Good morning, everyone, and welcome to the SIG half-year results. I'll now hand over to Gavin Slark. Gavin, over to you.
Hi, good morning, everybody, and welcome to our full-year results for SIG for the year to December 2024. I think most of you know us pretty well, but just in case any of you do not, I'm Gavin Slark. I'm the CEO, joined today by Ian Ashton, who is our CFO. I really appreciate you all turning out today. I know it's a really busy day in the markets as well, so I appreciate your time. Our program this morning, again, I think, is a well-trodden path. I'll give you a very short introduction and overview. I'll then pass you on to Ian, who will take you through the detail of all of the numbers. I will come back at the end and give you a brief overview of the business. That should still leave us plenty of time at the end for some interesting Q&A.
In terms of 2024, you do not need me to tell you how tough the markets have been out there during the past 12 months. I think we have delivered a robust performance on the backdrop of those markets. Group revenue down just 4% to £2.6 billion. As you work your way down, what is on that chart there, you will see some really good performances, in particular from U.K. roofing and Germany. I think Germany deserves a particular call-out for a really strong performance in actually what was really quite a weak market and outperformed the market by some considerable way. We have made sure that as we have gone through the last 12 months, we have maintained a really disciplined approach to both cost and cash management.
You will get a lot more from that from Ian in just a few moments, talking through some of the actions that we have taken on cost savings, the actions that we have taken on restructuring. You will see there at a headline level, GBP 42 million worth of operating cost reduction prior to inflation. We have continued to invest in the business in a very targeted way, making sure that we continue with our program of modernization, of digitalization, and upgrading the branch network where we feel it is appropriate, and also bringing some specific teams into specific businesses to help us drive higher margin areas like technical insulation. We have also made good progress operationally with some really interesting additions to the management team.
We've got a really good new Managing Director in the U.K. interiors business that we feel very confident that Howard Luft joining us will enable us to drive that business with some considerable pace as we go through 2025. Also, I think we've got the business really well positioned now for the upturn, and we believe the market upturn will come. We understand the cyclicality in our marketplace, and we understand how important it is to be in the right place to take advantage of that cyclical upturn when the upturn comes. The underlying demand for construction in all of the markets in which we operate remains very strong. With that, for a few moments, I'll pass you over to Ian to take you through the detail of the numbers.
Thank you, Gavin. Good morning, everybody. Hope you're all well. The key financials in 2024, we made good progress operationally with the financial results very much reflecting the impact of subdued markets, as noted by Gavin already. Group sales were down 4% over the prior year on a like-for-like basis, a resilient result given the market backdrop. Encouragingly, the rate of decline moderated notably as the year progressed, as I'll discuss in a minute. Gross margin was down by 80 basis points on 2023, primarily from pricing pressures in the current market, as one would expect. The lower sales and gross margin were partially mitigated by very effective management of operating costs, and this led to an underlying operating profit of GBP 25 million, which was right in the middle of the range that we guided to back in June of last year.
After finance costs, this resulted in an underlying loss before tax of GBP 14 million. I will look in more detail in a moment at the key elements within all of these numbers. Below underlying profit, other items were GBP 31 million for the year, mainly comprising restructuring charges of GBP 13 million, the cost related to our refinancing in October of about GBP 5 million, and a non-cash impairment of certain assets in our U.K. interiors business of GBP 7 million. I will expand on the restructuring and the refinancing in a few minutes. Free cash outflow of GBP 39 million, as expected, was well down on the positive free cash delivered in 2023 and 2022. The lower profit was obviously the main driver, along with higher one-off cash costs such as those related to the refi. The cash outflow led to an increase in net debt to GBP 497 million.
Leverage has risen as a result of both that and, in particular, the lower profit. As a reminder, about two-thirds of that net debt number relates to leases. Of course, I'll cover cash and the balance sheet in more detail in a moment. Revenue here is a simple bridge of the revenue number. The GBP 39 million lower volume represents around a 1.5% decline for the full year, reflecting those softer markets, but as I mentioned, improving in H2. Price deflation of GBP 83 million reflects a full-year impact of about 3%. Branch changes, mostly closures, along with a small number of openings, are not reflected in the like-for-like numbers. They resulted in a net GBP 16 million drop in revenue. The closures account for about GBP 25 million of lost revenue.
These were underperforming, often poorly located branches, and their closure is part of the restructuring, which will help the bottom line. Finally, working days and effects in aggregate were a very slight headwind on revenue in the year. A bit more detail on the revenue. This slide shows the H1, H2, and full-year growth rates by OpCo on the left, and on the right, the trends in the group revenue growth rates quarter by quarter. Starting on the left-hand side, as we've said, market conditions remain challenging across the year, but in all of the markets, bar Poland, the H2 like-for-likes improved over H1, albeit partly due to weaker comparators. The U.K. highlights were firstly U.K. roofing, which reverted to growth in H2, outperforming a weak market by, in our view, a considerable margin. Secondly, the H2 improvement in U.K. interiors.
