SIG Regulatory News (SHI)

21 September 2018

SIG plc: Results for the six months ended 30 June 2018

Transformational plans well underway

SIG plc ("SIG" or "the Group"), a leading European supplier of specialist building products with strong positions in its core markets of insulation and interiors, roofing and exteriors, and air handling, today issues its results for the six months ended 30 June 2018 ("H1 2018").

Highlights

· Transformational plans well underway

· Further progress on strengthening balance sheet and portfolio refocus

· Operating costs under control and working capital beginning to fall

· Senior leadership in place, management capability and data improving

· Underlying revenue +1.0% and LFL1 sales +0.4% (H1 2017: +2.9%), reflecting challenges in UK market

· Underlying PBT (excluding one-off property profits) of £26.6m (H1 2017: £28.6m)

· Net debt down 18.8% to £176.1m, with continued progress towards leverage targets

· Interim dividend of 1.25p per share in line with 2-3x cover policy (2017: 1.25p)

· Increased visibility over delivery of significant profit improvement during H2

Commenting, Meinie Oldersma, Chief Executive Officer, said:

"Ten months into our transformation of SIG, progress is well underway and we are starting to see evidence of delivery.

Leverage has reduced, return on capital employed has increased and the refocus of our portfolio of businesses through exit or divestment is largely complete. Gross margins are improving in key businesses, operating costs are under control and working capital is beginning to fall. Our senior leadership team is in place, our management capability is improving and better data is beginning to make a difference to the quality of our decision-making.

The first half did not provide the trading backdrop we wanted, with significant challenges in the UK market as a result of the poor weather in the early months of the year and continuing macro uncertainty. This has impacted both our UK revenues and operating profit in the year to date, which are behind where we had hoped they would be at the start of the year. In contrast, the trading environment across Mainland Europe and Ireland has been positive, which is reflected in the improved first half results from our non-UK businesses.

Given the continuing challenging trading conditions in the UK, we have accelerated certain transformational workstreams and we now have increased visibility over delivery of significant profit improvement during the second half of 2018 and beyond. As a result, we remain optimistic of delivering a full year result in line with our expectations absent any further deterioration in trading conditions, notably in the UK. Whilst there remains considerable work to be done, we remain confident in our ability to deliver our transformational plans."

Analyst presentation (9am today)

A briefing to analysts will take place today at 9am at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A live webcast of the presentation will be on www.sigplc.com, a recording of which will also be available later in the day.

1. Like-for-like (LFL) is defined as sales per working day in constant currency excluding acquisitions and disposals. Sales are not adjusted for branch openings or closures. LFL sales differ from the July trading statement primarily as a result of the application of IFRS15 in these interim results.

2. Underlying operations excludes businesses sold or closed before 21 September 2018.

3. Underlying results are stated before the amortisation of acquired intangibles, impairment charges, profits on agreed sale or closure of non-core businesses and associated impairment charges, net operating losses attributable to businesses identified as non-core, net restructuring costs, acquisition expenses and contingent consideration, other specific items, unwinding of provision discounting, fair value gains and losses on derivative financial instruments, the taxation effect of other items and the effect of changes in taxation rates.

4. Alternative performance measures are referred to as "like-for-like" and "underlying". These are applied consistently throughout this document and the calculations to these are found in Note 17 and below. Details of prior period restatements are described in Note 1 and the effect on each financial line item affected is shown in Note 18.

Enquiries

Overall performance

The Group has made good progress with its transformational plans during the first half of this year. Net debt and headline financial leverage have reduced, return on capital employed has increased, and the refocus of our portfolio of businesses through exit or divestment is largely complete. Gross margins are improving in key businesses, operating costs are under control and working capital is beginning to fall.

This first half performance was delivered against a backdrop of significant challenges in the UK market as a result of the poor weather in the early months of the year and continuing macro uncertainty. This has impacted both UK revenues and operating profit in the year to date and, as a result, Group underlying profit before tax (excluding one-off property profits) fell 7.0% to £26.6m in the first half (H1 2017: £28.6m) and the return on sales reduced to 2.5% (H1 2017: 2.7%).

Despite this backdrop, further reductions in net debt helped deliver good progress in headline financial leverage, which fell to 1.8x (H1 2017: 2.3x), and supported an improvement in return on capital employed ("ROCE") to 9.2% (H1 2017: 7.8%). The Group remains on course to achieve its target of 1.0-1.5x for the year end.

On a statutory basis, the Group made a profit before tax of £19.9m in the first half of this year (H1 2017: £15.8m loss), with a significantly reduced level of Other items (£7.0m) in the period (H1 2017: £50.2m).

Subdued UK trading

Sales in the UK & Ireland declined by 2.3% on a like-for-like basis, reflecting continuing macro uncertainty in the UK and the impact of colder than usual weather in February and March. As a result, underlying operating profit in the first half of £14.2m was behind expectations and significantly behind prior year, although the 2017 comparative includes the material one-off benefit of £5.3m of property profits in that period.

The UK market has not provided a helpful backdrop so far this year. While new housing starts continue to grow, the commercial new build market has slowed significantly in the past twelve months and demand in the residential repair, maintenance and improvement market ("RMI") remains weak, reflecting subdued levels of secondary housing market transactions. This was reflected in the period in the weaker profit performance of SIG Exteriors (operating profit of £5.7m, down 69%) and a slower profit recovery than anticipated in SIG Distribution (operating profit of £5.5m, up 90%). In response, we have accelerated certain workstreams within our transformational plans in these businesses and, as a result, are expecting significant profit improvement in the second half of 2018 and beyond.

Performance in Ireland was stronger, with LFL sales up 9.7% and operating profit up 25.0% to £3.0m, benefiting from favourable conditions in the Irish construction market.

