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DELIVERING
SUSTAINABLE
GROWTH
Eurocell plc
Annual Report
and Accounts 2021
WE ARE EUROCELL
The UK’s leading manufacturer, distributor
and recycler of UPVC building products.
“We have delivered a very
good sales performance
for the year, underpinned
by the success of our
commercial strategies
and ongoing high levels
of demand in the market.”
Mark Kelly
Chief Executive Officer
2021 HIGHLIGHTS
CONTENTS
Strategic Report
Corporate
Governance
Revenue
£343.1m
33%
2020: £257.9m
Gross Margin
50.5%
110bps
2020: 49.4%
Profit/(Loss)
Before Tax
£27.0m
£28.5m
2020: £(1.5)m
Basic Earnings/
(Losses) Per Share
18.9p
20.9p
2020: (2.0)p
Adjusted Profit
Before Tax1
£27.0m
218%
2020: £8.5m
Adjusted Basic
Earnings Per
Share1
18.9p
12.4p
2020: 6.5p
Adjusted EBITDA1
£51.7m
73%
2020: £29.8m
Net Debt
£69.7m
£11.4m
2020: £58.3m
Pre-IFRS 16
Net Debt
£11.0m
£1.1m
2020: £9.9m
1 Adjusted measures are stated before
non-underlying income and costs,
and the related tax effect (see page
55). We use alternative performance
measures to assess business
performance and they are provided
here in addition to statutory measures
to help describe the underlying results
of the Group.
Strategic Report
Highlights
1
What We Do
2
Chair’s Report
4
Our Operation
6
Market Overview
8
Chief Executive Officer’s Report
10
Our Business Model
14
Our Strategy
16
Our Strategy in Action
20
Divisional Review
28
Responsible Business
32
Chief Financial Officer’s Report
54
Principal Risks and Uncertainties
58
Viability Statement
66
Corporate Governance
Board of Directors
68
Chair’s Introduction
70
Corporate Governance Statement
72
Nomination Committee Report
83
Audit and Risk Committee Report
86
91
Directors’ Remuneration Report
109 Directors’ Report
112 Statement of Directors’
Responsibilities
Financial Statements
113
122 Consolidated Statement of
Independent Auditors’ Report
Comprehensive Income
123 Consolidated Statement of
Financial Position
124 Consolidated Cash Flow Statement
125 Consolidated Statement of
Changes in Equity
126 Notes to the Consolidated
Financial Statements
155 Company Statement of
Financial Position
156 Company Statement of
Changes in Equity
157 Notes to the Company
Financial Statements
164 Company Information
View the latest
results online at
investors.eurocell.co.uk
Eurocell plc Annual Report and Accounts 2021
1
FinancialStatements WHAT WE DO
TWO DIVISIONS
LEADING THE WAY
We manufacture
Manufacturing expertise
We manufacture both PVC rigid
and foam products in our centrally
located extrusion facilities.
We recycle
Sustainable sourcing
We have two recycling
facilities which puts recycling
at the heart of our operation.
We distribute
Distribution network
We distribute through
our nationwide network.
57.2k tonnes
Total amount of profile produced
16.8k tonnes
Recycled product used
in our rigid PVC profile
219
Number of branches
2
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
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.
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 – supply finished products to tradesmen or small
retail outlets.
• New build – supply and install the products they make for
house builders.
• Commercial – supply and install products used in
applications such as office space and education facilities.
• Retail – 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 below). 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:
Manufacturer of
composite and
PVC entrance
doors
Manufacturer of
plastic injection
moulded products/
services
Recycler of PVC
windows
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:
Supplier of locks
and hardware
Ranges of window
and door profile
Skypod pitched
skylights
Conservatories and
Equinox tiled roofs
Aspect bi-fold doors
Fascias, soffits and
guttering
Traded goods
SEE OUR DIVISIONAL REVIEWS ON PAGES 28 TO 31
Eurocell plc Annual Report and Accounts 2021
3
FinancialStatements
CHAIR’S REPORT
DELIVERING
SUSTAINABLE
GROWTH
Bob Lawson
Chair
“We are well placed to capitalise on
opportunities as markets develop
and deliver sustainable growth in
shareholder value.”
4
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Introduction
The business has responded remarkably well to the impact of
COVID-19, and to the new challenges posed in 2021, including
supply chain disruption, major raw material cost inflation and tight
labour markets. So I start this year’s report by offering, on behalf
of shareholders and of the Board, my sincere thanks to our teams
in every part of the Group. The progress we made during 2021 is
testament to their commitment, hard work and dedication during
a period of continuing and unprecedented uncertainty.
Financial and operating performance
The business has delivered good results for 2021, underpinned
by a strong repair, maintenance and improvement (‘RMI’) market
and the continued successful deployment of our strategy. We
acted decisively in response to significant supply chain challenges,
recovered successfully the impact of unprecedented raw material
cost inflation and secured the resources we need to service
demand, despite tight labour markets.
Strategy
Our overall strategic objective remains to deliver sustainable growth
in shareholder value, by increasing sales and profits above our
market growth rates. We have seven strategic priorities to deliver
this objective, and we continue to make good progress against
each of them, with the key aspects of our performance described
in the Chief Executive Officer’s Report.
In 2021, we made further progress developing our approach
to improving the sustainability of the Group, including carbon
footprint and emissions reduction, supporting our people and their
wellbeing, and improving the environment in which they work.
Further information on our sustainability initiatives is included in the
Responsible Business section.
Overall, we are confident that, through the successful progression
of our strategy, we will continue to outperform markets and deliver
sustainable growth in shareholder value.
Fit-out of our new warehouse was completed during the year,
alongside the next phase of our manufacturing capacity expansion,
leaving the business well placed to deliver ongoing sustainable
growth with good operating efficiencies and improving returns.
Governance
As a Board, we are committed to the highest standards of
corporate governance and we continue to comply with the UK
Corporate Governance Code.
Sales for the full year were £343 million, up 23% compared to
2019 and 33% compared to 2020, and profit before tax was £27.0
million (2020: loss of £1.5 million; 2019: profit of £22.7 million).
Net debt at 31 December 2021 on a pre-IFRS 16 basis stood at
£11.0 million (31 December 2020: £9.9 million), demonstrating
significant headroom on our bank facility. We have a strong balance
sheet, which provides flexibility and options for the future.
Dividends
We paid an interim dividend of 3.2 pence per share in October
2021. 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.
No dividends were paid in respect of 2020 due to the impact of
COVID-19.
After 7 enjoyable years as Chair of Eurocell, I have notified the
Board of my intention to step down and a process to recruit my
successor has begun, led by Frank Nelson, the Senior Independent
Director. During my tenure, it has been a delight to lead the Board
and witness the transformation of Eurocell by the executive team,
to become the market-leading business that it is today.
I would like to thank my fellow Board and Committee members
for their valuable contribution and support throughout my
whole tenure.
Finally, I would like to wish everyone at Eurocell, and all of its
stakeholders, continued success for the future.
Bob Lawson
Chair
Eurocell plc Annual Report and Accounts 2021
5
FinancialStatements OUR OPERATION
A VERTICALLY INTEGRATED
MODEL TO MAXIMISE EFFICIENCY
Distribution
Third-party product
suppliers
e.g. rainwater products,
sealants, tools
Eurocell Building Plastics
Branch customers
>10,000 owner managed
businesses and contractors
Revenue by division
■ Profiles
£140.7m
■ Building Plastics £202.4m
Operating profit
by division
■ Profiles
£20.7m
■ Building Plastics £11.9m
Manufactured product
sales:
– Foam profiles
– Made to order product sales: e.g.
windows, conservatories,
conservatory roofs, skylights,
patio / bi-fold doors
Eurocell Profiles
Fabricator customers
c.400 window and door
fabricators
Manufactured
product sales:
rigid profiles
Production
18.1k tonnes3
of foam profile
39.1k tonnes3
of rigid profile
Our operations
• 64 extrusion lines, with current
capacity for a further 15, in
addition to a newly upgraded
PVC compound mixing plant
• A specialist manufacturing
site for secondary operations
including foiling and
conservatory roofs
• 2 recycling sites which together
form the leading UK-based
PVC window recycling
operation
• 260k square feet of state-
of-the-art warehouse with
cantilever racking and mobile
platform picking
• A dedicated technical centre,
focussed on product-
development and enhancement
Raw material
consumption
61.4k tonnes
of virgin compound1, recycled
compound plus other raw
materials2 consumed
Manufacturing
SEE PAGES 28 TO 31 FOR MORE INFORMATION
All of our manufacturing margin is recorded within the Profiles division,
which therefore also benefits from expansion of the branch network
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 2021 volumes.
4 Repairs, Maintenance and Improvement.
6
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
The coordination of our manufacturing, distribution
processes and recycling activities helps us to be
efficient throughout all stages of our value chain.
Our markets
Where we operate
RMI4
Proportion of revenue
in RMI market
c.85%
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 8 FOR MORE INFORMATION
New build
Proportion of revenue in
new build housing market
c.10%
Public Sector
Proportion of revenue in public
new build housing market
c.5%
■ Eurocell locations
■ New Head Office, Alfreton
■ New branch locations in 2021
219
Number of branches
Eurocell Recycle
16.8k tonnes3
of recycled compound consumed
(27% of raw materials consumed)
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 38 FOR MORE INFORMATION
Recycling
Eurocell plc Annual Report and Accounts 2021
7
FinancialStatements MARKET OVERVIEW
GENERALLY SUPPORTIVE
MARKET DRIVERS AND
STRONG EUROCELL DRIVERS
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.
Eurocell Markets and Drivers
The Construction Products Association (‘CPA’) Industry Forecasts (published January 2022) show a strong recovery in the private housing
RMI market in 2021, with growth of 17% following a COVID-19 driven decline of 12.5% in 2020. The CPA forecasts a flat year for private
housing RMI in 2022 and a small decline in 2023. In this context, it is important to note that Eurocell has consistently outperformed CPA
market growth estimates.
Market conditions at present are generally supportive and we have good potential to outperform, capitalising on our strong market
positions and clear strategy.
Private RMI
(c.85% Eurocell revenue)
New build
(c.10% Eurocell revenue)
Commercial
(c.5% Eurocell revenue)
Market drivers:
Market drivers:
Market drivers:
Slow to return post COVID
Continued hesitancy caused by
delays to funding release from
government
Eurocell drivers:
Only brand maintaining a sizeable
salesforce displacing aluminium
with PVC
Better U-values and, historically,
30% cheaper
More fabricators working in
commercial
Renovation activity driven by:
– c.1-in-16 homes changed hands
in 2021
– Desire to improve / extend
homes, especially post-COVID
– Pension drawdown and desire for
maintenance-free property
– Change in family circumstances
Consumer confidence / uncertainty
– Unclear how post-COVID markets
will develop in 2022, especially
H2, but likely full employment will
continue
– Potential for RMI super-cycle,
driven by under-investment and
permanent hybrid working
– Potential adverse impact of high
inflation and situation in Ukraine
Eurocell drivers:
Increase propositions in
Building Plastics
– Maturing branches
– Conservatory / roof development
– Outdoor living products
– New larger format stores
Strong competitive position in
Building Plastics
Sales of windows and other big
ticket made-to-order products
through branches
Strong competitive position in
Profiles with trade fabricators
serving the RMI market, and
competitor difficulties
Good pipeline of potential new
trade fabricator customers in Profiles
Mortgage remains attractive vs
rental cost
High levels of mortgage approvals
currently, with mortgage guarantee
scheme available until December
2022
Help to Buy remains, but restricted
to first-time buyers
Large builders maintaining
conversions
Long-term shortage of housing may
attract government intervention, but
affordability remains an issue
Right to Buy in public sector
Eurocell drivers:
Benefit of differentiated
specifications
New build competitor difficulties may
present a significant opportunity to
grow share
Strong competitive position with
new build fabricators
Opportunity to leverage
Environmental, Social and
Governance (‘ESG’) credentials
Building regulations (Future Homes
Standard) beneficial to Eurocell skill
set
Low-cost fabricators leaving
market and work taken by Eurocell
fabricators
Growth of Eurocell cavity closer
driving contact with house builders
Vista increasing market share in
doors
8
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
CPA Construction Industry
Forecasts (2021-23)
Total construction output growth
10%
13%
3%
4%
3%
6%
0%
2017
2018
2019
(15)%
2020
2021E
2022F
2023F
Total housing growth
15%
17%
9%
4%
3%
3%
2017
2018
2019
2020
2021E
2022F
2023F
(21)%
Private housing RMI growth
17%
6%
9%
0%
0%
(2)%
(13)%
External Market Data
GDP
After an estimated fall of 10% in 2020, real UK
GDP recovered with growth of 8% in 2021 and is
forecast to grow by a further 2% in 2022 and 1%
in 2023.
