Good morning, everybody. I hope you're all well. Welcome to SIG's H1 2025 Results Presentation. I'm Ian Ashton, the group's CFO, and I'll take you through our results and progress over the last six months. This will take about 25 minutes, I expect, and at the end, we'll, of course, have time for questions. The agenda, as you can see here, I'll give a quick overview of the half, then cover the financial results, and then give some color on the progress we're making across our businesses. Before our results, as you'll hopefully have seen, we were very pleased to announce on 8th of July that Pim Vervaat will be joining as CEO on the 1st of October , and will then move up to the chair role after 18 months or so.
Pim has a lot of very relevant experience, and having, of course, met him, I know he'll bring a lot of energy to his role and to the group, and indeed fresh insights. He's looking forward to the challenge, and we're looking forward to having him on board. He'll be introducing himself to our investor and analyst community during quarter four. While this transition is taking place, our Managing Directors in each business have a very clear plan and focus on what needs to be done over the coming months, and the performance over the first half reflects, I believe, the strength of the wider management team. Onto the summary of H1. The key message is that we've continued to perform well relative to the markets in which we operate, but those markets do remain stubbornly subdued and challenging.
I'll cover the numbers in more detail on later slides, but overall, we grew like-for-like sales by 1% over last year. Within that, the standout was the U.K., where we grew 5% in aggregate. As well as outperforming our markets, we've continued to focus on short and long-term measures to manage costs, productivity, and cash flow, and to good effect. We've made further structural reductions in overhead costs, and our modest cash outflow in H1 was notably improved versus prior years. On the right-hand side, you'll see reference to the progress we've made on key strategic areas. For example, we've been clear and consistent for some time that we need to significantly improve our U.K. interiors and Benelux businesses, and that's happening.
Specifically, we said back in March that U.K. interiors would return to profit this year, and I'm pleased to say they're ahead of schedule and reported a profit in H1. To the final comment on this slide, despite the backdrop remaining weak and not showing signs of improvement as we head into H2, our guidance for the full year remains unchanged. The key financials: Group sales were at 1% over the prior year on a like-for-like basis, as I mentioned. Gross margin was down by 50 basis points on H1 last year, primarily from pricing pressures in the current market, as one would expect. The lower sales and gross margin were more than offset by disciplined management of operating costs, and this led to an underlying operating profit of GBP 15 million, about GBP 3.5 million, or 30% higher than last year.
After finance costs, which reflect the refinancing last October at higher interest rates, we've reported an underlying loss before tax of GBP 10 million. I'll look in more detail in a moment at the key elements within all of these numbers. Below underlying profit, other items were GBP 23 million for the half, almost all of which was non-cash impairment charges related to certain assets in our U.K. specialist markets and U.K. interiors businesses. This mainly reflects the prolonged market weakness we're seeing at the moment, and the resulting impacts on the relatively near-term focused modeling we're required to use for our impairment testing. Free cash outflow was GBP 9 million. Given the usual seasonality in the business, which generally sees working capital rise during the year compared to the low point in December, this was a good result.
Net debt of GBP 524 million includes GBP 330 million of leases, a number which, as expected, has risen slightly versus last year. Leverage also rose as a result of that and of a slightly lower rolling 12-month EBITDA versus a year ago. I'll cover cash and the balance sheet in more detail in a couple of minutes. Next, here is our usual simple bridge of the revenue number. The GBP 31 million higher volume represents around a 2.5% increase for the half year. Net price deflation impact of GBP 13 million reflects a 1% decrease, with slightly positive input cost inflation more than offset by pricing pressure in the market. Branch changes, mostly closures along with a small number of openings, are not reflected in like-for-like numbers. They resulted in a net GBP 13 million drop in revenue.
The closures were of underperforming, often poorly located branches, and their closure is part of the restructure that is helping and will help the bottom line. Finally, working days in effect in aggregate were a further slight headwind on reported revenue. Revenue trends, this slide shows the trends for the last six quarters. On volumes, we reported last year and early this the gradual recovery to marginally positive like-for-like volume growth, and you can see it has now been positive for three quarters. Towards the end of the half, that growth did moderate slightly, and certainly June sales in most markets were slightly softer than we had expected a few weeks earlier. No big swings, to be clear. It has just reinforced our caution about H2 and the timing of any meaningful recovery.
On pricing, the blue dotted line on here, the net deflation has continued to moderate, and at this stage, it's pretty much flat year over year. As I've mentioned before, input cost inflation, which we seek to pass on, has been offset by selling price pressure, as to be expected when demand is subdued. The black line is the group total like-for-like rate, i.e., the result of the two dotted lines. We expect that to remain in modest positive territory through H2. Turning to the next slide. This shows the year-over-year drivers of operating profit. The first three colored bars show the gross profit impact of the various sales and pricing dynamics I've just talked about, as well as small amounts of GP loss from the closing of those few branches.