While still declining in H2, that rate improvement to a 6% decline is better than the market, in our view, and a very solid result in the circumstances. Gavin will talk in more detail about the management and other changes we have made in that business during the second half. The French market was tough in both interiors and roofing, yet we saw improvement in our H2 numbers, especially in roofing, and both businesses continue to execute on their plans very effectively. Our German business was 2% down for the full year, as Gavin mentioned, a significant achievement in a very challenged market, and Gavin will touch on some of the specifics we are doing in that business to drive that performance. The Polish market dipped unexpectedly in Q3, as we have mentioned previously, but stabilized in Q4, and we remain pleased with the performance there.
Gavin will talk about what we've done recently in the Benelux to transform the cost base and profitability in the Netherlands. Throughout that process, we've also seen a stabilization of underlying top-line growth. Finally, Ireland improved further to deliver a strong growth rate of 17% in H2. As a result, we also saw a good, fairly rapid improvement in their operating margin. Turn to the right of the slide, and you can see the trend on volumes and price for the group as a whole over the course of the year. In short, of the 4% full-year sales decline, about two-thirds was due to lower pricing, and a third was volume. On volumes, the rate of decline, that green dotted line, moderated over H2, as we'd suggested it would when we reported at the half-year.
This was largely due to the lapping of increasingly weak comparators, but we also saw a stabilization in absolute volumes in a number of markets. In the event, H2 volumes were flat over the prior year, and actually, Q4 was marginally positive, as you can see here. On pricing, the blue dotted line, that remained a slight headwind throughout the year, improving slightly in H2 to around -2% or -3%. This was partly net deflation on input costs in our product mix, with some deflation on commodities, notably steel, slightly outweighing some modest levels of increases in certain of our more core products. In addition to that, we saw some heightened selling price pressure, as would be expected. The black line is the group total like-for-like rate, i.e., the aggregate of the two dotted lines.
In summary, that improved from minus 6% in H1 to minus 4% in Q3, and improved again to minus 1% in Q4. We have seen that improving trajectory continue in the first two months of 2025, with like-for-like sales flat over the prior year for those two months in aggregate. Profit Bridge, this shows the year-over-year drivers of operating profit. The first two red bars show the gross profit impact of those sales movements that I have just talked about, including the net impact from the closed branches. Combined, they are obviously the main driver, including the gross margin impact of pricing pressures. We do remain satisfied with how the businesses are handling that pricing environment and the trade-offs involved with volumes, and making sure that we emerge from this low point in the cycle well placed to grow the margin.
You can see that elsewhere in gross margin, there was a slight positive, reflecting some favorable geographic mix, notably U.K. roofing in Germany and good management of product mix. Moving across to the right-hand side, the GBP 18 million inflation within our operating costs was back towards more normal levels based on historic leverages after the more extreme increases in 2022 and 2023. Employee costs are about 50% of our total OpEx and saw inflation of around 3-4%, which accounts for about 70% of that GBP 18 million number. The GBP 42 million in the green bar is the underlying savings we have made on OpEx versus the prior year, a pretty material number. I will cover that in greater detail on the next slide. As you can see, we delivered GBP 25 million full-year operating profit. Just for clarity, that was GBP 12 million in H1 and GBP 13 million in H2.
I think overall, you can see clearly the drop-through impact that lower revenue has on our business model, with a branch network-oriented cost base that is primarily people, branch estate costs, and fleet. As we have said before, that leverage does, of course, work the other way around too, and will do so when volumes recover, but in a more efficient and effective business than we had a couple of years ago. Just some more detail on those OpEx actions. The left-hand side shows a simple bridge from the reported OpEx reduction of GBP 32 million to the GBP 42 million of underlying savings. Of that GBP 42 million, GBP 23 million was unrelated to what we term restructuring, i.e., there were no one-off costs required. It was driven rather by rigorous cost control, including most notably the disciplined management of the natural headcount churn throughout the business, i.e., not replacing leavers.
On restructuring, which contributed GBP 19 million of year-over-year OpEx savings, we talked at last year's full-year results of delivering GBP 10 million of permanent annualized savings through actions taken to that point, and that increased to GBP 15 million at the half-year. That has delivered as expected, and we've since implemented additional initiatives such that this program now totals GBP 37 million, as highlighted on the right-hand side of the slide. Broadly, GBP 2 million of that benefited 2023 versus 2022, GBP 19 million in 2024 versus 2023, and we expect another GBP 16 million benefit in 2025 versus 2024. In H2 of 2024, the most significant elements of those changes were in U.K. interiors and Benelux, which Gavin will touch on in more detail. As noted on here, some of these restructuring OpEx reductions are related to closed branches, and so the net profit impact is slightly less.
We'd expect a net underlying profit benefit of around GBP 11 million this year versus 2024. The cash cost to deliver these cumulative restructuring savings is GBP 17 million, with GBP 11 million spent to date. Of the balance yet to be incurred, much of this will be spent in H1 of this year. Taking a step back, in aggregate, through restructuring and the ongoing management I mentioned, our group headcount was 430, or 6% lower at the end of the year than at the start. Cash flow, in the appendix, we've included the usual more detailed breakdown of cash flow and net debt. This slide just shows, focuses on the key drivers of free cash flow.