Interest rates
UK interest rates remain very low at 0.5% and are
expected to remain low relative to historical levels in
the medium-term.
Construction
Total construction activity was down 15% in 2020,
but recovered with growth of 13% in 2021 and is
forecast to grow by a further 4% in 2022 and 3%
in 2023.
Housing market
Total housing activity was down 21% in 2020,
but recovered with growth of 17% in 2021 and
is forecast to grow by a further 3% in 2022 and
3% in 2023.
The private housing RMI market was down 13% in
2020, but recovered very strongly with growth of
17% in 2021 and is forecast to be flat in 2022 and
down 2% in 2023.
Sources: Bank of England forecasts for the UK economy (published
February 2022), CPA Forecasts 2021-23 (published January 2022).
Key to potential impact on demand for Eurocell products:
2017
2018
2019
2020
2021E
2022F
2023F
Positive Neutral Negative
Eurocell Revenue by Market (%)
Private home improvement and new build housing are
currently the most important market segments for Eurocell.
RMI
New build
Public Sector
c.85%
c.10%
c.5%
(New build & RMI)
Eurocell sales growth and
private housing RMI growth
10%
6%
13%
10%
9%
0%
2017
2018
2019
CPA central scenario
Eurocell
28%
17%
(8)%
(13)%
2020
2021E
Sources: CPA Construction Industry Forecasts (published January 2022)
Eurocell plc Annual Report and Accounts 2021
9
FinancialStatements CHIEF EXECUTIVE OFFICER’S REPORT
WELL POSITIONED
FOR 2022
Mark Kelly
Chief Executive Officer
“We delivered a strong performance
in 2021 and continue to see good
potential to deliver further progress
and improving returns in 2022.”
10
Eurocell plc Annual Report and Accounts 2021
Introduction
We entered 2021 well placed to take advantage of the continued
recovery in our markets.
We have delivered a very good sales performance for the year,
underpinned by the success of our commercial strategies and
ongoing high levels of demand in the RMI market. Our products
have continued to resonate well with customers seeking to improve
their homes and create more usable space, both inside and outside
their properties.
We also navigated successfully the challenges posed by supply
chain disruption, major raw material cost inflation and tight labour
markets. As a result, we have reported good financial results for
the year.
Fit-out of our new warehouse was completed in 2021, along with
a further step up in the expansion of our manufacturing capacity.
With constraints resolved, we can now focus on delivering
improved operating efficiencies from the new warehouse and
production facilities.
Whilst demand has moderated from the unprecedented levels
experienced in H2 2020 and H1 2021, the RMI sector remains
strong and customer demand levels are good going into 2022.
We also expect continued growth in new build and the return of
commercial projects, which struggled to gain traction through 2021.
Financial results
For the purposes of this report, where appropriate, we have
compared financial and operating performance to 2020 and 2019,
with the latter a more meaningful comparator given the disruption
in 2020 due to COVID-19.
Sales for the year were £343 million, or 33% above 2020 and
23% above 2019. We reported a profit before tax of £27.0 million,
up 19% or £4.3 million on 2019 (£22.7 million), driven by higher
sales volumes.
Adjusted profit before tax for 2020 was lower at £8.5 million,
reflecting the impact of COVID-19. The reported loss before tax
was £1.5 million.
Further information on our financial performance is included in the
Chief Financial Officer’s Report and Divisional Reviews.
Operational performance
Health and safety
The safety and wellbeing of our employees and contractors is our
first operational priority and we continue to maintain a good safety
performance.
Our Lost Time Injury Frequency Rate (‘LTIR’) was 0.8 in 2021,
compared to 0.7 in 2020 and 0.9 in 2019. There were no major
injuries and 28 minor accidents recorded under the Reporting of
Injuries, Diseases and Dangerous Occurrences Regulations 2013
(‘RIDDOR’) in the year (2020 and 2019: 19 and 17 minor injuries
respectively). We have improved our procedures for incident
reporting during the year, leading to more incidents being included
in the data, which contributed to the slight deterioration in the
reported figures for 2021. COVID-19 safety procedures remained
a priority throughout the year, with many good practices retained,
despite the relaxation in government guidance.
Strategic Report
Corporate
Governance
Production
In 2021 we manufactured 57.2k tonnes of rigid and foam PVC
profiles at our primary extrusion facilities, 26% higher than 2020
and 5% higher than 2019. This reflects the sales for each year, as
well as, in 2019, higher production to increase stock holding at our
branches and to mitigate the risk of raw material supply interruption
due to Brexit. Overall Equipment Effectiveness (‘OEE’, a measure
which takes into account machine availability, performance and yield)
was 68% in 2021 (2020 and 2019: 75% and 73% respectively), with
2021 impacted by supply chain disruption and labour availability (see
below). Having resolved these issues, we expect OEE to improve,
with our target for 2022 being to reach 75% for the year.
Raw material supply chain, labour and transport
Strong demand in our markets put sector supply chains under
pressure, and we have experienced tighter supply and an inflationary
environment, with prices of certain raw materials, particularly PVC
resin, rising significantly in 2021. However, we have continued to
secure the raw materials we require and we expect past constraints
to ease over the coming months. We have also recovered raw
material cost inflation with selling price increases and surcharges.
Our market-leading recycling plants also supported continuity
of supply of resin in tight markets, whilst continuing to improve
the proportion of recycled material used in our primary extrusion
operations. These plants supplied 27% of our raw material
consumption for the year (2020: 25%), driving significant cost
and carbon savings compared to the use of virgin material (see
Recycling overleaf).
Availability of the incremental operational labour we needed
to service strong demand in 2021 was very tight, and we also
experienced an elevated level of absence through the summer
months due to employees being required to self-isolate. In addition,
in the light of a well-publicised shortage of HGV drivers in the UK,
our outsourced transport provider faced challenges providing the
required number of vehicles to service higher than expected sales.
However, the decisive action we took during the year to secure
more labour and transport ensured that we have the resources
necessary to operate efficiently and support our growth aspirations
for revenue and margins.
Strategy
Strategic priorities
Our overall strategic objective remains to deliver sustainable growth
in shareholder value, by increasing sales and profits above our
market growth rates. We have seven strategic priorities to help us
achieve this objective:
• Grow market share in Profiles
• Expand the branch network
• Increase the use of recycled materials
• Develop innovative new products
• Explore potential bolt-on acquisition opportunities
• Deliver sustained operational excellence
• Develop a sector-leading digital proposition
We have made good progress with our strategic priorities in 2021,
with the key aspects described throughout this report.
Grow market share in Profiles
In 2018 we became the leading supplier of rigid PVC profile to
the UK market, with a share of c.15%. We continue to consolidate
our position and believe we now have a share of around 18%.
Our objective is to increase this to at least 22% over the medium
term. See the Profiles Divisional Review for further information on
our progress.
Eurocell plc Annual Report and Accounts 2021
11
FinancialStatements CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED
Expand the branch network
Our strategic objective for Building Plastics is to achieve sector-
leading operations from 270-300 sites. The growth will come by
taking business from independent operators, who currently have
more than 60% market share. We opened 12 new branches in
2021, resulting in a total estate of 219 sites. See the Building
Plastics Divisional Review for further information on our progress.
Increase the use of recycled material
In 2021 we increased our use of recycled material to 27% of
materials consumed (2020: 25%). Our objective is to increase
this to around 33% over the new few years. See Sustainability for
further information on our progress.
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. Particularly for new build,
we have been cooperating on product designs to meet technical
compliance with Future Homes building regulations, which come into
force in 2022, with a further upgrade in 2025.
Highlights for 2021 include:
• Development of the Aspect bi-fold door system to include
flush French doors, which complement our Modus and Logik
range of flush sash windows.
• Following the launch of our slate-effect Envirotile composite
roof tiles in 2020, we have now extended the offering to
include a solid tiled Equinox conservatory roof.
• Skypod Plus was added to the Skypod roof lantern range in
2021, with improved architectural aesthetics.
• Composite fencing products, made from sustainable
materials, have been added to our decking range.
• Following the launch of the Kyube garden room in 2020, the
range was expanded in 2021 to reflect continuing strong
demand for affordable extra work and leisure space at home.
Outdoor living products have been one of our strongest growth
categories in 2021, with sales of £8.6 million compared to £5.6
million in 2020 and £2.9 million in 2019. Conservatories, warm
roofs, fencing and decking have all been particularly strong,
alongside new products such as garden rooms. Building on this
success, looking forward to 2022 we will be launching a new range
of modern conservatories, alongside other garden products such
as pergolas and awnings.
Explore potential bolt-on acquisitions
We have completed six acquisitions since our IPO in 2015. This
remains an important strategic objective for the Group and we will
continue to assess and consider bolt-on acquisition opportunities
in the markets in which we operate as and when they arise.
Deliver sustained operational excellence
In 2021 we introduced a new strategic priority to ‘deliver sustained
operational excellence’. Through 2016–19, the success of our
commercial strategies resulted in a strong compound annual
growth rate in sales of 12%, which is well ahead of our markets.
However, profits for that period were impacted by sales running
substantially ahead of our expectations, thereby exceeding the
available operating capacity and leading to inefficiencies and extra
costs.
Manufacturing and warehousing constraints have now been resolved
through major investments in new capacity.
12
Eurocell plc Annual Report and Accounts 2021
Transition to the new warehouse was completed successfully in
2021, against a background of record volumes and supply chain
disruption. As well as being central to increasing capacity, the facility
is key to delivering further improvements in operational efficiencies as
the new plant, systems and processes become embedded.
The new warehouse has also unlocked the operational footprint
for the whole Group. In 2021, we converted our old warehouse to
a specialist manufacturing site, relocating secondary operations,
including foiling and conservatory roofs, providing a better
environment to drive these businesses forward. This also freed up
space to future-proof extrusion capacity for the medium-term.
We increased our extrusion capacity by more than 20% in 2018/19.
With ongoing strong growth, we completed a further expansion
in 2021, with the addition of five new extrusion lines, along with
the associated mixing plant upgrade and tooling. With space now
available, we plan to add a further five lines in 2022. Together,
these investments increase extrusion capacity by more than 15%
compared to the end of 2020, thereby enabling future sales and
market share growth.
Our focus in 2022 will be on delivering improved operating
efficiencies from the new warehouse and production facilities.
Looking ahead, with constraints resolved, we expect the benefit of
our strong sales growth to flow through to improved margins.
Develop a sector-leading digital proposition
Also in 2021, we introduced a new strategic priority to ‘develop
a sector-leading digital proposition’. Stakeholders increasingly
require full end-to-end digital solutions, a trend accelerated by the
COVID pandemic. We expect a sector-leading digital proposition to
act as an enabler to our other priorities and improve the supplier,
customer and employee experience, making Eurocell an even
better business partner all round.
During the year we selected platforms for a new website, product
information management system, e-commerce solution and
employee management system. Development is under way, with
these systems expected to launch in 2022 and 2023.
Sustainability
Sustainability strategy and KPIs
During 2021 we published our sustainability strategy. Our objective
is to continue to improve the sustainability of the Group. We have
defined a suite of environmental and social targets and KPIs against
which to measure our progress.
Our KPIs recognise the breadth of the Environmental, Social and
Governance (‘ESG’) agenda. Taking into account the specific
circumstances of 2021, we made good progress against these
targets in the year.
However, increasing our use of recycled PVC compound in the
manufacture of co-extruded rigid profiles will always be at the heart
of sustainability for Eurocell, and therefore this Chief Executive’s
Review is focused on our environmental targets. The full suite of
KPIs and commentary on our 2021 performance is set out in the
Responsible Business section on pages 32 to 55.
Recycling (circular economy)
Expanding recycling improves product and business sustainability,
with less plastic going to landfill. 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.
Strategic Report
Corporate
Governance
Recycling also increases our profits, because the cost of recycled
compound is typically lower through the cycle than the price of
virgin material, and it reduces our exposure to volatile commodity
prices. This is very important at the moment, with the price of virgin
resin reaching historic high levels in 2021.
