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Investing for a
sustainable future
Eurocell plc
Annual Report and Accounts 2019
OUR PURPOSE
We always work to provide
the best solutions for our customers
Through our technical expertise, our collaborative and
supportive services, and by offering the widest product range.
OUR OBJECTIVE
We endeavour to deliver sustainable growth in
shareholder value by increasing sales and profits
at above market level growth rates; leveraging the
Eurocell brand and the advantages of our vertically
integrated business model.
Overview
Highlights
OVERVIEW
STRaTEGIC REPORT
COR PORaTE GOVERnanCE
FIn anCIal STaTEmEnTS
HIGHlIGHTS
Revenue
Gross margin
adjusted EBITDa1,2
£279.1m
51.2%
10%
(8% excluding acquisitions)
2018: £253.7m
1.7%
2018: 49.5%
£42.4m
40%
2018: £30.3m
adjusted Profit Before Tax1,2
Profit Before Tax2
adjusted EPS2
£22.7m
0.9%
2018: £22.5m
£22.7m
2.7%
2018: £22.1m
19.3p
1.0%
2018: 19.1p
COnTEnT
OVERVIEW
Highlights
1
2 What We Do
Our Progress
4
STRATEGIC REPORT
10 Chair’s Report
12 Our Operation
14 Market Overview
16 Chief Executive Officer’s Report
20 Our Business Model
22 Our Strategy
24 Our Strategy in Action
30 Corporate Social Responsibility
38 Divisional Review
40 Group Financial Review
44 Principal Risks and Uncertainties
50
Viability Statement
Total Dividends (per share)
Pre-IFRS 16 net Debt
CORPORATE GOVERNANCE
EPS2
19.3p
1.5%
2018: 19.6p
9.6p
3.2%
2018: 9.3p
£34.6m
£11.1m
2018: £23.5m
PROGRESS WITH STRATEGIC PRIORITIES
• Gaining market share
− organic sales growth of 5% for profiles and 9% for Building plastics.
• Expanding the branch network
− 206 branches, with four new sites (net) in 2019, inclusive of one
acquired branch (net).
• Increasing use of recycled PVC in manufactured products
− 13.4k tonnes in 2019 (2018: 9.5k tonnes).
• Completed acquisitions
− Trimseal limited in March 2019.
1 Adjusted measures are before non-underlying income and costs, and the related tax effect
(see page 42). We use adjusted profit measures to assess business performance and they
are provided here in addition to statutory measures to help describe the underlying results
of the Group.
2 2019 figures are stated after the impact of IFRs16.
54 Board of Directors
56 Chair’s Introduction
57 Corporate Governance Statement
66 Nomination Committee Report
68 Audit and Risk Committee Report
72 Directors’ Remuneration Report
87 Directors’ Report
90 Statement of Directors’ Responsibilities
FINANCIAL STATEMENTS
Independent Auditors’ Report
94
100 Consolidated Statement of
Comprehensive Income
101 Consolidated Statement of
Financial Position
102 Consolidated Cash Flow Statement
103 Consolidated Statement of
Changes in Equity
104 Notes to the Consolidated
Financial Statements
127 Company Statement of Financial Position
128 Company Statement of Changes in Equity
129 Notes to the Company
Financial Statements
134 Company Information
View the latest results online at
investors.eurocell.co.uk
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
1
C_GEN_PageL2/ What We Do
What We Do
We operate our business through two
divisions that reflect the principal
routes to market for our products
PROFILES DIVISION
The profiles division manufactures extruded rigid pVC
profiles and foam pVC products. We make rigid and
foam products using virgin pVC compound, the largest
component of which is resin. our rigid products also
include recycled pVC compound, produced at our
market-leading recycling facilities.
BUILDING PLASTICS DIVISION
The Building plastics division distributes a range of Eurocell
manufactured and branded foam pVC 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 over
200 branches to installers, small and independent
builders, house builders and nationwide maintenance
companies. The branches also sell roofline products to
independent wholesalers.
The Building plastics division also includes
security Hardware, Kent Building plastics and
Trimseal, acquired in 2017, 2018, and 2019 respectively.
security Hardware is a supplier of locks and hardware,
primarily to the Repair, Maintenance and Improvements
(‘RMI’) market. Kent Building plastics and Trimseal are small
groups of branches distributing building plastic materials in
the south-west and south of England respectively, which
have been fully integrated into our network.
SEE OUR DIVISIOnal REVIEWS On PaGES 38 TO 39
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.
We are not particularly exposed to retail fabricators.
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).
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, Vista and
Eurocell Recycle North (formerly Ecoplas); businesses
acquired in 2015, 2016 and 2018 respectively. s&s supplies
plastic injection moulded 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.
Eurocell Recycle North is a recycler of pVC windows.
2
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Distribution network
We distribute through our
nationwide network.
number of branches
206
Sustainable sourcing
We have two recycling facilities which puts
recycling at the heart of our operation.
Recycled product used in our rigid PVC profile
13.4k tonnes
Complementary
acquisitions
We have three operating subsidiaries
which manufacture and distribute
products to complement the Eurocell
core business.
Total operating profit (pre IFRS 16)
generated from operating subsidiaries
in 2019
£2.1m
Manufacturing
expertise
We manufacture both pVC rigid
and foam products in our
centrally located extrusion
facilities.
Total amount of profile produced
55k tonnes
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
3
C_GEN_PageC_GEN_PageL2C_GEN Section/ our progress
Our Progress
Investing in our
operational performance
InVESTInG In
RECYClInG
‘Thor’ Mobile Hammermill Shredder
We have consolidated our position as the leading recycler of pVC
windows in the uK.
Using more recycled material
We have invested heavily to grow our use of recycled material, which helps to increase
our profits and improve product and business sustainability, with less plastic going to
landfill and reduced exposure to volatile commodity prices.
We have two recycling plants, where we have created a closed-loop recycling system
for the cradle-to-grave re-use of pVC-u windows.
Eurocell Recycle Midlands (based in Ilkeston and formerly known as ‘Merritt plastics’)
recently celebrated its 11th anniversary with the Group.
Eurocell Recycle North (based in selby and formerly known as ‘Ecoplas’) joined the
Group in August 2018.
The total amount of recycled material used in our primary extrusion operations
increased by almost 4k tonnes to 13.4k tonnes in 2019, representing 23% of total
material consumption.
4
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
InVESTInG In
PRODUCTIOn CaPaCITY
InVESTInG In THE
BRanCH nETWORK
We have significantly increased
our extrusion production capacity.
We continue to expand our
branch network and refurbish
the existing estate.
Increasing production capacity
over the last two years we have increased the
number of extrusion machines from 48 in 2017
up to 59 at the end of 2019, which provides capacity
for further growth.
Successful trial of new
larger format stores
In 2019 we opened two larger format branches in
Doncaster and leeds, incorporating larger trade
counters, showroom style displays and extended
product range availability, for which early trading
results have been encouraging.
We have also continued to improve the existing estate.
We now have 206 branches providing national
coverage across the uK, which offers a significant
competitive advantage.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
5
C_GEN_PageC_GEN_PageL2C_GEN Section/ Our Progress continued
InVESTInG In
OUR PEOPlE
InVESTInG TO ImPROVE
CUSTOmER SERVICE
We have strengthened our senior
management team.
We have modernised our
distribution fleet.
New role of Chief Operating Officer
Mark Hemming joined Eurocell in August 2019 in the
position of Chief operating officer and is proving to
be an excellent addition to our operational
management team. Mark brings a wealth of
experience in warehousing and distribution, having
previously been Regional Director for Customer
Fulfilment at Amazon uK. Before that he has
experience leading manufacturing plants in the
automotive sector. Mark is leading our work to
increase manufacturing capacity and improve
operational efficiency, including the transition
to our new state-of-the-art warehousing facility
(see opposite).
Transition to a new transport provider
During 2019, we transitioned successfully to a new
transport provider, who bring over 150 years of
experience in transport and distribution. We believe
strongly that their size and culture fit well with Eurocell.
Together we are now starting to use modern technology
to better plan and execute our deliveries to customers,
thereby improving our service to them and minimising
our impact on the environment.
6
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
InVESTInG In
WaREHOUSInG CaPaCITY
We have firm plans to increase our warehousing capacity.
Lease secured on new warehousing facility
In order to keep up with demand, we approached the capacity of our existing main
warehouse in 2019.
We have now secured a new facility, located within 3 miles of our primary manufacturing
site, existing main warehouse and head office. The new site has 260,000 ft2 of high bay,
state-of-the-art warehouse accommodation, dedicated office space and car parking.
We have commenced a project to fit out the new site and in doing so, modernise our
product storage and picking processes. We expect the new site to be operational early
in 2021.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
7
C_GEN_PageC_GEN_PageL2C_GEN Section/ Strategic Report
Strategic
Report
8
C_GEN_PageC_GEN_PageL2C_GEN Section OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
9
C_GEN_PageC_GEN_PageL2C_GEN Section Chair’s Report
Chair’s Report
Progressing to a
sustainable future
Our substantial investments in
recycling demonstrate that
sustainability sits right at the
heart of our business.
Bob lawson
Chair
10
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
In 2019 we made good progress with our strategic priorities and,
against generally weak or subdued end markets, continued to
consolidate our strong market positions in both divisions. The
substantial investments we have made in recycling leave Eurocell
as the leading uK-based recycler of pVC windows, demonstrating
clearly that sustainability sits right at the heart of our business.
Financial and operating performance
We delivered strong sales growth across the Group in 2019, with
revenue up 10% (or 8% excluding acquisitions), together with a
good improvement in gross margin.
Manufacturing performance was also better, following capital
investment to improve manufacturing efficiency and increase
extrusion capacity. However, we have continued to incur
additional warehousing and distribution costs and, with the benefit
of our new Chief operating officer’s expertise, have identified new
warehousing as essential to facilitate future growth and improve
operating efficiency. We have therefore put plans in place to
enable this (see below).
Adjusted EBITDA increased by 5% to £31.7 million (pre-IFRs 16).
Adjusted profit before tax was £22.7 million, or £23.1 million on a
pre-IFRs 16 basis (2018: £22.5 million). Adjusted basic earnings
per share were 19.3 pence per share, or 19.7 pence per share on
a pre-IFRs 16 basis (2018: 19.1 pence per share).
Cash conversion was impacted by a planned investment in
working capital to support growth and a stock build programme
to improve availability in our branches and help mitigate the risk of
disruption from Brexit. Excluding the impact of IFRs 16, net debt
at year end was £34.6 million (31 December 2018: £23.5 million).
Reported net debt was £68.7 million. We have a strong balance
sheet which provides flexibility and options for the future.
Strategy
In January 2020, we conducted our annual review of the
Company’s strategy, 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 our market level growth rates.
We have made good progress against each of our five strategic
priorities in 2019, with the key aspects of our performance
described in the Chief Executive officer’s Review.
The successful deployment of our commercial strategies across
the business has led to sales substantially exceeding our
expectations over the last few years. our excellent market share
growth has been achieved without any meaningful gross margin
erosion. However, profits have lagged more recently as we build
operating capacity to service our sales and we have experienced
inefficiencies and extra costs.
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
We have worked hard to resolve manufacturing issues through
investment in new capacity, but warehousing remains a constraint.
However, I am very pleased to say that we have now secured a
new state-of-the-art warehouse facility, located close to our
primary operating sites near Alfreton. This will allow us to
modernise our storage and picking solutions, providing a safer
and more productive environment for employees and
demonstrates our commitment to the locality. The new site will
facilitate future growth and the delivery of further operating
efficiencies. We expect it to be operational early in 2021. The
costs associated with the new site are set out in the Group
Financial Review.
With additional, efficient capacity, there is good potential to
continue to outperform our markets in the medium-term.
Governance
As a Board, we are committed to the highest standards of
corporate governance and ensuring effective communication with
shareholders. We continue to comply with the uK Corporate
Governance Code.
Dividends
We paid an interim dividend of 3.2 pence per share in october
2019. The Board proposes a final dividend of 6.4 pence per share,
resulting in total dividends for the year of 9.6 pence per share,
representing growth of 3%.
People
The progress we have made in 2019 is testament to the hard work
and dedication of our teams in every part of our business. on
behalf of shareholders and of the Board, I offer our sincere thanks.
Bob Lawson
Chair
INVESTMENT CASE
CLEAR STRATEGY
Five clear strategic priorities
Increase the use of recycled materials.
•
• Target growth in market share.
• Expand our branch network.
• Develop innovative new products.
• Explore potential bolt-on acquisitions.
We made good progress with all our strategic priorities
during 2019.
SEE PaGE 22
STRONG ON
SUSTAINABILITY
In-house, closed-loop recycling facility
We are the leading uK recycler of pVC windows.
We recycle both customer factory offcuts (‘post-
industrial’ waste) and old windows (‘post-consumer’
waste). The recycled material is used to generate brand
new extruded plastic products.
Recycling helps to lower material costs and improve
product and business sustainability.
SEE PaGE 24
COMPELLING
BUSINESS MODEL
Recycling, manufacturing and
own distribution network
We are a leading manufacturer of rigid and foam pVC
profiles. our branches are conveniently located,
offering a wide range of products and providing
excellent service to local customers and nationwide
groups alike.
SEE PaGE 20
EXPERIENCED
LEADERSHIP
Strong and experienced team
We have an effective Board and a strong senior
management team with the requisite and
complementary skills, knowledge and experience to
secure the future success of the business.
SEE PaGE 54
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
11
C_GEN_PageC_GEN_PageL2C_GEN Section/ our operation
Our Operation
A vertically integrated
model to maximise efficiency
The coordination of our manufacturing, distribution
processes and recycling activities, help us to be
efficient throughout all stages of our value chain.
Third-party product
suppliers
e.g. Rainwater products,
sealants, Tools
Branch customers
owner managed businesses
and contractors
DISTRIBUTIOn
Our vision and values
Revenue by division
profiles
£115.7m
Building plastics £163.4m
adjusted operating
profit (pre IFRS 16)
by division
profiles
Building plastics
Corporate
£17.8m
£8.4m
£(2.1)m
SEE PAGE 38 FOR MORE INFORMATION
Profile customers
c.375 fabricators
38k tonnes3
of rigid profile
Eurocell Profiles
55k tonnes3
of profile produced
Eurocell Building
Plastics
17k tonnes3
of foam profile
One team
one team, customer centric, driving
world class sustainable solutions
everywhere we operate.
Our values are:
• one team
• Customer first
• Integrity
• Inclusive
• Execute
SEE PAGE 30 FOR MORE INFORMATION
manUFaCTURInG
1 Virgin resin: stabiliser, titanium oxide, impact modifier, filler.
2 other raw materials: e.g. skin and rubber flex.
3 Tonnages shown are approximate based on 2019 volumes.
4 Repairs, Maintenance and Improvements.
12
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
Third-party material suppliers
40k of virgin compound consumed1
plus 6k tonnes3 of other raw
materials2
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
OUR maRKETS
RMI4
proportion of revenue
in RMI market
> 80%
Where we operate
New Build
proportion of revenue in
new build housing market
> 10%
Public Sector
proportion of revenue in public
new build housing market
< 5%
Eurocell Recycle
13.4k tonnes3
of recycled compound consumed
(23% of profile raw material consumed)
Eurocell locations
Head office, Alfreton
New locations in 2019
Acquired and closed in 2019
number of branches
206
RECYClInG
OUR ROUTE TO MARKET
our sales and distribution strategy
is implemented through our cross
functional sales and business
development teams, which target
the key decision makers in the supply
chain. The key decision makers
include fabricators, installers,
developers, architects, local authorities
and planning departments. By
influencing the influencers we earn the
loyalty of our customers by helping
them grow their businesses.
SEE PAGE 14 FOR MORE INFORMATION
TWO RECYCLING SITES
our recycling operations are based at
two sites located in selby and Ilkeston
which recycle post-consumer and
post-industrial pVC-u waste into
re-usable raw materials for our
manufacturing process.
SEE PAGE 24 FOR MORE INFORMATION
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
13
C_GEN_PageC_GEN_PageL2C_GEN Section/ Market overview
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
Despite a weak RmI market reflecting political and economic uncertainty throughout 2019, we are
confident that our strategic initiatives (described in Our Strategy on pages 22 and 23), will continue to
deliver above market level growth rates for Eurocell.
EUROCEll maRKETS anD DRIVERS
Private Home Improvement
(‘RMI’)
Public New-Build Housing
Private New-Build Housing
some of the large house builders
reported a softening in demand in
the lead up to the General Election
at the end of 2019.
Macroeconomic environment
– uncertainty suggests affordability
will likely remain a key issue.
Help-to-Buy scheme
– continues to support demand.
Housing shortage
– on-going positive government
intervention remains a possibility.
The RMI market has been weak in
2019, reflecting: political and
Brexit-related uncertainty, the
prospect of redundancies in the
event of an extended economic
downturn and the relatively weak
growth in real wages over the last
few years. However, there is some
expectation of a post-election
recovery in 2020.
Demand is influenced by the
state of the economy
– the resulting impact on the housing
market and consumer confidence
influence demand.
Housing market
– homeowners may choose to
improve or extend their existing
property rather than move house,
which can be positive for Eurocell.
Retirement housing
– 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.
This sector represents a very small
proportion of the uK housing
market, as government policies are
targeted towards increasing private
sector affordable housing rather
than public sector social housing.
Right-to-Buy scheme
– enables council and housing
association tenants to buy their
homes at a discount, therefore a
reduction in public sector housing
stock is expected as a result of the
scheme.
Rent caps
– may reduce the financing available
for new development.
Rental property development
– housing associations have relied
on market sales to raise capital,
weaker house price growth and
fewer transactions will likely
hamper this.
We believe Eurocell is
well-placed to service
private and public new
build housing.
mark Kelly
Chief Executive Officer
14
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
EXTERnal maRKET DRIVERS
GDP
Real uK GDp is forecast to grow by 1.6% in 2020
(2019 estimate: 1.0%).
Consumer confidence
Dropped in 2019 due to ongoing uncertainty over
Brexit and fear of redundancies due to the
uncertain political and macroeconomic outlook.
However, there is some expectation of a post-
election recovery in 2020.
Interest rates
uK interest rates increased in August 2018 (only
the second increase since 2007). However, the uK
Government announced a 50 bps rate reduction in
March 2020.
Construction
Total construction activity was up 0.6% in 2019
and is forecast to be flat in 2020, before growing
by 1% in 2021.
Housing construction activity was down 2% in
2019 and is forecast to rise by 1% in 2020 and
2021.
Housing market
Total housing starts were down 7.0% in 2019 and
are forecast to decline by 1.6% in 2020, before
increasing by 2% in 2021.
private housing starts were down 8% in 2019 and
are forecast to decline by 2% in 2020 before rising
by 2% in 2021.
private housing RMI1 market was down 3% in 2019
and is forecast to decline 1% in 2020 and rise by 1%
in 2021.
1 RMI is Repair, Maintenance and Improvement market.
sources: Bank of England Monetary policy Committee statement
september 2019, CpA: Construction Industry Forecasts 2019-21
(published January 2020), office for Budgetary Responsibility Forecast
(published october 2019).
Key to potential impact on demand for Eurocell products:
positive
Neutral
Negative
Eurocell Revenue by Market (%)
private home improvement and, increasingly,
new build housing are currently the most
important market segments for Eurocell.
RMI
> 80%
New Build
> 10%
public sector > 5%
(RMI &
New Build)
Markets for Eurocell Products
The product groups specific to Eurocell are currently
expected to show modest growth in 2020.
Roofline (Tonnes 000s)
2020
2019
2018
2017
2016
40
50
60
70
80
Window Profile (Tonnes 000s)
2020
2019
2018
2017
2016
200
210
220
230
240
250
source: D&G Consulting
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
15
C_GEN_PageC_GEN_PageL2C_GEN Section/ Chief Executive officer’s Report
Chief Executive Officer’s Report
We delivered strong sales growth and
good progress with our plans to drive
operating efficiency
Introduction
The Construction products Association Winter 2019 update
(published January 2020) reported on a weak Repairs,
Maintenance and Improvements (‘RMI’) market and a decline in
housing starts, with both sectors impacted by Brexit-related and
political uncertainty.
Against this backdrop, we were very pleased to deliver another
year of strong sales growth, with reported revenues up 10% (or
8% excluding acquisitions). Growth reflects good contributions
from both existing and new accounts from across our fabricator
base in profiles, as well as strong like-for-like sales in Building
plastics, driven by better stock availability and improvements in
operating standards.
It is also good to report that our gross margin improved by
170 bps to 51.2%, reflecting the benefit from selling price
increases, implemented to recover cost inflation, and higher
usage of recycled material.
The capital investment programme launched at the beginning of the
year to improve manufacturing efficiency and increase extrusion
capacity is now complete, leading to an improved manufacturing
performance. However, we have continued to incur additional
warehousing and distribution costs, particularly through peak
periods.
Adjusted EBITDA increased by 5% to £31.7 million (pre-IFRs 16).
Adjusted profit before tax was £22.7 million, or £23.1 million on a
pre-IFRs 16 basis (2018: £22.5 million).
In line with our continued focus on improving operations, and to
support future growth, we were delighted with the appointment of
Mark Hemming to the position of Chief operating officer. Mark
started with us in August and is proving to be an excellent addition
to our operational management team. prior to joining, Mark was
Regional Director for Customer Fulfilment at Amazon uK. Before
that, he has experience leading manufacturing plants in the
automotive sector.
With Mark’s input and expertise, we have identified new
warehousing as essential to facilitating future growth and driving
operating efficiency, and have commenced a project to expand
our warehousing capacity significantly. Further details are included
in strategic update below.
Against a weak market backdrop,
we were very pleased to deliver
another year of strong sales
growth and an improved
manufacturing performance.
mark Kelly
Chief Executive Officer
16
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Operational performance
Health and safety
The safety and well-being of our employees and contractors is our
first operational priority and we continue to maintain good health
and safety performance. our lost Time Injury Frequency Rate was
0.9 in 2019, in line with 2018. There were no major injuries and 17
minor accidents (2018: 9) recorded under the Reporting of Injuries,
Diseases and Dangerous occurrences Regulations 2013
(‘RIDDoR’).
Production
In 2019 we manufactured 54.6k tonnes of rigid and foam pVC
profiles at our primary extrusion facilities, up from 49.8k tonnes in
2018, an increase of 10%.
This reflects the sales growth in the year, as well as a drive to
increase stock availability at our branches. In addition, given the
possibility for raw material supply interruption due to Brexit,
we invested in a stock build programme. In total, we added
approximately £5 million to finished goods for key product lines
in 2019, which provides a good level of protection.
This record level of production was made possible through the
execution of a substantial capex programme in 2019, costing
c.£5 million, to improve manufacturing efficiency and increase
co-extrusion and foam capacity by 30% and 15% respectively.
All 7 new lines are now fully operational and working well, leading
to a better manufacturing performance in 2019. overall equipment
effectiveness (‘oEE’, a measure which takes into account machine
availability, performance and yield) in extrusion improved to 73%,
compared to 71% for 2018 and scrap levels were down to 8%,
compared to 9% in 2018.
We invested c.£3 million in Eurocell Recycle Midlands in 2019, to
increase output and improve reliability, including new tooling.
We acquired Eurocell Recycle North in August 2018 for
consideration of £6 million (including debt assumed). output at
acquisition was c.7k tonnes of recycled compound per annum,
sold into a broad mix of trade extruders. As expected, investment
was required to improve the operating environment and reliability
of the plant, to eliminate bottlenecks from production processes
and to expand capacity. Total investment post-acquisition stands
at c.£3 million, mostly in 2019. Whilst we suffered some delays
with our expansion plans for Ecoplas, the project is now well
advanced and performance has improved.
Strategic update
our overall strategic objective remains to deliver sustainable
growth in shareholder value by increasing sales and profits at
above our market level growth rates. In 2016, we identified five
clear strategic priorities to help us achieve this objective. since
then we have delivered significant progress in each of them as
follows:
• Target growth in market share – now the largest supplier of
rigid pVC profile to the uK market (>15% share)
• Expand the branch network – 206 sites in 2019 compared to
141 in 2015
• Increase the use of recycled materials – usage up from 4.1k
tonnes in 2015 to 13.4k tonnes in 2019
• Develop innovative new products – sales from products
introduced since 2017 were c.£33 million of 2019 revenue
• Explore potential bolt-on acquisition opportunities – six
acquisitions completed since 2015
As planned, the new extrusion lines were operational for the busy
final few months of the year. During this period, factory utilisation
did not exceed 80%, demonstrating that we have capacity for
further growth. We have also recruited additional skilled labour for
our foiling plant to support increasing demand.
successful implementation of our commercial strategies has
driven a very strong compound annual growth rate in sales of
12% since 2015. However profits in the last two years have
been impacted by sales running substantially ahead of our
expectations, thereby exceeding the available operating capacity
and leading to inefficiencies and extra costs.
Recycling
We used 13.4k tonnes of recycled pVC compound alongside
virgin resin in the manufacture of co-extruded rigid profiles,
representing 23% of overall material consumption, up from 9.5k
tonnes (or 17%) in 2018, an increase of 41% driving a substantial
saving compared to the cost of using virgin material.
We have been investing to increase our recycling capability, in
order to capture financial and sustainability benefits and to keep
pace with our sales growth (see strategic update). This has been
delivered through the expansion of Eurocell Recycle Midlands
(based in Ilkeston and formerly ‘Merritt plastics’), the acquisition
of Eurocell Recycle North (based in selby and formerly ‘Ecoplas’)
and by investment in new co-extrusion tooling, which allows a
greater proportion of recycled material to be used in our products.
As described above, manufacturing constraints experienced in
2018 have been largely resolved through investment in new
extrusion capacity and skilled labour, resulting in an improved
manufacturing performance.
We are confident that we can continue to outperform our markets
in the medium-term, through the further progression of our
strategic priorities. However, we have also concluded that
additional warehousing capacity is needed to facilitate future
growth and deliver further operating efficiencies. As a result, we
have commenced a project to expand our warehousing capacity
significantly and have outlined more on this overleaf.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
17
C_GEN_PageC_GEN_PageL2C_GEN Section/ Chief Executive Officer’s Report continued
Target growth in market share in Profiles
In 2018 we became the leading supplier of rigid pVC profile to the uK
market, with a share of >15%. our objective is to consolidate this
position and increase our share to c.20% over the next few years.
There is a compelling case for larger trade fabricators to switch to
Eurocell. This includes: a strong product range and continued
product development (e.g. flush windows, grey substrate and
patio doors), the benefits of pull-through profile and hardware
specifications and increasing opportunities to supply our
branches, all delivered via best in class service.
Expanding our share of the new build market has been a key
driver of recent growth and we believe favourable market
dynamics, such as Help to Buy and low interest rates, are set to
continue. We have strong relationships with large and medium-
sized housebuilders, maintained by our specification and technical
teams. In addition, with an increasing focus on sustainability, we
believe our use of recycled material will become increasingly
attractive to housebuilders.
In the commercial sector there is a strong case for the benefits of
using pVC profile and thereby drive more value engineering away
from aluminium, particularly in sub-sectors such as private rentals,
build-to-rent, purpose-built student accommodation, education
and local authority refurbishment – all habitual users of aluminium.
Expand the branch network
our objective for Building plastics is to achieve world class
operations from a least 300 sites.
In the existing estate, we have plans to improve up-selling and
cross-selling opportunities, to target lapsed customers, and to
tighten margin controls. We also intend to enhance promotional
activities with support from key suppliers. In terms of products, we
will focus on improving conversion rates for high value made-to-
order items and extend our range, including the introduction of
new outdoor living products.
With our focus on executing the warehouse transition, we plan to
open just 4 new sites in 2020. However, these will all be in a new,
larger format store, with expanded trade counter and showroom-
style displays designed to engage customers and drive big-ticket
purchases such as windows and doors. This follows a successful
trial in leeds in 2019 and the new 2020 branches will complete
the evaluation of this format. Thereafter, with additional
warehousing capacity in place, we anticipate increasing branch
openings, including large format branches where appropriate.
Finally, we see a significant opportunity to develop and implement
a market-leading consumer online windows and doors
proposition, using our branch network to provide infrastructure
where needed (e.g. delivery point for installers). We will run a trial
in the North West region in 2020.
18
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
Increase the use of recycled material
Expanding the use of recycled material increases our profits,
because the cost of recycled compound is typically lower than the
price of virgin material. It also improves product and business
sustainability, with less plastic going to landfill and by reducing our
exposure to volatile commodity prices.
In particular, closed-loop recycling (where windows being
replaced are recycled into the new product) is attractive to
decision makers such as local authorities and architects, which
helps us develop tight specifications for our products. Recycling
and sustainability also resonate strongly with consumers and
other stakeholders.
our total capital investment in recycling since the beginning of
2016 (including the acquisition consideration for Eurocell Recycle
North) is c.£15 million. As a result, we have become the leading
uK-based recycler of pVC windows and our use of recycled
material increased from 4.1k tonnes (or 9% of materials
consumed) in 2015 to 13.4k tonnes (or 23% of materials
consumed) in 2019. In doing so, in 2019 we saved the equivalent
of c.3.2 million window frames from landfill.
In light of the potential for further good sales growth described
above, we expect internal demand for recycled material to
increase. We believe this incremental demand can be satisfied
largely through the expansion of Eurocell Recycle North, with only
limited additional investment plus maintenance capital expenditure
across the recycling operations.
Develop innovative new products
We are committed to maintaining market leadership by offering
the very latest in product improvement, both through development
of existing products and the introduction of new ones. We work
closely with our customers and technical advisors on development
and to help maintain our product pipeline. Highlights in 2019
include the introduction of a flush window sash profile for our
popular Eurologik profile range, a new patio door system (syncro)
and development of a through-colour grey substrate profile.
Explore potential bolt-on acquisitions
We have completed 6 acquisitions since our Ipo, including in 2019
the acquisition of Trimseal, a building plastics distributor on the
south coast of England, for total net consideration of £0.4 million.
We will continue to assess and consider bolt-on acquisition
opportunities in the markets in which we operate over the
medium-term. However, our focus for 2020 will be delivering
operating efficiencies from recent and on-going investment in
manufacturing and warehousing capacity.
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Warehousing capacity expansion
We have concluded that our existing main warehouse is a major
constraint to future growth and operating efficiency.
In order to keep up with recent demand, we have exceeded the
capacity of the site and the loading facilities, operating in peak
periods well above the target of 85% utilisation for efficient
operations. This has resulted in extra costs incurred to operate
safely and maintain, so far as possible, customer service.
We therefore evaluated options to expand our warehousing capacity.
I am pleased to say that we have now secured a new facility,
located within 3 miles of our primary manufacturing site, existing
main warehouse and head office. The new site has 260,000 ft2 of
high bay, state of the art warehouse accommodation, dedicated
office space and car parking.
We intend to take this opportunity to modernise our storage
solutions, using cantilever racking to store up to twelve stillages
high (our current warehouse is restricted to seven); and mobile
racking to allow high density storage, which will increase capacity
by more than 60%. similarly, we will modernise picking processes,
with the use of mobile platforms to replace manual techniques,
thereby providing a safer and more productive solution. We expect
the new site to be operational early in 2021.
We will convert our existing warehouse to a specialist
manufacturing site, relocating from 2021, our secondary
operations including foiling, injection moulding and conservatory
roofs. This will free up space to future-proof extrusion capacity.
We are very excited about the opportunities for growth opened up
by this investment. The costs and financial implications of the new
warehouse are included in the Group Financial review.
Brexit
There remains significant uncertainty over the impact of Brexit, be
it related to general macroeconomic factors or specific company
risks. Key to understanding the medium-term impact on Eurocell
will be the nature of the future trading relationship between the uK
and the Eu.
some of our key raw materials do originate from Europe, so any
future disruption in supplies could impact our manufacturing
operations. With that in mind, whilst we have only limited capacity
to hold excess raw materials at our own sites, we completed a
significant investment in additional stocks in 2019, adding c.£5
million to finished goods for key product lines. More generally,
we increased our bank facilities in March 2020, securing additional
funding with no change to pricing, and hold selective credit
insurance for large customer accounts. We have also fixed
electricity prices for the coming year at competitive prices.
