SIG plc (SHI) Earnings Call Transcript & Summary

We're good to go, I believe. So welcome this morning to the full year 2025 results presentation of SIG. My name is Pim Vervaat. I joined the company 1st of October last year as CEO and Chairman Designate. With me is Ian Ashton, who you know, our CFO. But we also invited this time around Julien Monteiro, he is our MD for France. He's been with the company since 2018. And going forward, he and I will be joined in these occasions with number of MDs from the various businesses so that you see a bit more insight in the business itself. Let's go to the overview in the first instance, which is -- here we go to next slide, please. So been here for 5 months. Key observations that I have had is very strong management across our various businesses. I've really been impressed with the resilience of our people, the knowledge of our people in difficult times. Also, there are number of very good market positions in what is structurally a growth market. So when we then look at the full year 2025, it's been a challenging market, as you are -- will be aware of, particularly towards the end. Nonetheless, we were able to achieve a marginal uptick in volumes. We believe we outperformed local markets vis-a-vis competition. Our operating profit up 28% to GBP 32 million. We reduced operating cost by GBP 39 million before inflation, which is a huge achievement by everybody within the business, and we had a robust cash and working capital performance. In terms of looking forward, we developed a strategy called Vision 2030 strategy, which basically consists of 2 legs. The first one is the evolution of the strategy already in place. The GEMS strategy but we also identified more self-help that is available, procurement, working capital and indeed more on the operating expenses. We're also looking to optimize our business portfolio. We identified a little bit over 20 different product market combinations. And we're going through strategically assessing each and every one of them. As you are aware, we are well positioned for a market recovery when that comes, not if. And ultimately, we aim to achieve a best-in-class distribution platform in building materials. So with that introduction, I'll now hand you over to Ian.