Eurocell is also aligned with the Ellen MacArthur Foundation New
Plastics Vision, which seeks to: (i) eliminate the plastics we do not
need, (ii) innovate to ensure the plastics we do use can be recycled
and (iii) circulate the plastics we use, to keep them in the economy
and out of the environment.
We have been investing to increase our recycling capability through
the expansion of our two market-leading recycling plants and by
investment in new co-extrusion tooling, which allows a greater
proportion of recycled material to be used in our products.
We have become the leading UK-based recycler of PVC
windows. As well as keeping pace with increased demand, we
have continued to improve the proportion of recycled material
consumed in our primary extrusion operations. Usage increased
from 9% of materials consumed (or 4.1k tonnes) in 2015 to 27%
of consumption (or 16.8k tonnes) in 2021. In doing so, in 2021
we saved the equivalent of more than 3 million end-of-life window
frames from landfill.
Inovyn is Europe’s leading chlorovinyls producer and the largest
supplier of PVC resin to UK window profile systems houses,
including Eurocell. They are focused on sustainable development,
including responsible production, carbon neutrality and circularity.
Inovyn’s carbon footprint for PVC is well below the industry average.
Inovyn has now launched the world’s first commercially produced
bio-attributed PVC (Biovyn), made using renewable feedstock
derived via wood-based residue from sustainable forestry. The
supply chain for Biovyn has been certified by the Roundtable on
Sustainable Biomaterials to deliver a 90% greenhouse gas saving
compared to conventional PVC.
Overall, we estimate that our recycling operation saved more than
48k tonnes of carbon in the year compared to the use of virgin PVC
(equivalent to the annual CO2 output of over 7,000 UK homes).
In terms of economic benefits, in 2021 our recycling operation
drove a substantial cost saving compared to the use of virgin PVC
compound, reflecting increased volumes and much higher prices
for virgin compound.
In addition, substantially all scrap generated in extrusion is recycled
back into our production processes, further reducing waste sent to
landfill.
Emissions and energy management
Central to our environmental targets is reducing the carbon
footprint of the business and our products. Our target is to deliver
a 5% reduction in both the energy use intensity ratio and emissions
intensity ratio by 2025, compared to the 2020 baseline.
Products such as Biovyn provide the potential for our longer-term
transition towards carbon neutrality and net zero for PVC. We
intend to begin trials using small quantities of Biovyn in our primary
extrusion processes in 2022.
Looking to a sustainable future
Looking forward, there are four key themes to our work on
sustainable development.
• Carbon, energy and water – defining our pathway to carbon
neutrality and net zero, which will be driven primarily by reducing
Scope 1 and 2 emissions in extrusion and recycling.
• Waste minimisation and circularity – further strengthening
materials recovery and process optimisation.
• People and places – becoming the regional employer of choice
and stepping up community engagement.
• Governance – reporting progress against published ESG targets
and aligning with recognised sustainability indices.
The emissions intensity ratio was 51 tCO2e per £m sales in 2021,
resulting in a 27% reduction compared to 2020. The energy use
intensity ratio was £222 MWh / £m sales in 2021, representing a
17% reduction compared to 2020.
The main drivers for these reductions in emissions and energy
usage ratios are the increasing proportion of renewable electricity
in the national mix, alongside the improving energy efficiency of our
own plant and machinery reflecting our recent investments (new
extrusion lines are significantly more efficient than our legacy fleet).
Responsible PVC sector
There are a number of major initiatives in progress across the PVC
industry to address sustainability challenges, which Eurocell is proud
to support. These initiatives look through the value chain at extraction
and refining of raw materials, energy production and supply, and
resource inputs and emissions. There is also a strong sector focus
on recycling, and on seeking to differentiate between short life single-
use plastics and those with longer more circular life cycles.
Further information is provided in the Responsible Business section.
Summary and outlook
We entered 2021 well placed to take advantage of the continued
recovery in our markets. A very good sales performance has been
underpinned by the success of our commercial strategies and high
levels of demand in the RMI market, and we are very pleased to
report good profit growth and a return to the payment of dividends.
We expect supply chain constraints to ease over the coming
months, and the actions we took last year have ensured we have
the resources necessary to operate efficiently and support our
growth aspirations for revenue and margins.
The RMI sector remains robust, new build continues to grow
and customer demand levels are good. With operating constraints
resolved, our focus for 2022 will be on delivering improved returns
from our strong sales growth.
For example, VinylPlus 2030 is a 10-year commitment from
the European PVC industry to a framework of sustainable
development. The British Plastics Federation (‘BPF’) has
established targets to increase energy efficiency and reduce CO2
emissions, and launched Operation Clean Sweep, an initiative to
reduce plastic pellet loss to the environment.
Notwithstanding the events in Ukraine and the attendant
macroeconomic uncertainties, the year has started well, with
sales to the end of February up 6% on 2021. We therefore
continue to see good potential to outperform our markets and
deliver further progress.
Mark Kelly
Chief Executive Officer
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements OUR BUSINESS MODEL
CONTINUALLY DEVELOPING
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.
57.2k tonnes
produced in 2021
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.
>3 million
products delivered in 2021
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 2021
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.
Brand
strength
People
and
culture
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.
We have a strong brand image and our
marketing activities seek to maximise our
brand awareness.
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.
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1 Return on sales is Operating Profit (including the impact of IFRS 16) divided by revenue.
Outputs
Sales
growth
Key beneficiaries
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 (vs 2019)
23%
Shareholders
Our overall strategic objective is
to deliver sustainable growth in
shareholder value.
Solid
profitability
We have a track record of solid
profitability and our continued
investment in expanding capacity
and improving operational
efficiency, coupled with strong
sales growth, should drive
increased returns.
Profit
Before Tax
£27.0m
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.
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.
Good cash
generation
Net cash generated
from operating activities
£29.6m
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
8.5%
Progressive
returns to
shareholders
Our dividend policy, supported
by sales growth and cash
generation, delivers progressive
dividend returns to shareholders.
Total dividends returned
to shareholders since
the IPO in 2015
£41.5m
Employees
We work hard to train and
develop our people, and provide
rewards commensurate with
our goal to be an employer of
choice.
Fabricators
Through high-quality products
and a strong focus on customer
service, we have developed a
very loyal customer base.
Small builders
and installers
The independent sole traders
that visit our branches benefit
from the one-stop-shop offering
we provide.
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.
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements OUR STRATEGY
WE HAVE SEVEN KEY
STRATEGIC PRIORITIES
Our overall corporate objective is to deliver sustainable growth in
shareholder value by increasing sales and profits at above market growth
rates through leadership in products, operations, sales, marketing and
distribution. We have seven strategic priorities to support the delivery of
our overall objective, which are summarised below.
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 existing estate and
new branches to increase market
share of foam PVC profiles,
and drive sales and profit
growth in Building Plastics
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
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DEVELOP
INNOVATIVE
NEW PRODUCTS
Maintain market leadership
by offering the latest in
product innovation
EXPLORE
POTENTIAL BOLT-ON
ACQUISITIONS
Consider acquisition
opportunities when
they arise
DELIVER SUSTAINED
OPERATIONAL
EXCELLENCE
Optimise returns on recent
investment in manufacturing
and warehousing capacity
to enhance profits and
return on sales
DEVELOP A
SECTOR-LEADING
DIGITAL PROPOSITION
Develop end-to-end digital
solutions to enable our strategic
priorities and improve the
supplier, customer and
employee experience
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements OUR STRATEGY
STRATEGIC PROGRESS IN 2021
KEY
STRATEGIC
PRIORITIES
TARGET GROWTH
IN MARKET SHARE
Increase market share of rigid
PVC profiles to drive sales and
profit growth in Profiles
2021
PROGRESS
• Benefit of new account wins –
75 added over the last 5 years
• Strong demand from trade
fabricators focused on the
RMI market and excellent
performance from Vista doors
• Increasing share of the new
build market, driven by strong
relationships with large and
medium-sized housebuilders
and benefit of pull-through
specifications
• Increasing share in cavity
closures market, where
competition has reduced
EXPAND OUR
BRANCH NETWORK
Investment in existing estate and
new branches to increase market
share of foam PVC profiles, and
drive sales and profit growth in
Building Plastics
INCREASE THE USE OF
RECYCLED MATERIALS
Increased use of recycled material
to help mitigate raw material
pricing pressure, enhance stability
and reduce the carbon footprint of
our manufactured products
• Strong performance across full
• Continued investment to
range of manufactured products
and traded goods
• Continued growth in the
outdoor living product range,
including decking, fencing and
garden rooms
• 12 new sites opened, including
4 larger format branches
• Introduced more large format
stores, with showroom-style
displays to drive big-ticket
purchases
• Trials of new format for standard
size stores – see below
expand recycling capacity and
improve reliability in both plants,
with capex of £1.1 million (2020:
c.£1.5million)
• Long-term sustainability KPIs
and targets defined, including
commitment to 1% year-on-year
increase in use of recycled
material
See pages 38 to 41 for further
details of recycling operations.
See pages 28 to 29 for further
details of the Profile division’s
performance.
See pages 30 to 31 for further
details of the Building Plastics
division’s performance.
KPIs
Profiles sales growth:
22% (vs 2019)
Estimated market share in
Profiles:
18% (2019: 15%)
New accounts
75
(following 60 in 3 years 2017–19)
Building Plastics like-for-
like sales growth:
20% (vs 2019)
Estimated market share
in Building Plastics
(foam PVC profiles):
25% (2019: 22%)
Total estate at 219 branches at
31 December 2021, with 78 (net)
new branches opened from 2015
(2020: 33.7k)
(2019: 41.3k)
Total tonnes of waste
processed in the recycling
plants:
48.2k
% yield of recycled
material produced:
59%
(2020: 63%)
(2019: 60%)
Use of recycled material
for primary extrusion:
16.8k tonnes
27% of consumption
(2020: 12.4k tonnes/25%)
(2019: 13.4k tonnes/23%)
2022
FOCUS
• Investment in additional
capacity now coming on line
• Exploit the case for trade
fabricators to switch to Eurocell,
through specification, service,
opportunities to supply
branch network and product
development
• Continue to develop technical
specifications with housebuilders,
with a focus on sustainability
• Leverage building regulations
(Future Homes Standard),
beneficial to Eurocell skill set
• Target commercial sector
projects, promoting energy
efficiency and lower cost
benefits of PVC over
aluminium for sub-sectors
such as purpose-built student
accommodation and education
1 OEE is overall equipment
effectiveness, a KPI measuring our
manufacturing efficiency which takes
into account machine availability,
performance and yield.
2 OTIF is on time in full, a KPI measuring
the efficiency and accuracy of our
logistics and delivery operation.
3 Based on the 2 months to
February 2022.
• Roll-out of improved format
• Maximise throughput and
operational efficiency/reliability
at both recycling sites
• Implement best-in-class
processes and elimination/
mitigation of single points of
failure risk, through suppler
partnerships and enhanced
maintenance management
• Reduce the amount of waste
going to landfill through yield
and efficiency benefits, coupled
with multiple projects to find
alternative purposes for the
waste produced
for standard and large stores,
which better showcase the
product range
• Continue development of
market-leading product
range proposition, including
redesigned best-in-class
conservatory offering,
development of new product
categories and range extensions
• Be recognised as first for
service for the tradesperson via:
– Seamlessly connect the
customer shopping journey
from online through to
branches
– Clear data-driven customer
engagement plans
– Development of sector-
leading digital platform
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DELIVER SUSTAINED
OPERATIONAL
EXCELLENCE
Optimise returns on recent
investment in manufacturing and
warehousing capacity to enhance
profits and return on sales
• New warehouse launched
in January and transition
completed successfully through
2021, against a background of
record volumes and challenging
supply chain dynamics, with
raw material constraints and
labour shortages
• Further progress with
manufacturing capacity
expansion, with 5 new
extrusion lines, together
with the associated mixing
plant upgrade and tooling,
commissioned in Q4
DEVELOP A
SECTOR-LEADING
DIGITAL PROPOSITION
Develop end-to-end digital
solutions to enable our strategic
priorities and improve the supplier,
customer and employee experience
• Product Information
Management (‘PIM’) solution
scoped and platform selected,
with implementation ongoing
• Website and e-commerce
platforms selected and
development ongoing
• Employee management
systems fully scoped and
solution platform identified
• Customer Relationship
Management (‘CRM’) /
Enterprise Resource Planning
(‘ERP’) solutions – business
needs, requirements analysis
and scoping ongoing
Number of digital projects
in progress:
5
DEVELOP INNOVATIVE
NEW PRODUCTS
Maintain market leadership by
offering the latest in product
innovation
EXPLORE
POTENTIAL BOLT-ON
ACQUISITIONS
Consider acquisition
opportunities when they arise
• Development and introduction
• Several opportunities
considered and investigated
against strict strategic and
financial criteria – none
progressed in 2021
• Principal focus was completing
the warehouse transition and
expanding manufacturing
capacity, along with opening
12 new branches
of products which feature
better aesthetics, and a more
contemporary look, along
with improved environmental
characteristics, including
– Aspect flush French doors
– Improved conservatory roof
range
– Garden rooms
– Skypod Plus roof lantern
See pages 24 to 25 for further
details of new products.
