SIG plc (SHI) Earnings Call Transcript & Summary

Good morning. Welcome to our presentation of final results for SIG for 2020 and our strategy update. I'm joined here by Ian Ashton, our Group CFO. Today, Ian will take us through a financial review of 2020, and I will then summarize the progress we've made with our return to growth strategy. We'll outline key objectives for '21 and discuss current trading. We'll then open up for a Q&A session. I'm delighted to say that our return to growth strategy is on track and to plan. SIG is back to winning ways. I must say, first of all, that our progress in 2020 is due to the tirelessness and resilience of our 6,500 employees operating out of 421 branches across COVID-plagued Europe. They've operated flexibly and courageously through every twist and turn of this last year, and they've also worked in a COVID-safe manner, gaining plaudits and keeping their colleagues and customers safe. I thank you. We've reported at the interim on the changes we made to leadership strategy in our financial situation. And since that, we've delivered on time and in full on the strategic plans, and we continue to do so. I'll talk later about the remarkable progress in the U.K. And in addition to this, we saw strong growth in profitability from our French business, our #2 marketplace. We're connected with our customers, our employees, and our suppliers. And they're all cheerleaders of our new strategy as it's familiar to them as a winning recipe. I'll now hand over to Ian to cover the FY '20 results. Ian?

Thanks, Steve. Good morning, everybody. I hope you're all well. So first slide, key financials. We had a solid and encouraging finish to 2020. This can be partially seen in the headline numbers for H2 on this slide, which were clearly very different to the COVID-affected first half, but also reflect meaningful underlying improvements in the trading performance. I'll look in more detail in a moment, all the key elements shown on here. But overall, in the underlying business, we reported a 13% reduction in sales, the majority COVID related, which drove a full year operating loss of GBP 53 million and a loss before tax of GBP 76 million. Within these numbers, the H2 operating loss was GBP 10 million and the loss before tax, GBP 22 million. Clearly, a much better result in H2, with sales only marginally down on the prior year and indeed moving into positive growth of 4% in the fourth quarter. The full year H2 profit is, in fact, slightly better than the range we gave in January, primarily due to an improvement against expectations when we finalized the post-IFRS 16 numbers. Other items totaled GBP 126 million for the year, mostly noncash items. I'll talk through these on a later slide. So the full year loss before tax, including non-underlying items, was GBP 202 million. And for reference, the total statutory loss after tax for the full year was GBP 139 million, which included a one-off gain of GBP 70 million on the sale of the Air Handling division, which, as you may recall, completed very early in 2020. The net proceeds of GBP 148 million from the sale and the equity raise in July, which delivered net proceeds of GBP 152 million, helped reduce net debt to just GBP 4 million at the year-end on a pre-IFRS 16 basis, as you can see on the slide. On a post-IFRS 16 basis, this was GBP 238 million. Within net debt, gross cash balances at the year-end were GBP 235 million. So from a liquidity point of view, we, therefore, remain very well placed to both weather any remaining market uncertainty, COVID related or otherwise, and more importantly, to invest appropriately behind the new growth strategy. Revenue by business unit. The 2019 number of GBP 2.14 billion has been restated to include the Building Solutions business in the U.K. that is now being retained and is therefore included in continuing operations as opposed to being treated as held for resale as at last year-end. Of the decline of 13% to GBP 1.87 billion in 2020, about 2/3 was due to COVID, and a majority of that COVID impact was in the U.K. We estimate that in aggregate, our Continental European businesses would have been flat on prior year without the pandemic, driven, as you can see, by a strong performance in France. The U.K. full year decline of 25% was split roughly 50-50 between the COVID effect and the underlying underperformance that the business started to see most clearly in the second half of 2019 and which is now, from late 2020, started to reverse. So a slide on the COVID impact. We've shown here the impact on sales, profit and cash. I've talked about the sales impact profit mirrored this, as you would expect, given the lower gross margin on a relatively fixed cost base. Cash was similarly affected, but it is worth noting that the COVID impact on all 3 of these metrics was quite substantially lower than the company initially envisaged, due mostly to overcautious estimates for the early months of the pandemic. Most meaningfully, this meant that we finished the year with approximately GBP 40 million more cash than was expected when the refinancing was completed in the late spring. Sales by month. This chart shows the monthly movements in our sales against 2019. Through the year, we saw, firstly, a decline of around 11% in group sales in January and February combined, i.e., pre-COVID, a steep drop during the peak lockdown months of March and April, with the U.K., Ireland and France notably more effective than Germany, Benelux and Poland; an improvement in May and June as the COVID impact began to reduce, albeit still at approximately 22% decline; and then in H2, we saw steady improvement throughout the half. July and August, in aggregate, saw a more modest decline. September and October were flat on prior year. And November and December saw growth of approximately 7% in aggregate as the experience businesses in France and the U.K. picked up strongly and U.K. distribution stabilized, delivering growth in period 12. Hence, the overall 4% group growth in Q4, and we've seen that Q4 growth rate continuing in the early part of 2021. Steve will talk more about the actions and progress behind these improving numbers in a few minutes. Gross margin and OpEx. The full year gross margin percentage was 0.8% down on prior year due mostly to declines in U.K. distribution. This was partly as a result of the lower rebates received on the back of lower sales and partly due to some pricing discipline in the first half. We began to see stabilization of this in the second half as well as improvements elsewhere, notably in France, as rebates began to normalize, and these factors drove a modest improvement in the group number in H2 versus H1. We expect the group's 2021 gross margin percentage to move back towards 2019 levels. OpEx was slightly up on prior year. As mentioned at the midyear point, the comparison to prior year was distorted by some releases in the prior year, notably in central costs and some temporary costs this year, 2020, related to the changes in the U.K. business and the group as a whole. There was also a normalization of