Eurocell plc Annual Report 2016

FY2016 Annual Report · Eurocell plc

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MANUFACTURER DISTRIBUTOR RECYCLER

ANNUAL REPORT 2016

We are a market leading, vertically
integrated UK manufacturer, recycler
and distributor of innovative window,
door and roofline PVC building products.

STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Group Highlights
At a Glance
Chairman’s Statement
Market Overview
Our Business Model
Our Strategy
Strategy in Action
CEO and CFO Q&A
Our People
Corporate Social Responsibility
Chief Executive’s Review
Divisional Reviews
Group Financial Review
Principal Risks and Uncertainties
Viability Statement

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40

The Board
Letter from the Chairman
Corporate Governance Statement
Nomination Committee
Audit and Risk Committee
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities

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66

Independent Auditors’ Report (Group)
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Independent Auditors’ Report (Company)
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Company Information Page

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A STRONG YEAR

GROUP HIGHLIGHTS

FINANCIAL HIGHLIGHTS

Revenue

Gross Margin

£204.8m

p 16% (11% excluding

acquisitions)

52.0%

p 0.3% (2015: 51.7%)

Adjusted EBITDA(1)

Adjusted Profit before Tax(1)

£31.3m

p 5% (2015: £29.7m)

£24.3m

p 5% (2015: £23.0m)

Adjusted EPS(1)

Total Dividends (per share)

20.0p

p 7% (2015: 18.6p)

8.5p

p 8% (2015: 7.9p)

• Reported profit before tax £23.8m (2015: £19.7m), +21%

• Cash generated from operations £31.8m (2015: £26.3m), +21%

• Net debt reduced from £25.9m to £20.3m

• Proposed final dividend for 2016 of 5.7p per share (2015: 5.2p per share)

(1) Adjusted measures are before non-recurring costs and the related tax effect.

“ We have continued to make good
progress with all of our strategic
priorities and now have an experienced
and settled management team.”

Bob Lawson
Chairman

See full Chairman’s Statement on page 04 à

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OPERATIONAL HIGHLIGHTS

• Expanding the branch network

– 159 branches, with 18 new sites

in 2016.

• Successful specifications team
– providing customised product
solutions unique to Eurocell.

• 500 new product lines in the

branches
– objective to become a one-stop

shop for our customers.

• Growing sales of windows through
branches and innovative products
– Equinox and Skypod.

• Increasing use of recycled PVC

in manufactured products
– 14% in 2016 (2015: 9%).

• Completed acquisitions

– Vista Panels in March 2016
and Security Hardware in
February 2017.

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01
01

THE UK’S NUMBER ONE

AT A GLANCE

We operate our business through two divisions
that reflect the principal routes to market for
our products: Profiles and Building Plastics.

WHERE WE OPERATE

¢ Eurocell locations
¢ Head office, Alfreton
¢ New locations for 2016

Branches

159

The Profiles division also includes S&S Plastics
and Vista; businesses acquired in 2015 and
2016 respectively. S&S supplies plastic
injection moulding products and services for
use in windows and certain other markets.
Vista manufactures composite and PVC
entrance doors, which are sold to third parties
either direct or via the Building Plastics division.

BUILDING PLASTICS DIVISION
The Building Plastics division distributes a
range of Eurocell manufactured and branded
PVC foam roofline products and Vista doors,
as well as third party manufactured ancillary
products. These include sealants, tools and
rainwater products, as well as windows
fabricated by third parties using products
manufactured by the Profiles division.

Distribution is through our national
network of 159 branches to installers,
small and independent builders,
house builders and nationwide
maintenance companies.
The branches also
sell roofline products to
independent wholesalers.

OUR DIVISIONS

PROFILES DIVISION
The Profiles division manufactures extruded
rigid and foam PVC profiles.

Rigid PVC profiles are sold to third party
fabricators, who produce windows, trims,
cavity closer systems, patio doors and
conservatories for their customers.

There are broadly four types of fabricator.
Trade frame fabricators supply finished
products to tradesmen or small retail outlets.
New build fabricators supply and install the
products they make for house builders.
Commercial fabricators supply and install
products used in applications such as office
space and education facilities. Finally, retail
fabricators make products for sale via their own
retail operation, which may be a large national
business, or a small company servicing the
local community. Most of Eurocell’s customers
are trade frame fabricators, although new build
is becoming increasingly important.

Fabricators have production facilities which are
customised to the window or door system they
make. As a result, fabricators predominately
buy profiles from a single supplier, which in
turn creates a stable and loyal customer base.

Foam PVC products are used for roofline
and are supplied to customers through our
nationwide branch network in the Building
Plastics division (see opposite).

As such, all of our manufacturing margin is
recorded within the Profiles division, which
therefore also benefits from expansion of the
branch network.

Recycled product used
in our rigid PVC profile

14%

Average number of employees in 2016

1,289

See our Divisional Reviews on page 28 à

See how we are expanding our branch network on page 12 à

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OUR ROUTE TO MARKET

RECYCLING

Our cross-functional sales and business
development teams implement our sales
and distribution strategy. They target
key decision makers in the supply chain,
including fabricators, installers, developers,
architects and local authorities.
By ‘influencing the influencers’ we earn
the loyalty of our customers by helping
them grow their businesses.

THIRD PARTY
SUPPLIERS

EUROCELL
PROFILES

Manufacture

EUROCELL BUILDING
PLASTICS

Branches

THIRD PARTY
SUPPLIERS

FABRICATORS

Number of fabricators

350+

OWNER MANAGED
BUSINESSES &
CONTRACTORS

RMI (Repairs, Maintenance
and Improvements)

NEW BUILD

Proportion of revenue in RMI Market

>80%

Proportion of revenue in
new build housing market

10-15%

PUBLIC SECTOR
(RMI & NEW BUILD)
Proportion of revenue in public
new build housing market

<5%

See our Market Overview on page 06 à

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03
03

A STRONG PERFORMANCE IN 2016

CHAIRMAN’S STATEMENT

I am delighted to report a successful
year for the business. We have reported
good financial results, with higher
underlying revenues and increased
profits, and delivered a strong
operational performance. In addition,
we continued to make good progress
with all of our strategic priorities and
now have an experienced and settled
management team.

Conditions in the markets in which we
operate have been stable. There is some
general economic uncertainty driven
by the macro environment, but this
has not been reflected in our sales
or order books.

FINANCIAL AND
OPERATING PERFORMANCE
Our sales grew by +16% (+11% excluding
acquisitions), despite a broadly flat RMI
market. This was driven by a number of
self-help initiatives, including continued
investment in the expansion of our branch
network and a focus on specific customer
groups to provide customised product
solutions that are unique to Eurocell.

We have worked hard to maintain our gross
margin, with raw material pricing pressure
mitigated by price increases implemented in
the second half and assisted by continuing
manufacturing efficiency gains. Overheads
were a little higher than expected, reflecting
accelerated investment in the branch network
and business development teams, as well as
increased logistics costs.

As a result, we reported adjusted profit before
tax of £24.3 million, up 5% on last year.
Reported profit before tax of £23.8 million
is up 21% on last year.

Cash flow generation remains strong,
with underlying operating cash flow of
£32.2 million (2015: £29.6 million) driving
a reduction in net debt to £20.3 million
(31 December 2015: £25.9 million). We have
a strong balance sheet which provides
flexibility and options for the future.

During 2016 we acquired Vista Panels
Limited. Vista specialises in the manufacture
of composite and PVC entrance doors.
The integration is proceeding to plan and
the business is performing in line with
expectations. In February 2017, we completed
the acquisition of Security Hardware Limited,
a supplier of locks and hardware primarily
to the RMI market, with annual sales of
approximately £3 million.

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A STRONG PERFORMANCE IN 2016

CHAIRMAN’S STATEMENT

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STRATEGY
Following the Board changes, in January 2017
we conducted a full review of the Company’s
strategy and the fundamental elements of our
markets and activities. At the conclusion of
this process, we reaffirmed that our overall
objective remains to deliver sustainable
growth in shareholder value by increasing
sales and profits at above market level
growth rates.

We have five clear strategic priorities to help
us achieve our overall objective:
• Target growth in market share
• Expand our branch network
• Develop innovative new products
•
• Explore potential bolt-on acquisition

Increase the use of recycled materials

opportunities

Further information on our strategic initiatives
is set out on pages 10 to 17.

GOVERNANCE
As a Board, we are committed to promoting
the highest standards of corporate
governance and ensuring effective
communication with shareholders.

During the year the Board has led the
transition of the executive leadership and
has recruited two Executive Directors with
the skills and enthusiasm to build upon our
solid foundation and market position.

Mark Kelly joined the business as CEO in
March, following Patrick Bateman’s retirement.
Matthew Edwards left the Group in June and
was replaced by Michael Scott as CFO, who
joined us in September. I would like to thank
Patrick and Matthew for their contribution
over many years of service. Since joining,
I have been delighted with the leadership and
progress that Mark and Michael have brought
to the Company.

Bob Lawson
Chairman

I am confident that we now have an effective
Board with the requisite and complementary
skills, knowledge and experience to secure
the future success of the business.

DIVIDENDS
We paid an interim dividend of 2.8 pence
per share. The Board proposes a final
dividend of 5.7 pence per share, resulting
in total dividends for the year of 8.5 pence,
representing growth of 8%. This is a small
improvement on the policy set out at our IPO
to target a dividend of approximately 40% of
adjusted earnings, demonstrating the Board’s
confidence in the future of our business.

PEOPLE
During the year, I have met many of our
people and have been most impressed by
their professionalism and commitment. Our
good financial results and strong operational
performance is a direct result of the hard
work and dedication of our teams in every
part of our business. On your behalf and on
behalf of the Board, I offer our sincere thanks.

Bob Lawson
Chairman

SUMMARY
• Good financial and strong
operating performance.

• Experienced and settled

management team now in place.

• Strategy confirmed – well set

to make further progress in the
year ahead.

• Full year dividend of 8.5p

per share.

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05
05

OPPORTUNITIES FOR GROWTH

MARKET OVERVIEW

The level of UK economic
activity, in particular the state
of the repair, maintenance
and improvement (RMI) and
new build housing markets,
are important drivers of
our performance.

MARKET DRIVERS

Driver

GDP

Description

UK GDP is currently forecast to grow by 2.0% in 2017
(2016: 2.2%).

Consumer
confidence

Consumer confidence dropped sharply in the aftermath
of the vote to leave the EU, but has quickly recovered to
pre-vote levels.

Interest rates UK interest rates not forecast to increase until 2018.

Construction Housing construction activity remains below

pre-recession peak, but is forecast to rise by 1% in 2017
and 2% in 2018.

Private housing starts are forecast to increase by
2% in 2017 and 3% in 2018.

Eurocell revenue by market (%)

Housing
market

Private housing RMI(1) market CAGR(2) forecast 2016-2019
is broadly flat.

Potential impact
on Eurocell

(1) RMI is Repair, Maintenance and Improvement market.
(2) CAGR is compound annual growth rate.

Key to potential impact on demand for Eurocell products:
p Positive
u Neutral
q Negative

Sources: CPA: Construction Industry Forecasts 2016-19 (published February 2017)
Bank of England Inflation Report (published February 2017)

RMI
New Build
Public Sector (RMI & New Build) < 5%

> 80%
10-15%

Further commentary on these markets
is set out opposite. Whilst private home
improvement and, increasingly, new build
housing are the most important market
segments for Eurocell, social housing
improvement and public new build are
also covered.

06
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PRIVATE HOME IMPROVEMENT (RMI)
The RMI market is broadly flat at the moment,
caused by uncertainty over house prices and
relatively weak growth in real wages.

Private home owners typically invest in PVC
products to improve the appearance and
energy efficiency of their property. Spend is
often significant, so the state of the economy
and the resulting impact on the housing market
and consumer confidence influences demand.

Home sellers and buyers often look to
improve their property just before or just
after a transaction. Alternatively, when
housing markets are weak, homeowners
might choose to improve or extend their
existing property, rather than move house.
In addition, planned improvements to
retirement housing and increased availability
of funds following changes to pension
scheme rules may provide support to the
RMI market in the future.

PRIVATE NEW BUILD HOUSING
New build growth has been strong in
recent years and the large house builders
continue to report good performance.
Small improvements in housing construction
and starts are currently forecast for 2017
and 2018. However, uncertainty over the
macro-economic environment suggests
affordability will likely remain a key issue.

There is still a significant gap between the
government’s target for new dwellings
per annum and the current level of private
new build homes. The Help to Buy scheme
supports demand. With the housing shortage
continuing to be an important political topic,
on-going positive government intervention
remains a possibility.

SOCIAL HOUSING IMPROVEMENT
2017 will see the end of the Decent Homes
Programme and the Energy Company
Obligation (ECO) scheme. The Decent
Homes Programme requires properties
owned and managed by councils and
housing associations to meet the Decent
Homes standard, thereby improving the
energy efficiency of social housing. The ECO
scheme requires energy companies to
provide support for the introduction of energy
efficient measures into houses occupied by
vulnerable or low-income people.

Under both schemes, support typically
comes in the form of heating packages,
insulation and energy efficient windows.

PUBLIC NEW BUILD HOUSING
With government policy targeted towards
increasing private sector affordable housing
rather than public sector social housing,
this sector represents a very small proportion
of the UK housing market.

The Right to Buy scheme helps eligible
council and housing association tenants
buy their homes at a discount. As such,
the scheme is expected to result in reduced
public sector housing stock.

Housing associations have relied on market
sales to raise capital to fund rental property
development. Weaker house price growth
and fewer transactions will likely hamper this.
In addition, rent caps may reduce the
financing available for new developments.

MARKETS FOR EUROCELL PRODUCTS
On average, markets for the product groups
specific to Eurocell are also currently
expected to be flat over the next two years.

Roofline (Tonnes 000s)

2018

2017

2016

2015

2014

Window Profile (Tonnes 000s)

2018

2017

2016

2015

2014

228

230

232

230

225

Source: D&G Consulting

SUMMARY
Whilst external market signals are difficult to
read at the moment, we are confident that
our strategic initiatives (described in Our
Strategy on page 10), including increasing
market share and continued expansion of the
branch network, will deliver good growth for
Eurocell in the markets in which we operate.

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07
07

HOW WE CREATE VALUE

OUR BUSINESS MODEL

WHAT WE DO

HOW WE CREATE VALUE

WE SOURCE
The principal raw material used in our manufacturing
process is PVC resin, a derivative of ethylene, which
in turn is a derivative of crude oil.

See also We Recycle below.

WE MANUFACTURE
We are a leading manufacturer of rigid and foam
PVC profiles, composite and PVC entrance doors
for the window and building home improvement
sectors.

WE DISTRIBUTE
The Profiles division supplies our manufactured
profile to a network of fabricators, who in turn
supply end products to installers, retail outlets
and house builders.

The Building Plastics division sells, through its
network of branches, our manufactured foam
products and entrance doors, along with a range
of third party related products, as well as windows
fabricated by third parties using products
manufactured by the Profiles division. Customers
are mainly installers, small builders, roofing
contractors and independent stockists.

WE RECYCLE
We recycle both customer factory offcuts
(‘post-industrial’ waste) and old windows that have
been replaced with new (‘post-consumer’ waste).
The recycled material is used to generate brand
new extruded plastic products.

VERTICALLY INTEGRATED MODEL
Coordination of procurement,
manufacturing and distribution processes
enables us to capture margin throughout
all stages of our value chain.

Our recycling activities help lower material
costs and improve production stability.

SCALE
We operate well-invested and
modern extrusion facilities, with spare
manufacturing capacity that can be
exploited with little incremental cost.

We are the UK’s largest window
recycling operator.

Our extensive branch network is a
driver of sales growth and market share.
It also helps improve manufacturing
efficiency, with pull-through demand
driving higher factory utilisation.

INNOVATIVE PRODUCTS
We are committed to a strategy of
continually developing new and existing
products, such as the Modus, Equinox,
Skypod and Roomline ranges.

We support the use of Building
Information Modelling (BIM) software.
This allows architects and contractors
access to a library of Eurocell products,
making it easier to specify them.

BRAND
Our marketing activities seek to
maximise brand awareness.

Our brand image is strong. Research
in 2016 shows that 96% of trade and
specifiers with previous experience of
Eurocell would use our products again.

PEOPLE AND CULTURE
We have an experienced management
team, with a proven track record of
achieving profitable growth.

Our corporate culture is one of openness,
trust, encouragement and clarity of
purpose. We train and empower our
people to help our customers grow
their businesses.

LOCAL FOOTPRINT
Our branches are conveniently located
and have readily available inventory,
thereby providing excellent service to
local customers and national groups alike.

We also strive to help our customers
through the provision of technical,
business development and marketing
support services.

See Our Route to Market on page 03

à See Corporate Social Responsibility on page 24

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OUTPUTS

KEY BENEFICIARIES

SALES GROWTH
Our initiatives to support sales and deliver high levels of customer service
differentiate Eurocell from our competitors. We expect this to drive good
sales growth.

PROFIT GROWTH
Utilisation of our spare manufacturing capacity can drive profit growth.

Expanding the branch network, whilst dilutive until new branches become
established, should deliver strong medium-term returns.

Increased use of recycled materials can help mitigate raw material pricing pressure.

STRONG CASH GENERATION
Our operating cash flow conversion is strong, particularly in the Building
Plastics division, where a high proportion of customers pay at point of sale
or shortly thereafter.

GOOD RETURN ON SALES
Our strong brand, well-invested facilities and capital-light branch expansion
programme ensure a good return on sales.

SHAREHOLDERS
Our overall strategic objective is to deliver
sustainable growth in shareholder value.

FABRICATORS
Through high-quality products and a strong focus
on customer service, we have developed a very
loyal customer base.

SMALL BUILDERS AND INSTALLERS
The independent sole traders that visit our branches
benefit from the one-stop shop offering we provide.

HOME BUILDERS
Home builders appreciate the quality of our
products and benefit from Eurocell coordinating
our fabricators’ offering to meet their requirements.

INSTALLERS
We aim to make our products as easy as possible
to work with, which is very attractive to our direct
or indirect installer base.

EMPLOYEES
We work hard to train and develop our people,
and provide rewards commensurate with our
goal to be an employer of choice.

See Group Financial Review on page 32

See Our Route to Market on page 03

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CLEAR AND FOCUSED OBJECTIVES

OUR STRATEGY

Our overall objective is to deliver sustainable growth in shareholder value by increasing
sales and profits at above market level growth rates through leadership in products,
operations, sales, marketing and distribution. We intend to leverage the Eurocell
brand, and the advantages that our vertically integrated business model with local
distribution offers over our competitors, in order to grow our market share. We have
five key strategic priorities to help us achieve our overall objective.

STRATEGIC PRIORITIES

DEFINITION

TARGET GROWTH IN
MARKET SHARE

EXPAND OUR
BRANCH NETWORK

DEVELOP INNOVATIVE
NEW PRODUCTS

INCREASE THE USE OF
RECYCLED MATERIALS

Increase market share of PVC rigid and foam
profiles to utilise spare manufacturing capacity.

• Specifications team successful in generating

demand for Eurocell products

• Target new build, commercial and public sector work

• Expanding the branch network should generate

pull-through demand

Investment in new branches to drive sales
and medium-term profit growth.

• 18 new branches opened

• Open a further 30 new branches

• First trials of reduced start-up cost branches

• Target growth in window sales through branches

•

Introduced 500 new third party product lines to branches

• Focus on other high-value products

Maintain market leadership by offering the
latest in product innovation.

•

Innovation in new Modus, Equinox,

Skypod and Roomline ranges

• Expansion of Modus range

• Further development of complementary product offerings

• Shorten time to market for new products

More use of recycled material helps to mitigate
raw material price increases, enhances
product stability and lowers the carbon
footprint of our manufactured goods.

•

Increased use of recycled material to 14% (2015: 9%)

• Capital investment of £1.1 million to increase recycling

• Complete expansion project and utilise fully increased

capacity for 2016/17

•

Increase waste collection from fabricators and branch

recycling capability

network

EXPLORE POTENTIAL BOLT-ON
ACQUISITION OPPORTUNITIES

Consider acquisition opportunities when
they arise.

• Acquisition of Vista Panels in March 2016,

with integration going to plan

•

Integration of Security Hardware (acquired in February

2017) to develop the spares proposition for our branches

• Develop our acquisition pipeline and consider acquisition

opportunities that arise

We have discussed growth in market share and the development of new products in detail in previous reports and some additional information
on these initiatives is set out in the Chief Executive’s Review. For the other initiatives (expanding the branch network, increasing the use of
recycled materials and bolt-on acquisitions), a more comprehensive analysis is set out on pages 12 to 17.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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PROGRESS IN 2016

FOCUS IN 2017

TARGET GROWTH IN

MARKET SHARE

EXPAND OUR

BRANCH NETWORK

DEVELOP INNOVATIVE

NEW PRODUCTS

INCREASE THE USE OF

RECYCLED MATERIALS

Increase market share of PVC rigid and foam

profiles to utilise spare manufacturing capacity.

• Specifications team successful in generating

demand for Eurocell products

• Target new build, commercial and public sector work
• Expanding the branch network should generate

pull-through demand

Investment in new branches to drive sales

and medium-term profit growth.

• 18 new branches opened
• First trials of reduced start-up cost branches
•

Introduced 500 new third party product lines to branches

• Open a further 30 new branches
• Target growth in window sales through branches
• Focus on other high-value products

Maintain market leadership by offering the

latest in product innovation.

•

Innovation in new Modus, Equinox,
Skypod and Roomline ranges

• Expansion of Modus range
• Further development of complementary product offerings
• Shorten time to market for new products

More use of recycled material helps to mitigate

raw material price increases, enhances

product stability and lowers the carbon

footprint of our manufactured goods.

•
Increased use of recycled material to 14% (2015: 9%)
• Capital investment of £1.1 million to increase recycling

capacity for 2016/17

• Complete expansion project and utilise fully increased

•

recycling capability
Increase waste collection from fabricators and branch
network

EXPLORE POTENTIAL BOLT-ON

ACQUISITION OPPORTUNITIES

Consider acquisition opportunities when

they arise.

• Acquisition of Vista Panels in March 2016,

with integration going to plan

•

Integration of Security Hardware (acquired in February
2017) to develop the spares proposition for our branches
• Develop our acquisition pipeline and consider acquisition

opportunities that arise

We have discussed growth in market share and the development of new products in detail in previous reports and some additional information

on these initiatives is set out in the Chief Executive’s Review. For the other initiatives (expanding the branch network, increasing the use of

recycled materials and bolt-on acquisitions), a more comprehensive analysis is set out on pages 12 to 17.

See Strategy in Action on page 12 à

See Divisional Reviews on page 28 à

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

STRATEGY IN ACTION

EXPAND OUR BRANCH NETWORK

Overall, our aim is to provide a one-stop shop for builders and
installers which, together with excellent customer service, should
drive increased customer spend and expand our market share.

By way of example, our Rhyl branch opened in July 2016 under
the reduced start-up costs regime. We began operating with just
two employees, but also sharing staff and a delivery vehicle with
a neighbouring branch 12 miles away. The branch has performed
well and we expect it to reach an EBITDA break-even run rate
during the third quarter of 2017.

Branch Open

< 2 years

2-4 years

> 4 years

Number of branches

Average annual sales per
branch (£000)(1)

200

500

114

800

EBITDA margin(2)

Break-even

>10% Mid-teen%

(1) Rounded.
(2)

Indicative. Represents EBITDA as a percentage of sales, before regional
infrastructure and central costs.

Luke Parsons
National Branch Development Manager

Expanding the branch network secures
sales growth and delivers good returns
in the medium term, as the new branches
begin to mature, but does create
downward pressure on profitability in the
near term. In order to demonstrate this
growth potential, the table shows the
performance of our existing branch estate
by age.

We opened 18 new branches in 2016 and have plans to open
a further 30 in 2017. We are also in the midst of trials to reduce
the start-up costs associated with new branches. This is being
achieved largely by sharing resources with neighbouring branches
until the new sites become more established. As the network
expands, we anticipate more opportunities will arise to leverage
the existing infrastructure and support new branches reaching
profitability sooner.

Taking the historic maturity profile into account, along with our
initiatives to reduce start-up costs, we concluded that the
proposed branch network expansion pace should drive good
medium-term growth.

Other initiatives to drive sales growth in the branches include the
addition of 500 new third party product lines in 2016 and continued
focus on innovative products such as Equinox and Skypod, as well
as the sale of windows through branches.

In addition, the acquisition of Vista Panels has driven growth in
the sales of doors in the branches. The recent acquisition of
Security Hardware will allow us to develop the spares proposition
for our branches.

Branches in the estate

159

New branches in 2016

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

STRATEGY IN ACTION continued

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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INCREASE THE USE OF RECYCLED MATERIALS

We recycle both old windows
(‘post-consumer’ waste) and customer
factory offcuts (‘post-industrial’ waste)
at our recycling and extrusion facility
in Ilkeston.

During the second half of 2016, we invested £1.1 million in a project
to increase our recycling production capacity to 14k tonnes of
recycled PVC compound per annum, up from 10.5k tonnes.
This includes investment in the Ilkeston plant, as well as the tooling
required to make the rigid profile. A further £0.9 million will be
invested in the first half of 2017 to complete the project. We expect
recycled material usage to increase in 2017.

Post-consumer and post-industrial waste is collected from a variety
of our customers and other providers. In general, around two-thirds
of the input feedstock for recycling is post-consumer and one-third
is post-industrial waste.

The Ilkeston plant produces recycled PVC compound in pellet
form for use in our other manufacturing processes. This provides
a substantial saving in cost compared to virgin resin compound.

In 2016 we produced approximately 11.6k tonnes of recycled PVC
compound for use in our extrusion processes.

When we develop new products, we look to include as much
recycled content as possible. For example, the Modus and
Eurologik systems now comprise 45% recycled materials.
In addition, the continued expansion in the use of recycled PVC
windows remains attractive to the new build market.

As such, we will also evaluate in 2017 whether to progress with
investment to further increase our recycling capacity. In doing so,
we will assess the extent to which we can expand our waste
collection service to provide the necessary feedstock for the
recycling plant.

Simon Readman
General Manager, Merritt

Of the recycled compound produced, 6.0k tonnes (being almost
exclusively derived from post-consumer waste) was used alongside
virgin resin in the manufacture of many of our rigid PVC products in
our primary extrusion processes. This represents 14% of material
consumption, up from 9% in 2015.

Most of the remaining 5.6k tonnes of recycled PVC compound
produced (being almost exclusively derived from post-industrial
waste) was used in products which are manufactured at the Ilkeston
plant from 100% recycled material, including thermal inserts and
cavity closer systems. Note that these products are not included in
the % usage data illustrated below.

Recycled material usage as a % of consumption

2016

2015

2014

2013

14%

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

STRATEGY IN ACTION continued

Keith Sadler
Managing Director,
Vista Panels

Vista Panel doors sold(1)

62,500 (2015: 63,500)

Vista Composite doors sold(1)

26,500 (2015: 25,500)

Average number of Vista employees

109

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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EXPLORE POTENTIAL BOLT-ON

ACQUISITION OPPORTUNITIES

We have a successful track record of
acquiring and integrating businesses,
with seven acquisitions completed
over the past 10 years.

We will continue to assess and consider
potential bolt-on acquisition opportunities
in the markets in which we operate. Our
focus is principally on businesses that add
value through range extension, operational
efficiencies or added value products,
or to satisfy a make-or-buy decision.

VISTA PANELS
In March 2016 we acquired Vista Panels. Vista was established
in 1995 and is a leading manufacturer of composite and PVC
entrance doors. The Company operates from a 50,000 sq. ft.
production facility in Merseyside. It has a strong presence in the
social housing and private RMI sectors and has been a leader in
the growth of the composite door market in the UK.

Vista’s core products are composite doors, PVC door panels and
fire doors. Composite doors feature a high-density foam core, glass
reinforced plastic (GRP) skin and PVC edge banding for increased
thermal efficiencies. PVC door panels are thermally efficient and can
be reinforced to provide a higher level of security. Fire doors provide
30 minutes of fire protection. All Vista’s products are available in a
range of colours and styles to meet customer requirements.

Vista is a historical trading partner for the Group. Our Profiles
division supplies PVC profiles to Vista for use in the door
manufacturing process. Vista sells both direct to third parties
and via the Building Plastics branch network. Annual third party
sales are approximately £9 million.

The acquisition has allowed the Group to extend our customer
base and also provides further cross-selling opportunities for
the extended product range. The integration is proceeding to
plan and the business is performing in line with our expectations.

SECURITY HARDWARE
In February 2017, we completed the acquisition of Security
Hardware, a supplier of locks and hardware primarily to the
RMI market. Security Hardware has been established for 10 years
and operates from a 15,000 sq. ft. facility in the West Midlands.
Annual sales are approximately £3 million.

Security Hardware stocks around 3,000 products, covering the
major hardware brands and an own label offering (Schlosser
Technik). This extensive product range enables Security Hardware
to supply a significant proportion of the replacement parts routinely
required by the RMI market.

The acquisition means we can offer this extensive product range
through our branches, allowing us to better engage with facilities
management companies and other large maintenance contractors.
This forms part of our objective to become a one-stop shop for
anything window related for our customers.

We also plan to develop a range of hardware to complement
our window profile. This will enable our fabricator customers to
offer a fully certified common specification of window (including
hardware), enabling us to target a greater share of the new build
market and grow sales of windows through the branches.

Unique products

Brands stocked

3,000

(1) 2016 and comparative data represents a full 12 months.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

MEET THE NEW BOARD MEMBERS

CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER Q&A

“ We have a strong single brand,
good customer service and a leading
recycling capability, all of which
are attractive to our customers.”

Mark Kelly
Chief Executive Officer

Michael Scott
Chief Financial Officer

MARK – WHAT ARE YOUR THOUGHTS
AFTER NEARLY 12 MONTHS WITH
THE BUSINESS?

MK: We have a good business,
but there are opportunities for incremental
improvement. The Company has been
through several changes in ownership in a
short period of time, so this understandably
was management’s focus. With the IPO
now well behind us, we can concentrate
on tightening things up, operationally,
commercially and financially. Not in
an aggressive way – just making sure
relationships with suppliers and customers
are equitable, so that we gradually get more
control of our marketplace.