Improved European performance

The Group's Mainland Europe businesses continued to perform well, with LFL revenues increasing by 2.8% for the period. Underlying revenues increased by 3.8% to £736.1m (H1 2017: £709.3m), with margins increasing by 10bps to 27.6% and, as a result, underlying operating profit increased by 10.7% to £27.0m (H1 2017: £24.4m).

The Group's businesses in Air Handling and Poland performed particularly strongly, generating increases in operating profit to £7.7m (up 31%) and £0.3m (up 200%) respectively. The Polish construction market is exhibiting strong growth and the air handling market continues to outperform the wider construction sector due to continuing strong demand drivers, including higher energy efficiency and air quality standards.

SIG Germany and SIG France delivered solid performances, with operating profit of £3.3m (up 3%) and £13.1m (up 6%) respectively. Pleasingly, both businesses showed improvement at a gross margin level as initiatives introduced to optimise pricing began to have an impact. SIG Benelux showed good growth in like-for-like sales, but at the expense of product mix and margin, resulting in operating profit down 19% to £2.6m. Across the Group's Mainland European businesses, our planned operational improvements are on track.

As we move into the second half, we have continued to see trading confidence across our European markets, although there are some early indicators that conditions in the French construction market may be softening. We will continue to monitor developing trends closely and take appropriate actions as necessary.

Delivering the transformation

Ten months ago, the Group set out the conclusions of its strategic review which identified the considerable opportunity for significant improvement in the operational and financial performance of each major operating company and across the Group as a whole. The Group has made good progress with the execution of these transformational plans during the first half of 2018.

The strategic review identified that improvement would come from focused delivery of three strategic levers around customer service, customer value and operational efficiency. The Group set out key indicators that would provide early evidence of progress, including improving gross margins, reduced operating costs, lower working capital, reduced debt and leverage and ongoing portfolio management. Despite a challenging market backdrop in the UK, 2018 has seen encouraging progress in each of these areas.

There is some early evidence that the Group is able to improve its gross margin through smarter management of pricing. Gross margins have increased in the Mainland European businesses during the period, helped by the favourable market conditions, but also through specific initiatives most notably in the French roofing business, Larivière, leading to gross margins in France being some 50bps ahead of H1 2017. Gross margins have been under more pressure in the UK, reflecting subdued market conditions, but selective price rises applied in SIG Distribution towards the end of the period are translating into higher gross margins in the early part of the second half and this will help support a significantly higher profit level in the UK business in H2.

Operating costs have increased as a percentage of sales in the period largely as a result of the low sales growth associated with the weak UK market conditions. However, following a rapid rise in costs in 2016 and early 2017, operating costs have begun to fall in recent months. Group functions have been significantly scaled back, management layers have been removed, including the UK & Ireland executive management team, and back office costs have been reduced in the UK and German businesses. As a result of these savings and disposals of businesses, headcount has fallen from 10,383 at the beginning of 2017 to 8,892 at 30 June 2018. The business is already implementing further actions in the UK to reduce costs and enhance customer service, including a review of sales force effectiveness in SIG Distribution and optimisation of the fleet and branch network in SIG Exteriors. These actions and others already underway are expected to reduce headcount by a further 533 by the end of the year, supporting a significantly improved profit performance in the second half of 2018 and beyond.

Working capital is beginning to respond to actions to reduce the level of stock, which fell in the first half of the year to £228.2m (H1 2017: £258.7m), as management implemented tighter controls around the purchase of stock and re-oriented performance management mechanisms to incentivise lower levels of working capital.

The Group has made good progress in relation to the key enablers necessary for delivery of its transformational plans around data, IT and capability. In relation to data, the Group now has visibility of sales and gross margin at a Group and branch level on a daily basis and this is starting to influence decision-making, particularly in relation to pricing. The next steps are to extend daily reporting to include branch stock levels, which the Group hopes to achieve over the remainder of this year, and to embed and leverage this improved data as a basis for performance management into 2019.

From a capability perspective, the Group has now largely completed the necessary changes at leadership level in the organisation and the senior leadership team is in place. The challenge now is to leverage this improved capability to drive and deliver structural and cultural change across the organisation, in support of improved operational and financial performance.

History highlights the significant challenge in achieving lasting change across the Group and there remains considerable work to be done to deliver the planned transformation. Nevertheless, early evidence suggests that the Group is on the right track and we remain confident in our ability to deliver our transformational plans.

Portfolio refocus largely complete

The Group has made further progress with the rationalisation of its breadth of activities during the period. In particular, the Group has completed the disposal of Building Systems Limited ("Building Systems"), GRM Insulation Solutions ("GRM"), IBSL and VJ Technology generating cash proceeds of £29.8m and an overall profit on disposal in the half year of £5.9m, as well as closing SIG Cut Solutions, the Group's German insulation conversion business. The total number of businesses divested or exited since 2016 now represents 10% of the statutory revenues reported in the Group's 2016 results.

A reconciliation of underlying revenue to statutory revenue for H1 2018 as a result of these portfolio changes is set out below, with the impact on the 2017 comparatives detailed later in this statement.

Note: Review of Middle East operations leading to closure announced in July 2017

Further progress delivered on leverage

Following the year ended 31 December 2016, management made leverage reduction a key priority and initiated actions in 2017 to strengthen the balance sheet and reduce headline financial leverage, including asset disposals, debt factoring and a tighter control over cash, coupled with some short term working capital improvements and temporary constraints over capital expenditure. This delivered some reduction in net debt during that year.