incentives across the group in 2020, and the bad debt charge in the P&L was slightly higher. The latter was due to additional caution on reserves in light of the pandemic. Our receivables performance has, in fact, remained pretty solid during the year, although, of course, remains an area of tight focus in light of the broader environment. So these cost items, along with some translational FX impact of around GBP 3 million and cost inflation of about GBP 5 million, drove the overall OpEx increase. They were partially offset by receipts from furlough schemes. Overall, we expect only a modest increase in the cost base in 2021 as we drive higher sales through the existing capacity and infrastructure we have. Productivity does remain a focus, i.e., driving more with what we have got. We've also recently implemented a cost reduction program in the corporate center, with the changes fully effective from the start of Q2. This largely relates to a simplification of the IT structure and a related reduction in projects as we give greater autonomy to operating companies as part of the new strategy as well as some reprioritization of projects and hence, headcount reductions in other areas. We expect a saving in the corporate line of around GBP 3 million to GBP 4 million in 2021 with a slightly high number in 2022 as it annualizes. The profit and loss bridge for the year. The underlying profit before tax for the continued business declined from GBP 43 million profit last year to a GBP 53 million loss, and this slide lays out the key drivers. I've referred to these already. It is clearly almost all a volume-related drop, and the majority of it was in H1. Moving on to other items. Our other i.e. nonunderlying items in the continuing business totaled GBP 54 million in the second half on top of the GBP 72 million already reported at the half year. The total cash number related to these was GBP 28 million. Within impairment charges, the largest element was a GBP 62 million write-off of goodwill and other assets in the U.K. business. This was to some extent a technical change. When the group published its full year 2019 results last year, the impairment reviews have to be based on estimated cash flows from the 1st of January, ignoring the COVID impact, as the pandemic was a non-adjusting post balance sheet event. The impact of the pandemic was subsequently reflected in the model as was a high discount rate to reflect the greater market uncertainty. These factors are the main drivers behind this further impairment. And given the impairment to H1 eliminated any headroom, minor changes in assumptions can impact the calculated carrying value on the books, which resulted in an additional impairment being required at year-end. The other element in impairment is a write-off of GBP 14 million of some previously capitalized IT costs, which were held in intangible assets pending a decision on the future direction of the SAP 1 HANA project that had commenced in April 2019. Further down the slide, the onerous contract costs relate to a provision taken for much of the future spend under the contract that was signed in respect to this project. We're continuing with some aspects covered by the initial scope, notably in France and Germany, but the group will not derive the value initially envisaged. Restructuring costs in the omnichannel item are largely as at the midyear point, with some additional restructuring costs in H2 as expected, mostly related to the merger of the U.K. businesses. The final 2 larger items are also essentially the same as reported at the midyear. Refinancing costs consists largely of legal and adviser fees related to the refinancing; nonunderlying finance costs relate almost entirely to the loss on modification of the private placement notes. Moving on to cash flow. This slide shows the cash flow for each half and the full year. As I mentioned, we finished the year with GBP 235 million of gross cash balances. As a reminder, we also have an undrawn GBP 25 million revolving credit facility. The working capital outflow reflects the complete unwind of the creditor stretching that was previously done at each half and full year as we advised at the midyear point. This is a circa GBP 45 million impact compared to December 2019, about 2/3 of which had unwound by the midyear point, the balance in the second half. We also reduced our factoring, unwinding the amounts in Germany and the U.K. in early 2020. This was a further headwind in working capital in the year of approximately GBP 10 million. As you can see, absent these one-off factors, working capital reduced in the year. We still have around GBP 25 million of fracturing in place in France, broadly unchanged throughout the year. In H2, we settled GBP 13 million of payments deferred from H1 under certain COVID-related government deferral schemes, with around GBP 3 million remaining to be paid in 2021. CapEx was lower than historical levels due to the restrictions implemented in response to COVID, which inevitably had a slight lag effect into H2. We expect CapEx to increase in 2021 to a more normal and necessary level of around 1.5% of sales. I've already referred to the substantial proceeds from both the disposal of the Air Handling business and the equity raise. Repayment of debt referred to a repayment of the RCF in H1, and in H2, mostly to repayment of private placement notes as part of the refinancing. For completeness, the net debt bridge is also included in the appendix to these slides. And finally, from a guidance, market fundamentals remain sound. Our trading so far in 2021 is in line with expectations, and as I mentioned, in line with the trajectory seen in Q4 of last year. As a result of the group and important of the U.K. business within it, are expected to be back to profit and cash generation in H2 2021. We will see a cash flow -- a cash outflow in H1 due to the usual seasonality in working capital. CapEx, as I mentioned, will be at around GBP 30 million this year, and we think that's the likely level for the medium term. On tax, we have unrecognized tax assets in the U.K. and do not expect to pay corporation tax for some time. We do pay corporation tax currently in our other operating companies. Given the U.K. situation, the group's effective tax rate is not very stable and so not very meaningful as a metric. Our expected tax cash for 2021, which is probably the most meaningful number right now, is mid- to high single-digit millions of pounds for the year. Just to finish from a personal perspective, I'm delighted to be part of this company and at this particular time. All the teams across the group, as Steve mentioned, have made significant progress in the last year despite what's obviously been a difficult backdrop. And it's clear to me, 8 to 9 months into my role, that there are great opportunities, short and longer term, to grow and improve the business. And I look forward to playing my part in that. And finally, like Steve, I'd like to thank all of our colleagues for all that's been achieved over the last 12 months. And with that, I'll hand it back to Steve.