HOW DO YOU FEEL ABOUT YOUR
MANAGEMENT TEAM?

MK: We have a great team. Historically
most decisions went via the CEO or CFO.
This delivered strong control, but it meant
the business was not as joined-up or as fleet
of foot as it could be. So we have created
an executive board (the Steering Group),
and empowered our leaders to get on with
driving strategic initiatives, within an agreed
framework of authority limits. This has
helped eliminate silos and get everyone
on the same page. The team has bought
into this and it’s working well.

HOW WOULD YOU DESCRIBE
THE BUSINESS OF EUROCELL?

MK: We are a specialist manufacturer,
distributor and recycler of innovative window,
door and roofline PVC building products.
Our vertically integrated business model
gives full access to the value chain and
associated good margins. Our well-invested
manufacturing facilities, extensive branch
network and recycling capability differentiate
Eurocell clearly from our competitors.

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6
E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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HOW IMPORTANT IS THE RMI
MARKET TO YOUR PERFORMANCE?
MK: It is a key external driver, but our
market share is around 12% (in Profiles).
So with the right initiatives in place,
we hope to gain share. We also now have
more exposure to new build, which is
growing strongly, and with government
support it’s hard to see it slowing over
the next few years.

SO HOW ARE YOU GROWING
YOUR NEW BUILD BUSINESS?

MK: Our specifications team has been in
place for two years and is now having real
success in getting our product specified,
for example with local planning authorities,
thereby creating demand for our products.
In fact, today we are now probably the
largest supplier of window profile to the
new build market. Our coloured profile can
look almost identical to aluminium or wood.
But PVC is normally substantially cheaper
than aluminium and virtually maintenance-
free compared to wood.

TELL US ABOUT THE
FABRICATOR FORUMS

MK: New build companies like our product,
but they can struggle with the consistency
of quality and service from the fabricator
network, who compete with each other
to win business. The forums have brought
fabricators together with Eurocell and new
build representatives, in order to outline the
potential if we get this right. The objective
is for Eurocell to coordinate the product
specification, quality and prices of the
fabricator network. This allows the new build
buyers to source consistent product from a
wide supplier base, mitigating their delivery
risk. The fabricators have responded well
– they believe that there really is enough
business to keep them all busy.

WHAT ABOUT CLUB FORE?

MK: That’s a great initiative. Our fabricators
and installers are now involved in the
design of new products and improvement
of existing ones.

HOW ELSE ARE YOU GROWING
YOUR PROFILES BUSINESS?

WHAT ABOUT THE IMPACT
ON NET MARGIN?

MK: We want to grow our share by adding
fabricators, but always ensuring that we
don’t become overly exposed to any one
customer. In order to do that, we emphasise
why Eurocell is different. We have a strong
single brand, good customer service and
a leading recycling capability, all of which
are attractive to our customers. We do not
own any fabricators or glass plants,
so don’t compete with our customers.

IF YOU’RE TARGETING NEW BUILD
AND NEW FABRICATORS, WILL THAT
BE DILUTIVE TO GROSS MARGIN?
MS: There can be pressure on gross
margin, but remember that we are driving
up our use of recycled material. We can
also introduce more value-added products
into the mix. So far as new build is
concerned, remember that the fabricator
sells to the end customer and so shares
some of the pricing risk.

MS: That’s where this gets really interesting.
We have significant spare manufacturing
capacity in our main extrusion facilities.
So, even if incremental sales of our
manufactured product are dilutive to gross
margin, we are confident that new business
can be managed with a drop through to
the bottom-line sufficiently strong to at least
maintain our overall net margin.

YOU HAVE A HIGH GROSS MARGIN
ANYWAY – WHY DOES THIS
BENCHMARK SO WELL VS.
YOUR COMPETITORS?

MK: Margin differentiation is driven by our
vertically integrated business model, with
access to the full value chain and by our
recycling capability. We have a quality
product for which customers are prepared
to pay. We don’t lead on price because our
proposition is compelling.

“ We have created an executive
board (the Steering Group),
and empowered our leaders
to get on with driving
strategic initiatives.”

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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19

CHIEF EXECUTIVE AND
CHIEF FINANCIAL OFFICER Q&A continued

“ We have a great new format
for the branches, with more
product on display, including
high-value items.”

THE BRANCH EXPANSION
SEEMS TO BE GOING WELL?

MK: We are very pleased with the
progression, with 2016 delivering strong
sales growth and increased profits, despite
the cost of investment in new branches.
We are pressing ahead with the accelerated
roll out of more sites. We have a great
new format for the branches, with more
products on display. We have also added
product lines to the range, to help meet our
objective of becoming a one-stop shop for
customers. By doing that, we can improve
the returns from existing branches and
reduce the time to break-even for new sites.

HOW FAR CAN YOU TAKE
THE BRANCH NETWORK?

MK: Our target is to add 30 new branches
in 2017 and I can envisage a similar rate of
expansion for the next two years after that.
This would result in an estate size of around
250 sites. Beyond that, we will have to see
how the current expansion plan develops,
consider the sites available, potential
branch maturity and sales saturation rates.
When I look at the builders and plumbing
merchants, some with well over 500
branches, it suggests that an estate of
350 branches is not an unrealistic long-term
goal for Eurocell.

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

WHAT ARE THE ECONOMICS
OF A NEW BRANCH?

MS: The branches have a low cost to set
up. Fit-out is around £60,000, with each
site holding stock of around £50,000.
Historically it’s taken around two years for a
new branch to reach a break-even run rate.
Over the last few months, we have been
running trials to reduce start-up costs
and shorten the time to break-even, with
initiatives based around sharing resources
with established sites in the same region.
The trials have gone well and there has
been some good learnings. We’re confident
that, in future, new branches should reach
a break-even run rate well before their
two-year anniversary.

CAN YOU AFFORD TO OPEN
30 BRANCHES AND STILL DELIVER
AN ACCEPTABLE RETURN TO
YOUR SHAREHOLDERS?

MS: New branches do put some downward
pressure on near-term profitability, so being
satisfied that the medium-term returns
justify the investment, and getting the pace
of expansion right, are critical questions.
We looked at how our existing estate
has matured. After reaching break-even,
branches between two and four years old
make average EBITDA % margins above
10%, whilst those over four years old
average mid teens (before central charges
and infrastructure costs). Taking this into
account, along with our initiatives to reduce
start-up costs, we concluded that the
proposed roll out pace should drive good
medium-term growth.

WHAT ARE YOUR FAVOURED
LOCATIONS FOR NEW BRANCHES?
MK: It’s good to be on or around trading
estates which house outlets for products
which are complementary for customers.
We’ve found that branches in these locations
usually reach break-even faster. We are also
interested in increasing our presence around
London and the South East. Both of these
strategies tend to result in sites with relatively
high rental charges, so we look carefully at
the expected return to ensure that we can
meet our target profitability.

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ARE THERE ANY OPPORTUNITIES
TO IMPROVE WORKING CAPITAL?

MS: We had a good second half to 2016,
with an inflow from working capital, driven
largely by a planned reduction in our stocks
of finished goods. Stock days last year
averaged over 65 days, but we hope to
move that below 60 during the course of
2017. Our receivable and payable balances
are fairly well-optimised today.

ARE THERE ANY MORE ACQUISITIONS
IN THE PIPELINE?

MK: We were delighted to complete the
acquisition of Security Hardware very
recently. We have a clear focus on improving
and optimising our existing operations,
where we see significant opportunity to drive
value, but acquisitions do form an important
part of our growth strategy and we will
assess opportunities as they come our way.
We would not comment on specifics –
but we have a good track record of
completing and integrating bolt-on
acquisitions and our balance sheet is
in good shape.

FINALLY, ARE THERE ANY ALL
EMPLOYEE SHARE SCHEMES?

MK: I am delighted to say that we will be
launching a Save As You Earn share scheme
in March 2017. We would like to see as many
of our colleagues as possible participate in
the Company’s success.

WHAT ARE THE INNOVATIVE, HIGH-
VALUE PRODUCTS THAT HAVE BEEN
SUPPORTING YOUR SALES GROWTH?
MS: Selling windows through the branches,
Skypods and Equinox all fall into that
category. Overall revenue for these
products was £13 million in 2016, up 58%.
Selling these high-value items in our
branches creates pull-through for our
manufactured products.

WHAT ARE THE PROCESS FLOWS
OF SELLING WINDOWS THROUGH
YOUR BRANCHES?

MK: This is window sales to typical branch
customers, such as the jobbing builder.
These customers are often too small to have
a credit relationship with a trade window
frame fabricator, so importantly, this is all
incremental business for our fabricators
and not direct competition with them.
We sell the profile to our local fabricators and
buy back the finished window. So it creates
pull-through demand for our manufactured
product and helps lock in the fabricators.
This is a relatively new initiative and sales
so far have been good. We hope volumes
will increase when pricing software is
available to all our branches later in 2017.

RECYCLING IS A KEY DIFFERENTIATOR
FOR YOU – HOW FAR CAN YOU TAKE IT?
MK: Our use of recycled material was up
to 14% in 2016 (9% in 2015), representing
around 6,000 tonnes of recycled PVC
compound. We are well-advanced with
capital investment to enhance our recycling
capability, which I expect to drive a further
increase in 2017. Expansion beyond that
requires further capital investment, which
we are evaluating at the moment.

HOW IS THE AVAILABILITY
OF RECYCLING FEEDSTOCK?

MS: Availability is good. We recycle over
30,000 windows per week. However, the
cost saving compared to using virgin PVC
compound for extrusion is substantial, so we
are looking at ways to get more product into
the recycling plant, including backhauling
from fabricator deliveries and using our
branch network.

HOW DO YOU MITIGATE YOUR
EXPOSURE TO INCREASING PVC
RESIN PRICES?

MS: PVC resin is a derivative of ethylene,
itself an output from the oil refining process,
so it behaves somewhat like a commodity
and is also subject to currency influences.
We protect ourselves using price variation
clauses in our supply contracts. Last year
we tested resin from alternative suppliers,
to increase our options and drive more
competitive pricing. In addition, wherever
possible, we pass through a proportion of
resin price increases to our customers.
The selling price increase implemented in the
second half of 2016 went a long way towards
mitigating the impact of weaker sterling
following the EU Referendum.

HOW ARE YOUR RECENT
ACQUISITIONS PERFORMING?

MK: Both Vista and S&S are performing
well and in line with expectations. Vista also
has spare capacity, so we’re looking at
how best to use that. For example, we don’t
sell many panel doors in our branches at
the moment.

HOW IS THE BALANCE SHEET – WHAT
DO YOU THINK IS THE RIGHT CAPITAL
STRUCTURE FOR THE BUSINESS?

MS: We have a strong balance sheet.
Our capital structure and good cash flow
generation give us the flexibility to capture
growth opportunities as our strategy and
markets develop, but also provide protection
from any unwanted macro-economic
headwinds which may come along.

WHAT ABOUT DISTRIBUTION POLICY?

MS: At the time of our IPO we set out to pay
dividends at approximately 40% of adjusted
earnings and we have no current plans to
change. The full year dividend for 2016 is
slightly better, which signals the confidence
we have in our business. The success of
our initiatives, both organic and mergers
and acquisitions, will be important
considerations when assessing future
capital structure and distribution policy.

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OUR PEOPLE

Our culture promotes openness, honesty, respect and hard work. We think it is a key factor in
the recruitment and retention of great people and in the continuing success of our business.

We have included in the following paragraphs a series of short case studies to help illustrate
what it is like to work for Eurocell. The case studies are titled: local employer of choice, staff
development, staff retention, and new acquisitions. We have also added testimony from two
business partners: a valued customer and a key supplier. These case studies illustrate how
our culture helps us do business.

WHAT OUR PEOPLE SAY

LOCAL EMPLOYER OF CHOICE
Jake Robinson recently joined the
Company.
Employee: Jake Robinson
Title: Design Draftsman
Length of time with the Company:
5 Months

STAFF DEVELOPMENT
Andy Hart has developed his career
via four key roles at the Company.
Employee: Andy Hart
Title: Regional Manager – Surrey & Sussex
Length of time with the Company:
Nearly 14 years

STAFF RETENTION
Jane Booth has been with the
Company for over 22 years.
Employee: Jane Booth
Title: Cashier/Payroll Manager
Length of time with the Company:
Over 22 years

Andy joined the Company as a Branch
Manager in 2003. In nearly 14 years with
Eurocell he has progressed through the
positions of Operations Manager, National
Support Manager and, most recently,
was promoted to Regional Manager.

Andy says that the reward for his hard work
has been the chance to grow his career and
skill set successfully with Eurocell. This has
been the key factor in his desire to stay with
the Company.

“I have benefited from excellent opportunities
for learning and progression, as well as a strong
support network which has helped and
encouraged me along the way.”

Jake was attracted to Eurocell by the local
reputation of the Company and by hearing
a recommendation that it is a great place
to work.

Jake says that in his first 5 months he has
found everyone very friendly and
approachable. He benefited from a full
induction programme and established good
working relationships within his department
and around the Company very quickly.

Jake is enjoying his new role. He thinks
the Company provides a good blend
of the opportunities that come with scale
and the close-knit feel of a family firm.
He envisages a long career with Eurocell
and views the chance of progression at
some stage in the future as a real bonus.

“Eurocell is a fantastic place to work with a
great team spirit. Everyone made a real effort
to make me feel welcome and at home from
day one.”

Average number of employees in 2016

Staff promoted

1,289

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We work hard to retain our staff – 45% of
employees have more than 5 years’ service
and 26% have been with us for over 10 years.

Jane joined the Company in 1994, when there
were only around 250 employees. Back in
those days, employee hours worked were
calculated using a manual system!

22 years later Jane is still enjoying her job. She
now deals with payroll matters for more than
1,200 employees, dealing with ever changing
shift patterns and payment terms.

Jane says the toughest challenges over the
years have been keeping pace with legislative
changes and developing reliable and robust
systems to cope with the growth in staff.
Recent developments, including Real Time
Information and Auto Enrolment legislation,
have been particularly difficult to implement.
Jane says its hugely rewarding when changes
are applied successfully, so that everyone gets
paid correctly and on time.

“It’s been great to see how the Company and
our people have grown over the years. Like
everyone else, there have been good times and
more difficult periods. I’m particularly proud of
how we’ve responded in adversity and I’m sure
the learnings from those periods are what
makes us such a strong business today.”

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WHAT OUR CUSTOMERS AND SUPPLIERS SAY

A VALUED CUSTOMER
Company: Ford Windows
Association: Customer
Length of time worked with Eurocell:
11 years

A KEY SUPPLIER
Company: Renolit
Association: Supplier
Length of time worked with Eurocell:
10 years

We wanted to work with Eurocell because
of their robust infrastructure and sizeable
manufacturing facilities. We felt that
combination, together with their central
location and wide product range would be
key factors in meeting our needs – and they
haven’t let us down.

Over the 11 years of our relationship, Eurocell
has grown significantly and now has more
resources available to support customers
than most of their competitors. Service levels
are excellent and product quality is superb.
Issues are infrequent, but any which do arise
are quickly resolved to our satisfaction.

One of Eurocell’s key strengths is product
innovation. That’s great for us because it
helps us grow our business too. For example,
their bi-fold door offering was well ahead of
the competition when launched. They listen
to what their customers say and use the
feedback to support product development.
The 125mm cill designed for new build
was a direct spin out of the Eurocell
Fabricator Forum.

In summary – we’re a very satisfied customer
and recently signed a three-year sole supply
agreement with Eurocell.

We have a long-standing and valued trading
association with Eurocell. During the course
of our commercial relationship, Eurocell has
grown and developed its business model,
which has become more complex over time.
This has led quite naturally to the company
having higher expectations of their suppliers,
in terms of service, quality and innovation.

Whilst this has put some pressure on the
‘Just-in-time’ service model we operate,
Eurocell’s open and honest approach to
dealing with Renolit has been a significant
factor in resolving the issues we have
faced together.

Like all of our best customers, Eurocell set us
challenges. But the team are approachable,
fair and always professional. They expect the
same from their suppliers, and we hope that
we have delivered too. As a result, a very
high level of trust has developed between
our businesses, which has allowed us to
grow together and meet each other’s needs,
including a successful commercial outcome
for both parties.

Vista Panels employees

S&S Plastics employees

109

Training hours per head

Apprentices in the Group

12.6

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NEW ACQUISITIONS
Emma Gregory came into the Group when
S&S Plastics was acquired in 2015.
Employee: Emma Gregory
Title: Accountant
Length of time with the Company:
2 years with S&S Plastics

Emma joined S&S Plastics because she wanted
to work with a successful local manufacturing
business. That was shortly before the
acquisition by Eurocell.

Similar to Jake, Emma enjoys the family
atmosphere that has made S&S such a
success, but she’s also excited by the
opportunities that a larger group can provide.

Emma says her biggest challenge has been
the SAP implementation at S&S. Like all system
implementations, the project has had its
difficulties, but she recognises the benefits of
conforming all of the production and finance
systems onto one platform across the Group.
In fact, she’s hoping that once SAP is fully
embedded, she will have more time to work
on finance projects at other Eurocell sites.

Emma says that she has developed her skills
and learnt new ones along the way and feels
as though she will continue to develop her
skills as there are always new opportunities to
challenge her.

“I joined a successful but relatively small private
company, but quickly found myself part of a
much larger public group. I think I’ve got the
best of both worlds. On the one hand, a great
local team that works well together keeping
our day-to-day activities on track. On the other,
we get great support from the Eurocell Group,
which has the people and the funding we need
to take the S&S business to the next level.”

CORPORATE SOCIAL RESPONSIBILITY

As a leader in our field, we believe Eurocell has a responsibility to comply not
only with all relevant legislation that governs our corporate surroundings, but to
go beyond this and establish a moral and ethical framework within which to run
our business. The health, safety, development and wellbeing of all our people are
the building blocks at the heart of the environment we created to deliver on these
obligations. In addition, we have recently introduced a customer-focused quality
policy statement, which captures the way we aspire to work at Eurocell.

PROVIDING A SAFE ENVIRONMENT
The safety and well-being of our employees
and contractors is our first operational priority.
Our safety KPIs continue to be strong and we
recorded no major injuries in 2016 under the
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013 (RIDDOR).

In our production facilities, monthly safety
audits are led by the Site Safety Coordinator
and members of the safety team. These
ensure we are compliant with our internal
safety systems and standards, which form
part of our OHSAS 18001 accreditation.
Each area of the business has specific
task-based risk assessments and machine
risk assessments, which are reviewed
periodically and updated whenever
necessary. In addition, the safety team leads
monthly cross-functional safety meetings,
where learnings and best practice are shared.

In the branches, risk assessments, safe
systems of work and control of substances
hazardous for health (COSHH) assessments
are all reviewed annually. On the job training
is provided at least annually and health and
safety training is provided at regional
meetings when requested.

All branches participate in a ‘Plan, Do, Audit,
Review’ procedure and are audited for health
and safety compliance purposes, both by
internal and external bodies.

Injury frequency rate(1)

Lost time injury
frequency rate(2)

Severity rate(3)

2016

5.15

1.05

13.3

2015

4.81

1.27

13.4

(1) Injuries per 100,000 hours worked.
(2) Lost time accidents per 100,000 hours worked.
(3) Days lost due to accidents at work per

100,000 hours worked.

Our safety statistics continue to benchmark
well with industry standards. We did see an
increase in the injury frequency rate in 2016,
driven partly by a higher use of agency
employees. We are working to bring standards
within our agency workforce up to those of our
permanent employees. The lost time injury
frequency rate has improved in 2016 and the
severity rate was flat. We have also improved
our data collection and near-miss reporting.

DEVELOPMENT OF OUR PEOPLE
Continued investment in learning and
development for our staff is a cornerstone of
our strategy for the recruitment and retention
of talented people.

We provide a number of training programmes
and relevant courses for our staff, using a
combination of internal and external service
providers. In addition, we provide financial
and study leave support for our trainees
who are progressing through the process
of obtaining a professional qualification.

We also operate a management development
programme. The programme has three levels,
reflecting the relative seniority of participants
(with level three being the course for our most
senior managers). During 2016, participants
in levels one and two completed the
programme and we envisage a second wave
beginning in 2017. The first participants in
level three will also complete their programme
in 2017.

During the year we developed our e-learning
offering for all employees. This enables us to
offer wide-reaching training more easily to our
geographically disparate workforce.

In 2016, the average number of training hours
per head was 12.6.

NOMINATED CHARITIES
This year, our employees nominated two
charities which have become Eurocell’s
charities of choice. These are the East Midlands
Air Ambulance Service (a local charity) and
Starlight (a national charity). We will continue
to support these charities with our fundraising
efforts, with the Company matching pound
for pound the donations raised by our teams.

EQUALITY AND DIVERSITY
Equality and diversity are fundamental
values supported by Eurocell. We take our
responsibilities under our equal opportunities
policy seriously and we give full and fair
consideration to applications for employment
by disabled people. In the event of a
colleague becoming disabled, every effort
is made to ensure that their employment with
us continues and that appropriate training is
arranged. We respect individuals and their
rights in the workplace and, with this in mind,
specific policies are in place to prevent or,
where issues are raised, address harassment
and bullying and to ensure equal opportunities.
Our whistleblowing policy continues to
operate to give visibility to issues that might
not have been resolved through normal
business channels.

Our colleagues are from wide and diverse
backgrounds, nationalities and ethnic and
religious groups. With continued expansion,
diversity amongst our colleagues will increase.
We respect cultural differences, and learn
about and embrace these differences
wherever we operate.

We recognise the benefits of encouraging
diversity across the business and believe that
this will contribute to our continued success.
All appointments are made based on merit
and are measured against specific objective
criteria including the skills and experience
needed for the position. We are committed
to increasing the participation of women at
the Board, Executive Committee and senior
management level, as they are currently under
represented as the table opposite illustrates.

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GENDER DIVERSITY

Directors

Executive Committee (Steering Group)

Senior managers

Other employees

Male no.

% Female no.

Total no.

1,113

1,135

100%

83%

85%

88%

151

154

17%

15%

12%

1,264

12%

1,289

NEW APPRENTICESHIP PROGRAMME
During the year we implemented an apprenticeship
scheme, under which we have so far introduced 10 staff
into the Group. The programme enables participants
to quickly learn relevant skills and provides a good
head-start to building a career. All of the apprentices have
made a really positive contribution to the business. We are
committed to growing the scheme and anticipate another
intake in 2017.

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QUALITY POLICY STATEMENT
We recently introduced the following
customer-focused quality policy statement,
which captures the way we aspire to work
at Eurocell.

Customers
To be trusted by our customers in everything
we do. Working in partnership with them
to ensure that they are able to differentiate
their service and product offerings from
their competitors. Easy to do business
with and always responsive to their needs,
in a consistent, timely, courteous and
flexible manner.

Quality
Adherence to industry leading specifications
and ISO based standards for Quality &
Environmental Management and British
Standards for Health and Safety. Ensuring
that suppliers understand and work with us
to meet our aspirations.

Constant improvement
Uniform standards across our business
benchmarked against industry best practice,
constantly reviewing and improving processes.
Benchmarked leading industry best practice
transferred across businesses and customers
with a view to reducing waste and improving
consistency. Always tracking and measuring
through business and departmental KPI’s
reflecting the business objectives.

Everyone’s responsibility
All departments responsible for constantly
reviewing, measuring, checking and
improving the quality of their work and
ensuring that the necessary training, facilities
and tools are available to get the job done,
right first time through a culture of continuous
improvement. All departments working
together and supporting each other with no
barriers and no silos.

CARBON FOOTPRINT
We have now calculated GHG emissions for
2015, which were 17,356 tonnes of CO2. The
Group is in the process of calculating GHG
emissions for 2016. We will also put in place
new systems to facilitate more timely
reporting of this data in the future.

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CAPITALISING ON OUR STRATEGY

CHIEF EXECUTIVE’S REVIEW

“ I believe we have an excellent opportunity
to take control of our own destiny.”

MARKET CONTEXT
The RMI market was broadly flat through 2016.
In June, the result of the EU Referendum added
uncertainty into the mix.

Taken together, these factors resulted in
adjusted basic earnings of 20.0 pence per
share for the year, compared to 18.6 pence per
share in 2015.

However, aside from the six weeks or so
immediately following the Referendum,
we have experienced stable market conditions.
There has been some pressure on our raw
material prices, but generally our customers
have remained optimistic, reporting healthy
end-user demand.

As a result, we have found ourselves
well-placed to progress our strategic priorities
and grow our business. In doing so, we have
produced good financial results and a strong
operating performance across the business.

The trends and initiatives that have driven our
financial results are described in the Divisional
and Group Financial Reviews.

HEALTH AND SAFETY
The safety and well-being of our employees
and contractors is our first operational priority.
Our safety KPIs continue to be strong and we
recorded no major injuries in 2016 under the
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013 (‘RIDDOR’).
Further details of our safety performance are
included in Corporate and Social Responsibility.

OPERATIONAL PERFORMANCE
We delivered a strong operating performance in
2016, with judicious capital investment and the
introduction of lean manufacturing techniques
and a Kaizen continuous improvement team
helping to capture manufacturing efficiency
gains across the business.

This included an increase in the use of recycled
material to 14% of consumption (2015: 9%) and
the successful consolidation of certain primary
extrusion operations with secondary processes
such as foiling (i.e. the application of coloured
foil to white profile). The introduction of a new
foiling machine has helped deliver process
improvements, such as shorter machine setup
and changeover times, thereby reducing lead
times for customers with bespoke orders.

Across our various sites we have worked
hard to standardise processes and share
best practice wherever possible. As a result,
key measures such as our Overall Equipment
Effectiveness (OEE) have improved, with waste
and scrap levels falling during the year.

WAREHOUSE LOGISTICS
On the downside, as noted above, we have not
been able to realise the savings anticipated
when we outsourced our logistics operation to
DHL towards the end of 2014 under a five-year
contract. These savings were estimated to be
approximately £1.3 million per annum.

With 2015 being a transitional year, this shortfall
emerged during 2016 and was confirmed in the
second half of the year. We now believe that it
has arisen primarily as a result of assumptions
made at the inception of the contract over the
ability to reduce historic warehouse labour
costs, which were too optimistic.

FINANCIAL PERFORMANCE
We delivered good financial results for 2016.
Revenue was slightly better than expected, up
11% excluding acquisitions. This strong growth
was driven by the continued expansion of our
branch network, continued focus on sales of
innovative products (such as Skypod, Equinox
and windows through our branch network) and
by our specifications teams, which have been
increasingly successful in generating demand
for our products.

I am pleased that we improved our gross
margin to 52.0% (2015: 51.7%), implementing
several initiatives to offset raw material price
increases arising principally as a result of the
depreciation in sterling.

Overheads were a little higher than we
anticipated at the beginning of the year.
We have not realised the savings anticipated
when we outsourced our logistics operation
to DHL. This is discussed in Warehouse
Logistics opposite.

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Scrap Levels1

Overall Equipment Effectiveness (OEE)2

12%

11%

10%

2016

2015

2014

2013

82%

76%

71%

67%

2013

2014

2015

2016

(1) Scrap = 100% – (good product produced/consumption)
(2) OEE is a measure which takes into account machine availability, performance and yield

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Mark Kelly
Chief Executive Officer

OUTLOOK
To date we have experienced few ill effects from
the EU Referendum, other than a short-lived
dip in enquiry and activity levels last summer.
As such, whilst uncertainty remains over the
long-term impact of the decision to leave the
EU, the majority of our fabricators enjoyed
strong order books going into 2017 and trading
in our expanding branch network continues to
be robust.

Financially, we have made a positive start to the
new year, with trading in line with expectations.

I am also delighted to welcome Security
Hardware to the Group. I look forward to
working with them to develop the spares
proposition for our branches, with a longer-term
goal to make Eurocell the national destination
store of choice for all window repairs.

After almost twelve months with Eurocell,
I believe that we have an excellent
opportunity to take control of our own destiny.
The markets in which we operate are going
to be challenging, particularly if economic
uncertainty undermines confidence, but we
are in a position where we can drive our
strategic priorities and initiatives harder,
with a view to continuing to take market share.

Our proven strategy and capabilities will enable
Eurocell to deliver value to our customers and
shareholders throughout 2017 and beyond.

Mark Kelly
Chief Executive Officer

DHL remains an important supplier to the
Group and we have worked closely with them
to understand how the arrangements could
be better structured to deliver more efficient
services in the future. In particular, we want to
improve our end-to-end customer focus and
supply chain support.

As a result, we agreed in January 2017 that
DHL would continue to provide transportation
services to the Group, but that, with effect from
February, the operation of our main warehouse
facility would be brought back in-house.

The new operating model has been in place
since mid-February and is working well
for DHL, Eurocell and, most importantly,
our customers. In fact, it is important to note
that throughout this period, both before and
after the changes, good customer service
levels have been maintained.

It is too early to say whether, under the new
arrangements, any potential savings over the
current cost run rate can be realised. However,
to the extent that they can be, it is likely we
would reinvest any such gains to enhance our
overall customer service levels.

STRATEGIC PRIORITIES
As described in the previous section,
our overall objective is to deliver sustainable
growth in shareholder value by increasing
sales and profits at above market level growth
rates. In order to do so, our five key strategic
priorities are as follows:
• Target growth in market share
• Expand our branch network
• Develop innovative new products
•
Increase the use of recycled materials
• Explore potential bolt-on acquisition

opportunities

We are making good progress with all of
our strategic priorities. Expanding the branch
network, increasing the use of recycled
materials and bolt-on acquisitions are all
described in some detail in the pages
immediately preceding this review.

In terms of market share, our aim is to increase
our share of the PVC profiles market to utilise
the spare manufacturing capacity in our
extrusion facilities. Recent production volumes
have averaged a little over 40,000 tonnes per
annum. We believe that production of at least
50,000 tonnes per annum can be achieved with
little additional capital investment or incremental
labour costs. As such, whilst new volume could
be dilutive to gross margin, the net margin on
such sales should be attractive.

To deliver the incremental volume, we intend to
target new build, commercial and public sector
work. In particular, demand for our brands in
the new build market continues to increase. Our
ability to supply excellent products through the
fabricator network is supporting growth in this
area. Our close working relationships with a
number of the major house builders continues
to develop, nurtured through good technical
support plus market-specific innovation, leading
to tight specifications and driving demand for
our products. As such, we believe we are now
the largest supplier of window profile to the new
build market. In addition, expanding the branch
network should create pull-through demand for
both rigid and foam products.