Therefore, whilst we are not able to predict the impact of Brexit
on our business, we have taken sensible steps to help mitigate
known risks.
Outlook
We have reported robust financial results for 2019 and, despite
Brexit-related and political uncertainty, delivered another year of
strong sales growth and a good improvement in gross margin.
over the last 4 years, successful deployment of our commercial
strategies has led to sales substantially exceeding our
expectations. However, profits have been impacted more recently
as we build the operating capacity to service our sales and we
have experienced inefficiencies and extra costs. With
manufacturing constraints now resolved, our focus for 2020 will
be on executing the warehouse transition successfully, thereby
facilitating future growth and the delivery of further operating
efficiencies. As a result, looking forward we see good potential to
outperform our markets.
As yet, there has been no discernible impact on our business from
CoVID-19, although we remain very alert to this possibility. We
have a strong balance sheet, and in March 2020 we were pleased
to increase our bank facility to £75 million. We maintain a
conservative approach to debt, in order to ensure good liquidity
and to manage any emerging risks.
Despite the impact of very wet weather so far this year, we have
made a good start to 2020. sales and margins for the first two
months are in line with our expectations, and notwithstanding
macroeconomic and political uncertainty, we expect to deliver
further progress this year.
We have taken a number of steps to protect the business from any
potential negative effects. In this context, it is worth noting that
almost all of our sales are to uK-based customers and that the
vast majority of our workforce has the right to remain and work in
the uK.
Mark Kelly
Chief Executive officer
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
19
C_GEN_PageC_GEN_PageL2C_GEN Section/ our Business Model
Our Business Model
WHaT WE DO
HOW WE CREaTE ValUE
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. Our manufacturing
process uses raw materials including PVC resin and our own
produced recycled material.
55k tonnes
produced in 2019
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.
>1.5 million products
delivered in 2019
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.
>3 million windows
recycled in 2019
Vertically integrated model
The coordination of our 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 product stability.
Scale
We operate well-invested and modern extrusion facilities.
We are the uK’s largest window recycler.
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.
We support the use of Building Information Modelling (‘BIM’)
software, giving architects and contractors access to a
library of Eurocell products, making it easier to specify them.
Brand strength
We have a strong brand image and our marketing activities
seek to maximise our brand awareness.
People and culture
our experienced management team have a proven
track record of achieving 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.
20
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
OUTPUTS
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.
Sales growth
(excluding acquisitions)
8%
Solid profitability
We have a track record of solid profitability. We experienced some
challenges with incremental volume in 2018/19, but our continued
investment in expanding capacity and improving operational efficiency,
coupled with strong sales growth, should drive increased returns.
Expanding the branch network (including larger format branches), whilst
dilutive until new branches become established, should deliver healthy
medium-term results as new branches mature.
Increased use of recycled materials can help mitigate raw material
pricing pressure.
Profit before tax
£22.7m
Good cash generation
our operating cash flow conversion is good, particularly in Building plastics,
where a high proportion of customers pay at point of sale or shortly thereafter.
This has allowed us to invest in working capital to support sales growth and
protect the business from any raw material supply interruption that may take
place e.g. due to Brexit.
net cash generated
from operating activities
£26.4m
Good return on sales
our strong brand, well-invested facilities and capital-light
branch expansion programme deliver a good return on sales.
Return on sales1
15%
Progressive returns to shareholders
our dividend policy, supported by sales growth and cash
generation, deliver progressive dividend returns to shareholders.
Total dividends returned to
shareholders since the IPO in 2015
£38m
KEY BEnEFICIaRIES
Shareholders
our overall strategic objective is to
deliver sustainable growth in
shareholder value.
Employees
We work hard to train and develop
our people, and provide rewards
commensurate with our goal to be
an employer of choice.
SEE PEOPlE On PaGE 30
Fabricators
Through high-quality products and a
strong focus on customer service,
we have developed a very loyal
customer base.
Small builders &
installers
The independent sole traders that
visit our branches benefit from the
one-stop shop offering we provide.
House builders
House 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.
1 Return on sales is Adjusted EBITDA (including impact of IFRs16) divided by revenue.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
21
C_GEN_PageC_GEN_PageL2C_GEN Section/ our strategy
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 have five key strategic priorities:
STRaTEGIC PRIORITIES
Increase the use
of recycled materials
Increased use of recycled material to help mitigate
raw material pricing pressure, as well as enhance
the stability and reduce the carbon footprint of our
manufactured products.
Target growth
in market share
Increase market share of rigid pVC profiles to drive
sales and profit growth in profiles.
• Continued investment to expand capacity
and improve reliability in both recycling
plants, with capex of c.£5.7 million in 2019.
• Increased use of recycled material for
primary extrusion in 2019 to 13.4k tonnes
(2018: 9.5k tonnes).
• Further 11.8k tonnes used in extrusion of
products with 100% recycled content, or
sold to trade extruders (2018: 8.5k tonnes).
Total tonnes
processed
41.3k
(2018: 30.4k)
• profiles organic sales growth of 5%.
• Growth driven by existing and
new accounts and strong contribution
from Vista panels.
• 28 new accounts
(following 17 in 2018 and 25 in 2017).
• Growth in trade and new
build fabricators alike.
Expand our
branch network
Investment in new branches to increase market
share of foam pVC profiles, and drive sales and
medium-term profit growth in Building plastics.
• organic and like-for-like sales
growth of 9% and 8% respectively.
• Growth driven by better stock availability
and improved operating standards.
• 4 new sites opened (net), including
trial of 2 larger format branches.
• Continued growth in average revenue
per branch.
• Total estate at 206 branches at
31 December 2019, with 78 new
branches opened from 2015.
Develop innovative
new products
Maintain market leadership by offering the latest in
product innovation.
• Introduction of flush window sash
to leading Eurologik profile range.
• New syncro patio door system.
• Development of a through-colour
grey profile substrate.
• Introduction of a new overhead vent.
Product ranges
launched
15
in the recycling plants
support business growth.
• Maximise throughput and operational
efficiency/reliability at both recycling sites to
Estimated market
• Exploit compelling case for trade fabricators to
shares
Profiles
15%
Building Plastics
23%
Growth in revenue
from new branches
opened in 2018 and
2019
£2.2m
switch to Eurocell, with clear points of
differentiation through specification, service,
opportunities to supply branch network and
product range / development.
• Maintain share gains in new build, with
favourable market dynamics and benefit of
strong relationships with housebuilders.
• Double commercial sector sales by targeting
specific developers and sub-sectors to drive
value engineering away from aluminium to pVC.
• Drive sustainability agenda in conjunction with
Eurocell Recycle.
• Continuous improvement in existing estate
focused on:
− Customers (up-selling, cross-selling)
− Trading (enhanced promotional activities) and
− products (improve conversion rates for high
value items, extend product range).
• open 4 new larger branches to complete
the trials of this format.
• Continue to reduce time to break-even
for new branches.
• Regional trial for market-leading consumer
on-line window and door proposition.
• Development and introduction of (amongst others):
− Automatic opening vents
− Vertical slider enhancements
− New tiled roofing products
− stronger window profile to facilitate
extended thresholds.
• other enhancements to existing products and
complementary new product offerings.
Explore potential
bolt-on acquisitions
Consider acquisition opportunities when they arise.
• Acquisition and integration of
Trimseal ltd, a distributor with
2 branches in the south-east.
acquisitions
completed
• Continue to develop acquisition pipeline and
consider acquisition opportunities as they arise.
1
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.
22
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
2019 PROGRESS
2020 FOCUS
Total tonnes
processed
in the recycling plants
• Maximise throughput and operational
efficiency/reliability at both recycling sites to
support business growth.
Increase the use
of recycled materials
Increased use of recycled material to help mitigate
raw material pricing pressure, as well as enhance
the stability and reduce the carbon footprint of our
manufactured products.
Target growth
in market share
Increase market share of rigid pVC profiles to drive
sales and profit growth in profiles.
Expand our
branch network
Investment in new branches to increase market
share of foam pVC profiles, and drive sales and
medium-term profit growth in Building plastics.
• Continued investment to expand capacity
and improve reliability in both recycling
plants, with capex of c.£5.7 million in 2019.
• Increased use of recycled material for
primary extrusion in 2019 to 13.4k tonnes
(2018: 9.5k tonnes).
• Further 11.8k tonnes used in extrusion of
products with 100% recycled content, or
sold to trade extruders (2018: 8.5k tonnes).
• profiles organic sales growth of 5%.
• Growth driven by existing and
new accounts and strong contribution
from Vista panels.
• 28 new accounts
(following 17 in 2018 and 25 in 2017).
• Growth in trade and new
build fabricators alike.
• organic and like-for-like sales
growth of 9% and 8% respectively.
• Growth driven by better stock availability
and improved operating standards.
• 4 new sites opened (net), including
trial of 2 larger format branches.
• Continued growth in average revenue
per branch.
• Total estate at 206 branches at
31 December 2019, with 78 new
branches opened from 2015.
41.3k
(2018: 30.4k)
Estimated market
shares
Profiles
15%
Building Plastics
23%
Growth in revenue
from new branches
opened in 2018 and
2019
£2.2m
Develop innovative
new products
Maintain market leadership by offering the latest in
product innovation.
• Introduction of flush window sash
to leading Eurologik profile range.
• New syncro patio door system.
• Development of a through-colour
grey profile substrate.
• Introduction of a new overhead vent.
Product ranges
launched
15
• Exploit compelling case for trade fabricators to
switch to Eurocell, with clear points of
differentiation through specification, service,
opportunities to supply branch network and
product range / development.
• Maintain share gains in new build, with
favourable market dynamics and benefit of
strong relationships with housebuilders.
• Double commercial sector sales by targeting
specific developers and sub-sectors to drive
value engineering away from aluminium to pVC.
• Drive sustainability agenda in conjunction with
Eurocell Recycle.
• Continuous improvement in existing estate
focused on:
− Customers (up-selling, cross-selling)
− Trading (enhanced promotional activities) and
− products (improve conversion rates for high
value items, extend product range).
• open 4 new larger branches to complete
the trials of this format.
• Continue to reduce time to break-even
for new branches.
• Regional trial for market-leading consumer
on-line window and door proposition.
• Development and introduction of (amongst others):
− Automatic opening vents
− Vertical slider enhancements
− New tiled roofing products
− stronger window profile to facilitate
extended thresholds.
• other enhancements to existing products and
complementary new product offerings.
Explore potential
bolt-on acquisitions
Consider acquisition opportunities when they arise.
• Acquisition and integration of
Trimseal ltd, a distributor with
2 branches in the south-east.
acquisitions
completed
• Continue to develop acquisition pipeline and
consider acquisition opportunities as they arise.
1
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
23
C_GEN_PageC_GEN_PageL2C_GEN Section/ our strategy in Action
Our Strategy in Action
Investing in recycling
‘Thor’ Mobile Hammermill Shredder
The average pVC-u window can be recycled up to ten times without
any loss of quality.
Strategic priority
Use of recycled PVC in Eurocell manufacturing
Increase the
use of recycled
materials
13.4k t
9.5k t
8.3k t
6.0k t
4.1k t
2015
2016
2017
2018
2019
24
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
The benefits of a PVC-U circular economy
The PVC-U industry has operated its own circular economy for a long time.
It has been known as closed-loop recycling, and it provides a system for cradle-to-grave re-use of PVC-U,
which leading industry players, such as Eurocell, have developed and championed.
RaW maTERIalS
RESIDUal WaSTE
Recycling
Design
Collection
production remanufacturing
Consumption (use, Reuse, Repair)
Distribution
The evolution of PVC-U recycling: 25 years of progress
1992
2000
2008
2017
2019
little PVC-U
recycling
Production waste
recycling
Old frames or ‘post-
consumer’ recycling
1m+
frames recycled
by Eurocell
3m+
frames recycled
by Eurocell
Re-assessing PVC-U
• The average pVC-u window can be recycled up to ten times
(with a life cycle of up to 350 years) without any loss of quality.
• Recycled pVC-u can be harder wearing than virgin resin and
the proportion of additives can be adjusted to ensure it keeps
its strength.
• Eurocell Recycling Midlands recently celebrated its
closed-loop recycling 11th anniversary.
• Recycling rates for pVC-u are high in comparison to timber.
• Whereas pVC-u can be reprocessed for high-value
• Timber use driven by consumption in Western Europe is
also a major contributor to deforestation.
• up to 50% of the timber windows removed from
refurbishment projects in the uK end up as landfill.
• Timber frame manufacturers do not have comparable
advanced pathways for returning and recycling old frames
– the paint, stains and preservatives in treated wood make it
more difficult to recycle and potentially harmful to the
environment.
products or ‘upstream’ recycling, the fibres in recycled
timber breakdown during the process meaning it can only
be used for low-grade products or ‘downstream’ recycling.
• Because plastic is an insulator pVC-u windows and doors
are like-for-like more energy efficient than aluminium or
timber.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
25
C_GEN_PageC_GEN_PageL2C_GEN Section/
Our Strategy in Action continued
End-to-end sustainability
Our Eurocell Recycle 9-step factory process
Bulk transportation
Around 35% of the recycled
material is used onsite,
whilst the rest is transported
in tankers to our main
extrusion facility, minimising
our carbon footprint.
Washing
using a series of water
tanks, contaminants are
‘floated’ out.
9
8
7
6
5
Extrude finished
products
The loop is closed as we
manufacture the pVC-u
into new products,
frequently to higher
specification than those
being recycled. such
‘upcycling’ is key to being a
sustainable part of the
Circular Economy.
+3 million
end-of-first life frames recycled
in 2019
Pelletisation /
Pulverisation
The pVC-u granules are
processed into finished
material ready for
extrusion.
Colour sorting
An advanced process
utilising high speed
cameras, ultra-violet light
and jets of air filters out the
granules of rubber leaving
only clean, colour sorted
pVC-u.
9
manufactured product ranges
from recycled PVC-U – this
continues to expand
37%
Increase in recycled material
produced in 2019
c.150
recycling jobs provided
to people in the local area
26
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Granulation
The waste is granulated
into uniform size. At this
stage rubber gaskets are
still present.
Shredding
Waste is shredded into
processable pieces.
4
3
2
Separation
using magnetic processes,
metals are separated from
the rest of the waste and
recycled separately.
BENEFITS OF EUROCELL RECYCLING
Sustainability
• The use of recycled material enhances product
stability and lowers significantly the carbon
footprint of our manufactured products.
Reducing waste to landfill
• By recycling old windows (‘post-consumer’) we
reduce the amount of waste sent to landfill.
Protecting our margin
• The use of recycled material in the manufacture
of pVC rigid products provides a substantial
saving in cost compared to virgin resin
compound. We also aim to increase our use of
recycled material in order to maintain gross
margin as our sales grow.
Mitigating pricing pressures
• Increasing the use of recycled material in our
manufactured products helps to mitigate raw
material price increases and to reduce our
exposure to volatile commodity prices.
1
Waste collection
Waste is taken from
3 sources:
• post-consumer
windows
• Fabricator off-cuts
• Bar length
c.60,000
Windows recycled per week,
on average, during 2019
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
27
C_GEN_PageC_GEN_PageL2C_GEN Section/
Our Strategy in Action continued
Investing in recycling technology
Recycling is at the heart of our operation. We have two recycling plants,
which are located in Ilkeston (Eurocell Recycle Midlands, formerly known
as ‘Merritt plastics’) and selby (Eurocell Recycle North, formerly known
as ‘Ecoplas’). Ecoplas was acquired in August 2018. We have been
investing heavily in both sites. What we do and the benefits of recycling
are set out on the pages that follow.
Our well-developed channels for
recovery and recycling allow old
frames to be recycled and
reprocessed into new products
up to ten times without any loss
of quality.”
What we do
We recycle both customer factory offcuts (‘post-industrial’ waste)
and old windows that have been replaced with new (‘post-
consumer’ waste) to produce recycled material in the form of
pellets, micronised and granulate material which are then used to
generate brand new extruded products.
28
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
How much do we recycle?
During 2019, our two sites recycled 31.4k tonnes (equivalent to
over 3 million frames) of post-consumer waste, which would have
otherwise been sent to landfill, and 9.9k tonnes of post-industrial
waste. Together the two sites used this waste to produce
approximately 25k tonnes of recycled material.
of the recycled material produced,13.4k tonnes (generated
predominately from post-consumer waste) was used alongside
virgin resin in the manufacture of many of our pVC rigid profiles.
We also used 6.7k tonnes of the recycled material produced
(being almost exclusively derived from post-industrial waste) for
use in products which are manufactured from 100% recycled
material, including thermal inserts and cavity closer systems. A
further 5.1k tonnes of the recycled material produced was sold to
a range of trade extruders.
k tonnes1
2019
2018 Change Change %
Inputs – waste recycled
post-consumer
post-industrial
31.4
22.8
9.9
7.6
Output – recycled
material produced
Usage
41.3
30.4
10.9
36%
24.9
18.2
6.7
37%
Primary extrusion
13.4
9.5
3.9
41%
products made from 100%
recycled material
sales to trade extruders
6.7
5.1
5.6
2.9
25.2
18.0
1.1
2.2
7.2
20%
76%
40%
Primary extrusion usage
as % of total consumption
23% 17%
1 Data includes Eurocell Recycle North from acquisition in August 2018.
Eurocell Recycle Midlands –
Seeing the return on our investment
Between 2016 and 2018 we invested c.£3 million to expand our
Eurocell Recycle Midlands site to more than double usage in
primary extrusion from 4.1k tonnes of material consumption in
2015 to 9.5k tonnes in 2018, driving a substantial saving
compared to the cost of using virgin material. We have invested a
further c.£2 million in this site in 2019, to increase output and
improve reliability (including new co-extrusion and other tooling to
support the increased usage of recyclate on key product lines).
Eurocell Recycle North –
Investing for a greener future
We acquired Eurocell Recycle North in August 2018 for
a consideration of £6 million (including debt assumed) to
enable us to:
• Meet our increasing demand for recycled material,
driven by strong sales growth and a strategic objective to
increase the amount of recycling that we do;
• Increase our presence in the recycling market; and
• Reduce our dependence on the Ilkeston site.
output at acquisition was c.7k tonnes of recycled compound per
annum, sold into a broad mix of trade extruders. As expected,
investment was required to improve the operating environment
and reliability of the plant, to eliminate bottlenecks from production
processes and to expand capacity. Total investment post-
acquisition stands at c.£3 million, including £2.5 million in 2019.
Following these investments in the two sites, we increased total
usage of recycled compound significantly in 2019. We expect
internal demand for recycled material to increase as our sales
grow and as we drive towards improving further the sustainability
of our business. We intend to satisfy this demand largely through
the further expansion of Eurocell Recycle North.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
29
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate social Responsibility
Corporate Social Responsibility
One team driving world class
sustainable solutions
Our CSR focus
PEOPLE
• our people
• performance and
Development Review
• Health and safety
• Incentives and rewards
• learning and development
• Apprenticeships
• organisational design
• Equality and diversity
ENVIRONMENT
• Greenhouse gas data
• operation Clean sweep
• other initiatives
CUSTOMERS
• service levels
• Quality policy statement
• sustainable and quality products
SUPPLIERS
• Ethical and sustainable sourcing
• Modern slavery
GOVERNMENT
• Taxation
NON-FINANCIAL
INFORMATION STATEMENT
COMMUNITY
• supporting our local community
and charities
People
Our people
our people are at the heart of our success. We believe that
engaging all employees and galvanising their efforts in line with the
Company’s Vision and Values will set us on a successful path to
achieving all our business objectives.
As we continue to develop as a Group, it is important that all our
employees are provided with personal development opportunities,
well aligned to business objectives. A strong match here is a vital
component to achieving our overall targets.
EXECUTE
CUSTOMER
FIRST
One team
INCLUSIVE
INTEGRITY
Performance and Development Review (‘PDR’)
We recognise that employee engagement (the energy and
purpose our staff get from being immersed in their jobs), is key to
the achievement of overall business targets. In 2019 we therefore
designed a new performance management cycle and associated
processes. This provides a forum for employees to discuss and
agree their business aligned objectives and development needs
with their manager.
over the course of the year, we provided start-up training to over
300 managers, including our senior leaders. We developed our
Human Resources Information system (‘HRIs’) to capture
objectives, development needs, key activities, achievements and
pDR reviews. In 2020, we will roll this out to the rest of the
business.
30
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Health and safety
We employ over 1,800 people. The safety and the well-being of
these employees and our contractors is our first operational priority.
Injury frequency rate 1
lost time injury frequency rate 2
Injuries per 100,000 hours worked.
1
2 lost time accidents per 100,000 hours worked.
2019
4.8
0.9
2018
5.7
0.9
We made good progress with our two key health and safety
performance measures in 2019. our injury frequency rate fell from 5.7
to 4.8 and our lost time injury frequency rate was maintained at 0.9.
These results reflect the hard work of the health and safety team and
of our employees to reduce the risk of incidents in the workplace.
We recorded no major injuries in 2019 under the Reporting of
Injuries, Diseases and Dangerous occurrences Regulations 2013
(‘RIDDoR’). The number of minor RIDDoR injuries reported in 2019
was 17, compared to 9 in 2018.
our health and safety performance continues to benchmark well
with industry standards.
Incentives and rewards
We want to ensure that we attract the best people, either internally
through our talent pipeline or from outside the business, that
provide the right skills and knowledge that support the continued
growth of our Company. It is therefore important that we continue
to benchmark our remuneration packages to ensure that they
remain competitive.
Every employee has access to a range of benefits that will support
them both inside and outside of work. our total reward strategy
ensures that all employees are eligible for a range of incentives
that include a defined contribution pension scheme, life insurance,
save as You Earn (‘sharesave’) schemes and access to a range of
savings and special offers through our Eurxtras platform. This
platform also facilitates user-friendly communication with all
employees, allowing the business to provide the latest news from
across the organisation.
Learning and development
We are committed to continuously improving the availability and
quality of training and development for employees at all levels
across the Group. our focus in 2019 was to begin to use data to
standardise the way we identify training needs and to improve the
quality and range of compliance training, through both e-learning
courses, online activities and face to face activity.
We replaced our e-learning course provider and catalogue to
improve basic compliance training, with an offering that is both
current and relevant to the broad range of activities undertaken at
Eurocell. We now have well over 100 e-learning courses and a
total of 306 different learning resources and downloadable
activities developed in-house available through our learning
management system (‘lMs').
our external partners continue to play an important part in the
delivery of health and safety and compliance training. Delivery is
face-to-face and we monitor the quality and completion of novice,
conversion and refresher training in areas such as: fork lift driving
and health and safety qualification programmes (e.g. First Aid at
Work and fire warden training).
Within the Building plastics division, we established a national
technical and product training team. This enabled various face to
face workshops and online activities, designed to keep those at
the forefront of serving our customers up to date and to build their
compliance and technical product knowledge and skills.
Furthermore, the introduction of a new internal Management
Development programme in 2019 was also well-received by our
teams. We identified the most pressing people management
challenges and launched in response three modules to address
these needs.
Delivery of our various training courses may be face to face, either
at HQ or at one of our training centres throughout the uK. We also
run training on our in-house system for managers, face to face,
on-line or via skype.
In total across all of these activities, we had 3,037 registrations for
face to face training last year.
Apprenticeships
Eurocell is a recognised sTEM (‘science, Technology, Engineering,
Manufacturing’) employer. We take our responsibility to help boost
the uK industry’s growth of existing and new talent seriously. our
focus on apprenticeships therefore continues to grow, with the
current number of employees registered for a levy funded,
approved apprenticeship programme growing from 15 in 2018
to 56 at the end of 2019.
In 2019, we had apprentices in technical, maintenance,
operational, engineering, design, toolmaking, accountancy and
customer services.
We have partnered with new approved training providers and have
developed a bespoke programme for existing Trade Counter
employees who wish to consolidate their experience and develop
new knowledge and skills. Delivery of this Trade supplier
programme to a 34-strong cohort commenced in January 2020.
We will continue to develop apprenticeship opportunities for new
and existing employees.
Organisational design
We created and recruited two new senior roles in 2019: Chief
operating officer and Head of supply Chain. These roles
necessitated organisational change and the re-alignment of
structures to better serve operational delivery. Work will continue
in 2020 to maximise the effectiveness of our organisation.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
31
C_GEN_PageC_GEN_PageL2C_GEN Section/
Corporate Social Responsibility continued
Equality and diversity
We aim to create an inclusive culture, with equality and diversity
forming part of our Company Values.
We know that diversity is key to running a successful organisation
and we aim to give every employee the opportunity to reach their
full potential. our Equal opportunities policy is at the heart of our
recruitment processes and sets out our standards to achieve a
diverse and inclusive workforce.
uK legislation sets out minimum standard that organisations must
adhere to. However, we believe that the benefits of diversity
require that we go well beyond this and seek to assist and provide
adjustments that will help and support all our employees reach
their full potential. In 2019 we also invested in a new recruitment
platform, providing much improved application process.
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 remain committed to
increasing the participation of women throughout the Group,
including at Board level, within the Executive Committee and
senior management.
Gender analysis
Directors
Executive Committee
other senior management
Senior management
other employees
Total
Male
no.
5
%
83
5 100
21
31
1,601
1,632
70
76
88
88
Female
no.
1
–
9
10
213
223
Total
average
no.
6
5
30
41
1,814
%
17
–
30
24
12
12 1,855
Environment
We are committed to protecting and minimising our impact on
the environment.
Recycling now sits at the very heart of our operations and we are
proud to be the leading recycler of pVC windows in the uK, further
details of which are shown on page 24.
32
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
Less is more
Eurocell continues to consume proportionately less
virgin plastic and more recycled plastic for
windows and doors
25%
proportion of
recycled
plastic
consumption
increased by
5% in 2019
Recycled
Virgin
proportion
of virgin
compound
consumption
decreased by
5% in 2019
75%
More generally, we operate in compliance with all relevant
environmental legislation and we strive to use pollution prevention
and environmental best practice in all that we do. We recognise
that our operations result in emissions and waste and we
are committed to control, recover and reuse pVC waste
wherever possible.
We promote the efficient use of all materials and resources
throughout our facilities, particularly non-renewable resources,
and continue our development of sustainably sourced products
using recycled materials wherever possible.
Environmental concerns and impacts are a consideration in all of
our decision making and activities. We promote environmental
awareness amongst our employees and encourage them to work
in an environmentally responsible manner. This is achieved
through training and education, informing our employees about
environmental issues that may affect their work.
Emergency response procedures are maintained where required
by legislation or where significant health, safety or environmental
hazards exist.
our general environmental objectives are set in alignment with
legislation and are continually reviewed to ensure they are being
met. our environmental policies apply to all our operations and we
make sure sufficient resources are made available to ensure that
they are implemented. We strive to continually improve our
environmental performance and review our policies regularly in the
light of planned future activities.
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Greenhouse gas data
We are reporting our greenhouse gas (‘GHG’) emissions as
part of our strategic Report and our GHG reporting period is
1 october 2018 to 30 september 2019, with comparatives for the
corresponding period in the previous year. Reliable reporting of
GHG emissions on a calendar year basis is not possible due to
difficulties in collating actual data for the final months of the year
due to timing lags on supplier invoicing.
GHG emissions for the Group for the period ending 30 september
2019 in tonnes of carbon dioxide equivalent (tCo2e) as follows:
source
Fuel Combustion (stationary)
2019
335
2018
420
Fuel Combustion (mobile)
7,910
6,417
Facility operation
purchased electricity
Total
91
72
16,061
16,007
24,397
22,916
Change
(20)%
23%
26%
0%
6%
Total emissions increased by 6% compared to the corresponding
2018 period. sales growth for the 2019 calendar year was 10%
(or 8% excluding acquisitions). The main contributor was a 23%
increase in transportation emissions from diesel and propane. This
reflects the full year effect of the acquisition of Eurocell Recycling
North (formerly known as Ecoplas) in August 2018 and the impact
of organic sales growth.
This is set against a 20% fall in natural gas consumption which can
partially be attributed to the 2019 period being approximately 7%
warmer than 2018 and therefore requiring less gas-fired heating.
Electricity emissions remained static, despite the impact of sales
growth and acquisitions during the reporting period (including the
full year effect of Ecoplas). This is an excellent result and reflects our
significant investments in the latest extrusion technology, as we
have expanded production capacity over the last two years. This
technology is considerably more efficient than older extrusion lines.
Annual comparison and emissions intensity:
Operation Clean Sweep
From 2018, we have been part of a campaign called ‘operation
Clean sweep’, a global initiative to reduce plastic pellet loss to the
environment. This is led by the British plastics Federation in the uK
with the aim of ensuring that the plastic pellets, flakes and powders
that pass through uK manufacturing facilities don’t end up in our
rivers or seas.
By signing up to operation Clean sweep, Eurocell has committed
to best practice and to implement systems that prevent plastic
pellet loss — and that we will play our part in protecting the aquatic
environment.
“We’re always looking to improve and
Operation Clean Sweep gives us the
opportunity to ensure the effectiveness of the
systems we have in place for pellet storage
and handling. Our goal is to achieve zero pellet
loss and, while this may seem an ambitious
target, we believe it is possible through
containment and the implementation of good
housekeeping practices.”
Other initiatives
• Reducing electricity consumption (currently c.66% of
emissions) by:
− encouraging behavioural changes to be less wasteful;
− reducing idle time/optimising temperatures on extrusion
lines and chillers; and
− investigating lED lighting.
• Increasing the use of recycled material in packaging by:
2019
2018
Change
− investigating the return of packaging materials to suppliers
tCo2e
Total emissions
Emission intensity1
1 Expressed in tCo2e per £m revenue.
24,397
22,916
87
90
6%
(3%)
methodology and emission factors:
These emissions were calculated using the methodology set
out in the Environmental Reporting Guidelines (ref pB 13944),
published by the Department for Environment, Food and Rural
Affairs in June 2013. Emissions are taken from the Department for
Business, Energy, Industrial strategy emissions factor update
published in 2018.
for re-use – i.e. a polythene closed loop; and
− conducting an assessment to determine how much material
can be collected from branches.
• Reducing the amount of packaging used by investigating
the reclaim of packaging from customers.
• Reducing air pollution by encouraging the use of
electric/hybrid vehicles.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
33
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate Social Responsibility continued
Customers
Service levels
In terms of quality, our focus has been on implementing key
principles of quality management and measuring systems.
These are captured in our customer-focused Quality Policy
Statement (see below), which captures the way we aspire to
work at Eurocell.
Quality Policy Statement
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
KpIs reflecting the business objectives.
Everyone’s responsibility
All departments are 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.
Sustainable and quality products
We adhere to industry-leading specifications and Iso-based
standards for Quality & Environmental Management and British
standards for health and safety.
Suppliers
Ethical and sustainable sourcing
We strive to develop and maintain supplier relationships which are
ethical, sustainable and responsible, forming the basis of our
commitment to responsible sourcing.
In particular, we ensure that all relevant raw material suppliers are
compliant with the current Registration, Evaluation, Authorisation
and Restriction of Chemicals Regulation (REACH) and continually
monitor all of our supplier’s quality management processes and
controls as part of the set-up and approval process.
We have a loyal supplier base, of which over 70% have been
suppliers to Eurocell for more than 3 years. All supply and tender
agreements include the following statement:
“The supplier advocates the principles of
Corporate Social Responsibility and requires a
serious approach to social-economic issues
from its supply chain.”