Thank you, Pim. Good morning, everybody. Hope you're all well. So if we can move to the next slide. So key financials. In 2025, we made good progress both operationally and financially despite the continuing impact of very subdued markets, as Pim mentioned. Group sales were flat over the prior year on a like-for-like basis, a resilient result given the market backdrop. Markets didn't pick up over H2 and some indeed saw some slight further weakness in Q4, notably the U.K. and Germany. More positively, our teams are continuing to perform well against their local markets, and we're very confident we continue to take share in the vast majority. Gross margin was down 30 basis points on 2024 primarily from pricing pressures in the current market as one would expect, but our teams are managing these difficult dynamics well. The lower sales and gross margin were partially mitigated by extensive operating cost saving initiatives and this led to an underlying operating profit of GBP 32 million, an increase of 28% on the prior year and in line with expectations. After finance costs, which comprise lease and bond interest, this resulted in an underlying loss before tax of GBP 20 million. I'll look in more detail at the key elements within all these numbers in a moment. Below underlying profit, other items were GBP 42 million for the year, GBP 30 million of which relates to noncash impairment charges related to certain assets in our U.K. businesses and most of which was as reported at the half year. The charges and the slight increase since H1 reflect the prolonged market weakness we're seeing at the moment and the resulting impact on the relatively near-term focused modeling we use for our impairment testing. Most of the balance of the other items was GBP 9 million related to restructuring, and I'll come on to that in a few minutes. Previous slide. Free cash outflow of GBP 12 million was a marked improvement on 2024 and was despite the ongoing subdued operating margin, it was driven by continued discipline and improvement in working capital. Liquidity remains robust at GBP 171 million, and this includes the undrawn RCF of GBP 90 million. The cash outflow and some modest net FX meant that the net debt finished at GBP 518 million. And as a reminder, leases are the majority of that number, more precisely GBP 323 million at the year-end. Leverage was flat year-over-year at 4.7x. Next slide. Here's a simple bridge of the revenue number for the year. Small percentage movements to volume and price virtually offset each other to result in the flat like-for-like number I mentioned. Branch changes mostly closures, along with a small number of openings are not reflected in the like-for-like numbers and resulted in a 1% impact on reported revenue. The closures were of underperforming branches or where we've merged branches with better locations. This is part of the restructuring program and will help the bottom line. And finally, working days and FX in aggregate were a very slight tailwind to that reported revenue of GBP 2.59 billion. Next slide. So this shows revenue and like-for-like growth rate by OpCo in the left 2 columns, then the operating margin in the third. And on the right, the bar show the absolute operating profit by business. Pim will talk through the businesses in a few minutes, and Julien will, of course, talk about France. I'll just make a few quick comments. Firstly, just a reminder that in January, i.e., just a few weeks ago, we reported a restructuring of our U.K. businesses and specifically the elimination of the former U.K. Specialist Markets division and the small management structure that supported it. The businesses that were in that division are now reported and in most cases, managed under either interiors or roofing. That doesn't affect the key takeaways from this slide which are namely the 2 roofing businesses, as you can see in the U.K. and France generate the majority of our profit and indeed cash today, as we've reported before. U.K. Interiors made great progress in the year. It's our biggest business in revenue terms, as you know, and as you can see on here, consists mainly around GBP 550 million of that number of the Insulation and Dry Lining business that previously used to be called U.K. Interiors and which Howard Luft joined as MD in Q4 of 2024. That profit on the side of GBP 7.7 million and 3% sales growth, which now include the U.K. Specialist Market components reflects a significant turnaround in less than 18 months in a challenging market. Pim will talk more on that. The other material turnaround last year was in the Benelux still loss-making, as you can see, but in a very different position to where it was 12 to 18 months ago. Next slide. So this bridge shows the year-over-year drivers of operating profit. The first 2 small green and red bars show the gross profit impact of the volume and pricing changes in sales that I mentioned before. The GBP 15 million GM impact is from both the lower gross margin percentage that I mentioned upfront and also GP on closed branches. We do remain satisfied with how the business are handling the pricing environment and the trade-offs involved with volumes and we're making sure that we emerge from this low point in the cycle, well placed to grow the margin. Moving across inflation within our operating cost was GBP 14 million. Employee costs are about 50% of total OpEx and saw inflation of around 2% to 3%, including the U.K. NI increase from April of 2025, an impact of GBP 2 million to GBP 3 million. Most significantly, the GBP 39 million green bar there shows a significant underlying reductions we've made on OpEx versus the prior year, building on a similarly material saving made in 2024. I'll touch on that further on the next slide. So we delivered GBP 32 million full year profit. That was GBP 15 million in H1 and GBP 17 million in H2. We've managed through a negative or flat top line for 3 years now, and in that time, we've significantly improved the operational effectiveness of the business and removed around GBP 80 million in underlying operating cost. There is more to come on both of those in the future, which Pim will touch on. So we are optimizing the future operational leverage such that when markets do start to recover, will benefit disproportionately. Next slide. So on efficiency, productivity, a bit more detail on these OpEx actions. Firstly, on the left-hand side, the reported OpEx reduction in the P&L was GBP 20 million in the year, and this was after that inflation of GBP 14 million and also GBP 5 million of adverse FX. So therefore, an underlying GBP 39 million saving, as shown here. That consisted of GBP 18 million of what we would describe as restructuring savings, i.e., requiring one-off costs to be delivered and GBP 21 million of other savings or initiatives. The key elements of the GBP 18 million are listed on the lower left. The savings from changes made in late '24 were the biggest factor in the 2025 P&L, notably in U.K. Interiors in Benelux. The elimination of the small structure supporting Specialist Markets, along with the closure of Mayplas business in December, delivered some small benefits in the year, which will annualize in '26. And we also continue to drive efficiencies in some of the centralized functions notably those supporting all 3 of our U.K. businesses. The other savings of GBP 21 million were driven primarily by continued proactive management of the natural head count churn, i.e., not backfilling roles as people leave. Fleet efficiencies, especially in the U.K. and Germany and some one-off property profits of around GBP 3 million as we've referenced previously. In aggregate, through restructuring and the ongoing management, I mentioned, our group head count was 230% or 3% lower at the end of the year than at the start and over 2 years, that's about 660 roles or 9%. Looking forward on the right-hand side of the slide, we're confident the annualization of actions taken to date plus others we have in the pipeline, including in Germany, for example, will allow us to offset the impact of expected OpEx inflation of approximately GBP 15 million in 2026. On procurement, we've made good early progress. It's too early to give guidance on what this may deliver in 2026. But from the work done to date, we expect that our target of at least 1% of our total spend of GBP 2.3 billion from 2027 onwards is very achievable. And that GBP 2.3 billion, just to be clear, is on our goods for resale and on the goods and services we have within OpEx. Ultimately, we want a more commercially agile, but efficient business and that's what this overall program is aimed at achieving and we believe, is doing. The next slide. In the appendix, we've included the usual more detailed breakdown of cash flow and net debt. This slide here focuses on the key drivers of free cash flow. The GBP 70 million of lease payments on our fleet and estate was about GBP 3 million higher than the prior year. It will grow slightly over time with the business, as I've said before, not least with inflation, but it does remain a relatively stable number. We're a CapEx-light business, as you know, the GBP 16 million spent in 2025 was in line with the normal trends of recent years and reflects continued targeted investment in the business. Working capital management is, of course, a key focus for all the businesses, and we were pleased to deliver that GBP 29 million year-over-year reduction you see here. We talked about this at the half year when we showed good progress, and this continued in H2. The main drivers amongst others were negotiations over timing of rebate payments allied with robust collections of receivables. Now moving further across the cash exceptionals in the year related mostly to the restructuring actions I just talked about and some relatively modest costs related to ERP upgrades. So operating cash flow in that blue bar was GBP 43 million, or 133% of operating profit. After operating cash, we have interest and tax of the GBP 51 million of interest roughly half related to the imputed interest within our leases, and a balance of GBP 26 million was interest payable on our bonds. Cash tax in all of it in the EU countries was about half the prior year number. So that was the 2025 cash flow. Given the depressed operating margin at present, a very solid result, in our view, driven by working capital, clearly, and improving cash generation clearly remains a key priority for all of us. So on to the next slide and the balance sheet and financing. Liquidity remains robust, as you can see. And as I mentioned, being GBP 171 million at the year-end despite that modest cash outflow. The GBP 90 million RCF we have was undrawn throughout the year and remains undrawn. Net debt rose in line with the cash outflow and a bit FX to GBP 518 million, and as I said, GBP 323 million of this related to net leases on our fleet and estate. That number has actually been pretty stable across the year. Leverage, as I said, finished the year unchanged at 4.7x. Of course, we're targeting a reduction in the leverage and we do expect a continued recovery and profitability to drive that down over time. On the right-hand side, as a reminder, is a summary of our core facilities, which run to 2029, apart from the stub on our old bond of EUR 13 million, which will be repaid in November of this year. The leverage covenant is currently set at 5.5x. This is on the RCF. Moving to 5x from March 2027. As a reminder, this is only tested if we are 40% drawn at the quarter end. Obviously, we have headroom on that leverage number. And more to the point, our liquidity is such that we have substantial headroom before we would ever be close to drawing GBP 36 million to any point, let alone at the quarter end. Also, and as we referenced in the release this morning, we've recently put additional receivables financing facilities in place in our French roofing business and in Poland, which further increased that liquidity and provide even more headroom. We're utilizing these facilities to be to the tune of around GBP 15 million to GBP 20 million in terms of month-end impact, and it's a little higher intra-month. The net cost on this after interest, we can earn on the additional cash in hand are not material and are captured within the guidance on interest I'll provide in a moment. So in summary, we have ample liquidity and are very confident that will remain the case throughout 2026. And then finally, on the next slide, just a few additional points to assist with modeling. In aggregate, we're seeing modest increases in our input costs from suppliers. So overall, slightly positive, as shown here. Our ability to pass this on in full depends on local and specific project dynamics, but we, of course, expect continued pricing pressure in market. I think overall, it's fair to say we expect sales pricing in aggregate to be around to be flattish over the course of the year. OpEx inflation will remain broadly at the levels we saw in 2024, i.e., 2% to 3% increase. CapEx, very similar to the run rate of recent years in the range of GBP 15 million to GBP 20 million. Interest with a slight increase in interest on leases, we currently expect a full year charge in the range of GBP 54 million to GBP 56 million. And on tax, as reported previously, we have tax assets in the U.K. and Benelux, and so we don't expect to pay corporation tax there for some time. We do have tax liabilities in our other operating companies where we generate taxable profit. Given this mix and the fact we don't yet recognize the tax assets from an accounting perspective, our underlying effective tax rate is not meaningful, as I've said before. It's more helpful, I think, to guide to a P&L number, which this year I expect to be in low single-digit millions of pounds. And on cash tax, very similar, low single-digit millions. So that concludes my update. In summary, tough markets remained a major factor throughout the year, but the businesses are managing through these headwinds well. We're continuing to take the actions that will help both the short and longer term, notably in sustainably reducing both the cost base and working capital, and this will improve the operating leverage we benefit and performance overall as markets and volumes recover. And with that, I'll hand it back to Pim.