With innovation, we are committed to
maintaining market leadership by offering the
very latest in product improvement, both
through the development of existing products
and the introduction of new ones. We are also
working hard on processes to shorten the lead
time to market for new products.

Recent examples of our product innovation
include expansion of the Modus window
suite and the introduction of a wider range of
Roomline products (internal architraves and
skirting boards). The Roomline range now
includes more colours and designs, but the
product retains its essential characteristics of
being easy to fit and keep clean, with no need
for painting.

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REVENUE
The RMI market, which as previously
described is the most significant external
driver of our performance, remained broadly
flat during 2016. Against this backdrop,
we made good progress with our strategic
priorities and other self-help initiatives.

We are very pleased to report that total
Profiles third party revenue was up 18% to
£87.4 million (2015: £73.9 million), which
includes an organic sales increase of 4%,
with the remaining growth driven by our two
recent bolt-on acquisitions: S&S Plastics
and Vista Panels.

HOW WE PERFORMED

DIVISIONAL REVIEWS

PROFILES

The Profiles division manufactures extruded rigid and
foam PVC profiles. Rigid PVC profiles are sold to third
party fabricators, who produce windows, trims, cavity
closer systems, patio doors and conservatories for
installers, retail outlets and house builders. Foam
products are used for roofline and are supplied to
customers through our nationwide branch network
in the Building Plastics division.

As such, all of our manufacturing margin is recorded
within the Profiles division, which therefore also
benefits from expansion of the branch network.

The Profiles division also includes S&S Plastics and Vista;
businesses acquired in 2015 and 2016 respectively.

Profiles

3rd Party Revenue

Organic
S&S Plastics(1)
Vista Panels(2)

Inter-segmental Revenue

Total Revenue

Adjusted EBITDA

(1) Acquired S&S Plastics July 2015
(2) Acquired Vista Panels March 2016

2016
£m

87.4

75.2
4.8
7.4

39.8

127.2

22.7

2015
£m

73.9

72.0
1.9
–

32.1

106.0

21.6

Change
%

4
n/a
n/a

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Looking at our customer base, there are
positive trends across the spectrum. The last
twelve months have seen larger fabricators
increase capacity by extending or adding
factory units and progress with continued
investment in plant and machinery. As such,
our larger trade fabricators are benefiting
from economies of scale and automation,
which is allowing them to grow share by
supplying smaller retail fabricators.

Winning two additional major fabricators
at the end of 2015 has helped drive our
performance in 2016, with a further two large
wins towards the end of the year expected to
support our future growth plans.

We are still seeing some growth from our
smaller fabricators, who are using the
Eurocell brand to good effect and also
assisting with the supply of windows through
to our branch network.

We have also delivered good growth in
the private new build sector, where our
specifications teams have been increasingly
successful in generating demand, well-
supported by our ability to supply excellent
products through the fabricator network.

In terms of mix, we are seeing a greater
emphasis on thermal efficiency from our
new build and public sector customers and,
more generally, an increase in demand for
coloured windows.

Turning to the acquisitions, S&S Plastics joined
the Group in July 2015 and Vista Panels in
March 2016. Integration is proceeding to plan
and it is pleasing to report that both businesses
delivered good performances in 2016.

ADJUSTED EBITDA
Adjusted EBITDA was £22.7 million
(2015: £21.6 million), an increase of 5%.

In general, the increase in adjusted EBITDA
is a function of sales growth.

Gross margin in the Profiles division has been
stable. Raw material prices and the impact of a
degree of consolidation in our customer base
(reflected in the growth at larger fabricators at
the expense of smaller customers described
above), have together resulted in some
downward pressure on gross margin. This has
been offset by price increases implemented in
the second half and assisted by continuing
manufacturing efficiency gains.

A lower return on sales in 2016 is primarily a
function of higher overheads. This includes the
impact of a reassessment of provisions in
2015. In addition, as described in the Chief
Executive’s Review, we have not realised the
savings anticipated when we outsourced
our logistics operation to DHL towards the
end of 2014.

However, we have also invested in business
expansion in the Profiles division. In line with
our strategic priorities, we have increased
resources in our Business Development
teams which operate in the new build and
commercial markets (e.g. education and
student accommodation). We have made
good progress to date securing specifications
in these sectors, particularly new build,
and expect to see increasing returns from
our investment in the future.

Ian Kemp
Profiles Sales Director

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29

DIVISIONAL REVIEWS continued

BUILDING PLASTICS

Building Plastics distributes a range of Eurocell
manufactured and branded PVC foam roofline
products and Vista doors, as well as third party
manufactured ancillary products. These include
windows made by our fabricator customers using
products manufactured by Profiles, sealants, tools
and rainwater products. Distribution is through
our national network of 159 branches to installers,
small and independent builders, house builders and
nationwide maintenance companies. The branches
also sell roofline products to independent wholesalers.

REVENUE
Revenue was up 15% to £117.5 million
(2015: £102.1 million), which includes an
increase in like for like sales of 10%. Like for
like sales includes branches that have been
open for the full year of 2015 and 2016.

The strong like for like sales growth
includes the impact of growth from
branches opened in 2014 and prior, as the
more recent sites from that vintage begin
to mature. Growth has been bolstered by
increased sales of windows, Skypod and
Equinox through the branch network,
where sales were £13.3 million in 2016,
compared to £8.4 million last year.

Building Plastics

3rd Party Revenue
Inter-segmental Revenue

Total Revenue

Adjusted EBITDA

2016
£m

117.5
0.7

118.2

8.8

2015
£m

102.1
0.6

102.7

8.4

Change
%

15
18

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No. of branches (at the year end)

2016

2015

2014

2013

159

141

128

123

Average revenue per branch (£000)

2016

2015

2014

2013

722

681

711

647

As described in Our Strategy, new branches
are a key driver of future sales and profit
growth, but, they do create downward
pressure on profitability in the short term
due to investment in central infrastructure
and in our teams at new sites.

However, we are in the midst of trials to
reduce the start-up costs associated with
new branches in order to support them
reaching profitability sooner.

Building Plastics overheads also include higher
than expected expenditure on the branch
incentive scheme described previously.

Looking to the future, we have recently
commenced Peer Pricing trials within the
branch network. This is a mechanism which
displays to branch staff at point of sale the
average historic selling prices for products
sold by their branch, region and nationally
across the Eurocell Group. When implemented
fully, we expect Peer Pricing to support margin
in the branches.

Tony Smith
Building Plastics
Commercial Director

Like for like growth also includes some benefit
from an initiative to improve our proposition as
a one-stop shop for customers, via the roll out
of an additional 500 product lines in 2016.
The acquisition of Vista Panels has supported
growth in the sales of doors through
the branches.

In terms of new branches, we opened 18 in
2016, which is 3 more than we envisaged at
the beginning of the year and compares to
13 opened in 2015. We now have a total of
159 branches providing national coverage
across the UK, which we believe offers a
significant competitive advantage. In line
with our strategic priorities, we will continue
to accelerate the pace of expansion, with a
further 30 new branches planned for 2017.

ADJUSTED EBITDA
Adjusted EBITDA was £8.8 million
(2015: £8.4 million), an increase of 5%.

The increase in adjusted EBITDA is a function
of sales growth.

Gross margin in Building Plastics was slightly
down year on year, reflecting the impact
of a branch incentive scheme in place
during the first half, which promoted sales
to the detriment of margin. The scheme
was restructured in May to better align with
Group profit targets.

Overall, a lower return on sales in 2016 is
primarily a function of higher overheads.
This includes important investment to
accelerate the pace of expansion of our
branch network described above.

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31

MEETING MARKET EXPECTATIONS

GROUP FINANCIAL REVIEW

We have made good progress with our strategic
priorities and other self-help initiatives and delivered
good financial results in the process.

Group

Revenue
Gross Profit
Gross Margin %
Overheads

Adjusted EBITDA
Depreciation and amortisation

Adjusted Operating Profit
Finance Costs

Adjusted Profit Before Tax
Tax

Adjusted Profit After Tax

Adjusted Basic EPS (pence per share)

Reported Profit Before Tax
Reported Basic EPS (pence per share)

2016
£000

2015
£000

204,816
106,565
52.0%
(75,236)

31,329
(6,377)

24,952
(677)

24,275
(4,299)

175,947
91,002
51.7%
(61,271)

29,731
(5,437)

24,294
(1,275)

23,019
(4,454)

19,976

18,565

20.0

18.6

23,820
19.6

19,696
15.5

REVENUE
Revenue for the year was slightly
better than expected at £204.8 million
(2015: £175.9 million), which represents
growth of 16%, or 11% excluding acquisitions.

As described in the Divisional Reviews,
this has been driven by strong like for like
growth in the Building Plastics branch network
(£10.4 million, or 10% for the division) and
the positive impact from branches opened in
2015/16 (£5.0 million, or 5% for the division).
We have also delivered good organic growth
in Profiles (£3.2 million, or 4% for the division).
Together, the acquisitions of S&S Plastics
and Vista Panels added £10.3 million to sales
in 2016.

GROSS MARGIN
Gross Margin for 2016 was slightly improved
at 52.0% (2015: 51.7%).

We did benefit from lower average resin
prices in the first half, but prices began to rise
in April and increased further following the
EU Referendum, principally as a result of the
depreciation in sterling. However, we were able
to mitigate this pressure through a combination
of selling price increases implemented in
the second half, enhanced procurement
measures, production efficiencies and by
increasing the use of recycled materials in
our manufacturing processes.

By way of example, efficiencies achieved
in manufacturing helped improve overall
equipment effectiveness by 6% and reduce
waste levels by 1%. The use of recycled
materials in our primary extrusion
manufacturing processes increased to
14% compared to 9% in 2015.

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Michael Scott
Chief Financial Officer

Revenue (£m)

175.9

10.4

204.8

3.2

10.3

5.0

2015

Building
Plastics LFL

2015/2016
Branches

Building
Profiles
plastics LFL

Acquisitions

2016

Distribution Costs and Administrative Expenses (Overheads) (£m)

75.2

5.2

61.3

1.4

2015
Provisions
Reassessment

2015

1.9

5.4

Building
2015/2016
Branches
plastics LFL

Underlying
Business

Acquisitions

2016

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33

DISTRIBUTION COSTS AND
ADMINISTRATIVE EXPENSES
(OVERHEADS)
Overheads for the year were £75.2 million
(2015: £61.3 million). The year-on-year
increase includes £1.4 million following
the reassessment of provisions in 2015,
£1.9 million as a result of new branches
opened in 2015/16 and £5.2 million from the
two acquisitions. The balance of £5.4 million
relates to an increase of 9% in the underlying
organic business, where sales growth
was good.

The increase in underlying overheads is a little
higher than we anticipated at the beginning of
the year. As described in the Chief Executive’s
Review, we have not realised savings of
approximately £1.3 million per annum
anticipated when we outsourced our logistics
operation to DHL towards the end of 2014.
In addition, as described in the Divisional
Reviews, underlying overheads include higher
than expected expenditure on a branch
incentive scheme, which has now been
restructured to better align with Group
profit targets, and investment in the Profiles
Business Development team.

DEPRECIATION AND AMORTISATION
Depreciation and amortisation for 2016 was
£6.4 million (2015: £5.4 million), with the
year-on-year increase a function of recent
capital investment.

FINANCE COSTS
Finance costs for the year were £0.7 million
(2015: £1.3 million). The Group has benefited
from significantly reduced finance costs
following a restructuring of our financing
arrangements at the time of the IPO in
March 2015.

GROUP FINANCIAL REVIEW continued

ADJUSTED PROFIT MEASURES
Adjusted EBITDA, adjusted operating profit
and adjusted profit before tax all exclude
non-recurring costs (see below). Adjusted
profit after tax and adjusted earnings per
share exclude non-recurring costs and the
related tax effect.

NON-RECURRING COSTS
We identified non-recurring costs of £455,000
in 2016 (2015: £3,323,000). Non-recurring
costs for 2016 comprise duplicated costs
relating to the handover period during which
the Company employed two Chief Executive
Officers, as well as professional fees
related to the acquisition of Vista Panels.
All non-recurring costs for 2016 were incurred
in the first half. Non-recurring costs for
2015 comprised professional fees incurred
in connection with the Company’s IPO in
March 2015.

TAX
The effective tax rate on adjusted profit
before tax for 2016 was 17.7% (2015: 19.3%),
with both years lower than the mainstream
corporation tax rate, primarily due to the
beneficial impact on deferred tax of future
reductions in the corporation tax rate now
substantively enacted as well as adjustments
to prior year taxes.

The effective tax rate on reported profit before
tax was also 17.7% (2015: 21.4%). The higher
underlying rate for 2015 reflects costs incurred
in connection with the IPO disallowed for
tax purposes.

Capital Expenditure (£m)

2016

2015

2014

7.2

6.4

5.1

New Branches
Recycling
Operations
Other

£0.8m
£1.1m
£3.9m
£1.4m

Cash Flow (£m)

31.3

0.8

(3.7)

28.4

(7.2)

(1.3)

2016
EBITDA

Working
Capital

Tax and
Other

Net cash
from
operating
activities

(8.0)

Capex

Financing

Dividends

5.6

(6.3)
Acquisitions

Change in
Net Debt

Net Debt (£m)

Cash
Borrowings

Net Debt

2016

2015

Change

5,559
(25,827)

1,176
(27,047)

(20,268)

(25,871)

4,383
1,220

5,603

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settle the acquisition costs of Vista. This loan
was repaid out of cash in the second half.

BANK FACILITIES
We have an unsecured, multi-currency,
revolving credit facility of £45 million,
provided by Barclays and Santander.
The Group operates comfortably within
the terms of the facility and related financial
covenants. The facility matures in 2020.

Michael Scott
Chief Financial Officer

EARNINGS PER SHARE
Taking into account all of the factors
described previously, adjusted basic earnings
per share for 2016 was 20.0 pence per
share (2015: 18.6 pence per share).

Reported basic earnings per share
for 2016 was 19.6 pence per share
(2015: 15.5 pence per share).

Basic earnings per share
Adjusted basic earnings

per share

Diluted earnings per

Adjusted diluted

2016
pence

19.6

2015

pence

15.5

20.0

18.6

19.6

15.5

earnings per share

19.9

18.6

ACQUISITIONS
As previously described, we acquired Vista
Panels in March 2016 for consideration (net of
cash acquired) of £6.3 million (see also Cash
Flow opposite). Whilst Vista has had a strong
second half of the year, its impact on group
earnings was not material in 2016.

DIVIDENDS
We paid an interim dividend of 2.8 pence per
share in October 2016. The Board proposes
a final dividend of 5.7 pence per share,
resulting in total dividends for the year of
8.5 pence (2015: 7.9 pence). This represents
growth of 8% and is slightly better than the
policy set out at our IPO, to target a dividend
of approximately 40% of adjusted earnings,
demonstrating the Board’s confidence in the
future of our business.

CAPITAL EXPENDITURE
The Group is continuing to invest in its
future with capital expenditure for the year
of £7.2million (2015: £6.4 million).

As described earlier, capital expenditure
includes investment to increase our recycling
capacity (£1.1 million) and in new branches
opened in 2016 (£0.8 million). Investment of
£3.9 million in operations includes a new foiling
machine (£0.7 million, which reduces the lead
times for coloured products), new tooling costs
(£0.9 million) and general maintenance capex.
Other capital expenditure of £1.4 million
includes the branch refurbishments and
relocations, along with various IT related costs.

CASH FLOW
Net cash generated from operating activities
was strong at £28.4 million, compared to
£19.4 million in 2015.

This includes a net inflow from working
capital for 2016 of £0.8 million comprised
of a decrease in stock (£1.6 million),
an increase in trade and other receivables
(£0.6 million) and a decrease in trade and
other payables (£0.2 million). This compares
to a net outflow from working capital of
£0.7 million in 2015. It also includes tax
paid of £3.5 million (2015: £5.7 million).

Financing costs paid of £1.3 million include
£0.5 million related to the acquisition of
Vista, where the Group agreed to settle
on completion £485,000 owed by Vista
to its former ultimate parent undertaking,
CorpAcq Limited.

Dividends paid represent the final dividend for
2015 of 5.2 pence per share (or £5.2 million)
and the interim dividend for 2016 of 2.8 pence
per share (or £2.8 million).

Taking all of these factors into account,
net debt reduced by £5.6 million during the
year to £20.3 million at 31 December 2016
(31 December 2015: £25.9 million).

In the first half we drew down £8 million as
a loan under our existing facility in order to

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35

PRINCIPAL RISKS AND UNCERTAINTIES

APPROACH TO RISK MANAGEMENT
Risk management is the responsibility of
the Board and is a key factor in delivering
the Group’s strategic objectives.

The Board is responsible for setting the risk
appetite, establishing a culture of effective
risk management and for ensuring that
effective systems and controls are in place
and maintained.

Senior managers take ownership of specific
risks and implement policies and procedures
to mitigate exposure to those risks.

RISK MANAGEMENT PROCESS
The risk management process sits alongside
our strong governance culture and effective
internal controls to give the Board assurance
that risks are being appropriately identified
and managed.

HOW WE MANAGE RISK
Risk is managed across the Group in the
following ways:
• The Board meets annually to review
strategy and set the risk appetite.

• Risks faced by the Group are identified
during the formulation of the annual
business plan and budget process,
which sets objectives and agrees
initiatives to achieve the Group’s goals,
taking account of the risk appetite set
by the Board.

• Senior management and risk owners
consider the basic cause of each risk
and assess the impact and likelihood of it
materialising. The analysis is documented
in a risk register, which identifies the level
of severity and probability, ownership
and mitigation measures, as well as any
proposed further actions (and timescale
for completion) for each significant risk.

h
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Low

Medium

High

IMPACT

Risks are then logged with reference to
impact and probability as follows:
• The Executive Directors meet with senior
managers on a regular basis throughout
the year. This allows the Executive
Directors to ensure that they maintain
visibility over the material aspects of
strategic, financial and other risks.

• The Group’s Executive Directors also
compile their own risk assessment,
ensuring that a top-down, bottom-up
approach is undertaken when considering
the Group-wide environment.

• The Group’s Audit and Risk Committee
assists the Board in assessing and
monitoring risk management across the
Group. The role of the Committee includes
ensuring the timely identification and robust
management of inherent and emerging risks,
by reviewing the suitability and effectiveness
of risk management processes and controls.
The Committee reviews the risk register to
ensure net risk and proposed further actions
are together consistent with the risk appetite
set by the Board.

In order to further enhance the risk management process, the Group has recently established
an executive Risk Management Committee, chaired by Michael Scott. It is intended that this
committee will meet on a regular basis (generally monthly). The most significant risks will be
reviewed at each meeting, with other risks reviewed on a cyclical basis.

36
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r o l

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RISK MANAGEMENT PROCESS

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INTERNAL CONTROL
In addition, Eurocell has a well-defined
internal control system.

The Group has a process of planning
and monitoring, which incorporates Board
approval of operating and capital expenditure
budgets. Performance against the budget
is subsequently monitored and reported to
the Board on a monthly basis. The Board
also monitors overall performance against
operating, safety and other targets set
at the start of the year. Performance is
reported formally to shareholders through
the publication of results. Operational
management makes frequent reports on
performance to the Executive Directors.

The Group also has processes in place for
business continuity and emergency planning.

Day-to-day operations are supported by
a clear schedule of authority limits that define
processes and procedures for approving
material decisions. This ensures that projects
and transactions are approved at the
appropriate level of management, with the
largest and most complex projects being
approved by the Board. The schedule of
authority limits was updated in December 2016,
to reflect the development of the business since
its IPO, and approved by the Board.

In order to further enhance the internal control
and risk management processes, the Group
intends to implement an outsourced internal
audit function. An appointment to fulfil this
role will be made in March 2017.

With the assistance of the Audit and Risk
Committee, the Board has reviewed the
effectiveness of the system of internal control.
Following its review, the Board determined
that it was not aware of any significant
deficiency or material weakness in the system
of internal control.

RISK PROFILE
The principal risks monitored by the Board
are as follows:

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PRINCIPAL RISKS AND UNCERTAINTIES continued

Principal Risk and Impact

Strategic
Priorities Mitigation

Risk Change in
Reporting Period

Movement

• The general RMI market
is currently broadly flat.

• Specific markets for

our products are also
forecast to be flat.
• Our self-help initiatives
are progressing well.

• Notwithstanding macro conditions, we

expect our strategic priorities and self-help
initiatives to support sales and market
share growth.

• Initiatives include: expanding the branch
network, investment in our specifications
team, and targeting new build,
commercial and public sector work.
• We currently operate comfortably within
the terms of our existing bank facility and
related financial covenants.

• Strategic priorities and self-help initiatives

noted above.

• New risk for 2017. p

• Constant review and monitoring of the

economic landscape.

• Flexible plans with the ability to adapt if
circumstances change significantly (e.g.
curtail investment to protect the business).

• Resin supply contracts contain

mechanisms to help deal with significant
variations in price.

• Where possible we pass through

resin price increases (and decreases)
to our customers.

• Increased use of recycled material in

our manufacturing.

• Use of more than one supplier to provide

competitive pricing.

• Resin prices increased
in 2016, primarily due
to weakness in sterling.

• We mitigated in 2016
with selling price uplift,
increased recycling
and manufacturing
efficiencies.

• Further raw material
pricing pressure
potential in 2017.

• Raw material tests to identify potential

• Material tests and

alternative suppliers completed in 2016.

• Competitive resin sourcing introduced

competitive sourcing
are new for 2017.

for 2017.

• Spot market for resin available to access.
• Regular reviews to test financial stability

of our suppliers.

• The Group currently has spare

• Capital investment in

manufacturing capacity.

• Regular planned maintenance to reduce

the risk of plant failure.

• Extrusion facilities spread over

3 manufacturing sites.

• Capital investment in the recycling
plant to increase capacity and
eliminate bottlenecks.

the recycling plant and
increased sources of
supply are new for
2017, but we are also
driving to increase
our use of recycled
material.

MACRO-ECONOMIC CONDITIONS
The Group’s products are used in the residential and
commercial building and construction markets, both within
the RMI sector, for new residential housing developments,
and for new construction projects.

The Group’s private RMI business is most strongly correlated
to the level of household disposable incomes. The Group’s
new build business is particularly influenced by the level of
activity in the house building industry.

As such, the Group’s business and ability to fund ongoing
operations is dependent on the level of activity and market
demand in these sectors, itself often a function of general
economic conditions (including interest rates and inflation)
in the UK.

EU REFERENDUM
We saw no significant impact on our markets or business from
the EU Referendum in 2016. However, there remains significant
uncertainty over how the economic landscape will be affected
by the result in 2017 and beyond. This is turn could impact on
the ability to grow our business.

RAW MATERIAL PRICES
The Group’s manufacturing operations depend on the supply
of PVC resin, a material derivative of ethylene which in turn is
a derivative of crude oil.

The price of PVC resin can therefore be subject to fluctuations
based on the markets for crude oil and ethylene. In addition,
although we pay for PVC in sterling, crude oil and ethylene
are priced in US dollars and euros respectively. As such, the
price of PVC resin in sterling is also impacted by international
currency markets.

Our ability to pass on PVC price increases will depend on
market conditions at the time.

RAW MATERIAL SUPPLY
There are only a limited number of PVC resin and certain
other raw material suppliers and we operate with only limited
material storage.

Failure to receive raw materials on a timely basis could
impact on our ability to manufacture product and meet
customer demand.

UNPLANNED PLANT DOWNTIME
The business is dependent on the continued and uninterrupted
performance of its production facilities, including the operation
of the recycling plant.

Each of the facilities is subject to operating risks, such as
shortages in raw materials, industrial accidents (including fire),
extended power outages, withdrawal of permits and licences
(particularly in the context of the regulated operation of the
recycling facility), breakdowns in machinery, equipment or
information systems, prolonged maintenance activity, strikes,
natural disasters and other unforeseen events.

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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Strategic Priorities key:

Target growth in market share

Develop innovative new products

Explore potential bolt-on acquisition opportunities

Expand our branch network

Increase the use of recycled materials

Increase

Movement key:
p
tu No change
q Decrease

Principal Risk and Impact

Strategic
Priorities Mitigation

CORPORATE AND REGULATORY RISKS
We may be adversely affected by unexpected corporate
or regulatory risks. This could include health and safety,
reputational and environmental events, or other legal matters.

For example, significant increases in the penalty regime have
increased the potential financial, reputational and operating
impact of health and safety incidents.

• We employ procedures, policies and

audits to ensure regulatory compliance.

• Senior managers are responsible for

health and safety matters in each division
• Health, Safety and Environment policies
are widely communicated and regular
training is provided.

• Site audits and monitoring procedures are
in place, including near miss and potential
hazard reporting.

Risk Change in
Reporting Period

• Health and safety and
the potential impact of
the Bribery Act continue
to be high-profile risk
areas.

Movement

UNSUCCESSFUL BRANCH OPENINGS
New branches may fail to reach the required scale and
therefore deliver the required sales and profitability within
an acceptable timeframe.

• Large portfolio of potential new sites,

• Increasing risk as a

prioritised based on detailed research into
areas most likely to be successful.
• Trials of reduced start-up costs in new

result of accelerating
the new branch roll
out programme.

branches progressing to plan.

CUSTOMER CREDIT RISK
We do not insure our receivables, so there is an inherent risk that
default by a large customer could result in a material bad debt.

• In-depth credit review for new and

ongoing customer accounts.

• Experienced Credit Manager (15 years with
the Group) and strong credit control team.

• No significant bad
debts in 2016, but
inherent risk remains.

FAILURE TO DEVELOP NEW PRODUCTS
Failure to innovate could reduce our growth potential,
render existing products obsolete and cause a reduction in
market share.

The launch of new products and new variants of existing
products is an inherently uncertain process. We cannot
guarantee that we will continuously develop successful new
products or new variants of existing products. Nor can we
predict how customers and end-users will react to such
new products or how successful our competitors will be in
developing products which are more attractive than ours.

ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL AND HIGHLY SKILLED INDIVIDUALS
The Group’s success depends substantially on the efforts and
abilities of key personnel and its ability to attract and retain such
personnel. The Executive Directors and senior managers have
significant experience in the relevant sectors and capital markets
and are expected to make an important contribution to the
Group’s growth and success.

• We invest continuously in Research and
Development through our in-house team
of 10 staff.

• The team is highly focused on new ways
to develop existing products and to be
innovative with new ones.

• Recent successes include multi-chamber
Eurologik profiles, Modus S, PAS24 Patio
Door System, 125mm and 225mm cill
and Roomline range extension.

• Market rate compensation for all

personnel, including leadership team.
• Recent IPO and clear strategic direction
provide attractive backdrop to working
at Eurocell.

CYBER SECURITY
A breach of IT security (externally or internally) could result
in inability to operate systems effectively (e.g. viruses) or the
release of inappropriate information (e.g. hackers).

• Password and safe use policies.
• Internet usage monitored.
• Anti-malware regularly used.
• Physical security of servers.

• We have a strong

product pipeline with
more than 25 projects
in development.

• Recent introduction
for senior team of
long-term incentive
plans and adjustments
to fixed/variable
compensation
to support high
retention rate.

• No change.

FAILURE TO IDENTIFY, COMPLETE AND INTEGRATE
BOLT-ON ACQUISITIONS
We may not be able to identify appropriate bolt-on acquisitions.

Any future acquisition we do make poses integration and other
risks which may significantly affect our results or operations.

The acquisition and integration of companies is a complex,
costly and time-consuming process involving a number of
possible risks, e.g. diversion of management attention, failure
to retain personnel, failure to maintain customer service levels,
disruption to relationships with customers and other third
parties, unanticipated liabilities and difficulties in the assimilation
of the operations, technologies, systems, services and products
of the acquired companies.

• Public communication of bolt-on

• Integration of Vista

acquisitions being a strategic priority.

• Good knowledge of companies operating

in our sector and related sectors.

• We have a tried and tested procedure for
the integration of new acquisitions and a
good track record of recent success.

proceeding to plan with
performance in line with
expectations.

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VIABILITY STATEMENT

As required by provision C.2.2 of the Code, the Directors have
taken into account forecasts to assess the future funding
requirements of the Group, and compared them with the level
of committed available borrowing facilities.

A period of three years has been adopted as
this is the timeframe used by the Board as its
strategic and planning horizon. The assessment
of viability has been made with reference
to the Group’s current position and future
prospects, its strategy, its management of
risk, and also the Board’s assessment of the
outlook in the marketplace.

The Board considers its strategy and risks
on strategy away days, and revisits these
annually when considering the next year’s
budget. The three-year plan considers
revenue and earnings growth and how
this impacts on cash flows and key ratios.
Operational plans and financing options
are considered as part of this process.

In preparing the plan, the Group adopts a
prudent forecast in respect of like for like sales
growth, but assumes other initiatives, such as
expansion of the branch network, in line with
the published strategy. The plan is stress
tested by applying the following scenarios:

SCENARIO 1
Macro-economic conditions lead to
a decline in sales
Decreases in revenues have been
applied over the 3-year plan period.

SCENARIO 2
Commodity prices and/or exchange
rates or raw material shortages
lead to a sustained increase in
resin prices
Increases in resin costs have been
applied over the 3-year plan period.

SCENARIO 3
Scenario 1 and 2 combined
There is a possibility that both of the
above scenarios could materialise
at the same time, therefore we have
assessed the combined impact through
the 3-year plan period.

The Board considers these tests to be
sufficient to test the viability of the Group
given the size of the Group and the
markets it operates within. As described
in Principal Risks and Uncertainties
above, we have measures in place to
help mitigate the impact of these events
should they occur.

GOING CONCERN
The Directors have reviewed the Company’s
and the Group’s forecast and projections,
which demonstrate that the Company and
the Group will have sufficient headroom on
their bank facilities for the foreseeable future
and that the likelihood of breaching the
related covenants in this period is remote.