The GBP 105 million EBITDA on the left was GBP 27 million lower than the prior year, which drove the drop from positive free cash flow in 2023 to the GBP 39 million outflow in 2024 shown here. The next item, that first red bar, lease payments on our fleet and estate, was similar to the prior year. That will grow slightly over time with the business, as I've said before, not least with inflation, but it remains a relatively stable number. We're a CapEx-light business, as you know, and the GBP 16 million spent in 2024 was in line with normal trends of recent years and reflects our continued targeted investment in the business. Working capital intensity also remains similar to the prior year at around 10% of sales, and this has been a pretty stable number, edging down in 2022 and 2023 and rising very marginally in 2024.
Timings of payments and receipts at year-ends can cause some small swings, but our average working capital as a percentage of sales, which is a key metric for us internally, did fall during the year, and that remains a major focus for 2025 and beyond. The GBP 13 million of cash exceptionals in the period relates mostly to the restructuring actions I just talked about, plus the one-off costs related to the refi and some relatively modest costs related to an ERP upgrade in Poland. Finally, we have interest and tax. Of the GBP 35 million of interest, roughly GBP 22 million related to the imputed interest within our leases, and the balance was interest payable on the old bond. Cash tax was very H2-weighted, as guided at the half-year point. I will cover the forward view of these numbers in the technical guidance. That was 2024 cash flow.
Improving cash generation clearly remains a key priority for us. Turning now to the balance sheet. In October, as most of you will know, we successfully refinanced our EUR 300 million bond, extending the maturity out from 2026 to late 2029. The new coupon is higher at 9.75%, reflecting the movement in Euro base rates since late 2021. Other than that, the terms are basically unchanged. The bond's a covenant-light instrument, which in practice means it will be subject to no covenant tests. At the same time, in addition to the bond, we renewed the GBP 90 million RCF facility we have in place with a syndicate of five banks. The only change of any note there was that we amended the levels at which the leverage covenant is tested, given the weaker market conditions at the point of renewal, and to give us the maximum flexibility.
Details are as shown on the right-hand side. For 2025, for example, we have a covenant set at 6.5 times. This is tested at quarter-ends only, and only if the RCF is over 40% drawn, i.e., we could draw GBP 36 million without triggering a test irrespective of the actual leverage level. There are no other covenant tests, to be clear. Finally, on the refi for completeness, the tender offer for the new bond was almost all taken up, but left a small EUR 13 million stub on the old bond. That remains in place and has in effect provided EUR 13 million of additional liquidity until it is repaid, which has to happen by November 2026. Just looking at some of these specific numbers in the bars there, liquidity remains robust, as you can see, being GBP 177 million at the year-end despite the cash outflow in 2024.
The GBP 90 million RCF was undrawn throughout the year and remains undrawn. Net debt rose in line with the cash outflow to GBP 497 million. GBP 321 million of this relates to net leases on our fleet and estate, and that latter number has been pretty stable across the year. Leverage on a post-IFRS 16 basis, as with all our reporting, finished the year at 4.7 times, and that year-on-year increase from three and a half reflects the lower profitability and specifically lower EBITDA. We're, of course, targeting a reduction in the leverage and expect a recovery in profitability to drive it down over time. Just to provide some extra clarity in this area, and especially on the combined impact of our current credit metrics alongside our updated banking arrangements, I've added some data points at the bottom right of the page, which may help with modelling.
Firstly, working capital typically peaks in September in any year, and normally at around GBP 30 million higher than the year-end number. Secondly, we need around GBP 20 million of cash around the group at any one time. That's a bit lower than used to be the case, and than we previously reported, as we've continued to improve our cash management. Lastly, our peak intra-month cash requirements are normally about GBP 30 million higher than a month-end, although, of course, this does not affect covenants being intra-month. Taking all those factors into account, we believe we're in a comfortable position from a liquidity perspective. More specifically, we cannot envisage a scenario this year in which the RCF is ever drawn at a month or quarter-end, and any intra-month drawings, if they happen, would be very rare and at very low levels.
On top of that, the additional covenant headroom provides flexibility for us, allowing us to run the business as dynamically as necessary. Finally, just a few points on technical guidance to assist with models. As regards the impacts of inflation and deflation on the top line, we're seeing modest increases in our input costs from suppliers, which we expect to pass on in a normal way. We're also seeing continued pressure on sales prices given the general environment. In aggregate, we expect those two to net out and for pricing to be broadly flat for the full year. OpEx inflation will, as always, remain a factor, and we expect this to remain broadly at the levels we saw in 2024, i.e., a 2-3% increase.
Within this is the impact of the national insurance increase in the U.K., which has a GBP 3 million full-year effect for us, obviously roughly three-quarters of that in 2025 taking effect from next month. CapEx, very similar to our run rate of recent years, we expect in the range of GBP 15-20 million. On interest, the full-year impact of the new bond versus the old one is about a GBP 11 million increase in annual costs. That is about EUR 13.5 million. The year-over-year impact in 2025 vs. 2024 is about GBP 10 million. With a slight increase in interest on leases, we currently expect a full-year charge in the range of GBP 50-55 million. On tax, as we reported previously, we have tax assets in the U.K. and Benelux, and as such, we do not expect to pay corporation tax there for some time.