Management has continued to pursue debt reduction during H1 2018, including an increase in the level of debt factoring to £60.3m and notably the disposal of VJ Technology for consideration of £29.7m, which completed on 29 June 2018. In addition, some of the actions targeting longer term structural reductions in working capital in the business have begun to deliver, with levels of stock reducing and a proportion of supplier rebate schemes renegotiated from annual to shorter periods or netting arrangements.

In the first half of the year, this enabled the Group to reduce net debt to £176.1m and headline financial leverage to 1.8x. As a result, the Group remains on course to deliver headline financial leverage of 1.0-1.5x during 2018 and continues to target leverage below 1.0x over the medium term.

* Cash inflow from trading before the impact of Other items for the half year ended 30 June 2018 was £45.8m (2017: £48.9m).

Dividend

SIG is declaring an interim dividend for 2018 of 1.25p (H1 2017: 1.25p). The interim dividend will be paid on 9 November 2018 to shareholders on the register at close of business on 5 October 2018. The ex-dividend date is 4 October 2018.

Current trading and outlook

The first half did not provide the trading backdrop we wanted, with significant challenges in the UK market as a result of the poor weather in the early months of the year and continuing macro uncertainty. This has impacted both our UK revenues and operating profit in the year to date, which are behind where we had hoped they would be at the start of the year. In contrast, the trading environment across Mainland Europe and Ireland has been positive, which is reflected in the improved first half results from our non-UK businesses.

Given the continuing challenging trading conditions in the UK, we have accelerated certain transformational workstreams and we now have increased visibility over the delivery of significant profit improvement during the second half of 2018 and beyond. As a result, we remain optimistic of delivering a full year result in line with our expectations absent any further deterioration in trading conditions, notably in the UK. Whilst there remains considerable work to be done, we remain confident in our ability to deliver our transformational plans.

Revenue and gross margin

Group revenue from underlying operations increased 1.0% to £1,360.7m (H1 2017: £1,347.1m), benefiting from foreign exchange translation (+1.4%) offset by fewer working days (-0.8%). As a result, LFL sales for the first half of the year were slightly ahead by 0.4%. On a statutory basis, Group revenue was down 4.0% to £1,381.7m (H1 2017: £1,439.2m).

In the UK & Ireland, revenue from underlying operations fell by 2.1% to £624.6m (H1 2017: £637.8m) with growth in Ireland offset by declines in the UK. LFL sales decreased 2.3%. In Mainland Europe, revenue increased 3.8% to £736.1m (H1 2017: £709.3m), benefiting from foreign exchange translation (+2.5%) offset by fewer working days (-1.5%). LFL sales increased 2.8%.

Underlying operations exclude the results from the businesses divested in order to provide a better understanding of the underlying earnings of the Group. These divested businesses reported a combined operating profit of £1.0m in the period (H1 2017: £6.4m loss) on sales of £21.0m (H1 2017: £92.1m).

The Group's underlying gross margin remained consistent at 26.4% (H1 2017: 26.5%), with a 50bps decrease in UK & Ireland to 25.0% (H1 2017: 25.5%) and a 10bps increase in Mainland Europe to 27.6% (H1 2017: 27.5%). On a statutory basis, the Group's gross margin increased by 30bps to 26.5% (H1 2017: 26.2%). The decrease in gross margin in UK & Ireland is attributable to the significant challenges in the UK market, together with the adverse impact from poor weather in the early months of the year.

Operating costs and profit

Following rapid increases in the cost base in early 2017, the Group has brought operating costs under control. SIG's underlying operating costs, excluding the benefits of property profits, stabilised at £324.9m in H1 2018 (H2 2017: £325.3m), despite an adverse foreign exchange translation cost of £6.0m. The UK market weakness and its impact on sales in SIG Distribution and SIG Exteriors means that this has not yet translated into an equivalent improvement in operating costs as a percentage of sales, which rose from 23.2% in H2 2017 to 23.9% in H1 2018, but which is expected to fall sharply in the second half of the year as a result of actions already taken.

In UK & Ireland, underlying operating profit fell 40.1% to £14.2m (H1 2017: £23.7m) and the underlying operating margin declined 140bps to 2.3% (H1 2017: 3.7%). In Mainland Europe, underlying operating profit increased by 10.7% to £27.0m (H1 2017: £24.4m), including a £0.7m foreign exchange translation benefit, with the underlying operating margin increasing by 30bps to 3.7% (H1 2017: 3.4%). The Group made a statutory operating profit of £28.2m for the first half of 2018 (H1 2017: £6.8m loss).

SIG's underlying net finance costs remained consistent at £7.9m (H1 2017: £7.9m), resulting in underlying profit before tax decreasing 21.8% to £26.9m (H1 2017: £34.4m). Excluding underlying property profits, underlying profit before tax declined 7.0% to £26.6m (H1 2017: £28.6m). On a statutory basis, the Group made a profit before tax of £19.9m (H1 2017: £15.8m loss) after non-underlying items of £7.0m (H1 2017: £50.2m).

The Group's underlying tax charge for the year was £7.4m (H1 2017: £9.3m), representing an underlying effective tax rate of 27.5% (H1 2017: 27.0%). After Other items, the total tax charge decreased by £0.1m to £4.5m (H1 2017: £4.6m).

Underlying basic earnings per share from operations decreased by 1.0p to 3.2p (H1 2017: 4.2p). On a statutory basis, the Group reported basic earnings per share of 2.5p (H1 2017: 3.5p loss per share).

Return on Capital Employed

Post-tax Return on Capital Employed ("ROCE") is one of the Group's primary performance metrics and is calculated on a rolling 12 month basis as underlying operating profit less tax, divided by average net assets, plus average net debt. As at 30 June 2018, Group ROCE had improved to 9.2% (H1 2017: 7.8%).