In addition, all of our suppliers are required to confirm their
commitment to the following principles:
• The obligation to the global and local environment;
• Respect for fundamental human entitlements;
• In purchasing activities, a commitment to improving the
organisation’s performance in relation to fairness to all;
• A system of internal and external reporting which matches
espoused values;
• A proactive promotion of sustainable practices and products;
• Recognition that there is responsibility to add value to
communities and societies upon which the organisation has
influence; and
• An ethical approach to purchasing activities.
Modern slavery
We are absolutely committed to preventing slavery and human
trafficking in our business activities, and to ensuring that our supply
chains are free from these practices.
We aim to identify modern slavery risks and prevent slavery and
human trafficking in all our operations. We continue to identify any
potential risks in the top 80% of our suppliers and, in cases where
medium or high risk is identified, further assessments are carried
out which may result in the supplier not being used.
our full Anti-slavery and Human Trafficking statement is published
on our website at investors.eurocell.co.uk.
34
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Government
Taxation
The Fair Tax Mark is an independent certification scheme, which
recognises organisations that demonstrate they are paying the right
amount of corporation tax in the right place, at the right time.
on 1 August 2019, we were certified as an accredited Fair Tax Mark
business, following our successful assessment against the Fair Tax
Mark criteria.
We recognise the responsibility we have to our stakeholders and
communities to set the highest standards of corporate conduct,
and paying the right amount of tax in the right place is fundamental
to this. The ability to be able to measure ourselves against an
independent benchmark, like the Fair Tax Mark, allows us to
continually improve the quality of information that we provide to our
investors, employees, suppliers and customers, and assists us in
creating a fair and successful business environment.
“We’re delighted to have achieved
the Fair Tax Mark certification,
demonstrating our commitment
to tax transparency.”
“Paying the right amount of tax is
about fairness. Far too often tax is
presented as a burden, rather than
an essential component that helps
glue our society together.”
Paul monaghan, Fair Tax Mark
Non-financial Information Statement
This section of the strategic Report constitutes our Non-financial Information statement, produced to comply with sections 414CA and
414CB of the Companies Act. The information listed is incorporated by cross-reference.
Reporting Requirement
policies and standards which govern our approach1
Information necessary to understand our business and its
impact, policy, due diligence and outcomes.
Environmental matters
Corporate Vision and Values
Corporate social Responsibility policy
Environment pp. 32-33
Investing in more recycling pp. 24-29
Employees
Respect for human rights
people pp. 30-32
Equality and diversity p. 32
Modern slavery p. 34
Corporate Vision and Values
Corporate social Responsibility policy
Employee Handbook
Corporate Vision and Values
Corporate social Responsibility policy
privacy policy
Recruitment policy
Anti-slavery and Human Trafficking policy
Anti-Bullying and Harassment policy
Various information security policies
Whistleblowing policy
Social matters
Corporate social Responsibility policy
Customers p. 34
Community pp. 36-37
Anti-corruption and anti-bribery
Corporate social Responsibility policy
Anti-bribery policy
Whistleblowing and bribery p. 71
Description of principal risks and
impact of business activity
Description of the business model
Non-financial key performance
indicators
Risk Management pp. 44-45
principal risks and uncertainties pp. 46-49
overview p. 2-3
our business model pp. 20-21
operational performance p. 17
1 Certain Group policies and internal standards as guidelines are not published externally.
The policies noted above form part of our policy framework which is founded on our risk management principles. The policies which
underpin these principles define mandatory requirements in respect of risk management. Controls and processes are in place to
ensure compliance.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
35
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate Social Responsibility continued
Community
Supporting our local community and charities
our manufacturing and recycling centres, and our branches,
can have a significant impact on, and benefit from, the
communities in which we operate. It is important that we
provide support to communities local to our sites so we
can enhance the quality of life in these communities.
Building relationships
in our communities
We donated materials to national charity
‘Band of Builders’ as they worked on
providing a safe environment for Kyle,
a Cystic Fibrosis sufferer.
It is important that
we provide support
to communities local
to our sites.”
mark Kelly
Chief Executive Officer
36
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Supporting
good causes
We raised money for save the
Children by celebrating Christmas
Jumper Day.
Supporting
our community
We donated a defibrillator to local
youth football team stonebroom F.C.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
37
C_GEN_PageC_GEN_PageL2C_GEN Section/ Divisional Review
Divisional Review
Profiles
The profiles division manufactures extruded rigid and foam pVC profiles.
We make rigid and foam products using virgin pVC compound,
the largest component of which is resin. our rigid products also
include recycled pVC compound, produced at our market-leading
recycling facilities.
Following the introduction of c.40 new accounts in 2017/18, we
have added selectively a small number of account wins in 2019
and our prospect pipeline remains very strong.
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 Vista panels, s&s plastics and
Eurocell Recycle North (formerly ‘Ecoplas’).
profiles
Third-party Revenue
organic
Eurocell Recycle North1
Inter-segmental Revenue
Total Revenue
Operating Profit pre-IFRS 16
Operating Profit post-IFRS 16
1 Formerly Ecoplas, acquired August 2018.
2018
£m
107.7
105.4
2.3
51.8
159.5
Change
%
7%
5%
113%
15%
10%
17.8
–
2019
£m
115.7
110.8
4.9
59.5
175.2
17.8
17.9
Revenue
Third-party revenue was up 7% in 2019 to £115.7 million (2018:
£107.7 million), which includes a like-for-like sales increase of 5%.
This growth includes the impact of selling price increases
implemented to recover cost inflation. The remaining growth was
driven by the full year effect of the acquisition of Eurocell Recycle
North in August 2018.
like-for-like sales growth reflects strong contributions from both
existing and new accounts from across our fabricator base. It also
includes a strong contribution from Vista panels, where sales were
up 20%, driven by higher sales of composite doors to new build.
Across the profiles division, new build represents approximately
one-third of sales.
We have been pleased with recent market share gains and are
now consolidating our position as the largest supplier of rigid
profile to the uK market. our specifications teams continue to be
successful in generating demand, well supported by our ability to
supply a comprehensive product range through the fabricator
network. As well as windows, this includes composite doors, pVC
and aluminium bi-fold doors, a cavity closure system and products
to support off-site construction.
38
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
In terms of Eurocell Recycle North, as described above, we
suffered some initial delays with our project to expand capacity,
which led to a shortfall in external sales. However, the investment
programme is now well advanced and performance is starting to
meet expectations more consistently.
Operating profit
operating profit for 2019 on a pre-IFRs 16 basis was £17.8 million
(2018: £17.8 million).
Gross margin percentage in profiles was ahead of 2018. As noted
above, we implemented selling price increases to recover cost
inflation and increased the use of recycled material in our primary
extrusion processes.
Higher overheads in profiles includes the impact on direct labour
from higher production volumes and the acquisition of Eurocell
Recycle North, as well as wage and other inflation. It also includes
additional warehousing and distribution costs as described in the
Chief Executive’s Review. As a result, return on sales percentage
for 2019 was below 2018. However, we are implementing plans to
improve further operating efficiency, particularly the expansion of
our warehousing capacity.
Manufactured products
PVC rigid products
Within the manufacture of pVC rigid
profile, we look to include as much
recycled content as possible. our
modus and Eurologik window
systems contain approximately 44%
of recycled material.
Foiled products
All of our manufactured window
systems are available in over 30
different colour options, with lead
times of just 7 days.
PVC foam products
We manufacture pVC foam profiles
which are used for roofline, these
are supplied to customers through
the branch network.
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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.
Operating profit
operating profit for 2019 on a pre-IFRs 16 basis was £8.4 million
(2018: £7.4 million), an increase of 14%.
Distribution is through our national network of 206 branches to
installers, small and independent builders, house builders and
nationwide maintenance companies. The branches also sell
roofline products to independent wholesalers.
The Building plastics division includes security Hardware, Kent
Building plastics and Trimseal. security Hardware is a supplier
of locks and hardware, primarily to the RMI market, and Kent
Building plastics and Trimseal are both suppliers of building plastic
materials.
Building plastics
Third-party Revenue
organic
Kent Building plastics1
Trimseal2
Inter-segmental Revenue
Total Revenue
Operating Profit pre-IFRS 16
Operating Profit post-IFRS 16
1 Acquired December 2018.
2 Acquired March 2019.
2019
£m
163.4
159.5
3.4
0.5
1.3
164.7
8.4
8.6
2018
£m
146.0
145.7
0.3
–
1.4
147.4
Change
%
12%
9%
1,033%
n/a
–
12%
7.4
14%
Revenue
Building plastics third-party revenue was up 12% to £163.4m
(2018: £146.0m), with growth comprising an increase in like-for-like
sales of 8%, as well as the impact of branch openings and the
acquisitions of Kent Building plastics and Trimseal. This growth
includes the impact of selling price increases implemented to
recover cost inflation.
like-for-like sales includes growth from branches opened in 2017
and prior, as the more recent sites from that vintage begin to
mature. This growth also reflects the positive impact from better
stock availability, particularly for manufactured products, and the
management team driving improvements in operating standards.
In terms of new branches, there were 4 new sites in 2019
(including the acquisition of Trimseal), compared to 12 in 2018
(including the acquisition of Kent Building plastics). We now have
an estate of 206 branches providing national coverage across the
uK, which offers a significant competitive advantage. Branches
opened in 2018/19 (excluding the acquisitions) added £2.2 million
to sales in 2019.
Gross margin percentage and operating profit in Building plastics
have improved compared to 2018. As noted above, we
implemented selling price increases in 2019 to recover cost
inflation. other initiatives implemented to improve profitability
include the introduction of a more rigid pricing architecture,
revised sales and account management structures and better
stock availability.
Higher overheads in Building plastics includes the impact of new
branches and acquisitions in 2018/19, as well as wage and other
inflation. It also includes the additional warehousing and
distribution costs described in the Chief Executive’s Review.
We plan to open 4 new sites in 2020. New branches are a key
driver of sales and profit growth in the medium-term, but they do
create downward pressure on profitability in the short-term due to
the investment in our teams at new sites and in supporting central
infrastructure. However, our initiatives to reduce time to break-
even have now driven this point below 24 months. We do not
expect the 4 branches to be opened in 2020 to have a meaningful
impact on profit for the year.
Branch network
no. of branches (at the end of the year)
2019
2018
2017
190
average revenue per branch (£000)
2019
2018
2017
679
674
206
202
718
Indicative branch economics (rounded)
Branch open
< 2 years
2–4 years
> 4 years
No. of Branches 1
11
50
140
Average sales per
Branch (£000)
300
500
850
Return on sales
per Branch (%) 2
small
loss
up to
10%
Mid-teen
%
1 Excluding Kent Building plastics and Trimseal.
2 EBITDA as % of revenue, before regional infrastructure and
central costs, and IFRs 16 adjustments.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
39
C_GEN_PageC_GEN_PageL2C_GEN Section/ Group Financial Review
Group Financial Review
IFRS 16
We have adopted IFRs 16 leases, with effect from 1 January
2019, which requires all qualifying operating leases to be brought
onto the statement of Financial position. The impact on the
Consolidated Income statement was for overheads to reduce by
£10.7 million (being the removal of lease rental charges), for
depreciation to increase by £10.2 million (being the amortisation of
right-of-use assets over the remaining lease term) and for interest
to increase by £0.9 million (being the unwind of discounting of
lease liabilities).
To provide better comparability, we have presented both the
reported and pre-IFRs 16 financial information, and in explaining
variances we have disclosed both the impact of the new standard
and the underlying variance to 2018.
Revenue
Revenue for 2019 was £279.1 million (2018: £253.7 million), which
represents growth of 10%, or 8% excluding acquisitions. like-for-
like sales growth (i.e. excluding the impact of acquisitions and
branches opened in 2018/19) was 7%.
sales have been driven by good organic growth in profiles
(£5.4 million, or 5% for the division), strong like-for-like growth in
the branch network (£11.6 million, or 8% for the division) and the
positive impact from branches opened in 2018/19 (£2.2 million,
or 2% for the division). Acquisitions added £6.2 million to sales
in 2019.
Gross margin
overall, our gross margin increased by 170 bps from 49.5%
in 2018 to 51.2% in 2019. This has been achieved through a
combination of selling price increases, implemented to recover
cost inflation, the increased use of recycled material and an
improved manufacturing performance following the completion
of our capex programme to expand extrusion capacity.
Distribution costs and
administrative expenses (overheads)
Excluding the impact of IFRs 16, overheads for the year were
£111.2 million (2018: £95.3 million). The increase of c.£16 million
includes c.£1 million as a result of new branches opened in
2018/19, c.£4 million from acquisitions and c.£3 million as a result
of wage and other inflation (including the impact of higher prices
for transport).
of the remaining increase, we estimate c.£5 million is driven by
volume, being the impact on direct labour and distribution of
higher production and sales (both up 10%).
The balance of c.£3 million includes an increased bad debt charge
and the extra warehousing and distribution costs described in the
Chief Executive’s Review.
Depreciation and amortisation
Depreciation and amortisation for 2019 was £17.8 million.
Excluding the impact of IFRs 16 (lease-related depreciation),
depreciation and amortisation was £7.6 million (2018: £7.1 million).
Finance costs
Finance costs for 2019 were £1.9 million. Excluding the impact
of IFRs 16, finance costs were £1.0 million (2018: £0.8 million),
reflecting higher average net debt in 2019.
We delivered robust financial
results and progressed major
investments in the growth and
sustainability of our business
michael Scott
Chief Financial Officer
40
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Group
Revenue
Gross profit
Gross margin %
overheads
Adjusted1 EBITDA
Depreciation and amortisation
Adjusted1 operating profit
Finance costs
Adjusted1 profit before tax
Tax
Adjusted1 profit after tax
Adjusted1 basic EPS (pence per share)
Non-underlying items
Reported profit before tax
Reported profit after tax
Reported basic EPS (pence per share)
1 see adjusted profit measures.
2019
(Reported)
£m
2019
(pre-IFRS 16)
£m
279.1
142.9
51.2%
(100.5)
42.4
(17.8)
24.6
(1.9)
22.7
(3.4)
19.3
19.3
–
22.7
19.3
19.3
279.1
142.9
51.2%
(111.2)
31.7
(7.6)
24.1
(1.0)
23.1
(3.4)
19.7
19.7
–
23.1
19.7
19.7
2018
£m
253.7
125.6
49.5%
(95.3)
30.3
(7.1)
23.2
(0.7)
22.5
(3.3)
19.2
19.1
0.4
22.1
19.6
19.6
Revenue (£m)
5.4
253.7
Gross profit (£m)
+£6.8m / +1.4%
2.9
142.9
6.2
279.1
6.1
0.7
1.1
11.6
270.7
2.2
6.8
(0.3)
125.6
2018
Profiles
lFl
Building
Plastics
lFl
1 like-for-like sales up 7%.
Underlying
2018/2019
branches
acquisitions
2019
2018
Underlying
volume
mix
Selling
Price
increases
material
costs
Increased
recycling
acquisitions
2019
Overheads2 (£m)
Cashflow (£m)
3.5
1.1
5.5
1.5
106.9
0.8
3.5
111.2
(10.7)
31.7
13.0
100.5
3.0
15.7
1.1
15.2
95.3
1.1
9.4
(11.1)
2018
Volume
Wage
and other
inflation
Bad
debts
Other Underlying 2018/19
branches
acquisitions 2019
pre-
IFRS
16
IFRS 16
2019
post-
IFRS
16
2019
EBITDa
pre-
IFRS
16
Working
capital
Tax and
other
net cash
from
operating
activities
acquisitions Capex
Financing Dividends Change in
net debt
pre-IFRS
16
1 like-for-like overheads up 12%.
2 Distribution costs and administration expenses.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
41
C_GEN_PageC_GEN_PageL2C_GEN Section/ Group Financial Review continued
Adjusted profit measures
EBITDA represents profit before interest, tax, depreciation and
amortisation. Adjusted EBITDA, adjusted operating profit and
adjusted profit before tax all exclude non-underlying items (see
below), of which there were none in 2019.
Adjusted profit after tax and adjusted earnings per share exclude
non-underlying expenses, the related tax effect and any other
non-underlying tax items.
We classify some material items of income and expense as
non-underlying when the nature and infrequency merit separate
presentation. Alongside statutory measures, this facilitates a
better understanding of financial performance and comparison
with prior periods.
Non-underlying items
There are no non-underlying items in 2019.
Non-underlying expenses in 2018 of £0.4 million included
professional fees related to the acquisitions of Eurocell Recycle
North and Kent Building plastics, as well as unamortised
arrangement fees from our previous bank facility expensed
following the refinancing in December 2018. Non-underlying tax
for 2018 includes the tax associated with non-underlying
expenses and the benefit of a second patent Box claim in the
period (£0.8m). patent Box is an HMRC approved scheme,
allowing a 10% tax rate on profits derived from products that
incorporate patents. The second claim in 2018 was presented as
non-underlying because we would typically expect to make only
one claim in each financial year.
Profit before tax
Reported profit before tax was £22.7 million. Excluding the
impact of IFRs 16, profit before tax was £23.1 million
(2018: £22.1 million).
Tax
The effective tax rate on both reported and adjusted profit before
tax for 2019 of 14.7% is consistent with the adjusted rate for 2018,
and is lower than the standard corporation tax rate for the year
due to the benefit of one patent Box claim recognised in the year.
The effective tax rate on reported profit before tax in 2018 was 11.3%
due to the recognition of a second patent Box claim in the year.
During the year we were pleased to receive the Fair Tax Mark
accreditation, reflecting our commitment to paying the right
amount of tax at the right time (see page 35).
42
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
Earnings per share
Taking into account all of the factors described above, earnings
per share were as follows:
Basic earnings per share
Adjusted basic earnings
per share
Diluted earnings per share
Adjusted diluted earnings
per share
2019
(Reported)
pence
2019
(pre-IFRS
16)
pence
19.3
19.3
19.2
19.2
19.7
19.7
19.6
19.6
2018
pence
19.6
19.1
19.5
19.1
Acquisitions
We acquired Trimseal, a distributor of building plastic materials,
on 6 March 2019 for a total net consideration of £0.4 million.
payments of deferred consideration of £0.7 million were made in
respect of the acquisitions of s&s plastics, security Hardware and
Kent Building plastics.
Dividends
We paid an interim dividend of 3.2 pence per share in october
2019. The Board proposes a final dividend of 6.4 pence per share,
resulting in total dividends for the year of 9.6 pence per share
(2018: 9.3 pence per share). This represents an increase of 3%.
The dividend will be paid on 20 May 2020 to shareholders
registered at the close of business on 24 April 2020. The ex-
dividend date will be 23 April 2020.
Retained earnings as at 31 December 2019 were £67.1 million
(2018: £57.2 million). The Company takes steps to ensure
distributable reserves are maintained at an appropriate level
through intra-Group dividend flows.
Capital expenditure
Capital expenditure for 2019 was £15.2 million (2018: £8.7 million).
We incurred capital expenditure of £4.8 million in 2019 to expand
production capacity and improve manufacturing efficiency in our
primary extrusion facilities, including an additional 7 extrusion
lines. We also invested £5.7 million to expand capacity and
improve the operating environment at our two recycling plants and
in the associated co-extrusion tooling. other capex of £4.7 million
includes new branches, as well as a general maintenance capex,
branch refurbishments and various IT-related costs.
Cash flow
Net cash generated from operating activities was £26.4 million.
Excluding the impact of the reclassification of lease payments to
financing activities, net cash generated from operating activities
was £15.7 million, compared to £17.7 million in 2018.
This includes a net outflow from working capital for 2019 of £13.0
million, comprising an increase in stocks of £9.0 million, an increase in
trade and other receivables of £1.7 million and a decrease in trade and
other payables of £2.3 million. This compares to a net outflow from
working capital of £8.3 million in 2018.
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Net cash generated from operating activities is also stated after
tax paid in the year of £2.6 million (2018: £4.0 million), which is net
of the cash received from two patent Box claims, one of which
was submitted (and the benefit recognised) in 2018.
The higher stock in 2019 reflects good growth, as well as the
impact of our Brexit-related stock build. We have also improved
stock availability in our branches, which was an important driver of
strong like-for-like sales growth in the year.
Net operating costs for the new site in 2020 will be c.£2.5 million,
comprising primarily rent, rates, depreciation and interest. We
expect c.£1.5 million of these costs to be classified as non-
underlying, as they will be incurred prior to the warehouse
becoming operational. From 2021 onwards, the net operating cost
for the new site will be c.£1 million per annum, inclusive of labour
and other savings arising from more efficient picking and transport
operations. From 2021 we expect this net cost will be more than
offset by the impact of sales growth and operating efficiencies
that are unlocked through this investment.
Bank facility
We have an unsecured, multi-currency revolving credit facility
(‘RCF’), provided by Barclays Bank plc and HsBC uK Bank plc.
The facility was increased by £15 million up to £75 million in March
2020, in order to provide additional flexibility and options for the
future. There were no changes to pricing or key items as a result
of the uplift. However, we were very pleased to convert the facility
into a sustainable RCF, where modest adjustments to the margin
will be applied based on our achievement against annual recycling
targets.
We operate comfortably within the terms of the facility and related
covenants, which are based upon accounting standards in effect
at 8 December 2018 and are therefore not impacted by IFRs 16.
The facility matures in 2023.
Michael Scott
Chief Financial officer
Debtor days were 37 at year end, compared to 38 at the end of
2018. lower payables reflect shorter payment terms for resin and
post-consumer waste for the recycling operations, as well as an
improvement in payables processes.
other payments include acquisitions (including net debt acquired)
of £0.4 million (2018: £8.3 million), deferred consideration of £0.7
million and capital investment of £15.2 million (2018: £8.7 million).
Dividends paid represent the final dividend for 2018 of 6.2 pence
per share (or £6.2 million) and the interim dividend for 2019 of 3.2
pence per share (or £3.2 million).
Finally, following the adoption of IFRs 16 leases, we have
recognised the discounted value of future lease liabilities within net
debt with effect from 1 January 2019. As a result, net debt at
31 December 2019 increased by £34.1 million. The finance and
principal elements of lease payments of £10.7 million are
presented within cash flows arising from financing activities.
Taking all of these factors into account, net debt increased by
£45.2 million during the year to £68.7 million at 31 December
2019. Excluding the impact of IFRs 16, underlying net debt
increased by £11.1 million to £34.6 million (31 December 2018:
£23.5 million).
Net debt
Cash
lease liabilities
Borrowings
Net debt
2019
£m
4.9
(34.1)
(39.5)
(68.7)
2018
£m
5.9
–
(29.4)
(23.5)
Change
£m
(1.0)
(34.1)
(10.1)
(45.2)
New warehouse
The project to expand our warehousing capacity is described in
the Chief Executive’s officer’s Report. In fitting out the new
warehouse we expect to incur capital expenditure of c.£8 million,
all in 2020. This includes c.£3 million for racking, c.£3 million for
picking equipment and c.£2 million for systems and project
management.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
43
C_GEN_PageC_GEN_PageL2C_GEN Section/ principal Risks and uncertainties
Principal Risks and Uncertainties
Risk Management
Risk management is the responsibility of the Board and is a
key factor in delivering the Group’s strategic objectives.
Approach to Risk Management
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 provide assurance to the Board that risks
are being appropriately identified and managed.
IDENTIFY RISKS
ASSESS GROSS RISK
QUANTIFY NET RISK
IDENTIFY EXISTING
MITIGATION
IDENTIFY ANY FURTHER
ACTION REQUIRED
MONITOR AND CONTROL
44
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
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 root 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.
• The Group has an executive Risk
Management Committee, chaired by the
Chief Financial officer. This Committee
meets on a regular basis (generally quarterly).
The status of the most significant risks and
mitigations are reviewed at each meeting,
with other risks reviewed on a cyclical basis.
• The Executive Directors also 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 also reviews the risk register
to ensure net risk and proposed further
actions are together consistent with the risk
appetite set by the Board.
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
h
g
H
i
y
t
i
l
i
b
a
b
o
r
p
m
u
i
d
e
M
05
09
13
04
07
10
15
16
11
12
14
06
08
w
o
L
Low
Medium
Impact
02
01
03
High
Principal risks
01 Macroeconomic conditions
09
shortages or increased costs of
appropriately skilled labour
02 Brexit
10 Customer credit risk
03 Raw material supply
11 Competitor activity
04 Raw material prices
12 Corporate and regulatory risks
05
Manufacturing capacity
constraints
13 Cyber security
06 unplanned plant downtime
14 Failure to develop new products
07
08
unsuccessful branch
network expansion
15
Failure to identify, complete and
integrate bolt-on acquisitions
Ability to attract and retain
key personnel and highly
skilled individuals
16 Coronavirus
Internal control
The Group has well-defined systems of
internal control.
The Group has a robust process of financial
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 both annually and
half-yearly. operational management regularly
reports on performance to the
Executive Directors.
The Group also has processes in place for
ensuring 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 is reviewed on a regular basis
so that it matches the needs of the business.
In order to further enhance the internal
control and risk management processes,
KpMG provides an outsourced internal audit
service to the Group. KpMG work closely
with the Risk Management Committee in
delivering the Group’s internal audit
programme.
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.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
45
C_GEN_PageC_GEN_PageL2C_GEN Section/ Principal Risks and Uncertainties continued
Risk profile
The principal risks monitored by the Board are as follows:
Principal Risk and Impact
MACROECONOMIC CONDITIONS
our 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.
our private RMI business is strongly correlated to
the level of household disposable incomes. our
new-build business is particularly influenced by the
level of activity in the house-building industry.
As such, our 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.
Government economic and social policy can also
have a significant impact on our business.
BREXIT
Although the uK has agreed withdrawal terms with
the Eu, there remains significant uncertainty over
the nature of future trading arrangements.
The uK leaving the Eu without agreeing a Trade
Deal remains a realistic scenario, and such an
outcome could lead to delays and disruption at the
uK borders.
Almost all of our sales are to uK-based
businesses. However, some of our key raw
materials originate in Europe, so any disruption in
supplies could impact on our ability to manufacture
our products and meet customer demand.
CYBER SECURITY
A breach of IT security (externally or internally)
could result in an inability to operate systems
effectively (e.g. viruses) or the release of
inappropriate information (e.g. hackers).
RAW MATERIAL PRICES
our 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, as well as the market for resin itself.
In addition, although we pay for resin in sterling,
crude oil and ethylene are priced in us dollars and
euros respectively. As such, the price of resin in
sterling is also impacted by international currency
markets.
our ability to pass on resin and other raw material
or traded goods price increases to our customers
will depend on market conditions at the time.
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
• Notwithstanding macro
•
conditions, we expect our
strategic priorities and self-help
initiatives to support sales and
market share growth.
Initiatives include: growing
market share, investment in our
specifications team (targeting
new-build, commercial and
public sector work), expanding
the branch network and
increasing recycling.
• political and economic
uncertainty as a result of
Brexit is slightly reduced.
• Construction output and
general RMI market
contracted in 2019. CpA
now forecast a broadly flat
market for 2020.
• New home registrations
reduced in 2019 but modest
growth is expected in 2020.
• uK base rate remains
• We operate comfortably within
the terms of our bank facility
and related financial covenants.
unchanged since 2018.
• some expectation of a
post-election recovery.
• Reducing the pace of branch
network expansion should
improve short-term profit and
cash flows.
Actions taken include:
• some suppliers for other raw
materials have agreed to hold
extra stocks (very limited
capacity at our manufacturing
sites).
• Finished goods stock build
executed for key lines where
possible.
• selective credit insurance now
in place.
• Withdrawal agreement with
the Eu now in place.
• New Government has a
clear mandate to agree a
Trade Deal with the Eu.
• physical security of servers at
third-party off-site data centre,
with full disaster recovery
capability.
• This remains a high-profile
area and is receiving
considerable management
focus.
• password and safe-use policies
in place, internet usage
monitored and anti-malware
used.
• External cyber review and
internal audit reviews
conducted in 2019, resulting in
significant enhancements in
defence.
• Cyber awareness/IT security
campaign active for all
employees.
• Financial crime protection and
cyber liability insurance in
place.
• Where possible we pass through
raw material or traded goods
price increases to our
customers.
• Increasing the use of recycled
material in our manufacturing
partially mitigates exposure to
resin prices.
• We consider fixed price supply
arrangements with suppliers
where it is economic to do so.
• use of more than one supplier to
provide competitive pricing for
many raw materials and traded
goods.
• Raw material prices
continued to fluctuate in
2019, largely as a result of
currency changes and the
impact of other uncertainties
surrounding Brexit.
• We have elected not to enter
into a fixed price contract for
pVC resin in 2020 as the
premium required by
suppliers was prohibitive.
46
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Movement key:
Increase
No change
Decrease
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
Principal Risk and Impact
OPERATING CAPACITY CONSTRAINTS
A requirement to run manufacturing facilities at
high levels of utilisation in peak periods (e.g. to
meet customer demand) can drive down overall
Equipment Effectiveness (‘oEE’) and result in other
operational inefficiencies.
Attempting to satisfy unexpectedly high demand
without the requisite infrastructure in place may
lead to a failure of people, systems and processes
to perform.
Together these factors can result in adverse
financial consequences.
UNPLANNED PLANT DOWNTIME
The business is dependent on the continued and
uninterrupted performance of our production
facilities.
Each of the facilities is subject to operating risks,
such as: industrial accidents (including fire);
extended power outages; withdrawal of permits
and licences (e.g. the regulated operation of
the recycling facility); breakdowns in machinery;
equipment or information systems; prolonged
maintenance activity; strikes; natural disasters; and
other unforeseen events.
RAW MATERIAL SUPPLY
There are only a limited number of pVC resin
and certain other raw material suppliers and we
operate with limited material storage capacity.
As described above (see Brexit risk), failure to
receive raw materials on a timely basis could
impact on our ability to manufacture products and
meet customer demand.
UNSUCCESSFUL BRANCH NETWORK
EXPANSION
We have invested significantly to expand the
branch network over the last 3 years.
The network, including new branches, may fail to
reach the required scale and profitability within an
acceptable timeframe.
looking further forward, good new sites may
become more difficult to find.
ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL AND HIGHLY SKILLED
INDIVIDUALS
our success depends inter alia, on the efforts and
abilities of certain key personnel and our ability to
attract and retain such people.
The senior team have significant experience in the
relevant sectors and markets and are expected to
make an important contribution to our growth and
success.
Movement
Risk Change in
Reporting Period
• Warehousing capacity
identified as the key
remaining constraint to
efficient operations and
future growth.
• New warehouse facility
secured for 2020.
• Risks associated with project
to transition. plan to be
operational with new
warehouse in Q4.
• No material change
Strategic
Priorities
Mitigation
• Co-extrusion and foam capacity
increased by 30% and 15%
respectively in 2019 to resolve
manufacturing capacity
constraint.
• Recruitment of additional trained
labour in our foiling plant for
2019 to resolve manufacturing
capacity constraint.
• strengthened management
team in critical areas of Chief
operating officer, production
planning and logistics.
• Regular planned maintenance to
reduce the risk of plant failure.
• Maintenance capital investment
of approximately £5 million per
annum across the Group.
• Extrusion facilities spread over 3
manufacturing sites.
• Group-wide disaster recovery
plans in place.
• Acquisition of Ecoplas has
increased our recycling capacity
and reduced our reliance on a
single recycling plant.
• Raw material tests to identify
potential alternative suppliers.
• spot market for resin often
available to access.
• Brexit related supply risks
decreasing as described
above.
• potential remains for
• Contractual arrangements for
certain key suppliers include
liquidated damages for failure to
supply.
• Regular reviews to test financial
stability of key suppliers.
increased resin supply
originating from the us to
come on line and deliver into
Europe.
New Building plastics’ management
team progressing initiatives to
improve profitability:
• pace of expansion slowed in
2018-20 to allow focus on
consolidating existing estate.
• More rigid pricing architecture.
• Revised field sales and account
management structure.
• Drive to better stock availability
and trials of new front-of-house
and product displays.
• Enhanced training to ensure all
staff have the ability to sell the
full range of products.
• profit improvement plan
template for lowest performing
branches.