The Directors confirm that we have a
reasonable expectation that the Company
and the Group will continue in operation and
meet their liabilities as they fall due in the
next three years. Accordingly the Directors
continue to adopt the going concern basis
in preparing the annual financial statements.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

THE BOARD

MARK KELLY

BOB LAWSON

MICHAEL SCOTT

CHIEF EXECUTIVE OFFICER

CHAIRMAN

CHIEF FINANCIAL OFFICER

N/R

Mark Kelly joined the Group in March 2016
and was appointed Chief Executive Officer in
May 2016. He was formerly Chief Executive
of Grafton Merchanting GB and previously
worked for BDR Thermea Group BV, IMI and
Novar. Mark has experience of the PVC
windows and doors industry from earlier in
his career with Duraflex and Celuform.

Bob Lawson is the Non-executive Chairman
of Genus plc. He was previously the
Chairman at Barratt Developments plc,
Hays plc and the Federation of Groundwork
Trust. Bob was Managing Director for the
Vitec Group for four years. He was Chief
Executive Officer of Electrocomponents plc
for eleven years and subsequently Chairman
for a further six years. Bob is Chairman of
the Nomination Committee.

Michael Scott joined the Group as Chief
Financial Officer in September 2016. Michael
previously worked at Drax Group plc, where
he held senior financial positions, including
Group Financial Controller and Head of
Corporate Finance & Investor Relations. Prior
to Drax, Michael worked for MT International
and Arthur Andersen, where he qualified as a
Chartered Accountant.

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PATRICK KALVERBOER

FRANK NELSON

MARTYN COFFEY

NON-EXECUTIVE DIRECTOR

SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR

INDEPENDENT
NON-EXECUTIVE DIRECTOR

A/N/R

Patrick Kalverboer is a managing partner of
H2 Equity Partners. He has fulfilled his role
with the Company as part of the investment
made by H2. Patrick has over 20 years of
private equity experience and has been
involved in various investments made by H2
(and its predecessors) in both an executive
and non-executive capacity.

Frank Nelson was Finance Director of
Galliford Try plc from 2000 to 2012. He is
the Senior Independent Non-executive
Director at each of McCarthy & Stone plc,
HICL Infrastructure Company Limited and
Telford Homes plc. Frank is also a fellow
of the Chartered Institute of Management
Accountants. He is the Chairman of the Audit
and Risk Committee and is the Senior
Independent Non-executive Director.

Martyn Coffey is the Chief Executive Officer
of Marshalls plc. Prior to his role at Marshalls,
Martyn was Divisional Chief Executive Officer
at BDR Thermea Group BV, with responsibility
for operations in the UK, France, Germany,
Iberia and Italy. He is also a Director of the
Mineral Products Association. Martyn is the
Chairman of the Remuneration Committee.

Key:
A = Member of the Audit and Risk Committee
R = Member of the Remuneration Committee
N = Member of the Nomination Committee

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

Page Title at start:Content Section at start:

LETTER FROM THE CHAIRMAN
Chairman’s introduction

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DEAR SHAREHOLDER,
I am pleased to report that, in our second year as a listed business,
Eurocell has delivered another year of encouraging progress and
continued to develop and improve its systems of governance and
internal control.

This Corporate Governance Statement, together with the Reports of
the Audit and Risk, Nomination and Remuneration Committees on
pages 45 to 63, explain how our governance framework operates and
how we apply the principles of business integrity, high ethical values
and professionalism in all our activities. I hope that it provides you with
a meaningful insight into how we operate and the matters on which
we have focused during the year.

As a Board, we recognise that we are accountable to shareholders for
good corporate governance. We seek to promote consistently high
standards of governance throughout the Group, which are recognised
and understood by all.

Good governance involves good and effective leadership, robust
systems and processes that are regularly tested, and a good
understanding of risk appetite. The Board seeks to add value through
constructive dialogue and challenge, engagement with shareholders
and other stakeholders, and with a strong focus on the strategic
agenda. Each Director continues to make a very valuable contribution
to the Board.

This Corporate Governance Statement, which is part of the Directors’
Report, has been prepared in accordance with the principles of the
UK Corporate Governance Code published in September 2014
(the ‘Code’), which the Board fully supports. The Code is published
by the Financial Reporting Council and is available on its website at
www.frc.org.uk.

I am committed to ensuring that the Company manages its affairs
in compliance with the principles and provisions of the Code. I am
pleased to report that the Board considers the Company to have
complied with the relevant provisions of the Code throughout the
year in all material respects. I can also confirm that, in the opinion
of the Directors, this Annual Report presents a fair, balanced and
understandable assessment of the Group’s position and prospects
and provides the information necessary for shareholders to assess
the Group’s strategy, business model and performance.

The Group’s strategy is outlined on pages 10 to 17 of the Strategic
Report. The respective responsibilities of the Directors and the
auditors in connection with the Financial Statements are explained
in the Statement of Directors’ Responsibilities on page 66 and
Auditors’ Report pages 68 to 72.

I would like to thank my Board and management colleagues for their
contributions to the corporate governance of the Company. I look
forward to working with them in 2017 to continue to build on the
governance foundations that we have established in support of our
long-term objectives.

Bob Lawson
Chairman
7 March 2017

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CORPORATE GOVERNANCE STATEMENT

ROLE OF THE BOARD
The Board comprises a Non-executive Chairman, three Non-executive
Directors and two Executive Directors, who are equally responsible for
the proper stewardship and leadership of the Company. Their biographical
details are set out on pages 42 and 43.

During 2016, an Executive Committee was established (the ‘Steering
Group’), comprising seven senior managers, including the two
Executive Directors. Management teams report to members of the
Steering Group. The Board receives regular updates from the Steering
Group in relation to business issues and developments.

The Code recommends that for companies that are below the FTSE
350, the Board should comprise at least two Non-executive Directors,
who are determined by the Board to be independent in character
and judgement and free from relationships or circumstances which
may affect, or could appear to affect, this judgement. The Company
regards Martyn Coffey and Frank Nelson as ‘independent Non-executive
Directors’ within the meaning of the Code.

The formal schedule of matters reserved for the Board’s consideration
includes the following:
• Approval of the Group’s strategy, long-term objectives,
annual operating budgets and capital expenditure plans.
• Approving transactions of significant value or major strategic

importance, including acquisitions.

• Approving significant changes to the Group’s capital,

corporate or management structure.

• Monitoring and assessing the overall effectiveness of the Group’s

risk management processes and internal control systems,
including those related to health and safety, financial controls
and anti-bribery policies and procedures.

• Approving the annual and half year reports, including financial

statements.

• Approving other corporate communications related to matters

decided by the Board.

• Board appointments and succession planning and setting terms

of reference for Board committees.

• Remuneration matters, including the general framework for

remuneration and the introduction of share and incentive schemes.

The Board has delegated specific responsibilities to the Audit and
Risk, Remuneration and Nomination Committees.

The Nomination Committee Report on page 48 explains how the
Board and senior management appointments, succession planning
and development are being addressed.

The Audit and Risk Committee Report on pages 49 and 50 provides
details of how the Board applies the Code in relation to financial
reporting, risk management and internal controls.

The Remuneration Committee Report on pages 51 to 63 gives details
of Directors’ remuneration and policy.

Day-to-day management and the implementation of strategies agreed
by the Board are delegated to the Executive Directors. The Group’s
reporting structure below Board level is designed so that all decisions
are made by the most appropriate people in a timely manner.

These policies and procedures collectively enable the Board to make
informed decisions on a range of key issues including strategy and
risk management.

ROLE OF THE CHAIRMAN
The Board has concluded that the Chairman has met the
independence criteria of the Code since appointment.

There is a clear division of responsibilities between the Chairman
and the Chief Executive Officer.

The Chairman is responsible for ensuring that the Board functions
effectively. He sets the agenda for Board meetings and ensures
that adequate time is devoted to discussion of all agenda items,
particularly strategic issues, facilitating the effective contribution
of all Directors and ensuring that the Board as a whole is involved
in the decision-making process.

ROLE OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer has principal responsibility for all
operational activities and the day-to-day management of the business,
in accordance with the strategies and policies approved by the Board.
The Chief Executive also has responsibility for communicating to the
Group’s employees the expectations of the Board in relation to culture,
values and behaviours.

ROLE OF THE SENIOR INDEPENDENT DIRECTOR
AND NON-EXECUTIVE DIRECTORS
The Senior Independent Director has an important role on the Board,
providing a sounding board for the Chairman, leading on corporate
governance issues and serving as an intermediary for the other
Non-executive Directors. He is available to shareholders if they
have concerns which contact through the normal channels of the
Chairman, Chief Executive Officer or other Executive Directors has
failed to resolve, or for which such contact is not appropriate.

All Non-executive Directors are required to allocate sufficient
time to the Company to discharge their responsibilities effectively.
The Non-executive Directors act in a way they consider will promote
the long-term success of the Group for the benefit of, and with regard
to the interests of its shareholders.

BOARD COMPOSITION, COMMITMENT
AND ELECTION OF DIRECTORS
The Nomination Committee leads the process for Board appointments
and makes recommendations to the Board.

On appointment, Board members, in particular the Chairman and the
Non-executive Directors, disclose their other commitments and agree
to allocate sufficient time to the Company to discharge their duties
effectively and ensure that these other commitments do not affect
their contribution.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

CORPORATE GOVERNANCE STATEMENT continued

The current Board commitments of all Directors are shown on
pages 42 and 43. Their terms of appointment are reported on page 56.
Directors’ length of service on the Board is set out in the table below.

LENGTH OF SERVICE

Bob Lawson
Mark Kelly
Michael Scott
Patrick Kalverboer
Frank Nelson
Martyn Coffey

Date joined Eurocell

Date joined the Board

1 January 2015
29 March 2016
1 September 2016
16 August 2013
1 January 2015
1 January 2015

4 February 2015
29 March 2016
1 September 2016
16 August 2013
4 February 2015
4 February 2015

The Company’s Articles of Association contain powers of removal,
appointment, election and re-election of Directors and provide that all
of the Directors must retire and may offer themselves for re-election at
each Annual General Meeting (AGM).

At the upcoming AGM, all the Directors intend to offer themselves for
re-election. We consider all the Directors to be effective, committed to
their roles and to have sufficient time available to perform their duties.

BOARD EVALUATION AND EFFECTIVENESS
It is the Group’s intention that a performance evaluation of the Board
and its committees is undertaken, generally on an annual basis.
The review considers the following:
• Effectiveness of the Board’s decision making
• Strategy development process
• Board composition
• Succession planning
• Risk and risk management systems
• Culture

The first internal evaluation was undertaken in 2015 as part of the
Group’s IPO process. In the light of recent changes to the Board,
with a new Chief Executive Officer and Chief Financial Officer joining
the Group in 2016, the Board considers it appropriate for the next
internal evaluation to take place towards the end of 2017.

The evaluation process is designed to stimulate thought and
discussion, and includes consideration over the effectiveness of
Executive Directors, Non-executive Directors and the Chairman.
The Senior Independent Director will separately review the Chairman’s
performance with the other Non-executive Directors. The results of
the evaluation will be considered by the Chairman and discussed by
the Board.

The Board believes that the evaluation process described above
is thorough, robust and will work well. All Directors are expected
to engage fully, with a genuine desire to enhance overall Board
performance. The process includes sufficient objectivity and
confidentiality to ensure that challenge is acknowledged and
acted upon.

In accordance with the Code, an external evaluation of the Board
will be carried out every three years by an independent third party
facilitator. The first external evaluation will be performed in 2018.

Taking all of the above into account, the Board is satisfied that the
composition of the Board and its committees provides an appropriate
balance of skills, experience, independence and knowledge to
allow the Board and its committees to discharge their duties and
responsibilities effectively and in line with the Code.

BOARD MEETINGS AND ATTENDANCE
There were 7 regular Board meetings scheduled during 2016,
4 meetings of the Audit and Risk Committee, 4 meetings of the
Remuneration Committee and 5 meetings of the Nomination Committee.
Additional meetings were also held during the year for other specific
purposes. Non-executive Directors also attended site visits.

The Chief Executive and Chief Financial Officer are usually invited
to attend Audit and Risk Committee meetings, although the Audit
and Risk Committee also meets with the external auditor without
any Executive Director being present. The Chief Executive is invited
to attend Remuneration Committee meetings when appropriate.
The Company Secretary is also secretary to the Remuneration
Committee and the Audit and Risk Committee, and attends meetings
for this purpose.

Number of meetings attended

Board

Audit and
Risk
Committee

Remuneration
Committee

Nomination
Committee

Bob Lawson
Frank Nelson
Martyn Coffey
Patrick Kalverboer
Mark Kelly(1)
Michael Scott(2)
Patrick Bateman(3)
Matthew Edwards(3)

7/7
7/7
7/7
6/7
4/4
1/1
4/4
4/4

(1) Appointed 29 March 2016
(2) Appointed 1 September 2016
(3) Resigned 30 June 2016

4/4
4/4

4/4
4/4
4/4

5/5
5/5
5/5
5/5
3/3

0/2

THE COMPANY SECRETARY
All the Directors have access to the advice and services of the
Company Secretary. The Company Secretary has responsibility for
ensuring that all Board procedures are followed and for advising the
Board, through the Chairman, on governance matters. The Company
Secretary provides updates to the Board on regulatory and corporate
governance issues, new legislation, and Directors’ duties and
obligations. The appointment and removal of the Company Secretary
is one of the matters reserved for the Board.

Whenever necessary, Directors may take independent professional
advice at the Company’s expense. Board Committees are provided
with sufficient resources to undertake their duties, including the option
to appoint external advisers when they deem it appropriate.

BOARD INDUCTION, DEVELOPMENT AND SUPPORT
New Directors receive a formal induction on joining the Board,
which covers Group policies and other key information. Tailored
training may be arranged to meet individual needs, for example to
refresh knowledge of the Listing Rules and regulatory compliance.
Typically, a new Director will meet the Chairman and other
Non-executive Directors in one-on-one sessions; he or she will
have meetings with key management, briefings with external advisers
and shareholders, and a programme of site visits will be arranged at
which the Director meets site-based staff to gain a full understanding
of the business.

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Looking forward, it is the Company’s expectation that training will
be built in to the annual Board programme, designed to incorporate
a range of in-depth topics of particular relevance to the business.
Training needs will be identified through the Board evaluation
process and through individual reviews between the Directors
and the Chairman. Directors are expected to attend external
courses and seminars as appropriate to maintain and develop
their Board competencies.

During 2016, there were Board briefings relating to changes to
financial reporting and corporate governance. There were also
individual meetings between Non-executive Directors and senior
managers relating to areas of particular interest.

ENGAGEMENT WITH SHAREHOLDERS
The Board considers that communications with shareholders are
extremely important. Now in our second year as a listed business,
we are developing a much more open and frequent dialogue
with investors.

The Chief Executive and Chief Financial Officer meet regularly with
major shareholders and potential investors to discuss the Group’s
performance, strategic issues and shareholder investment objectives.
We also periodically arrange site visits for investors.

Alongside the annual and half year results, there is a regular reporting
and announcement schedule to ensure that matters of importance
affecting the Group are communicated to investors. In addition, the
Group has recently launched a much improved investor website:
investors.eurocell.co.uk

During 2016, a total of approximately 65 investor meetings were held,
at which at least 35 institutions were represented. Reports of these
meetings and other shareholder communications are provided to the
Board. The Board also receives copies of analysts’ and brokers’ briefings.

The Chairman is available to meet with institutional shareholders
to discuss governance and strategy and gain an understanding of
shareholder views and concerns. The Chairman ensures that the
views of shareholders are communicated to the Board as a whole.
The Senior Independent Director and other Non-executive Directors
are also available to meet shareholders separately if requested.

RISK MANAGEMENT AND INTERNAL CONTROL
The Board acknowledges its responsibility for determining the nature
and extent of the significant risks it is willing to take in achieving its
strategic objectives, and for the Group’s system of internal control.

The Board has carried out a review of the effectiveness of the Group’s
risk management and internal controls systems, including financial,
operational and compliance controls, for the period covered by this
Annual Report.

The Strategic Report comments in detail (pages 36 to 39) on the
nature of the principal risks facing the Group, in particular those that
would threaten our business model, future performance, solvency or
liquidity and the measures in place to mitigate them. In conducting its
review, the Board has included a robust assessment of these risks.

The Audit and Risk Committee Report on pages 49 to 50 describes
the internal control system and how it is managed and monitored.

The Board confirms that no significant failings or weaknesses were
identified in relation to the review. The Board also acknowledges
that such systems are designed to manage, rather than eliminate,
the risk of failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material misstatement
or loss.

This Corporate Governance Statement, together with the Nominations
Committee Report, the Audit and Risk Committee Report and the
Remuneration Committee Report, provide a description of how
the main principles of the Code have been applied within Eurocell
during 2016.

It is the Board’s view that Eurocell was in compliance with the relevant
provisions set out in the Code in all material respects. This statement
complies with sub sections 2.1, 2.2(1), 2.3(1), 2.5, 2.7 and 2.10 of
Rule 7 of the Disclosure Rules and Transparency Rules of the Financial
Conduct Authority. The information required to be disclosed by
sub-section 2.60 of Rule 7 is shown on pages 64 and 65.

ANNUAL GENERAL MEETING
Our AGM will be held at Fairbrook House on 19 May 2017.

The notice of our AGM, together with the Directors’ voting
recommendations on the resolutions to be proposed, is included
on a separate circular to shareholders and will be despatched
at least 20 working days before the meeting. The notice will be
available to view at investors.eurocell.co.uk

All Directors normally attend the AGM, including the Chairs of the
Audit and Risk, Remuneration and Nomination Committees, who are
available to answer questions. The Board welcomes questions from
shareholders who have an opportunity to raise issues informally or
formally before or at the meeting.

For each resolution, the proxy appointment forms provide
shareholders with the option to direct their proxy vote either for or
against the resolution or to withhold their vote. The proxy form and
any announcement of the results of a vote make it clear that a ‘vote
withheld’ is not a vote in law and will not be counted in the calculation
of the proportion of the votes for and against the resolution.

All valid proxy appointments are properly recorded and counted.
Information on the number of shares represented by proxy, the proxy
votes for and against each resolution, and the number of shares in
respect of which the vote was withheld for each resolution, together
with the proxy voting result, are given at the AGM. The total votes
cast, including those at the AGM are published on our website after
the meeting.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOMINATION COMMITTEE
Statement from Bob Lawson, Chair of the Nomination Committee

DEAR SHAREHOLDER,
I am pleased to report to you on the main activities of the Committee
and how it has performed its duties during 2016. I chair Nomination
Committee meetings, but would not do so where the Committee
was dealing with my own reappointment or replacement as Chairman.

During the year the Nomination Committee held 5 scheduled
meetings. Additional meetings and discussions in connection
with succession planning and recruitment were held by telephone.
Attendance at meetings is shown on page 46.

ACTIVITIES DURING THE YEAR
• Appointment of Mark Kelly as Chief Executive Officer

on 29 March 2016.

• Appointment of Michael Scott as Chief Financial Officer

on 1 September 2016.

The process for both positions included the appointment of an
external search agency, Spencer Stuart, towards the end of 2015.
Beginning with the Chief Executive, Spencer Stuart conducted a
rigorous assessment of internal and external candidates against
the Committee’s specifications.

The Committee unanimously chose and recommended to the Board
the appointments of Mark Kelly and Michael Scott.

Mark and Michael received comprehensive induction programmes,
which included handover processes with their predecessors,
Patrick Bateman and Matthew Edwards.

DIVERSITY
The Committee remains committed to achieving diversity in its widest
sense in the composition of the Board, senior management and
throughout the Group. This includes diversity in gender and ethnicity.

Our objective is to recruit people with an appropriate range of
skills, knowledge and experience. We would like to see women
represented fairly on the Board and we will continue to work towards
this. Our overriding policy in any new appointment is to select on
merit to ensure the continued success of the business.

Bob Lawson
Chair of Nomination Committee
7 March 2017

MEMBERS:
BOB LAWSON (CHAIRMAN)
PATRICK KALVERBOER
FRANK NELSON
MARTYN COFFEY
MARK KELLY

ROLE AND RESPONSIBILITIES
The principal duties of the Nomination Committee are to:
• keep under review the structure, size and composition of
the Board, including the skills, knowledge and experience
required by it;

• keep under review the time commitments required from

Non-executive Directors;

• consider succession planning for the Directors and other
senior managers, giving due weight to the achievement of
diversity in its widest sense; and
identify and nominate candidates to fill any vacancies arising
in Board positions.

•

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AUDIT AND RISK COMMITTEE
Statement from Frank Nelson, Chair of the Audit and Risk Committee

DEAR SHAREHOLDER,
I am pleased to report to you on the Audit and Risk Committee’s
objectives and activities during 2016. This report, which is part of the
Directors’ Report, explains how the Audit and Risk Committee has
discharged its responsibilities during 2016, and reflects the recent
changes to reporting under the Code. I hope you find it useful
and informative.

The role of the Audit and Risk Committee is to oversee financial
reporting and to review the ongoing effectiveness of the Group’s
internal controls. The Committee provides assurance on the Group’s
risk management processes and assesses information received by
the external audit function.

The Committee has reviewed the Group’s Financial Statements contained
in this Annual Report and is satisfied that they present a fair, balanced
and understandable assessment of the Group’s position and prospects.
The Committee has provided assurance to this effect to the Board.

The Audit and Risk Committee is the body appointed by the Board
with responsibility for carrying out the functions required by the Listing
Rules DTR 7.1.3R. The terms of reference of the Committee include all
the matters required under the Code.

The Chairman of the Committee is a Fellow of the Chartered Institute
of Management Accountants and the Board is satisfied he has recent
and relevant financial experience as required by the Code.

During the year, the Audit and Risk Committee held 4 scheduled
meetings. Additional meetings were also held during the year for
other specific purposes. Attendance is shown on page 46.

The external auditors were invited to attend all meetings of the
Committee. Other individuals, such as the Chief Executive Officer,
the Chief Financial Officer and members of the Board are invited
to attend the Committee meetings as and when appropriate.

In addition, the external auditor met with the Committee without
executive management being present. The external auditor also met
separately with each of the Audit and Risk Committee Chairman and
the Chief Financial Officer.

SUMMARY OF ACTIVITIES
The areas of particular focus for the Committee in 2016, and up to
the date of this Annual Report, were as follows:
•

reviewed the 2015 and 2016 Annual Reports, as well as the 2016
half year report;

•

• considered information presented by management on significant
accounting estimates and judgements adopted in respect of the
Group’s 2016 financial statements;
reviewed reports from PwC setting out their findings as a result
of their audits for the years ended 31 December 2015 and 2016,
as well as their review of the 2016 half year report;
reviewed PwC’s plan for their audit for the year ended
31 December 2016;
reviewed documentation prepared to support the viability statement
and going concern assumption set out on page 40;

•

• considered the impact of new accounting standards and financial

reporting requirements;

•
•

• considered reports by management related to the effectiveness
of the Group’s systems of risk management and internal control;
reviewed the Group’s risk register; and
reviewed and updated the Committee’s Terms of Reference in the
light of recent developments and best practice with respect to auditor
rotation and non-audit fees.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

MEMBERS:
FRANK NELSON (CHAIRMAN)
MARTYN COFFEY

The Company Secretary acts as secretary to the Committee.

ROLE AND RESPONSIBILITIES
The key responsibilities of the Committee are to:
•

review the Annual Report, half year report and any other
formal announcements relating to the Group’s financial
performance, giving due consideration to significant
accounting issues and judgements contained therein,
as well as compliance with accounting standards and
other legal and regulatory requirements;
review the Annual Report and financial statements to
advise the Board on whether they give a fair, balanced and
understandable explanation of the Company’s business
and performance over the relevant period;
review the Group’s financial systems and financial
reporting procedures;
review the Group’s internal controls and risk management
systems and advise the Board whether they are adequate,
by considering reports on their effectiveness from the Chief
Financial Officer and Chief Executive Officer, together with
reports from the external auditor;
review external auditor independence and objectivity, audit
and non-audit fees and make recommendations regarding
audit tender and the appointment and remuneration of the
auditor, together with the terms of their engagement;
review the annual audit plan and monitor the effectiveness
of the external audit process;
review the Group’s procedures to ensure compliance
with the provisions of the Bribery Act 2010 and the Group’s
whistleblowing policy; and

•

• monitor and review the effectiveness of the internal audit
function (when established – see Internal Audit below).
Review the internal audit plan, all internal audit reports,
and review and monitor management’s responses to the
findings and recommendations of the internal audit function.

AUDIT AND RISK COMMITTEE continued

The Committee is kept up to date with changes to accounting standards
and developments in financial reporting, company law and other
regulatory matters through presentations from the Chief Financial Officer
and the Company Secretary.

KEY ACCOUNTING ESTIMATES AND JUDGEMENTS
As described above, the Committee reviewed the key estimates and
judgements used in the preparation of the Group’s 2016 financial
statements. These were as follows:
•

Inventory valuation
The Committee critically reviewed the carrying value of the Group’s
inventory, particularly with regard to management’s assessment
of the appropriate level of provisioning against obsolescence as
at 31 December 2016. This review was undertaken in the context
of current trading and the forecast for the next financial year.
The Committee concurred with management’s assessment of the
carrying value of Group inventory. The Committee noted that there
was now considerable management focus on both the reduction
in finished goods inventory and, looking forward, on the operational
controls over the management of inventory.
• Accounts receivable recoverability

The Committee considered and critically evaluated the Group’s
methodology with respect to setting provisions for potential bad and
doubtful debts, as well as the absolute level of provisions held as at
31 December 2016. The review took into account the specific nature
and characteristics of customers in the Group’s two major divisions.
The Committee is satisfied that the current level of provisions
is appropriate.

• Provisions for dilapidations on leased properties

The Group currently operates with 159 branches, each of which is
situated in a leased property. Leases are typically for 5 years, with a
3-year break clause. The Committee undertook a review of the
methodology used to estimate the liability for remedial works that may
arise with respect to the Group’s leasehold properties, as well as the
absolute level of provision held and amounts utilised. The Committee is
satisfied that the current level of provision is reasonable.

INTERNAL CONTROLS
The Group has an established internal control framework, the key
features of which include clearly defined reporting lines and authorisation
limits and a comprehensive budget and monthly reporting system. The
schedule
of authorisation limits was updated in December 2016, to reflect the
development of the business since its IPO, and approved by the Board.

The internal control framework governs the internal financial reporting
process of the business, with checks and balances built into the system
that are designed to reduce the likelihood of material error or fraud.

The Committee monitors and reviews the effectiveness of internal
controls on an ongoing basis, primarily by reviewing reports from senior
management.

EXTERNAL AUDIT AND AUDITOR INDEPENDENCE
The Audit and Risk Committee has primary responsibility for making a
recommendation to the Board on the appointment, reappointment and
removal of the external auditor. It keeps under review the scope and
results of the audit, its cost effectiveness and the independence and
objectivity of the auditor. There are no contractual obligations restricting
our choice of external auditors.

The Group’s current auditor, PwC, has processes in place designed to
maintain independence, including regular rotation of the audit partner.
PwC were appointed at the Audit and Risk Committee meeting on 29
April 2015, following the Company’s IPO.

The Committee has adopted policies to safeguard the independence
of its external auditor. Any work awarded to the external auditor with a
value of more than £5,000 in aggregate in any financial year, other than
an audit, requires the specific approval of the Committee. Where the
Committee perceives that the independence of the auditor could be
compromised, the work will not be awarded to it. Details of amounts paid
to PwC for audit services in 2016 are set out on page 84. No amounts
were paid to PwC for non-audit work.

RISK MANAGEMENT
The Group’s risk management processes are set out in detail on pages
36 to 39.

An annual review of external audit effectiveness is undertaken by
the Committee.

The Group maintains a written risk register that identifies key risks, the
probability of those risks occurring and the impact they would have on the
Group if unmitigated. Against each risk, the controls that exist to manage
and, where possible, minimise or eliminate those risks are also listed.
The risk register also identifies any further actions required such that
net residual risk is consistent with the risk appetite set by the Board.
The register is regularly updated to reflect changes in circumstances.

The Committee reviews the risk register to ensure the timely identification
and robust management of inherent and emerging risks. To the extent
that any failings or weaknesses are identified during the review process,
appropriate measures are taken to remedy these.

Information relating to the management of risks and any changes to
the assessment of key risks is regularly reported by the Committee
to the Board.

In order to further enhance the Group’s risk management process,
the Company has recently established an executive Risk Management
Committee, chaired by Michael Scott. It is intended that this committee
will meet on a regular basis (generally monthly). The most significant
risks will be reviewed at each meeting, with other risks reviewed on
a cyclical basis.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

INTERNAL AUDIT
In order to further enhance the internal control and risk management
processes, the Group intends to implement an outsourced internal audit
function. An appointment to fulfil this role will be made in March 2017.

WHISTLEBLOWING AND BRIBERY
The Audit and Risk Committee monitors any reported incidents under our
whistleblowing policy, which is available to all employees. This policy sets
out the procedure for employees to raise legitimate concerns about any
wrongdoing without fear of criticism, discrimination or reprisal. No
matters were raised under the policy during 2016.

The Audit and Risk Committee also takes responsibility for reviewing
the policies and procedures adopted by the Company to prevent bribery.
The Company is committed to a zero-tolerance position with regard to
bribery. The Committee is satisfied that the Company’s procedures with
respect to these matters are adequate.

Frank Nelson
Chair of the Audit and Risk Committee
7 March 2017

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DIRECTORS’ REMUNERATION REPORT
Remuneration Committee Chairman’s Letter

DEAR SHAREHOLDER,
I am pleased to present the Directors’ Remuneration Report for 2016.

Over the course of 2016, Eurocell underwent a change in leadership
with the departure of Patrick Bateman and Matthew Edwards as CEO
and CFO respectively and with the appointment of Mark Kelly and
Michael Scott. We have included details of Mark and Michael’s
remuneration packages in the implementation section of this report,
together with details relating to Patrick Bateman and Matthew
Edwards’ leaving (which reflect the terms of their service contracts,
incentive plan rules and our policy).

As described in earlier sections of this Annual Report, our senior
management team delivered a good financial and strong operating
performance in 2016.

Financial highlights include an increase in revenues of 16%, or 11%
excluding acquisitions. Adjusted earnings per share for the year of
20.0 pence represent an increase of 7% over 2015. The business met
market earnings expectations, despite having to absorb significant
incremental overhead costs arising out of not realising the savings
anticipated when we outsourced our logistics operation to DHL
towards the end of 2014.