Thanks, Ian. I have to say it's been great fun working with the teams over the last few months as well, notwithstanding the hard work that's been done. Last year has demonstrated, even accentuated, the strong fundamentals of our markets. Arguably, the strength of the RMI markets has moved our progress forward a quarter, offsetting the other market challenges that we've all faced. The business has hit plan continuously since I've arrived. And that's because it's a highly diverse series of strong local franchises across different technologies and serving a wide range of end-user segments often through specialist subcontractors. As such, it's inherently resilient. And we've seen this in our forecasting and the plan adherence over the last months. I'm happy to say that after a long period of contraction, SIG is back in growth, back to winning again. We've grown 4% in the last 2 quarters, but recent trading is ahead of that level. It's early data, but it's exactly what we expected to see when we first talked about the strategy last July. Under Phil Johns' leadership, the U.K. has literally been rebuilt from the bottom up to the top in 9 months. It's now in growth again and on track towards profitability this year. And importantly, we've confirmed through many customer interactions and through our first group-wide customer survey that was conducted last autumn, the customer loyalty remains strong. Our brands intact, and their willingness to win. Board level supplier contracts have been reestablished after many years of distance. And suppliers are not only supportive but they view SIG as an important balance in our industry. They demonstrated this by making joint investments with us in growth towards strengthening our partnerships going forward. Medium term goals. We formally reconfirm the medium-term goals we outlined last May. And I'll explain a little bit if I may the thinking behind that. Since then, we've developed a greater insight into the margin potential of the operating companies. And that reaffirms that the overall company targets can and should reach 5%. Although in certain more competitive EU markets, we see 5% as a longer-term aspiration. The key lever for driving up margins in our business is revenue growth. Revenue growth to make the fixed cost base that we already have work harder and the higher expertise that we bring to support higher-value products and higher product mix margins and services over time. We will not chase margin for its own end. It's a revenue driven approach. Why 3% operating margins as the target? Because based on what we see, that's a minimum level for us to be able to generate enough cash to invest appropriately, whilst maintaining a healthy dividend and our target financial leverage. As you all know, SIG benefits from long-term structural growth drivers. There are a number of macro tailwinds that we enjoy. Fiscal stimulus, U.K. housing shortage, the position in the cycle -- mid-cycle and trends in climate and ESG are in our favor. These have even been accentuated by government stimulus actions in response to COVID over the past year. This page lays out really the key milestones over the next 3 years of our strategy. Phase 1, which was complete by July last year, was new strategy, new leadership and a new financing structure and new investors. Phase 2 in the second half of 2020 is also complete, and that was the realignment of our business to the new strategy, a decentralized model, prizing local entrepreneurship and expertise. And we reconnected with our customers, our suppliers and our employees. So by Christmas 2020, we were ready to get going. So '21 is about execution. It's about winning again, rebuilding trust and doing the basics well, sending out products on time, in full with supporting expertise and supported by investment in better tools. And that way, we plan to be in profit and cash generation in the second half of this year. That execution is also about targeted M&A acquisitions in order to accelerate and to some extent, derisk our strategy. We've made small -- 2 small U.K. acquisitions, 1 in the autumn and 1 just recently, and we plan to make more small add-on acquisitions. As we move into '22 and '23, it will see us approach our medium-term financial targets. And then it will be necessary to set more ambitious and more stretching targets. So we plan towards the end of '21 and '22 to start developing those longer-term targets and plans. Those will be based around a more proactive industry leadership position, growth and about going from better to best in everything we do. It will be about a greater emphasis on our ESG agenda and by a more focused approach to digitization, in particular. This page takes us through -- what it outlines is quarterly sales progression since the beginning of 2019 by business in our group. It's color-coded, green being growth, red being decline. As you can see, the group had been in 5 quarters of decline across the majority of our markets when COVID hit this time last year. In particular, we entered lockdown 1 minus 15% versus prior year. The group needed to be turned around and turned around by top line and not the bottom line. If you look at our operating companies, obviously, some of them are exposed more to the repair and maintenance markets and those we've separated out here. Approximately 32% of group revenues are in the L'Olivier business in France and our U.K. Exteriors business. As you can see, they performed very strongly in the last several months. They exited last year with double-digit growth, and that growth has even accelerated in the last few months. The U.K. distribution business, on the other hand, entered COVID minus 34% year-on-year. That's losing 1/3 of the business' scale in a year, which is quite dramatic. That was made even more dramatic, obviously, by lockdown 1. And what we've seen is an equally dramatic stabilization only to minus 25% in Q3 '20, and by Q4 '20, minus 3%. And in the last few trading weeks before Christmas, that business came back into growth. It's also notable if you look at our German business, WeGo/VTI, that business had declined in 8 quarters, in