Thanks, Ian, for that very comprehensive overview. Perhaps we can move to Slide 15. The overview, you know the group. What's important here, it is a pan-European operation, 43% of the turnover is in the U.K. There are some strong market positions and good brand names. And in the slides hereafter, I'll briefly go through the various parts of the group to give a little bit more color on what has been said already. So if we go to the next slide, you can see that the 2 businesses which were really executing a significant restructuring program and made great progress. The U.K. Insulation and Dry Lining business moved from GBP 3.5 million loss to a GBP 5.6 million profit. So a very significant improvement during 2025. It's a combination of significant cost measures being taken and also retaking market share. So 8% in the first half, 3% in the second half. So not yet job done. We want to further improve our market share. We want to further improve margins, but great progress made by the team at U.K. Insulation and Dry Lining. On the right-hand side, you can see the Benelux improved significantly, but still a loss, minus 4.5% to minus 1.5%. Perhaps it's also encouraging to note that the Dutch part of those operations are already at the breakeven level. And clearly, the job is not yet done. And so we're aiming to have that business certainly in the second half of this year at a run rate which is turning a little bit of a profit. So if we go to the next slide, roofing and Germany. In U.K. roofing, we now also include Building Solutions, which was part of U.K. specialist market. That business improved year-on-year in profitability. And we also can already see some synergies market-related by having them as one business going forward. Roofing is a market leader, difficult market circumstances, but you can see they've achieved a 2% year-on-year like-for-like growth. So we've taken market share and it is one of the leaders was also recognized. We won an award, the National Merchant of the Year in 2025, even though we did not sponsor the award. So it must be a genuine award winning events. Germany, those markets were particularly tough and we believe that even though going 3% backwards on a like-for-like basis, we have gained market share. If you look going forward, what are we doing? We continue with some what we call strategic sales initiatives, i.e., here and there approaching some good teams from the competition in Germany, which as you may know in this industry will bring with it the sales as well. But also we initiated a cost reduction program, quite a significant one. And the combination of the 2, just as with the group really improves our operating leverage also in one of our bigger markets, which is called Germany. Markets going forward. You all know about the stimulus package that the German government is aiming to launch. That still has to take effect. So that will underpin a better market outlook over the medium term. If you go to 2 of our smaller businesses, Poland and Ireland, Poland, really good performance, 5% like-for-like growth. The market probably around 1%, 2% growth. So taking market share. We are the market leader there, and we've had a resilient financial performance. Ireland, I mean, we're proud to say we've taken market share in almost all instances, we have to be honest here, that in the second half of last year, the distribution business in Ireland was very price disciplined, but therefore, we lost some market share. We definitely aim to take that back in 2026 at good responsible margins. We also have 3 contracting business in Ireland, and they really delivered a very resilient performance as well in 2025. So with that, you can hear it now from people who are -- at the tough end, at the sharp end, Julien, our MD of France, been living these tough markets day-to-day. Julien?

