SIG
Annual Report 2020

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS for the year ended 31 December 2020 Return to Growth strategy on track S I G p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 2 0 S t o c k c o d e : S H I Welcome SIG is a leading supplier of specialist building products and solutions to trade customers across Europe. Our purpose is to enable safe and sustainable living and working environments in the communities in which we operate. 2020 overview ■ Return to Growth strategy delivering to plan: - UK business rebuilt and relaunched - Reconnection with customers, suppliers and employees well advanced ■ Strong finish to 2020, ahead of expectations; like-for-like sales up 4% in Q4, reflecting broad-based growth across all major markets, including the UK ■ Significantly strengthened balance sheet provides confidence to invest in new growth strategy and security against short term market uncertainty ■ Group continues to adapt successfully to trade safely to new Covid-19 norms, working closely and flexibly with our employees, customers and suppliers ■ Full year like-for-like sales down 13%, with a solid recovery in the second half ■ Underlying gross margin down 80bps due to lower sales volumes over the year ■ Underlying operating loss of £53.3m (2019: £42.5m profit) ■ Underlying loss before tax of £76.3m (2019: £17.7m profit before tax), with statutory loss before tax from continuing operations of £202.3m (2019: £112.7m loss before tax), reflecting £126.0m of Other items, including £76.1m of impairment charges in the UK business and £13.2m onerous contract costs ■ Net debt, pre IFRS 16, down to £4.1m (2019: £162.8m), helped by the sale of Air Handling division in January and £152m capital raise in July; post IFRS 16 net debt down to £238.2m (2019: £455.4m) Underlying revenue £1,872.7m 2019: £2,143.0m Underlying (loss)/ profit before tax (£76.3)m 2019: £17.7m Net debt £238.2m 2019: £455.4m Statutory revenue £1,874.5m 2019: £2,160.6m Statutory loss before tax* (£202.3)m 2019: (£112.7)m Total recordable incident rate 8.8 2019: 10.8 Contents Overview Welcome Strategic Report Chairman’s statement At a glance Our business model Our strategy Strategy in action Our KPIs Market review Business review Financial review Principal risks and uncertainties Environmental, social and governance:  Framework  Principles  People  Environment, health and safety Non-financial information statement Governance Chairman’s introduction Board of Directors Corporate Governance Report  Board Leadership and Company Purpose  Section 172 Statement  Division of Responsibilities  Composition, Succession and Evaluation  Board Evaluation  Audit, Risk and Internal Control  Directors’ Report 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 Company Statement of Significant Accounting Policies Notes to the Company Financial Statements Group Companies Company information IFC 04 06 08 10 12 14 16 18 22 30 36 37 38 42 47 50 54 57 64 72 75 78 81 83 90 96 107 132 136 137 138 139 140 141 150 153 206 215 217 218 219 220 224 232 234 * from continuing operations Our first priority throughout the Covid-19 pandemic was to ensure the safety of our employees, customers, suppliers and other partners. Therefore, almost all photography dates from pre-Covid times and may not reflect the health and safety protocols that were or are in place. Strategic Report Chairman’s statement At a glance Our business model Our strategy Strategy in action Our KPIs Market review Business review 04 06 08 10 12 14 16 18 Financial review Principal risks and uncertainties Environmental, social and governance:  Framework  Principles  People  Environment, health and safety Non-financial information statement 22 30 36 37 38 42 47 Chairman’s statement The Board believes that we now have the right strategy and foundations in place to return the Group to sustainable profitable growth and build a great and growing company for the future. Andrew Allner, Chairman Dear Shareholder, 2020 was, of course, an unprecedented year, presenting circumstances that we have not encountered before with the outbreak of the Covid-19 pandemic. Despite the challenges, I am very proud of the way in which the Group demonstrated great resilience and flexibility to continue to serve its customers and support its people. There were also significant changes within SIG. The Group saw senior leadership changes and the implementation of a new strategy early in the year, to drive focused actions to begin the journey to profitable growth. Fundamental to the new strategy is the recognition that SIG is a sales-led organisation. The Company’s ability to grow its customer base will rely on the re-establishment of strong customer and supplier partnerships, the reinstatement of specialist expertise and superior customer service, and the improved engagement of its people. I am pleased to say that good progress has been made in the initial delivery of the new strategy and I am confident that the Company is now taking the right steps to build a great and growing company for the future. Covid-19 The Board closely monitored the impact of the pandemic on the business and on our people, and continues to do so. Throughout this period, the safety of our people, customers and suppliers has been and continues to be our primary concern. Additional health and safety measures were quickly implemented at the beginning of the outbreak and the new protocols continue to be adhered to across the Group, in line with the government guidance across all jurisdictions in which we operate. To support home working, the Group’s IT infrastructure was strengthened. As a result of the quick and agile response to the pandemic, and with some government support, the Group was able to mitigate the impact without reducing headcount as a result of Covid-19. The decisive actions taken across all functions and at all levels in the business mitigated the initial impact. The performance in the first half of the year was materially affected by the different government lockdown responses to the pandemic in the countries in which we operate, notably in the UK and Ireland during March and April, although less than we had originally envisaged. With the easing of lockdown restrictions in May and June, the Group saw a gradual improvement in trading performance, accompanied by a corresponding reduction in losses, and this continued in the second half. Despite further lockdowns and restrictions from October onwards, the business was able to trade broadly as normal throughout the second half, albeit within the new operating norms and protocols. Strategic progress Following the appointment of Steve Francis as CEO in February 2020, which was made permanent in April, a new strategy for growth was developed, centred on leveraging SIG’s key differentiators of expertise, service and proximity and with a key emphasis on reconnecting with customers, suppliers and employees. The successful restructuring of the Group’s financing facilities and capital raise of £165m concluded in July, including an £83m equity investment by Clayton, Dubilier & Rice LLC (CD&R). These positive developments provide both a stable financial base on which to drive the strategy for growth forward and security against ongoing market uncertainty. Actions were taken to strengthen the organisation to prioritise greater branch and customer focus, predominantly with the restructuring of the UK Distribution and UK Exteriors businesses under one divisional leadership. Good progress has been made throughout the year in refocusing the business and re- energising teams, and we continue to gain momentum. Strengthening the leadership teams was the catalyst for greater and more concentrated focus on re-establishing customer and supplier partnerships. The UK leadership team was further enhanced in the year, bringing significant industry expertise back into the business and positive steps have been made to energise sales and market share recovery. The Board continues to place importance, and increase the business’s focus, on environmental, social and governance (ESG) initiatives, which we believe will be strategic value drivers for the Group. In the coming year we will balance the focus on these initiatives with a clear near-term direction on returning the Group to profitability. Details of the strategy can be found on page 10 and a strategic update can be found in the business review on page 18. Shareholder value 2020 like-for-like (LFL) sales over 2019 was heavily distorted by the pandemic during H1 and finished down 13.3% for the year. In H2 there was solid recovery and in Q4 the Group reported growth of 4% (compared to Q4 2019). The underlying result in the profit and loss account was similarly distorted by the much lower sales, with an underlying loss of £76.3m for the year. As such, the Group saw a decline in underlying earnings per share from 0.2p to (10.0)p. Even prior to the pandemic, and despite the proceeds from the sale of the Air Handling division in January 2020, it was clear that the level of net debt in the business was too high, and that the Group would need to raise equity and renegotiate its agreements with its lenders. As noted above, this was achieved in July. The Group is now on a solid financial footing, able to 04 SIG plc Annual Report and Accounts for the year ended 31 December 2020both withstand further market uncertainty and invest sensibly behind the new growth strategy. The key now is to return to growth, profitability, and cash generation, and I am confident that we are now well placed to do so. Governance and Board The Group supports and requires high standards in corporate governance, and this requires a strong and effective Board. I believe the Board has learnt lessons from the business issues that arose in 2019 and the early part of 2020 and is now operating more effectively. There have been several changes to the Board during the year. Meinie Oldersma, CEO, and Nick Maddock, CFO, resigned on 24 February 2020 and Steve Francis joined as CEO with effect from 25 February 2020, initially on an interim basis. The appointment was made permanent on 24 April 2020. Steve is highly experienced in returning businesses to growth and has demonstrated strong leadership in the most testing circumstances since his appointment. His ability to navigate the effects of the Covid-19 pandemic, at the same time as focusing the leadership team on the strategic priorities to ensure the future success of SIG, has been exceptional. Kath Kearney-Croft assumed the role of interim CFO on 25 February 2020 following the departure of Nick Maddock. Ian Ashton was then appointed on 1 July 2020, replacing Kath as the permanent CFO. Ian is a highly experienced senior executive with a strong record of driving change and has already proven to be an extremely valuable addition to the team as we pursue our new strategy for growth, as well as improved financial performance and governance. Simon King was appointed as Non- Executive Director on 1 July 2020 and is a key addition to the Board, bringing extensive industry experience from his career spanning over 35 years. Simon most recently served on the Travis Perkins Executive Board and held the position of Chief Executive Officer of Wickes, bringing invaluable experience in our efforts to return the business to profitable growth. We were also delighted to welcome Bruno Deschamps and Christian Rochat to the Board as Non-Executive Directors following the investment by CD&R. Bruno and Christian bring valuable and relevant experience and insights to the Board and have already made a very positive contribution. Andrea Abt retired in February 2020. More recently, Kate Allum decided to step down as a Non-Executive Director with effect from 31 December 2020, and Ian Duncan with effect from 31 January 2021. I would like to thank Kate and Ian for their support and contribution during a very challenging period. We were delighted to welcome Kath Durrant to the Board as a Non-Executive Director and Chair of the Remuneration Committee on 1 January 2021, and Shatish Dasani as a Non-Executive Director and Chair of the Audit Committee with effect from 1 February 2021. Kath has more than 30 years’ Human Resources experience, with a strong operational and strategic track record, gained at several large global companies, including Ferguson plc, and is an experienced Remuneration Committee Chair. Shatish has over 20 years’ experience in senior public company finance roles across various sectors, including building materials, and has served as Chief Financial Officer of both Forterra plc and TT Electronics plc. He is also an experienced Audit Committee Chair. In support of driving the highest standards in governance and effective leadership, renewed focus was placed on Board involvement and engagement with key stakeholders throughout the year. All members of the Board are committed to providing strong and supportive leadership to achieve the goals set in the strategy. Board participation in employee engagement as part of the UK Corporate Governance Code can be found on page 65. Independent review by PwC As noted in the 2019 report, the Board instigated an independent review of the Group’s forecasting and monthly management accounts processes in light of the shortfall between profit reported in the trading update in January 2020 and market expectations prior to the update. The Board took the findings of the PwC report very seriously. Following the report, in order to strengthen the Group’s financial forecasting and internal reporting, KPMG were appointed to assist the Audit Committee in ensuring appropriate improvements have been implemented to the Company’s financial systems, procedures and controls. Good progress has been made in this area and further details can be found in the Audit Committee report on pages 104. Health and safety We continue to drive action through our Zero Harm policy, with increased leadership focus. Enhanced incident reporting across the Group has been a priority, to establish better insight and drive key actions, and as such, the total recorded incidents across the Group reduced by 26.8% in the year. We remain committed to delivering the highest levels of health and safety, which we intend to improve in 2021 through a focus on leadership throughout all levels to increase awareness, engagement and ownership. People and culture The Board believes that the strength of the business is its people. The Group would like to thank all employees for their resilience in what was an extraordinary year, in which all employees across the Group demonstrated their flexibility and commitment in striving to serve customers and, importantly, support each other. In concentrated efforts to reconnect with employees, emphasis was placed on engagement initiatives, with an objective of providing effective and frequent feedback channels and offering employees greater visibility of senior executives and Board members. A Group-wide engagement survey was conducted, inviting feedback across a range of topics. The results were presented to the Board and ongoing action plans are a priority, led by leaders in all areas. In addition, a Board workforce engagement programme was delivered, led by Simon King following his arrival, which was positively received by participants, representing all functions and operating companies. Plans are in place to continue each programme in 2021. Whilst Covid-19 hindered the full implementation of a Group-wide culture programme, it did provide the opportunity to realign and strengthen the framework comprising a vision, the strategic pillars and cultural behaviours of the Group. Work took place to incorporate employee feedback, and local teams took the opportunity to improve their understanding of the behaviours and how they contribute towards a change in culture. The full roll out resumed in January 2021. Outlook The Group has responded well to exceptional circumstances over the last year. The growth strategy continues to gain momentum, the organisation has strengthened, and we are beginning to see the first signs of the return to growth that is required. We are expecting a return to profitability in the second half of 2021. SIG retains strong positions in its core markets, and the fundamentals of the markets in which we operate remain strong. The Board believes that we have the right strategy and foundations in place to return to profitable growth and build a great and growing company for the future. The Board is grateful for the ongoing support of shareholders and remains committed to leading the Group towards its goals in delivering the strategy. Andrew Allner Chairman 25 March 2021 Read about our strategy on page 10 Read our financial review on page 22 05 Stock code: SHI www.sigplc.comSTRATEGIC REPORTAt a glance SIG is a leading supplier of specialist building products and solutions 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 largest countries of operation are the UK, France and Germany. 8% 19% 4% 5% Group Revenue 17% 20% 9% 18% UK Distribution UK Exteriors France Distribution France Exteriors Germany Benelux Ireland Poland 06 SIG plc Annual Report and Accounts for the year ended 31 December 2020SIG Group SIG Distribution: A market-leading supplier of insulation and interiors products and solutions to the construction industry. SIG Exteriors: A specialist merchant of roofing materials to small to medium-sized construction businesses. Underlying group revenue £1,872.7m (2019: £2,143.0m) 8 Operating segments across Europe c6,500 Employees 421 Branches UK Distribution Revenue £357.4m (2019: £534.3m) UK Exteriors Revenue £310.1m (2019: £346.5m) www.sigdistribution.co.uk www.sigroofing.co.uk Benelux Revenue £91.6m (2019: £103.0m) www.sigbenelux.com Poland Revenue £149.5m (2019: £156.1m) www.sig.pl Ireland Revenue £80.5m (2019: £94.9m) www.sig.ie France Distribution Revenue £168.1m (2019: £184.5m) France Exteriors Revenue £344.8m (2019: £342.2m) www.litt.fr www.lariviere.fr Germany Revenue £370.7m (2019: £381.5m) www.wego-vti.de 07 Stock code: SHI www.sigplc.comSTRATEGIC REPORTOur business model Why our stakeholders choose SIG SIG plays a critical role in the construction industry. For its customers, SIG provides specialist expertise to specialist markets. This facilitates one-stop access to an extensive product range, provides expert technical advice, breaks bulk supplies into suitable quantities and coordinates often complex delivery requirements, ensuring that customers are supplied with what they need, when it is needed.    Read about our stakeholder engagement on page 64 As a leading supplier of specialist building products and solutions to trade customers across the UK, Ireland and Mainland Europe, SIG has a strong heritage of specialist knowledge and expertise and a wide and integrated network so we can be close to our customers to meet their needs. We leverage these strengths to drive growth, whilst respecting our localised brand strength and history, and continue to be a valuable partner in protecting our customers’ own brands. What we do ↓ Expertise Our people are our competitive advantage, with specialist product and market knowledge. Service Our people go the extra mile to give our customers the products they need at the time they need them. We help our valued partners deliver and protect their brands. Proximity Our leading branch network and omnichannel approach allows greater proximity to our customers. 08 SIG plc Annual Report and Accounts for the year ended 31 December 2020 For its suppliers, SIG provides a channel through which suppliers can bring their products to a highly fragmented market of smaller customers conveniently and efficiently, extends product guidance and support, and provides fulfilment capability to sites that are of insufficient scale to supply direct. SIG is committed to delivering the highest levels of customer service. What we do How we do it Expertise Our people are our competitive advantage, with specialist product and market knowledge. Service Our people go the extra mile to give our customers the products they need at the time they need them. We help our valued partners deliver and protect their brands. Proximity Our leading branch network and omnichannel approach allows greater proximity to our customers. ■ Market-leading brands on an international scale, with local focus to offer effective solutions ■ Extensive, specialist knowledge to support projects of every scale ■ Continuous development of our people and organisation to ensure capable, engaged and empowered teams ■ Scale of operations to meet customer demands ■ Close partnerships with customers to offer superior customer service, driven by a sales-led culture ■ Enhanced supplier partnerships to strengthen our service to customers and to build high quality, value-driven relationships to leverage joint opportunities and create value-adding strategies ■ A strong portfolio of businesses, with eight operating segments across Europe ■ A wide network of 421 branches ■ Opportunities for organic development of the branch network and acquisitive growth 09 Stock code: SHI www.sigplc.comSTRATEGIC REPORTOur strategy To reignite growth, through our expertise, service and proximity KPIs key: 1 Total recordable incident rate 2 Like-for-like sales (%) 3 Net Promoter Score (NPS) 4 Gross margin (%) 5 Operating margin (%) 6 Operating costs as a % of revenue 7 Market share growth Risks key: A Employee attraction, retention and engagement B Health and safety C Delivering business change D Cyber security E Data quality and governance F Market downturn G Systems failure H Business growth I Delivering the customer experience J Environmental, social and governance 10 Responsible actions Winning branches Superior service Our people feel safe, proud and valued and we operate sustainably to benefit communities and the environment Our branch teams are trusted, capable and empowered to achieve success Our strengthened entrepreneurial and agile sales teams provide best-in-class customer service 2020 progress ■ Strengthened the Board ■ Conducted Board Workforce Engagement programme with a range of participants across all operating companies ■ Conducted a Group-wide employee engagement survey ■ Focused on strengthening two-way communications channels, including town halls and regional and branch meetings ■ Appointed a new Group HSE Director to drive greater focus on safety and reporting accuracy ■ Implemented strong Covid protocols and disciplined operations – rated highly by employees and regulators ■ Received the Green Economy Mark from London Stock Exchange ■ Launched an Employee Health and Wellbeing programme ■ France: New ESG programme and new solar product offering Future focus ■ Continue to drive actions that encourage and drive sustainable behaviours and approaches across all of our business practices 2020 progress ■ Re-established branch level profit and loss accountability in all locations 2020 progress ■ Completed first Group-wide Customer Net Promoter Score (NPS) survey ■ UK: Re-built distribution branch structure with new regional and branch management in place ■ UK/Germany: Re-established delegated branch toolkit including pricing, availability, local supplier relationships, local customer relationships and freight ■ Poland: New SIGup loyalty program ■ Netherlands: New Wet Plaster flagship branch in Amsterdam and Waddinxveen Future focus ■ Focus on promoting more winning branches, gaining share and recovering margin and with particular focus on UK Distribution ■ Build a winning franchise model across the Group ■ De-centralised service provision ■ Focused on sales productivity, enhanced tools and training ■ Implemented freight management software ■ Launched new KPI suite to focus on customer service ■ Ireland: New electronic proof of delivery, allowing delivery notification and remote sales order processing for field sales ■ Poland: Renewed inventory planning and replenishment module for stock management and e-invoices; new automatic purchase order recording Future focus ■ Invest in sales training to strengthen commercial teams and ensure they have the right tools to allow greater focus on customer relationships ■ Implement e-proof of delivery in Poland Specialist expertise Valuable Highest Focused partnerships productivity growth Our empowered local branches We partner closely with Our efficient support functions We focus on our core business are known again for specialist suppliers to understand our are consistently productive to drive growth in branches focus and expertise acquired joint opportunities and to and drive strong standards, and through acquisition through long-term experience create win-win strategies governance and financial opportunities discipline 2020 progress 2020 progress 2020 progress 2020 progress ■ UK/Germany: Focused on re- ■ UK: Re-established key ■ Enhanced financial ■ Merged the UK Distribution specialising branches ■ UK: Recruited high level of sales expertise and experience in rebuilding relationships with suppliers including Board-level contacts governance ■ Invested in LucaNet, ■ UK: Re-launched SIG Alliance, accounting software to and Exteriors businesses to create a single division with a combined leadership a network of leading quality improve financial reporting ■ Growing market share in the team; Re-built Category manufacturers ■ UK: New organisational expertise ■ UK: Held the first live online structure ■ UK: Renewed focus on broadcast event, SIG Live national accounts to provide value-add solutions Future focus ■ Drive particular focus on re- establishing and developing valued relationships with key suppliers which are supported at all levels, from Board to branch ■ Poland: EDI (electronic data interchange) connections with ■ Poland: Continued development of e-commerce suppliers platform ■ UK: Launched SIG Assured to support product and service compliance in the UK ■ UK: Dedicated training programmes to strengthen our specialist knowledge ■ Benelux: New branch formula focusing on specialist merchanting Future focus ■ Continue to re-introduce and develop industry knowledge to further enhance specialist ■ Invest in enhanced technical expertise training ■ Ireland: Investment in Lean/ Sigma 6 training Future focus ■ Lean and effective corporate functions ■ Benelux: Launch ERP implementation of Microsoft D365 to significantly enhance productivity and data quality France, Poland and UK Exteriors ■ Investment plan for new branches in Poland, France, Germany, Benelux and UK ■ Completed acquisition of S M Roofing Supplies Limited in the UK ■ Acquired new exclusive distributorships in Benelux ■ Poland: E-commerce reached 7% of local revenues Future focus ■ Return to strong positive EBITDA ■ Enhance our network and selective digitisation and acquisition, to increase proximity to our customers and drive organic growth Link to KPIs 1 3 7 Link to risks A B D J Link to KPIs 2 4 7 Link to KPIs 3 5 7 Link to risks A C F G H I Link to risks A E G H I Link to KPIs 4 5 7 Link to risks A E I Link to KPIs 4 5 7 Link to risks C F G H I J Link to KPIs 4 6 Link to risks A B C D G Link to KPIs 2 3 7 Link to risks B E F H I J Read about our KPIs on page 14 Read about our principal risks on page 30 Read about our strategy in action on page 12 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Responsible actions Winning branches Superior service Our people feel safe, proud Our branch teams are trusted, Our strengthened and valued and we operate capable and empowered to entrepreneurial and agile sales achieve success teams provide best-in-class customer service sustainably to benefit communities and the environment Specialist expertise Valuable partnerships Highest productivity Focused growth Our empowered local branches are known again for specialist focus and expertise acquired through long-term experience We partner closely with suppliers to understand our joint opportunities and to create win-win strategies Our efficient support functions are consistently productive and drive strong standards, governance and financial discipline We focus on our core business to drive growth in branches and through acquisition opportunities 2020 progress 2020 progress 2020 progress ■ Strengthened the Board ■ Re-established branch level ■ Completed first Group-wide 2020 progress ■ UK/Germany: Focused on re- 2020 progress ■ UK: Re-established key a range of participants across ■ UK: Re-built distribution ■ De-centralised service profit and loss accountability Customer Net Promoter in all locations Score (NPS) survey ■ Conducted Board Workforce Engagement programme with all operating companies ■ Conducted a Group-wide employee engagement survey ■ Focused on strengthening two-way communications channels, including town halls and regional and branch meetings ■ Appointed a new Group HSE Director to drive greater focus on safety and reporting accuracy ■ Implemented strong Covid protocols and disciplined operations – rated highly by employees and regulators ■ Received the Green Economy Mark from London Stock Exchange ■ Launched an Employee Health and Wellbeing programme ■ France: New ESG programme and new solar product offering Future focus ■ Continue to drive actions that encourage and drive sustainable behaviours and approaches across all of our business practices branch structure with new regional and branch management in place ■ UK/Germany: Re-established delegated branch toolkit including pricing, availability, local supplier relationships, local customer relationships ■ Poland: New SIGup loyalty and freight program and Waddinxveen Future focus ■ Focus on promoting more winning branches, gaining share and recovering margin and with particular focus on UK Distribution ■ Build a winning franchise model across the Group ■ Netherlands: New Wet Plaster flagship branch in Amsterdam sales provision ■ Focused on sales productivity, enhanced tools and training ■ Implemented freight management software ■ Launched new KPI suite to focus on customer service ■ Ireland: New electronic proof of delivery, allowing delivery notification and remote sales order processing for field ■ Poland: Renewed inventory planning and replenishment module for stock management and e-invoices; new automatic purchase order recording Future focus ■ Invest in sales training to strengthen commercial teams and ensure they have the right tools to allow greater focus on customer relationships ■ Implement e-proof of delivery in Poland relationships with suppliers including Board-level contacts ■ UK: Re-launched SIG Alliance, a network of leading quality manufacturers ■ UK: Held the first live online broadcast event, SIG Live Future focus ■ Drive particular focus on re- establishing and developing valued relationships with key suppliers which are supported at all levels, from Board to branch ■ Poland: EDI (electronic data interchange) connections with suppliers ■ Poland: Continued development of e-commerce platform specialising branches ■ UK: Recruited high level of sales expertise and experience in rebuilding the team; Re-built Category expertise ■ UK: Renewed focus on national accounts to provide value-add solutions ■ UK: Launched SIG Assured to support product and service compliance in the UK ■ UK: Dedicated training programmes to strengthen our specialist knowledge ■ Benelux: New branch formula focusing on specialist merchanting Future focus ■ Continue to re-introduce and develop industry knowledge to further enhance specialist expertise ■ Invest in enhanced technical training 2020 progress ■ Enhanced financial governance ■ Invested in LucaNet, accounting software to improve financial reporting ■ UK: New organisational structure ■ Ireland: Investment in Lean/ Sigma 6 training Future focus ■ Lean and effective corporate functions ■ Benelux: Launch ERP implementation of Microsoft D365 to significantly enhance productivity and data quality 2020 progress ■ Merged the UK Distribution and Exteriors businesses to create a single division with a combined leadership ■ Growing market share in France, Poland and UK Exteriors ■ Investment plan for new branches in Poland, France, Germany, Benelux and UK ■ Completed acquisition of S M Roofing Supplies Limited in the UK ■ Acquired new exclusive distributorships in Benelux ■ Poland: E-commerce reached 7% of local revenues Future focus ■ Return to strong positive EBITDA ■ Enhance our network and selective digitisation and acquisition, to increase proximity to our customers and drive organic growth Link to KPIs 1 3 7 Link to risks A B D J Link to KPIs 2 4 7 Link to risks Link to KPIs 3 5 7 Link to risks A C F G H I A E G H I Link to KPIs 4 5 7 Link to risks A E I Link to KPIs 4 5 7 Link to KPIs 4 6 Link to KPIs 2 3 7 Link to risks C F G H I J Link to risks A B C D G Link to risks B E F H I J Read about our KPIs on page 14 Read about our principal risks on page 30 Read about our strategy in action on page 12 11 Stock code: SHI www.sigplc.comSTRATEGIC REPORT Strategy in action Enhanced collaboration with suppliers SIG UK have focused on reconnecting with their partners to improve the supply chain. By working closely with valued suppliers, the UK has secured business with several significant customers as we continue to drive our ‘Return to Growth’ strategy. One new main contractor alone, Saint-Gobain, brings significant opportunities to the SIG UK Distribution business, secured through the focus on establishing close relationships with suppliers. Mark Rapley, UK Sales Director, Saint-Gobain Insulation UK, commented “Over the last unprecedented and challenging year, Saint-Gobain Insulation UK and SIG have forged a partnership based on shared strategic goals of sustainable growth and new business development, underpinned by a strong working relationship. Our sales and marketing teams have collaboratively supported each other by proactively identifying opportunities with national housebuilders, contractors and independent merchants, providing technical, commercial and supply chain solutions to these new and existing customers. Effective regional and local engagement has resulted in double digit sales growth in a highly competitive market for both the Saint- Gobain Insulation UK brands of ISOVER and Celotex. We are delighted with the progress that has been made and the collaborative approach, and it continues to go from strength to strength”. Strong collaborative working with our supplier partners is key to our future success. Andy Williamson, Commercial Director, UK Providing expertise on major cityscape projects SIG’s Wego in Germany were proud to support the construction of the country’s highest residential building, the 180-metre high Grand Tower in Frankfurt am Main. We delivered 185,000 square meters of sheetrock panels over a period of two years, generating a sales volume of over one million euros. This was a high profile project and SIG has been at the forefront of changing the cityscape and supporting the modernisation of living spaces. Our approach to this project clearly demonstrates our commitment and drive to further our growth strategy. Through hard work, determination and passion for what we do, we were able to further develop our customer relationships and position ourselves as a reliable and valuable business partner on large-scale projects. Fully aware of the challenges associated with this scale of project, our sales team focused on working closely with the customer, at all times ensuring we were making the right decisions for their success throughout, ultimately leading to the success of the project. We are proud to have been involved in the construction of such a prestigious property in the heart of Frankfurt. Our long-standing customer placed their trust in us as a team and we have done everything we can every day to sustain it. Marc Betz, Sales Representative and Project Manager, Frankfurt am Main programme 12 SIG plc Annual Report and Accounts for the year ended 31 December 2020Reconnecting with industry leaders In July 2020, SIG UK hosted a live virtual conference to launch the new Return to Growth strategy. The virtual conference, ‘SIG Live’, was live streamed from a fully customisable studio located in Manchester, UK, to over 1,000 subscribed customers. During the event, the new SIG UK management team was introduced, an investment update was provided, including a virtual tour of the new state-of-the-art SIG Distribution warehouse near Heathrow, and senior leaders held discussions on current market trends and issues with customers, reigniting our active industry leadership. Keeping close to our customers is SIG’s priority. We commit to serving them to the highest standards, and partner with them to protect and develop their brands and products. The event provided a forum, at what is a pivotal time for the industry, and provided a great opportunity to reconnect with existing customers and welcome new customers. SIG Live was a perfect forum for us to explain the investment we have put in place and the changes that will allow us to service our customers better. Phil Johns, Managing Director, UK Improved data driving superior service An integrated data platform was introduced to drive efficiency and improve sales and service. To support improved usage of data to drive the highest levels of service to our customers, an in- house dashboard utilising Power BI was made available throughout the Group. The platform equips external sales teams with better tools and more timely information to drive increased productivity. Sales representatives can access revenue and margin against budget, and analyses by customer, product and individual sales transactions. In addition, stock data is available across all branches to facilitate improved sourcing. This enables better communication between sales teams and branches, allowing for greater autonomy in driving sales, and contributes towards more efficient customer service. At Larivière in France, the team implemented the performance management capability on Power BI covering the key strategic levers of business activity, business development on key accounts, pricing and stock. With more reliable data, used daily by management, Power BI facilitates the analysis of performance, improving the efficiency of knowledge sharing to drive improved productivity against the specified KPIs, for example turnover and margin. As a result, we are attracting more customers and sales performance is improving year-on-year. Defining strategy is the first step; measuring against performance is what will drive success. Nicolas Balland, Managing Director, Larivière 13 Stock code: SHI www.sigplc.comSTRATEGIC REPORTOur KPIs The KPIs are calculated based on underlying, continuing operations. Responsible actions Winning branches Superior service Specialist expertise Valuable Highest partnerships productivity Focused growth Total recordable incident rate (TRIR) . 4 2 1 . 8 0 1 8 8 . Like-for-like sales (%)* Net Promoter Score (NPS) Gross margin (%) Operating margin (%)* Operating costs as a % Market share growth* of revenue ) 1 2 ( . ) 4 7 ( . . ) 3 3 1 ( . 3 5 2 . 9 5 2 . 1 5 2 8 . 2 0 . 2 ) 8 . 2 ( 5 . 2 2 9 . 3 2 9 . 7 2 43 Work in progress 18 19 20 18 19 20 Definition The ratio of incidents (injury, property or environmental damage) per 200,000 of hours worked. Note: replaces Accident Incident Rate previously reported. Link to strategy This measure demonstrates our focus on safe working environments. Definition The growth/(decline) in sales per day (in constant currency) excluding any current and prior year acquisitions. Sales not adjusted for branch openings or closures. 2019 LFL sales differ from previously reported as a result of the reclassification of non-core businesses. See note 35 for the calculation. Link to strategy This measure shows how the branches have developed revenue in comparable business relative to the prior period. Definition NPS is a customer experience metric based on their likelihood to recommend SIG. It is calculated by subtracting the percentage of customers who answer the question with a 6 or lower, from the percentage of customers who answer with a 9 or 10. This is externally monitored by a third-party company. Link to strategy This measure demonstrates the high level of customer service we deliver. 18 19 20 Definition The calculation of underlying gross profit, divided by the underlying revenue. See note 35 for the calculation. See note 35 for the calculation. 18 19 20 18 19 20 Definition Definition Definition The ratio of underlying operating The ratio of underlying operating We are working on a definition profit, divided by underlying costs to underlying revenue. revenue. See note 35 for the calculation. for market share across the Group, and have started to review the baseline data. We will report on this strategic KPI in the 2021 Annual Report. Link to strategy This measure shows the success of our specialist focus, our ability to optimize our product mix, and our success at managing both cost and prices. Link to strategy Link to strategy This measure demonstrates the This measure enables overall efficiency of the business, the business to track the including our strong relationships productivity of our supporting with supplies. functions. Read more about our strategy on page 10 2020 performance Enhanced incident reporting across the Group has been a priority, to establish better insight and drive key actions, and as such, the TRIR across the Group improved to 8.8. 2020 performance The 13.3% reduction in LFL sales was driven by the temporary impact of Covid-19, mainly in the first half of the year. In H2 there was solid recovery and in Q4 we reported growth of 4%. 2020 performance Our latest Group NPS score was 43 (out of 100). This is a new measure in 2020 and will be tracked moving forwards. 2020 performance Gross margin has decreased by 80bps in the year to 25.1%, due to lower sales volumes over the year. 2020 performance 2020 performance Operating margin has decreased Underlying costs represented to (2.8)%, reflecting the lower sales volumes and impact on 27.9% of underlying revenue, 400bps higher than the prior operating profit due to Covid-19. year. This is as a result of Read our business review on D Cyber security page 18 Supporting strategic measures ■ Employee turnover ■ Incident rate ■ Tonnes/month fuel usage Supporting strategic measures ■ % of branches ahead of YTD sales budget Supporting strategic measures ■ Number of new customers ■ Total active customers v PY Supporting strategic measures ■ Average experience of commercial teams (years’ tenure) v PY ■ Hours of sales/product training in month Link to risks A B J Link to risks H I Link to risks C D G I Link to risks A C Link to risks C H J Link to risks C E Link to remuneration ■ Health and safety measures in annual bonus scheme Link to remuneration ■ Profit measures in annual Link to remuneration ■ Strategic objectives in annual Link to remuneration ■ Profit measures in annual bonus scheme bonus scheme bonus scheme Link to remuneration Link to remuneration ■ Profit measures in annual ■ Average net debt measures bonus scheme in annual bonus scheme Read more about our risks on page 30 Read more about our remuneration on page 107 14 inflation, foreign currency movement, and bad debt relating to Covid-19 uncertainty, partially offset against government support. Supporting strategic Supporting strategic measures ■ Value add sales measures ■ Cash conversion ■ YTD sales/FTE v PY ■ YTD sales/sales FTEs v PY *Strategic KPIs As announced in the 2019 Annual Report, we are adopting new KPIs to align the business to our seven strategic pillars. Progress has been slowed given the Covid-19 pandemic. The strategic KPIs will continue to be updated during 2021, and more specific measures will be defined. These will be reported in the 2021 Annual Report. Risks key: A Employee attraction, retention and engagement B Health and safety C Delivering business change E Data quality and governance F Market downturn G Systems failure H Business growth I Delivering the customer experience J Environmental, social and governance SIG plc Annual Report and Accounts for the year ended 31 December 2020  Responsible actions Winning branches Superior service Specialist expertise Valuable partnerships Highest productivity Focused growth Total recordable incident Like-for-like sales (%)* Net Promoter Score (NPS) Gross margin (%) Operating margin (%)* Operating costs as a % of revenue Market share growth* *Strategic KPIs The KPIs are calculated based on underlying, continuing operations. rate (TRIR) 4 . 2 1 8 . 0 1 8 . 8 ) 1 . 2 ( ) 4 . 7 ( ) 3 . 3 1 ( 43 Definition Definition Definition Definition The ratio of incidents (injury, The growth/(decline) in sales NPS is a customer experience The calculation of underlying property or environmental per day (in constant currency) metric based on their likelihood gross profit, divided by the damage) per 200,000 of hours excluding any current and prior to recommend SIG. It is underlying revenue. worked. Note: replaces Accident Incident Rate previously reported. year acquisitions. Sales not calculated by subtracting the adjusted for branch openings or percentage of customers who closures. 2019 LFL sales differ answer the question with a 6 or from previously reported as a lower, from the percentage of result of the reclassification of customers who answer with a non-core businesses. 9 or 10. See note 35 for the calculation. third-party company. This is externally monitored by a Link to strategy Link to strategy Link to strategy Link to strategy This measure demonstrates This measure shows how the This measure demonstrates the This measure shows the success our focus on safe working branches have developed high level of customer service of our specialist focus, our ability environments. revenue in comparable business we deliver. relative to the prior period. to optimize our product mix, and our success at managing both cost and prices. 2020 performance 2020 performance 2020 performance 2020 performance Enhanced incident reporting The 13.3% reduction in LFL sales Our latest Group NPS score was Gross margin has decreased by across the Group has been a priority, to establish better insight and drive key actions, was driven by the temporary 43 (out of 100). This is a new 80bps in the year to 25.1%, due impact of Covid-19, mainly in the measure in 2020 and will be to lower sales volumes over the first half of the year. In H2 there tracked moving forwards. year. and as such, the TRIR across the was solid recovery and in Q4 we Group improved to 8.8. reported growth of 4%. Supporting strategic Supporting strategic Supporting strategic Supporting strategic measures measures measures measures ■ Employee turnover ■ % of branches ahead of ■ Number of new customers ■ Average experience of YTD sales budget ■ Total active customers v PY ■ Incident rate ■ Tonnes/month fuel usage commercial teams (years’ tenure) v PY ■ Hours of sales/product training in month 3 . 5 2 9 . 5 2 1 . 5 2 8 2 . 0 2 . ) 8 2 ( . . 5 2 2 . 9 3 2 . 9 7 2 18 19 20 18 19 20 18 19 20 18 19 20 18 19 20 See note 35 for the calculation. See note 35 for the calculation. Definition The ratio of underlying operating profit, divided by underlying revenue. Definition The ratio of underlying operating costs to underlying revenue. See note 35 for the calculation. Work in progress Definition We are working on a definition for market share across the Group, and have started to review the baseline data. We will report on this strategic KPI in the 2021 Annual Report. Link to strategy This measure demonstrates the overall efficiency of the business, including our strong relationships with supplies. Link to strategy This measure enables the business to track the productivity of our supporting functions. Read more about our strategy on page 10 Read our business review on page 18 2020 performance Operating margin has decreased to (2.8)%, reflecting the lower sales volumes and impact on operating profit due to Covid-19. Supporting strategic measures ■ Value add sales 2020 performance Underlying costs represented 27.9% of underlying revenue, 400bps higher than the prior year. This is as a result of inflation, foreign currency movement, and bad debt relating to Covid-19 uncertainty, partially offset against government support. Supporting strategic measures ■ Cash conversion ■ YTD sales/FTE v PY ■ YTD sales/sales FTEs v PY As announced in the 2019 Annual Report, we are adopting new KPIs to align the business to our seven strategic pillars. Progress has been slowed given the Covid-19 pandemic. The strategic KPIs will continue to be updated during 2021, and more specific measures will be defined. These will be reported in the 2021 Annual Report. Risks key: A Employee attraction, retention and engagement B Health and safety C Delivering business change D Cyber security E Data quality and governance F Market downturn G Systems failure H Business growth I Delivering the customer experience J Environmental, social and governance Link to risks A B J Link to risks H I Link to risks C D G I Link to risks A C Link to risks C H J Link to risks C E Link to remuneration Link to remuneration Link to remuneration Link to remuneration ■ Health and safety measures ■ Profit measures in annual ■ Strategic objectives in annual ■ Profit measures in annual in annual bonus scheme bonus scheme bonus scheme bonus scheme Link to remuneration ■ Profit measures in annual bonus scheme Link to remuneration ■ Average net debt measures in annual bonus scheme Read more about our risks on page 30 Read more about our remuneration on page 107 15 Stock code: SHI www.sigplc.comSTRATEGIC REPORT Market review SIG is a leading supplier of specialist building materials products and solutions to trade customers across Europe, with our largest countries of operation being the UK, France and Germany. Our response to market conditions varies across geography and sector. Growth within the construction industry, linked to economic growth, is an important driver. Global trends 1 Economic backdrop ■ During the year, particularly in the UK, we continued to see economic uncertainty, which impacted customer confidence and affected construction output. ■ In the short term, economic uncertainty remains, but long-term fundamentals remain sound in the Group’s markets. 2 Sustainability ■ Stakeholders have an increasing awareness of environmental matters and the industry is seeing increasing levels of sustainability legislation. ■ Therefore, companies are required more than ever to address key sustainability issues and pledge to minimise their environmental footprint. ■ Our response: In July, the Group concluded the ■ Our response: SIG is committed to creating long- successful renegotiation of its debt arrangements and equity raise. These actions, along with careful management of working capital and cash, created a sound financial base for the business to withstand the economic uncertainty. term sustainable value for our stakeholders, and we have aligned our operations against the Sustainable Development Goals. See page 36. 3 Impact of Covid-19 ■ Covid-19 is impacting the global construction industry with projects facing supply chain delays and the introduction of new measures to safeguard the health and safety of the workforce. ■ Our response: We acted quickly to develop a coordinated and decisive response to Covid-19 to support our operating companies, to ensure the health and safety of our people, customers, suppliers and local communities within which we operate and to minimise the adverse impacts on our businesses. 4 Technological developments ■ Customer needs are changing in line with the pace of technological advances, and they are expecting ease, speed and transparency when ordering. ■ Companies are investing in digitalisation and technology to improve how they operate and to generate efficiencies. ■ Our response: We have invested in software tools and technology during the year to support growth, including Pixsell and Power BI for our sales team. We also continue to develop the e-commerce platform across the Group to offer customers an omnichannel experience. 16 SIG plc Annual Report and Accounts for the year ended 31 December 2020Geographic outlook Total construction output fell during 2020, as a result of Covid-19. However, growth is expected in all of our markets over the next two years. Total construction output – annual % change UK France Germany Benelux Ireland Poland ) . % 5 9 1 ( % 6 2 1 . % 4 8 . ) . % 8 5 1 ( % 6 3 1 . % 7 4 . ) % 6 1 ( . ) % 2 0 ( . % 4 0 . ) % 9 3 ( . ) % 0 1 ( . % 0 4 . ) . % 0 6 1 ( % 1 8 . % 8 3 . ) % 1 3 ( . % 3 0 . % 0 3 . 20 21 22 20 21 22 20 21 22 20 21 22 20 21 22 20 21 22 Data source: Euroconstruct database, Nov 2020 Distribution Exteriors 1 Level of construction activity Trend: The level of construction activity fell during 2020 but is expected to rise over the next two years. Our response: Our extensive range of specialist products, coupled with superior expertise and an expansive network, means SIG is equipped for growth and responding to industry demands. 2 Changes in legislation Trend: Higher energy efficiency standards and environmental legislation across all geographical markets, with increasing focus on repair, maintenance and improvement (RMI) investment to meet updated fire regulations. Our response: Non-residential renovation projects provide opportunities in the RMI market. In the UK, SIG is also proud to support the Green Homes Scheme. 3 Government infrastructure spending Trend: Government investment is driving a solid pipeline of large projects, including green economy initiatives. Our response: Our extensive network and specialist expertise allows us to partner large-scale projects at the forefront of the industry. 1 Investment in new build schemes Trend: The backlog of new housing requires investment, amplified by the steep fall in activity during 2020, due to the effects of Covid-19. Our response: c40% of revenue in our Exteriors business is from new residential activity, which is therefore a significant market for SIG. 2 Regulatory changes Trend: Increasing number, and added stringency, of regulatory changes in the industry. Our response: Our key differentiator is the specialist knowledge and expertise of roofing materials, to provide technical advice and support specifications. 3 Post-Brexit Trend: The UK’s departure from the European Union could bring unexpected challenges and supply chain disruption. Our response: Supply chain delays were experienced prior to and after Brexit, exacerbated by some Covid-related delays in logistics. Where these were anticipated, stock holdings were increased to ensure consistency of supply. We continue to monitor the risks and supply chain availability. Revenue by market Revenue by market 12% 18% 9% 1% New residential New non-residential RMI residential RMI non-residential New and RMI industrial 40% 24% 32% 14% New residential 39% New non-residential RMI residential RMI non-residential New and RMI industrial 11% 17 Stock code: SHI www.sigplc.comSTRATEGIC REPORTBusiness review Our teams have shown great resilience and commitment in the face of the challenging circumstances for much of the year, the effects of which clearly impacted our first half, and hence full year, results. Providing a safe environment and instilling an even greater focus on good health and safety behaviours has been and will remain a major focus of the new management team. I am delighted that due to our Return to Growth strategy we delivered a solid second half and have begun to return the business to growth after a long period of decline. On behalf of the whole Board I would like to thank all our employees for their significant efforts, and successes, during the year. The new UK management team has rebuilt its business and, everywhere we operate, we have reconnected with our employees, customers and suppliers. Their response has reaffirmed that we are at our best when we are a local, sales and technical service-driven business, partnering closely with our key suppliers and operating with empowered and entrepreneurial branch teams. That is our strategy for growth and the basis for playing a leading role in our industry in the years to come. This, coupled with a strong balance sheet, gives us the right foundations for the business to grow. Steve Francis, Chief Executive Officer Strategy update On 29 May, the Group launched its Return to Growth strategy. The restructuring of its debt facilities and the successful capital raise provide firm and stable foundations for this strategy to be delivered. Fundamental to the new strategy is the recognition that SIG is a sales-led organisation, where the ability to grow its customer base through the provision of high levels of customer service, deep technical expertise and disciplined pricing are critical. The establishment of strong customer relationships, by empowering and energising key account and branch teams, and promoting an entrepreneurial spirit throughout the company’s extensive branch network, is key to this objective. The implementation of the strategy is now well underway. In the UK, where the Group’s operational and financial performance had seen greatest deterioration, the new strategy is initially focusing on de-centralising accountability to branch level and upgrading operational processes, systems and controls to provide the appropriate platform from which market share can be recaptured and profitable growth restored. In the EU businesses, where the Group’s operational and financial performance has in general been more stable, the new strategy is empowering the Group’s operating companies to move onto a growth footing. Through the implementation of this strategy, supported by the strengthened balance sheet and strong leadership teams now in place across the organisation, the Board is confident that the Group will return to sustainable and long term profitable growth and achieve its vision of being the leading B2B supplier of specialist construction products and solutions in the markets in which it operates. The delivery of these strategic objectives will, in turn, enable the Group to achieve its key stated medium term financial goals, being: ■ A Group operating margin of approximately 3%, trending towards approximately 5% in the longer term; underpinned by target operating margin of approximately 5% within the Group’s operating companies ■ Leverage of <1.5x (pre IFRS 16 basis) ■ A progressive dividend covered 2.0-3.0x by underlying earnings Market share recapture plan The Group’s market share recapture plan, particularly for its UK businesses, Distribution and Exteriors, as well as for its Germany and Benelux businesses, is built upon some key enablers. Merger of leadership of UK Distribution and Exteriors The UK’s Distribution and Exteriors businesses have now been merged to create a single UK division, with a combined leadership team replicating the model already successfully deployed in SIG France, which will leverage potential synergies in support functions whilst maintaining separate commercial organisations and footprints (primarily branches). The new regional structure of the combined UK business is focusing on promoting local entrepreneurship, accountability and P&L account responsibility. More expansive growth strategy As part of the Return to Growth strategy, the Group has commenced a review to refine the definitions of its marketplace and thereby revise and expand the definition of “core” business. This is designed to facilitate the development of a more expansive growth strategy in each of the Group’s countries of operation. The Company expects this review to highlight opportunities, consistent with the Group’s USPs (Expertise, Proximity, Service), to widen its product offering and expand its geographic coverage in areas where the greatest returns can be realised. 18 SIG plc Annual Report and Accounts for the year ended 31 December 2020Energise sales, market share recovery and growth efforts The Group is improving proximity to its customers by identifying and filling gaps in its geographical coverage. Sales forces are being expanded and up-skilled by restoring their historic industry-leading, bench-strength of specialist local expertise in areas such as fire protection, energy efficiency and sustainable materials. Sales force productivity is also being increased through enhanced sales management and training, supported by sales force management tools, disciplines and aligned incentives, with customer reconnection a top priority. Facilitate growth through better operations A number of actions are well advanced in the Group’s operations to increase efficiency and service levels to boost the sales effort, including: ■ pricing tools and training for key account and branch managers, providing enhanced visibility and autonomy to set pricing quickly and competitively; ■ improved product availability through the use of enhanced systems and more accurate operational key performance indicators, such as stock availability; ■ enhanced on time and in full delivery; and ■ additional training, which is being provided to the Group’s workforce in order to promote operational excellence and customer service. Liquidity and balance sheet strengthening The successful renegotiation of the Group’s debt facilities during the summer resulted in a resetting of its covenant requirements, with additional minor amendments made in early March 2021 to better align the different tests. Consolidated liquidity covenants are to be tested monthly through to the maturity of the facilities, with net borrowings tested monthly until December 2022. From March 2022, leverage will be tested on a quarterly basis, and interest cover will be tested from June 2022. Consolidated net worth will also be tested each quarter through to maturity of the facilities. The significant loss of revenues in H1 2020 impacted profitability, cash generation and therefore debt levels, though the immediate and comprehensive set of actions enacted across the business around cash conservation, coupled with the receipt of the sale proceeds of the Air Handling business, meant that the Group was able to preserve its liquidity throughout the period. In mid-July, the Group completed a successful capital raise, as previously announced, raising gross proceeds of £165m (c£152m net of related costs). At the same time, approximately £13m costs were paid in relation to the debt refinancing. As at the year-end, the Group had net debt on a pre IFRS 16 basis of £4.1m. By the end of February 2021 this number had increased to £36.4m, reflecting the expected seasonal increase in working capital, as well as some payments of annual commitments. We expect a net cash outflow during the first half and a modest cash inflow in H2. Dividend In line with the terms of the Group’s amended debt arrangements, the Board did not declare or pay an interim dividend for the 2020 financial year, and nor will a final dividend be declared. Successful execution of the Return to Growth strategy will return the Group to sustainable, profitable growth and cash generation, capable of supporting a range of capital allocation priorities. As such, the Board retains its medium term commitment to return to a progressive dividend policy, appropriately covered by underlying earnings. People The Board would like to thank all employees of SIG for their continued commitment and resilience in 2020, which was a particularly challenging year as a result of Covid-19. Whilst the trading results were affected by the pandemic, 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, its 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. To further strengthen engagement with colleagues, the Board appointed Simon King as the designated Non-Executive Director for workforce engagement with effect from 1 October 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 Covid-19 hindered the full implementation of a Group-wide culture programme, it did provide the opportunity to realign and strengthen the framework comprising a vision, the strategic pillars and cultural behaviours of the Group. Work took place to incorporate employee feedback, and local teams took the opportunity to improve their understanding of the behaviours and how they contribute towards a change in culture. The full roll out resumed in January 2021. Covid-19 The Board closely monitored the impact of the pandemic on the business and on our people, and continues to do so. Throughout the last twelve months, the safety of our people, customers and suppliers has been, and continues to be, our primary concern. Additional health and safety measures were quickly implemented at the beginning of the outbreak, and the new protocols continue to be adhered to across the Group, in line with the government guidance across all jurisdictions in which it operates. To support home working, the Group’s IT infrastructure was strengthened. As a result of the quick and agile response to the pandemic, and from some government support, the Group was able to mitigate the impact without reducing headcount as a result of Covid-19. The specific actions taken included, but were not limited to: i. 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 reinstated the Executive Directors’ pay to 80% at the same time as other Group employees were returning to work on full pay. ii. Government support: Relevant government support was accessed in all countries of operation, across employment support, tax and social security deferrals. In aggregate, use of government support schemes enabled the Group to defer approximately £21m of cash payments to points later within 2020, with another c£4m deferred into 2021, and to support the retention of jobs through the receipt of c£11m of furlough monies and other forms of support. iii. Capital expenditure: Programmes that required significant cash investment or did not provide near-term business benefits were paused. 19 Stock code: SHI www.sigplc.comSTRATEGIC REPORTBusiness review iv. Customers: The Group remained very diligent in proactively managing collections and monitoring overdue payments. v. Trade suppliers: The Group conducted active discussions with large trade suppliers in order to maintain continuity of supply, and in some cases was able to net rebates off against payments earlier than scheduled. vi. Non-trade suppliers: Deferral and terms extension requests were managed across non-trade suppliers, with a significant focus on IT, services and property, with property rates being deferred on UK properties. vii. Dividend: As noted above, the Board did not declare a full year 2019 dividend or interim 2020 dividend. The decisive actions taken across all functions and at all levels in the business mitigated the initial impact of the global pandemic. The performance in the first half of the year was materially affected by the different government lockdown responses to the pandemic in the countries in which we operate, notably in the UK and Ireland during March and April, although less than we had originally envisaged. With the easing of lockdown restrictions in May and June, the Group saw a gradual improvement in trading performance, accompanied by a corresponding reduction in losses and this continued in the second half. Despite further lockdowns and restrictions from October onwards, the business was able to trade broadly as normal throughout the second half, albeit within the new operating norms and protocols. Portfolio management As announced on 3 February 2020, the Company completed the sale of its Air Handling Division to France Air Management SA for an enterprise value of €222.7m (c£187.0m) on a cash free, debt free basis on 31 January 2020. After payment of transaction costs and other agreed adjustments to the consideration, the net cash inflow totalled c£148m. The results from this business have been excluded from the reported underlying results and are shown as a discontinued operation in both FY 2020 and the prior year. The Building Solutions business was classified as held for sale at 31 December 2019 as a sale had been agreed and was due to complete in the first half of 2020, subject to approval from the UK Competition and Markets Authority (CMA). As announced in May 2020, the parties 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 phase 2 investigation. During the second half of the year the Board decided to retain and develop the business, and it is now reported as part of underlying operations. Prior year comparatives have been restated to present numbers on a consistent basis with the current year. Trading overview Despite the materially adverse impacts on trading from Covid-19, the Group’s results for the year were better than initial internal estimates that were made at the onset of the pandemic early in the year. The year commenced with a like-for-like decline in underlying revenues of c11% for the first two months of trading, reflecting the continuation of the challenging trends experienced during the final quarter of 2019 in the UK and Germany. Trading activity across the Group’s other end markets remained relatively stable. The onset of the pandemic led to a period of temporary lockdown in a number of the markets in which the Group operates, significantly impacting revenue streams during March and April in France, and April and May in the UK and Ireland, in common with the broader construction industry. The Group’s operating companies in Germany, Poland and Benelux were also impacted by local government containment measures, although to a lesser extent. Despite the lockdowns, parts of our UK and Ireland businesses did remain open to service critical and emergency projects only, such as for the NHS, energy and food sectors. After rapidly enhancing our health and safety protocols across all of the Group’s branches and offices we were able to operate a staged reopening of our branch network through April and May, in conjunction with local government guidelines. Underlying revenues during the second quarter declined 33% on a like-for- like basis. The material drop in sales volumes across our end markets throughout the first half led to reductions in underlying gross profit margins, principally driven by reduced levels of supplier rebates, and hence reduced profitability. To partly offset the adverse impacts, the Group initiated a number of decisive actions that not only reduced its cost base but also supported its liquidity position. Additionally, the Group accessed government-supported job retention schemes. Trading over the summer months continued to show signs of improvement as local restrictions across a number of the Group’s trading markets were relaxed, coupled with a strong consumer demand in the repair, maintenance and improvement (“RMI”) market segment, benefiting our UK and France Exteriors businesses. Despite improving conditions, trading continued to be challenging as we moved into the second half of 2020, particularly in UK Distribution, Ireland and Benelux where various levels of local government- imposed trading restrictions were still in force. However, whilst the Group’s LFL sales in the third quarter continued to be down year-on-year, the trajectory improved, with all operating companies, except Poland, witnessing an increase in trading volumes. Underlying revenues in the third quarter finished 8% behind prior year on a like-for- like basis. Margins, and hence profitability, in quarter three showed an improvement on the previous quarter, with a revenue uplift of 38% coming principally from reduced effects of Covid-19, particularly in the UK businesses, resulting in higher levels of supplier rebates. The fourth quarter saw a return to positive LFL sales at a Group level (+4%), with strength in the RMI markets continuing to assist our exteriors businesses in the UK and France and underpinned by early signs of progress coming from the Group’s Return to Growth strategy, which started to deliver an improved organic sales performance. The fourth trading quarter volumes also saw further improvement in gross margins and profitability, providing solid momentum as we entered 2021. Outlook Trading in 2021 to date is in line with management expectations, continuing on a similar trajectory to Q4 2020. The market fundamentals for SIG remain strong and we are benefiting from good RMI growth in UK and France. We now have the right structure in place for UK Distribution and revenue growth is starting to emerge as planned. Continued uncertainty remains regarding Covid-19, as well as rising input prices and early signs of some potential materials shortages. However, providing there is no further material disruption to either our business or end markets as a result of the pandemic, the Board expects the near-term benefits of the actions taken in 2020 to deliver organic revenue growth in 2021, including market share gains. The benefits of this will become increasingly evident as the year progresses and should enable us to return to underlying operating profitability and cash generation during the second half. 20 SIG plc Annual Report and Accounts for the year ended 31 December 2020Rebuilding the UK business As part of our overall strategy for growth, the rebuild of the UK business was fundamental to re-establish our core business and expertise. With the joining of Phil Johns as Managing Director, who returned to the business after several years, we made significant progress quickly. With the aim of restoring expertise, significant organisational changes took place, beginning with the reorganisation of the senior leadership team; 5 of 7 market-facing UK Directors joined in 2020, bringing back an average of 27 years’ experience, with the majority being SIG alumni, re-joining the business. The newly strengthened leadership team put the subsequent merge of the two UK businesses, distribution and roofing, under one leadership team, creating a more effective structure and generating a cost saving of £4m. Through re-investment, the UK Distribution business began its rebuild and commenced a major project to enhance our sales and branch teams. Over 6 months, a total of 380 roles were redeployed or recruited; 26% of the total were sales and category roles. In addition, our branch teams were enhanced, with a reintroduction of 32 new branch manager positions, providing enhanced local leadership and accountability. In line with the new strategy to re-establish local focus, steps were taken to empower branches and maximise specialist central support. Focus was placed on building margin, price management, stock control and localised transport. To drive improved customer service, an enhanced CRM platform was launched. With these enhanced tools and re-prioritisation measures, the re-establishment of customer and supplier engagement was enabled. With solid foundations in place, the business is making significant initial steps into its footprint growth, with a new branch opening in Scotland, strengthening our local market presence and the first acquisitions made since 2015. S M Roofing, a roofing supplies merchant, and F30 Building Products, a building products merchant (2021) were integrated into the Distribution business strengthening our offering and portfolio. In 2021, the UK business will continue to focus on returning the UK back to profit, gaining market share and recovering gross margin. Further actions will be taken to maximise the decentralised, branch-led model, supported by selective acquisitions, to drive the business towards growth. 21 Stock code: SHI www.sigplc.comSTRATEGIC REPORTFinancial review The financial performance in 2020 was severely affected by restrictions on trading in response to Covid-19, particularly in March and April during the most severe lockdown period in the majority of markets. As restrictions eased and trading returned to relative normality from May onwards, the Group also saw a gradual improvement in underlying trading performance, notably the early stages of recovery in the UK Distribution business late in H2. The Group finished the year with substantial liquidity headroom. Ian Ashton, Chief Financial Officer Revenue and gross margin The Group saw a 13% decline in its LFL revenue over the year, with Group underlying revenue down to £1,872.7m (2019: £2,143.0m), principally as a result of the Covid-19 impact. Underlying results exclude the results from the businesses that are classified as non-core and Other items, in order to provide a better understanding of the performance of the Group on a continuing basis. On a statutory basis, Group revenue was £1,874.5m (2019: £2,160.6m), with non-core businesses reporting sales of £1.8m (2019: £17.6m). Underlying gross profit decreased 15.4% to £470.0m (2019: £555.4m) with a gross profit margin of 25.1% (2019: 25.9%). This primarily reflects lower rebate receipts due to decreased sales volumes. On a statutory basis, gross profit fell from £559.1m to £470.5m with gross margin decreasing by 80bps to 25.1% (2019: 25.9%). Operating costs and profit The Group’s underlying operating costs were £523.3m (2019: £512.9m). The increase was primarily due to the release of a number of one-off accruals and provisions in 2019, some temporary costs related to the UK and broader Group reorganisations, normalisation of incentives, increases to bad debt expense in response to Covid-19 uncertainty, cost inflation, and movements in foreign currency. These increases were partially offset by c£12m benefit from furlough schemes, other government support, and wage saving initiatives. The Group’s underlying operating loss was £53.3m (2019: £42.5m profit) and at a statutory level, the Group’s operating loss was £167.7m (2019: £87.9m) after Other items of £114.4m (2019: £130.4m). The latter included £76.1m of impairment charges, £13.2m of onerous contract costs, £7.4m costs associated with refinancing, and £6.7m costs relating to restructuring activities. Segmental analysis UK Underlying revenue 2020 £m 357.4 310.1 667.5 – 667.5 Underlying revenue1 2019 £m 534.3 346.5 880.8 1.2 882.0 UK Distribution UK Exteriors UK before non-core Non-core businesses UK 1. 2019 restated to include Building Solutions, reported as non-core in 2019. LFL sales H1 (48)% (27)% (40)% – (40)% H2 (15)% 5% (7)% – (7)% Underlying operating loss 2020 £m (45.4) (7.4) (52.8) – (52.8) FY2020 (33)% (11)% (25)% – (25)% Underlying operating profit/(loss)1 2019 £m 7.9 11.8 19.7 (0.8) 18.9 Underlying revenue in UK Distribution, a specialist insulation and interiors distribution business, was down 33.1% to £357.4m (2019: £534.3m). Underlying gross margin dropped 370bps to 22.5% (2019: 26.2%). The lockdown during March and April severely impacted UK trading and as a result, combined with some continued underlying weakness in performance, underlying operating loss was £45.4m (2019: £7.9m profit). 22 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Underlying revenue £1,872.7m 2019: £2,143.0m Underlying (loss)/profit before tax (£76.3)m 2019: £17.7m Statutory loss before tax (£202.3)m 2019: (£112.7)m Net debt £238.2m 2019: £455.4m Despite a strong second half recovery, helped by a robust RMI market, UK Exteriors, a specialist roofing merchant, which also includes our Building Solutions business, saw underlying revenue fall by 10.5% to £310.1m (2019: £346.5m) for the full year. Gross margin decreased 100bps to 27.3% (2019: 28.3%). As a result of these decreases, driven by the impact of Covid-19, the business recorded an underlying operating loss of £7.4m (2019: £11.8m profit). France Underlying revenue 2020 £m 168.1 344.8 512.9 1.8 514.7 Underlying revenue 2019 £m 184.5 342.2 526.7 1.9 528.6 France Distribution France Exteriors France before non-core Non-core businesses France LFL sales H1 (21)% (11)% (14)% – (14)% H2 1% 12% 8% – 8% FY2020 (10)% 0% (3)% – (3)% Underlying operating profit/(loss) 2020 £m 7.1 8.3 15.4 (0.3) 15.1 Underlying operating profit/(loss) 2019 £m 11.2 8.6 19.8 (0.9) 18.9 Trading activity suffered a temporary setback in France following the short term closure of all branches for three days in mid-March. The businesses then commenced a staged reopening through into April. France Distribution, trading as LiTT, a structural insulation and interiors business, saw underlying revenue decrease by 8.9% to £168.1m (2019: £184.5m), and by 10% on a LFL basis after adjusting for foreign exchange movements. Within this, the second half of the year showed clear signs of recovery, with LFL sales for the six months up 1%. Underlying gross margin remained flat at 27.4% (2019: 27.4%), with the reduction in revenue resulting in a £4.1m decrease in underlying operating profit to £7.1m (2019: £11.2m). Underlying revenue in France Exteriors, trading as Larivière, a specialist roofing business, increased by 0.8% to £344.8m (2019: £342.2m), with H1 revenues down on prior year, though ahead in H2 on the back of strong demand in the RMI market, similar to that witnessed in the UK. Helped by a new pricing framework introduced during the latter stages of 2019, underlying gross margin improved 90bps in the period to 24.3% (2019: 23.4%). After taking into account inflationary cost increases and foreign currency movement, underlying operating profit reduced by £0.3m to £8.3m (2019: £8.6m). 23 Stock code: SHI www.sigplc.comSTRATEGIC REPORTFinancial review Germany and Benelux LFL sales Underlying revenue 2020 £m 370.7 91.6 Underlying revenue 2019 £m 381.5 103.0 462.3 – 462.3 484.5 14.5 499.0 Germany Benelux Germany and Benelux before non-core Non-core businesses Germany and Benelux H1 (9)% (12)% (9)% – (9)% H2 (1)% (14)% (4)% – (4)% FY2020 (5)% (13)% (7)% – (7)% Underlying operating profit 2020 £m 0.4 2.5 Underlying operating profit 2019 £m 4.4 5.2 2.9 – 2.9 9.6 0.8 10.4 The Group’s operating companies in Germany and Benelux were impacted by government measures due to Covid-19, but to a lesser extent than in the UK, Ireland and France, and trading continued from all sites throughout the period. Underlying revenue in WeGo/VTi, our specialist insulation and interiors distribution business in Germany, fell by 2.8% to £370.7m (2019: £381.5m) and by 5% on a LFL basis. In addition to the challenges faced due to Covid-19, H1 trading in Germany also saw a continuation of the weaker trends experienced in the last quarter of 2019. However, underlying gross margin increased 30bps to 28.0% (2019: 27.7%), reflecting a number of renegotiated contracts with suppliers whereby thresholds have been reduced, and assisted by further enhancements around pricing controls. Underlying operating profit for the period was £0.4m (2019: £4.4m). Underlying revenue from the Group’s business in the Benelux region fell by 11.1% to £91.6m (2019: £103.0m), with the impacts of Covid-19 being exacerbated by a reduction in construction output in the Netherlands following changes in environmental restrictions in 2019. Despite a very competitive marketplace, underlying gross margin decreased only 10bps to 24.6% (2019: 24.7%). As a result of the drop in revenue, operating profit decreased to £2.5m (2019: £5.2m). Ireland Ireland Underlying revenue 2020 £m 80.5 Underlying revenue 2019 £m 94.9 LFL sales H1 (31)% H2 (3)% FY2020 (17)% Underlying operating profit 2020 £m 0.8 Underlying operating profit 2019 £m 6.8 In Ireland, a specialist distributor of interiors, insulation and construction accessories, revenues in March to April were significantly impacted by the Covid-19 pandemic, with a gradual improvement in performance in May to June as branches began to reopen. Underlying revenue declined by 15.2% to £80.5m (2019: £94.9m), and by 17% on a LFL basis after adjusting for working days and foreign currency movements. Underlying gross margin dropped to 23.4% (2019: 25.0%) as the business saw a shift in sales mix away from its higher margin offerings, with underlying operating profit for the period of £0.8m (2019: £6.8m). Poland Poland Underlying revenue 2020 £m 149.5 Underlying revenue 2019 £m 156.1 LFL sales H1 (0)% H2 (5)% FY2020 (3)% Underlying operating profit 2020 £m 2.0 Underlying operating profit 2019 £m 4.3 In Poland, a market leading distributor of insulation and interiors, underlying revenue fell to £149.5m (2019: £156.1m), with LFL sales down 3%. Whilst also impacted by government measures, trading continued from all sites throughout the period. Underlying gross margin decreased slightly to 20.0% (2019: 20.3%), with the business delivering an underlying profit of £2.0m (2019: £4.3m) in the period, driven by the drop in revenue and a small increase in operating costs. 