Operational highlights include further expansion of the branch
network, with 18 new sites opened during the year. The business also
successfully maintained its gross margin, with raw material pricing
pressure mitigated by price increases implemented in the second half
and assisted by continuing manufacturing efficiency gains.

The new management team has settled in very well. In doing so,
they have increased the heartbeat of the business and better
prioritised our strategic initiatives. They have been supported well
by our staff as a whole, who have continued to resolutely pursue
the Company’s strategy.

This strong performance has been reflected in the payments made
to the Executive Directors under the annual bonus plan, amounting
to 80% of salary. Further details of these bonus pay-outs (including
information regarding performance against the relevant targets and
the operation of the deferred share element of the plan) can be found
on page 59 of this Report.

Other Committee activities during the year (full details of which are
set out in the relevant sections of this report) included:
• overseeing the departure terms of Patrick Bateman (details of

which were set out in last year’s report);

• agreeing and overseeing the departure terms of Matthew Edwards;
• determining what adjustments (if any) should be made to existing
PSP (Performance Share Plan) awards to take account of the S&S
and Vista acquisitions;

• agreeing award levels and performance targets for the 2016 annual

bonus and PSP awards; and

• agreeing all recruitment terms for Mark Kelly and Michael Scott.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DIRECTORS’ REMUNERATION REPORT continued

SUMMARY OF OUR DIRECTORS’ REMUNERATION POLICY
At the Annual General Meeting (AGM) on 19 May 2016, we put our
Remuneration Policy to shareholders for a binding vote. We were very
pleased to receive unanimous approval for the policy and, given this
support, we do not propose making any further changes to the policy
this year. Therefore, the main elements of the Executive Directors’
packages will remain as follows:
• Base salaries

Salary levels (as well as overall remuneration opportunity) will be
positioned to reflect experience and responsibility. On appointment,
Mark Kelly’s salary was set at £360,000 and Michael Scott’s salary
was set at £230,000. In line with other Eurocell employees, with
effect from 1 April 2017, these salaries will be increased by 2%.

• Pensions/benefits

FORMAT OF THIS REPORT AND MATTERS
TO BE APPROVED AT OUR AGM
Notwithstanding the fact that: (i) we will not be seeking shareholder
approval for any changes to our Remuneration Policy at the 2017
AGM; and (ii) the relevant Regulations do not require us to reproduce
our Remuneration Policy in this report, for ease of reference we
have decided to include a summary of our policy in addition to the
implementation section of the report (in respect of which we will be
holding an advisory vote at the forthcoming AGM). The full Directors’
Remuneration Policy was disclosed in last year’s Annual Report.

I hope that you will continue to show support for our approach to
remuneration at Eurocell. Should you have any queries or comments,
please feel free to contact me at martyn.coffey@eurocell.co.uk.

A defined contribution/salary supplement of 15% will continue to
be offered, together with a standard suite of other benefits.

Yours sincerely

Martyn Coffey
Chair of the Remuneration Committee
7 March 2017

• Annual bonus

The maximum annual bonus remains at 100% of salary. 50% of
any bonus earned is normally deferred into shares for three years.
A blend of tailored targets (typically weighted in favour of financial
metrics) will determine pay-outs. For 2016, reflecting Eurocell’s
underlying strategy, 50% of the bonus was based on adjusted
profit before tax, 20% was based on cash flow, with the remaining
30% based on strategic targets for Mark Kelly and Michael Scott,
set on their appointment (the Committee believing it appropriate,
following Mark and Michael’s recruitment, to allocate a minority
portion of their 2016 bonus to key strategic targets, an approach
that was not trailed in last year’s report due to the timing of their
appointment). All targets are subject to a Health and Safety
underpin. As explained on page 59, reflecting a good year of
underlying financial and personal performance, bonuses of 80%
of salary were payable to Messrs Kelly and Scott (pro-rata to
reflect their time in office). The operation of the annual bonus plan
for 2017 is explained on page 63.

• Long-term incentives

The PSP is the vehicle through which share based, long-term
incentives are offered. As described in last year’s report, an initial
PSP award was made to Mark Kelly over shares worth 150% of
salary which will vest subject to three year earnings per share
growth (two-thirds of the award) and cash flow (one-third) targets.
An award under the PSP was also made to Michael Scott in 2016
over shares worth 100% of salary with the same performance
conditions. The operation of the PSP for 2017 is explained on
page 63.

The Committee believes that the above approach takes due account of
market and best practice and, importantly, also reflects and supports
Eurocell’s strategy and promotes the Company’s long-term success.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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EXPLANATORY FOREWORD
This report contains the material required to be set out as the Directors’ Remuneration Report for the purposes of Part 4 of The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended Parts 3 and 4 of Schedule 8 to
The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the ‘DRR regulations’). Our Directors’
Remuneration policy was approved at the 2016 AGM. We are not proposing to make any changes to this policy, which will continue to apply for
the forthcoming year. For ease of reference, we have set out in Part A below the key features of our policy. The full, formal policy is as disclosed
in last year’s Annual Report.

Part B constitutes the implementation sections of the Remuneration Report (‘Implementation Report’). The auditors have reported on certain
parts of the Implementation Report and stated whether, in their opinion, those parts have been properly prepared in accordance with the
Companies Act 2006. Those parts of the Implementation Report which have been subject to audit are clearly indicated.

PART A: DIRECTORS’ REMUNERATION POLICY
The following table summarises the key aspects of the Directors’ Remuneration Policy:

Executive Directors

Element and Purpose

Policy and Operation

Maximum

Performance Measures

BASE SALARY
This is the core element of pay
and reflects the individual’s
role and position within the
Group with some adjustment
to reflect their capability and
contribution.

Base salaries will be reviewed each year by the Committee.

The Committee does not strictly follow data, but uses
the median position (as against appropriate size and/
or sector peers) as a reference point in considering, in its
judgement, the appropriate level of salary having regard
to other relevant factors including corporate and individual
performance and any changes in an individual’s role and
responsibilities.

Base salary is paid monthly in cash.

BENEFITS
To provide benefits valued by
recipients.

The Executive Directors can receive a car allowance or
company car, private family medical cover, permanent
health insurance and life assurance.

The Committee reserves discretion to introduce new
benefits where it concludes that it is appropriate to do
so, having regard to the particular circumstances and to
market practice.

Where appropriate, the Company will meet certain costs
relating to Executive Director relocations.

n/a

It is anticipated that salary
increases will generally be in line
with those awarded to salaried
employees. However, in certain
circumstances (including, but
not limited to, changes in role
and responsibilities, market
levels, individual and Company
performance), the Committee
may make larger salary increases
to ensure they are market
competitive. The rationale for any
such increase will be disclosed
in the relevant Annual Report on
remuneration.

It is not possible to prescribe
the likely change in the cost
of insured benefits or the cost
of some of the other reported
benefits year-to-year, but the
provision of benefits will operate
within an annual limit of £100,000
(plus a further 100% of base
salary in the case of relocations).

The Committee will monitor the
costs of benefits in practice and
will ensure that the overall costs
do not increase by more than the
Committee considers appropriate
in all the circumstances.

PENSION
To provide retirement benefits.

Executive Directors can receive pension contributions
to personal pension arrangements or, if a Director is
impacted by annual or lifetime limits on contribution levels
to qualifying pension plans, the balance can be paid as a
cash supplement.

The maximum employer’s
contribution is limited to up to
15% of base salary.

n/a

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DIRECTORS’ REMUNERATION REPORT continued

Element and Purpose

Policy and Operation

Maximum

Performance Measures

ANNUAL BONUS PLAN
To motivate executives
and incentivise delivery
of performance over a
one-year operating cycle,
focusing on the short- to
medium-term elements of our
strategic aims.

LONG-TERM INCENTIVES
To motivate and incentivise
delivery of sustained
performance over the
long term, and to promote
alignment with shareholders’
interests, the Company
operates the Performance
Share Plan (PSP).

SHARE OWNERSHIP
GUIDELINES
To further align the interests of
Executive Directors with those
of shareholders

ALL-EMPLOYEE SHARE
PLANS
To encourage share
ownership by employees,
thereby allowing them
to share in the long-term
success of the Group and
align their interests with those
of the shareholders.

Annual Bonus Plan levels and the appropriateness of
measures are reviewed annually at the commencement
of each financial year to ensure they continue to support
our strategy.

The maximum level of Annual
Bonus Plan outcomes is 100%
of base salary per annum for the
duration of this policy.

Once set, performance measures and targets will generally
remain unchanged for the year, except to reflect events
such as corporate acquisitions or other significant events
where the Committee considers it to be necessary in its
opinion to make appropriate adjustments.

Annual Bonus Plan outcomes can be paid in a mix of
cash and deferred shares granted under the Company’s
Deferred Share Plan (DSP), following the determination of
achievement against performance measures and targets.

Awards under the DSP are deferred for such period as the
Committee selects at grant, which will not normally be less
than (but may be longer than) three years and are subject
to continued employment.

Where an element of bonus is payable as deferred shares
under the DSP, individuals may be able to receive a dividend
equivalent in cash or shares equal to the value of dividends
which would have been paid during the vesting period.

Clawback and malus provisions apply to the Annual Bonus
Plan and DSP, as explained in more detail in the notes to
the policy table, as disclosed in last year’s report.

Awards under the PSP take the form of nil-cost options
which vest to the extent performance conditions are
satisfied over a period of at least three years.

Under the PSP plan rules, vested awards may also be
settled in cash.

The PSP rules allow that the number of shares subject to
vested PSP awards may be increased to reflect the value
of dividends that would have been paid in respect of any
ex-dividend dates falling between the grant of awards and
the expiry of any vesting period.

Malus and clawback provisions apply to PSP awards and
are explained in more detail in the notes to the policy table,
as disclosed in last year’s report.

The PSP allows for awards over
shares with a maximum value
of 150% of base salary per
financial year.

The Committee expressly
reserves discretion to make
such awards as it considers
appropriate within these limits.

The performance measures
applied may be financial
or non-financial and
corporate, divisional or
individual and in such
proportions as the Committee
considers appropriate.

Attaining the threshold level of
performance for any measure
will not produce a pay-out
of more than 20% of the
maximum portion of overall
Annual Bonus attributable to
that measure, with a sliding
scale to full pay-out for
maximum performance.

However, the Annual
Bonus Plan remains a
discretionary arrangement
and the Committee retains
a standard power to apply
its judgement to adjust the
outcome of the Annual Bonus
Plan for any performance
measure (from zero to any
cap) should it consider that to
be appropriate.

The Committee may set such
performance conditions on
PSP awards as it considers
appropriate (whether
financial or non-financial and
whether corporate, divisional
or individual).

Performance periods may
be over such periods as the
Committee selects at grant,
which will not normally be less
than (but may be longer than)
three years.

No more than 25% of
awards vest for attaining
the threshold level of
performance conditions.

Executive Directors are expected to build up a prescribed
level of shareholding within five years of commencement
of employment (or such longer period as the Committee
may determine).

100% of base salary for all
Executive Directors.

n/a

The Committee reserves the
power to amend (but not reduce)
these levels in future years.

The Company intends to launch a Sharesave scheme in
March 2017.

These are all-employee share plans established under
HMRC tax-advantaged regimes and follow the usual form
for such plans.

Executive Directors will be able to participate in all-
employee share plans on the same terms as other
Group employees.

The maximum participation levels
for all-employee share plans will
be the limits for such plans set by
HMRC from time to time.

Consistent with normal
practice, such awards will not
be subject to performance
conditions.

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Chairman and Non-executive Directors

Element and Purpose

Policy and Operation

Maximum

Performance Measures

CHAIRMAN/NON-
EXECUTIVE DIRECTOR FEES
To enable the Company to
recruit and retain Chairmen
and Non-executive Directors
of the highest calibre, at the
appropriate cost.

The fees paid to the Chairman and Non-executive
Directors aim to be competitive with other fully
listed companies of equivalent size and complexity.

Fees are paid monthly in cash.
Any increases actually made will be
appropriately disclosed.

n/a

The fees payable to the Non-executive Directors
are determined by the Board, with the Chairman’s
fees determined by the Remuneration Committee.

The Chairman and Non-executive Directors will
not participate in any new cash or share incentive
arrangements from admission.

The aggregate fees (and any benefits) of
the Chairman and Non-executive Directors
will not exceed the limit from time to time
prescribed within the Company’s Articles
of Association for such fees (currently
£325,000 per annum in aggregate).

The Company reserves the right to provide
benefits (including travel and office support) to
the Chairman and Non-executive Directors.

If the Chairman and/or Non-executive
Directors devote special attention to the
business of the Company, or otherwise
perform services which in the opinion of
the Directors are outside the scope of the
ordinary duties of a Director, they may be
paid such additional remuneration as the
Directors or any committee authorised by
the Directors may determine.

Other elements of our policy include:

Recruitment Remuneration Policy
The Company’s Recruitment Remuneration Policy aims to give the Committee sufficient flexibility to secure the appointment and promotion of
high-calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims.

In terms of the principles for setting a package for a new Executive Director,
the starting point for the Committee will be to apply the general policy for
Executive Directors as set out above and structure a package in accordance
with that policy. Any caps contained within the policy for fixed pay do not
apply to new recruits, although the Committee would not envisage exceeding
these caps in practice.

The Annual Bonus Plan, DSP and PSP will operate (including the maximum
award levels) as detailed in the general policy in relation to any newly
appointed Executive Director. For an internal appointment, any variable pay
element awarded in respect of the prior role may either continue on its original
terms or be adjusted to reflect the new appointment as appropriate.

For external and internal appointments, the Committee may agree that the
Company will meet certain relocation expenses as it considers appropriate.

For external candidates, it may be necessary to make additional awards in
connection with the recruitment to buy-out awards forfeited by the individual on
leaving a previous employer.

For the avoidance of doubt, buy-out awards are not subject to a formal cap.
Any recruitment-related awards which are not buy-outs will be subject to the
limits for Annual Bonus Plan and PSP as stated in the general policy. Details of
any recruitment-related awards will be appropriately disclosed.

For any buy-outs the Company will not pay more than is, in the view of the
Committee, necessary and will in all cases seek, in the first instance, to deliver
any such awards under the terms of the existing Annual Bonus Plan, DSP or
PSP. It may, however, be necessary in some cases to make buy-out awards on
terms that are more bespoke than the existing Annual Bonus Plan, DSP or PSP.

All buy-outs, whether under the Annual Bonus Plan, DSP, PSP or otherwise,
will take due account of the service obligations and performance requirements
for any remuneration relinquished by the individual when leaving a previous
employer. The Committee will seek (where it is practicable to do so) to make
buy-outs subject to what are, in its opinion, comparable requirements in respect
of service and performance. However, the Committee may choose to relax this
requirement in certain cases (such as where the service and/or performance
requirements are materially completed, or where such factors are, in the view of
the Committee, reflected in some other way, such as a significant discount to
the face value of the awards forfeited) and where the Committee considers it to
be in the interests of shareholders.

A new Chairman/Non-executive Director would be recruited on the terms explained above in respect of the main policy for such Directors.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DIRECTORS’ REMUNERATION REPORT continued

Service Contracts
Executive Directors
The Committee’s policy is that each Executive Director’s service agreement should be of indefinite duration, subject to termination upon no
more than 12 months’ notice by either party. The service agreements of all Executive Directors comply with that policy. Contracts contain
provisions allowing the Company to make payments in lieu of notice (albeit not including bonus or benefits) but do not contain change of
control provisions.

The Committee reserves flexibility to alter these principles if necessary to secure the recruitment of an appropriate candidate and, if appropriate,
introduce a longer initial notice period (of up to two years) reducing over time.

The date of each Executive Director’s contract is:

Mark Kelly
Michael Scott

29 March 2016
1 September 2016

Chairman/Non-executive Directors
The Chairman and each Non-executive Director is engaged for an initial period of three years. These appointments can be renewed following
the initial three year term. These engagements can be terminated by either party on twelve months’ notice.

Neither the Chairman nor any Non-executive Directors can participate in the Company’s incentive plans, are not entitled to any pension benefits
and are not entitled to any payment in compensation for early termination of their appointment beyond the twelve months’ notice referred
to above.

For the Chairman and each Non-executive Director, the effective date of their latest letter of appointment is:

Name

Bob Lawson
Patrick Kalverboer
Frank Nelson
Martyn Coffey

Date of Appointment

4 February 2015
4 February 2015
4 February 2015
4 February 2015

Term

3 years
3 years
3 years
3 years

The Directors’ service agreements and letters of appointment are available for shareholders to view from the Company Secretary on request.

Termination/Change of Control Policy Summary
It is appropriate for the Committee to consider treatments on a termination having regard to all of the relevant facts and circumstances available
at that time. This policy applies both to any negotiations linked to notice periods on a termination and any treatments that the Committee may
choose to apply under the discretions available to it under the terms of the Annual Bonus Plan, DSP and PSP. The potential treatments on
termination under these plans are summarised in the table below:

Incentives

ANNUAL BONUS PLAN

DEFERRED SHARE PLAN

If a leaver is deemed to be a ‘good leaver’; for example, leaving
through injury, ill-health, disability, retirement, redundancy, sale of
business or otherwise at the discretion of the Committee

If a leaver is not a ‘good leaver’

Change in control

Committee has discretion to determine an Annual Bonus
which may be limited to the period actually worked.

Annual Bonus generally paid. Committee has discretion to

determine Annual Bonus.

Awards normally vest either on cessation or the normal
vesting date. The Committee can pro-rate awards if
considered appropriate.

All awards will normally lapse. Awards vest on a pro rata basis,

unless the Committee determines
not to pro-rate.

PERFORMANCE SHARE
PLAN

Will receive a pro-rated award subject to the application
of the performance conditions at the end of the normal
performance period.

Committee retains standard discretions to either vary/
disapply time pro-rating or to accelerate vesting to the
earlier date of cessation (determining the performance
conditions at that time).

All awards will normally lapse. Will receive a pro-rated award

subject to the application of the
performance conditions at the date
of the event, unless the Committee
determines not to pro-rate.

On death, Annual Bonus Plan, DSP and PSP awards typically vest in full (with pro-rating also potentially applying).

The Company has the power to enter into settlement agreements with Directors and to pay compensation to settle potential legal claims. In
addition, and consistent with market practice, in the event of the termination of an Executive Director, the Company may make a contribution
towards that individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees will be disclosed as part of
the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments.

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travel and hospitality

Other Policy Matters
Last year’s report also set out formal details of our approach to:
•
• differences between the policy on remuneration for Directors from the policy on remuneration for other employees
• committee discretions
• external appointments
• considerations of employment conditions elsewhere in the Group
•
• how the views of shareholders are taken into account

the operation of malus and clawback in relation to the PSP and annual bonus

The Committee is mindful of ongoing debate regarding the publication of ratios comparing CEO to employee pay. The Committee does not at
present consider it appropriate to publish such data in this report as it is concerned that no common methodology has yet been established
amongst UK companies and their investors for these comparisons. The Company’s expectation is that it will publish ratios showing
comparisons in future years when, as can be expected, UK regulations or guidance develop a common methodology.

Illustrations of Application of Remuneration Policy

1200

1000

800

0
0
0
£

600

£450k

£1,185k

31%

£726k

31%

13%

25%

400

100%

62%

38%

200

Minimum

On-target

Maximum

1200

1000

800

0
0
0
£

600

400

200

Long-term incentive
Annual bonus
Fixed

£753k

31%

£460k

13%

25%

£284k

100%

62%

38%

Minimum

On-target

Maximum

Chief Executive Officer – Mark Kelly

Chief Financial Officer – Michael Scott

The charts above aim to show how the Remuneration Policy for Executive Directors will be applied in 2017 using the assumptions in the table below.

• Consists of base salary, benefits and pension

• Base salary is the salary to be paid with effect from 1 April 2017

• Estimated value of a full year’s benefits, including car allowance, private medical cover, health insurance and life assurance

MINIMUM

• Pension measured as the cash allowance in lieu of Company contributions at 15% of salary

Mark Kelly
Michael Scott

Base Salary

Benefits

Pension

Total Fixed

£367,200
£234,600

£27,974
£14,270

£55,080
£450,254
£35,190 £284,060

TARGET

Based on what the Director would receive if performance was on-target (excluding share price appreciation and dividends):
• Annual Bonus: consists of the on-target bonus of 50% of maximum opportunity
• Long Term Incentives: consists of the threshold level of vesting (25% vesting) under the PSP

MAXIMUM

Based on the maximum remuneration receivable (excluding share price appreciation and dividends):
• Annual Bonus: consists of maximum bonus of 100% of base salary
• Long Term Incentives: consists of the face value of awards (at 100% of salary for both Executive Directors) under the PSP

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DIRECTORS’ REMUNERATION REPORT continued

PART B: IMPLEMENTATION REPORT
The Committee (Unaudited Information)
The members of the Remuneration Committee are:
Martyn Coffey (Chairman)
Bob Lawson
Frank Nelson

The Committee’s principal responsibilities are to:
•
recommend to the Board the remuneration strategy and framework for the Chairman, Executive Directors and senior managers;
• determine, within that framework, the individual remuneration arrangements for the Executive Directors and senior managers; and
• oversee any major changes in employee benefit structures throughout the Group.

The Chief Executive Officer is invited to attend meetings of the Committee, except when his own remuneration is being discussed,
and the Chief Financial Officer and other Executive and Non-executive Directors attend meetings as required. Bob Lawson takes
no part in any discussions relating to his own remuneration.

The Committee met 4 times during the year, with all members of the Committee present at these meetings.

The Committee has formal terms of reference which can be viewed on the Company’s website (investors.eurocell.co.uk).

FIT Remuneration Consultants LLP (FIT), signatories to the Remuneration Consultants Group’s Code of Conduct, were appointed by the
Committee and provide advice to the Committee on all matters relating to remuneration, including best practice. FIT provided no other services
to the Group and, accordingly, the Committee was satisfied that the advice provided by FIT was objective and independent. FIT's fees in
respect of 2016 were £19,100 (excluding VAT). FIT's fees were charged on the basis of the firm’s standard terms of business for advice provided.

Audited Information
Single Total Figure Table (Audited)
The remuneration for the Chairman, Executive and Non-executive Directors of the Company who performed qualifying services during the year
is detailed below. The Chairman and Non-executive Directors received no remuneration other than their annual fee.

As the Group listed in March 2015, part of the 2015 remuneration related to when Eurocell was a privately owned Company.

For the year ended 31 December 2016:

Director

Mark Kelly(1)
Michael Scott (2)
Patrick Bateman (3)
Matthew Edwards (4)
Robert Lawson
Patrick Kalverboer
Frank Nelson
Martyn Coffey

Salary/fees

£274,154
£76,667
£188,638
£116,500
£120,000
£40,000
£48,000
£45,000

Taxable
benefits(5)

Bonus

Long-term
incentives

Pension

Other

£25,958 £219,323
£61,333
£59,499
£38,509
–
–
–
–

£4,649
£8,575
£8,135
–
–
–
–

–
–
–
–
–
–
–
–

£41,123
£11,500
£27,745
£17,475
–
–
–
–

–
–
–
£1,000
–
–
–
–

Total
remuneration

£560,558
£154,149
£284,457
£181,619
£120,000
£40,000
£48,000
£45,000

Notes:
(1) Mark Kelly was appointed to the Board with effect from 29 March 2016 and was appointed Chief Executive Officer with effect from 1 May 2016.
(2) Michael Scott was appointed Chief Financial Officer with effect from 1 September 2016.
(3) Patrick Bateman resigned with effect from 30 June 2016.
(4) Matthew Edwards left the Company with effect from 30 June 2016. Other includes payments for legal fees and other expenses made to Mr Edwards in connection

with his settlement agreement.

(5) Taxable benefits comprise car allowance, private family medical cover, permanent health insurance and life assurance.

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For the year ended 31 December 2015

Director

Patrick Bateman
Matthew Edwards
Robert Lawson(1)
Patrick Kalverboer
Frank Nelson(1)
Martyn Coffey(1)

Note:
(1) Appointed with effect from 4 February 2015.

Salary/fees

£299,218
£193,494
£120,000
£40,000
£48,000
£45,000

Taxable
benefits

£17,155
£15,791
–
–
–
–

Bonus

£269,700
£174,000
–
–
–
–

Long-term
incentives

–
–
–
–
–
–

Pension

£51,025
£29,024
–
–
–
–

Total
remuneration

£637,098
£412,309
£120,000
£40,000
£48,000
£45,000

The aggregate emoluments (being salary/fees, bonuses, benefits and pension allowances) of all Directors for 2016 was £1,433,783
(2015: £1,302,407).

Further Information on the 2016 Annual Bonus (Audited)
In 2016, the annual bonus metrics were a blend of targets relating to adjusted profit before tax (50% of the bonus opportunity), cash flow
(20% of the bonus opportunity) and strategic targets for Mark Kelly and Michael Scott, set on their appointment (30% of the bonus opportunity).
In addition, a Health and Safety adjustment underpin applied which, if not achieved, can reduce the bonus pay-out.

More particularly, the adjusted profit before tax and cash flow bonus targets were as follows:

£m

Adjusted Profit before Tax
Cash flow

Threshold

22.8
28.5

Target

24.0
30.0

Maximum

25.8
32.2

Actual

24.3
32.2

Pay-out

(% of max)

60
100

Performance against the adjusted profit before tax element of the bonus resulted in a bonus of 60% of that element (i.e. approx. 30% of salary).

Performance against the cash flow element of the bonus resulted in a bonus of 100% of that element (i.e. approx. 20% of salary).

Strategic targets were introduced for Mark Kelly and Michael Scott to reflect specific objectives set on their appointment during 2016 (an
approach that was not trailed in last year’s report due to the timing of their appointment). The objectives were: to determine and commence
implementation of strategies related to growth of the Building Plastics division and potential expansion of the recycling plant, and to resolve
contractual issues related to the Group’s outsourced logistics arrangements. As described in this Annual Report, all of these targets were
achieved successfully. Therefore, performance against the individual target element of the bonus resulted in a bonus of 100% of that element
(i.e. approx. 30% of salary).

In total, this results in a total bonus pay-out of 80% of salary. The Health and Safety underpin was also considered satisfied.

50% of the annual bonus paid to Mark Kelly and Michael Scott will be deferred into shares under the DSP.

Mark Kelly Recruitment Awards
As described in last year’s report, the following awards were made to Mark Kelly in connection with his recruitment to provide compensation for
awards granted by his former employer (‘Prior Awards’) that were forfeited by Mr Kelly on leaving his previous employer (which is compliant with
our policy which was approved by shareholders at the 2016 AGM):
• £200,000 cash award, subject to repayment if not remaining employed for 12 months (with standard ‘good leaver’ provisions)
• an award over £200,000 worth of shares, (measured as at the date of grant of the award), which will vest upon the expiry of a twelve month

deferral period subject to continued employment (again with standard ‘good leaver’ provisions)

However, to avoid any duplication of payments, and to again reflect the Company’s ongoing policy, if, and to the extent this Prior Award were not
forfeited, it was agreed that any value Mr Kelly received in relation to these prior awards would reduce the value of the above buy-out awards.

The cash award of £200,000 described above was not ultimately forfeited by Mr Kelly and therefore the value of this Prior Award was reduced
to zero.

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DIRECTORS’ REMUNERATION REPORT continued

Statement of Directors’ shareholding and share interests (audited)
The table below details for each Director, the total number of Directors’ interests in shares at 31 December 2016:

Director

Mark Kelly
Michael Scott
Patrick Kalverboer1
Robert Lawson
Frank Nelson
Martyn Coffey
Patrick Bateman2
Matthew Edwards3

No. of Shares

43,939
Nil
20,159,094
58,596
28,571
5,714
2,820,070
Nil

Note:
(1) The interests of H2 Equity Partners are noted as interests of Patrick Kalverboer. Mr Kalverboer is a managing partner of H2 Equity Partners.
(2) Number of shares held at retirement on 30 June 2016.
(3) Number of shares held at departure on 30 June 2016.

The shareholdings set out above include those held by Directors and their respective connected persons.

Under share ownership guidelines implemented by the Remuneration Committee, Executive Directors are required to build and then maintain a
shareholding equivalent to at least 100% of base salary within five years of commencement of employment. As described above, Mark Kelly and
Michael Scott were appointed in March and September 2016 respectively. As such, whilst it is their intention to do so, neither has to date built a
shareholding which complies with this guideline.

Performance Share Plan
The following awards were made under the PSP in 2016:

Date of grant

Basis of award
(% salary)

Share price (1)

Number
of shares

Face value of

award at grant

Lapsed

Exercise period

Mark Kelly
Michael Scott

28 June 2016
19 December 2016

150%
100%

197.5p
182.5p

273,417
126,006

£540,000
£230,000

–
–

June 2019 to June 2020
December 2019 to December 2020

Note:
(1) Rounded to one decimal place for the purposes of presentation in this report.

The performance conditions applying to the awards made in December 2016 relate to: (i) adjusted earnings per share growth for two-thirds of
the award; and (ii) Group cash flow targets for one-third of the award. Group cash flow is defined as the aggregate of EBITDA less working
capital (and excluding capital expenditure) for each of the three financial years falling in the performance period.

More specifically:

Adjusted EPS growth target to 31 December 2018

Portion of award vesting

Above 13% p.a.
Between 7% p.a. and 13% p.a.
7% p.a.
Below 7% p.a.

100%
Pro rata on straight-line between 25% and 100%
25%
0%

Operating cash flow to 31 December 2018

Portion of award vesting

Above £103.7 million
Between £84.9 million and £103.7 million
£84.9 million
Below £84.9 million

100%
Pro rata on straight-line between 25% and 100%
25%
0%

The Committee is mindful of the fact that these targets are lower than the targets applied to PSP awards made in 2015 (set out in more detail
below). However, the Committee believes that the 2016 targets are no less challenging in relative terms and have been set in light of external and
internal forecasts.

However, those targets are specific to a three year performance period to 31 December 2017 which, on reflection, the Committee did not
believe was in Shareholders’ interests given Mark’s recruitment was in 2016. Therefore, the targets in Mr Kelly’s award have been amended
to align with the PSP awards made in December 2016, which relate to the three year performance period to 31 December 2018.