Thank you. Thank you to give me the opportunity to talk about French market, a bit more into detail. So if we go to this slide, SIG France is a leading specialty distributor on the construction sector in France. We're focusing on exterior, roofing and cladding with Lariviere, and we hold the #1 position on the French market with GBP 388 million revenue in '25. LiTT is an interior specialist, interior means plasterboard, dry lining, insulation, partitioning, flooring and ceiling. So we hold the second position on the French market on the specialism. And we are generated -- we have generated GBP 190 million revenue in 2025. So this positioning gives SIG France a strong operational depth, a nationwide coverage and a clear leadership in technical distribution in France. On the '25 performance which would be the next slide. What I can say is that 2025 is a year that remained very challenging across the French construction market. We evaluated around minus 6%. A lot of element for that, but political and regulatory uncertainty further weighed on this investment decisions. Despite this difficult environment, both Lariviere and LiTT delivered a robust operational performance. And importantly, we continue to gain market share in these declining markets, both company, LiTT and Lariviere outperforming the market by approximately 1 and 2 percentage points on the core market segment, which is very important for us. While like-for-like, the sales declined by 5%, we successfully protected and improved our profitability. The underlying profit reached GBP 14.5 million. And this is a year-on-year increase of GBP 0.3 million. And this performance was driven by decisive actions such as GBP 9 million of cost reduction, a disciplined network optimization, including branch closure and property disposals and the continued operational efficiency measures. The cash generation remains a key focus for us during '25. We delivered GBP 18 million in free cash flow. This was primarily supported by a strong working capital management. So as you can see on the slide, Top Employer '25. So in parallel, we maintain a strong focus on people and productivity and make meaningful progress in the adoption of AI-driven operational tools, which help us to support efficiency gains across the organization. To conclude on '25, I'm pleased to say that in a declining market, SIG France demonstrated resilience, discipline and the ability to continually improve the operational effectiveness. If we look ahead now in the market, the market conditions are expecting to stabilize and gradually improve as the year progresses. Industry forecasts suggest approximately 2% of the whole market growth for '26. This will be driven primarily by new construction, like, I guess, everywhere else in Europe while renovation and maintenance activity is expected to remain broadly stable. But this might be eventually encouraged by government-specific incentives, such as Ma prime renov, we just have been reactivated a couple of weeks ago in France. So this incentive, this government incentive is financially supporting renovation work on housing for energy savings. So insulation, windows, et cetera. So against this market condition, our strategy in France is very clear. We remain committed to cost control and to structural efficiency. With further reduction initiatives, which we're already on the way. But the most important for us is that we aim to continue gaining market share by intensifying commercial activity. So increasing customer visit, strengthening prospective, focusing on core product category and improving conversion rates, all that through disciplined sales process. And for all this objective, technology will continue to play a central role. So we are expanding the use of AI tools to enhance our sales productivity, but not only for that, we also use it to improve working capital management, optimize pricing and margin. And also to support some of development of new value-added services we offer to our customers in 2026. So our objective again in '26 is straightforward. We will combine the market recovery, even if it's shy, we will combine it with a structural efficiency and enabling sustained profitability and strong cash generation for the French market. To conclude, for France, SIG France demonstrated in 2025 that we can deliver a resilient performance, generate cash and gain market share in adverse conditions. So with market conditions expected to stabilize or to slightly improve with our strong operational platform and our clear strategic priority, which are all underway, we are ready -- we are well positioned to continue creating value going forward. Thank you. And I will now hand it back to Pim.