• Improved new site selection
using location analysis tools.
• Clear strategic direction provides
an attractive backdrop to
working at Eurocell.
• Market rate compensation for all
personnel, including leadership
team.
• Equity-based long-term incentive
plans in place for senior team.
• Continued focus on
improving employee
engagement and
communication (e.g. new
Group-wide Vision and
Values launched in 2018.)
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
47
C_GEN_PageC_GEN_PageL2C_GEN Section/ Principal Risks and Uncertainties continued
Principal Risk and Impact
SHORTAGES OR INCREASED COSTS
OF APPROPRIATELY SKILLED LABOUR
We are subject to supply risks related to the
availability and cost of labour, both in our
manufacturing operations and in our branch
business. our headquarters are located in an area
of generally full employment.
We may also experience labour cost increases
(including those related to the Minimum Wage) or
disruptions in circumstances where we have to
compete for employees with the necessary skills
and experience in tight labour markets.
CUSTOMER CREDIT RISK
There is an inherent risk that default by a large
customer could result in a material bad debt.
COMPETITOR ACTIVITY
We have a number of existing competitors who
compete on range, price, quality and service.
Increased competition could reduce volumes and
margins on manufactured and traded products.
CORPORATE AND REGULATORY RISKS
We may be adversely affected by the crystalisation
of unexpected corporate or regulatory risks. These
could include health and safety, data, reputational
and environmental risks (including regulations
related to our recycling operations), or other legal,
taxation and compliance matters.
FAILURE TO DEVELOP NEW
PRODUCTS
Failure to innovate could reduce our growth
potential or render existing products obsolete.
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 new products or how successful our
competitors will be in developing products which
are more attractive than ours.
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
• Market level or better salaries
and good benefits package.
• Fourth sAYE scheme
planned for 2020.
• Induction and training
programme.
• Annual sAYE share-save
scheme available to all
personnel.
• progressing strategy to improve
retention and recruitment,
leadership and development,
employee engagement and
communication.
• In-depth credit review for new
• Increased economic
and ongoing customer
accounts.
• Experienced Credit Manager
(over 15 years with the Group)
and strong credit control team.
• Credit insurance implemented
for large profiles accounts.
uncertainty and falling
consumer confidence may
lead to more business
failures.
• No individually material bad
debts in 2019, but some
extension of credit terms and
overdues on large accounts.
Inherent risk remains.
• strong market and customer
awareness, with good
intelligence around competitor
activity.
• Focus on customer proposition
and points of differentiation in
product and service offering.
• We continued to gain market
share in both divisions in
2019.
• The more uncertain market
environment may have
weakened some of our
competitors.
• We have procedures and
policies in place to support
compliance with regulations.
• Regular communication and
training on policy compliance.
• Monitoring procedures in place,
including near miss and potential
hazard reporting for health and
safety matters.
• Internal and third-party site
audits to test compliance with
our policies.
Recent developments widen the
scope and increase the penalty
regime for breaches in these
areas. For example:
• Corporate Criminal offence
of Failure to prevent the
Facilitation of Tax Evasion
(‘CCo’) legislation came into
force on 30 september 2017.
• General Data protection
Regulations (‘GDpR’) came
into effect in May 2018.
• We invest continuously in
research and development
through our in-house team.
• The team is highly focused on
new ways to develop existing
products and to be innovative
with new ones.
• We have a strong product
pipeline with more than
25 projects in development.
• Recent successes include:
Coastline (a lightweight
composite cladding for use
on coastal properties), and
extensions to the Modus and
skypod ranges.
48
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Movement key:
Increase
No change
Decrease
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
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
• some delays with project to
expand Ecoplas.
performance is now
improving, but significant
value at stake until
acceptable plant reliability
achieved.
• public communication of bolt-on
acquisitions being a strategic
priority.
• Good knowledge of companies
operating in our sector and
related sectors.
• Ecoplas and Kent Building
plastics acquired in 2018 and
Trimseal in 2019.
• Tried and tested procedure for
the integration of new
acquisitions and a good track
record of recent success.
• We placed extra orders for
• New risk in 2020
window and door hardware in
January 2020.
Principal Risk and Impact
FAILURE TO IDENTIFY, COMPLETE
AND INTEGRATE BOLT-ON
ACQUISITIONS
Exploring potential bolt-on acquisitions is one of
our strategic priorities.
We may not be able to identify appropriate bolt-on
acquisitions.
Any future acquisition we do make poses
integration and other risks which may 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. These include
diversion of management attention, failure to retain
personnel, failure to maintain customer service
levels, disruption to relationships with various third
parties, system risks and unanticipated liabilities.
CORONAVIRUS
A significant proportion of window and door
hardware is sourced in China. We may be
adversely affected by a disruption to the
hardware supply chain which impacts our
business (Vista panels and security Hardware)
or that of our window fabricator customers.
We may also be impacted if the virus results in the
unavailability of our workforce or has a significant
impact on the macro economic environment.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
49
C_GEN_PageC_GEN_PageL2C_GEN Section/ Viability statement
Viability Statement
As required by section 4 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 3 years has been adopted as
this is the timeframe used by the Board as
our strategic and planning horizon. The
assessment of viability has been made with
reference to the Group’s current position
and future prospects, our strategy,
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 3-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, we adopt a prudent
forecast in respect of like-for-like sales
growth, but assume other initiatives, in line
with the published strategy. The plan is
stress tested by applying the following
scenarios:
Scenario 1
Macroeconomic 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 our size and the markets we operate
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.
The Directors confirm that we have a
reasonable expectation that the Company
and the Group will continue in operation
and meet our liabilities as they fall due in
the next 3 years.
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 our bank facilities for the
foreseeable future and that the likelihood of
breaching the related covenants in this
period is remote.
Accordingly the Directors continue to adopt
the going concern basis in preparing the
Annual Financial statements.
This strategic Report was approved by the Board on 12 March 2020.
Mark Kelly
Chief Executive officer
Michael Scott
Chief Financial officer
50
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
/
51
Corporate Governance
Corporate
Governance
52
C_GEN_PageC_GEN_PageL2C_GEN Section OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
53
C_GEN_PageC_GEN_PageL2C_GEN Section Board of Directors
Board of Directors
Bob lawson
Non-executive Chair
Mark Kelly
Chief Executive Officer
Michael scott
Chief Financial Officer
Date of appointment:
4 February 2015
Date of appointment:
29 March 2016
Date of appointment:
1 september 2016
Experience:
Bob was previously the Chair at Barratt
Developments plc, Hays plc and the
Federation of Groundwork Trust. prior to
this, he was Managing Director for the
Vitec Group for four years, Chief Executive
officer of Electrocomponents plc for eleven
years and subsequently Chair for a further
six years.
Experience:
Mark 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 previous experience
of the pVC windows and doors industry
having worked for Duraflex and Celuform.
Experience:
Michael joined the Group as Chief Financial
officer in september 2016. He 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. He is a member of the
Institute of Chartered Accountants in
England and Wales.
External appointments:
• Chair of Genus plc1
External appointments:
• None
External appointments:
• None
Committee membership:
Committee membership:
Committee membership:
None
1 Member of the Nomination and Remuneration Committees
2 Chair of the Audit and Risk Committee
54
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Frank Nelson
Senior Independent
Non-executive Director
Martyn Coffey
Independent Non-executive Director
sucheta Govil
Independent Non-executive Director
Date of appointment:
4 February 2015
Date of appointment:
4 February 2015
Date of appointment:
1 october 2018
Experience:
Frank is a qualified accountant with over
30 years’ experience in the housebuilding,
infrastructure and energy sectors. He was
Finance Director of Galliford Try plc from
2000 until 2012 and was previously Finance
Director of Try Group plc from 1987. Frank is
also Chair of a private construction and
development company and also acts as an
adviser to certain private businesses. He is a
fellow of the Chartered Institute of
Management Accountants.
External appointments:
• senior Independent Non-executive
Director of McCarthy & stone plc2
• senior Independent Non-executive
Director of HICl Infrastructure plc
Experience:
Martyn, prior to his current role at
Marshalls plc (see below), was Divisional
Chief Executive officer at BDR Thermea
Group BV and Chief Executive of the
private equity-owned Baxi Group. He also
held the position of Managing Director of
pirelli Cable. Martyn has a Bsc in
Mathematics.
Experience:
sucheta, prior to her current role at
Covestro (see below), was previously the
Chief Marketing officer of Royal DsM and
also held various management positions in
marketing, innovation, strategy and general
management worldwide, among others at
GlaxosmithKline, pepsiCo and AkzoNobel.
sucheta has a BA Honours degree in
Economics and a Masters degree in
Business Administration.
External appointments:
• Chief Executive officer of Marshalls plc
• Director of Mineral products
External appointments:
• Chief Commercial officer of Covestro AG
and member of the Managing Board
Association ltd
• Director of liveorg ltd
Committee membership:
Committee membership:
Committee membership:
Committee key:
Member of the Audit and Risk Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Denotes Committee Chair
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
55
C_GEN_PageC_GEN_PageL2C_GEN Section/
Chair’s Introduction
Chair’s Introduction
Letter from the Chair
Dear Shareholder,
I am pleased to introduce Eurocell plc’s Corporate Governance
Report for the year.
Throughout the year, we have continued to apply the principles and
provisions of the uK Corporate Governance Code, including the changes
introduced in the revised July 2018 version (the ‘Code’), under which this
report has been prepared.
The following reports provide details of the Board’s activities during the
year, including how it, and its Committees, have discharged their
governance duties and applied the principles of good corporate
governance.
The Board recognises the effectiveness of our governance relies on a
culture of open communication, mutual trust and honest assessment of
our strengths and areas for development and I am pleased to report this
ethos continues to form the basis of all Board discussions.
I am comfortable that the composition of the Board provides an
appropriate balance of skills, experience, independence and knowledge
to take the business forward which, following the work of the Nomination
Committee this year, is supported by a strengthened Executive
Committee.
Moreover, I am thankful for the continued high level of shareholder
support, in particular for the revised Directors’ Remuneration policy
which was approved at the AGM this year with over 99% of votes in
favour. Further details of this can be found in the Remuneration
Committee Report on page 85.
Further to last year’s Corporate Governance statement, I can report our
externally facilitated review of the Board, and its Committees, was
completed this year and the conclusions from this evaluation were
positive and helpful. This is discussed later in the Corporate Governance
statement on page 59.
Finally, I would like to thank my Board and management colleagues for
their contributions to the governance of the Company and I look forward
to welcoming shareholders to the AGM, to be held in Alfreton on 14 May
2020, and to receiving and answering your questions.
Bob Lawson
Chair
12 March 2020
Bob lawson
Chair
56
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ Corporate Governance statement
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Corporate Governance Statement
GOVERnanCE FRamEWORK
Eurocell plc Board
Members:
Independent Non-executive Chair
3 Independent Non-executive Directors
2 Executive Directors
Audit and Risk Committee
Members:
3 Independent Non-executive Directors
Remuneration Committee
Members:
Independent Non-executive Chair
3 Independent Non-executive Directors
The Audit and Risk Committee’s role is
to assist the Board with the discharge of
its responsibilities in relation to financial
reporting, internal controls, risk
management, compliance and audit.
The Remuneration Committee
recommends the Group’s policy on
executive remuneration and determines
the levels of remuneration for Executive
Directors, the Chair of the Board and
senior management.
Nomination Committee
Members:
Independent Non-executive Chair
3 Independent Non-executive Directors
1 Executive Director
The Nomination Committee assists the
Board in reviewing the structure, size
and composition of the Board and
succession planning for senior
management.
SEE COMMITTEE REPORT ON PAGES 68 TO 71
SEE COMMITTEE REPORT ON PAGES 72 TO 86
SEE COMMITTEE REPORT ON PAGES 66 TO 67
Role of the Board
The Board comprises a Non-executive Chair, three Non-executive
Directors and two Executive Directors, who are equally and
collectively responsible for the proper stewardship and leadership
of the Company. Their biographical details are set out on pages
54 and 55.
subject to those matters reserved for its decision, the Board has
delegated to its Audit and Risk, Nomination and Remuneration
Committees certain authorities. There are written terms of
reference for each of these Committees which are available on
the Group’s corporate website, www.investors.eurocell.co.uk.
separate reports for each Committee are included in this Annual
Report from pages 66 to 86.
In accordance with the Code, at least half the Board, excluding
the Chair, should be 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
sucheta Govil, Martyn Coffey and Frank Nelson as ‘independent
Non-executive Directors’ within the meaning of the Code and
therefore is considered to be compliant in this area.
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 share and incentive schemes.
Day-to-day management and the implementation of strategies
agreed by the Board are delegated to the Executive Directors.
The Board meets regularly to discuss key operational issues and
prescribe actions as appropriate. The Group’s reporting structure
below Board level is designed so that all decisions are made by
those most qualified to do so in a timely manner.
Key to the structure is the Executive Committee, comprising
senior managers, including the 2 Executive Directors who act
as a bridge between the Board and this Committee. Management
teams report to members of the Executive Committee, which
meets each month. The Board receives regular updates from the
Executive Committee in relation to business issues and
developments.
This structure enables the Board to make informed decisions on
a range of key issues including strategy and risk management.
All the Directors have the right to have their opposition to,
or concerns over, the operations of the Board and/or the
management of the company, noted in the minutes.
During the year, no such opposition or concerns were noted.
The Chair and the Non-executive Directors met during the year
without the Executive Directors present.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
57
C_GEN_PageL2C_GEN Section/ Corporate Governance Statement continued
Role of the Chair
The Board has concluded that the Chair has met the
independence criteria of the Code on appointment.
There is a clear division of responsibilities between the Chair and
the Chief Executive officer.
The Chair 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 officer 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 Chair, leading on
corporate governance issues and serving as an intermediary for
the other Directors. He is available to shareholders if they have
concerns which contact through the normal channels of the Chair,
Chief Executive officer or other Executive Directors has failed to
resolve, or for which such contact is not appropriate.
Frank Nelson has served as senior Independent Non-executive
Director throughout the year.
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 sustainable success of the Group for the benefit of,
and with regard to the interests of, its stakeholders.
Board composition, commitment and election
of Directors
The Nomination Committee leads the process for Board
appointments and makes recommendations to the Board.
prior to appointment, Board members, in particular the Chair 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.
The Executive Directors may accept an outside appointment
provided that such appointment does not in any way prejudice
their ability to perform their duties as Executive Directors of the
Company. Mark Kelly and Michael scott do not currently hold any
outside appointments.
The Non-executive Directors’ appointment letters anticipate a
minimum time commitment of 20 days per annum, recognising
that there is always the possibility of an additional time
commitment and ad hoc matters arising from time to time,
particularly when the Company is undergoing a period of
increased activity. The average time commitment inevitably
increases where a Non-executive Director assumes additional
responsibilities such as being appointed to a Board Committee.
All new Non-executive Directors undergo an induction programme
and as such spend considerably more than the minimum
commitment during the course of a year. All Non-executive
Directors’ are required to inform the Chair before accepting
another position in order to ensure the Director has sufficient time
to fulfil their duties.
The current Board commitments of all Directors are shown on
pages 54 and 55. Their terms of appointment are reported on
pages 77 and 78 and length of service on the Board is set out in
the chart below:
Michael Scott
Mark Kelly
Sucheta Govil
Martyn Coffey
Frank Nelson
Bob Lawson (Chair)
0
1
2
3
4
5
Years
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. Following the conclusion of the Board evaluation
process, the Board considers all the Directors to be effective,
committed to their roles and to have sufficient time available to
perform their duties.
58
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
The Board has determined that the Non-executive Directors are independent and the Board, as a whole, has a complementary set of
skills and experience as follows:
principal skills and experience
Bob lawson (Chair)
Mark Kelly (Chief Executive officer)
Michael scott (Chief Financial officer)
Construction
industry Manufacturing
Multi-site
operations
Industrial
plastics
Finance
Marketing
Frank Nelson (senior Independent Non-executive Director)
Martyn Coffey (Independent Non-executive Director)
sucheta Govil (Independent Non-executive Director)
Board evaluation and effectiveness
In accordance with the Code, a formal evaluation of the
performance of the Board, its Committees, the Chair and
individual directors was concluded during the year, with the
results presented and discussed at the May 2019 Board meeting.
In line with best practice, this evaluation was externally facilitated
by Deloitte llp, who have no connection with the Company
or any individual director, using a framework based on the
Board’s three core roles being:
• gaining insight and foresight;
• clarifying priorities and defining expectations; and
• holding to account and seeking assurance.
under this process, the senior Independent Director
separately reviewed the Chair’s performance with the other
Non-executive Directors.
Key areas for improvement:
Area
Detail
An online survey tool covering each area in the framework was
distributed to all Board members, all of whom fully engaged with
the process resulting in a response rate of 100%, with all Board
members completing the survey and providing valuable qualitative
comments. The anonymity of respondents was ensured in order
to promote an open and frank exchange of views.
The survey identified a number of perceived areas of strength in
the way that the Board currently operates, and also identified
some areas for enhancement which are set out below.
Key strengths of the Board:
1. Board composition – mix of skills and experience
2. Board dynamics – quality and openness of debate
3. Audit Committee – effective discharge of role and responsibilities
4. Clarity of priorities and expectations
5. Chair’s leadership style
6. Board information – processes are reliable and valid
7. Remuneration Committee – effective discharge of role and
responsibilities
proposed actions
Performance
evaluation
Adopting a robust, regular process for continuous
improvement with clear outcomes
• Views of others outside the Board to be sought for
future evaluations
• Board agendas to include routine discussions of its own
effectiveness
• Board induction programme to be reviewed
Board
engagement
To include consideration of broader stakeholders across
the whole organisation
Effectiveness of the Board’s communication across the
organisation to be reviewed and developed as appropriate
Board focus More Board time on strategy and the forward plan
Professional
development
Board
reporting
providing relevant opportunities for Board members
Timely identification of early warning indicators/red flags
Forward plan, which identifies the issues to be considered
by the Board over the next 12 months, to be developed
Attendance of external professional advisers at Board
meetings to be reviewed and developed as appropriate
Dashboard of early warning indicators (which draws the
Board’s attention to issues/risks on a timely basis) to be
considered and developed as appropriate
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
59
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate Governance Statement continued
overall the results of the survey indicated that the Board members
are satisfied that the Board is operating at an acceptable level in a
constructive and collaborative way.
The Board believes that the evaluation process described above is
thorough, robust and works well. All Directors 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. Taking all of the above
into account, the Board is satisfied that the current 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.
Conflicts of interest
The duties to avoid potential conflicts and to disclose such
situations for authorisation by the Board are the personal
responsibility of each Director. All Directors are required to ensure
that they keep these duties under review and to inform the Group
Company secretary of any change in their respective positions.
The Company’s conflict of interest procedures are reflected in its
Articles of Association (‘Articles’). In line with the Companies Act
2006, the Articles allow the Directors to authorise conflicts and
potential conflicts of interest, where appropriate. The decision to
authorise a conflict can only be made by non-conflicted Directors.
The Board, and its Committees, considers conflicts or potential
conflicts at each meeting and, where such instances are
identified, takes appropriate action, usually by excluding the
conflicted party from any related discussions/decisions.
The Articles require the Company to indemnify its officers,
including officers of wholly-owned subsidiaries, against liabilities
arising from the conduct of the Group’s business, to the extent
permitted by law.
For a number of years, the Group has purchased Directors’ and
officers’ liability insurance and this is anticipated to continue.
Board meetings and attendance
There were six regular Board meetings scheduled during 2019,
four meetings of the Audit and Risk Committee, three meetings of
the Remuneration Committee and two meetings of the Nomination
Committee. Non-executive Directors also attended site visits.
The Chair of the Board, Chief Executive officer 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 Directors being present.
The Chief Executive officer and Chief Financial officer are invited
to attend Remuneration Committee meetings when appropriate,
but are never involved in discussions and decisions regarding their
own remuneration.
The Group 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
Bob lawson
Frank Nelson
Martyn Coffey
Mark Kelly
Michael scott
sucheta Govil
Audit and
Risk
Committee
Remuneration
Committee
Nomination
Committee
–
4/4
4/4
–
–
4/4
3/3
3/3
3/3
–
–
3/3
2/2
2/2
2/2
2/2
–
2/2
Board
6/6
6/6
6/6
6/6
6/6
6/6
Board packs are distributed in the week prior to each meeting to
provide sufficient time for Directors to review their papers in
advance. If Directors are unable to attend a Board meeting for any
reason, they nonetheless receive the relevant papers and are
consulted prior to the meeting and their views are made known to
the other Directors.
The Group Company Secretary
All the Directors have access to the advice and services of the
Group Company secretary. The Group Company secretary has
responsibility for ensuring that all Board procedures are followed
and for advising the Board, through the Chair, on all governance
matters. The Group 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 Group Company secretary is one of the matters
reserved for the Board. During the year, Gerald Copley stepped-
down as Group Company secretary and, following a handover
period, paul Walker was appointed as Group Company secretary
from 27 september 2019.
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 Chair 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.
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 Chair. Directors are expected to attend external
courses and seminars as appropriate to maintain and develop
their Board competencies.
During 2019, there were Board briefings relating to changes to
corporate governance, in particular the revised uK Corporate
Governance Code, and corporate defence strategies. There were
also individual meetings between Non-executive Directors and
senior managers relating to areas of particular interest.
60
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Engagement with shareholders
The Board considers that communications with shareholders are
extremely important. The Chief Executive officer and Chief
Financial officer have developed an open and frequent dialogue
with investors and 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 full-year and half-year results, the Group follows a
regular reporting and announcement schedule to ensure that
matters of importance affecting the Group are communicated to
investors. In addition, the Group continues to improve its investor
website (www.investors.eurocell.co.uk).
Investor relations activity, analysis of the share register, comments
by analysts, views of major shareholders and advice from the
Company’s brokers are all ongoing items of review by the Board in
order to maintain a clear understanding of market perceptions.
Relations with other stakeholders
The Group considers our customers, colleagues, suppliers,
finance providers, the environment and community as our
principal stakeholders in addition to our shareholders. The
Corporate social Responsibility Report on pages 30 to 37 sets
out more detail on how we manage our relationships with them.
The Non-executive Directors are available to discuss any matter
stakeholders might wish to raise.
During 2019, a total of approximately 61 investor meetings were
held, at which at least 49 institutions were represented. Feedback
from these meetings and other shareholder communications are
provided to the Board. The Board also receives copies of analysts’
and brokers’ briefings.
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 control systems, including
financial, operational and compliance controls, for the period
covered by this Annual Report.
The strategic Report comments in detail (pages 44 to 49) on
the nature of the principal risks and uncertainties 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 and the effectiveness
of mitigating controls.
The Audit and Risk Committee Report on pages 68 to 71
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.
The Chair is available to meet with institutional shareholders to
discuss governance and strategy and gain an understanding of
shareholder views and concerns. The Chair 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.
During the year, no such meetings were requested or held.
In particular, the Company communicates with both the
institutional and private shareholders through the following means:
Interaction with all shareholders through:
• the Company’s corporate website (www.investors.eurocell.co.
uk), where investor information and news is regularly updated;
• the Annual Report, which sets out details of the Company’s
strategy, business model and performance over the past
financial year and plans for future growth;
• the Annual General Meeting, where all shareholders have the
opportunity to vote on the resolutions proposed and to put
questions to the Board and executive team; and
• presentations of full-year and half-year results to analysts and
shareholders, which are also available on the Company’s
corporate website.
Interaction with institutional shareholders whereby:
• the Chief Executive officer and Chief Financial officer hold
meetings with institutional investors following the full-year and
interim results; and
• the Chair of the Board meets with institutional shareholders,
where appropriate.
Interaction with private shareholders through:
• dial-in facility to live presentations of the full-year and half-year
results; and
• dedicated email point of contact to answer shareholder
questions and queries.
The Chair and Non-executive Directors are also available to attend
investor relations meetings or to request meetings with investors
or to request meetings with investors or analysts independently of
the Executive Directors, if required.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
61
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate Governance Statement continued
Section 172 statement
In accordance with s.172 of the Companies Act 2006, the Directors have a duty to promote the success of the Company and, in
particular, must act in the way he/she considers, in good faith, would be most likely to promote the success of the Company for the
benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with suppliers, customers and others;
(d) the impact of the Company’s operations on the community and the environment;
(e) the desirability of the Company maintaining a reputation for high standards of business conduct; and
(f) the need to act fairly as between members of the Company.
The Board sources the views of the Company’s stakeholders, as appropriate, either directly or via the Executive Committee (of which
the Chief Executive officer and Chief Financial officer are members), or via Board papers, in the following ways:
stakeholder
source of views
Shareholders
see ‘Engagement with shareholders’ above
Employees
• Annual leadership Conference – all Executive Committee members attend in order to meet and interact with
the wider management teams and feedback to the Board
• Executive Committee members and senior management – feedback received, both formal and informal, at
Board meetings
• ‘Meet Mark’ focus group sessions – regular interactive meetings held by the CEo with various staff groups
across the Group to share views
Customers
• Key customer meetings – regular meetings held by CEo/CFo with key customers to discuss service levels and
other relevant issues
• Customer insight calls – monthly telephone calls with customers assessing satisfaction and ‘Net promoter score’
• ‘Club Fore’ meetings – quarterly forums held with customers, to discuss product design and innovation
Suppliers
• Key suppliers – regular meetings held by CEo and CFo with suppliers to discuss relevant issues
• supplier review meetings - regular meetings held to discuss service levels and other relevant issues
Finance providers • Regular meetings held by CFo with funding banks to discuss business performance and other relevant issues
Regulatory bodies• Taxation - regular meetings held with tax advisers to discuss compliance, HMRC correspondence and other
relevant issues with feedback to the CFo
• Health & safety – regular reporting of KpIs, HsE communications and issues arising to CEo
The Annual leadership Conference, coupled with the regular ‘Meet Mark’ focus group sessions (noted above), are considered to
provide a good understanding of the views of the workforce. In particular, following direct feedback received through these sources:
• A security Hardware ‘store-within-a-store’ was trialled in our Doncaster branch to improve cross-selling opportunities.
• Training and development centres across the uK have been introduced, along with a team working on product training/awareness
and leadership development.
• prices, access and reward mechanisms within the branches have been changed, in addition to new ranges and products
being introduced.
• Catering, rest and toilet facilities have been refurbished within some of our facilities.
However, in order to provide further insight, the Board recently designated sucheta Govil, a Non-executive Director, to have specific
responsibility in this area and, as a result, she will attend employee focus groups from spring 2020 onwards.
62
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
During the year, the interests of the Company’s stakeholders were considered when Board discussions and subsequent decision-
making took place. The major decisions made by the Board during the year, and the resulting benefit to stakeholders, are
summarised below:
Change transport
provider
• More modern
vehicles and
equipment
stakeholder
Invest in new
warehouse facility
Employees
• safer working practices
in warehouse and
service yard
• More modern and
efficient picking
equipment
• Improved working
environment including
offices. facilities and
parking
Customers
• Improved service and
on-time, in-full deliveries
• Reduced risk of
product damage
• Increased capacity to
• More reliable
support growing demand
delivery service
• Improved stock
availability
• Reduced risk of product
• More efficient
document
administration
damage
• More efficient document
administration
Suppliers
• safer working practices
in service yard
• More efficient off-loading
of incoming goods
• More efficient document
administration
Board decision
open larger format
branches
• Improved
working
environment
including
facilities and
parking
• larger trade
counters
• Extended
product range
availability
• Increased
demand/orders
for products
Invest in new
recycling machinery
Invest in new
extruders
• Enhanced culture
of sustainability
• More modern
and safer
equipment
• More modern
and safer
equipment
• Increased
• Increased
capacity to
support growing
demand
capacity to
support growing
demand
• Reduced
production costs
to help maintain
competitive
pricing
Shareholders/
Funding
providers
• Increased capacity to
• More cost-
support business growth
efficient service
• Increased sales
opportunities to
support
business growth
• Improved ability
to maintain
margins
• Increased
capacity to
support
business growth
Community
• More opportunities for
local employment
• More efficient
• More
transport usage
reducing local
traffic
opportunities for
local
employment
Environment
• More efficient energy
• More efficient
• More efficient
• Increased use of
• More efficient
consumption
• More efficient transport
usage
transport usage
from improved
routing
transport usage
from larger stock
holding area
recycled
materials
energy
consumption
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
63
C_GEN_PageC_GEN_PageL2C_GEN Section/ Corporate Governance Statement continued
Culture
The Group’s culture is based on the following Vision and Values which were formally introduced in 2018:
Our Vision:
Our Values:
One team, customer centric, driving world class solutions
everywhere we operate
ONE TEAM
CUSTOMER FIRST
INTEGRITY
INCLUSIVE
EXECUTE
We are one team,
committed to
working together
to deliver
our goals.
Customers are
always our priority,
we keep
our promises.
We conduct
ourselves in a
professional
manner and we
value honesty
and trust.
We support,
value and respect
each other.
Together we will
go the extra mile
to achieve
our targets.
We are one team, committed to working together to deliver our goals
We will: Empower, Be Collaborative, Be Committed, Deliver on Time
Customers are always our priority, we keep our promises
We will: listen, Be passionate about Quality & services, Innovate, Drive Consistency
We conduct ourselves in a professional manner and we value honesty and trust
We will be: Honest, Trustworthy, Ethical, Accountable
We support, value & respect each other
We will be: Engaged, supportive, Respectful, Fair
Together we will go the extra mile to achieve our targets
We will be: Entrepreneurial, Creative & Flexible, Tenacious, Resilient
64
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
The Board assesses and monitors culture through:
• reviews of staff turnover rates;
• reviews of Health and safety data, including near misses;
• reviews of employee whistleblowing cases;
• interaction with senior management and workforce and
feedback from the Annual leadership Conference; and
• observation of attitudes towards regulators such as HMRC and
HsE, as well as internal and external auditors.
The Board is satisfied the policies, practices and behaviours
throughout the Group are aligned with the Vision and Values noted
above and no corrective action is currently required. Nevertheless,
this will continue to be reviewed on an on-going basis to ensure a
positive culture endures.
Statement of compliance with the Code
This Corporate Governance statement, together with the
Nomination Committee Report, the Audit and Risk Committee
Report and the Remuneration Committee Report, provide a
description of how the principles and provisions of the Code have
been applied within Eurocell plc during 2019.
It is the Board’s view that Eurocell plc 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
87 to 89.
Annual General Meeting
our AGM will be held at Fairbrook House on 14 May 2020.
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 dispatched at
least 20 working days before the meeting. The notice will be
available to view at investors.eurocell.co.uk.
All Directors 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 during the meeting.
For each proposed 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
by Equiniti, the Company Registrars. 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 (investors.eurocell.co.uk)
immediately after the meeting.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
65
C_GEN_PageC_GEN_PageL2C_GEN Section/ Nomination Committee Report
Nomination Committee Report
Chair
Members
Bob lawson
Frank Nelson
Martyn Coffey
Mark Kelly
sucheta Govil
Dear Shareholder,
I am pleased to report to you on the main activities
of the Committee and how it has performed its duties
during 2019.
This year, the Committee’s focus has been on overseeing the
development of a more streamlined Executive Committee (see
opposite for further details of the members) which has included, in
part, recruitment for a new role of Chief operating officer.
In addition, the senior management team has been further
strengthened during the year with three replacement
appointments, as part of the Group’s continued investment for
growth. I am pleased that we have been able to attract high
calibre individuals into these roles.
As part of the externally-facilitated annual Board evaluation this
year, the performance of the Nomination Committee was reviewed
and I am pleased to report that the evaluation showed that the
Committee was operating effectively (see pages 59 and 60 for further
details).
Finally, I would like to thank my fellow Committee members, all of
whom have served throughout the year, for their valuable
contribution and support, and I welcome any comments or
questions from shareholders.