fact, 9 quarters, and the first positive quarter for them in that period was Q4 '20. And this is benefiting from the new commercial leadership and the new country leadership as well as the strategic focus on growth that's starting to have a material impact on their performance towards the end of the year. And elsewhere, there were good recoveries in Poland and Ireland, but less so in Benelux, which has suffered from weaker market conditions there, but also local issues in the business that we are attending to in the first part of this year. I'm going to talk now about what's being done in the U.K. business. But the U.K. business has been rebuilt from top to bottom in the last 9 months. It's an absolutely remarkable achievement, bringing in over 100 salespeople, for example, that's 9 football teams of salespeople into the business. That business was centralized, and it is now decentralized. We've decentralized sales. We've decentralized operations and supply. Now this hasn't been without challenge. We need to and have been rebuilding trust with our employees -- with our 2,500 employees in the business in our branches, in our warehouses and with our drivers. Our employee survey last autumn made this clear to us. We furloughed up to 2,000 of the team for several weeks in lockdown 1, and all of them have been brought back into the business. And that was a strong commitment we made to our people at the outset of the COVID pandemic. Across the business from Inverness to Plymouth, 32 new branch managers are in place whose roles didn't even exist last summer. They're now leading local teams, empowered teams. They have new incentive programs that are in place and they're driving performance of the sales teams. They've got their own P&Ls and they have delegated responsibility for customer service. So they are able to make sure when they make a promise to a customer, they themselves can deliver on it. Also expertise and experience has been rebuilt in the business. Certainly, in my perspective, that was the most difficult part of this turnaround to bring back the experience that we'd lost over the last several years. 86 senior and experienced sales specialists in different products areas like dry lining, technical insulation, construction accessories and fire protection, they've made the decision individually to leave their existing jobs and competition and join SIG. On average, they have 15 years industry experience. Now that experience gain by us, 1/3 of SIG alumni is experience lost by competition. So the 5-year outflow of talent from SIG in the U.K. has been definitively reversed. The 5-year period in which we've been losing market share. Those people are now back in our business. In order to finance this, there were savings from the merger of the U.K. businesses and the departure of about 74 salespeople from the business, who on average had about 4 years' experience, and were not industry specialists or product specialists. So quite a substantial shift to much more industry specialized, product specialized people, much more experience from a more generalist model. And the way that's been done is to maintain headcount and costs roughly flat versus prior year despite all of these changes. And leading this powerful new force in the industry is a U.K. executive team in which 5 of the top 7 market-facing directors are new to SIG in 2020. They have an average of 27 years industry experience between them. And all but one are SIG alumni. So they know what it's like to work with each other. And I know Phil won't thank me for saying this, but there are a number of U.K. and D level leaders on his team. It's a strong team. So by early last December, the new team was in place, the structure was in place and the engine began firing up. Here, I talk about the strategic pillars of our new strategy. There are 7 strategic pillars. And this is how we run SIG today. It's not based on financial measures alone, or by short-term considerations. We're running the business strategically. And these pillars were co-developed not only by senior management, but with branch managers across all countries of our operation. And on each one of these pillars, we have financial and nonfinancial measures of progress, and every business is now aligned, to measured and incentivized on this basis. And it's this collective process of realignment that's released such positive energy in the group over the last 9 months. I'll give you an illustration. Our French business, which has performed outstanding well in the second half of 2020 and still now in '21. They said that the strategy that they had started by last summer was somehow alone and what they really enjoyed is having the entire group force coming aligning behind the strategy that were starting to evolve. So if you like, the French business is a year down the track, executing a strategy that is now the group-wide strategy. I'm going to talk a little bit about the progress made in 2020 on these pillars. We've made significant progress. Talk about pillar 1. It's called to responsible actions, but it's really about our people. It's about making sure that our people feel safe, proud and valued at all times at all locations, no matter what role you have in the company. Safety is the #1. So in 2020, would have put a far greater focus on health and safety as a basic part of what we do and how we operate. We put in place very strong COVID protocols in every one of our operations and we enhanced incident reporting. Now incident reporting is not necessarily about severe incidents. It's as important to report incidents which are less severe, less material because they give you an indicator of what's going on in the business. And that continues to be a strong personal focus of mine as we go into 2021. The second pillar is about winning branches. You can't have a winning SIG without having winning branches. And by that, I mean growing, profitable, strong local teams. If you like, they're like families. We have 421 of them, and our focus has been on making sure that they have branch level accountability and that we allow them to set the customer service levels and the stock