership held in class A ordinary shares, class B
ordinary shares and class C ordinary shares
Ownership held in class A ordinary shares, class B
ordinary shares and preference shares
(xiv)
(xv)
(xvi)
(xiii)
(xvii)
(xii)
(xi)
(xviii) Ownership held in class A ordinary shares, class
B ordinary shares and cumulative redeemable
preference shares
Ownership held in class B ordinary shares and
preference shares
Ownership held in class AA ordinary shares, class
AB ordinary shares, class AC ordinary shares, class
AD ordinary shares, class AE ordinary shares, class
AF ordinary shares, class AG ordinary shares, class B
ordinary shares and class C ordinary shares
Limited partner SIG Retirement Benefit Plan Trustee
Limited
(xix)
(xx)
(xxi)
243
Stock code: SHIwww.sigplc.comFINANCIALS Company Information
Life President
Sir Norman Adsetts OBE, MA
Secretary
Kulbinder Dosanjh
Registered number
Registered in England
998314
Registered office
10 Eastbourne Terrace
London W2 6LG
United Kingdom
Tel: 0114 285 6300
Fax: 0114 285 6349
Email: info@sigplc.com
Corporate office
Adsetts House
16 Europa View
Sheffield Business Park
Sheffield S9 1XH
United Kingdom
Tel: 0114 285 6300
Fax: 0114 285 6349
Company website
www.sigplc.com
Listing details
Market Reference Sector
UK Listed
SHI.L Support Services
Registrars and transfer office
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Solicitors
Pinsent Masons LLP
1 Park Row
Leeds LS1 5AB
Principal bankers
The Royal Bank of Scotland plc
Corporate Banking
3rd Floor
2 Whitehall Quay
Leeds LS1 4HR
Barclays Bank plc
PO Box 190
1 Park Row
Leeds LS1 5WU
Commerzbank Aktiengesellschaft AG
London Branch
PO Box 52715
London EC2P 2XY
Lloyds Bank plc
2nd Floor, Lisbon House
116 Wellington Street
Leeds LS1 4LT
HSBC Bank plc
4th Floor
City Point
Leeds LS1 2HL
Joint stockbrokers
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Financial public relations
FTI Consulting Limited
200 Aldersgate
Aldersgate Street
London EC1A 4HD
Financial advisers
Lazard & Co Limited
50 Stratton Street
London W1 J8LL
244
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Shareholder enquiries
Our share register is managed by Computershare, who can be contacted by telephone on:
24 hour helpline* 0370 707 1293
Overseas callers* +44 370 707 1293
Text phone
0370 702 0005
* Operator assistance available between 08:30 and 17:30 GMT each business day.
Email: Access the Computershare website www-uk.computershare.com/investor and click on “Contact Us”, from where you can email
Computershare.
Post: Computershare, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ, United Kingdom.
Dividend tax allowance
In respect of UK shareholders, from April 2019 the annual tax-free allowance on dividend income across an individual’s entire share portfolio
has remained at £2,000. Above this amount, individuals pay tax on their dividend income at a rate dependent on their income tax bracket
and personal circumstances. Shareholders should seek independent financial advice as to how this change will impact their personal
tax obligations. The Company will continue to provide registered shareholders with a confirmation of the dividends paid by SIG plc and
this should be included with any other dividend income received when calculating and reporting total dividend income received. It is the
shareholder’s responsibility to include all dividend income when calculating any tax liability.
If you have any tax queries, please contact a financial advisor.
Website and electronic communications
Shareholders receive notification of the availability of the results to view or download on the Group’s website www.sigplc.com, unless they
have elected to receive a printed version of the results.
We encourage our shareholders to accept all shareholder communications and documents electronically instead of receiving paper copies by
post as this helps to reduce the environmental impact by saving on paper and also reduces distribution costs.
If you sign up to electronic communications, instead of receiving paper copies of the annual and half-yearly financial results, notices of
shareholder meetings and other shareholder documents through the post, you will receive an email to let you know this information is on our
website.
If you would like to sign up to receive all future shareholder communications electronically, please register through our registrars
Computershare at www.investorcentre.co.uk/ecomms.
Financial calendar
Annual General Meeting
Interim Results 2020
Full Year Results 2020
Annual Report and Financial Statements 2020
Final Dividend payment
Shareholder analysis at 31 December 2019
to be held on 30 June 2020
announcement September 2020
announcement March 2021
posted to shareholders March/April 2021
n/a
Size of Shareholding
0 – 999
1,000 – 4,999
5,000 – 9,999
10,000 – 99,999
100,000 – 249,999
250,000 – 499,999
500,000 – 999,999
1,000,000+
Total
Number of
Shareholders
Number of
Ordinary Shares
%
631
667
167
227
48
29
17
67
1,853
34.05
36.00
9.01
12.25
2.59
1.56
0.92
3.62
100.00
255,094
1,509,190
1,117,560
6,978,520
7,486,139
10,458,780
10,985,230
552,766,469
591,556,982
%
0.04
0.26
0.19
1.18
1.26
1.77
1.86
93.44
100.00
245
Stock code: SHIwww.sigplc.comFINANCIALS Shareholder notes
246
Annual Report and Accounts for the year ended 31 December 2019SIG plcFINANCIALS Printed on Revive™ 100 Silk.
A recycled paper manufactured from paper fibres derived from pre and
post consumer waste and manufactured at a mill certified with ISO 14001
environmental management standard.
CORPORATE OFFICE
Adsetts House
16 Europa View
Sheffield Business Park
Sheffield S9 1XH
tel: +44 (0) 114 285 6300
fax: +44 (0) 114 285 6349
email: info@sigplc.com
web: www.sigplc.com
REGISTERED OFFICE
10 Eastbourne Terrace
London W2 6LG
REGISTERED NUMBER
Registered in England
998314
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