Thanks, Julien. We can move to Slide 24. I already referred to this in my introduction. This is the first leg of our Vision 2030 strategy, which is the evolution of the GEMS strategy. I already pointed out that procurement is more in focus perhaps than in the previous strategy, and we aim to achieve at least 1% savings on the total procurement spend of GBP 2.3 billion. Working capital, great performance of the group last year. There are still elements, areas where we can see tangible improvement going forward. So that will be a focus. And as Ian already alluded to, we have found also in operating expenses, more cost savings and that will offset inflation in 2026. This will lead to further robust liquidity and optimize cost base ahead of any market recovery. And indeed, as Julien already said, we aim to continue to improve our positions in our respective markets. So the second leg, which is on the next slide, is optimizing the business portfolio, simplifying it. As already alluded to, we have 20-plus product market combinations. What we are in progress of doing is assessing each and every one of those businesses in terms of where it can be in the next 3 to 5 years. Both taking into account the organic development as well as the industry structure. So where the value case is compelling, there may be moves in terms of what we're going to do with our business going forward ultimately aligning the business to structural growth market is key for us in the end of the day and then clearly creating a group with an enhanced returns profile is the key. That brings us to the next slide, Slide 26. We make a distinction here between short, medium term and longer term. Clearly, given where we are and given where the markets are, short term, it's all about focusing yet again on the cost base, on procurement, on cash generation. That's the first cap of the ranks clearly. But we also want to have a focused business portfolio. And the alignment, what we've already said for the U.K. Specialist Markets to Interiors and to Roofing is also unlocking some internal synergies as well. Continue to grow ahead of market, we said that before. But by 2030, and it's not a coincidence that we have Julien here, we had an AI conference within the group, the ones who are furthest progressed is France. This is clearly on the radar going forward to develop an AI road map for the group because I believe, together with being a fast follower in AI with the physical structure and the market position that we have, we can continue outperforming the market, both in terms of volume as well as in margin. Talking about margin, we said we want to deliver 3% to 5% operating margins throughout the cycle. There's some work to be done throughout '26 and '27. And we also want to make sure that we are even in bad times generating cash, which the group hitherto has not been able to do. So in terms of the outlook, final slide, already said, we have a continued market softness in the first half of 2026. Weather conditions were particularly difficult. But we do expect an improvement over the balance of the year with the self-help that we've already spoken about. We expect to maintain healthy levels of liquidity and we are progressing the optimization of the business portfolio. So in 2026, we will improve or continue to improve our earnings capability and our capability to generate cash. That will clearly be demonstrated when the markets recover. So with that, I think that concludes the presentation, and we're over to questions, if I'm not mistaken.

[ Aynsley Lammin from Investec ] First question on [indiscernible] obviously turnaround in profits, just interested in [indiscernible] market share? Or does it kind of slow off a bit improvement?

Well, I mean, the weather clearly impacted the first 2 months. We actually had an inbound yesterday from Howard, who is leading that, 1 or 2 green shoots in terms of that. But we want to do both. I mean if you look at the U.K. Insulation and Dry Lining the margins in that marketplace are pretty, how shall I say, challenging alongside challenging market conditions. So I think it's going to be a balance of taking market share but also enhancing margins because we reached the stage where you would say we need to, as an industry, improve margins.

Okay. And second question, just on the procurement. Could you just remind us how the kind of buying of the group works in terms of use the group buying power if you were to sell one of your businesses, would that impact how much you'd be able to extract in terms of buying gains going forward?

Yes. I mean Julien actually has been with us in 2018. He was witnessing the first attempt to utilize the group's buying power, which I don't think ended successfully. Julien and other European MDs actually -- so yes, but they launched the process last year already saying we need to leverage where we can, whether it's on a group basis or it's on a regional basis, our buying power. And to that effect, and I alluded to that in January. I'm very happy we could convince a gentleman called Darin Evans to join us as the Chief Procurement Officer. And he's more like a player manager on the pitch, sometimes and coaching the individual procurement departments across the group and increasing data visibility. So this is not a here, we are big power across the group. This is actually further optimizing the procurement on a -- in our decentralized structure I mean one example perhaps to quote here, we had -- we acquired a business in the U.K. in 2022. We had the same supplier. And those terms and conditions were not yet aligned and they were differential. We've been able -- the local procurement department did a great job held by Darin to finally align it and have a saving of GBP 0.5 million to GBP 1 million. So you have to look at those kind of examples as to how are we going about it and 1% on a GBP 2.3 billion total is achievable but we're optimizing professionalizing local procurement, more data visibility and where it makes sense, we -- sometimes on group, but probably more Germany and France or Germany and Poland. You have to look at it more in a granular way. So there is not going to become a big central procurement department telling everybody what to do with more encouraging the local procurement community together with some central steering and the MDs are fully bought into that as to what can we achieve.