We do have liabilities in our other operating companies where we generate taxable profit. Given this mix and the fact we do not yet recognize the tax assets from an accounting perspective, our underlying effective tax rate is not meaningful. It is more helpful to guide to a P&L number, which this year I expect to be in the mid-single-digit millions. Our cash tax for 2025 will be lower than 2024 due to the lower profit in 2024 and the fact that last year's cash tax did include an element of catch-up in Germany, as we have reported previously. That concludes my update.
In summary, tough markets were certainly a major factor throughout the year, but the business is managing through the headwinds well and we're continuing to take the actions that will help both the short and the long term, notably in reducing the cost base in a way that's sustainable and that will improve performance and the leverage benefit that we get as markets and volumes recover. Of course, the refinancing provides stability and certainty on our funding and liquidity for an extended period of time. With that, I'll hand it back to Gavin.
Brilliant. Thanks, Ian. Appreciate that. Just in terms of the overall business review, I always find this slide is quite helpful just to look at our group operations on one slide at a glance. What you can see from this is last year, 70% of our profit was driven from the U.K. and from France, with a further 11% each from Germany and Poland, and then also the contribution there from Ireland as well. Just a reminder on the left-hand side of that slide that in Germany and in France, we do not trade as SIG, but we have really strong indigenous brands with Larivière and LiTT in France, and then Vigo and VTI in Germany. That just gives you sort of a one-page at a glance as to where we generate the profit that we have within the group. Overall, in terms of the market conditions, I do not really intend to spend a huge amount of time explaining how difficult the markets have been.
I think everybody understands that, and particularly the impact on residential and new build within our markets. Across our business generally, we are still around about a 50/50 split between residential and non-residential, and we're about a 45/55 split between RMI and new build, with new build being the 55% and RMI being 45%. Generally across the group, we've got this really nice spread between residential and non-residential and RMI and new build. France and Germany and the U.K. being our largest geographic markets just put some headlines here in terms of the market backdrop. Certainly in terms of France and Germany, they would have been the weakest markets that we saw during 2024, and we expect to see those stabilize during 2025 and return to growth during 2026.
In terms of the U.K., I think confidence is slightly ahead of where it is in terms of Germany and in France. As we go through 2025, we expect to see that continuation of market recovery as we go through the U.K. into the second half, going towards the end of 2025. I think in all of those three geographic markets, the underlying demand for construction, the underlying demand for housing and infrastructure remains very strong. In terms of long-term growth drivers, I think it's important that we just recognize the breadth that we have in SIG and the sort of sectors that we do supply into. The underlying demand for construction remains very strong across Europe, and as we continue to see those markets recover, we should see benefits to that within SIG.
Certainly in all of those geographies, the importance of growing construction to the overall economic recovery is really important. Across Europe, we do have an aging housing stock, an aging housing stock that needs RMI, and also an aging housing stock that in some cases needs replacing with new housing. Again, as we continue to see those markets recover, that demand for housing and for infrastructure spend, we should see really bringing benefits through to us. As ever, we mentioned here the sustainability-driven tailwind, which, as we have to insulate better, we have to manage energy better, we have to decarbonize our built environment, all driving towards products that SIG are very, very strong in.
I think if you look at those three big areas of the construction tailwind, the aging housing stock and sustainability, all of those areas play into core product areas that we deal with within SIG. In terms of the revenue performance, again, I think this is just very much at a glance. You can see from this chart that our U.K. interiors business is still our largest business by revenue, but you'll also see from this chart that over 2024, we had genuine like-for-like growth in both the Irish business and in the U.K. roofing business, with downward market pressures in most of those areas causing that sort of revenue sort of shrinking slightly compared to the previous year. That'll just give you a really easy view in GBP as to where the revenue is generated across the group.
The chart does change somewhat when we move into looking at operating profit and looking at operating margin. What you can see from this slide is that actually our two largest profit makers in the group were our two roofing businesses. U.K. roofing being the largest and French roofing being the second largest profit maker across the group. As you go down the chart and you get towards the bottom, you'll see there that we had a combined loss with U.K. interiors and the Benelux business of around about GBP 8 million last year. We are very, very confident in seeing a significant improvement in the performance of these businesses as we go through 2025 and confident where I would say really our U.K. interiors business should return to profit during this year and the significant improvement within the Benelux business.
You'll also see there that last year U.K. roofing, Leet and Ireland did deliver operating margins in excess of 3%. It is quite a different chart when you look at it compared to the sales chart. As I said, those ones at the bottom, that combined GBP 8 million loss, we should see a significant improvement in both of those businesses during 2025. Just referring back to the capital markets day that we held at the end of 2023, when we launched our GEMS strategy in terms of grow, execute, modernise and specialise and moving towards that medium-term target of a 5% operating margin, that still very much drives our behaviour in the business and drives what we're trying to do. In terms of grow, it was very much around revenue growth ahead of the market.