Moving across, the GBP 8 million OpEx inflation was as we guided at the beginning of the year, i.e., 2%- 3% in aggregate. Employee costs are about half of total OpEx and rose around 2.5%, which accounts for around half of that GBP 8 million number. The GBP 21 million in the green bar is the underlying savings we've made on OpEx versus the prior year, a material number. A big driver is the annualization of restructuring changes we made in H2 last year. We guided the 2024 results that we expected a further GBP 16 million of full-year, year-over-year benefit in 2025, and we've seen around GBP 10 million of that come through in H1. This was combined with other savings through ongoing discipline on all OpEx, including rigorous management of the natural churn in headcount that always occurs in businesses like ours.
The net result is that our profit went from GBP 12 million in 2024 to GBP 15 million this year. In the appendix, we've included the usual detailed breakdown of cash flow and net debt. This slide focuses on the key drivers of free cash flow. Lease payments of GBP 35 million on our fleet and estate was at a very similar level to the prior year. It will grow slightly over time with the business, as I've said before, not least with inflation, but it remains a relatively stable number. GBP 8 million spent on CapEx was very much in line with normal trends of recent years and reflects continued targeted investment in the business, as well as normal maintenance of the estate. Working capital was a good story in the half. We executed a number of initiatives across various businesses, which delivered favorable results.
Some of these involved negotiations and agreements with suppliers, for example, around timing of rebate payments, which in the past have only affected year-end numbers, i.e., they won't necessarily help our full-year movement on working capital, but do help intra-year phasing. Our average working capital as a percentage of sales, which is a key metric for us internally and will remain a major focus, has fallen versus prior year by 20 basis points. As it happens, the same as the movement in period end working capital, as shown on this slide. GBP 6 million of cash exceptions in the period relate mostly to the restructuring actions we executed, or at least announced, in H2 of last year, notably in U.K. interiors and Benelux, and also a small number of branch closures in France and Germany. That gets us to GBP 18 million of positive operating cash flow, higher than underlying operating profit.
After operating cash, we have interest and tax. Of the GBP 25 million interest, roughly half related to the imputed interest within our leases, and the other half was interest payable on our bond. Cash tax was pretty minimal, as expected. I'll reconfirm the forward view of these numbers in the technical guidance. That was the H1 cash flow. Continuing to improve cash generation clearly remains a key priority. Turning now to the balance sheet, you may recall that in October last year, we successfully refinanced our core facilities, both the EUR 300 million bond and the GBP 90 million RCF, extending their maturities out from 2026- 2029. I won't repeat all the details, but the key data points are shown on the right-hand side here. Liquidity remains robust, as you can see, being GBP 172 million at the end of June, despite the modest cash outflow in H1.
The GBP 90 million RCF was undrawn throughout the period and remains undrawn. Net debt rose due to normal increases in lease liabilities, as well as the cash outflow to GBP 524 million, and as I mentioned, GBP 333 million of this relates to net leases on our fleet and estate. Leverage on a post-IFRS 16 basis, as is all our reporting, finished the period at 4.9x , a modest increase in the six months. We're, of course, targeting a reduction in leverage and expect a recovery in profitability to drive it down over time. Finally, in this section, the normal additional points to assist with models. The big picture is there's virtually no change to any of this guidance versus what I set out at our last results announcement in March.
I've already commented on the impact of inflation and deflation on the top line in H1, and in short, we expect the full-year impact to be similar, i.e., -1% to flat pricing overall. OpEx inflation will, as always, remain a factor, and we expect the full-year impact to remain broadly at the levels we saw in 2024 and first half of 2025, i.e., 2%- 3% increase. On CapEx, no change. On interest, we still expect a full-year charge in the range of GBP 50 million-GBP 55 million. As of today, I would actually expect to be in the lower half of that range. Finally, tax, also no change of any note.
As mentioned here and as reported previously, our underlying effective tax rate is not very meaningful, so it's more helpful to guide to a P&L number, which I now expect to be in very low single-digit millions this year, which is very slightly lower than guided in March. We expect our cash tax for 2025 will be about two times the H1 number, so about GBP 4 million. Moving on to the business review, I'll start with a very quick reminder of our operating footprint across Europe. We have 420 branches and over 6,500 people. On the map, you can see we have businesses in six geographies. Trading is either SIG or under the other strong local brands we have in France and Germany. In the first half, our operating profit was roughly split half U.K. and half continental Europe.