Great. And then just finally, I guess, given Julien is here, interested a bit more color on the French market. I think residential permits began to improve a bit. What's your kind of view on that and the -- and that 2% you put up for market, is that the wider market or your markets?

No, it is a wider market. It's principally driven by new housing, which after 2 years of very poor performance starting to go back up. On that, so on this, we are strongly positioned with Lariviere on RMI and with LiTT more on new businesses. So we will capture a bit of this market. Our core business been RMI for roofing will grow and will be stable compared to last year, probably between 1% and 2%, as I mentioned. We hope that the Ma prime renov, which is the incentive, which has been released last couple of weeks ago in France, will kick up properly and help like it happened in 2019, 2019 to actually develop insulation program into housing as well.

Good morning, and thank you for the presentation this morning. Couple of questions from my side. First, on Page 13, you're talking about further margin pressure. Can you give us a sense to the rough magnitude that you expect on higher cost with flat prices?

So we've clearly seen that for a couple of years and when demand is subdued, there's inevitably pressure on pricing. We managed that. I mean 30 basis points in the scheme of things is not much of a reduction frankly. I think the teams have managed that very well as we said. And we won't sort of guide on precise gross margin number for the year. But I think we would hope to do better than that this in 2026, so kind of flattish gross margin overall. But it's -- we're making the right trade-offs in the markets.

Okay, understood. And we have seen some data on the detailed planning applications and housing starts in the U.K. and particularly in Q4, those have been falling quite hard continuing into January. And given that detailed planning applications are quite a leading indicator for construction activity, where do you take your confidence for recovery in the second half of the year from?

So I think there's -- I mean, you're right, the U.K., I mean all the our bigger markets, they've all been pretty subdued on historical levels, really quite subdued. The U.K., as we mentioned, if anything, in the latter part of '25 sort of dropped off slightly further but I think there's 2 aspects really. Firstly, the sort of the gateway to, some of the sort of regulatory approval around higher-rise buildings. I mean there are still a lot of blockages in the system there. There's a lot of projects approved and ready to go and financed. So when those come through, whether that's in the back end of 2026 or early '27, there was a real pipeline of projects there that will come through. And in terms of house building, clearly, the government has some very clear targets that are sort of missing at the moment, but there's clearly a strong imperative on all sides really to get that moving. And at some point, that will start to move off what today are extremely low levels.

And what is your sense what has caused that increased weakness in Q4 last year and then basically Q1 this year. Why are people submitting from already low base, fewer planning applications, fewer housing starts?

Well, I think the general sentiment in the U.K. is sort of towards the back end of the year and was just -- was not sort of positive interest rates, probably not coming down as quickly as people might have expected some months previously. But there's definitely some positive signs, I think.

Okay. And then as a last question on your Slide 18 on Poland. While revenue growth is quite strong, what causes the lower profitability in Poland?

So gross margin was down. I mean, again, that's a good example where they've done a very good job. It's a tough market as they all are and the gross margin was down slightly. So that was the main driver. They managed their OpEx pretty well. It's a very -- the Polish business is a -- as we -- I mean, a, the market is, we think, I think, one of the better markets just generally and probably today than all of the others and we've got a very good team in Poland, as we've talked about frequently over the years, very experienced, very forward-looking as well in terms of all sort of omnichannel approach. So I think we feel pretty good about where the Polish business is.

[ Clyde Lewis at Peel Hunt ]. Three if I may. It'd be fascinating to hear a little bit more maybe from Julien about AI and exactly what you're trying to do there. Obviously, you talked about sort of pricing and stocking levels, it would be fascinating to hear a little bit more about that. And I suppose the second and third ones were really a little bit combined. But just thinking about your number of branches that you've got in the different regions. Are you happy with that? But at the same time, I suppose what are the competitors doing with regard to their branch count and I suppose there are competitive pressures? Are they increasing or decreasing?