Bob Lawson
Chair of the Nomination Committee
12 March 2020
Role and responsibilities:
The principal duties of the Nomination Committee are to:
• regularly review the structure, size and composition of the
Board (including its skills, knowledge, experience, length of
service and diversity) and make recommendations to the
Board with regard to any changes;
• identify and nominate, for the approval by the Board,
candidates to fill Board vacancies;
• review the time commitments required from Non-executive
Directors; and
• maintain an effective succession plan for the Board and senior
management taking into account the challenges and
opportunities facing the Company, along with the skills and
expertise needed in the future, while promoting diversity of
gender, background and skills.
Composition
The Nomination Committee is chaired by Bob lawson, except
where it is dealing with matters relating to his re-appointment or
replacement, and comprises all 3 of the Non-executive Directors
along with the Chief Executive officer, all of whom have served on
the Committee throughout the whole year.
The Code recommends that a majority of the Nomination
Committee be Non-executive Directors, independent in character
and judgement and free from any relationship or circumstance
which may, could or would be likely to, or appear to, affect their
judgement. The Board considers that the Company complies with
the Code in this respect.
only members of the Committee have the right to attend Committee
meetings, but the Committee may invite others, including the Human
Resources Director and external advisers, to attend all or part of any
meeting if it thinks it is appropriate, necessary or pursuant to the
terms of any agreement with shareholders.
The Nomination Committee will meet as often as it deems
necessary but, in accordance with its terms of reference, at least
twice a year.
66
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Summary of activities during the year
The Nomination Committee met formally twice during the year and
attendance at the meetings is shown on page 60.
The main activities of the Committee included:
• overseeing the development of a more streamlined
Executive Committee to support the strategy and
governance of the wider Group;
• overseeing the search and selection process for the new
role of Chief operating officer;
• overseeing the search and selection process for three
replacement appointments within the senior management
team;
• the ongoing review of the talent and succession planning
for the Board and senior management including an
assessment of their training and development needs;
• considering the results of the externally-facilitated review
of the Committee’s effectiveness (see page 59 for further
details;
• a review of Directors’ time commitments and
independence;
• consideration of the re-election of Directors at the Annual
General Meeting; and
• approving updates to the Committee’s Terms of
Reference.
Diversity and inclusion
All Board and senior management appointments are made on
merit, in-line with the policy adopted throughout the Group’s
workforce. The Board recognises and embraces the benefits of
diversity and, in particular, the value that different perspectives and
experience bring to the quality of debate and decision-making.
There are several considerations which are taken into account
when considering appointments at all levels such as background,
experience, and skill set, as well as shareholder perspectives.
However, the Board believes that setting targets for the number of
people from a particular background or gender is not the most
effective approach to take. The Board will therefore look to follow
the principles of this policy rather than specified quotas or targets.
In line with this approach, a procedure has been implemented
during the year to ensure female applicants for all supervisory,
managerial and senior managerial vacancies are given an
automatic right to interview, to ensure greater opportunity and
encouragement of internal promotion and cross departmental shift.
Following the appointment of sucheta Govil as an independent
Non-executive Director in 2018, 17% (1 out of 6) of the Board is
female, along with 26% (9 out of 35) of the senior management.
This reflects the ongoing commitment to consider diversity as a
key factor in future senior appointments. However, the overriding
policy in any new appointment is to select candidates based on
merit to ensure the continued success of the business.
Gender balance
The gender balance of those in the senior management and their
direct reports is included within the Corporate social
Responsibility section on page 32.
Succession planning
As part of the development of the Executive Committee noted
above, the Nomination Committee has considered succession
planning for appointments to the Board and to senior
management, so as to maintain an appropriate balance of skills
and experience within the Company and on the Board.
This planning process includes an analysis of any succession
gaps or risks identified and includes contingency plans for the
sudden or unexpected departure of Executive Directors and other
senior managers.
As a result, the Board has a good understanding of succession
planning across the Group and the range of measures being used
to continue to develop and recruit talented senior employees.
Executive Committee
Paul Walker
Group Company Secretary
paul joined Eurocell in August 2019 and was appointed Group
Company secretary in september 2019. He previously worked
for DFs Furniture plc where he was Financial Controller and,
most recently, Director of Central Finance and Group
Company secretary. He is a member of the Institute of
Chartered Accountants in England and Wales.
Ian Kemp
Sales Director – Profiles division
Ian joined Eurocell in 2012 and is sales Director for the profiles
Division. prior to that, he worked in the offsite construction
industry for 12 years including Business Development Director
for Caledonian Modular and uK sales Manager for portakabin.
Mark Hemming
Chief Operating Officer
Mark joined Eurocell in August 2019 having previously worked
for Amazon uK for 6 years, most recently as Regional Director
for Customer Fulfilment. prior to that, Mark has experience of
leading manufacturing plants in the automotive sector for
stadco limited and Textron Automotive.
Chris Coxon
Head of marketing
Chris joined Eurocell as Marketing Manager in 2007, becoming
Head of Marketing in 2010, and also has responsibility for
Customer services and New product Development. previously,
he worked for portakabin ltd in a number of marketing roles.
Chris is a member of the Chartered Institute of Marketing (CIM).
Bruce Stephen
Group Human Resources Director
Bruce joined Eurocell in July 2019 as the Group Human
Resources Director. He previously worked for Greencore holding
various roles including, most recently, Corporate services Human
Resources Director. prior to Greencore, Bruce worked for
Danone (Dairy) and Walkers snacks (pepsiCo).
Andy McDonnell
managing Director – Building Plastics division
Andy joined Eurocell in May 2018 and has a 30 year career
spanning across Retail and Trade, including senior board
positions at B&Q, Tradepoint and oak Furniture land. He is
an experienced senior business leader that has delivered
ambitious change and performance across global brands.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
67
C_GEN_PageC_GEN_PageL2C_GEN Section/ Audit and Risk Committee Report
Audit and Risk Committee Report
Chair
Members
Frank Nelson
Martyn Coffey
sucheta Govil
Dear Shareholder,
I am pleased to report to you on the Audit and Risk
Committee’s objectives and activities during 2019.
This report, which is part of the Directors’ Report, explains how
the Audit and Risk Committee has discharged its responsibilities
during 2019, and reflects the recent changes to reporting under
the Code. I hope you find it useful and informative.
During the year, in addition to its routine reviews of external
financial reporting, the Committee has received regular progress
updates on the Group’s implementation of the new lease
accounting standard IFRs 16 which is applicable for the first time
in 2019. I am pleased to note the Group’s adoption, in conjunction
with the external auditors, has been performed smoothly.
In accordance with best ethical standards, and pwC llp’s
partner rotation policy, I can confirm the current audit engagement
partner will step-down following the 2019 audit, after five years of
client service to Eurocell. on behalf of the Committee, I would like
to thank Mark smith for his contribution and for the transitional
arrangements which are in place for his successor.
In-line with best practice, an externally-facilitated review of the
Committee’s effectiveness was concluded this year and I am
pleased to report that no significant areas of concern were
identified and the Committee was viewed as operating effectively.
Finally, I would like to thank my fellow Committee members,
all of whom have served throughout the year, for their valuable
contribution and support, and I welcome any comments or
questions from shareholders.
Frank Nelson
Chair of the Audit and Risk Committee
12 March 2020
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 Group’s business and
performance over the relevant period;
• review the Group’s financial reporting systems and 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 Group’s outsourced internal auditor and from
the external auditor;
• review and update the Group’s risk register, as part of the
assessment of emerging and principal risks;
• review the Group’s procedures to ensure compliance with the
provisions of the Bribery Act 2010 and the Group’s
whistleblowing policy;
• review the external auditor’s 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;
• monitor and review the effectiveness of the outsourced internal
audit function, including a review of the internal audit plan, all
internal audit reports, and management’s responses to the
findings and recommendations of the internal audit function;
• consider the adequacy of the Group’s finance function;
• review the Group’s Tax strategy; and
• review the Committee Terms of Reference.
The role of the Audit and Risk Committee is to oversee financial
reporting. The Committee reviews the ongoing effectiveness of
the Group’s internal controls and provides assurance on the
Group’s risk management processes. The Committee also
assesses information received from the external and internal
audit functions.
Following the 2019 year end, at the March 2020 meeting, the
Committee reviewed and recommended for approval by the
Board, the financial results for the year ended 31 December 2019,
including a review of the full-year external audit.
68
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OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Summary of activities during the year
The Audit and Risk Committee met formally four times during the
year and attendance at the meetings is shown on page 60.
The areas of particular focus for the Committee in
2019, and up to the date of this Annual Report, were
as follows:
• Reviewed the 2018 and 2019 Annual Reports, as well as
the 2019 Half-Year Report, including preliminary
announcements.
• Considered information presented by management on
significant accounting estimates and judgements adopted
in respect of the Group’s 2018 and 2019 Financial
statements and the 2019 Half-Year Report.
• Reviewed reports from the external auditor setting out
their findings as a result of their audits for the years ended
31 December 2018 and 2019, as well as their review of the
2019 Half-Year Report.
• Reviewed the external auditor’s plan for their audit for the
year ended 31 December 2019.
• Reviewed documentation prepared to support the viability
statement and going concern assumption set out on
page 50.
• Considered the impact of new accounting standards and
financial reporting requirements, including guidance
issued by the Financial Reporting Council (‘FRC’).
• 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, including principal and
emerging risks.
• Considered reports prepared by the Group’s outsourced
internal audit function.
• Considered the results of the externally-facilitated
assessment of the Committee’s effectiveness.
• Approved updates to the Committee’s Terms of Reference.
• Reviewed, and approved updates where applicable, to
Group policies for anti-bribery, whistleblowing, capital
expenditure and treasury, along with the Group tax strategy.
• Considered the impact of the revised ethic standard issued
by the FRC in December 2019.
The Committee was also kept up to date with changes to
accounting standards and developments in financial reporting,
company law and other regulatory matters through presentations
from the external auditor, Chief Financial officer and the
Company’s Finance function.
As part of that review process, the members of the Committee
reviewed the Annual Report, including the adequacy of the
disclosure with respect to going concern and viability reporting, in
order to conclude whether the Annual Report taken as a whole
was fair, balanced and understandable.
This additional review by the Audit and Risk Committee,
supplemented by advice received from external advisers during
the drafting process, assisted the Board in determining that the
report was fair, balanced and understandable at the time that it
was approved.
The Committee considered the appropriateness of preparing the
accounts on a going concern basis, including consideration of
forecast plans, and supporting assumptions, as well as sensitivity
analysis and concluded that the Company’s financial position was
such that it continued to be appropriate for accounts to be
prepared on a going concern basis.
Composition
The Audit and Risk Committee is chaired by Frank Nelson and
comprises all three of the Non-executive Directors, but not the
Chair of the Board, all of whom have served on the Committee
throughout the whole year.
The Governance Code recommends that all members of the Audit
and Risk Committee are Non-executive Directors, independent in
character and judgement and free from any relationship or
circumstance which may, could or would be likely to, or appear to,
affect their judgement and that one such member has recent and
relevant financial experience.
The Board considers that, by virtue of his extensive experience,
details of which are set out on page 55, Frank Nelson, a Fellow of
the Chartered Institute of Management Accountants, has recent
and relevant financial experience and the Company complies with
the requirements of the Governance Code in this respect.
Furthermore, all Committee members have extensive relevant
commercial and operational experience, particularly in building/
construction organisations, which both benefit the Committee and
collectively illustrate its competence relevant to the sector in which
the Group operates.
only members of the Committee have the right to attend
Committee meetings, but both the internal and external auditors
were invited to attend all meetings during the year, as a matter of
course. other individuals, such as the Chief Executive officer, the
Chief Financial officer and other members of the Board were
invited to attend the Committee meetings as and when
appropriate. The Group Company secretary also attends by
invitation in order to maintain a record of the meetings.
In addition, the external auditor met regularly with the Committee
without executive management being present and met separately
with each of the Audit and Risk Committee Chair and the Chief
Financial officer.
The Audit and Risk Committee will meet as often as it deems
necessary but, in accordance with its terms of reference, at least
three times a year.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
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C_GEN_PageC_GEN_PageL2C_GEN Section/ Audit and Risk Committee Report continued
Key accounting estimates and judgements
As described above, the Committee reviewed the key estimates and judgements used in the preparation of the Group’s 2019 Financial
statements (including a review of pwC’s report and a discussion of their observations and findings in this area) as follows:
Area
Estimate/Judgement
Management’s approach
Committee’s review
Inventory
valuation
provisions for slow-moving
items and discontinued
product lines
Accounts
receivable
recoverability
provisions for bad and
doubtful debts
Assessment of the appropriate level of
provisioning against obsolescence,
undertaken in the context of current
trading and the forecast for the next
financial year
Adoption of IFRs 9’s expected credit
loss approach to the impairment of
receivables, which requires the use of
forward-looking statistical modelling to
determine the appropriate level of
provision
Critically reviewed the carrying value of
the Group’s inventory, the approach
taken by management and assessed the
reasonableness of the underlying
assumptions and financial forecasts
used1.
Critically evaluated the methodology with
respect to setting provisions for potential
bad and doubtful debts, as well as the
absolute level of provisions held2.
Contract asset
valuation
Carrying value/impairment of
contract payments made to
customers
Assessment of contract profitability and
potential impairment, undertaken in the
context of current and forecast trading
levels
Considered the reasonableness of the
key estimates and underlying
assumptions and forecasts, as well the
absolute asset value
IFRS 16 leases
Value of right-of-use asset and
associated lease liability
Adoption of the modified retrospective
approach to implementation, including
the determination of lease terms (taking
into account potential break clauses or
lease-extensions) and the appropriate
discount rate to be applied to future
cashflows
Reviewed the methodology used and
considered the reasonableness of the
key estimates and underlying
assumptions
Notes:
1 The Committee noted that there continues to be considerable management focus on both the optimisation of finished goods inventory levels and, looking forward,
on the operational controls over the management of inventory.
2 The Committee’s review also took into account the specific nature and characteristics of customers in the Group’s 2 major divisions.
Risk management
The Group’s risk management processes are set out in detail on
pages 44 to 45.
The Group maintains a risk register that identifies key and
emerging risks, the probability of those risks occurring and the
impact they would have on the Group if unmitigated. Against each
gross risk, the controls that exist to manage and, where possible,
minimise or eliminate those risks are also listed, and an
assessment of net risk is provided. 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 Group’s Risk Management Committee is chaired by the Chief
Financial officer. This Committee reviews significant risks and the
status of related mitigating actions each quarter.
The Audit and Risk Committee reviews the risk register twice per
year to ensure the timely identification and robust management of
inherent and emerging risks is taking place. 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 reported by the Audit and Risk
Committee to the Board.
Internal controls
The Board is responsible for the overall system of internal controls
for the Group and for reviewing its effectiveness. In accordance
with FRC guidance, it carries out such a review at least annually,
covering all material controls including financial, operational and
compliance controls and risk management systems.
In particular, the Board discharges its duties in this area by:
• holding regular Board meetings to consider the matters
reserved for its consideration;
• receiving regular management reports which provide an
assessment of key risks and controls;
• scheduling annual Board reviews of strategy including reviews
of the material risks and uncertainties facing the business;
• ensuring there is a clear organisational structure with defined
responsibilities and levels of authority which are regularly
reviewed;
• ensuring there are documented policies and procedures in
place; and
• scheduling regular Board reviews of financial budgets
and forecasts with performance reported to the Board on a
regular basis.
The Group has several operating policies and controls in place
covering a range of issues including financial reporting, capital
expenditure, business continuity and information technology,
including cyber security, and appropriate employee policies. These
policies are designed to ensure the accuracy and reliability of financial
reporting and govern the preparation of financial statements.
70
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
In reviewing the effectiveness of the system of internal controls,
the Audit and Risk Committee will continue to:
• review the risk register compiled and maintained by senior
managers within the Group at least bi-annually and question
and challenge where necessary;
• regularly review the systems of financial and accounting
controls; and
• report to the Board on the risk and control culture within
the Group.
In respect of the Group’s financial reporting, the Finance
Department is responsible for preparing the Group financial
statements using a well-established process and ensuring that
accounting policies are in accordance with International Financial
Reporting standards. All financial information published by the
Group is subject to the approval of the Audit Committee.
There have been no changes in the Company’s internal control
during the financial year under review that have materially affected,
or are reasonably likely to materially affect, the Company’s control
over financial reporting. The Board, with advice from the Audit and
Risk Committee, is satisfied that an effective system of internal
controls and risk management is in place which enables the
Company to identify, evaluate and manage key and emerging risks
and which accords with the guidance published by the FRC.
These processes have been in place since the start of the financial
year and up to the date of approval of the accounts. Further
details of specific material risks and uncertainties facing the
business can be found on pages 46 to 49.
Internal audit
KpMG llp provide an outsourced Internal Audit function which
complements the internal finance-based checks performed on the
branch network operations.
During 2019, the Committee worked with KpMG llp to agree the
programme for the year, which included reviews of the processes
and controls relating to capital expenditure, procure-to-pay and
cyber-security.
The Committee also formally reviews the Group’s progress in
implementing the improvement recommendations raised through
the internal audit process in conjunction with the Executive
Committee, who monitor a report on the status of the outstanding
actions on a monthly basis. Both Committees found the progress
during 2019 to be satisfactory.
External audit and auditors’ independence
The Audit and Risk Committee has primary responsibility for making
a recommendation to the Board on the appointment, reappointment,
removal and remuneration of the external auditors. It keeps under
review the scope and results of the audit, its cost-effectiveness
and the independence and objectivity of the auditors.
The external auditor is required periodically to assess whether, in
its professional opinion, it is independent and those views are
shared with the Audit and Risk Committee. The Committee has
authority to take independent advice as it deems appropriate in
order to resolve issues on auditor independence. No such advice
has been required to date. There are no contractual obligations in
place that restrict the choice of statutory auditor.
The Group’s current auditors, pwC llp were appointed at the
Audit and Risk Committee meeting on 29 April 2015, following the
Company’s Ipo in March 2015. As a result, pwC llp may remain
as external auditor without re-tender for ten years from that date,
until the completion of the 2025 annual audit. The Committee
considers the need to tender the audit on an annual basis and
there are no current plans to perform such a tender.
In accordance with best ethical standards, pwC llp has
processes in place designed to maintain independence, including
the rotation of the audit engagement partner at least every five
years. As a result of these processes, the current audit
engagement partner will step-down following the 2019 audit and
transitional arrangements are in place for his successor.
The Committee has also adopted policies to safeguard the
independence of its external auditors. Any work awarded to the
external auditors 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 auditors could be compromised, the
work will not be awarded to the auditors. Details of amounts paid
to pwC llp for audit and audit related assurance services in 2019
are set out on page 114. The audit related assurance services
provided were in relation to the half-year report.
prior to recommending the appointment of pwC llp at the
forthcoming AGM to the Board, the Committee reviewed the audit
process, the performance of the auditor and its ongoing
independence, taking into consideration input from management,
responses to questions from the Committee and the audit findings
reported to the Committee. Based on this review, the Committee
concluded that the external audit process had been run efficiently
and that pwC llp has been effective in its role as external auditor.
The Committee is satisfied that the independence of the external
auditor is not impaired and the level of fees paid for non-audit
services, details of which are set out in Note 5 to the Financial
statements, does not jeopardise its independence. In conclusion,
the Committee has assessed the performance and independence
of the external auditor and recommended to the Board the
re-appointment of pwC llp as auditor until the AGM in 2021.
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. During the year, there was one report
received through the whistleblowing process which was fully
investigated and addressed in accordance with the policy.
The Audit and Risk Committee also takes responsibility for
reviewing the policies and procedures adopted by the Group to
prevent bribery. The Group is committed to a zero-tolerance
position with regard to bribery. The Committee is satisfied that the
Group’s procedures with respect to these matters are adequate.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
71
C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report
Directors’ Remuneration Report
Chair
Members
Martyn Coffey
Bob lawson
Frank Nelson
sucheta Govil
Dear Shareholder,
I am pleased to report to you on the main activities
of the Committee and how it has performed its duties
during 2019.
During the year, we concluded our review of the Directors’
Remuneration policy, incorporating the requirements of the new
Corporate Governance Code, for which we received strong
shareholder support at the 2019 AGM, where it was approved
with over 99% of votes in favour.
As a result, only one remuneration resolution will be tabled at the
2020 AGM i.e. the advisory shareholder vote on the Annual Report
on Remuneration.
In addition, we have assessed year-end outcomes and approved
new awards and targets regarding annual bonuses and the
long-Term Incentive plan, as well as reviewing basic salary levels,
all of which the Committee believes reflect Group performance, in a
challenging economic and political environment, and provide
stretching targets for future growth.
In line with best practice, an externally-facilitated review of the
Committee’s effectiveness was concluded this year and I am
pleased to report that no significant areas of concern were
identified and the Committee was viewed as operating effectively.
Finally, I would like to thank my fellow Committee members, all of
whom have served throughout the year, for their valuable
contribution and support, and I welcome any comments or
questions from shareholders.
Role and responsibilities:
The Committee’s principal responsibilities are to:
• Recommend to the Board the remuneration strategy and
framework for the Chair, Executive Directors and senior
management.
• Determine, within that framework, the individual remuneration
arrangements for the Executive Directors and senior managers.
• oversee any major changes in employee benefit structures
throughout the Group.
Summary of activities during the year
The Committee met three times during 2019. The main
Committee activities during the year (full details of
which are set out in the relevant sections of this
report) included:
• agreeing the performance against the targets and pay-out
for the 2018 annual bonus awards;
• agreeing Executive Director and senior management base
salary increases from 1 April 2019;
• setting the performance targets for the 2019 annual
bonus;
• agreeing the award levels and earnings per share and
operating cash flow targets for the 2019 performance
share plan (‘psp’) awards;
• consulting with the Company’s major investors and
representative bodies in respect of the new Remuneration
policy; and
• considering the 2018 uK Corporate Governance Code
and updating the Remuneration Committee terms of
reference; finalising the Remuneration policy that was
proposed to shareholders at the 2019 AGM.
Martyn Coffey
Chair of the Remuneration Committee
12 March 2020
Pay for performance
our senior management team delivered good progress against
our strategic priorities and robust financial results in 2019.
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C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
The highlights include further increases in market share, with
strong sales growth of 10% driven from all areas of the business.
Gross margin improved by 170 bps to 51.2%, which reflects a
benefit from selling price increases implemented to recover cost
inflation and higher usage of recycled material. overheads were
up 12% (on a like-for-like basis) which includes the impact on
direct labour from higher production volumes.
However, we also continued to incur some operating
inefficiencies, which resulted in additional warehousing and
distribution costs, particularly through the peak period. As
described in earlier sections of this Annual Report, Mark Hemming
joined the business as Chief operating officer in August. Mark is
leading our drive to improve operating efficiency, with the capex
programme launched at the beginning of the year to increase
co-extrusion and foam capacity now complete and the project to
expand our warehousing capacity now well underway.
As a result, we reported profit before tax of £23.1 million, up 3%
on 2018, on a pre-IFRs 16 basis. Cash conversion was impacted
by working capital investment required to support the strong sales
growth and a stock build programme designed to mitigate the
possible impact of raw material supply interruption due to Brexit,
and to increase stock holding at our branches. Adjusted operating
cash flow was £18.7 million (2018: £22.0 million) being adjusted
EBITDA (pre-IFRs 16) less working capital movements.
Against stretching targets, this performance has been reflected in the
payments made to the Executive Directors under the Annual Bonus
plan, amounting to 49% of salary, with the health and safety underpin
considered satisfied. Further details of performance against the
relevant targets can be found on page 81 of this report.
psp awards originally granted in 2017 are expected to lapse in
2020 as a result of earnings per share and cash flow performance
in the three years to 31 December 2019 being below threshold.
Changes to the remuneration policy
Following a detailed review of the Remuneration policy, the changes
approved to Eurocell’s remuneration policy at the 2019 AGM
were as follows:
• Annual bonus deferral was formalised and made compulsory.
previously, the Committee could determine each year whether
to operate bonus deferral into shares (most recently deferring
half of the bonus paid). Going forwards, 100% of any annual
bonus awarded to Executive Directors above 75% of salary will
be compulsorily deferred into Eurocell shares for 3 years from
grant. This new approach is considered to be simpler from an
administrative perspective, where low levels of bonus are
awarded, and is considered fairer as participants will have
greater certainty in respect of the level of deferral that will be
operated. It also ensures that the bonus potential is competitive
against similarly sized smallCap companies. Formally deferring
half of any annual bonus awarded on a compulsory basis is
considered too onerous from both an administrative and market
competitive perspective.
• shareholding guidelines were increased from 100% to 200% of
salary, in line with best practice. However, rather than operating
a fixed timeframe to achieve the guidelines, a more market
standard approach will be adopted. Going forwards, Executive
Directors will be required to retain 50% of the net of tax shares
which vest under deferred bonus and psp awards until the
new guideline is met.
• To ensure compliance with the 2018 uK Corporate Governance
–
Code:
– a 2 year post-vesting holding period has been introduced
for all psp awards granted to Executive Directors after the
2019 AGM; and
future Executive Director appointments will be offered a
lower pension than the 15% of salary currently offered, to
the extent this is possible, so as to align senior executive
pension provision closer to workforce norms over time. No
changes have been made to incumbent pension provision.
Implementation of the Remuneration Policy
for 2020
The Remuneration Committee intends to operate the
Remuneration policy for 2020 as follows.
Base salaries
salary levels will be positioned to reflect experience and
responsibility. Mark Kelly’s and Michael scott’s current salaries
are £393,271 and £251,257 respectively. With effect from 1 April
2020, these salaries will be increased by 5%.
Pensions/benefits
A defined contribution/salary supplement of 15% of salary
will continue to be offered, together with a standard suite of
other benefits.
Annual bonus
The maximum annual bonus remains at 100% of salary. For 2020,
reflecting Eurocell’s underlying strategy, 70% of the bonus will be
based on adjusted profit before tax and 30% will be based on
cash flow targets. The targets will be subject to a health and
safety underpin. Any bonus in excess of 75% of salary will be
deferred into shares for 3 years.
Long-term incentives
psp awards are expected to be made in April 2020. Award levels
will be set at 100% of salary for Mark Kelly and Michael scott.
performance targets will be based on 3-year earnings per share
growth (two-thirds of the award) and cash flow (one-third) targets.
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.
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 2020 AGM; and
(ii) the relevant Regulations do not require us to reproduce our
Remuneration policy in this report;
we have included, for ease of reference, a summary of our
policy (see part A below) in addition to the Annual Report on
Remuneration section of the report (see part B below), in respect of
which we will be holding an advisory vote at the forthcoming AGM.
The full Directors’ Remuneration policy was disclosed in the 2018
Annual Report and is available on the Company’s website.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
73
C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
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, and is split into two parts,
as follows:
• part A: The Directors’ Remuneration policy – which sets out a summary of the Remuneration policy for which shareholder approval
was obtained at the 2019 AGM and which will continue to apply without amendment for the forthcoming year.
• part B: The Annual Report on Remuneration – which sets out payments and awards made to the Directors and details the link
between Company performance and remuneration for 2019 and how the policy will be operated for 2020.
The auditors have reported on certain parts of the Annual Report on Remuneration and stated whether, in their opinion, those parts
have been properly prepared in accordance with the Companies Act 2006. Those parts 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.
Benefits
To provide benefits
valued by recipients.
Pension
To provide retirement
benefits.
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 normally paid monthly
in cash.
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.
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.
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.
n/a
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.
The maximum employer’s
contribution is limited to up to 15% of
base salary, although future
Executive Director appointments will
be offered a lower pension, to the
extent this is possible, so as to align
senior executive pension provision
closer to workforce norms over time.
n/a
74
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C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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
psp.
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.
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.
Any annual bonus award above 75%
of salary will be compulsorily deferred
into Eurocell shares, under the
Company’s Deferred share plan
(‘Dsp’), for 3 years from grant.
The number of shares subject to
vested Dsp 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
the vesting period.
Malus and clawback provisions apply
to the Annual Bonus plan and Dsp.
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 3
years.
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
the vesting period (or at the end of
any holding period in respect of
unexercised awards).
A two-year post-vesting holding
period applies to psp awards granted
to Executive Directors after the 2019
AGM.
Malus and clawback provisions apply
to psp awards
The maximum level of Annual Bonus
plan outcomes is 100% of base
salary per annum for the duration of
this policy.
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.
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) 3 years.
No more than 25% of
awards vest for attaining
the threshold level of
performance conditions.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
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C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
Element and purpose
policy and operation
Maximum
performance measures
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.
Executive Directors are required to
retain 50% of the net of tax shares
which vest under the psp and Dsp
awards until the guideline is met.
No maximum limit (Guideline
minimum target of 200% of base
salary for all Executive Directors.)
n/a
These are all-employee share plans
established under HMRC tax-
advantaged regimes and follow the
usual form for such plans.
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.
Executive Directors will be able to
participate in all-employee share
plans on the same terms as other
Group employees.
Chair and Non-executive Directors
Element and purpose
policy and operation
Maximum
performance Measures
Chair/Non-executive
Director fees
To enable the Company
to recruit and retain
Chairs and Non-executive
Directors of the highest
calibre, at the appropriate
cost.
The fees paid to the Chair and
Non-executive Directors aim to be
competitive with other fully listed
companies of equivalent size and
complexity.
The fees payable to the Non-
executive Directors are determined by
the Board, with the Chair’s fees
determined by the Remuneration
Committee. Fees are paid monthly in
cash.
The Chair and Non-executive
Directors will not participate in any
cash or share incentive arrangements.
The Company reserves the right to
provide benefits (including travel and
office support) to the Chair and
Non-executive Directors where
appropriate.
n/a
The aggregate fees (and any benefits)
of the Chair and Non-executive
Directors will not exceed the limit
from time to time prescribed within
the Company’s Articles of
Association.
If the Chair 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.
76
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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 Chair/Non-executive Director would be recruited on the terms explained above in respect of the main policy for such Directors.
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 twelve months’ notice by either party. The service agreements of both 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
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
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C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
Chair/Non-executive Directors
The Chair 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 Chair 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.
Name
Bob Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Date of original appointment
Date of latest appointment
4 February 2015
4 February 2015
4 February 2015
1 october 2018
2 February 2018
2 February 2018
2 February 2018
1 october 2018
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
DSP
PSP
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.
Will receive a pro-rated award subject to the application
of the performance conditions at the end of the normal
performance period.
All awards will normally
lapse.
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).
Awards vest on a pro rata
basis, unless the
Committee determines not
to pro-rate.
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, the 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.
Other policy matters
The 2018 Annual Report also set out formal details of our approach to:
• travel and hospitality;
• 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;
• the operation of malus and clawback in relation to the psp and annual bonus; and
• how the views of shareholders are taken into account.
78
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Illustrations of application of remuneration policy
CEO
CFO
Share price growth
PSP
Annual bonus
Fixed pay
£1,538k
13%
£1,332k
31%
27%
£816k
13%
25%
31%
27%
400
100%
62%
38%
33%
1,600
1,400
1,200
1,000
0
0
0
£
800
600
£506k
200
0
£845k
£977k
14%
31%
27%
31%
27%
£515k
13%
25%
62%
38%
32%
£317k
100%
Minimum
Target
Maximum
Maximum
with share
price growth
Minimum
Target
Maximum
Maximum
with share
price growth
The charts above aim to show how the remuneration policy for Executive Directors will be applied in 2020 using the assumptions in the
table below.
Minimum
• Consists of base salary, benefits and pension.
• Base salary is the salary to be paid with effect from 1 April 2020.
• Estimated value of a full year’s benefits, including car allowance, private medical cover, health insurance
and life assurance.
• pension measured as the cash allowance in lieu of Company contributions at 15% of salary.
Target
Maximum
Mark Kelly
Michael scott
Base salary
Benefits
pension
Total fixed
£412,935
£263,820
£31,000
£14,000
£61,940
£39,573
£505,875
£317,393
Based on what the Director would receive if performance was on-target (excluding share price appreciation
and dividends):
• Annual bonus: consists of an assumed payment of 50% of maximum opportunity.