As we mentioned, particularly in U.K. roofing and in Germany, we believe we can clearly demonstrate growth ahead of difficult market conditions. The execution part over last year really was around the cost base and looking at how we're operating the business and how we do what we do, which is really important to us, but also enhancing the management team, bringing in new talent, new expertise to make sure that we're driving the improvements in the business as fast as we possibly can. We've continued to look at modernisation. We'll talk a little bit later on about the new omnichannel platform in Germany. We've got great engagement from our customer base on that, and we'll also be launching the omnichannel platform in France later in 2025. In terms of specialisation, we've brought in a lady called Lucy Lynch to head up the construction accessories business in the U.K.
Lucy's got huge experience in both Toolstation and Screwfix, and I think brings a lot to our construction accessories business, not only in terms of leadership, but also what she can bring in terms of pricing, in terms of modernisation and in terms of digitalisation. Another key appointment to our U.K. management team. We're continuing to invest in specialist markets, sales expertise, both in the U.K. special markets business, but also, as I mentioned earlier, in our German business as well, where we see opportunities in technical insulation, which is a far better margin than just looking at pure interiors products. How are we growing? If you look at U.K. roofing there, Chris Lodge and his team did a super job in driving growth in that business over the last 12 months.
In the second half of last year, you'll see we had 5% like-for-like growth in U.K. roofing. Over 100 locations in our roofing network in the U.K., a really specialised distributor and really increasing what we do in terms of customer engagement and driving through the benefits of being a specialist. In Germany, we have a business that's led by a gentleman called Alfons Horn. Alfons returned to SIG about three years ago to drive that recovery within the German business. As Ian said earlier, we were just over 2% down in Germany last year in a market that we believe was somewhere closer to 9% down. A significant outperformance of the German market by the team. As I mentioned earlier, bringing in specialists to look at technical insulation, which we think has a really significantly better margin proposition than purely the historic interiors business.
In Ireland, our distribution business is starting to improve and really starting to come through well. Ireland is recognized as being the fastest growing economy in Europe and probably the fastest growing construction market as well. I think it's important when we look at Ireland, and we did say at the last results that we try and give people a little bit more insight into the makeup of some of our group businesses. Ireland is actually made up of four separate and distinct businesses. Yes, we have the SIG distribution business, which is the business that you would all associate with SIG, but we also have three contracting businesses in Ireland. We have SIG Workplace that specializes in office fit-out. We have JS McCarthy that specializes in the refurbishment of infrastructure, but infrastructure really specializing in petrochemical installations in Ireland.
HHI, which is a market-leading business in Northern Ireland, specialising in the supply and installation of kitchens, bathrooms, and roofline products. You can see the Irish business is quite an interesting mix. It is not just one business. The revenue is pretty much split 70% within the distribution business and 30% within the contracting businesses, although I would just say as we stand here today, the profit is pretty much directly inverted from that. Last year, about 70% of our profit in Ireland came from the contracting businesses, 30% from distribution, which obviously highlights the opportunity we have to improve the profitability of the distribution within Ireland. We are also really working hard to get our businesses back on the front foot with our customer base. Just two weeks ago, we held a full-on trade fair in what is going to be our new branch in Frankfurt.
It's always helpful when you want to have a trade fair when you happen to have a 10,000 sq m empty unit to hold it in. What we did here, we brought together from all over Germany something in the region of 1,500 customers, 300 supplier reps, 200 colleagues, and we brought them all together over a 36-hour period with a full-on trade fair, evening events as well. I took the whole of the executive leadership team from the group to Germany. We saw what was going on there. Fantastic event, really re-engaging with the customer base, putting the business back on the front foot, and Alfons and his team did an unbelievable job in delivering that event in Germany just a couple of weeks ago.
In terms of execution and reshaping the cost base in terms of how we look at the business going forward, as Ian said, a huge amount of work went on right the way across the group. Certainly, if you look at reducing the headcount by 430 over the period of last year, we're very conscious of the impact that that has on the individuals involved, but it was critically important for us to realign that cost base to give us something to move forward to that we felt more comfortable working with. If you look at the branch closures, I would say the vast majority of those branch closures have been long-term underperformers where we did not see the opportunity to turn the performance around.
We have taken the opportunity to close those branches and give us a branch network that we feel much more comfortable with, that we can drive and that we can improve going forward. In terms of SIG U.K. and the interiors business in specific, Howard joined us on October 1. Howard's got a huge amount of experience in construction products in really well-known businesses right the way across the U.K. During this sort of Q4 period last year, spent a lot of time working on headcount reduction, operational efficiency, and really getting us well set for going into this year. There are a lot of sales initiatives going through that business right now as well. As I said earlier, I am very confident that we can get U.K. interiors back into a profit for 2025, significantly better performance than we saw during 2024.