24 SIG plc Annual Report and Accounts for the year ended 31 December 2020Reconciliation of underlying to statutory result Other items, being items excluded from underlying results, during the period amounted to £126.0m (2019: £130.4m) on a pre-tax basis and are summarised in the table below: Underlying (loss)/profit before tax Other items – impacting (loss)/profit before tax:  Amortisation of acquired intangibles  Impairment charges  Profit 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  Onerous contract costs  Costs associated with refinancing  Non-underlying finance costs  Other specific items Total Other items Statutory loss before tax Further details of Other items are as follows: 2020 £m (76.3) (5.6) (76.1) 0.6 (0.3) (6.7) (4.2) (13.2) (7.4) (11.6) (1.5) (126.0) (202.3) 2019 £m 17.7 (6.2) (90.9) 0.1 (0.9) (27.1) (5.7) – – – 0.3 (130.4) (112.7) ■ The impairment charges of £76.1m (2019: £90.9m) comprise £45.4m related to goodwill, £1.9m customer relationships in intangibles, £13.7m implementation costs of ERP systems (“SAP 1HANA”) in Germany and France, £1.4m other software costs, £3.5m tangible fixed assets, and £10.2m right-of-use assets. ■ Net restructuring costs of £6.7m (2019: £27.1m) were incurred in connection with the prior year target operating model projects in the UK, Germany and France, the current year restructuring of the UK businesses as part of the implementation of the Return to Growth strategy, and restructuring in Benelux. ■ Onerous contract costs of £13.2m (2019: £nil) related to provisions recognised for licence fee commitments where no future economic benefit is expected, principally in relation to the SAP 1HANA implementation. ■ Costs associated with refinancing of £7.4m (2019: £nil) includes legal and professional fees of £8.3m offset by a £0.9m gain in relation to the partial derecognition of a cash flow hedging arrangement as a result of the change in debt facility agreements. ■ Non-underlying finance costs of £11.6m (2019: £nil) comprise £11.3m loss on modification recognised in relation to the private placement notes and £0.3m write-off of arrangement fees in relation to the previous Revolving Credit Facility which has been extinguished. Taxation The effective tax rate for the Group on the total loss before tax of £130.3m (2019: £108.9m) is negative 6.8% (2019: negative 14.3%). As the Group operates in several different countries, tax losses cannot be surrendered or utilised cross border and the Group therefore pays tax in some countries and not in others. Tax losses are not currently recognised in respect of the UK business, which also impacts the overall effective tax rate. The combination of these factors means that the effective tax rate is less meaningful as an indicator or comparator for the Group. In accordance with UK legislation, the Group publishes an annual tax strategy, which is available on our website (www.sigplc.com). Pensions The Group operates four (2019: six) defined benefit pension schemes and a number of defined contribution pension schemes. The largest defined benefit scheme is a UK scheme, which was closed to further accrual in 2016. The Group’s total pension charge for the year, including amounts charged to interest and Other items, was £6.9m (2019: £7.0m), of which a charge of £0.7m (2019: £0.7m) related to defined benefit pension schemes and £6.2m (2019: £6.3m) related to defined contribution schemes. The overall defined benefit pension schemes’ liabilities before taxation increased marginally during the year to £25.1m (2019: £24.8m). Financial position In July 2020, we concluded the successful restructure of our financing facilities and a £165m capital raise (c£152m net of related costs). These, along with our careful management of working capital and cash in the year, have strengthened the balance sheet and created a sound financial base on which we can rebuild the business. Overall, the net assets of the Group have increased by 4.1% to £306.3m (2019: £294.2m), with a cash position at year-end of £235.3m (2019: £110.0m, excluding cash from businesses held for sale) and net debt of £238.2m (2019: £455.4m). 25 Stock code: SHI www.sigplc.comSTRATEGIC REPORTFinancial review Group structure The results at FY 2019 have been restated to reflect the change to core businesses subsequent to the year-end announcement. Please refer to the table below: As reported at FY 2019 results Building Solutions Restated at FY 2020 results Cash flow Total operating loss, excluding gain on sale from Air Handling Depreciation and non-cash items (Increase)/decrease in working capital and provisions Interest and tax Capital expenditure Proceeds from sale of property, plant and equipment Free cash flow Sale and purchase of businesses Payment of lease liabilities (Repayment)/drawdown of debt Dividends paid to equity holders of the Company Net proceeds from capital raise Change in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at end of the year Underlying revenue £m 2,084.7 58.3 Underlying PBT £m 15.6 2.1 2,143.0 17.7 2020 £m (166.6) 154.4 (30.8) (32.3) (20.8) 5.6 (90.5) 147.0 (54.8) (85.2) – 151.9 68.4 145.1 21.8 235.3 2019 £m (82.9) 177.9 71.0 (35.3) (34.5) 7.6 103.8 7.5 (59.9) 42.4 (22.2) – 71.6 78.8 (5.3) 145.1 During the year, the Group reported a free cash outflow of £90.5m (2019: £103.8m inflow) as a result of the loss in the year and an increase in working capital, together with payments in relation to interest, tax and capital expenditure. Other movements in cash relate to £147.0m cash inflow from the sale and purchase of businesses (2019: £7.5m), £151.9m net proceeds from the capital raise (2019: nil), £85.2m repayments of debt (2019: £42.4m drawdown) and £54.8m payment of lease liabilities (2019: £59.9m). Free cash flow represents the cash available after supporting operations and maintaining capital assets, and before financing and investing activities. Financing and funding On 18 June 2020, the Group agreed amended debt facility agreements in respect of its Revolving Credit Facility and private placement notes. On 10 July 2020, the Group also completed the successful raising of £165m (c£152m net of related costs) equity through a firm placing, and placing and open offer, in order to reduce the Group’s net debt and strengthen its balance sheet. The Group has significant available liquidity and on the basis of current forecasts is expected to remain in compliance with all banking covenants throughout the forecast period to 31 March 2022. On 1 March 2021, the Group agreed with its lending banks and private placement noteholders to amend certain financial covenants to better align the different tests and to provide additional headroom on the interest cover covenant under stress test scenarios from March 2022. 26 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 30 to 35. 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 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, diversifying the risk around sales for the Group; and ■ Delivery of the Return to Growth strategy: good early progress has been made in implementing the new strategy introduced in 2020 to drive a return to profitable growth, with a clear focus on growing the customer base through the re-establishment of strong customer and supplier partnerships, specialist expertise and superior customer service. The Board has determined that a three-year period to 31 December 2023 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 financial planning process, financial forecasts for the first three years were produced covering the period to 31 December 2023. The process included a detailed review of the forecasts, 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: continued focus on the new strategy for growth implemented in 2020 to grow the EU businesses whilst maintaining or improving margin, and delivering a market share recapture plan in the UK. The turnaround in the UK is focused on re-establishing valuable customer and supplier relationships, with clear accountability at branch level; ■ Return to profitable growth: early progress has been made on delivering the new strategy, centred on leveraging SIG’s key differentiators of expertise, service and proximity to reignite growth through focusing on: − Specialist expertise: branches and regions re-establishing specialist focus and expertise, continuing to re-introduce and develop industry knowledge and investing in enhanced technical training; − Superior service: our sales capacity and productivity is being strengthened, to provide the best customer service, with investment in sales training to strengthen commercial teams and ensure they have the right tools to allow greater focus on customer relationships; − Winning branches: branch teams are trusted, capable and empowered to achieve success, with a focus on building a winning franchise model across the Group; and − Valuable partnerships: partnering closely with suppliers to understand our joint opportunities and to create win-win strategies. ■ Impact of Covid-19: the forecasts assume that there will be sustained growth in the economy and in the construction industry in particular, and, given that the Group has adapted working practices to align with the Covid-19 restrictions, that no further significant reductions in trading such as that seen in the Spring of 2020 will occur. The recent commencement and rate of success of vaccination programmes, notably in the UK, reduces the risk of further impact from Covid-19; and ■ Dividends: no dividend for 2020, as previously announced. Additionally, during 2020 the Group obtained new financing and strengthened the balance sheet, as follows: ■ On 31 January 2020 the Group completed its disposal of its Air Handling Division with net proceeds of £155.1m; ■ On 18 June 2020 the Group completed its renegotiation of its banking facilities; ■ On 10 July 2020 the Group completed its equity raise with proceeds of £165m; and ■ On 1 March 2021 the Group agreed with its lenders to amend certain covenants to better align the different tests. In order to assess the resilience of the Group to threats 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: Variant Sensitivity analysis has been modelled on the basis that the Return to Growth strategy may take longer than expected to fully deliver, with downside scenarios modelled on the medium term plan for 2021, 2022 and 2023. The implications of a challenging economic environment, in particular a lower than expected recovery in the construction industry and the wider economy following the removal of the current restrictions in relation to Covid-19, have been modelled by assuming a severe but plausible reduction in revenue and gross margins in each of the three years. 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 during the three year period. Link to principal risks and uncertainties Delivering business change Market downturn Business growth Delivering business change Market downturn Delivering business change Market downturn Business growth 27 Stock code: SHI www.sigplc.comSTRATEGIC REPORTFinancial review The resulting impact on key metrics was considered with particular focus on solvency measures including liquidity headroom and other covenants. The forecasts show headroom against all covenants during the three year period under the downside scenarios considered, including consideration of the impact of potential further impairments of goodwill and other non-current assets on the consolidated net worth covenant. In the case of these scenarios arising, various mitigating actions are also 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 and making further business disposals. This assessment is based on the assumption that the Group’s £70m term loan/£25m Revolving Credit Facility, which have 31 May 2023 end dates, together with the c£145m Private Placement Notes with 2023-2026 maturities (containing May 2023 put options for early repayment), will be refinanced in advance of these maturities. Following the recent successful amendment of the covenants the Group is confident in ongoing lender support, and also plans to refinance the facilities well in advance of the May 2023 facility end dates. After conducting their viability review, and taking into account the Group’s current position and principal risks, the directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment to 31 December 2023. 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. On 18 June 2020, the Group agreed amended debt facility agreements in respect of its Revolving Credit Facility (RCF) and private placement notes, with key changes as set out in Note 19 of the Consolidated Financial Statements. On 10 July 2020 the Group also completed the successful raising of £165m of equity through a firm placing and placing and open offer, in order to reduce net debt and strengthen the Group’s balance sheet. Under the June 2020 revised debt facility agreements the Group was subject to covenant testing as follows: ■ Leverage (net debt/EBITDA) and interest cover (EBITA/interest) not tested until March 2022, after which tested every quarter, the tests being applied to the prior 12 months; ■ Until 28 February 2022 the Group has to ensure that Consolidated Net Debt (CND) does not exceed £225m for each quarterly test date in 2021 (2020: £125m); ■ Minimum Liquidity (available cash and undrawn revolving credit facility commitments) of £40m at all times; and ■ Consolidated Net Worth (CNW) must at all times not be less than £250m. The Group was in compliance with these covenants at 31 December 2020. Whilst the Group has significant available liquidity, and on the basis of current forecasts is expected to remain in compliance with all banking covenants throughout the forecast period to 31 March 2022, on 1 March 2021 the Group agreed with its lending banks and private placement noteholders to amend certain financial covenants to better align the tests and to provide additional headroom on the interest cover covenant under stress test scenarios from March 2022. The amended covenants under the 28 revised agreements are as follows: ■ The interest cover testing does not start until June 2022 and is at lower levels than previously until December 2022; ■ The leverage covenant threshold is now slightly lower than previously at March 2022 and June 2022; ■ The Consolidated Net Debt threshold is lowered to £200m and extended to December 2022; and ■ No change to the CNW or Minimum Liquidity covenants. In arriving at their opinion on going concern, the Directors have considered the Group’s forecasts for the period to 31 March 2022, and specifically the ability to meet the covenant tests above. These forecasts reflect the assumption of more normal trading levels since the worst of the Covid-19 impact, as well as the expected positive impact of the strategic actions being undertaken to improve future performance under the Return to Growth strategy. Management have continued to manage liquidity very closely, such that cashflow performance was better than initial expectations throughout 2020. The base forecasts indicate that the Group will be able to operate within the covenants for the forecast period to 31 March 2022. The Directors have considered the following principal risks and uncertainties that could potentially impact the Group’s ability to fund its future activities and adhere to its future banking covenants, including: ■ A decline in market conditions resulting in lower than forecast sales; ■ Implementation of the new strategy taking longer than anticipated to deliver forecast increases in revenue and profit; ■ A further wave of the Covid-19 pandemic; and ■ The terms of the Group’s revised lending arrangements and whether these could limit investment in growth opportunities. The forecasts on which the going concern assessment is based have been subject to sensitivity analysis and stress testing to assess the impact of the above risks. The Group has considered a plausible downside scenario, factoring in a reduction in sales volumes and a reduction in gross margin, offset by reductions in direct expenditure and discretionary operating costs. The results showed that under this scenario the Group will still be able to operate within the covenants with adequate headroom for the forecast period to 31 March 2022. In considering the impact of these stress test scenarios the Directors have also reviewed realistic additional mitigating actions that could be taken over and above those already included in the downside scenario forecast to avoid or reduce the impact or occurrence of the underlying risks. These include further reductions to operating costs, cutting discretionary capital expenditure and disposing of non-core assets. On consideration of the above, the Directors believe that the Group has adequate resources to continue in operational existence for the forecast period to 31 March 2022 and the Directors therefore consider it is appropriate to adopt the going concern basis in preparing the 2020 financial statements. SIG plc Annual Report and Accounts for the year ended 31 December 2020Cautionary statement This Strategic Report has been prepared to provide the Company’s shareholders with a fair review of the business of the Group and a description of the principal risks and uncertainties facing it. It may not be relied upon by anyone, including the Company’s shareholders, for any other purpose. This Strategic Report and other sections of this report contain forward-looking statements that are subject to risk factors including the economic and business circumstances occurring from time to time in countries and markets in which the Group operates and risk factors associated with the building and construction sectors. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied by the forward- looking statements. No assurance can be given that the forward-looking statements in this Strategic Report will be realised. Statements about the directors’ expectations, beliefs, hopes, plans, intentions and strategies are inherently subject to change and they are based on expectations and assumptions as to future events, circumstances and other factors which are in some cases outside the Group’s control. Actual results could differ materially from the Group’s current expectations. It is believed that the expectations set out in these forward-looking statements are reasonable but they may be affected by a wide range of variables, which could cause actual results or trends to differ materially, including but not limited to, changes in risks associated with the level of market demand, fluctuations in product pricing and changes in foreign exchange and interest rates. The forward-looking statements should be read in particular in the context of the specific risk factors for the Group identified on pages 30 to 35 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 04 to 47) was approved by a duly authorised committee of the Board of Directors on 25 March 2021 and signed on the Board’s behalf by: Steve Francis Chief Executive Officer 25 March 2021 Ian Ashton Chief Financial Officer 25 March 2021 29 Stock code: SHI www.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, that 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 Accountability to stakeholders for organisational oversight SIG BOARD ROLES: Establish risk management structure, set strategic objectives, set risk appetite and ensure robustness of control structure ↓ Audit Committee Accountability to stakeholders and the Board for organisational oversight ↓ ↓ SIG AUDIT COMMITTEE ROLES: Consider risk management and control framework adequacy and agree audit plan ↓ ↓ Executive Leadership Team Achievement of organisational objectives, including managing risk Internal Audit Independent assurance ↓↓ FIRST LINE ROLES: Business operations Operating Companies and Support Functions (HR, Finance, IT) ■ Provision of products / services ■ Management controls ■ Internal control measures ■ Ownership of risk SECOND LINE ROLES: Oversight functions Legal, Health, Safety and Environment, Group Risk, Group Controls, Compliance and Information Security ■ Expertise and support ■ Monitoring, challenge and advice on risk- related matters THIRD LINE ROLES: Group Internal Audit ■ Independent and objective assurance s r e d i v o r p e c n a r u s s a l a n r e t x e d n a s r o t a l u g e R Key: ↓ Accountability / reporting ↓ Delegation, direction, resources oversight ↓↓ Alignment, communication, coordination, collaboration 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 frameworks. The Group employs a three lines model to provide a simple and effective way to enhance risk management and control processes and ensure roles and responsibilities are clear. The Board maintains oversight to ensure risk management and control activities carried out by the three lines are proportionate to the perceived degree of risk and its own risk appetite across the Group. 30 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Risk category Risk appetite statement Financial Operational Health and safety Regulatory and compliance People Strategy Transformation Reputation 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 commitment to ensuring that no harm comes to colleagues, customers and suppliers, and that there are zero health and safety reportable incidents. It invests appropriately to achieve this. SIG is a compliant organisation and invests to ensure that there is a robust control environment to maintain a high level of compliance. SIG will seek to meet current workforce requirements through existing structures but may change the organisational model or seek new skills when there is a clear cost or efficiency benefit from doing so. Employee dissatisfaction is limited wherever possible. SIG has a balanced approach towards taking risk through strategic initiatives and will maintain a portfolio of initiatives with a range of risk profiles, including those that present higher risk and reward. SIG will balance the potential reward from transformation activity with the likelihood of risk to delivery. Some activity that has the potential to disrupt underlying business may be undertaken if the potential rewards outweigh the risk. SIG will seek to avoid actions that present a risk of reputational damage and will consider the likely views of its stakeholders, including its customers, suppliers, shareholders, employees and communities in which it operates, ensuring risk is minimised prior to approval of an initiative or activity. 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 Leadership Team (ELT) meetings. New and emerging risks are identified through the use of horizon scanning, regular exercises with first and second line teams 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 materialise. Group risks are owned by an Executive Leadership Team 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 reviewed, 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 Leadership Team and Board bi-annually. This includes a review of the completeness of risk registers and the appropriateness of risk scoring. For example, the risk rating for delivering business change increased, following a review of the risk scoring and clarity regarding transformation activity due to occur across the Group over the strategic timeframe. 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 health and safety, business growth and cyber security in 2020. 31 Stock code: SHI www.sigplc.comSTRATEGIC REPORTPrincipal risks and uncertainties 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 financial 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 is obtained through a co-source arrangement with KPMG. The Internal Audit team 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 are communicated each month to action owners and the Executive Leadership Team, and presented on a quarterly basis to the Audit Committee. Developments in 2020 Key developments in risk management and internal control in 2020 included: ■ Updates to the risk management framework. ■ Updates to the Group’s risk appetite. ■ Incorporation of standard tests in all risk-based audits, such as for IT general controls and fraud. ■ Continued improvements in documenting sources of assurance. ■ Further 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 for internal controls. ■ Improvements to the cyber security control environment. ■ Improvements to the Group’s forecasting process to establish greater control, accountability and transparency. Improvements planned for 2021 SIG will continue to improve its risk management processes with a number of initiatives in 2021: ■ Further refinement, automation and development of Key Risk Indicators (KRI) reporting. ■ Documentation of risk and controls matrices for remaining key control areas. ■ Implementation of an integrated assurance framework for enhanced governance of risk and control. Brexit risk Following the UK’s exit from the European Union, the Group has made a number of adjustments to its business operations in order to maintain continuity of supply and ensure ongoing legal and regulatory compliance. As the industry adjusts to the post-Brexit operating environment, the Board continues to monitor the potential financial, operational and legislative impacts, particularly with regards to its UK and Ireland businesses, to ensure assessments remain appropriate. The main areas of ongoing focus are: ■ Supply shortages and border delays – the Group has adjusted and maintained stock levels in anticipation of potential shortages in key product lines, some of which materialised as a result of the Covid-19 pandemic. With the deal clarifying the UK-Ireland border arrangements, supply and sale arrangements have been amended accordingly. ■ Tax and customs – Group Tax and operating company Finance teams performed a review and identified necessary changes to SIG’s sale arrangements. Amendments to terms of sale are being made, where necessary, to ensure ongoing compliance. ■ Disclosures – the Group is working with suppliers and industry bodies to ensure adequate arrangements are in place in anticipation of changes to safety and security disclosures due in 2021, resulting from Brexit. The business will maintain ongoing dialogue with suppliers, customers and regulators and update its assessments accordingly. 32 SIG plc Annual Report and Accounts for the year ended 31 December 2020Covid-19 Since the outbreak of Covid-19 in Q1 2020, we have continued to monitor the impact of the unfolding situation and has implemented mitigating measures to act in accordance with government guidance and to protect customers, employees and suppliers. The Board and Executive Leadership Team’s continued focus is on ensuring measures are in place to manage the Group’s risks across a range of areas, including liquidity, people, supply chain and regulations. The Executive Leadership Team meet regularly to provide updates on the situation and to ensure that the actions that have been taken are appropriate to the evolving threat. 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. To ensure the business remains Covid- safe, the measures we have taken to date include: ■ Actions to manage the Group’s cash requirements such as leveraging governmental support (in the form of deferred payments or grants), prioritisation of capital expenditure projects, and liaising with customers to more closely manage credit control and cash collection. ■ Enhancing the Group’s cash flow forecast model, accommodating a range of scenarios that vary both in time and severity to ensure it has the most accurate view possible of future cashflows. ■ Implementation of processes and procedures to allow the safe closure and reopening of branches, according to government guidance. We temporarily closed our UK and Irish businesses and selected branches of other operating companies in line with local government advice, to protect our people and to conserve cash. Across the Group and where allowed under local regulations, a limited branch network was maintained in order to service critical projects essential to frontline services. In the UK, we reopened all sites by the end of June and ensured Covid-safe measures were in place in all branches across operating companies. ■ Adapting to a remote working model, increasing VPN licences and computer hardware to support as many as people as possible to work from home. Enhanced anti-fraud measures have also been implemented in response to the proliferation of organised crime activity that was observed. The Group continues to model a range of scenarios and refine its contingency plans in line with the latest information available regarding recovery. Principal risks The Board monitors 16 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 below matrix and details of the risks, current mitigations and planned improvements are included in the table on the next page. Principal risks A B Employee attraction, retention and engagement Health and safety C Delivering business change D Cyber security E Data quality and governance F Market downturn G Systems failure H Business growth I J Delivering the customer experience Environmental, social and governance l a c i t i r C t c a p m I CB D E F G H I A J w o L Remote Likelihood Likely 33 Stock code: SHI www.sigplc.comSTRATEGIC REPORTPrincipal risks and uncertainties Risk Description Change in the year Mitigations A Employee attraction, retention and engagement Failure to attract and retain people with the right skills, drive and capability to reshape and grow the business. SIG’s people risk profile remains unchanged despite challenges posed by Covid-19. We responded to the pandemic with a mental health and wellbeing programme, which included a new Employee Assistance Programme (EAP) in the UK and mental health first aider training. We continued to roll out the culture programme and delivered a Group-wide Board engagement programme and employee engagement survey. Action plans from both will be followed through to completion in 2021. ■ Engagement survey completed with associated action plan developed. ■ Improved remuneration packages and retention plans for critical roles. ■ Launch of commitment culture. ■ Launch of mental health and wellbeing policy. ■ Monthly tracking of staff turnover and key indicators. B Health and safety Danger of incident or accident, resulting in injury or loss of life to employees, customers or the general public. The Covid-19 pandemic increased the risk of a health and safety event occurring, with both the gross and net risk rising in the year. ■ Integrated Safety management system being implemented. ■ Framework of compliance standards in New ways of working were introduced to ensure ongoing compliance with laws and regulations and the safeguarding of health and wellbeing. These included revised in-branch pick-up processes and the introduction of screens and revised branch layouts. place. ■ Regular monitoring and reporting of key metrics. ■ HSE managers visibility raised by joining Group Senior Leadership Team. C 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. Delivery of the new strategy has increased the type and level of change initiatives underway at SIG, leading to an increase in risk profile. ■ Project Delivery Framework in place for IT enabled projects. ■ Governance process in place for delivery Operating companies continue to manage change portfolios through programme management governance committees. Increased monitoring has been implemented, in particular over progress against growth initiatives, in line with our strategy. of major projects. ■ Benefits tracking. ■ Monitoring of KPIs relating to key business change programmes. D Cyber security Internal or external cyber attack could result in system disruption or loss of sensitive data. The cyber security risk profile remains in line with prior year. Additional measures have been deployed to counteract the increased cyber risk observed throughout the pandemic. E Data quality and governance N F Market downturn Poor data quality negatively impacts our financial management, fact-based decision making, business efficiency, and credibility with customers. Volatility in the market impacts the Group’s ability to accurately forecast and to meet internal and external expectations. We deployed more stringent access controls to critical systems, giving greater security to our infrastructure and data. Awareness campaigns were delivered across the business and continue on a regular basis, with the results of simulated phishing exercises reported to the Executive Leadership Team and Board regularly. With our return to profitability underpinned by accurate and timely data, this risk area is now reflected as a principal risk for the organisation. Investment in a new financial consolidation tool will provide deeper and more readily available insight into forecasts. Product and customer data quality remain a focus area for our operating companies, who continue to liaise with local industry bodies to obtain and leverage market data. The risk to SIG of market downturn has remained broadly in line with prior year and market monitoring continues to ensure timely and appropriate responses are put in place in relevant operating companies. Uncertainty regarding Brexit remained, with additional concerns regarding construction activity under Covid-19. Government support for the construction industry in the UK during periods of lockdown resulted in higher levels of market activity than worst-case scenario models. ■ Training and communication schedule to ensure employee awareness of risks. ■ Disaster recovery plans in place and secure backups conducted to ensure continuity of service. ■ Endpoint encryption installation. ■ Enhanced cyber attack monitoring. ■ Monthly tracking of key indicators in management accounts. ■ Regulatory policies in place to govern compliance. ■ Delivery of training and awareness campaigns. ■ IT upgrade projects in key locations. ■ The Group’s geographical diversity across Europe reduces the impact of changes in market conditions in any one country. ■ Industry based KPIs monitored monthly at a Group and operating company level. ■ Regular and ongoing business performance reviews are conducted. ■ Brexit monitoring. ■ Enhanced forecasting with Group visibility. ■ Business growth plans in place. 34 SIG plc Annual Report and Accounts for the year ended 31 December 2020Risk Description Change in the year Mitigations G Systems failure Systems become heavily customised and outdated and are unable to support critical business activity and decision making. H Business growth SIG is unable to grow sales and/or land new market opportunities to grow market share in line with strategy. I Delivering the customer experience Failure to deliver consistent, high-quality service to customers and/or strengthen relationships with customers. J Environmental, social and governance N SIG suffers financial and/or reputational losses as a result of poor environmental, social and governance performance and/or disclosure. Systems failure remains a principal Information Technology risk, with monitoring continuing throughout the year. Enhancements to our infrastructure and control environment strengthened our defence against this risk; SIG France moved to a state-of-the-art data centre and team capabilities were enhanced through specialist hires. The business continues to deliver against plans to return to profitable growth, with the risk rating in line with prior year. Our physical branch network was reimagined to ensure proximity to customers and the completion of new flagship distribution centres, such as Valor Park near Heathrow, to allow the business greater scope and scale of sales delivery. Monitoring of business growth metrics continues as part of business reviews at both the management and Board level. ■ Support from specialised third-party experts. ■ Business continuity and disaster recovery capabilities. ■ IT upgrade projects in key locations. ■ Growth targets included in budgets for all 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. Delivering superior value remains one of our principal risks, with a risk profile in line with prior year. ■ Customer-centric training and development programmes. Challenging working and trading conditions resulting from the Covid-19 pandemic were offset by investment in a strengthened sales capacity, including a programme of strategic appointments to our salesforce. Customer satisfaction and Net Promoter Score (NPS) surveys were performed throughout the year, with action plans identified for areas where we can better serve our customers. Environmental, social and governance (ESG) risk is reflected as a new principal risk for 2020. Action plans identified through a detailed assessment will be implemented in 2021 and beyond. ■ Customer segmentation analysis. ■ Development of loyalty programmes. ■ Customer metrics reported and monitored regularly in management accounts and at management meetings. ■ Customer satisfaction and NPS surveys. ■ ESG roadmap in development for rollout prior to upcoming disclosure obligation deadlines. ■ Employee mental health and wellbeing programme. ■ Development of a ten-year de- carbonisation plan. ■ ISO14001 Environmental Management Systems accreditation rollout plan. Relevance to strategy Understanding movements in business risks Responsible actions Specialist expertise Highest productivity Winning branches Valuable partnerships Focused growth Increase Decrease No change N New Superior service 35 Stock code: SHI www.sigplc.comSTRATEGIC REPORTEnvironmental, social and governance: Framework Commitment to Environmental, Social and Governance (ESG) matters is central to pillar one of our Return to Growth strategy. E Environmental The environmental factor is primarily concerned with the company’s influence on the environment and its ability to mitigate various risks that could harm the environment. Generally, a company is assessed by its use of energy, waste generation, level of pollution produced, utilisation of resources and treatment of animals. S Social The social factor investigates the company’s relationships with other businesses and communities. Social factor considers the attitudes towards diversity, human rights and consumer protection. G Governance Corporate governance is concerned with the internal company affairs and its relationships with the company’s main stakeholders, including its employees and shareholders. SIG is committed to creating long-term sustainable value for our stakeholders. To achieve this goal, we have aligned our operations with the United Nations Sustainable Development Goals (SDGs), providing us with a framework against which to map our ESG and business activities. The SDGs 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 second year SIG has 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. Our ESG report details the work undertaken by the Group and highlights our commitment to the SDGs. SGDs include: Good health and wellbeing Ensure healthy lives and promote wellbeing for all at all ages. Quality Education Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. Gender equality Achieve gender equality and empower all women and girls. Decent work and economic growth Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Industry, innovation and infrastructure Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation. Reduced inequalities Reduce inequality within and among countries. Responsible consumption and production Ensure sustainable consumption and production patterns. Climate action Take urgent action to combat climate change and its impacts. Peace, justice and strong institutions Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels. 36 SIG plc Annual Report and Accounts for the year ended 31 December 2020Environmental, social and governance: Principles Links to SDGs 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, we have utilised the SDG 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 that sets out our ethical standards and expected behaviours from all employees of the Group. The Code of Conduct 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 of Conduct 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 our 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. SIG encourages and considers all applications from individuals with recognised disabilities to ensure they have equal opportunity for employment and development within the business. If an employee becomes disabled during employment, every effort is made to ensure they can continue in employment, by making reasonable adjustments in the workplace or 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 that should be maintained by employees in all Group operations worldwide. The policy sets out standards concerning: ■ Safe and fair working conditions for employees; ■ Responsible management of social and environmental issues within the Group; and ■ Standards in the international supply chain. SIG promotes human rights through its employment policies and practices, supply chain, and 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 online training 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 our 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 2019 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 2020 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 check-payment-practices.service.gov.uk. This report is published every six months as per the requirements and the most recent was submitted in January 2021 for the six months to 31 December 2020. 37 Stock code: SHI www.sigplc.comSTRATEGIC REPORTEnvironmental, social and governance: People Introduction We believe that our people are our greatest strength. In what was a particularly challenging year, the resounding sense of pride and collaboration was apparent across the Group and we saw teams making extraordinary efforts to serve our customers and support each other. Links to SDGs A culture built on commitment to our actionable behaviours Placing greater focus on reconnecting with our people is a fundamental part of our strategy. It is our aim to ensure that our people feel safe, proud and valued. We also aim to reconnect with our partners and stakeholders to create value for all, and a business where we operate sustainably to benefit our communities. Our people strategy is to create value and enable growth through developing employee expertise, fostering the right behaviours to drive a culture of commitment, and enhancing contribution. In 2020, we launched our new culture programme, underpinned by three key behaviours that drive shared, sustainable actions. The SIG behaviours have been articulated as “Be bold in what you do”, “Be flexible and agile” and “Make a positive difference”. To embed the understanding of these behaviours, we developed our supplementary ‘Behaviours in Action’ which further defines the meaning of each and how our people demonstrate and drive each. Following the significant leadership changes and subsequent launch of a new vision and strategy in May 2020, the programme was developed further to clarify how this change in culture supports our new goals. Several feedback sessions were held with employees from all areas and levels of the business, to further define the framework, alongside the development of a new internal visual identity based on our three behaviours to support visual recognition and reinforcement, and drive employee morale. Across our operating companies, further activity took place to embed the understanding of our behaviours and how these can be demonstrated and drive positive action towards achieving our strategic goals. Facilitated sessions with the senior leadership teams were held to focus on activating the behaviours and implementation plans, and engagement sessions with management teams and employees allowed discussion and sharing of examples of where the behaviours have been demonstrated. 38 SIG plc Annual Report and Accounts for the year ended 31 December 2020Gender diversity SIG is committed to equality and recognises the value that can be created from diversity. As is typical within the construction industry, SIG has historically had a higher proportion of male employees, but it intends to reduce the imbalance in the future. Total employees Board members Senior managers2 Senior management3 Total1 6,446 Female Total1 10 Total1 17 Total1 84 21% 1,370 20% 2 24% 4 23% 19 Male 79% 5,076 80% 8 76% 13 77% 65 1. Headcount as at 31 December 2020 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 Moving into 2021, plans are in place to drive the implementation through regular communications campaigns, and embedding the behaviours into our routine programmes and operations. Embedding our behaviours through our people processes The behaviours underpin our people practices, therefore during the year we developed our people programmes to align to our new culture. Our recruitment processes reflect the requirement to assess potential new employees in both competency and cultural fit, and recruiting managers are provided with a number of tools to assess alignment to the behaviours. In addition, our induction and on-boarding programmes have been reviewed and updated to allow the quick integration of new recruits into the business, both operationally and culturally. Local recognition programmes were developed to align to the new behaviours, and replace the previous, values- based schemes. Our teams use these programmes to recognise outstanding work, efforts or achievements that are aligned to the behaviours. Moving into 2021, there are plans to develop our recognition schemes further and on a Group-wide basis. In addition, our performance management process, which has undergone extensive review and development throughout the year, now includes the measurement of the behaviours alongside operational achievements, driving the key message that not only are our results vital to our success, but also the way in which we achieve them. Incorporating the cultural aspect into the Performance Development Review (PDR) allows us to focus on all areas for development and recognition. Reconnecting with our people Our strategy for growth focuses on reconnecting with our people, to build a great company that our employees can be proud of and where they feel valued. Throughout 2020, we have taken steps to re-engage our people, and develop the programmes and resources that provide better support, communication and guidance to create an open and constructive environment. Diversity and inclusion Creating a diverse and inclusive workforce is a priority and we are committed to developing a culture where individual, valuable contributions are actively encouraged to the benefit of the business and our people. 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. Our 2019 Diversity and Inclusion programme, where we set the foundations in place by mapping our legal requirements globally and defining key actions, provided a base for our progression towards our objectives: ■ To develop diverse and inclusive approaches to attract and secure talent from diverse backgrounds. ■ To develop our ways of working to ensure SIG is an inclusive place to work. ■ To develop our opportunities for all to enable long-term development, progression and succession planning. To achieve these, we developed the measurement tools through a monthly dashboard covering key data on gender, age, disability, ethnicity, and by role, function and salary, where applicable, in our countries of operation. This information was shared with senior leaders to increase understanding of the demographics across the business. In addition, a new Group Diversity and Inclusion policy was launched, supplemented by online training. A key aspect of promoting diversity depends on working with our external partners. As such, we engaged with recruitment suppliers to agree upon a more diverse approach in the search and selection of new employees. We introduced more robust exit interviews with senior employees to identify any issues in relation to diversity and inclusion that may have arisen. Throughout 2020, we developed our approach to diversity and inclusion for 2021, working with a specialist external partner. Our approach will be phased. Phase 1 will see us establish buy-in and develop the foundations for diversity and inclusion throughout SIG, including further senior leadership engagement, auditing of existing positions, policies, data and activities to identify areas to address. Phase 2 will involve further development of the strategic approach to diversity and inclusion, in line with our overarching strategy. Continued and wider leadership awareness and education will be fundamental, and our approach for demographic data gathering and narrative will continue to be expanded. We are committed to supporting and promoting better diversity and inclusion across all areas of the business, from Board level to throughout the business. 39 Stock code: SHI www.sigplc.comSTRATEGIC REPORTAn Employee Health and Wellbeing working forum was introduced on a quarterly basis with representatives from all countries, creating a network of champions supporting mental health and wellbeing. The purpose of the group is to discuss ideas, share best practice and drive activity. Whistleblowing policy and procedure We are committed to achieving and maintaining high standards regarding behaviour at work, service to the public and ethical working practices. Employees are expected to conduct themselves with integrity, impartiality and honesty, and are empowered and encouraged to challenge inappropriate behaviour or unethical practice at all levels. As such, we operate a Whistleblowing policy and procedure for reporting genuine concerns about malpractice, illegal acts or failures to comply with recognised standards of work. In the year, we updated and relaunched our Whistleblowing policy, supported by online training and a communications campaign across the Group. We offer a number of ways to report any concerns, including an impartial, global hotline provided by Navex Global. Employees, customers or members of the public can confidentially raise concerns from any of our operating companies, and issues are investigated thoroughly. Environmental, social and governance: People Employee engagement survey Listening to the experiences and views of our people is fundamental in driving the right actions for the Company and for our people. We launched our new engagement survey programme, ‘Our SIG, Your Voice’ in September 2020 to all employees across the Group. The survey provides the opportunity to provide honest and open feedback across several areas in the organisation including vision and strategy, culture and environment, management and leadership, health, safety and wellbeing, communication, customer focus, leadership and development. From the results, planning has taken place to drive actions across the operating companies to improve in our key areas of focus. The survey will be conducted again in 2021 for consistent and ongoing measurement. Board workforce engagement programme As part of our obligation under the UK Corporate Governance Code, and in support of our ongoing priority to provide regular and varied feedback channels, we launched our Board workforce engagement programme, delivered by Simon King, Non-Executive Director. This programme is aimed at providing a direct communication channel between the Board and our people to gain further insights from all levels of the business, complementing our employee engagement survey. For more detail, please see page 62. Representatives from all operating companies and our central functions were given the opportunity to participate in sessions, offering opinions, feedback and suggestions from branches and head offices. The response to the programme was hugely positive, with many employees expressing their appreciation of the chance to meet with a Board member and their sentiment of being listened to and valued by the organisation. During the year, Simon also visited a number of sites across the UK, prior to the Covid-19 outbreak, including Sheffield, St Ives, Edmonton, Waltham Cross and Bedford, where he met a number of the teams. Reconnecting with our employees is an ongoing strategic priority and engagement actions from each programme will continue to be rolled out throughout 2021 and beyond. Employee health and wellbeing Our primary concern is ensuring that our people feel safe, valued and supported. During what was an exceptional year, we recognised the potential impact on health and wellbeing, both physical and mental. As a result of the changing working practices, home-working and macro-level uncertainty due to Covid-19, this concern came to the forefront more than ever and highlighted the need to review our approach to supporting and protecting the health and wellbeing of our people. A full programme was developed in July 2020 comprising immediate actions to take place throughout the year and ongoing actions into 2021, with the objectives of: ■ Raising awareness and commitment across the organisation, at all levels, about the importance of promoting and supporting mental health in the workplace; ■ Helping all employees learn how to manage their own mental health and wellbeing effectively and learn how they can support that of others; ■ Eliminating or reducing organisational risk factors in relation to mental health, for example, stress, working excessive hours, discrimination, bullying or harassment, wherever possible; and ■ Providing timely and appropriate support for individuals who are experiencing mental health issues. During the year, we updated and launched our Employee Health and Wellbeing policy, in line with World Mental Health Day. Developed with our Health and Safety and HR teams, the policy outlines the Company’s provisions to prevent mental health issues and support our employees. The policy was launched with supplementary compulsory training for all. In addition, further training resources will be made available in 2021 to support managers, HR and Health and Safety colleagues, and mental health first aiders. In the UK, Northern Ireland and parts of Benelux, employees gained access to an Employee Assistance Programme (EAP) throughout the year to access support, advice and counselling for any issues they may be experiencing – at home or at work. The service is available 24/7. Regular communication campaigns were issued, commencing in the second half of the year across the Group and locally, offering a monthly focus on different topics and relevant to current worldwide and local trends and activities. A calendar of events and communications is planned for 2021. 40 SIG plc Annual Report and Accounts for the year ended 31 December 2020Covid-19 The ongoing challenges that we face as a result of the Covid-19 pandemic have changed work routines for all of our people. The Group is proud of the flexibility and commitment that has been demonstrated by all of its people, and, importantly, how teams have come together to support each other during this time. Colleagues in Germany launched an internal campaign ‘#webuilduponeachother’, to encourage people to share tips, experiences and motivational stories during lockdown periods via the internal social media platform. Our Germany business also made a donation to a non-profit organisation that distributes food parcels, helping the charity purchase a specialised refrigerated vehicle to carry out deliveries during the pandemic. In the UK, James Jackson (Internal Sales Executive, Oxford) took annual leave and volunteered as a driver during the lockdown periods to deliver PPE products to the NHS and food parcels to people in need, as well as supporting Oxford Mutual Aid. Every year, our team in the French distribution business LiTT create and commission T-shirts for our customers and colleagues across the office. This year, they focused the design on reminding everyone of the safety protocols related to Covid-19, with the message: “The LiTT team takes care of you”. Our teams continue to demonstrate great resilience and care in supporting our partners, communities and each other. 41 Stock code: SHI www.sigplc.comSTRATEGIC REPORTEnvironmental, social and governance: Environment, health and safety Links to SDGs Internal ■ Greenhouse gas emissions: We target efficiencies in vehicle fuel consumption which contributes to 77.4% of our carbon footprint, through vehicle selection, driver training and efficient driving assessment. ■ Emissions: Our emissions to the 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 operation on the environment. This is achieved 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 has been externally assessed to the ISO14064-3 standard. 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 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. Climate change and sustainability SIG has held accreditation to the ISO14001 environmental management standard for its UK operations since 2006. This accreditation 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 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 enhance SIG’s place in the market. ■ Physical risk: The potential impact of more extreme weather events on our facilities due to changes in weather patterns is reviewed through our aspects and impact assessments for new and existing premises. Transport Emissions from road vehicle fuel consumption makes up 77.4% 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 emissions from road vehicle fuel by 14.7%. Energy Carbon emissions from electricity consumption accounted for 9% of our Scope 1 and 2 emissions in 2020 (2019: 11.5%). 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 2020, this process was enhanced by the in-depth audits conducted through our Energy Saving Opportunity Scheme (ESOS) compliance. The opportunities for improvement have been communicated across the Group. In 2020, our emissions from electricity consumption reduced by 35.4% (partly due to a reduction in the number of branches open during the Covid-19 pandemic). 42 SIG plc Annual Report and Accounts for the year ended 31 December 2020Greenhouse gas (GHG) emissions We are committed to providing full and accurate data for our carbon footprint, with minimal reliance on estimates. In 2020, 93.2% of information is based on actual data (2019: 92.8%). 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 2019 to September 2020 has been verified by Carbon Intelligence to 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 2020. We reported a decrease of 17.8% in Scope 1 and 2 emissions in the last reporting year, mainly as a result of the trading conditions due to Covid-19. Our overall footprint for Scope 1, 2 and 3 emissions showed a decrease of 18.1% in the last reporting year. Our absolute emissions for 2020 have reduced compared to 2019; and the rate per £m revenue has decreased by 5.6% to 25.4. Our carbon footprint includes all emission sources as required under The Companies Act 2006 (Strategic Report and Directors’ Report) 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. 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 2020 data includes the businesses classified as non- core in the Financial Statements for the year ended 31 December 2020. CO2 emissions – Scope 1 – Direct Metric tonnes 2020 Group Metric tonnes 2019 Group Metric tonnes 2018 Group Metric tonnes 2020 UK Metric tonnes 2020 Europe Road vehicle fuel emissions1 Plant vehicle fuel emissions2 Natural gas3 Coal/coke for heating4 Heating fuels (Kerosene and LPG)5 Total Data source and collection methods 36,818 43,160 51,497 14,754 22,064 4,206 1,488 40 490 43,042 4,858 2,024 37 4,894 2,560 56 849 632 2,066 2,140 507 0 115 981 40 375 50,928 59,639 17,442 25,600 Fuel cards and direct purchase records in litres converted according to BEIS guidelines. 1. 2. Direct purchase records in litres converted according to BEIS guidelines. 3. Consumption in kWh converted according to BEIS guidelines. 4. Purchases in tonnes converted according to BEIS guidelines. 5. Purchases in litres converted according to BEIS guidelines. CO2 emissions – Scope 2 – Indirect Metric tonnes 2020 Group Metric tonnes 2019 Group Metric tonnes 2018 Group Metric tonnes 2020 UK Metric tonnes 2020 Europe Electricity1 4,280 6,622 8,042 1,722 2,558 kWh 2020 Group Electricity 17,503,880 Data source and collection methods 1. Consumption in kWh converted according to BEIS guidelines. CO2 emissions – Scope 3 – Other indirect kWh 2020 UK kWh 2020 Europe 7,352,079 10,151,801 Metric tonnes 2020 Group Metric tonnes 2019 Group Metric tonnes 2018 Group Metric tonnes 2020 UK Metric tonnes 2020 Europe 249 541 454 136 113 Third-party provided transport (air and rail)1 Data source and collection methods 1. Distance travelled converted according to BEIS guidelines. Emission per £m of revenue Metric tonnes 2020 Group Metric tonnes 2019 Group Metric tonnes 2018 Group 23.0 2.3 25.3 0.1 25.4 23.5 3.1 26.6 0.3 26.9 24.5 3.3 27.8 0.2 28.0 Metric tonnes 2020 UK 26.1 2.6 Metric tonnes 2020 Europe 21.2 2.1 28.7 0.2 28.9 23.4 0.1 23.5 Scope 1 Scope 2 Scopes 1 and 2 as required by GHG Protocol Scope 3 Scopes 1, 2 and 3 All CO2 data is with Air Handling removed 43 Stock code: SHI www.sigplc.comSTRATEGIC REPORTEnvironmental, social and governance: Environment, health and safety Environment Our environmental management system for UK operations has been accredited to ISO14001 standard since 2006. Accreditation is externally verified by Intertek. We operate an integrated Health Safety and Environmental (HSE) policy. We commit to maintaining appropriate environmental management standards across our operations to meet both our statutory and moral obligations. 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. We have provided segregated waste bins in our head office locations to ensure that waste is diverted from landfill where appropriate. 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 2007. Hazardous waste Hazardous waste per £m of revenue Non-hazardous waste Non-hazardous waste per £m of revenue 6 6 1 5 1 7 4 2 0 0 . 6 0 0 . 3 0 0 . 3 3 7 3 , 1 3 0 3 , 7 4 3 3 , 9 3 . 3 4 . 3 2 . 0 3 1 * s e n n o t e t u o s b A l 1 4 5 2 1 2 7 4 3 7 0 2 , 0 6 6 1 , 9 5 6 1 , 8 8 6 1 , 7 5 6 1 , 4 7 3 1 , 18 19 20 18 19 20 18 19 20 18 19 20 Landfill Recycled Landfill Incinerated Other waste diverted from landfill WEEE (Waste, Electrical and Electronic Equipment) Glass Wood Metal Plasterboard Paper/cardboard Plastic Other Total * Volume per annum converted to tonnes. Water consumption Absolute tonnes* 2020 Absolute tonnes* 2019 Absolute tonnes* 2018 0.0 0.0 1,045.9 408.4 98.2 540.6 359.0 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 1,935.3 6,358.2 6,167.2 4,387.4 10,548.8 10,592.1 Litres (‘000) 2020 Litres (‘000) 2019 Litres (‘000) 2018 Third-party provided water supply from national network for processes and welfare 86,674 89,448 113,306 The above data is based on a combination of actual and estimated data 44 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Covid-19 response The Covid-19 pandemic has provided new challenges for SIG. We have implemented Covid-19 specific risk assessments, along with safe systems of work, and specific reporting procedures have been put in place. We have invested in signage, PPE, testing equipment, home working equipment, large area disinfecting equipment and hygiene stations to ensure the safety of our stakeholders. Sites are audited for compliance with Covid-19 procedures on a regular basis with continual support given to branch managers. All employees are temperature checked when they attend company premises and Covid-19 Return to Work meetings have been undertaken with all staff to ensure they are aware of the enhanced procedures, symptomology and social distancing regulations. We have conducted home working assessments to ensure that the new environment for our employees is suitable, ensured regular contact and wellbeing measures, and launched a Social Spotlight campaign to allow home working employees to keep in touch with colleagues and the business. When an individual has symptoms of Covid-19, we ask that they self isolate as mandated by the relevant authorities. SIG have made the decision to pay any employees absent due to Covid-19 related symptoms, infection or government sanctioned reason, in full for the period of their self isolation, to support compliance with the regulations in the territory they reside. Health and safety SIG operates an integrated HSE policy aligned to the ISO45001 standard, with the UK health and safety management system accredited to the equivalent standard since 2006, through external verification by Intertek. SIG migrated to ISO45001 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 the Zero Harm Health and Safety Management 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; improve the management of the outcomes of incidents and learnings; and focus on the common Group standards across all operating companies. Management and worker awareness of responsibilities, the hazards and risks associated with the operation, and safe ways of working are promoted through the delivery of training and communication programmes managed locally in each country. These include bespoke e-learning packages. We have moved away from our previous reporting metric of the accident incident rate, to the Lost Time Injury Frequency Rate (LTIFR) and Total Recordable Incident Rate (TRIR) recording method. This allows us to better compare our performance against similar industries and our competitors, and allows for more transparency within the reporting system. The number of lost time incidents across the Group has reduced by 9.2% from 2019 to 2020. The LTIFR, which is calculated as any injury resulting in any lost time per 1,000,000 hours worked, has remained at 11.3 from 2019 to 2020, with a reduction of 6.6% from 12.1 in 2018. The total recorded incidents across the Group have reduced by 26.8% from 2019 to 2020. The TRIR, which is calculated as an incident resulting in injury or medical treatment being required, environmental detriment or property damage per 200,000 hours worked has reduced by 18.5% to 8.8 (2019: 10.8). We have been awarded the RoSPA Silver Award for Occupational Health and Safety in 2020. We maintain our zero tolerance approach to anyone being unfit for work due to alcohol or substance misuse and mandate for testing of individuals subject to the legislative constraints within our operating companies. Throughout 2020, investment has been made in strengthening the Company’s HSE team. We have recruited a highly experienced Health and Safety Director who has developed an energetic and forward-thinking strategy. The HSE team has been further strengthened by the expansion of operating company teams in a number of territories to ensure more in-depth investigation, support and training. Work is ongoing to redraft and improve policies both on a Group and operating company level, identify risk, to update the Safety Management System and ensure it meets the needs of all stakeholders. During 2020, operating company HSE managers have been made part of the operating company Executive Leadership Team. This allows them to be an integral part of decision making within the operating company and enshrines health and safety within operating company leadership discussions. Total Recordable Incident Rate (TRIR) Group TRIR . 4 2 1 . 8 0 1 8 8 . 18 19 20 45 Stock code: SHI www.sigplc.comSTRATEGIC REPORT Environmental, social and governance: Environment, health and safety Occupational road risk We recognise that our drivers act as representatives for our business whilst they are on the road and we promote a culture of safe and courteous driving through our training programmes. Driving is among the most hazardous tasks performed by our employees and is one of the critical hazards in our Safety Management Programme. The competence of our drivers and the condition of our vehicles are crucial to the safety of our drivers and other road users. Drivers are assessed for competence and selected through an authorisation and licence check procedure. 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 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 are key to vehicle safety. The Group’s fleet of vehicles are fitted with vehicle management systems. The information obtained is used to educate and support drivers to improve their standard of driving and fuel efficiency. Driver alcohol and substance testing is conducted within the Group. 46 SIG plc Annual Report and Accounts for the year ended 31 December 2020Non-financial information statement SIG continues to integrate corporate responsibility across the Group, and we are committed to socially responsible business practices for our shareholders, employees, customers and suppliers. In compliance with the non-financial reporting directive, the below table 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 on our website (www.sigplc.com). Reporting requirement Our response Relevant policies and frameworks Relevant risks Environmental matters ■ Committed to reducing carbon ■ Low Carbon Sustainability ■ Health and safety footprint policy ■ Investment in safety initiatives ■ Waste management Read more on page 42 ■ Zero Harm programme ■ Health, Safety and Environment People and social ■ Maintain ISO accreditation policy ■ ISO14001 accreditation ■ Annual employee engagement ■ Diversity and equal survey opportunities ■ Responsible actions is a key ■ SIG Code of Conduct Read more on page 38 strategic pillar ■ Operate sustainably to benefit communities and environment ■ Launch of new behaviour framework ■ Diversity and Inclusion policy ■ Gender diversity ■ Employee engagement ■ Environmental, social and governance ■ Employee attraction, retention and engagement ■ Environmental, social and governance Human rights and anti-bribery Read more on page 37 ■ Raise awareness of policies ■ Ethical Trading and Human ■ Legal and ■ Included in mandatory training Rights policy ■ Anti-Bribery and Corruption policy regulatory change and compliance (non-principal risk) 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. Our KPIs enable us to measure the success of our strategic objectives and performance. Read more on page 08 Read more on page 30 Read more on page 14 The Section 172(1) Statement is set out on pages 64 to 71 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. Approval of the Strategic Report The Strategic Report set out on pages 04 to 47 was approved by the Board of Directors on 25 March 2021 and signed on its behalf by: Steve Francis Chief Executive Officer 25 March 2021 Ian Ashton Chief Financial Officer 25 March 2021 47 Stock code: SHI www.sigplc.comSTRATEGIC REPORTGovernance Nominations Committee Report AuditCommitteeReport Directors’ Remuneration Report Directors’ResponsibilitiesStatement 90 96 107 132 Chairman’s Introduction Board of Directors Corporate Governance Report  BoardLeadershipandCompany 50 54 57 Purpose 57  Section172Statement 64  DivisionofResponsibilities 72  Composition,SuccessionandEvaluation 75  BoardEvaluation 78  Audit,RiskandInternalControl 81  Directors’Report 83 Chairman’s introduction Board Membership (during 2020 & 2021) Andrew Allner Non-ExecutiveChairman Steve Francis ChiefExecutiveOfficer (appointed25February2020) Ian Ashton ChiefFinancialOfficer (appointed1July2020) Kath Kearney-Croft Interim ChiefFinancialOfficer (appointed25February2020 andresignedasCFOon 30June2020andasa Directoron31July2020) Meinie Oldersma ChiefExecutiveOfficer (resigned24February2020) Nick Maddock ChiefFinancialOfficer (resigned24February2020) Andrea Abt Independent Non- ExecutiveDirector (retired12February2020) Kate Allum Independent Non- ExecutiveDirector(resigned 31 December2020) Bruno Deschamps (CD&R) Non-ExecutiveDirector (appointed10July2020) Shatish Dasani Independent Non- ExecutiveDirector (appointed1February2021) Kath Durrant Independent Non- ExecutiveDirector (appointed1January2021) Ian Duncan Independent Non- ExecutiveDirector (resigned31January2021) Gillian Kent IndependentNon-Executive Director Simon King IndependentNon-Executive Director(appointed1July2020) Alan Lovell SeniorIndependentNon- ExecutiveDirector Christian Rochat (CD&R) Non-ExecutiveDirector (appointed10July2020) Purpose and aims Promotethelong-termsustainablesuccessoftheCompanyandits subsidiaries,generatingvalueforShareholdersandcontributingto widersociety.Thepurposeistoenablemodernlivingandworking environmentsinthecommunitiesinwhichweoperate.Ourvisionis tobeEurope’sleadingbusinessdistributorofspecialistconstruction products. Key responsibilities EstablishingtheCompany’spurpose,vision,strategyandbehaviours, andsatisfyingitselfthattheseanditsculturearealigned.Ensuring thatallDirectorsactwithintegrity,leadbyexampleandpromotethe desiredculture. Assessing and monitoring culture EnsuringthatthematterssetoutinSection172oftheCompanies Act2006areconsideredinBoarddiscussionsanddecisionmaking. EnsuringthatthenecessaryresourcesareinplacefortheCompany tomeetitsobjectivesandassessingthebasisonwhichthe Companygeneratesandpreservesvalueoverthelongterm. Reviewingwhistleblowingarrangementsandensuringthat arrangementsareinplaceforproportionateandindependent investigationandfollowupaction. Terms of reference and matters reserved Duringtheyear,theBoarddevelopedandadoptedtermsof referenceandrevisedthemattersreservedforitsdecision. Both can befoundontheCompany’swebsiteatwww.sigplc.com. Evaluation AninternalevaluationwasconductedfortheBoard,individual DirectorsanditsCommitteesinlinewiththe2018UKCorporate GovernanceCode(the“Code”).Moredetailscanbefoundonpage 78. 50 High standards of corporate governance have never been more important than during 2020. This has been an unprecedented year as the Company navigated its way through the Covid-19 pandemic, changes in leadership, raising funds from Shareholders including the investment by CD&R and restructured its debt and, at the same time, building on its leading market positions and positioning the business for a return to profitable growth. Andrew Allner, Chairman Dear Shareholder, IampleasedtopresentSIG’sCorporateGovernanceReportfor thefinancialyearended31December2020.AtSIG,webelieve that good governance comes from an effective and committed Board,whichprovidesclearleadershipandisfullyengagedwithits workforceandallstakeholders. TheBoardbelievesthatgoodgovernanceiscrucialtothe successfuldeliveryofSIG’sstrategicobjectives.TheBoard’s governanceframework,whichstartswiththeBoardandruns throughoutthebusiness,supportswell-informeddecision makingandthedevelopmentanddeliveryofourstrategyandrisk management.ThissectionoftheReportoutlineshowtheBoard ensuresthehighstandardsofcorporategovernancearemet. TheBoardrecognisesthatstronggovernancealsounderpins ahealthyculture.This,inturn,bringsbenefitstotheGroup anditsemployeesaswellastoallourstakeholders.TheBoard iscommittedtoleadingbyexampleandensuringthatgood standardsofbehaviourspermeatethroughoutalllevelsofthe organisation. SIG plc Annual Report and Accounts for the year ended 31 December 20202020hasbeenanunprecedentedyearandthepandemichas hamperedsomeoftheprogresswehadbeenhopingtomakethis year.Nevertheless,wehavecontinuedthejourneywestartedlast year.TheBoard,asaresultofCovid-19,metmorefrequentlyto considertheneedsofallstakeholdersasthesituationunfolded, aswellasthelong-termsuccessoftheCompany.TheBoardwas effectiveinmanagingthesedifficulttimesandhaslearntlessons fromthebusinessissuesthatarosein2019andtheearlypartof 2020,whichresultedintheneedtotakepromptaction.Intheearly partoftheyear.CEO,MeinieOldersma,andCFO,NickMaddock, resignedon24February2020andwerecruitedSteveFrancisas CEOwitheffectfrom25February2020,initiallyonaninterimbasis, andtheappointmentwasmadepermanenton24April2020.Steve ishighlyexperiencedinreturningbusinessestogrowthandhas demonstratedstrongleadershipinthemosttestingcircumstances sincehisappointment.Hisabilitytonavigatetheeffectsofthe Covid-19environment,atthesametimeasgettingtheleadership team focused on the strategic priorities to ensure the future successofSIG,hasbeenexceptional. KathKearney-CroftassumedtheroleofinterimCFOon25February 2020followingthedepartureofNickMaddock.IanAshtonwas appointedon1July2020replacingKathasthepermanentCFO. Ianisahighlyexperiencedseniorexecutivewithastrongrecordof drivingchangeandisanextremelyvaluableadditiontotheteamas wepursuethenewstrategyforgrowthaswellasimprovedfinancial performanceandgovernance. TheBoardbelievesthenewleadershiphasbroughtskillsthat driverapidoperationalperformanceimprovement,excellencein customerserviceandcreateshighlyengagedteams. Followingthe2019Boardevaluationandassessmentofboard skillsandexperience,itwasacknowledgedthattherewasaneed formorebuildingproductsdistributionexperienceandasaresult SimonKingwasappointedasaNon-ExecutiveDirectoron1July 2020.Simonbringsextensivehands-onexperiencefromacareer spanningover35years,mostrecentlyservingontheTravisPerkins ExecutiveBoardandholdingthepositionofChiefExecutiveOfficer forWickes.Simon’sappointmenthasbeenvaluableinourefforts tobuildonSIG’sleadingmarketpositionsandreturnthebusiness toprofitablegrowth.Additionally,Simonhasalsotakenoverfrom KateAllumasthedesignatedNon-ExecutiveDirectorforworkforce engagementandthewhistleblowingchampionwitheffectfrom1 October2020. WeweredelightedtowelcomeBrunoDeschampsandChristian RochatasNon-ExecutiveDirectors,(theCD&RDirectors)appointed, witheffectfrom10July2020inaccordancewiththetermsof therelationshipagreementdated29May2020betweenCD&R SunshineS.a.r.l.(CD&R)andtheCompany.BothBrunoand Christian’sdeepindustrialknowledge,alliedtotheirextensive experienceindrivingandoverseeingimprovedcompany performance,bringsvaluableandrelevantexperienceandinsights totheBoardandtheyhavealreadymadeasignificantcontribution. AndreaAbtretiredinFebruary2020andbothIanDuncanand KateAllumexpressedawishtostepdownfromtheBoard. Therefore,attheendofDecember,KateAllumsteppeddownas Non-ExecutiveDirectorandChairoftheRemunerationCommittee; shewasreplacedbyKathDurrantwhojoinedtheBoardon 1January2021.IamdelightedtowelcomeKathwhohasmorethan 30years’humanresourcesexperiencewithastrongoperational andstrategictrackrecordandisanexperiencedChairof Remuneration.Shehassignificantindustryknowledgegainedfrom herrolesatFergusonandCRH.Kathalsohasextensiveexperience ofworkinginbusinessesundergoingtransformation,whichwillbe valuableasweseektorestructureourUKoperation. IanDuncansteppeddownasaNon-ExecutiveDirectorandChair oftheAuditCommitteeon31January2021,andwasreplacedby ShatishDasani,whojoinedtheBoardon1February2021.Shatish isanexperiencedseniorpubliccompanyfinanceprofessionaland ChairofAuditCommittee.Hehasstronginternationalexperience acrossseveralsectorsincludingindustrial,buildingmaterials, technology,constructionandinfrastructure.Shatishhasaproven trackrecordofdrivingShareholdervalue,whichwillbeimportantas weseektoreturntheCompanytoprofitablegrowth. IwouldliketothankIanDuncanandKateAllumfortheirsupport andcontributionduringaverychallengingperiod. During2020,femalerepresentationontheBoardfluctuated asAndreaAbtsteppeddown,KathKearney-Croftjoinedthe Boardon25Februaryandsubsequentlysteppeddownwhena permanentCFOwasappointed.Foraperiodoftime,wehad43% femalerepresentationontheBoard;however,withtheaddition oftheCD&RDirectorswearenowat20%.Ouraspirationisto endeavourtohaveatleast33%femalerepresentationinlinewith theHampton-AlexanderReviewonFTSEWomenleaders.Weare delightedtoreportthat,for2021,wehaveatleastoneDirector ofcolourwiththeappointmentofShatish,inlinewiththeParker ReviewCommitteerecommendations.Weacknowledgethatthe Hampton-Alexanderreviewtargetof33%femalerepresentationin ourExecutiveLeadershipTeam(“ELT”)anddirectreportstotheELT hasnotyetbeenmetbutouraspirationistomeetthattargetover thecourseofthenextfewyears.Thiswillbeakeyaspectofthe focus of our Nominations Committee as it continues its review of successionplanninganddiversitywithinthebusiness. Compliance with the UK Corporate Governance Code 2018 TheUKCorporateGovernanceCode2018(the“Code”)can beaccessedatwww.frc.org.uk.During2020,theBoardhas focusedonembeddingtheCodeandbuildingontheactivitiesthat werecommencedduring2019.Atalllevelsoftheorganisation wehavebeencontinuingtobuildonourengagementactivities withcolleaguesandotherstakeholders.AGroup-widecustomer engagementsurveywasconductedforthefirsttime,which indicatedthatthenetpromoterscoreforSIGwasbetterthanthe averagefortheconstructionandlogisticsindustry.Afurthersurvey willbeconductedin2021andwillbemorelocallyfocused. Duringtheyear,theBoardagreedarevisedpurpose/visionand anewstrategyfollowingtheappointmentofSteveFrancis.The MattersReservedfortheBoardandtermsofreferenceforall CommitteeswerereviewedinJuly2020followinganannualreview andtheappointmentoftheCD&RDirectors.Additionally,the BoardagreedandpublishedaBoardMandatethatarticulates theBoard’srole;theCompany’spurpose,visionandstrategy;the Company’smedium-termvision;theCompany’shealthandsafety goals;theCompany’sstakeholders;theGovernancearrangements; thecultureanddesiredbehaviours;anditsriskappetite.TheBoard Mandatecanbefoundonourwebsiteatthefollowinglocation investors/corporategovernance/termsofreferenceandpolicies. OurfollowinggovernancesectionsexplainhowtheGrouphas appliedtheprinciplesandcompliedwiththeprovisionsofthe Codeandtheworkwehaveundertakenduringtheyear.Wealso explainhowtheBoardhascompliedwiththedutiesofDirectors underSection172oftheCompaniesAct2006.Myco-Directorsand ItakeourresponsibilitiesunderSection172veryseriouslyand,in undertakingourdutiesasDirectors,wearealwaysmindfulofthe needtoensurethatdecisionsaremadeforthelongterm,thatthe interestsofourvariousstakeholdersaretakenintoconsideration andthatourhighstandardsofconductaremaintained. 