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Details of all outstanding awards made under the PSP are set out below, (all of which were granted as nil cost options):

Executive

Grant date

Interest at
1 January
2016

Awards
granted in the
year

Awards
lapsed in the
year

Awards
vested in the
year

Interest at
31 December
2016

Exercise period

Mark Kelly
Michael Scott
Patrick Bateman
Matthew Edwards

28 June 2016
19 December 2016
9 March 2015
9 March 2015

–
–
177,142
114,285

273,417
126,006
–
–

–
–
(59,048)
(57,143)

–
–
–
–

June 2019 – June 2020
December 2019 – December 2020

273,417
126,006
118,094 March 2018 – March 2019
57,142 March 2018 – March 2019

The awards made to Messrs Bateman and Edwards in 2015 are subject to the following performance conditions:

Adjusted EPS Growth target to 31 December 2017 (two thirds of award)

Portion of award vesting

Above RPI + 21% p.a.
Between RPI + 13% p.a. and RPI + 21% p.a.
RPI + 13% p.a.
Below RPI + 13% p.a.

100%
Pro rata on straight-line between 25% and 100%
25%
0%

Cash flow to 31 December 2017 (one third of award)

Portion of award vesting

Above £106.1 million
Between £86.8 million and £106.1 million
£86.8 million
Below £86.8 million

100%
Pro rata on straight-line between 25% and 100%
25%
0%

The above cash flow targets have been adjusted upwards from the targets originally set (i.e. £83.8 million to £102.4 million) to reflect the impact
of the S&S and Vista acquisitions.

Pursuant to the PSP rules and the Company’s remuneration policy, these PSP awards were subject to a pro rata reduction upon the cessation
of employment of Messrs Bateman and Edwards and shall vest on the normal vesting dates (subject to performance against the above targets).

During the year ended 31 December 2016, the highest mid-market price of the Company’s shares was 199.5p and the lowest mid-market price
was 134.0p. At 31 December 2016 the share price was 179.0p. The aggregate gains by all Directors during 2016 was £nil (2015: £nil).

Payments to Past Directors (Audited)
No payments were made to past Directors during the year.

Payments for Loss of Office (Audited)
As set out in last year’s report, and as contained in the Single Total Figure Table on page 58, the following approach was adopted in relation to
Patrick Bateman’s retirement:
• Mr Bateman continued to receive salary, pension and benefits up to his departure date of 30 June 2016, at which point all such

payments ceased.

• He was entitled to receive a cash bonus for 2016, which was paid following publication of the half year results.
• As described above, the 2015 PSP award held by Mr Bateman will vest on a pro rata basis (as to two-thirds of the Award) on the normal

vesting date (i.e. in 2018) based on performance against the earnings per share and operating cash flow targets.

• Mr Bateman was entitled to receive payment of his reasonable legal fees for the advice he received in connection with the relevant

Settlement Agreement.

The following approach was adopted in connection with Matthew Edwards’ departure:
• Mr Edwards continued to receive salary, pension and benefits up to his departure date of 30 June 2016, at which point all such

payments ceased.

• He was entitled to receive a cash bonus for 2016, which was paid following publication of the half year results.
• As described above, the 2015 PSP award held by Mr Edwards will vest on a pro rata basis (as to 50% of the Award) on the normal vesting

date (i.e. in 2018) based on performance against the earnings per share and operating cash flow targets.

• Mr Edwards was entitled to receive payment of his reasonable legal fees for the advice he received in connection with the relevant settlement

agreement.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DIRECTORS’ REMUNERATION REPORT continued

Performance Graph and CEO Remuneration Table (Unaudited)
The following graph shows the Total Shareholder Return (TSR) performance of an investment of £100 in Eurocell plc’s shares from its listing in
March 2015 to the end of the period, compared with a £100 investment in the FTSE SmallCap Index over the same period. The FTSE SmallCap
Index was chosen as a comparator because it represents a broad equity market index of which the Company is a constituent.

TSR Index
115

110

105

100

95
3 March 2015

31 December 2015

31 December 2016

Source: Thomson Reuters

Eurocell

FTSE SmallCap

The table below details certain elements of the CEO's remuneration over the same period as presented in the TSR Index graph:

2016

2015

Single figure of total remuneration

Patrick Bateman: £284,457
Mark Kelly: £560,558
Patrick Bateman: £637,098

Annual Bonus pay-out
against maximum %

Patrick Bateman: 33%
Mark Kelly: 80%
Patrick Bateman: 87%

Long-term incentive vesting rates
against maximum opportunity %

Patrick Bateman: n/a
Mark Kelly: n/a
Patrick Bateman: n/a

As the Company listed in March 2015, part of the 2015 remuneration relates to when Eurocell was a privately owned Company.

Percentage Change in Remuneration of Director Undertaking the Role of CEO (Unaudited)
The Regulations require us to show the year-on-year percentage change in remuneration received by the Chief Executive Officer, compared
with the change in remuneration received by all UK employees. As Mark Kelly replaced Patrick Bateman in July 2016, there is no appropriate
base against which to measure the percentage change in remuneration received by the Chief Executive Officer. The table below presents the
year-on-year percentage change in remuneration received by all UK employees:

Salary and fees
Short-term incentives
All taxable benefits

Percentage increase in
remuneration between
2015 and 2016

All staff

1.5%
–
–

Mark Kelly was appointed on a base salary of £360,000, an increase of 0.6% on the salary of Patrick Bateman (£358,000). Mr Kelly receives a
market standard benefits package, in line with that previously received by Mr Bateman.

Mark Kelly joined the Company on 29 March 2016 and his total remuneration for 2016 was £560,558. Patrick Bateman’s total remuneration for
2015 was £637,098.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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Relative Importance of Spend on Pay (Unaudited)
The table below details the change in total employee pay between 2015 and 2016 as detailed in Note 8 of the financial statements, compared
with distributions to shareholders by way of dividend, share buybacks or any other significant distributions or payments. These figures have
been calculated in line with those in the audited financial statements.

Total gross employee pay
Dividends/share buybacks

The average number of employees during the year was 1,289 (2015: 1,084).

% change

23%
8%

2016
£m

42.7
8.5

2015
£m

34.7
7.9

Statement of Voting at General Meeting
The following table shows the results of the advisory and binding votes at the Annual General Meeting held on 19 May 2016. Both resolutions
were passed with unanimous support.

Approval for Part A of the Directors’ Remuneration Report
(Directors’ Remuneration Policy)

Approval for Part B of the Directors’ Remuneration Report
(Implementation Report)

Total number of votes

% of votes cast

Total number of votes

% of votes cast

For (including discretionary)
Against
Votes withheld

85,931,870
–
–

100%
–
–

85,931,870
–
–

100%
–
–

Implementation of Policy for 2017 (Unaudited Information)
Base Salary
• Base salaries from appointment were as follows: £360,000 for Mark Kelly, and £230,000 for Michael Scott. In line with other Eurocell

employees, with effect from 1 April 2017, these salaries will be increased by 2% to £367,200 and £234,600 respectively.

Pension
• Contribution rates for Executive Directors will be 15% of salary in 2017.

Benefits
• Details of the benefits received by Executive Directors are set out in Note 5 to the Single Total Figure Table on page 58. There is no intention

to introduce additional benefits in 2017.

Annual Bonus
• The Annual Bonus opportunity for 2017 will be structured in a similar manner to 2016. The maximum bonus will be 100% of salary and

will be payable based on performance against a blend of adjusted profit before tax (70% of the bonus opportunity) and operating cash flow
(30% of the bonus opportunity).

• These targets will be set in light of internal and external forecasts and will require significant outperformance to generate higher levels of

pay-out. In addition, a health and safety adjustment underpin will apply which, if not achieved, could reduce the bonus pay-out.

• 50% of any bonus earned will be deferred into shares for three years.
• Given the competitive nature of the Company’s sector, the specific performance targets are considered to be commercially sensitive and,
accordingly, are not disclosed at this time, although strong levels of disclosure will be made in next year’s report in relation to the 2017
bonus outturn.

Long-term incentives
• Awards will be made under the PSP in 2017 to the Executive Directors structured in a similar manner to the awards made in 2016,

in that awards will be made which will vest subject to three year earnings per share (two-thirds of the award) and operating cash flow
(one-third) targets.

• Full details of these targets will be disclosed in next year’s report, with these targets no less challenging in relative terms than the targets

applied to the 2016 PSP awards.

Chairman and Non-executive Directors’ fees
• The fees of the Chairman and Non-executive Directors will remain unchanged from 2016 levels.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

DIRECTORS’ REPORT

The Directors’ Report includes the Corporate Governance Statement
set out on pages 45 to 47.

We use the service of external, expert tax advisers to provide input
into our tax affairs, such as the management of tax compliance and
the impact of changes in tax legislation.

TAX GOVERNANCE
Our tax strategy is determined by the Board as a subset of our overall
business strategy and is overseen by the Audit and Risk Committee.
Operational responsibility for the execution of the Group’s tax strategy
rests with the Chief Financial Officer, who reports the Group’s tax position
to the Audit and Risk Committee on a regular basis.

The Audit and Risk Committee considers tax risks that may arise as a
result of business operations through the Group’s risk management
framework. The consideration of such tax risks include actions to mitigate
the risks or to prevent their occurrence or reoccurrence.

SHARE CAPITAL
Details of our issued share capital, including movements during the year,
are shown in Note 23 to the Financial Statements. We have one class of
ordinary shares, which carries no fixed income. Each share carries the
right to one vote at our general meetings. The ordinary shares are listed
on the Official List and traded on the London Stock Exchange.

As at 31 December 2016, we had 100,000,000 ordinary shares of
0.1 pence each in nominal value in issue (the ‘issued share capital’).

Holders of ordinary shares are entitled to receive dividends when
declared, to receive the Company’s Annual Report, to attend and speak
at general meetings of the Company, to appoint proxies and to exercise
voting rights.

Whilst the Board has the power under the Articles of Association to
refuse to register a transfer of shares, there are no such restrictions
on the transfer of shares in place.

Under the Company’s Articles of Association, the Directors have power
to suspend voting rights and the right to receive dividends in respect of
shares in circumstances where the holder of those shares fails to comply
with a notice issued under section 793 of the Companies Act 2006.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities or voting rights.

SHARE SCHEMES
We have one type of share scheme: a Long Term Incentive Plan
(or Performance Share Plan) (LTIP or PSP). We will be launching a
Save As You Earn scheme (SAYE or Sharesave scheme) in March 2017.

All shares allotted under the PSP scheme have the same rights as those
already issued.

RELATED PARTY TRANSACTIONS
Other than in respect of arrangements set out in Note 28 to the Financial
Statements and in relation to the employment of Directors, details of
which are provided in the Remuneration Committee Report on pages 51
to 63, there is no material indebtedness owed to or by us to any
employee or any other person or entity considered to be a related party.

The Directors’ Report and Strategic Report comprise the ‘Management
Report’ for the purpose of the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules (DTR 4.1.8R).

The Directors of the Company are listed on pages 42 and 43.

We are UK domiciled and the majority of our activity is within the UK.

STRATEGIC REPORT
As permitted by section 414C of the Companies Act 2006, certain
information required to be included in the Directors’ report has been
included in the Strategic Report, which is set out on pages 01 to 41.
Specifically, this relates to information on the Group’s strategy,
business model, likely future developments and risk management.

UK CORPORATE FINANCIAL GOVERNANCE CODE
Matters related to corporate governance and our compliance with the
Code are set out in the Corporate Governance Statement on pages 45
to 47, which is incorporated herein by reference.

RESULTS
Our Financial Statements for year ended 31 December 2016 are set
out on pages 68 to 107. The Financial Statements should be read in
conjunction with the Chief Executive’s Review, Divisional Reviews and
the Group Financial Review.

DIVIDENDS
The Board is recommending a final dividend of 5.7 pence
(2015: 5.2 pence) per share which, together with the interim dividend
of 2.8 pence (2015: 2.7 pence) per share, makes a combined dividend
of 8.5 pence (2015: 7.9 pence) per share.

Payment of the final dividend, if approved at the Annual General Meeting,
will be made on 24 May 2017 to shareholders registered at the close of
business on 28 April 2017. The ex-dividend date will be 27 April 2017.

Dividends paid in the year to 31 December 2016 and disclosed in the
cash flow statement of £8.0 million (2015: £2.7 million), is comprised
of the 2015 final dividend of 5.2 pence per share and the 2016 interim
dividend of 2.8 pence per share, which were paid in May and October
2016 respectively.

APPROACH TO TAX
Our approach to tax matters is to comply with all relevant tax laws and
regulations, whilst effectively managing the overall tax burden. We will pay
the correct and fair amount of tax in accordance with the letter and spirit
of the law. We understand that taxes we pay are an important source
of revenue for the government and support their provision of a stable
infrastructure and environment in which to operate.

We look to manage our tax affairs in a manner to support business
operations, with the aim of ensuring that tax consequences match the
economic and commercial consequences of those operations. We seek
to ensure that transactions between subsidiary companies are conducted
on an arm’s length basis and in line with our transfer pricing agreements.

Where a tax rule, regulation or incentive exists that may convey a tax
advantage to us, for example, using losses incurred in prior years,
we will use that rule, regulation or incentive to support the businesses
as permitted by local law.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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SUBSTANTIAL SHAREHOLDERS
As at 31 January 2017, the Company had been notified of the following
holdings of voting rights in its shares under Chapter 5 of the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority:

Shareholder

No. of Shares % of voting rights

H2 Equity Partners
Aberforth
JO Hambro
Ruffer
AXA
BlackRock
Hargreave Hale
Schroder
Henderson Global
SEB Asset Management

20,129,094
11,521,074
10,745,011
7,894,214
7,550,000
6,736,623
6,729,142
3,983,766
3,758,214
2,669,967

20%
12%
11%
8%
8%
7%
7%
4%
4%
3%

THE TAKEOVER DIRECTIVE
The rights and obligations attached to the issued share capital are set out
in the Articles of Association (see below).

There are no agreements in place between the Company, its employees
or Directors for compensation for loss of office or employment that trigger
as a result of a takeover bid.

ARTICLES OF ASSOCIATION
The Company’s Articles of Association can only be amended by
special resolution of the shareholders. Our current articles are available
on our website at investors.eurocell.co.uk.

The Company’s Articles of Association give powers to the Board
to appoint Directors. All Board members are required to retire and
submit themselves for re-election by shareholders at each Annual
General Meeting.

The Board of Directors may exercise all the powers of the Company,
subject to the provisions of relevant legislation, the Company’s Articles
of Association and any directions given by the Company in general
meetings. The powers of the Directors include those in in relation to the
issue and buyback of shares.

DIRECTORS’ INDEMNITIES
Pursuant to the Articles of Association, the Company has executed a
deed poll of indemnity for the benefit of the Directors of the Company
and persons who were Directors of the Company in respect of costs of
defending claims against them and third party liabilities. These provisions,
deemed to be qualifying third party indemnity provisions pursuant to
section 234 of the Companies Act 2006, were in force during the year
ended 31 December 2016 and remain in force. The indemnity provision
in the Company’s Articles of Association also extends to provide a limited
indemnity in respect of liabilities incurred as a director, secretary or officer
of an associated company of the Company.

A copy of the deed poll of indemnity is available for inspection at the
Company’s registered office during normal business hours and will be
available for inspection at the Company’s AGM.

CONFLICTS OF INTEREST
Under the Companies Act 2006, Directors must avoid situations where
they have, or could have, a direct or indirect interest that conflicts or
possibly may conflict with the Company’s interests. As permitted by the
Act, the Company’s Articles of Association enable Directors to authorise
actual or potential conflicts of interest.

LEGAL AND REGULATORY COMPLIANCE
The executive team is responsible for identifying and carrying out
assessments of those areas of the business where material legal
and regulatory risks may be present. Where issues are identified,
mitigating actions are built into an action plan involving the drafting and
communication of policies and the delivery of training where appropriate,
or are approached by way of a revision to key contractual terms.
The Board receives regular reports on material litigation and the legal
action taken to support our strategy.

HEALTH AND SAFETY
We are committed to providing a safe place for employees to work.
Our policies are reviewed on an ongoing basis to ensure that the
approach to training, risk assessment, safe systems of working and
accident management are appropriate. As part of this process, a rolling
audit programme is in place to ensure that health, safety, environmental
and security risks are assessed stringently and that robust control
measures are in place to limit or mitigate risk as appropriate.

DIRECTORS’ RETIREMENT BY ROTATION
In accordance with above and in line with the Code, all Directors in office
will retire and offer themselves for re-election at the 2017 AGM.

OTHER MATTERS
• Financial risk management

Please refer to Note 3 of the financial statements.

• Research and development

The Articles of Association provide that a Director may be appointed by
an ordinary resolution of shareholders or by existing Directors, either to
fill a vacancy or as an additional Director.

The Executive Directors serve under contracts that are terminable with
12 months’ notice from the Company and 12 months’ notice from the
Executive Director. The Non-executive Directors serve under letters of
appointment and do not have service contracts with the Company.

Copies of the service contracts of the Executive Directors and the letters
of appointment of the Non-executive Directors are available for inspection
at the Company’s registered office during normal business hours and will
be available for inspection at the Company’s AGM.

DIRECTORS’ INTERESTS
Details of Directors’ remuneration, interests in the share capital (or
derivatives or other financial instruments relating to those shares) of the
Company and of their share based payment awards are contained in the
Remuneration Committee Report on pages 51 to 63. No change in the
interests of the Directors has been notified between 31 December 2016
and the date of this report.

The Group undertakes research and development work in support of
it objectives. Further details of our research and development activities
can be found in the Strategic Report on pages 01 to 41.

• Payments to suppliers

It is Group policy to abide by the payment terms agreed with
suppliers, provided that the supplier has performed its obligations
under the contract.

• Donations

In accordance with the Group’s policy, no political donations were
made and no political expenditure was incurred during 2016.

• Greenhouse gas emissions

See Corporate Social Responsibility.

• Disclosures required by Listing Rule 9.8.4R

There were no waivers of dividends during the year. There are
no other disclosures to be made under the above listing rule.

By Order of the Board

Gerald Copley
Company Secretary
7 March 2017

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

RESPONSIBILITY STATEMENT OF THE DIRECTORS OF THE
ANNUAL FINANCIAL REPORT
The Directors who held office at the date of approval of this Directors’
Report confirm that, to the best of their knowledge:
•

the Company Financial Statements, which have been prepared in
accordance with UK Generally Accepted Account Practice (UK
Accounting Standards, comprising FRS101 ‘Reduced Disclosure
Framework’, and applicable law), give a true and fair view of the
assets, liabilities, financial position and profit of the Company;
the Group Financial Statements, which have been prepared in
accordance with IFRS as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit
of the Group; and
the Strategic Report contained in this Annual Report includes a fair
review of the development and performance of the business and
the position of the Company and the Group taken as a whole,
together with a description of the principal risks and uncertainties
that they face.

•

The Directors consider the Annual Report and Financial Statements,
taken as a whole, to be fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy.

DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no
relevant audit information of which the Company’s auditor is unaware,
and each Director has taken all the steps that he ought to have taken
as a Director to make himself aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.

The Directors’ Responsibility Statement was approved by the Board
on 7 March 2017.

Mark Kelly
Chief Executive Officer

Michael Scott
Chief Financial Officer

The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the Financial Statements
in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company
Financial Statements for each financial year. Under that law,
the Directors are required to prepare the Group Financial Statements
in accordance with applicable law and International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU), and
have elected to prepare the Company Financial Statements
in accordance with applicable law and UK Generally Accepted
Accounting Practice (UK Accounting Standards, comprising
FRS101 ‘Reduced Disclosure Framework’).

Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and of the profit
or loss of the Group for that period. In preparing these Financial
Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether IFRS as adopted by the European Union and

applicable UK Accounting Standards comprising FRS101 have
been followed, subject to any material departures disclosed
and explained in the Group and Company Financial Statements
respectively;

• make judgements and accounting estimates that are reasonable

and prudent; and

• prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

In preparing the Group Financial Statements, IAS 1 requires
that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner

that provides relevant, reliable, comparable and understandable
information;

• provide additional disclosures when compliance with the

specific requirements in IFRS are insufficient to enable users
to understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and

• make an assessment of the Company’s ability to continue as a

going concern.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that its Financial Statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

INDEPENDENT AUDITORS’ REPORT
To the Members of Eurocell Plc

REPORT ON THE GROUP FINANCIAL STATEMENTS
Our opinion
In our opinion, Eurocell Plc’s group financial statements (the “financial statements”):
• give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union;

and

• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

What we have audited
The financial statements, included within the Annual Report 2016 (the “Annual Report”), comprise:
•
•
•
•
•

the consolidated statement of financial position as at 31 December 2016;
the consolidated statement of comprehensive income for the year then ended;
the consolidated cash flow statement for the year then ended;
the consolidated statement of changes in equity for the year then ended; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These
are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European
Union, and applicable law.

Our audit approach
Overview

Materiality

Audit scope

Key audit
matters

• Overall Group materiality: £1.2 million which represents 5% of underlying profit before tax.

• Following our assessment of the risks of material misstatement of the financial statements we identified two

statutory entities: Eurocell Building Plastics Limited and Eurocell Profiles Limited, which, in our view,
required an audit of their complete financial information both due to their size and risk characteristics.
In addition, we also conducted the statutory audits of four non-significant statutory entities, such that the
audit work was complete prior to the finalisation of the Group financial statements.

•

• Work was performed on the Company and certain centralised functions, including management’s

reassessment of the fair values attributed to the assets and liabilities acquired in relation to the Vista
Panels Limited business combination.

• Assessment of the valuation of inventory.
• Trade receivables and dilapidations provisions.

The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management
override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material
misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as
“areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion
on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not
a complete list of all risks identified by our audit.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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Area of focus

How our audit addressed the area of focus

Assessment of the valuation of inventory
Refer to pages 36 to 39 (Risk management / Principal risks and
uncertainties), pages 49 to 50 (Audit & Risk Committee report),
Note 1 (Accounting policies), Note 2 (Critical accounting estimates and
judgements) and Note 17 (Inventories).

Inventory provisions totalled £1.8 million as at 31 December 2016
(31 December 2015: £2.6 million).

We focused on this area because the Directors’ assessment of the
absorption of labour and overhead costs into inventory and the
assessment of the recoverability of inventory involved complex and
subjective judgements.

Specifically the determination of inventory provisions for slow moving,
obsolete and discontinued line items, reflecting the level of inventory
held across the 159 branches and manufactured goods at the year end,
requires the exercise of judgement.

In addition, we also focused on this area because the incentive schemes
of the Directors and senior management are significantly driven by
financial measures, including profit, which we concluded gave a greater
risk of manipulation of judgements, including inventory costing and
provisioning, to ensure that bonus targets are achieved.

Trade receivables and dilapidations provisions
Refer to pages 36 to 39 (Risk management/ Principal risks and
uncertainties), pages 49 to 50 (Audit & Risk Committee report),
Note 1 (Accounting policies), Note 2 (Critical accounting estimates and
judgements), Note 18 (Trade and other receivables) and Note 21
(Provisions).

The Group held provisions against accounts receivable of £0.7 million at
31 December 2016 (2015: £0.7 million). In addition, the Group held
provisions in respect of dilapidations of £1.5 million (2015: £1.4 million).

We focused on these areas because the Directors’ assessment of the
provisions required in respect of trade receivables and dilapidations
involved subjective judgements.

In addition, we also focused on these areas because the incentive
schemes of the Directors and senior management are significantly
driven by financial measures including profit, which we concluded gave
a greater risk of manipulation of judgements, including those around
trade receivables and dilapidations provisions, to ensure that bonus
targets are achieved.

We understood the nature of each labour and overhead cost that the
Directors absorbed into inventory and determined their
appropriateness in line with IAS 2 ‘Inventories’ (“IAS 2”).

We tested, on a sample basis, the valuation and calculation of
individual absorptions that made up the total. We also assessed the
reasonableness of the Directors’ estimates in this area for bias.

We found no material exceptions from the procedures noted above.

We understood the Directors’ methodology for calculating inventory
provisions and evaluated the Directors’ assumptions over future
forecast usage and validated historic usage to underlying revenue
recorded. We found no material exceptions from these procedures.

Based on the results of our audit work, we found that the inventory
recognised by the Directors was at an appropriate value and was
consistent with the requirements of IAS 2.

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We understood the Directors’ methodology for calculating trade
receivables and dilapidations provisions across the Group and
consider that these are in compliance with relevant IFRSs.

In respect of trade receivables provisions, we tested the ageing of
amounts due at the balance sheet date to understand and quantify the
potential risk in overdue balances. We then challenged management in
respect of those customers with whom amounts were past due but
not impaired to assess for bias. We also tested, on a sample basis,
cash received from customers following the year end to validate the
appropriateness of the Directors’ estimates.

In respect of dilapidation provisions for Eurocell Profiles, we tested
management’s assessment to the most recent third party estimate of
the expected costs. For Eurocell Building Plastics, we tested
management’s estimated average branch dilapidations cost to actual
costs incurred in respect of leases exited during the year.

We found no material exceptions from the procedures noted above.

Based on the results of our audit work, we found that the provisions
recorded by the Directors were calculated in a reasonable manner and
were consistent with the requirements of relevant IFRSs.

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

Eurocell operates in the market of the extrusion of UPVC (unplasticised polyvinyl chloride) window and building products to the new and
replacement window market and the sale of building plastics materials. This is predominantly through the function of the two primary divisions:
– Eurocell Building Plastics, focusing on sales and distribution across 159 branches within the UK to smaller scale customers; and
– Eurocell Profiles, focusing on manufacture and distribution to large scale customers.

The audit work performed over six statutory entities, together with additional procedures performed, gave us the evidence we needed for our
opinion on the Group financial statements as a whole.

All audit work, including work on components, was completed by the Group team.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

INDEPENDENT AUDITORS’ REPORT continued

Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial
statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall Group materiality

£1.2 million (2015: £1.1 million).

How we determined it

5% of underlying profit before tax.

Rationale for benchmark applied We believe that underlying profit before tax is the key measure used by the shareholders in assessing the

performance of the group. This benchmark, which excludes the non-recurring items related to the Vista
Panels acquisition and dual CEO costs, provides a consistent year on year basis for determining materiality
by eliminating the non-recurring and/or disproportionate impact of these items.

We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £60,980 (2015:
£55,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 40, in relation to going concern. We have nothing to
report having performed our review.

Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’
statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have
nothing material to add or to draw attention to.

As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the
financial statements. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors
intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the
Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these
statements are not a guarantee as to the Group’s ability to continue as a going concern.

OTHER REQUIRED REPORTING
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:
•

the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

•

In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to
report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect.

In our opinion, based on the work undertaken in the course of the audit:
•

the information given in the Corporate Governance Statement with respect to internal control and risk management systems and about
share capital structures is consistent with the financial statements and has been prepared in accordance with applicable legal requirements;
and
the information given in the Corporate Governance Statement with respect to the Company’s corporate governance code and practices and
about its administrative, management and supervisory bodies complies with rules 7.2.2, 7.2.3 and 7.2.7 of the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority.

•

In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to
report if we have identified any material misstatements in the information referred to above in the Corporate Governance Statement. We have
nothing to report in this respect.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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ISAs (UK & Ireland) reporting

information in the Annual Report is:

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
•
– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in

We have no exceptions
to report.

the course of performing our audit; or

– otherwise misleading.

•

the statement given by the Directors on page 44, in accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary for members to assess the Group’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group acquired in
the course of performing our audit.

We have no exceptions
to report.

•

the section of the Annual Report on pages 49 to 50, as required by provision C.3.8 of the Code, describing the
work of the Audit and Risk Committee does not appropriately address matters communicated by us to the
Audit and Risk Committee.

We have no exceptions
to report.

The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:

•

the Directors’ confirmation on page 47 of the Annual Report, in accordance with provision C.2.1 of the Code, that
they have carried out a robust assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity.

We have nothing
material to add or to
draw attention to.

•

the disclosures in the Annual Report that describe those risks and explain how they are being managed or
mitigated.

•

the Directors’ explanation on page 40 of the Annual Report, in accordance with provision C.2.2 of the Code, as to
how they have assessed the prospects of the Group, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing
material to add or to
draw attention to.

Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks
facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the
knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.

Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we
require for our audit. We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law
are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statement
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by
the Company. We have no exceptions to report arising from this responsibility.

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code.
We have nothing to report having performed our review.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

INDEPENDENT AUDITORS’ REPORT continued

RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 66, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.

What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;
•
•

the reasonableness of significant accounting estimates made by the Directors; and
the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a
combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report. With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement,
we consider whether those reports include the disclosures required by applicable legal requirements.

Other matter
We have reported separately on the Company financial statements of Eurocell Plc for the year ended 31 December 2016 and on the information
in the Directors’ Remuneration Report that is described as having been audited.

Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 March 2017

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016

Year ended
31 December
2016
Recurring
£000

Year ended
31 December
2016
(Note 7)
Non-recurring
£000

Year ended
31 December
2016
Total
£000

Year ended
31 December
2015
Recurring
£000

Year ended
31 December
2015
(Note 7)
Non-recurring
£000

Year ended
31 December
2015
Total
£000

204,816
(98,251)

106,565
(15,517)
(66,096)

24,952
(677)

24,275
(4,299)

19,976

19.98

–
–

–
–
(455)

(455)
–

(455)
81

204,816
(98,251)

106,565
(15,517)
(66,551)

24,497
(677)

23,820
(4,218)

(374)

19,602

19.60

175,947
(84,945)

91,002
(12,310)
(54,398)

24,294
(1,275)

23,019
(4,454)

18,565

18.60

–
–

–
–
(3,323)

(3,323)
–

(3,323)
241

(3,082)

175,947
(84,945)

91,002
(12,310)
(57,721)

20,971
(1,275)

19,696
(4,213)

15,483

15.51

Note

6
10

9
11

Revenue
Cost of sales

Gross profit
Distribution costs
Administrative expenses

Operating profit
Finance expense

Profit before tax
Taxation

Profit for the year and total
comprehensive income

Basic earnings per share

The Notes on pages 77 to 97 are an integral part of these consolidated financial statements.