Product ranges launched
in 2021:
11
• Continue to enhance/develop
new products which include
for 2022:
– Redesigned best-in-class
conservatory range
– Vertical cladded Coastline /
garden rooms
– Other outdoor living products
including pergolas and
gazebos
– Fire-resistant cavity closers
• Ongoing technical
collaborations with larger
customers to develop new
product applications to meet
changing building regulations
requirements
Acquisitions completed in
2021:
Nil
Acquisitions completed
since IPO:
6
OEE1:
68%
OTIF2:
78%)
(2019: 73%)
(2022 current
run rate3: 71%)
(2019: 89%)
(2022 current
run rate3: 93%)
• Continue to assess and
• Deliver operational efficiencies
• Progress prioritised road map
consider bolt-on acquisition
opportunities in the markets in
which we operate
in manufacturing and
warehousing, as new plant,
systems and processes
become embedded
• Continue manufacturing
capacity expansion, with 5
further primary extrusion lines
ordered for 2022, plus additional
lines to support growth in cavity
closure products and fencing,
along with the required tooling
and mixing plant improvements
projects, including:
– Implement the new PIM
solution and website/e-
commerce platforms for
operational use
– Complete new website
and e-commerce platform
implementation
– Commence the development
and implementation of the
employee management
systems
– Complete the planning and
costing of the CRM and ERP
solutions
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements
OUR STRATEGY IN ACTION
INVESTMENT IN
BUSINESS EXPANSION
The recent success of our commercial
strategies has resulted in a strong
compound annual growth rate in sales
since 2016 (excluding the impact of
COVID-19 on 2020) of 14%.
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Eurocell plc Annual Report and Accounts 2021
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a specialist manufacturing site, relocating secondary operations,
including foiling and conservatory roofs. This has freed up the
space to future-proof extrusion capacity.
Since returning from the first UK lockdown mid-2020, we have
benefited from strong underlying markets and continued to
deliver good sales growth. We therefore took the decision to
further expand manufacturing capacity in 2021, with the addition
of another five extrusion lines, the associated tooling and an
upgrade to the PVC compound mixing plant at a cost of c.£7
million (including the previous warehouse conversion noted
above). All the new lines were operational by the end of 2021.
In 2022, with ongoing good market conditions and further
opportunities to take market share, we are planning to continue
this expansion. We have placed orders for a further five primary
extrusion lines, plus additional lines to support growth in cavity
closure products and fencing, along with the required tooling and
mixing plant improvements with a combined cost of c.£6 million.
This investment results in an uplift in primary extrusion capacity of
c.15% compared to 2020.
Looking further ahead, we have the space available in our
extrusion halls to add at least another ten lines, representing a
further increase in capacity of c.15%. It is also worth noting that,
following technological improvements, the machinery and tooling
added over the last three years is more efficient than our existing
plant, which should improve capacity beyond the baseline
estimates included here.
Primary extrusion lines at 31 December (number)
This growth reflects significant gains in market share across both
divisions, with Profiles share up from c.14% in 2017 to 18% in
2021, and Building Plastics increasing from 20% to 25% over the
same period. However, profits for the early part of that period were
impacted by sales running ahead of our expectations, thereby
exceeding the available operating capacity and leading
to inefficiencies and extra costs.
Therefore, from 2019, we stepped up investment in the business
to build out the operating infrastructure required to deliver
strong growth and an efficient operation. This investment has
included significantly increasing our manufacturing, recycling and
warehousing capacity, strengthening our teams and working with
them to improve operational capability and efficiency.
This section draws these investments and initiatives together
to demonstrate how the business has been developed over the
period, leaving Eurocell now well placed to continue to deliver
good growth with improving returns.
Capital expenditure 2016-21
16.7
15.2
13.7
7.2
7.5
8.7
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
2016
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
*2022
INVESTMENT IN
BUSINESS EXPANSION
Capital expenditure £m
2018
2019
2020
2021
Manufacturing capacity
Recycling capacity1
New warehouse
Other (inc. new branches)
Total
3
7
–
4
5
6
–
4
–
2
8
4
7
1
2
7
14
15
14
17
* estimated
Co-extrusion
Rigid PVC
Foam PVC
Total lines
12
15
21
48
17
12
23
52
22
11
26
59
22
11
26
59
25
15
24
64
26
16
27
69
Production (kt)
44.4
49.8
54.6
45.5
57.2
n/a
1 Adjusted to include acquisition consideration for Eurocell Recycle North.
Investment in manufacturing capacity
In 2018, a combination of strong sales growth and larger than
expected mix changes towards co-extruded and foiled products
resulted in volumes above the immediately available manufacturing
capacity. This impacted negatively on the efficiency of our
manufacturing operations, leading to increased costs, and on
customer service, thereby delaying our ability to recover input cost
inflation with selling price increases.
In response, we strengthened our operational teams and launched
a substantial capex programme to bring forward planned capacity
increases. This programme included the addition of seven new
extrusion lines and associated tooling in 2019, which cost c.£5
million, resulting in a capacity uplift of c.13% compared to 2018.
Investment in recycling capacity
The Responsible Business section on pages 32 to 53
describes the substantial carbon footprint reduction and other
environmental benefits delivered by our two market-leading
recycling plants. In this section, we focus on investment.
Between 2016 and 2021, we invested £6.3 million to expand
our Eurocell Recycle Midlands site, to increase output and
improve reliability, including new co-extrusion and other tooling
to support the increased usage of recyclate on key product
lines. In addition, we acquired Eurocell Recycle North in August
2018 for a consideration of £6 million (including debt assumed).
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 is £4.5 million.
The investment in our new warehouse, described below,
has delivered a step-change in our storage capacity and the
opportunity to drive further operational efficiencies. However,
importantly, it has also has unlocked the operational footprint for
the whole Group. We have converted our previous warehouse to
As a result of these investments, we have become the leading
UK-based recycler of PVC windows. Our use of recycled material
in primary extrusion increased from 4.1k tonnes in 2015 (or 9%
of materials consumed) to 16.8k tonnes in 2021 (or 27% of
consumption). Our total output of recycled material, including
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements
OUR STRATEGY IN ACTION CONTINUED
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that used in products made from 100% recycled material or sold
to trade extruders, increased from 11.6k tonnes in 2016 to 28.5k
tonnes in 2021.
In terms of economic benefits, in 2021 our recycling operation
drove a substantial cost saving compared to the use of virgin PVC
compound, reflecting increased volumes and much higher prices
for virgin compound, illustrating the very good returns on these
investments.
As noted above, details of the environmental benefits are included
in the Responsible Business section, but in summary, we estimate
that our recycling operation saved approximately 48k tonnes
of carbon in 2021 (2020: 36k tonnes; 2019: 42k tonnes), also
compared to the use of virgin PVC, and prevented the equivalent of
over 3 million window frames from landfill.
Our 2021 performance is in line with our target to increase the
percentage of recycled material used in production by at least 1%
per annum and to deliver year-on-year increases in carbon saved.
Use of recycled PVC in manufacturing
(% of raw materials used and tonnes consumed)
30%
25%
20%
15%
10%
5%
0%
9%
4.1
25%
23%
27%
7.3
17%
17%
14%
6.0
8.3
9.5
13.4
12.4
16.8
2015
2016
2017
2018
2019
2020
2021
Investment in warehousing capacity
Towards the end of 2019 we concluded that our existing main
warehouse was a major constraint to future growth and operating
efficiency. Early in 2020 we secured a new facility, located within
3 miles of our primary manufacturing site, previous main warehouse
and Head Office. The new site has 260,000 square feet of high bay,
state-of-the-art warehouse accommodation.
We have invested c.£9 million to fit out the new warehouse,
incurred mostly in 2020. This has increased capacity by more
than 60%, via high density storage using state-of-the-art mobile
cantilever racking, and efficient processing through GPS guided
picking equipment with proximity and obstacle awareness
sensors. We can now store up to 12 stillages high (our previous
warehouse was restricted to 7). Mobile platforms have replaced
manual techniques, thereby providing a safer and more productive
solution. The warehouse management systems behind the physical
attributes allow us to store product in the areas of the racking for
optimal efficiency based on shipping velocity.
Commercial operations began from the new site in January 2021,
with a progressive ramp-up in activity through the first half of the
year. We have now proved the ability pick at 3x the efficiency of our
traditional methods, with significantly more output capacity.
Looking forward, our focus for 2022 is to ‘turn’ the operation fast
and deliver improvements in operating efficiencies, thereby making
the facility the cornerstone of our supply chain for future growth.
Improving operational capability and delivering
operational excellence
Alongside these capital investments, we have worked with
our teams to ensure all colleagues are engaged in the overall
business strategy deployment and understand what is important
to our customers and other stakeholders.
We have developed our operational KPIs to be better aligned
with our strategy and objectives and implemented a standard
operating system across all operational sites. This work has
been supported with investment in areas such as automated
data gathering to support our KPI’s for key processes and visual
factory enhancements to empower employees.
Summary
Through substantial investments in operating infrastructure and
our teams’ capabilities, we are developing a footprint, operational
controls and a continual improvement culture which will support
our growth and performance for years to come.
With operating constraints now resolved, we introduced a
new strategic priority in 2021 to ‘deliver sustained operational
excellence’, which, looking ahead, we expect to result in the full
benefit of our sales growth flowing through to improved profits
and margins.
Eurocell plc Annual Report and Accounts 2021
23
FinancialStatements
OUR STRATEGY IN ACTION CONTINUED
NEW PRODUCTS
RESONATED WELL
WITH CUSTOMERS
ASPECT FRENCH FLUSH DOORS
Following the success of the Aspect bi-fold door
system, we have developed this range in 2021
to include Aspect flush French doors, which
complement our Modus and Logik range of flush
windows.
These flush French doors, with no bulky dummy mullion
and super slim sight lines and hinges, are a premium
take on this classic door style and the stylish looks
have proved popular with homeowners.
24
Eurocell plc Annual Report and Accounts 2021
SKYPOD PLUS
Skypod Plus was a new addition to the successful Skypod
range in 2021, offering attractive architectural aesthetics.
The Skypod Plus system comes with a choice of four self-
cleaning, temperature controlling glass options, with good
environmental properties, including reducing heat loss on cold
days, and protecting from strong sunshine in the summer.
GARDEN ROOMS
Following the successful launch of the Kyube garden
room last year, we have developed the range in 2021, to
reflect the continuing demand for affordable extra work
and leisure space at home.
Garden buildings are becoming a significant product category,
built using several Eurocell products including Coastline
cladding and Syncro patio doors. We now offer a range of
sizes and styles, with both timber and steel frame options.
Strategic Report
Corporate
Governance
CONSERVATORY ROOFS
We have continued to develop our conservatory roof
proposition and, following the successful launch of our
slate-effect Envirotile composite tiles in 2020, we have
now extended the offering to include our solid tiled
Equinox conservatory roof.
This range includes four roof tile finishes for this ‘warm’
Equinox roof, as well as overhanging soffit features with
downlighters for a more modern look. Precision manufactured
from recycled polymer, these eco-friendly tiles combine an
aesthetically pleasing finish with excellent environmental
credentials.
In addition, we now offer full height glazing panels for our
conservatory roof systems. This new glazed version, Equinox
Vega, allows for lighter, more sunlit conservatories, giving an
impression of enhanced space.
OUTDOOR LIVING PRODUCTS
Outdoor living products have been our strongest growth
category in 2021.
We are now one of the biggest suppliers of decking to the trade.
Composite fencing products, made from sustainable materials,
have proved a popular addition to the decking range. With its
modern sleek look and simple tongue and groove system it is ideal
for a wide range of gardens and combines colourfast appearance
and low maintenance with great sustainability characteristics.