This improvement primarily reflects reduced levels of working capital and net debt, with working capital falling from 7.6% of sales in H1 2017 to 7.1% of sales at 30 June 2018, and net debt falling from £217.0m to £176.1m.

UK & Ireland

1 Before results attributable to businesses identified as non-core.

2 Reported operating profit is shown on a segmental basis, including the operating result of the non-core businesses.

3 H1 2017 underlying operating margin included the benefit of £5.3m of property profits. Excluding property profits, SIG Exteriors generated an underlying operating margin of 6.5%, a year-on-year reduction of (340)bps

Underlying revenue in SIG Distribution, the Group's market leading specialist UK insulation and interiors distribution business, was down 1.3% to £386.3m (H1 2017: £391.4m) and 1.3% on a LFL basis. The underlying operating margin for the half year of 1.4% represents an increase on 2017 of 70bps. As a result, underlying operating profit for the half year of £5.5m reflects an increase of 89.7% on 2017 (£2.9m). On a statutory basis, after taking into account Other items, SIG Distribution reported an operating profit of £8.2m (H1 2017: operating loss £0.2m).

SIG Exteriors, the market leading and only national specialist UK roofing business, saw underlying revenues fall by 6.8% to £186.7m (H1 2017: £200.4m), and by 6.9% on a LFL basis. As a result, the business saw underlying operating profit fall by £12.7m to £5.7m (H1 2017: £18.4m). Excluding property profits recognised by the division in H1 2017 of £5.3m (restated), underlying profit for H1 2017 was £13.1m on a comparable basis.

In Ireland & Other, SIG grew underlying revenue by 12.2%, benefiting from foreign exchange translations, and by 9.7% on a LFL basis as the business continues to benefit from favourable market conditions in Ireland. This helped the business grow underlying operating profit by £0.6m to £3.0m. On a statutory basis, after taking into account Other items, Ireland & Other reported an operating profit of £2.2m (H1 2017: £17.4m loss).

Mainland Europe

1 Before results attributable to businesses identified as non-core.

2 Reported operating profit is shown on a segmental basis, including the operating result of the non-core businesses.

Revenue in France, where SIG operates three businesses (Larivière, the market leading specialist roofing business; LiTT, the leading structural insulation and interior business; and Ouest Isol/Ouest Ventil, a leading supplier of technical insulation and air handling products), increased by 1.5% to £329.2m (H1 2017: £324.3m), reflecting foreign exchange translation offset by fewer working days. On a LFL basis, sales were up by 1.1%.

The Group has continued to benefit from actions taken at LiTT to drive improved operational efficiency, which are now also being applied to the Larivière business, and as a result SIG France delivered underlying operating profit of £13.1m, up £0.7m on H1 2017, and a 20bps increase in underlying operating margin.

Underlying revenue in Germany grew by 3.5% to £208.4m (H1 2017: £201.4m) as it benefited from foreign exchange translation offset by fewer working days. LFL sales grew by 2.7%, as the Group sought to improve its performance and to reposition the business towards the higher growth segments of the German market, such as the residential sector. Underlying operating profit increased by £0.1m to £3.3m (H1 2017: £3.2m). Excluding property profits, underlying operating profit increased by 22.2% to £3.3m (H1 2017: £2.7m).

In Poland, SIG grew revenues by 13.5% to £72.2m, benefiting from strong sales performance and foreign exchange translation. LFL sales grew by 10.7%. The business delivered an underlying operating profit of £0.3m (H1 2017: £0.3m loss).

Air Handling, the largest pure-play specialist air handling distributor in Europe, grew underlying revenue by 3.4% as it delivered a LFL sales growth of 1.9%. As a result, Air Handling delivered an improved underlying operating profit performance, up £1.8m to £7.7m.

Underlying revenue in the Benelux grew by 7.8%, benefiting from foreign exchange translation offset by fewer working days, together with a strong underlying performance. LFL sales increased by 6.0%. However, adverse product mix and margin has resulted in a £0.6m decline in underlying operating profit to £2.6m (H1 2017: £3.2m).

Non-underlying items

Non-underlying items during the year amounted to £7.0m (H1 2017: £50.2m), on a pre-tax basis, and comprised:

· Amortisation of acquired intangibles of £4.4m (H1 2017: £4.7m);

· Impairment charges of £3.2m relating to the write down of software no longer utilised and impairment of Signet House as no longer occupied (H1 2017: £6.8m impairment of the UK ERP system);

· Profits on the sale or closure of non-core businesses and associated impairment charges of £5.0m (H1 2017: £32.7m loss), together with net operating profits from those businesses in H1 2018 of £1.0m (H1 2017: £6.4m loss);

· Net restructuring costs of £6.4m comprising property closure costs of £2.8m (H1 2017: £0.4m), redundancy costs of £2.1m (H1 2017: £1.3m) and restructuring consultancy costs of £1.1m (H1 2017: £nil) primarily in relation to restructuring projects in SIG Exteriors and Germany, together with supply chain review costs of £0.4m (H1 2017: £1.7m);

· Fair value gains and losses and other finance charges of £0.4m (H1 2017: £1.1m); and

· Other specific items of £1.4m (H1 2017: £5.4m) relating to the non-underlying profit of £1.2m on the disposal of property of in connection with the acquisition of the non-controlling interest of the Bulgaria Air Handling business and the movement in onerous lease provisions.

Prior period restatements

As previously reported, the Group identified a historical overstatement of profit in relation to rebates receivable from suppliers and, during the 2017 year end close procedures, the Group also identified a historical overstatement of cash and trade payables in relation to cash cut-off procedures associated with cheques issued around previous period ends. Both of these matters were included in the 2017 Annual Report and Accounts. The figures for 30 June 2017 have been restated to reflect these adjustments.