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E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2016

Assets
Property, plant and equipment
Intangible assets

Total non-current assets

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Provisions
Corporation tax

Total current liabilities

Non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Deferred tax

Total non-current liabilities

Total liabilities

Net assets

Equity attributable to equity holders of the parent
Share capital
Share premium account
Other reserves
Retained earnings

Total equity

Note

14
15

17
18

19
20
21

19
20
21
22

23
23
24

2016
£000

2015
£000

29,294
19,713

49,007

17,404
28,123
5,559

51,086

27,635
14,517

42,152

18,054
24,944
1,176

44,174

100,093

86,326

(42)
(29,042)
(48)
(2,873)

(1,327)
(27,092)
(76)
(1,196)

(32,005)

(29,691)

(25,785)
(520)
(1,463)
(2,194)

(25,720)
(500)
(1,366)
(2,493)

(29,962)

(30,079)

(61,967)

(59,770)

38,126

26,556

100
1,926
348
35,752

100
1,926
380
24,150

38,126

26,556

The financial statements on pages 73 to 97 were approved and authorised for issue by the Board of Directors on 7 March 2017 and were signed
on its behalf by:

Mark Kelly
Director

Michael Scott
Director

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016

Cash generated from operations
Non-recurring costs

Cash generated from underlying operations
Income taxes paid
Non-recurring costs paid

Net cash generated from operating activities

Investing activities
Acquisition of subsidiary, net of cash acquired
Purchase of property, plant and equipment
Sale of property, plant and equipment
Purchase of intangible assets

Net cash used in investing activities

Financing activities
Redemption of preference shares
Proceeds from bank borrowings
Repayment of bank and other borrowings
Finance expense
Dividends paid to equity shareholders

Net cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note

31
7

29
14

23
19
19
10
13

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

31,782
455

32,237
(3,537)
(273)

26,268
3,323

29,591
(5,729)
(4,453)

28,427

19,409

(6,332)
(6,342)

–
(877)

(13,551)

(1,662)
(6,267)
75
(85)

(7,939)

–
8,000
(8,523)
(643)
(8,000)

(50)
41,000
(48,599)
(4,023)
(2,700)

(9,166)

(14,372)

5,710

(2,902)

(151)

2,751

5,559

(151)

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016

Balance at 1 January 2016

Comprehensive income for the year
Profit for the year

Total comprehensive income for the year

Contributions by and distributions to owners
Share based payments
Release of share based payments
Deferred tax on share based payments
Dividends paid

Total contributions by and distributions to owners

Share
capital
(Note 23)
£000

Share
premium
account
(Note 23)
£000

Retained
earnings
£000

Other
reserves
(Note 24)
£000

Total
equity
£000

100

1,926

24,150

380

26,556

–

–
–
–
–

–

–
–
–
–

–

19, 602

19,602

–

19,602

–
–
–
(8,000)

(8,000)

239
(221)
(50)
–

239
(221)
(50)
(8,000)

(32)

(8,032)

Balance at 31 December 2016

100

1,926

35,752

348

38,126

Share
capital
(Note 23)
£000

Share
premium
account
(Note 23)
£000

Retained
earnings
£000

Other
reserves
(Note 24)
£000

Balance at 1 January 2015

11,367

Comprehensive income for the year
Profit for the year

Total comprehensive income for the year

Contributions by and distributions to owners
Preference shares redeemed in the year
Shares issued during the year
Share based payments
Deferred tax on share based payments
Dividends paid

Total contributions by and distributions to owners

–

(50)
98
–

–

15,483

–
1,827
–

–

1,827

–
–
–

(2,700)

–

–
–
322
58
–

380

Total
equity
£000

11,518

15,483

(50)
1,925
322
58
(2,700)

(445)

Balance at 31 December 2015

100

1,926

24,150

380

26,556

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2016

1 ACCOUNTING POLICIES (GROUP)
Corporate information
Eurocell plc (the ‘Company’) and its subsidiaries (together the ‘Group’) is a publicly listed company incorporated and domiciled in England and
Wales. The registered office is Fairbrook House, Clover Nook Road, Alfreton, Derbyshire, DE55 4RF.

The Group is principally engaged in the extrusion of UPVC window and building products to the new and replacement window market and the
sale of building materials across the UK.

Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently
applied to all the years presented, unless otherwise stated.

The Group has adequate resources to continue in operational existence for the foreseeable future and, as a result of this, the going concern
basis has been adopted in preparing the financial statements.

The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
European Union and with Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared
under the historical cost convention, as modified by fair values.

The preparation of the Group Financial Statements requires the use of certain critical accounting estimates. It also requires management to
exercise judgement in applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity or areas where
assumptions and estimates are significant to the financial statements are disclosed in Note 2.

Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries at 31 December 2016.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated
until the date when such control ceases.

Where the Company has power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to
obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and
its subsidiaries as if they formed a single entity. Intercompany transactions, balances, unrealised gains and losses resulting from intra-group
transactions and dividends are eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the balance sheet,
the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.

A separate profit and loss for the Company is not presented, in accordance with Section 408 of the Companies Act 2006. The profit for the year
for the Company was £29,992,000 (2015: £6,531,000).

Changes in accounting policies and disclosures applicable to the Company and the Group.
There were no standards or interpretations which took effect in the year and which materially affect the financial statements.

The standard and interpretations that are issued but not yet effective up to the date of issue of the Group’s financial statements are disclosed
below. These new standards, interpretations and amendments, which have not been applied in these financial statements will or may have an
affect on the Group’s future financial statements.

•

The Group does not intend to adopt any standard, revision or amendment before the required implementation date. At the date of authorisation
of these financial statements, the following standards which have not been applied in these financial statements were in issue but not yet
effective (and in some cases had not yet been adopted by the EU):
IFRS 9 Financial Instruments (effective from 1 January 2018);
•
The impact of IFRS 9 is being assessed by management. The main impact is likely to arise from the implementation of the expected loss
model although full quantification of this impact is not yet complete.
IFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018);
The impact of IFRS 15 is being assessed by management.
IFRS 16 Leases (effective from 1 January 2019);
The full impact of IFRS 16 has not yet been assessed, although management notes that the majority of operating leases will be brought onto
the balance sheet.
IFRS 2 Share Based Payments Classification and Measurement (effective from 1 January 2018);
IAS 7 Statement of Cash flows (effective from 1 January 2017, subject to EU endorsement); and
IAS 12 Income taxes on recognition of deferred tax for unrealised losses (effective from 1 January 2017).

•
•
•

•

The impact of IFRS 2, IAS 7 and IAS 12 is not expected to be significant.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

1 ACCOUNTING POLICIES (GROUP) continued
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured, regardless of when the payment is being made. Revenue is measured at the fair value of consideration received or receivable,
taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements
against specific criteria in order to determine if it is acting as a principal or agent. The Group has concluded that it is acting as a principal
in all of its revenue arrangements.

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (when the goods
are delivered). The amounts are recognised net of any discounts or rebates payable, which are accrued at the point at which the goods
are delivered.

Administrative expenses – non-recurring
The Group presents some material items of income and expense as non-recurring costs. This is done when, in the opinion of the Directors,
the nature and expected infrequency of the circumstances merit separate presentation in the financial statements. This treatment allows
shareholders to better understand the elements of financial performance in the year; it facilitates comparison with prior periods; and it helps
in understanding trends in financial performance.

Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of acquisition is measured as the aggregate of the
consideration transferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree.

Direct costs of acquisition are recognised immediately as an expense.

Goodwill is initially measured at cost, being the excess of the cost of a business combination over the total acquisition date fair value of the
identifiable assets, liabilities and contingent liabilities acquired. Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive
income on the acquisition date.

Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful
economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see Note 2 relating to critical
estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles
acquired in a business combination are as follows:

Intangible asset

Software
Technology based
Marketing related
Customer related

Useful economic life

Five years
Ten to seventeen years
Ten to fifteen years
Four to twelve years

Valuation method

Cost to acquire
Cost to acquire
Cost to acquire
Cost to acquire

The amortisation charge for the year is included within administration costs within the consolidated statement of comprehensive income.

Impairment of tangible assets, intangible assets and investments
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group
of assets to which it belongs for which there are separately identifiable cash flows – its cash generating unit (CGU). Goodwill is allocated on
initial recognition to each of the Group’s CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment tests on goodwill are undertaken annually at the financial year end or at any other time when an indication of impairment arises.
Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset
is written down accordingly.

Impairment charges are included in the consolidated statement of comprehensive income, except to the extent they reverse gains previously
recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs
and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised
within provisions.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016S
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Freehold land and assets in the course of construction are not depreciated. Depreciation is provided on all other items of property, plant and
equipment so as to write off their cost less residual value over their expected useful economic lives. It is provided at the following rates:

Freehold property
Leasehold improvements
Plant and machinery
Mixing plant
Extruders
Stillages and tooling
Other
Motor vehicles
Office equipment and fixtures

–
–

–
–
–
–
–
–

2.5% per annum straight-line
Equal instalments over the period of the lease

Between 20% and 25% per annum on cost
13 years based on production usage
5 to 10 years based on production usage
Between 10% and 25% per annum on cost
Between 20% and 25% per annum on cost
Between 20% and 25% per annum on cost

Investments in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.

Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In determining the cost of raw
materials, consumables and goods purchased for resale, the weighted average purchase price is used. For work in progress and finished
goods, cost is taken as production cost, which includes a proportion of attributable overheads.

Financial assets
The Group classifies all of its financial assets as loans and receivables and has not classified any of its financial assets as held to maturity.

Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition
or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or
default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of
such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with
the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the
loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had
a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and,
in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying
value is recognised in administrative expenses.

The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months or less from inception, and – for the purpose of the statement of cash flows – bank overdrafts. Bank overdrafts are
shown within loans and borrowings in current liabilities in the balance sheet.

Financial liabilities
The Group classifies its financial liabilities as other financial liabilities which include the following items:
• bank borrowings which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.
Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that
any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet.
trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised
cost using the effective interest method.

•

Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base,
except for differences arising on:
•
•

the initial recognition of goodwill;
the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects
neither accounting nor taxable profit; and
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it
is probable that the difference will not reverse in the foreseeable future.

•

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

1 ACCOUNTING POLICIES (GROUP) continued
Deferred taxation continued
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the
difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and
are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

the same taxable Group Company; or

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
•
• different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled
or recovered.

Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
when appropriate, the risks specific to the liability.

The Group has recognised provisions for liabilities of uncertain timing or amount in respect of leasehold dilapidations. The provision is measured
at the best estimate of the expenditure required to settle the obligation at the reporting date, discounted at a pre-tax rate reflecting current
market assessments of the time value of money and risks specific to the liability.

Share capital
The Group’s ordinary shares are classified as equity instruments.

Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared
by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Retirement benefits: defined contribution scheme
The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an
independently administered fund. The amount charged to the consolidated statement of comprehensive income represents the contributions
payable to the scheme in respect of the accounting period. The Group has no obligation to pay future pension benefits.

Operating leases
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an ‘operating lease’), the total rentals
payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term.
The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Foreign currency
The Group’s financial statements are presented in UK pounds sterling. For each entity, the Group determines the functional currency, and items
included in the financial statements of each entity are measured using that functional currency.

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate
(their ‘functional currency’) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities
are recognised immediately in the consolidated statement of comprehensive income.

Share based payment transactions
The Group enters into equity settled share based payment transactions with its employees. The fair value of options is recognised as an
employee expense with a corresponding increase in equity. The fair value of options granted is measured using the Black-Scholes option
valuation model. The amount recognised as an expense is adjusted to reflect the actual number of awards which are expected to be made.

2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016S
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Estimates and assumptions
a) Carrying value of inventories
Management review the market value of, and demand for, its inventories on a periodic basis to ensure inventory is recorded in the financial
statements at the lower of cost and net realisable value. Any provision for impairment is recorded against the carrying value of inventories.
Management use their knowledge of market conditions to assess future demand for the Group’s products and achievable selling prices.
Further disclosures relating to inventories are provided in Note 17.

b) Recoverability of trade receivables
Management makes allowance for doubtful debts based on an assessment of the recoverability of trade receivables. Allowances are applied to
trade receivables where events or changes in circumstances indicate that the carrying amounts may not be recoverable. Management specifically
analyse historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when making
a judgement to evaluate the adequacy of the provision for doubtful debts. Where the expectation is different from the original estimate,
such difference will impact on the carrying value of trade receivables and the charge in the statement of comprehensive income. Further
disclosures relating to trade receivables are provided in Note 18.

c) Dilapidation provisions
The Group recognises dilapidation provisions on the leasehold properties it occupies. Management assess the level of provision required on
a property by property basis based on past experience within the property portfolio. These provisions are reviewed annually to ensure that
they reflect the current best estimate of the provision required. Further disclosures relating to dilapidation provisions are provided in Note 21.

3 FINANCIAL INSTRUMENTS – RISK MANAGEMENT
The Group is exposed through its operations to the following financial risks:
• credit risk
• market risk
•
•

foreign exchange risk
liquidity risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in
respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to
financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them from previous
periods unless otherwise stated in this note.

trade and other receivables

Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
•
• cash and cash equivalents
•
trade and other payables
• bank overdrafts
•
• credit facilities

floating-rate bank loans

A summary of the financial instruments held by category is provided below:

Financial assets

Cash and cash equivalents
Trade and other receivables

Total financial assets

Financial liabilities

Trade and other payables
Loans and borrowings

Total financial liabilities

2016
£000

5,559
28,123

2015
£000

1,176
24,944

33,682

26,120

2016
£000

29,562
25,827

2015
£000

27,592
27,047

55,389

54,639

Impairment of financial assets
Impairments to trade receivables are outlined in Note 18. No further impairments to financial assets are considered necessary.
Factors which were considered when assessing the need for impairment include the liquidity of the asset, its maturity profile and
other commercial considerations.

General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the
objectives and policies to the Group’s finance function.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

3 FINANCIAL INSTRUMENTS – RISK MANAGEMENT continued
General objectives, policies and processes continued
The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets. These are then discussed at monthly meetings.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out below:

Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Group is mainly exposed to credit risk through its trade receivables arising from its normal commercial activities. It is Group policy,
implemented locally, to assess the credit risk of new customers before entering contracts.

Existing credit risks associated with trade receivables are managed in line with Group policies as discussed in the financial assets section
of accounting policies.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. This risk is mitigated by ensuring
that deposits are only made with banks and financial institutions with a good rating issued by an industry-recognised independent third party
e.g. Standard and Poor’s.

Further disclosures regarding financial assets are provided in Note 18.

Market risk
The Group is exposed to market risk from bank borrowings which incur variable interest rate charges linked to base rate plus a margin.
The Group’s policy aims to manage the interest cost of the Group within the constraints of its financial covenants and forecasts.

During 2016 and 2015 the Group’s borrowings at variable rate were denominated in sterling.

Further disclosures relating to bank borrowings are provided in Note 19.

Foreign exchange risk
Foreign exchange risk is the risk that the fair value of a financial instrument or future cash flow will fluctuate because of changes in foreign
exchange rates. The Group’s exposure to foreign exchange risk arises when individual Group entities enter into transactions denominated
in a currency other than their functional currency. The Group manages its exposure to fluctuations in currency rates by wherever possible
negotiating both purchases and sales to be denominated in sterling. The affect on the profit or loss from likely changes in foreign exchange
is not significant.

Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments.
It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim,
annual cash flow models are prepared and updated on a weekly basis to ensure that the Group has adequate headroom in its facilities.

The Board receives monthly updates on the liquidity position and any issues are reported by exception. At the end of the financial year,
these projections indicated that the Company expected to have sufficient liquid resources to meet its obligations under all reasonably
expected circumstances.

The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:

At 31 December 2016

Trade and other payables
Bank overdraft, loans and borrowings

Total

At 31 December 2015

Trade and other payables
Bank overdraft, loans and borrowings

Total

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

Total
£000

Up to 3
months
£000

(29,562)
(26,042)

(29,042)
(42)

(55,604)

(29,084)

Total
£000

Up to 3
months
£000

(27,592)
(27,327)

(27,092)
(1,327)

(54,919)

(28,419)

Between
3 and 12
months
£000

Between
1 and 2
years
£000

–
–

–

–
–

–

Between
3 and 12
months
£000

Between
1 and 2
years
£000

–
–

–

–
–

–

Between
2 and 5
years
£000

(520)
(26,000)

(26,520)

Between
2 and 5
years
£000

(500)
(26,000)

(26,500)

Over
5 years
£000

–
–

–

Over
5 years
£000

–
–

–

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016S
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Capital disclosures
The Group’s objective when managing capital, which is deemed to be total equity plus total debt and which totalled £63,953,000
(2015: £53,603,000) at the balance sheet date, is to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders, through the optimisation of the debt and equity balance, and to maintain
a strong credit rating and headroom on financial covenants. The Group manages its capital structure and makes appropriate decisions
in light of the current economic conditions and strategic objectives of the Group.

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future
development of the business.

The funding requirements of the Group are met by the utilisation of external borrowings together with available cash.

A key objective of the Group’s capital management is to maintain compliance with the covenants set out in the existing facility agreements
and to maintain a comfortable headroom over and above these requirements.

The financial covenants which are in place are as follows:

• Leverage: the ratio of total net debt to consolidated EBITDA of any relevant period of not more that 3.0:1.
•

Interest cover: the ratio of EBITDA to net interest payable in respect of any relevant period of not less than 4.0:1.

Covenants are measured semi-annually on a rolling twelve month basis. As at 31 December 2016 they were 0.6:1 and 46.3:1 respectively
(2015: 0.9:1 and 38.1:1).

The following table sets out the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date:

Trade and other receivables
Cash and cash equivalents
Other interest bearing loans and borrowings
Trade and other payables

4 REVENUE
Revenue arises from:

Sale of goods

External revenue by location of customers

United Kingdom
Rest of European Union
Other

As at 31 December 2016

Euro
£000

38
327
–
(241)

GBP
£000

Total
£000

28,085
5,232
(25,827)
(29,321)

28,123
5,559
(25,827)
(29,562)

124

(21,831)

(21,707)

As at 31 December 2015

Euro
£000

–
1,106
–
–

1,106

GBP
£000

24,944
70
(27,047)
(27,592)

Total
£000

24,944
1,176
(27,047)
(27,592)

(29,625)

(28,519)

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

204,816

175,947

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

202,055
2,761
–

173,442
2,503
2

204,816

175,947

There are no customers with sales in excess of 10% of total Group turnover.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

5 AUDITORS’ REMUNERATION

Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
Audit-related assurance services

6 OPERATING PROFIT
Amounts included within operating profit are as follows:

Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of property plant and equipment
Rentals under operating leases

7 NON-RECURRING COSTS
Amounts included in the consolidated statement of comprehensive income are as follows:

Professional fees and other costs relating to the Company’s IPO
Duplicated costs related to CEO handover period
Acquisition costs

8 EMPLOYEE BENEFITS EXPENSE

Staff costs (including Directors) comprise:
Wages and salaries
Share based payments
Social security contributions and similar taxes
Pension costs – defined contribution plans

The average monthly number of employees, including Directors, during the year were as follows:
Production
Office and administration
Distribution

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

118
25

159

89
20

125

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

5,005
–
1,372
86
5,325

4,302
234
1,135
–
4,483

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

–
343
112

455

3,323
–
–

3,323

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

38,152
18
3,575
983

30,534
322
2,866
978

42,728

34,700

2016
No.

434
236
619

2015
No.

338
188
558

1,289

1,084

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016
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Key management personnel compensation and Directors’ remuneration
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Group, which is considered to be the Directors of the Company and the Directors of the Group’s subsidiary companies.

Emoluments
Share based payment
Pension and other post-employment benefit costs

2016
£000

1,865
234
132

2,231

2015
£000

1,454
322
114

1,890

Directors’ remuneration is set out in the Remuneration Report.

During the year, retirement benefits were accruing to two Directors in respect of defined contribution pension schemes (2015: 2).

The highest paid Director received remuneration of £560,558 (2015: £637,098).

No share options were exercised during the year (2015: none).

The value of the Company’s contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted
to £41,123 (2015: £51,025).

The Group’s policy for consulting with, sharing information with, and encouraging the involvement employees is discussed on pages 24 and 25.

9 SEGMENTAL INFORMATION
For management purposes the Group is organised into divisions based on their products and services and has two reportable segments
as follows:
• Profiles – extrusion and sale of UPVC window and building products to the new and replacement window market across the UK.
• Building Plastics – sale of building plastic materials across the UK.

No operating segments have been aggregated to form the above reportable operating segments.

Factors that management used to identify the Group’s reportable segments
The Group’s reportable segments are strategic business units that offer different products and services. They are managed separately because
each business requires different technology and marketing strategies.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief
operating decision maker has been identified as the management team including the Chief Executive Officer and the Chief Financial Officer.

The Corporate segment includes amortisation in respect of acquired intangible assets.

Revenue
Total revenue
Inter-segmental revenue

Total revenue from external customers

Adjusted EBITDA
Amortisation
Depreciation

Profiles
2016
£000

Building
Plastics
2016
£000

Corporate
2016
£000

127,171
(39,817)

118,148
(686)

87,354

117,462

–
–

–

22,657
(158)
(3,969)

8,832
(123)
(609)

(160)
(1,091)
(427)

Total
2016
£000

245,319
(40,503)

204,816

31,329
(1,372)
(5,005)

Operating profit before non-recurring costs

18,530

8,100

(1,678)

24,952

Non-recurring costs
Finance expense

Profit before tax

(455)
(677)

23,820

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

9 SEGMENTAL INFORMATION continued

Revenue
Total revenue
Inter-segmental revenue

Total revenue from external customers

Adjusted EBITDA
Amortisation
Depreciation

Operating profit before non-recurring costs

Non-recurring costs
Finance expense

Profit before tax

Purchase of plant, property, equipment and intangible assets

Reportable segment assets

Reportable segment liabilities

Borrowings
Corporation tax payable
Deferred tax liability

Total liabilities

Total net assets

Purchase of plant, property, equipment and intangible assets

Reportable segment assets

Reportable segment liabilities

Borrowings
Corporation tax payable
Deferred tax liability

Total liabilities

Total net assets

10 FINANCE EXPENSE

Finance expense
Exchange movements on foreign cash balances
Bank and other loans
Related party loan notes

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

Profiles
2015
£000

Building
Plastics
2015
£000

Corporate
2015
£000

Total
2015
£000

105,957
(32,088)

102,661
(583)

73,869

102,078

21,608
(234)
(3,473)

17,901

8,384
(240)
(457)

7,687

–
–

–

(261)
(661)
(372)

208,618
(32,671)

175,947

29,731
(1,135)
(4,302)

(1,294)

24,294

(3,323)
(1,275)

19,696

Profiles
2016
£000

5,498

Building
Plastics
2016
£000

1,105

Corporate
2016
£000

Total
2016
£000

616

7,219

53,524

27,575

18,994

100,093

(17,391)

(12,402)

(1,280)

(31,073)

(25,827)
(2,873)
(2,194)

(61,967)

38,126

Profiles
2015
£000

4,722

Building
Plastics
2015
£000

1,157

Corporate
2015
£000

Total
2015
£000

473

6,352

40,594

29,472

16,260

86,326

(15,670)

(11,992)

(1,372)

(29,034)

(27,047)
(1,196)
(2,493)

(59,770)

26,556

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

29
648
–

677

29
869
377

1,275

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 201611 TAXATION

Current tax expense
Current tax on profits for the year
Adjustment in respect of prior years

Total current tax

Deferred tax expense
Origination and reversal of temporary differences
Adjustment in respect of change in rates
Adjustment in respect of prior years

Total deferred tax

Total tax expense

S
t
r
a
t
e
g

c
R
e
p
o
r
t

C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

5,025
75

5,100

(174)
(385)
(323)

(882)

4,218

3,331
(192)

3,139

1,129
–
(55)

1,074

4,213

F
n
a
n
c
a

S
t
a
t
e
m
e
n
t
s

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom
applied to profits for the year are as follows:

Profit before tax

Expected tax charge based on the standard rate of corporation tax in the UK of 20% (2015: 20.25%)
Taxation effect of:
Expenses not deductible for tax purposes
Adjustments to tax charge in respect of prior years
Adjustment in respect of change in rates

Total tax expense

2016
£000

2015
£000

23,820

19,696

4,764

3,988

87
(248)
(385)

472
(247)
–

4,218

4,213

Changes in tax rates and factors affecting the future tax charge
A reduction in the mainstream rate of UK corporation tax from 21% to 20% took effect from April 2015. Further reductions to 19% from 1 April
2017 and 17% from 1 April 2020 have been substantively enacted. Deferred taxes at the year end date have been measured using these
enacted tax rates and reflected in the financial statements.

Tax on non-recurring items
The tax credit arising on non-recurring items within the comprehensive income statement is £81,000 (2015: £241,000).

Tax included in other comprehensive income
The tax charge arising on share based payments within other comprehensive income is £50,000 (2015: credit £58,000).

Based on the current investment plans of the Group, and assuming the rates of capital allowances on capital expenditure continue into the
future, there is little prospect of any significant part of the deferred tax liability becoming payable over the next three years.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

12 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by adjusting the earnings and number of shares
for the effects of dilutive options. Adjusted earnings per share excludes non-recurring costs from the calculations.

Profit attributable to ordinary shareholders

Profit attributable to ordinary shareholders excluding non-recurring costs

Weighted average number of shares – basic
Weighted average number of shares – diluted

Basic earnings per share
Adjusted basic earnings per share
Diluted earnings per share
Adjusted diluted earnings per share

13 DIVIDENDS

Dividends paid during the year
Interim dividend for 2016 of 2.8p per share (2015: 2.7p per share)
Final dividend for 2015 of 5.2p per share

Dividends proposed
Final dividend for 2016 of 5.7p per share (2015: 5.2p per share)

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

19,602

19,976

15,483

18,565

Number

100,000,000
100,227,068

99,816,141
99,816,141

Pence

19.60
19.98
19.56
19.93

Pence

15.51
18.60
15.51
18.60

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

2,800
5,200

8,000

2,700
–

2,700

5,700

5,200

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 201614 PROPERTY, PLANT AND EQUIPMENT

Freehold
property
£000

Leasehold
improvements
£000

Plant and
machinery
£000

Motor
vehicles
£000

Office
equipment
and fixtures
£000

Assets under
construction
£000

Cost
Balance at 1 January 2015
Additions
On acquisition
Disposals
Transfer

Balance at 1 January 2016
Additions
On acquisition
Disposals
Transfer

Balance at 31 December 2016

Accumulated depreciation
Balance at 1 January 2015
Charge for the year
Disposals
Impairment

Balance at 1 January 2016
Charge for the year
Disposals

Balance at 31 December 2016

Net book value
At 31 December 2016

At 31 December 2015

8,581
23
–
–
–

8,604
40
–
–
–

8,644

223
227
–
–

450
229
–

679

7,965

8,154

86
–
–
(16)
–

70
–
–
(7)
–

49
10
(16)
–

43
6
(6)

20,956
2,107
307
(155)
1,452

24,667
2,428
339
(333)
4,305

31,406

3,908
4,029
(80)
234

8,091
4,695
(248)

12,538

18,868

16,576

85
–
–
–
–

85
61
51
–
–

197

3
11
–
–

14
43
–

140

69
–
–
(1)
–

68
1
18
(3)
–

31
25
(1)
–

55
32
(3)

–

Included within freehold property is non-depreciable land of £2,320,000 (31 December 2015: £2,320,000).

S
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t

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e
r
n
a
n
c
e

Total
£000

29,886
6,267
307
(172)
–

36,288
6,342
408
(343)
–

109
4,137
–
–
(1,452)

2,794
3,812
–
–
(4,305)

2,301

42,695

–
–
–
–

–
–
–

–

4,214
4,302
(97)
234

8,653
5,005
(257)

13,401

2,301

29,294

2,794

27,635

F
n
a
n
c
a

S
t
a
t
e
m
e
n
t
s

15 INTANGIBLE ASSETS

Cost
Balance at 1 January 2015
Additions
On acquisition
Disposals

Balance at 1 January 2016
Additions
On acquisition

Balance at 31 December 2016

Accumulated amortisation
Balance at 1 January 2015
Charge for the year
Disposals

Balance at 1 January 2016
Charge for the year

Balance at 31 December 2016

Net book value
At 31 December 2016

At 31 December 2015

Software
£000

Technology
based
£000

Customer
related
£000

Marketing
related
£000

Goodwill
£000

Total
£000

344
85
–
(1)

428
317
–

745

168
45
(1)

212
117

329

416

216

1,612
–
–
–

1,612
–
–

1,612

32
190
–

222
95

317

2,200
–
1,249
–

3,449
560
1,917

5,926

347
283
–

630
713

4,807
–
–
–

4,807
–
1,531

6,338

183
617
–

800
447

1,343

1,247

5,934
–
151
–

6,085
–
2,243

14,897
85
1,400
(1)

16,381
877
5,691

8,328

22,949

–
–
–

–
–

–

730
1,135
(1)

1,864
1,372

3,236

1,295

1,390

4,583

2,819

5,091

4,007

8,328

6,085

19,713

14,517

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

16 IMPAIRMENT
For the purpose of impairment testing, goodwill is allocated at an operating segment level as follows:

Building Plastics
Profiles

As at
31 December
2016
£000

As at
31 December
2015
£000

2,584
5,744

8,328

2,584
3,501

6,085

The recoverable amounts of the CGUs have been determined from ‘value-in-use’ calculations which have been predicated on discounted cash
flow projections from formally approved budgets covering a three year period. The key assumptions in preparing these forecasts are in line with
our published strategy of continuing to open further branches, developing new products, increasing our use of recycled materials and adding
bolt-on acquisitions when they arise.

Period on which management approved forecasts are based (years)
Discount rate (pre-tax)

As at
31 December
2016

As at
31 December
2015

3
11%

The goodwill is considered to have an indefinite useful life and the recoverable amount is determined based on ‘value-in-use’ calculations.
These calculations use pre-tax cash flow projections based on a three year business plan approved by the Board. These projections are based
on all available information and growth rates do not exceed growth rates achieved in prior periods.

The discount rate was estimated based on past experience and an estimated industry average weighted average cost of capital.

The total recoverable amount in respect of goodwill, as assessed by the Directors using the above assumptions, is greater than the carrying
amount and therefore no impairment charge has been recorded. The Directors consider that it is not reasonably possible for the assumptions
to change so significantly as to eliminate the headroom.

17 INVENTORIES

Raw materials
Work in progress
Finished goods and goods for resale

All inventories are carried at cost less a provision to take account of slow moving and obsolete items.