In terms of the Benelux business that was our other loss maker, we have closed seven branches in the Netherlands again during Q4 of last year. There was a specific supply chain anomaly within the Benelux business whereby we separated the branch networks for wet products and dry products. What we have done now is consolidate our supply through the network that was in place for the dry products, which we believe will bring a significantly better profit performance from the Benelux business this year. We put a new Managing Director, Bert De Rujit, into the Benelux business late in 2023. Bert has been with us for almost 18 months, and Robert Broekman joined us as the Finance Director in Benelux just 12 months ago.
All of this rationalisation and restructuring plan is very much down to the new management team that we put into the Benelux business that we believe will drive us some significant improvements. In terms of modernisation, I mean, the detail is really there on the slide, but the new e-commerce site that we've launched in Germany, great engagement. A lady called Christina Schultz has driven that within our German management team, supported by a guy called Bartosz. Some of you may remember the first omnichannel system that we had within SIG was launched in Poland, and Bartosz was a key part of that Polish team. Utilising the expertise from Poland to help us launch that new site in Germany, and that is up and running. Certainly, Bartosz has been working with the French team.
In terms of the Leet site, we will launch that later in 2025. We've continued with digitalization in the U.K. as well, not with the large-scale projects of omnichannel, but certainly in terms of just really enhancing the customer experience using digital tools to really speed up the transfer of information. Particularly when it comes to technical services within our roofing business, we have a part of that business called Accu Roof, which is a design and supply business. Really modernizing that and bringing that into the digital era has really helped us there as well, which I think has played a key part in driving the performance of the overall U.K. roofing business.
In terms of specialisation, again, some of you who were at the capital markets event will remember it was the first time that we'd really separated out our specialist market businesses in the U.K. Our construction accessories business, which really is more of an early cycle civils business, not involving pipes and drains, but really involving geotechnical products, really had a strong momentum coming into this part of the year. New management team in that business as well. You'll see with getting projects like Anglian Water, this is a different set of projects than SIG would ordinarily have been involved in. It's taking us into infrastructure spend, making us a real specialist.
As an example, that geotechnical product that you can see on the photograph there, what that enables the contractor to do is to actually put a road down on site much more quickly, much less expensive, and also it is much less invasive to the substrate underneath it. Within our building solutions business, one area that we have been developing is solar canopies. We are a steel manufacturing business in the northwest of England, and that picture really, that is a real picture of one of our solar canopies, but we are actually manufacturing these for contractors for them to install their solar systems. Certainly one recent one that we did in Sunderland, there was this Omni system that we have there. All of the cabling, all of the guts of the charging network is actually inside the steel structure.
You get this really clean and modern-looking structure for solar charging in car parks. Within performance technologies, we have a number of different brands in there, but one of them has been developing this Versapanel product. What it is, it's a composite product that involves cement particles and wood particles, but it has fantastic acoustic properties. It has fantastic thermal properties. We are just kind of like really branching out into these specialist areas and these niche areas we do believe will have a real margin benefit for us going forward and helping us drive towards that medium-term 5% target. In terms of ESG, the data is there on the slide.
One thing I would say about our sort of target for being net to zero carbon by 2035, for us as a distributor, that really is quite dependent on there being a commercially viable alternative to diesel in the very near future. The vast majority of our emissions here are from the vehicle fleet. For us to achieve that target, we will need to see something that's commercially viable to diesel coming through in the market, but still very much remaining part of our target. Health and safety, critically important. We have a very simple strapline in the business, which is keeping everyone safe every day. We really drive the business on the back of wanting to make sure that everybody goes home safe at the end of every day's work.
I think culturally, our colleagues really want to work within an environment that feels like the colleagues are being valued and that we are looking after people. In terms of the employee engagement score, although the employee engagement score itself was lower than it was in 2023, I still think it's actually a very strong performance given that as we went through 2024, there was a lot of restructuring going on, there was a lot of headcount reduction going on. Still, to have a positive EMPS score, I think is a really good result and really starts to show how the strength of the culture of the business is starting to come through. Finally, just a very quick summary and an outlook slide looking forward into 2025.
I think in 2024, my view, a very robust performance against some really difficult end markets and a really good disciplined approach to cash management and to cost management and significantly refinancing the debt in 2024 in October. Looking ahead to 2025, I think we do see a gradual recovery coming through in the market. I think we understand certainly in terms of infrastructure spend, in terms of housing, we are relatively late cycle in most of our larger businesses. As those markets continue to improve, we should absolutely see the top line washing through to the bottom line improving across the whole of the group. Again, as we go through 2025, you will see a really disciplined approach both to cash management and to OpEx management.
In terms of the medium to longer term, we do believe that our business is really well placed to take advantage of that medium-term recovery. Operational leverage works both ways. With the work we have done on efficiency and productivity across the group, we should see really strong recovery as volumes start to come through. The primary focus for us is shareholder value creation as we go forward, making sure that we get SIG back in the spotlight and making sure that we can be clearly seen to demonstrate that we can generate incremental profit, get back to generating free cash, and making sure that we can bring some shareholder value going forward. That is the end of the presentation. Thank you for your attention. It is much appreciated. We are going to move into Q&A.