levels in their local operation. We've also focused on giving the sales force enhanced tools and training and improved -- and tools like improved freight management and improved transport management and warehouse management. Pillar 4 of our strategy is about deepening our specialist expertise. Expertise is a differentiator between SIG and our competition, and we're investing behind it. Indeed, our customer survey from last autumn told us in every country of operation, our customers value our expertise and they want more of it. So we've been placing more emphasis on recruitment or acquisition of category expertise and on more product training. We're also implementing up or upgrading CRM systems across the group and have revised sales incentives as well to support that, as well as more formalized sales processes or playbooks, if you like, to increase the productivity of the sales teams. And not only do we have branch level P&Ls in all 421 branches now but we also have implemented powerful information systems that give managers in branches information to inform local decisions and visibility on stock, for example, and also central visibility to us of how those decisions are being deployed. And that allows great -- for example, greater pricing discipline to be managed. On Pillar #7, growth. We've reversed the polarity of this business from contraction to growth. So we're now opening branches in all countries. We opened our first branch in Poland for many years just before Christmas. We've also made 2 small U.K. acquisitions, as I mentioned earlier. I'm now going to summarize our priorities in 2021 and update on current trading. The 2021 targets, getting the U.K. back to profit, getting back to a strong positive EBITDA group-wide, market share gains in all of the businesses wherever we operate as a routine, maintaining our margins at pre-COVID-19 levels whilst we're holding our overheads in check. We're going to preserve working capital within a desired optimum. So not too much, but also not too little so that we preserve customer service. And we're going to make sure investment levels are at an appropriate level going forward, higher than in the past, but the appropriate level for our business, around 1.5% of sales. I'm going to get the group back to cash generation for the second half of this year and enable to the extent we can the earliest possible refinancing date. The U.K. plan for EBIT uplift in 2021. I show here a pie chart to give you a sense of the mix of what's being done in the business. So just under half of it is pure sales growth. And as I discussed earlier, you've got 101 salespeople joining the business, they're being inducted into the business. And as they become more and more productive, that will increase, obviously, the sales per person and increase the revenue of the business. So that's one key part of our business this year in the U.K. The next is a joint investment in growth that we're making with our suppliers, and it comes in a number of forms. Agreements at the group level about revised rebates, that will provide us the fuel to grow. In addition, there will be specific support for key contracts that we and suppliers decide are priorities to go after. In addition to that, local support deals with our suppliers and with our -- between the branches and suppliers and joint working projects to improve our businesses and our partnerships. And all along, a continuation of a focus on keeping our support costs, our back-office costs under control and looking for opportunities to improve productivity through investment and to reduce waste. So current trading is on plan. The trends are encouraging. We remain cautious due to COVID, due to supply shortages in major raw materials because global demand has picked up very quickly and place pressure on supply. And also, we remain cautious because of steeply rising input costs in things like timber, steel and MDI. But as a leading player in our industry across Europe, we're well placed to manage both of those pressures, but they nonetheless remain -- we remain cautious as a result. If you look at our Q1 trading, nonetheless, we benefit from strong RMI markets, and we're seeing double-digit growth continuing in our RMI business as our exterior -- business as our exterior businesses in the U.K. and France in particular. And it's true to say that trading has picked up markedly since mid-February across our business. The U.K. distribution business is returning to growth as planned. And I'm going to talk a little bit about that in terms of the current trading. If you think about the fact that we've hired 101 new sales people into the business, they're being inducted into the business, to some extent, a virtual induction, thanks to lockdown 3. If you're a new joiner, relatively new to the industry, it will take you 6 to 9 months to reach a level of productivity. If you're experience hire with a -- many years in the industry and lots of relationships, that period of induction may reduce to 2 or 3 months. So if you think about that phasing, they are in place at the end of last year, and they're starting to get more productive as we go through '21. At the same time, the industry sales pipeline is the same. It's broken up into sales which mature within the first month or so as well as some which are in the 1 to 3 months category and the bigger contracts, they come over maybe a 3- or 6-month cycle. So if you look at those 2 phenomena alongside each other, you've got a guideline as to how we expect this U.K. sales recovery to trend in 2021. So in summary, the return to growth strategy is on track, our teams continue to show great resilience and commitment in the face of the COVID-19 pandemic. The right foundations are in place. We've had that reaffirmed. The U.K. business has been rebuilt. The strategy is in tune with established strengths. It's in tune with the fundamental culture of our business in all countries in which we operate. We've reconnected with customers, suppliers and employees. SIG is a great business, and it's back to winning ways. Thank you very much for your time this morning. We'll now turn over to Q&A.