On AI, it's a digital mindset. We started to implement in France a couple of years ago, with a lot of acculturation, a lot of small tools we implemented chatbot and to help internally. And now we are at the stage in 2025 where we're in a position to develop an in-house tool, linked on increasing and be -- and gain performance in sales activity first. That was our first use case that we -- the first family of use case we wanted to develop. So we develop one internally and we develop one internally to compare to see our capacity to learn from that. Both are already running. The internal one is running through ERP. The second one is tested. Today, with around 40 of our salespeople, mainly is how we're going to do a quotation in 20 minutes instead of 4 hours when you do a full roofing quotation. That's the gain of efficiency, we're going to reach on that. So the question we having on our AI road map today and as well as the group level is where do we stand with that? How much we're going to invest in the coming years and which is going to be the use case where we develop first? So today, in France, we are working on capital management which is 135 branches in France. There's 2 branches at 40 kilometers will have a different kind of range of products because roof are not the same in 2 Village, that's the legacy of the French territory. So managing working capital is a very complex for us. So AI will bring great helps, and we hopefully, we'll have something toward the end of the half year on that. Pricing is one of the elements where -- for the same reason where we need to use the AI where we will improve. And something also for our customers. Can't go to too much into detail on that, but our customers could use AI to facilitate the diagnostic on their customers. So roofing, images and stuff like that. So helping them on that. So that's really the 3 areas we're working on. The big question, and we need to find the right balance between what we'll be able to develop internally, which we already are and what we will to go faster, have to externalize. So that's the discussion we're having right now at the group level, and we will conclude very soon.

We're in the early phase of adoption AI. What I want to signal with this we are going to and within the constraints that the group has, I think that is the future. You combine our reputation, our market positions and our people with AI-supported dynamic pricing, procurement visibility and indeed logistics management, that is, I believe, the way forward for this industry. We cannot easily replicate our branch network, our reputation, personal contact with our suppliers, but behind the scenes, you can really power forward on AI. We had our first conference within the group. We know where we are. With the help of AI, you can generate what it could be. It's always an interesting challenge if you put it in what could AI mean for a distributor of building materials, not quite a lot. So within our capabilities financially and people wise, this is clearly going to be a focus going forward. It's going to be centrally supported, but businesses like France are recognizing that only. We've got about 2,000 salespeople, 415 branch managers who, on a daily basis, make decisions not based with all the information there. I think that's the key to make sure that people taking those decisions on a daily basis have the right tools and the right support available. So that's what we're doing. And in terms of the branch network, you will have seen over time that we are reducing the branch network but also still opening. I think you probably will see a similar trend going forward. Competition. We're actually starting to note 1 or 2 are also reducing the branch network. Up until recent last year, people were still opening branches, but I think the mood there has changed somewhat. You had 3 questions. What was the third one? Or do you...

I think that was sort of combined, wasn't it?

Christen Hjorth from Deutsche Bank. Three questions for me. First one, just on the factoring. You said GBP 15 million to GBP 20 million, I think. I'm just wondering what sort of capacity would be there for factoring. The second one, just on energy and fuel, given everything that's going on in the world, just maybe the pound million cost and the extent to which inflation there is in that the guidance around inflation for '26. And then finally as well, just anything on pricing at the start of the year. I don't know when you generally tend to increase prices, but obviously, just in the context of risk of further pressure on pricing as we move through '26.

Okay. It sounds like me.

It sounds like you, Ian.

So on the factory, we already had a facility we've had for many years in our LiTT business, which we kind of reported, which give or take, is sort of GBP 30 million or so. So the capacity of what we've done in Poland and [ Lariviere ] would be more than GBP 15 million to GBP 20 million. So we're not sort of maximizing that at this stage, but it would be in excess of that if we chose to put a precise number on it. But it's in excess of what -- the number that I mentioned there. And as I said before, just -- it makes perfect sense to us. It's really pretty inexpensive. And so we're pleased to have done that. I think on energy, I mean there's 2 different aspects to that, obviously, from an input cost point of view, we will see what happens there. Clearly, if oil prices go up, then product costs sort of generally go up. As you know, that can be -- we sort of pass that on, not necessarily a terrible thing for a distributor. Obviously, the flip side is any impact on demand. So we'll see how those dynamics kind of play out. For us, more directly within our OpEx which is sort of light and heat and utilities costs and diesel costs of the fleet in the scheme of things, the total of those is 3% to 4% of our OpEx number. So it would take some pretty huge increases to have any kind of material impact. We do also -- we do hedge forward for at least through the balance of this year, some of our utility costs as well, which gives us a bit of color on that. And on pricing, yes, we -- I mean, obviously, January, February is when typically we see the increases coming through, which we did as usual. And there was a significant range from 0% or 1% up to 5%, 10% in certain products. And as I said, in aggregate, low single digits overall is the aggregate. And -- but we see that in most normal years. That's normally what happens, and that's what we've seen this year.

Ben Varrow from RBC. I've got 3 as well, please. Kick off with, yes, looking across the group and the different businesses, which do you view as SIG's strongest in terms of market position and value creation for the group?