• long-term incentives: consists of the threshold level of vesting (25% vesting) under the psp.
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.
Maximum with
Share Price Growth
As per the maximum but with a 50% share price growth assumption for the psp awards.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
79
C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
PART B: THE ANNUAL REPORT ON REMUNERATION
The Committee (unaudited information)
The members of the Remuneration Committee are: Martyn Coffey (Chair), Bob lawson, Frank Nelson and sucheta Govil.
The Committee’s principal responsibilities are to:
• recommend to the Board the remuneration strategy and framework for the Chair, 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 three 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 (www.investors.eurocell.co.uk).
During the year, the Committee considered its obligations under the uK Corporate Governance Code and concluded that:
• the Directors’ Remuneration policy supports the Company’s strategy (including in the performance measures chosen); and
• remuneration for our Directors remains appropriate.
In addition, the Committee has ensured that the Directors’ Remuneration Policy and practices are consistent with
the six factors set out in Provision 40 of the Corporate Governance Code:
Clarity – our Directors’ Remuneration policy is well understood by our senior executive team and has been clearly articulated to
our shareholders and representative bodies (both on an ongoing basis and during a consultation when changes are being
proposed).
Simplicity – The Committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood
and deliver unintended outcomes. Therefore, a key objective of the Committee is to ensure that our Directors’ Remuneration policy
and practices are straightforward to communicate and operate.
Risk – our Directors’ Remuneration policy has been designed to ensure that inappropriate risk-taking is discouraged and will not
be rewarded via (i) the balanced use of both annual incentives and long-term incentives which employ a blend of targets, (ii) the
significant role played by shares in our incentive plans (together with bonus deferral and shareholding guidelines) and (iii) malus/
clawback provisions within all our incentive plans.
Predictability – our incentive plans are subject to individual caps, with our share plans also subject to standard dilution limits.
The use of shares within our incentive plans results in that actual pay received being highly aligned to the experience of our
shareholders.
Proportionality – There is a clear link between individual awards, delivery of strategy and our long-term performance. In addition,
the significant role played by variable pay, together with the composition of the Executive Directors’ service contracts, ensures that
poor performance is not rewarded.
Alignment to culture – our executive pay policies are fully aligned to the Company’s culture through the use of metrics in both
the annual bonus and psp that measure how we perform against key aspects of our strategy, which has the objective of delivering
sustainable growth in revenue, profit and cash flow.
FIT Remuneration Consultants llp (‘FIT’), signatories to the Remuneration Consultants Group’s Code of Conduct, are 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 2019 were £12,326 (excluding VAT). FIT’s fees were charged on the basis of the firm’s standard terms of
business for advice provided.
80
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Audited information
Single total figure table (audited)
The remuneration for the Chair, Executive and Non-executive Directors of the Company who performed qualifying services during the
relevant financial year is detailed below. The Chair and Non-executive Directors received no remuneration other than their annual fee.
For the year ended 31 December 2019:
Director
Mark Kelly
Michael scott
Robert lawson
patrick Kalverboer3
Frank Nelson
Martyn Coffey
sucheta Govil4
salary/fees
£000
Taxable benefits1
£000
389
248
120
17
48
45
40
33
212
–
–
–
–
–
Bonus
£000
193
124
–
–
–
–
–
long-term
incentives
£000
pension
£000
other
£000
Total remuneration
£000
–
–
–
–
–
–
–
58
37
–
–
–
–
–
–
–
–
–
–
–
–
673
430
120
17
48
45
40
For the year ended 31 December 2018:
Director
Mark Kelly
Michael scott
Robert lawson
patrick Kalverboer
Frank Nelson
Martyn Coffey
sucheta Govil4
salary/fees
£000
Taxable benefits1
£000
Bonus
£000
long-term
incentives
£000
pension
£000
other
£000
Total remuneration
£000
372
238
120
40
48
45
10
31
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56
36
–
–
–
–
–
–
–
–
–
–
–
–
459
288
120
40
48
45
10
Notes:
1 Taxable benefits comprise Company car or car allowance, private family medical cover, permanent health insurance and life assurance.
2
3 patrick Kalverboer stepped-down from the Board on 10 May 2019.
4 sucheta Govil joined the Board on 1 october 2018.
Includes £5k relating to prior years.
The aggregate emoluments (being salary/fees, bonuses, benefits and pension allowances) of all Directors for 2019 was £1,373,000
(2018: £1,010,000).
Further information on the 2019 annual bonus (audited)
In 2019, the annual bonus metrics were a blend of targets relating to adjusted profit before tax (70% of the bonus opportunity) and cash
flow (30% of the bonus opportunity). In addition, a health and safety adjustment underpin applied which, if not achieved, could reduce
the bonus pay-out (including to zero).
More particularly, the adjusted profit before tax and cash flow bonus targets were as follows:
£m
Adjusted profit before Tax (pre IFRs 16)
Adjusted cash flow
Threshold
22.0
19.0
Target
23.2
20.0
Maximum
24.9
21.5
Actual
23.1
18.7
pay-out
(% of max)
70%
0%
In order to reflect the level of stretch within the targets, the Committee determined that a pay-out of 75% of base salary would be
appropriate for an on-target performance this year. performance against the adjusted profit before tax element of the bonus resulted
in a bonus of 70% of that element (i.e. approx. 49% of salary). performance against the cash flow element of the bonus resulted in a
bonus of 0% of that element (i.e. approx. 0% of salary). The health and safety underpin was also considered satisfied.
In total, this results in a total bonus pay-out of 49% of salary. Whilst not required under our Director’s Remuneration policy (which only
requires annual bonus awards above 75% of salary to be deferred), 25% of the annual bonus paid to Mark Kelly and Michael scott will
be deferred into shares for one year from the date of grant under the Dsp.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
81
C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
PSP awards vesting in respect of 2019
The psp values included in the single figure table above relate to awards granted in 2017 which vest in 2020, dependent on Eps and
cash flow performance measured over the 3-year period ended 31 December 2019. As noted below these share awards are not
expected to vest.
under the Eps performance target (two-thirds of awards) which uses a sliding scale, 25% of this part of an award vests where the
mean average annual growth of adjusted earnings per share of 7% p.a. is achieved over the three-year performance period, increasing
pro-rata to full vesting where mean average annual growth of 13% p.a. is achieved.
performance target
Adjusted Eps (pre IFRs 16)
Eps at
31 December
2019
Average
annual Eps
growth
19.7p
(0.5)%
Base Eps
20.0p
Threshold
7% p.a.
24.2p
Maximum
13% p.a.
27.8p
Vesting
%
0%
under the cash-flow target (defined as aggregate of EBITDA less working capital and excluding capital expenditure over the 3-year
period) (one-third of awards), 25% of this part of an award vests for cash flow of £84.9m increasing pro-rata to full vesting for cash flow
of £103.7m.
performance target
Cash flow
Threshold
Maximum
Actual
£84.9m
£103.7m
£69.8m
Vesting
%
0%
As a result of Eps (two-thirds of awards) and cash flow (one-third of awards) performance, no psp share awards are expected to vest
in 2020.
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 2019:
Director
Mark Kelly
Michael scott
Robert lawson
Frank Nelson
Martyn Coffey
sucheta Govil
Beneficially
owned
Beneficially
owned
31 December
31 December
20181
20191
Vested but
unexercised
awards
109,469
14,215
72,811
28,571
10,714
–
109,469
14,215
87,026
43,376
10,714
–
–
–
–
–
–
–
unvested
Dsp
79,210
34,259
–
–
–
–
unvested
psp2
491,944
314,297
–
–
–
–
unvested
sAYE
11,029
11,029
–
–
–
–
shareholding
Guideline
(% of salary)3
shareholding
Guideline
met?3
200
200
–
–
–
–
No
No
n/a
n/a
n/a
n/a
Notes:
1 The beneficial shareholdings set out above include those held by Directors and their respective connected persons.
2 performance-based share awards.
3 shareholding guidelines for Executive Directors are 200% of salary. Executive Directors will be required to retain at least 50% of the net of tax shares which vest under the
psp and Dsp until the guideline is met.
PSP awards granted in 2019
The following awards were made under the psp in 2019:
Mark Kelly
Michael scott
Basis of award
Date of grant
(% salary)
share price1
24 April 2019
24 April 2019
100%
100%
231.0p
231.0p
Number of
shares
170,247
108,768
Face value
of award
at grant
Exercise period
393,271
251,257
April 2022 to April 2023
April 2022 to April 2023
Notes:
1 Rounded to one decimal place for the purposes of presentation in this report.
The performance conditions, all based on pre IFRs 16 results, applying to the awards made in April 2019 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 3 financial years falling in the
performance period.
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STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
More specifically:
Average annual adjusted Eps growth target
to 31 December 2021
Above 10% p.a.
Between 4% p.a. and 10% p.a.
4% p.a.
Below 4% p.a.
portion of award vesting
100%
pro rata on straight-line between 25% and 100%
25%
0%
Group cash flow to 31 December 2021
portion of award vesting
Above £97.0 million
Between £79.4 million and £97.0 million
£79.4 million
Below £79.4 million
100%
pro rata on straight-line between 25% and 100%
25%
0%
DSP awards granted in 2019
No awards were made under the Dsp in 2019 in respect to the 2018 annual bonus.
Outstanding share plan awards
Details of all outstanding share awards made to Executive Directors are set out below:
Executive
Award type
Mark Kelly
Michael scott
psp
psp
psp
psp
Dsp
Dsp
sAYE
psp
psp
psp
psp
Dsp
Dsp
sAYE
Ex
price
(p)
0
0
0
0
0
0
163.2
0
0
0
0
0
0
163.2
Grant date
28/06/16
04/04/17
18/04/18
24/04/19
04/04/17
18/04/18
07/04/17
19/12/16
04/04/17
18/04/18
24/04/19
04/04/17
18/04/18
07/04/17
Interest at
1 January
2019
273,417
148,148
173,549
–
45,502
33,708
11,029
126,006
94,650
110,879
–
12,724
21,535
11,029
Awards
granted
in the year
–
–
–
170,247
–
–
–
–
–
–
108,768
–
–
–
Awards
lapsed
in the year
273,417
–
–
–
–
–
–
126,006
–
–
–
–
–
–
Awards
vested
in the year
Interest at
31 December
2019
Exercise period
Notes
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
148,148
173,549
170,247
45,502
33,708
11,029
–
94,650
110,879
108,768
12,724
21,535
11,029
Jun 19 – Jun 20
Apr 20 – Apr 21
Apr 21 – Apr 22
Apr 22 – Apr 23
Apr 20 – Apr 21
Apr 21 – Apr 22
Apr 20 – oct 20
Dec 19 – Dec 20
Apr 20 – Apr 21
Apr 21 – Apr 22
Apr 22 – Apr 23
Apr 20 – Apr 21
Apr 21 – Apr 22
Apr 20 – oct 20
1
2
3
4
5
6
7
1
2
3
4
5
6
7
Notes:
1 see ‘psp Awards Vesting in Respect of 2018’ section in the 2018 Directors’ Remuneration Report.
2 see ‘psp Awards Vesting in Respect of 2019’ section above.
3 As disclosed in the 2018 Directors’ Remuneration Report.
4 see ‘psp Awards Granted in 2019’ section above.
5 Dsp awards in respect of the 2016 annual bonus award.
6 Dsp awards in respect of the 2017 annual bonus award.
7 Awards granted under the Eurocell plc save As You Earn scheme. Awards are based on a 3-year savings contract with an exercise price of 163.2p.
During the year ended 31 December 2019, the highest mid-market price of the Company’s shares was 245p and the lowest mid-
market price was 196.5p. At 31 December 2019 the share price was 243p.
The aggregate gains by all Directors during 2019 was £nil (2018: £nil).
Payments to past directors (audited)
No payments to past directors were made during the year.
Payments for loss of office (audited)
No payments for loss of office were made during the year.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
83
C_GEN_PageC_GEN_PageL2C_GEN Section/ 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 31 December 2019, 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 similar-sized companies.
Total Shareholder Return Index
200
150
100
Eurocell
FTSE SmallCap
Source: Thomson Reuters
3 Mar 2015
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018 31 Dec 2019
The table below details certain elements of the CEo’s remuneration over the same period as presented in the TsR Index graph:
Year
2019
2018
2017
2016
CEo
Mark Kelly
Mark Kelly
Mark Kelly
Mark Kelly
patrick Bateman
2015
patrick Bateman
single figure of total remuneration
Annual Bonus pay-out
against maximum %
long-term incentive vesting rates
against maximum opportunity %
£673,262
£459,294
£916,442
£560,558
£284,457
£637,098
49%
0%
40%
80%
33%
87%
0%
0%
n/a
n/a
n/a
n/a
As the Company listed in March 2015, part of the 2015 remuneration relates to when Eurocell was a privately owned Company.
84
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STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Percentage change in remuneration of director undertaking the role of CEO (unaudited)
The table below presents the year-on-year percentage change in remuneration for the CEo and for all Group employees:
salary and fees
short-term incentives
All taxable benefits
Notes:
1 percentage increase is not available due to 2018 short-term incentives being £nil.
CEO to employee pay ratio
The table below shows the CEo to employee pay ratio.
percentage increase in remuneration
between 2018 and 2019
CEo
5%
n/a1
6%
All staff
3%
7%
18%
Year
2019
Method
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
option B
34 : 1
27 : 1
21 : 1
Notes to the CEo to employee pay ratio:
1 option B (based on the gender pay gap reporting disclosures) was preferred as this data was already prepared on a Group basis.
2
In line with the gender pay gap reporting regulations, pay for the 25th percentile, median and 75th percentile employees was calculated with reference to 5 April for each
financial year.
3 The ratios shown are representative of the FTE 25th percentile, median and 75th percentile pay for employees within the Group at the gender pay gap reference date.
3 FTE equivalent pay has been calculated using the gender pay gap reporting methodology.
4 The Chief Executive’s salary, benefits, pension, bonus and long-term incentives from the single total figure have been used.
The total pay and benefits and the salary component of total pay and benefits for the employee at each of the 25th percentile, the
median and the 75th percentile are shown below:
Year
2019
salary £’000
Total pay and benefits £’000
25th percentile
Median
75th percentile
25th percentile
Median
75th percentile
19
24
30
20
25
32
Relative importance of spend on pay (unaudited)
The table below details the change in total employee pay between 2018 and 2019 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.
Total gross employee pay
Dividends/share buybacks
The average number of employees during the year was 1,855 (2018: 1,666).
% change
17%
3%
2019
£m
65.5
9.6
2018
£m
56.1
9.3
Statement of voting at General Meeting
The following table shows the results of the binding Remuneration policy vote and the advisory Directors’ Remuneration Report vote at
the 10 May 2019 AGM.
For (including discretionary)
Against
Votes withheld
(Binding Vote)
(Advisory Vote)
Approval of the Directors’ Remuneration policy
Annual Report on Remuneration
Total number of votes
% of votes cast
Total number of votes
% of votes cast
87,361,882
518,633
1,737,500
99.41%
0.59%
–
87,361,882
518,633
1,737,500
99.41%
0.59%
–
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
85
C_GEN_PageC_GEN_PageL2C_GEN Section/ Directors’ Remuneration Report continued
Implementation of policy for 2020 (unaudited information)
Base salary
• Base salaries from 1 April 2019 were as follows: £393,271 for Mark Kelly, and £251,257 for Michael scott. With effect from 1 April
2020, these salaries will be increased by 5% to £412,935 and £263,820 respectively. The salary increase reflects the individuals’
performance in their respective roles over the last 12 months.
Pension
• Contribution rates for Executive Directors will be 15% of salary in 2020.
Benefits
• Details of the benefits received by Executive Directors are set out in Note 1 to the single Total Figure Table on page 81. There is no
intention to introduce additional benefits in 2020.
Annual bonus
• The annual bonus opportunity for 2020 will be structured in a similar manner to 2019. 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) targets.
• These targets, all based on post-IFRs 16 results, 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.
• Any bonus earned above 75% of salary will be deferred into shares for three years.
• Given the competitive nature of the Company’s sector, the specific performance targets for 2020 are considered to be commercially
sensitive and, accordingly, are not disclosed at this time, although the targets will be disclosed in next year’s report in relation to the
2020 bonus outturn.
Long-term incentives
• Awards will be made under the psp in 2020 to the Executive Directors structured in a similar manner to the awards made in 2019,
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, all based on post IFRs 16 results, will be disclosed in next year’s report, with these targets no less
challenging in relative terms than the targets applied to the 2019 psp awards.
Chair and Non-executive Directors’ fees
• The fees of the Chair and Non-executive Directors will remain unchanged from 2019 levels.
• Robert lawson receives a fee of £120,000 p.a. as Chair.
• The Non-executive Directors each receive a fee of £40,000 p.a., with an additional fee of £5,000 p.a. for each of the
Chair of the Audit Committee and Chair of the Remuneration Committee and an additional fee of £3,000 p.a. for the
senior Independent Director.
86
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C_GEN_PageC_GEN_PageL2C_GEN Section/ directors’ Report
ovE rviEW
StratEGic rEport
corporatE GovErnancE
Financial StatEmEntS
Directors’ Report
the directors’ Report includes the corporate Governance
statement set out on pages 57 to 65.
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 54 and 55 and
were in place on the date this directors’ Report was approved, all
of whom served throughout the year
the Group is uK domiciled and the majority of its activity is within
the united Kingdom.
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
8 to 51. specifically, this relates to information on the Group’s
strategy, business model, likely future developments and risk
management.
UK Corporate Governance Code
Matters related to corporate governance and our compliance with
the code are set out in the corporate Governance statement on
pages 57 to 65, which is incorporated herein by reference.
Results
our Financial statements for year ended 31 december 2019 are
set out on pages 92 to 133. 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 6.4 pence (2018:
6.2 pence) per share which, together with the interim dividend of
3.2 pence (2018: 3.1 pence) per share, makes a combined
dividend of 9.6 pence (2018: 9.3 pence) per share.
payment of the final dividend, if approved at the Annual General
Meeting (‘AGM’), will be made on 20 May 2020 to shareholders
registered at the close of business on 24 April 2020. the ex-
dividend date will be 23 April 2020.
dividends paid in the year to 31 december 2019 and disclosed in
the consolidated cash Flow statement of £9.4 million (2018: £9.1
million), is comprised of the 2018 final dividend of 6.2 pence per
share and the 2019 interim dividend of 3.2 pence per share, which
were paid in May 2019 and october 2019 respectively.
Tax governance
our tax policy is set out below. It is determined by the Board and
overseen by the Audit and Risk committee. the Board reviews
the policy, and our compliance with it, on an annual basis.
operational responsibility for the execution of the Group’s tax
policy rests with the chief Financial officer, who reports the
Group’s tax position to the Audit and Risk committee on a
regular basis.
Tax Policy
We are committed to compliance with tax law and practice in the
uK. compliance for us means paying the amount of tax we are
legally obliged to pay and doing so in the right place, at the right
time. It involves disclosing all relevant facts and circumstances to
the uK tax authorities in ways that reflect the economic reality of
the transactions we undertake, and claiming appropriate reliefs
and incentives where available
Risk management
the level of risk that we accept in relation to uK tax is consistent
with our overall objective of achieving certainty in the Group’s tax
affairs. At all times, we seek to comply fully with our regulatory and
other obligations, and to act in a way that upholds our core values
and reputation as a responsible corporate citizen. We see
compliance with tax legislation as key to managing tax risk, and
understand the importance of tax in the wider context of business
decisions.
processes have been put in place to ensure tax is considered as
part of our overall decision-making processes, with tax risks
managed by local finance teams and escalated through to
appropriate levels of management and, ultimately, to the Board
when necessary.
Tax planning
In structuring our commercial activities, we will always consider –
among other factors – the relevant tax laws. We believe that it is
fair to mitigate tax using generally available reliefs in the spirit in
which they are intended. However, any tax planning that we
undertake will have commercial and economic substance and we
will not use aggressive tax planning or enter into complicated tax
avoidance schemes.
Although for commercial reasons we may trade with customers
and suppliers genuinely located in countries considered to be tax
havens, we will not use such jurisdictions for the purpose of
avoiding tax, nor will we seek to take advantage of the secrecy
afforded to transactions recorded in these jurisdictions.
Engaging with HMRC
We aim to have a good working relationship with HMRc. We will
engage with honesty and integrity, and in a spirit of cooperative
compliance. We will make all returns and pay tax on a timely
basis, across all types of tax.
Share Capital
details of our issued share capital, including movements during
the year, are shown in note 25 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 2019, we had 100,335,353 (2018: 100,310,472)
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.
EurocEll plc AnnuAl RepoRt And Accounts 2019
87
C_GEN_PageL2C_GEN Section/ Directors’ Report continued
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
the 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
The Company operates a number of share schemes.
long-Term Incentive plans payable to executives and senior
managers are operated under our performance share plan
(‘psp’). Executive Directors and some members of senior
management have a proportion of their annual bonus deferred for
three years under our Deferred share plan (‘Dsp’). The Company
also operates save As You Earn (or “sharesave”) schemes, which
are available to all employees.
All shares issued under these plans carry the same rights as those
already in issue.
Related party transactions
other than in respect of arrangements set out in Note 29 to
the Financial statements and in relation to the employment of
Directors, details of which are provided in the Remuneration
Committee Report on pages 72 to 86, 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.
Substantial shareholders
As at 31 December 2019, the Company’s major shareholders
were as follows:
shareholder
No. of shares % of voting rights
Aberforth partners
soros Fund Management
Alantra Asset Management
Jo Hambro Capital Management
AXA Investment Managers
santander Asset Management uK
Chelverton Asset Management
Janus Henderson Investors
BlackRock Investment Management
16,343,367
13,559,537
12,934,940
9,560,556
8,396,515
5,679,507
4,920,800
4,056,819
3,608,494
16.3
13.5
12.9
9.5
8.4
5.7
4.9
4.0
3.6
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 www.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 relation to the issue and buyback of shares.
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
2020 AGM.
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 twelve months’ notice from the Company and twelve 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 72 to
86. No change in the interests of the Directors has been notified
between 31 December 2019 and the date of this report.
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 2019 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.
88
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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.
Other matters
Employee disclosure (including Equality and Diversity)
see Corporate social Responsibility on page 32.
Financial risk management
please refer to Note 3 of the Financial statements.
Research and development
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 8 to 51.
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 2019
(2018: £nil).
Greenhouse gas emissions
see Corporate social Responsibility on page 33.
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
Paul Walker
Group Company secretary
12 March 2020
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
89
C_GEN_PageL2C_GEN Section/ statement of Directors’ Responsibilities
Statement of Directors’ Responsibilities
in respect of the Financial Statements
The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting standards (IFRss) as adopted by
the European union and company financial statements in
accordance with united Kingdom Generally Accepted Accounting
practice (united Kingdom Accounting standards, comprising FRs
101 “Reduced Disclosure Framework”, and applicable law). 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 Company and of the
profit or loss of the Group and Company for that period. In
preparing the financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRss as adopted by the European
union have been followed for the Group financial statements
and united Kingdom Accounting standards, comprising FRs
101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in
the financial statements;
• 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 Group and
Company will continue in business.
The Directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the 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.
The Directors are responsible for the maintenance and integrity of
the Company’s website. legislation in the united Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Company’s position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in the
corporate governance section on pages 54 and 55 confirm that,
to the best of their knowledge:
• the Company financial statements, which have been prepared
in accordance with united Kingdom Generally Accepted
Accounting practice (united Kingdom Accounting standards,
comprising FRs 101 “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 IFRss 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 Directors’ Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
In the case of each Director in office at the date the Directors’
Report is approved:
• so far as the Director is aware, there is no relevant audit
information of which the Group and Company’s auditors
are unaware; and
• they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Group and
Company’s auditors are aware of that information.
The Directors’ Responsibility statement was approved by the
Board on 12 March 2020.
Mark Kelly
Chief Executive officer
Michael Scott
Chief Financial officer
90
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STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
91
C_GEN_PageC_GEN_PageL2C_GEN Section/ Financial Statements
Financial
Statements
92
C_GEN_PageC_GEN_PageL2C_GEN Section OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
93
C_GEN_PageC_GEN_PageL2C_GEN Section Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EUROCELL PLC
Independent Auditors’ Report to the members of Eurocell plc
Report on the audit of the financial statements
Report on the audit of the Financial Statements
Opinion
Opinion
In our opinion:
In our opinion:
• Eurocell plc’s Group Financial statements and Company Financial statements (the “Financial statements”) give a true and fair view
• Eurocell plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 31 December 2019 and of the Group’s profit and cash flows for the
of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s profit and cash flows for the
year then ended;
year then ended;
• the Group Financial statements have been properly prepared in accordance with International Financial Reporting standards
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRss) as adopted by the European union;
(IFRSs) as adopted by the European Union;
• the Company Financial statements have been properly prepared in accordance with united Kingdom Generally Accepted
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting practice (united Kingdom Accounting standards, comprising FRs 101 “Reduced Disclosure Framework”, and
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
applicable law); and
• the Financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
Group Financial statements, Article 4 of the IAs Regulation.
the Group financial statements, Article 4 of the IAS Regulation.
We have audited the Financial statements, included within the Annual Report and Accounts 2019 (the “Annual Report”), which
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise:
comprise: the Consolidated statement of Financial position as at 31 December 2019 and the Company statement of Financial position
the Consolidated and Company statements of financial position as at 31 December 2018; the Consolidated statement of
as at 31 December 2019; the Consolidated statement of Comprehensive Income, the Consolidated Cash Flow statement, the
comprehensive income, the consolidated cash flow statement, and the Consolidated and Company statements of changes in equity
Consolidated statement of Changes in Equity and the Company statement of Changes in Equity for the year then ended; and the
for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
notes to the Financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit and Risk Committee.
our opinion is consistent with our reporting to the Audit and Risk Committee.
Basis for opinion
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
We conducted our audit in accordance with International standards on Auditing (uK) (“IsAs (uK)”) and applicable law. our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section
responsibilities under IsAs (uK) are further described in the Auditors’ responsibilities for the audit of the Financial statements section of
of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled
statements in the uK, which includes the FRC’s Ethical standard, as applicable to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical standard were not
provided to the Group or the Company.
provided to the Group or the Company.
Other than those disclosed in note 5 to the financial statements, we have provided no non-audit services to the Group or the
other than those disclosed in note 5 to the financial statements, we have provided no non-audit services to the Group or the Company
Company in the period from 1 January 2018 to 31 December 2018.
in the period from 1 January 2019 to 31 December 2019.
Our audit approach
Our audit approach
Overview
Overview
• Overall Group materiality: £1.1m (2017: £1.3m), based on 5% of underlying profit before tax.
• overall Group materiality: £1.13m (2018: £1.10m), based on 5% of underlying profit before tax.
• Overall Company materiality: £0.6m (2017: £0.7m), based on 1% of total assets.
• overall Company materiality: £0.73m (2018: £0.60m), based on 1% of total assets.
• Financially significant components were determined to be those which represented 15% or
• Financially significant components were determined to be those which represented 15% or more of the
more of the consolidated underlying profits before tax. The financial information of Eurocell
consolidated underlying profits before tax.
Building Plastics and Eurocell Profiles was therefore subject to a full scope audit.
• The financial information of Eurocell Building plastics limited and Eurocell profiles limited were
• Together these represent 88% of consolidated revenues, 89% of consolidated gross profit and
therefore included as a full scope audit.
78% of consolidated net assets.
• Together these represent 90% of the consolidated revenues, 90% of consolidated gross profit and
• For the remaining entities we also scoped in any individual balances which were above £1.1m
78% of consolidated net assets.
and represented 15% or more of the consolidated balance. This resulted in Property, Plant and
• For the remaining entities we also scoped in any individual balances which were above £1.0m and
Equipment for Eurocell Group Limited and Cash for Vista Panels Limited and S&S Plastics
represented 10% or more of the consolidated balance. This resulted in cash balances at Vista panels
Limited being included in our audit scope.
limited, tangible fixed asset balances in Eurocell Group limited and Ecoplas limited, payroll expense
within Eurocell Group limited, provisions in Ecoplas limited; and prepayments within Eurocell Group
out-of-scope subsidiary companies.
limited being included in our audit scope.
• Analytical review procedures were performed over all other remaining balances within the
• Analytical review procedures were performed over all other remaining balances within the out-of-scope
Materiality
Audit scope
Key audit
matters
subsidiary companies.
• Assessment of the valuation of inventory.
• Assessment of the valuation of inventory (Group).
• Provisions against trade receivables.
• Trade receivables provisions (Group).
• Acquisition accounting.
• IFRs 16 (Group).
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
72
/
EUROCELL PLC ANNUAL REPORT AND ACCOUNTS 2018
94
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to to the listing Rules, uK tax legislation and employment law, and we considered the extent to which non-
compliance might have a material effect on the Financial statements. We also considered those laws and regulations that have a direct
impact on the preparation of the Financial statements such as the Companies Act 2006. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the Financial statements (including the risk of override of controls), and determined that the
principal risks were related to either inappropriate journal entries, manipulation of significant estimates or misreporting of significant
and/or unusual transactions. Audit procedures performed by the Group engagement team included:
• Review of correspondence with the regulators and review of correspondence with legal advisors (where applicable);
• Enquiries of management;
• Review of internal audit reports in so far as they related to the Financial statements;
• Review of significant and/or unusual transactions during the year;
• Identifying and testing journal entries with unusual account combinations which result in an impact to revenue or reported profits; and
• Assessing key judgements made by management for evidence of inappropriate bias. Key judgements include the valuation of trade
receivables and inventory, impairment assessments and the use of alternative profit measures.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the Financial statements, the less likely we would become aware of it. Also,
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the Auditors’ professional judgement, were of most significance in the audit of the Financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the Financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Assessment of the valuation of inventory – Group
Refer to pages 44 to 49 (Risk management and principal risks
and uncertainties), pages 68 to 71 (Audit and Risk Committee),
Note 1 (Accounting policies), Note 2 (Critical Accounting
Estimates and Judgements) and Note 18 (Inventories).
We understood the nature of the costs that the Directors absorbed
into inventory and determined their appropriateness in line with IAs 2
‘Inventories’ (“IAs 2”).
Inventory totalled £37.3m as at 31 December 2019 (2018: £28.3m)
after provisions of £1.9 million (2018: £1.8 million).
We tested, on a sample basis, the valuation and calculation of costs
absorbed into inventory. We also assessed the reasonableness of the
Directors’ estimates in this area for bias.
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
subjective judgements.
specifically the determination of inventory provisions for slow
moving, obsolete and discontinued line items, reflecting the level
of inventory held across the branch network 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 based
upon 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.
We identified no material exceptions from the procedures noted
above.
our attendance at the physical inventory counts, conducted by
management, highlighted no increased areas of concern, regarding
excess / unused stock held at either the branches we visited or the
manufacturing sites.
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.
Where inventory provisions were based upon expected future demand
or historical sales data, we tested the underlying report to validate the
data on which management’s calculations were based.
We selected an audit sample of inventory held as at 31 December
2019 and verified that sales recorded in 2020 were made above cost.
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.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
95
C_GEN_PageC_GEN_PageL2C_GEN Section/ Independent Auditors’ Report to the members of Eurocell plc continued
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Trade receivables provisions – Group
Refer to pages 44 to 49 (Risk management and principal risks
and uncertainties), pages 68 to 71 (Audit and Risk Committee),
Note 1 (Accounting policies), Note 2 (Critical Accounting
Estimates and Judgements) and Note 19 (Trade and other
receivables).
The Group had gross trade receivables of £36.9m at
31 December 2019 (2018: £34.8m) against which provisions of
£1.6 million (2018: £0.8 million) were held in accordance with
IFRs 9.