The next slide, turning to the performance of each of our nine operating businesses in the half, this slide is ordered top to bottom in terms of revenue, with H1 revenue in gray bars and then H1 underlying profit in the green. You can see it's a mixed picture across the group in terms of H1 sales growth rates. Margin-wise, all the businesses are operating well below their potential due to the ongoing demand backdrop and the negative operational gearing effects of a lack of sales volume against the relatively fixed operating costs of our network. On the like-for-like growth rate column, you can see that five out of our nine businesses are back to growth despite the subdued demand. We have three still declining in H1, two being our French businesses, but we're confident they are also outperforming what are currently particularly tough markets.
As we've pointed out before, it's notable that our two most profitable businesses are those in roofing, not what might sometimes be seen as the traditional SIG businesses of insulation and dry lining. I'll discuss the larger markets in a few minutes. For now, we'll just comment briefly on Benelux. That business is still making a small loss, as you can see. We clearly aren't satisfied with that, but it has delivered an improvement in operating profit of over GBP 1.5 million in H1, driven by the significant restructuring of the Netherlands business last year. It's good to see that improvement coming through, clear evidence that the business is on the right path. Before I go through our larger businesses in a little more detail, a quick recap on our strategy for those of you newer to us.
As set out here, one of our long-term objectives is to improve our operating performance and drive toward a medium-term operating margin of 5%. We're taking actions across the business to improve the way we're operating now, and which are also positioning us to win in a medium and longer-term growth market. In particular, we're positioning SIG to benefit from the market rebound when it comes and from certain key areas of growth driven by both structural and regulatory tailwinds, such as building fire safety, energy efficiency and sustainability, the need for significantly more residential housing, and infrastructure investment. All trends that play into our product offering and customer base. Our strategy is grouped into four pillars under the acronym GEMS, being Grow, Execute, Modernize, and Specialize. The bottom half of this slide summarizes just some of the key areas of strategic progress in H1 under each.
I'll turn to each of our larger businesses now and pick up on these points in some more detail. Improving our U.K. interiors business has been and remains a key priority for the group, and we've made very good progress in the year to date. When we talk about execution, this is a great example. The business led by Howard Luft, who joined us in October last year, delivered strong improvements in sales and profit in H1. Howard and the team have done an excellent job in turning ourselves around our sales trajectory through really revitalizing our sales teams, the sales strategy, and, obvious as it may sound, relationships with customers and suppliers. The like-for-like sales trend over recent quarters shows this quite clearly, and this is set against a backdrop of a fairly flat market in H1.
From a low point of 9% sales decline in Q3 last year, the business delivered a very strong 12% in Q2 this year, clearly taking share. Part of that sales acceleration has been through rebuilding our relationships with key customers who include large specialist contractors in major cities like London, Birmingham, Manchester, and also our relationships with house builders and their suppliers across the country. The three examples shown here just to give you a sense of the range of types of projects we're involved in on some of our H1 projects. From commercial buildings such as the high-rise 42-floor refurbished Citigroup Tower in Canary Wharf to the very large hotel being constructed at Manchester City Stadium, a venue particularly close to Howard's heart, and residential new build projects include examples such as this housing project in Southport by a national house builder.
Looking forward to the second half, Q2 was especially strong in terms of market share gain, and it would be too simplistic to extrapolate that H1 trend line out into H2, but certainly we expect more good growth despite a tough, pretty flat market. Looking at the profit and cost side of the U.K. interiors performance, people costs make up around 50% of our overall OpEx, and from Q2 to Q3 2024, we accelerated the progress on the cost base in this business. We've now reduced the headcount by around 15% over the course of the last 18 months, most of it completed by Q4 last year. The more recent activity in H2 of last year was in particular weighted towards more corporate overhead roles, as we've aimed as far as possible to preserve roles close to our customers.
It's delivered around GBP 3.5 million of annualized cost saving, a benefit that is split pretty evenly between H1 and H2 this year. On the right of the slide, you can see that this cost work combined with the stronger sales has driven the business back to profit, as I mentioned earlier, and earlier than we'd expected or guided. We've seen a GBP 4 million uplift year over year. In summary, it is great to see our largest revenue business get back into profitability at the mid-year point. Moving on to France and our two French businesses, sales in both remain suppressed as demand has continued to decline in H1, with the French market down around 10% in interiors and around 5% in roofing. Our teams are delivering like-for-like sales rates that are slightly ahead of their markets, which we believe is a very solid result.