At 31 December 2016 the inventory provision amounted to £1,800,000 (2015: £2,591,000).

The costs of inventories recognised as an expense and included within cost of sales is £92,078,000 (2015: £79,608,000).

18 TRADE AND OTHER RECEIVABLES

Trade receivables
Less: provision for impairment of trade receivables
Less: provision for rebates

Trade receivables – net

Total financial assets other than cash and cash equivalents classified as loans and receivables
Prepayments
Other receivables

Total trade and other receivables

Trade receivables are non-interest bearing and are generally on 30 days credit.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

2016
£000

2,184
1,495
13,725

2015
£000

1,864
1,850
14,340

17,404

18,054

2016
£000

26,500
(738)
(481)

25,281

25,281
2,836
6

2015
£000

22,581
(715)
(400)

21,466

21,466
3,444
34

28,123

24,944

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016The fair values of trade and other receivables classified as loans and receivables are not materially different to their carrying values. As at
31 December 2016 trade receivables of £1,113,000 (2015: £1,473,000) were past due but not impaired. They relate to the customers with
no default history. The ageing analysis of these receivables is as follows:

Up to 3 months overdue
3 to 6 months

Movements on the Group provision for impairment of trade receivables are as follows:

At 1 January
Charged during the year
Released and utilised during the year
Receivables written off during the year as uncollectible

At 31 December

Other classes of financial assets included within trade and other receivables do not contain impaired assets.

19 LOANS AND BORROWINGS
The book value and fair value of loans and borrowings are as follows:

2016
£000

1,113
–

1,113

2016
£000

715
2,533
(2,053)
(457)

738

2015
£000

1,465
8

1,473

2015
£000

2,098
1,848
(2,670)
(561)

715

S
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g

c
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p
o
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t

C
o
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a
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e
G
o
v
e
r
n
a
n
c
e

F
n
a
n
c
a

Non-current
Bank loans unsecured

Current
Bank overdraft
Other

Total loans and borrowings

S
t
a
t
e
m
e
n
t
s

Book Value
2016
£000

Fair Value
2016
£000

Book Value
2015
£000

Fair Value
2015
£000

25,785

25,720

–
42

1,327
–

25,827

25, 827

27,047

The bank loans outstanding at 31 December 2016 are rolled over on a short-term basis. The book value and fair value are therefore not
considered to be materially different.

Borrowings
On 9 March 2015, as part of the listing process, the Company refinanced its borrowings. As a result of this, from 9 March 2015, the Company has
a £45,000,000 committed multi-currency revolving unsecured credit facility with Barclays Bank plc and Santander UK plc which expires in 2020.

Borrowings of £26,000,000 were drawn down at 31 December 2016 (2015: £26,000,000) less unamortised issue costs of £215,000
(2015: £280,500).

Interest is charged at an excess over base rate of between 1.25% and 2.25% per annum and is dependent upon the ratio of total net debt
to consolidated EBITDA.

Based upon current economic and market trends, management consider that the sterling LIBOR rate will remain stable during the next
reporting period to 31 December 2017, and any changes, when applied to the Group’s current bank borrowings of £25,785,000, would not
be significant.

The currency profile of the Group’s external loans and borrowings is as follows:

Loan – sterling
Overdraft – sterling
Other loan

2016
£000

25,785
–
42

25,827

2015
£000

25,720
1,327
–

27,047

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

19 LOANS AND BORROWINGS continued
Borrowings continued
The analysis of repayments on the combined loans is as follows:

Within one year or repayable on demand
Between one and two years
Between two and five years

20 TRADE AND OTHER PAYABLES

Current liabilities
Trade payables
Other tax and social security
Other payables
Accruals

Total non-current trade and other payables

Non-current liabilities
Other payables

Book values approximate to fair value at 31 December 2016 and 2015.

21 PROVISIONS

At 1 January 2016
Utilised
On acquisition (Note 29)

At 31 December 2016

Current
Non-current

At 31 December 2016

As at
31 December
2016
£000

As at
31 December
2015
£000

42
–
25,785

25,827

1,327
–
25,720

27,047

2016
£000

2015
£000

18,398
3,837
393
6,414

29,042

19,393
2,178
297
5,224

27,092

520

500

Dilapidations
provision
£000

1,442
(31)
100

1,511

48
1,463

1,511

Dilapidations provision
Under property operating lease agreements, Eurocell Building Plastics Limited and Eurocell Profiles Limited, being Group subsidiaries,
have obligations to maintain all properties to the standard that prevailed at the inception of the respective leases. The provision represents the
Directors’ best estimate of the costs associated with this obligation.

The timing of the utilisation of the provision is variable dependant on the lease expiry dates of the properties concerned, which vary between
1 and 10 years.

22 DEFERRED TAX
The movement on the deferred tax account is as shown below:

At 1 January
Recognised in statement of comprehensive income
Recognised in equity
Recognised upon acquisition

At 31 December

2016
£000

(2,493)
882
(50)
(533)

(2,194)

2015
£000

(1,227)
(1,074)
58
(250)

(2,493)

Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where
the Directors believe it is probable that these assets will be recovered.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016S
t
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a
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e
g

c
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e
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o
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C
o
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p
o
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a
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o
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e
r
n
a
n
c
e

F
n
a
n
c
a

S
t
a
t
e
m
e
n
t
s

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12)
during the year, together with amounts recognised in the consolidated income statement and amounts recognised in other comprehensive
income are as follows:

Accelerated capital allowances/intangible fixed assets
Other temporary differences

Net tax assets/(liabilities)

Accelerated capital allowances/intangible fixed assets
Other temporary differences

Net tax assets/(liabilities)

23 SHARE CAPITAL

Ordinary shares of £0.001 each

Share premium account

Asset
2016
£000

–
15

2015
£000

–
112

112

Liability
2016
£000

(2,209)
–

(2,209)

2015
£000

(2,605)
–

(2,605)

Statement of
comprehensive
income
2016
£000

929
(47)

882

2015
£000

(721)
(353)

(1,074)

Net
2016
£000

(2,209)
15

(2,194)

2015
£000

(2,605)
112

(2,493)

Equity
2016
£000

–
(50)

(50)

2015
£000

–
58

Allotted, called up
and fully paid

2016
Number

2015
Number

100,000,000 100,000,000

2016
£000

100

2015
£000

100

1,926

In preparation for the IPO, the following share transactions took place in respect of shares in existence prior to the IPO:
• All of the 50,000 preference shares in issue were redeemed at par.
• The Company issued the following shares as a bonus issue; 8,056,936 A ordinary shares, 74,182 B ordinary shares,

44,506 C ordinary shares, 6,910 D ordinary shares, 6,910 E ordinary shares and 6,910 F ordinary shares.

• The nominal value of A-F ordinary shares were changed to £0.001. The number of A-F ordinary shares was changed to ensure that the

total share capital and proportion of equity held by each class of share remained unchanged.

• All A-F ordinary shares were redesignated as ordinary shares.
• 1,100,140 ordinary shares were issued at £1.75 in consideration for the satisfaction of shareholder loan notes.

The ordinary shares carry the rights to attend and vote at general meetings, the right to receive payment in respect of dividends declared and
the right to participate in the distribution of capital. The ordinary shares are not redeemable.

24 SHARE BASED PAYMENTS
The Group has applied the requirements of IFRS 2 – Share Based Payments.

Equity settled share based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-
settled share based payments is expensed on a straight-line basis over the vesting period, based upon the Company’s estimate of the shares
that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Fair value is measured based on the value of options over shares on the date of grant and the likelihood of all or part of the option vesting.
For the year ended 31 December 2016, the charge to the statement of comprehensive income was £18,000 (2015: £322,000) with a deferred
tax credit of £50,000 (2015: charge of £58,000). The overall statement of financial position is unchanged as a result of this.

For details of the scheme see page 54 of the Directors’ Remuneration report.

During the year the entitlement to share options under the Deferred Share Plan in respect of Patrick Bateman and Matthew Edwards was
settled in cash. Further details can be found in the Directors’ Remuneration report.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

25 OPERATING LEASES
The Group has entered into commercial leases on certain non-current assets. The majority of these leases have an average life of between two
and five years. There are no restrictions placed on the Group by entering into these leases.

The total future value of minimum lease payments under non-cancellable operating leases are as follows:

Land and buildings

Not later than one year
Later than one year and not later than five years
Later than five years

Other

Not later than one year
Later than one year and not later than five years
Later than five years

2016
£000

3,193
11,098
6,046

2015
£000

3,706
9,438
5,931

20,337

19,075

2016
£000

2,425
3,933
1

6,359

2015
£000

2,392
3,939
48

6,379

26 CONTINGENT ASSETS AND LIABILITIES
On 3 March 2015, as part of the refinancing exercise, the Group entered into a cross-guarantee arrangement to cover the bank borrowings
of all other Group companies in the event of default. As at 31 December 2016 the bank borrowings were £25,785,000 (2015: £25,720,000).

The Group had no other material contingent assets or liabilities (31 December 2015: Nil).

27 RETIREMENT BENEFITS
The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an
independently administered fund. The pension cost represents contributions payable by the Group to the fund and amounted to £983,000
(2015: £978,000).

28 RELATED PARTY TRANSACTIONS
The remuneration of Executive and Non-executive Directors is disclosed on pages 51 to 63.

In March 2015, the Company floated on the London Stock Exchange and consequently there is no majority shareholder.

Transactions with key management personnel
H2 Equity Partners Limited is considered to be a related party by virtue of a mutual director.

Kalverboer Management UK LLP is controlled by P H L Kalverboer, a Director of Eurocell plc.

The following management charges have been made by the above companies:

Year ended
31 December
2016
£000

Year ended
31 December
2015
£000

H2 Equity Partners Limited
Kalverboer Management UK LLP

The following balances are outstanding at the balance sheet date:

Kalverboer Management UK LLP

–
40

2016
£000

Prior to the IPO the shareholders held loan notes, with interest payable at 11%. During the period the amounts of interest charged in the
consolidated statement of comprehensive income were as follows:

Coöperatief H2 Equity Partners Fund IV Holding WA
P Bateman
M K Edwards
G Parkinson
A Smith
I Kemp

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

2016
£000

–
–
–
–
–
–

49
40

2015
£000

–

2015
£000

368
4
2
1
1
1

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2016S
t
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a
t
e
g

c
R
e
p
o
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t

C
o
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p
o
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a
t
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G
o
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e
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n
a
n
c
e

F
n
a
n
c
a

On 3 March 2015 at the IPO the loan notes and accrued interest were repaid in full as follows:

Coöperatief H2 Equity Partners Fund IV Holding WA
P Bateman
M K Edwards
G Parkinson
A Smith
I Kemp

2015
£000

20,462
176
106
35
35
35

29 ACQUISITIONS OF SUBSIDIARIES
2016
On 8 March 2016, Eurocell Profiles Limited, an indirect wholly owned subsidiary undertaking of Eurocell plc acquired 100% of the ordinary share
capital of Vista Panels Limited.

Vista Panels Limited is a manufacturer of composite and PVC panel doors, supplying the social housing and private RMI sectors. Vista Panels
Limited is also the sole supplier of composite doors to Eurocell Building Plastics Limited, while Eurocell Profiles Limited supplies Vista Panels
Limited with profiles for use in the manufacture of door frames.

The consideration paid was £6,687,000. As part of the acquisition, Eurocell Profiles also agreed to settle on completion £485,000 owed by
Vista Panels Limited to its former ultimate parent undertaking CorpAcq Limited. The total cash outflow was therefore £7,172,000.

Goodwill represents the value of synergies arising from the economies of scale in the enlarged Group. The amount of goodwill deductible for tax
purposes is £nil.

The goodwill arising on acquisition has been calculated as follows:

Acquiree’s net assets at the acquisition date:
Property, plant and equipment
Intangible assets
Deferred tax
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Finance leases

Net assets and liabilities

Consideration paid:
Cash paid

Goodwill on acquisition

Book value
on
acquisition
£000

Fair value
adjustments
£000

Recognised
values on
acquisition
£000

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t
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m
e
n
t
s

408
–
88
947
2,572
355
(2,611)
(80)

1,679

–
3,448
(621)
38
–
–
(100)
–

2,765

408
3,448
(533)
985
2,572
355
(2,711)
(80)

4,444

6,687

2,243

Fair value adjustments
• The adjustment to intangible assets is to recognise previously unidentifiable intangible assets, and has been valued using discounted cash

flows.

• The adjustment to deferred taxation is to recognise the associated deferred tax liability arising on the amortisation of the identifiable

intangible assets.

• The adjustment to trade and other payables is to recognise a dilapidation provision in respect of the leased premises occupied by Vista.
• The adjustment in relation to inventories is to recognise the fair value of finished goods acquired on acquisition.

Acquisition related costs
The Group incurred acquisition related costs of £112,000 in relation to professional fees and transaction costs arising upon acquisition.
All such costs have been expensed to the statement of comprehensive income within administrative expenses.

Overall impact on the Group
The contribution to profit before tax of the Group for the period since acquisition was £572,000. If the acquisition had been completed on 1 January
2016 the contribution to the Group’s revenue and profit before tax for the year ended 31 December 2016 are estimated at £8,822,000 and
£704,000 respectively.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

29 ACQUISITIONS OF SUBSIDIARIES continued
2015
On 31 July 2015, Eurocell Profiles Limited, an indirect wholly owned subsidiary undertaking of Eurocell plc acquired 100% of the ordinary share
capital of Ampco 113 Limited and its wholly owned subsidiary S&S Plastics Limited.

S&S Plastics Limited specialises in injection moulding, predominately in the windows market. The acquisition took place to allow the Group to
expand its customer base and provide cross selling opportunities.

The consideration paid was £2,450,000, of which £350,000 is deferred and is outstanding at the balance sheet date. This amount is not
contingent and will be settled once the Group accounts for the year ended 31 December 2018 have been approved.

Goodwill represents the value of synergies arising from the economies of scale in the enlarged group. The amount of goodwill deductible for tax
purposes is £nil.

The goodwill arising on acquisition has been calculated as follows:

Net assets and liabilities

Consideration paid:
Cash paid
Deferred consideration

Total consideration

Goodwill on acquisition

Book value
acquisition
£000

Fair value
adjustments
£000

Recognised
values on
acquisition
£000

307
–
–
297
898
438
(971)

969

–
1,249
(250)
331
–
–
–

307
1,249
(250)
628
898
438
(971)

1,330

2,299

2,100
350

2,450

151

Fair value adjustments
• The adjustment to intangible assets is to recognise previously unidentifiable intangible assets, and has been valued using discounted cash

flows.

• The adjustment in relation to inventories is to recognise the fair value of finished goods acquired on acquisition.
• The adjustment to deferred taxation is to recognise the associated deferred tax liability arising on the amortisation of the identifiable

intangible assets.

Acquisition related costs
The Group incurred acquisition related costs of £43,000 for professional fees and transaction costs arising upon acquisition. All such costs have
been expensed to the statement of comprehensive income within administrative expenses.

30 NOTES SUPPORTING STATEMENT OF CASH FLOWS
Cash and cash equivalents for purposes of the statement of cash flows comprises:

Cash at banks and in hand
Bank overdraft

Cash and cash equivalents

2016
£000

5,559
–

5,559

2015
£000

1,176
(1,327)

(151)

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 201631 RECONCILIATION OF PROFIT AFTER TAX TO CASH GENERATED FROM OPERATIONS

Profit after tax
Add back taxation
Finance expense

Operating profit
Adjustments for:
Depreciation of tangible fixed assets
Amortisation of intangible fixed assets
Loss on sale of property, plant and equipment
Impairment of property, plant and equipment
Share based payments
Decrease/(increase) in inventories
(Increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions

Cash generated from operations

32 RECONCILIATION OF NET DEBT

Cash and cash equivalents
Borrowings

Total

Cash and cash equivalents
Borrowings
Loan notes

Total

31 December 2016

Cash and cash equivalents
Borrowings

Total

31 December 2015

Cash and cash equivalents
Borrowings

Total

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a
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c
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2016
£000

19,602
4,218
677

24,497

5,005
1,372
86
–
18
1,635
(616)
(184)
(31)

2015
£000

15,483
4,213
1,275

20,971

4,302
1,135
–
234
322
(2,696)
(3,884)
5,741
143

31,782

26,268

F
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c
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n
t
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1 January
2016
£000

(151)
(25,720)

(25,871)

1 January
2015
£000

2,751
(17,798)
(20,475)

Cash flow
£000

Non cash
movements
£000

31 December
2016
£000

5,710
38

5,748

Cash flow
£000

(2,902)
(8,202)
18,915

–
(145)

5,559
(25,827)

(145)

(20,268)

Non cash
movements
£000

31 December
2015
£000

–
280
1,560

1,840

(151)
(25,720)
–

(25,871)

(35,522)

7,811

Current
assets
£000

5,559
–

5,559

Current
assets
£000

1,176
–

1,176

Current
liabilities
£000

Non-current
liabilities
£000

Total
£000

–
(42)

(42)

–
(25,785)

5,559
(25,827)

(25,785)

(20,268)

Current
liabilities
£000

(1,327)
–

Non–current
liabilities
£000

Total
£000

–
(25,720)

(151)
(25,720)

(1,327)

(25,720)

(25,871)

33 EVENTS AFTER THE BALANCE SHEET DATE
On 24 February 2017, Eurocell Building Plastics Limited, a subsidiary of Eurocell plc, acquired 100% of the issued share capital of
Security Hardware Systems Limited for an initial consideration of £1,250,000.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

INDEPENDENT AUDITORS’ REPORT
To the Members of Eurocell Plc

REPORT ON THE COMPANY FINANCIAL STATEMENTS
Our opinion
In our opinion, Eurocell Plc’s Company financial statements (the “financial statements”):
• give a true and fair view of the state of the Company’s affairs as at 31 December 2016;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

What we have audited
The financial statements, included within the Annual Report 2016 (the “Annual Report”), comprise:
•
•
•

the Company statement of financial position as at 31 December 2016;
the Company statement of changes in equity for the year then ended; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (United Kingdom Generally Accepted Accounting Practice).

OTHER REQUIRED REPORTING
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
•

•

In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are
required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report
in this respect.

ISAs (UK & Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to you if, in our opinion, information
in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing

our audit; or

• otherwise misleading.

We have no exceptions to report arising from this responsibility.

Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches

•

not visited by us; or
the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records
and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.

Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law
are not made. We have no exceptions to report arising from this responsibility.

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Our responsibilities and those of the Directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 66, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.

What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately

disclosed;
the reasonableness of significant accounting estimates made by the Directors; and
the overall presentation of the financial statements.

•
•

We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report. With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we
consider whether those reports include the disclosures required by applicable legal requirements.

OTHER MATTER
We have reported separately on the Group financial statements of Eurocell Plc for the year ended 31 December 2016.

Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 March 2017

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2016

Assets
Non-current assets
Investments

Total non-current assets

Current assets
Trade and other receivables
Amount owed by Group undertakings
Deferred tax

Total current assets

Total assets

Liabilities
Current liabilities
Trade and other payables
Amounts owed to Group undertakings

Total current liabilities

Non-current liabilities
Borrowings

Total non-current liabilities

Total liabilities

Net assets

Issued capital and reserves attributable to owners of the Parent
Share capital
Share premium account
Other reserves
Retained earnings

Total equity

Restated
2015
£000

17,839

389
16,020
58

16,467

Note

2016
£000

17,839

129
48,012
94

48,235

37
37
38

39
39

66,074

34,306

(117)
(12,775)

(12,892)

(74)
(3,075)

(3,149)

(25,785)

(25,720)

(25,785)

(25,720)

(38,677)

(28,869)

27,397

5,437

23
23
24

100
1,926
348
25,023

27,397

100
1,926
380
3,031

5,437

The financial statements on pages 98 to 106 were approved and authorised for issue by the Board of Directors on 7 March 2017 and were
signed on its behalf by:

Mark Kelly
Director

Michael Scott
Director

100 E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016

Balance at 1 January 2016

Comprehensive income for the year
Profit for the year

Total comprehensive income for the year

Contributions by and distributions to owners
Share based payments
Release of share based payments
Deferred tax on share based payments
Dividends paid

Total contributions by and distributions to owners

Share
capital
(Note 23)
£000

Share
premium
account
(Note 23)
£000

Retained
earnings
£000

Other
reserves
(Note 24)
£000

Total
equity
£000

100

1,926

3,031

380

5,437

–

–
–

–

–
–

–

29,992

–
–

(8,000)

–

29,992

29, 992

239
(221)
(50)
–

239
(221)
(50)
(8,000)

(32)

(8,032)

Balance at 31 December 2016

100

1,926

25,023

348

27,397

Share
capital
(Note 23)
£000

Share
premium
reserve
(Note 23)
£000

Retained
earnings
£000

Other
reserves
(Note 24)
£000

Balance at 1 January 2015

(800)

Comprehensive income for the year
Profit for the year

Total comprehensive income for the year

Contributions by and distributions to owners
Preference shares redeemed in the year
Shares issued during the year
Share based payments
Deferred tax on share based payments
Dividends paid

Total contributions by and distributions to owners

–

(50)
98
–
–
–

–

6,531

–
1,827
–
–
–

1,827

–
–
–
–
(2,700)

(2,700)

–

–
–
322
58
–

380

Total
equity
£000

(649)

6,531

(50)
1,925
322
58
(2,700)

(445)

Balance at 31 December 2015

100

1,926

3,031

380

5,437

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

101

NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2016

34 ACCOUNTING POLICIES (COMPANY)
Corporate information
Eurocell plc (the ‘Company’) is a publicly listed company incorporated and domiciled in England and Wales. The registered office is Fairbrook
House, Clover Nook Road, Alfreton, Derbyshire, DE55 4RF.

The Company is principally engaged as a holding company for its subsidiaries which are engaged in the extrusion of UPVC window and building
products to the new and replacement window market and the sale of building materials across the UK.

The Company has adequate resources to continue in operational existence for the foreseeable future and, as a result of this, the going concern
basis has been adopted in preparing the financial statements.

The Company financial statements have been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework
(FRS 101). These financial statements have been prepared under the historical cost convention, modified by the revaluation of land and buildings
and derivative financial assets and liabilities measured at fair value through profit or loss, and in accordance with the Companies Act 1985.

As explained in Note 41, the Directors have become aware of a misclassification of £17,749,000 between amounts owed by subsidiary
undertakings and investments in subsidiary undertakings. This misclassification has been corrected by way of an adjustment to the prior year
balances.

A separate statement of comprehensive income for the Company is not presented, in accordance with Section 408 of the Companies Act 2006.
The profit for the year for the Company was £29,992,000 (2015: £6,531,000).

Changes in accounting policies and disclosures applicable to the Company
There were no standards or interpretations which took affect in the year and which materially effect the financial statements.

Investments in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.

Financial assets
The Group classifies all of its financial assets as loans and receivables and has not classified any of its financial assets as held to maturity.

Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or
issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good
trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in
consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying
value is recognised in administrative expenses.

The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term, highly liquid investments with original
maturities of three months or less from inception, and – for the purpose of the statement of cash flows – bank overdrafts. Bank overdrafts are
shown within loans and borrowings in current liabilities in the balance sheet.

102 E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

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Financial liabilities
The Company classifies its financial liabilities as other financial liabilities which include the following items:
• bank borrowings which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.
Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that
any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet.
trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised
cost using the effective interest method.

•

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the
difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are
expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

the same taxable Group Company; or

Share capital
The Group’s ordinary shares are classified as equity instruments.

Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by
the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

FRS 101 exemptions
The following exemptions from the requirements of IFRS have been applied in the preparation of the Company financial statements,
in accordance with FRS 101:

Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices of share options,
and how the fair value of goods or services received was determined).

Paragraph 38 of IAS 1, Presentation of Financial Statements, comparative information requirements in respect of:
(i) paragraph 79(a)(iv) of IAS 1;
(ii) paragraph 73(e) of IAS 16 Property, Plant and Equipment;
(iii) paragraph 118(e) of IAS 38 Intangible Assets (reconciliations between the carrying amount at the beginning and end of the period).

The following paragraphs of IAS 1, Presentation of Financial Statements:
• 10(d), (statement of cash flows);
• 10(f) (a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively

or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements);

• 16 (statement of compliance with all IFRS);
• 38A (requirement for minimum of two primary statements, including cash flow statements);
• 38B-D (additional comparative information);
• 40A-D (requirements for a third statement of financial position;
• 111 (cash flow statement information); and
• 134-136 (capital management disclosures).

E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

103

NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
For the year ended 31 December 2016

34 ACCOUNTING POLICIES (COMPANY) continued
Paragraph 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (requirement for the disclosure of information
when an entity has not applied a new IFRS that has been issued but is not yet effective).

Paragraph 17 of IAS 24, Related Party Disclosures (key management compensation).

The requirements in IAS 24, Related Party Disclosures to disclose related party transactions entered into between two or more members of
a group.

35 FINANCIAL INSTRUMENTS – RISK MANAGEMENT
A summary of the financial instruments held by category is provided below:

Financial assets

Investments
Trade and other receivables
Amounts owed by Group undertakings

Total financial assets

Financial liabilities

Trade and other payables
Amounts owed to Group undertakings
Loans and borrowings

Total financial liabilities

There were no financial instruments classified at fair value through profit or loss.

36 INVESTMENTS

Cost
At 31 December 2016 and at 31 December 2015 as restated

2016
£000

17,839
129
48,012

2015
£000

17,839
389
16,020

65,980

34,248

2016
£000

117
12,775
25,785

2015
£000

74
3,075
25,720

38,677

28,869

Investments
in subsidiary
undertakings
£000

17,839

The subsidiaries of Eurocell plc, all of which have been incorporated in the United Kingdom are included in these consolidated financial
statements, as follows:

Holding

Name

Principal activity

Eurocell Holdings Limited
Eurocell Group Limited
Eurocell Building Plastics Limited
Eurocell Profiles Limited
S&S Plastics Limited
Vista Panels Limited
Fairbrook Group Limited
Northampton Profiles Limited
Peninsula Plastics Limited
Sheet Plastic UK Limited
Fairbrook Limited
Fairbrook Holdings Limited
Reversible Systems Limited
Brunel Building Plastics Limited
Eurocell Window Systems Limited
Eurocell Plastics Limited
Cavalok Building Products Limited
Merritt Plastics Limited
Merritt Engineering Limited
Deeplas Limited
Deeplas Building Plastics Limited
Ampco 113 Limited

Holding company
Holding company
Sale of building plastic materials
Manufacture of building plastic materials
Manufacture of injection moulded products
Manufacture of doors
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant

All of the above have a registered address of Fairbrook House, Clover Nook Road, Alfreton, Derbyshire, DE55 4RF.

104 E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

2016

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

2015

100%
100%
100%
100%
100%
n/a
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

37 TRADE AND OTHER RECEIVABLES

Prepayments and other debtors
Receivables from Group undertakings

Total trade and other receivables

38 DEFERRED TAX

At 1 January
Recognised in equity
Recognised in income statement

At 31 December

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2016
£000

Restated 2015
£000

129
48,012

48,141

389
16,020

16,409

2016
£000

58
(50)
86

2015
£000

–
58
–

F
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c
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Other temporary differences

Net tax assets

Other temporary differences

Net tax assets

39 TRADE AND OTHER PAYABLES

Trade and other payables
Payables to Group undertakings

Total current liabilities

Asset
2016
£000

2015
£000

Liability
2016
£000

–

2015
£000

–

Net
2016
£000

2015
£000

Statement of
comprehensive
income
2016
£000

2015
£000

–

2016
£000

117
12,775

12,892

Equity
2016
£000

(50)

2015
£000

74
3,075

3,149

Book values approximate to fair value at 31 December 2016 and 2015.

Trade payables are non-interest bearing and are generally settled on 30 – 60 day terms.

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105

NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
For the year ended 31 December 2016

40 LOANS AND BORROWINGS
The book value and fair value of loans and borrowings are as follows:

Non-current
Bank loans unsecured

Current
Bank overdraft
Bank loans secured

Total loans and borrowings

Book Value
2016
£000

Fair Value
2016
£000

Book Value
2015
£000

Fair Value
2015
£000

25,785

25,720

–
–

25,785

25,720

Borrowings
On 9 March 2015, as part of the listing process, the Company refinanced its borrowings. As a result of this, from 9 March 2015, the Company
has a £45,000,000 committed multi-currency revolving unsecured credit facility with Barclays Bank plc and Santander UK plc which expires in
2020.

Borrowings of £26,000,000 were drawn down at 31 December 2016 (2015: £26,000,000) less unamortised issue costs of £215,000
(2015: £280,500).

Interest is charged at an excess over base rate of between 1.25% and 2.25% per annum and is dependent upon the ratio of total net debt to
consolidated EBITDA.

41 COMPANY STATEMENT OF FINANCIAL POSITION
The Directors have become aware that, in the December 2015 Company Statement of Financial Position of Eurocell plc, there was a
misclassification of £17,749,000 between amounts due from subsidiary undertakings and investments in subsidiary undertakings. Correcting
this misclassification has no impact on total assets, net assets or retained earnings of the Company and the Group. The correction has been
made by way of an adjustment to the comparative information in the Company financial statements for the year ended 31 December 2016.

106 E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

COMPANY INFORMATION PAGE
For the year ended 31 December 2016

Directors

Bob Lawson
Frank Nelson
Martyn Coffey
Patrick Kalverboer
Mark Kelly (appointed 29 March 2016)
Michael Scott (appointed 1 September 2016)
Patrick Bateman (resigned 30 June 2016)
Matthew Edwards (resigned 30 June 2016)

Registered Number

08654028

Registered Office

Fairbrook House
Clover Nook Road
Alfreton
Derbyshire
DE55 4RF

Independent Auditors

PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditor
Cornwall Court
19 Cornwall Street
Birmingham
B3 2DT

Bankers

Barclays Bank plc
1 Churchill Place
London
E14 5HP

Santander UK plc
2 Triton Square
Regent’s Place
London
NW1 3AN

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107

NOTES

108 E U R O C E L L P L C A N N U A L R E P O R T 2 0 1 6

For more investor information, visit
www.eurocell.co.uk/investors

Fairbrook House
Clover Nook Rd
Alfreton
Derbyshire
DE55 4RF