We focused on these areas because the Directors’ assessment of
the provisions required in respect of trade receivables involved
subjective judgements.
In addition, we also focused on these areas because there is a
risk that debtors are not recoverable due to the current economic
climate, and the incentive schemes of the Directors and senior
management are based upon financial measures including profit,
which we concluded gave a greater risk of manipulation of
judgements, including those around trade receivables provisions,
to ensure that bonus targets are achieved.
IFRS 16 (Leases) – Group
Refer to pages 44 to 49 (Risk management and principal risks
and uncertainties), pages 68 to 71 (Audit and Risk Committee),
Note 1 (Accounting policies), Note 2 (Critical Accounting
Estimates and Judgements) and Note 15 (Right-of-use assets)
and Note 22 (lease liabilities).
The Group has applied IFRs 16 for the first time using the
modified retrospective approach to transition. A right-of-use asset
(£35.3m: 31 December 2019) and a lease liability (£34.1m:
31 December 2019) has been recorded.
Due to the management estimates required in calculating the
above, and the significant number of individual calculations, there
is a risk that the assets and liabilities are materially mis-stated
either due to inappropriate management estimates, calculation
errors or incomplete data being utilised by management.
We understood the Directors’ methodology for calculating trade
receivables provisions across the Group and considered if these
complied with IFRs 9.
We tested the ageing of amounts due at the balance sheet date
to understand and quantify the potential risk in overdue balances
after considering relevant insurance cover. We then challenged
management in respect of those customers with whom amounts were
past due but not impaired to assess for bias.
We reviewed the accuracy of past management estimates for bias
or inaccuracy.
We also tested, on a sample basis, cash received from customers
following the year-end to validate the appropriateness of the
Directors’ estimates.
We tested the methodology, underlying data validity and calculations
of the provisions in line with the requirements of IFRs 9.
We identified 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 materially accurate and were
consistent with the requirements of IFRs 9.
We have understood the transition method chosen by
management, including the transition exemptions taken, and tested
to ensure that these were appropriately reflected in managements
assessments and taken in accordance with IFRs 16.
We have understood management’s process for ensuring all
contracts containing a lease are accounted for in line with the
requirements of IFRs 16. We tested the completeness of
management’s model with reference to the lease commitments
note in the Financial statements and our knowledge of contracts
containing lease agreements in the Group.
We have assessed the key management estimates underpinning
managements calculations, the most significant of these being
the setting of the discount rate, using an incremental borrowing
rate specific to the Group. We have understood how management
has calculated this rate and identified no exceptions regarding this
calculation.
We have obtained and inspected a sample of inputs into
management’s model and agreed these data points (being lease
start and end dates, options for extensions and future rental
payments) back to the underlying lease agreements. on a
non-statistical sample of leases, we have recalculated the lease
asset and liability and confirmed management’s model is
performing the calculation accurately.
We have reviewed the disclosures in the Financial statements and
are satisfied that they are consistent with the evidence obtained
and compliant with IAs 8 and IFRs 16.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
96
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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 structure of the Group and the Company, the accounting processes and controls, and the industry
in which they operate.
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. The Group has sites throughout the uK with its
headquarters in Alfreton. The business is managed as two primary divisions:
– Eurocell Building plastics, focusing on sales and distribution across over 200 branches within the uK to smaller scale customers.
This segment includes the trading subsidiary companies Eurocell Building plastics limited, security Hardware limited, Kent
Building plastics limited and Trimseal limited; and
– Eurocell profiles, focusing on manufacture and distribution to large-scale customers. This division includes the trading subsidiaries
Eurocell profiles limited, Vista panels limited, and Ecoplas limited.
Each legal entity has its own local finance team and management team who report directly into the head office finance and
management teams.
All audit work, including work on components, was completed by the Group audit team.
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 in aggregate 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 materiality
How we determined it
£1.13m (2018: £1.10m).
£0.73m (2018: £0.60m).
5% of underlying profit before tax.
1% of total assets.
Group Financial Statements
Company Financial Statements
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 described
in Note 7 to the Financial statements,
provides consistent year on year basis for
determining materiality by eliminating the
non-recurring and/or disproportionate
impact of these items.
We believe that total assets is the primary
measure used by the shareholders in
assessing the financial position of the
entity, and is a generally accepted auditing
benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £1.08m and £0.90m. Certain components were audited to a local
statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £60,000
(Group audit) (2018: £65,000) and £35,000 (Company audit) (2018: £35,000) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with IsAs (uK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the Directors’ statement in the Financial
statements about whether the Directors considered it appropriate to
adopt the going concern basis of accounting in preparing the
Financial statements and the Directors’ identification of any material
uncertainties to the Group’s and the Company’s ability to continue as
a going concern over a period of at least twelve months from the date
of approval of the Financial statements.
We are required to report if the Directors’ statement relating to
Going Concern in accordance with listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s and Company’s
ability to continue as a going concern. For example, the terms of the
united Kingdom’s withdrawal from the European union are not clear,
and it is difficult to evaluate all of the potential implications on the
Group’s trade, customers, suppliers and the wider economy.
We have nothing to report.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
97
C_GEN_PageC_GEN_PageL2C_GEN Section/ Independent Auditors’ Report to the members of Eurocell plc continued
Reporting on other information
The other information comprises all of the information in the Annual Report other than the Financial statements and our Auditors’ report
thereon. The Directors are responsible for the other information. our opinion on the Financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the Financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the Financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the Financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the strategic Report and Directors’ Report, we also considered whether the disclosures required by the uK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),
IsAs (uK) and the listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by IsAs (uK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the strategic Report and Directors’
Report for the year ended 31 December 2019 is consistent with the Financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 61 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 50 of the Annual Report 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 to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and 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 uK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 90, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
• The section of the Annual Report on pages 68 to 71 describing the work of the Audit and Risk Committee does not appropriately
address matters communicated by us to the Audit and Risk Committee.
• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
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EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Responsibilities for the Financial Statements and the audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the statement of Directors’ Responsibilities in respect of the Financial statements, the Directors are
responsible for the preparation of the Financial statements in accordance with the applicable framework and for being satisfied that
they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the
preparation of Financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the Financial Statements
our objectives are to obtain reasonable assurance about whether the Financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an Auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with IsAs (uK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial statements.
A further description of our responsibilities for the audit of the Financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our Auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
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
• certain disclosures of Directors’ remuneration specified by law are not made; or
• the Company 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.
Appointment
Following the recommendation of the Audit and Risk Committee, we were appointed by the Directors on 29 April 2015 to audit the
Financial statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted
engagement is 5 years, covering the years ended 31 December 2015 to 31 December 2019.
Mark Smith (Senior Statutory Auditor)
for and on behalf of pricewaterhouseCoopers llp
Chartered Accountants and statutory Auditors
Birmingham
12 March 2020
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
99
C_GEN_PageC_GEN_PageL2C_GEN Section/ Consolidated statement of
Comprehensive Income
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
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
Diluted earnings per share
Year ended
31 December
2019
Underlying
£m
Year ended
31 December
2019
Non-underlying*
£m
Year ended
31 December
2019
Total
£m
Year ended
31 December
2018
underlying
£m
Year ended
31 December
2018
Non-underlying*
£m
Year ended
31 December
2018
Total
£m
279.1
(136.2)
142.9
(20.2)
(98.1)
24.6
(1.9)
22.7
(3.4)
19.3
19.3p
19.2p
–
–
–
–
–
–
–
–
–
–
279.1
(136.2)
142.9
(20.2)
(98.1)
24.6
(1.9)
22.7
(3.4)
19.3
19.3p
19.2p
253.7
(128.1)
125.6
(18.5)
(83.9)
23.2
(0.7)
22.5
(3.3)
19.2
19.1p
19.1p
–
–
–
–
(0.3)
(0.3)
(0.1)
(0.4)
0.8
0.4
253.7
(128.1)
125.6
(18.5)
(84.2)
22.9
(0.8)
22.1
(2.5)
19.6
19.6p
19.5p
Note
4,9
9
10
9
11
12
12
* Non-underlying items are detailed in Note 7. The Group’s policy regarding the recognition of non-underlying items is outlined on page 106.
The Notes on pages 104 to 126 are an integral part of these Consolidated Financial statements.
100
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ Consolidated statement of
Financial position
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Consolidated Statement of Financial Position
As at 31 December 2019
Assets
Non-current assets
property, plant and equipment
Right-of-use assets
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
Trade and other payables
lease liabilities
provisions
Corporation tax
Total current liabilities
Non-current liabilities
Borrowings
Trade and other payables
lease liabilities
provisions
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
share capital
share premium account
share-based payment reserve
Retained earnings
Total equity
Note
2019
£m
2018
£m
14
15
16
18
19
21
22
23
20
21
22
23
24
25
25
26
44.2
35.3
27.0
106.5
37.3
40.9
4.9
83.1
35.0
–
27.8
62.8
28.3
40.3
5.9
74.5
189.6
137.3
(39.8)
(8.3)
(0.2)
(1.8)
(50.1)
(39.5)
(0.5)
(25.8)
(0.6)
(2.6)
(69.0)
(119.1)
70.5
0.1
2.4
0.9
67.1
70.5
(41.3)
–
(0.5)
(1.2)
(43.0)
(29.4)
(1.2)
–
(1.1)
(2.5)
(34.2)
(77.2)
60.1
0.1
2.4
0.4
57.2
60.1
The Financial statements on pages 100 to 126 were approved and authorised for issue by the Board of Directors on 12 March 2020
and were signed on its behalf by:
Mark Kelly
Director
Michael Scott
Director
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
101
C_GEN_PageL2C_GEN Section/
Consolidated Cash Flow statement
Consolidated Cash Flow Statement
For the year ended 31 December 2019
Cash generated from operations
Income taxes paid
Net cash generated from operating activities
Investing activities
Acquisition of subsidiaries (net of cash acquired) and payment of deferred consideration
purchase of property, plant and equipment
sale of property, plant and equipment
purchase of intangible assets
Net cash used in investing activities
Financing activities
proceeds from bank borrowings
Repayment of bank and other borrowings
principal elements of lease payments
Finance elements of lease payments
Finance expense paid
Dividends paid to equity shareholders
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
29.0
(2.6)
26.4
(1.1)
(15.1)
–
(0.1)
(16.3)
10.0
(0.1)
(9.8)
(0.9)
(0.9)
(9.4)
(11.1)
21.7
(4.0)
17.7
(7.2)
(8.4)
0.1
(0.4)
(15.9)
30.0
(27.1)
–
–
(1.1)
(9.1)
(7.3)
(1.0)
(5.5)
5.9
4.9
11.4
5.9
Note
31
30
13
32
32
102
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ Consolidated statement of
Changes in Equity
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Balance at 1 January 2019
Comprehensive income for the year
profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Exercise of share options
share-based payments
Deferred tax on share-based payments
Dividends paid
Total transactions with owners recognised directly in equity
Share
capital
£m
0.1
Share
premium
account
£m
2.4
Share-based
payment
reserve
£m
0.4
Retained
earnings
£m
57.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
share
premium
account
£m
2.1
share-based
payment
reserve
£m
0.5
Retained
earnings
£m
46.7
19.3
19.3
–
–
–
(9.4)
(9.4)
–
–
–
0.4
0.1
–
0.5
0.9
–
–
(0.3)
0.2
–
–
(0.1)
19.6
19.6
–
–
–
(9.1)
(9.1)
Total
equity
£m
60.1
19.3
19.3
–
0.4
0.1
(9.4)
(8.9)
Total
equity
£m
49.4
19.6
19.6
–
0.2
–
(9.1)
(8.9)
0.4
57.2
60.1
Balance at 31 December 2019
0.1
2.4
67.1
70.5
Balance at 1 January 2018
Comprehensive income for the year
profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Exercise of share options
share-based payments
Deferred tax on share-based payments
Dividends paid
Total transactions with owners recognised directly in equity
Balance at 31 December 2018
share
capital
£m
0.1
–
–
–
–
–
–
–
0.1
–
–
0.3
–
–
–
0.3
2.4
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
103
C_GEN_PageL2C_GEN Section/ Notes to the Consolidated
Financial statements
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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 pVC 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 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 the 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 in respect of acquisition accounting.
The functional currency is sterling, and the Financial statements are presented in millions.
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 2019
and present the results as if they formed a single entity. 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.
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. Intercompany transactions and 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
Consolidated statement of Financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date.
Changes in accounting policies and disclosures applicable to the Company and the Group
The Company has applied the following new standards and guidance for the financial reporting period commencing 1 January 2019:
• IFRs 16 leases;
• prepayment Features with Negative Compensation – Amendments to IFRs 9; and
• IFRIC 23 uncertainty over Income Tax Treatment.
With the exception of IFRs 16, none of the other new standards listed have had a material impact on the Company or Group for the
year ended 31 December 2019.
The Group has adopted IFRs 16 leases from 1 January 2019.
The Group leases various warehouses, depots, offices and vehicles in conducting its business. Rental contracts are typically made for
fixed periods ranging from 3 to 10 years, but may have break or extension clauses to maximise operational flexibility.
The Group has no leases previously classified as finance leases. From 1 January 2019 liabilities for leases previously classified as
operating leases have been measured at the present value of the remaining lease payments, discounted using the incremental
borrowing rate.
The incremental borrowing rate is calculated based upon a combination of the risk-free rate, financing and asset-specific credit
spreads, adjusted for the term of each lease. The weighted average borrowing rate applied to lease liabilities is 2.4%. If the borrowing
rate were to decrease/increase by 0.5%, the impact upon the Consolidated Income statement would be to increase/decrease profit
before tax by £0.1 million.
104
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise or not
exercise an extension option. Extension options are only included in the lease term if the lease is reasonably certain to be extended
(or not terminated). The assessment is reviewed if a significant event or change in circumstances brings into question management’s
earlier judgement.
lease terms are negotiated on an individual basis and contain a wide variety of specific terms and conditions. These lease
arrangements do not impose any covenants, nor do they contain variable lease payments. leased assets may not be pledged as
security for borrowing purposes.
The Group has elected to apply the Modified Retrospective approach to transition, thereby setting the value of right of use lease assets
equal to the respective liabilities as at 1 January 2019, adjusted by the amount of any prepaid or accrued lease payments relating to
that lease in the balance sheet as at 31 December 2018.
In applying IFRs 16 for the first time, the Group has taken advantage of a number of practical expedients permitted by the standard:
• the application of a single discount rate to a portfolio of leases with reasonably similar characteristics;
• reliance on previous assessments as to whether leases are onerous;
• accounting for leases with a remaining term of less than 12 months as short-term leases; and
• the exclusion of initial direct costs in measuring the right-of-use asset at the date of initial application.
leased assets with a value of less than £5,000 have been omitted on the basis of materiality.
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date, the group relied on its assessment made applying IAs 17 and IFRIC 4 Determining
whether an Arrangement contains a lease.
on 1 January 2019 the Group recognised right-of-use assets of £35.2 million and lease liabilities of £34.6 million (inclusive of prepaid rent).
Right-of-use assets are stated after taking into account rent-free periods.
The lease liabilities reconcile to the operating lease commitments disclosed as at 31 December 2018 as follows:
Operating lease commitments as at 31 December 2018
leases omitted from disclosure at 31 December 2018
prepaid rent
short-term and low-value leases
Impact of discounting of lease liabilities
Lease liabilities recognised as at 1 January 2019
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
The impact of adopting IFRs 16 on the Financial statements for the year to 31 December 2019 is as follows:
pre-IFRs 16
£m
IFRs 16
adjustment
£m
Revenue
Gross profit
operating expenses
EBITDA
Depreciation and amortisation
Finance expense
Profit before tax
Basic earnings per share
Right-of-use assets
Net debt
279.1
142.9
(111.2)
31.7
(7.6)
(1.0)
23.1
19.7p
–
34.6
–
–
10.7
10.7
(10.2)
(0.9)
(0.4)
(0.4)p
19.3p
35.3
34.1
35.3
68.7
The adoption of IFRs 16 has had no impact on actual cash flows. Cash flows arising from leases under IFRs 16 are now shown within
financing cash flows, whereas leases falling outside of the scope of the new standard are presented within operating cash flows.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
105
£m
38.1
2.2
(0.4)
(2.7)
(2.6)
34.6
9.4
25.2
34.6
Reported
£m
279.1
142.9
(100.5)
42.4
(17.8)
(1.9)
22.7
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1 Accounting policies (Group) continued
Changes in accounting policies and disclosures applicable to the Company and the Group continued
The following standard, which is not expected to have a material impact on the Group’s future Financial statements, was in issue but
not yet effective (and not yet adopted by the Eu):
• IFRs 17 Insurance Contracts (effective from 1 January 2021).
The Group does not intend to adopt any standard, revision or amendment before the required implementation date.
Revenue
The Group manufactures and distributes a range of building plastic materials, along with associated ancillary products, via direct sales
to its fabricator customers and through its branch network. Revenue is recognised when control of the products has transferred.
Control is considered to have transferred once the customer has taken delivery of the products, or has collected them from the branch,
has full discretion over the future use of those products, and where there is no unfulfilled obligation that could affect the customer’s
acceptance of the products. see Note 2 relating to critical accounting estimates and judgements.
A receivable is recognised on the transfer of the products, as this is the point at which consideration is deemed to be unconditional.
Where costs are incurred by the Group in securing a contract to supply products, those costs are recognised as customer contract
assets (within trade and other receivables) in the Consolidated statement of Financial position, and amortised over the period in which
revenue pertaining to those costs is recognised.
Non-underlying items
The Group presents some material items of income and expense as non-underlying items. 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 users of the Financial statements 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. Further details as to why certain items
have been classified as non-underlying are provided in Note 7.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of acquisition is measured as the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in
exchange for control of 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 fair value of the identifiable
assets, liabilities and contingent liabilities acquired at the acquisition date. 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
Customer-related
Marketing-related
useful economic life
5 to 10 years
10 to 17 years
5 to 10 years
10 to 15 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
Impairment tests on non-current assets 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.
106
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
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 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.
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:
Asset class
Depreciation policy
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
Right-of-use lease assets
Right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and
impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase
option, the related right-of-use asset is depreciated over the useful life of the underlying asset. Depreciation starts at the
commencement date of the lease.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of
purchase and 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.
Net realisable value is based on estimated normal selling price, less further costs expected to be incurred up to completion and
disposal. provision is made for obsolete, slow-moving or defective items where appropriate.
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. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the statement of
Financial position.
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, 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.
The Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all
financial assets. The Group has two types of financial asset that are subject to the expected credit loss model: trade receivables and
contract assets. In measuring expected credit losses for trade receivables, receivables have been grouped based on shared
characteristics and days past due. While cash and cash equivalents are also subject to the impairment requirements of IFRs 9, the
identified impairment loss was immaterial.
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 statement of Financial position.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
107
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1 Accounting policies (Group) continued
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 statement of Financial position.
• 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.
Taxation
Tax on the profit for both the current and prior periods comprises both current and deferred tax and is recognised in the Consolidated
statement of Comprehensive Income, except to the extent that it relates to items recognised directly in equity.
Current tax is the expected tax payable on taxable income for the year, using tax rates that have been enacted at the balance sheet
date, and any adjustment to tax payable in respect of prior years.
The Group recognises a current tax asset in respect of relief claimed under the patent Box when the inflow of economic benefits
arising from that asset is virtually certain, deemed to be the submission of a claim to H M Revenue and Customs.
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.
Recognition of deferred tax assets is restricted to those instances where it is probable that future taxable profits will arise 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.
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:
• the same taxable Group Company; or
• 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.
Lease liabilities
The Group has no leases previously classified as finance leases. From 1 January 2019 liabilities for leases previously classified as
operating leases have been measured in accordance with IFRs 16 using the modified retrospective approach and therefore the
comparative information has not been restated and continues to be reported under IAs 17 and IFRIC 4.
The Group assesses whether a contract is or contains a lease, at inception of a contract. The Group recognises a right-of-use asset
and a corresponding lease liability with respect to all lease agreements in which it is the lessee except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low value assets (defined as leases with a value of less than £5,000). For
these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease
unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are
consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing
rate. The incremental borrowing rate is calculated based upon a combination of the risk-free rate, financing and asset-specific credit
spreads, adjusted for the term of each lease.
lease payments included in the measurement of the lease liability comprise fixed lease payments, less any lease incentives.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
108
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
prior to the adoption of IFRs 16, operating leases were contractual arrangements conferring the right of use of an asset but where
substantially all of the risks and rewards incidental to ownership were not transferred to the Group, the total rentals payable under the
lease were charged to the Consolidated statement of Comprehensive Income on a straight-line basis over the lease term. The
aggregate benefit of lease incentives was recognised as a reduction of the rental expense over the lease term on a straight-line basis.
Provisions
A provision is recognised in the statement of Financial position 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 as
described above.
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 paid.
In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.
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.
Foreign currency
The Group’s Financial statements are presented in British 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 prevailing rate 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 has applied the requirements of IFRs 2 share-based payment.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is determined at the grant date
using the Black-scholes valuation model and equity-settled share-based payments are expensed on a straight-line basis over the
vesting period, based upon the Group’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.
2 Critical accounting estimates and judgements
The Group makes certain estimates and judgements 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 judgements.
Critical estimates and judgements
The estimates and judgements 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.
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. The key judgement is the extent to which items of inventory remain saleable as they age. 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 18.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
109
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2 Critical accounting estimates and judgements continued
Critical estimates and judgements continued
b) Recoverability of trade receivables
The Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for
trade receivables. Expected loss rates are derived based upon the payment profile of sales over a 3-year period before 31 December
2019, and the corresponding credit losses experienced. These rates are then adjusted to reflect current and forward-looking
information on macroeconomic factors affecting the ability of customers to settle receivables, including GDp, the rate of unemployment,
new housing starts, interest rates and household disposable income.
Where the adjusted loss rates are different from the original estimate, such difference will impact on the carrying value of trade
receivables and the amount credited or charged on a net basis to operating expenses within the Consolidated statement of
Comprehensive Income. The key judgement is the extent to which macroeconomic factors impact upon the recoverability of trade
receivables. The key estimate is the adjusted loss rate applied to each category of trade receivables. If loss rates were, on average,
500 basis points higher than current estimates, the provision for impairment would increase by less than £50,000.
Further disclosures relating to trade receivables are provided in Note 19.
Other estimates and judgements
The following estimates and judgements are important, but are not considered to have a significant risk of leading to a
material misstatement.
c) Determining the term of right-of-use lease assets
In determining the term of a lease, management considers all facts and circumstances that create an economic incentive to exercise or
not exercise an extension option. Extension options are only included in the lease term if the lease is reasonably certain to be extended
(or not terminated). The assessment is reviewed if a significant event or change in circumstances brings into question management’s
earlier judgement. see Note 15.
d) Determining the incremental borrowing rate applied to lease liabilities
lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing
rate. The incremental borrowing rate is calculated based upon a combination of the risk-free rate, financing and asset-specific credit
spreads, adjusted for the term of each lease. The weighted average borrowing rate applied to lease liabilities is 2.4%. If the borrowing
rate were to increase or decrease by 0.5% the impact upon the Consolidated Income statement would be to decrease/increase profit
by £0.1 million. (see Note 22).
e) Dilapidation provisions
The Group recognises dilapidation provisions on the leasehold properties it occupies. The key estimate is the level of provision required
for each property, which management assesses based on past experience within the property portfolio. If the actual cost of
dilapidations in respect of the Group’s branch network was on average 10% greater or less than expected, the provision would change
by less than £50,000. These provisions are reviewed semi-annually to ensure that they reflect the current best estimate of the provision
required. Further disclosures relating to dilapidation provisions are provided in Note 23.
f) Carrying value of goodwill and intangible assets
Management assesses the carrying value of its goodwill and intangible assets at least annually, or 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. Recoverable amounts are determined from ‘value-in-use’ calculations applied to each Cash
Generating unit (‘CGu’), which have been predicated on discounted cash flow projections from formally approved budgets covering a
three-year period. The key estimates as highlighted in Note 17 are the discount rate and the level of profit growth assumed in
perpetuity. If the discount rate increased by 100 basis points, or if the level of profit growth in perpetuity was zero, none of the Group’s
CGus would be at risk of impairment.
110
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
3 Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• credit risk;
• market risk;
• foreign exchange risk; and
• 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.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• trade and other receivables;
• cash and cash equivalents;
• trade and other payables;
• bank overdrafts;
• floating-rate bank loans; and
• lease liabilities.
The Group finances its activities using cash generated from operations and its revolving credit facility. It does not use invoice
discounting or any other financing facilities.
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
lease liabilities
Borrowings
Total financial liabilities
2019
£m
4.9
34.5
39.4
2019
£m
40.1
34.1
40.0
114.2
2018
£m
5.9
34.1
40.0
2018
£m
42.1
–
30.0
72.1
Excluded from the analysis above are assets and liabilities from which no future cash flows are expected to arise.
Impairment of financial assets
Impairments of trade receivables are outlined in Note 19. No further impairments to financial assets are considered necessary. The
Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for
trade receivables.
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.
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 regular Board 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:
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
111
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
3 Financial instruments – risk management continued
General objectives, policies and processes continued
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 into 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 19.
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 2019 and 2018 the Group’s borrowings at variable rate were denominated in sterling. Further disclosures relating to bank
borrowings are provided in Note 20.
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 profit or loss arising 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, cash flow forecasts are prepared and updated on a regular basis to ensure that the Group has adequate headroom in its facilities.
The Board receives monthly updates on the Group’s liquidity position and any issues are reported by exception.
At the end of the financial year, the most recent cash flow projections indicated that the Group expected to have sufficient liquid
resources to meet its obligations under all reasonably foreseeable circumstances.
The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:
At 31 December 2019
Trade and other payables
lease liabilities
Borrowings
Total
At 31 December 2018
Trade and other payables
Borrowings
Total
Total
£m
(40.1)
(36.1)
(40.0)
(116.2)
Total
£m
(42.1)
(30.0)
(72.1)
Up to
3 months
£m
(39.6)
(2.2)
–
(41.8)
up to
3 months
£m
(40.9)
–
(40.9)
Between
3 and 12
months
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
–
(6.8)
–
(6.8)
Between
3 and 12
months
£m
(0.3)
–
(0.3)
–
(8.6)
–
(8.6)
Between
1 and 2
years
£m
(0.1)
–
(0.1)
(0.5)
(14.9)
(40.0)
(55.4)
Between
2 and 5
years
£m
(0.8)
(30.0)
(30.8)
Over
5 years
£m
–
(3.6)
–
(3.6)
over
5 years
£m
–
–
–
Excluded from the analysis above are assets and liabilities from which no future cash flows are expected to arise.
112
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Capital management
The Group’s objective when managing capital, which is deemed to be total equity plus total debt and which totalled £144.1 million, or
£110.0 million on a pre-IFRs 16 basis (2018: £89.5 million) at the balance sheet date, is to safeguard the Group’s ability to continue as
a going concern, through the optimisation of the debt and equity balance, and to maintain good headroom on its debt facilities and
financial covenants. The Group manages its capital structure and makes appropriate decisions in the light of current economic
conditions and its strategic objectives.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain the 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 comfortable headroom over the covenants set out in its existing
facility agreements.
The financial covenants which are in place, all measured on a pre-IFRs 16 basis, are as follows:
• leverage: the ratio of total net debt to consolidated EBITDA of any relevant period of not more than 3:1.
• Interest cover: the ratio of EBITDA to net interest payable in respect of any relevant period of not less than 4:1.
Covenants are measured semi-annually on a rolling 12-month basis. As at 31 December 2019 they were 1.1:1 and 30:1 respectively
(2018: 0.7:1 and 46:1). The Group operated well within its covenants throughout the current and prior periods.
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
lease liabilities
other interest-bearing borrowings
Trade and other payables
Trade and other receivables
Cash and cash equivalents
other interest-bearing borrowings
Trade and other payables
4 Revenue
Revenue arises from:
sale of goods
External revenue by destination:
united Kingdom
European union
Rest of World
As at 31 December 2019
EUR
£m
0.2
0.6
–
–
(0.2)
0.6
USD
£m
–
–
–
–
–
–
As at 31 December 2018
EuR
£m
0.1
0.3
–
(1.0)
(0.6)
usD
£m
–
–
–
–
–
GBP
£m
34.3
4.3
(34.1)
(40.0)
(39.9)
(75.4)
GBp
£m
34.0
5.6
(30.0)
(41.1)
(31.5)
Total
£m
34.5
4.9
(34.1)
(40.0)
(40.1)
(74.8)
Total
£m
34.1
5.9
(30.0)
(42.1)
(32.1)
2019
£m
2018
£m
279.1
253.7
2019
£m
275.8
3.1
0.2
279.1
2018
£m
250.2
3.0
0.5
253.7
There are no customers with sales in excess of 10% of total Group revenues.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
113
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
5 Auditors’ remuneration
Total amounts payable to the Group’s auditors were as follows:
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 Expenses by nature
Depreciation of property, plant and equipment (Note 14)
Depreciation of right-of-use assets (Note 15)
Amortisation of intangible assets (Note 16)
Cost of inventories
Employee benefits expense (Note 8)
Non-underlying operating expenses (Note 7)
Rentals under operating leases
other expenses
Total cost of sales, distribution costs and administration expenses
7 Non-underlying items
Amounts included in the Consolidated statement of Comprehensive Income are as follows:
Acquisition-related costs
Non-underlying operating expenses
Finance expense – unamortised prepaid arrangement fees
Total non-underlying expenses
Tax on non-underlying expenses
Benefit of second patent Box claim in the year
Taxation
Impact on profit after tax
There were no non-underlying items in the current year.
2019
£000
55
136
25
216
2019
£m
5.8
10.2
1.8
133.4
65.5
–
3.5
34.3
254.5
2019
£m
–
–
–
–
–
–
–
–
2018
£000
50
134
25
209
2018
£m
5.5
–
1.6
127.7
56.1
0.3
9.9
29.7
230.8
2018
£m
(0.3)
(0.3)
(0.1)
(0.4)
–
0.8
0.8
0.4
114
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
8 Employee benefits expense
staff costs (including Directors) comprise:
Wages and salaries
share-based payments
social security costs
pension costs – defined contribution plans
The average monthly number of employees, including Directors, during the year was as follows:
production
office and administration
Distribution
2019
£m
57.7
0.4
5.6
1.8
65.5
2019
No.
584
415
856
2018
£m
49.4
0.2
5.1
1.4
56.1
2018
No.
538
354
774
1,855
1,666
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 payments
pension and other post-employment benefit costs
2019
£000
1,278
148
122
1,548
2018
£000
1,208
39
117
1,364
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 (2018: two).
The highest paid Director received remuneration of £673,000 (2018: £459,000).
No share options were exercised by Directors of the Group during the current and prior year.
The value of contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £58,000
(2018: £56,000).
The Group’s policy for consulting with, sharing information with, and encouraging the involvement of employees is discussed on pages
62 to 65.
9 Segmental information
The Group organises itself into a number of operating segments that offer different products and services. They are managed
separately because each business requires different technology and marketing strategies. Internal reporting provided to the chief
operating decision-maker, which has been identified as the executive management team including the Chief Executive officer and the
Chief Financial officer, reflects this structure.
The Group has aggregated its operating segments into two reported segments, as these business units have similar products,
production processes, types of customer, methods of distribution, regulatory environments and economic characteristics:
• profiles – extrusion and sale of pVC window and building products to the new and replacement window market across the uK.
This segment includes Vista panels, s&s plastics and Eurocell Recycle North (formerly Ecoplas).