As announced in July 2018, Ernst & Young LLP was appointed as the Group's new statutory auditor. As part of the transition to the new auditors, we have reviewed certain accounting policies and judgements, resulting in a number of errors being corrected by prior year restatements to previously reported numbers. Amongst other impacts, there has been a restatement of net debt at 31 December 2017 from £223.8m to £258.7m and a resulting restatement of headline financial leverage at that date from 1.9x to 2.3x.

Full details of these prior period restatements are described in Note 1 and the effect on each financial line item affected is shown in Note 18.

Impact of non-core businesses and restatements

The revenue and profits of businesses that have been divested, closed or were under review at the period end, and which are therefore now being treated as non-underlying, are set out in the table below. The table also highlights the impact on profit and net debt of the prior year restatements, in order to derive comparatives for the underlying business.

1. Comprises the historical overstatement of profit in relation to rebates recoverable from suppliers and the historical overstatement of cash and trade payables as previously included in the 2017 Annual Report and Accounts

2. Comprises the prior period restatements identified as part of the review of the accounting treatment of certain opening balances following the appointment of the Group's new statutory auditor as set out in this Interim Report.

Responsibility Statement

We confirm to the best of our knowledge that:

(a) the condensed interim set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

(b) the Interim Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Meinie Oldersma Nick Maddock

Director Director

20 September 2018 20 September 2018

Cautionary Statement

This Interim Report is prepared for and addressed only to the Company's Shareholders as a whole and to no other person. The Company, its Directors, employees, agents or advisors do not accept or assume responsibility to any other person to whom this Interim Report is shown or into whose hands it may come and such responsibility or liability is expressly disclaimed.

This Interim Report contains 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 Interim 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, market conditions, competitors and margin management, commercial relationships, fluctuations in product pricing, changes in foreign exchange and interest rates, government legislation, availability of funding, working capital and cash management, IT infrastructure and cybersecurity and availability and quality of key resources.

The Company's Shareholders are cautioned not to place undue reliance on the forward-looking statements. This Interim Report has not been audited or otherwise independently verified. The information contained in this Interim 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 Interim Report during the financial year ahead.

^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated. The Group has also applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See Note 1.

The results for the six months ended 30 June 2017 and twelve months ended 31 December 2017 have been restated as set out in Note 1 and Note 18.

^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated. The Group has also applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See Note 1.

The Condensed Consolidated Balance Sheet at 30 June 2017 and 31 December 2017 has been restated as set out in Note 1 and Note 18.

^ The Group has initially applied IFRS 15 "Revenue from contracts with customers" using the modified retrospective method. Under this method, the comparative information is not restated. The Group has also applied IFRS 9 "Financial instruments" retrospectively but without restating comparative information. See Note 1.

The results for the six months ended 30 June 2017 and the year ended 31 December 2017 have been restated as set out in Note 1 and Note 18.

Notes to the Condensed Interim Financial Statements

1. Basis of preparation of Condensed Interim Financial Statements

The Condensed Interim Financial Statements were approved by the Board of Directors on 20 September 2018.

The Condensed Interim Financial Statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The interim results to 30 June 2018 and 30 June 2017 have been subject to an Interim Review in accordance with ISRE 2410 by the Company's Auditor. The financial information for the full preceding year is based on the audited statutory accounts for the financial year ended 31 December 2017 prepared in accordance with IFRS as adopted by the European Union. Those accounts, upon which the Auditor issued an unqualified opinion, have been delivered to the Registrar of Companies. The Auditor's Report did not draw attention to any matters by way of emphasis and contained no statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

The Group's Condensed Interim Financial Statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and the accounting policies included in the Annual Report and Accounts for the year ended 31 December 2017, which have been applied consistently throughout the current and preceding periods with the exception of new standards adopted in the current period (see below).

The areas of critical accounting judgements and key sources of estimation uncertainty set out on page 112 to 113 of the 2017 Annual Report and Accounts are considered to continue and be consistently applied.

All results are from continuing operations under International Accounting Standards as the businesses classified as non-core in 2018 and 2017 did not meet the disclosure criteria of being discontinued operations as they did not individually or in aggregate represent a separate major line of business or geographical area of operation. In order to give an indication of the underlying earnings of the Group, the results of these businesses have been included within Other items in the Condensed Consolidated Income Statement. The comparatives for the period ended 30 June 2017 have been re-analysed to present net operating losses of £1.2m attributable to businesses classified as non-core in the second half of 2017 or the first half of 2018 within Other items. The comparatives for the year end 31 December 2017 have also been re-analysed to present net operating profits of £5.0m attributable to businesses identified as non-core in the first half of 2018 within Other items.

Prior year adjustments announced in 2017 Annual Report and Accounts

Within SIG Distribution, the core insulation and interiors business in the UK, the Group identified a historical restatement of profit due to overstatement of balances recognised in relation to rebates receivable from suppliers as announced in January 2018 and included in the 2017 Annual Report and Accounts. During the 2017 year end close procedures the Group also identified a historical overstatement of cash and trade payables in relation to cash cut-off procedures associated with cheques issued around previous period ends.

The years ended 31 December 2016 and 31 December 2015 were restated in the 2017 Annual Report and Accounts. Further details are set out on Pages 73 and 105 of the Group Annual Report and Accounts.

The Consolidated Income Statement for the period ended 30 June 2017, and the Consolidated Balance Sheet at that date, has been restated within Interim Financial Statements. Full details of this restatement and the effect on each financial line item affected are shown in Note 18.