[Operator Instructions] We will now hand over to Aynsley Lammin, our first question.

First question was material shortages, just give a bit more information on which product lines and how serious that disruption is and how bad it could get. Secondly, your H2 return to profits in the second half in the U.K. Does that include U.K. distribution as well as the kind of exteriors or you're just thinking of the U.K. as a whole? And then secondly -- thirdly, just wonder if you give a bit more color on commercial RMI and new housing trends in the U.K. Are you seeing the commercial deteriorate or you're seeing signs of that pick up as well?

Okay. Thanks very much, Aynsley, for that. Yes, not only material shortage, we had a volume shortage for big chunks of that. So let me see if I picked up your questions. You had 3 questions. One on material shortage, you'd like to hear more about that. Then there's H2 in the U.K. distribution last year, and commercial RMI. If I take the first one, the material shortages, I mean this is a global phenomenon. It's been building up as a result of the fact that the supply chains were somehow shut down. The first part of COVID, during lockdown 1 have been fired up, and demand has sort of spiked much faster than people expected. Now I mean we all know that the global economy is firing up very quickly. Crude oil is up 50% on levels only a few months ago. Steel, for example, up 25% since last summer, 10% in the last 2 or 3 months. That's a big input for us. One of our major inputs, timber, is up 250% due to Chinese and U.S. demand. Now what means is that we -- there are supply shortages in the industry, which are leading to longer-term lags in delivery times and as has happened in previous cycles, obviously, that means that building projects take longer. But typically speaking, it doesn't necessarily change whether or not we're going to gain the business. It just stretches our project times a little bit. As a leading player in the industry, we tend to get priority allocation of those products that are in shortage, but it's a system-wide issue. Now if you twin that with input price rises, which are taking place simultaneously due to the same phenomena, it is the case that a material-led shortage is more straightforward to pass through prices more completely and more effectively. So as a leader again there, I think we're in a very good position. We're working with our suppliers to remain as or if not more competitive in these conditions. I'm going to pass the second question to Ian.

Yes, I think your question is about U.K. distribution and profitability this year. So the U.K., as we said and you mentioned, we certainly see us getting back to profitability in the second half. That is the total U.K. I think U.K. distribution will be getting very close, but we'll see. They're going to be close in the second half, but certainly, the U.K. as a whole, we expect it profitable in aggregate.

I'm going to take the commercial. I'm assuming that your question is European in general because the picture is very different across different European countries. So in France, for example, there's pretty strong, strong demand and order books look full as far as we can see. In the U.K., there is a reasonably healthy level of demand still. The question, of course, is what is the longer term impact, the secondary impact after COVID on commercial demand at retail, high street, office blocks, et cetera. But as we see it now, there's no kind of big roadblock in our order book going forward. In fact, as we speak today, our order books in the U.K. are literally bulging, where our orders are well ahead of our sales.

Our next raised hand is from Christen Hjorth.

I've got 3 if that's okay. The first one is, it sounds like the work being done to get the group back to breakeven is sort of working as planed. Actually, there's a clear path to get you back to 2019 margin levels. Is it not comfort -- can you give us that getting from that 2% to 3% in time, that, that sort of works in place, and the path is there to achieve that? The second one is just on Q4, obviously, back to like-for-like growth. I'm just wondering if you're back to profit in Q4 last year averages. And then thirdly, just on market share gains, just want a little bit more color on how you're achieving that without putting the price a little bit too hard. And perhaps also a question around especially the U.K. distribution. And a question around competitor action there as well and whether they could react with price and anything you see in that regard?