Profit-wise, interiors trading as Leat is a well-run business and is managing its margin well in a very challenging demand and pricing environment. Roofing trading as Le Riviere has also performed very solidly. They did benefit to the tune of about GBP 1.5 million from property sales in the period related to previous branch relocations, without which their profit would also have dropped off slightly versus the prior year. Looking at our strategic progress, we've closed five consistently underperforming branches in roofing, branches whose numbers would look better in a better market, but which for reasons of geography, local market, or history, we concluded would never quite get to where we want margin-wise. We've also continued to focus on our strengths and differentiations as a specialist distributor and have launched and grown sales in new specialist roofing products under our own Etanques private label for waterproofing and roofing.
The French interiors team is also working to develop a customer e-commerce platform, part of our modernized pillar, and this will launch later this year. Overall, a solid half in France, and Julien Monteiro and our team there continue to navigate well the trade-offs and decisions required in these very challenging market conditions. In Germany, the market has also remained tough, and this is most pronounced again on the residential side, which is well down within a declining overall market in H1. Our like-for-like sales were flat, up from the prior year 3% decline, a sign of our progress and some initial signs of market stabilization. The German business has, of course, faced strong price pressure like others, but has also made modest investments in experienced sales teams to continue to grow market share and to ensure we're best placed in the market to capture growth in the medium term.
Alfonso and his team have also been making progress on specialization, and you can see in the bottom right of this slide some of our new private label products. Our new Vega Power range covers a range of accessories and fixings for walls and ceilings, while the Klima range includes products and solutions for air conditioning, control, and thermal efficiency of flooring and ceilings, both being complementary to our wider ranges and products. The German business also continues to modernize and makes good progress on the e-commerce omnichannel sales model that they adopted and commenced last year, as we reported at the time. Finally, just a word on the fiscal stimulus package announced by the German government during the period, which will take further shape over time as regards to specific different packages designed to boost growth.
It's clearly very early days and too early to gauge impact in any detail at all, but we think fair to say that the overall impact on the German economy should be helpful to growth and to sentiment more generally, including to the construction sector as a subset of that. Our U.K. roofing business, the U.K.'s largest national specialist roofing distributor, has delivered 6% like-for-like sales growth, a very good result against a fairly flat market as we continue to grow our share. As a reminder, our roofing business serves a market that is slightly more weighted towards RMI than new build. In the period, we've seen weak demand on the RMI side, which is quite heavily influenced by interest rates and consumer sentiment.
Operating profit of GBP 5.8 million represents 18% growth over the prior year, a strong result despite the pressure on gross margin and normal OpEx inflation, and benefiting really from stronger sales on a broadly stable operating cost base. Our strategic development in the half has been focused around growth. Chris Lodge and his team are doing a great job with internal initiatives to upskill our sales teams, branch managers, and other leaders to keep serving our customers better and running out and leading our branches better. These programs get great feedback and engagement from our people and from our customers. On solar, we added solar panels into our product range last year, and in H1, we launched a program of free solar panel installation training to the roofing customer base, which you can see on the bottom right here.
This is to keep building long-term pull for these products from our customers as the markets improve. Installing a solar panel is quite different to installing roof tiles, but roofers have unique access to roofs, and many are wanting to broaden into solar. Our strategy is to help upskill and grow sales to our core customer base as markets recover further in the future. Onto our final slide, summarizing our first half and where we are today. Firstly, as I said, we're looking forward to having Pim on board from the 1st of October. In terms of markets, they remain weak, notably in Germany and France, but we're performing robustly and outperforming our markets. Profit is impacted by the weaker trading, but cost actions are mitigating this effect. We've delivered on cash initiatives too, and that's helped us maintain our liquidity at a healthy level.
Looking ahead to the full year, we've confirmed that we're not changing our expectations. As to whether we'll see meaningful improvements in market conditions in the next five months or so, we do remain very cautious on that. Working capital discipline will continue in H2, and as a result, we expect the full-year cash outflow to moderate substantially versus the outflow we saw last year. In summary, we continue to use these weak markets as an opportunity to tighten and sharpen our cost base, our sales and service to our customers, and our operating model.
In the medium term, we do expect these cyclical markets to recover, helped also by material structural tailwinds. Consequently, the operating leverage in our business model, along with the improvements we're making, will enable us to deliver a strong step up in margin and therefore in free cash generation and ultimately in shareholder value. That concludes the formal presentation. We'll now move to questions, and I'll pass over to the operator for those of you on the phones.
Thank you very much. We'd like to start the Q&A. If you'd like to ask a question, you can do so by pressing star followed by one on your telephone keypad. If you'd like to remove yourself from the line of questioning, please press star followed by two. As a reminder, to raise a question, please press star followed by one. Our first question comes from Aynsley Lammin from Investec. Aynsley, your line is now open.