Prior year adjustments announced in this Interim Report

As part of the transition to new auditors, the Group has reviewed certain accounting policies and judgements, resulting in a number of errors being corrected by prior year restatements to previously reported numbers. A summary of the changes made is provided below. These have been restated in this Interim Report and full details of the effect on each financial line item affected are shown in Note 18.

i) Definition of net debt

The Group's definition of net debt as included in the 2017 Annual Report and Accounts includes the following: Derivative financial instruments (assets and liabilities), deferred consideration assets, other financial assets, cash and cash equivalents, obligations under finance lease contracts, bank overdrafts, bank loans, private placement notes, loan notes and deferred consideration liabilities.

At 31 December 2017, £8.0m of supplier balances in SIG France had been settled via a credit card working capital facility. As our previous definition of net debt did not refer to such facilities, this balance was included in trade payables at 31 December 2017.

It has been determined it would be more appropriate to treat such solutions as other financial liabilities and include within net debt. The Consolidated Balance Sheet at 31 December 2017 has therefore been restated to reclassify these balances from trade payables to other financial liabilities and to increase net debt by £8.0m with no overall impact to net assets.

This has no impact on the Consolidated Income Statement or Consolidated Cash Flow Statement for the year ended 31 December 2017, and no impact on other previously reported periods as there were no such arrangements in place at previous period ends. There are no such arrangements in place at 30 June 2018 and we have updated our definition of net debt to incorporate other financial liabilities, including these sorts of working capital facilities.

ii) Cash in transit

The Group has reconsidered the appropriateness of its cash policy in relation to the treatment of cash in transit by reference to current guidance, acknowledging there may be mixed custom and practice in this area. It has been determined that in some cases cash in transit was being included in cash in advance of obtaining control of funds or cheques.

The Group no longer considers this to be appropriate and has determined that cash should only include electronic receipts that are cleared funds and cheques that are physically received by the period end date. Prior year figures have been restated accordingly. This has resulted in a reduction in cash and an increase in trade receivables of £15.3m at 1 January 2017, £10.9m at 31 June 2017 and £13.6m at 31 December 2017. There is no impact on the Consolidated Income Statement or net assets. The Consolidated Cash Flow Statement has also been restated, with cash and cash equivalents reducing by £10.9m at 30 June 2017 and £13.6m at 31 December 2017, resulting in an increase in net cash from operating activities of £4.4m for the six months ended 30 June 2017 and £1.7m for the year ended 31 December 2017.

Notes to the Condensed Interim Financial Statements (continued)

1. Basis of preparation of Condensed Interim Financial Statements (continued)

iii) Classification of lease arrangements

The accounting for sale and leaseback transactions, in particular relating to property, has been reassessed. Two transactions, in June 2017 and December 2016, are now considered to meet the criteria for recognition as a finance lease rather than an operating lease at the date of inception of the leaseback. The Consolidated Income Statement for the six months to 30 June 2017 and the year to 31 December 2017, and the Consolidated Balance Sheet at those dates, have been restated for this reclassification.

The restatement results in an increase in tangible fixed assets and finance lease liabilities of £13.3m at 30 June 2017 and £13.1m at 31 December 2017.

The impact on the Consolidated Income Statement for the six months ended 30 June 2017 is a reduction in underlying operating profit of £2.2m and an increase in finance costs of £0.3m, due to the add back of operating lease rentals replaced by charges for depreciation and interest, together with a change in the recognition of the profit on the sale which is now spread over the life of the finance lease instead of being recorded in full in the period of the transaction.

The impact on the Consolidated Income Statement for the year ended 31 December 2017 is a reduction in underlying operating profit of £1.9m and an increase in finance costs of £0.7m.

iv) Provision for uncertain tax position

At 31 December 2017 there was a reported deferred tax asset of £9.2m. The Group has reassessed its deferred tax asset position and as a result believes that an increased deferred tax asset should have been recognised in relation to losses and fixed asset timing differences.

The impact of recognising this is to increase the deferred tax asset at 31 December 2017 to £12.0m, and to increase profit after tax for the year ended 31 December 2017 by £2.8m.

v) Recognition of early settlement discounts

The Group previously accounted for early settlement discounts when paid. Under IAS 18 "Revenue" revenue should have been recognised taking into account expected discounts allowed. This has no impact on the Consolidated Income Statement or Consolidated Cash Flow Statement for the six months ended 30 June 2017 or the year ended 31 December 2017. The Consolidated Balance Sheet has been restated at 1 January 2017, 30 June 2017 and 31 December 2017, resulting in an increase in retained losses of £1.0m at each reporting date.

vi) Review of operating segments

The operating segments disclosure has been expanded in a manner consistent with the Group's internal reporting. Other Mainland Europe has been separated into Air Handling, Benelux and Poland, and the comparatives for previous periods have been reclassified to reflect this.

The above restatements impacted net debt and EBITDA which had an impact on headline financial leverage and interest cover covenant calculations, but the Group remained within covenant requirements for all relevant periods. The overall impact on the restatements was to increase net debt by £24.2m to £217.0m at 30 June 2017 and by £34.9m to £258.7m at 31 December 2017. Additional interest payable as a result of the restatements has been accrued for in the relevant periods in this Interim Report (£0.2m for the six months ended 30 June 2017 and £0.4m for the year ended 31 December 2017).

Going Concern

The Directors have considered the Group's forecasts which support the view that the Group will be able to continue to operate within its banking facilities and comply with its banking covenants. Through its various business activities the Group is exposed to a number of risks and uncertainties (see Note 15), which could affect the Group's ability to meet these forecasts and hence its ability to meet its banking covenants. The Directors have considered the challenging trading conditions, the current competitive environment and markets in which the Group's businesses operate and associated credit risks, together with the available ongoing committed finance facilities and the potential actions that can be taken, should revenues be worse than expected, to protect operating profits and cash flows. After making enquiries, the Directors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing this Interim Report.