In terms of the logistics for Q&A, if you have a question, if you could please raise your hand, we can bring a microphone to you so those following online can hear. When you get the microphone, if you could give us your name, the organization that you represent, then ask us the question. Obviously, the more difficult, the better because it keeps Ian occupied in terms of answering the difficult questions. Thank you very much. If you've got a question, please raise your hand.
I'm Ami Galla from Citi. Just two questions for me. The first one was on the gross margin moves. Could you give us some more color in terms of how the gross margin evolved across your markets in Europe in 2024, and how should we think about the outlook ahead? The second one was just on the competitive dynamic, especially in Europe. Given the sort of tough market backdrop that you've been through in the last two years, do you kind of have you seen more weakness from your competitors? And potentially, is that a tailwind as we kind of think about the outlook ahead?
If I take the second one, I'll let you come back on the margins. In terms of the competitive field, do you know what? It's quite interesting for those of us that have been around a while and can go back to the sort of global financial crisis. There was this expectation that the market would, people would fall out of the market and the competitive field would become less competitive. It didn't happen then. In reality, it hasn't happened over the past two years. I don't think the competitive field has changed very much. I think as an operator within our competitive field, I think we're now much better set up to really be a strong competitor and a market-leading business than we were two, three, four years ago.
On the gross margin, I mean, if you compare sort of 2024 to the prior year, the biggest pressure from a pricing perspective was on the more commoditised products, as you'd expect. That sort of affects particularly the interiors businesses that are exposed to dry lining, for example. French Interiors, U.K. interiors were probably the two that declined the most in the year. Others, frankly, one or two were flat, one or two went up marginally. It is where we see the more commoditised products is where we saw the greatest pressure. I think as I mentioned, we did see a bit of a geographic benefit in the year, and we may see a little bit more of that in 2025 as well. Those interiors businesses were the ones that declined more than others.
Bring the microphone down to Aynsley, and then we'll move across to you, Charlie, after that.
Thanks very much. Just two questions from me, please. Aynsley Lammin from Investec. First, on the U.K. interiors, you obviously closed three branches in that business. Is that all of the branches you need to close now closed? When you expect to get back to kind of break- even or maybe small profit this year, is that without any help from the market, just some of the kind of weakness from those branches that you closed presumably? A bit more color around that. Secondly, just on the January, February early trading, obviously flat like-for-likes, maybe just a bit more color, price, volume within that, any big differences between France, Germany, U.K.?
U.K. interiors, no more plans to close any branches. We did what we needed to do. I think in terms of returning to profit during this year, do not necessarily need to see a market uplift for us to do that. I think the management plan that we have and the actions that we have taken will enable us to do that. Obviously, if we get some market uplift and we get some volume coming through, it will be gratefully received and we will take best advantage of it. I am still, if the market stayed flat during 2025, confident we can move that business back to profit as we go through.
In terms of like-for-likes, I don't want to get into specific numbers, but really if you look at a group level, the like-for-like sales being flat in January and February, broadly, what you then look at is a positive like-for-like performance in U.K. interiors, in U.K. roofing, in Germany, and in Ireland, with a negative like-for-like performance in France and the others kind of equating to get the group back to flat. That's a broad outline of how the first two months looks.
The price volume was sort of similar trends to that graph. So broadly, slightly positive volume, slightly negative price.
Okay. Charlie, let me get you.
It's Charlie Campbell. It's Teya. Two quick questions. First of all, if I can, so the U.K. interior break even, is that a full year profit greater than zero or moving into profit greater than zero at some point in the year?
We are obviously just in the very first week in March. It's very early. My ambition, Charlie, honestly, is to have it in profit, to report a profit for U.K. interiors for the end of the year.
Just a second question is sort of on Germany. Am I right in thinking that that business is probably the most underweight to residential in the group? Is that correct?
Yes. Yeah, it is. Certainly one of the larger businesses, definitely. Yes. Yeah. Okay. If we're thinking about markets, we should be thinking more about non-residential than residential for Germany. Yeah. Correct. Yeah.
That's similar in Poland as well.
Okay. Thank you. The last question was on the sort of going concern note and the sensitivities around the covenants. There's a calculation in there that says that sales have to drop 11-13% for the covenant to be breached. It does say that you're allowed to take mitigating steps in that. Without getting too granular, just sort of what steps those are that you're allowed in that calculation just to help us out a bit.
I mean, as you know, the stress testing, the reverse stress testing is something we have to do as part of that. That is kind of why that data is in there. I think it actually demonstrates quite well some of the things that I was talking about there in terms of the comfort over liquidity. I mean, it is just all we are talking about there in mitigations is additional actions on cost, delaying a bit of CapEx, etc. It is sort of the routine sort of mitigations you would do if the market was worse than we expected. All of that is obviously very much sort of worst-case scenario numbers.
Okay. Got a couple over on this side. Do you want to go to Stephen first?
Hi, Stephen Rawlinson from Applied Value. Three if I may. On Slide 12 here, and I think you went through quite a number of the issues that might arise if the working capital gets stretched and you get a recovery in the second half, which everybody's sort of hoping for. Could you tell me on two aspects of that? One is, have you been getting terms from suppliers during this difficult phase of the last year or two, which might evaporate if market moves upwards and sort of to the extent that they've been able to help out here? Secondly, with regard to working capital, I think one of the dictums has always been from Gavin that if it isn't on the shelf in the first place, you can't get somebody to buy it and take it up for them.