51 Stock code: SHI www.sigplc.comGOVERNANCEChairman’s introduction During2020wewerefullycompliantwiththeCodeexceptfor Provision32,thattheBoardshouldestablishaRemuneration CommitteeofindependentNon-ExecutiveDirectors.Following the appointment of Bruno Deschamps to the Remuneration Committeeonthe10July2020byCD&R,inaccordancewith theRelationshipAgreementaspartofthefirmplacing,placing andopenofferundertakeninJuly2020,thishasnotbeenthe case.InaccordancewithProvision10oftheCode,Brunoisnot consideredtobeindependentasherepresentsasignificant Shareholder.Nevertheless,theBoardbelievesthatBruno’s contributionhasbeenvaluableandbringsindependentthought andchallengetotheRemunerationCommittee.Similarly,Christian Rochat,appointedbyCD&RinaccordancewiththeRelationship Agreement,isamemberoftheNominationsCommittee;the majorityofthemembersareindependent,andIwasindependent onappointment,thereforetheCompanycomplieswithProvision 17oftheCode. In support of driving the highest standards in governance and effectiveleadership,arenewedfocuswasplacedonBoard involvementandengagementwithkeystakeholdersthroughoutthe year.AllmembersoftheBoardarecommittedtoprovidingstrong andsupportiveleadershiptoachievethegoalssetinthestrategy. TheBoardisstrivingtocontinuouslyimproveandin2021wewill ensuretherearefurthermeasuresofimprovement. Inparticular,wewishtocontinuetobuildonourengagementwith colleaguesandthiswillcontinuetoremainakeyfocusoverthe nextyear.Asmentionedearlier,SimonKinghastakenoverfrom KateAllumasthedesignatedNon-ExecutiveDirectorforworkforce engagementandheldinauguralsessionswithallpartsofthe GroupduringOctoberandNovemberbyvideocalls.Face-to-face sessionshadbeenscheduledbyKateAlluminAprilandMay,but thepandemicpreventedthesefromtakingplaceasplanned.We alsohavefurtherworktodoinembeddingournewvision,purpose, cultureandrequiredbehaviourswithinthebusinessandplansto dothishavebeenrestartedfollowingthesuccessfulcapitalraise. AstherewereanumberofnewmembersontheBoardandELT, eachgroupparticipatedinasessiononthecommitmentculture inSeptemberpriortothecultureprogrammerestartingfollowing itsintroductionattheSeniorLeadershipTeam(“SLT”)conference inJanuary2020.ItwasfurtheragreedthattheannualBoard effectivenesssurveywouldincludespecificquestionstoassesshow theBoarddemonstratestheSIGbehaviours(seepage78formore details). Board evaluation For2020,theevaluationwasconductedinternallyandledby ourCompanySecretary.Detailsoftheprocessconcerningthis evaluationanditsoutcomearecoveredonpage78ofthis CorporateGovernanceReport. Covid-19 TheBoardcloselymonitoredtheCovid-19outbreakandthe potentialimpactontheCompany’sbusinessesacrosstheGroup andonourpeopleandcontinuestodoso.Regularupdateswere providedbymanagementandtheBoardalsoheldadditional meetingsduringthefirstlockdowntoensurethatitwaskept abreastofthesituationonanongoingbasis.Theneedtopreserve thehealthandsafetyofourcolleagues,customersandsuppliers hasremainedourprimaryconcernduringtheoutbreak.TheBoard ensuredthattheGroupfollowedalllocalandnationalinstructions issuedbygovernmentauthoritiesinitsmarketstocurtailthe spreadandimpactofCovid-19.TheGrouphasbeenregularly reviewingthisineveryjurisdictioninwhichitoperates. Duringthepandemic,tosupporthomeworking,theGroup’sIT infrastructurewasstrengthened,andwherehomeworkingis possible,colleagueshavebeeninstructedtoremainathome. MostmeetingshavebeenheldbyvideocallsandtheBoard,the ELTandtheSLTholdregularvideoandtelephonecallstomonitor theposition.Allmeetingscontinuedtobeheldinthismanner duringthefirstlockdown,andface-to-facemeetingswereheld whenrestrictionswereliftedforashortperiodadheringtostrict socialdistancingmeasures.Duringthesecondlockdown,meetings resumedbyvideocall. Wherehomeworkingwasnotpossibleinthemajorityofour branchesandoperationalpartsofourbusiness,stringent measureshavebeenputinplacetomaintainstricthygieneand socialdistancingrulesineachofourlocations.Policiesareinplace intheeventthatacolleaguecontractsthevirusorhasafamily membershowingsymptomsofthevirus.Policiesandprocedures havealsobeenputinplaceforthosethatneedtocarefor dependents,especiallywithschoolclosures. Asaresultofthequickandagileresponsetothepandemic,the GroupwasabletomitigatethedirectimpactofCovid-19.The decisiveactionstakenacrossallfunctionsandatalllevelsinthe businessmitigatedtheinitialimpact.TheperformanceinH1was materiallyaffectedbygovernmentlockdownresponsestothe pandemicinthecountriesweoperate,notablyintheUKand IrelandduringMarchandApril,althoughlessthanwehadoriginally envisaged.WiththeeasingofthelockdownrestrictionsinMay andJune,theGroupsawagradualimprovementinthetrading performance,accompaniedbyacorrespondingimprovementin profitabilityandthiscontinuedinH2.Despitefurtherlockdowns andrestrictionsfromOctoberonwards,thebusinesswasableto tradenormallythroughoutH2,albeitwithnewoperatingnorms andprotocols. Wesupportedourcolleaguesduringtheperiodoftemporary closureandensuredthatourUKcolleaguescontinuedtoreceive aproportionoftheirpayduringaperiodoffurloughand,inthat context,wewelcomedtheintroductionoftheUKGovernment’s CoronavirusJobRetentionScheme,whichhelpedtosupportthis. SimilargovernmentassistancetoretainjobsinIrelandwasalso welcomed.However,weaskedourUKandIrelandemployeesto takelowerpayduringthefirstlockdownanditwas,therefore, alsodeemedappropriateforallmembersoftheBoardtotakea payreductionofupto50%atthistime,andfortheGroupELTto takeapayreductionofupto20%from1April2020.Themajority ofsitesreopenedinmid-May,anditwasdeemedappropriateto reinstatetheExecutiveDirectors’payto80%(backdatedto1 April 2020)atthesametimeascolleagueswerereturningtowork onfull pay,andtoreinstatetofullpayfrom1July2020.Thefeesforthe Non-ExecutiveDirectorsincludingtheChairmanwerereturnedto normallevelson1July2020. 52 SIG plc Annual Report and Accounts for the year ended 31 December 2020Independent Review by PwC Asalreadymentionedonpage5,theBoardinstigatedan independentreviewthroughtheGroupInvestigationCommittee, commissioningPwCtoundertakeanindependentreviewofthe Group’sforecastingandmonthlymanagementaccountsprocesses inlightofthedisparitybetweentheforecastlevelofunderlying profitbeforetaxforthefinancialyear2019setoutintheJanuary 2020TradingUpdateandmarketconsensusofforecastprofitprior tothatannouncement.TheBoardtakesthefindingsofthePwC reportveryseriously.TheCompanyvoluntarilynotifiedtheFCAof the progress of the PwC review and has shared the PwC report with theFCA.TheFCAconfirmedtotheCompanyon6October2020 thattheyhadclosedtheirenquiryanddidnotintendtotakeany furtheraction.SinceSIG’sreceiptofthePwCreport,inorderto strengthentheGroup’sfinancialforecastingandinternalreporting, KPMGwasappointedtoassisttheAuditCommitteeinensuring appropriateimprovementshavebeenimplementedtothe Company’sfinancialsystems,proceduresandcontrols,including thoserecommendedinthePwCreport. Furtherdetailsontheactionstaken(includingactionstaken duringtheyearinrelationtoculturalchanges)areincludedin theCorporateGovernanceReportonpage59.TheBoardhad alreadyagreedthatadditionalfocuswasrequiredduring2020to embedthecommitmentculture,improveemployeeengagement andmorale.Thisworkalsoincludedtheactionsarisingfromthe review.FurtherinformationonthePwCreviewandtheactionsthe CompanyhasimplementedinresponsearesetoutintheAudit CommitteeReportonpage104. 2021 Annual General Meeting InlightofCovid-19restrictions,itwillnotbepossibletomeetour ShareholdersattheAnnualGeneralMeeting(“AGM”)on13May 2021,therefore,ifyouhaveanyquestions,pleaseemailthem tocosec@sigplc.cominadvanceofthemeeting.Wewillensure theanswerstoyourquestionsareprovidedatthemeetingand furtherdetailsforthearrangementsoftheAGMwillbesentto shareholdersshortly. AnychangestotheAGM2021arrangementswillbepublishedon ourwebsite. Andrew Allner Chairman 25March2021 Compliance with the UK Corporate Governance Code 2018 OurGovernancesectionssetoutoverthefollowing pages,explainhowtheGrouphasappliedtheprinciples andcompliedwiththeprovisionsoftheCodeduringthe financialyearended31December2020.During2020we werefullycompliantwiththeCodeexceptforProvision 32,whichrequirestheBoardtoestablishaRemuneration Committeeofindependentnon-executivedirectors. However,sincetheappointmentofBrunoDeschampson 10July2020asthenominatedDirectorforCD&R,heisnot consideredtobeindependentunderprovision10.Further detailscanbefoundonpage52. 1. Board Leadership and Company Purpose See pages 57 to 63 2. Division of Responsibilities See pages 72 to 74 3. Composition, Succession and Evaluation See pages 75 to 80 Nominations Committee Report See pages 90 to 95 4. Audit, Risk and Internal Control See pages 81 to 83 Audit Committee Report See pages 96 to 106 5. Remuneration Directors’ Remuneration Report See pages 107 to 131 53 Stock code: SHI www.sigplc.comGOVERNANCEBoard of Directors Andrew Allner BA, FCA Non-Executive Chairman1 Appointed as Non- Executive Chairman on 1 November 2017. External roles AndrewisChairmanofShepherd BuildingGroupLimitedandFox MarbleHoldingsplc,anAIMtraded company. Experience and past roles AndrewhassignificantcurrentlistedcompanyBoardexperience asChairmanandasaNon-ExecutiveDirector.Hewaspreviously ChairmanatTheGo-AheadGroupplcandMarshallsplc,andaNon- ExecutiveDirectoratNorthgateplc,AZElectronicMaterialsSAand CSRplc.PreviousexecutiverolesincludeGroupFinanceDirectorof RHMplcandCEOofEnodisplc.Hehasalsoheldseniorexecutive positionswithDalgetyplc,AmershamInternationalplcandGuinness plc.Significantexperienceofchangeandchallengingsituations. Key strengths SubstantialBoard,leadership,strategy,internationalandgeneral management,corporatetransaction,governanceandaccounting expertise. 1TheChairmanwasindependentonappointment Steve Francis MA Chief Executive Officer Appointed as an Executive Director and Chief Executive Officer on 25 February 2020. External roles SteveisaNon-ExecutiveDirector ofStructuredSoftwareLimited andFellowofTheInstituteof Turnaround. Experience and past roles StevehaspreviouslybeenChiefExecutiveOfficerofPatisserie HoldingsPLC,TulipLtdandDanwoodGroupHoldingsLimited.He wastheChiefFinancialOfficerandsubsequentlyManagingDirector ofthelargestdivisionofVion(formerlyGrampian)FoodGroupLtd andChiefFinancialOfficerandmemberofthemanagementbuy-in teamofBritishVitaplc.HehasworkedwithMcKinsey,wasapartner atPwCandabankeratBarclaysCapitalandNatWestInvestment/ CountyBank. Ian Ashton BA, ACA Chief Financial Officer Appointed as an Executive Director and Chief Financial Officer on 1 July 2020. External roles Iandoesnothaveanyexternal roles. Key strengths Significantturnaroundandleadershipexperienceacrossarange ofmulti-siteinternationalbusinesses,considerableexecutive managementexperienceincludingstrategicconsultancy,mergers andacquisitions,corporatefinanceandbanking. Experience and past roles PriortojoiningSIG,IanwasGroupChiefFinancialOfficerofLow& BonarplcuntilitsacquisitionbytheFreudenberggroup.Beforethat, hewasChiefFinancialOfficerofLabvivaLLC,aUS-basedtechnology company.IanworkedformuchofhiscareeratSmith&Nephewplc, undertakingvariousfinancialrolesintheUK,theUSandAsia.Ian isaqualifiedcharteredaccountantandbeganhiscareeratErnst& YoungLLP. Key strengths Highlyskilledwithbroadglobalexperienceinaseriesoffinancial leadershiproles.Astrongtrackrecordincorporatetransactions, drivingchange,accounting/financeandstakeholderengagementwith significantinternationalexperience. MeinieOldersmaandNickMaddockwereExecutiveDirectors forpartof2020andresignedasDirectorsandasChief ExecutiveOfficerandChiefFinancialOfficerrespectivelyon 24February2020. KathKearney-CroftwasanExecutiveDirectorduringthe FinancialyearandsteppeddownasaDirectoron31July2020 andasInterimChiefFinancialOfficeron30June2020. AndreaAbtwasanindependentNon-ExecutiveDirectorduring thefinancialyearandsteppeddownon12February2020. KateAllumwasanindependentNon-ExecutiveDirectorand ChairoftheRemunerationCommitteeduringthefinancialyear andsteppeddownon31December2020. IanDuncanwasanindependentNon-ExecutiveDirectorand ChairoftheAuditCommitteeduringthefinancialyearand steppeddownon31January2021. 54 SIG plc Annual Report and Accounts for the year ended 31 December 2020Key: AuditCommittee Remuneration Committee Nominations Committee Chair of Committee I Independent Shatish Dasani MA, FCA, MBA Non-Executive Director I Appointed as a Non-Executive Director and Chair of the Audit Committee on 1 February 2021. External roles ShatishiscurrentlyaNon-Executive DirectorandChairoftheAudit& RiskCommitteeofRenewHoldings plcandSpeedyHirePlc,and TrusteeandInterimChairof UnicefUK. Experience and past roles Shatishhasover20years’experienceinseniorpubliccompany financerolesacrossvarioussectors.Healsohasextensive internationalexperienceincludingasregionalCFObasedinSouth America.HewaspreviouslytheChiefFinancialOfficerofForterra plcandTTElectronicsplc,andwasalsoanalternateNon-Executive DirectorofCamelotGroupplcandPublicMemberatNetworkRailplc. Key strengths Strategydevelopmentandexecution,performanceimprovement, financialmanagement,corporatefinance,mergersandacquisitions. (includingrecentandrelevantfinancialexperience).Sectorexperience ofbuildingmaterials,advancedelectronics,generalindustrial, businessservicesandinfrastructure. Bruno Deschamps ISG Paris (MBA, marketing, finance) Non-Executive Director Appointed as a Non-Executive Director on 10 July 2020. External roles CD&RDirectorships:KalleGroup, SOCOTEC,WestburyStreet HoldingsandChairmanofWolseley Limited. Experience and past roles BrunoistheChairman&CEOofEntrepreneursLLPbasedinLondon. HeisaBoardmemberofDiversey(formerChairman),agloballeader ofhygiene&sanitationproducts,servicesandsolutionstothe institutionalandindustrialmarkets.Previously,he servedasChairman oftheAdvisoryBoardofKloecknerPentaplast,oneoftheworld’s largestsuppliersoffilmsforpharmaceuticals,medicaldevices,food, electronicsandgeneralpackagingand,from2008to2011,asGroup ManagingPartnerof3iplc(London).HeservedasaCD&ROperating Partnerfrom2002to2007duringwhichhewasChairmanandCEO ofBrakesandwasinvolvedinseveralportfoliocompanies(Revel,VWR &Culligan). Key strengths Deepindustrialknowledge,corporatetransactions,extensive experienceindrivingandoverseeingimprovedcompany performance. Kath Durrant BA Non-Executive Director I Appointed as Independent Non-Executive Director and Chair of the Remuneration Committee on 1 January 2021. External roles Non-ExecutiveDirectorandChair of the Remuneration Committee ofCalisenplcandNon-Executive DirectorofVesuviusplc. Experience and past roles Kathhasmorethan30years’HumanResourcesexperience,witha strongoperationalandstrategictrackrecord,gainedatanumber oflargeglobalmanufacturingcompanies.Aswellasworkingat GlaxoSmithKlineplcandAstraZenecaplc,shehasservedasthe GroupHumanResourcesDirectorofRolls-Royceplc,andwasmost recentlyGroupHRDirectorofFergusonplcandChiefHROfficerof CRHplc.SheservedasaNon-ExecutiveDirectorandChairofthe RemunerationCommitteeofRenishawplcfrom2015to2018. Key strengths HumanResourcesacrossarangeofbusinesses,transformation andchangemanagement,constructionindustryandinternational experience. 55 Stock code: SHI www.sigplc.comGOVERNANCEBoard of Directors Key: AuditCommittee Remuneration Committee Nominations Committee Chair of Committee I Independent Gillian Kent BA, CIM Diploma in Marketing Non-Executive Director I External roles GillianholdsNon-Executive DirectorrolesatDignityPlc, Mothercareplc,Ascentialplc, NAHLGroupplcandwiththree privatecompanies,Portswigger Ltd,KRGroupandHowsy Limited. Experience and past roles GillianhashadabroadexecutivecareerincludingbeingChiefExecutive ofrealestateportalPropertyfinderuntilitsacquisitionbyZoopla,and15 yearswithMicrosoftincludingthreeyearsasManagingDirectorofMSN UK.GillianwasaNon-ExecutiveDirectorofPendragonPLCuntilApril 2019. Key strengths Strongcommercial,strategic,changemanagement,stakeholder engagement,customeranddigital/technologyexperienceacrossa broadrangeofbusinesses. Simon King AMP, Insead Non-Executive Director I Appointed as a Non- Executive Director on 1 July 2020. External roles Simondoesnothaveany externalroles. Experience and past roles SimonmostrecentlyservedontheTravisPerkinsExecutiveBoardand heldthepositionofCEOforWickes.Priortothat,SimonwasatWalmart asCOOofAsda,CEOatSavolaGroupMiddleEastandheldCEOrolesfor TescoinTurkeyandSouthKorea,leadingthejointventurewithSamsung. BeforeTescoSouthKorea,SimonwasChiefCommercialOfficerforTesco incentralEurope. Key strengths Over35years’experienceleadinginternationalteams,buildingproducts distributionexperience,changemanagement,retail,distribution, marketing,technology/digitalandstakeholderengagementexperience particularlytheworkforce. Alan Lovell MA, FCA Senior Independent Non-Executive Director I Appointed as a Non- Executive Director and Senior Independent Director on 1 August 2018. External roles AlanisNon-ExecutiveChairmanof SafestyleUKplc,InterserveGroup LimitedandProgressiveEnergy Limited. Experience and past roles AlanhaspreviouslybeenChiefExecutiveOfficerofsixcompanies:Tamar EnergyLimited,Infinisplc,Jarvisplc,DunlopSlazengerGroupLtd,Costain GroupplcandConderGroupplc.AlanwasalsopreviouslyChairmanof Sepuraplc,FlowgroupplcandChairoftheConsumerCouncilforWater. Key strengths SignificantlistedcompanyBoardexperience.Accounting/finance, corporatetransactionsandextensiveconstructionindustryand turnaroundexperienceintheUKandEurope. Christian Rochat BA, PhD, MBA Non-Executive Director Appointed as Non- Executive Director on 10 July 2020. External roles ChristianisaPartnerofCD&R LLP.HeisaNon-Executive DirectorofBelronGroupSA, SocotecGroup,WSHLimited andWolseleyGroupLimited. Experience and past roles ChristianjoinedCD&Rin2004andisaPartnerbasedinLondon.Heled theCD&RinvestmentsinBelron,Exova,Socotec,SPIEandWestbury StreetHoldings.HealsoledthesaleofBrakesGroupandservedas aDirectorofthecompany.PriortojoiningCD&R,hewasaManaging DirectoratMorganStanleyCapitalPartners,andaDirectoratSchroder Ventures(now Permira).HealsoworkedintheLondonandNewYork officesofMorganStanley’smergersandacquisitionsdepartment.Heisa DirectorofBelron,SocotectandWSH. Key strengths Deepindustrialknowledge,transformation,changemanagement, strategy,stakeholderengagement,corporatetransactionsand extensiveexperienceindrivingandoverseeingimprovedcompany performance. 56 SIG plc Annual Report and Accounts for the year ended 31 December 2020Corporate Governance Report BOARD LEADERSHIP AND COMPANY PURPOSE Board activities Strategy and financing Stakeholder engagement ■ FollowingtheCovid-19outbreak,theBoardmetmorefrequently toreviewactionsrequiredtoensurethesafetyofemployeesand customerswhileallowingessentialbusinesstocontinueatlocal branches ■ Consideredanalystfeedbackfollowingtheannouncementofthe Company’s2019full-yearresultsinMay,theInterims(September2020) and various trading updates ■ AppointedSimonKingasthedesignatedNon-Executiveforworkforce ■ Regularupdatesandreviewsthroughouttheyear,tomonitortheshort- engagementandwhistleblowingchampion termcashposition,medium-termplanandbusinessplan ■ EmployeesurveydoneinSeptember2020withthefeedbackreviewed ■ Group’sfinancialpositionandtheongoingliquidityoftheCompany toensureanyconcernsraisedweresuitablyaddressed especiallyfollowingtheCovid-19outbreak ■ Approvalfortheadoptionofthenewstrategyandsevenstrategicpillars fortheCompanydesignedtoreturnthebusinesstoprofitablegrowth, includingthestrategicKPIsthatsitbeneatheachpillar ■ Monitoredprogressagainstthenewstrategywithpresentationsfrom theUK,FranceandGermany ■ Approvalofthedebtrestructureprojectandassociateddocumentation ■ OversawaprocesstoraisenewcapitalwithaFirmPlacing,Placingand OpenOfferthatsuccessfullycompletedinJuly2020,whichincluded approving a prospectus and the associated documents ■ Presentationsfromseniormanagementonthedigitalstrategyand health,safetyandenvironment,aswellasupdatesfromexternal advisors ■ ReviewedExecutiveandNon-Executiveremunerationduringlockdown andassociatedreductioninfees/salary ■ Reviewed and approved actions from the independent PwC investigation ■ HeldaculturesessiononthecommitmentcultureandSIGbehaviours toensurethenewBoardmembersunderstoodtheprioritiesandfocus of the programme Corporate reporting and performance monitoring ■ Heldadditionalmeetingstomonitortheongoingcashflowand liquidityduringthepandemic ■ Continuallyreviewedtherevisedsalesperformanceagainsttargets andthetradingperformanceoftheCompany ■ Reviewedtherollingforecastagainsttheapproved2020budgetand thefull-yearforecast ■ Approvedthe2021budgetandthethree-yearfinancialprojections ■ Implementingimprovedenvironmentalreportingandreviewing methodstoreduceenvironmentalimpactacrosstheGroup ■ OngoingreviewoftheCompany’sabilitytotradeasgoingconcernand viability ■ Approvedthe2019full-yearand2020InterimResults,andensured workwasonschedulefortheproductionofthe2020year-endReport andAccounts ■ Approvedthereleaseofvarioustradingupdatesinlinewiththe GovernanceCodeandCompaniesActrequirements ■ IntroducedanewGroupreportingsystemwitheffectfrom January2021. Link to strategy: Responsible actions Valuable partnerships Winning branches Highest productivity Superior service Focused growth Specialist expertise ■ ReviewedfeedbackfromtheBoardworkforceengagementsessionsheld bySimonKingandhissitevisitsduringthefirstthreemonthsoftheyear ■ Receivedregularinvestorrelationsreports ■ RegularupdatesfromBrokersonmarketstatusandreceivedfeedback duringtheFirmPlacing,PlacingandOpenOffer ■ FeedbackonthefirstGroup-widecustomerengagementsurvey undertaken ■ ConsideredinitiativesforcollaborativeworkingwithsuppliersinUK Distribution ■ Reviewedthe2020GroupHRStrategy,includingproposalsfor engagementwithcolleagues ■ ReviewedtheSIGWellbeingandMentalHealthpolicyincludingthe actionbeingtakentosupportemployeesparticularlyduringthe pandemicandremoteworking ■ ConsultedwithShareholdersfollowingthevoteonExecutive RemunerationattheGeneralMeetinginJulytofullyunderstandand address their concerns ■ ReceivedreportsfromtheCompany’sfinancialadvisorsinrelationtoits debtstructureandthemacrobackdropandsectordynamicsthatSIG was facing Governance ■ ApprovedarevisedscheduleofMattersReservedfortheBoard ■ ApprovedupdatedTermsofReferenceforallCommittees ■ EvaluatedtheperformanceoftheBoardanditsCommitteesandall DirectorsfacilitatedinternallyandagreedBoardobjectivesfor2021 ■ ApprovedaBoardMandateandtheProvision4statementofthe2018Code ■ ReviewedtalentandcapabilityoftheExecutiveTeamresultinginkey appointmentsintheUKandGermany ■ ReceivedregularupdatesfromthechairsoftheAudit,Nominations and Remuneration Committees ■ Approvedanumberofpolicies:DelegationofAuthority,thetax strategy,whistleblowingandthecorporatecriminaloffence,non-audit servicesandemploymentofformerExternalAuditoremployeespolicy Risk management and internal control ■ RegularlyreviewedthelatestgovernmentadviceregardingCovid-19 safetymeasurestoensurethatthesewerecorrectlyimplemented Group-wide,takingonboardthevariousdifferencesinapproach betweencountries ■ Reviewedandstrengthenedfinancialreportingprotocols ■ MonitoredthepotentialrisksarisingfromBrexitandinparticulara‘no deal’exittoensurethecorrectmeasureswereinplace ■ Continuedthereviewofcybersecurity,withparticularattentionpaid totheincreaseinofficestaffhomeworking,toensurecontinuedgood practiceandenhancedsecurity ■ ReceivedregularupdatesfromtheAuditCommitteeChaironthekey areas discussed at those meetings ■ Receivedregularreportsonriskmanagementandinternalcontrols fromtheChiefFinancialOfficer ■ Approvedtheyear-endriskregister,riskappetiteandemergingrisks ■ ReviewedtheframeworkforanEnvironment,SocialandGovernance planforimplementationin2021 57 Stock code: SHI www.sigplc.comGOVERNANCE Corporate Governance Report BOARD LEADERSHIP AND COMPANY PURPOSE Board attendance at meetings ThefollowingtableshowstheattendanceofDirectorsatmeetingsoftheBoard,Audit,RemunerationandNominationsCommitteesduring theyearto31December2020: Scheduled Board (9 meetings)1 Additional Board (8 meetings)1 Audit (5 meetings) Remuneration (9 meetings) Nominations (9 meetings) AndreaAbt2 AndrewAllner3 KateAllum IanAshton4 Bruno Deschamps5 Ian Duncan6 SteveFrancis7 KathKearney-Croft8 GillianKent6 SimonKing9 AlanLovell NickMaddock10 MeinieOldersma10 Christian Rochat5 0 9 9 5 4 9 8 5 9 4 9 1 1 4 N/A 8 8 1 0 8 8 8 8 1 8 N/A N/A 0 N/A N/A 5 N/A N/A 5 N/A N/A 5 3 5 N/A N/A N/A N/A 9 9 N/A 5 8 N/A N/A 8 5 8 N/A N/A N/A N/A 9 9 N/A N/A 9 N/A N/A 9 3 9 N/A N/A 3 1. ThisyeartherewereninescheduledBoardmeetingsandeightadditionalBoardmeetings.TheincreasednumberofBoardmeetingswerenecessaryduetothefirmplacing,placing andopenoffer,whichtookplaceinJuly2020,andtheCovidpandemic 2. AndreaAbtretiredon12February2020anddidnotattendthemeetingon29January2020 3. 4. TheChairmanattendedallfiveAuditCommitteemeetings IanAshtonwasappointedon1July2020andattendedallscheduledmeetingshewasentitledtoattend.Inadditiontothis,heattendedoneBoardmeetingasaguestpriortohis formalappointmentandattendedthreeAuditCommitteemeetings 5. BrunoDeschampsandChristianRochatwereappointedtotheBoardon10July2020andattendedscheduledmeetingstheywereentitledtoattend 6. IanDuncanandGillianKentwereunabletoattendtheRemunerationCommitteemeetingon4November2020asitwascalledatveryshortnoticeandwereupdatedbyemail 7. SteveFranciswasappointedon25February2020andattendedallscheduledmeetingshewasentitledtoattend.Inaddition,healsoattendedallfiveAuditCommitteemeetings 8. KathKearney-Croftwasappointedon25February2020andresignedon31July2020.DuringhertimewiththeCompany,sheattendedallscheduledmeetingsshewasentitledto attendaswellasattendingtwoAuditCommitteemeetings 9. SimonKingwasappointedtotheBoardon1July2020andattendedallscheduledmeetingshewasentitledtoattend 10. NickMaddockandMeinieOldersmaresignedfromtheCompanyon24February2020 ThistableshowsthosemeetingsthateachDirectorattendedasamemberratherthanasaninvitee.Where“N/A”appearsinthetable theDirectorlistedisnotamemberoftheCommitteealthoughmayhaveattendedthemeeting.Forexample,theChairmanattendedall fiveAuditCommitteemeetings.Directorsdonotparticipateinmeetingswhenmattersrelatingtothemarediscussed. TheChairmanalsoholdsmeetingswiththeNon-ExecutiveDirectorswithouttheExecutiveDirectorspresent.During2020,tensuch meetingswereheld.TheSeniorIndependentDirectoralsomeetswiththeotherindependentNon-ExecutiveDirectorswithoutthe Chairmanpresent,inparticularwhentheperformanceoftheChairmanisbeingconsidered.During2020,thismeetingwasheldin November2020.AllDirectorsattendedthe2020AGM,9July2020GeneralMeetingheldtoapprovetheFirmPlacing,PlacingandOpen Offerandthe17November2020GeneralMeetingheldtoapprovethenewRemunerationPolicy.Inlightofthepandemic,allmeetings wereheldasclosedmeetings;Shareholderswereinvitedtosubmitquestionsinadvanceofthemeetingsandallquestionswereaddressed inadvanceofthemeetings.Shareholderswereabletolistenintoallthreemeetings. 58 SIG plc Annual Report and Accounts for the year ended 31 December 2020Pulsesurveyswillbeconductedthroughout2021forconsistentand ongoingmeasurementtotakeplace. Focus following the survey Mostcountriesareholdingfocusgroupswithacrosssection ofemployeesfromacrosstheirbusinesstohavemeaningful discussionswithemployees.Actionswillbeagreedpercountryand monitoredmonthly. Focus on data TheBoardreceivedreportsonthedatasetsrecommendedinthe guidelinesproducedbytheFRCtoreviewtomonitorcultureand engagementwithinthebusiness.Theseregularreportsincluded thefollowinginformation: ■ trainingdata; ■ recruitment; ■ exitinterviews; ■ reward; ■ promotiondecisions; ■ whistleblowingdata; ■ employeesurveys; ■ Boardinteractionwithseniormanagementandworkforce; ■ healthandsafetydata,includingnearmisses;and ■ attitudestoregulators,internalauditandemployees. TheBoardreceivesreportsasamatterofitsregularroutine businessateachmeetingondiversitydata,compliancetraining completionratesperoperatingcompanyandGroup,headcount, turnoverandabsencerates,recruitment,whistleblowingdata, healthandsafetydataincludingnearmisses,andCovid-19cases.It alsoreceivesreportsfromindividualBoardmembersandoperating companyManagingDirectorsontheirmeetingswithemployees. TheBoardalsoreceivedfeedbackimmediatelyafterthelaunchof thecommitmentcultureprogrammeattheSLTconferencein January2020. Culture programme TheBoard,withtheassistanceofmembersoftheELT,articulated anewSIGpurposeandvision,andreviewedSIG’scultureand behaviours.TherevisedpurposeagreedbytheBoardisarticulated as“Toenablemodernlivingandworkingenvironmentsinthe communitiesweoperate”. Work on a commitment culture Throughouttheyear,extensiveworktookplacetodefinea supportingcultureframework.Thedefinedbehaviourswilldrive the consistent and shared actions to advance performance and conduct.Thelaunchandimplementationofthenewculture programmebeganinJanuary2020andwasrestartedinSeptember 2020followingthechangesinmanagementandthesuccessful refinancingoftheCompany. Thecommitmentcultureisonedrivenbyaclearsenseofpurpose withclearlydefinedbehavioursthatunderpinit. TheSIGbehaviourshavebeenarticulatedas“Beboldinwhatyou do”,“Beflexibleandagile”and“Makeapositivedifference”.Read moreonpage39. Directors’ conflicts EachDirectorhasadutyundertheCompaniesAct2006(the“Act”) toavoidanysituationwheretheyhave,orcanhave,adirector indirectinterestthatconflicts,orpossiblymayconflict,withthe Company’sinterests.Provision7oftheCodealsorequiresthe Boardtotakeactiontoidentifyandmanageconflictsofinterest, includingthoseresultingfromsignificantshareholdingsandto ensurethattheinfluenceofthirdpartiesdoesnotcompromise oroverrideindependentjudgement.Thisdutyisinadditionto theobligationthattheyowetotheCompanytodisclosetothe Boardanytransactionorarrangementunderconsiderationby theCompanyinwhichtheyhave,orcanhave,adirectorindirect interest.Directorsofpubliccompaniesmayauthoriseconflictsand potentialconflicts,whereappropriate,ifacompany’sArticlesof AssociationpermitandShareholdershaveapprovedappropriate amendments. Procedureshavebeenputinplaceforthedisclosureby Directorsofanysuchconflictsandalsofortheconsiderationand authorisationofanyconflictsbytheBoard.Theseprocedures allowfortheimpositionoflimitsorconditionsbytheBoardwhen authorisinganyconflict,iftheythinkthisisappropriate.These procedureshavebeenappliedduringtheyearandareincluded asaregularitemforconsiderationbytheBoardateachofits meetings.TheBoardbelievesthattheproceduresestablishedto dealwithconflictsofinterestareoperatingeffectively. Aspartofthereviewofconflictsthisyear,Directorshavealso confirmedtheyhavenoconnectionwiththefollowingexternal searchfirms: ■ SavannahGroup–initialappointmentofSteveFrancis; ■ OdgersBerndtson–appointmentofIanAshton; ■ BarryGouldConsulting–appointmentofSimonKingandthe searchprocessforapermanentCEO;and ■ RidgewayPartners–appointmentofShatishDasaniandKath Durrant. TheSavannahGroupandOdgersBerndtsonareusedforother seniorexecutiveappointments. AllDirectorswererequiredtocompleteagiftsandhospitalityform confirmingreceiptofgiftsorhospitalityprovidedasaresultoftheir directorshipoftheCompany. TheBoardisawareoftheothercommitmentsofitsDirectorsand issatisfiedthatthesedonotconflictwiththeirdutiesasDirectors oftheCompanyandthattheinfluenceofthirdpartiesdoesnot compromiseoroverridetheirindependentjudgment. Culture and purpose TheBoardconsidersthattheGroupoperatesarisk-awareculture withanopenstyleofcommunication,whichseekstoidentify earlyproblemsandissueswhereverpossible.Whereissuesare identified,theBoardendeavourstotakeactiontoremedyany areasofconcern. Annual employee survey AnemployeeengagementsurveywaslaunchedinSeptember 2020andanewproviderwasappointed.TheNetPromoterScore methodologywasused,whichfocusesaround“howlikelyisit thatyouwouldrecommendSIGasanemployer?”.Afurtherset ofstatementswerealsoincludedaroundkeythemes:visionand strategy,cultureandenvironment,managementandleadership, jobsatisfaction,health,safetyandwellbeing,communication andcustomerfocus.Thescoresvariedacrosscountriesbutthe improvementareaswereconsistent,theseweremanagementand leadership,theCompany’svisionandstrategy,communicationand informationandcompensationandbenefits.Thehighestscoring areasacrosstheGroupwerehealth,safetyandwellbeing,teamwork andcollaboration. 59 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report BOARD LEADERSHIP AND COMPANY PURPOSE Engagement with employees Therevisedorganisationalcultureandbehavioursweredefined during2019bytheBoard,ELTandfocusgroupsfromacross thebusiness,andlaunchedinJanuary2020viatheSLTbusiness conferenceandoperatingcompanyroadshows. FollowingtheappointmentofSteveFrancis,anewstrategywas launched.Aspartofthisnewstrategyforgrowth,therewasgreater focusonreconnectingwithemployeesacrosstheGroup,the BoardWorkforceEngagementprogrammesoughttoaugment theexistingemployeeengagementactivities,forexample,the EmployeeEngagementSurvey,whichwaslaunchedinSeptember 2020,toprovidefurtherinsightsandprovideouremployeeswith theopportunitytoofferopinions,feedbackandsuggestionsand driveactionableimprovements. SimonKingreplacedKateAllumasthedesignatedNon-Executive Directorforworkforceengagementwitheffectfrom1October 2020.HeheldvirtualsessionsinOctoberandNovemberwithall operatingcompaniesandGroupemployees.Seemoreaboutthis onpage62. Further work AstherewereseveralnewmembersoftheBoardandELT, bothgroupsparticipatedinthecommitmentculturesessionsin Septemberpriortotherestartofthecultureprogrammefollowing itsinitialintroductioninJanuary2020.Itwasalsoagreedthatthe annualBoardeffectivenesssurveywouldhavespecificquestions includedtospecificallyassesshowtheBoarddemonstratestheSIG behaviours(seepage78formoredetails). Followingthis,”takingaleap”sessionstookplaceinalloperating companiesduringOctober/November.Thesesessionsprovidea reminderofthecommitmentcultureandSIGbehavioursfocusing onactivatingthebehavioursandagreeingactionstoembedthe culture.Therehasbeenpositivefeedbackfromallteams.The cultureframework,includingthepurpose,visionandstrategic pillars,havebeenrefinedfurtherasresultoffeedbackfrom colleaguesacrosstheGroup.Newinternalbrandingandfurther communicationmaterialswerelaunchedinJanuary2021.Seepage 38formoredetails. Picturetakenbeforelockdownrestrictionswereinplace. 60 SIG plc Annual Report and Accounts for the year ended 31 December 2020TheBoardisaware,fromitsregularreports,thatretentionfigures requireimprovementandincertainareasthereislowmorale afterthreeyearsoftransformationwithinthebusiness.The Board recognisesthatthereisfurtherworktobedonetoimproveculture, moraleandengagementwithinthebusiness,andembedthe commitmentcultureandalignittothenewvisionandpurpose. ThiswillcontinuetobeanimportantareaoffocusfortheBoard during2021andtheBoardwillbecloselymonitoringkeydata setstoensurethatthenecessaryimprovementsaremadetothe cultureandtomonitorthebehavioursrolledouttotheGroup,to settheappropriatetonefromthetop. Seepage104oftheAuditCommitteeReportforotheractionsthe CompanyhasimplementedasaresultofthePwCreport. Followinghisappointment,theCEOcommencedanin-depth reviewofcustomer,supplierandemployeefeedbackbasedupon structuredinterviewswithcustomersandsuppliers,andfeedback fromemployeesatbranchroadshows. Pricingandlossofkeyrelationshipswereraisedaskeyissues forcustomers,whilstcustomerfocusandproductrangewere highlightedbysuppliers.Feedbackfromemployeesalsohighlights aneedforincreasedfocusonbuildingcustomerrelationshipsand serviceproposition.Thenewstrategyandstrategicpillarsfocuson customers,suppliersandemployeesbyreignitinggrowththrough SIG’sexpertise,serviceandproximitytocustomers. Workforce engagement TheDirectorsconsiderthat,whilstworkforceengagement improvedduring2019,morecouldbedone.InDecember2019, weannouncedtheappointmentofKateAllumasNon-Executive Directorresponsibleforworkforceengagementwitheffectfrom 1January2020.WiththeassistanceoftheCompanySecretary, KatehadplannedtoholdsessionswithcolleaguesduringApriland May2020,butthesecouldnotgoaheadbecauseofCovid-19.On 1October2020,SimonKingreplacedKateAllumasthedesignated Non-ExecutiveDirectorforworkforceengagement.Withthe assistanceoftheCompanySecretary,virtualengagementsessions wereheldwithalloperatingcompaniesandGroupemployees. Furtherdetailscanbefoundonpage62. During2020,theBoardhadplannedtorotatemeetingsand hadscheduledtovisitsitesinManchester,DublinandHanau (Germany).However,asaresultofCovid-19,theplannedmeetings couldnotgoahead.VisitsbytheBoardandindividualoneswill bereinstatedattheearliestopportunitysubjecttoongoing restrictions. Moredetailsonemployeeengagementactivitiesineachoperating companyaresetoutonpage65. InOctober2019,theCompanycommencedtheprocessof publishingtoallemployeesandcontractorsafullsuiteofupdated policies.Theseincludeourhealthandsafetyprocedures,GDPR, codeofconduct,anti-briberyandcorruption,alcoholand substancemisuse,andgiftsandhospitality.Usefulvideoswere producedalongsidethese.Allemployees,includingtheBoard,and contractorswerethenaskedtocompleteonlinetrainingoneachof thepolicies. Completionofthemodulesistrackedwithremindersbeingissued toensurethattrainingiscompleted.Asnewpoliciesaredeveloped, suchastheWhistleblowingpolicythatwaslaunchedinJanuary 2021,trainingisprovidedtoallemployees. TheCompanyiscommittedtoinvestinginandrewardingits workforce.Itoperatesashareincentiveplanschemeandprovides regulartrainingopportunities.Inaddition,localrecognition programmesweredevelopedtoalignwiththenewbehaviours, andreplacethepreviousvalues-basedschemes.Ourteamsuse theseprogrammestorecogniseoutstandingwork,effortsor achievementsthatarealignedtothebehaviours.Movinginto2021, thereareplanstodevelopourrecognitionschemesfurtherandon aGroup-widebasis. 61 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report BOARD LEADERSHIP AND COMPANY PURPOSE I am looking forward to meeting many more colleagues from across the business. My initial impression is that there is a great sense of pride about working for SIG and I would like to see what we can do to improve and build on that to make SIG a truly great business. Simon King, Designated Non-Executive Director for workforce engagement Branch visits AsanewNon-ExecutiveDirectorjoiningSIG,Ihadplannedtovisit eachofourmajoroperatingcompaniesincludinganumberofthe UKsites.However,wewerejustcomingoutofthefirstCovid-19 lockdownacrossEuropeand,therefore,IfocusedontheUKwhere travelwaspermitted. Thepurposeofthesevisitswastomeetmembersofthelocal managementteamsandcolleaguesatalllevelsintheorganisation andtohearfirst-handhowemployeeswerefeelingandtheirviews onthenewstrategyforgrowthcenteredonexpertise,service andproximitywithakeyemphasisoncustomers,suppliersand employees.Thishelpedmelearnaboutouroperationsindetail andtolistentotheopportunities,risksandchallengesthebusiness facesinthecurrentenvironment. InJuly,followingavisittotheSheffieldheadoffice,Ialsovisitedthe SheffieldDistributionbranch.Imetwiththeteamthatincludeda tourofthebuildingandtheyard.Itwasabundantlyclearthatthere wasarealteamspiritaboutmakingsureeachoftheircolleagues weresafeandhealthy.Anotherobservationwasthebreadthof serviceandexperienceinthisbranch,therewerepeoplewith 30years’service,somerecentarrivalsfromcompetitorsand newstartersintheirfirstjobs.Thiscreatedadynamicdiscussion aboutourbusinessandthesector,withmanygreatideasfor improvement.AvisitingmanagerfromLeicesterwasveryhelpful inprovidingsomehistoricalcontextandstimulatingthediscussion aboutwhatneededtobedonetobemoresuccessfulinthefuture. Therewasasenseofconfidencethatamorelocal,customer- centricstrategyprevailedthroughoutallmyothervisits. InmysubsequentvisitstoStIves,EdmontonandManchester, colleaguesweremorefocusedondiscussingcustomersandtheir desiretowinthembackwithnew,improvedlevelsofcustomer service.Again,Isensedariseinconfidenceinthestrategyandthe energyPhilJohnswaspersonallybringingbacktothebusiness.I learnedhowasignificantincreaseinvolumecouldbemanaged bytheexistingteamandequipmentacrossthreeverydifferent formats.ThechangeinleadershipoftheUKbusinesswashavinga positiveimpact. OnmyvisitstoValorPark,BarkingandAshVale,Iwasheartened bythediscussionsanddesiretohavetherightbehavioursacross thebusiness.ThisconfirmedthattheCompanywasmaking goodprogressonensuringallemployeesunderstoodthenew frameworkforbehavioursacrosstheGroup. Theseteamswerealsopassionateaboutachievinggrowththrough improvedcustomerservice.Theirdrivetogivebetterservicewith therightstocklevelsforexample,againdemonstratedthedriveand commitmentinthebusinesstolookaftercustomersandcolleagues. Furthermore,Iwasgratefulfortheirideasandsuggestionsfor improvingthebusiness,whichIwasabletorelaytomyBoard colleagues.OnesuchideathatIcouldtaketotheBoardwasfor asimpleintranet/platformforconnectivityandcommunication betweenbranchesandcountries,whichwasbeingexploredbythe CorporateAffairsteam. Additionally,italsobecameapparentthatthereweredifferent issuesfacingteamswhowerecustomerfacingworkinginbranches andthosewhowereabletoworkfromhome.SIGhaslaunched aWellbeingandMentalHealthpolicytoprovidesupportto employeesandtoensurethattheyknowwheretheycangofor help. Workforce engagement AfterjoiningtheSIGBoardinJuly2020,Iwasdelightedtobe appointedastheNon-ExecutiveDirectorresponsibleforworkforce engagementandthewhistleblowingchampionwitheffectfrom 1October2020. AsidefromourobligationsaspartoftheCodeandpartofthe newstrategyforgrowth,andgreaterfocusonreconnectingwith colleaguesacrosstheGroup,theBoardWorkforceEngagement programmeseekstoaugmenttheexistingemployeeengagement activities,forexample,theEmployeeEngagementSurveylaunched inSeptember2020,toprovidefurtherinsightsandprovideour employeeswiththeopportunitytoofferopinions,feedbackand suggestionsanddriveactionableimprovements. KateAllumwasoriginallyappointedasthedesignatedNon- ExecutiveDirectorforworkforceengagementinJanuary2020. Duringthefirstquarterof2020,herintentionhadbeentovisitsites intheUK,France,Germany,Poland,BeneluxandIreland.However, duetotheCovid-19pandemicthesesessionswereunabletogo aheadasplanned. 62 SIG plc Annual Report and Accounts for the year ended 31 December 2020ItookovertherolefromKateand,withtheassistanceofthe CompanySecretary,weheldvideoconferencingsessionsduring OctoberandNovemberwithemployeesfromtheUK,Germany, France,Benelux,Poland,IrelandandCorporateFunctions. Acrosssectionofemployeeswereinvitedtoparticipateinthe programme,representingalllevels,regionsandfunctionsto supportourstrategicpriorityofreconnectingwithemployees.The formatofthemeetingswasinformal,withdiscussiontakingplace onthepositivesandnegativesfromaroundthebusinesscovering thelastsixmonths,andthekeyprioritiesandopportunitiesfor improvements.Whererequired,inordertoincreaseinclusivity,the sessionsweretranslated. Iwasdelightedwiththehugelypositiveresponsefromcolleagues withmanyofthemexpressingtheirappreciationofachanceto meetwithaBoardmemberandtheirsentimentofbeinglistened toandvaluedbytheorganisation. IreportedtotheBoardinNovemberthekeythemesraisedby employeeswhichcanbesummarisedasfollows: ■ Employeesfeltthattheresponsetothepandemicwashandled positively; ■ Teamworkandcollaborationhadimprovedandatbranchlevel teamsweresupportingeachother; ■ Themessagingaroundtherefocusoncustomerswaspositive; and ■ Communicationoverthelastsixmonthshadimproved particularlyonhealthandsafety. Someareasforimprovementwerealsohighlightedasfollows: Investment by CD&R Atthedateofthisreport,CD&Rholdjustover28%of SIGsharesandweweredelightedtowelcomethemto theGroupinJuly.Asummaryofthekeytermsofthe RelationshipAgreementissetoutbelowincludingthe involvementoftheCD&RnominatedDirectorsinour business. InvolvementgovernedbytheRelationshipAgreement: ■ CD&Rhavetherighttonominatetwonon-independent Non-ExecutiveDirectors(“NED”)andon10July2020we welcomedBrunoDeschampsandChristianRochatto theBoard; ■ BrunoservesontheRemunerationCommittee,while ChristianservesontheNominationsCommittee.An observerfromCD&RattendsAuditCommitteemeetings; ■ theAgreementregulatestheappointmentandremoval ■ Employeesrequestedmorelearninganddevelopment ofsuchnomineesorobserver;and opportunities; ■ Increasedsupportonwellbeingandmentalhealth; ■ Abetterinductionframeworkfornewhires;and ■ Morefocusonimprovingthedeliveryandcustomerexperience. InDecember,Iprovidedthekeyprioritiesandopportunitiesfor improvementtoensuretheBoardreflectsthefeedbackinits decision-makingprocess.Ihavealsotakentheopportunityto providehighlevelfeedbacktoeachoftheoperatingcompany ManagingDirectorstoenablethemtomakeadifferenceonamore locallevel.Ofcourse,anyplansforengagementwillonlytrulywork iftherearefollowedupwithactionsandoutcomes. IampleasedtosaythatworkhasstartedonaGroupinduction frameworktoensurenewemployeesareprovidedwiththe relevanttoolsandinformationtosupportthembeingableto beeffectiveintheirrolesasquicklyaspossible.Thisinduction frameworkwillcontinuetobeenhancedandrefinedfollowing feedbackfromrecenthires.Wellbeinghasalsobeenhighlighted bycolleaguesasincreasinglyimportantandaGroup-widepolicy waslaunchedinOctober2020.Theseactions,togetherwithall theotherworkonthecultureandnewstrategy,willmakeahuge differencetomakingSIGareallygreatbusiness. Reconnectingwithouremployeesisanongoingstrategicpriority andengagementactionsfromeachprogrammewillcontinuetobe rolledoutthroughout2021andbeyond. ■ whereanyconflictsarise(actualorpotential)between theGroupandthenomineedirectororobserver,the conflictmustbedeclaredandthenomineedirector/ observermayalsobepreventedfromvotingonsuch matter(s). ThekeymechanismfortheCD&RDirectorstoprovide insightandexperienceisthroughmonthlyOperating ReviewmeetingsattendedbytheChairman,CD&RNEDs andtheAuditobserver,CEO,andCFO.Thesemeetings areveryusefulandenabledeepdivesintotheoperations oftheGroup’smajorsubsidiaries.OperatingCompany management are invited to attend and present progress theyaremakingagainsttheirstrategy,budgetsandtargets. BrunoandChristianalsohavebeenideallyplacedasa furthersoundingboardandconstructivechallengetothe CEOandExecutiveteam. Howitworksinpractice: ■ PapersfortheOperatingReviewmeetingsare circulatedtoallBoardmembersandmattersarising fromthesemeetingsaresubsequentlyreportedtothe Board; ■ CD&RmakeapositivecontributiontotheBoard.They understandandaresensitivetotheresponsibilitiesof theBoardandasDirectorstoallshareholdersandto complywithPLCCorporateGovernancerules;and ■ CD&RalsoownWolseley.WhilstBrunoactsas ChairmanofWolseleythiscompanycompetesina differentmarkettoSIGandnoareasofconflicthave arisentodate. Overall,theBoardbelievesthatCD&Rhaveprovideda veryvaluablecontributiontodatetotheCompanyfor thebenefitofallshareholders.Seepage85forfurther informationontheRelationshipAgreement. 63 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report SECTION 172 STATEMENT Section 172 and Stakeholder Engagement TheDirectorsconsiderthatthey haveperformedtheirfiduciaryduty, asstipulatedunderSection172of theCompaniesAct2006,ingood faith to promote the success of the Companyforthebenefitofitsmembers asawhole.Theyhavetakeninto consideration,amongstothermatters: ■ Thelikelyconsequencesofany decisioninthelongterm; ■ TheinterestsoftheCompany’s employees; ■ Theneedtofosterrelationshipswith suppliers,customersandothers; ■ ThedesirabilityoftheCompany maintaining a reputation for high standardsofbusinessconduct;and ■ Theneedtoactfairlybetween membersoftheCompany. How the Directors have applied their Section 172 duties TheBoardhasconsidereditskey stakeholdersandthemethodsof engagement with each of those stakeholders,bothatBoardleveland acrossthebusiness.Itreceivesregular reportsfrommanagementtoenableit tomonitorthequalityandeffectiveness ofthearrangementsforstakeholder engagement.Specificexamplesof thewayinwhichtheDirectorshave performedtheirfiduciarydutyunder Section172areprovidedinrelationto thepreparationsforthecapitalraise aswellastheBoard’sactionsand decisionsduringCovid-19. TheBoardhasapprovedatraining programmetoensurethat,inpreparing proposalsforBoardconsideration, managersareawareoftheSection 172requirementsinDirectordecision making,ensuringthatDirectorswill havetheassurancethatallrelevant stakeholderinterestsandotherrelevant matters,arebeingsetoutfortheir consideration.Asindicatedonpage76, theBoardalsoreceivedtrainingfrom AllenandOveryandtheCompany’s Brokers. Inaddition,aspartoftheirdecision- makingprocess,theBoardalsocarefully considertheprincipalrisksofthe Companyashighlightedonpages34 and35. Shareholders Why we engage TheDirectorsconsiderthat Shareholders’viewsareimportantas partoftheirdecision-makingprocess andwelcomediscussionswiththem, particularlyinrelationtostrategy, remunerationandgovernance. Engagement activities Annualandinterimreports, announcements,AGMandgeneral meetings,roadshows,analyst presentations,individualmeetingswith Directors. Issues raised ■ SupportforstrategyofUK transformation and return to profitablegrowth ■ Encouragementforcontinuingprofit improvement ■ Concernoverweakermarket conditions ■ Concernoverdeteriorationinsales, especiallyintheUK ■ ProposalfornewRestrictedShare PlanandExecutiveDirectors’ remuneration Actions taken subsequently ■ Feedbackreflectedinemerging strategy,focusingoncore operationsanddevelopinginvestor communications ■ Listenedtofeedbackfrom Shareholdersregardingtheone-off cashpaymentmadetotheCEO andtheRestrictedSharePlan,and workedwiththemtofindasolution acceptabletoallpartiesandresulted inoverwhelmingShareholder approvalofthenewRemuneration policyinNovember2020 ■ Successfulcapitalraiseundertaken toenabledeliveryoftheGroup’s objectives 64 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Colleagues Why we engage TheDirectorsconsiderthatacommitment culture,underpinnedbydefinedbehaviours withaclearvisionandpurposeforthefuture, isvitalforthefuturegrowthofthebusiness, andthatengagementwiththeworkforce iskeytosuccessofthebusiness.Thisis reflectedacrossthestrategicpillarswith colleaguesencouragedtodemonstratethe SIG’sbehaviours“Beboldinwhatyoudo”, “Beflexibleandagile”,and“Makeapositive difference”. Engagement activities Whilstoriginallyplannedtolaunchinearly 2020,theBoardWorkforceEngagement programmewasdelayedduetotheCovid-19 restrictions.However,goodprogresswas madefromSeptember2020withthelaunch oftheEmployeeEngagementSurveyandthe BoardWorkforceEngagementprogramme recommencedinOctober2020.Across sectionofemployeesacrosstheGroupwere invitedtoparticipateintheprogramme, representingalllevels,regionsandfunctions togetherwiththeBoard-designatedNEDto meetanddiscussinformallythepositives andnegativesfromaroundthebusiness, coveringtheprevioussixmonthsto identifykeyprioritiesandopportunitiesfor improvement.Inadditiontothis,therewere alsocommunicationcascades,SLTbroadcasts foronwardtransmissiontoemployees,Group- widebroadcastsbytheCEOandinternal newsletters. Issues raised ■ PeoplefeltthattheCompany’sresponse totheCovid-19outbreakhad,ingeneral, beenverygood,particularlyinbeing flexiblebothinservingcustomersandthe flexibilityofferedtoemployee ■ Peoplewerekeentorolloutthe behaviours/cultureprogramme ■ Peopleappreciatedthenewemployee broadcastsasagooduseoftechnology andagoodwaytoshareinformation ■ LearningandDevelopmentneedsmore investment,particularlyatbranchlevel,as some staff had not received training for severalyears ■ Bettersalesandproducttrainingwas neededsothatcustomerscouldbe offeredthebestservice ■ Therewasaneedtoprioritisewhatismost importantandfocusondeliveringthose projectswell Actions taken subsequently ■ Employeesurveylaunchedacrossthe Group to demonstrate commitment to listeningtoemployees ■ NewinternalbrandingtobuildSIGteam cultureandalignmenttonewstrategy ■ Establishmentandcommunicationofa newpurpose,cultureandvisionforthe Company ■ Investmentsmadeincompliancetraining andstaffdevelopment,especiallyat branchlevel ■ Investmentsinhealthandsafetyapproved ■ NewWellbeingandMentalHealthpolicy launched ■ ProvisionofaglobalEmployeeAssistance Programme ■ UpdatedWhistleblowingpolicylaunched includinganewsystemimplementedin January2021 ■ InvestmentinsitesinUKandEurope ■ Communications improved with comprehensiveemployeeengagement planandgreaterDirectorvisibilityusing videocallsduringthepandemicto continueengagementwithbranchstaff ■ Induction process improved and new frameworkintroduced ■ Restartedthecommitmentculturerollout followingthenewleadershipappointments ■ AppointedSimonKingasdesignated Non-ExecutiveDirectorforworkforce engagementandwhistleblowingchampion Employee engagement activities by operating company are set out below: UKDistribution UKExteriors Ireland Corporate Benelux Germany France Poland Buildingsolutions 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 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 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 Social engagements Workers council meetings Branch manager meetings Cross functional forums Sales communication Annual roadshows, town halls and conferences People – annual and quarterly performance appraisals, VIP award, employee focus groups and charity days 65 Stock code: SHI www.sigplc.comGOVERNANCE Corporate Governance Report SECTION 172 STATEMENT Lenders Why we engage TheDirectorsrecognisethevalueofworking inpartnershipwithourLenderstoensure thatwehavethenecessaryfinancialcapital andresilience. Engagement activities Regulartradingupdates,meetingswiththe CFOandGroupTreasurer,andonoccasions theCEO. Issues raised ■ Supportforstrategyoftransformation andreturntoprofitablegrowth ■ Encouragementforcontinuingprofit improvement ■ Concernoverweakermarketconditions asaresultofCovid-19 ■ Concernoverdeteriorationinsales, especiallyintheUK ■ Concernoverliquidityposition,cashand covenant headroom ■ Appetitefordebtreductionand reductionrevolvingcreditfacility commitments Actions taken subsequently ■ Feedbackreflectedinemergingstrategy anddevelopinglendercommunications ■ Engagedequityadvisorsandraised capitalviaaplacingandopenoffer ■ Reductioninrevolvingcreditfacility commitmentsandrepaymentsofprivate placementnotes ■ Engageddebtadvisorsandrenegotiated andrestructureddebtfacilitiesincluding extendedmaturitiesandrelaxationof covenants ■ Enhancedcashflowcovenantheadroom forecasting,monitoringandreporting Customers Why we engage Theprofitabilityofthebusinessis underpinnedbyprovidingeffective partnershipswithcustomers,so understandingtheirneedsandrequirements isextremelyimportant.Customersare recognisedwithinthestrategicpillarsand, asaresult,theGroup’ssalescapacityand productivityisbeingstrengthenedtoprovide thebestcustomerservice. Engagement activities Duringthepandemic,theGrouphastaken caretocommunicatethesafetymeasures implementedtokeepcustomerssafe.SIG Polandhaslaunchedacomprehensive SIGupmarketingprogrammerewarding customersforpurchasesandloyalty. CustomerserviceteamsinIrelandcontact topcustomersonaregularbasistocheck servicelevelsandcontactdormantaccounts quarterly.ManyactivitiesacrossFrance, BeneluxandGermanyhavebeenpaused duetothecurrentrestrictions,suchas branchtrainingcoursesforcustomers onnewproducts,in-branchsocialevents. However,regularcontacthasbeen maintainedviatelephoneandvideocalls wherepossible.TheGroupalsocarriedout acustomersurveyseepage14. Issues raised ■ Fastandeasypurchasingprocesses, makingiteasyforcustomerstoplace orders ■ Makeiteasiertoobtainadvicebyphone and ensure staff on site are trained to advisecustomersappropriately ■ Improvedeliveryofproductstoavoid delays Suppliers Why we engage TheDirectorsunderstandthatSIGadds valuebyoperatingasthesupplychain partnerofchoice.ValuablePartnerships isoneofthekeystrategicpillarsforthe Grouptopartnercloselywithsuppliersto understandourjointopportunitiesandto createwin-winstrategies. Engagement activities Strategymeetingswereheldwiththetop20 suppliersintheUK.Weareintheprocessof settingupanInfrastructureAlliance,where50 suppliershavealreadysignedup,andthefirst conferencewasheldvirtually.Wehavealso strengthenedtheCategoryteamwithindustry expertiseandrelationships.Therehasbeenactive participationinonlinesuppliereventsandtraining coursesinIrelandandPoland.InGermanyand Benelux,connectionswithallmajorsuppliers havebeenre-establishedatthetopleveland dedicatedcategorymanagersareresponsible formaintainingrelationships.InFrance,regular meetingshavebeensetupandtherearehopes thatthebi-annualsaleseventwillbeabletotake placeoncerestrictionshavebeenlifted. Issues raised ■ Lackofseniormanagementpersonal contactwithsuppliers ■ Lookingformoresupportwhen introducing new products ■ Needtoimprovelevelsoftrustand willingnesstoco-operate Actions taken subsequently ■ Follow-upmeetingsforsenior managementscheduledtomaintain relationships ■ Rangeandavailabilityofproduct;requires ■ Reconnectingwithallmajorsuppliers andactiveparticipation,wherepossible, tosuppliereventstobuildrelationships ■ Ongoingcontactbetweensuppliersand SIGsharingprojectinformation ■ DevelopmentofEDIsolutiontoreduce administrativecostsforbothparties ■ Preparationofregionalplanstogrow productofferingandavailability ■ Introduction of new products focuswithalargerstockofmaterials ■ Sensethatloyaltyisvaluedand rewarded;wanttofeelappreciated Actions taken subsequently ■ Introducedonlinepurchasing,dedicated pointsofcontact,customerspecific portalsforpricing ■ Producttraining,coachingbymanagers, improved recruitment and retention of knowledgeablestafftomakebranchstaff moreresponsivetokeyrelationships ■ Measured“ontime,infull”differentlyto increaseproductivityandincreaseuse ofthedeliveryapptokeepcustomers betterinformed ■ Reviewingbranchstocklevelsandgiving branchdirectorsmoreinput ■ Moresocialeventsarebeingplannedat branchesforcustomerspost-Covid ■ Improvementsbeingmadeto recruitment and training processes ■ AcquisitionofSMRoofingSuppliesLtdto extendSIG’sgeographicalreach 66 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Pension scheme members and trustees Why we engage TheDirectorsunderstandtheimportance ofkeepingpensionschemetrustees andmembersadvisedandconsultedon significantdevelopments. Engagement activities Newsletter,circulationofannualaccounts, anddialoguebetweentheCompanyandthe ChairofthePensionTrustees. Issues raised ■ Dialoguewelcomed.Memberskeen to maintain ongoing communication aroundimplicationsforCompany’s covenantoftransformationalchange andbusinessdisposalsinparticularthe useofAirHandlingproceeds ■ Concernovervalueofsecurityheldby pensionschemeviatheasset-backed arrangementasaresultofCovid-19and temporaryclosureofbranchesintheUK Actions taken subsequently ■ Maintainingregularandmorefrequent dialogueduringCovid-19 ■ Consultedontemporaryamendments totheterms&conditionsintheasset- backedarrangement(thesewerenot required) Local community Why we engage TheDirectorsappreciatethatclose relationshipswithcommunitieswherethe businessoperateswillfosterthelong-term successofthebusinessandrecognise that the actions of the Group can have a beneficialimpactonlocalcommunities. Engagement activities Therehavebeenvariouscollaborations acrosstheGroupwithlocalschooland sportsclubprojects,suchastraining andworkshopsforyoungpeopleduring Covid-19lockdown,trafficawareness initiatives,assistanceforcharitiessupporting theelderlyandotherlocalcommunity charityevents. Issues raised ■ Engagementhasbeendifficultduring lockdown ■ Positivefeedbackbutacknowledgement thatneedtodomoreasabusiness ■ Amoresystematicapproachwouldbe helpfulacrosstheGroup ■ Acknowledgedthatrealhelphadbeen providedforyoungpeopleduring difficulttimes ■ Appreciationforsupportgiven Actions taken subsequently ■ ESGstrategydevelopedfor implementationduring2021 ■ PlantosetupaUKCharityCommittee ■ Continuing safe driving training ■ Continuingcommunityfirstaidtraining ■ Developmentandwellbeingactivitiesfor localcommunityandemployees’families Environment Why we engage TheDirectorsappreciatethatenvironmental mattersareincreasinglyimportanttoall stakeholdersandlinkswiththeGroup’s strategicpillar“ResponsibleActionswhere ourpeoplefeelsafe,proudandvalued andweoperatesustainablytobenefit communitiesandtheenvironment”. Engagement activities 2020sawthestartofareviewofthe environmentalimpactoftheGroupaspart ofawiderESGreviewandthiswillcontinue into2021. Issues raised ■ Carbonemissions ■ Sustainabilityofmaterials ■ Recyclingofmaterials Actions taken subsequently ■ ESGstrategywasbeingdevelopedfor implementationduring2021 ■ Developingafleetdecarbonisationplan with operating companies ■ Developingcleanenergysupplymethods ■ Developingend-to-endwaste management processes ■ DevelopingaGreenSupplyChain Methodology 67 Stock code: SHI www.sigplc.comGOVERNANCE Corporate Governance Report SECTION 172 STATEMENT Government Why we engage Regularengagementwithgovernmentand regulatorybodiesisimportanttoensure thatthestrategyremainsappropriate andthattheCompanyisoperating appropriately. Engagement activities EngagementwithDVLA(roadsafety), lobbyingasamemberoftheConsumer ProtectionAssociation(CPA),input intoinsulationandqualitystandards. ApplicationtoMinistryofFinanceinPoland forparticipationinapilotprogrammeof monitoring;thisinvolvedseveralmeetings withMinistryrepresentativesviavideocalls andonewiththeMinisterhimself.Final participationinthiswillmakeitpossibleto helpinfluencetheshapingoftaxlawand reducesanctions/penaltiesforerrorsintax computations/returns.Occasionalcontact withFRCandFCAinrelationtoregulatory matters. Issues raised ■ Companyperformancenotconsistent ■ Valuepropositionnotalwaysunderstood Actions taken subsequently ■ Routestomarketimproved ■ Ongoingdialogue 68 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Examples of how the Directors have applied their Section 172 duties Capital Raise InconsideringtheundertakingofaCapitalRaise,theDirectorshadregardtotheirdutiesunderSection172oftheAct.They consideredtheinterestsofanumberofdifferentstakeholders,maintainingtheCompany’sreputationforhighstandardsofbusiness conduct,relevantrisksandtodelivertheCompany’sobjectives.Thesebeingto(a)provideongoingsupporttocustomersand suppliersandtopreserveemploymentinaviablebusiness;(b)emergefromtheCovid-19crisiswiththefinancialresourcesrequired todeliveritsnewstrategy,recapturemarketshareandstrengthentheGroup’spositionasamarketleaderacrossitsoperating businesses;(c)ensureaccesstocapitalthatwillprovidetheGroupwithgreatercertainty,flexibilityandbalancesheetstrengthto pursuefuturegrowthopportunities;(d)supportthedeleveragingoftheGroup’sbalancesheet,inlinewiththeBoard’smedium-term targetofcovenantleverageofbelow1.5x;and(e)avoidanEquityFailureEvent–EventofDefaultundertheAmendedDebtFacilities Agreements. Theyconsideredtheinterestsofdifferentstakeholdersinthefollowingmanner: Shareholders Developmentofalonger-termbusinesswiththenew strategyforgrowth.Therestructuringofthedebtfacilities togetherwiththesuccessfulcapitalraiseprovidesafirm andstablefoundationforthedeliveryofthestrategy. Shareholderswereconsultedandfeedbackconsidered bytheBoard. Financial Advisors and Brokers TheBoardworkedcloselywiththeCompany’sFinancial AdvisorsandBrokerstoensurethatthecapitalraisewas undertakeninamannerthatwouldgivethebestresults fortheGroup.Oversawandgaveconsiderationtothe Prospectusthrougheverystepofitsproduction. Colleagues Communicationofthestrategythatthecapitalraised willallowandthelong-termbenefitsforthesuccessof theGroup.Buildingsustainablewinningsalesteamsthat havethenecessaryautonomy,incentivesandsupportto succeed.Revisedpeoplestrategytoencourageaculture ofentrepreneurship,commitmentandempowerment Customers Thenewstrategywillhavearenewedfocuson strengtheningcustomerrelationships.Maintaining andimprovinggeographicalcoverageforcustomers. Continuetoprovidecustomerswithasystemof products,alongsidedeeptechnicalexpertisethatcanbe leveragedtodeliverinnovativesolutionstocustomers. Re-establishtheGroup’sspecialistfocusandexpertise Suppliers ReassuranceforsuppliersthattheGroupremains creditworthy.Strengtheningpartnershipswithsuppliers. Beingaprimarycustomertokeysuppliersthroughscale, coverageandintimateknowledgeoftheirbusinessand ourmarkets Pension trustees Engagedandkeptinformedofthereasonsforthecapital raiseandtheaimsofthenewstrategy. Risks and mitigation TherewasariskthatthesignificantinvestmentproposedfromCD&RwouldberejectedbyotherShareholders.Stepsweretaken, withtheassistanceoftheBrokers,toensurethatthisstepwasproperlyexplainedsothatallShareholdersandstakeholders remainedwellinformedandreassured.Furthermore,theCompanyprovideddetailedinformationontherisksfactorsassetoutin parttwooftheprospectusonpages15to37. 69 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report SECTION 172 STATEMENT Covid-19 DuringtheCovid-19pandemic,theBoardmetmorefrequently (twiceweekly)duringthefirstlockdownandconsidered theneedsofallstakeholdersasthesituationunfolded. Managementwasinitiallymeetingonadailybasis,movingto bi-weeklythenweekly;feedbackonthesemeetingswasbeing providedtotheBoardonanongoingbasis.TheBoardregularly reviewedthepositionkeepingattheforefrontoftheirmind theneedtopreservethesafetyofemployees,suppliersand customers.Inmakinganydecisions,theBoardalsoconsidered maintainingtheCompany’sreputationforhighstandardsof businessconductaswellasitssuccessinthelongerterm.The Grouphasbeenabletotradesafely,workingcloselyandflexibly withemployees,customersandsupplierstoadapttonew Covid-19norms. Stakeholders and matters considered during the decision-making process: ■ Healthandwellbeingofcolleagues,customersand suppliers ■ Furloughedc.2,070colleaguesbutcommittedtomaintaina proportionofpay.Colleaguestookapayreductionofupto 20%andtheBoardagreedtotakeupto50%from1April 2020forthreemonthsuntil30June2020.Inmid-Maywhen colleaguesreturnedtoworkonfullpaytheCEOandCFO werereinstatedto80%from1April2020. ■ IntheUK,helplineshavebeensetupsocolleaguescanget freeadviceandsupportonmentalhealth,financialandlegal issues.IntroducedanewWellbeingandMentalHealthpolicy andassociatedtraining. ■ EngagementwithsomeoftheCompany’smajor ShareholdersbytheChairmanontheimpactofthecrisis andthestepsithastakenasaresult.Announcedthat theCompanywouldnotbedeclaringafinaldividendfor 2019,nortoconsideranyreturntoShareholdersfromthe proceedsoftherecentAirHandlingdisposal. ■ Engagementwithcustomersandsuppliersbyoperating companiestodiscussthemarketenvironment,theirneeds/ concernsandstockdemandandavailability. ■ Governmentguidanceandsupportavailable ■ TheBoardreceivedupdatesfromitsfinancialadvisors, ■ Shareholders ■ Banksandlenders ■ Thelocalcommunity Summary of actions taken as a result of Covid-19 are as follows: ■ InstigatedhomeworkingandenhancedtheITcapabilityby purchasingadditionallaptopsandVPNlicencestofacilitateas manypeopleaspossibletoworkfromhome.Additionalfraud measureswereputinplacetofurtherprotectSIGsystems fromoutsidepartiesgainingaccess.Movedallmeetingsto videocalls. ■ Enforcedandadheredtothegovernment’sstricthygiene, socialdistancingandcleaningstandardsinallcountrieswhere branches/sitesremainedopen. ■ TemporarilyclosedthemajorityofUKandIrelandoperations butremainedopentoservicecriticalandemergencyprojects only,suchasfortheNHS,energyandfoodsectors,and toensurethattherewasanorderlyclosureprogramme. Reopenedthemajorityofsitesbymid-May. lawyersandbrokers. ■ GroupRiskdesignedandrolledoutacrisisresponse checklisttoeachoperatingcompany.Thechecklistcomprises asetofshort,mediumandlong-termriskswithactivitiesfor considerationbymanagement.Eachoperatingcompany hasbeenabletousethechecklisttoensureithascoverage ofthefullerspectrumofrisksandtopromptconsideration ofadditionalactivity,especiallyinrelationtochangesin responsebygovernments. ■ TheBoardalsoregularlymonitoredtheliquidityoftheGroup andputinplacestrengthenedcashcontrolmeasures.The Grouphasbeenabletopreserveitsliquiditypositionand hasremainedindialoguewithitslendinggroupinorderto releaseadditionalliquidityasrequired. ■ SIGalsomadeuseoftaxrelief,aswellasaccessingother availablegovernmentmeasures. ■ FormoreinformationonCovid-19risksandmitigating actionsseepage33. 70 SIG plc Annual Report and Accounts for the year ended 31 December 2020TheBoardwelcomedmajoritysupportattheGeneralMeeting inJuly2020forresolution5(the“Resolution”)butacknowledged thatasignificantnumberofvotes(44.07%)werecastagainstit. Resolution5wasseekingapprovalofthepaymentofaone-off bonustotheCEO.FollowingtheGeneralMeetinginJuly,andat thesametimeasconsultingonournewDirectors’Remuneration Policy,theRemunerationCommittee(“theCommittee”)consulted withourlargestinstitutionalShareholdersinordertounderstand thereasonsbehindthevotingresult.Shareholdersindicatedthat themainreasonsforthevotesagainsttheResolutionwere:(i)a policyofopposingone-offawards;and(ii)questionsaroundthe timingofthepaymentandwhetheritwouldhavebeenmore prudenttowaituntiltheendoftheyeartodeterminewhetherthe paymentwaswarranted.Inaddition,someShareholdersexpressed disappointmentthattheCommitteehadstillmadethepayment giventhenumberofvotesagainsttheResolutionandsaidthey wouldhaveexpectedtheCompanytoreconsideritsposition.The Committeelistenedcloselytothefeedbackandconsideredthe concernsraised. Asaresult,theCommitteeincorporatedanumberofchanges intothenewDirectors’RemunerationPolicy,thatwastabledat theCompany’smostrecentGeneralMeetinginNovember2020, andfollowingfurtherconsultationwiththelargestinstitutional Shareholders,somefurtherchangesweremadetoreflect shareholderviewsandthenewDirectors’RemunerationPolicywas approvedbyamajorityof92.63%ofShareholdersvotingandthis isnowinplace.ThisstatementinaccordancewithProvisionfourof theCodewaspublishedontheCompany’swebsiteon9December 2020. TheAGMnoticeofmeetingissenttoShareholdersatleast21 daysbeforethemeeting.TheCompanyprovidesafacilityfor Shareholderstovoteelectronicallyandtheformofproxyprovides Shareholderswiththeoptionofwithholdingtheirvoteona resolutioniftheysowish.AttheAGMinMay2021Shareholderswill beaskedtovoteonapoll,ratherthanashowofhands,following bestpractice.Thisalsoallowsthemeetingtobeheldvirtually, inlinewiththeCompany’sArticles,shouldCovid-19lockdown restrictionsstillbeinplace,withoutanysignificantalterationin votingprocedure.TheCompanySecretaryensuresthatvotesare properlyreceivedandrecorded.Detailsoftheproxieslodgedonall resolutionsandofallabstentionsarepublishedontheCompany’s websiteimmediatelyaftertheAGM. TheCompanyrecognisestheimportanceofcommunicatingwith itsShareholders,includingitsemployeeShareholders,toensure thatitsstrategyandperformanceisunderstood.Thisisachieved principallythroughtheAnnualReportandAccountsandtheAGM, whichallDirectorsattend. TheCEOandCFOareprimarilyresponsiblefordirectinvestor relations.TheBoardiskeptinformedofinvestors’viewsthrough distributionandregulardiscussionofanalysts’andbrokers’ briefingsandasummaryofinvestoropinionfeedback.Inaddition, feedbackfrommajorShareholdersisreportedtotheBoardby theChairmanandtheCFOanddiscussedatitsmeetings.Formal presentationsaremadetoinstitutionalShareholdersfollowingthe announcementoftheCompany’sannualandinterimresults. FollowingtheCompany’stradingupdateinSeptember2020,when theGroupreportedlowerlikeforlikesalesonprioryearandaloss beforetax,bothwereimpactedbyCovid-19.Netdebtwasdown havingbeenhelpedbythesaleoftheAirHandlingdivisionatthe endofthepreviousyear.Anewleadershipteamwasappointed andarestructuringoftheGroup’sfinancingfacilitiesandcapital raisehadsuccessfullyconcludedinJuly(seepage69formore details)andincludedasignificantequityinvestmentfromCD&R. Thesubstantialliquidityheadroomprovidedsecurityagainst ongoingmarketuncertaintyandconfidencetoinvestinthenew growthstrategy.TheCEOandCFOupdatedmajorShareholderson thesematters,aswellasprovidinganupdateonthebranchand customer-centricrestructuringintheUKwhichwereprogressing toplan.Inaddition,GermanyandBeneluxwererefocusingundera newcombinedmanagementteam.TheCEOandCFOalsoupdated majorShareholdersfollowingtheTradingUpdateinJanuary2021. TheChairmanbelievesinregularandtransparentcommunication withShareholdersandmakeshimselfavailableasrequired duringtheyear.TheChairmanhasheldnumerousdiscussions withSIG’slargeinstitutionalShareholdersduringtheyear.His meetingswithShareholdershaveenabledhimtounderstandtheir viewsongovernanceandperformanceagainstthestrategyof thebusinessaswellasrelayingthedirectionandstrategyofthe business,particularlyintheperiodleadinguptotherefinancing oftheCompany.Contactisalsomaintained,whereappropriate, withShareholderstodiscussoverallremunerationplansand policies.TheChairmanandtheSeniorIndependentDirector areavailabletodiscussgovernanceandstrategywithmajor Shareholdersifrequested,andbothareavailableforcontactwith individualShareholders,shouldanyspecificareasofconcernor enquiryberaised.TheChairoftheAuditCommitteeandtheChair oftheRemunerationCommitteearealsoavailableforcontact withShareholdersshouldtherebeanymattersraisedwhichare relevanttotheirareaofresponsibilityandbothareavailableto answerquestionsatourAGM. Throughouttheyear,theCompanyrespondstocorrespondence receivedfromShareholdersonawiderangeofissuesandalso participatesinanumberofsurveysandquestionnairessubmitted byavarietyofinvestorresearchbodies.WhilstNon-Executive DirectorsmakethemselvesavailabletomeettheCompany’s Shareholders,nosuchmeetingshavebeenrequestedduring theyear.Additionally,theyregularlyreviewthepresentationsof theannualandinterimresults.TheChairmanalsoensuresthat theBoardasawholehasaclearunderstandingoftheviewsof ShareholdersandaregularreportisprovidedbytheCFOon investorrelationsateachBoardmeeting. 71 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report DIVISION OF RESPONSIBILITIES Board and Committees TheBoardhasdelegatedcertainresponsibilitiestoitsprincipalCommittees.EachoftheCommitteesoperatesunderwrittentermsof reference,whichareconsistentwithcurrentbestpractice.ThetermsofreferenceofeachoftheCommitteeswerereviewedandupdated bytheBoardduringtheyearandcanbefoundontheCompany’swebsite(www.sigplc.com).TheBoardalsoappointsCommitteesto approvespecificprocessesasdeemednecessary.Forexample,duringtheyear,BoardCommitteeswereestablishedtoapprovethe preliminaryandinterimresultsannouncements,thefirmplacingandopenoffer,debtrefinancingandacquisitions. The Board ■ Promotesthelong-termsustainablesuccessofthe Companyanditssubsidiaries,generatingvaluefor Shareholdersandcontributingtowidersociety. ■ EstablishestheCompany’spurpose,visionandstrategy andsatisfyingitselfthattheseanditsculturearealigned. ■ Assessesandmonitorscultureandbehaviours. ■ EnsuresthatthematterssetoutinSection172ofthe CompaniesAct2006areconsideredinBoarddiscussions anddecisionmaking. ■ EnsuresthatallDirectorsactwithintegrity,leadby exampleandpromotethedesiredculture. ■ Ensuresthatthenecessaryresourcesareinplaceforthe Companytomeetitsobjectivesandassessesthebasison whichtheCompanygeneratesandpreservesvalueover thelongterm. ■ Reviewswhistleblowingarrangements,ensuringthat arrangementsareinplaceforproportionateand independentinvestigationandfollow-upaction(anew policy,associatedtrainingandanewplatformwere launchedinearlyJanuary2021). ↓ Audit Committee Nominations Committee Remuneration Committee Monitorstheintegrityoffinancial reporting,theperformanceofthe externalAuditorandreviewsthe effectivenessoftheGroup’ssystems ofinternalcontrolandrelated complianceactivities. TheCommitteecomprisesonly independentNon-Executive Directors.TheChairofthe CommitteeattendstheAGM torespondtoanyShareholder questionsthatmightberaised ontheCommittee’sactivities.The Committee’s Report is set out on pages96to106. Regularlyreviewsthestructure, sizeandcompositionoftheBoard andoverseesthedevelopment ofadiversepipelinefororderly succession to the Board and senior executivepositions.Workingwith HR,takesanactiveroleinsetting andmeetingdiversityobjectives andstrategiesfortheCompanyasa whole. TheCommitteecomprisesthe Chairman,theindependentNon- ExecutiveDirectorsandoneother Non-ExecutiveDirector(from 10July2020).Themeetingsof theCommitteearechairedby theChairman.TheChairofthe CommitteeattendstheAGM torespondtoanyShareholder questionsthatmightberaised ontheCommittee’sactivities.The Committee’s Report is set out on pages90to95. AgreeswiththeBoardthe frameworkorbroadpolicy of remuneration for the Chairman,ExecutiveDirectors andseniorexecutives,andsets theirremuneration.Reviews remunerationpoliciesacrossthe Group,ensuringthealignment ofworkforceremunerationand incentiveswiththeGroup’sculture andstrategy. TheCommitteecomprisesfour independentNon-Executive Directors,oneotherNon-Executive Director(from10July2020)andthe Chairman(from1January2020),who wasindependentonappointment. TheChairoftheCommittee attendstheAGMtorespondtoany Shareholderquestionsthatmightbe raisedontheCommittee’sactivities. TheCommittee’sReportissetouton pages107to131. ↓ ↓ ↓ Executive Leadership Team Committee TheCommitteeaddressesoperationalissuesandisresponsibleforimplementingGroupstrategyandpolicies,day-to-day managementandmonitoringperformance.TheCommitteemeetsweeklyandhasmorein-depthmonthlymeetings.Members includethoseindividualslistedonpage74. 72 SIG plc Annual Report and Accounts for the year ended 31 December 2020Board roles EachoftheIndependentNon-ExecutiveDirectorsareconsideredbytheBoardtobeindependentofmanagementandfreeofany relationshipthatcouldmateriallyinterferewiththeexerciseoftheirindependentjudgement.TheNon-ExecutiveDirectors,appointedunder theRelationshipAgreementwithCD&R,arenotconsideredtobeindependentunderProvision10oftheCode,however,areconsidered tobeindependentofmanagementandareimportantinensuringappropriateindependentchallenge.TheChairmanwasassessedbythe Boardasbeingindependentonappointment.ThecompositionoftheBoardissuchthatitincludesanappropriatecombinationofExecutive, Non-ExecutiveDirectors(CD&RDirectors)andindependentNon-ExecutiveDirectors,andnooneindividualorgroupofindividualsdominates theBoard’sdecisionmaking.TherolesoftheChairmanandChiefExecutiveOfficerareseparateandclearlydefined,andareundertaken bydifferentindividuals,ensuringthatthereisacleardivisionofresponsibilitiesbetweentheleadershipoftheBoardandtheexecutive leadership.Moredetailsoftherolesandresponsibilitiescanbefoundonthecompany’swebsiteat www.sigplc.com. Chairman Chief Executive Officer Senior Independent Director ■ LeadingtheBoard,responsible foritsoveralleffectivenessin directingtheCompany. ■ Shapingthecultureinthe boardroom,ensuringthatall Directors,particularlytheNon- ExecutiveDirectors,makean effectivecontribution. ■ Responsibleforproposingand thendeliveringthestrategy approvedbytheBoard. ■ Responsibleforsettingan exampletotheCompany’s workforce,forcommunicatingto themtheexpectationsinrespect oftheCompany’scultureandfor ensuringthatoperationalpolicies and practices drive appropriate behaviour. ■ Availableforapproach by(orrepresentations from)Shareholders,where communications through the ChairmanorExecutiveDirectors maynotseemappropriate. ■ Leadstheevaluationofthe Chairman’sperformanceatleast onceayear,meetingwiththe Non-ExecutiveDirectors,without theChairmanbeingpresent. Non-Executive Directors Group Company Secretary ■ Appointedfortheirwide-rangingexperienceand ■ IndependentadvisortotheBoard. backgrounds. ■ EnsuresBoardproceduresarefollowedanddecisions ■ Theyeachprovideconstructivechallenge,strategic implemented. guidanceandspecialistadvice,holdingmanagementand individualExecutiveDirectorstoaccountagainstagreed performanceobjectives. ■ Ensuresbestpracticegovernancearrangementsare followed. 73 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report DIVISION OF RESPONSIBILITIES Executive Leadership Team as at 25 March 2021 Ian Ashton Chief Financial Officer Steve Francis Chief Executive Officer Highlyskilledseniorexecutivewith broad globalexperienceinfinancial leadershiproles. SeasonedCEOinturbulenttimes. Key career highlights ■ CEO,PatisserieHoldingsPLC Key career highlights ■ CFO,Low&BonarPlc ■ CFO,LabivaLLC ■ VariousseniorroleswithSmith andNephewplc ■ CEO,TulipLtd ■ CEO,DanwoodGroup HoldingsLtd Ronald Hoozemans Managing Director Germany and Benelux Over16years’experiencein leadershipacrosstheconstruction andhealthcareindustry. Key career highlights ■ ManagingDirector,Mediq ■ ManagingDirector,Nutrica AdvancedMedicalNutrition (Danone) ■ OperatingDirector,Nutrica Philip Johns Managing Director SIG UK Julien Monteiro Managing Director France Marcin Szczygiel Managing Director Poland Kevin Windle Managing Director Ireland Over30years’experienceinthe constructionindustryspecialisingin merchantinganddistribution. Over13years’globalexperiencein thespecialistindustrialdistribution industry. Over22years’experienceinthe specialistconstructiondistribution industry. Over21years’experienceinfinance leadershiprolesinthebuilding merchantingindustry. Key career highlights ■ ChiefCommercialOfficer, IBMGGroup Key career highlights ■ ManagingDirector,France, Brammer Group Key career highlights ■ ManagingDirectorforSIG Polandsince1999 ■ CEO,MKMBuildingSupplies ■ ManagingDirector,SIGE ■ BusinessDirectorandSales Director,NaccoMaterialsGroup ■ ManagingDirector,Sitaco ■ SalesandMarketingDirector, (2006–15) ■ JoinedSIGin1987 IsoverPoland Key career highlights ■ FinanceDirector,SIGIreland until2019 ■ EMEAFinanceDirector,Glanbia Performance Nutrition ■ FinanceDirector,Grafton MerchantingROI David Clegg Group Health, Safety and Environment Director Kulbinder Dosanjh Group Company Secretary Andrew Watkins Group General Counsel DavidisanaccomplishedHSEand Operationsexecutivewith40years internationalexperience. Over21years’globalexperiencein businessadministrationacrossboth publicandprivatecompanies. Over18years’experienceinlegal counselacrossbothpublicand privatecompanies. Key career highlights ■ DirectorHSSE,LogisticsandRisk, Key career highlights ■ GroupCompanySecretary, MOLPakistan RoyalMail Key career highlights ■ GeneralCounsel,HyveGroup ■ GeneralCounselandCompany ■ DirectorHSSEandRisk,Daewoo ■ GroupCompanySecretary, Secretary,Ebiquityplc E&PMyanmar BritishAirways ■ DirectorHSSEandRiskSub- SaharanAfrica,WorleyParsons ■ GeneralCounsel,AdaptServices Ltd ■ Partner,TrowersandHamlinsLLP 74 SIG plc Annual Report and Accounts for the year ended 31 December 2020Corporate Governance Report COMPOSITION, SUCCESSION AND EVALUATION Time commitments TheBoardhassatisfieditselfthatthereisnocompromisetothe independence of those Directors who have other appointments inoutsideentities.TheBoardconsidersthateachoftheNon- ExecutiveDirectorsbringtheirownseniorlevelofexperience andexpertise,andthatthebalancebetweennon-executive andexecutiverepresentationencourageshealthyindependent challenge.Priortotheirappointment,Directorsarerequiredto disclosetheirsignificantotherappointmentsandtheBoardis satisfiedthateachoftheNon-ExecutiveDirectorscandedicate sufficienttimetotheirroleandresponsibilities.Directorsare awarethattheymustnottakeonadditionalexternalappointments withoutthepriorapprovaloftheBoard.During2020,approvalwas giventoGillianKentpriortohertakinguptheroleofNon-Executive DirectorofDignityplcon11June2020andtoAlanLovellbefore hejoinedMitieGroupplcasaNon-ExecutiveDirectoron1January 2021.TheExecutiveDirectorsdonothaveanyFTSEcompanyNon- ExecutiveDirectorappointmentsorothersignificantappointments. TheNominationsCommitteeregularlyreviewstheother commitmentsofDirectorsonappointment,onanyproposalfor reappointmentandfollowinganychangeinroles,toensurethat theDirectorshavesufficienttimetoundertaketheirroleand responsibilitiestowardstheCompany. Information and support ToenabletheBoardtoperformitsdutiesefficientlyandeffectively, allDirectorshavefullaccesstoallrelevantinformationandtothe servicesoftheCompanySecretary,whoseresponsibilityitisto ensurethatBoardproceduresarefollowed.Theappointmentand removaloftheCompanySecretaryisamatterreservedforthe Board.ThereisanagreedprocedurewherebyDirectorswishing totakeindependentlegaladviceinthefurtheranceoftheirduties maydosoattheCompany’sexpense. TheCompanySecretaryisresponsibleforensuringthatBoard policiesandprocessesarefollowedincludingtheformalminuting ofanyunresolvedconcernsthatanyDirectormayhavein connectionwiththeoperationoftheCompany.Duringtheyear, therewerenosuchunresolvedissues.Further,onresignation,if aNon-ExecutiveDirectorhadanysuchconcerns,theChairman wouldinvitethemtoprovideawrittenstatementforcirculationto theBoard. TheBoardanditsCommitteesareprovidedwithenoughresources toundertaketheirduties.Appropriatetrainingisavailabletoall Directorsonappointmentandonanongoingbasisasrequired. TheGrouphasoperatedapaperlessmeetingsystemfortheBoard anditsCommitteesforanumberofyearsandcurrentlyuses Diligentsoftware.Usinganelectronicsystemformeetingpacks supportsouronlinedriveacrosstheGroupandisconsistentwith reducingtheimpactofouroperationsontheenvironment. TheBoardreceivespaperscirculatedthroughtheDiligentportal inadvanceofeachBoardmeetingaswellasinformationbetween Boardmeetingsonmatterssuchasanalystandshareholding reportsandflashresults.Thereisalsoaseparate‘ReadingRoom’ withintheportalwhereDirectorscanaccessinformationsuch ascorporatepolicies,dailysalesinformation,theArticlesof Association,Groupandorganisationalstructure,Boarddatesand contactdetails. TheCompanySecretaryattendsallBoardmeetingsandisalwaysat handtoanswerquestionsorofferindependentadviceorexpertise toDirectors,shouldthatberequired. Composition and succession Duringtheyear,anumberofnewDirectorsjoinedtheBoard asfollows.FurtherdetailscanbefoundintheNominations CommitteeReportonpages91to92. ■ TwonewExecutiveDirectors,SteveFrancis(CEO)andKath Kearney-Croft(interimCFO),joinedtheBoardreplacingMeinie OldersmaandNickMaddockrespectivelyon25February2020; ■ IanAshtonwasappointedasthepermanentCFOon1July2020; replacingKathKearney-Croft; ■ SimonKingwasappointedasanindependentNon-Executive Directoron1July2020; ■ Bruno Deschamps and Christian Rochat were appointed as theCD&RnominatedNon-ExecutiveDirectorson10July2020 inaccordancewiththeRelationshipAgreementsignedon 29 May 2020; ■ KathDurrantwasappointedasanindependentNon-Executive DirectorandChairoftheRemunerationCommittee,replacing KateAllumwitheffectfrom1January2021;and ■ ShatishDasaniwasappointedasanindependentNon-Executive DirectorandChairoftheAuditCommittee,replacingIanDuncan witheffectfrom1February2021. Furtherdetailsofthisprocess,whichtheBoardregardsasformal, rigorousandtransparent,areincludedonpages92to93. TheBoardhasalsofocusedonensuringthatsuccessionplans fortheBoardandseniormanagementwereappropriate.The Board,throughtheNominationsCommittee,givesappropriate considerationtotheskillsandexpertiserequiredontheBoardnow andinthefuture.TheNominationsCommitteealsoreviewssenior managementsuccessionanddevelopmentbutrecognisesthat developmentofamoreformaltalentpipeline(includingdiversity) shouldcontinuetobeafocusduring2021.For furtherdetailssee page94. Election and re-election of Directors UndertheArticlesofAssociation,allDirectorsaresubjectto electionattheAGMimmediatelyfollowingtheirappointment andtore-electioneverythreeyears.However,inaccordance withtheCode,allDirectorswillseekelectionorre-electionatthe Company’sAGMeachyear.InaccordancewithProvision18,the BoardshouldsetouttheskillsandexperiencethateachDirector has,andwhytheircontributionisandcontinuestobeimportantto theCompany’slong-termsustainablesuccess.TheBoardbelieves thesuccessoftheCompanygoingforwardwillbeachievedbythe new2020strategyofreturningtoprofitablegrowthbymaintaining aleadingmarketposition,withamodernisedoperatingmodel, effectivepartnershipswithcustomersandsuppliers,developing high-performingpeopleandbeingaresponsiblebusiness.The contributionofthewholeBoardisessentialindeliveringthenew strategywithanumberofveryexperiencedNon-ExecutiveDirectors andExecutiveDirectors. Andrew Allnerbringsvariedandsubstantialboardandgeneral managementexperiencetotheGroup.Hehasanin-depth understanding of corporate governance having served as a director andchairmanofseverallistedcompanies.Sincehisappointment inNovember2017,hehasledtheprocessfortheappointmentof anumberofnewNon-ExecutiveDirectorsandtwonewExecutive Directors.HehasmanagedtheCEOandCFOsuccessionand workedverycloselywiththenewCEOinthedevelopmentofthe strategy,peopleandorganisationalchanges,asuccessfulcapital raiseincludingtheCD&Rinvestmentandrefinancingdebt. 