Annual Report and Accounts FOR THE YEAR ENDED 31 DECEMBER 2015 SIG plc Annual Report and Accounts for the year ended 31 December 2015 STRONGER TOGETHER Stock code: SHI 24298.02 30 March 2016 2:38 PM PROOF1 Our strategy SIG IS A LEADING DISTRIBUTOR OF SPECIALIST BUILDING PRODUCTS IN EUROPE, WITH STRONG POSITIONS IN ITS CORE MARKETS OF INSULATION AND ENERGY MANAGEMENT, INTERIORS AND EXTERIORS. The Group plays an important role in the construction supply chain, both in the New Build, and Repairs, Maintenance and Improvement (“RMI”) sectors, with its largest markets being the UK, France and Germany, which together account for 87% of sales. Our goal is to be the leading specialist solutions provider to the construction industry CUSTOMERS OperationaL EFFICIENCY Æ Partner of choice for customers and suppliers Æ People with the right skills, ethics & pride in Æ Develop end-to-end solutions across the SIG are recognised and rewarded for high construction value chain performance Æ Leverage strength and scale of SIG through Æ Specialist with unique expertise, providing Procurement and Supply Chain innovation, differentiated services, technical Æ Resilient, scalable and repeatable IT model advice and eCommerce offering driving value for the business Æ Zero harm for employees and customers GROWTH FINANCIALS Æ Focus on synergistic specialist construction Æ Focus on gross margin, quality of earnings markets of Insulation and Energy Management, and cash flow Interiors and Exteriors in existing territories Æ Strong balance sheet Æ Balanced portfolio of Residential / Non- Æ Continuously increase ROCE residential and RMI / New Build Æ ROCE as the primary financial hurdle for Æ Balanced mix of organic growth and infill investment decisions acquisitions Æ Develop value added sales offering, particularly Air Handling and Offsite Construction Read about our Strategic Priorities from page 13 www.sigplc.com Stock code: SHI 24298.02 30 March 2016 2:38 PM PROOF1 Highlights STRATEGIC REPORT WHAT’S IN OUR REPORT STRATEGIC REPORT 02 SIG at a glance 04 Our marketplace 06 Chairman’s Statement £78.1m 07 Chief Executive’s Statement Group sales 10 Business model Expenditure on 12 Our Strategic Pillars UP 3.7% infill acquisitions 13 Our Strategic Priorities in constant currency 18 Our KPIs 20 Principal Risks and Uncertainties 24 Our performance 30 Financial Review 37 Treasury risk management 41 Corporate Responsibility GOVERNANCE Reshaping Encouraging 56 Board of Directors 58 Introduction to Governance of supply growth in value 59 Corporate Governance chain underway added businesses 72 Audit Committee Report 78 Nominations Committee Report 80 Directors’ Remuneration Report 99 Directors’ Responsibility Statement FINANCIALS 102 Consolidated Income Statement Consolidated Statement of 103 Comprehensive Income Incremental 104 Consolidated Balance Sheet net benefit of 105 Consolidated Cash Flow Statement Consolidated Statement of 106 Changes in Equity £12.6m 107 Statement of Significant Accounting from Strategic Initiatives Policies Critical Accounting Judgments 114 and Key Sources of Estimation Uncertainty Navigating this report Visit us online 115 Notes to the Accounts For further information within For more information on SIG this document and relevant plc’s operations please visit our 153 Independent Auditor’s Report page numbers website at www.sigplc.com 158 Five-Year Summary Company Statement of 160 Comprehensive Income 161 Company Balance Sheet Company Statement of Changes 162 in Equity Company Statement of Significant 163 Accounting Policies 165 Notes to the Company Accounts 170 Group Companies 2015 173 Company information SIG plc Annual Report and Accounts for the year ended 31 December 2015 01 24298.02 30 March 2016 2:38 PM PROOF1 SIG at a glance Our product and service areas IU NS LATION and ENERGY management EX TERIORS INTERIORS 45% 31% 24% OF GROUP REVENUE OF GROUP REVENUE OF GROUP REVENUE £1,158m £792m £616m (2014: £1,195m) (2014: £808m) (2014: £600m) SIG is the largest supplier of insulation products in Europe. The Group is the market leader in the UK, Ireland, Germany and Poland and the SIG is a leading supplier leader in technical insulation SIG is the largest and only of interior fit out products in France. SIG is also the national specialist supplier in Europe. It is the market largest pure-play specialist of roofing products in the leader in the UK and distributor of air handling UK and the largest specialist Germany, and the leading products in Europe. supplier in France. specialist in France. N UMBER of N UMBER of N UMBER of TRADING sites 280 TRADING sites 326 TRADING sites 187 (of which 109 also supply interior fit out products) (of which 109 also supply insulation products) KEY PRODUCTS KEY PRODUCTS KEY PRODUCTS Æ Structural insulation Æ Tiles, slates, membranes and Æ Dry lining Æ Technical insulation battens for