In 2021 we added artificial turf and decorative wall panelling
into the outdoor living range. We also continued to expand our
range of garden rooms (see adjacent column).
NEW PRODUCTS FOR 2022
In the light of the recent success of the outdoor living
range, in 2022 we will be launching a new range of modern
conservatories, alongside other garden products such as
pergolas and awnings.
Eurocell plc Annual Report and Accounts 2021
25
FinancialStatements OUR STRATEGY IN ACTION CONTINUED
GROWING OUR
MARKET SHARE
Our strategy is to develop our position
as the UK’s leading manufacturer,
distributor and recycler of UPVC
building products.
26
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Profiles
Strategic objective
To target > 20% share and consolidate position as largest supplier of rigid PVC profile to UK market
Opportunities to grow market share
• Investment in additional capacity
• Building regulations complexity plays to
Eurocell technical expertise
• Continued range extension
• Consolidation of the market by large
fabricators
• Branch generated demand and pull-through
• Lead supplier for cavity closures to new
build
• Strong new build specifications and
fabricator community
2000
2008
2017
2021
Production waste
recycling
Old frames or
‘post-consumer’ recycling
1m+
frames recycled
by Eurocell
>3m
frames recycled
by Eurocell
Building Plastics
Strategic objective
To target world class operations from 270–300 sites
Market very fragmented,
with >60% served by
small independents
• No barriers to further
consolidation
Service – be recognised
as first for service for the
tradesperson
• Seamlessly connect customer
shopping journey from online
through to branches
• Clear data-driven customer
engagement plans
• Development of sector-leading
digital platform
Products – create the
market-leading proposition
• Including redesigned best-in-class
conservatory offering
• Further development of new product
categories and range extensions
Branches – winning format
• Improved format for standard
branches, which better showcases
our product range
• Introduce large format stores, with
showroom-style displays to drive
big-ticket purchases
Consumer online
proposition trial
Eurocell plc Annual Report and Accounts 2021
27
GROWING OUR
MARKET SHARE
FinancialStatements DIVISIONAL REVIEW
PROFILES
Profiles Highlights
c.18% (2015: c.12%)
Market share
75 (2017-19: 60)
New accounts
22%
Sales vs 2019
c.400 fabricators
Total accounts
28
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Revenue
Profiles third-party revenue for the year was £140.7 million, 41%
higher than 2020 and up 22% on 2019. We have seen good
contributions from trade fabricators, who are substantially focused
on the RMI market, and a very strong performance from Vista
doors. new build has also enjoyed good sales, with increasing
housing market activity supported by continued high levels of
mortgage approvals and demand.
During the last five years we have added 75 new accounts, and our
prospect pipeline remains good.
Operating profit
Adjusted operating profit for 2021 was £20.7 million, 162% higher
than 2020 and up 16% on 2019, with the growth against both prior
periods reflecting higher sales volumes.
The adjusted operating profit in 2020 is net of support received
under the Coronavirus Job Retention Scheme (c.£3.5 million),
offset by an increase to the IFRS 9 impairment charge (bad debts)
in respect of certain fabricator customers (£0.7 million). The overall
operating loss of £1.0 million is stated after non-underlying charges
of £8.9 million, comprising the impairment of goodwill (£5.8 million),
the impairment of right-of-use assets (£0.6 million), warehouse dual
running costs (£2.3 million) and restructuring costs (£0.2 million).
Further information on non-underlying charges is included in the
Chief Financial Officer’s Report.
2021
£m
140.7
63.9
204.6
20.7
20.7
2020
£m
99.7
56.4
156.1
7.9
(1.0)
Change
%
41%
13%
31%
162%
n/a
2019
£m
115.7
59.5
175.2
17.9
17.9
Change
%
22%
7%
17%
16%
16%
Strategy
In 2018 we became the leading supplier of rigid PVC profile to the
UK market, with a share of c.15%. We continue to consolidate
our position and believe we now have a share of around 18%.
Our strategic objective is to increase this to at least 22% over the
medium term.
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. better aesthetics (such as flush windows),
a more contemporary look to roofing and door products and
improved environmental characteristics. In addition, the benefits
of pull-through profile and hardware specifications and increasing
opportunities to supply our branches, all delivered via improving
service, remain attractive to prospective fabricator accounts.
In the Profiles division, new build represents approximately one-third
of sales. Expanding our share of the new build market has been a
key driver of recent growth, driven by sales of cavity closures where
we are the clear market leader, and we believe favourable market
dynamics are set to continue. We have strong relationships with large
and medium-sized housebuilders, maintained by our specification
and technical teams. Building regulations for windows are becoming
increasingly complicated and our technical teams are working with
our larger customers to enable them to conform to the regulations,
including development of new product applications to meet changing
requirements. In addition, with a focus on sustainability, we believe
our use of recycled material is becoming increasingly attractive to
housebuilders.
In the commercial sector, energy efficiency and lower cost underpin
a strong case for the benefits of using PVC profile over 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.
Profiles
Third-party revenue
Inter-segmental revenue
Total revenue
Adjusted operating profit1
Operating profit/(loss)
1 Before non-underlying items (no non-underlying items in 2019 and 2021).
Eurocell plc Annual Report and Accounts 2021
29
FinancialStatements DIVISIONAL REVIEW CONTINUED
BUILDING
PLASTICS
Building Plastics Highlights
c.25% (2015: c.20%)
Market share
12 (2015-21: 78 (net))
New branches
20%
Like-for-like2 sales
219 branches
Total estate
30
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Strategy
Our strategic objective for Building Plastics is to achieve world
class operations from 270–300 sites. The growth will come mostly
from independent operators, who currently have more than 60%
market share.
Our goal is to be recognised as first for service for the
tradesperson, seamlessly connecting the customer shopping
journey from online through to the branches, with clear data-driven
customer engagement plans (including targeting lapsed customers)
and through the development of a sector-leading digital platform.
In terms of products, we intend to create the market leading
proposition, including a redesigned best-in-class conservatory
offering, and to exploit a significant market opportunity to extend
our outdoor living product range, including decking, fencing and
garden rooms.
In the existing estate, we are now testing an improved format for
standard size branches, which better showcases the breadth of
our range. We will also continue to identify opportunities for large
format stores, with an expanded trade counter and showroom-
style displays designed to engage customers and drive big-ticket
purchases, such as windows and doors. This follows successful
trials of this format in 2019/20.
We also continue to test an opportunity to develop and implement
a sector-leading consumer online windows and doors proposition,
using the branch network to provide infrastructure where needed
(e.g. delivery point for installers). We began a trial in the North West
towards the end of 2020. This proposition aligns well with our
commercial strategy of continuing to create pull-through demand for
our products, and we will provide a progress update in due course.
Revenue
Building Plastics third-party revenue for the year was £202.4
million, 28% higher than 2020 and up 24% on 2019. This is
equivalent to like-for-like2 sales growth of 20% compared to 2019,
representing a strong performance across our full range of own-
manufactured products and traded goods.
Building Plastics
Third-party revenue
Inter-segmental revenue
Total revenue
Adjusted operating profit1
Operating profit1
1 Before non-underlying items (no non-underlying items in 2019 and 2021).
2 Like-for-like excludes acquisitions and new branches opened in 2019/20/21.
We opened 12 branches in total in 2021, with 8 new standard
format branches, and 4 the new larger format. We are also
making good progress reducing the time taken to reach break-
even in new stores. At 31 December 2021, we had a total of 219
branches providing national coverage across the UK, which offers a
significant competitive advantage. Branches opened in 2019/20/21
added £6.0 million to sales in 2021.
Operating profit
Adjusted operating profit for 2021 was £11.9 million, 198% higher
than 2020 and up 38% on 2019, with the profit growth against
both prior periods reflecting strong sales and good cost control.
The adjusted operating profit in 2020 is net of support received,
including the Coronavirus Job Retention Scheme (£3.0 million)
and retail grants / business rates relief (£1.8 million), offset by an
increase to the IFRS 9 impairment charge (bad debts) to reflect
higher risk in the Building Plastics receivables book (£1.5 million).
The overall operating profit in 2020 of £3.4 million is stated after
non-underlying costs of £0.6 million, comprising right-of-use asset
impairment charges (£0.3 million) and restructuring costs (£0.3
million). Further information on non-underlying charges is included
in the Chief Financial Officer’s Report.
Indicative branch economics (rounded)
Branch open
< 2 years
2–4 years
> 4 years
No. of Branches
Average Sales per Branch
(£000)
Return on Sales per
Branch (%)1
16
280
15
680
188
920
Small loss
Early teen %
>20%
1 Operating profit as % of revenue, before regional infrastructure and central costs,
and IFRS 16 adjustments.
2021
£m
2020
£m
202.4
158.2
0.5
1.3
202.9
159.5
11.9
11.9
4.0
3.4
Change
%
28%
(62)%
27%
198%
250%
2019
£m
163.4
1.3
164.7
8.6
8.6
Change
%
24%
(62)%
23%
38%
38%
Eurocell plc Annual Report and Accounts 2021
31
FinancialStatements RESPONSIBLE BUSINESS
ONE TEAM OPERATING
A RESPONSIBLE BUSINESS
In operating a responsible business,
our main areas of focus are the long-
term sustainability of the Group. This
includes carbon footprint and emissions
reduction, supporting our people, their
wellbeing and seeking to improve the
environment in which they live and work.
It also includes how we interact with other stakeholders
and the communities in which we operate, as well as
ensuring good governance, strong business ethics
and appropriate conduct. Responsible business
sub-sections are as follows:
• Sustainability strategy, including performance against our
environmental and social KPIs and targets
• Task Force on Climate-related Financial Disclosures (‘TCFD’)
• Minimising our environmental impact, including recycling
operations
• Valuing our people
• Working responsibly with our communities and other stakeholders
• Looking to a sustainable future
Throughout these sections, we provide further detail in relation
to progress against our sustainability targets and objectives. The
governance aspects of responsible business are covered in the
Governance Report beginning on page 68.
This section of the Strategic Report also includes 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 as described in the table.
The policies noted opposite 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.
32
Eurocell plc Annual Report and Accounts 2021
ENVIRONMENTAL IMPACT
VALUING OUR PEOPLE
WORKING RESPONSIBLY
Social matters and
community issues
• Corporate Social Responsibility Policy
• Customers pp.52
• Community and charity pp.51
Reporting requirement
Policies and standards which
govern our approach1
Environmental matters
• Corporate Vision and Values
• Corporate Social
Responsibility Policy
Information necessary to understand
our business and its impact, policy,
due diligence and outcomes
• Recycling operations pp.38
• Minimising our environmental
impact pp.38
Employees
• Corporate Vision and Values
• Valuing our people pp.46
Respect for
human rights
• Corporate Vision and Values
• Equality and diversity pp.50
• Corporate Social Responsibility Policy
• Modern slavery pp.52
• Corporate Social Responsibility Policy
• Employee Handbook
• Privacy Policy
• Recruitment Policy
• Anti-Slavery and Human Trafficking
Policy
• Anti-Bullying and Harassment Policy
• Various information Security Policies
• Whistleblowing Policy
Anti-corruption
and anti-bribery
• Corporate Social Responsibility Policy
• Whistleblowing and
• Anti-Bribery Policy
bribery pp.90
Description of principal
risks and impact of
business activity
Description of the
business model
Non-financial key
performance indicators
• Risk management pp.58
• Principal risks and
uncertainties pp.60
• Overview pp.6
• Our business model pp.14
• Operational performance
pp.18
Strategic Report
Corporate
Governance
ENVIRONMENTAL IMPACT
VALUING OUR PEOPLE
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
• Recycling operations pp.38
• Minimising our environmental
impact pp.38
Employees
Respect for
human rights
WORKING RESPONSIBLY
Social matters and
community issues
• 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
• Corporate Social Responsibility Policy
• Valuing our people pp.46
• Equality and diversity pp.50
• Modern slavery pp.52
• Customers pp.52
• Community and charity pp.51
Anti-corruption
and anti-bribery
• Corporate Social Responsibility Policy
• Anti-Bribery Policy
• Whistleblowing and
bribery pp.90
Description of principal
risks and impact of
business activity
Description of the
business model
Non-financial key
performance indicators
• Risk management pp.58
• Principal risks and
uncertainties pp.60
• Overview pp.6
• Our business model pp.14
• Operational performance
pp.18
1 Certain Group policies and internal standards as guidelines are not published externally.
Eurocell plc Annual Report and Accounts 2021
33
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
KPIs AND TARGETS DRIVING
IMPROVED SUSTAINABILITY
ENVIRONMENTAL –
CIRCULAR ECONOMY
Recycled material used in production
CO2 saved by recycling operation
Waste recycled
ENVIRONMENTAL – EMISSIONS
AND ENERGY MANAGEMENT
KPI
2020
Base
2021
Result
Target
Link to
UN SDGs
% used
Tonnes saved
% recycled
25%
36kt
79%
27%
48kt
82%
1% increase per
year
Year-on-year
increase
Year-on-year
increase
Greenhouse gas (‘GHG’) emissions
GHG intensity ratio
70t CO2 / £m sales
51t CO2 / £m sales
5% reduction by 2025
Energy consumption
Renewable energy
SOCIAL
Health & safety
Employee engagement and recruitment
Labour turnover
21%
26%
Year-on-year reduction
Employee satisfaction
Annual survey response
n/a
60% and 68%
Year-on-year increase
Diversity
Remuneration
Education
Energy use intensity ratio
267 MWh / £m sales
222 MWh / £m sales
5% reduction by 2025
Renewable energy used
19% total energy
78% total energy
50% reduction by 2025
Lost time injury rate
0.7 per 100,000 hours
0.8 per 100,000 hours
50% reduction by 2025
rate and overall
satisfaction level
Female employees
12.8%
13.4%
Year-on-year increase
National Living Wage
All employees at
(‘NLW’)
or above NLW
All employees at
or above NLW
All employees above
NLW by 2023
Apprenticeships /
Kickstarters
32
79
20% increase by 2025
Our overall objective in this area is to
continue to improve all material aspects
of the sustainability of the Group.