75 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report COMPOSITION, SUCCESSION AND EVALUATION Steve Francisbringssignificantturnaroundandleadership experienceacrossarangeofmulti-siteinternationalbusinesses togetherwithconsiderableexecutivemanagementexperience includingstrategicconsultancy,mergersandacquisitions, corporatefinanceandbanking.Hehasexpertiseindrivingrapid operationalandperformanceimprovementsandrestoring profitablegrowth. Ian Ashtonisahighlyskilledseniorexecutivewithbroadglobal experienceinfinancialleadershiproles.Hehasastrongtrack recordofdrivingchangeandisavaluableadditiontotheteamas SIGpursuesitsnewstrategyforgrowth. Alan Lovellbringssignificantlistedcompanyboardexperience, bothasanexecutiveandnon-executivedirector.Hehasextensive experienceintheGroup’skeysectorofconstructionbothinthe UKandEurope,theGroup’skeymarkets.Heisalsoaturnaround expert,allofwhichispertinenttotheGroup’sstrategyofimproving theperformanceintheUKandreturningthebusinesstoprofitable growth. Gillian Kentisanexperiencednon-executivedirectorhaving servedonanumberoflistedboardsandasamemberofaudit, remunerationandnominationcommittees.Shebringsavaluable perspectivewithspecialistknowledgeinthedevelopmentof e-commerceandsoftwarebusinessesandexpertiseinbuilding productmarketsandbrands,whichwillbeimportantindriving innovationanddigitisingourbusiness. Simon Kingbringsextensive,hands-onexperienceinbuilding productsanddistributionbusinessesfromacareerspanningover 35years.Healsohaschangemanagement,retail,distribution, marketingandcustomerproposition,technology,digitaland stakeholderengagement(particularlyworkforceengagement) experience.Simon’sskillsandexperiencewillbevaluableinour effortstobuildonSIG’sleadingmarketpositionsandreturningthe businesstoprofitablegrowth. Bruno Deschamps’skillsandexperienceincludedeepindustrial knowledge,corporatetransactions,extensiveexperiencein drivingandoverseeingimprovedcompanyperformance,whichis importantasSIGimprovestheperformanceintheUK. Christian Rochat’sskillsandexperienceincludedeepindustrial knowledge,transformation,changemanagement,strategy, stakeholderengagement,corporatetransactionsandextensive experienceindrivingandoverseeingimprovedcompany performance.HisexperienceandknowledgewillbeofvalueasSIG seekstoimproveitstradingperformanceandreturntoprofitable growth. Kath DurrantisanexperiencedChairofRemuneration.Shehas significantinternationalandindustryknowledgegainedfromher rolesatFergusonandCRH.Kathalsohasextensiveexperienceof workinginbusinessesundergoingtransformation,whichwillbe valuableasweseektorestructureourUKoperation. Shatish Dasani isanexperiencedpubliccompanyCFOandChair ofAuditCommitteeaswellhavingstronginternationalexperience acrossseveralsectorsrelevanttothebusiness.Hehasaproven trackrecordofdrivingshareholdervalue,whichwillbeimportantas weseektoreturntheCompanytoprofitablegrowthandcontinue toenhancethefinancialperformanceandmeasurementwithinthe Company. Therefore,toenableShareholderstomakeaninformeddecision, the2021noticeofAGMincludesbiographicaldetailsandadetailed statementastowhytheCompanybelievesthattheDirectors shouldbeelected/re-elected. ItistheviewoftheBoardthateachoftheNon-ExecutiveDirectors standingforelectionorre-electionbringsconsiderablemanagement experienceandanindependentperspectivetotheBoard’s discussions,andisconsideredtobeindependentofmanagement andfreefromanyrelationshiporcircumstancethatcouldaffect,or appeartoaffect,theexerciseoftheirindependentjudgement. TheChairmanintendstoconfirmattheAGMthat,asconfirmed bythe2020Boardevaluationprocess,theperformanceofeach individualcontinuestobeeffective,thateachDirectoractswith integrity,leadsbyexample,promotesthedesiredcultureand demonstratescommitmenttotherole. ThetermsoftheDirectors’servicecontractsaredisclosedin theDirectors’RemunerationReportonpage131.Fulldetails ofDirectors’remuneration,interestsinthesharecapitalofthe Companyandofshareoptionsheldaresetoutonpage130inthe Directors’RemunerationReport. Directors’servicecontractsandthelettersofappointmentof theNon-ExecutiveDirectorsareavailableforinspectionatthe Company’sregisteredofficeandwillbeavailableatthe2021AGM. Skills and experience TheBoardevaluationreviewprocess,detailedonpages78to 80,identifiedthattheBoardencompassesawiderangeand combinationofdifferentskills,experienceandknowledge,ranging fromaccountingtosalesandmarketingtodigital.Followingthe 2019evaluation,theBoarddecidedthattheywouldseekto enhancetheBoardin2020withtheappointmentofanadditional Non-ExecutiveDirectorwhowouldbringmorebuildingproducts distributionsexperience.Areviewofskillswasundertakenin November2020andtheBoardconcludednospecificskillswere requiredtobeenhancedduring2021. Training and induction TheChairmanregularlyreviewsandagreeswitheachDirectortheir traininganddevelopmentneeds.Duringtheyear,anumberof the Directors attended training courses and seminars on various subjects.TheBoardasawholereceivedtrainingfromAllen& OveryontheirDirectors’duties,responsibilitiesofapremiumlisted issuerandtheirliabilityforthecontentsofaprospectus,aswell ascontinuingobligationsofacompanyadmittedtothepremium listingsegmentoftheOfficialListoftheFCA.TheCompany’s brokers,assponsorsofthe2020capitalraise,alsoprovideda sessiononthecontinuingobligationsofapremiumlistedcompany. TheBoardreceivesregularpresentationsfromadvisorsand seniormanagementonarangeoftopicalissuessuchasfromthe Company’sfinancialadvisorsinrelationtoitsdebtstructureand themacrobackdropandsectordynamicsthatSIGfaces. Aspartoftherolloutofupdatedcorporatepolicies,theBoard completedonlinetrainingtoenhancetheirawarenessofthe variousrequirementsofourcorporatepolicies.TheDirectors alsoreporttotheBoardonanyothertrainingundertakenanda scheduleofDirectortrainingiskeptbytheCompanySecretary. 76 SIG plc Annual Report and Accounts for the year ended 31 December 2020Onappointment,DirectorsreceiveafullinductiontotheCompany. ThisinvolvesmeetingswitheachoftheBoardmembers,members oftheELT,externaladvisors(suchasBrokers,Auditorsand FinancialAdvisors)ordinarilyvisitstoanumberofbranchlocations (lockdownrestrictionshavehamperedthese)andreceiptofa fullpackofcorporatematerialsincluding,corporatepolicies andprocedures,detailsofinsurance,financialframeworkand Shareholders.Theprogrammeensuresthattheyarefullybriefed oncurrentkeyBoardtopicareas,theCompanystrategy,visionand structure,stakeholderengagementactivities,Groupoperations, financeandtheindustry. Diversity Policy Whilstsuccessionwithintheorganisationisbasedonobjective performancecriteria,theBoardrecognisesthatdiversityof gender,socialandethnicbackgroundsandcognitiveandpersonal strengthsarehugelyimportanttothesuccessoftheorganisation andakeyfocusoftheNominationsCommitteeworkingwiththe HRteamwillbetodevelopdiversitywithintheorganisationgoing forward.InrelationtoBoardsuccessionplanning,theBoard recentlyreviewedandupdateditsBoardDiversitypolicyand reviewedtheBoardsuccessionplan.TheBoardDiversitypolicyis availableontheCompany’swebsite(www.sigplc.com).Further detailscanbefoundonpage94. Induction undertaken with Kath Durrant Meetings with Board, key members of management team and external advisors covering: ■ KeyBoardtopics ■ Long-termstrategy ■ Commitmentculture,purposeandvision ■ Groupoperations,financeandperformance ■ Executiveandseniormanagementremunerationandpolicy ■ Industryandstakeholderengagement ■ Seniormanagementteam ■ Governanceframework *Sitevisitswillberesumedattheearliestopportunitypostlockdown andinlinewithCovid-19protocols. The induction programme was thorough and comprehensive and provided me with valuable insight into our business and strategic direction. Kath Durrant 77 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report BOARD EVALUATION Board evaluation TheeffectivenessoftheBoardanditsCommitteesandtheskills, experienceanddiversityofourDirectorsarevitaltothelong- termsustainablesuccessoftheCompany.Duringtheyear,the Boardundertookanevaluationprocesstoassessitsperformance, thatofitsthreeprincipalCommittees(Audit,Remunerationand Nominations),theChairmanandindividualDirectors. Process TheCompanySecretarypreparedaquestionnairethatwasmade availabletoDirectorsthroughtheBoardportal.TheCompany SecretaryalsointerviewedallBoardmemberstogatherfurther insights.Directorswereaskedabouttheperformanceofthe Board,theAudit,RemunerationandNominationsCommittees andindividualDirectors.TheBoardwasaskedtoconfirmwhether theChairmanpromotesrelationshipsandopencommunication bothinsideandoutsidetheboardroombetweenNon-Executive DirectorsandtheExecutiveteam.Theywerealsoaskedto considerwhatfurthercouldbedonetopromoteandencourage equalcontribution,candiddiscussionandcriticalthinkinginthe boardroom.Additionally,questionswerealsoaskedonhowwell theBoardunderstandswhattheexpectedbehavioursarein SIG(launchedaspartofthecommitmentculture)andwhether theBoarddemonstratesthemandtoalsomakesuggestionsfor improvementtosettheappropriatetonefromthetop. Skills matrix Eachyear,Directorscompleteamatrixdetailingtheirskills andexperiencecoveringanumberofdifferentareasincluding stakeholderandworkforceengagement,technology,digital,health andsafety,treasurymanagement,accounting,environmental/ESG, international,propertymanagementandcorporatetransactions. Responseswerecollated,inanunattributedmanner,intoareport producedbytheCompanySecretary.TheChairmanalsoheld individualone-to-onediscussionswitheachoftheDirectorsto discusstheirindividualperformanceandappraisal. Assessment of Chairman’s performance TheNon-ExecutiveDirectors,chairedbytheSeniorIndependent DirectorAlanLovell,metwithouttheChairmanpresenttoassess hisperformance,takingintoaccounttheviewsoftheExecutive Directors.FollowinghisconversationswithotherBoardmembers, theSeniorIndependentDirectorthenmetwiththeChairman toreviewhisperformance.Overall,Directorsconcludedthat theChairmandemonstratedgoodjudgement,workedtirelessly tosteerSIGthroughachallengingperiodandencouragesthe contributionofallNon-ExecutiveDirectors.Lockdownrestrictions havehamperedface-to-facemeetings,whichwouldfurther enhancecollaborativerelationshipsamongsttheBoardgiventhe numberofnewmembersthathavejoinedtheBoardin2020and theearlypartof2021. Progress with 2020 priorities Aspartofthereviewprocess,theBoardconsideredtheprogress madeagainstBoardprioritiesin2020,goodprogresswasmade onalloftheprioritiessetoutbelow.Nevertheless,theBoard recognisesthatenhancingBoardeffectivenesswasacontinuous journeyandfurtherimprovementscouldbemadegoingforward. Priorities 2020 Progress Made 1. Culture Althoughgoodprogresshasbeenmade,morecouldbe achievedinembeddingthecultureacrosstheorganisation andsettingthetonefromthetop.Stepshadbeentakento developadashboardtomonitorculturein2019,whichwould beenhancedfurtherin2020. ThishasbeenanunprecedentedyearfortheCompanyfroma leadership,strategyandcultureperspectiveaswellasdealing withtheCovid-19pandemic. Acommitmentculturewaslaunchedin2020atthetwo-day SLTconferenceheldinJanuary2020,whichwasattended bysomeBoardmembers.Immediatelyaftertheconference, theBoardwasprovidedwiththeresultsofthepulsesurvey, whichindicatedthatthecommitmentculturewasanextremely positivestepforwardfortheCompany.Acommitmentculture sessionwasalsoheldwiththeBoardandELTtoensureall newmembersunderstoodthecommitmentcultureandthe behavioursthateveryoneintheCompanywasexpectedto demonstrate. ThecommitmentculturewasrestartedinQ4withnewbranding launchedinJanuary2021. Tomonitorculture,regularreportshavealsobeenprovided totheBoardonGroupturnoverratesbyoperatingcompany andfunction.Dataisalsoprovidedonheadcount,recruitment, diversity,genderbreakdown,ageandtenureacrosstheGroup andSeniorLeadershippopulation.Thejourneytoembedthe culturewasacontinuousoneandwillcontinuetobeapriority fortheBoardgoingforward. 78 SIG plc Annual Report and Accounts for the year ended 31 December 2020Priorities 2020 Progress Made 2. Composition, talent, succession AlthoughtheBoardhasbeenenhancedsignificantlyduring 2019,theplanhadbeentoenhancethecompositionfurther in2020.TwonewExecutiveDirectorshavejoinedgiven thattheessentialrestructuringoftheGrouphadlargely beencompleted,theBoardbelievedthatitwastimefora newleadershipteam,withskillsindrivingrapidoperational performance improvements through strong customer relationships,excellenceincustomerserviceandcreating highlyengagedteams.TheBoard,throughtheNominations Committee,wouldfocusmoreontalent,capabilityand successionoftheManagingDirectorsoftheoperating companiesandtheirdirectreports.Improvetherecruitment, retentionoftalentandsupporttheCompany’sdiversityand inclusionaims. 3. Employee and stakeholder engagement Moreinformationanddebatearoundpeopleissues.The appointmentofadesignatedNon-ExecutiveDirectorfor workforceengagementshouldformalisetheprocessand assisttheBoardtogainadeeperunderstandingofcolleague feedback.ContinuewithBoardvisitsandmeetingswiththe management teams of the operating companies in addition to engagingmorewithsuppliersandcustomers.Developmore understandingofwhotheyare,ensureeffectiveunderstanding oftheirviewsanddevelopKPIs/dashboardtomonitorprogress. 4. Board information and support Tocontinuetoimprovetherigouranddisciplinearound Boardinformationandsupport.Ensurepapersareconcise, distributedinatimelyanduser-friendlymannerthrough thedigitalportal.Continueembeddingthearrangements developedasaresultoftheCode.Developmorerobust proceduresaroundBoardandCommitteemeetings. 5. Environment and sustainability strategy WhilstSIGhadagainbeenrecognisedasaconstituent memberoftheFTSE4GoodIndexSeries,demonstrating strongenvironmental,socialandgovernancepractices,there isaneedforfurtherclarityontheGroup’sprioritiesaround environmental,socialandgovernanceandsustainabilitymatters andtherationalebehindthedirectionoftravel. Duringtheyear,theBoardfocusedonsuccessionplanningfor ExecutiveDirectorswiththeappointmentofanewpermanent CEOandCFO.Inaddition,theBoardreviewedthetalent, capabilityandsuccessionoftheManagingDirectorsofthe operatingcompanies.Severalsignificantappointmentswere madetostrengthentheleadershipoftheoperatingcompanies. AnewhighlyexperiencedManagingDirectorwith30years industryexperiencewashiredfortheUK,amalgamatingthe leadershipofUKDistributionandExteriorsbusinesses.The Boardsoughttoimproveretentionoftalentandexpandedthe roleoftheManagingDirectoroftheBeneluxtoalsoincludethe leadershipoftheGermanbusiness. SimonKingwasappointedasaresultoftheskillsreview undertakenattheendof2019.TwonewindependentNon- ExecutiveDirectorswereappointedattheendof2020and early2021. TheimpactofCovid-19hashinderedtheWorkforce Engagementprogrammethathadbeenenvisagedfor2020. ThiswasrestartedinQ4throughvideocalls.Initialfeedback totheBoardwasprovidedinNovemberandideassuggested byemployeeswereprovidedinDecember.AGroup-wide employmentengagementsurveywaslaunchedinSeptember andfeedbackwasprovidedtotheBoardinJanuary2021. AGroup-widemulti-lingualcustomersurveywaslaunchedin SeptemberandfeedbackwasprovidedtotheBoardinJanuary 2021.Dashboards/KPIsareprovidedforSIG’stopcustomersby alloperatingcompanies. Newstrategicfocustopartnerwithsupplierstodevelopjoint strategieshasbeencommencedbyalloperatingcompanies andtheyallprovideregularupdatesagainstthesevenstrategic pillars. MeetingsandvisitsbyBoardmemberswerehamperedbythe pandemic,andsomevisitswereundertakenwherepermitted inlinewithsocialdistancingprotocols.Visitsandmeetingswill bereinstatedattheearliestopportunity,subjecttoongoing restrictions. TherigouranddisciplinearoundBoardinformationhas improvedandcontinuestoimprove.Papersarebeing distributedinatimelierfashion.Boardpaperguidelineshave beendevelopedduring2020anddistributedtotheELT. ESGisakeypriorityfortheBoard.AnESGframeworkforSIG hasbeendevelopedtogetherwiththeGroupprioritiesforthe nextfewyears.Aplanandwayforwardwerepresentedtothe BoardinJanuary2021. 79 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report BOARD EVALUATION 2020 annual effectiveness findings and Board objectives for 2021 Key Strengths Objectives for 2021 1. The Board continued to operate effectively in a challenging year TheChairmanleadstheBoardwellandsetsagoodtoneat meetings,encouragesequalparticipation.ThenewDirectors appointedduringtheyearhaveaddednewskillsand insights,suchasexperienceinbuildingproductsdistribution, transformationandstakeholderengagement.TheBoard understoodtheexpectedbehavioursanddemonstratedthem toanappropriatelevel. 1. Focus on delivering the turnaround plan DevelopapositiveandcollegiateBoardcultureanda disciplinedagendathatsupportstheExecutiveDirectorsand managementacrosstheorganisationtofocusonanddeliver theUKturnaroundplan.EnsureBoardprocessesareefficient, reducethenumberofprojectsandpriorities,anddemonstrate thattheBoardlivestheGroup’sbehaviourstosetthe appropriatetonefromthetop. 2. Purpose, vision, strategic direction understood and supported TheBoardwasextremelysupportiveandunderstoodthe strategywell.Theabilityandcapabilityofmanagementto executethestrategywaseffective. 2. Develop best-in-class leadership and management capability Monitorresultsandleadershipstyle,coachanddevelop managementandcontinuallychallengethemtoundertake meaningfultalentassessmentsinallareasofthebusinessand acrossallgeographies. 3. Board information and governance TheBoardhasreceivedmoredetailedinformationonhowthe businessisperformingandtheissuesfacingtheCompany. Boardpapersandsupportaroundmeetingshasimproved. Drivingstronggovernancewasafocusandincludedunderpillar oneoftheCompany’sstrategy.Thishasbeenaparticularfocus oftheCEOandCFOandhasseenamateriallevelofchange andimprovementduring2020. 3. Improve employee engagement and promote new winning entrepreneurial culture Employeesshouldfeelsafe,valuedandproudthatSIGoperates tohighstandardsandisawinner. Compensationpoliciesshouldbecompetitive(particularly incentives)andshouldbehonestandmotivatingforcolleagues atalllevelsintheCompany. 4. Board Committees are all considered to be operating broadly effectively TheCommitteesareinthemaineffectivelychairedand managed.TheBoardconsidersthattheCommitteesare effectiveatdealingwithmattersdelegatedtothem.However, allCommitteescouldmakeimprovementsonhowtheyareled andmanaged.TwonewChairshavebeenappointedforthe RemunerationandAuditCommittees,whichshouldprovidea fresh perspective on how these Committees are managed and ledgoingforward. 4. Regularly review strategic challenges and opportunities and build a business for the future Astheyearprogressesandwhentheturnaroundiswell underway,theBoardwillseektoreviewopportunitiestofurther growandimprovethebusiness,includinginareassuchas digital,e-commerce,newproductsandserviceopportunities. Beyond2021,theBoardwillfocusfurtheronenvironmental, sustainabilityanddiversityplansandstrategicdigitisation. 80 SIG plc Annual Report and Accounts for the year ended 31 December 2020Corporate Governance Report AUDIT, RISK AND INTERNAL CONTROL Risk management and Internal Control TheBoardhasultimateresponsibilityfortheGroup’srisk managementandsystemofinternalcontrolandforreviewingits effectiveness.Itestablishesthestructureforriskmanagement,sets strategicobjectives,setstheriskappetiteandensuresthatrisk managementandinternalcontrolstructureandframeworksare robust.TheBoarddelegatesresponsibilitytotheAuditCommitteeto considertheadequacyoftheriskmanagementandinternalcontrol frameworkandtoagreetherisk-basedinternalauditprogramme. TheELThasresponsibilityforensuringthatriskmanagementis embeddedintoallprocessesandforensuringthatriskprofileisin linewiththeapprovedriskappetite.Localcontrolsmanagerssupport processownerstodevelopcontrolsandtotesttheireffectiveness. GroupInternalAuditisresponsibleforprovidingindependent assuranceonthequalityoftheriskmanagementprocesses, developingarisk-basedinternalauditprogrammeandproviding independentassurancetotheBoardandtheAuditCommitteethat controlsinplacearedesignedappropriatelyandoperatingeffectively. TheGroupInternalAuditfunctioncomprisesofanin-houseteam supportedbyaco-sourcearrangementwithKPMGLLPwho provideinputonspecialistareas.TheBoardregularlyreviewsthe needfortheGroupInternalAuditfunctionandtheeffectivenessof theco-sourcearrangement. InformationonauditcanbefoundintheAuditCommitteeReport onpages96to106. Key elements of ongoing process for risk management and internal control Thekeyelementsoftheexistingsystemsforriskmanagement andinternalcontrol,inaccordancewiththeFRC’sGuidanceon RiskManagementandInternalControlandRelatedFinancialand BusinessReporting(September2014)(“FRC’sGuidance”),are asfollows: Risk management: ■ ThedocumentedGroupriskmanagementframework,approved bytheAuditCommittee,providesanoverviewoftheagreedrisk managementprocesseswithintheGroupandgivespractical guidancetooperatingcompaniesandindividualfunctionson themanagementofrisk.Essentially,itisatoolkittohelpmanage strategic,financial,operational,peopleandcompliancerisk.The Groupriskmanagementframeworkissupportedbyasimple packofslides(ManagingYourRisks)whichhelpsmanagement toexplaintheriskmanagementsystemtotheirteams.The GroupRiskfunctionsupportswithpracticalassistancewhere required.TheGroupriskmanagementframeworkwasformally issuedtoleadershipteamsinFebruary2019andrevisedand updatedinDecember2020. ■ InaccordancewiththeGroupriskmanagementframework, operatingcompaniesandcentralfunctionleadershipteams maintaintheirownlocalriskregisters. ■ TheBoardmaintainsanoverallGroupriskregister,thecontent ofwhichisdeterminedandassessedthroughregularinputfrom theAuditCommittee.AreviewoftheGroup’sprincipalrisksand howitmanagesormitigatesthemispresentedintheStrategic Reportonpages30to35. ■ TheGroupriskregistercontainstheprincipalrisksfacedbythe Groupandassessesthepotentialimpactandlikelihoodatboth agrosslevel(beforeconsiderationofmitigatingcontrols)and netlevel(afterconsiderationofmitigatingcontrols).Itoutlines thecurrentcontrolsinplacetomitigatetheriskandanyfurther actionsrequiredtobringtherisktowithinriskappetite.Each GroupriskisownedbyamemberoftheELTandsponsoredby eithertheCEOorCFO.Newandemergingrisksareidentified throughhorizonscanning,reviewofrelevantmediapublications, externalinsights,riskworkshopsheldwithmanagementteams anddiscussionwithseniormanagementandexternaladvisors. Onceidentified,emergingrisksareassessedbyidentifyingand mappingoutthecoreelementsoftherisk,identifyingownersfor eachelementintheoperatingcompanies,holdingworkshops withriskownerstoassessthelevelofrisk,identifyingpotential mitigatingactionsthatreducetheimpactoftheriskand seekingexternalguidanceifrequired.Potentialemergingrisks aremonitoredandassessedatleasttwiceayearbytheAudit CommitteeandBoardfortheirrelevanceandsignificance. TheBoardregularlyassessestheGroup’semergingandprincipal risksandconsidersthatitsassessmentisrobust. Internal control: Keycontrolactivitiesinclude: ■ Adefinedorganisationstructurewithlevelsofapproval governedbytheGroupDelegationofAuthoritypolicy.Thiswas updatedinJanuary2020toaccommodatechangesinoperating modelsandorganisationalstructuresacrosstheGroupand refreshedfollowingtheannualreviewinDecember2020. ■ Inlightofthechangestobusinesspracticesasanimpactof Covid-19,therewasafurthertighteningofapprovallevelsfor thepaymentofinvoicesrelatingtonon-trade,government paymentsandcapexprojects.Thiswasincludedasachangeto theDelegatedAuthoritiespolicyupdatedinSeptember2020. ■ Clearresponsibilitiesonthepartoffinancialmanagement forthemaintenanceofgoodfinancialcontrolsandthe productionandreviewofdetailed,accurateandtimelyfinancial managementinformation. ■ Acomprehensivesystemoffinancialreporting,whichincludes anannualprocessforoperatingcompanybudgets,tobe approvedbytheCEO. ■ In-depthreviewsofoperatingcompanyperformancecompleted withtheCEOandCFOattendinglocalmanagementmeetingsto discussanysignificantchangesandadversevariancesagainst budget. ■ MonthlyprovisiontotheBoardofrelevant,accurateandtimely informationincludingrelevantkeyperformanceindicators. ■ TheKeyControlsFramework(KCF)launchedin2018utilised acrosstheGroupsettingout33controlassertionsacrossa numberofentity-level,financial,operationalandITcontrolareas againstwhichoperatingcompaniesarerequiredtoself-certify onaquarterlybasisusingaRed,AmberorGreen(RAG)rating. DesignandimplementationoftheKCFcontrolsbyleadersinthe businessrepresentthefirstlineofdefenceintheorganisation. TheyrelyontheGroupcontrolsmanagers,thesecondlineof defenceandsomeofwhomarealignedtoOperatingCompanies, toadviseoncontrolsandtotesttheseonarollingbasis.Group InternalAudit,asthethirdlineofdefence,providesindependent assuranceoverthosecontrols.Thisself-certificationprocessis reportedtotheAuditCommitteeonaquarterlybasis.Thethree linesofthedefencemodelareaddressedinfurtherdetailinthe StrategicReportonpage30,andfurtherdetailinrelationtothe KCFisprovidedintheAuditCommitteeReportonpage102. ■ TheKCFself-certificationsreceivedfromoperatingcompanies havebeenreviewedtounderstandthepotentialheightening ofriskduetoCovid-19anditsimpactonworkingpractices,i.e. relocationofstaffandinaccessibilityofsomelocations.This reviewalsolookedtounderstandthemeasuresimplemented acrosstheGrouptoensureanadequateandappropriatelevel ofcontrol. 81 Stock code: SHI www.sigplc.comGOVERNANCECorporate Governance Report AUDIT, RISK AND INTERNAL CONTROL ■ Theinterimmeasuresimplementedincludedcommunication withsuppliersandadditionalsupportprovidedbytheUK SharedServiceCentretoensurethatsupplierinvoicesare receivedandprocessedswiftly,inlightofbranchclosures,anda reviewofcustomercreditlimitstoreflecttheuncertaintyaround cashcollectionsfromcustomersandthusmitigatetheriskof baddebts.Somecustomercreditlimitshavebeensettozero, socustomersarerequiredtomakeadvancepaymentsbefore orderscanberaised. ■ Regularmonthlyreportsonriskmanagement,KCFandinternal controlsateachBoardandAuditCommitteemeetingfrom theCFO. ■ RegularcashandtreasuryreportingtotheCFOandperiodic reportingtotheBoardontheGroup’staxandtreasury position.SinceCovid-19,theBoardhasbeenreviewingregular cashforecastsateverymeeting;anupdateoncashhasbeen providedaspartofthemonthlymanagementaccountssince July. ■ Anysignificantissuesorcontrolweaknessesidentifiedare ■ Group-wideCovid-19responsechecklistwasdevelopedand deployedtoaddresskeyriskspresentedbythepandemicin theshort,mediumandlongterm,givingtheAuditCommittee visibilityintomeasuresimplemented.Theareascovered weresupplychainfailure,people,liquidityandfinance,legal andregulatory,healthandsafety,customerservice,change managementandgovernanceandbusinesscontinuityriskand IT(includingfraud). Inadditiontothesenewmeasures,financeteamshavefocusedon improvingtheaccuracyofweeklycashforecastingandthelimitson theDelegationofAuthorityhavebeendecreasedsothatpayments areauthorisedatmoreseniorlevels.Controlshavealsobeen strengthenedovercustomercreditlimits. Financial reporting: ■ Inadditiontothegeneralinternalcontrolsandriskmanagement processesdescribedonpages81to83,theGroupalsohas specificsystemsandcontrolstogovernthefinancialreporting processandpreparationoftheAnnualReportandAccounts. reportedtotheELT,AuditCommitteeandtheBoard. ■ Thesesystemsincludeclearpoliciesandtheproceduresfor ■ Theoverallinternalcontrolsframeworkisregularlymonitored bytheAuditCommitteeonbehalfoftheBoardtoensure continuousimprovement. ■ Astructuredandapprovedprogrammeofauditsundertaken byGroupInternalAudit,wouldordinarilyincluderegularsite visits to and interaction with the operating companies across the Group,however,asaresultofthelockdownrestrictionsthishas beendonebyvideocall.Theimplementationofrecommended actions is monitored as part of a continuous programme of improvement.TheGroupInternalAuditmanualapprovedby theAuditCommitteeinMarch2019wasnotupdatedduringthe year,astheoverallmethodologyforidentifyingaudits,testingand reportingoncontrolswasworkingeffectively.AGroupInternal AuditeffectivenesssurveywasconductedinJanuary2021forthe yearended31December2020andfurtherdetailscanbefound intheAuditCommitteeReportonpage105. Covid-19 controls DuetotheimpactoftheglobalCovid-19pandemic,theBoardand ELTtookswiftactiontoputinplaceanumberofnewcontrolsto complywithgovernmentaladvice,protectthebusinessandits peopleandmitigateagainsttherisksarisingfromremoteworking. Theseinclude: ■ ImprovedgovernancearrangementsinitiallythroughdailyELT calls(movedtoweekly)toidentifyandresolvecommonissues inordertobuildresilience.Instigationofbi-monthlyBoard meetingswhichreturnedtoapproximatelymonthlyfromJuly. OperatingcompanyLeadershipteamsalsometseveraltimesa weektorespondtolocalissues. ■ Strengtheningofcybersecuritycontrolsthroughaccelerationof planstodefendagainsttheincreasedriskofphishingattacks. ■ Measuresinplaceinbranchestoprotectemployees,customers andsuppliersfromriskofinfection.Headofficelocationswere closedwithmanyemployeesworkingremotely.Reportingof confirmedCovid-19casesandthoseemployeeswhowereself- isolating. ■ IntroductionofaHomeworkingpolicytoensurethesafety andwellbeingofemployeesworkingremotely.Alloperating companiesputinplacedetailedcommunicationplansandhave establishedclearlinesofcommunicationwithregularGroupand individualcontactpoints.Mostoperatingcompanieshaveput asupporthotlineinplaceforemployeeswhohavequeriesor requiresupport. ensuringthattheGroup’sfinancialreportingprocessesandthe preparationofitsFinancialStatementscomplywithallrelevant reportingrequirements. ■ Thepoliciesandproceduresarecomprehensivelydetailedinthe GroupFinancemanual,whichisusedbyallbusinessesinthe preparationoftheirresults. ■ Financialreportingcontrolrequirementsarealsosetoutinthe GroupFinancemanual,whichisregularlyupdatedtoinclude changestoaccountingandreportingpoliciessuchasIFRS16. Independent review by PwC Asalreadymentionedonpage5,theBoardinstigatedanindependent review through the Group Investigation Committee commissioning PwCtoundertakeanindependentreviewoftheGroup’sforecasting andmonthlymanagementaccountsprocessesinlightofthedisparity betweentheforecastlevelofunderlyingprofitbeforetaxforthe financialyear2019setoutintheJanuary2020TradingUpdateand marketconsensusofforecastprofitpriortothatannouncement. TheBoardtakesthefindingsofthePwCreportveryseriously. TheCompanyvoluntarilynotifiedtheFCAoftheprogressofthe PwCreportandhassharedthePwCreportwiththeFCA.TheFCA confirmedtotheCompanyinOctober2020thattheywouldbetaking nofurtheraction.FollowingSIG’sreceiptofthePwCreport,inorder tostrengthentheGroup’sfinancialforecastingandinternalreporting, KPMGwasappointedtoassisttheAuditCommitteeinensuing appropriateimprovementswereimplementedtotheCompany’s financialsystems,proceduresandcontrolsrecommendedinthePwC report. Furtherdetailsontheactionstaken(inrelationtoculturechanges) areincludedintheCorporateGovernanceReportonpages59 to60.TheBoardhadalreadyagreedthatadditionalfocuswas requiredduring2020toembedthecommitmentculture,improve employeeengagementandmoraleandalsoincludedtheactions arisingfromthereview.Furtherbackgroundonthescopeofthe PwCreviewandtheactionstheCompanyimplementedinresponse aresetoutintheAuditCommitteeReportonpage104. 82 SIG plc Annual Report and Accounts for the year ended 31 December 2020Annual assessment of the effectiveness of systems of risk management and internal control systems During2020,theBoardconductedareviewoftheeffectivenessof theGroup’ssystemofriskmanagementandinternalcontrols.This reviewcoveredallcontrolsincludingoperational,complianceand riskmanagementprocedures,aswellasfinancialcontrols. Tocompletethereview,theBoardandAuditCommitteerequested, receivedandreviewedreportsfromtheDirectorofRiskand InternalAudit(includingfromthein-houseteamandco-source partnerKPMG),theCFOandtheExternalAuditor. SaveasidentifiedbythePwCreportandthefindingsthathave beenaddressed,theBoardconsidersthattheinformationthat itreceivesissufficienttoenableittoreviewtheeffectivenessof theGroup’sriskmanagementandinternalcontrolsinaccordance withtheFRC’sguidance.TheBoardconsidersthattheframework ofcontrolsinplaceiseffectiveandenablesrisktobeassessed andmanaged.TheBoardalsoconsidersitsriskmanagementand internalcontrolprocessesprovideitwiththeassurancethatall thenecessaryresourcesareinplacefortheCompanytomeetits objectivesandtomeasureperformanceagainstthemfor2020and uptoandincludingthedateofthisreport. Asnotedinthe2019AnnualReporttheBoardwasnotfullysighted ofalloftheriskstothefullyearprofitforecastin2019,however, itconsidersthatithastakentheappropriatestepstoimprove forecastingcontrolsandtheculturewithinwhichtheyoperate.The approachtoimprovingcultureisoutlinedinthissectiononpages 59to60andtheactionplaninrelationtoPwC’sfindingsaswellas theGroup’sapproachtoitscontinuedfocusoncontrolsisgivenin theAuditCommittee’sReportonpages103to104. Otherimprovementsininternalcontrolshavebeenidentified throughouttheyearandactionplansdevisedandputinplace. Progresstowardscompletionofactionsisregularlymonitoredby managementandtheBoard. Directors’ Report Substantial shareholdings Atthedateofapprovalofthe2020AnnualReportandAccounts, theCompanyhadreceivednotificationofthefollowing shareholdingsinitsissuedsharecapitalpursuanttothe Disclosure Guidanceand TransparencyRules(“DTRs”)ofthe FinancialConductAuthorityasat31 December2020and25March 2021.InformationprovidedbytheCompanypursuanttotheDTRs ispubliclyavailableviatheregulatory informationservicesandon theCompany’swebsite. Substantial Shareholdings Interests disclosed to the Company as at 31 December 2020 % Nature of holding as per disclosure Interests disclosed to the Company as at 25 March 2021 Shareholder Nature of holding as per disclosure % CD&RSunshineS.a.r.l. 331,577,934 28.06% Direct Interest 331,577,934 28.06% Direct Interest IKOEnterprisesLimited 174,743,803 14.79% IndirectInterest(1.0816%) 174,743,803 14.79% IndirectInterest(1.0816%) TamesideMBCre GreaterManchester Pension Fund 43,779,826 3.71% Direct Interest 43,779,826 3.71% Direct Interest AberforthPartnersLLP 38,723,309 3.28% Indirect Interest 38,723,309 3.28% Indirect Interest GoldmanSachs International TempletonInvestment CounselLLP ArtemisInvestment ManagementLLP MassachusettsFinancial ServicesCompany SchroderInvestment ManagementLimited IndirectInterest(0.005%) SecuritiesLending(1.24%) Swap(1.16%) CFD(0.48%) 34,049,953 2.88% IndirectInterest(0.005%) SecuritiesLending(1.24%) Swap(1.16%) CFD(0.48%) 34,049,953 2.88% 29,358,556 2.48% Indirect Interest 29,358,556 2.48% Indirect Interest 28,820,324 2.44% Indirect Interest 28,820,324 2.44% Indirect Interest 26,799,365 2.27% Indirect Interest 26,799,365 2.27% Indirect Interest 23,005,522 1.95% Indirect Interest 23,005,522 1.95% Indirect Interest NorgesBank 16,746,018 1.42% DirectInterest(1.33%) Sharesonloan(rightto recall)(0.09%) 16,746,018 1.42% DirectInterest(1.33%) Sharesonloan(rightto recall)(0.09%) JPMorganSecuritiesplc LeucadiaInvestment ManagementLimited Less than5% Less than5% Less than5% Less than5% Indirect Interest Lessthan5% Indirect Interest (0.005%) Lessthan5% Less than5% Less than5% Indirect Interest SecuritiesLending (1.24%) 83 Stock code: SHI www.sigplc.comGOVERNANCE Corporate Governance Report DIRECTORS’ REPORT Whistleblowing TheGrouphasinplaceaWhistleblowingpolicyunderwhich employeesmay,inconfidence,raiseconcernsaboutpossible wrongdoinginfinancialreportingorothermatters.Acopyofthis policyisavailableontheCompany’swebsite(www.sigplc.com). TheGroupalsohasaconfidentialhotlineinplace,whichisavailable toallGroupemployeesandprovidesafacilityforthemtobring matterstomanagement’sattentiononaconfidentialbasis.The hotlineisprovidedbyanindependentthirdparty.During2020, thesesystemswereoperationalthroughouttheGroup. Afullinvestigationiscarriedoutonallmattersraisedanda reportispreparedforfeedbacktothecomplainant.Wherea whistleblowingreporthasbeeninvestigated,anupdateisprovided totheAuditCommitteeaspartoftheDirectorofRiskandInternal Audit’sreport. TheGeneralCounselalsoreportstotheBoardeachmonth onreportsmadeunderthepolicyandthestateofongoing investigationsandconclusionsreached.During2020Group employeesusedthissystemtoraiseconcernsaboutanumber ofseparateissues,allofwhichwereappropriatelyrespondedto. Additionally,followingrecommendationsfromthePwCreport,the BoardinitiallyappointedKateAllumastheBoardwhistleblowing champion(witheffectfrom27April2020),whowasthenreplaced bySimonKingon1October2020.Awrittenremitwasagreed, arevisedWhistleblowingpolicywaslaunchedinJanuary2021 togetherwithmigrationtoanewexternalwhistleblowingplatform withenhancedfeatures.Aplanwasputinplacetofurther enhanceawarenessandeffectivenessofthenewwhistleblowing arrangements.TheELTandfinancefunctionsacrosstheGroup weregivenspecificawarenesstraining.Trainingforthenew WhistleblowingpolicyhasbeenrolledoutGroup-widethrough SIG’s onlinecomplianceplatform. Statement of the Directors on the disclosure of information to the Auditor TheDirectorswhoheldofficeatthedateofapprovalofthe Directors’Reportconfirmthat: ■ Sofarastheyareeachaware,thereisnorelevantaudit informationofwhichtheCompany’sAuditorisunaware;and ■ EachDirectorhastakenallstepsthattheyoughttohavetaken asaDirectortomakethemselfawareofanyrelevantaudit informationandtoestablishthattheCompany’sAuditoris awareofthatinformation. Thisconfirmationisgivenandshouldbeinterpretedinaccordance withtheprovisionsofsection418oftheCompaniesAct2006. Going concern Thegoingconcernstatementcanbefoundonpage28ofthe StrategicReport. Viability statement Theviabilitystatementcanbefoundonpages27to28ofthe StrategicReport. Independent Auditor OntherecommendationoftheAuditCommittee(seepage106), inaccordancewithSection489oftheCompaniesAct2006, resolutionsaretobeproposedattheAGMforthereappointment ofErnst&YoungLLPasAuditoroftheCompanyandtoauthorise theAuditCommitteetofixitsremuneration.Theremunerationof theAuditorfortheyearended31December2020isfullydisclosed innote4totheFinancialStatementsonpage161. Publication of Annual Report and notice of AGM ShareholdersaretonotethattheSIGplcAnnualReport2020 togetherwiththenoticeconveningtheAGMhavebeenpublished ontheCompany’swebsite(www.sigplc.com).IfShareholdershave electedtoreceiveShareholdercorrespondenceinhardcopy,then theAnnualReportandnoticeconveningtheAGMwillbedistributed tothem. Principal activity TheprincipalactivityoftheGroupisthesupplyofspecialist productstoconstructionandrelatedmarketsintheUK,Ireland and mainlandEurope.Themainproductsectorssuppliedduring theyearareinsulationandinteriors,roofingandexteriors. TheChairman’sStatementandStrategicReportonpages4 to 47 contain a review of these activities and comment on the futureoutlookanddevelopments.Thefinancialriskmanagement objectives,policiesandkeyperformanceindicatorsoftheCompany arealsosetoutintheStrategicReport. Political donations ItistheGroup’spolicynottomakepoliticaldonationsandno politicaldonationsweremadeduringtheyear(2019:£nil).Details oftheGroup’spoliciesinrelationtoCorporateGovernanceare disclosedonpage37. Group results and dividends TheConsolidatedIncomeStatementfortheyearended 31December2020isshownonpage136.ThemovementinGroup reservesduringtheyearisshownonpage139intheConsolidated StatementofChangesinEquity.Segmentalinformationissetoutin Note1totheFinancialStatementsonpages153to158. TheBoardhastakenthedecisionnottodeclareafinaldividendfor theyear(2019:nil),recognisingthatthisisinthebestinterestof preservingtheGroup’sliquidityposition.Aninterimdividendwas notpaidin2020(2019:1.25p).Therefore,thetotaldividendpaidin 2020wasnil(2019:1.25p). Greenhouse gas emissions DetailsoftheGroup’sgreenhousegasemissionsaredetailedinthe StrategicReportonpage43oftheSustainabilityReport. Employees DetailsoftheGroup’spoliciesinrelationtoemployees(including disabledemployees)aredisclosedintheSustainabilityReporton pages38to41.Furtherinformationonemployeeengagementand consultationcanbefoundintheStrategicReportonpage40and theCorporateGovernanceReportonpages59to60. Stakeholder engagement Furtherinformationonstakeholderengagement,includingonour businessrelationshipswithsuppliers,customersandothers,canbe foundintheCorporateGovernanceReportonpages64to71. Post balance sheet events DetailsofpostbalancesheeteventsareincludedinNote36on page205oftheFinancialStatements. Related party transactions ExceptasdisclosedinNote33totheFinancialStatementson page202,andexceptforDirectors’servicecontractsandthe RelationshipAgreementwithCD&R,theCompanydidnothaveany materialtransactionsortransactionsofanunusualnaturewith,and didnotmakeloansto,relatedpartiesintheperiodsinwhichany Directorisorwasmateriallyinterested. 84 SIG plc Annual Report and Accounts for the year ended 31 December 2020Summary of key terms of the CD&R Relationship Agreement TheCompanyenteredintoaRelationshipAgreementwithCD&Ron 29May2020,whichwillremaineffectiveaslongasCD&Risentitled toexercise10%ormoreofthevotesabletobecastonmatters atgeneralmeetingsoftheCompany.TheRelationshipAgreement regulatestheCompany’srelationshipwithCD&R.Itincludes agreementbyCD&Rthatitshall(andensurethatitsassociates shall),amongotherthings,conductalltransactionswiththe Groupatarm’slengthandonnormalcommercialterms,nottake actionsthatwouldhavetheeffectofpreventingtheGroupfrom carryingonitsbusinessindependentlyandnottakeanyactionthat wouldpreventtheCompanyfromcomplyingwithitsobligations undertheListingRulesandotherapplicablelawsandregulations. MoredetailsonthecontentoftheRelationshipAgreementcan befoundintheprospectus,whichisavailableontheCompany’s website(www.sigplc.com).AsfarastheCompanyisawarethe undertakingsincludedintheRelationshipAgreementhavebeen compliedwithduringtheperiodunderreview. FurtherdetailsontheCD&Rrelationshipinpracticecanbefound onpage63. Directors’ and officers’ liability insurance and indemnities TheCompanypurchasesliabilityinsurancecoverforDirectors andofficersoftheCompanyanditssubsidiaries,whichgives appropriatecoverforanylegalactionbroughtagainstthem.The Companyhasalsoprovidedanindemnity,whichwasinforceduring thefinancialyearforitsDirectorstotheextentpermittedbythe lawinrespectofliabilitiesincurredasaresultoftheiroffice.The indemnitywouldnotprovideanycoveragetotheextentthata Directorisprovedtohaveactedfraudulentlyordishonestly. Noclaimsorqualifyingindemnityprovisionsandnoqualifying pensionschemeindemnityprovisionshavebeenmadeeither duringtheyearorbythedateofapprovalofthisDirectors’Report. Financial instruments InformationontheGroup’sfinancialriskmanagementobjectives andpoliciesontheexposureoftheGrouptorelevantrisksarising fromfinancialinstrumentsisinNote20totheFinancialStatements onpages182to188. Future developments Possiblefuturedevelopmentsaredisclosedinourstrategysection oftheStrategicReportonpages10to15. Acquisitions and disposals Detailsofacquisitionsmade,andbusinessesidentifiedforsaleor closurearecoveredinNote15onpage177andNote11onpage 169oftheFinancialStatements. Group companies AfulllistofGroupcompanies(andtheirregisteredofficeaddresses) isdisclosedonpages232to233. Stock code: SHI www.sigplc.com 85 Corporate Governance Report DIRECTORS’ REPORT Share capital TheCompanyhasasingleclassofsharecapital,whichisdivided intoordinarysharesof10peach.At31December2020,the Companyhadacalled-upsharecapitalof1,181,556,977divided intoordinarysharesof10peach(2019:591,556,982). During2020,589,999,995ordinarysharesof10peachwere allottedwithanaggregatenominalvalueof£58,999,999.50andthe considerationreceivedforthisallotmentwas£165m. Duringtheyearended31December2020,optionswereexercised pursuanttotheCompany’sshareoptionschemes.Nonewordinary shareshavebeenallottedundertheseschemessincetheendof thefinancialyeartothedateofthisreport.Detailsofoutstanding optionsundertheGroup’semployeeandexecutiveschemesare setoutinNote27onpages195to196,whichalsocontainsdetails ofoptionsgrantedoverunissuedsharecapital. Rights attaching to shares Therightsattachingtotheordinarysharesaredefinedinthe Company’sArticlesofAssociation.TheArticlesofAssociationmay bechangedbyspecialresolutionoftheCompany.AShareholder whosenameappearsontheCompany’sRegisterofMemberscan choosewhethertheirsharesareevidencedbysharecertificates (e.g.incertificatedform)orheldinelectronic(e.g.uncertificated) forminCREST(theelectronicsettlementsystemintheUK). Subjecttoanyrestrictionsbelow,Shareholdersmayattendany generalmeetingoftheCompanyand,onashowofhands,every Shareholder(ortheirrepresentative)whoispresentatageneral meetinghasonevoteoneachresolutionand,onapoll,every Shareholder(ortheirrepresentative)whoispresenthasonevote oneachresolutionforeveryordinaryshareofwhichtheyarethe registeredShareholder. Aresolutionputtothevoteofageneralmeetingisdecidedona showofhandsunlessbeforeoronthedeclarationoftheresultofa voteonashowofhands,apollisdemandedbytheChairmanofthe meeting,orbyatleastfiveShareholders(ortheirrepresentatives) presentinpersonandhavingtherighttovote,orbyany Shareholders(ortheirrepresentatives)presentinpersonhaving atleast10%ofthetotalvotingrightsofallShareholders,orbyany Shareholders(ortheirrepresentatives)presentinpersonholding ordinarysharesinwhichanaggregatesumhasbeenpaidupofat leastone-tenthofthetotalsumpaiduponallordinaryshares. Shareholderscandeclarefinaldividendsbypassinganordinary resolution,buttheamountofsuchdividendscannotexceedthe amountrecommendedbytheBoard.TheBoardcanpayinterim dividendsonanyclassofsharesoftheamountsandonthedates andfortheperiodstheydecideprovidedthedistributableprofitsof theCompanyjustifysuchpayment.TheBoardmay,ifauthorisedby anordinaryresolutionoftheShareholders,offeranyShareholder therighttoelecttoreceivenewordinaryshares,whichwillbe creditedasfullypaid,insteadoftheircashdividend. Anydividendthathasnotbeenclaimedfor12yearsafteritbecame dueforpaymentwillbeforfeitedandwillthenbelongtothe Company,unlesstheDirectorsdecideotherwise. IftheCompanyiswoundup,theliquidatorcan,withthesanction ofanextraordinaryresolutionpassedbytheShareholders, divideamongtheShareholdersalloranypartoftheassetsofthe Companyandtheycanvalueanyassetsanddeterminehowthe divisionshallbecarriedoutasbetweenthemembersordifferent classesofmembers.Theliquidatorcanalsotransferthewholeor anypartoftheassetstotrusteesuponanytrustsforthebenefit ofthemembers.NoShareholderscanbecompelledtoacceptany assetwhichwouldgivethemaliability. UndertheCompany’sShareIncentivePlan(the“SIP”),theSIP trusteeholdssharesonbehalfofemployeeparticipants.In accordancewiththeSIPtrustdeedandrules,theSIPtrusteemust actinaccordancewithanydirectionsgivenbyaSIPparticipantin respectoftheirSIPshares.Intheabsenceofanysuchdirections fromaSIPparticipanttheSIPtrusteewillnottakeanyactionin respectofSIPshares. UndertheSIGemployeebenefittrust(the“EBT”),theEBTtrustee holdssharesonbehalfofemployeeparticipants,tobeusedfor thesettlementofawardsgrantedundertheCompany’sincentive plans.TheEBTtrusteehas,underthetrustdeedestablishingthe EBT,waivedallrightstovoteinrespectofanysharesheldinthe EBT,exceptanysharesparticipantsownbeneficially,inrespectof whichitwillinviteparticipantstodirecthowthetrusteeshallactin relationtothesharesheldontheirbehalf.Thenumberofshares heldintheEBTon25Marchwas125,429.TheEBTtrusteehasalso waiveddividendsonsharesheldintheEBT. Furtherinformationrelatingtothechangeofcontrolprovisions undertheCompany’sincentiveplansappearswithinthe RemunerationpolicyavailableontheCompany’swebsite. Voting at general meetings AnyformofproxysentbytheCompanytoShareholdersinrelation toanygeneralmeetingmustbedeliveredtotheCompany,whether inwrittenorelectronicform,nolessthan48hoursbeforethetime appointedforholdingthemeetingoradjournedmeetingatwhich thepersonnamedintheappointmentproposestovote. TheBoardmaydeterminethattheShareholderisnotentitledto exerciseanyrightconferredbybeingaShareholderiftheyorany personwithaninterestinshareshasbeensentanoticeunder Section793oftheCompaniesAct2006(whichconfersupon publiccompaniesthepowertorequireinformationwithrespectto interestsintheirvotingshares)andtheyoranyinterestedperson failedtosupplytheCompanywiththeinformationrequestedwithin 14daysafterdeliveryofthatnotice.TheBoardmayalsodecidethat nodividendispayableinrespectofthosedefaultsharesandthat notransferofanydefaultsharesshallberegistered. TheserestrictionsendsevendaysafterreceiptbytheCompanyof anoticeofanapprovedtransferofthesharesoralltheinformation requiredbytherelevantSection793Notice,whicheveristheearlier. Transfer of shares TheBoardmayrefusetoregisteratransferofacertificatedshare thatisnotfullypaid,providedthattherefusaldoesnotprevent dealingsinsharesintheCompanyfromtakingplaceonanopen andproperbasis.TheBoardmayalsorefusetoregisteratransfer ofacertificatedshareunless:(i)theinstrumentoftransferis lodged,dulystamped(ifnecessary),attheregisteredofficeofthe CompanyoranyotherplacedecidedbytheBoardaccompanied byacertificateforthesharetowhichitrelatesandsuchother evidenceastheBoardmayreasonablyrequiretoshowtheright ofthetransferortomakethetransfer;(ii)isinrespectofonly oneclassofshares;and(iii)isinfavourofnotmorethanfour transferees. TransferofuncertificatedsharesmustbecarriedoutusingCREST and the Board can refuse to register a transfer of an uncertificated shareinaccordancewiththeregulationsgoverningtheoperation ofCREST. 86 SIG plc Annual Report and Accounts for the year ended 31 December 2020Corporate Governance Report DIRECTORS’ REPORT Variation of rights IfatanytimethecapitaloftheCompanyisdividedintodifferent classesofshares,thespecialrightsattachingtoanyclassmaybe variedorrevokedeither: (i) Withthewrittenconsentoftheholdersofatleast75%in nominalvalueoftheissuedsharesoftheclass;or (ii) Withthesanctionofanextraordinaryresolutionpassedat aseparategeneralmeetingoftheholdersofthesharesof theclass. TheCompanycanissuenewsharesandattachanyrightstothem. Ifthereisnorestrictionbyspecialrightsattachingtoexisting shares,rightsattachingtonewsharescantakepriorityoverthe rightsofexistingshares,orthenewsharesandtheexistingshares aredeemedtobevaried(unlesstherightsexpresslyallowit)bya reductionofpaidupcapital,orifanothershareofthatsameclass isissuedandranksinpriorityforpaymentofdividend,orinrespect ofcapitalormorefavourablevotingrights. Election and re-election of Directors TheCompanymay,byordinaryresolution,ofwhichspecialnotice hasbeengiveninaccordancewiththeCompaniesAct,removeany Directorbeforetheexpirationoftheirperiodofoffice.Theofficeof aDirectorshallbevacatedif: (i) TheyceasetobeaDirectorbyvirtueofanyprovisionoflawor isremovedpursuanttotheCompany’sArticlesofAssociation orhe/shebecomesprohibitedbylawfrombeingaDirector; (ii) Theybecomebankruptorcompoundswiththeircreditors generally; (iii) Theybecomeofunsoundmindorapatientforanypurposeof anystatuterelatingtomentalhealthandtheBoardresolves thattheirofficeisvacated; (iv) Theyresign; (v) TheyfailtoattendBoardmeetingsforsixconsecutivemonths withoutleaveofabsencefromtheBoardandtheBoard resolvesthattheofficeisvacated; (vi) Theirappointmentterminatesinaccordancewiththe provisionsoftheCompany’sArticles; (vii) Theyaredismissedfromexecutiveoffice; (viii) TheyareconvictedofanindictableoffenceandtheDirectors resolvethatitisundesirableintheinterestsoftheCompany thattheyremainasaDirector;or (ix) TheconductoftheDirectoristhesubjectofaninvestigation andtheDirectorsresolvethatitisundesirableintheinterests oftheCompanythattheyremainaDirector. TheBoardmay,fromtimetotime,appointoneormoreDirectors asManagingDirectorortofulfilanyotherexecutivefunctionwithin theCompanyforsuchterm,remunerationandotherconditions ofappointmentasitmaydetermine,anditmayrevokesuch appointment(subjecttotheprovisionsoftheCompaniesAct). Agreements with employees and significant agreements (contracts of significance) TherearenoagreementsbetweentheCompanyanditsDirectors oremployeesprovidingforcompensationforlossofofficeor employment(whetherthroughresignation,purportedredundancy orotherwise)thatoccursbecauseofatakeoverbid. TheCompany’sbankingarrangementsareterminableupona changeofcontroloftheCompany.Certainotherindebtedness becomesrepayableifachangeofcontrolleadstoadowngradein thecreditratingoftheCompany.Bankconsentisrequiredforany majoracquisitionordisposalofassets. Fixed assets IntheopinionoftheDirectors,thereisnomaterialdifference betweenthebookvalueandthecurrentopenmarketvalueofthe Group’sinterestsinlandandbuildings. CREST TheCompany’sordinarysharesareinCREST,thesettlement systemforstocksandshares. 2021 Interim Report CurrentregulationspermittheCompanynottosendhard copiesofitsInterimReportstoShareholdersandthereforethe CompanyintendstopublishitsInterimReportonitswebsiteat www.sigplc.com. 88 SIG plc Annual Report and Accounts for the year ended 31 December 2020Authority to purchase own ordinary shares Shareholders’authorityforthepurchasebytheCompanyof 59,155,698ofitsownsharesexistedattheendoftheyear. The Companyhasmadenopurchasesofitsownordinaryshares pursuanttothisauthority.TheCompanywillseektorenewthis. ForthepurposesofLR9.8.4CR,theinformationrequiredtobe disclosedbyLR9.8.4Rcanbefoundinthefollowinglocations: Section Topic Location (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Interestcapitalised Notapplicable Publicationofunaudited financialinformation Detailsoflong-term incentive schemes Waiverofemolumentsby a Director Waiver of future emolumentsbyaDirector Non pre-emptive issues ofequityforcash Item(7)inrelation tomajorsubsidiary undertakings Parent participation inaplacingbyalisted subsidiary Notapplicable Remuneration CommitteeReport, page119 Notapplicable Remuneration CommitteeReport, page118 Notapplicable Notapplicable Notapplicable Contracts of significance Notapplicable Provisionofservicesby a controllingShareholder Shareholderwaivers of dividends Shareholderwaiversof future dividends Agreementswith controllingShareholders Notapplicable Notapplicable Notapplicable Notapplicable Cautionary statement Thecautionarystatementcanbefoundonpage29oftheStrategic Report. Content of Directors’ Report TheCorporateGovernanceReport(includingtheBoardbiographies) canbefoundonpages50to89,theAuditCommitteeReporton pages95to106,theNominationsCommitteeReportonpages90 to97,andtheDirectors’ResponsibilityStatementonpage132are incorporatedbyreferenceandformpartofthisDirectors’Report. TheDirectors’Report,togetherwiththeDirectors’Remuneration Reportonpages107to131,fulfilstherequirementsofthe CorporateGovernanceStatementforthepurposesofDTR7.2.6. TheBoardhaspreparedaStrategicReport(includingtheBusiness review),whichprovidesanoverviewofthedevelopmentand performanceoftheCompany’sbusinessintheyearended 31 December2020anditspositionattheendoftheyearand coverslikelyfuturedevelopmentsinthebusinessoftheCompany andGroup.TheSustainabilityReportformspartofthe Strategic Report. ForthepurposesofcompliancewithDTR4.1.8R,therequired contentoftheManagementReportcanbefoundintheStrategic ReportandthisDirectors’Report,includingthesectionsofthe AnnualReportandAccountsincorporatedbyreferenceSIGhas beenmindfulofthebestpracticeguidancepublishedbyDefra andotherbodiesinrelationtoenvironmental,communityand socialKPIswhendraftingtheStrategicReport.TheBoardhas alsoconsideredsocial,environmentalandethicalrisks,inline withthebestpracticerecommendationsoftheAssociationof BritishInsurers.Management,ledbytheCEO,hasresponsibility foridentifyingandmanagingsuchrisks,whicharediscussed extensivelyinthisAnnualReportandAccounts. Alltheinformationcross-referencedisherebyincorporatedby referenceintothisDirectors’Report. Approval of the Directors’ Report TheDirectors’Reportsetoutonpages84to89wasapprovedby theBoardofDirectorson25March2021andsignedonitsbehalf by: Kulbinder Dosanjh Company Secretary 25March2021 89 Stock code: SHI www.sigplc.comGOVERNANCENominations Committee Report Committee Membership (during 2020 & 2021) Andrew Allner1 Chairman Andrea Abt IndependentNon-Executive Director(resigned12February 2020) Kate Allum IndependentNon-Executive Director (resigned 31December2020) Ian Duncan IndependentNon-Executive Director(resigned31January 2020) 1. Independent on appointment Gillian Kent IndependentNon-Executive Director Simon King IndependentNon-Executive Director(appointed1July 2020) Alan Lovell SeniorIndependent Non-ExecutiveDirector Christian Rochat Non-ExecutiveDirector (appointed10July2020) Kath Durrant Independent Non- ExecutiveDirector (appointed1January2021) Shatish Dasani Independent Non- ExecutiveDirector (appointed1February2021) Purpose and aims ToleadtheprocessforBoardappointments,ensureplans areinplacefororderlysuccessiontobothBoardandsenior managementpositionsandoverseethedevelopmentofa diversepipelineforsuccession. TheCommitteeaimstomaintaintheappropriatebalanceof skills,knowledge,experience,diversityandindependence of the Board and its Committees to ensure their continued effectiveness. Key responsibilities ■ Toreviewthestructure,sizeandcomposition(includingthe skills,knowledge,experienceanddiversity)requiredofthe Boardcomparedtoitscurrentpositionandinthelightof futurechallengesaffectingthebusiness. ■ TomakerecommendationstotheBoardregardingany changes,toensurethatplansareinplacefortheorderly successionanddevelopmentofDirectorsandothersenior executivesandtooverseethedevelopmentofadiverse pipelineforsuccession. ■ WorkingwiththeGroupHRDirector,totakeanactiverole insettingandmeetingdiversityobjectivesandstrategiesfor theGroupasawhole. Terms of reference DuringtheyeartheBoardreviewedandagreedtermsof reference.ThesecanbefoundontheCompany’swebsiteat www.sigplc.com. Evaluation AninternalevaluationwasconductedfortheCommitteeinline withtheCode.Moredetailscanbefoundonpage78. 90 The Committee understands the importance of its role in ensuring the Board has the right mix of skills, experience and behaviours to support the business strategy. Andrew Allner, Chair of the Nominations Committee Dear Shareholder, IampleasedtopresentSIG’sNominationsCommitteeReportfor thefinancialyearended31December2020onbehalfoftheBoard. ThecompositionoftheNominationsCommitteemeetswiththe requirementsoftheCodewiththemajorityofmembersbeing independent(fiveoutofsevenmemberswereindependentandI wasindependentonappointment)but,inlinewithgoodpractice, membershipisreviewedannually.TheCommitteereviewedthe structureandcompositionoftheBoardandmadeseveralchanges totheBoardduring2020assetoutbelow. During2020,theCommitteedealtwiththeresignationofthe ExecutiveDirectors,MeinieOldersmaandNickMaddockon 24February2020followedbytherecruitmentoftwonewExecutive Directors,SteveFrancisandKathKearney-Croftonaninterimbasis. Weannouncedon24April2020thatStevewouldbecometheChief Executiveonapermanentbasis. Inaddition,IanAshtonwasappointedaspermanentGroupCFO witheffectfrom1July2020.Ianisahighlyexperiencedsenior executivewithastrongtrackrecordofdrivingchangeandisa valuableadditiontotheteamaswepursueournewstrategyfor growth.IanreplacedKathKearney-Croft,whoassumedtheroleof InterimCFOon25February2020. TheCommitteeundertakesaregularreviewofskills,experience andbehavioursandacknowledgedthatmorebusinessexperience inbuildingproductsdistributionwasrequiredontheBoard. AsearchwasundertakenwhichresultedinSimonKingbeing appointedon1July2020. Simonbringsextensive,hands-onexperiencefromacareer spanningover35years,mostrecentlyservingontheTravisPerkins ExecutiveBoardandholdingthepositionofChiefExecutiveOfficer forWickes.Simon’sappointmentisvaluableinoureffortsto buildonSIG’sleadingmarketpositionsandreturnthebusiness toprofitablegrowth.Furtherdetailonourrecruitmentprocessis providedlaterinthisreport. SIG plc Annual Report and Accounts for the year ended 31 December 2020Furthermore,inaccordancewiththetermsoftheRelationship Agreementdated29May2020betweenCD&RandtheCompany, Bruno Deschamps and Christian Rochat were appointed as Non-ExecutiveDirectorswitheffectfrom10July2020.Both Bruno’sandChristian’sdeepindustrialknowledge,alliedtotheir extensiveexperienceindrivingandoverseeingimprovedcompany performance,isprovingtobeofgreatbenefittotheGroupand theyaremakinganextremelypositivecontributiontotheBoard. Onappointment,ChristianbecameamemberoftheNominations CommitteeandBrunoamemberoftheRemunerationCommittee. TheCommitteealsocommencedtherecruitmentoftwonew Non-ExecutiveDirectors,andIwasdelightedtowelcomeKath DurrantandShatishDasani.KathreplacedKateAllumasChairof theRemunerationCommitteeon1January2021.Katestepped downfromtheBoardon31December2020.ShatishreplacedIan DuncanasChairoftheAuditCommitteeon1February2021.Ian steppeddownfromtheBoardon31January2021.BothKathand ShatishbecamemembersoftheCommitteeonappointment. InlinewithbestpracticetheCommitteerecommendedtothe BoardmyappointmenttotheRemunerationCommitteetoensure adequateBoardoversighteffectivefrom1January2020. TheCommittee’sworkfor2021overandaboveitsnormalduties, willcontinuetofocusonsupportingthereturntoprofitbyensuring itundertakesappropriatesuccessionplanningandhaveamore structuredreviewoftalentmanagement,performanceand capability,whichincludesdiversityinthebroadestsense. Andrew Allner Chair of the Nominations Committee 25March2021 Meetings and membership Duringtheyear,theCommitteemetonnineoccasions.The quorumisthreemembers,themajorityofwhommustbe independentNon-ExecutiveDirectors.MembersoftheCommittee arenotinvolvedinmattersaffectingtheirownposition. Asat10July2020,theCommitteecomprisedtheChairmanandthe fiveindependentNon-ExecutiveDirectorsandoneNon-Executive DirectoroftheCompany.NoExecutiveDirectorsareappointed totheCommittee;however,theymayattendbyinvitationifthe matterstobediscussedrequiretheirparticipation. Attendanceatmeetingsissetoutonpage58. Board succession planning TheNominationsCommitteegivesfullconsiderationtosuccession planningforDirectors,bothNon-ExecutiveandExecutive,and otherseniormanagementoftheCompanyinthecourseofitswork, takingintoaccountthechallengesandopportunitiesfacingthe Companyanddeterminingwhatskills,knowledgeandexpertise willberequiredontheBoardinthefuture.Duringtheyear,the Committeealsoreviewedtheseniormanagementsuccessionand leadershipdevelopmentbutrecognisesthatdevelopmentofa moreformaltalentpipeline(includingdiversity)shouldcontinueto beafocusduring2021. Areviewofskillsandexperiencewasundertaken,whichhighlighted thatmorebusinessexperienceofbuildingproductsdistribution wasrequiredontheBoard.SimonKingwasappointedandis invaluableinoureffortstobuildonSIG’sleadingmarketpositions andreturnthebusinesstoprofitablegrowth.Simondoesnot haveanyotherappointmentsand,therefore,theCommitteewas confidenthewouldbeabletodevotesufficienttimetoSIG. BrunoandChristianjoinedtheBoardasNon-ExecutiveDirectors followingtheinvestmentfromCD&Rinaccordancewiththe RelationshipAgreement. TheCommitteealsoconsideredthereplacementofbothKateAllum andIanDuncanwhoindicatedtheywishedtostepdownfromthe Board.Ianwantedtoreducehistimecommitments.Asearchwas commencedin2020.KathDurrantreplacedKateAllumasChair oftheRemunerationCommitteewitheffectfrom1January2021. Kathhasmorethan30years’HumanResourcesexperience,witha strongoperationalandstrategictrackrecord,gainedatanumber oflargeglobalcompanies.Shealsohasextensiveexperienceof workinginbusinessesundergoingtransformation,whichwillbe valuableasSIGseekstorestructureitsUKoperations. ShatishDasanireplacedIanDuncanwitheffectfrom1February 2021asChairoftheAuditCommittee.Shatishhasover20 years’experienceinseniorpubliccompanyfinancerolesacross varioussectorsincludingbuildingmaterials,advancedelectronics, engineering,generalindustrial,businessservices,construction andinfrastructure.Healsohasaproventrackrecordofdriving shareholdervaluewhichwillbeimportantasSIGseekstoreturn theCompanytoprofitablegrowth. FormoreinformationonbiographicaldetailsforeachDirectorsee pages54to56. 91 Stock code: SHI www.sigplc.comGOVERNANCENominations Committee Report Board recruitment Ingeneralterms,whenconsideringcandidatesforappointment asDirectorsoftheCompany,theNominationsCommittee,in conjunctionwiththeBoard,draftsajobspecificationandcandidate profile.Indraftingthis,considerationwouldbegiventotheexisting experience,knowledgeandbackgroundofBoardmembersaswell asthestrategicandbusinessobjectivesoftheGroup. OnceadetailedspecificationhasbeenagreedwiththeBoard,the Committeewouldthenworkwithanappropriateexternalsearch andselectionagencytoidentifycandidatesoftheappropriate calibreandwithwhomaninitialcandidateshortlistcouldbeagreed. Theconsultantsarerequiredtoworktoaspecificationthatincludes thestrongdesirabilityofproducingafulllistofcandidateswho meettheessentialcriteria,whilstreflectingthebenefitsofdiversity inthebroadestsenseandgoesbeyondethnicityandgender.The Boardwillonlyengagesuchconsultantswhoaresigneduptothe voluntarycodeofconductongenderdiversityoncorporateboards. Shortlistedcandidateswouldthenbeinvitedtointerview withmembersoftheCommitteeand,ifrecommendedbythe CommitteewouldordinarilybeinvitedtomeettheentireBoard beforeanydecisionistakenrelatingtotheirappointment. Theprocess,inconnectionwiththeappointmentofSimonKing, KathDurrantandShatishDasaniisdescribedindetailonpage93. BarryGouldConsultingwasengagedfortheappointmentofSimon KingandRidgewayPartnerswasengagedfortheappointmentof KathDurrantandShatishDasani. TheprocessfortheappointmentofSteveFranciswasbroadlythe same,theSavannahGroupwasinvolvedinleadingthesearchfor aninterimCEO.Interviewsfortheinterimcandidateswereheld onthisoccasionwiththeChairmanandtheSeniorIndependent Director.BarryGouldConsultingwasengagedtoleadthesearch processforapermanentCEO,bothproducingashort-listof candidatesmatchingtherequiredskills.Thissearchprocess,led bytheChairman,assessedbothexternalandinternalcandidates andconcludedthatStevewastheoutstandingcandidateforthe roleofCEO.OdgersBerndtsonwasengagedfortheappointment ofIanAshtonfortheroleofCFO.BarryGouldConsultingGroup andRidgewayPartnersdonothaveanyotherconnectionswiththe CompanywhereastheSavannahGroupandOdgersBerndtson havebeenemployedforseniorexecutiveappointments.Allthe recruitmentfirmshavesigneduptotheExecutiveSearchFirms’ VoluntaryCodeofConduct. Atthetimeoftheirappointments,areviewoftheiroutside appointmentswasundertakentoensuretheywouldbothhave sufficienttimetodedicatetoSIG. Simon,Bruno,Christian,KathandShatishwillofferthemselvesfor electionatthe2021AnnualGeneralMeeting. Inmakingrecommendationsfortheannualre-electionofthe ChairmanandNon-ExecutiveDirectors,theCommitteeconsiders theskills,knowledge,experience,independenceandalsothetime commitmentsofeachDirectortoensurethattheyhavesufficient timetofulfiltheirresponsibilitiestothebusiness. 2020wasanunprecedentedyearastheCompanynavigatedits waythroughtheCovid-19pandemic,changesintheleadership, raisingfundsfromShareholdersincludingtheinvestmentby CD&Randrestructureditsdebtand,atthesametime,building onitsleadingmarketpositionsandpositioningthebusinessfora returntoprofitablegrowth.TheChairmanhasalsodemonstrated asignificanttimecommitmenttoSIGduringtheyearoverand abovehisnormaldutiesasChairmanforaperiodofsixmonthsin ordertosecurethestabilityoftheCompany,aswellasproviding additionalsupportduringtheperiodofabsenceoftheprevious CEO.AndrewalsoprovidedextrasupporttothetwonewExecutive Directors,SteveFrancisandKathKearney-Croftappointedon25 February2020,andtoIanAshtonduringtheCovid-19pandemic alongwithallotherBoardmembers.HeassistedtheCEOandCFO withengagementwithShareholdersontheFirmPlacing,Placing andOpenOfferandrestructuringtheCompany’sdebt,leadingto dailycallswithkeyadvisorsduringthistime.TheBoardconfirmed theChairmanretainedhisnon-executivestatusduringtheperiod heprovidedsignificantsupport. Attheendof2019,theCommitteeconsideredaproposalto appointKateAllumasthedesignatedNon-ExecutiveDirectorwith responsibilityforworkforceengagement.During2020,Katewas alsoappointedaswhistleblowingchampion.However,following theappointmentofSimonKingandhiskeeninterestinworkforce engagementitwasagreedthathewouldreplaceKate.Inaddition, hewasalsoappointedastheBoard’swhistleblowingchampionin October2020whichwillcomplementhisroleasthedesignated Non-ExecutiveDirectorforworkforceengagement.Again,the CommitteereviewedSimon’stimecommitmentstoensurehe wouldbeabletodischargethedutiesundertheserolesadequately andthereforerecommendedtheappointmenttotheBoard. TheCommitteealsoconsideredthereappointmentofAndrewAllner totheBoard.Andrewwasoriginallyappointedon1November2017 foraninitialthree-yeartermuntil31October2020.Havingconsidered hisothertimecommitments,theCommitteerecommendedhis reappointmenttotheBoardforafurtherthree-yeartermuntil November2023. Takingintoaccounttheaboveandhavingconsideredthetime commitmentsoftheotherNon-ExecutiveDirectors,inaddition totheBoardevaluationreviewprocessdetailedonpage78,the CommitteeandtheBoardhaveconfirmedtheyaresatisfiedthat boththeChairmanandtheotherNon-ExecutiveDirectorshave sufficienttimeandthenecessaryskillsandexperiencetofulfil ourresponsibilitiestothebusiness.Furtherdetailsonskillsand experienceofeachDirectorandwhytheBoardbelievestheir contributionisandcontinuestobeimportanttotheCompanyisset outonpages75to76. AllDirectorswillaccordinglybeputforwardforelectionorre-election atthe2021AGM. 92 SIG plc Annual Report and Accounts for the year ended 31 December 2020Key activities during 2020 Process for recruitment of two additional Non-Executive Directors* ■ ResignationofMeinieOldersmaandNickMaddockin February2020 ■ RecommendationoftheappointmentofSteveFrancisas ExecutiveDirectorandinterimthenpermanentCEOandIan AshtonasanExecutiveDirectorandCFO ■ RecommendationofreappointmentofAndrewAllneras Chairmanattheendofhisinitialthree-yeartermofoffice, includingreviewinghisothertimecommitments ■ ApprovalofupdatedCommitteetermsofreference,taking intoaccounttheappointmentofCD&Rnomineesandthe revisedICSAmodelTermsofReferenceforrecommendation to the Board ■ ReviewofBoardsuccessionplansfor2020/2021andsenior managementsuccessionandleadershipdevelopment ■ Recommendationforre-electionofDirectorsat2020AGM ■ GaveapprovalforGillianKenttojointheBoardofDignity plcandAlanLovelltojointheBoardofMitieGroupplcas aNon-ExecutiveDirectorsfollowingareviewoftheirtime commitments ■ RecommendationofappointmentofSimonKing,Kath DurrantandShatishDasaniasNon-ExecutiveDirectors ■ RecommendationofappointmentofSimonKingas designatedNon-ExecutiveDirectorresponsibleforworkforce engagementandwhistleblowingchampion,including reviewing his other time commitments ■ ReviewoftheanalysisofBoardskills ■ ReviewedandagreedtheBoarddiversityandinclusionpolicy for recommendation to the Board ■ ReviewofCommitteeevaluationreportandagreedareasof focusfor2021 ■ StructureandcompositionoftheBoardanditsCommittees, takingaccountofsuccessionplanningfortheBoard, Directors’othertimecommitmentsandtheskills,knowledge andexperienceofDirectors ■ TalentmanagementwithintheGrouptakingintoaccount, Groupstrategyandthechallengesandopportunitiesfacing the Group Areas of focus in 2021 In2021,theCommitteeinadditiontoitsnormaldutieswillbeto: ■ ContinueitsfocusonsuccessionplanningfortheBoard, ExecutivesandSeniorLeadershipteam;and ■ Undertakeamorestructuredandformalreviewoftalent management,performanceandcapabilityagainstthe Company’sstrategicgoals. The objective TheCommitteehadbeenadvisedthatbothKateAllumandIan Duncanwishedtostepdownandthereforetheobjectivewasto recruitreplacementsfortheChairoftheAuditandRemuneration Committees. ↓ The brief Weconstructedadetailedbriefforrecruitmentconsultants,including adetailedcandidateprofileandjobspecification,identifyingthe skillsrequiredofthenewNon-ExecutiveDirectors,havingregardto thebalanceofskills,knowledgeandexperienceofexistingBoard membersandthestrategyandfuturechallengesandobjectivesof thebusiness.TheimportanceweplaceondiversitywithinourBoard wasstressedwithinthebrief. ↓ The engagement RidgewayPartnerswasengagedtoleadthesearchprocess.They have no other connection to the Group and are signatories to the LordDavies’VoluntaryCodeofConductforExecutivesearchfirms promotingdiversityinrecruitment. ↓ The search TheChairmanandSeniorIndependentDirectorreviewedalong-list, preparedbyRidgewayPartners,ofpotentialcandidateswhoseskills matchedthecriteriawithinthebrief.Thiscontainedahighproportion offemalecandidates,diverseeducationalbackgroundsandpeopleof colour.Thereafter,ashortlistofcandidateswaspreparedcontaining onlywomenand/orpeopleofcolour. ↓ The interviews InterviewswereheldwiththeChairmanandSeniorIndependent Director.FollowedbyinterviewswiththeCEOandtheCD&R Directors.Thefinaltwocandidatesthenmetwithmembersofthe widerBoardandfollowingthereceiptofsuitablereferences,were thereafterrecommendedtotheBoardforappointment. ↓ The induction Astructuredandtailoredinductiontookplaceforbothofthenewly appointedDirectors.Detailsoftheinductionareincludedonpage77. *AsimilarprocesswasundertakenfortheappointmentofSimonKingwherethebrief forBarryGouldConsultinghadbeentofindsomeonewithexperienceofbuilding productsdistributionandagaintheimportanceofdiversitywasstressed.Theshort list,however,wasnotasdiverseaswewouldhaveliked,butwearedelightedto havesecuredsomeonewithSimon’srelevantexpertiseastheex-CEOofWickes. 93 Stock code: SHI www.sigplc.comGOVERNANCENominations Committee Report Diversity Within the Board TheBoardacknowledgestheimportanceofdiversityinitsbroadest senseintheboardroomasadriverofBoardeffectiveness.The Boardrecognisesthatgender,ethnic,socialandculturaldiversity ofBoardsaresignificantaspectsofdiversityandacknowledgesthe rolethatwomenandthoseofdifferentethnic,socialandcultural backgroundswiththerightskills,experience,cognitiveandpersonal strengthscanplayincontributingtodiversityofperspectiveinthe boardroom. ThepolicyonBoarddiversitywasreviewedbytheBoardduringthe yearandisavailableontheCompany’swebsite(www.sigplc.com). AnexampleofhowtheBoarddiversitypolicywasimplemented during2020istheprocessthatledtotheappointmentofthenew Non-Executive,KateDurrantwhojoinedtheBoardon1January 2021andreplacingKateAllumasChairoftheRemuneration Committee. Diversityinthebroadestsensewasakeyelementinthebrief providedtothesearchfirmwhichresultedinashort-listthat containedonlywomen,andthosewithawithadiverseeducational background.TheBoardrecognisesthatgenderdiversityisa significantaspectofdiversityandacknowledgestheHampton- AlexanderReviewrecommendations,whichaimtoincreasethe numberofwomeninleadershippositionsinFTSE350companies, includingatargetof33%representationofwomenonFTSE350 companyboardsby2020.In2020,femalerepresentationonthe BoardfluctuatedduringtheyearasAndreaAbtsteppeddown,Kath Kearney-CroftjoinedtheBoardon25Februaryandsubsequently steppeddownwhenapermanentCFOwasappointed.Foraperiod, wehad43%femalerepresentationontheBoardbutwiththe additionoftheCD&RDirectorsandSimonKingwearenowat20%. Furthermore,duringtheprocesstoreplaceIanDuncanasChair oftheAuditCommittee,againdiversitywasakeyelementinthe briefprovidedtothesearchfirmandwewerepleasedtoseea shortlistthatcontainedamixtureofwomenandpeopleofcolour. In2019,theBoardmadeitclearitwouldaspiretoachievethe recommendationoftheParkerReviewCommitteetohaveatleast oneDirectorofcolourby2024.Wearedelightedthatinfindingthe bestcandidatefortherolewehavemetthisaspirationwiththe appointmentofShatishDasani. Ouraspirationistoendeavourtohaveatleast33%female representationinlinewiththeHampton-AlexanderReviewandwill considerthisforanyfutureBoardappointments. Within the Group TheCommitteecontinuestomonitordiversityandinclusionmore widelywithintheGroupandparticularlyatseniormanagement level.Informationonthegenderbalanceofseniormanagement andtheirdirectreportsisonpage39. Duringtheyear,theCommitteeinitiatedareviewoftheCompany’s approachtodiversityandinclusiontounderstandwhereactivity needstobeincreasedandtheeffortsbeingundertakentofurther promotediversityacrosstheGroup.Furtherdetailscanbefound onpage39.TheCommitteereceivesregularinformationon diversityfromacrosstheGroupexceptfromthosecountrieswhere thelawdoesnotpermitsuchinformationtobegathered. TheGroupdiversityandinclusionpolicydefiningtheGroup’s standardsandexpectationswasupdatedandissuedtoemployees inDecember2019andcanbefoundatwww.sigplc.com.The Companycontinuestoensurewherepossiblethatrecruitmentfor anynewroleshasashortlistofdiversecandidates. Asat31December2020,20%oftheExecutiveCommitteewere femaleandwehaveonepersonofcolour.Weacknowledgethatthe Hampton-AlexanderReviewtargetof33%femalerepresentation inourELTanddirectreportstotheELThasnotyetbeenmetbut ouraspirationistomeetthattargetoverthecourseofthenextfew years. BoarddiversitywillbeakeyaspectandfocusoftheNominations Committeeasitcontinuesitsreviewofsuccessionplanningand diversitywithinthebusiness. TheCommitteealsonotedthatthenewcommitmentculture programmeapprovedbytheBoardandlaunchedinJanuary2020 andrestartedinSeptember2020,includesbehavioursdesignedto fosteracommitmenttodiversityandinclusion.Thesebehavioural expectationswillbeintegratedintokeypeopleprocessessuch astheperformancemanagement,recruitment,recognition,and inductionprogrammes.Furtherdetailsofthecultureprogramme canbefoundonpage38. Committee performance Aspartofcorporategovernance,theCommitteereviewsitsown performanceannuallyandconsiderswhatimprovementscan bemade.TheCommittee’sperformanceandeffectivenesswas reviewedinDecember2020aspartoftheannualevaluationof theBoardandCommitteeeffectiveness,whichwasundertakenby theCompanySecretaryandfurtherdetailscanbefoundonpage 78.Thequestionnairefocusedonthefollowingkeyareas:(1)the effectivenessoftheCommitteeinmanagingtalentandsuccession planningfortheExecutiveDirectorsandseniormanagement;and (2)theperformanceoftheCommitteeChair. TheevaluationconcludedthattheCommitteehadbeeneffective indealingwiththemattersdelegatedtoitbytheBoardinvery challengingandunprecedentedcircumstances.Inmorenormal timesandwithtimeavailable,theCommitteeacknowledgedthat matterswouldbemanageddifferentlyandmoreinlinewithbest practice.Progresshadbeenmadeagainstthe2020areasoffocus; the Committee had reviewed the structure and composition of the Boardandmadeanumberofappointmentsassetoutearlierin thisreport.TheCommitteereceivedregularreportsondiversity throughBoardreportsfromtheChiefPeopleOfficerandtalent withinGroupwasreviewedinlightoftheintroductionofanew customer-centricstrategytoreturntheGrouptoprofitablegrowth andwinbackmarketshare.Anumberofsignificantappointments weremadeduring2020.TheUKbusinesseswereamalgamated underahighlyexperiencedManagingDirector.TheBeneluxand GermanbusinesseswerealsoamalgamatedunderoneManaging DirectorandanewhighlyexperiencedGroupHealth,Safetyand EnvironmentDirectorwasappointed. Followingthisreview,theCommitteedeterminedthatduring2021 itwould: ■ HaveacontinuedfocusonsuccessionplanningfortheBoard, ExecutivesandSeniorLeadershipteam;and ■ Haveamorestructuredandformalreviewoftalent management,performanceandcapabilityagainsttheCompany’s strategicgoals. 94 SIG plc Annual Report and Accounts for the year ended 31 December 2020Directors’ tenure (as at 31 December 2020) 2017 2018 2019 2020 KateAllum AndrewAllner IanAshton Bruno Deschamps Ian Duncan SteveFrancis GillianKent SimonKing AlanLovell Christian Rochat 1year6months 3years1months 6months 6months 4years 10months 1year6months 6months 2year5months 6months Independence of Directors as at 31 December 2020 Board gender diversity as at 31 December 2020 Age of Directors as at 31 December 2020 2 5 5 5 5 8 Independent  Not Independent 1TheChairmanwasindependentonappointment Female  Male 50–59  60–70 Summary of Directors’ skills as at 31 December 2020 Strategy Transformation/turnaround Change management Stakeholder engagement Workforce engagement Cultural engagement Retail Distribution 10 10 10 9 Transportation/fleet management Health and safety Accounting/auditing Treasury management 10 Marketing 9 Corporate transactions 6 Property management 10 International Technology/digital 8 Environmental/ESG Number of Directors possessing relevant skill 8 8 10 10 10 9 10 10 9 95 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report Committee Membership (during 2020 & 2021) Shatish Dasani Committee Chair and IndependentNon-Executive Director (appointed 1 February2021) Ian Duncan Former Committee Chair and IndependentNon-Executive Director (resigned 31January2021) Andrea Abt IndependentNon-Executive Director (resigned 12February2020) Purpose and aims Kate Allum IndependentNon-Executive Director (resigned 31December2020) Alan Lovell SeniorIndependent Non-ExecutiveDirector Gillian Kent IndependentNon-Executive Director Simon King IndependentNon-Executive Director (appointed 1July2020) Kath Durrant IndependentNon-Executive Director (appointed 1January2021) Toprovideeffectiveoversightandgovernanceoverthefinancial integrityoftheGroup’sfinancialreportingtoensurethat theinterestsoftheCompany’sShareholdersandotherkey stakeholdersareconsideredandprotected. Tomakerecommendationsonthereporting,control,risk managementandcomplianceaspectsoftheDirectors’and Group’sresponsibilities,providingindependentmonitoring, guidanceandchallengetoexecutivemanagementintheseareas. TheCommittee’saimistoensurehighstandardsofcorporate andregulatoryreporting,anappropriatecontrolenvironment, arobustriskmanagementframeworkandeffectivecompliance monitoring.TheCommitteebelievesthatexcellenceinthese areasenhancestheeffectivenessandreducestherisksofthe business. Key responsibilities ■ Theaccountingprinciples,practicesandpoliciesappliedin, andtheintegrityof,theGroup’sFinancialStatements. ■ TheadequacyandeffectivenessoftheInternalControl environment. ■ TheeffectivenessoftheGroup’sInternalAuditfunction. ■ Theappointment,independence,effectivenessand remunerationoftheGroup’sExternalAuditor,includingthe policyonnon-auditservices. ■ TheconductofanytenderprocessfortheGroup’sExternal Auditor. ■ Externalfinancialreportingandassociatedannouncements, includingsignificantfinancialreportingjudgementcontained inthem. ■ TheGroup’sriskmanagementsystems,processesand performance. ■ TheGroup’scompliancewiththeauditrelatedprovisionsof theUKCorporateGovernanceCode. Terms of reference Duringtheyear,theBoardcarriedoutareviewandadopted revisedtermsofreference.Thesecanbefoundonthe Company’swebsitewww.sigplc.com. Evaluation AninternalevaluationwasconductedfortheCommitteeinline withtheCode.Moredetailscanbefoundonpage78. 