Great, thank you. Hi Ian, just two from me, please. Obviously, good turnaround in U.K. interiors. I just want a little bit more color there. I mean, the slide seems to suggest you've taken out the structural costs, so it's now from here just more about better customer service, driving more volume through that business. Is that a fair view of what's going on there? To get the nice step up you've seen in Q1, Q2, is that just customer service, availability of stock rather than giving much up at the gross margin level? I'm just interested in the dynamics of what's really driven that boost of sales for U.K. interiors.
Second question, just on France, I guess, you know, market very weak. I think you mentioned you closed some branches in France. Is there much structural cost or branch reorganization to go after in France, or are you just happy with the structural cost base you've got? It's just a question of the market being weak and that needing to come back. Thanks.
Morning Aynsley, thank you. On interiors, is it now just about sales growth and more of that as opposed to costs? The question is basically what are we doing on price. I think that the driver, the medium longer term driver of margin improvement, will come from the operational leverage and driving sales. I expect that over the next year or so, that will be the bigger driver. We do expect, as I said, that sales growth to continue. That's not to suggest there's nothing more that we can or will be doing on costs. I think that applies in all of the businesses. We've done a lot of heavy lifting over the last 12, 18 months in particular. There's always more that can be done, and I think that would apply in U.K. interiors as well.
In terms of price, as in all the businesses, the teams every day, and in particular in this environment, are managing price and volume and those trade-offs. We've talked about it before, and I think they're doing a very good job on that. That certainly applies in U.K. interiors. Of course, you need volume to put through the machine. There's maybe been a slight bias back towards getting just volume through and building customers and the customer base, but certainly not at any price. I think they're doing a good job there. In terms of France, we have closed in the roofing branch. Just to put it in context, we have about 100 branches in roofing in France.
What we've done is they've done a pretty rigorous job of identifying the branches which, for all sorts of reasons that I mentioned, are just not today, and we don't think in the future are going to get to where we want to get to. They've taken the decision to take action and close them. It's not a retrenchment or anything like that in the French market. We're making, I think, very balanced decisions around the estate and what we're doing. They are looking, as all the businesses, very hard at costs. It's not just about what I've just talked about on branches.
You know, they are, for example, testing at the moment in the French market how we can leverage the infrastructure across the two businesses. We absolutely don't want to lose the intensity and focus that those two businesses have. Where it's sensible geographically or for other reasons, we are beginning to just explore how we can leverage the cost base there. We'll continue to do that. Thanks, Aynsley. Next question.
Next question comes from Christen Hjorth from Deutsche Bank. , your line is now open.
Hi, thank you very much. Morning Ian. A couple of quick questions from me. Just any comments you have on current trading, particularly in the context of slide nine, because it shows obviously like-for-likes in Q2 moderated against what was very soft comps, but the comps get a little bit tougher. Just tying that into the guidance for some like-for-like growth in H2 despite the tougher comps and no market recovery. The second one just on staff turnover. I know that was an issue, maybe 12, 18, 24 months ago, but any updates on that and whether the retention of staff has improved significantly? Thank you.
Morning Christen. Thank you for the questions. In terms of current trading, as we highlighted on that slide, and I think others have commented on it, and our partners, suppliers, and customers commented probably June was just slightly not quite where we'd expected or others expected it to be, given where we'd been in sort of March, April time. I wouldn't want to overplay that. On that graph, given the sort of the scales involved, that sort of 0, 1, 2%, it can probably look a bit more dramatic than it really is. If you look across the sort of May, June, July period, there was pretty good stability there. Yes, it probably gave us, just reinforced our view, which, frankly, we already had that we weren't expecting some big pickup in H2. Again, there's been no big swings to the negative or positive in recent weeks and months.
In terms of staff turnover, we always have churn in our business, as all businesses like ours do, more so at the branch levels than elsewhere. We've managed that, I think, quite well over the last couple of years, as I mentioned earlier. Frankly, I don't think we've really talked in the past about having problems with retention. I would actually say that we do a good job of that. We do look very hard at staff turnover and where it sort of bumps up, we take action and pay a lot of attention to it. Again, I don't think it's anything outside the norm of what you'd expect in a business like ours. Frankly, I don't think we have many sort of regrettable departures, if you like. Thank you. Next question.
Thank you very much. We currently have no further questions, so I'd just like to hand back to Ian Ashton for any further remarks.
Okay, we'll wrap things up there. Thank you very much indeed for your attendance and interest today, and goodbye.
As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.