Okay. Thanks very much, Christen. Is the path put in place from 2% to 3%? Yes, the strategy essentially is, if you like, fixing U.K. business, the margins -- the operating margins in the other business is already at reasonable levels. So it's only marginal increases outside of U.K. The U.K. fix, as we've discussed, is very much a volume driven strategy. Some very small increases in gross margin and generally holding overheads flat. That strategy is in place. If we get back to 2019 revenues, then we're starting to get back to that sort of level of margin we require in the U.K. The other element to it, obviously, is that we've taken some action on corporate cost to trim them back a bit. That's been taken already. And that will have an impact. So all of the actions are in place to get to the 3% over time, and it's now very much about revenue. I'm going to ask Ian to take the question about Q4 profits.

So yes, Q4, we were not in profit in Q4. We -- as you know, in December, it's a particularly low month. So seasonally, that is always a weak month for sales and hence profit, which drags down the number. So the trend was sort of toward profitability, but overall, for the quarter, we were not in profits.

On the question on market share gains, I don't want to be over flippant about this, but I want to bring color to the point about we're an expertise driven business. To quote a sort of topical illustration, if all 3 of the pubs in the village is shut due to COVID at the moment, and the 2 that you don't like going to open up, you'll go to them. But you'll wait for the best pub in the village to open up and when it opens up, you'll go there, and that pub won't need to discount to get you to go in. And that really is what SIG U.K.'s strategy is about. We were the best team on the High Street -- sorry, in the village before. And we are now, as a result of the expertise we've brought in and the experience, we've got that team back in place. So as a general rule, no, we will not discount price. A lot of it is down to the fact that there will be -- there are certain battleground contracts, battleground categories, product, and in those cases, we'll team up with our suppliers to make sure that we align with them. And often in these situations, the winning bid is the one where the big and most powerful supplier lines up behind the preferred distribution partner. And so that's a means by which we can protect our margin. So it is a strange phenomenon that I did mention in the summer that we will gain market share, and at the same time, possibly even gain margin through that because we're securing these powerful partnerships where we need to be highly competitive. So no, I don't see margin pressure purely as a result of gaining market share across the piece.

So our next raised hand is from Clyde Lewis. [Operator Instructions]

I think I'll go with 3 as well, if I may. One, on -- I suppose following on your comment there, Steve, about sort of, again, that whole market share issue. I'm just wondering if you can give us some anecdotal comments that you have from customers because, obviously, there's sort of a key part of this journey for you winning them back and what they're sort of recently spots, particularly in the U.K. with the changing team and beefing up of that sales and experience again. It would be useful to get some color on that side. The second one, again, was on the U.K. The Green Homes Grant deal is sort of -- not really sort of -- it's on the blocks in terms of sort of pick-up in sales. I'm just wondering, again, what your experience has been there and how that's affecting the business. And the third one was on acquisitions, I suppose, in terms of sort of scale and sort of appetite over the next sort of 12, 24 months, what should we be looking at in terms of your appetite to spend and the sort of businesses that really you're looking to add to the portfolio?

Okay. Thanks so much, Clyde. On customer anecdotes, obviously, it's invidious to quote direct customers. And there are so many hundreds of thousands of transactions. What our larger customers have said is that it's nice to have their friends back because many of our senior salespeople are people they've dealt with for many years. Where there's a cautionary question, it's "Listen, you've let us down on customer service over the past few years and you've got to earn that trust back. So we'll give you the opportunity when the next big contract comes up to tender, but we'll trade a bit more carefully." That's about the most cautionary statement. Otherwise, it's sort of "Glad to have you back, let's start trading again," that's the general kind of tone of it. On the home grant, I mean there's a whole series of positive stimuli for demand. What we see because we're somewhat removed from that directly is we see very strong order books. Anything to do with homebuilding, and you've seen us in the sector, very strong order books in the U.K. and in France, slightly more subdued, I'd say, in some of the other countries, but the U.K. and France is a very strong picture. And the home grant deal is obviously one of the many stimuli for that. On acquisitions, I'd say 2 things. I think in the longer term, this business was built through acquisition. And once again, we'll return to that. We're -- the way in which we're going to show industry leadership is to be at the forefront of some of the industry-shaping deals over the next kind of 3 to 5 to 7 years. In the short term, however, we see M&A as a device, as a tool to further the strategic goals in the near-term of getting back to profit, building back the expertise. So for example, we made a very small acquisition in the U.K. over the last few weeks, F30. That's in construction accessories. And Rob, who runs it, was in SIG until 2013. He was a highly thought-of member of the team. He left. He built a business up pretty much on his own, worth a fair amount of money, and he's now sold that business to us. He brings with him not just the business, but also his own expertise, his own understanding of the customer base. And he's taking on a joint role of running that business, is also running the category for us in the south of the U.K. And it's a very kind of strategy accelerating local M&A to infill a local gap in terms of branches. It might be, as I said, product expertise. As for larger acquisitions that go up, if you like, beyond sort of GBP 30 million level, that sort of thing, obviously, is something that we'll look at in future years. At the moment, many small but very tactical acquisitions.