96 During 2020, continuing progress was made in improving the control environment, which included addressing the majority of the deficiencies highlighted by the PwC report. Shatish Dasani, Chair of the Audit Committee Dear Shareholder, IampleasedtopresentSIG’sAuditCommitteeReportforthe financialyearended31December2020onbehalfoftheBoard. TheCommitteewaschairedduringtheyearbyIanDuncanandI replacedhimfrom1February2021. TheGroupcontinuestostrengthenitsinternalcontrolenvironment andismakingsteadyprogressinthedevelopmentofarobust internalcontrolframework.Themanagementteamareactively workingtowardsensuringthatdetailedcontrolframeworksarein placetoenablearisk-basedapproachtocontinuousmonitoringof controlimplementationandeffectiveness. TheCovid-19pandemicdelayedthecompletionofthe2020Group InternalAuditplanbutgoodrecoverywasmadeinthesecondhalf oftheyear;ofthe32auditsplannedforcompletionin2020,20 havebeencompletedandissued,and12wereinprogressat31 December2020anddueforcompletioninthefirstquarterof2021. Inaddition,Covid-19hasalteredthedeliveryoftheauditwork withfieldworkbeingconductedremotely.Thishastakenlongerto completeand,insomecases,theapproachhasbeenaltered,for example,OperatingCompanybranchstockmanagementaudits havebeenconductedviavideocallsason-sitevisitshavebeen restricted. During2020,theGroupControlsteam’sprioritiesincluded: ■ ThedevelopmentofcontrolframeworkscoveringOrdertoCash (“O2C”)andProcuretoPay(“P2P”)processesacrosstheGroup; ■ Continuingtodevelopadditionalcontrolframeworksforkey financialprocesseswiththeaimthattheGrouphasafullsuiteof financialcontrolframeworks; ■ DevelopmentofarollingprogrammeofreviewagainstaKey ControlFramework(“KCF”); ■ Aprogrammeof‘lighttouch’testingagainstthecontrol frameworksdevelopedin2019andtheframeworksthatwere finalisedduring2020; SIG plc Annual Report and Accounts for the year ended 31 December 2020Inadditiontothis,aGroupInternalAuditPlanfor2021hasbeen approvedandwillcontinuetofocusonkeyinternalcontrols,with morethanhalfofthe2021plandedicatedtothesetypesofaudits. The2021planalsoincludesrisk-basedauditswithaproportion reservedformanagementrequestsandinvestigations.Inaddition, the2021planwillconsiderthepotentialongoingimpactof Covid-19onkeybusinessprocessesandincluderelevantauditsto swiftlyprovidetheCommitteewithadequateassuranceoverany modifiedcontrolsandprocedures. AlthoughgoingconcernisamatterforthewholeBoard(seepage 28),areviewisundertakenbytheAuditCommitteeoftheGroup’s headroomunderitscovenantsandundrawnfacilitiesinrelationto theGroup’sfinancialforecastsandsensitivityanalysis. TheCommitteehassoughttoensurethattheauditprocesswith theExternalAuditor,Ernst&YoungLLP,isconductedandmanaged smoothlyandefficiently,thatthereiscollaborativecommunication andengagementbetweenmanagementandtheExternalAuditor andthatrequiredinformationisprovidedinatimelyfashionto enableappropriateauditevidencetobecompiled. DuringtheyearwewelcomedKathKearney-Croftwhowas appointedastheinterimCFOon25February2020replacing NickMaddockwhoresignedon24February2020.IanAshton subsequentlyreplacedKathfollowinghisappointmentasthe permanentCFOon1July2020.Additionally,weappointedanew GroupFinancialControllerduring2020. TheCompanyhascompliedduringthefinancialyearended 31December2020withtheprovisionsofTheStatutoryAudit ServicesforLargeCompaniesMarketInvestigation(Mandatory UseofCompetitiveTenderProcessesandAuditCommittee Responsibilities)Order2014thatareapplicabletoit. Shatish Dasani Chair of the Audit Committee 25March2021 ■ Developmentofaframeworkencompassingentitylevelcontrols suchasperformancemanagement,DelegationofAuthority, GDPR,anti-briberyandcorruption,employeeattractionand retention,andbusinesscontinuity;and ■ DevelopmentofanITgeneralcontrolsframework. TheCommitteehasworkedtoensurethat: ■ BrexitpreparationswereinplaceforimpactedOperating Companies.Risksassessedwerelargelyinlinewiththeprior assessmentsubmittedtotheCommittee,withincreasedtariffs, supplyshortages,delaysatbordersandclarityoverprocedures attheRepublicofIreland/NorthernIrelandborderthemain potentialrisks.Mitigationswereimplementedtoaddressthese risks,includingchangestoinventoryholdings,amendments toimporttermsandtheengagementofathird-partycustoms servicesprovidertoensurecompliancewiththenewregulation; ■ TheannualreviewoftheRiskmanagementframeworkwas completed.Keyupdatesincluded: − Arefreshedapproachtoriskreviewsandtimetablewiththe scheduledtwice-yearlyplannedreviewsoflargerOperating Companyriskregisterstobereducedtoannualandin-depth reviewsofselectedGroupriskstobeintroduced;and − Theupdateofriskappetitestatementsasproposedbythe ELT.Actionsplanshavebeenputinplacetoimprovethe Group’sresponsetorisksandtobringthenetriskwithin appetite; ■ Apolicymanagementprocesswasintroduced,includinga centralpolicyrepository.ThiswasrequiredaspartoftheFPPP reviewperformedbyKPMGduringtheequityraise.Through collaborationwiththeGroupCommunicationsteam,aGroup policyrepositoryisnowhostedonSharePoint,withaselection ofGrouppoliciesnowavailableinfivedifferentlanguages. Groupfinancepoliciesarealsoincluded,aswellastherecently updatedGroupDelegationofAuthoritypolicy; ■ Thebusinesscontinuestoself-assessthecontrolenvironment usingtheKCF,withOperatingCompaniesrequiredtoself-certify onaquarterlybasisagainsttheassertionsusinganagreed RAGcriteria.Thisframeworkissupportedbydetailedcontrol frameworksunderpinnedbydetailedriskandcontrolmatrices; ■ Environmental,SocialandGovernance(“ESG”)hasbeen identifiedasstrategicallyimportant,andworkisongoingwith theGroupHealth,SafetyandEnvironmentalDirectortofinalisea formalassessmentofthisriskandstepstomitigateit; ■ Followingtheimplementationin2019oftheRiskmanagement framework,thishasbeenreviewedinDecember2020and updatedtoreflectchangesinpersonnelandcoverageoftheELT meetingsatwhichriskmattersarepresented.Wereportfurther onemergingrisksidentifiedduringtheyearonpage31; ■ Groupfunctionriskregistershavebeencompleted,following riskworkshopswithkeystakeholders.Mitigatingcontrolshave beendocumentedandactionplansidentified;and ■ Areviewofthemeasuresputinplacetosupportemployees duetotheCovid-19outbreak.Thisresultedinanupdatetothe GroupWellbeingandMentalHealthPolicyandanassociated actionplan.Aten-stepactionplanforwellbeingandmental healthwasidentifiedandkeyactionsincludedtheprovisionofa newEmployeeAssistanceProgramme(EAP),trainingonmental healthfirstaidandacommunicationscampaign. 97 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report Key activities during 20201 April ■ Reviewedprogressofannualyear-endaudit May ■ Impairment review ■ TheGroupInternalAuditEffectivenessReportwaspresented, ■ Going concern assessment and actions agreed ■ Reviewofspendonprofessionalfees ■ ExternalAuditorReportreviewedinparticularwhatmatters ■ Internalcontrolsupdate hadbeenconcludedfortheyearandthosethatwere outstanding Spotlight risk review: ■ Covid-19andconsequencesfortheGroup July ■ UpdateonKPMGFPPPReportandProjectSteelactionplan ■ Contingentliabilityreview ■ ReviewofAnnualReportandAccounts2019 ■ Reviewofprincipalrisks ■ ReviewofAuditCommitteereport ■ ReviewofproceduresforconfirmingDisclosuresofInformation toAuditor’sStatementforrecommendationtotheBoard ■ Annualreviewofeffectivenessofriskmanagementand ■ Rolling12-monthinternalauditprogrammereviewedand Provision29oftheCode approved ■ ReviewofGroupriskregister ■ UpdateonresponsetoPwCProjectSteelactionsandKPMG FPPP Report ■ ReviewofEY’syear-endcontrolobservations ■ InternalControlsupdate ■ Annualreviewandassessmentof2019AuditandExternal Auditor ■ ApprovalofAuditfees ■ SeniorAccountingOfficerReviewfor2019 ■ 2020AnnualPlannerandupdatedTermsofReferencefor approval ■ ReviewedtheperiodicassessmentofIIAstandards ■ ReviewedQ2KCFself-assessments December ■ ReviewofGroupriskregisterwhichincludestheriskappetite, emergingrisksandriskmanagementframework ■ AssessmentofcomplianceagainstProvision29oftheCode ■ ApprovedEYdraftengagementletter ■ ReviewedQ3KCFself-assessments ■ Reportoncreditcardcontrols ■ Reviewoftheproposed2021GroupInternalAuditPlan(partof therolling12-monthplan) ■ ReviewpoliciesonAuditornon-auditfeesandemploymentof formeremployeesofAuditor ■ AnnualTaxandTreasuryupdate(includingtheannualtax strategy) ■ CorporateCriminalOffencepolicyreviewed ■ AccountingandReportingupdatewhichincludesImpairment year-endindicators ■ BrexitUpdate ■ Employeesupportreview ■ Updateonannualauditprocess ■ ProposalfortheannualGroupInternalAuditEffectiveness review ■ Review of Committee effectiveness Spotlight risk review: ■ CyberSecurity 98 ■ ActionplanpresentedontheannualGroupInternalAudit Effectivenesssurvey ■ Fraudriskassessment September ■ Review of going concern and significant accounting matters and judgementareasforinterimresults ■ ReviewofInterimResultsfor2020forrecommendationtothe Board ■ Auditfeesfor2020 ■ Year-end2020Auditplanning ■ Principalrisks–half-yearreview ■ InternalControlsupdate Spotlight risk review: ■ Business growth At every main meeting the Audit Committee also considers: ■ ReportoftheChiefFinancialOfficer ■ ReportoftheExternalAuditor ■ ReportoftheDirectorofRiskandInternalAudit, updatingonrisk,internalauditandcontrols ■ Minutesandactionsfrompreviousmeetings 1. Fivemeetingswereheldintheyear.Given2020wasanexceptionalyear,the normalmeetingprogrammehadtobeadjustedaccordingly. SIG plc Annual Report and Accounts for the year ended 31 December 2020Boardinidentifyingandevaluatingsignificantrisks;(3)Leadership oftheAuditCommittee;and(4)theAuditCommittee’srelationship withkeypersonnelandtheExternalAuditors. TheCommitteewasratedwellinmostareasandthereforecould concludethatitisbeingeffectivelychairedandmanaged.The strengthsoftheCommitteewereconsideredtobe: ■ Leadership–theChairoftheCommitteeiswellprepared, considerateandfocusesonthekeyareas;and ■ Relationships–theCommitteehasagoodrelationshipwith theExternalAuditors. Itwasagreedthatthekeyprioritiesfor2021shouldincludethe continuedimprovementintheinternalcontrolenvironment; ensuringthatthereisaneffectiveexternalauditprocess;the continuedimprovementinthewaytheBoardidentifiesand evaluatessignificantrisks;andprioritisinghowresourceisdeployed intherisk,auditandcontrolfunctions. Meetings TheCommitteemeetsregularlythroughouttheyear,withfive meetingsbeingheldduring2020alongwiththeauditclose meeting.Theauditclosemeetingisnormallyheldintheearlypart oftheyearfollowingtheyear-end;however,thiswasdonelater thanplannedduetotheoutbreakofCovid-19andthedelaytothe publicationofthe2019results.Inaddition,afurthermeetingwas heldattheendofApril2020toreviewtheprogressoftheaudit.Its agendaislinkedtoeventsintheCompany’sfinancialcalendar.Key mattersconsideredatmeetingsoftheAuditCommitteeduringthe yeararelistedonpage98. Audit Committee membership TheBoardconsidersthateachmemberoftheCommitteewas independentthroughouttheyear,andremainsso,andthereare nocircumstancesthatarelikelytoimpairtheirindependence accordingtothefactorssetoutintheCodeorotherwise.The knowledgeandexperienceoftheCommitteemembersmeans thattheCommitteeasawholeiscompetentinthesectorinwhich theCompanyoperates.IanDuncan,asChairoftheCommittee during2020,isacharteredaccountantandhadrecentandrelevant financialexperienceforthepurposesoftheCode.ShatishDasani asthenewChairoftheAuditCommitteefrom1February2021 isacharteredaccountantandhasrecentandrelevantfinancial experienceforthepurposesoftheCode. AttendancebyindividualmembersoftheCommitteeisonpage58. TheCommitteeChairregularlyinvitesseniorcompanyexecutives to attend meetings of the Committee to discuss or present specific items.TheinterimCFO,KathKearney-Croft,andthenewCFO,Ian Ashtonattendedallmeetingsin2020thattheywereentitledto attend.TheExternalAuditorandtheDirectorofRiskandInternal Audit(ortheirreports)alsoattendedallmeetingsoftheCommittee in2020andhavedirectaccesstotheCommitteeChair. TheCommitteemeetsregularlywiththeExternalAuditorand theDirectorofRiskandInternalAudit(orhisreports)withoutthe ExecutiveDirectorsbeingpresentandtheCommitteeChairalso meetswiththeExternalAuditor,CFOandDirectorofRiskand InternalAuditinadvanceofCommitteemeetings. InaccordancewiththerelationshipagreementwithCD&Raspart ofthefirmplacing,placingandopenofferundertakeninJuly2020, theyareentitledtonominateanobservertotheAuditCommittee. Since10July2020,DiegoStraziotahasattendedallmeetingsheis entitledto.AsanobserverDiegoisentitledtoattendmeetingsbut cannotinfluencethedecisionmakingoftheCommittee. Audit Committee structure TheCommitteeoperatesunderwrittentermsofreference,which canbefoundontheCompany’swebsite(www.sigplc.com). TheyarereviewedannuallybytheCommitteeandchangesare recommendedtotheBoardforapproval.Thetermsofreference arereviewedatleastannuallyandwereupdatedinJuly2020, followingtheannualreviewandtoreflecttheRelationship AgreementsignedwithCD&R. TheCommitteehasinitstermsofreferencethepowertoengage outsideadvisorsandtoobtainitsownindependentexternaladvice attheCompany’sexpense,shoulditbedeemednecessary.During 2020,theCommitteeengagedtheservicesofKPMGLLPtoprovide adviceontheCompany’sapproachtoriskappetite.KPMGLLPalso supporttheGroup’sInternalAuditfunctionprovidingspecialist supportwithtargetedaudits.TheChairoftheCommitteereports tothesubsequentmeetingoftheBoard(unlessallBoardmembers attendedtheCommitteemeeting)onthekeyissuescoveredbythe Committee,identifyinganymattersonwhichitconsidersthataction orimprovementisneeded,andmakesrecommendationsonthe stepstobetaken. Audit Committee evaluation Aspartofcorporategovernance,theCommitteereviewsitsown performanceannuallyandconsiderswhereimprovementscan bemade.TheCommittee’sperformanceandeffectivenesswas reviewedinNovemberandDecember2020aspartofthereview ofBoardandCommitteeeffectivenessconductedbytheCompany Secretary,furtherdetailsareonpages78to80.Thequestionnaire focusedonthefollowingkeyareas:(1)theAuditCommittee’sability tounderstandandgiveappropriateconsiderationtointernal controltestingconductedbymanagement;(2)theabilityofthe 99 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report Significant financial judgements TheCommitteeconsideredanumberofsignificantissuesduringtheyear.Theserelatedtoareasrequiringmanagementtoexercise particularjudgementorahighdegreeofestimation.TheCommitteeassesseswhetherthejudgementsandestimatesmadeby managementarereasonableandappropriate.TheissuesandhowtheywereaddressedbytheCommitteearesetoutbelow: Key financial reporting and significant financial judgements considered in relation to the Financial Statements Going concern basis and viability statement TheGroupisrequiredtoassessifithasaccessto sufficient resources to continue as a going concern andassesstheperiodofviability. Discontinued operations FollowingtheannouncementinOctober2019to selltheAirHandlingbusinessthesalecompleted inJanuary2020.ThesaleofBuildingSolutionswas abortedinMay2020,andtheCommitteeconsidered the accounting treatment and presentation for each oftheseinthefinancialstatements. Recognition and measurement of supplier rebate income Proceduresandcontrolsareinplacetoensurethat thereporting,reviewingandaccountingforsupplier rebateincomeisproperlymanagedandthat supplierrebatesarerecognisedappropriatelyinthe GroupFinancialStatements. Carrying value of goodwill and intangible assets Thecarryingvalueofgoodwillandintangibleassets issystematicallyreviewedateachmid-yearpoint andatyear-end.TheGroupestimatesarecoverable amountforeachindividualcash-generatingunit basedonforecastrevenues,operatingmargins andappropriatediscountrateriskadjustedwhere appropriate. How the issue was addressed by the Committee Thegoingconcerndisclosureswerecarefully consideredandtheGroupnolongerconsideredit necessarytoincludeanymaterialuncertainties.The Grouphadsuccessfullyagreedamendedfacilitieswith itsRCFlendersandprivateplacementnoteholders inJune2020,togetherwithasuccessfulequityraise of£165minJuly2020.TheGrouphadalsoseenan improvedtradingperformancesincethemostextreme Covid-19restrictionshavebeenlifted.TheCommittee’s reviewandconclusionsinthisareaaresetout separatelyonpages27to28. Consistentwiththetreatmentadoptedinthe2019 AnnualReportandAccounts,AirHandlingispresented asadiscontinuedoperationinaccordancewithIFRS5, asithadbeenaseparatemajorlineofbusinessofthe Group. AsasaleoftheBuildingSolutionsbusinessisnolonger beingpursued,thebusinessisnowconsideredtoform partoftheongoingtradingactivitiesoftheUKbusiness underthecombinedUKmanagementstructureand strategy.Itisthereforenolongerconsideredtobenon- coreandwillbepresentedwithintheunderlyingresults forthefullyear2020. TheCommitteeconsideredtheadequacyofwork performedintheyeartocontinuetostrengthenthe wayinwhichtherecoverabilityofsupplierrebatesis controlled,includingtheinternalreviewprocessesand thetechnologyinplacetoassistinthecalculationof supplierrebateincome. Theforecastsusedintheimpairmentreviewat31 December2019werebeforeCovid-19,asthiswasa non-adjustingpostbalancesheetevent.Animpairment wasrequiredat30June2020toreflectthelossthat wasforecastinUKDistributionandUKExteriorsfor theH2period,andafurtherimpairmentisrecognised inUKDistributionat31December2020reflectingthe slowerreturntogrowthasthebusinesscontinuesto recoverfromtheimpactofCovid-19andcontinuesthe implementationofthenewstrategy.TheCommittee considered the appropriateness of the assumptions andthesensitivityanalysisperformed. 100 SIG plc Annual Report and Accounts for the year ended 31 December 2020Key financial reporting and significant financial judgements considered in relation to the Financial Statements Followingaperiodofpauseandachange indirectionandscopeoftheSAP1HANA implementationprojectasagreedinDecember 2020,costsincurredandrecognisedonthebalance sheettodatehavebeenreviewedtoassesswhether theycontinuetohaveanyfutureeconomicbenefit. Futurecontractualcommitmentshavealsobeen reviewedtoassesstowhatextenttheGroupwill derivefuturebenefitorwhethertheyrepresentan onerouscontract. TheGrouprenegotiateditsborrowingfacilitiesand newagreementsweresignedinJune2020.TheRCF wastreatedasanextinguishmentoftheprevious agreementandrecognitionofanewliability.The amendmentstotheprivateplacementnotes(“PPN”) havebeentreatedasamodificationoftheexisting agreement,whichresultedintherecognitionof alossonmodification,effectivelyrecognisingthe increasedfinancecostsonthePPNsimmediately ratherthanovertheremainingtermofthedebt. Impairment of SAP implementation costs Accounting for the Debt Refinancing Covid-19 schemes and deferrals How the issue was addressed by the Committee TheCommitteeconsideredthereviewundertaken andtheconclusionsreachedinlightoftherevised projectscopeandtiming.TheCommitteeconsidered thatitwasappropriatetofullyimpairthe£13.6mcosts previouslyrecognisedonthebalancesheetandto recogniseonerouscontractprovisionof£11.4min relationtofuturecommittedcostsforSAPandother licencefees. TheCommitteeconsideredtheaccountingforthe amendmentstotheborrowingfacilitiesandconcluded thatthetreatmentadoptedisappropriateandinline withtheaccountingstandards. AsaresultofCovid-19,theGrouphasreceiveda numberofgovernmentsupportpackagesandother formsofassistance.TheseincludetheCoronavirus JobRetentionScheme(furlough)supportintheUK, Ireland,FranceandBenelux;socialtaxsavingsin France;andpaymentdeferralsinrelationtoVAT, socialtaxes,corporationtaxandrentincertain operatingcompanies. ThemainaccountingconsiderationfortheCommittee was whether the measures met the definition of GovernmentgrantsinaccordancewithIAS20 “AccountingforGovernmentGrantsandDisclosureof GovernmentAssistance”.ItwasdeterminedthattheJob RetentionSchemeinvolvesatransferofresourcesfrom government to the entities concerned and therefore metthedefinitionofagrant. Disclosure of other items TheGrouppresentsIncomeStatementitemsin themiddlecolumnoftheConsolidatedIncome StatemententitledOtheritemswheretheyare significantinsizeandnature,andeitherdonotform part of the trading activities of the Group or their separate presentation enhances understanding of thefinancialperformanceoftheGroup. Disclosureofthenatureandextentofgovernment grantsisrequiredintheFinancialStatements,together withanindicationofanyotherformsofgovernment assistance,suchastaxandVATpaymentdeferrals andtheCommitteeissatisfiedthatthesearebeing sufficientlycoveredintheFinancialStatements. TheCommitteecarefullyconsideredthejudgements madeintheseparatedisclosureofOtheritems.In particular,theCommitteesoughttoensurethatthe treatmentfollowedconsistentprinciplesandthat reportingintheGroupFinancialStatementsissuitably clearandunderstandable. 101 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report Internal controls Internalcontrolissuesarepresentedtoanddiscussedatevery AuditCommitteemeetingandreportedtoeachBoardmeeting, andanactivefocusonthemhasbeencontinuedthroughoutthe year.Thecontrolsremediationdashboardreceivedasaregular reporttotheAuditCommitteeallowsthemtoidentifyandassess progressagainstanycontrolweaknessesidentifiedbytheExternal Auditor,throughtheauditprocessortheKCF. KCFself-certificationsarereceivedfromalloperatingcompanies andallcontrolimprovementactionsareloggedon4Action,the Group’saction-trackingsoftware.Theresultsarepresentedto theBoardinsummaryformandreviewedbytheCommitteeona quarterlybasis. Allhigh-priorityandoverdueactionsarereportedthroughthe controlsactiondashboardtotheactionownersandthrough regularreportingtotheCommittee. Inadditiontotheinternalcontrols’improvementplanendorsed bytheAuditCommittee,detailedcontrolframeworksdeveloped duringtheyearunderpinthekeyassertionsintheKCF,comprising operatingcompanyspecificRACMs.Theseframeworksnowensure thatownershipofspecificcontrolssitswithidentifiedindividuals, increasingaccountabilityandimprovingbothcontrolawareness andcontrolimplementationacrosstheGroup.Inparticular, detailedframeworksforcashmanagement,supplierrebatesand financialclosehavebeendevelopedtomapcontrolsagainstthe Grouprisksschedulesandaprogrammeoftestingagainstthecash managementandsupplierrebatecontrolframeworkshasbeen completedacrosstheGroup.TestingoffurtherRACMsisplanned. NewControlsManagershavebeenrecruitedinthemainoperating companiestofurtherdevelopandstrengthentheirlocalcontrols. TheGroupInternalAuditteamhasbeenstrengthenedtohelp implementandmonitorthelocalcontrols. Going concern basis and viability statement TheGroupissubjecttofinancialcovenantsrelatedtoitscommitted bankfacilitiesandprivateplacementnotesassetoutonpage28. InJune2020theGroupsuccessfullyrenegotiatedthedebtfacility arrangementswithitslenders.Undertherevisedagreementsthe Groupwouldbesubjecttocovenanttestingasfollows: ■ Leverage(netdebt/EBITDA)andinterestcover(EBITA/interest) nottesteduntilMarch2022,afterwhichtestedeveryquarter, thetestsbeingappliedtotheprior12months; ■ Until28February2022theGrouphastoensurethat ConsolidatedNetDebt(CND)doesnotexceed£225mforeach quarterlytestdatein2021(2020:£125m); ■ MinimumLiquidity(availablecashandundrawnrevolvingcredit facilitycommitments)of£40matalltimes;and ■ ConsolidatedNetWorth(CNW)mustatalltimesnotbeless than£250m. WhilsttheGrouphassignificantavailableliquidity,andonthebasis ofcurrentforecastsisexpectedtoremainincompliancewithall bankingcovenantsthroughouttheforecastperiodto31March 2022,on1March2021theGroupagreedwithitslendingbanks andprivateplacementnoteholderstoamendcertainfinancial covenantstobetteralignthetestsandtoprovideadditional headroom on the interest cover covenant under stress test scenariosfromMarch2022.Theamendedcovenantsunderthe revisedagreementsareasfollows: ■ TheinterestcovertestingdoesnotstartuntilJune2022andis atlowerlevelsthanpreviouslyuntilDecember2022; ■ Theleveragecovenantthresholdisnowslightlylowerthan previouslyatMarch2022andJune2022; ■ TheConsolidatedNetDebtthresholdisloweredto£200mand extendedtoDecember2022;and ■ NochangetotheCNWorMinimumLiquiditycovenants. InJuly2020theGroupsuccessfullycompletedanequityraisefor proceedsof£165m. Duringtheyear,theGrouprespondedeffectivelytotheCovid-19 pandemic,andcontinuestodoso,tomaintainitsliquidityposition. TheCommitteereviewedmanagement’sassessmentofgoing concernwithconsiderationofforecastcashflows,including sensitivitytoCovid-19andsalesimprovementplans.The Committee reviewed the Group’s forecast adherence to the financialcovenantsupto31March2022,includingconsideration ofreasonablypossibledownsidesscenariostotheforecasts.The Committeereviewedthelong-termviabilitystatementassetouton pages27to28. 102 SIG plc Annual Report and Accounts for the year ended 31 December 2020InforminganassessmentoftheGroup’sabilitytocontinueasa goingconcernandrecommendapprovaloftheviabilitystatement, theGroupnolongerconsidereditnecessarytoincludeany materialuncertainties.TheCommitteehasconsideredallofthe abovefactorsandbelieveitisappropriatetopreparetheFinancial Statementsonagoingconcernbasis,togetherwithapprovalofthe viabilitystatement. Corporate culture TheCommitteeconsideredmeasuresundertakentotransform thecultureofthebusinessin2019includingstrengtheningofthe seniormanagementteamandremovalofhistoricworkingsilosand hierarchy.During2020,theCommitteeendorsedfurtheractions toensurethatthenecessaryresourceswereinplacetoimprove controls.AnewGroupFinancialControllerandGroupHeadofTax andTreasurywereappointedduringtheyearreportingtotheCFO, IanAshton,whojoinedinJuly2020.During2020,theresourcein thefinanceteamandUKsharedservicecentrehadbeenincreased toenablefocusonthecontrolenvironment.TheCommittee endorsedthestrengtheningofbothteamsandtheimportance ofbuildingastrongandsustainableSeniorLeadershipteam. SincetheintroductionofthenewExecutiveManagementteam thequalityandexpertiseoftheFinanceteamhadbeenenhanced further,withprogresstocontinueduring2021. Oversight of risk management and internal controls TheAuditCommitteehasresponsibilityforreviewingtheadequacy andeffectivenessoftheGroup’sriskmanagementsystems.The CommitteereceivesreportsfromtheDirectorofRiskandInternal AuditonkeyissuesinrelationtotheGroup’sriskmanagement systemsandprocessesateverymeeting.Theseupdatesinclude commentaryonriskappetite,emergingrisks,significantchanges toriskscores(andactions)andsignificantchangestotherisk managementframeworkitself.AllGrouprisksareassessed systematicallyagainstthe4x4riskmatrix,aspartoftheGroup’s riskmanagementframeworkandanassurancemappingexercise iscompletedtoidentifyassurancegapsforprincipalrisks.Anyrisk wherethenetscoreisabovetheagreedriskappetitehasanaction plandocumentedtobringtheriskwithinappetiteandareviewof thecompletionoftheseactionplansisreportedannuallytothe Committee. Theprocessforidentifying,assessingandreportingonemerging riskswasreviewedbytheCommitteeinMay2020toalignwith year-endreporting.Anypotentialemergingrisksareincludedina trackerand,whererequired,assessedinmoredetailandadded totheGroupriskregisterforregularreviewandupdating.Atits meetinginJuly2020,theimpactofasecondCovid-19lockdown was reviewed from a reforecasting perspective together with the practicalsafetyriskstoemployeesandcustomers.Anewinternal auditwasaddedtothe2020GroupInternalAuditPlantoreview theoperationalhealthandsafetycontrolsrelatingtoCovid-19. TheCovid-19riskwasalsoreviewedwithadditionalauditsadded totheplantomorebroadlyassesstheimpactonareassuchas thesupplychain,receivables,andfurloughedemployeesamongst others.HealthandSafetyhasseenitsriskratingincreaseduring theyearfollowingareview,whichhighlightedgapsacrossthe Groupthatwillbeaddressedgoingforward.Theseconcerns overlapwiththeexpectationscoveredbytheHealthandSafety teamundertheleadershipofthenewHealth,Safetyand EnvironmentDirectorandsignificantprogressisexpectedduring 2021. Inordertoenhancevisibilityintoassuranceprocessesacrossthe Group,anIntegratedAssuranceFrameworkisbeingdeveloped,for whichamappingexerciseofassuranceactivityisbeingundertaken. Aspartofthis,sourcesofassuranceacrosstheGrouphave beendocumented.Thisincludes,butisnotlimitedto,controls monitoring,riskassessments,managementofself-certification, internalauditsandreporting.Wheregapshavebeenidentified, thesewillbeflagged,andappropriateactivityintroduced.This AssuranceFrameworkwilllinkdirectlyintoactivitiesplannedfor 2021.TheAssuranceFrameworkwillsupporttheongoingprocess ofidentification,evaluationandmanagementofsignificantrisks facedbytheGroupandprovidesastructuredmeansforillustrating theassuranceactivitiesunderpinningDirector’skeydisclosure statementoninternalcontrolandriskmanagement.Theaimofthe frameworkistoensurethat: ■ Individualsourcesofassuranceareclearlyunderstood; ■ Anappropriatelevelofconsistencyisachievedacrossthe Group; ■ Existingactivitiesandtoolsareconsolidatedormergedwhere practical; ■ Theindividualsourcesofassurancelinktogetherandthereis clearoversightfromactivitiesconductedfrombranchtoSIG Boardlevel;and ■ Allaspectsofcontrol(financialandnon-financial)areconsidered sothatrisksaremanagedacrossallOperatingCompaniesand businessfunctions. TheGroupChiefInformationSecurityOfficer(CISO)hasbeen workingwithGroupInternalAudit,withassistancefromKPMGas theco-sourcepartner,todevelopandimplementanITControl Framework.ThisFrameworkhasnowbeencompletedandisin place.TheGroupCISOwillworkwiththeoperatingcompanyIT teamsin2021onanappropriatescopeofreview. AspartoftheFPPPreviewperformedbyKPMGin2020,anaction toimplementapolicymanagementprocesswasagreed,including acentralpolicyrepository.ThroughcollaborationwiththeGroup Communicationsteam,aGrouppolicyrepositoryisnowbeing hostedinSharePoint,withaselectionofGrouppoliciesnow availableinfivedifferentlanguages.Goingforward,theGroup Controlsteamwillperformongoingmonitoringtoensurethat policiesarereviewedandupdatedinlightofbusinesschangeor alternatively,aspartofanannualreviewprocess. TheBoardreviewstheGroupriskstwiceyearlyforthelevelofand typeofrisk,suitabilityofcontrolstomanagethoserisksandthe actionsplannedtobringnetrisktowithinappetite.Theoverallrisk appetiteisreviewedfortheGroupatthehalfandfullyear.Group risksfeedintothecreationoftheannualGroupInternalAuditplan. SpecificspotlightGrouprisks(suchasCovid-19,BusinessGrowth: Franceandcybersecurity)arenormallypresentedquarterlyto theCommitteebutthisyearthistimetablewasimpactedbythe pandemicandfollowedwithareporttotheBoardaspartofthe CFO’sBoardreport.Furtherdetailinrespectofriskmanagement processesandassuranceisprovidedseparatelyonpage81. TheBoardreviewedandapprovedtherevisionstotheGroup’s DelegationofAuthoritypolicyinboth2019andduringQ12020 anddeemedtheapprovallevelssetbythisdocumenttobe appropriatefortheGroup’sday-to-dayoperations.TheGroup’s DelegationofAuthoritypolicywasreviewedandupdatedagainin SeptemberandapprovedinDecemberbytheBoard,toreflectthe changestotheUKorganisationalstructureandtoupdateapproval limitsafterinputfromtheGroup’snewCFO.Recommendations fromtheGroupInternalAuditfunctionwerealsoincluded,andalso clearlysetsoutthosemattersthatrequireBoardapproval. 103 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report TheCommitteeconsideredareportfromtheDirectorofRisk andInternalAuditinrelationtoProvision29oftheUKCorporate GovernanceCodeassessingtheeffectivenessofriskmanagement andinternalcontrolsinDecember2020. TheCommitteealsohasresponsibilityforreviewingtheadequacy andeffectivenessoftheGroup’sinternalcontrolsystems.Reports onthefindingsfromGroupInternalAuditreviews,investigations andmanagementagreedactionsareprovidedateverymeeting.As partoftheCommittee’sroleinapprovinganannualGroupInternal Auditplan,itnowapprovesarollingGroupInternalAuditplan.This providesgreatervisibilityofauditstotheCommitteeanditreceives regularprogressreportsandanyissuesarisingarehighlighted. PwC report PwCwerecommissionedtoundertakeanindependentreview ofthecommunicationandlevelofexplanationoftheGroup’s underlyingfinancialforecastsandtheassociatedrisksand opportunities,inlightofthedisparitybetweentheforecastlevelof underlyingprofitbeforetaxforthefinancialyear2019setoutin theJanuary2020TradingUpdateandmarketconsensusofforecast profitpriortothatannouncement.Followingathoroughand detailedreviewofinternaldocumentsandinterviewswithrelevant employees,PwCdelivereditsconfidentialwrittenreporttothe Companyon21April2020. ThePwCreportmaderecommendationsastheyrelatetothe Group’sprocesses,controlsandwiderorganisationalenvironment inrelationtofourkeyareaslinkedtotheirfindings. TheactionstheCompanyhastakentoimplementthe recommendationsareasfollows: ■ Better availability and consistency of data.TheGroup producesdailysalesinformationagainstphasedforecastsin ordertoclearlyunderstandGroupperformancewithinthe month.Dailycashanddebtbalancesarealsoreported.From 1January2021,theGroupdeployedanewconsolidation andreportingtool,whichwillimprovetheefficiencyand effectivenessofreportingandbudgeting.Financialforecastsare updatedregularly,andriskandopportunitiesagainstforecasts clearlyreported. ■ A continued embedding of the Group’s commitment culture where people are encouraged to be bold and ‘call out’ behaviours that are not consistent with the expectations of the Group.Thenewseniormanagement teamarecommittedtodrivethroughnecessarychangesand settheright‘tonefromthetop’.Group-widewebcastsbythe CEOhavereinforcedtheexpectationofemployeestobehave in a manner consistent with the Group’s commitment to its culturalvalues. ■ A refreshed approach to whistleblowing through appointment of a Board-level whistleblowing champion. AnewBoardwhistleblowingchampionhasbeenappointed andasimplifiedandmoreaccessibleWhistleblowingpolicy hasbeendrafted.Allemployeesreceivedtrainingwithmore targetedinputforspecificfunctions/individuals.Therehas beenimprovedreportingofwhistleblowingincidentsandtrend analysisofsuchincidentstotheBoard.AnewGroup-wide policy,trainingandsystemwaslaunchedinJanuary2021. TheAuditCommitteetrackedtheseactions,andthefurther recommendationsfromKPMG,throughtheGroup’sstandard processtoensurethattheyweredeliveredfully. 104 SIG plc Annual Report and Accounts for the year ended 31 December 2020Covid-19 InresponsetotheCovid-19pandemic,GroupRiskdesigned androlledoutacrisisresponsechecklisttoeachOperating Company.Thechecklistcomprisedasetofshort,mediumand long-termmitigatingactivitiesforconsiderationbymanagementin responsetooperational,financialandpeoplerisksposedbythe pandemic.EachOperatingCompanyhasleveragedthechecklist toensurecoverageofthefullerspectrumofrisksandtoprompt considerationofadditionalactivity,especiallyinrelationtochanges inresponsebygovernments.Keyareasoffocusincludedliquidity andfinance,supplychain,healthandsafetyandcyberrisk.The Group’sriskshavealsobeenre-evaluatedinlightofCovid-19,with anewlydefinedriskforaccesstofinanceandliquidityidentified inearly2020andanincreaseinthenetriskratingforhealthand safety.Furtherdetailscanbefoundonpage33. GroupInternalAudithastargetedtestingonpaymentcontrols (includinganalyticsforfraudulentpayments),cybersecurity,health andsafety,theUKCoronavirusJobRetentionScheme,generalIT Controlsandmaintainedafocusonkeyfinancialcontrolssuch asbalancesheetreconciliations.TheGroupInternalAuditplan hasbeenkeptunderreviewandadjustedtotakeintoaccount theeffectsofthepandemicwiththeauditprocessbeingadapted whilsttravelrestrictionsremaininplace. Inaddition,GroupInternalAudithascontinuedtotakeadvicefrom professionalservicesfirmsonhowbesttoadaptitsauditplanto thepandemic. Brexit TheUnitedKingdomendedthetransitionperiodforitsexitfrom theEUwithatradedealwhichwillrequirerenegotiationeveryfive years.Therewasarigorousriskassessmentcarriedouttocover bothleavingwithandwithoutadealinplace.Theriskidentified asthegreatestpotentialrisktoSIGremainedtheuncertaintyover theRepublicofIreland/NorthernIrelandborderandpotential delaysattheUKbordergenerally.Additionaladministrative taxmeasureshavebeenidentifiedandmitigated,through amendmentstothetermsinplacewithSIGUKsuppliersfromthe EUandtheappointmentofanagency.TheCommitteecontinues tomonitorthechangesastheyarerolledoutandfurtherspecific taxconsiderationswillbeassessedfollowingdetailedanalysis performedbytheGroupHeadofTaxandTreasury. Oversight of Internal Audit TheGroupInternalAuditfunctionprovidesindependentassurance toseniormanagementandtheBoardontheadequacyand effectivenessofSIG’sriskmanagementframework.GroupInternal Auditformsanindependentandobjectiveassessmentasto whetherriskshavebeenadequatelyidentified,adequateinternal controlsareinplacetomanagethoserisks,andthosecontrolsare workingeffectively.KPMGLLPcontinuetoprovideadditionalco- sourcedsupporttoGroupInternalAudittocoverspecialistareas. TheDirectorofRiskandInternalAuditandtheGroupHeadof InternalAuditwerealsoaskedtocompleteaquestionnaireby wayofself-assessment.TheevaluationconfirmedthattheGroup InternalAuditfunctionwascompetent,addsvalue,reportsonthe rightthings,maintainsitsindependence,providesabroadrangeof assuranceandiseffectiveoverall. However,afewareasoffocusfor2021wereagreedbythe Committeeasfollows: 1. Auditplanfor2021andbeyondtobebasedonrisk assessment,businessneedsandcontrolsfindingsfromprior internalandexternalaudits; 2. Focusauditstodemonstratebenefitsobtainedbyoperating companiesaswellasprovidingreassurancetomanagement andtheBoard;and 3. Reportstoprovideaclearersummaryofkeyfindingsand actions,withconsiderationofintroducinganoverallcontrol rating. Oversight of External Auditor Ernst&YoungLLPwereappointedastheGroup’sExternalAuditor inJuly2018followingatenderprocessinitiatedinMay2018. ShareholdersformallyapprovedtheirappointmentattheJune 2020AnnualGeneralMeeting.Thereisnointentiontoconductany retenderingexercisecurrently,butthiswillbereviewedannually, takingintoaccounttheperformanceandeffectivenessofthe Auditor,asassessedbytheCommittee. External Auditor performance evaluation Fortheyearended31December2019,theGroupassessedthe ExternalAuditor’sperformanceusingaquestionnaireissued toOperatingCompanyFinanceDirectorstogetherwithcertain membersoftheGroupFinanceteam,andallmembersofthe Board(asat30June2020).Thequestionnairecomprisedof34 questionscoveringdifferenttopicsrangingfromperformance, communication,governanceandefficiency.Theassessment askedindividualstorateEYonascaleof1to5where“1”was veryunsatisfiedand“5”verysatisfiedortheycouldrespond“n/a”. Individualsalsohadtheopportunitytoaddcommentsalongside theirscore.Intotal,25completedreturnswerereceived(seven fromtheBoard),withanaverageof76%ofallquestionsbeing ratedwitharesponseotherthan“n/a”. Overall,theExternalAuditor’sperformanceandeffectivenesswas ratedatasimilarlevelasthepreviousyear,performingbestinthe areasofgovernanceandindependence,partnersandreputation. Auditfees,teamandcommunicationwereareaswhichreceived thelowestscoresandwereidentifiedthereforeasareasfor improvement.TheCommitteehavingreviewedtheperformance andeffectivenessoftheExternalAuditor,weresatisfiedwith theindependence,objectivity,expertise,resourcesandgeneral effectivenessofErnst&YoungLLP,andthattheGroupwas subjectedtoarigorousauditprocess. TheresultsofallauditshavebeenpresentedtotheAudit Committeeduringtheyear.Areasofweaknessidentifiedduringthe yearresultinadetailedactionplanandafollow-upauditcheckto establishthatactionshadbeencompletedappropriately. External Auditor independence assessment TheBoardisawareoftheneedtomaintainanappropriatedegree ofindependenceandobjectivityonthepartoftheGroup’sExternal Auditor. Asper2019,theCommitteeagreedtheprocessfortheevaluation oftheperformanceoftheGroup’sInternalAuditfunctionin December2020.Aquestionnairetailoredforparticipantswasused andthesurveywascompletedinJanuary2021.Thequestionnaire wassenttotheCommittee,ExecutiveDirectors,Managing DirectorsandFinanceDirectorsoftheoperatingcompanies,the ExternalAuditors,andotherkeyindividualsinfunctionalareas. TheExternalAuditorreportstotheCommitteeeachyearon theactionstakentocomplywithprofessionalandregulatory requirementsandbestpracticedesignedtoensureits independence,includingtherotationofkeymembersofthe externalauditteam.Ernst&YoungLLPhasformallyconfirmedits independencetotheBoardinrespectoftheperiodcoveredby theseFinancialStatements. 105 Stock code: SHI www.sigplc.comGOVERNANCEAudit Committee Report Fair, balanced and understandable TheBoardhadtheopportunitytoreviewearlydraftsoftheAnnual ReportandAccountsandprovidedinput.Followingthisthe Committeehasreviewedthecontentsofthisyear’sAnnualReport andAccountsandadvisedtheBoardthat,initsview,theAnnual ReportandAccounts,takenasawhole,isfair,balancedand understandableandprovidesthenecessaryinformationtoenable Shareholderstoassessthepositionandperformance,strategyand businessmodeloftheCompany. InreachingthisconclusiontheCommitteehasconsideredthe following: ■ ThepreparationoftheAnnualReportisacollaborative processbetweenFinance,Legal,CompanySecretariat,Human ResourcesandCommunicationsfunctionswithinSIG,ensuring theappropriateprofessionalinputtoeachsection.External guidanceandadvicearesoughtwhereappropriate. ■ Theco-ordinationandprojectmanagementareundertakenby acentralteamtoensureconsistencyandcompletenessofthe document. ■ Anextensivereviewprocessisundertaken,bothinternallyand usingexternaladvisors. ■ AfinaldraftisreviewedbytheAuditCommitteemembersprior toconsiderationbytheBoard. Shatish Dasani Chair of the Audit Committee 25March2021 Policy on non-audit services TheGrouphasanagreedpolicywithregardtotheprovision ofauditandnon-auditservicesbytheExternalAuditor,which operatedthroughout2020.Thepolicyisbasedontheprinciple thattheyshouldundertakenon-auditservicesonlywherethey are the most appropriate and cost-effective provider of the service,andwheretheprovisionofnon-auditservicesdoesnot impair,andcouldnotbereasonablyperceivedtoimpair,the ExternalAuditor’sindependenceandobjectivity.Itcategorises suchservicesasauditor-permittedservices,auditor-excluded servicesandauditor-authorisedservices.Thefeespermissible fornon-auditservicesshouldnotexceed70%oftheaverage auditfeespaidtotheGroup’sExternalAuditorinthelastthree consecutivefinancialyears.Thepolicywasreviewedduring2020 andwillbereviewedannuallyandcanbeviewedontheCompany’s website(www.sigplc.com).Itdefinesthetypesofservicesfalling undereachcategoryandsetsoutthecriteriatobemetandthe internalapprovalsrequiredpriortothecommencementofany auditor-authorisedservices.Inallcases,anyinstructionmustbe pre-approvedbytheCFOandtheAuditCommitteeChairbefore theExternalAuditorsareengaged.TheExternalAuditorcannot beengagedtoperformanyassignmentwheretheoutputis thensubjecttotheirreviewasExternalAuditor.TheCommittee regularlyreviewsananalysisofallservicesprovidedbytheExternal Auditor.ThepolicyandtheexternalAuditor’sfeesarereviewed andsetannuallybytheCommitteeandareapprovedbytheBoard. ThetotalfeespayablebytheGrouptoitsExternalAuditorfornon- auditservices(relatingtotheInterimReview)in2020were£0.2m (2019:£0.2m).Thetotalfeespayable,includingdiscontinued operations,totheExternalAuditorforauditservicesinrespectof thesameperiodwere£3.3m(2019:£2.3m).Thecurrentyearcosts include£0.7mcostsinrelationtothe2019audit. Theratioofaudittonon-auditfeewas13:1.Detailsofeachnon- auditserviceandreasonsforusingtheGroup’sExternalAuditor areprovidedinNote4totheFinancialStatementsonpage161. AfullbreakdownofExternalAuditorfeesaredisclosedinNote4to theFinancialStatementsonpage161. Resolution to reappoint External Auditor TheCommitteerecommends,andtheBoardagrees,thata resolutionforthereappointmentofErnst&YoungLLPasAuditor oftheCompanyforafurtheryearwillbeproposedatthe2021 AnnualGeneralMeeting. 106 SIG plc Annual Report and Accounts for the year ended 31 December 2020Directors’ Remuneration Report Committee Membership (during 2020 & 2021) Kath Durrant Chair and Independent Non-ExecutiveDirector (from1January2021) Kate Allum Chair and Independent Non-ExecutiveDirector (until31December2020) Andrew Allner Chairman Bruno Deschamps Non-ExecutiveDirector (from10July2020) Ian Duncan IndependentNon-Executive Director (until31January2021) Gillian Kent IndependentNon-Executive Director Simon King IndependentNon-Executive Director(from1July2020) Alan Lovell SeniorIndependentNon- ExecutiveDirector Shatish Dasani IndependentNon-Executive Director(from1February 2021) Attendanceatmeetings isonpage58. Purpose and aims Toprovideeffectiveoversightandgovernanceovertheintegrity oftheGroup’sremunerationarrangementsforseniorexecutives toensurethattheinterestsoftheCompany’sShareholdersare protectedatalltimes. TheCommittee’saimistoensurethatremuneration arrangementssupportthestrategicaimsoftheCompanyand enabletherecruitment,motivationandretentionofsenior leaderstodeliversustainablelong-termperformanceinlinewith thepurposeandcultureofthebusiness. Key responsibilities TheCommittee’skeyresponsibilitiesaretoassisttheBoardin dischargingitsresponsibilitiesfor: ■ Reviewingthebroadpolicyfortheseniormanagement; ■ Recommendingandmonitoringthelevelandstructureof remunerationforseniormanagement; The Committee is committed to supporting the business return to profitable growth through the effective deployment of the remuneration policy and its incentive structures. It remains mindful of the challenges Company performance and Covid-19 have created for colleagues, customers, suppliers and shareholders. Kath Durrant Chair of the Remuneration Committee Contents Inthisreportwesetout: 1. TheAnnualStatementfromtheChairoftheRemuneration ■ Governingallshareplans;and Committee. ■ Reviewinganymajorchangesinemployeecompensationand benefitstructuresthroughouttheCompanyorGroup. Terms of reference Duringtheyear,theCommitteeadoptedrevisedtermsof referenceinJuly2020andinDecember2020.Thelatestversion canbefoundontheCompany’swebsiteatwww.sigplc.com. Evaluation AninternalevaluationofthefunctioningoftheCommittee wasconductedinlinewiththeCode.Moredetailscanbefound onpage78. 2. TheAnnualReportonRemunerationwhichexplainshowwe havepaidourDirectorsunderthepreviousandnewpoliciesthis yearandhowourframeworkalignswithourwiderstrategyand corporategovernancebestpractice,aswellashowweconsider remunerationofthewiderworkforceinrelationtoExecutivePay. Asinpreviousyears,theAnnualReportonRemunerationandthis AnnualStatementaresubjecttoanadvisoryshareholdervoteat the2021AGM. Dear Shareholder, OnbehalfoftheRemunerationCommittee,Iampleasedtopresent theDirectors’RemunerationReportfor2020. Ifindmyselfintheunusualpositionofpresentingthisreport havingjoinedtheBoardon1January,2021,followingKateAllum’s decisiontostepdownfromtheBoardandherroleasChairofthe RemunerationCommitteeattheendof2020. Background TheyearwastumultuousforSIGstartingwithasignificantprofit warning,andthedepartureofboththeCEO,MeinieOldersma, andCFO,NickMaddock,inFebruary.Keystepsweretakento addresscriticalissuesincludingtheappointmentofSteveFrancis 107 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report initiallyasinterimCEO,ofKathKearney-CroftasinterimCFO,and therequirementoftheChairman,AndrewAllnertostepinto ensurestabilisationofthebusinessoverasixmonthperiod.Ian AshtonwasappointedasthepermanentCFOinJuly2020.Thenew leadershipteamoperateddecisivelytore-establishafirmerfooting forthebusiness. Thisincluded: ■ Asuccessfulrefinancingofthebusiness,withacapitalraiseof £165m,puttingthebusinessinamoresecurefinancialposition andhelpingtoaddressthenetdebtposition; ■ TheimplementationofcorrectiveactionsfollowingaPwC investigationcommissionedbytheBoardintothedisparity betweentheforecastlevelofunderlyingprofitbeforetaxfor 2019setoutintheJanuary2020TradingUpdateandmarket consensusofforecastprofitpriortothatannouncement; ■ TheappointmentofKPMGtosupporttheimplementationof therequiredimprovementsinfinancialprocesses,reportingand communications; ■ TheappointmentofnewleadershipfortheUKbusinesswith deepsectorexperience; ■ Thedevelopmentofanewstrategyfocusedonexcellence incoreoperationaldisciplines,customerandemployee engagement,strengtheningsupplierrelationshipsandreturning keybusinessestogrowth;and ■ EffectivemanagementoftheeffectsoftheCovid-19pandemic. ShareholderswillunderstandthattheeffectsoftheCovid-19 pandemiccompoundedanalreadychallengingsituation,providing anunprecedentedandcomplexbackdropforthenewleadership team.AssetoutintheCEO’sReport(onpages19)thehealth andsafetyofcolleagues,andotherkeystakeholdershashadthe highestpriority.AppropriatePPE,enhancedcleaningregimes,and additionaltraininghavebeenprovided.Awellbeingprogramme operatestosupportthementalhealthofallcolleagues.Itisnotable inabusinessthathascontinuedtooperateformuchoftheyear thattheinstancesofCovid-19infectionhavebeenconsistently lowerthannationalaveragesinallGroupcompanies.Theeffortsof allcolleaguesinassuringCovid-19secureoperations,maintaining customerdeliveryandimprovingcustomersatisfactionthroughthe yearisrecognisedbytheCommittee,andpointstotheresilience referredtointheChairman’sstatement. WhereavailabletheCompanyaccessedgovernmentassistanceto protectjobs,forexampleintheUKwherethegovernment’sfurlough schemewasusedforapartoftheyearforcolleaguesunabletowork fromhome.Duringtheyear,approximately2,000employeeswere furloughedandnoemployeesweremaderedundantbecauseof thepandemic.Duringthisperiod,furloughedcolleaguesreceived 80%ofbaseremunerationunlesstheirpaywas£30,000orlessin whichcase,theCompanytoppedpayupto100%.Othercolleagues, includingtheExecutiveDirectors,voluntarilyreceived80%ofpay. Non-ExecutiveDirectorsincludingtheChairmanreceived50% ofnormalfeesfortheperiodApriltoJune.TheCompanyalso tookadvantageofbusinessratesreliefandHMRCtaxdeferral arrangements,thoughasatthedateofthisreportnotaxis outstanding. Duringtheyeartherewasafocusoncostsavingmeasuresand workingcapitalandcashmanagement,whilsttargetinginvestment inessentialcapabilitiesandastrategiccommitmenttonormalise paymentarrangementswithsuppliers,avoidingdelaysinpayments atmid-yearandfullyearpointsasinthepast. AsShareholdersyouwillbeawarethatafinaldividendwasnotpaid inrespectof2019,andadividendfor2020willnotbepaid. 108 SIG plc Annual Report and Accounts for the year ended 31 December 2020AlltheaboveinformedthedecisionsofCommitteeatvarious pointsduringandattheendoftheyear,withanoverriding concerntoensuretheappropriateleadershipofthebusiness wasinplaceandthebasisforareturntoprofitablegrowthwas established. Company Performance Strategic and operational highlights ■ ReturntoGrowthstrategydeliveringtoplan: − UKbusinessrebuiltandrelaunched − Reconnectionwithcustomers,suppliersandemployeeswell advanced ■ Strongfinishto2020,aheadofexpectations;like-for-likesales up4%inQ4,reflectingbroad-basedgrowthacrossallmajor markets,includingtheUK ■ Significantlystrengthenedbalancesheetprovidesconfidence toinvestinnewgrowthstrategyandsecurityagainstshortterm marketuncertainty ■ Groupcontinuestoadaptsuccessfullytotradesafelyto newCovid-19norms,workingcloselyandflexiblywithour employees,customersandsuppliers Financial results ■ Fullyearlike-for-likesalesdown13%,withasolidrecoveryinthe secondhalf ■ Underlyinggrossmargindown80bpsduetolowersales volumesovertheyear ■ Underlyingoperatinglossof£53.3m(2019:£42.5mprofit) ■ Underlyinglossbeforetaxof£76.3m(2019:£17.7mprofit beforetax),withstatutorylossbeforetaxfromcontinuing operationsof£202.3m(2019:£112.7mlossbeforetax), reflecting£126.0mofOtherItems,including£76.1mof impairmentchargesintheUKbusinessand£13.2monerous contract costs ■ Netdebt,preIFRS16,downto£4.1m(2019:£162.8m),helped bythesaleofAirHandlingdivisioninJanuaryand£152mcapital raiseinJuly;postIFRS16netdebtdownto£238.2m(2019: £455.4m) New 2020 Remuneration policy TheCompanyobtainedShareholderapprovalforanew2020 RemunerationpolicyataGeneralMeetingoftheCompanyon 17November2020withavoteof92.63%infavour. Inthenormalcourseofevents,wewouldhavebeenseeking shareholderapprovalforanewRemunerationpolicyin2021,three yearsaftertheapprovalofthecurrentpolicyin2018.However, therewereanumberofreasonsthattheCommitteefeltthatitwas appropriatetobringforwardanewpolicyin2020: ■ TosupporttherefocusingoftheCompanystrategy; ■ ToreflectournewteamofExecutiveDirectorsandadesireto aligntheirinterestswithShareholdersassoonaspossible; ■ Adesiretosimplifyourremuneration;and ■ Adesiretoincentivisethecreationoflong-termshareholder returnsthroughsustainablelong-termperformanceofthe Company. Themainchangebetweenthe2018Remunerationpolicyandthe new2020RemunerationpolicywasthereplacementoftheSIG plcLong-TermIncentivePlan(the“LTIP”)withtheSIGplc2020 RestrictedSharePlan(the“RSP”). Restricted Share Plan (“RSP”) ■ Reductioninmaximumawardfrom300%ofsalaryunderthe LTIPto125%ofsalaryundertheRSP; ■ TheinitialawardforboththeCEOandCFOwas100%ofsalary undertheRSPusingasharepriceof30pence(theplacement price); ■ TheintentionoftheCommitteeistomakefutureawardsby referencetothesharepriceatthetimeofgrantandfrom2022 toreviewwhethertoincreasethegrantleveltothemaximum underthePolicy; ■ Three-yearvestingperiodandtwo-yearholdingperiod;and ■ UnderpinfortheCommitteetoadjustvestingifbusiness performance,individualperformance,windfallgainsorwider Companyconsiderationsmeanintheirviewthatanadjustment isrequired. Other policy changes ■ AlignmentofExecutiveDirectorpensioncontributionswiththe widerworkforceatamaximumof7.5%ofsalary; ■ Introductionofpost-cessationofemploymentshareholding requirement(300%ofsalaryfortheExecutiveDirectors)to applyfortwoyearsfollowingcessation;and ■ Expansionofthemalusandclawbackprovisionstorefer specificallytoriskmanagementfailureandcorporatefailure. Why did the Committee believe that the 2020 Remuneration policy was right for the Company and, in particular, the RSP? The introduction of the RSP: ■ Enablesthebuild-upandmaintenanceofalong-term shareholding,whichensuresExecutiveDirectorsfocuson recoveringandenhancingShareholdervalue; ■ Ensuresmanagementhavethesameownershipexperienceas Shareholders; ■ Ensuresafocusonthelong-termsustainableperformanceof theCompanyreflectingtheoutputsofthestrategyallowinga flexibleandnimbleapproachtomanagingthebusiness;and ■ SimplifiestheremunerationfortheExecutiveDirectors. Youcanfindthefull2020RemunerationpolicyintheCompany’s NoticeofGeneralMeetingdated29October2020at www.sigplc.com/investors/information-for-shareholders/ AGM-notices-and-results. Remuneration Decisions in respect of FY2020 Departures BoththeCEO,MeinieOldersma,andCFO,NickMaddock,left thebusinessandtheBoardinFebruary2020andcommenceda periodofgardenleave.Theywereprovidedwiththecontractual entitlementsrelatingtotheircessationofemployment.This comprisedsalary,benefitsandpensioncontributionfortheirnotice period.Itmeantthat: ■ Nobonuswaspaidinrespectofthefinancialyearinwhichthey departed; ■ Deferredbonussharesfrompreviousyearslapsed;and ■ SubsistingLTIPawardsalsolapsed. KathKearney-Croft,interimCFO,leftinAugust2020,followinga handoverduringJulyandAugusttoIanAshton.Kathleftwithgood leaverstatus,whichmeant: ■ Paymentinlieuofnotice(salaryandbenefits); ■ Anamountequaltotargetbonus(halfofthemaximumbonus), proratedforfourmonthsof2020;and ■ NoLTIPsweregranted. 109 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report Salary Increases TheCommitteedeterminedthattherewouldbenosalaryincreases fortheExecutiveDirectorsduringFY2020. Chairman’s Fees TheCommitteedeterminedthatinaccordancewiththe RemunerationPolicy,theChairmanshouldbepaidanadditionalfee, fortheperiodwhereheworkedsignificantlyinexcessofthenormal expectationsofaChairmanforsixmonthswhilsttheCompanywas stabilised,thenewleadershipappointedandnewcapitalraised. TheCommitteeapprovedanadditional6monthsoffeeswhich aftertakingintoaccountthe50%reductionfromApriltoJune resultedinanadditionalfeeoffourandahalfmonths(£81,850). Hechosetoinvestthemajorityoftheadditionalfee(97%)aftertax intheCompany’ssharesaspartoftheplacingandopenoffer.He subsequentlypurchasedafurther40,000sharesinSeptember. Pension Thereisnowapolicyalignmentbetweenthepensioncontribution ratesforthemajorityofUKemployeesandtheExecutiveDirectors at7.5%ofsalary.A5%contributionisactuallypaidwhichislower thanthemaximumpermissible. Annual bonus outcomes for 2020 TheRemunerationCommitteefollowedthestructuredapproach setoutbelowwhenconsideringtheannualbonusoutcomesfor FY2020: Step Element Committee Decision Performance Conditions and Targets Setting performance conditions TheCommitteesetoutintheshareholderconsultation andtheNoticeofMeetingseekingapprovalthe2020 RemunerationPolicy,thetypeofperformanceconditions whichwouldbeusedfortheBonus.Theactualtargets weresetatthepointtheCommitteefeltthatithad sufficientclarityonthefuturestateofthebusinesslaterin thefinancialyear. TheCommitteehasmeasuredthesatisfactionofthese targetstoestablishwhetheranybonuswouldhavebeen earnedontheapplicationoftheformulaicapproachtotheir measurement. TheCommitteeexercisedadownwarddiscretiononformulaic outcomesinrespectofitsdeterminationregardingtheCFO’s bonus. ThebonusdeterminationonlyappliedtotheCFOasthe Committeehaddeterminedthatfollowingthebonuspayment totheCEOof£375,000followingShareholderapprovalon 9July2020,thatnofurtherbonuspaymentwouldbemadeto theCEOinrespectofFY2020. Seebelowforadditionalinformation. Shareholder Experience Share price TheCommitteeconsideredthereasonsbehindthe substantialfallinthesharepriceanddeterminedthatthis wasaresultof: ■ Thesignificantprofitwarningearlyintheyear,andin theprioryear; TheCommitteedeterminedthatthefallinsharepricewas notdrivenbytheactionsoromissionsofthenewExecutive Directors,whowereappointedtoprovidetheappropriate leadershiptoreturntheCompanytoprofitablegrowth. Therefore,thiswouldnotbeconsideredinthefinalbonus determination. ■ ThedepartureofthepreviousCEOandCFO; ■ Decisionswhichnegativelyaffectedoperational performanceinkeymarkets;and ■ MarketsimpactedbyCovid-19. andwasnotbecauseofomissionsordecisionsmadeby thenewExecutiveDirectors. Dividends TheCompanydidnotpayafinaldividendinrespectof 2019anddoesnotintendtopayadividendfor2020. Capital Raising July 2020 TheCommitteerecognisesthattheadditionalfundsfrom shareholderswereessentialtoensuretheCompany’s ongoingviability. TheCommitteeagreedthatasnodividendwasdeclared forShareholders,thatthisshouldbereflectedinanybonus payabletotheExecutiveDirectors. TheCommitteeconsidersthatthenewCEOwasfundamental tothecapitalraisingprocessandthenewCFOtothe stabilisationofthebusinessandimprovementinitsaccounting practices.Therequirementtoraisefundswasnotbecauseof omissionsordecisionsmadebythenewExecutiveDirectors. 110 SIG plc Annual Report and Accounts for the year ended 31 December 2020Step Element Committee Decision Government assistance CJRS support TheCompanyparticipatedintheCJRSwithapproximately 2,000peoplefurloughedintheUK.Themajorityof employeesreturnedtoworkby18May.Atthedateofthis Reportnoemployeesarefurloughedandallemployees arebeingpaidsolelybytheCompany. TheExecutiveDirectorstooka20%reductionintheirsalaries fromApril2020toJune2020todemonstratecommitmentand reflectanalignmentwiththegeneralemployeeexperience.As theUKreopenedinmid-MayitwasagreedthattheExecutive Directorswouldbepaidtheirfullsalaryfrom1July. ThefeesoftheNon-ExecutivesDirectorsincludingthe Chairmanwerereducedby50%toreflectanalignmentwith thegeneralemployeeexperiencefortheperiodApril2020to June2020. AllemployeestookapayreductionforthemonthofApril unlesstheyearned£30,000orless,inwhichcasetheCompany maintainedpayat100%. TheCommitteetookintoaccounttheexperienceofthe workforceduringthisperiod. TheCommitteedeterminednottomakeanyadjustmenttothe bonusbecauseofbusinessratesrelief. TheCommitteebelievesthat,becausethepaymentshavenow beenmade,theyarenotrelevantforthebonusdetermination for2020. Business rates relief TheCompanybenefitedfromthebusinessratesreliefas didallqualifyingcompanies.Therefore,theCommittee doesnotfeelthatthisisaparticularfactorforSIGtotake intoaccountinanybonusdetermination. Deferral of the payment of tax TheCompanytookadvantageofthetermsofferedby HMRCtodefervarioustaxpayments.Atthedateofthis ReportallamountsowingtoHMRChavebeenpaidand thereforetheCommitteedoesnotbelievethisisrelevant tothebonusoutcomefor2020. Other Stakeholders Employees TheobjectiveoftheBoardhasbeentoretainandsupport ouremployeesthroughthischallengingperiodandno redundancieshavebeenmadeasaresultofCovid-19. TheCommitteebelievesthattheemployeeexperiencewas relevanttothefinalbonusdeterminationsfortheExecutive Directors. Inaddition,itisintendedtopaybonusestoeligible employeesfor2020. Customers TheCompanyhasprovidedgoodcustomerservice duringthisperiodasevidencedbyourrecentcustomer satisfactionNPSscoreof43. TheCommitteewouldhaveconsideredpoorcustomerservice overtherecentperiodasafactorthatwasrelevanttothefinal bonusdeterminationsfortheExecutiveDirectors. Other Company’s reputation TheCommitteerecognisesthestrongbrandtheCompany hasintheeyesofthepublicandthishasbeenakey consideration of the Committee when determining the remunerationforExecutiveDirectors.TheCommitteeand theBoarddonotwanttomakeremunerationdecisions thatnegativelyimpactontheSIGbrand. Thiswasanunderlyingconsiderationbehindallthe Committee’sremunerationdecisionsinrespectof2020 includingthebonusdetermination. 111 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report TheCommitteerecognisedthechallengingpositionitfounditself inwhenlookingattheabovefactorsanddeterminingwhetherany bonusshouldbeprovidedtotheExecutiveDirectors:- CEO TheCommitteerecognisedthatanumberoftheCompany’s ShareholderswouldnotsupportabonuspaidtotheCEOin recognitionofthehardworkheputintostabilisetheCompany onthebasisofthefactorssetoutinthetableaboveandthatit wouldalsobeviewedasatransactionbonus,whichanumber ofShareholdersdonotsupportasamatterofprinciple.The Committee,however,feltmorallyandlegallyobligedtopaya bonusonthesuccessfulfundraisingasitwasatermoftheoriginal interimagreementonwhichtheCEOwasappointed.Inaddition, theCommitteetookthefollowingmitigatingsteps: − Itdidnotmakethebonusdeterminationunderthe existing2018Remunerationpolicy,butmadethepayment ofthebonusof£375,000subjecttoaseparatebinding ShareholdervoteattheGeneralMeetingoftheCompanyon 9July2020.Theresolutionwassubsequentlypassedwith 55.93%ofShareholderssupportive; − TheCEOinvested£150,000(75%)ofthenetoftaxsum receivedinsharesintheCompanyandretainstheseshares againsthisminimumShareholdingrequirement;and − TheCommitteedeterminedthattherewouldbenofurther bonusentitlementfortheCEOfortheremainderofFY2020. CFO AgaintheCommitteerecognisedthatanumberoftheCompany’s Shareholderswouldtaketheviewthatnobonusshouldbepaid becauseofthefactorssetoutintheabovetable.TheCommittee, however,tooktheviewthatitwouldbeinequitablefortheCFO whojoinedafterthemajorityofemployeeshadreturnedtowork, tobetheonlymemberoftheSeniorManagementteamofthe Companynottoreceiveapro-ratedbonusfortheperiodoftime heworkedduringtheyear.TheCommitteeunderstandsand sympathiseswiththeviewofanumberofShareholdersandtheir representativebodiesthatbonusesshouldnotbepaidinthe currentcircumstances.However,theCommittee’soverarchingview wasthatwithoutthehardworkandeffortofthenewExecutive DirectorstherewasarealpossibilitythatSIGwouldhavebeena corporatefailurewiththesignificanteffectthatthiswouldhave hadonallStakeholders.ItwasbecauseofthisthattheCommittee becamecomfortablewiththebonusespaidtotheExecutive Directors.However,theCommitteedeterminedthatitwoulduse itsdiscretiontoreducethebonusbasedonformulaicoutcomes. Intheordinarycourseofeventsamaximumbonusof100%or 50%proratedfortime,wouldhavebeenpayabletotheCFO. TheCompanydecidedthatapaymentofjustunderhalfofthe opportunitypro-ratedfortimeshouldbepaidtotheCFO.TheCFO receivedabonusinrespectofFY2020of£93,750(25%)ofsalary. Seepage117fordetailsofthebonusperformanceconditionsand theirlevelofsatisfactionusedtodeterminethebonuspayableto theCFO. Long-term incentive awards vesting during 2020 ThenewExecutiveDirectorshavenoLTIPawards.Thefirstawards underthenewRSPweregrantedduringtheyear.Theseawardswill vestin2023subjecttocontinuedemploymentbytheparticipant andassessmentoftheunderpinbytheCommitteebeforevesting cantakeplace.Anysharesthatvestwillsubsequentlybereleased followingafurthertwo-yearholdingperiod. Covid-19 Remuneration Decisions Thefollowingtablesummarisesthekeycomponentsofexecutive remunerationandthedecisionsmadebytheCommittee: Element of Remuneration Committee Decision Rationale FY2019 bonus Therewasnobonusearnedbytheformer ExecutiveDirectorsinrespectofFY2019. FY2020 salary rises Therewerenosalaryrisesmadetothenew ExecutiveDirectorsinrespectofFY2020. FY2020 salaries TheExecutiveDirectorstooka20%reductionin theirsalariesfrom1April2020to30June2020 toreflectanalignmentwiththegeneralemployee experience. ThefeesoftheNon-ExecutivesDirectorsincluding theChairmanhada50%reductiontoreflectan alignmentwiththegeneralemployeeexperience overtheperiodApril2020toJune2020. Theperformanceconditionswerenotmet. ThenewExecutiveDirectorswerehiredduringtheyear atbasesalariesof94%(CEO)and101%(CFO)oftheprior incumbents. TheCommitteefeltthatthiswasafairalignmentofthe ExecutiveDirectorswiththebroaderemployeepopulation. ThesalariesoftheExecutiveDirectorsrevertedtotheir normallevelfrom1Julywhenthevastmajorityofemployees hadreturnedtowork. FY2020 bonus TheCommitteedeterminedthebonusoutcomeas setoutinthetableabove. TheCommitteefeltthatthiswasanequitableoutcome consideringallthefactorsconsidered. FY2020 RSP Award TheCommitteedeterminedtomaketheawardto theExecutiveDirectorsinlinewiththenew2020 Remunerationpolicy.Theawardsweremadeata levelof100%,lowerthanthenewPolicypermits. TheCommitteefeltitwasimportanttograntthefirstaward followingShareholderapprovaltoprovidesomelockinand incentivisationfortheExecutiveDirectorsgiventhattheywere newlyappointed. TheCommitteewillreviewonaregularbasistheunderpin tests,includingwindfallprovisions,andhastheflexibilityto amendtheawardatorbeforevesting. 112 SIG plc Annual Report and Accounts for the year ended 31 December 2020Element of Remuneration FY2021 salary rises FY2021 bonus Committee Decision Rationale Salaryrisesof1.5%forExecutiveDirectors. Averageemployeesalaryrisesof1.5%. TheCommitteefeltitwasappropriatetoincreasethesalaries fortheExecutiveDirectorsinlinewiththegeneralworkforce increase. TheCommitteeisproposingtooperatethe2021 bonusinlinewiththenew2020Remuneration Policyapplyingtheperformanceconditionssetout onpage117.ThebonusopportunityoftheCFOwill increaseto125%ofsalary. TheCommitteefeelsthatitisappropriatetouseperformance conditionswhichrewardtheExecutiveDirectorsforthe successfulimplementationofthenewCompanystrategy. TheCFOwasrecruitedonthebasisofabonusopportunity for2020of100%,duringaperiodwherearevisedpolicy wasinconsultationwithshareholders.Theapprovedpolicy allowsforabonusopportunityupto150%.TheRemuneration Committeebelievesanopportunityof125%isappropriate fortheCFOroleandprovidesacompetitiveopportunitylevel thatensuresheisfairlyrewardedinhisroleasthebusiness returnstoprofitability. FY2021 RSP Award TheCommitteeintendstocontinuetomakeawards inlinewiththenew2020RemunerationPolicy. TheCommitteewillreviewthesizeofgrantstakinginto accountbusinessandindividualperformanceandother factorstheCommitteeconsidersrelevant. Company Stakeholders TheCompanyhasbeenkeentoensurethatitskeystakeholdershavebeenconsideredinallitsremunerationdecisionsduringFY2020.The followingsummariseshowtheCompanyhastakenintoaccounteachofitsmainstakeholders: Stakeholder Decision Employees ■ TheprimaryfocusoftheCompanyhasbeentomaintainjobsoverthisperiod.Amodestadditionalrecruitmentof employeesresultedinanoverallincreaseinemployeesdespitethechallengesthebusinessfaced. ■ Allemployeeshavebeentreatedconsistently: − ThoseonfurloughintheUKreceived80%or100%oftheirsalarysupportedbytheCJRS(foremployeeswho earned£30,000orless,theCompanymaintained100%ofsalary),thiswasrecognisedbytheBoardthrough reductionsinBoardsalariesandfeesoverthisperiod; − Bonuseswerepaidtoalleligiblestaff;and − Termsandconditionsofemploymenthavebeenmaintained. Customers ■ Customershavebeensupportedthroughourtechnologyandremoteworkingteamsandourfrontlinestaff keepingourpremisesopenforbusiness.OurplanshavebeencenteredaroundprovidingthenormalSIG customerexperiencewhereverpossible. Shareholders ■ TheobjectiveoftheBoardhasbeentomaintainourcorebusinessoverthischallengingperiodanditsscalability toensureSIGhasaleadingpositionwhenthemarketrecoversandisthereforeabletogeneratetheShareholder returnsoverthelongertermexpectedbyourinvestors. ■ TheRemunerationCommitteehastakenintoaccounttheexperienceofShareholdersoverthisperiodinallits determinationsinrelationtoExecutiveremunerationforFY2020. Itshouldbenotedthat,priortointroducingthenew2020Remunerationpolicy,theCommitteeconsultedwiththe Company’stop20Shareholders,GlassLewis,theIAandISSonthenewpolicy.Detailsofthemainareasofdiscussion, commentsoramendmentssuggestedbyShareholders,theCommittee’sresponseandrationaleforthefinalposition setoutinthenew2020RemunerationpolicycanbefoundintheNoticeofGeneralMeetingissuedon29October 2020.TheCommitteeatthesametimeasthenewPolicywasdiscussedwiththeCompany’sshareholdersalso consulted44.07%voteagainsttheCEO’sbonusthatsoughshareholderapprovalinJuly.Thereasonsforthevote againstandchangestheCompanymadeasaresultaresetoutonpage109oftheCorporateGovernanceReport. DuringFY2020,nofurtherconsultationwasundertakenbytheRemunerationCommittee. 113 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report Concluding remarks TheGrouphasfacedsignificantheadwindsduringFY2020buthas weathered the storm with grit and determination from a dedicated workforceandnewleadershipteam.TheCommitteeappreciates thatnotalldecisionsmadeduringtheyearreceivedunanimous supportfromShareholders.Itisgratefulforthefeedback receivedandthesignificantsupportgarneredforthenew2020 RemunerationpolicyattheGeneralMeetingoftheCompanyheld on17November2020.Lookingforward,theCommitteeremains focusedonsupportingthebusinesstoachieveasignificant improvement in performance and continuing to operate with rigourandtransparency.Wetrustthatthisreportwillanswerany questionsyoumayhaveinrespectofremuneration,andwewould begladtoreceiveyoursupportatthe2021AGMinrespectofthe advisoryvoteontheAnnualReportonRemuneration. Kath Durrant Chair of the Remuneration Committee 25March2021 Advisers to the Remuneration Committee External ToensurethattheGroup’sremunerationpracticesareinlinewith bestpractice,theCommitteeappointedindependentexternal remunerationadvisers,PricewaterhouseCoopersLLP(“PwC”), throughacompetitivetenderprocessin2018.PwCattends meetingsoftheCommitteebyinvitationandcontinuedasexternal advisorsthroughout2020. Duringtheyear,theCommitteesoughtadvicefromPwCinrelation toemergingmarketpractices,especiallyinrelationtotheimpact ofCovid-19onexecutiveremuneration,generalmattersrelatedto remunerationandinrelationtopeergroupremunerationanalysis. PwCisoneofthefoundingmembersoftheRemuneration ConsultantsGroupandadherestoitsCodeofConductinits dealingswiththeCommittee.TheCommitteereviewstheobjectivity and independence of the advice it receives from PwC at a private meetingeachyear.ItissatisfiedthatPwCisprovidingindependent, robustandprofessionaladvice.Thefeesfortheadviceprovidedby PwCin2020were£58,250(2019:£55,500).Thefeeswerefixedon thebasisofagreedprojects.OtherservicesprovidedbyPwCinthe yearincludedsupportandadviceontheNewRemunerationpolicy 2020. TheCompanyalsousesPwCforunrelatedpensions,tax,mobility andpayrolladviceaswellasforanindependentinvestigation. Internal DuringtheyeartheCommitteesoughtinternalsupportfromthe CEO,CFO,ChiefPeopleOfficerandtheCompanySecretary,whose attendanceatmeetingswasbyinvitationfromtheCommittee Chair,toadviseonspecificquestionsraisedbytheCommitteeand onmattersrelatingtotheperformanceandremunerationofthe seniormanagementteam.Suchattendancesspecificallyexcluded anymatterconcerningtheirownremuneration.TheCompany SecretaryactsassecretarytotheCommittee. Focus for the year ahead Lookingahead,theCommitteewill: ■ Monitor: − Theimpactoftheturnaroundplan,executionofthestrategy, operationalperformance,andachievementofbonustargets; and − TheimpactoftheCovid-19pandemicontheGroupand itsimpactontheoutcomesofExecutiveRemuneration, particularlyinthecontextof2020RSPawards. ■ Continuetoensure: − Consistencyofapproachandfairpayconditionsacrossthe Group; − High-qualityremunerationadviceandinformationtoinform decisions; − Companyperformanceisappropriatelyreflectedinany performance-relatedpayelementofremuneration;and − CompliancewiththeCode. ■ Approve: − AnnualBonusPlansandcorrespondingtargets;and − LeveloftheRSPgrant. ■ Review: − UpdatesreceivedfromtheGroupDirectorofRewardin relationtodevelopmentsinemployeereward,incentive,and benefitstructures;and − Ongoingassessmentofallunderpinrequirementsofthe futurevestingofRSPs. 114 SIG plc Annual Report and Accounts for the year ended 31 December 2020Directors’ Remuneration Report ANNUAL STATEMENT At a glance Voting outcomes Thefollowingtableshowstheresultsoftheadvisoryvoteonthe 2019Directors’RemunerationReportattheAGMheldon30June 2020andtheresultsofthebindingvoteontheRemuneration PolicyattheGeneralMeetingheldon17November2020: 2019Directors’ Remuneration Report* Current Directors’ RemunerationPolicy* 0.02% 51,589 7.37% 66,165,425 98.98% 326,158,888 92.63% 831,756,099 Total votes for  Total votes against *Thetotalvotescastincludesforandagainst,avotewithheldisnotavoteinlaw andnotcounted.Atotalof27,892,813voteswerewithheldforthe2019Directors’ Remuneration(DR)Reportand23,395,204voteswerewithheldforthecurrent2020 DRPolicy. SIG Executive pay SIG Executive pay Components of Remuneration The Directors’ Remuneration Report is colour coded as follows: Salary Pension Benefits Bonus RestrictedSharePlan ShareholdingOwnership Requirements l l l l l l Business Context 2020 out-turns against KPIs KPI and Out-turn Like-for-LikeSales Operatingmargin Gross margin Operatingcostsasa%ofsales Totalrecordableincidentrate 13.3% (2.8)% 25.1% 27.9% 8.8 115 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report ANNUAL STATEMENT How do our incentive performance measures align to our strategy? Inexecutingourstrategy,weaimtofocusonrecoveringandenhancingvalueforShareholdersandallotherstakeholders.Assetoutin ournew2020Remunerationpolicy,theRSPdoesnothaveaprimarysetofperformancetargetsbutoperatesageneralunderpinon vestingallowingtheCommitteetoreviewholisticallytheoverallperformanceoftheCompany,individualperformance,andwiderCompany considerations.Inaddition,wecontinuallyconsidertheperformancemeasuresweusefortheannualbonusincentivestoensurethey supportthedeliveryofourstrategy. Our strategic pillars To re-ignite growth, through our expertise, service and proximity Responsible actions Winning branches Superior service Specialist expertise Valuable partnerships Highest productivity Focused growth Ourpeople feelsafe,proud andvaluedand we operate sustainably tobenefit communities and the environment Ourbranchteams aretrusted, capable,and empowered to achieve success Ourstrengthened entrepreneurial andagilesales teams provide best-in-class customer service Ourempowered localbranchesare knownagainfor specialistfocus andexpertise acquiredthrough long-term experience ↓ Wepartnerclosely withsuppliersto understand our jointopportunities and to create win- win strategies Ourefficient support functions areconsistently productive and drive strong standards, governance and financialdiscipline We focus on our corebusiness to drive growth inbranches and through acquisition opportunities Our key performance indicators Like-for-Like sales Operating margin Gross margin Operatingcosts asa%ofsales Totalrecordable incident rate Net promoter score(NPS) Marketshare growth ↓ ↓ Annual bonus Measures Link to strategy Link to KPls EBIT ■ Focusongrowthinsalesandreturns ■ Keymeasureoforganicgrowth ■ LinkedtoShareholdervalue Average net debt ■ Focusonoperationalefficiency ■ Focusonsustainableinvestment ■ LinkedtoShareholdervalue Strategic Objectives Health and safety override ■ Strategicobjectivesforthebonusarecommerciallysensitiveandwill bedisclosedretrospectively ■ Allemployees,customersandsuppliersshouldbeabletoworkinasafelymanaged environmentacrosseverypartoftheSIGGroup Restricted Share Plan ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Measures Link to strategy Link to KPls General underpin ■ Focusonlong-termsustainableperformance. ■ AllowsoverallperformanceoftheCompany,individualperformanceandwider Companyconsiderationssuchasthelevelofemployeeandcustomerengagementto betakenintoaccount. Shareholding guidelines ■ LinkedtoShareholdervalue. ✓ ✓ ✓ 116 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Remuneration in respect of 2020 What did our Executive Directors earn during the year? Steve Francis Ian Ashton Kath Kearney-Croft Meinie Oldersma Nick Maddock Salary: £436,303 Salary: £187,500 Salary: £156,485 Salary: £86,550 Salary: £55,650 Pension: £21,818 Pension: £9,375 Pension: £5,179 Pension: £12,983 Pension: Benefits: £16,726 Benefits: £10,841 Benefits: N/A Benefits: £3,693 Benefits: Bonus: £375,000 Bonus: £93,750 Bonus: £61,384 Bonus: £0 Bonus: £6,848 £3,363 £0 Note:MeinieOldersmaandNickMaddocksteppeddownfromtheirrespectiverolesasCEOandCFOon24February2020andlefttheBoardatthattimeandcommencedaperiodof gardenleaveuntil30June2020and3July2020respectively.PaymentsinrespectoftheirtimeasExecutiveDirectorsareshownaboveandpaymentsinrespectoftheirgardenleaveare shownonpage129.SteveFranciswasappointedasinterimCEOon25February2020atasalaryof£568,400andbecamethepermanentCEOfrom24Aprilatasalaryof£540,000.Ian AshtontookoverfromKathKearney-Croft(whoactedasInterimCFOfollowingthedepartureofNickMaddock)asCFOon1July2020.PaymentsforKathKearney-Croftareshownabove andpaymentsinrespectoflieuofnoticeareshownonpage129. 2020 bonus out-turn In2020,SteveFrancis(CEO)receivedaone-offcashpaymentof£375,000(representing86%ofsalaryearnedduringtheyearand57%ofhis ongoingbonusopportunity)forhissupportindevelopinganewstrategyfortheGroupandleadingtheCompanythroughtheCapitalRaising inhisroleasinterimCEO.ThetermsonwhichtheCEOwasemployedonaninterimbasispriortohisfullappointmentasCEOprovidedfor abonus.Shareholdersapprovedthispaymentviaanordinaryresolutionon9July2020.TheCommitteedeterminedatthesametimeasthis paymentwasmade,thatnofurtherbonuswouldbepayabletotheCEOforthefinancialyear2020irrespectiveofperformance.Themaximum potentialbonusopportunityforSteveFrancis(CEO)was150%ofsalary.SeetheChair’sAnnualStatementforfurtherinformationonthe Committee’sconsiderations. ThemaximumpotentialbonusopportunityforIanAshton(CFO)was100%ofsalaryandforKathKearney-Croft(interimCFO)was100%of salaryandthetablebelowsetsoutthePBTtargetsandlevelofsatisfactionthatwereconsideredwhendeterminingthebonus.TheCommittee alsoconsideredthetargetsthatwouldapplytotheSeniorLeadershipTeamforFY2020,whichwerebasedonEBITratherthanPBT. Performance condition Actual Threshold Target Maximum Outcome CFO (IA) Actual £’000 Interim CFO (KKC) Actual £’000 UnderlyingPBT £(76.3)m Health&Safety gateway Met 30% payable £(102.0)m 65% payable £(90.0)m 100% payable £(78.0)m 100% Total 94 61 Intheordinarycourseofeventsabonusof100%(or50%pro-ratedfortime)wouldhavebeenpayabletotheCFO.TheCommittee determinedthatitwoulduseitsdiscretiontoreducethebonusbasedonformulaicoutcomes.TheCommitteetookintoaccountthepace withwhichtheCFOgotuptospeedafterjoininginJuly2020,theimprovedperformanceinthesecondhalfoftheyear,thepositiverole hehasplayedinstabilisingthebusiness,extensiveworkwithregardtoongoingfinancing,theimprovementsmadeinthefinancefunction andworkundertakentoaddressandimproveaccountingpractices.Ianjoinedatatimewherehisskillswereessentialandaspartofanew leadershipteamcreatedtoresolvetheseriesofissuesthatexistedinearly2020andreturnthebusinesstoprofitablegrowth.However, giventheexperienceofotherstakeholders,particularlyemployeesandShareholders,itdecidedthatapaymentnogreaterthanthe amountpayablefortargetperformanceshouldbepaid.Furthermore,theCommitteedecidedtoexercisetheirdiscretiontoreducethe paymentfurtherto50%ofsalary(£375,000).Thismeanswhenpro-ratedfortimeabonusof25%ofhisannualsalarywillbepaid.Payment willbemadeinlinewiththeRemunerationpolicy,two-thirdsincashandone-thirdindeferredshares. MeinieOldersma(outgoingCEO)andNickMaddock(outgoingCFO)werenotentitledtoanannualbonusfor2020. 2018 LTIP out-turn Asdisclosedinour2019Directors’RemunerationReport,allin-flightLTIPawardslapsedoncessationofemploymentoftheoutgoingCEO andCFOandsonoLTIPawardvestedduringtheyear. 117 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report ANNUAL STATEMENT What is our new 2020 Remuneration policy? Inthissectionweprovideasummaryofthekeyelementsofthenew2020RemunerationpolicyforExecutiveDirectorsapprovedby ShareholdersatourGeneralMeetingon17November2020.Inaddition,wehavesetouthowthepreviousandthenewpolicieswere operatedin2020andhowitisintendedthatthenewpolicywillbeoperatedin2021.YoucanfindthefullcurrentRemunerationpolicyin theCompany’sNoticeofGeneralMeetingdated29October2020atwww.sigplc.com/investors/information-for-shareholders/agm- notices-and-results. TheCompany’spolicyistoprovideremunerationpackagesthatfairlyrewardtheExecutiveDirectorsforthecontributiontheymaketothe businessandthatareappropriatelycompetitivetoattract,retainandmotivateExecutiveDirectorsandseniormanagersoftherightcalibre. Asignificantproportionofremunerationtakestheformofvariablepay,whichislinkedtotheachievementofspecificandstretchingtargets thatalignwiththecreationofShareholdervalueandtheCompany’sstrategicgoals. Element and link to strategy Period over which earned How we implemented the current policy in 2020 Salary Providesabaselevelof remuneration to support recruitment and retention of ExecutiveDirectorswiththe necessaryexperienceand expertisetodelivertheGroup’s strategy. 2020 Executive Director salaries for 2020 were as follows: ■ OutgoingCEO–£577,000 ■ OutgoingCFO–£371,000 ■ InterimCEO(SF)-£568,400 ■ InterimCFO(KKC)–£371,000 ■ IncomingCEO(SF)–£540,000 ■ IncomingCFO(IA)–£375,000 InlightofCovid-19,theCompanyannounced thatallBoardmemberswouldtakea reductioninsalaryof50%witheffectfrom1 April2020until30June2020.Subsequently, theCompanyannouncedon30Aprilthatthe majorityofsitesintheUKwouldbeopenby mid-May,therefore,theExecutiveDirectors’ paywasreinstatedto80%from1April2020. How we will implement the new policy in 2021 ExecutiveDirectorsalariesfor 2021areasfollows: ■ CEO-£548,100 ■ CFO-£380,625 Thegeneralemployeebase salaryincreasewas1.5%. Pension Providesafairlevelofpension provisionforallemployees. 2020 From1Januaryto24February,theformer ExecutiveDirectorsreceivedapension allowanceof15%ofsalary. Nochange. Benefits Providesamarketstandardlevel ofbenefits. From25February,thenewExecutive Directorsreceivedapensionallowanceof5% ofsalary.Thisis2.5%ofsalarybelowwhatis permissibleunderthePolicy. 2020 Nochange. Nochange. Thebenefitsreceivedwereasfollows: ■ CarAllowance ■ PrivateMedicalInsurance ■ Group Income Protection ■ GroupLifeAssurance 118 SIG plc Annual Report and Accounts for the year ended 31 December 2020Element and link to strategy Period over which earned How we implemented the current policy in 2020 Annual bonus TheAnnualBonusPlanprovides a significant incentive to the ExecutiveDirectorslinked toachievementindelivering goalsthatarecloselyaligned withtheCompany’sstrategy andthecreationofvaluefor Shareholders. Bonusoperationfor2020and 2021: ■ 1/3rdofanybonusearnedup to100%ofsalaryisdeferred inshares. ■ Allbonusearnedabove100% ofsalaryisdeferredinshares. ■ Allsharesdeferredfor3years andsubjecttocontinued employment; ■ 2yearholdingperiodfollowing vestingfordeferredshares. Restricted Share Plan (RSP) Awardsaredesignedto incentivisetheExecutive Directorsoverthelonger-term tosuccessfullyimplementthe Company’sstrategy. RSPoperation: ■ Maximumannualawardup to125%ofsalarybasedon themarketvalueatthedate ofgrant. ■ Awardsvestattheendofa three-yearperiodsubjectto: − continuedemploymentto thedateofvesting;and − the satisfaction of an underpin(wherebythe Committeecanadjust vestingforbusiness, individualandwider companyperformance). ■ Atwo-yearholdingperiodwill applyfollowingthethree-year vestingperiod. How we will implement the new policy in 2021 Maximumopportunityin2021 willbeasfollows: 2021–2024 deferralperiod 2024–2026 holdingperiod Maximumopportunityin2020wasasfollows: ■ OutgoingCEOandCFO–n/a ■ InterimCFO–100%ofbasesalary ■ CEO–150%ofbasesalary ■ IncomingCEO–n/a(seenotebelowtable) ■ CFO–125%ofbasesalary ■ IncomingCFO–100%ofbasesalary Anybonusissubjecttoahealthandsafety override,wheretheCommitteewillreview theH&Sperformanceofthebusinessforthe yearinquestion. Seepage117forbonusoutcomesfor2020. 2020–2023 vesting period 2023–2025 holdingperiod RSPawardsgrantedin2020wereasfollows: ■ CEO–100%ofbasesalary ■ CFO–100%ofbasesalary Theperformancemeasuresfor 2021areEBIT(60%),Average NetDebt(20%)andStrategic Objectives(20%). It is the view of the Committee thatthetargetsforthebonus arecommerciallysensitiveas theyareprimarilyrelatedto budgetedfutureprofitand debtlevelsintheCompany andthereforetheirdisclosure in advance is not in the interestsoftheCompanyor Shareholders.TheCommittee will,however,providefull retrospectivedisclosureto enableShareholderstojudge thelevelofawardagainstthe targetsset. If the share price remains at itspresentlevelatthedateof grantthentheRSPawardsfor 2021areanticipatedtobe: ■ CEO–100%ofbasesalary ■ CFO–100%ofbasesalary TheCommitteewillreview whethertomakeawardsupto themaximumpermittedunder thePolicyastheshareprice recovers. 