• Building plastics – sale of building plastic materials across the uK. This segment includes security Hardware, Kent Building plastics
and Trimseal.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
115
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
9 Segmental information continued
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 of intangible assets
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Operating profit
Finance expense
Profit before tax
Revenue
Total revenue
Inter-segmental revenue
Total revenue from external customers
Adjusted EBITDA
Amortisation of intangible assets
Depreciation of property, plant and equipment
Operating profit before non-underlying expenses
Non-underlying expenses
Finance expense
Profit before tax
Additions to plant, property, equipment and intangible assets
segment assets
segment liabilities
Borrowings
Corporation tax payable
Deferred tax liability
Total liabilities
Total net assets
Additions to plant, property, equipment and intangible assets
segment assets
segment liabilities
Borrowings
Corporation tax payable
Deferred tax liability
Total liabilities
Total net assets
116
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
Profiles
2019
£m
175.2
(59.5)
115.7
24.7
(0.1)
(4.2)
(2.5)
17.9
profiles
2018
£m
159.5
(51.8)
107.7
22.0
(0.1)
(4.1)
17.8
Building
Plastics
2019
£m
Corporate
2019
£m
164.7
(1.3)
163.4
15.2
–
(1.0)
(5.6)
8.6
Building
plastics
2018
£m
147.4
(1.4)
146.0
8.4
(0.1)
(0.9)
7.4
–
–
–
2.5
(1.7)
(0.6)
(2.1)
(1.9)
Corporate
2018
£m
–
–
–
(0.1)
(1.4)
(0.5)
(2.0)
Profiles
2019
£m
13.0
96.8
Building
Plastics
2019
£m
1.5
69.8
(36.2)
(31.3)
Corporate
2019
£m
1.0
23.0
(7.7)
profiles
2018
£m
6.2
75.0
(25.0)
Building
plastics
2018
£m
1.0
46.2
(17.2)
Corporate
2018
£m
1.4
16.1
(1.9)
Total
2019
£m
339.9
(60.8)
279.1
42.4
(1.8)
(5.8)
(10.2)
24.6
(1.9)
22.7
Total
2018
£m
306.9
(53.2)
253.7
30.3
(1.6)
(5.5)
23.2
(0.3)
(0.8)
22.1
Total
2019
£m
15.5
189.6
(75.2)
(39.5)
(1.8)
(2.6)
(119.1)
70.5
Total
2018
£m
8.6
137.3
(44.1)
(29.4)
(1.2)
(2.5)
(77.2)
60.1
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
10 Finance expense
Finance expense
Bank borrowings
other borrowings
Interest on lease liabilities
Underlying finance expense
Non-underlying finance expense (Note 7)
Total finance expense
11 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
2019
£m
1.0
–
0.9
1.9
–
1.9
2019
£m
3.4
(0.2)
3.2
0.2
–
–
0.2
3.4
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 19.0%
Taxation effect of:
Expenses not deductible for tax purposes
patent Box claims
Adjustments to tax charge in respect of prior years
Tax on share-based payments recognised in equity
Adjustment in respect of change in rates
Total tax expense
2019
£m
22.7
4.3
–
(0.8)
(0.2)
0.1
–
3.4
2018
£m
0.6
0.1
–
0.7
0.1
0.8
2018
£m
2.6
–
2.6
(0.2)
–
0.1
(0.1)
2.5
2018
£m
22.1
4.2
0.1
(1.8)
–
–
–
2.5
Changes in tax rates and factors affecting the future tax charge
A reduction in the uK corporation tax rate from 19% to 17% from 1 April 2020 has been substantively enacted. Deferred taxes at the
year-end date have been measured using these enacted tax rates and reflected in the Financial statements.
on 11 March 2020 the uK Government announced that the rate reduction would be cancelled. once enacted, this will increase the
deferred tax liability by £0.3 million.
There are no material uncertain tax provisions.
Tax on non-underlying items
Non-underlying tax in the prior year includes a credit of £0.8 million, being the benefit of a second patent Box claim in the year.
Tax included in Other Comprehensive Income
The tax credit arising on share-based payments within other Comprehensive Income is £88,000 (2018: charge of £36,000).
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.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
117
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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 the impact of non-underlying items.
profit attributable to ordinary shareholders
profit attributable to ordinary shareholders excluding non-underlying items
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
Final dividend for 2018 of 6.2p per share (2017: 6.0p per share)
Interim dividend for 2019 of 3.2p per share (2018: 3.1p per share)
Dividends proposed
Final dividend for 2019 of 6.4p per share (2018: 6.2p per share)
14 Property, plant and equipment
Cost
Balance at 1 January 2018
Additions
Added on acquisition
Disposals
Transfers
Balance at 1 January 2019
Additions
Added on acquisition
Disposals
Transfers
Balance at 31 December 2019
Accumulated depreciation
Balance at 1 January 2018
Charge for the year
Disposals
Balance at 1 January 2019
Charge for the year
Disposals
Balance at 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Freehold
property
£m
Leasehold
improvements
£m
Plant and
machinery
£m
Motor
vehicles
£m
Office
equipment
and fixtures
£m
Assets
under
construction
£m
8.7
–
–
–
0.3
9.0
–
–
–
–
9.0
0.9
0.2
–
1.1
0.2
–
1.3
7.7
7.9
0.2
–
–
–
–
0.2
–
–
–
–
0.2
0.1
–
–
0.1
–
–
0.1
0.1
0.1
38.7
2.4
1.3
(0.2)
4.2
46.4
6.3
–
(0.6)
8.7
60.8
17.2
5.3
(0.2)
22.3
5.4
(0.6)
27.1
33.7
24.1
0.2
–
0.1
–
–
0.3
0.1
–
(0.1)
–
0.3
0.1
–
–
0.1
0.1
(0.1)
0.1
0.2
0.2
0.1
–
–
(0.1)
–
–
0.1
–
–
–
0.1
0.1
–
(0.1)
–
0.1
–
0.1
–
–
1.7
6.0
–
–
(5.0)
2.7
8.9
–
–
(9.1)
2.5
–
–
–
–
–
–
–
2.5
2.7
118
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
2019
£m
19.3
19.3
2018
£m
19.6
19.2
Number
Number
100,316,692
100,720,559
100,278,663
100,627,058
Pence
19.3
19.3
19.2
19.2
2019
£m
6.2
3.2
9.4
6.4
pence
19.6
19.1
19.5
19.1
2018
£m
6.0
3.1
9.1
6.2
Total
£m
49.6
8.4
1.4
(0.3)
(0.5)
58.6
15.4
–
(0.7)
(0.4)
72.9
18.4
5.5
(0.3)
23.6
5.8
(0.7)
28.7
44.2
35.0
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Included within freehold property is non-depreciable land of £2.3 million (31 December 2018: £2.3 million).
During the year £0.4 million of assets under construction were transferred to Intangible Assets.
15 Right-of-use assets
Balance at 1 January 2019 on adoption of IFRS 16
Additions
Disposals
Balance at 31 December 2019
Accumulated amortisation
Balance at 1 January 2019 on adoption of IFRS 16
Charge for the year
Disposals
Balance at 31 December 2019
Net book value
At 31 December 2019
Leasehold
Improvements
£m
Motor
vehicles
£m
Office
equipment
and fixtures
£m
26.0
2.9
(0.5)
28.4
–
6.4
(0.4)
6.0
9.1
7.5
(0.3)
16.3
–
3.8
(0.3)
3.5
0.1
–
–
0.1
–
–
–
–
Total
£m
35.2
10.4
(0.8)
44.8
–
10.2
(0.7)
9.5
22.4
12.8
0.1
35.3
The Group adopted IFRs 16 leases on 1 January 2019, recognising right-of-use assets of £35.2 million (see Note 1).
16 Intangible assets
Cost
Balance at 1 January 2018
Additions
Added on acquisition
Transfers
Balance at 1 January 2019
Additions
Added on acquisition
Adjustments in respect of prior periods
Transfers
Balance at 31 December 2019
Accumulated amortisation
Balance at 1 January 2018
Charge for the year
Transfers
Balance at 1 January 2019
Charge for the year
Balance at 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Software
£m
Technology
-based
£m
Customer
-related
£m
Marketing
-related
£m
Goodwill
£m
1.5
0.2
–
0.4
2.1
0.1
–
–
0.4
2.6
0.5
0.2
–
0.7
0.3
1.0
1.6
1.4
1.6
–
–
–
1.6
–
–
–
–
1.6
0.4
0.1
–
0.5
0.1
0.6
1.0
1.1
6.3
–
1.4
(0.4)
7.3
–
0.2
–
–
7.5
2.2
1.0
(0.3)
2.9
1.1
4.0
3.5
4.4
6.3
–
–
–
6.3
–
–
–
–
6.3
1.6
0.3
–
1.9
0.3
2.2
4.1
4.4
8.5
–
8.0
–
16.5
–
0.2
0.1
–
16.8
–
–
–
–
–
–
16.8
16.5
Total
£m
24.2
0.2
9.4
–
33.8
0.1
0.4
0.1
0.4
34.8
4.7
1.6
(0.3)
6.0
1.8
7.8
27.0
27.8
During 2018 customer-related intangible assets with a net book value of £0.1 million were transferred to Contract Assets within Trade
and other Receivables.
Goodwill of £0.1 million was added in the year in respect of the acquisition of Kent Building plastics following a final assessment of the
fair value of assets and liabilities acquired, which were provisionally assessed as at 31 December 2018.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
119
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
17 Impairment
For the purpose of impairment testing, goodwill is allocated to Cash Generating units (‘CGus’) as follows:
Ecoplas
Eurocell Building plastics
Eurocell profiles
Vista panels
s & s plastics
security Hardware
2019
£m
5.8
5.1
3.3
2.2
0.2
0.2
2018
£m
5.8
4.8
3.3
2.2
0.2
0.2
16.8
16.5
During the year the Group recognised Goodwill of £0.2 million in respect of the acquisition of Trimseal and £0.1 million in respect of the
prior year acquisition of Kent Building plastics, which have both been incorporated into the Eurocell Building plastics CGu following the
integration of those businesses.
The recoverable amounts of the CGus have been determined from ‘value-in-use’ calculations which have been predicated on
discounted 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 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)
profit growth rate in perpetuity
2019
3
10%
2%
2018
3
10%
2%
The goodwill is considered to have an indefinite useful life. 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. With the exception of Ecoplas, the Directors consider that it
is not reasonably possible for the assumptions to change so significantly as to eliminate the headroom. For Ecoplas, sales would have
to be 30% lower than projected over the forecast period for goodwill to be at risk of impairment.
18 Inventories
Raw materials
Work in progress
Finished goods and goods for resale
2019
£m
2.2
2.0
33.1
37.3
2018
£m
2.8
1.6
23.9
28.3
All inventories are carried at cost less a provision to take account of slow-moving and obsolete items. At 31 December 2019 the
inventory provision amounted to £1.9 million (2018: £1.8 million).
120
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
19 Trade and other receivables
Trade receivables
less: provision for impairment of trade receivables
less: provision for rebates payable
Net trade receivables
Contract assets
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.
2019
£m
36.9
(1.6)
(0.9)
34.4
3.1
37.5
3.3
0.1
40.9
2018
£m
34.8
(0.8)
(0.4)
33.6
3.1
36.7
3.1
0.5
40.3
The fair values of trade and other receivables classified as loans and receivables are not materially different to their carrying values.
The Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all
financial assets. In measuring expected credit losses for trade receivables, receivables have been grouped based on shared
characteristics and days past due.
Expected loss rates are derived based upon the payment profile of sales over a 3-year period before 31 December 2019, and the
corresponding credit losses experienced. These rates are then adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the ability of customers to settle receivables, including GDp, the rate of unemployment, new housing
starts, interest rates and household disposable income.
The closing loss allowances for trade receivables and contract assets as at 31 December 2019 reconcile to the opening loss
allowances as follows:
Trade receivables
Contract assets
At 1 January
Charged during the year
Released or utilised during the year
Receivables written-off during the year as uncollectible
At 31 December
2019
£m
0.8
1.5
(0.5)
(0.2)
1.6
2018
£m
0.8
0.9
(0.4)
(0.5)
0.8
2019
£m
2018
£m
–
–
–
–
–
–
–
–
–
–
Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and
a failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables and
contract assets are presented as net impairment losses within operating profit. subsequent recoveries of amounts previously written
off are credited against the same line item.
At 31 December 2019
Expected loss rate
Gross carrying amount – trade receivables
Gross carrying amount – contract assets
Loss allowance
At 31 December 2018
Expected loss rate
Gross carrying amount – trade receivables
Gross carrying amount – contract assets
Loss allowance
More than
30 days
past due
£m
More than
60 days
past due
£m
More than
90 days
past due
£m
More than
120 days
past due
£m
0.2%
0.5%
75%
50%
10.8
–
–
5.3
–
0.1
0.7
–
0.6
1.7
–
0.9
More than
30 days
past due
£m
More than
60 days
past due
£m
More than
90 days
past due
£m
More than
120 days
past due
£m
0.2%
13.2
–
–
0.5%
15%
33%
5.0
–
–
–
–
–
2.1
–
0.7
Current
£m
0.2%
18.4
3.1
–
Current
£m
0.2%
14.5
3.1
–
Total
£m
3%
36.9
3.1
1.6
Total
£m
2%
34.8
3.1
0.7
Contract assets of £1.9m (2018: £2.6m) were added in the year. Amounts amortised in the period were £1.9m (2018: £1.1m).
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
121
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
20 Borrowings
The book value and fair value of borrowings are as follows:
Non-current
Bank borrowings unsecured
Total borrowings
Book value
2019
£m
Fair value
2019
£m
Book value
2018
£m
Fair value
2018
£m
39.5
39.5
39.5
39.5
29.4
29.4
29.4
29.4
The bank borrowings outstanding at 31 December 2019 are classified as non-current liabilities as they relate to committed facilities
available to the Group until 2023. The book value and fair value are not considered to be materially different.
Borrowings
At 31 December 2019 the Company had a £60 million committed multi-currency revolving unsecured credit facility with Barclays Bank
plc and HsBC uK Bank plc which expires in 2023. The facility was increased to £75 million in March 2020.
Borrowings of £40.0 million were drawn down at 31 December 2019 (2018: £30.0 million) less unamortised issue costs of £0.5 million
(2018: £0.6 million).
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 (on a pre-IFRs 16 basis).
Based upon current economic and market trends, management consider that the sterling lIBoR rate (or any relevant rate that replaces
lIBoR) will remain relatively stable during the next reporting period to 31 December 2020, and any changes, when applied to the
Group’s current bank borrowings of £40.0 million would not lead to a significant change in finance expense.
All of the Group’s borrowings are denominated in sterling.
The analysis of repayments on the combined borrowings is as follows:
2019
£m
–
–
40.0
40.0
2019
£m
28.6
4.2
1.0
6.0
39.8
2018
£m
–
–
30.0
30.0
2018
£m
29.7
4.1
1.1
6.4
41.3
0.5
1.2
Within 1 year or repayable on demand
Between 1 and 2 years
Between 2 and 5 years
21 Trade and other payables
Current liabilities
Trade payables
other tax and social security
other payables
Accruals
Total current trade and other payables
Non-current liabilities
other payables
Book values approximate to fair value at 31 December 2019 and 2018.
122
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
22 Lease liabilities
Lease liabilities
Current
Non-current
Total discounted lease liabilities at 31 December 2019
Maturity analysis
– less than one year
– one to five years
– More than five years
Total undiscounted lease liabilities at 31 December 2019
23 Provisions
At 1 January 2018
Credited to statement of Comprehensive Income
Discounting of provisions
utilised
Added on acquisition
At 1 January 2019
Released to statement of Comprehensive Income
Discounting of provisions
utilised
At 31 December 2019
Current
Non-current
At 31 December 2019
2019
£m
8.3
25.8
34.1
2019
£m
9.0
23.5
3.6
36.1
2018
£m
–
–
–
2018
£m
–
–
–
–
Dilapidations
and
environmental
provisions
£m
1.1
(0.2)
–
(0.1)
0.8
1.6
(0.4)
–
(0.4)
0.8
0.2
0.6
0.8
Dilapidations and environmental provisions
under property lease agreements, the Group has 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 dependent on the lease expiry dates of the properties concerned, which vary
between 1 and 10 years.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
123
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
24 Deferred tax
The movement in the net deferred tax liability is as follows:
At 1 January
(Debited)/credited to statement of Comprehensive Income
Credited to equity
Added on acquisition
Recognised on acquisition
At 31 December
2019
£m
2018
£m
(2.5)
(0.2)
0.1
–
–
(2.6)
(2.2)
0.1
–
(0.2)
(0.2)
(2.5)
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.
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 statement of Comprehensive Income and amounts
recognised in other Comprehensive Income are as follows:
Accelerated capital allowances/intangible fixed assets
other temporary differences
Net tax assets/(liabilities)
Asset
2019
£m
–
0.4
0.4
Liability
2019
£m
(3.0)
–
(3.0)
*
Included in the net liability is a deferred tax liability of £35,000 relating to the acquisition of Trimseal limited.
Accelerated capital allowances/intangible fixed assets
other temporary differences
Net tax assets/(liabilities)
Asset
2018
£m
0.2
0.1
0.3
liability
2018
£m
(2.9)
0.1
(2.8)
Statement of
Comprehensive
Income
2019
£m
(0.4)
0.2
(0.2)
statement of
Comprehensive
Income
2018
£m
0.1
–
0.1
Net*
2019
£m
(3.0)
0.4
(2.6)
Net*
2018
£m
(2.7)
0.2
(2.5)
Equity
2019
£m
–
0.1
0.1
Equity
2018
£m
–
–
–
*
Included in the net liability is a deferred tax liability of £425,000 relating to the acquisitions of Ecoplas limited and Kent Building plastics limited.
25 Share capital
ordinary shares of £0.001 each
ordinary shares of £0.001 each
share premium account
Allotted, called up and fully paid
2019
Number
2018
Number
100,335,353
100,310,472
2019
£m
0.1
2.4
2018
£m
0.1
2.4
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.
During the year no shares were issued in respect of share-based payment transactions for Directors and 24,881 shares vested and
were issued in respect of share-based payment transactions for other key management personnel.
124
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
26 Share-based payments
The Group enters into equity-settled payment transactions with its employees. For the year ended 31 December 2019, the charge was
£0.4 million (2018: £0.2 million). The overall Consolidated statement of Financial position is unchanged as a result of this.
The Group operates an annual save As You Earn scheme, allowing employees to make monthly contributions over a three year period
which are then used to purchase Company shares at a fixed price. This price is agreed at the inception of the scheme, and carried a
discount on the market value at that date of 20%.
For details of share-based payment schemes see pages 82 to 83 of the Directors’ Remuneration Report.
No further disclosure has been provided on the grounds of materiality.
27 Contingent assets and liabilities
The Group has 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 2019 the bank borrowings were £40.0 million (2018: £30.0 million).
The Group had no other material contingent assets or liabilities (31 December 2018: £nil).
28 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
£1.8 million (2018: £1.4 million).
29 Related party transactions
The remuneration of Executive and Non-executive Directors is disclosed on pages 72 to 86.
Transactions with key management personnel
Kalverboer Management uK llp is controlled by p H l Kalverboer, who until May 2019 was a Director of Eurocell plc. Kellmann
Recruitment limited is controlled by T Kelly, a close family member of M Kelly who is a Director of Eurocell plc.
Kellmann Recruitment limited – recruitment services
Kalverboer Management uK llp – Director Remuneration
The following balances are outstanding at the balance sheet date:
Kellmann Recruitment limited
Kalverboer Management uK llp
2019
£000
22
17
2019
£000
–
–
2018
£000
70
40
2018
£000
–
20
30 Acquisition of subsidiary
on 6 March 2019, the Group acquired 100% of the ordinary share capital of Trimseal limited, a distributer of building plastic materials,
for a cash consideration of £0.4 million. on acquisition, customer relationship intangible assets of £0.2 million and goodwill of
£0.2 million were recognised. The fair value of the net assets acquired was not material.
sales of £0.5 million were recognised in the Consolidated Income statement in 2019, with no material impact on profit. Had the
acquisition occurred on 1 January 2019, revenue and profits would be materially the same.
In 2019 the Group made payments of deferred consideration in respect of the acquisitions of s. and s. plastics limited, security
Hardware limited and Kent Building plastics limited of £0.2 million, £0.1 million and £0.4 million respectively. Total cash flows in
respect of acquisitions were therefore £1.1 million.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
125
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
31 Reconciliation of profit after tax to cash generated from operations
Profit after tax
Taxation
Finance expense
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
profit on sale of property, plant and equipment and intangible assets
share-based payments
Increase in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease in provisions
2019
£m
19.3
3.4
1.9
24.6
5.8
10.2
1.8
–
0.4
(9.0)
(1.7)
(2.3)
(0.8)
29.0
2018
£m
19.6
2.5
0.8
22.9
5.5
–
1.6
–
0.2
(6.8)
(7.0)
5.5
(0.2)
21.7
Cash generated from operations
32 Reconciliation of net debt
Cash and cash equivalents
Lease liabilities
Borrowings
Total
1 January
2019
£m
Added on
acquisition
£m
Cash flows
£m
Non-cash
movements*
£m
31 December
2019
£m
5.9
(34.6)
(29.4)
(58.1)
–
–
(0.1)
(0.1)
(1.0)
10.7
(9.9)
(0.2)
–
(10.2)
(0.1)
(10.3)
4.9
(34.1)
(39.5)
(68.7)
* Non-cash movements in borrowings relate to the recognition and amortisation of prepaid arrangement fees in respect of the Group’s borrowings. Non-cash movements in
lease liabilities represents new lease liabilities recognised.
Cash and cash equivalents
Borrowings
Total
1 January
2018
£m
11.4
(25.9)
(14.5)
Added on
acquisition
£m
–
(1.1)
(1.1)
Cash flows
£m
(5.5)
(2.9)
(8.4)
* Non-cash movements relate to the amortisation of arrangement fees in respect of the Group’s borrowings.
Non-cash
movements*
£m
31 December
2018
£m
–
0.5
0.5
31 December 2019
Cash and cash equivalents
lease liabilities
Borrowings
Total
31 December 2018
Cash and cash equivalents
Borrowings
Total
Current
assets
£m
4.9
–
–
4.9
Current
assets
£m
5.9
–
5.9
Current
liabilities
£m
Non-current
liabilities
£m
–
(8.3)
–
(8.3)
–
(25.8)
(39.5)
(65.3)
Current
liabilities
£m
Non-current
liabilities
£m
–
–
–
–
(29.4)
(29.4)
5.9
(29.4)
(23.5)
Total
£m
4.9
(34.1)
(39.5)
(68.7)
Total
£m
5.9
(29.4)
(23.5)
33 Events after the balance sheet date
on 2 January 2020 the Group signed the lease for a new warehouse facility with annual rentals of £1.5 million and a lease term of
15 years. A right-of-use asset and lease liability of £17.2 million were recognised at this date.
on 10 March 2020 the Group increased its unsecured, multi-currency revolving credit facility, provided by Barclays Bank plc and HsBC
uK Bank plc, by £15 million to £75 million.
The Directors are not aware of any other material events that have occurred after 31 December 2019 which would require disclosure under IAs 10.
126
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ Company statement of Financial position
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Company Statement of Financial Position
As at 31 December 2019
Assets
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Deferred tax
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Issued capital and reserves attributable to owners of the Company
share capital
share premium account
share-based payment reserve
Retained earnings
Total equity
Note
36
37
38
39
40
25
25
26
2019
£m
2018
£m
17.8
17.8
55.6
0.3
55.9
73.7
(0.1)
(0.1)
(39.5)
(39.5)
(39.6)
34.1
0.1
2.4
0.9
30.7
34.1
17.8
17.8
40.9
0.1
41.0
58.8
(0.2)
(0.2)
(29.4)
(29.4)
(29.6)
29.2
0.1
2.4
0.4
26.3
29.2
A separate statement of Comprehensive Income for the Company is not presented, in accordance with section 408 of the Companies
Act 2006. The Company recognised a profit of £13.8 million in the year (2018: £19.2 million). Dividend income from subsidiary
undertakings included in the results was £15.0 million (2018: £21.0 million).
The Financial statements on pages 127 to 133 were approved and authorised for issue by the Board of Directors on 12 March 2020
and were signed on its behalf by:
Mark Kelly
Director
Michael Scott
Director
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
127
C_GEN_PageL2C_GEN Section/
Balance at 31 December 2019
0.1
2.4
30.7
34.1
Company statement of Changes in Equity
Share
premium
account
£m
Share-
based
payment
reserve
£m
Retained
earnings
£m
2.4
0.4
26.3
Share
capital
£m
0.1
share
capital
£m
0.1
share
premium
account
£m
share-based
payment
reserve
£m
2.1
0.5
Retained
earnings
£m
16.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
0.3
–
–
–
0.3
2.4
13.8
13.8
–
–
–
(9.4)
(9.4)
–
–
–
0.4
0.1
–
0.5
0.9
–
–
19.2
19.2
(0.3)
0.2
–
–
(0.1)
–
–
–
(9.1)
(9.1)
Total
equity
£m
29.2
13.8
13.8
–
0.4
0.1
(9.4)
(8.9)
Total
equity
£m
18.9
19.2
19.2
–
0.2
–
(9.1)
(8.9)
0.4
26.3
29.2
Company Statement of Changes in Equity
For the year ended 31 December 2019
Balance at 1 January 2019
Comprehensive income for the year
profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Exercise of share options
share-based payments
Deferred tax on share-based payments
Dividends paid
Total transactions with owners recognised directly in equity
Balance at 1 January 2018
Comprehensive income for the year
profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Exercise of share options
share-based payments
Deferred tax on share-based payments
Dividends paid
Total transactions with owners recognised directly in equity
Balance at 31 December 2018
128
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ Notes to the Company
Financial statements
OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
Notes to the Company Financial Statements
For the year ended 31 December 2019
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 pVC 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 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 in accordance with
uK GAAp and the Companies Act 2006.
Changes in accounting policies and disclosures applicable to the Company
on 1 January 2019 the Company adopted IFRs 16 leases. There was no impact on the Financial statements.
Investments in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.
Financial assets
The Company 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 Company 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 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 Company 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 Company’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.
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. Further information is provided in Note 3.
• 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.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
129
C_GEN_PageL2C_GEN Section/ Notes to the Company Financial Statements continued
For the year ended 31 December 2019
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 Company 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.
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).
Deferred tax assets and liabilities are offset when the Company 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:
• the same taxable Group company; or
• 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.
Share capital
The Company’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 paid.
In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.
Further information regarding dividends is provided in Note 13.
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; and
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).
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 IFRs 7 Financial Instruments: Disclosures.
The requirements in IAs 24, Related party Disclosures to disclose related party transactions entered into between 2 or more members
of a group.
130
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
35 Employee benefits expense
staff costs (including Directors) comprise:
Wages and salaries
social security contributions and similar taxes
The average number of monthly employees was 3 (2018: 3).
36 Investments
Cost
At 31 December 2019 and at 31 December 2018
2019
£m
0.3
–
0.3
2018
£m
0.2
–
0.2
Investments in
subsidiary
undertakings
£m
17.8
The subsidiaries of Eurocell plc, all of which have been incorporated in the united Kingdom are included in these Consolidated
Financial statements, as follows:
Name
principal activity
Eurocell Holdings limited*
Eurocell Group limited
Eurocell Building plastics limited
Eurocell profiles limited
Vista panels limited
security Hardware limited
Ecoplas limited
Kent Building plastics limited
Trimseal limited
s&s plastics limited
Fairbrook Group limited
Fairbrook limited
Fairbrook Holdings 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
* Directly held by Eurocell plc.
Holding company
Holding company
sale of building plastic materials
Manufacture and sale of building plastic materials
Manufacture and sale of doors
sale of locks and security hardware products
Recycler of pVC windows
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Holding
2019
2018
100%
100%
100%
100%
100%
100%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
95%
100%
n/a
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
All of the above have a registered address of Fairbrook House, Clover Nook Road, Alfreton, Derbyshire, DE55 4RF.
The Company has guaranteed the liabilities of Trimseal limited in order that it qualifies for the exemption from audit under section 479A
of the Companies Act 2006 in respect of the year ended 31 December 2019.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
131
C_GEN_PageC_GEN_PageL2C_GEN Section/ Notes to the Company Financial Statements continued
For the year ended 31 December 2019
37 Trade and other receivables
prepayments and other debtors
Amounts owed by Group undertakings
Total trade and other receivables
2019
£m
0.4
55.2
55.6
2018
£m
0.6
40.3
40.9
Amounts owed by Group undertakings attract interest of 2% and are repayable on demand.
The Company applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for
all financial assets. In measuring expected credit losses for trade receivables, receivables have been grouped based on shared
characteristics and days past due.
The Directors consider that there is no risk of impairment of its amounts owed by Group undertakings as at 31 December 2019.
38 Deferred tax
At 1 January
Credited to equity
Credited to statement of Comprehensive Income
At 31 December
2019
£m
0.1
0.1
0.1
0.3
2018
£m
0.1
–
–
0.1
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.
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 statement of Comprehensive Income and amounts
recognised in other Comprehensive Income are as follows:
other temporary differences
Net tax assets
other temporary differences
Net tax assets
39 Trade and other payables
Trade and other payables
Total current liabilities
Asset
2019
£m
0.3
0.3
Asset
2018
£m
0.1
0.1
Liability
2019
£m
–
–
liability
2018
£m
–
–
Net
2019
£m
0.3
0.3
Net
2018
£m
0.1
0.1
Statement of
Comprehensive
Income
2019
£m
0.1
0.1
statement of
Comprehensive
Income
2018
£m
–
–
2019
£m
0.1
0.1
Equity
2019
£m
0.1
0.1
Equity
2018
£m
–
–
2018
£m
0.2
0.2
Book values approximate to fair value at 31 December 2019 and 2018.
Trade payables are non-interest bearing and are generally settled on 30-60 day terms.
132
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageC_GEN_PageL2C_GEN Section/ OVERVIEW
STRaTEGIC REPORT
CORPORaTE GOVERnanCE
FInanCIal STaTEmEnTS
40 Borrowings
The book value and fair value of borrowings are as follows:
Non-current
Bank borrowings unsecured
Total borrowings
Book value
2019
£m
Fair value
2019
£m
Book value
2018
£m
Fair value
2018
£m
39.5
39.5
39.5
39.5
29.4
29.4
29.4
29.4
Borrowings
At 31 December 2019 the Company had a £60 million committed multi-currency revolving unsecured credit facility with Barclays Bank
plc and HsBC uK Bank plc which expires in 2023. The facility was increased to £75 million in March 2020.
Borrowings of £40.0 million were drawn down at 31 December 2019 (2018: £30.0 million) less unamortised issue costs of £0.5 million
(2018: £0.6 million).
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 (on a pre-IFRs 16 basis).
Based upon current economic and market trends, management consider that the sterling lIBoR rate (or any other benchmark interest
rate that may replace lIBoR) will remain relatively stable during the next reporting period to 31 December 2019, and any changes,
when applied to the Company’s current bank borrowings of £40.0 million would not lead to a significant change in finance expense.
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
133
C_GEN_PageC_GEN_PageL2C_GEN Section/ Company Information
Company Information
For the year ended 31 December 2019
Directors
Bob lawson
Frank Nelson
Martyn Coffey
sucheta Govil
Mark Kelly
Michael scott
Registered Number
08654028
Registered Office
Independent Auditors
Bankers
Fairbrook House
Clover Nook Road
Alfreton
Derbyshire
DE55 4RF
pricewaterhouseCoopers llp
Chartered Accountants and statutory Auditors
one Chamberlain square
Birmingham
B3 3AX
Barclays Bank plc
1 Churchill place
london
E14 5Hp
HsBC uK Bank plc
1 Centenary square
Birmingham
B1 1HQ
134
EUROCEll PlC ANNuAl REpoRT AND ACCouNTs 2019
C_GEN_PageL2C_GEN Section/ E
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For more investor information visit,
www.eurocell.co.uk/investors
Fairbrook House
Clover Nook Rd
Alfreton
Derbyshire
DE55 4RF