So you've seen the overall theme there. I think each and every one of those has a good market position and a good way to improve profitability going forward. I literally mean each and every one. Clearly, the one which stands out is still the negative operating profit in the Benelux. But I've got every confidence in local management. They have the unfortunate element in there that I live 20 minutes from where that business is. And I speak the language as well. So we had some pretty intensive contact over the last 3, 4, 5 months, and I thoroughly believe that business can and actually is one of our star performance in the first couple of months this year. So that's ongoing. That will also have a good return. I was already mentioned, clearly, IDL made a big jump forward. We need to sustain that, not just by volume, but also by margin. So I haven't seen where we did see in the assessment where we said thus far, that's not a viable business. I mean, we alluded to that in the presentation. We had to close a small insulation business called Mayplas last year because we did not believe that could be profitable. We did -- it's small GBP 7 million, GBP 8 million turnover. But we have been able, for some profitable pats to be transferred into other remaining businesses. But there is not too many of those within the portfolio.

Building from that in terms of portfolio optimization, the message before has been not to sell assets at this point in the cycle or below optimal margins. How has the thinking changed?

That hasn't changed. As I said, we are assessing each and every one. There's no secret also internally as to where can you be in the next 3 to 5 years? And please take into account industry consolidation in your specific part. So look at competition, look at what possible combination could yield for further benefits. I mean this industry will consolidate over the next 5 to 10 years. And there is a value to be had there, and we want to be in a position to tap into that value. Clearly, if that's in depressed market circumstances impacting the fair value you could get from such a combination we are in no rush to do a sale. I mean, Ian already alluded to, we are confident in our liquidity. So we'll do it at the right time. Clearly, I can't be specific at this point in time what that means for which part of the group.

Last one, building on that. Just specifically on the distribution business in the U.K. Do you think consolidation there could sort out the structural margin issue for the market? And is there room for that market to...

I think that's generic across Europe. And you see there are several platforms in Europe, driven by CVC, Blackstones, so the BME Stars of this World. You've got a gentleman in the U.S. called Mr. Jacobs, who wants to build from scratch a global $50 billion distribution of building materials business. So far, he started in the U.S. and both Beacon Roofing and now Kodiak. He may go across the pond. That consolidation will happen. And why will it happen? It will enhance market positions. It will have synergies. So it's an -- this is an industry which will consolidate not just in the U.K. but across Europe and indeed globally.

I think we've got time for one more question. May if we go to the back and we'll take later if that's all right.

So on the issues in the Middle East, I think it's very early, and we don't know what's going to happen, but do you have any thoughts on what would be the scenario if this went on for a while, we had higher energy prices. Have you had any conversations with clients about potential price increases, pass-throughs, et cetera?

No. I think your first comment was right. It's obviously extremely early and like everybody, we'll sort of see what happens and how it plays out. We saw somewhat -- not the same, but somewhat similar backdrop a few years ago and with supply constraints, et cetera. I mean, clearly, as I mentioned earlier, if oil prices go up and that affects manufacturers, maybe that affects pricing. Our model is that those get passed on. So I think it's too early to say anything beyond that really at this stage.

Well, if there is one more question, we'll have time -- we make time.

Toby Thorrington from Equity Development. I had 2, but I'll keep it to one. It's in 2 parts. So firstly, part one for Ian, I think could you just update us where the state of the ERP rollout is around the group, please? And kind of building on that interested flipping over to Pim just to understand the fresh pair of eyes what you think the quality of management information is around the group. And behind that question, I'm thinking on the basis for moving into AI is founded on good quality data, et cetera.

So ERP, quickly, as you know, we don't have one platform across the group, which we think is a good thing. We upgraded in Poland about a year ago. So it's a rolling program as and when required, and we clearly do not do ERP implementation unless until we sort of have to, and there's a very clear business benefit. We did Poland. We're in the process of doing Ireland, which is obviously a much smaller business as more in the nature of an upgrade. And we also -- the more material and we're doing at the moment is France and Julien's business, where we have a good system, but one that did need replacing. So there's a project underway in France as well.

Including this year?

No, concluding. No, not concluding this year, sort of into sort of back end of '27.

So I mean, the follow-on question, remarkably good I believe the IT infrastructure is within the group. And that will provide a good basis for further AI development. Now people are on the ball across the group, how variations and that will allow with more focus, as I said, we aim to be a fast follower on AI in distribution. I do not think at this point in time, we're too far behind if we are behind indeed, but it is the way forward which again, I repeat, combine that with all the strength that this group has, that's the way forward for us. Yes. So I think that were the questions in the room. So thank you very much. Any questions from the net? No. So I'm told to conclude proceedings. Thank you very much for joining us this morning. Thank you.

Thanks a lot.