119 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report ANNUAL STATEMENT Element and link to strategy Period over which earned How we implemented the current policy in 2020 How we will implement the new policy in 2021 Share ownership requirements TheCompanyhasestablished theprincipleofrequiring ExecutiveDirectorstobuildup andmaintainabeneficialholding ofsharesintheCompany.It isexpectedthatthisshould beachievedwithinfiveyears oftheapprovalofthenew Policy.Adherencetothese guidelinesisaconditionof continued participation in the equityincentivearrangements. ExecutiveDirectorswillbe requiredtoretain100%of thepost-taxamountofvested SharesfromtheCompany incentiveplansuntiltheminimum shareholdingrequirementismet andmaintained. Chairman and NED fees Providesaleveloffeestosupport recruitment and retention of aChairandNon-Executive Directorswiththenecessary experiencetoadviseandassist withestablishingandmonitoring theGroup’sstrategicobjectives. n/a Shareownershiprequirements: Nochange. ■ CEO–300%ofbasesalary ■ CFO–300%ofbasesalary TheCommitteeintroducedapost-cessation shareholdingrequirementofthefullin- employmentrequirement(ortheExecutive’s actualshareholdingoncessationiflower)for twoyearsfollowingcessationofemployment. FeeswerereviewedinJanuary 2021anditwasagreedthat therewouldbenoincreasein feesfor2021. 2020 Therewerenoincreasesinfeesin2020.Fees for2020wereasfollows: ■ Chairman-£218,255 ■ NEDfee-£60,900 ■ SeniorIndependentDirector-£10,000 ■ RemunerationCommitteeChair-£12,000 ■ AuditCommitteeChair-£12,000 InlightofCovid-19,allNon-Executive DirectorsincludingtheChairmanhada reductionof50%intheirfeesfrom1April 2020foraperiodofthreemonthsuntil30 June2020. Foractualfeespaidduringtheyearplease refertothesinglefiguretableonpage128. Note–TheincomingCEOreceivedaone-offcashpaymentof£375,000forhissupportindevelopinganewstrategyfortheGroupandleadingtheCompanythroughthecapitalraisingin hisroleasinterimCEO.ThispaymentwassubjecttoShareholderapproval.SeetheChair’sAnnualStatementformoredetail. 120 SIG plc Annual Report and Accounts for the year ended 31 December 2020Additional context to our Executive Directors’ pay How does our target total compensation compare to our peers? ThefollowingchartsshowstherelativepositionofsalaryandtargettotalcompensationofthenewpolicyforourExecutiveDirectorsinrole during2020comparedtoourpeers. Expected value of new policy vs FTSE 250 £2,500 £2,000 s 0 0 0 £ £1,500 £1,000 £500 £0 CEO Salary CEO Total Compensation CFO Salary CFO Total Compensation Expected value of new policy vs FTSE SmallCap £2,500 £2,000 s 0 0 0 £ £1,500 £1,000 £500 £0 Upper Quartile Median Lower Quartile SIG Upper Quartile Median Lower Quartile SIG CEO Salary CEO Total Compensation CFO Salary CFO Total Compensation WhenwesetthetargettotalcompensationfortheExecutiveDirectors,oneofthefactorstheCommitteeconsidersisthecompetitive marketforourExecutiveDirectors,whichwebelieveisboththeFTSE250andtheFTSESmallCap. ThechartsabovedemonstratestheCommittee’sapproachofhavingregardtotheFTSE250andFTSESmallCapwhensettingtotal compensation. 121 Stock code: SHI www.sigplc.comGOVERNANCE Directors’ Remuneration Report DIRECTORS’ REMUNERATION POLICY What is our minimum share ownership requirement, and has it been met? GiventhatourcurrentExecutiveDirectorsonlyjoinedthebusinessin2020,neitherasyethavemettheirshareownershiprequirements. Thechartbelowshowstheshareholdingvaluesasat31December2020forthecurrentCEOandCFO. Minimum Shareholding Requirement I. Ashton S. Francis 0% 50% 100% 150% 200% 250% 300% Current Shareholding Post tax value of unvested share awards 122 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Remuneration principles Ourremunerationprinciplesremainrelevantandaredesignedtosupportandreinforceourcommitmentcultureandbehaviours.They provideabestpracticeframeworkforthedesign,implementationandoperationofGroupandlocalrewardpoliciesandpracticesand applyacrosstheGroup. Alignment and fairness In action ■ Clearandappropriategovernancestructuresareinplacefordecisionmakingatalllevels; ■ Remunerationprogrammesandprocessesarerunfairly,withintegrityandaresupportedwithclearcommunicationtoindividuals;and ■ PayarrangementsarefairandequitableacrosstheGroup. Rewarding contribution and performance In action ■ BonusplansaredesignedfortheExecutivesandallotheremployeestoincentivisetheturnaroundofthebusinessandhelpusto returntoprofitablegrowth; ■ Incentiveplansrewardthedeliveryofourbusinessstrategy,targetsareappropriatelystretching,andobjectivesarefocusedonvalue creation; ■ Performancemeasuresarereviewedregularly,personalandstrategicobjectivesareaccuratelyassessed,andtargetsaresetrelative tostrategicpriorities;and ■ Healthandsafetyisafeatureofallmanagementandexecutiveplans. Transparency and participation In action ■ Thereisafocusoneffectivelycommunicatingremunerationdecisionsthroughstakeholderengagement;and ■ Incentiveandbenefitsplansareclear,simpleandunderstoodbyparticipantstomaximiseengagement. TheCoderequirestheCommitteetodeterminethePolicyandpracticesforExecutiveDirectorsinlinewithanumberoffactorssetoutin Provision40,andfurtherdetailsonourremunerationprinciplesandhowwehaveaddressedtherequirementsaresetoutintheNoticein whichthe2020RemunerationPolicyissetoutinfull:www.sigplc.com/~/media/Files/S/SIG-Corp/SIG%20General%20Meeting%20 Circular-2020%20Final.pdf. Wider Workforce Considerations TheCommitteeconsidersthewiderworkforcewhenmakingpaydecisionsanditreviewsemployeepoliciesandpracticestoensurereward andincentivesarealignedwithSIG’sstrategy,vision,andculture. InadditiontotheExecutiveDirectors,itsremitextendstoSeniorManagementteamsoperatingacrossallcountrieswithintheGroupand theannualbonusplanandshareincentiveplansarestructurallyconsistentwiththeExecutiveDirectors,creatingasharedstrategicfocus. TheCommitteebelievesthatitisimportanttobetransparentwithhowdecisionsonrewardaremadeandthissectionseekstoprovide contexttoourDirectorpaybyprovidinginformationonwhetherourapproachtoExecutiveremunerationisconsistentwiththewider workforce. Wider workforce remuneration Deliveryofourstrategydependsonattractingandrecruitinganengagedworkforcethathastherightskillsanddemonstratestheright behaviourstomakeavaluablecontributiontoourbusiness.TheBoardisfocusedonemployeeengagementandtheRemuneration Committeespecificallyiscommittedtoensuringthatappropriateengagementtakesplacewithemployeestoexplainhowexecutive remunerationalignswithSIG’sapproachtowiderCompanypay.Thisprovedchallengingin2020aswerespondedtochangesinworking practicesbroughtaboutbythepandemic.However,Executiveremunerationwasdiscussedwithemployeesaspartoftheworkforce engagementsessionsledbySimonKing,seepage62forfurtherdetailsonthesesessions.Itwillbeakeyfocusin2021andwewillexplain howthishasbeenundertakeninnextyear’sreport. 123 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report DIRECTORS’ REMUNERATION POLICY Incentives OverhalfofouremployeescanshareinthesuccessoftheCompanythroughincentivearrangements.Inlinewithmarketpractice,thelevel ofincentivecompensationandwhetheritispaidsolelyincashorinamixtureofcashandsharesdependsonthelevelofseniorityofthe employee.TheincentiveapproachappliedtotheExecutiveDirectorsalignswiththewiderCompanypolicyonincentives,whichistohave ahigherpercentageofat-riskperformancepaywithseniorityoftherole,andtoincreasetheamountofincentivedeferred,providedin equityand/ormeasuredoverthelongertermforroleswithgreaterseniority.TheGroupbelievesthatitisnecessarytooperateonthis basistoattractandretainhigh-qualityleaders. Key elements TheCommitteereviewsallkeyelementsofremunerationacrosstheGroupannually.Thelevelsandtypesofremunerationvaryacrossthe Companydependingontheemployee’slevelofseniority,countryofoperationandrole.IntheUK,theCompanyoperatesabroadrangeof benefitsincludinganall-employeeShareIncentivePlan.InJune2020,SIGlaunchedBenefitsConnect,anemployeebenefitshuballowing employeestomanagetheirbenefitsonline.ThisprovidedanexcellentopportunitytoreviewourofferingandthroughBenefitsConnect,we significantlyexpandedtherangeofbenefitsonoffer,streamlinedouradministrationandenhancedourcommunicationtoUKemployees. ItisimportanttohighlightthattheCommitteeisnotlookingforanhomogeneousapproachacrosstheGroup;however,whenconducting itsreview,itpaysparticularattentionto: ■ WhethertheelementofremunerationisconsistentwiththeCompanyRemunerationPrinciples(seepage123); ■ Iftherearedifferences,theyareobjectivelyjustifiable;and ■ Iftheapproachseemsfairandequitableinthecontextofotheremployees. AsummaryoftheremunerationstructureandhowitcomparestotheExecutiveDirectorsisbelow: Pay Element Employees Executive Directors Salary Weconductanannualpayreviewforallemployees. Insettingthebudget,manyfactorsareconsidered suchasmarketrates,economiccontext,business performanceandaffordability. Thegeneralworkforceincreasefor2020was1.5%. Salaryincreasesareconsideredinthecontextof thewiderworkforcereviewandperformanceofthe Company. NoincreasewasawardedtotheExecutiveDirectors in2020. Pensionsandbenefits Weoffermarket-alignedbenefitspackagesreflecting normalpracticeineachcountryinwhichweoperate. Whereappropriate,weofferbenefitchoicestoour employees. For2020,pensioncontributionswerealignedwith thoseprovidedtoUKemployees. BenefitsarealignedtotheSeniorLeadershipTeamin thecountryofoperation. BonusPlan Justoverhalfofourworkforceparticipateinacash bonus.Thelevelandperformancefactorsdiffer dependingontheroleandcountryofoperation. CEOannualbonusofupto150%ofbasesalary, CFOannualbonusofupto100%ofbasesalary(125% for2021). RestrictedSharePlan TheSeniorLeadershipteam(44employees)anda further60keyroleswereinvitedtoparticipateinthe RSPin2020,witharangeofannualawardsbetween 20%to100%.Aholdingperioddoesnotapplybelow thelevelofExecutiveDirectors. 2/3rdspayableincashupto100%ofsalary;1/3rd payableinsharesupto100%ofsalaryandallbonus inexcessof100%ofsalarypaidinshares. Maximumannualawardof125%ofsalary;three-year vestingperiod;two-yearholdingperiodwithunderpin onvesting. ShareIncentivePlan AllUKemployeesareinvitedtoparticipateintheSIP. ExecutiveDirectorsareinvitedtoparticipateintheSIP. InsummarytheCommitteeissatisfiedthattheapproachtoremunerationacrosstheCompanyisconsistentwiththeCompany’sprinciples ofremuneration.Further,thatintheCommittee’sopiniontheapproachtoexecutiveremunerationalignswiththewiderCompanypay policyandthattherearenoanomaliesspecifictotheExecutiveDirectors. CEO pay ratio Financial Year 2020 Method Used OptionB(GenderPaydata) 25th percentile pay ratio 44:1 50th percentile pay ratio 38:1 75th percentile pay ratio 31:1 124 SIG plc Annual Report and Accounts for the year ended 31 December 2020IndeterminingthequartilefiguresthehourlyrateswereannualisedusingthesamenumberofcontractualhoursastheCEO.OneUK employeewiththerelevantannualsalarywasthenchosenforeachquartileandthesingletotalremunerationfigurewascalculatedfor themtocomparetotheCEO. For2020,theCompanyhasusedOptionBgiventheavailabilityofdata,inorderthatadirectcomparisoncanbeshownagainstlastyear. GenderPayfor2020hasbeencalculatedinlinewiththeguidanceanddetailsofthedatausedintheanalysiscanbefoundintheGender PayGapReportwhichispublishedonourwebsite(www.sigplc.com). TheCompanyfeelsthatusinggenderpaydataensuresthattheseindividualsarereasonablyrepresentativeofpaylevelsatthe25th,50th and75thpercentileasthesingletotalremunerationfigurefortheseindividualsissimilartootheremployeeswithasimilarannualsalary. Itdeterminesthattheincreaseinratiofor2020isdirectlyasaresultofthebonuspaidtotheCEOforhissupportindevelopinganew strategyfortheGroupandleadingtheCompanythroughthecapitalraising. Basicsalary Benefits Pension BonusPlan TotalPay CEO 522,853 20,419 34,801 375,000 953,073 25th 20,250 111 1,215 0 21,576 2020 50th 23,063 63 619 1,153 24,898 75th 28,730 157 1,724 143 30,994 CEO 577,000 24,435 86,550 – 687,985 25th 19,759 89 1,482 – 21,330 2019 50th 23,696 53 711 – 24,460 75th 31,842 383 2,388 – 34,613 CEOPayfor2020hasbeencalculatedfortheperiod1Januaryto31December(MeinieOldersmafrom1Januaryto24FebruaryandSteve Francisfrom25Februaryto31December) Forthepurposeofthecalculationsthefollowingelementsofpaywereincludedinthesingletotalremunerationfigurefortheemployeeat eachquartileintheyearto31December2020: ■ Annualbasicsalary ■ Bonusearnedintheyearinquestion ■ EmployerPensioncontribution ■ Car/CarAllowance ■ PrivateMedicalInsurancevalue ■ GroupLifeAssurancevalue ■ GroupIncomeProtectionvalue ■ EmployerShareIncentivePlancontribution NopayelementswereomittedoradjustedtocalculateCEOpay.Non-guaranteedovertimewasomittedforemployeesduetoitsvariable nature. Wesetoutbelowatableshowingchangesintheratiosfrom2018onwards,whichiswhenwefirstdisclosedtheratios. Financial Year 2020 2019 2018 25th percentile pay ratio 44:1 32:1 33:1 50th percentile pay ratio 38:1 28:1 27:1 75th percentile pay ratio 31:1 20:1 20:1 Method B B B TheCommitteecontinuestobecommittedtoensuringthatCEOpayiscommensuratewithperformance.In2018and2019theratioswere relativelystableasaresultofnilincentiveoutcomes.For2020,theCEOwaspaidabonusasitwaspartoftheinitialinterimagreementon whichtheCEOwasappointed.Infutureyearsweexpecttheretobesignificantvolatilityinthisratioovertimeandwebelievethatthiswill becausedbythefollowing: ■ OurCEOpayismadeupofahigherproportionofincentivepaythanthatofouremployees,inlinewiththeexpectationsofour Shareholders.Successinexecutingtheturnaroundstrategywillresultinanincreasedlevelofbonuspayments.Boththestructureof remunerationandtheintentiontorewardsuccessintroducesahigherdegreeofvariabilityinpayeachyearwhichaffectstheratio. ■ WerecognisethattheratioisdrivenbythedifferentstructureofthepayofourCEOversusthatofouremployees,aswellasthemake- upofourworkforce.Thisratiovariesbetweenbusinesseseveninthesamesector.Whatisimportantfromourperspectiveisthatthis ratioisinfluencedonlybythedifferencesinstructure,andnotbydivergenceinfixedpaybetweentheCEOandwiderworkforce. ■ Wherethestructureofremunerationissimilar,forexamplefortheExecutiveCommitteeandtheCEO,theratioismuchmorestable overtime. 125 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report DIRECTORS’ REMUNERATION POLICY CEO pay in the last 10 years ThetablebelowshowshowpayfortheCEOrolehaschangedinthelast10years. Year Incumbent 2011 2013 2012 £’000 £’000 £’000 Chris Chris Chris Davies Davies Davies1 Mitchell2 Mitchell Mitchell Mitchell4 Ewell5 Ewell Oldersma6 Oldersma Oldersma Oldersma7 Francis8 2016 2016 2017 £’000 £’000 £’000 Stuart Mel Mel 2019 £’000 Meinie Meinie 2020 £’000 Steve 2014 £’000 Stuart 2013 £’000 Stuart 2015 £’000 Stuart 2017 £’000 2018 £’000 2020 £’000 Meinie Meinie Singlefigureof Remuneration 1,065 1,024 1,031 %ofmax annualbonus earned %ofmaxLTIP awards vesting 50 54 96 0 0 0 987 968 765 581 100 150 794 669 688 258 850 60.5 57 03 n/a n/a n/a n/a n/a 19.5 n/a n/a n/a 70 n/a 0 n/a 0 0 0 n/a 57 n/a 1. Thefiguresshownpertaintotheperiod1January2013to31December2013(includesremunerationinlieuofsalary,pensionandotherbenefitsafter1March2013). 2. StuartMitchellwasappointedtotheBoardon10December2012andbecametheCEOon1March2013.The2013figurepertainstotheperiod1January2013to31December 2013. 3. StuartMitchelltookthedecisiontowaivehisentitlementtothe2015annualbonus. 4. StuartMitchellsteppeddownasCEOwitheffectfrom11November2016,andhisremunerationrelatestotheperiodserved.Hedidnotreceiveabonusfor2016,andhis outstandingLTIPawardslapsed. 5. MelEwellwasappointedasInterimCEOwitheffectfrom11November2016andsteppeddownon31March2017.HecontinuedasanExecutiveDirectoruntil20April2017,andhis remunerationrelatestotheperiodservedasCEO.MelEwelldidnotparticipateinanyGroupincentiveschemes. 6. MeinieOldersmawasappointedCEOon3April2017.The2017figurepertainstotheperiod3April2017to31December2017. 7. MeinieOldersmasteppeddownasCEOwitheffectfrom24February2020,andhisremunerationrelatestotheperiodserved.Hedidnotreceiveabonusfor2020,andhis outstandingLTIPawardslapsed. 8. SteveFranciswasappointedCEOon25February2020.The2020figurepertainstotheperiod25February2020to31December2020.Hissinglefigurereflectsthetemporary20% salaryreductionbetween1April2020and30June2020asaresultoftheCovid-19pandemicaswellastheone-offbonusarrangementreceivedfor2020. Total Shareholder Return (TSR) ThegraphbelowshowstheCompany’s(TSR)performance(sharepriceplusdividendspaid)comparedwiththeperformanceoftheFTSEAll ShareSupportServicesIndexovertheten-yearperiodto31December2020.ThisindexhasbeenselectedbecausetheCompanybelieves thattheconstituentcompaniescomprisingtheFTSEAllShareSupportServicesIndexarethemostappropriateforthiscomparisonasthey areaffectedbysimilarcommercialandeconomicfactorstoSIG. 300 250 200 150 100 50 0 0 1 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 10 Year Company TSR Performance v FTSE All Share Support Services 275.8 31.4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 SIG FTSE All Share Support Services Percentage change in Directors’ remuneration ThetablebelowshowshowthepercentageincreaseineachDirector’ssalary/fees,benefitsandbonusbetween2020and2019compared withtheaveragepercentageincreaseineachofthosecomponentsofpayfortheUK-basedemployeesoftheGroupasawhole.Disclosure forallDirectorsinadditiontotheCEOhasbeenaddedthisyearinlinewithnewrequirementsundertheEUShareholderRightsDirectiveII andovertimeafive-yearcomparisonwillbebuiltup. 126 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Year-on-year increase in pay for Directors compared to the average employee increase % change Director SteveFrancis IanAshton KathKearney-Croft MeinieOldersma NickMaddock AndrewAllner Ian Duncan AlanLovell KateAllum GillianKent Bruno Deschamps SimonKing Christian Rochat AndreaAbt Averagepercentageincreaseforemployees Salary/fees – – – – – FY2020 vs FY2019 Benefits – – – – – 38 (15) (14) – – – – – – (1) – – – – – – – – – (4) Bonus – – – – – – – – – – – – – – 40 ■ ThebonusfiguresareforUK-basedemployeeswhoparticipateinabonusarrangement. ■ SteveFrancis,IanAshtonandKathKearney-Croftcommencedemploymenton25February2020,1July2020and20January2020respectivelysonochangesareavailableforthisyear. ■ KateAllumandGillianKentwereappointedasNEDson1July2019andAndreaAptretiredon12February2020thereforefeechangesarenotrepresentativeforcomparisonpurposes. ■ BrunoDeschamps,SimonKingandChristianRochatwereappointedasNEDson10July2020,1July2020and10July2020respectivelysonofeechangesareavailableforthisyear. ■ TheincreaseinfeesforAndrewAllnerisduetotheadditionalfeehereceivedfortheperiodwhereheworkedinexcessofthenormalexpectationsofaChairmanwhilstthe Companywasstabilised,newleadershipappointedandnewcapitalraised. ■ ThepercentagechangeforDirectorsandemployeesisduetoreducedfees/salariesduringthepandemicandresultinglowerpensioncontributionsforemployees. TheCommitteemonitorsthechangesyear-on-yearbetweenourDirectorpayandtheaverageemployeeincrease,showninthetable.As perourpolicy,salaryincreasesappliedtoExecutiveDirectorswilltypicallybeinlinewiththoseofthewiderworkforce. Annual Report on remuneration ThefollowingsectionprovidesdetailsofhowSIG’s2018and2020Remunerationpolicieswereimplementedduringthefinancialyear ended31December2020. Single total figure of remuneration for Executive Directors (Audited) ThetablebelowsetsoutthesingletotalfigureofremunerationreceivedbyeachExecutiveDirectorfortheyearto31December2020and theprioryear. Executive Director SteveFrancis7 IanAshton8 KathKearney-Croft9 MeinieOldersma10 NickMaddock10 Base salary1 436 – 188 – 156 – 87 577 56 371 Taxable benefits2 £’000 17 – 11 – 0 – 4 24 3 21 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Annual bonus4 £’000 0 – 94 – 61 – 0 0 0 0 LTIP3 £’000 0 – 0 – 0 – 0 0 0 0 Pension5 £’000 22 – 9 – 5 – 13 87 7 56 Other6 £’000 375 – 0 – 0 – 0 0 – 0 Total remuneration £’000 850 – 302 – 222 – 103 688 66 448 Total fixed remuneration £’000 475 – 208 – 161 – 103 688 66 448 Total variable remuneration £’000 375 – 94 – 61 – 0 0 0 0 Thefiguresinthetableabovehavebeencalculatedasfollows: 1. Basesalary:amountearnedfortheyearasDirectors,takingaccountofanywaiverbetween1April2020and30June2020. 2. Benefits:include,butarenotlimitedto,companycar,carallowance(£15,000)andprivatemedicalinsurance,lifeassurance,incomeprotection. 3. LTIP:Thereisnovestinginrespectofeither2019or2020. 4. Annualbonus:paymentforperformanceduringtheyear(includinganydeferredportion). 5. Pension:TheCompany’spensioncontributionduringtheyearof15%ofsalaryand5%ofsalaryforoutgoingandincomingExecutiveDirectorsrespectively,anamountofwhichwas paidbysalarysupplement. 6. Other:includesSIP,valuebasedonthefacevalueofmatchingsharesatgrant.AsperHMRCguidance,therearenoperformancemeasuresrelatingtotheSIP.FortheincomingCEO, ‘Other’alsoincludestheone-offcashpaymentreceivedforhissupportindevelopinganewstrategyfortheGroupandleadingtheCompanythroughtheCapitalRaisingfrom25 February2020to23April2020andsubsequentlyasCEOoftheCompany.Seepage112fordetails. 7. SteveFrancisbecameinterimCEOon25February2020withasalaryof£568,400andongoingCEOon24Aprilwithasalaryof£540,000andhisremunerationreflectspayments earnedfrom25February. IanAshtonbecameCFOon1July2020andhisremunerationreflectspaymentsearnedfromthatdate. 8. 9. KathKearney-CroftwasappointedinterimCFOon25February2020andsteppeddownfromtheBoardon31July2020.Her2020remunerationreflectspaymentsearnedbetween thesedates.Paymentsmadeinlieuofnoticeareshownonpage129. 10. MeinieOldersmaandNickMaddockresignedfromtheBoardon24February2020.Their2020remunerationreflectspaymentsearnedtothatdate.Paymentsinrespectofgarden leaveareshownonpage129. 127 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report DIRECTORS’ REMUNERATION POLICY Totalsinglefigureofremuneration 2020 2019 2018 2017 2020 Restricted Share Plan Awards (Audited) CEO £’000 850 688 677 794 CFO £’000 302 448 441 626 SteveFrancisandIanAshtonweregrantedrestrictedshareawardsof100%ofsalaryon1December2020underthenew2020 RemunerationpolicyapprovedattheGeneralMeetingon17November2020.Noconsiderationwaspaidforthegrantoftheawardswhich arestructuredasnilcostoptions.ThenumberofOrdinarySharesgrantedwasbasedonanOrdinarySharepriceof30pencepershare (therecentplacingandopenofferprice)assetoutintheGeneralMeetingCircularandNoticeofMeeting. Thenormalvestingdateoftheawardswillbe1December2023,beingthethirdanniversaryoftheawarddate.Theawardswillordinarily vestafterthreeyearssubjecttocontinuedserviceandadiscretionaryunderpinthatallowstheRemunerationCommitteetomake adjustmentstothelevelofvestingifitbelievesduetobusinessperformance,individualperformanceorwiderCompanyconsiderations thatthevestingshouldbeadjusted.Thiswillincludeconsiderationofallrelevantfactors,includinganywindfallgains.Oncevested,the awardswillnormallybeexercisableuntilthedaybeforethetenthanniversaryoftheawarddate.Theawardsaresubjecttoatwo-year holdingperiodcommencingonvesting. Executive Director SteveFrancis IanAshton Date of grant 1December2020 1December2020 % of award for minimum performance 100% 100% Shares subject to award 1,800,000 1,250,000 Face value at date of award £600,840 £417,250 Itshouldbenotedthatthe2018and2019LTIPawardslapsedonthecessationofemploymentofMeinieOldersmaandNickMaddock. The2020RSPawardwasgrantedatasharepriceof30p,howeverthesharepriceonthedateofawardwas33.38pwhichhasbeenused tocalculatethefacevalue. Single total figure of remuneration for NEDs (Audited) ThetablebelowsetsoutthesingletotalfigureofremunerationreceivedbyeachNEDforservicesrenderedtotheCompanyasaNEDfor theyearto31December2020andtheprioryear. Base fee Committee Chair / Senior Independent Director fees 2020 £’000 191 53 53 53 53 7 29 30 29 2019 £’000 217 61 61 30 30 61 – – – 2020 £’000 – 9 8 9 – – – – – 2019 £’000 – 12 10 6 – – – – – AndrewAllner(Chairman)1 Ian Duncan AlanLovell KateAllum2 GillianKent3 AndreaAbt4 Bruno Deschamps5 SimonKing6 Christian Rochat5 Additional Advisory Board fees 2020 £’000 109 – – – – – – – 2019 £’000 – – – – – – – – – – Total fees 2020 £’000 300 62 61 62 53 7 29 30 29 2019 £’000 217 73 71 36 30 61 – – – 1. TheChairmantooka50%reductionalongwiththeotherNon-ExecutiveDirectorsfromApriltoJune2020whichpartiallyoffsettheamountofadditionalfeeawardedduetohis exceptionaltimecommitment. 2. KateAllumwasappointedChairoftheRemunerationCommitteewitheffectfrom1July2019. 3. GillianKentwasappointedasaNEDon1July2019. 4. AndreaAbtretiredasaNEDon12February2020. 5. BrunoDeschampsandChristianRochatwereappointedasNEDson10July2020.ThefeespaidtoBrunoandChristianarenotretainedbythemindividuallybutpaidtoCD&R. 6. SimonKingwasappointedasaNEDon1July2020. 128 SIG plc Annual Report and Accounts for the year ended 31 December 2020Payments for loss of office (Audited) Payments to outgoing CEO MeinieOldersmasteppeddownfromhisroleasCEOon24February2020.InlinewithSIG’spolicyforlossofoffice,inforceatthattime, andtherulesoftheannualbonusandtheLTIP,hewasentitledtohissalaryandbenefitsonlyforhiscontractualnoticeperiod.Allin-flight LTIPslapsedoncessationofemploymentandnobonuswaspaidforFY2019orFY2020.TheCommitteedeterminedthatthedeferred sharebonusshouldalsolapse.ThetablebelowsummariseswhattheoutgoingCEOwasentitledto: Element Paymentforgardenleave Annualbonus–cashawards Annualbonus–shareawards LTIP Treatment applied Salaryandbenefitspaidduringnoticeperiod-£158,036 NobonusawardedforFY19orFY20 Deferredbonusshareawardslapsed Allin-flightLTIPslapsedoncessationofemployment Payments to outgoing CFO NickMaddocksteppeddownfromhisroleasCFOon24February2020.InlinewithSIG’spolicyforlossofoffice,inforceatthattime,and therulesoftheannualbonusandtheLTIP.Asaresult,hewasentitledtohissalaryandbenefitsonlyforhiscontractualnoticeperiod. Allin-flightLTIPslapsedoncessationofemploymentandnobonuswaspaidforFY2019orFY2020.TheCommitteedeterminedthatthe deferredsharebonusshouldalsolapse.ThetablebelowsummariseswhattheoutgoingCFOwasentitledto: Element Paymentforgardenleave Annualbonus–cashawards Annualbonus–shareawards LTIP Treatment applied Salaryandbenefitspaidduringnoticeperiod-£158,152 NobonusawardedforFY19orFY20 Deferredbonusshareawardslapsed Allin-flightLTIPslapsedoncessationofemployment Payments to outgoing interim CFO KathKearney-CroftwasappointedinterimCFOon25February2020andsteppeddownfromthisroleon30June2020andfromtheBoard on31July2020butremainedavailabletotheCompanyuntil31August2020toensureorderlyhandover.InlinewithSIG’spolicyforlossof officeandtherulesoftheannualbonus,theCommitteedeterminedshewasagoodleaverandthereforeentitledtothefollowing: Element Paymentinlieuofnotice Annualbonus–cashawards Annualbonus–shareawards LTIP Treatment applied Salaryandbenefitspaidfornoticeperiod-£97,388 50%ofmaxbonuspaid,pro-rataforfourmonthsof2020–£61,384toreflecttimeasCFOduring thefinancialyear Nonegranted. Nonegranted. Relative importance of spend on pay ThetablebelowshowsthepercentagechangeintotalemployeepayexpenditureandShareholderdistribution(i.e.dividendsandshare buybacks)fromthefinancialyearended31December2019tothefinancialyearended31December2020. DistributiontoShareholders Employeeremuneration* *Continuingoperationsemployeeremuneration. 2020 £m - 267.4 2019 £m 22.2 268.2 % change n/a 0.3% TheCompanyhasdeclaredthatnofinaldividendwouldbepaidfor2020andnointerimdividendwaspaidin2020(2019:1.25p). 129 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Remuneration Report DIRECTORS’ REMUNERATION POLICY Directors’ interests in SIG shares (Audited) TheinterestsoftheDirectorsinofficeduringtheyearto31December2020,andtheirfamilies,intheordinarysharesoftheCompanyat thedatesbelowwereasfollows: Owned outright or vested 815,769 166,666 66,666 371,388 154,072 238,800 Nil Nil Nil 250,000 Steve.Francis3 IanAshton4 KathKearney-Croft5 (interimCFO) MeinieOldersma6 (outgoingCEO) NickMaddock6 (outgoingCFO) AndrewAllner KateAllum Ian Duncan GillianKent AlanLovell Bruno Deschamps7 Nil SimonKing8 166,666 Christian Rochat7 AndreaAbt9 Nil 8,500 Shares held Vested but subject to holding period Nil-cost options held Unvested subject to Vesting and holding period Vested but not exercised Unvested and subject to deferral Shareholding required (% basic salary)1 Current shareholding as a % of basic salary2 Requirement met2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,800,000 – 1,250,000 – – – – – – – – – – – – – – – – – – – – – – – – 300 300 300 300 300 – – – – – – – – – 103 70 N/A – – – – – – – – – – – No No N/A N/A N/A – – – – – – – – – 1. ExecutiveDirectorsareexpectedtoachievetargetshareholdingwithinfiveyearsofappointment. 2. BasedonSIGsharepriceof31.49pasat31December2020.TheposttaxvalueoftheRSPgrantedinDecember2020hasbeenincludedinthecurrentshareholdingfigure.Note thatboththecurrentExecutiveDirectorswereappointedin2020,consequentlytheyhavenotyetbuiltuptherequiredholding. 3. SteveFranciswasappointedasCEOon25February2020. 4. IanAshtonwasappointedasCFOon1July2020. 5. KathKearney-CroftwasappointedasinterimCFOon25February2020. 6. MeinieOldersmaandNickMaddocksteppeddownasCEOandCFOrespectivelyon24February2020. 7. BrunoDeschampsandChristianRochatwereappointedasDirectorson10July2020. 8. SimonKingwasappointedasDirectoron1July2020. 9. AndreaAbtretiredasaDirectoron12February2020. Therehavebeennochangestoshareholdingsbetween1January2021and25March2021. NoDirectorsexercisedanyshareoptionsduringtheyearsuchthattheaggregategainonexercisewasnil(2019:nil). ItshouldbenotedthatrightstounvestedshareslapsedonthecessationofemploymentofMeinieOldersmaandNickMaddockon 24February2020. 130 SIG plc Annual Report and Accounts for the year ended 31 December 2020 Additional information ThefollowingtablesetsouttheadditionalinformationrequiredintheAnnualReportonRemunerationandwhererelevantitslocation: Element Annualbonusinrespectof2020(Audited) RSP:2020awards(Audited) Paymentsforlossofoffice PaymenttoFormerDirectors ImplementationofRemunerationpolicyin2021 PercentagechangeinCEORemuneration TSRperformancegraph Executive Director service contracts Information/Page Seepage117 Seepage128 Seepage129 None Seepages118to120 Seepage126 Seepage126 ExecutiveDirectorshaveserviceagreementswithanindefiniteterm,andwhichareterminablebyeithertheGrouportheExecutive Directoronsixmonths’noticeinthecaseoftheChiefExecutiveOfficerandtheChiefFinancialOfficer. Executive Director SteveFrancis IanAshton Date of service contract 24April2020 1July2020 NEDs TheNEDsincludingtheChairman,donothaveservicecontracts.TheCompany’spolicyisthatNEDsareappointedforspecifictermsof threeyearsunlessotherwiseterminatedearlierinaccordancewiththeArticlesofAssociationorby,andatthediscretionof,eitherparty uponthreemonths’writtennotice.NEDappointmentsarereviewedattheendofeachthree-yearterm.NEDswillnormallybeexpectedto servetwothree-yearterms,althoughtheBoardmayinvitethemtoserveforanadditionalperiod.NEDlettersofappointmentareavailable toviewattheCompany’sregisteredoffice.SummarydetailsoftermsandnoticeperiodsforNEDsareincludedbelow: Date of current letter of appointment 7April2020 7April2020 28June2018 5June2019 5June2019 10July2020 22May2020 10July2020 5March2015 Effective date of appointment 1November2020 29June2020 1August2018 1July2019 1July2019 10July2020 1July2020 10July2020 12March2015 Expiry of current term 31October2023 N/A May2021 N/A May2022 10July2023 30June2023 10July2023 N/A NED AndrewAllner Ian Duncan1 AlanLovell KateAllum2 GillianKent Bruno Deschamps SimonKing Christian Rochat AndreaAbt3 1. IanDuncanresignedon31January2021 2. KateAllumresignedon31December2020 3. AndreaAbtretiredasaDirectoron12February2020 Kath Durrant Chair of the Remuneration Committee 25March2021 131 Stock code: SHI www.sigplc.comGOVERNANCEDirectors’ Responsibilities Statement TheDirectorsareresponsibleforpreparingtheAnnualReportand theFinancialStatementsinaccordancewithapplicablelawand regulations. Responsibility statement Weconfirmthattothebestofourknowledge: ■ TheFinancialStatements,preparedinaccordancewiththe relevantfinancialreportingframework,giveatrueandfairview oftheassets,liabilities,financialpositionandprofitorlossofthe Companyandtheundertakingsincludedintheconsolidation takenasawhole;and ■ TheStrategicreportincludesafairreviewofthedevelopment andperformanceofthebusinessandthepositionofthe Companyandtheundertakingsincludedintheconsolidation takenasawhole,togetherwithadescriptionoftheprincipal risksanduncertaintiesthattheyface. ThisresponsibilitystatementwasapprovedbytheBoardof Directorson25March2021andissignedonitsbehalfby: Steve Francis Chief Executive Officer 25 March 2021 Ian Ashton Chief Financial Officer 25 March 2021 CompanylawrequirestheDirectorstoprepareFinancial Statementsforeachfinancialyear.UnderthatlawtheDirectors arerequiredtopreparetheGroupFinancialStatementsin accordancewithinternationalaccountingstandardsinconformity withtherequirementsofCompaniesAct2006andinternational financialreportingstandardsadoptedpursuanttoRegulation(EC) No.1606/2002asitappliesintheEuropeanUnion.TheDirectors haveelectedtopreparetheParentCompanyFinancialStatements inaccordancewithUnitedKingdomAccountingStandards, includingFinancialReportingStandard101,“ReducedDisclosure Framework”(UnitedKingdomGenerallyAcceptedAccounting Practice)asappliedinaccordancewiththeprovisionsofthe CompaniesAct2006.UndercompanylawtheDirectorsmustnot approvetheFinancialStatementsunlesstheyaresatisfiedthatthey giveatrueandfairviewoftheassets,liabilities,financialposition andprofitorlossoftheCompanyforthatperiod. InpreparingtheParentCompanyFinancialStatements,the directorsarerequiredto: ■ Selectsuitableaccountingpoliciesandthenapplythem consistently; ■ Makejudgementsandaccountingestimatesthatarereasonable andprudent; ■ StatewhetherapplicableUKAccountingStandardshavebeen followed,subjecttoanymaterialdeparturesdisclosedand explainedintheFinancialStatements;and ■ PreparetheFinancialStatementsonthegoingconcernbasis unlessitisinappropriatetopresumethattheCompanywill continueinbusiness. InpreparingtheGroupFinancialStatements,International AccountingStandard1requiresthatdirectors: ■ Properlyselectandapplyaccountingpolicies; ■ Presentinformation,includingaccountingpolicies,inamanner thatprovidesrelevant,reliable,comparableandunderstandable information; ■ Provideadditionaldisclosureswhencompliancewiththe specificrequirementsinIFRSareinsufficienttoenableusersto understandtheimpactofparticulartransactions,otherevents andconditionsontheentity’sfinancialpositionandfinancial performance;and ■ MakeanassessmentoftheCompany’sabilitytocontinueasa goingconcern. TheDirectorsareresponsibleforkeepingadequateaccounting recordsthataresufficienttoshowandexplaintheCompany’s transactionsanddisclosewithreasonableaccuracy,atanytime, thefinancialpositionoftheGroupatthattimeandenablethemto ensurethattheFinancialStatementscomplywiththeCompanies Act2006.Theyarealsoresponsibleforsafeguardingtheassets oftheCompanyandhencefortakingreasonablestepsforthe preventionanddetectionoffraudandotherirregularities. TheDirectorsareresponsibleforthemaintenanceandintegrityof thecorporateandfinancialinformationincludedontheCompany’s website.LegislationintheUnitedKingdomgoverningthe preparationanddisseminationoffinancialstatementsmaydiffer fromlegislationinotherjurisdictions. 132 SIG plc Annual Report and Accounts for the year ended 31 December 2020133 Stock code: SHI www.sigplc.comGOVERNANCEFinancial Statements 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 136 137 138 139 140 141 150 153 206 Five-Year Summary Company Statement of Comprehensive Income Company Balance Sheet 215 217 218 Company Statement of Changes in Equity 219 Company Statement of Significant Accounting Policies 220 Notes to the Company Financial Statements Group Companies Company information 224 232 234 Consolidated Income Statement FOR THE YEAR ENDED 31 DECEMBER 2020 Continuing operations Revenue Cost of sales Gross profit Other operating expenses Operating (loss)/profit Finance income Finance costs (Loss)/profit before tax from continuing operations Income tax (expense)/credit (Loss)/profit after tax from continuing operations Discontinued operations Profit/(loss) after tax from discontinued operations (Loss)/profit after tax for the year Attributable to: Equity holders of the Company Underlying* 2020 £m Other items** 2020 £m Note Total 2020 £m Underlying* 2019 Restated^ £m Other items** 2019 Restated^ £m 1 2 3 3 4 6 1,872.7 (1,402.7) 470.0 (523.3) (53.3) 0.7 (23.7) (76.3) (10.7) 1.8 (1.3) 0.5 (114.9) (114.4) – (11.6) (126.0) 4.1 1,874.5 (1,404.0) 470.5 (638.2) (167.7) 0.7 (35.3) (202.3) (6.6) 2,143.0 (1,587.6) 555.4 (512.9) 42.5 0.5 (25.3) 17.7 (16.3) 17.6 (13.9) 3.7 (134.1) (130.4) – – (130.4) 4.9 Total 2019 £m 2,160.6 (1,601.5) 559.1 (647.0) (87.9) 0.5 (25.3) (112.7) (11.4) (87.0) (121.9) (208.9) 1.4 (125.5) (124.1) 12 – (87.0) 69.7 (52.2) 69.7 (139.2) – 1.4 (0.4) (125.9) (0.4) (124.5) (87.0) (52.2) (139.2) 1.4 (125.9) (124.5) Loss per share From continuing operations: Basic Diluted Total: Basic Diluted 8 8 8 8 (24.0)p (23.9)p (16.0)p (15.9)p (21.0)p (21.0)p (21.0)p (21.0)p ^ The 2019 comparatives have been restated to include Building Solutions within underlying results consistent with the current year. See the Statement of Significant Accounting Policies for further details. * Underlying represents the results before Other items. See the Statement of Significant Accounting Policies for further details. ** Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group. Other items are defined in the Statement of Significant Accounting Policies on page 141 and further details are disclosed in Note 2. The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated Income Statement. 136 SIG plc Annual Report and Accounts for the year ended 31 December 2020Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2020 Loss after tax for the year 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 31 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 expense Total comprehensive expense Attributable to: Equity holders of the Company 2020 £m (139.2) 2019 £m (124.5) (1.7) 0.3 0.4 (1.0) 5.1 13.2 (11.0) – (5.9) (0.5) (0.7) 0.2 (0.8) (140.0) (140.0) (140.0) (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) 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: SHI www.sigplc.comFINANCIALSConsolidated Balance Sheet AS AT 31 DECEMBER 2020 Non-current assets Property, plant and equipment Right-of-use assets Goodwill Intangible assets Lease receivables Deferred tax assets Derivative financial instruments Current assets Inventories Lease receivables Trade and other receivables Current tax assets Derivative financial instruments Cash at bank and on hand Assets classified as held for sale Total assets Current liabilities Trade and other payables Lease liabilities Bank loans Private placement notes 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 Bank loans Private placement notes Deferred consideration Derivative financial instruments Other financial liabilities Other payables Retirement benefit obligations Provisions Total liabilities Net assets Capital and reserves Called up share capital Share premium account Treasury shares reserve Capital redemption reserve Share option reserve Hedging and translation reserves Cost of hedging reserve Merger reserve Retained losses Attributable to equity holders of the Company Total equity Note 10 25 13 14 25 24 20 16 25 17 17 20 20 11 18 18 18 18 18 18 18 18 23 11 19 19 19 19 19 19 19 31 23 27 2020 £m 63.2 229.6 128.8 22.9 3.6 5.7 0.1 453.9 170.3 0.7 294.4 – – 235.3 – 700.7 1,154.6 301.4 50.6 – – 0.5 0.5 0.5 4.2 10.5 – 368.2 211.6 67.7 144.5 0.4 0.4 1.2 3.5 25.1 25.7 480.1 848.3 306.3 118.2 447.7 (0.2) 0.3 2.0 10.5 0.2 92.5 (364.9) 306.3 306.3 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 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 25 March 2021 and signed on its behalf by: Steve Francis Director Ian Ashton Director Registered in England: 00998314 138 SIG plc Annual Report and Accounts for the year ended 31 December 2020Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2020 Treasury shares reserve £m Capital redemption reserve £m Share option reserve £m Hedging and translation reserves £m Cost of hedging reserve £m Merger reserve £m Called up share capital £m 59.2 – 59.2 – – – – – – 59.2 – – – 59.0 Share premium account £m 447.3 – 447.3 – – – – – – 447.3 – – – 0.4 – – – – – – – – – – – – – – – – (0.2) 21.7 – 21.7 – (12.8) (12.8) 1.3 – – 10.2 – 1.0 – 1.0 – (0.7) (0.7) – – – 0.3 – 0.3 (0.1) – – – – – – – – – – – – Retained (losses)/ profits £m (68.3) (0.6) Total £m 462.9 (0.6) (68.9) (124.5) 462.3 (124.5) (8.0) (132.5) (1.3) – (22.2) (224.9) (139.2) (21.5) (146.0) – 0.1 (22.2) 294.2 (139.2) (1.0) (0.8) 0.3 – (0.1) – – 92.5 (140.2) – (140.0) 151.9 – – – 0.2 – 0.3 – 0.3 – – – – – – 0.3 – – – – – 1.7 – 1.7 – – – – 0.1 – 1.8 – – – – – – 118.2 – 447.7 – (0.2) – 0.3 0.2 2.0 – 10.5 – 0.2 – 92.5 – (364.9) 0.2 306.3 At 31 December 2018 Impact of adoption of IFRS 16 Adjusted balance at 1 January 2019 Loss after tax Other comprehensive expense Total comprehensive expense Transfer of reserves Credit to share option reserve Dividends paid to equity holders of the Company At 31 December 2019 Loss after tax Other comprehensive income/(expense) Total comprehensive income/ (expense) Issue of share capital Transfer of unallocated treasury shares Credit to share option reserve At 31 December 2020 The share option reserve represents the cumulative equity-settled share option charge under IFRS 2 “Share-based payment” less the value of any share options that have been exercised. The hedging and translation 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 141. Amounts were reclassified during the prior 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 treasury shares reserve relates to shares purchased by the SIG Employee Share Trust to satisfy awards made under the Group's share plans which are not vested and beneficially owned by employees. Shares have become unallocated during the year and have therefore been transferred to the treasury share reserve. The merger reserve represents the premium on ordinary shares issued during the year through the use of a cash box structure. See Note 27 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: SHI www.sigplc.comFINANCIALSConsolidated Cash Flow Statement FOR THE YEAR ENDED 31 DECEMBER 2020 Net cash flow from operating activities Cash (used in)/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 Net cash flow arising on the purchase of businesses Net cash flow arising on the sale of businesses Net cash flow 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 Additional drawdown/(repayment) of revolving credit facility* Net proceeds from equity raise Dividends paid to equity holders of the Company Net cash flow from financing activities Increase in cash and cash equivalents in the year Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at end of the year** Note 28 15 11 27 7 29 30 30 30 2020 £m (43.0) (9.7) (52.7) 0.7 (20.8) 5.6 (0.8) 147.8 132.5 (23.3) (54.8) – (55.2) (30.0) 151.9 – (11.4) 68.4 145.1 21.8 235.3 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 * As part of the changes to the debt facility agreements on 18 June 2020 (see Note 18), £70.0m drawn under the existing revolving credit facility was converted into a £70.0m term facility, with no additional repayment or drawdown made. ** Cash and cash equivalents comprise cash at bank and on hand of £235.3m (2019: £145.1m) less bank overdrafts of £nil (2019: £nil). The accompanying Statement of Significant Accounting Policies and Notes to the Financial Statements are an integral part of this Consolidated Cash Flow Statement. 140 SIG plc Annual Report and Accounts for the year ended 31 December 2020Statement of Significant Accounting Policies The significant accounting policies adopted in this Annual Report and Accounts for the year ended 31 December 2020 are set out below. ■ The Consolidated Net Debt threshold is lowered to £200m and extended to December 2022; and Basis of preparation The Consolidated Financial Statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. 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 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 Financial Statements have been prepared on a going concern basis as set out below. 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. On 18 June 2020, the Group agreed amended debt facility agreements in respect of its Revolving Credit Facility (RCF) and private placement notes, with key changes as set out in Note 19 of the Consolidated Financial Statements. On 10 July 2020 the Group also completed the successful raising of £165m of equity through a firm placing and placing and open offer, in order to reduce net debt and strengthen the Group’s balance sheet. Under the June 2020 revised debt facility agreements the Group was subject to covenant testing as follows: ■ Leverage (net debt/EBITDA) and interest cover (EBITA/interest) not tested until March 2022, after which tested every quarter, the tests being applied to the prior 12 months; ■ Until 28 February 2022 the Group to ensure that Consolidated Net Debt (CND) does not exceed £225m for each quarterly test date in 2021 (2020: £125m); ■ Minimum Liquidity (available cash and undrawn revolving credit facility commitments) of £40m at all times; and ■ Consolidated Net Worth (CNW) must at all times not be less than £250m. The Group was in compliance with these covenants at 31 December 2020. Whilst the Group has significant available liquidity, and on the basis of current forecasts is expected to remain in compliance with all banking covenants throughout the forecast period to 31 March 2022, on 1 March 2021 the Group agreed with its lending banks and private placement noteholders to amend certain financial covenants to better align the tests and to provide additional headroom on the interest cover covenant under stress test scenarios from March 2022.The amended covenants under the revised agreements are as follows: ■ The interest cover testing does not start until June 2022 and is at lower levels than previously until December 2022; ■ The leverage covenant threshold is now slightly lower than previously at March 2022 and June 2022; ■ No change to the CNW or Minimum Liquidity covenants. In arriving at their opinion on going concern, the Directors have considered the Group’s forecasts for the period to 31 March 2022, and specifically the ability to meet the covenant tests above. These forecasts reflect the assumption of more normal trading levels since the worst of the Covid-19 impact, as well as the expected positive impact of the strategic actions being undertaken to improve future performance under the “Return to Growth” strategy. Management have continued to manage liquidity very closely, such that cashflow performance was better than initial expectations throughout 2020. The base forecasts indicate that the Group will be able to operate within the covenants for the forecast period to 31 March 2022. The Directors have considered the following principal risks and uncertainties that could potentially impact the Group’s ability to fund its future activities and adhere to its future banking covenants, including: ■ A decline in market conditions resulting in lower than forecast sales; ■ Implementation of the new strategy taking longer than anticipated to deliver forecast increases in revenue and profit; ■ A further wave of the Covid-19 pandemic; and ■ The terms of the Group’s revised lending arrangements and whether these could limit investment in growth opportunities. The forecasts on which the going concern assessment is based have been subject to sensitivity analysis and stress testing to assess the impact of the above risks. The Group has considered a plausible downside scenario, factoring in a reduction in sales volumes and a reduction in gross margin, offset by reductions in direct expenditure and discretionary operating costs. The results showed that under this scenario the Group will still be able to operate within the covenants with adequate headroom for the forecast period to 31 March 2022. In considering the impact of these stress test scenarios the Directors have also reviewed realistic additional mitigating actions that could be taken over and above those already included in the downside scenario forecast to avoid or reduce the impact or occurrence of the underlying risks. These include further reductions to operating costs, cutting discretionary capital expenditure and disposing of non-core assets. On consideration of the above, the Directors believe that the Group has adequate resources to continue in operational existence for the forecast period to 31 March 2022 and the Directors therefore consider it is appropriate to adopt the going concern basis in preparing the 2020 Financial Statements. New standards, interpretations and amendments adopted The following amendments and interpretations apply for the first time in 2020, but have not had a material impact on the Financial Statements of the Group: ■ Amendments to IFRS 3: Definition of a Business ■ Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform ■ Amendments to IAS 1 and IAS 8 Definition of Material ■ Conceptual Framework for Financial Reporting issued on 29 March 2018 ■ Amendments to IFRS 16 Covid-19 Related Rent Concessions 141 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued New standards, amendments and interpretations not yet adopted At the date of authorisation of these Financial Statements, the only standard or interpretation which is in issue but not yet effective is Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). This is not expected to have a material impact on the Group and has not been early adopted by 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. 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. 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 Consolidated Balance Sheet. 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. The Air Handling business met the criteria above as it was a separate major line of business of the Group and is therefore classified as a discontinued operation in the current and prior year. The Building Solutions business was classified as held for sale at 31 December 2019, as a sale had been agreed and was due to complete in the first half of 2020 subject to approval from the UK Competition & Markets Authority (CMA). On 21 May 2020, the Group announced that the parties had 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 phase 2 investigation. The business no longer meets the criteria to be presented as held for sale at 31 December 2020 and is no longer classified as non-core. The comparatives for the year ended 31 December 2019 have been re-analysed to present net operating profits of £2.9m attributable to the Building Solutions business within underlying results, consistent with the current year. 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 142 SIG plc Annual Report and Accounts for the year ended 31 December 2020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: (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. ■ Profits and losses on agreed sale or closure of non-core businesses and associated impairment charges The gain or loss on the sale or closure of businesses tends to be significant in size and irregular in nature and is related to businesses that will not be part of the 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 2020 and which don’t meet the criteria to be classified as a discontinued operation. 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. ■ 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 ■ Costs associated with refinancing Costs associated with the refinancing and changes to debt facility agreements during the year are included within Other items as they are significant in size, do not form part of the underlying trading activities and will not be incurred on an ongoing basis. This includes the loss on modification of the private placement notes and the write-off of arrangement fees in relation the previous RCF which has been extinguished, which are included within non-underlying finance costs. ■ Onerous contract costs Onerous contract costs in relation to the SAP 1HANA implementation and other licence fee commitments are 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 (i.e. related to a branch or business closure) or property sold as part of a fundamental restructuring programme. Profit on the sale of property in connection with branch or office moves in the normal course of business is included within underlying results. A full breakdown of other specific items is included in Note 2 to the Consolidated Financial Statements. ■ Other items within finance income and finance costs The unwinding of provision discounting for provisions that have been included as Other items is included within Other items consistent with the classification of the provision. Other provision discounting is included within underlying finance costs. The loss on modification in relation to the private placement notes and the write-off of the arrangement fees in relation the previous RCF, both incurred in relation to the refinancing during the year, are also included within Other items. ■ 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. 143 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued 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 constraint regarding 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 (discontinued operations) 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. ii) Contracts for provision of industrial services The Group’s business in Ireland 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 (£nil in 2020 and 2019). 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. 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 results, 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 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. Uncertain tax treatments are accounted for in accordance with IFRIC 23. 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. 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. 144 SIG plc Annual Report and Accounts for the year ended 31 December 2020In accordance with IAS 12, the following temporary differences are not provided for: ■ goodwill not deductible for taxation purposes; ■ the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; or ■ differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future and the Group is able to control the reversal The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Share-based payment transactions Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). Equity settled share-based payments are measured at fair value at the date of grant based on the Group’s estimate of the number of shares that will eventually vest. The fair value determined is then expensed in the Consolidated Income Statement on a straight-line basis over the vesting period, with a corresponding increase in equity. The fair value of the options is measured using the Black-Scholes or Monte Carlo option pricing model as appropriate. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. For equity-settled share options, at each balance sheet date the Group revises its estimate of the number of share options expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the Consolidated Income Statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. The SIG Employee Share Trust (“the EBT”) purchases shares in the Company in order to satisfy awards made under the Company’s share plans. The EBT is included in the Consolidated Financial Statements of the Group. Shares held by the EBT which are not vested and beneficially owned by employees are treated as treasury shares and a deduction is computed in the Company’s issued share capital for the purpose of calculating earnings per share. Intangible assets The Group recognises intangible assets at cost less accumulated amortisation and impairment losses. The Group recognises two types of intangible asset: acquired and purchased. Acquired intangible assets arise as a result of applying IFRS 3 “Business Combinations” which requires the separate recognition of intangible assets from goodwill on all business combinations. Purchased intangible assets relate primarily to software that is separable from any associated hardware. Intangible assets are amortised on a straight-line basis over their useful economic lives as follows: Amortisation period Current average useful life Customer relationships Non-compete contracts Computer software Life of the relationship Life of the contract Useful life of the software 3-10 years 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 average 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. 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. 145 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued 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 Leases and hire purchase agreements are recognised in accordance with IFRS 16 “Leases”. 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 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: using the index or the rate at the commencement date. 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). v) 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. The Group has considered the amendments within the Covid- 19-Related Rent Concessions (Amendment to IFRS 16) Standard allowing companies with rent concessions meeting the criteria in the amendment to choose to take advantage of the practical expedient not to assess whether a rent concession is a lease modification as all of the following conditions were met: ■ the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; ■ any reduction in lease payments affects only payments due on or before 30 June 2021; and ■ there is no substantive change to other terms and conditions of the lease. The only changes as a result of Covid-19 have been changes in the timing of payments (for example from quarterly to monthly) and there are therefore no significant amounts recognised in the Income Statement from Covid-19-related rent concessions during the year. 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. ■ 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 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. 146 SIG plc Annual Report and Accounts for the year ended 31 December 2020Cash held but not available for use by the Group is disclosed as restricted cash within Note 29. Lease payments are presented as follows in the Consolidated Cash Flow Statement: ■ Short term lease payments and payments for leases of low- value assets that are not included in the measurement of the lease liabilities are presented within cash flows from operating activities; ■ Payments for the interest element of recognised lease liabilities are included in ‘Finance costs paid’ within cash flows from financing activities; and ■ Payments for the principal element of recognised lease liabilities are presented within cash flows from financing activities. Cash flows in relation to the settlement of amounts payable for previous purchases of businesses related to consideration dependent on vendors remaining within the business are classified as an operating cash flow. Cash flows in relation to contingent or deferred consideration not dependent on vendors remaining within the business are classified as a cash flow from investing activities. 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 (EIR) method. A financial obligation is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. Where a modification of a financial liability does not result in derecognition, the amortised cost of the financial liability is recalculated by computing the present value of estimated future contractual cash flows that are discounted at the loan’s original EIR. Any consequent adjustment (gain or loss on modification) is recognised immediately in profit or loss. The gain or loss on modification will unwind over the remaining term of the liability, with the movement recognised in finance costs. 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. 147 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the Consolidated Balance Sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. Derivative financial instruments The Group uses derivative financial instruments including interest rate swaps, forward foreign exchange contracts, and cross-currency swaps to hedge its exposure to foreign currency exchange and interest rate risks arising from operational and financing activities. In accordance with its Treasury Policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, any derivative financial instruments that do not qualify for hedge accounting are accounted for as trading instruments. Derivatives are classified as non-current assets or non-current liabilities if the remaining maturity of the derivatives is more than 12 months and they are not expected to be otherwise realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Derivative financial instruments are recognised immediately at fair value. Subsequent to their initial recognition, derivative financial instruments are then stated at their fair value. The fair value of derivative financial instruments is derived from “mark-to-market” valuations obtained from the Group’s relationship banks. Unless hedge accounting is achieved, the gain or loss on remeasurement to fair value is recognised immediately and is included as part of finance income or finance costs, together with other fair value gains and losses on derivative financial instruments, within Other items in the Consolidated Income Statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, no longer qualifies for hedge accounting, or when the Group revokes the hedging relationship. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Consolidated Income Statement in the period. For the purposes of hedge accounting, hedges are classified as: ■ Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised commitment; ■ Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment; or ■ 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: ■ 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; and ■ 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 Other Comprehensive Income 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. 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. 148 SIG plc Annual Report and Accounts for the year ended 31 December 2020“Accounting for government grants and disclosure of government assistance”. Income received is netted off the related staff costs in the relevant period. Segmental 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 Leadership Team. In 2019, the reportable operating segments were grouped on a line of business basis with subtotals for Specialist Distribution and Roofing Merchanting. There is no change to the reported operating segments from those reported in the 2019 Annual Report and Accounts, but the segments are now grouped on a geographical basis instead of on a line of business basis. This reflects the way in which information is reported and reviewed by the Chief Operating Decision Maker (CODM) following the change in management and strategy during 2020. Prior year comparatives have been restated to be consistent with the current year presentation. 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 four 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. 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. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. The Group considered that the Coronavirus Job Retention Scheme in the UK and similar schemes in Ireland, France and Benelux in relation to Covid-19 during 2020 met the definition of government grants in accordance with IAS 20 149 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued 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 149, 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 11 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 31 January 2020. The business was considered to meet the criteria to be classified as held for sale at 31 December 2019 on the basis that a sale had been agreed and was considered highly probable, which was confirmed by completion of the sale in January 2020. The Air Handling business was also considered to meet the definition of a discontinued operation as it was a major line of business of the Group. The results of the business in 2019 and for the period until sale in 2020 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 Building Solutions business was also classified as held for sale at 31 December 2019 as a sale had been agreed and was due to complete in the first half of 2020 subject to approval from the UK Competition & Markets Authority (CMA). The business was not considered to meet the definition of a discontinued operation as it was not a major line of the business of the Group. On 21 May 2020 it was announced that the parties had 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. The business no longer meets the criteria to be presented as held for sale at 31 December 2020, and is no longer classified as non-core. Amendments to financing arrangements On 18 June 2020 the Group amended the terms of its financing arrangements, involving both the Revolving Credit Facility (RCF) and private placement notes (PPNs). The Group has assessed whether the amendments to the facilities represents either a modification of the existing arrangement or an extinguishment of the previous arrangement and refinancing in accordance with IFRS 9. The Group has determined the amendments to the RCF to be an extinguishment and new facility, as the present value of the estimated future cash flows discounted at the loan’s original effective interest rate (EIR) differed by more than 10% compared to the previous cash flows. The balance of unamortised arrangement fees as at 18 June 2020 of £0.3m has therefore been written off in full through Finance costs within Other items, and the fees payable in relation to the new agreement are being amortised over the new term of the facility. The Group has determined that amendments to the terms of the PPNs (see Note 19 for further details) meet the criteria to be accounted for as a modification of the existing arrangements, with the present value of future cash flows considered separately for each PPN, discounted at the original effective interest rate for the relevant PPN. A loss on modification of £11.3m has been recognised, reflecting the difference in the present value of future cash flows discounted at each loan note’s original EIR, which has been recognised within finance costs within Other items (see Note 3). This will unwind over the remaining term of the PPNs, resulting in the finance cost recognised in future periods being lower than the actual amounts paid. The existing prepaid arrangement fees of £0.3m at the date of the new agreement will continue to be amortised over the original term. Professional fees incurred in concluding the above amendments have been recognised as operating expenses within Other items within the Consolidated Income Statement. Impairment of intangible assets in relation to SAP 1HANA implementation As disclosed in the 2019 Annual Report and Accounts, the project to implement SAP 1HANA in France and Germany was paused in April 2020 in light of the Covid-19 situation and the change in senior management. In the final quarter of 2020 a decision was made to recommence the project in 2021, but with a change in scope and direction and a locally managed implementation. Costs incurred and recognised on the balance sheet as at the date of pause have been reviewed to assess whether they continue to have any future economic benefit in relation to the implementation going forward. Following this review, an impairment of £13.7m has been recognised and no asset value is carried forward. An onerous contract provision of £9.6m has also been recognised in relation to future contracted licence fees which the Group believes have no future economic benefit. Both these items involved significant management judgement in terms of the level of future economic benefit to be derived in relation to the future project. 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. 150 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 rebates 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 £198.5m from continuing operations for the year ended 31 December 2020 (2019: £245.2m). At 31 December 2020 trade payables is presented net of £29.9m (2019: £38.0m) 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 £36.7m (2019: £42.4m) due in relation to supplier rebates where there is no right to offset against trade payable balances. The majority of these balances 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 (2019: £1.0m) Post-employment benefits The Group operates four 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 141, 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 £3.0m as disclosed in Note 31. At 31 December 2020 the Group’s retirement benefit obligations were £25.6m (2019: £24.8m). Impairment of goodwill The Group tests goodwill annually for impairment, or more frequently if there are indications that an impairment may be required. The impact of the Covid-19 pandemic led to indications of an impairment as at 30 June 2020 and therefore a full reassessment of the trading expectations of the Group was carried out leading to an impairment of goodwill in the UK businesses. Determining whether goodwill is impaired requires an estimation of the value in use of the Cash Generating Units (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 and that also include a risk premium to factor in a certain element of risk over and above that already included in the forecast cash flows (for example the risk of historical accuracy of forecasting or the risk of delayed achievement of the “Return to Growth” strategy). The Group performs goodwill impairment reviews by forecasting cash flows based upon management’s three year projections, which include forecast sales growth based on management’s best estimates and external data (construction PMI data and construction market growth forecasts), gross margin assumptions based on management’s best estimates and previous experience, with annual growth rates based upon country specific inflation expectations (1.5%-2.3%) applied thereafter into perpetuity. 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 2020 is £444.5m (2019: £515.1m) including right-of-use assets recognised in accordance with IFRS 16. The most recent results of the impairment review process are disclosed in Note 13. An impairment charge of £60.3m has been recognised in relation to the UK Distribution and UK Exteriors CGUs. 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 £128.8m. Sensitivities are disclosed in Note 13. These indicate reasonably possible scenarios which could lead to further impairment. Provisions against receivables At 31 December 2020 the Group has recognised trade receivables with a carrying value of £232.7m (2019: £226.4m). 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 2020. The total allowance for expected credit losses recorded at 31 December 2020 is £15.3m (2019: £19.5m). 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.£2m. Further detail on trade receivables and the allowance for expected credit losses recognised is disclosed in Note 17. 151 Stock code: SHI www.sigplc.comFINANCIALSStatement of Significant Accounting Policies continued CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 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 £22.1m at 31 December 2020 (2019: £21.8m) 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. 152 SIG plc Annual Report and Accounts for the year ended 31 December 2020Notes to the Financial Statements 1. Revenue and segmental information Revenue 2020 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 UK Distribution £m UK Exteriors Total UK £m £m France Distribution £m France Exteriors £m Total Total Germany and France Germany Benelux £m £m £m Benelux Ireland Poland Eliminations £m £m £m £m Total Group £m 357.4 – – 310.1 357.4 310.1 168.1 – – 168.1 344.8 344.8 370.7 – 91.6 – 462.3 – 46.3 142.6 – 34.2 – 1,176.7 689.1 – – 1.5 – 0.5 – 2.0 – 0.9 – 7.6 – 8.5 – 0.1 – 0.1 – 0.2 – 0.1 6.9 – – (10.8) 6.9 – 358.9 310.6 669.5 169.0 352.4 521.4 370.8 91.7 462.5 80.6 149.5 (10.8) 1,872.7 – 358.9 – 310.6 – 669.5 – 169.0 1.8 1.8 354.2 523.2 – 370.8 – 91.7 – 462.5 – – 80.6 149.5 – 1.8 (10.8) 1,874.5 358.9 – 358.9 310.6 – 310.6 669.5 – 669.5 169.0 – 169.0 354.2 523.2 – 354.2 523.2 – 370.8 – 370.8 91.7 – 91.7 462.5 – 462.5 75.2 149.5 – 80.6 149.5 5.4 (10.8) 1,869.1 5.4 (10.8) 1,874.5 – 358.9 310.6 669.5 169.0 354.2 523.2 370.8 91.7 462.5 75.2 149.5 (10.8) 1,869.1 – 358.9 – 310.6 – 669.5 – 169.0 – – 354.2 523.2 – 370.8 – 91.7 – 462.5 5.4 – 80.6 149.5 – 5.4 (10.8) 1,874.5 ^ Inter-segment revenue is charged at the prevailing market rates. 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 UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total Total Germany and France Germany Benelux £m £m £m Benelux Ireland Poland £m £m £m Eliminations £m Total Group £m 515.4 – – 346.5 515.4 346.5 184.5 – – 184.5 342.2 342.2 381.5 103.0 – – 484.5 – 56.4 149.6 – 38.5 – 1,390.4 727.2 – 18.9 11.9 – 9.1 18.9 21.0 – 0.1 – 0.2 – 0.3 – 1.0 – 0.1 – 1.1 – – 6.5 – – (22.4) 25.4 – 546.2 355.6 901.8 184.6 342.4 527.0 382.5 103.1 485.6 94.9 156.1 (22.4) 2,143.0 1.2 547.4 – 355.6 1.2 903.0 – 184.6 1.9 1.9 344.3 528.9 14.5 – 397.0 103.1 14.5 500.1 – – 94.9 156.1 – 17.6 (22.4) 2,160.6 547.4 – 547.4 355.6 – 355.6 903.0 – 903.0 184.6 – 184.6 344.3 528.9 – 344.3 528.9 – 397.0 103.1 – 397.0 103.1 – 500.1 – 500.1 88.7 156.1 – 94.9 156.1 6.2 (22.4) 2,154.4 6.2 (22.4) 2,160.6 – 547.4 355.6 903.0 184.6 344.3 528.9 397.0 103.1 500.1 88.7 156.1 (22.4) 2,154.4 – 547.4 – 355.6 – 903.0 – 184.6 – – 344.3 528.9 – – 397.0 103.1 – 500.1 6.2 – 94.9 156.1 – 6.2 (22.4) 2,160.6 ^ Inter-segment revenue is charged at the prevailing market rates. 153 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 1. Revenue and segmental information continued Segmental Information In accordance with IFRS 8 "Operating Segments", the Group identifies its reportable operating segments based on the way in which financial information is reviewed and business performance is assessed by the CODM. Reportable operating segments are grouped on a geographical basis as explained in the Statement of Significant Accounting Policies. a) Segmental analysis 2020 Revenue Underlying revenue Revenue attributable to businesses identified as non-core Inter-segment revenue^ Total revenue Segment result before Other items Amortisation of acquired intangibles Impairment charges Acquisition costs Profits and losses on agreed sale or closure of non-core businesses (Note 11) Net operating losses attributable to businesses identified as non-core (Note 11) Onerous contract costs Net restructuring costs Other specific items Segment operating profit/(loss) Parent Company costs Parent Company Other items* Operating loss Net finance costs before Other items Non-underlying finance costs Loss before tax and discontinued operations Income tax expense Profit from discontinued operations Loss for the year UK Distribution £m UK Exteriors Total UK £m £m France Distribution £m France Exteriors £m Total Total Germany and France Germany Benelux £m £m £m Benelux Ireland Poland Eliminations £m £m £m £m Total Group £m 357.4 310.1 667.5 168.1 344.8 512.9 370.7 91.6 462.3 80.5 149.5 – 1,872.7 – 1.5 – 0.5 358.9 310.6 – 2.0 669.5 – 0.9 1.8 8.5 169.0 354.2 523.2 1.8 7.6 – 0.1 370.8 – 0.1 91.7 – 0.2 462.5 – 0.1 – – 80.6 149.5 – 1.8 – (10.8) (10.8) 1,874.5 (45.4) (7.4) (52.8) 7.1 8.3 15.4 0.4 2.5 2.9 0.8 2.0 – (31.7) (0.9) (50.6) – (4.3) (11.8) (0.2) (5.2) (62.4) (0.2) – – – (0.4) – – (0.4) – – – – – – – – – – – – – – – – – – – – (5.6) (62.4) (0.2) (0.3) – (0.3) – (0.9) (0.9) – – – – – – (1.2) – (1.0) (4.0) (0.1) – – (1.7) – – (1.0) (5.7) (0.1) – – – – (0.3) – (0.1) 0.1 (0.3) – (0.1) 0.1 – – (0.5) 0.2 – – (0.4) – – – (0.9) 0.2 – – – – – – – – (102.3) (25.4) (127.7) 7.1 6.7 13.8 0.1 2.1 2.2 0.8 2.0 – – – – – (0.3) (1.0) (6.7) 0.2 (108.9) (21.6) (37.2) (167.7) (23.0) (11.6) (202.3) (6.6) 69.7 (139.2) ^ Inter-segment revenue is charged at the prevailing market rates. * Parent company Other items include impairment charges £13.7m, investment in omnichannel retailing £4.2m, costs associated with refinancing £7.4m, onerous contract costs £12.2m and other specific items £1.6m, offset by profit on agreed sale or closure of non-core businesses of £1.9m. See Note 2 for further details. 154 SIG plc Annual Report and Accounts for the year ended 31 December 20201. Revenue and segmental information continued UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total Total Germany and France Germany Benelux £m £m £m Benelux Ireland Poland £m £m £m Eliminations £m Total Group £m 534.3 346.5 880.8 184.5 342.2 526.7 381.5 103.0 484.5 94.9 156.1 – 2,143.0 1.2 11.9 547.4 – 9.1 355.6 1.2 21.0 903.0 – 0.1 1.9 0.3 184.6 344.3 528.9 1.9 0.2 14.5 1.0 14.5 1.1 397.0 103.1 500.1 – 0.1 – – – – 94.9 156.1 17.6 – – (22.4) (22.4) 2,160.6 7.9 11.8 19.7 11.2 8.6 19.8 4.4 5.2 9.6 6.8 4.3 (0.9) (58.2) (4.4) (0.5) (5.3) (58.7) – – (0.7) (32.2) (0.7) (32.2) – – (0.2) – (0.2) – – – – – – – – 60.2 (6.2) (90.9) (0.9) (1.6) (2.5) – (1.6) (1.6) 6.0 – 6.0 (1.8) – – 0.1 (0.8) (10.2) 0.2 – (8.0) – (0.8) (18.2) 0.2 – – – (0.9) (2.1) (0.2) (0.9) (2.1) (0.2) 0.8 (6.6) (0.1) – (0.2) – 0.8 (6.8) (0.1) – – (0.3) – – – (62.9) (2.7) (65.6) 11.2 (29.1) (17.9) 4.5 4.8 9.3 4.7 4.3 2019 Revenue Underlying revenue Revenue attributable to businesses identified as non-core Inter-segment revenue^ Total revenue 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 Investment in omnichannel retailing Gain in fair value of forward currency option Operating loss Net finance costs before Other items Loss before tax and discontinued operations Income tax expense Loss from discontinued operations Loss for the year ^ Inter-segment revenue is charged at the prevailing market rates. – – – – (0.9) (27.1) (0.4) (65.2) (17.7) (5.7) 0.7 (87.9) (24.8) (112.7) (11.4) (0.4) (124.5) 155 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 1. Revenue and segmental information continued UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total France Germany Benelux £m £m £m Total Germany and Benelux £m Ireland £m Poland £m Total Group £m 153.2 242.8 396.0 67.6 210.6 278.2 138.1 48.7 186.8 52.6 59.5 973.1 188.3 112.1 300.4 48.8 104.9 153.7 79.5 9.6 89.1 31.9 28.3 603.4 1.4 0.3 0.1 174.9 4.8 1,154.6 UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total France Germany Benelux £m £m £m 144.5 67.7 0.9 31.8 848.3 Total Germany and Benelux £m Ireland £m Poland £m Total Group £m 268.3 204.1 472.4 57.5 211.1 268.6 154.0 51.6 205.6 56.0 66.5 1,069.1 2.9 0.4 2.6 (3.6) 4.4 258.4 13.6 1,347.8 196.9 83.5 280.4 54.8 97.4 152.2 96.4 16.4 112.8 36.1 35.7 617.2 175.5 99.6 2.1 115.7 43.5 1,053.6 2020 Balance sheet Assets Segment assets Unallocated assets: Right-of-use assets Property, plant and equipment Derivative financial instruments Cash and cash equivalents Other assets Consolidated total assets Liabilities Segment liabilities Unallocated liabilities: Private placement notes Bank loans Derivative financial instruments Other liabilities Consolidated total liabilities 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 Other assets Consolidated total assets Liabilities Segment liabilities Unallocated liabilities: Private placement notes Bank loans Derivative financial instruments Liabilities held for sale Other liabilities Consolidated total liabilities 156 SIG plc Annual Report and Accounts for the year ended 31 December 20201. Revenue and segmental information continued 2020 Other segment information Capital expenditure on: Property, plant and equipment Computer software Goodwill and intangible assets (excluding computer software) Non-cash expenditure: Depreciation of fixed assets Depreciation of right- of-use assets 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) 2019 Other segment information Capital expenditure on: Property, plant and equipment 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) UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total France Germany £m £m Benelux £m Total Germany and Benelux £m Ireland £m Poland £m Parent company £m Total Group £m 4.4 1.9 3.9 1.2 8.3 3.1 0.3 – 2.4 – 2.7 – 0.9 0.2 0.7 – 1.6 0.2 0.4 0.3 0.2 – 0.1 5.1 13.3 8.7 – 1.8 1.8 – – – – – – – – – 1.8 3.3 2.5 5.8 0.6 1.5 2.1 1.7 0.6 2.3 0.5 0.4 0.1 11.2 15.2 8.0 23.2 5.1 8.6 13.7 12.9 1.6 14.5 1.7 3.2 0.3 56.6 10.2 – 10.2 – – – – – – – – – 10.2 4.9 – 4.9 – – – – – – – – 13.7 18.6 4.5 4.9 9.4 – 0.4 0.4 – – – 0.2 0.1 0.9 11.0 35.5 11.8 47.3 – – – – – – – – – 47.3 UK Distribution £m UK Exteriors £m Total UK £m France Distribution £m France Exteriors £m Total France £m Germany £m Benelux £m Total Germany and Benelux £m Ireland £m Poland £m Parent company £m Total Group £m 2.4 5.1 6.5 1.2 8.9 6.3 0.8 – 0.9 – 1.7 – 1.3 0.1 0.3 – 1.6 0.1 0.7 0.4 2.2 – – 9.9 15.1 16.7 19.1 10.6 29.7 5.2 10.0 15.2 13.8 2.4 16.2 2.8 3.5 0.4 67.8 0.5 0.5 1.0 – 0.5 0.5 – – – – – – 1.5 0.9 – 0.9 – – – – – – – – – 0.9 3.5 4.5 8.0 – 0.7 0.7 0.1 0.2 0.3 – 0.1 0.8 9.9 57.4 – 57.4 – 33.3 33.3 – – – – – – 90.7 157 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 1. Revenue and segmental information continued 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 lease receivables, deferred tax and derivative financial instruments) by geographical location are as follows: 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 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 Total Before Other items £m 2020 Other items £m Total £m Before Other items £m 261.4 138.8 123.3 (0.2) 523.3 7.1 0.4 107.6 (0.2) 114.9 268.5 139.2 230.9 (0.4) 638.2 207.6 179.6 126.0 (0.3) 512.9 2020 Non-current assets £m 2019 Non-current assets £m 222.0 14.6 113.4 59.5 13.4 21.6 444.5 – – 444.5 2019 Other items £m 27.5 3.0 103.6 – 134.1 283.4 15.7 112.0 66.2 14.2 23.4 514.9 0.2 112.9 628.0 Total £m 235.1 182.6 229.6 (0.3) 647.0 158 SIG plc Annual Report and Accounts for the year ended 31 December 20202. Other operating expenses continued 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): Other items £m 2020 Tax impact £m Tax impact % Other items £m 2019 Tax impact £m Amortisation of acquired intangibles (Note 14) Impairment charges1 Profits and losses on agreed sale or closure of non-core businesses (Note 11) Net operating profits/(losses) attributable to businesses identified as non-core2 (Note 11) Net restructuring costs3 Investment in omnichannel retailing Costs associated with refinancing4 Onerous contract costs5 Other specific items6 Impact on operating profit/(loss) Non-underlying finance costs7 Impact on profit/(loss) before tax Other tax adjustments in respect of previous years Impact on profit/(loss) after tax (5.6) (76.1) 0.6 (0.3) (6.7) (4.2) (7.4) (13.2) (1.5) (114.4) (11.6) (126.0) – (126.0) 1.1 – – – 1.0 – 1.4 0.3 0.2 4.0 0.1 4.1 – 4.1 19.6% – – – 14.9% – 18.9% 2.3% 13.3% 3.5% 0.9% 3.3% – 3.3% (6.2) (90.9) 0.1 (0.9) (27.1) (5.7) – – 0.3 (130.4) – (130.4) – (130.4) 1.4 0.2 (0.8) 0.1 4.4 – – – – 5.3 – 5.3 (0.4) 4.9 Tax impact % 22.6% 0.2% 800.0% 11.1% 16.2% – – – – 4.1% – 4.1% – 3.8% 1 Impairment charges comprises £45.4m (2019: £89.6m) related to goodwill (Note 13), £1.9m customer relationships in intangibles (Note 14), £13.7m related to SAP 1HANA implementation costs (Note 14), £1.4m (2019: £0.3m) other software costs (Note 14), £3.5m tangible fixed assets (Note 10) and £10.2m (2019: £1.0m) right-of-use assets (Note 25). 2 The comparatives for 31 December 2019 for net operating profit/(losses) attributable to businesses identified as non-core are updated to reflect non-core businesses on a consistent basis with the current year. 3 Included within net restructuring costs are property closure costs of £0.8m (2019: £6.0m), redundancy and related staff costs of £2.8m (2019: £9.5m), £2.9m (2019: £9.6m) in relation to restructuring consultancy costs and £0.2m (2019: £2.0m) other costs. These costs have been incurred in connection with the prior year target operating model projects in the UK, Germany and France, the current year restructuring of the UK businesses as part of implementation of the “Return to Growth” strategy, and restructuring in Benelux. 