We have defined a suite of environmental and social
targets and KPIs against which to measure our
progress, which are set out in the table, together
with the outturn for 2021. The sections which follow
provide further information and commentary in
relation to our performance in each category.
Our KPIs recognise the breadth of the sustainability, or
Environmental, Social and Governance (‘ESG’) agenda.
Central to our environmental targets, which cover both the
circular economy as well as emissions and energy management,
is reducing the carbon footprint of the business and our products.
Our unique recycling operation, and increasing our use of recycled
PVC compound in the manufacture of co-extruded rigid profiles
has been, and will continue to be, at the heart of carbon reduction
for Eurocell.
Our social objectives are broad and cover areas such as health
and safety, diversity and education.
These objectives align well with several relevant United Nations
Sustainable Development Goals, as well the UK’s transition towards
a net zero carbon economy.
We intend to report our progress against these targets on an
annual basis.
In terms of governance, we apply the principles of the UK
Corporate Governance Code, with which we continue to comply
in all material respects. For further information on our governance
arrangements, please see our Corporate Governance Statement
on pages 72 to 82.
Key to United Nations Sustainable Goals (‘UN SDGs’):
No poverty
Good health
and well-being
Quality education
Gender equality
Affordable
clean energy
Decent work and
economic growth
Responsible
production and
consumption
Climate action
34
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
KPI
2020
Base
2021
Result
Target
Link to
UN SDGs
% used
Tonnes saved
% recycled
25%
36kt
79%
27%
48kt
82%
1% increase per
year
Year-on-year
increase
Year-on-year
increase
Greenhouse gas (‘GHG’) emissions
GHG intensity ratio
70t CO2 / £m sales
51t CO2 / £m sales
5% reduction by 2025
Energy use intensity ratio
267 MWh / £m sales
222 MWh / £m sales
5% reduction by 2025
Renewable energy used
19% total energy
78% total energy
50% reduction by 2025
Employee engagement and recruitment
Labour turnover
Annual survey response
rate and overall
satisfaction level
21%
n/a
26%
Year-on-year reduction
60% and 68%
Year-on-year increase
Lost time injury rate
0.7 per 100,000 hours
0.8 per 100,000 hours
50% reduction by 2025
Female employees
12.8%
13.4%
Year-on-year increase
National Living Wage
(‘NLW’)
All employees at
or above NLW
All employees at
or above NLW
All employees above
NLW by 2023
Apprenticeships /
Kickstarters
32
79
20% increase by 2025
Eurocell plc Annual Report and Accounts 2021
35
ENVIRONMENTAL –
CIRCULAR ECONOMY
Recycled material used in production
CO2 saved by recycling operation
Waste recycled
ENVIRONMENTAL – EMISSIONS
AND ENERGY MANAGEMENT
Energy consumption
Renewable energy
SOCIAL
Health & safety
Employee satisfaction
Diversity
Remuneration
Education
FinancialStatements
RESPONSIBLE BUSINESS CONTINUED
TASK FORCE ON
CLIMATE-RELATED
FINANCIAL DISCLOSURES
Tackling climate change is embedded in our sustainability strategy.
We recognise the importance and value of the recommendations
from the Financial Stability Task Force on Climate-related Financial
Disclosures (‘TCFD’) and are committed to open and transparent
disclosures. The information set out on this and the following
page aims to provide key climate-related information and cross-
references to where additional information can be found. In this
context, we have considered our ‘comply or explain’ obligation
under the UK’s Financial Conduct Authority’s Listing Rules, and
confirm that we have made disclosures consistent with the TCFD
Recommendations and Recommended Disclosures in the Annual
Report save for Scope 3 emissions. We currently disclose partial
Scope 3 greenhouse gas emissions, where this information is
available. This is a complex and evolving area and therefore,
looking forward, we will be working to further disclose these
emissions, where possible.
Tackling climate change is embedded in our sustainability strategy,
primarily through our objectives related to the circular economy
(increasing recycling and reducing waste) and energy and
emissions management (reducing emissions and increasing our
use of renewable electricity). The table on page 35 references these
targets and other sections of our report where you can find further
information on our approach to addressing climate change through
improving our sustainability.
Governance
The Board reviews principal risks, including those concerning
climate change and associated regulatory responses. The Board’s
engagement has been important in shaping our sustainability
strategy, carbon reduction plans and other environmental targets. In
2021, our Non-executive Director Sucheta Govil assumed oversight
responsibility for ensuring ESG matters are considered properly by
the Board, further strengthening governance in this area.
Looking forward, the Board will support management in defining
our pathway to carbon neutrality and thereafter on to net zero,
which we intend to develop starting in 2022.
Metrics and targets
This year we have published our environmental and social KPIs and
targets for the first time. We have generally made good progress
against these targets in 2021, as set out on page 35 and throughout
this Responsible Business section.
In terms of climate change, the most important metrics for Eurocell
are increasing our recycling operation and reducing our emissions.
Our recycling operation is described on pages 38 to 41. In 2021,
we estimate that our recycling operation saved approximately 48k
tonnes of carbon in 2021 compared to the use of virgin PVC.
Our emissions are also reported in the Greenhouse Gas Emissions
and Energy Use section on page 43. Using a location-based
methodology (which does not consider the electricity supply
contracts we purchased, but instead uses a national carbon
emissions factor for electricity), total emissions decreased by 28%
in 2021 compared to 2019, with the latter a more meaningful
comparator given the disruption to and temporary closure of the
business in 2020 due to COVID-19. It is also important to recognise
that we have reduced our total emissions by 33% since 2016.
Using a market-based reporting approach, which recognises that
78% of the electricity we purchased in 2021 was renewable, our
2021 emissions are around one-third lower than those reported
under the location-based methodology.
Risk management
Climate change and associated regulatory response risks are
included as part of our overall risk management framework. Further
information in relation to our assessment of climate-related risks
and opportunities is set out below.
Transition and physical risks and opportunities
Transition risk: reputation and investor preference
If we do not deliver on our environmental targets and set out
a credible pathway to carbon neutrality and net zero, then
investors and lenders may show a preference to allocate capital
to businesses with smaller climate impacts.
Our response
Improving sustainability, primarily through increasing recycling
and reducing emissions, is at the heart of business and a clear
strategic priority. We have appropriate governance and KPIs in
place to ensure delivery of our objectives. We continue to engage
with our investors and lenders and are confident our strategy is
well understood.
Transition risk: government action
Governments may implement taxes or charges which penalise
businesses that do not reduce carbon, potentially increasing the
input cost of energy, freight and raw materials.
Our response
Our own commitments to carbon and emissions reduction will
ensure that we are part of the solution. In addition, the PVC sector
is driving a strong sustainability agenda, and we engage positively
with our suppliers and industry bodies to support their carbon
reduction and waste elimination initiatives. See page 45 for some
examples of work in progress in the PVC sector.
Transition risk: regulatory changes
Governments may implement stricter regulation, which could
render elements of our product portfolio non-compliant.
Our response
As active members of trade associations across our Group, we
influence directional change in areas such as building and product
regulations and improve industry guidance. We are committed to
investing in innovation to support breakthroughs in sustainable
36
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
living and ensuring that emissions reduction is a core consideration
in our product and solution designs.
set. We have an opportunity to leverage energy saving and other
benefits of our products and solutions with our existing customer
base, consumers and other stakeholders.
Physical risk: disruption to our assets and operations
Changing weather patterns, linked to climate change, may directly
damage our production facilities or disrupt our supply chain.
Our response
All our production facilities are UK-based and are not located in
areas exposed to direct risks of extreme weather. We engage with
our supply chain and maintain alternative sources and sufficient
inventory to avoid the impact of short-term disruption.
Transition opportunities
We are the leading UK-based recycler of PVC windows. Our
rigid profiles contain significantly higher recycled material content
than any of our UK competitors. In addition, our rigid profiles
are designed for enhanced thermal efficiency and deliver better
U-values and low thermal conductivity relative to alternatives such
as wood and aluminium. We believe building regulations, such
as the Future Homes Standard, are also beneficial to our skill
Looking further to the future, our largest PVC resin supplier has
launched the world’s first commercially produced bio-attributed
PVC (Biovyn), which is made using renewable feedstock derived
via wood-based residue from sustainable forestry. Products such
as this provide the potential to support our longer-term transition
to carbon neutrality and net zero. Further information is included in
Responsible PVC Sector on page 45.
Scenario analysis
We have made an initial use of qualitative scenario analysis to
assess our risks and opportunities and have considered a 1.5°C
and 4°C scenario to provide a broad view of outcomes. Under a
1.5°C scenario, risks relate primarily to the transition to a net zero
world, the regulatory response, and the changing political, consumer
and investor expectations. Under a 4°C scenario, the physical
impacts of a changing climate will become more apparent. We will
continue to develop our scenario analysis in 2022 and beyond.
Reporting requirement
Reporting recommendation
Section and reference
Governance
• Describe the Board’s oversight of climate-related risks and
• Risk management and principal
opportunities
• Describe management’s role in assessing and managing
climate-related risks and opportunities
risks, see page 60
• TCFD, see page 36
Strategy
• Describe the climate-related risks and opportunities the
organisation has identified over the short and longer term
• Minimising our environmental
impact, see page 42
• Describe the impact of climate-related risks and
• Looking to a sustainable future,
opportunities on the organisation’s business, strategy and
financial planning
see page 32
• TCFD, see page 36
• Describe the resilience of the organisation, taking into
consideration different future climate scenarios
Metrics
• Disclose the metrics used by the organisation to assess
• Sustainability strategy, KPIs and
climate-related risks and opportunities
targets, see page 34
• Disclose Scope 1 and 2 and if appropriate Scope 3
• Greenhouse gas emissions and
emissions
energy use, see page 43
• Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets
Risk
• Describe the organisation’s processes for identifying,
• Risk management and principal
assessing and managing climate-related risks
• Describe how processes for identifying, assessing and
managing climate-related risks are integrated into the
organisation’s overall risk management
risks, see page 60
• TCFD, see page 36
Eurocell plc Annual Report and Accounts 2021
37
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
MINIMISING OUR
ENVIRONMENTAL IMPACT
Recycling Operations
Recycling sits at the very heart of our operations and
we are proud to be the leading recycler of PVC windows.
Why we recycle
Our recycling operation will always be at the heart of our
sustainability strategy. Expanding recycling improves product
and business sustainability, with less plastic going to landfill.
The principal benefits fall into three categories:
Carbon savings
An independent study by the University of Manchester found that
displacing 1 tonne of virgin PVC with 1 tonne of recycled window
PVC results in a reduction of approximately 1.7 tonnes of CO2
emissions. This calculation compares the full life cycle carbon
emissions associated with the production of virgin PVC with
emissions from the window recycling process. As a result, our
recycling operation saves substantial amounts of carbon compared
to the use of virgin PVC.