So our next raised hand comes from Flor O'Donoghue.

I just got a couple of questions. The first is, you might just -- if you could elaborate a bit more on what you're seeing in other parts of Europe right now in terms of year-to-date trends and the outlook for the next few months places like Germany, Poland, Benelux, et cetera. And the second one, I guess, this is for you. It's just on your comments earlier on regarding the central overhead. I think you mentioned a kind of a takeout of GBP 3 million to GBP 4 million this year. Is there anything that kind of comes against that in terms of other cost that come back in or is that kind of an overall net number that we'll take off the GBP 21.6 million that you would have recorded in '20?

Well, I'll make a couple of comments on the non-U.K. outlook, then pass over to Ian to sort of quantify that a bit. In France, we've seen quite a remarkable difference, I think, from certainly other parts of the EU, very strong consumer confidence, relatively speaking, compared to countries like Germany and Poland and Benelux, very strong order books across pretty much all the segments, not only RMI, but also in the interior side of our business. We don't see any break in that in our order book. The order books of ourselves and our customers are pretty full as far as we can see. In terms of -- I hinted in terms of countries like Germany, somewhat more subdued. They seem to have in terms of economic demand, somewhat of a long COVID effect. There is more of a delay. There was an element of, if you like, Gastarbeiter coming back slowly after Christmas. There is a slide in contracts. Having said that, and they suffered like most of Northern Europe from the short bout of cold weather. But really since mid-February, that's opened up as well. So demand across the EU businesses is generally quite, quite healthy. And we're seeing it feel like stronger now than it was even a month ago. Ian, I don't know if you want to add on that.

No, no. I think -- I think that's right. Nothing to add. I'll tell you the second question, Flor. On the -- on central overhead, I think the -- to your question about 2020, that's a sort of fairly built puts and takes, but it's a fairly sort of steady number absent some of the actions that we've taken. So you can knock maybe not the GBP 4 million before, but sort of GBP 3 million or so off that, and there'll be a little bit of inflation, obviously, over the '20 number. But if you take about GBP 3.5 million of that, that's going to be about the right number.

Our next raised hand comes from Frédéric Lemoine.

I'm Frédéric Lemoine, the CEO of Allegro Cantabile Investment company in Paris. Congratulations for what you've done since you arrived. It's quite impressive. I have a question related to CD&R. Their presence in your shareholding is certainly some piece of great news for your company. However, I think they have the right of launching a take of a bid under certain conditions this year. And I wanted to know whether it's not quite of a dilemma for you in terms of financial communication because you have a great shareholder that obvious interest is that share price remains relatively stable. So aren't you constrained somehow in deploying a more aggressive financial communication strategy?

Well, I guess, thank you for the question, Frédéric. I would say, firstly, it's been genuinely a pleasure working with Christian and Bruno on the Board who are [ feeding ] our directors who joined the Board. They've taken a very heavy nonexecutive director role in the business, a very constructive role since they've arrived. I think they helped us through our budgeting and planning process to run a -- if you like, a private equity-style process. It was very intense, and we tested our own forecast very hard with them. So that's been helpful to the business, and they've also deployed as relevant their expertise and networks in the industry. So I think all in all, it's been a lot more than just shareholding. As for whether or not we're changing anything we do as a result of that, the answer is no. I mean our financial communications are exactly what they'd be without them in the shareholder base. And indeed, the company strategy and everything we do in the company was something that they saw and backed when they bought shares originally. So I would see them in no way as distracting what we're doing in the business, that rather they're actually supporting and enhancing what we're doing.

And we have no more raised hands. [Operator Instructions] Otherwise, I will hand back to you, Steve.

Okay. Well, listen, thank you very much for your questions. As Ian and I have said, we've -- although it's been a very strange year in many respects, we've had a hell of a lot of fun. We've got a great senior team. And more and more, the 421 families we have in all of our branches are starting to really warm to the new approach in the group. Our customers are seeing it, our suppliers are seeing it. And I think you're starting to see now in the kind of revenue performance and will see in the profit performance that it's the right strategy for the group. So I hope it's been helpful informative. Of course, we're here if you've got any more questions, by all means, ask us after this event. But thanks very much, everyone.

Thank you.