4 Costs associated with refinancing includes legal and professional fees of £8.3m offset by £0.9m gain in relation to the partial derecognition of a cash flow hedging arrangement as a result of the change in debt facility agreements. 5 Onerous contract costs includes £11.4m (2019: £nil) relating to provisions recognised for licence fee commitments where no future economic benefit is expected to be obtained, principally in relation to the SAP 1HANA implementation (see Note 23) together with £1.8m licence fees recognised in the consolidated income statement during the year whilst the project was on hold. 6 Other specific items comprises the following: PwC investigation costs Gain on fair value of forward currency option not hedged Costs in relation to the cyber attack in France GMP equalisation (Note 31) Acquisition costs Other specific items Total other specific items 2020 £m (1.8) 0.6 0.1 (0.4) (0.2) 0.2 (1.5) 2019 £m – 0.7 (0.6) – – 0.2 0.3 7 Non-underlying finance costs comprise £11.3m loss on modification recognised in relation to the private placement notes and £0.3m write-off of arrangement fees in relation to the previous RCF which has been extinguished. 159 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 3. Finance income and finance costs 2020 Underlying £m Other items £m Finance income Interest on bank deposits Total finance income Finance costs On bank loans, overdrafts and other associated items1 On private placement notes2 On obligations under lease contracts Total interest expense Write off of arrangement fees on extinguished RCF3 Loss on modification of private placement notes4 Net finance charge on defined benefit pension schemes Total finance costs Net finance costs 0.7 0.7 4.3 6.8 12.3 23.4 – – 0.3 23.7 23.0 – – – – – – 0.3 11.3 – 11.6 11.6 Total £m 0.7 0.7 4.3 6.8 12.3 23.4 0.3 11.3 0.3 35.3 34.6 Underlying £m 2019 Other items £m 0.5 0.5 5.5 6.9 12.4 24.8 – – 0.5 25.3 24.8 – – – – – – – – – – – Total £m 0.5 0.5 5.5 6.9 12.4 24.8 – – 0.5 25.3 24.8 1 Other associated items includes the amortisation of arrangement fees of £0.7m (2019: £0.7m). 2 Included within finance costs on private placement notes is the amortisation of arrangement fees of £0.4m (2019: £0.1m) and the amortisation of the loss on modification of £1.2m (2019: £nil). 3 As part of the changes to debt facility agreements on 18 June 2020, £70.0m drawn under the existing revolving credit facility was converted into a £70.0m term facility. This has been accounted for as an extinguishment of the previous facility and new arrangement, therefore arrangement fees which were being amortised over the term of the previous facility have been written off. 4 The amendments to the private placement loan notes on 18 June 2020 met the criteria for a modification of the existing arrangements rather than an extinguishment and refinancing, resulting in the recognition of a loss on modification of £11.3m, reflecting the difference in the present value of the future cashflows discounted at the loans' original effective interest rates. The amortisation of this loss on modification is included within underlying finance costs on private placement notes over the remaining term of the notes, resulting in a reduction in finance costs compared to the amount paid. 160 SIG plc Annual Report and Accounts for the year ended 31 December 20204. Profit/(loss) before tax Profit/(loss) before tax is stated after crediting: Net decrease 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) Other specific items (Note 2) And after charging: Cost of inventories recognised as an expense Net increase in provision for inventories Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of acquired intangibles Amortisation of computer software Loss on disposal of property, plant and equipment Expense relating to short term leases (Note 25) Auditor remuneration for audit services Non-audit fees Net increase in provision for receivables (Note 17) Foreign exchange rate losses/(gains) Impairment charges (Note 2) Net operating losses attributable to businesses identified as non-core (Note 11) Net restructuring costs (Note 2) Other specific items (Note 2) Staff costs (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^ Total non-audit fees Total fees 2020 £m – – 0.6 0.9 1,888.2 2.7 11.2 56.6 5.6 5.4 0.9 0.8 3.3 0.2 8.2 0.2 76.1 0.3 6.7 2.4 267.4 2020 £m 1.3 2.0 3.3 0.2 0.2 3.5 2019 £m 0.9 1.4 0.1 0.9 2,116.8 – 13.1 54.4 6.2 3.9 – 1.4 2.1 0.2 2.7 (1.3) 90.9 0.9 27.1 0.6 268.2 2019 £m 0.6 1.5 2.1 0.2 0.2 2.3 * Total audit fees including discontinued operations are £3.3m (2019: £2.3m). The current year costs include £0.7m costs in relation to the 2019 audit. ^ The audit-related assurance services relate to the interim review, it is usual practice for a company's Auditor to perform this work. The Audit Committee Report on pages 105 and 106 provides an explanation of how Auditor objectivity and independence is safeguarded when non-audit services are provided by the Auditor. 161 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 5. Staff costs Particulars of employees (including Directors) are shown below: Employee costs during the year amounted to: Wages and salaries Social security costs IFRS 2 share option charge Pension costs (Note 31) Redundancy costs Total staff costs 2020 £m 218.3 41.5 0.2 6.2 1.2 267.4 2019 £m 217.5 42.3 0.1 6.5 1.8 268.2 Amounts received from furlough schemes in relation to Covid-19 of £8.1m have been deducted from staff costs reported above (see Note 26). In addition to the above, redundancy and related staff costs of £2.8m (2019: £9.5m) have been included within Other items (Note 2). Of the pension costs noted above, a charge of £nil (2019: £0.2m) relates to defined benefit schemes and a charge of £6.2m (2019: £6.3m) relates to defined contribution schemes. See Note 31 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 18 staff that were employed in businesses classified as non-core (2019: 70). 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) Total – charge for the year – adjustments in respect of previous years – charge for the year – adjustments in respect of previous years 6. Income tax The income tax expense comprises: Current tax UK & Ireland corporation tax: Mainland Europe corporation tax: 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 162 2020 Number 242 2,314 2,791 1,101 6,448 2019 Number 170 2,555 2,686 1,660 7,071 2020 £m 2.2 2.2 2020 £m 0.5 – 0.5 5.6 (0.1) 5.5 6.0 (2.2) 2.6 – 0.2 0.6 6.6 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 SIG plc Annual Report and Accounts for the year ended 31 December 20206. Income tax continued 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: 2020 2019 Loss before tax from continuing operations Profit before tax from discontinued operations (Note 12) Loss before tax Expected tax credit Factors affecting the income tax expense for the year: - expenses not deductible for tax purposes^ - non-taxable income* - impairment and disposal charges not deductible for tax purposes** - deductible temporary differences not recognised for deferred tax purposes - other adjustments in respect of previous years - tax on branch profits - effect of change in rate on deferred tax Total income tax expense Income tax expense reported in the consolidated income statement Income tax attributable to discontinued operations (Note 12) £m (202.3) 72.0 (130.3) (14.2) 19.6 (33.2) 15.9 18.1 2.5 – 0.2 8.9 6.6 2.3 8.9 % 10.9% (15.0)% 25.5% (12.2)% (13.9)% (1.9)% – (0.2)% (6.8)% £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 % 21.3% (6.9)% 4.1% (20.6)% (9.6)% (3.4)% (0.1)% 0.8% (14.3)% ^ 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 £45.4m 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 £130.3m (2019: £108.9m) is negative 6.8% (2019: negative 14.3%). As the Group operates in several different countries tax losses can not be surrendered or utilised cross border, and the Group therefore is subject to tax in some countries and not in others. Tax losses are not currently recognised in respect of the UK business (see Note 24) which impacts the overall effective tax rate. The combination of these factors means that the effective tax rate is less meaningful as an indicator or comparator for the Group. 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, with the exception of deferred tax on share options which has been recognised in the Consolidated Statement of Changes in Equity: Deferred tax movement associated with re-measurement of defined benefit pension liabilities* Tax credit associated with re-measurement of defined benefit pension liabilities* Tax charge on fair value movements arising on borrowings and derivative financial instruments Total *These items will not subsequently be reclassified to the Consolidated Income Statement. 2020 £m 0.3 0.4 – 0.7 2019 £m (6.6) 0.4 (2.1) (8.3) 163 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 7. Dividends No interim dividend was paid for the year ended 31 December 2020 (2019: 1.25p per share amounting to £7.4m) and no final dividend proposed. No final dividend was proposed or paid for the year ended 31 December 2019. Total dividends paid during the year were £nil (2019: £22.2m). No dividends have been paid between 31 December 2020 and the date of signing the Financial Statements. At 31 December 2020 the Company has negative distributable reserves of £217.1m as set out in Note 14 of the Company Financial Statements. This means that the Company is currently unable to pay a dividend or make any other distribution to shareholders. A resolution will be put to shareholders at the AGM to approve the cancellation of the Company's share premium account in order to eliminate these losses and to create reserves available for distribution. Under the terms of the Group's borrowing arrangements, the payment of dividends is also subject to a number of conditions, including that at the relevant time the Group's leverage is less than 2.25x (including on a look-forward basis). Additionally, even where such conditions are satisfied, any interim dividend for 2021 is limited to £3.0m. 8. Earnings/(loss) per share The calculations of earnings/(loss) per share are based on the following profits/(losses) and numbers of shares: 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 Loss attributable to ordinary equity holders of the parent for basic and diluted earnings per share Loss attributable to ordinary equity holders of the parent for basic and diluted earnings per share from continuing operations Add back: Other items (Note 2) (Loss)/profit 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 Effect of dilution from share options Adjusted for the effect of dilution Basic and diluted 2020 £m (208.9) 69.7 2019 £m (124.1) (0.4) (139.2) (124.5) Basic and diluted before Other items 2020 £m 2019 £m (208.9) (124.1) 121.9 125.5 (87.0) 1.4 2020 Number 2019 Number 871,941,603 591,556,982 1,405,503 – 873,347,106 591,556,982 The weighted average number of shares excludes those held by the SIG Employee Share Trust ("the EBT") which are not vested and beneficially owned by employees. The weighted average number of shares has increased due to the equity raise which completed on 10 July 2020 with 589,999,995 new ordinary shares issued for gross proceeds of £165m. Loss per share From continuing operations: Basic loss per share Diluted loss per share Total: Basic loss per share Diluted loss per share (Loss)/earnings per share before Other items^ Basic (loss)/earnings per share from continuing operations before Other items 2020 2019 (24.0)p (23.9)p (16.0)p (15.9)p (21.0)p (21.0)p (21.0)p (21.0)p (10.0)p 0.2p ^ (Loss)/earnings per share before Other items (also referred to as underlying (loss)/earnings per share) has been disclosed in order to present the underlying performance of the Group. 164 SIG plc Annual Report and Accounts for the year ended 31 December 20209. Share-based payments The Group had five share-based payment schemes in existence during the year ended 31 December 2020 (2019: four). The Group recognised a total charge of £0.2m (2019: £0.1m) 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 34p (2019: 103p). Details of each of the schemes are provided below. a) Long Term Incentive Plan ('LTIP') There are no remaining LTIP options outstanding at 31 December 2020. Information included in the prior year in relation to the options outstanding at 31 December 2019 is as follows: On 8 November 2018, the 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. In 2019, 1,958,676 awards were granted under the 2018 LTIP. 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 10.3% per annum 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. LTIP options At 1 January Granted during the year Lapsed during the year At 31 December 2019 Awards Absolute TSR growth: Below 8% p.a. 8% p.a. 14% p.a. or above 3 - 10 years* 2020 2019 Weighted average exercise price (p) 0.0 0.0 0.0 0.0 Options 5,827,857 – (5,827,857) – Weighted average exercise price (p) 0.0 0.0 0.0 0.0 Options 3,869,181 1,958,676 – 5,827,857 Of the above share options outstanding at 31 December 2019 nil were exercisable at 31 December 2019. The options outstanding at 31 December 2019 had a weighted average exercise price of nil p and a weighted average remaining contractual life of 1.6 years. No options were exercised during 2019 or 2020. 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 21 March 2019) 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 2020 2019 LTIP Award 145p 0.0p 36.3% 3-5 years 0.7% 0.0% Monte Carlo 100% 0% The weighted average fair value of LTIP options granted during 2019, on a maximum number of awards basis, was 59p. 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 was based on the Directors' best estimate for the effects of behavioural considerations. 165 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 9. Share-based payments continued 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 no new awards of restricted and deferred shares in 2020 (2019: 2,287,530), but there was an uplift to previously issued awards to reflect the increased number of shares following the equity raise resulting in a further 30,020 awards being issued. 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 Local EBIT and ROCE 50% Various* Various* Various* 25% 2019 Awards Group PBT Group ROCE 25% 25% <£90.0m <12.2% £90.0m - £120.0m 12.2% - 15.6% ≥15.6% 25% ≥£120.0m 25% 3 - 10 years * There are different local targets for EBIT and ROCE for different businesses within the Group based on local budgets. MIP options At 1 January Granted during the year Lapsed during the year At 31 December 2020 2019 Options 1,800,019 30,020 (905,533) 924,506 Weighted average exercise price (p) – – – – Options 1,529,155 2,287,530 (2,016,666) 1,800,019 Weighted average exercise price (p) – – – – Of the above share options outstanding at the end of the year, nil (2019: nil) are exercisable at 31 December 2020. The options outstanding at 31 December 2020 had a weighted average exercise price of nil p (2019: nil) and a weighted average remaining contractual life of 0.8 years (2019: 1.8). 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 2020 2019 MIP Awards 9 October 2019 20 March 2019 101p 0.0p 32.5% 3 years 0.3% 3.7% 94% 60% 145p 0.0p 35.5% 3 years 0.7% 3.4% 94% 39% The weighted average fair value of MIP options granted during 2019 was 141p. 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. 166 SIG plc Annual Report and Accounts for the year ended 31 December 20209. Share-based payments continued c) Restricted Share Plan ('RSP') On 17 November 2020 the SIG plc Restricted Share Plan was approved. Under this Plan, executive directors and eligible employees can be awarded an annual grant of restricted share awards up to a certain percentage of base salary. Restricted share awards have no performance conditions other than the employee remaining in employment for the three year vesting period. Restricted share awards At 1 January Granted during the year At 31 December 2020 Weighted average exercise price (p) – – – Options – 16,548,665 16,548,665 Of the above share options outstanding at the end of the year, nil are exercisable at 31 December 2020. The options outstanding at 31 December 2020 had a weighted average exercise price of nil p and a weighted average remaining contractual life of 2.9 years. In the year, no options were exercised. The assumptions used in the Black-Scholes model in relation to the restricted share awards 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 2020 2020 RSP Awards 1 December 2020 33p 0.0p 54.1% 3 years (0.01)% 3.3% 92% 92% The weighted average fair value of RSP awards granted during 2020 was 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. d) 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 2020, 296,162 (2019: 46,822) 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. 167 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 10. Property, plant and equipment The movements in the year and the preceding year were as follows: Freehold land and buildings £m Leasehold properties £m Plant and machinery £m Cost At 1 January 2019 Exchange differences Additions Reclassified as held for sale Reclassifications Disposals At 31 December 2019 Exchange differences Additions Transferred from held for sale Reclassifications Disposals At 31 December 2020 Accumulated depreciation and impairment At 1 January 2019 Charge for the year Impairment charges Exchange differences Reclassifications Reclassified as held for sale Disposals At 31 December 2019 Charge for the year Impairment charges Exchange differences Reclassifications Transferred from held for sale Disposals At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 42.9 (2.8) 2.6 (11.6) 11.1 (0.4) 41.8 1.8 0.2 0.2 (3.3) (0.9) 39.8 17.7 1.0 – (1.3) 9.3 (4.7) (0.2) 21.8 0.4 – 0.9 (1.1) – (1.0) 21.0 18.8 20.0 60.6 (1.5) 3.1 (3.0) (1.5) (0.4) 57.3 1.1 6.3 0.6 6.1 (5.7) 65.7 39.3 2.7 0.6 (1.2) 1.3 (2.0) (0.3) 40.4 2.4 2.8 1.0 2.1 0.4 (2.5) 46.6 19.1 16.9 166.6 (5.8) 11.4 (42.8) 38.3 (19.1) 148.6 4.2 6.8 15.1 (1.4) (8.7) 164.6 125.6 11.5 – (4.6) 37.7 (29.3) (14.0) 126.9 8.4 0.7 2.8 (1.2) 9.2 (7.5) 139.3 25.3 21.7 Total £m 270.1 (10.1) 17.1 (57.4) 47.9 (19.9) 247.7 7.1 13.3 15.9 1.4 (15.3) 270.1 182.6 15.2 0.6 (7.1) 48.3 (36.0) (14.5) 189.1 11.2 3.5 4.7 (0.2) 9.6 (11.0) 206.9 63.2 58.6 Leasehold properties includes 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 (2019: £nil) has been recognised in rental income and £0.6m (2019: £nil) incurred in Other items during the year due to impairment of the asset. The property is being depreciated on a straight-line basis over the term of the lease (25 years). The property had a cost of £4.2m, accumulated depreciation of £0.3m and impairment of £2.8m on transfer to investment property at the end of 2018. The fair value of the investment property at 31 December 2020 is estimated to be £0.5m (2019: £1.1m) based on future expected rental returns. No independent third party valuation has been carried out. Included within plant and machinery additions are assets in the course of construction of £nil (2019: £nil). £2.4m of the impairment charge in 2020 is attributable to the impairment in relation to the UK Distribution CGU (see Note 13). £1.1m is related to the impairment of the investment property referred to above and other assets. Amounts included in software costs at 31 December 2019 with cost and net book value of £1.4m have been reclassified to tangible fixed assets during the year (see Note 14). 168 SIG plc Annual Report and Accounts for the year ended 31 December 202011. Divestments and exit of non-core businesses The Group has recognised a net gain of £0.6m (2019: gain of £0.1m) in respect of profits and losses on agreed sale or closure of non-core businesses within Other items of the Consolidated Income Statement. This consists of £2.0m gain in relation to the disposal of the Middle East entity in the current year, offset by costs of £0.2m in relation to the disposal of Building Solutions which was due to complete in the first half of 2020 but was terminated in May 2020, a loss on the sale of the Maury business of £0.9m and other costs in relation to previous disposals of £0.3m. These are explained further below. The sale of the Air Handling business also completed in the period and the gain on sale is included with the results from discontinued operations (Note 12). Businesses disposed during the year As disclosed in the 2019 Annual Report and Accounts, the Middle East business, which was in the process of being closed, was sold on 22 January 2020 for AED1. A gain on sale of £2.0m has been recognised, in relation to the reclassification to the Consolidated Income Statement of the cumulative exchange differences on the retranslation of the net assets of the business previously recognised in other comprehensive income in accordance with IAS 21 "The effects of foreign exchange rates". On 10 September 2020 the Group completed the sale of Maury NZ SAS ('Maury'), the Group's high-end fabrication business in France and part of the France Exteriors (Larivière) segment, for proceeds of €25,000. An overall loss on sale of £0.9m 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 Consolidated Income Statement, in accordance with IAS 21 "The effects of changes in foreign exchange rates". Net assets at the date of disposal were £0.9m and costs of less than £0.1m were incurred, resulting in the overall loss on sale of £0.9m. Costs of £0.2m have also been recognised during the period in relation to the disposal of the Building Solutions business, which was classified as held for sale at 31 December 2019 as a sale had been agreed and was due to complete in the first half of 2020 subject to approval from the UK Competition and Markets Authority (CMA). As disclosed in the 2019 Annual Report and Accounts, on 21 May 2020 it was announced that the parties had agreed to terminate the sales agreement as terms could not be agreed for an extension to enable completion of the CMA investigation and the disposal is no longer proceeding. The business no longer meets the criteria to be presented as held for sale at 31 December 2020 and is now included within underlying operations. £0.3m costs have also been incurred and recognised within Other items in relation to the Commercial Drainage business which was closed in the prior year. Prior year divestments 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 Consolidated 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 Gain on disposal Sale proceeds Satisfied by: Cash and cash equivalents At date of disposal £m 0.4 0.8 0.4 3.3 2.4 (2.4) 4.9 0.9 6.0 11.8 11.8 Commercial Drainage The Group closed its Commercial Drainage business, part of the UK Distribution segment, in 2019. Operating losses for the year were included in Other items in the Consolidated Income Statement and £0.9m of costs were also incurred in 2019 and included in Other items. Disposal groups held for sale at 31 December 2019 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 were 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. The sale was subsequently terminated as disclosed in Note 34 of the 2019 Annual Report and Accounts. 169 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 11. Divestments and exit of non-core businesses continued 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 was 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 comprised the following: 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 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 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 2020 and 31 December 2019 are as follows: 2020 Revenue £m Net operating profit/(loss) £m 2019 Revenue £m Net operating profit/(loss) £m Commercial Drainage WeGo FloorTec Building Solutions Maury Businesses classified as non-core in 2019 Reclassification of Building Solutions Total attributable to non-core businesses in 2020 – – – 1.8 1.8 – 1.8 – – – (0.3) (0.3) – (0.3) 1.2 14.5 58.3 1.9 75.9 (58.3) 17.6 Cash flows associated with divestments and exit of non-core businesses The net cash inflow in the year ended 31 December 2020 in respect of divestments and the exit of non-core businesses is as follows: Cash consideration received for divestments Cash at date of disposal Disposal costs paid Net cash inflow 2020 Other non-core businesses £m 0.7 (0.2) (0.3) 0.2 Air Handling £m 189.7 (29.2) (12.9) 147.6 Total £m 190.4 (29.4) (13.2) 147.8 (0.8) 0.8 2.9 (0.9) 2.0 (2.9) (0.9) 2019 Total £m 12.6 (0.5) (3.7) 8.4 Included within 'Other non-core businesses' is £0.7m received during the year in relation to contingent consideration on the sale of the Building Plastics division in 2017. 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. 170 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 on a cash free, debt free basis. 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 was 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 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 disposal of discontinued operation Amortisation of acquired intangibles Profit before tax from discontinued operations Income tax expense Profit/(loss) after tax from discontinued operations Gain on sale of subsidiary after income tax (see below) Profit/(loss) from discontinued operations 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 inflow Earnings per share: Basic earnings/(loss) per share from discontinued operations Diluted earnings/(loss) per share from discontinued operations 2020 £m 25.4 (15.0) 10.4 (9.3) 1.1 – 1.1 – (0.1) 1.0 – – 1.0 (0.3) 0.7 69.0 69.7 2020 £m – – – 2020 £m 1.1 147.6 – 148.7 2020 8.0p 8.0p 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) – (0.4) 2019 £m (0.5) 0.1 (0.4) 2019 £m 26.5 (5.1) (9.4) 12.0 2019 (0.0)p (0.1)p 171 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 12. Discontinued operations continued Gain on sale Consideration received1 : Cash Adjustment to consideration Final consideration Carrying amount of net assets sold2 Gain on sale before costs, income tax and reclassification of foreign currency translation reserve Costs incurred in connection with the agreed disposal of the Air Handling business3 Reclassification of foreign currency translation reserve Income tax expense on gain Gain on sale after income tax 2020 £m 191.9 (2.2) 189.7 (118.1) 71.6 (4.3) 3.7 (2.0) 69.0 1 Consideration received was based on an enterprise value of €222.7m on a cash free, debt free basis, adjusted for actual levels of cash, debt and working capital in the Air Handling division at completion to give proceeds received of €228.6m (£191.9m). Net proceeds received exclusive of amounts repaid in relation to debt owed to the Group by the Air Handling division were €187.4m (£157.3m). As part of the completion process, further adjustments to the consideration were agreed and repaid by the Group, together with settlement of tax payments, reducing total consideration by £2.2m. 2 The carrying amount of net assets sold is the net assets held for sale at 31 December 2019 shown below plus £0.4m relating to the net profit for the month of January 2020 less tax payments and working capital movements. 3 £12.2m of costs were also incurred and recognised in 2019 in connection with the sale. Including these in the overall calculation of the gain on sale above would give a gain on sale after income tax of £57.0m. The major classes of assets and liabilities of the Air Handling business classified as held for sale as at 31 December 2019 were as follows: 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 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 172 SIG plc Annual Report and Accounts for the year ended 31 December 202013. Goodwill Cost At 1 January 2019 Business disposed Reclassified as held for sale Exchange differences At 31 December 2019 Business disposed Acquisitions (Note 15) Reclassified from held for sale Exchange differences At 31 December 2020 Accumulated impairment losses At 1 January 2019 Impairment charges Exchange differences At 31 December 2019 Impairment charges Business disposed Exchange differences At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 £m 475.6 (0.3) (37.2) (24.5) 413.6 (0.7) 1.0 11.0 10.7 435.6 181.7 90.3 (17.4) 254.6 45.4 (0.7) 7.5 306.8 128.8 159.0 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 (2019: 10) following the sale of the Air Handling business. The addition of goodwill in the year of £1.0m relates to the acquisition of S M Roofing Supplies Limited, allocated to the UK Exteriors CGU (see Note 15). Ireland is a CGU of the Group but does not have any associated goodwill, and UK Distribution has no remaining goodwill balance following the impairment recognised during the year. 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* Ireland France Exteriors (Larivière) France Distribution (LiTT) Germany (WeGo/VTi) Poland Benelux Total goodwill 2020 £m – 57.4 11.0 – 37.1 5.5 2.5 1.2 14.1 128.8 2019 £m 33.5 68.2 – – 35.1 5.2 2.4 1.2 13.4 159.0 * The Building Solutions balance in the prior year (£11.0m) was included within assets held for sale Impairment review process The Group tests goodwill and the associated intangible assets and property, plant and equipment of CGUs annually for impairment, or more frequently if there are indications that an impairment may be required. The Group undertook an additional assessment at 30 June 2020 to take into account the impact of Covid-19 on the Group's forecasts. The recoverable amounts of all 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 and the Covid-19 pandemic in particular. 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), including the cost of lease debt in accordance with IFRS16, with adjustments made to factor in the amount and timing of future tax flows in order to reflect a pre-tax discount rate. Discount rates also include a risk premium to factor in a certain element of risk over and above that already included in the forecast cash flows (for example the risk of historical accuracy of forecasting or the risk of delayed achievement of the “Return to Growth” strategy). In respect of the other assumptions, external data and management's best estimates are applied as described below. 173 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 13. Goodwill continued Value in use is determined by forecasting cash flows based upon management's three year projections, which include forecast sales growth based on management's best estimates and external data (construction PMI data and construction market growth forecasts), gross margin assumptions based on management's best estimates and previous experience, with annual growth rates based upon country specific inflation expectations (1.5%-2.3%) applied thereafter and into perpetuity. The key assumptions used for each CGU are shown in the table below. 2020 impairment review results In the prior year, a goodwill impairment charge of £57.4m was recognised in relation to the UK Distribution CGU and £32.2m in relation to France Exteriors (Larivière). This was due to a lowering of expectations for future sales and profitability of these two CGUs. An impairment charge of £0.7m was also recognised in relation to the Maury business, part of the Larivière CGU, based on fair value less cost to sell, as the business was in the process of being sold or closed (subsequently sold in 2020). The 2019 impairment review was carried out before considering the impact of Covid-19 on the forecasts for all CGUs, as the pandemic was a non-adjusting post balance sheet event. An impairment review was carried out at 30 June 2020, taking into account the impact of Covid-19 on the Group's forecasts. As a result of this review, a further impairment charge of £31.0m was recognised in relation to the UK Distribution CGU and £11.8m in relation to the UK Exteriors CGU, as included in the Group's interim results to 30 June 2020. The impairment review has been updated at 31 December 2020 to reflect management's latest forecasts and current economic conditions. The results of this review indicated that the carrying value of goodwill and other assets associated with the UK Distribution CGU was further impaired by £17.5m. This impairment has been allocated against goodwill (£2.6m), customer relationships intangible assets (£1.9m), taking both of these to a carrying value of £nil, right-of-use assets (£10.1m), tangible fixed assets (£2.4m) and software (£0.5m). Both the UK Distribution and UK Exteriors 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 CGU is £98.3m and the UK Exteriors CGU is £137.0m . The existing carrying value of all other CGUs remained 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. The UK Distribution CGU has 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 non-current assets for this CGU. 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. 2020 Average revenue growth (%) Pre-tax discount rate (%) Gross margin (%) Long-term operating profit growth rate (average % per annum) UK Exteriors Building Solutions1 Ireland2 France Distribution (LiTT) France Exteriors (Larivière)3 Germany (WeGo/VTi) Poland Benelux Headroom* £6.6m £26.1m £49.8m £80.2m £6.7m £64.4m £8.2m £27.5m 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 Assumption used in value in use calculation** 4.1% 9.0% 7.9% 0.8% 1.0% 5.7% 3.2% 10.7% (1.0)% (20.2)% (21.7)% (20.0)% (1.1)% (7.3)% (4.0)% (12.2)% 12.5% 12.5% 10.4% 11.9% 11.9% 11.7% 12.7% 12.3% 0.5% 9.5% 17.5% 37.8% 0.5% 6.0% 3.1% 9.4% 29.4% 24.8% 24.5% 28.1% 23.5% 28.1% 19.9% 24.3% (0.3)% (4.1)% (4.3)% (4.7)% (0.2)% (1.7)% (0.6)% (2.4)% 2.0% 2.0% 2.0% 1.6% 1.6% 1.9% 2.3% 1.6% Change required for carrying value to equal recoverable amount (1.3)% (16.7)% (70.3)% (115.1)% (2.6)% (16.0)% (12.4)% (33.5)% * compared to carrying value of goodwill, intangible assets, property, plant and equipment and right-of-use assets ** average growth in years 2 and 3 of the 3 year plan. Growth from 2020 to 2021 not considered meaningful given the impact of Covid-19 on 2020 1 Building Solutions was held for sale at 31 December 2019 and was therefore not included in the 2019 table below 2 Ireland does not have any goodwill but is included in the current year for information 3 France Exteriors (Larivière) was impaired to recoverable amount at December 2019 and therefore is not in the comparative 2019 table below. 174 SIG plc Annual Report and Accounts for the year ended 31 December 202013. Goodwill continued 2019 Average revenue growth (%) Pre tax discount rate (%) Gross margin (%) Long-term operating profit growth rate (average % per annum) Headroom* £20.4m £92.8m £10.5m £22.4m £26.7m Assumption used in value in use calculation (0.1)% 0.1% 0.5% 0.7% 0.6% Change required for carrying value to equal recoverable amount Assumption used in value in use calculation (2.4)% (19.9)% (1.2)% (8.0)% (11.1)% 9.9% 9.9% 10.0% 10.2% 10.5% Change required for carrying value to equal recoverable amount 1.4% 41.2% 1.3% 10.3% 21.1% Assumption used in value in use calculation 29.3% 28.0% 27.4% 20.3% 24.8% Change required for carrying value to equal recoverable amount Assumption used in value in use calculation (0.6)% (4.7)% (0.3)% (1.3)% (2.2)% 2.0% 1.7% 2.1% 2.7% 1.9% Change required for carrying value to equal recoverable amount (3.4)% (180.3)% (1.5)% (30.8)% (8.5)% UK Exteriors France Distribution (LiTT) Germany (WeGo/VTi) Poland Benelux *compared to carrying value of goodwill, intangible assets, property, plant and equipment and right-of-use assets Of the above sensitivities for 2020, management considers the % changes in revenue growth and gross margin to be reasonably possible for the UK Exteriors and France Exteriors (Larivière) CGUs, which would lead to an impairment of goodwill of £6.6m for UK Exteriors and £6.7m for Larivière. The other % changes in assumptions shown above are not considered to be reasonably possible scenarios, 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. In 2019 the above assumption for sales growth related to the forecasts for 2020. For UK Exteriors and Germany (WeGo/VTi) CGUs the detailed forecasts for 2021 and 2022 included further sales growth, with other assumptions remaining consistent with the above. For UK Exteriors the forecasts included 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 were considered to be reasonably possible scenarios. UK Distribution The UK Distribution CGU has been impaired to recoverable amount. The table below sets out the key assumptions used in the value in use calculation and the additional impairment that could arise from a reasonably possible change in each of the key assumptions: 2020 Revenue growth (average of year 2 and 3 growth) Pre tax discount rate Gross margin Long-term operating profit growth rate (average % per annum) UK Distribution Assumption used in value in use calculation (%) Reasonably possible change in assumption (%) Additional impairment caused by reasonably possible change 11.5% 12.6% 23.3% 2.0% (1.0)% (0.5)% (0.3)% (0.2)% £15.1m £4.3m £11.3m £1.2m Covid-19 has had a significant impact on the Group's results for 2020. The forecasts used in the above impairment review take into account management's best estimate of future cash flows, reflecting the assumption of more normal trading levels since the worst of the Covid-19 impact, as well as the expected positive impact of the strategic actions being undertaken to improve future performance under the “Return to Growth” strategy. A worsening of the current Covid-19 situation or further waves could adversely impact the Group's markets and trading performance which could lead to further impairment of non-current assets in future periods. 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 2020. 175 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 13. Goodwill continued UK Distribution and France Exteriors (Larivière) The table below sets out the key assumptions used in the value in use calculation in 2019 and the additional impairment that could have arisen from a reasonably possible change in each of the key assumptions: 2019 Like-for-like market volume growth Pre tax discount rate Gross margin Long-term operating profit growth rate (average % per annum) UK Distribution France Exteriors (Larivière) Assumption used in value in use calculation (%) Reasonably possible change in assumption (%) Additional impairment caused by reasonably possible change (%) Assumption used in value in use calculation (%) Reasonably possible change in assumption (%) Additional impairment caused by reasonably possible change (%) (12.6) 10.9 22.7 (2.0) 1.0 (0.3) 20.7 17.1 14.3 3.3 11.0 23.4 (2.0) 1.0 (0.3) 12.8 12.9 8.2 2.0 (0.2) 2.6 1.7 (0.2) 2.0 The above assumption for sales growth related to the forecasts for 2020. For UK Distribution the forecasts included 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% was achieved from budget 2020 to 2021 this would have caused the remaining value of goodwill of £33.5m to be fully impaired. For France Exteriors (Larivière), the forecast revenue growth included was 1.2% for 2021 and 1.5% for 2022. If no revenue growth was included for 2021 this would have resulted in additional impairment of £16.4m. These were considered reasonably possible scenarios. 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 2019 Additions Disposals Reclassifications Exchange differences Assets transferred to held for sale (Note 11) At 31 December 2019 Additions Disposals Reclassifications Exchange differences Assets transferred from held for sale At 31 December 2020 Amortisation At 1 January 2019 Charge for the year Impairment charges Disposals Reclassifications Exchange differences Assets transferred to held for sale (Note 11) At 31 December 2019 Charge for the year Impairment charges Disposals Exchange differences Assets transferred from held for sale At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 176 Customer relationships £m Non-compete clauses £m Computer software £m 228.1 – (0.1) – – (38.9) 189.1 0.8 – – – 16.6 206.5 198.3 8.1 0.4 – – 0.3 (31.9) 175.2 5.6 1.9 – – 15.3 198.0 8.5 13.9 11.7 – – – – – 11.7 – – – – – 11.7 11.7 – – – – – – 11.7 – – – – – 11.7 – – 58.7 17.5 (0.2) (3.7) (1.1) (4.7) 66.5 8.7 (3.1) (1.4) 0.8 0.6 72.1 42.3 4.5 0.3 (0.1) (4.9) (0.8) (3.2) 38.1 5.4 15.1 (2.0) 0.7 0.4 57.7 14.4 28.4 Total £m 298.5 17.5 (0.3) (3.7) (1.1) (43.6) 267.3 9.5 (3.1) (1.4) 0.8 17.2 290.3 252.3 12.6 0.7 (0.1) (4.9) (0.5) (35.1) 225.0 11.0 17.0 (2.0) 0.7 15.7 267.4 22.9 42.3 SIG plc Annual Report and Accounts for the year ended 31 December 2020 14. Intangible assets continued 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 145. Included within computer software additions are assets in the course of construction of £1.4m (2019: £11.1m). £1.4m of the amount included at 31 December 2019 has been reclassified to tangible fixed assets during the year (see Note 10). The impairment charge in relation to customer relationships relates to the impairment recognised in relation to the overall impairment review of non-current assets of UK Distribution CGU (see Note 13). The impairment charge in relation to software relates mainly to the impairment of SAP implementation costs following the period of pause and change in scope of the project. £0.5m of the impairment also relates to the overall impairment of UK Distribution non-current assets. These charges are included within 'Impairment charges' within Other items in the Consolidated Income Statement (see Note 2). The impairment charge in relation to customer relationships in 2019 related to the impairment of intangible assets associated with the Maury business which was classified as non-core and was 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 related to the SK Sales business which has been sold as part of the Air Handling business and was included in 'Impairment charges' within Other items in the prior year. 15. Acquisitions On 17 October 2020 the Group acquired 100% of the share capital of S M Roofing Supplies Limited, a non-listed company based in the UK, for an enterprise value of £1.9m on a debt free cash free basis. Total consideration was £4.9m, including £3.2m for cash within the business on completion. £4.0m was paid in cash on completion and two further amounts totalling £0.9m are payable in equal instalments in one and two years' time (not subject to performance criteria and not conditional upon vendors remaining within the business). The provisional fair values of the identifiable assets and liabilities of S M Roofing Supplies Limited as at the date of acquisition were: Assets Intangible assets (customer relationships) Property, plant and equipment Right-of-use asset Cash and cash equivalents Trade and other receivables Inventories Liabilities Trade and other payables Provisions Current tax liability Deferred tax liability Lease liability Total identifiable net assets at fair value Goodwill arising on acquisition (Note 13) Purchase consideration transferred 2020 £m 0.8 0.1 0.2 3.2 0.7 0.4 5.4 (0.8) (0.2) (0.2) (0.1) (0.2) (1.5) 3.9 1.0 4.9 177 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 15. Acquisitions continued The fair value of trade receivables amounts to £0.7m. The gross amount of trade receivables is £0.7m. The Group measures the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use asset was measured at an amount equal to the lease liability. The goodwill of £1.0m comprises the value of expected synergies arising from the acquisition (e.g. overhead costs in relation to finance, administration and management), strategic fit with the UK Exteriors business and geographic location, and is allocated entirely to the UK Exteriors segment. From the date of acquisition, S M Roofing Supplies Limited contributed £1.0m of revenue and £nil to underlying profit before tax from continuing operations of the Group. If the combination had taken place at the beginning of the year, revenue from continuing operations for the Group would have been £1,877.8m and loss before tax from continuing operations for the Group would have been £76.4m. Purchase consideration Cash paid on completion Deferred consideration due within one year Deferred consideration due after more than one year Total consideration Analysis of cash flows on acquisition Consideration paid (included in cash flows from investing activities) Transaction costs (included in cash flows from operating activities) Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on acquisition 16. Inventories Raw materials and consumables Work in progress Finished goods and goods for resale At 31 December 2020 £m 4.0 0.5 0.4 4.9 2020 £m (4.0) (0.2) 3.2 (1.0) 2019 £m – 0.3 156.2 156.5 2020 £m 3.1 1.2 166.0 170.3 The estimated replacement cost of inventories is not materially different from the balance sheet value stated above. 178 SIG plc Annual Report and Accounts for the year ended 31 December 202017. Trade and other receivables Trade receivables VAT Other receivables Prepayments and accrued income Trade and other receivables Lease receivables (Note 25) Current tax assets Assets classified as held for sale (Note 11) Total receivables 2020 £m 232.7 3.8 7.5 50.4 294.4 0.7 – – 295.1 2019 £m 226.4 6.8 4.4 57.1 294.7 0.8 0.9 258.4 554.8 Included within prepayments and accrued income is £36.7m (2019: £42.4m) 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 45 days (2019: 42 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 of £15.3m at 31 December 2020 (2019: £19.5m). On a like-for- like basis the allowance for expected credit losses is consistent with the prior year, with increases in certain entities offset by decreases in others. 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) Transferred from held for sale Disposal of non-core businesses Charged to the Consolidated Income Statement Exchange differences At 31 December 2020 £m (19.5) 8.8 1.3 – (0.2) 4.5 (9.5) (0.7) (15.3) 2019 £m (31.4) 8.9 8.3 4.0 – – (10.5) 1.2 (19.5) The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. The expected loss rates have been assessed by each operating segment and are based on the payment profiles of sales over a period prior to 31 December 2020, the availability of credit insurance and the historical credit losses experienced 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. Expected credit loss provisions have been adjusted where relevant to take account of experience during the year and forward looking information, considering the impact of Covid-19 in particular. There has been an increase in the bad debt expense in certain entities as a result of Covid-19. The concentration of credit risk is limited due to the customer base being large and unrelated. 31 December 2020 Expected credit loss rate Total gross carrying amount Expected credit loss < 30 days £m 0.8% 219.7 1.8 Days past due 30-60 days £m 61-90 days £m 4.0% 22.7 0.9 17.0% 4.7 0.8 > 91 days £m 61.1% 19.3 11.8 Total £m 266.4 15.3 179 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 17. Trade and other receivables continued The 2019 expected credit loss was as follows: 31 December 2020 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 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 £41.1m (2019: £34.5m) pledged as security in relation to the asset backed funding arrangement implemented in relation to the UK defined benefit pension plan. See Note 31 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 £25.2m (2019: £35.0m) 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 initial recognition. Where appropriate, credit guarantee insurance cover is purchased. There has been no significant change to credit risk management as a result of Covid-19. 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 Lease liabilities (Note 25) Bank loans Private placement notes (Note 19) 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 2020 £m 187.1 13.6 12.2 88.5 301.4 50.6 – – 0.5 0.5 0.5 4.2 10.5 – 368.2 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 Trade payables is presented net of £29.9m (2019: £38.0m) due from suppliers in respect of supplier rebates where the Group has the right to net settlement. £nil (2019: £nil) of the above bank loans and overdrafts are secured on the assets of subsidiary undertakings, all of the lease liabilities (2019: all of the above finance lease contracts) are secured on the underlying assets and the remaining balances are unsecured. In 2019 all of the above private placement notes, derivative financial instruments, and bank loans were guaranteed by certain companies of the Group. On 18 June 2020 the Group amended the terms of its financing arrangements. The bank loan balance at 31 December 2019 related to the amount drawn under the Revolving Credit Facility ('RCF'). As part of the amendments to the financing arrangements the amount drawn on the RCF on 18 June 2020 of £70.0m was converted into a term facility due for repayment on 31 May 2023 and a working capital facility of £25.0m. The £70.0m term facility is included within non-current liabilities (see Note 19). The amount drawn under the working capital facility at 31 December 2020 is £nil. In 2019 £69.6m of the bank loans (after taking into account derivative financial instruments) were at variable rates of interest. In 2019 £30.0m of the bank loans (after taking into account derivative financial instruments) attracted an average fixed interest rate of 1.58%. 180 SIG plc Annual Report and Accounts for the year ended 31 December 202018. Current liabilities continued The private placement notes were classified as a current liability at 31 December 2019. The terms of the private placement notes were amended on 19 June 2020 and have been classified in accordance with the revised terms at 31 December 2020. See Note 19 for further details. 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 48 days (2019: 56 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 Bank loan Private placement notes Deferred consideration Derivative financial instruments Other financial liabilities Other payables Retirement benefit obligations (Note 31) Provisions (Note 23) Non-current liabilities 2020 £m 41.9 81.7 88.0 67.7 144.5 0.4 0.4 1.2 3.5 25.1 25.7 480.1 2019 £m 48.3 94.1 81.7 – – – 1.9 1.4 1.0 24.8 18.6 271.8 All of the above private placement notes, bank loan and derivative financial instruments are guaranteed by certain companies of the Group. Bank loan As part of the amendments to the financing arrangements on 18 June 2020, the amount drawn on the RCF at that date of £70.0m was converted into a term facility due for repayment on 31 May 2023 and a working capital facility of £25.0m. The £70.0m term facility is included within non-current liabilities above, net of arrangement fees paid (of which £2.3m remains unamortised at 31 December 2020). This has been accounted for as an extinguishment of the previous facility and new arrangement, therefore arrangement fees which were being amortised over the term of the previous facility have been written off (see Note 3). Private Placement Notes On 18 June 2020 the Group concluded changes to its agreements with existing private placement notes holders with the following key changes: ■ repayment of €30m of notes previously due on 31 October 2020 and €20m of notes previously due on 31 October 2021 deferred to 31 May 2023; ■ £48.9m repaid on completion of the Group’s equity raise in July 2020, split across each of the individual notes on a pro-rata basis; ■ holders of the existing 2023 notes (due 31 October 2023) and 2026 notes (due 12 August 2026) granted a put option for those notes to be redeemed on 31 May 2023 at a price equal to 100% of the aggregate outstanding principal together with a make-whole amount calculated as specified in the agreement; ■ additional fee of 2% per annum to be paid on the outstanding principal; and ■ financial covenants were reset. The loan notes have been considered separately to determine whether the changes should be accounted for as a modification of the existing arrangement or as an extinguishment and refinancing. The Group has concluded that each loan note meets the criteria to be accounted for as a modification. Previous arrangement fees therefore continue to be amortised over the remaining term (£0.3m at the date of modification) together with arrangement fees incurred in relation to the new agreement (£1.9m). A loss on modification of £11.3m has also been recognised, reflecting the difference in the present value of the future cash flows discounted at each loan note's original EIR. This has been recognised within finance costs within Other items (see Note 3). This will unwind over the remaining term of the loan notes, resulting in the finance cost recognised in future periods being lower than the actual amounts paid. At 31 December 2019 the private placement notes were reclassified as a current liability on the balance sheet because the covenant test of consolidated net worth at 31 December 2019 was below the threshold of £400m and therefore at the balance sheet date the Group did not have an unconditional right to defer settlement of the liability for at least 12 months. 181 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 19. Non-current liabilities continued The contractual repayment profile (before applying associated derivative financial instruments and prepaid arrangement fees) under both the current and previous arrangements are shown below: Repayable in 2020 Repayable in 2021 Repayable in 2023 Repayable in 2026* Total 2020 2019 Fixed interest rate % – – 6.0% 5.3% 5.6% £m – – 66.2 70.0 136.2 Fixed interest rate % 3.7% 3.9% 4.2% 3.3% 3.6% £m 25.4 16.9 42.3 91.2 175.8 * If the lenders exercise the put option as referred to above, this amount will become due and payable in 2023 £16.3m (2019: £22.6m) 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 2020 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. 20. Financial assets, liabilities, financial risk management and derivatives 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. a) Financial assets The Group holds the following financial assets: Financial assets at amortised cost Trade receivables Cash at bank and on hand Derivative financial instruments designated as hedging instruments Derivative financial instruments not designated as hedging instruments Total Note 17 20d 2020 £m 232.7 235.3 0.1 – 468.1 2019 £m 226.4 110.0 1.9 0.7 339.0 Included within cash at bank and on hand is cash restricted for use of £nil (2019: £0.8m) relating to cash received from customers in relation to trade receivable balances derecognised under factoring arrangements and which is therefore owed to the factor. Nothing is included in the above cash balance in 2020 (2019: £8.1m) 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 0.2% (2019: 1.5%). The Directors consider that the fair values of cash at bank and on hand and trade receivables 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. 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, £137.6m (2019: £14.5m) is denominated in Sterling, £83.1m (2019: £76.9m) in Euros, £12.7m (2019: £17.2m) in Polish Zloty, and £1.9m (2019: £1.4m) in other currencies. b) Financial liabilities The Group holds the following financial liabilities: Financial liabilities at amortised cost Trade and other payables* Borrowings Deferred consideration Lease liabilities Derivative financial instruments designated as hedging instruments Total * Excluding non-financial liabilities 182 Note 18 20d 2020 £m 275.6 145.5 0.5 262.2 0.9 684.7 2019 £m 297.6 278.0 – 275.6 2.1 853.3 SIG plc Annual Report and Accounts for the year ended 31 December 2020 20. Financial assets, liabilities, financial risk management and derivatives continued The directors consider that the fair values of trade and other payables, loan notes and deferred consideration approximate their carrying value due to their short-term nature. The fair value of borrowings is considered below. 2020 interest rate and currency profile The interest rate and currency profile of the Group’s financial liabilities at 31 December 2020, after taking account of interest rate and currency derivative financial instruments (including derivative assets of £0.1m as noted above) but excluding prepayment of arrangement fees of £1.8m 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 16.6 69.6 131.9 120.0 1.5 120.5 0.1 9.8 – 470.0 Floating rate £m Fixed rate £m Effective fixed interest rate % Weighted average time for which rate is fixed Years – 70.0 – – – – 0.1 3.0 – 73.1 6.2% – 16.6 (0.4) 5.6 0.6 131.9 0.0% – 7.7% 8.7 – 22.3 4.0 5.5% 120.0 2.0 2.8% 1.5 120.5 0.1% – 5.7% 1.1 – 120.1 n/a n/a 6.8 1.9% – 8.3% 1.0 – 7.2 n/a n/a – – 396.9 Amount secured £m – – 131.9 – 1.5 120.5 0.1 9.8 – 263.8 Amount unsecured £m 16.6 69.6 – 120.0 – – – – – 206.2 In addition to the currency exposures above, the Group held two cross-currency derivative financial instruments for 2020 which alter the currency profile of the Group’s financial liabilities. These amount to an asset of £16.6m and a liability of €18.3m. These derivatives also further reduce the fixed interest payable of the Sterling private placement notes from 6.2% to 5.5 - 5.7%. The fair value of these derivatives was a net liability of £0.4m which is included in the Sterling value of other borrowings in the table above. The Group’s net debt at 31 December 2020 was £238.2m and, after taking account of these cross-currency derivatives, the Group had net Euro financial liabilities of £54.6m. 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 2020 is estimated to be £164.7m (2019: £200.2m) and is classified as a Level 2 fair value measurement for disclosure purposes. The remaining fixed rate debt amounts to £260.3m (2019: £305.7m) 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. 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 20.9 101.2 136.8 153.2 2.8 128.2 0.1 9.0 1.4 553.6 Floating rate £m Fixed rate £m Effective fixed interest rate % Weighted average time for which rate is fixed Years – 70.0 – – 1.0 – 0.1 2.6 – 73.7 20.9 31.2 6.6 4.2% 0.6 1.6% 136.8 0.0% – 6.2% 0.1 – 88.7 3.5% 153.2 4.4 3.0 2.8% 1.8 128.2 1.7% – 7.3% 0.1 – 9.5 n/a n/a 6.4 3.2% – 8.3% 0.1 – 75.6 6.0 3.9% 1.4 479.9 – Amount secured £m – – 136.8 – 2.8 128.2 0.1 9.0 1.4 278.3 Amount unsecured £m 20.9 101.2 – 153.2 – – – – – 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. In both 2020 and 2019, the interest rate on floating rate financial liabilities is based upon appropriate local market rates. 183 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 20. Financial assets, liabilities, financial risk management and derivatives continued c) Financial risk management SIG’s finance and treasury policies set out the Group’s approach to managing treasury risk. The objectives of the Group’s financial risk management policies are to ensure sufficient liquidity to meet the Group’s operational and strategic needs and the management of financial risk at optimal cost. The Group is exposed to credit risk, liquidity risk, interest rate risk 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. It is Group policy that no trading in financial instruments or speculative transactions be undertaken. Liquidity risk 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 Group also maintains significant cash balances which are more than sufficient to meet the requirements of the working capital cycle taking into account the seasonality of the business. To manage liquidity risk the Group prepares and reviews rolling weekly cash flow forecasts, actual cash and debt positions along with available facilities and headroom which are reported weekly and monitored by Group management. In addition, full annual three-year forecasts are prepared including cash flow and headroom forecasts. The Group is in a strong liquidity position and at 31 December 2020 held cash of £235.3m (2019: £145.1m), and had £25.0m (2019: £133.3m) additional headroom from the £25.0m (2019: £233.3m) revolving credit facility that matures in May 2023. Foreign currency risk SIG has a number of overseas businesses whose revenues and costs are denominated in the currencies of the countries in which they operate. 65% of SIG’s 2020 continuing revenues (2019: 61%) 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. 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. The Group uses cross-currency interest rate swaps and foreign exchange forward contracts to manage the exposures arising from cross currency transactions (Note 20d ii). 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 Closing rate 2020 2019 Movement (%) 2020 2019 Movement (%) 1.1 5.0 1.1 4.9 – 0.1% 1.1 5.1 1.2 5.0 (0.1)% 0.1% 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. Credit risk Credit risk is covered in Note 17. 184 SIG plc Annual Report and Accounts for the year ended 31 December 202020. Financial assets, liabilities, financial risk management and derivatives continued 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. 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 2020 is 84% (2019: 87%). d) 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 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 2020 the Group held €134m (2019: €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 2020 the Group held two (31 December 2019: two) cross-currency derivative financial instruments which receive fixed £16.6m and pay fixed €18.3m. 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: Notional amount €m Carrying amount (asset)/liability £m Line item in the statement of financial position Change in fair value used for measuring ineffectiveness for the period £m At 31 December 2020 Cross-currency swap Foreign currency denominated borrowing At 31 December 2019 Cross-currency swap Foreign currency denominated borrowing 18.3 134.0 26.6 181.0 (0.1) Derivative financial instruments Private placement notes 120.0 1.9 Derivative financial instruments Private placement notes 153.2 (1.4) (9.5) 1.6 9.3 185 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 20. Financial assets, liabilities, financial risk management and derivatives continued The impact of the hedged item on the statement of financial position is as follows: 31 December 2020 31 December 2019 Net investment in foreign subsidiaries (10.9) (10.7) Change in fair value used for measuring ineffectiveness £m Foreign currency translation reserve £m Cost of hedging reserve £m (0.2) Change in fair value used for measuring ineffectiveness £m Hedging and translation reserve £m 10.9 8.7 Cost of hedging reserve £m 0.2 The hedging gain recognised in Other Comprehensive Income 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 Cash settlement on partial derecognition Liability at 31 December 2020 £m (1.9) (1.4) 3.4 0.1 2019 £m (3.5) 1.6 – (1.9) 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 2020, the Group held two (31 December 2019: 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 2020, the weighted average maturity date of these swaps is 5.6 years (2019: 6.6 years). Hedge of the Group's functional currency cash flows Asset at 1 January Fair value losses recognised in equity Cash settlement on partial derecognition of cash flow hedges Liability at 31 December 2020 £m 1.7 (0.1) (2.0) (0.4) 2019 £m 1.9 (0.2) – 1.7 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 2020 the Group held a number of short term forward contracts designated as hedging instruments in cash flow hedges of forecast purchases in US Dollars. 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 £0.1m (2019: £0.2m) 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 interest rate derivative financial instrument which swapped variable rate debt into fixed rate debt thereby fixing the functional currency cash flows of the Group. This interest rate derivative financial instrument was designated and effective as a cash flow hedge and the fair value movement was therefore deferred in equity via the Consolidated Statement of Comprehensive Income. This swap expired in August 2020. Hedge of the Group's interest cash flows Liability at 1 January Fair value gains recognised in equity Liability at 31 December 2020 £m (0.2) 0.2 – 2019 £m (0.3) 0.1 (0.2) 186 SIG plc Annual Report and Accounts for the year ended 31 December 202020. Financial assets, liabilities, financial risk management and derivatives continued 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 2020 Cross-currency swaps Interest rate swaps Foreign exchange forward contracts At 31 December 2019 Cross-currency swaps Interest rate swaps Foreign exchange forward contracts Notional amount $m Notional amount €m Notional Amount £m Maturity Average hedged rate 22.2 n/a 6.0 30.0 n/a n/a n/a n/a 20.0 n/a n/a 30.5 16.5 n/a 22.8 20.9 30.0 25.7 2026 n/a 2021 2026 2020 2020 6.25% n/a n/a 4.17% 1.58% n/a Average forward rate 1.34 n/a 1.34 1.44% n/a 1.19% The impact of the hedging instruments on the statement of financial position is as follows: Carrying amount £m Line item in the statement of financial position Change in fair value used for measuring ineffectiveness for the period £m At 31 December 2020 Cross-currency swaps Interest rate swap Foreign exchange forward contracts At 31 December 2019 Cross-currency swap Interest rate swap Foreign exchange forward contracts (0.4) Derivative financial instruments – Derivative financial instruments (0.4) Derivative financial instruments 1.7 Derivative financial instruments (0.2) Derivative financial instruments 0.2 Derivative financial instruments 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 2020 31 December 2019 Change in fair value used for measuring ineffectiveness £m Cash flow hedging reserve £m (0.1) 0.2 (0.6) (0.2) 0.2 (0.6) Cost of hedging reserve £m 0.1 – – Change in fair value used for measuring ineffectiveness £m Hedging and translation reserve £m (0.1) 0.1 0.4 0.8 0.1 0.4 (0.1) 0.2 (0.6) (0.1) 0.1 0.4 Cost of hedging reserve £m (0.9) – – 187 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 20. Financial assets, liabilities, financial risk management and derivatives continued The effect of the cash flow hedges in the statement of profit or loss and other comprehensive income is as follows: Amount reclassified from OCI to profit or loss €m Total hedging gain/(loss) recognised in OCI €m Ineffectiveness recognised in profit or loss €m Line item in the statement of profit or loss Line item in the statement of profit or loss €m At 31 December 2020 Cross-currency swaps Interest rate swap Foreign exchange forward contracts At 31 December 2019 Cross-currency swap Interest rate swap Foreign exchange forward contracts (0.1) 0.2 (0.6) (0.1) 0.1 0.4 – – – – – – Finance costs Finance costs Finance costs Finance costs Finance costs Finance costs – – – – – – Operating expenses Finance costs Operating expenses Operating expenses Finance costs Operating expenses Derivatives not designated as hedging instruments The Group also uses some foreign exchange forward contracts 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 no (2019: two) such items with a total carrying amount of £nil (2019: £0.7m). 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: 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 Amount reclassified to profit or loss Foreign currency revaluation of foreign currency denominated borrowing Foreign currency revaluation of net foreign operations Tax effect Exchange differences reclassified to the Consolidated Income Statement in respect of the disposal of foreign operations Other movements not associated with hedging At 31 December Retained (losses)/profits Cash flow hedging reserve Foreign currency translation reserve Cost of hedging reserve 2020 £m (224.9) 2019 £m (68.9) (1.3) – – – – – – – – – – – – – – – – – – 2020 £m 3.5 – – (0.2) 0.2 (0.6) (0.7) – – – – 2019 £m – 1.3 – 0.8 0.1 0.4 0.9 – – – – 2020 £m 6.7 – (1.2) – – – – 2019 £m 21.7 – 1.4 – – – – (9.5) 9.3 18.3 – (23.5) (2.1) (5.9) (0.1) (140.0) (364.9) (154.7) (224.9) – 2.2 – 3.5 – 8.4 – 6.7 2020 £m 0.3 – (0.2) 0.1 – – – – – – – – 0.2 2019 £m 1.0 – 0.2 (0.9) – – – – – – – – 0.3 * Amounts were reclassified during the prior 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. 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 Amounts reclassified from OCI to profit and loss on cash flow hedges Total net losses on derivative financial instruments included in the Consolidated Income Statement 2020 £m 0.7 0.8 1.5 2019 £m 0.7 – 0.7 188 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 2020 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 2020 £m 51.3 43.4 294.5 88.3 477.5 2019 £m 327.4 48.8 95.0 81.9 553.1 The table above is presented consistent with the balance sheet presentation and includes the private placement notes as a non current liability. This is contrast to 31 December 2019 where rather than being based on contractual maturity, the amounts were classified as a current liability. See note 19 for further detail. The table excludes trade payables of £175.1m (2019: £235.6m). Borrowing facilities The Group had undrawn committed borrowing facilities at 31 December 2020 as follows: Expiring in more than one year but not more than two years Expiring in more than two years but not more than five years Total 2020 £m – 25.0 25.0 2019 £m 133.3 – 133.3 As part of the amendments to the financing arrangements on 18 June 2020 (see Note 18), the previous Revolving Credit Facility (RCF) of £233.0m was converted into a £70.0m term facility (included in non-current liabilities (Note 19)) and a £25.0m working capital facility. No amounts have been drawn on the working capital facility during the period to 31 December 2020, and no amounts have been drawn subsequent to 31 December 2020. 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. 2020 analysis Current liabilities Trade and other payables Lease liabilities Deferred consideration Derivative financial instruments Other financial liabilities Total Non-current liabilities Lease liabilities Bank loans Private placement notes Deferred consideration Derivative financial instruments Other financial liabilities Total Total liabilities Other Derivative financial instrument assets Cash and cash equivalents Trade and other receivables Total Grand total Balance sheet value £m < 1 year £m 1-2 years £m 2-5 years £m > 5 years £m Maturity analysis 275.6 50.6 0.5 0.5 0.5 327.7 211.6 67.7 144.5 0.4 0.4 1.2 425.8 753.5 (0.1) (235.3) (294.4) (529.8) 223.7 275.6 61.5 0.5 0.5 0.5 338.6 – 2.7 7.6 – (0.1) – 10.2 348.8 – (235.3) (294.4) (529.7) (180.9) – – – – – – 51.8 2.7 7.6 0.4 (0.1) 1.2 63.6 63.6 – – – – 63.6 – – – – – – 101.5 71.6 89.3 – (0.3) – 262.1 262.1 – – – – 262.1 – – – – – – 144.0 – 77.6 – 1.2 – 222.8 222.8 (0.1) – – (0.1) 222.7 Total £m 275.6 61.5 0.5 0.5 0.5 338.6 297.3 77.0 182.1 0.4 0.7 1.2 558.7 897.3 (0.1) (235.3) (294.4) (529.8) 367.5 189 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 21. Maturity of financial assets and liabilities continued The table above includes: cross-currency interest rate swaps in relation to derivative financial assets with a fair value at 31 December 2020 of £0.1m (2019: £1.7m) and derivative financial liabilities of £0.3m (2019: £1.9m) that will be settled gross, the final exchange on these derivatives will be a payment of €18.3m and receipt of $22.2m in August 2026; and other derivative financial assets with a fair value at 31 December 2020 of £nil (2019: £0.9m) and derivative financial liabilities of £0.5m (2019: £0.2m) that will be settled gross, the final exchange on these derivatives will be total receipts of €20m (2019: €30.5m), PLN 32m (2019: PLN 31m), $3.0m (2019: nil) and £nil (2019: £62.3m) and corresponding payments of £29.2m (2019: £31.8m) and €nil (2019: €72.5m). The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements: As at 31 December 2020 Derivative financial assets Derivative financial liabilities Total 2019 analysis Current liabilities Trade and other payables Lease liabilities Bank loans Private placement notes Derivative financial instruments Other financial liabilities Total Non-current liabilities Lease liabilities Derivative financial instruments Other financial liabilities Total Total liabilities Other Derivative financial instrument assets Cash and cash equivalents Trade and other receivables Total Grand total Gross amounts of recognised financial assets/ (liabilities) £m Amounts available to offset through netting agreements £m 0.1 (0.9) (0.8) (0.1) 0.1 – Net amount £m – (0.8) (0.8) Balance sheet value £m < 1 year £m 1-2 years £m 2-5 years £m > 5 years £m Maturity analysis 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) 446.0 297.6 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) 88.1 – – – 22.4 – – 22.4 55.0 (0.2) 0.4 55.2 77.6 (0.2) – – (0.2) 77.4 – – – 54.9 – – 54.9 110.3 (0.6) 1.0 110.7 165.6 (0.6) – – (0.6) 165.0 – – – 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 following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements: Gross amounts of recognised financial assets/ (liabilities) £m Amounts available to offset through netting agreements £m 2.6 (2.1) 0.5 (1.7) 1.7 – Net amount £m 0.9 (0.4) 0.5 As at 31 December 2019 Derivative financial assets Derivative financial liabilities Total 190 SIG plc Annual Report and Accounts for the year ended 31 December 2020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. 2020 analysis GBP EUR USD Total +100bp £m -100bp £m +100bp £m -100bp £m +100bp £m -100bp £m Profit or loss Other equity Total Shareholders' equity 0.4 – 0.4 (0.4) (i) – (ii) (0.4) – 1.1 1.1 – (iii) (1.2) (iv) (1.2) – (1.1) (1.1) – 1.1 (ii) 1.1 +100bp £m 0.4 – 0.4 2019 analysis GBP EUR USD Total +100bp £m -100bp £m +100bp £m -100bp £m +100bp £m -100bp £m Profit or loss Other equity Total Shareholders' equity (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 +100bp £m (1.1) 0.3 (0.8) -100bp £m (0.4) (0.1) (0.5) -100bp £m 1.1 (0.1) 1.0 The movements noted above are mainly attributable to: (i) floating rate Sterling debt and cash deposits (ii) mark-to-market valuation changes in the fair value of effective cash flow hedges (iii) floating rate Euro debt and Euro cash deposits (iv) changes in the value of the Group's Euro-denominated assets and liabilities 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. 2020 analysis Assets and liabilities under the scope of IFRS 7 Profit or loss Other equity Total Shareholders' equity Total assets and liabilities* Profit or loss Other equity Total Shareholders' equity EUR +10% £m -10% £m USD +10% £m -10% £m PLN +10% £m -10% £m Total +10% £m – 0.8 0.8 – (4.8) (4.8) – (i) (1.0) (ii) (1.0) – (iii) 5.8 (iv) 5.8 – (0.4) (0.4) – (0.4) (0.4) – 0.5 (ii) 0.5 – (v) 0.5 (iv) 0.5 (0.1) 0.3 0.2 (0.1) (0.1) (0.2) 0.1 (0.4) (ii) (0.3) 0.1 (vi) 0.1 (iv) 0.2 (0.1) 0.7 0.6 (0.1) (5.3) (5.4) -10% £m 0.1 (0.9) (0.8) 0.1 6.4 6.5 191 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 22. Sensitivity Analysis continued 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 EUR +10% £m -10% £m USD +10% £m -10% £m PLN +10% £m -10% £m Total +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) -10% £m 0.9 0.5 1.4 – 14.2 14.2 * Certain assets and liabilities such as inventories, non-current assets and provisions do not come under the scope of IFRS 7. Therefore, in order to present a complete analysis of the Group's exposure to movements in foreign currency exchange rates, the exposure on the Group's total assets and liabilities has been disclosed. The movements noted above are mainly attributable to: (i) retranslation of Euro interest flows (ii) mark-to-market valuation changes in the fair value of effective cash flow and net investment hedges and retranslation of assets and liabilities under the scope of IFRS 7 (iii) retranslation of Euro profit streams and transaction exposure relating to purchases in Euros (iv) retranslation of foreign currency denominated assets and liabilities outside the scope of IFRS 7 and mark-to-market valuation changes in the fair value of effective cash flow and net investment hedges (v) transaction exposure relating to purchases in US Dollars (vi) retranslation of Polish Zloty profit streams 23. Provisions At 1 January 2020 Unused amounts reversed in the period Utilised Reclassified New provisions Exchange differences Transferred from held for sale At 31 December 2020 Included in current liabilities Included in non-current liabilities Total Onerous leases £m Leasehold dilapidations £m Other amounts £m 2.3 – (2.1) – 0.4 – – 0.6 21.8 (1.6) (2.1) (0.1) 3.5 0.1 0.5 22.1 1.2 (0.1) (0.5) – 12.8 0.1 – 13.5 2020 £m 10.5 25.7 36.2 Total £m 25.3 (1.7) (4.7) (0.1) 16.7 0.2 0.5 36.2 2019 £m 6.7 18.6 25.3 Onerous leases Since 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 costs will be incurred both at the end of the leases as set out in Note 25 (reinstatement) and during the lease term (wear and tear). Other amounts Included within other amounts is £11.4m (2019: £nil) relating to onerous contract provisions for licence fee commitments where no future economic benefit is expected to be obtained, principally in relation to the SAP 1HANA implementation following the change in scope of the project. The costs will be incurred over the next three years. 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. 192 SIG plc Annual Report and Accounts for the year ended 31 December 2020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: – Disposal groups held for sale (Note 11) Net deferred tax asset 2020 £m 5.7 – – 5.7 2019 £m 4.4 3.0 (1.0) 6.4 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 2019 Credit/(charge) to income Charge to equity Exchange differences Attributable to discontinued operations At 31 December 2019 Credit/(charge) to income Credit to equity Added on acquisition Exchange differences Attributable to discontinued operations At 31 December 2020 Goodwill and intangibles £m Property, plant and equipment £m Short term timing differences £m Retirement benefit obligations £m Losses £m Other £m (6.1) 1.4 – – 0.6 (4.1) 1.1 – (0.1) – 1.4 (1.7) 10.2 (5.3) – – 0.1 5.0 (1.0) – – – 0.7 4.7 3.5 (1.4) – (0.1) 0.3 2.3 – – – 0.1 (1.6) 0.8 5.4 3.9 (6.6) (0.1) 0.1 2.7 – 0.3 – 0.2 – 3.2 3.3 – – (0.1) – 3.2 (2.0) – – 0.1 (0.7) 0.6 (3.1) 0.2 – 0.2 – (2.7) 1.3 – – (0.5) – (1.9) Total £m 13.2 (1.2) (6.6) (0.1) 1.1 6.4 (0.6) 0.3 (0.1) (0.1) (0.2) 5.7 The deferred tax charge within the Consolidated Income Statement for 2020 includes a credit of £0.2m (2019: £1.0m) 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 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 £57.0m (2019: £15.2m). 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 £280m (2019: £204m). 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. The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing Covid-19 pandemic. These included an increase to the UK’s main corporation tax rate to 25%, which is due to be effective from 1 April 2023. These changes were not substantively enacted at the balance sheet date and hence have not been reflected in the measurement of deferred tax balances at the period end. If the Group’s deferred tax balances at the period end were remeasured at 25% this would result in a deferred tax credit of £0.4m. 193 Stock code: SHI www.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 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: At 1 January 2020 Transferred from held for sale Foreign currency movement Additions Disposals Modifications Impairments Depreciation expense At 31 December 2020 Set out below are the carrying amounts of lease liabilities and the movements during the year: Buildings £m 221.2 12.0 3.6 12.6 (0.1) 8.1 (10.2) (45.0) 202.2 Plant and equipment £m 34.0 0.5 0.7 6.2 (0.4) (2.0) – (11.6) 27.4 At 1 January 2020 Transferred from held for sale Foreign currency movement Additions Disposals Modifications Accretion of interest Payments At 31 December 2020 (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 2020 £m 56.6 12.5 0.8 10.2 80.1 Total £m 255.2 12.5 4.3 18.8 (0.5) 6.1 (10.2) (56.6) 229.6 2020 £m 275.6 13.3 6.4 18.7 (3.8) 6.0 12.5 (66.5) 262.2 50.6 211.6 262.2 2019 £m 54.4 12.0 1.4 1.5 69.3 * £10.1m is included within 'Impairment charges' within Other items relating to the impairment of the right-of-use assets within SIG Distribution and £0.1m is included within net restructuring costs within Other items. In the prior year, £1.0m was included within 'Impairment charges' and £0.5m relating to the Maury business was 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 £66.5m in 2020 (2019: £67.8m). The Group also had non-cash additions to right-of-use assets and lease liabilities of £38.5m in 2020 (2019: £3.5m). The future cash outflows relating to leases that have not yet commenced are disclosed in Note 32(b). The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the lease-asset portfolio and align with the Group's business needs. 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 194 Within five years £m 86.5 23.8 110.3 More than five years £m – 2.1 2.1 Total £m 86.5 25.9 112.4 SIG plc Annual Report and Accounts for the year ended 31 December 202025. Leases continued The Group has considered the impact of any rent concessions as a result of Covid-19. The only changes as a result of Covid-19 have been changes in the timing of payments (for example from quarterly to monthly) and there are therefore no significant amounts recognised in the Income Statement from Covid-19 related rent concessions during the year. 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 £4.3m at 31 December 2020 (2019: £5.2m). These leases have terms of between 1 and 11 years. Rental income recognised by the Group during the year is £1.0m (2019: £1.0m). Future lease payments receivable from sub-leases classified as finance leases at 31 December 2020 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 2020 £m 0.9 3.0 1.2 5.1 (0.8) 4.3 2019 £m 1.0 3.7 1.5 6.2 (1.0) 5.2 Of the total lease assets receivable, £0.7m (2019: £0.8m) is due within one year and £3.6m (2019: £4.4m) is due after more than one year. Future minimum rentals receivable under non-cancellable operating leases at 31 December 2020 are as follows: Within one year After one year but not more than five years More than five years 26. Government grants 2020 £m 0.3 1.0 – 1.3 2019 £m 0.2 0.8 0.2 1.2 The Group has benefited from a number of government support packages during 2020 in relation to the Covid-19 pandemic. Income received under furlough support schemes (Coronavirus Job Retention Scheme in the UK and similar in Ireland, France and Benelux), amounting to £8.1m, meets the definition of government grants and has been netted off the related staff costs, and other business grants of £0.7m have also been received and deducted from related costs. Amounts received in the year are shown below: At 1 January Received during the year Released to the profit and loss account At 31 December 2020 £m – 8.8 (8.8) – 2019 £m – – – – The Group also benefited from business rate savings in the UK and social tax savings in France, amounting to £2.1m, which represents a form of government assistance, but not a grant as there was no transfer of resources. Payment deferrals in relation to VAT, employment taxes and corporate tax did not have an impact on the profit and loss account. The majority of these have been repaid by 31 December 2020, with any outstanding amounts included in the relevant liability on the consolidated balance sheet. 