Just sort of how would that work through with the working capital requirements that might come from recovery? Secondly, can I just touch on bad debts? Because obviously during the difficult phase that we've had, but also actually in a recovery phase, some of your customers might get overstretched. Can you just talk us through a thought process on that? Finally, and it's probably a bit of an early, too early probably to respond to this, but obviously decarbonisation is something that you've been bearing in mind with regard to the uplift in demand. If governments switch their support for decarbonisation to buying guns and warships, where might you stand on that? Forgive me if that's a bit early, but it does actually ask the question to what extent you expected decarbonisation to boost demand.
Yeah. Good question. If I take the last one, I'll pass you back to the first two for Ian to take. It is a good question. It is very early to answer it. I think one of the things that's really important, if you look at the slide that we actually put up, I think that pent-up demand for construction in general, the aging housing stock and the aging infrastructure across Europe are every bit as important in terms of the decarbonisation agenda for us, particularly when you look in areas like construction accessories or you look at things like roofing. I don't think if there was a sudden turn away from decarbonisation that I don't think will happen, it's not the end of our plans for growth and recovery.
Okay. In terms of suppliers, I mean, yes, broadly, as things get better, whatever pressure there is there from suppliers will moderate. I mean, clearly, as you can imagine at the moment, in a tough market, suppliers look even harder. Credit insurance gets tighter across the construction industry generally. The teams manage that very well. I think to your point, as markets recover, that will sort of get better from where we are today. In working capital more broadly, certainly, yeah, you need it on the shelves. We do think there's still opportunities there to we're very, very conscious of making sure that we do have the stuff there. We've seen that in our business over the last two, three, four years.
The merits of having the stuff is critical, but we think there's opportunities and we think we can get the balance right and continue to sort of improve that working capital intensity. On bad debts, yeah, I mean, we've talked about this and got asked about this over the last couple of years and bad debts. Frankly, again, we're not in the least bit complacent about it. I think we manage it very well across the business. We've not seen, we've not suffered much in the way of bad debts. In fact, our bad debt charge in 2024 was lower than 2023. Of course, we'll keep a watch on it, as you say, as things start to grow. People might sort of overstretch, but I think I'd rather have that problem than what we've been managing for the last year or two.
Anybody else on this side of the room? Okay. Thank you. Looking to look at my colleague over here and just see, have we had any questions that have come in online?
Yes, we do. We do have two questions that have come online. The first one is, what are the main triggers for the U.K. interior segment to return to profitability in 2025? The second one is, could you please give some color on how much of the sales volume decline is coming from the closures? Thank you.
Okay. If I take the first one, I'll pass on to Ian. I think in terms of U.K. interiors, Howard coming in as Managing Director with a huge amount of experience both in the sector and with our particular customer base, I think there's a number of things there. Primarily, we have significantly realigned the cost base in that business. I think making sure that we can run with a very lean cost base in U.K. interiors is critical to making that profitability leap going forward. I also think we've been able to sort of unleash a little bit more of the sales potential within that business as well. I think we will see a volume improvement in U.K. interiors irrespective of what's happening in the market just because of the way that we're going to market commercially.
I think in U.K. interiors, getting back to profit this year is a combination of managing the cost and the margin really tightly and just unleashing a little bit more of the sales potential that we have within the business.
Yeah. The closed branches I mentioned were about GBP 25 million. It was net 16 with some of the branches we added. GBP 25 million of lost revenue, about 1% for last year.
Do we have any more questions or is that one more? Okay.
We do have one more question. Thank you. The question is, to clarify, you are expecting to realise GBP 16 million in gross cost savings next year and GBP 11 million net cost savings realised year over year in FY 2025. Will this translate fully to an GBP 11 million uplift in FY 2025 underlying profit, or will there be more costs in order to realise the savings? If so, how much? Could you provide guidance in full year 2025 for cash outflow number? Thank you.
Okay. Yes, the net GBP 11 million profit year over year is the number that I mentioned. There is GBP 16 million of OpEx savings, but then there is a bit of lost gross profit on the closed branches. GBP 11 million is a year over year benefit from restructuring. Yes, there are other cost headwinds, basically inflation, which I mentioned. That will be 2%-3% on the OpEx number. That is obviously going the other way. Certainly at this stage in the year, sitting here in early March, we do not want to guide to a full year free cash flow number. I have given quite a few bits of guidance there on some of the specifics. The big levers obviously are profit and working capital. We will give a bit more color on that obviously as we go through the year.
We certainly expect and hope that the free cash flow will be better than we delivered in 2024. We will give a bit more color as we go through the year.
Okay. Brilliant. Thank you. Really appreciate everyone coming out this morning. As I said at the very beginning, I know it's a really busy week. It's certainly a really busy day. Thank you for your time and for your interest. For those who've joined us online, again, thank you for joining us. Hopefully we'll see you all in six months' time. Thank you very much.