New standards, interpretations and amendments adopted by the Group

The Group applies for the first time the following two new standards which became effective as of 1 January 2018:

• IFRS 15 "Revenue from contracts with customers"

• IFRS 9 "Financial instruments"

The nature and effect of these standards are disclosed below.

IFRS 15 "Revenue from contracts with customers"

The Group has adopted IFRS 15 using the modified retrospective method approach and therefore the 2017 comparative information has not been restated and the opening equity at 1 January 2018 is adjusted for the cumulative effect of applying IFRS 15 at that date. The comparative information continues to be reported under IAS 18 and IAS 11. The details of the significant changes and quantitative impact of the changes are set out below.

IFRS 15 applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Revenue is measured based

Notes to the Condensed Interim Financial Statements (continued)

1. Basis of preparation of Condensed Interim Financial Statements (continued)

on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer.

In the comparative period, revenue was measured at the fair value of the consideration received or receivable for goods or services, net of discounts and customer rebates, VAT and other sales-related taxes. Revenue from the sale of goods was recognised on receipt of goods by the customer. Customer rebates were accounted for as a separate component of the sales transaction, with a portion of the fair value of the consideration allocated to customer rebates and recognised in the period as earned. Revenue generated from a contract to provide services was recognised by reference to the stage of completion of the specific transaction and assessed on the basis of the actual service provided as a proportion of the total services to be provided. Revenue from construction contracts was recognised by reference to the stage of completion of the contract activity at the reporting date. Stage of completion was normally measured by the proportion of contract costs incurred for work performed to date compared to the estimated total contract costs, except where this would not be representative of the stage of completion.

The cumulative catch-up adjustment to the opening balance of retained losses as at 1 January 2018 is shown in the Statement of Changes in Equity for the six months ended 30 June 2018 and resulted in an increase in opening retained losses at 1 January 2018 of £0.7m. The Group elected to apply the cumulative catch-up method only to contracts that were not completed at 1 January 2018.

The details of the significant changes and quantitative impact of the changes are set out below.

a) Sale of goods

The majority of the Group's revenue arises from contracts with customers for the sale of goods, with one performance obligation. Revenue is recognised at the point in time that control of the goods passes to the customer, usually on delivery to the customer. The adoption of IFRS 15 did not have an impact on the timing of revenue recognition in relation to the sale of goods, although the amount of revenue recognised is impacted by variable consideration as follows:

Volume rebates

The Group provides retrospective volume rebates to certain customers. Under IFRS 15, retrospective volume rebates give rise to variable consideration.

Prior to the adoption of IFRS 15, the Group estimated the expected volume rebates using an expected value approach and included a provision for rebates as a reduction to trade receivables. This continues to be appropriate under IFRS 15.

Early settlement discounts

Under IFRS 15, early settlement discounts are estimated using the expected value approach and recognised at the time of recognising the revenue, subject to the constraint regarding variable consideration that it is highly probable that a change in estimate would not result in a significant reversal of the cumulative revenue recognised. As part of our review of the application of IFRS 15 it was considered that the previous treatment of early settlement discounts under IAS 18 was inappropriate and this has been amended accordingly by a restatement of the prior periods.

b) Construction contracts

The Group has the following revenue streams which fall under the category of "construction contracts":

i) Manufacture and installation of roofing systems

Prior to the adoption of IFRS 15, revenue was recognised in two stages - on completion of manufacture and on installation. Under IFRS 15, the Group has assessed that there is one performance obligation, being the installation of the roofing system, and that revenue can continue to be recognised over time on a milestone basis, provided appropriate terms are included in the contract to confirm entitlement to payment for performance to date. Contract terms have been amended from 1 January 2018, but an adjustment is recorded on transition in relation to contracts in progress under previous contract terms, increasing retained losses at 1 January 2017 by £0.7m.

ii) Air Handling projects

The goods and services supplied as part of an air handling contract are significantly integrated and considered to be one performance obligation. The criteria for recognition over time are considered to apply as the entity's performance creates and/or enhances an asset controlled by the customer, the assets created do not have an alternative use as the installations are on the customers' premises, and the entity has an enforceable right to payment for performance completed to date. Progress towards completion is measured on the basis of costs incurred. The adoption of IFRS 15 does therefore not have an impact on the timing of revenue recognition for these contracts.

iii) Manufacture and supply of modular housing

Under IFRS 15 the Group has assessed that there is one performance obligation, and that revenue is recognised over time as control passes on a milestone basis as each housing module is supplied. Progress towards completion is measured based on the percentage of total costs incurred. The adoption of IFRS 15 does not have an impact on the timing or measurement of revenue recognition for these contracts. The business carrying out these contracts was sold in February 2018 and this revenue stream is therefore not relevant going forward.

iv) Contracts for provision of industrial services

The Group's Ireland & Other segment provides industrial painting, coating and repair services. Under IFRS 15, the Group concluded that revenue from these contracts will continue to be recognised over time, as the entity's performance enhances a customer-controlled asset, using an output method to measure progress towards completion depending on individual contract terms.

Notes to the Condensed Interim Financial Statements (continued)

1. Basis of preparation of Condensed Interim Financial Statements (continued)

Under IFRS 15, any earned consideration that is conditional is recorded as a contract asset. A contract asset becomes a receivable when receipt is conditional only on the passage of time. Therefore, upon adoption of IFRS 15, revenue recognised from construction contracts described above which has not yet been invoiced is recognised as a contract asset, which is shown as a separate line item on the Consolidated Balance Sheet rather than as part of trade and other receivables.

c) Presentation and disclosure requirements

As required for the Condensed Interim Financial Statements, the Group 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 also disclosed information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment. Refer to Note 2 for the disclosure on disaggregated revenue.