pitched roofs Æ Ceiling tiles and grids Æ Dry lining Æ Single-ply flat oofingr systems Æ Doorsets Æ Construction accessories Æ Plastic building products including Æ Partition walls fascias, soffits and guttering Æ Fixings Æ Floor coverings Æ Industrial roofing and Æ Air handling systems Æ Washrooms cladding systems Æ Insulated panels and modular Æ Room-in-roof panel systems housing systems For a detailed list go to For a detailed list go to For a detailed list go to www.siginsulation.co.uk www.sigroofing.co.uk www.siginteriors.co.uk 02 www.sigplc.com Stock code: SHI 24298.02 30 March 2016 2:38 PM PROOF1 STRATEGIC REPORT Our locations REVENUE BRANCHES £2.6bn 684 TOTAL GROUP UK & IRELAND MAINLAND EUROPE REVENUE £1.2bn BRANCHES 359 UK & IRELAND GERMANY FRANCE BENELUX* POLAND REVENUE REVENUE REVENUE REVENUE REVENUE £1.4bn £368m £517m £164m £104m BRANCHES BRANCHES BRANCHES BRANCHES BRANCHES 325 59 213 38 49 *includes Air Trade Centre L TION A NIC No.1 No.1 No.1 No.1 No.1 L H NSU TECA I L TION A No.1 No.3 No.2 N/A No.1 L T NSU I S RUCTURA No.1 No.1 No.1 speciaList No.1 No.1 INTERIORS L EADING No.1 N/A No.1 N/A NATIONAL speciaList speciaList speciaList T X E ERIORS SIG plc Annual Report and Accounts for the year ended 31 December 2015 03 24298.02 30 March 2016 2:38 PM PROOF1 Our marketplace 5% 5% 11% 8% 12% 16% 11% 9% 11% 29% 19% 17% 35% 50% 22% GROUP 29% REVENUE 27% 23% 53% 28% 32% 30% 31% 25% 22% 23% 11% INDUSTRIAL 50% 11% 8% 18% 43% RESIDENTIAL 29% 21% 23% 17% 15% 46% NON-RESIDENTIAL 13% 12% GROUP UK FRANCE GERMANY POLAND BENELUX IRELAND AIR HANDLING New build residential RMI residential New build non-residential RMI non-residential Industrial NON-RESIDENTIAL SECTOR This impacted the performance of the The non-residential market accounts Group’s German business, which has for 46% of Group sales and includes a high degree of exposure to the non- expenditure on: residential sector, with 60% of sales being derived from this market. Æ Commercial buildings The outlook for 2016 is more positive, Æ Retail developments and with Euroconstruct forecasting growth warehouses rates of 3.2% in France and 1.2% in Æ Education, hospitals and leisure Germany. This is based on improved complexes macroeconomic lead indicators and a reduction in government austerity United Kingdom measures. In 2015 the non-residential sector in the UK was broadly flat compared to RESIDENTIAL SECTOR prior year, mainly due to weakness in The residential market accounts for The UK RMI market was weaker the retail and entertainment sectors. 43% of Group sales and includes than anticipated, particularly in the third quarter, most probably due to Growth is expected to return in 2016, private and public sector expenditure a lagged effect from a slowdown driven by stronger output in the new on houses and apartments. in mortgage lending and property build commercial market, the largest United Kingdom transactions in the second half of component of the non-residential The UK new build residential sector 2014. sector. For example, office vacancy performed well during 2015, led by rates in London are now at a 14 year In 2016 the Group expects the private strong growth in the private housing low. new build housing market to continue market, which increased by 7% to exhibit strong growth, albeit likely For 2016 the Construction Products compared to prior year. at a lower rate than in 2015. Association (“CPA”) is forecasting This was driven by growth in the growth at a rate of 4.2% in the RMI housing expenditure is expected wider economy and government commercial sector and 3.2% for the to pick up later in 2016 as an policies such as Help to Buy. In UK non-residential market in total. improvement in lead indicators feeds contrast, output in the public sector through to higher activity in the Mainland Europe declined by 10% as activity was sector. The non-residential sector in SIG’s constrained by reduced grant funding major markets of operation in and near-term uncertainty over Mainland Europe Mainland Europe performed poorly the implementation of government The residential construction market in in 2015, particularly in Germany housing policies. France was challenging in 2015. where the market declined by 1.8% This weakness affected the according to Euroconstruct. performance of the Group’s French business, which has a high degree 04 www.sigplc.com Stock code: SHI 24298.02 30 March 2016 2:38 PM PROOF1 STRATEGIC REPORT 2.6 3.2 2.9 6.4 6.6 12.0 5.2 14.6 NON 3.2 TOTAL RESIDENTIAL 2.3 RESIDENTIAL MARKET FORECAST GROWTH FORECAST GROWTH 1.2 FORECAST GROWTH 1.9 2016 2.6 2016 2016 4.0 % % 3.3 % 3.6 (3.1) 4.8 6.7 5.5 0.6 UK* BELGIUM** FRANCE** THE NETHERLANDS** GERMANY** IRELAND** POLAND** of exposure to the residential sector, MARKET DRIVERS Exteriors with 61% of sales being derived from Economic growth is an important Æ Replacement of old/damaged this market.