Commercial
We can leverage the sustainability aspects of our recycling
operation with our customer base, consumers and other
stakeholders. 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.
Economic
Recycling also increases our profits, because the cost of recycled
compound is typically lower through the cycle than the price of
virgin material, and it reduces our exposure to volatile commodity
prices. This is particularly important at the moment, with the price
of virgin resin reaching historic high levels in 2021.
What we do
Our recycling process essentially turns old window profiles into new
window profiles. 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.
We operate an advanced co-extrusion process, which delivers
recycled material to the profile core. External surfaces are protected
using virgin PVC compound, providing a high-quality, resilient finish.
The recycling process actually enhances product stability and
can be repeated around 10 times, giving the product an effective
lifetime of approximately 100 years.
Our co-extruded profiles are designed to deliver enhanced thermal
efficiency, with better U-values than wood or aluminium alternatives
and low thermal conductivity.
We have two recycling plants, which are located in Ilkeston (Eurocell
Recycle Midlands) and Selby (Eurocell Recycle North). Both sites
operate under Integrated Pollution Prevention and Control (‘IPPC’)
permit conditions and both successfully retained their permitted
status. The environmental management systems and manuals
forming the basis of our ISO 14001 accreditations continue to
evolve, with particular progress being made at Eurocell Recycle
North. All accreditations were successfully maintained in 2021.
How much we invest
The Strategy in Action section on pages 20 to 27 describes how,
between 2016 and 2021, we invested c.£11 million to expand
capacity at our two recycling plants to become the leading
UK-based recycler of PVC windows, along with the associated
economic benefits.
How much we recycle
During the year, our two sites recycled 40.5k tonnes (equivalent
to more than 3 million window frames) of post-consumer waste,
which would have otherwise been sent to landfill, and 7.7k tonnes
of post-industrial waste. Total waste collected of 48.2k tonnes
represents a significant step up on 2020 (33.7k tonnes).
Together the two sites used this waste to produce 28.5k tonnes of
recycled material (2020: 21.1k tonnes). A slightly lower yield in 2021
follows the significant increase in waste collected, which resulted in
some deterioration in the quality of post-consumer feedstock.
“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.”
38
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
RECYCLED
48.2K
TONNES IN 2021
Of the recycled material produced, 16.8k tonnes (generated
predominately from post-consumer waste) was used alongside
virgin resin in the manufacture of many of our PVC rigid profiles,
representing 27% of total raw material consumption, up from
25% in 2020.
The remaining 11.6k tonnes of recycled material produced is used
either in products which are manufactured from 100% recycled
material, including thermal inserts and cavity closer systems
(which are almost exclusively derived from post-industrial waste),
or sold to a range of trade extruders.
We estimate that, in total, our recycling operation saved approximately
48k tonnes of carbon in 2021 (2020: 36k tonnes; 2019: 42k tonnes),
also compared to the use of virgin PVC, and prevented the equivalent
of over 3 million window frames from landfill.
Our 2021 performance is in line with our target to increase the
percentage of recycled material used in production by at least 1%
per annum and to deliver year-on-year increases in carbon saved.
In addition, in terms of economic benefits, in 2021 our recycling
operation drove a substantial cost saving compared to the use
of virgin PVC compound, reflecting increased volumes and much
higher prices for virgin compound.
STRONG ON
SUSTAINABILITY
LESS IS MORE
We use a significant proportion
of recycled plastic in our window
profile and doors
27%
73%
RECYCLED
Proportion of recycled
plastic consumption
VIRGIN
Proportion of virgin
compound consumption
Eurocell plc Annual Report and Accounts 2021
39
FinancialStatementsvs 2020vs 2019k tonnes20212020*2019ChangeChange %ChangeChange %Inputs – waste recycledPost-consumer40.527.031.413.550%9.129%Post-industrial7.76.79.91.015%(2.2)(22)%48.233.741.314.543%6.917%Output – recycled material produced28.521.124.97.435%3.614%Yield %59%63%60%(4)%(1)%UsagePrimary extrusion16.812.413.44.435%3.425%Products made from 100% recycled material7.34.36.73.070%0.69%Sales to trade extruders4.33.45.10.926%(0.8)(16)%28.420.125.28.341%3.213%Primary extrusion usage as % of total consumption27%25%23%2%4%* volumes affected by COVID-19 shutdowns. RESPONSIBLE BUSINESS CONTINUED
HOW WE RECYCLE
Our 9-step process to create new feedstock from end-of-life materials
02
Shredding
Waste is shredded into
processable pieces.
04
Granulation
The waste is granulated
into uniform size. At this
stage rubber gaskets are
still present.
01
Waste
collection
Waste is taken
from 3 sources:
• Post-consumer windows
• Fabricator off-cuts
• Bar length
03
Separation
Using magnetic processes,
metals are separated from
the rest of the waste and
recycled separately.
05
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
c.170
recycling jobs provided
to people in the local area
40
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
>3 million
end-of-first-life frames
recycled in 2021
153%
increase in recycled
material produced
since 2016
c.70k
windows recycled
per week, on average,
during 2021
06
Washing
Using a series of water
tanks, contaminants
are ‘floated’ out, using a
closed-loop water system.
08
Bulk
transportation
A proportion of the recycled
material is used onsite,
whilst the rest is transported
in tankers to our main
extrusion facility, minimising
our carbon footprint.
07
Pelletisation /
pulverisation
The PVC-U granules are
processed into finished
material ready for extrusion.
09
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.
BENEFITS OF
EUROCELL RECYCLING
Sustainability
The use of recycled material enhances product
stability and lowers 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 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.
Eurocell plc Annual Report and Accounts 2021
41
FinancialStatements
RESPONSIBLE BUSINESS CONTINUED
MINIMISING OUR
ENVIRONMENTAL IMPACT
CONTINUED
We are committed to protecting
and minimising our impact on the
environment. Our policy is as follows:
• We recognise that our operations result in emissions and
waste and we are committed to control, recover and reuse
PVC waste wherever possible. 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. The Company experienced no reportable environmental
incidents during 2021.
• 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.
As described on pages 34 to 35, in September 2021 we published
our sustainability KPIs and targets. This included our environmental
targets, which cover both the circular economy as well as emissions
and energy management, where the central theme is reducing the
carbon footprint of the business and our products. Further details of
our performance against these environmental targets is included in
the following sections.
Greenhouse gas emissions and energy use
We report our greenhouse gas (‘GHG’) emissions and energy
use as part of our Strategic Report and our reporting period is
1 October 2020 to 30 September 2021, with comparatives for
the corresponding period in the previous year. Reliable reporting
of GHG emissions and energy use 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. All
of our emissions and energy use relate to UK operations apart
from negligible amounts which relate to our two branches in the
Republic of Ireland.
Accreditation
FTSE Green Economy Mark
During 2021, we were very pleased to receive the
London Stock Exchange’s Green Economy Mark, which
is awarded to companies that derive more than 50%
of revenues from environmental solutions, and reflects
contributions to the global green economy.
The LSE recognised that our PVC profiles can be recycled
up to 10 times and have a life span of around 100 years
which, along with the fact that we operate recycling plants
and use recycled material in our products, contributes to
the transition to a sustainable, low carbon economy.
Our footprint
Since 2016, we have reduced total emissions by c.33%,
along with a steady downward trend in emissions
intensity, as consumption has dropped through energy
efficiency programmes, whilst revenues have generally
been increasing (source: Eurocell Greenhouse Gas
Report, Inenco Group, February 2022).
Recognition
We have been proud winners of:
• the Future Manufacturing Awards – Sustainability 2018
• the MRW National Recycling Awards – Manufacturer
of the Year 2018
• the National Fenestration Awards 2020 –
Recycling Company of the Year
42
Eurocell plc Annual Report and Accounts 2021
337
274
335
23%
1%
Source
2021
2020
2019
vs 2020
vs 2019
Strategic Report
Corporate
Governance
The emissions intensity ratio was as follows:
tCO2e
2021
2020
2019
vs 2020
vs 2019
Total emissions
17,644 18,144
24,397
(3)%
Emissions intensity1
51
70
87
(27)%
(28)%
(41)%
Change
1 Expressed in tCO2e per £m revenue.
The emissions intensity ratio was 51 tCO2e per £m revenue in 2021,
resulting in a 27% year-on-year reduction when compared to 2020.
Energy use for the Group for the period ending 30 September 2021
in MWh is as follows:
Change
Natural gas
1,839
1,489
1,611
Electricity
52,846 45,187
50,830
24%
17%
14%
4%
Diesel
Petrol
LPG
Gas oil
Total
14,715 16,348
22,470
(10)%
(35)%
436
n/a
n/a
4,631
4,472
4,616
1,839
1,345
n/a
76,306 68,841
79,527
n/a
4%
37%
11%
n/a
0%
n/a
(4)%
The 2021 energy use intensity ratio was £222 MWh / £m sales
(2020: £267 MWh / £m sales) representing a 17% year-on-year
reduction.
The main driver for the reduction in energy and emissions intensity
ratios was the increasing proportion of renewable electricity in the
national mix, alongside the improving energy efficiency of our own
plant and machinery (new extrusion lines are significantly more
efficient than our legacy fleet). The electricity purchased included
investment in a zero-carbon electricity tariff at our Eurocell Profiles
sites from January 2021 and at our Eurocell Building Plastics sites
from April 2021 onwards.
The above information was collected, calculated and reported
in line with the methodology set out in the UK Government’s
Environmental Reporting Guidelines, 2019 (PB 13944). Emissions
have been calculated using the 2021 conversion factors provided
by the Department for Business, Energy & Industrial Strategy.
Electricity consumption (69% of 2021 energy use)
We continue to encourage behavioural changes to reduce
consumption levels, to be less wasteful and drive operational
efficiencies, including reducing idle time and optimising temperatures
on extrusion lines and chillers. In addition, during the year, we have
also reviewed machine start-ups, standby and shut-down processes,
the usage of compressed air and the Company’s lighting policy, all of
which have had a positive impact on our electricity usage.
Eurocell plc Annual Report and Accounts 2021
43
Our target is to deliver a 5% reduction in both the energy use
intensity ratio and emissions intensity ratio by 2025, compared to
the 2020 baseline.
GHG emissions for the Group for the period ending 30 September
2021 in tonnes of carbon dioxide equivalent (tCO2e), using location-
based reporting is as follows. Note that location-based reporting
does not consider the electricity supply contracts we purchased,
but instead uses a national carbon emissions factor for electricity
(see also market-based reporting analysis within Electricity
consumption below).
Source
2021
2020
2019
vs 2020
vs 2019
Change
Fuel combustion
(stationary)
Fuel combustion
(mobile)
5,051
6,325
7,910
(20)% (36)%
Refrigerant gases
42
104
91
(60)% (54)%
Purchased
electricity
Total
12,214 11,441
16,061
7% (24)%
17,644 18,144
24,397
(3)% (28)%
Despite sales growth of 23%, total emissions decreased by 28%
(when compared to 2019, being a more meaningful comparator
given the disruption in 2020 due to COVID-19).
GHG emissions for the Group for the period ending 30 September
2021 in tonnes of carbon dioxide equivalent (tCO2e), by scope and
source, are as follows:
Source
Scope 1
Scope 2
Scope 3
Total
Fuel combustion
(stationary)
Fuel combustion
(mobile)
Refrigerant gases
Purchased electricity
337
4,743
42
–
–
–
–
–
337
308
–
5,051
42
11,221
993
12,214
Total
5,122
11,221
1,301
17,644
Scope 1 emissions are direct emissions from fuel combusted in
our own facilities and vehicles and Scope 2 emissions are indirect
emissions from the generation of electricity or heating that we
purchase for use in our business. These emissions have been
reliably measured and independently verified.
Scope 3 emissions are usually defined as emissions from all other
activities in the supply chain as well as the positive impact of using
our products. The Scope 3 emissions included in the table above
include only those associated with electricity distribution and
transmission losses, along with business travel in private vehicles.
In 2022, we will determine the extent to which we are able to report
all of our Scope 3 emissions in the future.
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
MINIMISING OUR
ENVIRONMENTAL IMPACT
CONTINUED
In addition, our previously published target is to increase the use
of renewable energy by 50% by 2025, compared to the 2020
baseline. However, following a decision taken to significantly increase
renewable energy purchases in 2021, renewable energy use
increased to 78%, compared to 19% in 2020. We therefore intend
to revise our long-term target accordingly.