The following tables summarise the impacts of adopting IFRS 15 on the Consolidated Financial Statements for the six months ended 30 June 2018.

Consolidated Balance Sheet

Consolidated Income Statement and OCI

Consolidated Statement of Changes in Equity

IFRS 9 "Financial instruments"

The Group has adopted IFRS 9 "Financial Instruments" with a date of initial application of 1 January 2018. IFRS 9 replaces IAS 39 "Financial Instruments: Recognition and Measurement", bringing together all three aspects of the accounting for financial instruments: classification and measurement; hedge accounting; and impairment.

With the exception of hedge accounting, which the Group has applied prospectively, the Group has applied IFRS 9 retrospectively, with the initial application date of 1 January 2018, but has chosen not to restate comparative information.

The nature and effects of the key changes to the Group's accounting policies resulting from its adoption of IFRS 9 are summarised below.

a) Classification and measurement

Under IFRS 9, all financial assets are initially recognised at fair value, plus or minus (in the case of a financial asset not at fair value through profit or loss) transaction costs that are directly attributable to the acquisition of the financial instrument. Debt financial assets are subsequently measured at amortised cost, fair value through profit and loss ("FVPL") or fair value through other comprehensive income ("FVOCI"). The classification is based on two criteria: the Group's business model for managing the assets and whether the

Notes to the Condensed Interim Financial Statements (continued)

1. Basis of preparation of Condensed Interim Financial Statements (continued)

contractual cash flows represent "solely payments of principal and interest" on the principal amount outstanding (the "SPPI criterion"). This replaces the previous IAS 39 categories of held to maturity, loans and receivables and available for sale.

The classification of the Group's financial assets under IFRS 9 is as follows:

· Amortised cost: trade and other receivables and deferred consideration

· Fair value through profit and loss: derivative financial instruments

The above classification is not considered to have any impact on the presentation on the Consolidated Balance Sheet or on the carrying value of the assets.

The accounting for financial liabilities remains the same as it was under IAS 39 and therefore this has not had an impact on the Group's accounting policies or Financial Statements.

b) Hedge accounting

The Group has chosen to apply the hedge accounting requirements of IFRS 9 and has applied this prospectively. The new hedge accounting rules require the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.

At the date of initial application, 1 January 2018, all existing hedging relationships are eligible to be treated as continuing hedging relationships under IFRS 9. The adoption of the hedge accounting requirements of IFRS 9 has not had a significant impact on the Group's Financial Statements.

Under IAS 39 all gains and losses arising from the Group's cash flow hedging relationships were eligible to be subsequently reclassified to profit or loss. However, under IFRS 9, gains and losses arising on cash flow hedges of forecast purchases of non-financial assets (for example a fixed asset or inventory) need to be incorporated into the initial carrying amounts of the non-financial assets. Therefore, upon adoption of IFRS 9, the "Gains and losses on cash flow hedges" is presented under "Items that will not subsequently be reclassified to the Consolidated Income Statement". This change only applies prospectively from the date of initial application of IFRS 9 and has no impact on the presentation of comparative figures.

c) Impairment

As a result of the adoption of IFRS 9, the Group adopted consequential amendments to IAS 1 Presentation of Financial Statements which requires impairment of financial assets to be presented in a separate line item in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income. Previously, the Group's approach was to include the impairment of trade receivables in other operating expenses.

IFRS 9 replaces the 'incurred losses' model in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at fair value through other comprehensive income, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

For contract assets and trade receivables, the Group has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward looking factors specific to the debtors and economic environment.

The adoption of the ECL requirements of IFRS 9 has not resulted in any change to the impairment allowances for trade receivables and contract assets.

Other amendments and interpretations

Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the Interim Condensed Financial Statements of the Group:

• IFRIC Interpretation 22 "Foreign Currency Transactions and Advance Considerations"

• Amendments to IAS 40 "Transfers of Investment Property"

• Amendments to IFRS 2 "Classification and Measurement of Share-based Payment Transactions"

• Amendments to IFRS 4 "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts"

• Amendments to IAS 28 "Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice"

• Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters"

IFRS 16 "Leases"

IFRS 16 "Leases" is effective from 1 January 2019. The standard eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model where the lessee is required to recognise assets and liabilities for all leases unless the lease term is 12 months or less, or the underlying asset is of low value.

The Group has completed an initial assessment of the potential impact on its Consolidated Financial Statements and is in the process of selecting a software solution to manage the accounting for leases under IFRS 16 across the Group. The actual impact of applying IFRS 16 on the Financial Statements in the period of initial application will depend on future economic conditions, including the Group's borrowing rate at 1 January 2019, the composition of the Group's lease portfolio at that date, the Group's latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions.

Further detail on the impact of adopting the new standard will be provided in the 2018 Annual Report and Accounts.

Notes to the Condensed Interim Financial Statements (continued)

2. Revenue from contracts with customers

Set out below is the disaggregation of the Group's revenue from contracts with customers as newly required by IFRS 15:

^ Inter-segment revenue is charged at the prevailing market rates.

* Represents the business managed from The Netherlands. Further air handling product category trading results are incorporated within the other operating segments.

Notes to the Condensed Interim Financial Statements (continued)

3. Segmental information

In accordance with IFRS 8 "Operating Segments", the Group identifies its reportable segments as those upon which the Group Board regularly bases its opinion and assesses performance. Operating segments have been reviewed during the period to 30 June 2018 following ongoing changes to management and reporting structures and the Group has concluded that the appropriate reporting operating segments are SIG Distribution, SIG Exteriors, Ireland & Other, France, Germany, Poland, Benelux and Air Handling. The comparatives for previous periods have been reclassified to present on a consistent basis with 2018.