27. Called up share capital Authorised: 1,390,000,000 ordinary shares of 10p each (2019: 800,000,000) Allotted, called up and fully paid: 1,181,556,977 ordinary shares of 10p each (2019: 591,556,982) 2020 £m 2019 £m 139.0 80.0 118.2 59.2 On 10 July 2020 the Group completed an equity raise, with 589,999,995 new ordinary shares issued for gross proceeds of £165m. 587,901,900 of the shares were issued using a cash box structure, such that merger relief was available under the Companies Act 2006, section 612. In this circumstance, no share premium is recorded and the £105.6m excess of the net proceeds over the nominal value of the share capital issue has been recorded as a merger reserve. The proceeds of this issue were used to partially prepay private placement notes (see Note 19), to pay professional and lender fees relating to the equity raise and debt restructuring and to provide working capital flexibility. Consequently, the merger reserve will qualify as distributable. 195 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 27. Called up share capital continued The other 2,098,095 of shares were issued directly to senior management, not within the cash box structure, and the excess of the proceeds over the nominal value of the share capital of £0.4m has been credited to the share premium account. Professional fees of £13.1m incurred and directly related to the equity raise have been deducted from the merger reserve (as no share premium recorded due to the use of the cash box structure as noted above), resulting in a net increase to the merger reserve of £92.5m. The Company has one class of ordinary share which carries no right to fixed income. 28. Reconciliation of loss before tax to cash generated from operating activities Loss before tax from continuing operations Profit before tax from discontinued operations Loss before tax Depreciation of property, plant and equipment (Note 10) Depreciation of right-of-use assets (Note 25) Net finance costs (Note 3) 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 acquired intangibles (Note 14) Impairment of right-of-use asset (Note 25) Profit on agreed sale or closure of non-core businesses (Note 11) Loss/(profit) on sale of property, plant and equipment Share-based payments Gains on derivative financial instruments Net foreign exchange differences Increase/(decrease) in provisions Working capital movements: - (Increase)/decrease in inventories - Decrease in receivables - Decrease in payables Cash (used in)/generated from operating activities 2020 £m (202.3) 72.0 (130.3) 11.2 57.2 34.6 5.4 5.6 15.1 3.5 45.4 1.9 10.2 (71.6) 0.7 0.2 (1.5) 0.2 11.3 (5.4) 19.7 (56.4) (43.0) 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 Included within the cash (used in)/generated from operating activities is a defined benefit pension scheme employer's contribution of £2.5m (2019: £2.5m). Of the total loss on sale of property, plant and equipment, £0.2m profit (2019: £nil) has been included within Other items in the Consolidated Income Statement (see Note 2). 29. Reconciliation of net cash flow to movements in net debt Increase in cash and cash equivalents in the year Cash flow from decrease in debt Decrease in net debt resulting from cash flows Recognition of 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 2020 £m 68.4 183.0 251.4 (0.9) (39.3) 6.0 217.2 (455.4) – (238.2) 2019 £m 71.6 (37.6) 34.0 – (6.4) 6.8 34.4 (189.4) (300.4) (455.4) ^ Non-cash items include the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow, the movement in cash restricted for use in relation to the asset backed funding arrangement implemented in relation to the UK defined benefit pension plan and non-cash movements in relation to lease liabilities. In 2019 the £8.1m restricted cash was included within cash and cash equivalents on the consolidated balance sheet but deducted in arriving at net debt above as shown below. The balance at 31 December 2020 is £nil. See Note 31 for further details. 196 SIG plc Annual Report and Accounts for the year ended 31 December 202029. Reconciliation of net cash flow to movements in net debt continued Net debt is defined as follows: Non-current assets Derivative financial instruments Lease receivables Current assets Derivative financial instruments Lease receivables 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 loans Private placement notes Deferred consideration Other financial liabilities Derivative financial instruments Lease liabilities directly associated with liabilities classified as held for sale Non-current liabilities Lease liabilities Bank loans Private placement notes Deferred consideration 2020 £m 0.1 3.6 – 0.7 235.3 – – (50.6) – – (0.5) (0.5) (0.5) – (211.6) (67.7) (144.5) (0.4) (0.4) (1.2) (238.2) 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) Derivative financial instruments Other financial liabilities Net debt 30. Analysis of net debt Cash at bank and on hand 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 2019 £m 137.0 137.0 6.0 6.0 2.6 (277.0) (3.2) (320.8) (598.4) (455.4) Cash flows £m (78.6) (78.6) – – (3.3) 80.3 8.2 67.2 152.4 73.8 Divestments £m Acquisitions £m Non-cash items* £m Exchange differences £m 147.8 147.8 (0.8) (0.8) – – – 31.6 31.6 178.6 (0.8) (0.8) – – – (0.5) (0.4) (0.2) (1.1) (1.9) 8.1 8.1 (0.9) (0.9) 0.8 195.7 (209.4) (33.6) (46.5) (39.3) 21.8 21.8 – – – – (9.4) (6.4) (15.8) 6.0 At 31 December 2020 £m 235.3 235.3 4.3 4.3 0.1 (1.5) (214.2) (262.2) (477.8) (238.2) * Non-cash items includes to the fair value movement of debt recognised in the year which does not give rise to a cash inflow or outflow, the movement in cash restricted for use in relation to the asset backed funding arrangement implemented in relation to the UK defined benefit pension plan, movements between debts due within one year and after one year, and non-cash movements in lease liabilities. 197 Stock code: SHI www.sigplc.comFINANCIALS Notes to the Financial Statements 31. Retirement benefit obligations The Group operates a number of pension schemes, four (2019: six) of which provide defined benefits based on final pensionable salary. Of these schemes, one (2019: one) has assets held in a separate trustee administered fund and three (2019: five) are overseas book reserve schemes. Two of the overseas schemes in the prior year were within the Air Handling business and were therefore classified within assets and liabilities held for sale at 31 December 2019 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 94.8% as at 31 December 2020 (2019: 97.7%). No change was made to the pension premium percentage of 22.2% (2019: 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 £6.9m (2019: £7.0m), of which a charge of £0.7m (2019: £0.7m) related to defined benefit pension schemes and £6.2m (2019: £6.3m) related to defined contribution schemes. Defined benefit pension scheme valuations In accordance with IAS 19 the Group recognises all actuarial gains and losses in full in the period in which they arise in the Consolidated Statement of Comprehensive Income. The actuarial valuations of the defined benefit pension schemes are assessed by an independent actuary every three years who recommends the rate of contribution payable each year. The last formal actuarial valuation of the SIG plc Retirement Benefits Plan, the UK scheme, was conducted at 31 December 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. The next triennial valuation as at 31 December 2019 is in the process of being finalised and is expected to be concluded by the end of March 2021. 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 other three 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. 198 SIG plc Annual Report and Accounts for the year ended 31 December 202031. Retirement benefit obligations continued Investment risk The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan assets falls below this rate, it will create a plan deficit. Currently the plan has relatively balanced investments in line with the Trustees' Statement of Investment Principles between equity securities and debt instruments. Due to the long-term nature of the plan liabilities, the Trustees of the pension fund consider it appropriate that a reasonable portion of the plan assets should be invested in growth assets to leverage the return generated by the fund. Interest rate risk A decrease in the bond interest rate will increase the plan liability but this will be partially offset by an increase in the return on the plan’s bond holdings. Longevity risk 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. Salary risk 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 £0.3m (2019: £0.5m) relating to the defined benefit pension schemes, was £0.7m (2019: £0.7m). The charge for the current year includes £0.4m (2019: £nil) in relation to the estimated liability impact of equalising Guaranteed Minimum Pensions (GMP) in relation to past transfer values, following the High Court ruling in November 2020. This estimated increase in the liability has been charged to Other items within the Consolidated Income Statement, consistent with the original GMP liability estimate of £1.0m 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 2020 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 three overseas book reserve schemes remain open to new members. Consolidated Balance Sheet liability The balance sheet position in respect of the four defined benefit schemes can be summarised as follows: Pension liability before taxation Related deferred tax asset Pension liability after taxation 2020 £m (25.1) 3.2 (21.9) 2019 £m (24.8) 2.7 (22.1) The actuarial loss of £1.7m (2019: £1.8m loss) for the year, together with the associated deferred tax credit of £0.4m (2019: £6.6m charge) has been recognised in the Consolidated Statement of Comprehensive Income. In addition a deferred tax credit of £nil (2019: £3.9m credit) has been recognised in the Consolidated Income Statement. Of the above pension liability before taxation, £15.6m (2019: £15.9m) relates to wholly or partly funded schemes and £9.5m (2019: £8.9m) relates to the overseas unfunded schemes. 199 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 31. Retirement benefit obligations continued The movement in the pension liability before taxation in the year can be summarised as follows: Pension liability at 1 January Current service cost Contributions Net finance cost GMP equalisation ruling Actuarial loss Transfer to liabilities associated with assets held for sale Business disposals Effect of changes in exchange rates Pension liability at 31 December The principal assumptions used for the IAS 19 actuarial valuation of the UK scheme 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 2020 £m (24.8) – 2.5 (0.3) (0.4) (1.7) – 0.1 (0.5) (25.1) 2020 % n/a 1.8% 2.8% 1.4% 2.9% 2019 £m (28.7) (0.5) 2.6 (0.5) – (1.8) 3.4 – 0.7 (24.8) 2019 % n/a 1.6% 2.9% 2.1% 3.0% * Upon closure of the UK defined benefit scheme to future benefit accrual the accrued benefits of active members ceased to be linked to their final salary and will instead revalue in deferment broadly in line with movements in the Consumer Price Index. Deferred pensions are revalued to retirement in line with the schemes' rules and statutory requirements, with the inflation assumption used for LPI revaluation in deferment. Within the principal plan the life expectancy for a male employee beyond the normal retirement age of 65 is 22.6 years (2019: 21.8 years). The life expectancy on retirement at age 65 of a male employee currently aged 45 years is 23.1 years (2019: 23.1 years). The life expectancy for a female employee beyond the normal retirement age of 65 is 24.0 years (2019: 23.6 years). The life expectancy on retirement at age 65 of a female employee currently aged 45 years is 25.6 years (2019: 25.2 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 c£3.0m. If the rate of inflation increased/decreased by 0.1% this would increase/decrease the Group's gross pension scheme deficit by c£1.0m. If the life expectancy for employees increased by one year the Group's gross pension scheme deficit would increase by c£8.9m. 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 2020 is 18 years (2019: 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 2020 £m 40.9 93.2 14.8 7.4 17.2 173.5 2019 £m 59.6 80.1 15.3 7.6 0.9 163.5 All equity and debt instruments have quoted prices in active markets and can be classified as Level 2 instruments, other than property which is Level 3. The amount included in the Consolidated Balance Sheet arising from the Group's obligation in respect of its defined benefit schemes is as follows: Fair value of assets Present value of scheme liabilities Net liability recognised in the Consolidated Balance Sheet 2020 £m 173.5 (198.6) (25.1) 2019 £m 163.5 (188.3) (24.8) 200 SIG plc Annual Report and Accounts for the year ended 31 December 202031. Retirement benefit obligations continued 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 2020 £m – 0.4 0.3 0.7 Analysis of the actuarial loss recognised in the Consolidated Statement of Comprehensive Income in respect of the schemes: Actual return less expected return on assets Effect of changes in demographic assumptions Effect of changes in financial assumptions Impact of liability experience Remeasurement of the defined benefit liability 2020 £m 12.9 4.0 (24.2) 5.6 (1.7) 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 Business disposals 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 Transfer of assets held for sale Fair value of schemes' assets at 31 December 2020 £m (188.3) – (3.7) 8.8 – (0.5) (0.4) 4.0 (24.2) 5.6 0.1 – (198.6) 2020 £m 163.5 3.4 12.9 2.5 (8.8) – 173.5 2019 £m 0.2 – 0.5 0.7 2019 £m 18.9 1.8 (22.5) – (1.8) 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) 163.5 201 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 32. Commitments and contingencies a) Capital commitments The purchase of property, plant and equipment contracted but not provided for 2020 £m 0.3 2019 £m 6.3 At 31 December 2020 the Group is also committed to further licence costs of £14.8m (2019: £12.3m) in relation to the SAP implementation project and other licence fees. £11.4m of this commitment has been already recognised as an onerous contract provision at 31 December, with £3.4m remaining to 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 2020. The future lease payments for these non- cancellable lease contracts are £1.0m within one year (2019: £0.9m), £3.8m within five years (2019: £1.0m) and £4.7m thereafter (2019: £0.7m). Information on the Group's leasing arrangements is included in Note 25. c) 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 £14.1m (2019: £13.4m). Of this amount, £5.0m (2019: £8.0m) relates to a standby letter of credit issued by HSBC Bank plc in respect of the Group's insurance arrangements. 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 £1.5m (2019: £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. 33. 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. In 2020, SIG incurred expenses of £0.5m (2019: £0.4m) 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 Executive Leadership Team members and the Non- Executive Directors (see page 74), 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 2020 £m 5.8 0.1 – 5.9 2019 £m 4.3 0.4 0.1 4.8 34. Subsidiaries Details of the Group's subsidiaries, all of which have been included in the Financial Statements, are shown on pages 232 to 233. 202 SIG plc Annual Report and Accounts for the year ended 31 December 202035. Non-statutory information The Group uses a number of alternative performance measures, which are non-IFRS, to describe the Group's performance. 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 2020. a) Net debt Net debt is a key metric for the Group, and monitoring it is an important element of treasury risk management for the Group. In addition, maximum net debt is one of the primary covenants applicable to the Group's debt facilities. For the purpose of covenant calculations, net debt is stated before the impact of IFRS 16. The different net debt definitions used are as follows: 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 Loss on debt modification recognised in accordance with IFRS 9 Net debt on frozen GAAP basis Other covenant financial indebtedness Foreign exchange adjustment* Covenant net debt Note 29 2020 £m 238.2 (237.0) 4.3 (1.4) 4.1 (10.1) (6.0) 5.1 (0.5) (1.4) 2019 £m 455.4 (296.0) 5.2 (1.8) 162.8 – 162.8 5.4 0.3 168.5 * For the purpose of covenant calculations, net debt is calculated using net debt translated at average rather than period end rates. b) 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. UK Distribution £m UK Exteriors Total UK £m £m France Distribution (LiTT) £m France Exteriors (Larivière) £m Total France Germany £m £m Benelux £m Statutory revenue 2020 Non-core businesses Underlying revenue 2020 357.4 – 357.4 310.1 667.5 – 310.1 667.5 – 168.1 – 168.1 346.6 514.7 (1.8) 344.8 512.9 (1.8) 370.7 – 370.7 91.6 – 91.6 Total Germany and Benelux £m 462.3 – 462.3 Ireland £m Poland £m Total Group £m 80.5 – 80.5 149.5 1,874.5 (1.8) 149.5 1,872.7 – Statutory revenue 2019 Non-core businesses Underlying revenue 2019 % change year on year: Underlying revenue Impact of currency Impact of acquisitions Impact of working days Like-for-like sales 535.5 (1.2) 534.3 346.5 882.0 (1.2) 346.5 880.8 – 184.5 – 184.5 344.1 528.6 (1.9) 342.2 526.7 (1.9) 396.0 (14.5) 381.5 103.0 – 103.0 499.0 (14.5) 484.5 94.9 – 94.9 156.1 2,160.6 (17.6) 156.1 2,143.0 – (33.1)% (10.5)% (24.2)% – – – – (8.9)% 0.8% (1.4)% (1.6)% (1.6)% (1.6)% (1.4)% (1.5)% (1.3)% 2.3% – (2.6)% (2.8)% (11.1)% (4.6)% (15.2)% (4.2)% (12.6)% (0.6)% – – – – – – (0.3)% (0.1)% (0.3)% (0.4)% (0.3)% – – – 1.2% 0.7% (0.8)% (0.4)% (0.7)% (0.3)% (0.8)% (0.1)% (3.4)% (5.1)% (12.8)% (6.8)% (16.8)% (2.7)% (13.3)% (33.4)% (11.1)% (24.6)% (10.3)% 0.4% 203 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Financial Statements 35. Non-statutory information continued c) 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 % UK Exteriors Total UK % % France Distribution (LiTT) % France Exteriors (Larivière) % Total France % Germany (WeGo/ VTi) % Benelux % Total Germany and Benelux % Ireland % Poland % Total Group % Statutory gross margin 2020 Impact of non-core businesses Underlying gross margin 2020 Statutory gross margin 2019 Impact of non-core businesses Underlying gross margin 2019 22.5% 27.3% 24.7% 27.4% 24.3% 25.3% 28.0% 24.6% 27.3% 23.4% 20.0% 25.1% – – – – – – – – – – – – 22.5% 27.3% 24.7% 27.4% 24.3% 25.3% 28.0% 24.6% 27.3% 23.4% 20.0% 25.1% 26.1% 28.3% 27.0% 27.4% 23.3% 24.8% 27.6% 24.7% 27.0% 25.0% 20.3% 25.9% 0.1% – 0.1% – 0.1% – 0.1% – – – – – 26.2% 28.3% 27.1% 27.4% 23.4% 24.8% 27.7% 24.7% 27.0% 25.0% 20.3% 25.9% d) Operating cost as a percentage of sales This is a measure of how effectively the Group's operating cost base is being used to generate revenue. Statutory revenue Non-core businesses Underlying revenue Operating costs (statutory) Other items Underlying operating costs Six months ended 30 June 2020 £m Six months ended 31 December 2020 £m Year ended 31 December 2020 £m Six months ended 30 June 2019 £m Six months ended 31 December 2019 £m Year ended 31 December 2019 £m 840.1 (1.2) 838.9 312.4 (60.4) 252.0 1,034.4 (0.6) 1,033.8 325.8 (54.5) 271.3 1,874.5 (1.8) 1,872.7 638.2 (114.9) 523.3 1,113.3 (13.4) 1,099.9 267.9 (19.5) 248.4 1,047.3 (4.2) 1,043.1 379.1 (114.6) 264.5 2,160.6 (17.6) 2,143.0 647.0 (134.1) 512.9 Operating costs as a percentage of statutory revenue Underlying operating costs as a percentage of underlying revenue 37.2% 31.5% 34.0% 24.1% 36.2% 29.9% 30.0% 26.2% 27.9% 22.6% 25.4% 23.9% 204 SIG plc Annual Report and Accounts for the year ended 31 December 202035. Non-statutory information continued e) Operating margin 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 UK Exteriors Total UK £m £m France Distribution (LiTT) £m France Exteriors (Larivière) £m Total France Germany Benelux £m £m £m Total Germany and Benelux £m Ireland £m Poland £m Parent company costs £m Total Group £m 2020 Underlying revenue (Note 1) Underlying operating profit (Note 1) Operating margin 2019 Underlying revenue (Note 1) Underlying operating profit (Note 1) Operating margin 357.4 310.1 667.5 168.1 344.8 512.9 370.7 91.6 462.3 80.5 149.5 – 1,872.7 (45.4) (52.8) (12.7)% (2.4)% (7.9)% (7.4) 7.1 4.2% 8.3 15.4 2.0 2.5 2.4% 3.0% 0.1% 2.7% 0.6% 1.0% 1.3% 2.9 0.8 0.4 (21.6) (53.3) n/a (2.8)% 534.3 346.5 880.8 184.5 342.2 526.7 381.5 103.0 484.5 94.9 156.1 – 2,143.0 7.9 1.5% 11.8 19.7 3.4% 2.2% 11.2 6.1% 8.6 19.8 2.5% 3.8% 4.4 5.2 1.2% 5.0% 9.6 6.8 4.3 2.0% 7.2% 2.8% (17.7) n/a 42.5 2.0% f) 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). 36. Post balance sheet events On 1 March 2021 the Group agreed with its lending banks and private placement noteholders to amend certain financial covenants, as described in the Going concern section of the Statement of Significant Accounting Policies. On 10 March 2021 the Group completed the acquisition of 100% of the equity share capital of F30 Building Products Limited, a non-listed UK business, for total estimated consideration of £4.4m. £2.5m of the consideration was payable in cash on completion with the remaining £1.9m split between deferred and contingent consideration based upon the future performance of the business. The initial accounting for the acquisition, including the calculation of the fair value of assets and liabilities acquired, is in progress and all numbers remain provisional. The acquisition is expected to contribute c£6m revenue and £0.9m underlying profit before tax to the Group on an annualised basis. 205 Stock code: SHI www.sigplc.comFINANCIALS 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 2020 and of the group’s loss for the year then ended; ■ the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in 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. We have audited the financial statements of SIG plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2020 which comprise: Group Parent company Consolidated income statement for the year ended 31 December 2020 Consolidated statement of comprehensive income for the year ended 31 December 2020 Consolidated balance sheet as at 31 December 2020 Company statement of comprehensive income for the year ended 31 December 2020 Company balance sheet as at 31 December 2020 Company statement of changes in equity for the year ended 31 December 2020 Consolidated statement of changes in equity for the year ended 31 December 2020 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 2020 Related notes 1 to 36 to the financial statements, including a summary of significant accounting policies The financial reporting framework that has been applied in the preparation is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 and, of the group financial statements, International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in 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) and in accordance with the provisions of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included: 206 SIG plc Annual Report and Accounts for the year ended 31 December 2020How we evaluated management’s assessment ■ In conjunction with our walkthrough of the group’s financial statement close process, we confirmed our understanding of management’s Going Concern assessment process and also engaged with management early to ensure all key risk factors were considered in their assessment; ■ We obtained management’s going concern assessment, including the cash forecast and covenant calculation for the going concern period through to 31 March 2022 and tested this for arithmetical accuracy. Management has modelled a downside scenario in its cash forecasts and covenant calculations in order to incorporate unexpected changes to the forecasted liquidity of the group, ■ We obtained agreements for the Revolving Credit Facility, Term Loan and the Private Placement Notes and reviewed the nature of facilities, repayment terms, covenants and attached conditions. We assessed their continued availability to the group through the going concern period and ensured completeness of covenants identified by management, ■ For covenant amendments agreed subsequent to the refinancing with lenders for 2022 we inspected the agreements to understand the revised covenant levels, ■ We challenged the appropriateness of the key assumptions in management’s forecasts including revenue growth and gross margin percentage, by comparing these to year to date performance, industry benchmarks and through consideration of historical forecasting accuracy, ■ We challenged management’s consideration of a reasonable worst-case scenario, including comparing this to the actual impact to date of Covid-19, ■ We performed reverse stress testing in order to identify and understand what factors and how severe the downside scenarios would have to be to result in the group utilising all liquidity or breaching a financial covenant during the going concern period, ■ We considered the quantum and timing of mitigating factors included in the cash forecasts and covenant calculations and whether these are within the control of the group. We reviewed the group’s capital expenditure and business acquisition plans, ■ We assessed the plausibility of management’s downside scenarios by corroborating to third party data including industry and broker reports for indicators of contradictory evidence, including evidence of market instability and broker consensus on expected outturn of the group and the industry, ■ We reviewed the group’s going concern disclosures included in the annual report in order to assess whether the disclosures were appropriate and in conformity with the reporting standards. Our key observations Following the successful completion of the debt refinancing in June 2020 and the £165m equity raise in July 2020 the group has £235m of cash at the Balance Sheet date and access to committed facilities until at least May 2023. The group initially experienced high levels of disruption in Q2 2020 as a result of Covid-19. However, these short-term impacts reduced through the second half of 2020 and the group is now returning towards pre-Covid trading levels. Management does not expect the forecasts supporting the going concern assessment to be significantly impacted by Covid-19 given the essential nature of services and that they are now able to trade through lockdowns. However, achieving the forecasts remains dependent on the group’s turnaround plans. This is particularly sensitive in the UK Distribution business. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern over the forecast period to 31 March 2022. Going concern has also been determined to be a key audit matter. In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. 207 Stock code: SHI www.sigplc.comFINANCIALSIndependent Auditor’s Report TO THE MEMBERS OF SIG PLC Overview of our audit approach Audit scope We performed an audit of the complete financial information of seven components and audit procedures on specific balances for one further component. The components where we performed full or specific audit procedures accounted for 89% of Gross Margin, 89% of Revenue and 80% of Total assets. Key audit matters Going Concern Impairment of Goodwill, Intangible assets, Property, Plant and Equipment (PPE), and Right-of-use assets (ROUA) Supplier rebates Classification of Other items in the income statement Materiality Overall group materiality of £1.8m which is based on 0.5% of Gross Margin An overview of the scope of the parent company and group audits Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We consider 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 company. 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, we selected 8 components covering entities within the United Kingdom (including the parent company), France, Germany, Poland and Ireland which represent the principal countries within which the group operates. Of the 8 components selected, we performed an audit of the complete financial information of 7 components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining component (“specific scope component”), 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 89% (2019: 94%) of the group’s Gross Margin, being the basis for our materiality, 89% (2019: 94%) of the group’s Revenue, 97% of the group’s Underlying Loss Before Tax (2019: 90% of the group’s Underlying Profit Before Tax), and 80% (2019: 89%) of the group’s Total Assets. For the current year, the full scope components contributed 85% (2019: 82%) of the group’s Gross Margin, 85% (2019: 82%) of the group’s Revenue, 96% of the group’s Underlying Loss Before Tax (2019: 75% of the group’s Underlying Profit Before Tax), and 79% (2019: 77%) of the group’s Total Assets. The specific scope component (2019: 3 components) contributed 4% (2019: 12%) of the group’s Gross Margin, 4% (2019: 12%) of the group’s Revenue, 1% of the group’s Underlying Loss Before Tax (2019: 15% of the group’s Underlying Profit Before Tax), and 1% (2019: 12%) 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. With respect to the remaining 39 components that together represent 11% of the group’s Gross Margin, none are individually greater than 3% of the group’s Gross Margin. For these other procedure components, we performed other procedures, including analytical review, review of internal audit reports, testing of consolidation journals and intercompany eliminations and foreign currency translation recalculations at the group level to respond to any potential risks of material misstatement to the group financial statements. Changes from the prior year Following the disposal of the Air Handling division in January 2020, 3 components are no longer part of the group (1 full scope and 2 specific scope components). Additionally, 2 other components that were specific scope in 2019 have been reduced to other procedures scope in the current year and 1 full scope component has reduced to specific scope, due to reductions in their size relative to the group. As a result of the Covid-19 outbreak and resulting lockdown restrictions in all of the countries where full or specific scope audit procedures have been performed, we have modified our audit strategy to allow for the audit to be performed remotely at group level and also across certain component locations. This approach was supported by the use of EY software collaboration platforms for the secure and timely delivery of requested audit evidence. Inventory counts were performed in person across all component locations. 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 7 full scope components, audit procedures were performed on 6 of these directly by the component audit teams with oversight from the primary team. Testing on the 7th full scope component, the parent company, was completed directly by the primary team. For the 1 specific scope component, the accounts in scope were determined by the primary team and performed by a component team. At the start of the audit, a group wide team briefing call was held, with representatives from all full and specific scope component teams in attendance through video conferencing. Detailed instructions were issued to each team. Planned visits to full scope components were cancelled due to travel restrictions as a result of the COVID-19 pandemic. In response, we increased the frequency of calls with each team to discuss the audit approach and any issues arising from their work. We attended all component team closing meetings via video-call and reviewed key audit papers on risk areas through a combination of direct access to audit files, and through electronic and video reviews. This, together with the additional procedures performed at group level, gave us appropriate evidence for our opinion on the group financial 208 SIG plc Annual Report and Accounts for the year ended 31 December 2020statements. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on; the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk Our response to the risk Impairment of Goodwill, Intangible assets, Property, Plant and Equipment (PPE), and right-of-use assets (ROUA) Refer to Accounting policies (page 142 and 150); and Notes 13 and 14 of the Consolidated Financial Statements (pages 173 to 177) The group’s balance sheet includes goodwill, intangible assets, PPE and ROUA totalling £444.5m at 31 December 2020 (2019: £515.1m). In line with the requirements of IAS 36: “Impairment of Assets”, management test goodwill balances annually for impairment. This assessment includes intangible assets, PPE and ROUA. Impairment tests are performed where indicators of impairment exist. They can include areas of estimation uncertainty and judgement over the future performance of the business for example forecast future trading results and cashflows and 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. Particularly sensitive are the CGUs; UK Distribution, UK Exteriors, and Lariviere. 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. Indicators of impairment We assessed management’s impairment assessment including their consideration of indicators for impairment. We considered whether other indicators existed which were not identified by management. Valuation model We evaluated the identification of CGUs against the requirements of IAS 36. We understood the methodology behind, and tested, the model used by management to perform the impairment test for each of the relevant Cash Generating Units (“CGUs”) per the requirements of IAS 36, Impairment of Assets. We tested the clerical accuracy of the model and challenged the allocation of central overheads and forecasting risk adjustments through understanding the rationale for their inclusion and reviewing management’s calculations. We identified and walked through key controls in the impairment process identified by management. We analysed the budget and medium-term plan, considering historical accuracy of forecasting and the impact of Covid-19, and compared to actual results and other forecast risk factors to determine whether forecast cash flows are reliable. Key assumptions in the valuation We evaluated the key underlying assumptions within the value in use calculation including the discount rates and long-term growth rates. We inspected CGU business plans, focusing on the recovery from Covid-19, and the impact on the turnaround of the UK Distribution business. We challenged key features such as recovering market share losses, 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. For CGUs with the lowest headroom levels 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 forecasts for each CGU and determined whether adequate headroom remained, with a focus on the assumptions regarding the capability of the CGU to return to pre-COVID revenue and margin levels. Impairment of SAP We reviewed Management’s paper in relation to the impairment of the £13.7m IT module asset. We challenged the initial assessment that a residual asset value of £3.7m should remain and reviewed management’s revised position. We understood the change in management’s plan for the project as discussed in board meetings, and reviewed the latest deployment plans for France and Germany to identify the trigger event for the impairment. Continued overleaf Key observations communicated to the Audit Committee Management performed an impairment assessment at 30 June 2020 to take into account the impact of Covid-19 on the forecasts. As a result, impairment charges on goodwill and intangible assets were recognised in relation to the UK Distribution (£31.0m) and UK Exteriors (£11.8m) CGUs. At 31 December 2020, a further impairment charge of £17.5m has been recognised against the UK Distribution CGU, due to further reductions in the forecast cash flows due to slower recovery following the Covid-19 pandemic. This brings the total impairment charge to CGUs of £60.3m We have challenged the input assumptions in the forecasts, including revenue and margin growth and concluded these are appropriate. Group costs have been allocated to CGUs on a reasonable basis. The discount rates applied in the final model are within an acceptable range determined by our internal valuation experts. Goodwill relating to the UK Exteriors, and Lariviere CGUs is sensitive to reasonably possible changes in key assumptions. These sensitivities have been appropriately disclosed in Note 13. Impairment of SAP Management’s decision to change the scope of the IT module rollout, and timeline for it, results in an impairment of the previously capitalised assets. Following our challenge an additional impairment of £3.7m was recognised. Impairment of investments and recoverability of intercompany in the parent company accounts The investment carrying value for the main UK trading company could not be supported given the impact of Covid-19, giving rise to a £106.3m impairment identified by management. Management’s assessment of the recoverability of intercompany receivables from European Investments Limited (£363.4m) and European Holdings Limited (£137.7m) indicates that the balances cannot be settled in full on demand. Management continue to recognise an appropriate level of expected credit loss provision totalling £193.9m (2019: £190.6m). 209 Stock code: SHI www.sigplc.comFINANCIALSIndependent Auditor’s Report TO THE MEMBERS OF SIG PLC Risk Our response to the risk 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 consider the disclosures in the financial statements to be appropriate. 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. We also assessed the disclosure within the key judgements and estimation uncertainty section of the financial statements. Impairment of investments and recoverability of intercompany in the parent company accounts 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 the discounting of these to account for the timing of settlement We completed these procedures at group level addressing 100% of the risk through our testing. We focused our audit procedures on the areas where management apply judgement and estimation, 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 identified key controls. We performed analytical reviews 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 rebate 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. For new agreements, or amendments to existing agreements, signed in the year, we obtained copies of the agreements and reviewed management’s delegation of authority to confirm that these were approved in line with group’s policy. 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 7 full and specific scope locations, which covered 96% of the risk amount associated to supplier rebate income and 95% of the risk amount associated to supplier rebates receivable. Supplier Rebates Refer to Accounting policies (page 144); and Note 17 & 18 of the Consolidated Financial Statements (pages 179 to 181) The group recognised supplier rebate income from continuing operations in the year of £198.5m (2019: £245.2m) with a receivable balance as at 31 December 2020 of £66.6m (2019: £80.4m). The terms of rebate agreements with suppliers can be complex and varied. Judgement and 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. 210 SIG plc Annual Report and Accounts for the year ended 31 December 2020Risk Our response to the risk Key observations communicated to the Audit Committee Classification of Other items in the income statement Refer to Accounting policies (page 143); and Note 2b of the Consolidated Financial Statements (page 159) Other items in 2020 totals £126.0m (2019: £130.4m). Key components include; impairment charges £76.1m, onerous contract provisions £13.2m, finance costs £11.6m, refinancing costs £7.4m and restructuring costs £6.7m. Other items are not defined by IFRS and therefore judgement is required in determining the appropriateness of such classification guided by IAS 1. Consistency in items treated as separately disclosed is important to maintain comparability of reporting year-on-year. Underlying profitability is a key performance measure of the group. There exists a risk of incorrect classification of Other items through management override of controls and bias in judgement. We performed walkthroughs to understand the key processes used to record Other items and identify key controls. Other items are recorded in line with the group’s policy and the guidance in IAS 1. We reviewed management’s accounting policy disclosure in respect of Other items classification in the income statement and challenged the appropriateness of separately presenting these items within Other items. We obtained evidence for a sample of the Other items to understand the nature of these items and whether these are presented 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. We agree with management’s conclusion that the refinancing of the Private Placement Notes results in a modification and a loss of £11.6m has been appropriately recorded due to changes in the net present value of cashflows. Following our challenge, management corrected audit adjustments to Other items, including additional impairment to IT assets (£3.7m) and additional onerous contract provisions (£1.2m). Where an item related to impairment charges testing was performed in line with our response to the risk set out in the Key Audit Matter relating to the impairment of goodwill, intangible assets, PPE and ROUA on page 209. Where an item related to onerous contract provisions, we agreed future committed costs to signed agreements. We reviewed management’s paper in relation to the IAS 37 onerous contract costs and performed a sample test on the underlying costs, including agreement to latest deployment plans for operating companies. For finance costs included within Other items, we confirmed the accounting treatment of the amendments to the RCF and PPN (term length, interest rates, value) and considered whether they met the definition of modifications to, or extinguishments of, the old agreements, paying particular attention to the treatment of historic debt issue costs and the calculation of any modification gain or loss. We assessed the impact of the partial derecognition of the cash flow hedge on the related $30m Private Placement Note. Where refinancing costs were classified within Other items, we obtained a listing of transaction costs associated with the debt refinancing, challenged management’s cost allocation and performed a sample test to confirm the appropriate classification of the costs. 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 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. In the prior year, our auditor’s report included key audit matters in relation to the Independent review by PwC and cash cut-off. In the current year, these were no longer identified as key audit matters as they are no longer deemed to have the greatest effect on overall audit strategy, the allocation of resources or directing the efforts of the engagement team. This was due to the experience gained from prior audits and the resolution, and conclusion, of the independent review by PwC. 211 Stock code: SHI www.sigplc.comFINANCIALSIndependent Auditor’s Report TO THE MEMBERS OF SIG PLC Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the group to be £1.8m (2019: £2.0m). This is based on 0.5% of Gross Margin (2019: 5% of adjusted underlying Profit before tax), which provides a materiality value comparable to both those used in the previous year and forecast to be used in future years when the group’s turnaround is expected to complete. We believe that this basis provides one of the most relevant performance measures to the stakeholders of the group and is therefore an appropriate basis for materiality. The reduction in materiality from the prior year is primarily due to the negative impact of Covid-19 on the profitability of the business in 2020 and the sale of the Air Handling component in the year. We determined materiality for the parent company to be £1.8m (2019: £2.0m), which is 1% of Equity, capped at the materiality of the group. During the course of our audit, we reassessed initial materiality based on the final Gross Margin outturn. This indicated a materiality higher than the prior year, which does not appropriately reflect the increased volatility in the financial performance arising due to the Covid-19 pandemic. As a result, we have maintained our materiality at the planned, and lower, amount above. 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% (2019: 50%) of our planning materiality, namely £0.9m (2019: £1.0m). We have set performance materiality at this percentage due our assessment of the control environment, the level of misstatements 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 (2019: £0.2m to £0.4m). Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.1m (2019: £0.1m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report, set out on pages 1 to 133, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 themselves. 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. 212 SIG plc Annual Report and Accounts for the year ended 31 December 2020Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: ■ the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ■ the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: ■ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ■ the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or ■ certain disclosures of directors’ remuneration specified by law are not made; or ■ we have not received all the information and explanations we require for our audit Corporate Governance Statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Statement specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: ■ Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 28; ■ Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is appropriate set out on page 27; ■ Directors’ statement on fair, balanced and understandable set out on page 106; ■ Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 81; ■ The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 81; and; ■ The section describing the work of the audit committee set out on pages 96 to 106. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 132 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined below, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 213 Stock code: SHI www.sigplc.comFINANCIALSIndependent Auditor’s Report TO THE MEMBERS OF SIG PLC However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. ■ 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 the jurisdictions in which the group operates. ■ 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 as well as observation in Audit Committee meetings, as well as consideration of the results of our audit procedures across the group. ■ 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, including the procedures 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. ■ Specific enquiries were made with the component teams to confirm any non-compliance with laws and regulations and this was reported through their audit deliverables based on the procedures detailed in the previous paragraph. Further, the group team communicated any instances of non-compliance with laws and regulations to component teams through regular interactions with local EY teams. There were no significant instances of non-compliance with laws and regulations. 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 ■ Following the recommendation from the audit committee, we were appointed by the company on 4 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 three years, covering the years ending 31 December 2018 to 31 December 2020. ■ 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 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 25 March 2021 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. 214 SIG plc Annual Report and Accounts for the year ended 31 December 2020Five-Year Summary Statutory basis Revenue Operating (loss)/profit Finance income Finance costs (Loss)/profit before tax (Loss)/profit after tax (Loss)/earnings per share Total dividend per share Underlying basis* Revenue Operating profit/(loss) Finance income Finance costs Profit/(loss) before tax Profit/(loss) after tax (Loss)/earnings per share Total 2016 £m 2,845.2 (96.0) 1.7 (17.0) (111.3) (122.9) (20.9) 3.66 Underlying 2016 £m 2,532.0 81.1 1.2 (14.8) 67.4 49.3 8.3 Total 2017 £m 2,878.4 (36.3) 0.6 (19.0) (54.7) (59.2) (10.2) 3.75 Underlying 2017 £m 2,714.3 85.3 0.5 (16.6) 69.2 51.5 8.7 Total 2018^ £m 2,431.8 26.2 0.5 (16.4) 10.3 4.1 3.0 3.75 Underlying 2018^ £m 2,347.2 70.4 0.5 (15.9) 55.0 40.1 6.8 Total 2019^ £m 2,160.6 (87.9) 0.5 (25.3) (112.7) (124.1) (21.0) 1.25 Total 2020^ £m 1,874.5 (167.7) 0.7 (35.3) (202.3) (208.9) (23.9) 0.0 Underlying 2019^ £m Underlying 2020^ £m 2,143.0 42.5 0.5 (25.3) 17.7 1.4 0.2 1,872.7 (53.3) 0.7 (23.7) (76.3) (87.0) (10.0) ^ Results for 2020, 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. 215 Stock code: SHI www.sigplc.comFINANCIALSCompany Statement of Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2020 Loss after tax Items that may subsequently be reclassified to the Company Income Statement Gains and losses on cash flow hedges Transfer to profit and loss on cash flow hedges Other comprehensive (expense)/income Total comprehensive expense Attributable to: Equity holders of the Company 2020 £m (164.6) (0.5) (0.7) (1.2) (165.8) 2019 £m (259.8) 0.4 0.9 1.3 (258.5) (165.8) (258.5) 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. 217 Stock code: SHI www.sigplc.comFINANCIALSCompany Balance Sheet AS AT 31 DECEMBER 2020 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 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 Treasury shares reserve 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 9 12 10 12 14 14 14 14 14 14 14 14 14 14 2020 £m 267.6 0.3 1.4 1.0 270.3 405.7 – 174.0 579.7 235.6 4.3 239.9 339.8 610.1 213.9 6.2 390.0 118.2 447.7 (0.2) 104.0 0.3 2.0 (0.2) 2.1 0.1 (284.0) 390.0 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 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 2020 of £164.6m (2019: £259.8m loss). The Financial Statements were approved by the Board of Directors on 25 March 2021 and signed on its behalf by: Steve Francis Director Registered in England: 00998314 Ian Ashton Director 218 SIG plc Annual Report and Accounts for the year ended 31 December 2020Company Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2020 Called up share capital £m 59.2 – Share premium account £m 447.3 – – – – – – – – – – – – 59.2 – – 447.3 – – – – – – – – – Treasury shares reserve £m – – – – – – – – – – – – (0.2) – – – (10.2) – – – 11.5 – – – – – 59.0 118.2 0.4 447.7 – (0.2) 92.5 104.0 At 1 January 2019 Loss after tax Total comprehensive income/(expense) Total comprehensive income Transfer of merger reserve Transfer of hedging reserves Credit to share option reserve Dividends paid to equity holders of the Company At 31 December 2019 Loss after tax Total comprehensive income/(expense) Total comprehensive income/(expense) Transfer of unallocated treasury shares Credit to share option reserve Share capital issued in the year At 31 December 2020 Merger reserve £m 21.7 – Capital redemption reserve £m 0.3 – Share option reserve £m 1.7 – Exchange reserve £m (0.2) – Cash flow hedging reserve £m – – Cost of hedging reserve £m – – Retained profits/ (losses) £m Total Equity £m 154.3 684.3 (259.8) (259.8) – – – – – – 0.3 – – – – – – 0.3 – – – – 0.1 – 1.8 – – – – 0.2 – 2.0 – – – – – 2.2 (0.9) – 1.3 2.2 (0.9) (259.8) (258.5) – – 10.2 1.3 0.8 (2.1) – – – – – 0.1 – (0.2) – – 3.5 – – (0.1) – (22.2) (119.6) (164.6) (22.2) 403.7 (164.6) – – – – – (0.2) (1.4) 0.2 – (1.2) (1.4) 0.2 (164.6) (165.8) – – – 2.1 – – 0.2 – – 0.2 – 0.1 – 151.9 (284.0) 390.0 There was no movement in the capital redemption reserve and exchange reserve in the current or prior year. During 2020 the Company allotted no shares (2019: no shares) from the exercise of share options. Amounts were reclassified during the prior year to clarify the effects of hedging between retained (losses)/profits, the cash flow hedging reserve and the cost of hedging reserve. 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. 219 Stock code: SHI www.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 147). 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 Consolidated Financial Statements on page 147. The separate Financial Statements have been prepared in accordance with United Kingdom Accounting Standards, including Financial Reporting Standard 101, “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice) as applied in accordance with the provisions of the Companies Act 2006. FRS 101 sets out a reduced disclosure framework for a qualifying entity that would otherwise apply the recognition, measurement and disclosure requirements of international accounting standards in conformity with the requirements of the Companies Act 2006. 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. On 18 June 2020, the Group agreed amended debt facility agreements in respect of its Revolving Credit Facility (RCF) and private placement notes, with key changes as set out in Note 19 of the Consolidated Financial Statements. On 10 July 2020 the Group also completed the successful raising of £165m of equity through a firm placing and placing and open offer, in order to reduce net debt and strengthen the Group’s balance sheet. Under the June 2020 revised debt facility agreements the Group was subject to covenant testing as follows: ■ Leverage (net debt/EBITDA) and interest cover (EBITA/interest) not tested until March 2022, after which tested every quarter, the tests being applied to the prior 12 months; ■ Until 28 February 2022 the Group to ensure that Consolidated Net Debt (CND) does not exceed £225m for each quarterly test date in 2021 (2020: £125m); ■ Minimum Liquidity (available cash and undrawn revolving credit facility commitments) of £40m at all times; and ■ Consolidated Net Worth (CNW) must at all times not be less than £250m. The Group was in compliance with these covenants at 31 December 2020. Whilst the Group has significant available liquidity, and on the basis of current forecasts is expected to remain in compliance with all banking covenants throughout the forecast period to 31 March 2022, on 1 March 2021 the Group agreed with its lending banks and private placement noteholders to amend certain financial covenants to better align the tests and to provide additional headroom on the interest cover covenant under stress test scenarios from March 2022. The amended covenants under the revised agreements are as follows: ■ The interest cover testing does not start until June 2022 and is at lower levels than previously until December 2022; ■ The leverage covenant threshold is now slightly lower than previously at March 2022 and June 2022; ■ The Consolidated Net Debt threshold is lowered to £200m and extended to December 2022; and ■ No change to the CNW or Minimum Liquidity covenants. In arriving at their opinion on going concern, the Directors have considered the Group’s forecasts for the period to 31 March 2022, and specifically the ability to meet the covenant tests above. These forecasts reflect the assumption of more normal trading levels since the worst of the Covid-19 impact, as well as the expected positive impact of the strategic actions being undertaken to improve future performance under the “Return to Growth” strategy. Management have continued to manage liquidity very closely, such that cashflow performance was better than initial expectations throughout 2020. The base forecasts indicate that the Group will be able to operate within the covenants for the forecast period to 31 March 2022. The Directors have considered the following principal risks and uncertainties that could potentially impact the Group’s ability to fund its future activities and adhere to its future banking covenants, including: ■ A decline in market conditions resulting in lower than forecast sales; ■ Implementation of the new strategy taking longer than anticipated to deliver forecast increases in revenue and profit; ■ A further wave of the Covid-19 pandemic; and ■ The terms of the Group’s revised lending arrangements and whether these could limit investment in growth opportunities. The forecasts on which the going concern assessment is based have been subject to sensitivity analysis and stress testing to assess the impact of the above risks. The Group has considered a plausible downside scenario, factoring in a reduction in sales volumes and a reduction in gross margin, offset by reductions in direct expenditure and discretionary operating costs. The results showed that under this scenario the Group will still be able to operate within the covenants with adequate headroom for the forecast period to 31 March 2022. 220 SIG plc Annual Report and Accounts for the year ended 31 December 2020In considering the impact of these stress test scenarios the Directors have also reviewed realistic additional mitigating actions over and above those included in the downside scenario forecast that could be taken to avoid or reduce the impact or occurrence of the underlying risks. These include further reductions to operating costs, cutting discretionary capital expenditure and disposing of non-core assets. On consideration of the above, the Directors believe that the Company has adequate resources to continue in operational existence for the forecast period to 31 March 2022 and the Directors therefore consider it is appropriate to adopt the going concern basis in preparing the 2020 financial statements. New standards, interpretations and amendments adopted A number of amendments and interpretations apply for the first time in 2020, 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. 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: ■ paragraph 79(a)(iv) of IAS 1 and ■ 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 145. Derivative financial instruments The accounting policy for derivative financial instruments is consistent with that of the Group as detailed on page 148. Financial assets and liabilities The accounting policy for financial assets and liabilities is consistent with that of the Group as detailed on pages 147. 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 145. Intangible assets The accounting policy for tangible fixed assets is consistent with that of the Group as detailed on page 145. Leases The accounting policy for leases is consistent with that of the Group as detailed on page 146. Foreign currency The accounting policy for foreign currency is consistent with that of the Group as detailed on page 142. Taxation The accounting policy for taxation is consistent with that of the Group as detailed on page 144. 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. 221 Stock code: SHI www.sigplc.comFINANCIALSCompany Statement of Significant Accounting Policies CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Company’s accounting policies, which are described above, the Directors are required to make judgements (other than those involving estimates) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The following are the critical judgements that the Directors have made in the process of applying the Company’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. Amendments to financing arrangements On 18 June 2020 the Company amended the terms of its financing arrangements, involving both the Revolving Credit Facility (RCF) and private placement notes (PPNs). The Company has assessed whether the amendments to the facilities represents either a modification of the existing arrangement or an extinguishment of the previous arrangement and refinancing in accordance with IFRS 9. The Company has determined the amendments to the RCF to be an extinguishment and new facility, as the present value of the estimated future cash flows discounted at the loan’s original effective interest rate (EIR) differed by more than 10% compared to the previous cash flows. The balance of unamortised arrangement fees as at 18 June 2020 of £0.3m has therefore been written off in full through finance costs, and the fees payable in relation to the new agreement are being amortised over the new term of the facility. The Company has determined that amendments to the terms of the PPNs (see Note 19 of the Consolidated Financial Statements for further details) meet the criteria to be accounted for as a modification of the existing arrangements, with the present value of future cash flows considered separately for each PPN, discounted at the original effective interest rate for the relevant PPN. A loss on modification of £11.3m has been recognised, reflecting the difference in the present value of future cash flows discounted at each loan note’s original EIR, which has been recognised within finance costs within Other items. This will unwind over the remaining term of the PPNs, resulting in the finance cost recognised in future periods being lower than the actual amounts paid. The existing prepaid arrangement fees of £0.3m at the date of the new agreement will continue to be amortised over the original term. Impairment of intangible assets in relation to SAP 1HANA implementation As disclosed in the 2019 Annual Report and Accounts, the project to implement SAP 1HANA in France and Germany was paused in April 2020 in light of the Covid-19 situation and the change in senior management. A decision has been taken to recommence the project in 2021, but with a change in scope and direction and a locally managed implementation. Costs incurred to date had been recognised in the Company financial statements (to be allocated appropriately once the project went live), and costs recognised on the balance sheet as at the date of pause have been reviewed to assess whether they continue to have any future economic benefit in relation to the implementation going forward. Following this review, an impairment of £13.7m has been recognised with no remaining asset value carried forward. An onerous contract provision of £9.6m has also been recognised in relation to future contracted licence fees which the Company believes have no future economic benefit. Both these items involved significant management judgement in terms of the level of future economic benefit to be derived in relation to the future project. 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. 222 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 Company 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 £267.6m (2019: £376.8m) after an impairment loss recognised in 2020 of £109.3m (2019: £66.8m). Of the £267.6m net book value at 31 December 2020, £263.7m 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 2020, 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 2020 the Company has recognised amounts owed by subsidiary undertakings of £402.5m (2019: £537.0m). The Company 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 £193.9m has been recognised at 31 December 2020 (2019: £190.6m) 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 2020 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 2020 on the basis that the realisation of their future economic benefit is uncertain. 223 Stock code: SHI www.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 2020 of £164.6m (2019: £259.8m loss). The Auditor's remuneration for audit services to the Company was £0.6m (2019: £0.6m). 2. Share-based payments The Company had four share-based payment schemes in existence during the year ended 31 December 2020. The Company recognised a total credit to equity of £0.2m (2019: credit of £0.2m) 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 Consolidated Financial Statements on pages 165 to 167. 3. Dividends No interim dividend was paid during 2020 (2019: 1.25p per ordinary share). The Directors are not proposing a final dividend for the year ended 31 December 2020 (2019: no dividend). Total dividends paid during the year was £nil (2019: £22.2m). No dividends have been paid between 31 December 2020 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 2020 £m 11.2 1.1 – 0.3 12.6 2019 £m 5.3 1.0 (0.2) 0.3 6.4 2020 Number 69 2019 Number 56 2020 £m 650.8 0.1 650.9 274.0 109.3 383.3 267.6 376.8 2019 £m 650.4 0.4 650.8 207.2 66.8 274.0 376.8 443.2 Details of the Company's subsidiaries are shown on pages 232 and 233. The £0.1m (2019: £0.4m) addition of investments in the year relates to the share based payment charge settled by SIG plc but relating to other subsidiary companies. Of the £267.6m (2019: £376.8m) investment net book value, £263.7m (2019: £370.0m) relates to SIG Trading Limited, the largest UK trading subsidiary. At 31 December 2020, 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 £106.3m has been recognised. £3.0m impairment has also been recognised in relation to the Company's investment in Freeman Group Limited following the settlement of intercompany balances and distribution of remaining reserves during the year. A more detailed sensitivity analysis of the Group's significant CGUs is given in Note 13 of the Consolidated Financial Statements. 224 SIG plc Annual Report and Accounts for the year ended 31 December 20206. Tangible fixed assets The movement in the year was as follows: Cost At 1 January 2019 Reclassifications At 31 December 2019 and 2020 Depreciation At 1 January 2019 Reclassifications Charge for the year At 31 December 2019 Charge for the year At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 Freehold land and buildings £m Leasehold improvements £m Plant and machinery £m Total £m 0.1 – 0.1 0.1 – – 0.1 – 0.1 – – 0.5 – 0.5 – – 0.1 0.1 0.1 0.2 0.3 0.4 3.1 (2.5) 0.6 0.7 (0.1) – 0.6 – 0.6 – – 3.7 (2.5) 1.2 0.8 (0.1) 0.1 0.8 0.1 0.9 0.3 0.4 In 2019 software costs previously included within plant and machinery with cost of £2.5m and accumulated depreciation of £0.1m at 31 December 2018 were 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 2019 Reclassifications (Note 6) Additions At 31 December 2019 Additions Disposals At 31 December 2020 Depreciation At 1 January 2019 Reclassifications (Note 6) Charge for the year At 31 December 2019 Charge for the year Disposals Impairment At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 Computer software £m – 2.5 10.0 12.5 5.1 (2.3) 15.3 – 0.1 0.8 0.9 0.9 (1.3) 13.8 14.3 1.0 11.6 Total £m – 2.5 10.0 12.5 5.1 (2.3) 15.3 – 0.1 0.8 0.9 0.9 (1.3) 13.8 14.3 1.0 11.6 Included within computer software additions are assets in the course of construction of £nil (2019: £9.4m). The impairment charge in relation to software relates mainly to the impairment of SAP implementation costs following the period of pause and change in scope of the project. 225 Stock code: SHI www.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 Derivative financial instruments Debtors - due after more than one year Total 31 December 2020 £m 402.5 – – 3.2 405.7 – – 405.7 31 December 2019 £m 537.0 0.9 0.4 1.0 539.3 1.7 1.7 541.0 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 £193.9m (2019: £190.6m) has been recognised at 31 December 2020 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 Total 31 December 2020 £m 0.2 – – – 219.3 0.5 15.6 235.6 31 December 2019 £m 0.2 175.5 99.5 12.7 218.4 0.2 26.6 533.1 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 were classified as a current liability at 31 December 2019. The terms of the private placement notes were amended on 19 June 2020 and have been classified in accordance with the revised terms at 31 December 2020. See Note 10 for further details. On 18 June 2020 the Group amended the terms of its financing arrangements. The bank loan balance at 31 December 2019 related to the amount drawn under the Revolving Credit Facility ('RCF'). As part of the amendments to the financing arrangements the amount drawn on the RCF on 18 June 2020 of £70.0m was converted into a term facility due for repayment on 31 May 2023 and a working capital facility of £25.0m. The £70.0m term facility is included within non-current liabilities (see Note 10). The amount drawn under the working capital facility at 31 December 2020 is £nil. Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and 4.0%. 226 SIG plc Annual Report and Accounts for the year ended 31 December 202010. Creditors: amounts falling due after one year Lease liabilities Private placement notes Bank loans Derivative financial instruments Total 31 December 2020 £m 1.4 144.5 67.7 0.3 213.9 31 December 2019 £m 1.6 – – 1.9 3.5 Amounts owed to subsidiary undertakings are measured at amortised cost, are unsecured and bear interest at rates between 0.0% and 4.0%. Bank loan As part of the amendments to the financing arrangements on 18 June 2020, the amount drawn on the RCF at that date of £70.0m was converted into a term facility due for repayment on 31 May 2023 and a working capital facility of £25.0m. The £70.0m term facility is included within non-current liabilities above, net of arrangement fees paid (of which £2.3m remains unamortised at 31 December 2020). This has been accounted for as an extinguishment of the previous facility and new arrangement, therefore arrangement fees which were being amortised over the term of the previous facility have been written off. Private Placement Notes On 18 June 2020 the Group concluded changes to its agreements with existing private placement notes holders with the following key changes: ■ Repayment of €30m of notes previously due on 31 October 2020 and €20m of notes previously due on 31 October 2021 deferred to 31 May 2023; ■ £48.9m repaid on completion of the Group’s equity raise in July 2020, split across each of the individual notes on a pro-rata basis; ■ holders of the existing 2023 notes (due 31 October 2023) and 2026 notes (due 12 August 2026) granted a put option for those notes to be redeemed on 31 May 2023 at a price equal to 100% of the aggregate outstanding principal together with a make-whole amount calculated as specified in the agreement; ■ additional fee of 2% per annum to be paid on the outstanding principal; and ■ financial covenants were reset. The loan notes have been considered separately to determine whether the changes should be accounted for as a modification of the existing arrangement or as an extinguishment and refinancing. The Group has concluded that each loan note meets the criteria to be accounted for as a modification. Previous arrangement fees therefore continue to be amortised over the remaining term (£0.3m at the date of modification) together with arrangement fees incurred in relation to the new agreement (£1.9m). A loss on modification of £11.3m has also been recognised, reflecting the difference in the present value of the future cash flows discounted at each loan note's original EIR. This has been recognised within finance costs. This will unwind over the remaining term of the loan notes, resulting in the finance cost recognised in future periods being lower than the actual amounts paid. At 31 December 2019 the private placement notes were reclassified as a current liability on the balance sheet because the covenant test of consolidated net worth at 31 December 2019 was below the threshold of £400m (see Note 35 of the Consolidated Financial Statements) and therefore at the balance sheet date the Group did not have an unconditional right to defer settlement of the liability for at least 12 months. The contractual repayment profile (before applying associated derivative financial instruments and prepaid arrangement fees) under both the current and previous arrangements are shown below: Repayable in 2020 Repayable in 2021 Repayable in 2023 Repayable in 2026* Total 31 December 2020 31 December 2019 Fixed interest rate % – – 6.2 5.3 5.6 £m – – 66.2 70.0 136.2 Fixed interest rate % 3.7 3.9 4.2 3.3 3.6 £m 25.4 16.9 42.3 91.2 175.8 * If the lenders exercise the put option as referred to above, this amount will become due and payable in 2023 227 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Company Financial Statements 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 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 Depreciation expense At 31 December 2020 Set out below is the carrying amount of the lease liability and the movement during the year: On adoption at 1 January 2019 Accretion of interest Payments At 31 December 2019 Accretion of interest Payments At 31 December 2020 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 Buildings £m 1.8 (0.2) 1.6 (0.2) 1.4 Total £m 1.8 (0.2) 1.6 (0.2) 1.4 Total £m 2.0 0.1 (0.3) 1.8 0.1 (0.3) 1.6 31 December 2020 £m 0.2 1.4 1.6 31 December 2019 £m 0.2 1.6 1.8 2020 £m 0.2 0.1 0.3 2019 £m 0.2 0.1 0.3 The Company had total cash outflows for leases of £0.3m in 2020 (2019: £0.3m). The Company had no non-cash additions to right-of-use assets and lease liabilities in 2020 (2019: none). There are no future cash outflows relating to leases that have not yet commenced in 2020 (2019: none). 228 SIG plc Annual Report and Accounts for the year ended 31 December 202012. Provisions At 1 January 2019 Released Utilised At 31 December 2019 New provisions At 31 December 2020 Amounts falling due within one year Amounts falling due after one year Total Warranty claims Dilapidations £m 0.4 – (0.2) 0.2 – 0.2 £m 0.2 (0.2) – – – – Onerous contracts £m – – – – 10.3 10.3 Total £m 0.6 (0.2) (0.2) 0.2 10.3 10.5 31 December 2020 £m 4.3 6.2 10.5 31 December 2019 £m – 0.2 0.2 The transfer of economic benefit in respect of the dilapidations provision is expected to be made on expiry of the lease in seven years time. The onerous contract provisions relate to licence fee commitments where no future economic benefit is expected to be obtained, principally in relation to the SAP 1HANA implementation following the change in scope of the project. The costs will be incurred over the next three years. 13. Deferred tax Deferred tax assets 31 December 2020 £m – 31 December 2019 £m – 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 2019 Credit to income At 31 December 2019 Charge to income At 31 December 2020 Losses £m 0.1 (0.1) – – – Other £m 0.3 (0.3) – – – Total £m 0.4 (0.4) – – – Deferred tax has not been recognised on £2.7m of trading losses and deductible temporary differences relating to property, plant and equipment. This is 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 overseas subsidiaries. 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. 229 Stock code: SHI www.sigplc.comFINANCIALSNotes to the Company Financial Statements 14. Capital and Reserves Called up share capital Share premium account Treasury shares reserve Merger reserve Capital redemption reserve Share option reserve Exchange reserve Cash flow hedging reserve Cost of hedging reserve Retained profits Total reserves The movements in reserves during the year were as follows: At 1 January 2019 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 Loss for the year Dividends At 31 December 2019 Issue of share capital Credit to share option reserve Transfer of unallocated treasury shares Fair value movement on cash flow hedges Transfer to profit and loss on cash flow hedges Loss for the year At 31 December 2020 Called up share capital £m 59.2 – – – – Share premium account £m 447.3 – – – – Treasury shares reserve £m – – – – – – – – – – 59.2 59.0 – – – – – – 447.3 0.4 – – – – – 118.2 – – 447.7 – – – – – – – (0.2) – – – (0.2) Merger reserve £m 21.7 – – – (10.2) – – – – 11.5 92.5 – – – – – 104.0 Share option reserve £m 1.7 0.1 – – – Cash flow hedging reserve £m – – – 1.3 – – – – – 1.8 – 0.2 – – – – 2.0 1.3 0.9 – – 3.5 – – – (0.7) (0.7) – 2.1 31 December 2020 £m 31 December 2019 £m 118.2 447.7 (0.2) 104.0 0.3 2.0 (0.2) 2.1 0.1 (284.0) 390.0 Cost of hedging reserve £m – – – 0.8 – (0.9) – – – (0.1) – – – 0.2 – – 0.1 59.2 447.3 – 11.5 0.3 1.8 (0.2) 3.5 (0.1) (119.6) 403.7 Retained profits £m 154.3 – – (2.1) 10.2 – – (259.8) (22.2) (119.6) – – 0.2 – – (164.6) (284.0) 230 SIG plc Annual Report and Accounts for the year ended 31 December 202014. Capital and Reserves continued There was no movement in the capital redemption reserve and exchange reserve in the year. During 2020 the Company allotted no shares (2019: no shares) from the exercise of share options. Amounts were reclassified during the prior year to clarify the effects of hedging between retained (losses)/profits, the cash flow hedging reserve and cost of hedging reserve. The treasury shares reserve relate to shares purchased by the SIG Employee Share Trust to satisfy awards made under the Group’s share plans which are not vested and beneficially owned by employees. Shares have become unallocated during the year and have therefore been transferred to the treasury share reserve. At 31 December 2020 the Company has negative distributable reserves of £217.1m. This means that the Company is currently unable to pay a dividend or make any other distribution to shareholders. A resolution will be put to shareholders at the AGM to approve the cancellation of the Company’s share premium account in order to eliminate these losses and to create reserves available for distribution. Under the terms of the Group’s borrowing arrangements, the payment of dividends is also subject to a number of conditions, including that at the relevant time the Group’s leverage is less than 2.25x (including on a look-forward basis). Additionally, even where such conditions are satisfied, any interim dividend for 2021 is limited to £3.0m. Details of the Company’s share capital and the equity raise during the year can be found in Note 26 of the Consolidated Financial Statements. Movements in the share premium account and merger reserve are related to the equity raise as also explained in Note 26. 15. Guarantees and other financial commitments a) Guarantees At 31 December 2020 the Company had provided guarantees of £nil (2019: £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 £5.0m (2019: £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 107 to 133. In addition, the Company recognised a share-based payment charge under IFRS 2 of £nil (2019: £0.1m) with a credit to the share option reserve of £nil (2019: £0.2m). 231 Stock code: SHI www.sigplc.comFINANCIALSGroup Companies 2020 This note provides a full list of the related undertakings of SIG plc in line with Companies Act requirements. In accordance with Section 409 of the Companies Act 2006 a full list of related undertakings, the country of incorporation, registered office address and the effective percentage of equity owned, as at 31 December 2020 is disclosed below. Unless otherwise stated, the share capital disclosed comprises ordinary or common shares which are held by subsidiaries of SIG plc. Fully owned subsidiaries (United Kingdom) A. M. Proos & Sons 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) 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) Ceilings Distribution Limited (England) (i) (ii) Cheshire Roofing Supplies 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) C.M.S. 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) Davies & Tate plc (England) (ii) Drainex Limited (England) (ii) (viii) 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) >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) Metechno Limited (England) Ockwells Limited (England) (ii) (vii) 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) Penkridge Holdings Limited (England) (ii) Plastic Pipe Supplies Limited (England) (ii) Polytech Systems Limited (England) (ii) (xvii) Pre-Pour Services Limited (England) (ii) (xv) Rinus International 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 Building Solutions Limited (England) (ii) SIG Building Systems Limited (England) SIG Digital Limited (England) 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 Three Limited (England) (i) (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 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 Trading Limited (England) (i) Solent Insulation Supplies Limited (England) (ii) South Coast Roofing Supplies 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) Thomas Smith (Roofing Centres) Limited (England) (ii) Tolway East Limited (England) (ii) Tolway Fixings Limited (England) (ii) Tolway Holdings 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) W.W. Fixings Limited (England) (ii) (xvi) 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) 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) Fully owned limited partnership + The 2018 SIG Scottish Limited Partnership (Scotland) (xxi) 232 SIG plc Annual Report and Accounts for the year ended 31 December 2020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) Asimex Klimaattechniek B.V. (The Netherlands) - Leeghwaterstraat 12, 3316 EC Dordrecht, The Netherlands – merged with Interland Teknik Gate Pizzaras SL (Spain) – Ponferrada, Villamartin Leon, Spain 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 Isolatec b.v.b.a. (Belgium) – Scheepvaartkaai 5, Hasselt 3500, Belgium 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 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 Project Galilee (Jersey) Limited (Jersey) = 47 Esplanade, St Helier, Jersey JE1 0BD SIG Aftbouwspecialist B.V. (The Netherlands) Het Sterrenbeeld 52, 5215 ML ‘s-Hertogenbosch, The Netherlands 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 WeGo Systembaustoffe GmbH (Germany) - Maybachstrasse 14, 63456 Hanau-Steinheim, Germany Notes (i) (ii) (iii) Directly owned by SIG plc Dormant company Ownership held in cumulative preference shares Ownership held in ordinary shares and 12% cumulative redeemable preference shares Ownership held in ordinary shares and preference shares (iv) (v) (vi) Ownership held in ordinary shares and (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) 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 (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) 233 Stock code: SHI www.sigplc.comFINANCIALS Company information Life President Sir Norman Adsetts OBE, MA Registrars and transfer office Computershare Investor Services PLC Secretary Kulbinder Dosanjh Registered number Registered in England 0099814 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 The Pavilions Bridgwater Road Bristol BS13 8AE Auditor Ernst & Young LLP 1 More London Place London SE1 2AF Solicitors Allen & Overy LLP 1 Bishops Square London E1 6AD 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 234 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 2020 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 13 May 2021 Interim Results 2021 September 2021 Full Year Results 2021 March 2022 Annual Report and Financial Statements 2021 posted to shareholders March/April 2022 Final Dividend payment for 2020 n/a Shareholder analysis at 31 December 2020 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 603 649 174 223 54 34 33 81 1,851 Number of Ordinary Shares % 243,452 32.58 1,484,962 35.06 1,173,368 9.40 7,181,823 12.05 8,466,292 2.92 11,573,426 1.84 1.78 23,086,136 4.37 1,128,347,518 100.00 1,181,556,977 % 0.02 0.12 0.10 0.61 0.72 0.98 1.95 95.50 100.00 235 Stock code: SHI www.sigplc.comFINANCIALSShareholder notes 236 SIG plc Annual Report and Accounts for the year ended 31 December 2020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 0099814 S I G p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 2 0 S t o c k c o d e : S H I 

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