Note that following a market-based methodology, our emissions
from electricity in 2021 were 5,592 tCO2e (compared to 12,214
tCO2e reported for the same period under the location-based
approach in the table above).
Waste management
During 2021, we continued our work towards a ‘zero to landfill’
aspiration. Our current target is to deliver year-on-year increases
in the level of our waste which is recycled. In 2021, 82% of our
waste was recycled, compared to 79% in 2020.
We are developing our production material flows, particularly
through the recycling operation, to close resource loops, improve
in-house waste recovery and reduce material sent to landfill i.e.
essentially engineering in recycling and designing out waste. The
chart illustrates that substantially all scrap material generated in
our extrusion process is recycled. Finding new applications for
waste products from the recycling operation which were previously
landfilled is also a priority.
We have strategies in place to increase the amount of post-
consumer and post-industrial waste we collect. For example,
at our recycling sites, a number of equipment trials and plant
modifications are being conducted, with the aim of improving
operational efficiency and product yield. We are increasingly using
quality management approaches to develop more effective process
control, allowing greater focus on critical process points whereby
quality and yield can be maximised. This leads to cleaner waste
streams, with greater potential for sale and/or reuse.
In addition, trials have commenced at third-party sites which act as
a collection/delivery hub for old windows which have been replaced
(post-consumer waste). At these hubs, the post-consumer waste is
separated and collected for our recycling operations which:
• provides our customers with a simple, easily-accessible
and cheaper disposal route for post-consumer waste, thus
increasing recycling volumes; and
• increases our recycling yields, due to less unwanted material,
thus contributing to our target of ‘zero to landfill’.
Production Material Flows
Waste collection
Third party processing and landfill (9kt)
3rd party recycling and recovery (10kt)
Pellet sales and 100% recycled products (12kt)
Recycled
material
collected
48kt
Use in
primary
extrusion
17kt
(27%)
Virgin input
materials
44kt
(73%)
Total infeed
stock
61kt
(100%)
s
t
c
u
d
o
r
p
r
u
o
f
o
e
s
u
y
t
r
a
p
-
d
r
i
h
T
Waste windows collected
(post-consumer)
40kt
Fabricator off-cuts
collected
(post-industrial)
8kt
Volumes are FY 2021
Extrusion
profile
production
57kt
In-house
production
waste
4kt
In-house recovery c.4kt
44
Eurocell plc Annual Report and Accounts 2021
Green arrow – closed-loop recycling
Grey to black bars – material use,
reflecting reducing level
Amber arrows – material losses
to landfill or third-party
Strategic Report
Corporate
Governance
Financial
Statements
Plastic packaging
Our procurement team has been working with packaging suppliers to identify, trial and
introduce new types of plastic packaging. The aim is to reduce overall plastic content,
while increasing the proportion of recycled plastic within the packaging. This will yield both
environmental benefits and minimise the impacts of the new plastic packaging tax, which
comes into effect from April 2022.
Pollution prevention
We have continued to make our vehicle fleet more environmentally friendly, as the choice
of full electric and hybrid electric options continues to grow.
Lower benefit in kind values, free-to-use charging points at our main sites, and support
with installation of home charging points, all provide natural incentives for company
drivers to take up these options.
Furthermore, investigations continue into non-diesel options for our light commercial fleet,
and discussions have commenced with our third-party logistics provider to examine ways
in which we can work together to reduce the environmental impact of the logistics and
distribution operation.
Responsible PVC sector
There are a number of major initiatives in progress across the PVC
industry to address sustainability challenges, right through the value
chain.
Supply chain – industry initiatives
We are also proud to support a number of other initiatives in the
PVC industry.
Supply chain – Inovyn
Inovyn is Europe’s leading chlorovinyls producer and the largest
supplier of PVC resin to UK window profile system houses,
including Eurocell.
Inovyn is an industry leader on sustainability, focused on
development in four areas: responsible production, carbon
neutrality, circularity and value to society.
In following this path, Inovyn was the first European chemical
company to launch Environmental Product Declarations (‘EPDs’)
covering a PVC product range. In this respect, their products are
assessed against parameters such as: extraction and refining of
raw materials, energy production and supply, and resource inputs
and emissions. In doing this work, Inovyn has demonstrated that its
carbon footprint for PVC is lower than the industry average.
Looking further to the future, Inovyn has launched the world’s first
commercially produced bio-attributed PVC (Biovyn). This product is
made using renewable feedstock derived via wood-based residue
from sustainable forestry, which importantly does not compete
with the food chain. Biovyn’s supply chain has been independently
certified by the Roundtable on Sustainable Biomaterials to deliver
a 90% greenhouse gas saving compared to conventional PVC.
Further, Inovyn believe that products made using Biovyn can be
recycled in the same way as traditional PVC profiles.
Products such as this provide the potential to support Eurocell’s
longer-term transition to carbon neutrality and net zero. We intend
to begin trials using small quantities of Biovyn in our primary
extrusion processes in 2022.
VinylPlus 2030 is a 10-year commitment from the European PVC
industry to sustainable development, using a long-term framework
to drive the transition to circularity, advance the PVC value chain
towards carbon neutrality and minimise the environmental footprint
of PVC production.
Recovinyl is a series of initiatives to encourage and develop PVC
recycling in Europe.
The British Plastics Federation (‘BPF’) promotes the versatility and
sustainability benefits of plastics, with programmes that seek to
differentiate between short-life, single-use plastics, and those with
more circular life cycles. The BPF leads a range of initiatives to
reduce energy, increase recycling and prevent litter.
For example, BPF energy is a voluntary agreement setting out
targets to increase energy efficiency and reduce CO2 emissions.
Operation Clean Sweep is an initiative to reduce plastic pellet loss
to the environment, with the aim of ensuring that the plastic pellets,
flakes and powders that pass through UK manufacturing facilities
do not end up in our rivers or seas.
Eurocell is also aligned with the Ellen MacArthur Foundation New
Plastics Vision, which focuses on three concepts:
• Eliminate – the plastics we don’t need
• Innovate – to ensure that the plastics we do need are reusable,
recyclable or compostable
• Circulate – all the plastic items we use to keep them in the
economy and out of the environment
Eurocell plc Annual Report and Accounts 2021
45
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
VALUING
OUR PEOPLE
ONE TEAM: EXECUTE, CUSTOMER FIRST, INCLUSIVE, INTEGRITY
Our people remain at the heart of
our success. We strongly believe
that engaging all employees and
galvanising their efforts in line with
the Company’s Vision and Values
will keep us on a successful path
towards achieving our business
objectives.
Health and safety
We employ over 2,000 people and the safety and the welbeing of
these employees and our contractors is our first operational priority.
Our health and safety performance continues to benchmark well
with industry standards. The 2021 reported statistics showed
a slight deterioration on 2020, but generally compare well to
2019. There was some adverse impact, particularly for RIDDOR-
reportable injuries, from improved reporting mechanisms which
were implemented during the year, leading to more incidents being
included in the data. All of the RIDDOR-reportable injuries were
classed as minor.
Injury frequency rate1
Lost time injury frequency rate2
RIDDOR-reportable injuries
Injuries per 100,000 hours worked.
1
2 Lost time accidents per 100,000 hours worked.
2021
3.7
0.8
28
2020
3.6
0.7
19
2019
4.8
0.9
17
The new incident investigation and management process, which
was introduced across the business in 2021, included further
training and guidance for operational management teams which
should yield future benefits in terms of more thorough investigation,
the identification of more effective countermeasures, and improved
absence management.
COVID-19 safety procedures remained a significant priority throughout
the year, with many good practices retained despite the relaxation in
government guidance. Our incidences of positive cases and isolations
remained below national average rates for most of the year.
Reassuringly, all 21 contacts with health and safety enforcement
authorities during the year resulted in a clean bill of health, with no
requirement for any improvement action. In addition, the ISO 45001
accreditation was maintained across the Profiles division.
46
Eurocell plc Annual Report and Accounts 2021
ONE TEAMEXECUTEINCLUSIVECUSTOMERFIRSTINTEGRITY Strategic Report
Corporate
Governance
During 2021, good progress has been made on a number of health
and safety initiatives including:
• A new Health and Safety Policy, clarifying responsibilities and
accountabilities for employees at all levels, was launched with
a single, simple objective: to send everyone safely home every
day, with three simple watchwords: awareness; action; and
accountability.
• A new incident investigation process was introduced across the
business, with training and guidance provided to operational
management teams, which should yield benefits in terms of
more thorough investigation and the identification of more
effective countermeasures.
• A formal Group health and safety improvement plan was
cascaded to all business units, with site-specific improvement
plans dovetailing into the Group plan.
• An employee health and safety survey was conducted in
December to obtain opinions and feedback on current
performance, direction and commitment. Survey results will be
analysed and used to inform future work programmes.
• Resources have been increased through the recruitment of an
additional health and safety manager and a second advisor,
with specific responsibility for our national branch network.
• Extensive training programmes have been delivered, including
licence to trade, driver and vehicle safety, and incident
investigation modules, all of which have raised awareness,
commitment and capability.
• Continued colleague engagement on health and safety issues
resulted in various improvements, including:
– safe methods of loading and unloading designed for our full
range of branch products from delivery vehicles;
– modifications made to the extrusion lines to allow an
operator’s free hand to be kept well away from the staple gun;
– improvements to ventilation, air movement, and rest break
regimes at our recycling sites, including each operator being
provided with a water bottle to encourage them to remain
hygienically hydrated; and
– upgrades to the dust extraction system at Vista Panels,
with the installation of a new venting system, which also
offers substantial environmental benefits with lower energy
consumption and reduced frequency for waste collection.
Eurocell plc Annual Report and Accounts 2021
47
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
VALUING
OUR PEOPLE
CONTINUED
Resourcing and recruitment
Our resourcing function has continued to attract and place a high
number of employees across all business areas throughout 2021,
despite the significant and well-documented national candidate
shortages affecting many sectors of the economy. In particular,
in response to significant shortfall in operational labour through
the summer months, we successfully recruited over 100 new
colleagues in order to service higher than expected sales volumes,
reduce our dependency on agency labour and facilitate our
ongoing growth ambitions.
We achieved this by developing our resourcing systems and
methods to ensure that we are best placed to attract candidates,
maximising all available opportunities to select and engage the
best available talent for our business, as well as implementing
forward-thinking technologies such as digital hiring events, video
screening and interviewing, electronic contracts of employment and
digital onboarding. We have succeeded in engaging and securing
potential employees quicker than in the past, expediting the
recruitment process, and positively impacting the candidate journey
at every opportunity.
Talent pipelines through the Apprenticeship and
Kickstart schemes
We continue to support the creation of new apprenticeships
and support existing employees to upskill through appropriate
apprenticeship programmes. Our apprenticeships covered
a range of key skills required in the business, including trade
supplier, finance, manufacturing and engineering and business
administration.
In 2021 we had 49 live apprenticeships registered, although a
number did withdraw from their programmes due to the disruption
caused by the pandemic, particularly within the branch network.
However, we had five Trade Counter Assistant/Drivers (‘TCAD’)
achieve a Trade Supplier Level 2 Distinction and a further TCAD
received a merit award. Furthermore, one of our Procurement
apprentices was nominated for an award within the fenestration
industry.
We anticipate an upward growth in the availability of
apprenticeships in 2022, to further support our focus on talent
development and internal growth.
We have evolved our resourcing function and applied a scalable
resourcing model, which is heavily focused on proactively attracting
talent and promoting Eurocell’s appeal to prospective colleagues.
We continue driving down reliance on temporary labour in favour
of permanent or fixed term contract engagements, providing a
competitive edge to our employer proposition. We remain focused
on attracting, retaining and upskilling talent to secure our future.
Eurocell was also pleased to be part of the Government’s Kickstart
scheme. Along with other employers, we experienced some of the
well-publicised national difficulties in filling Kickstart jobs, particularly
in the Derbyshire area. Despite this, we were pleased to recruit 30
young people into Kickstart roles, and we will continue to recruit for
as long as the scheme allows.
Eurocell is an equal opportunity employer and is fully committed
to treating our employees and job applicants equally without bias
and discrimination. Eurocell’s recruitment policy ensures that
irrespective of any disability, full and fair consideration is given to
all applicants based purely on their aptitude. We recognise that
our people are our greatest asset, irrespective of disability and we
continue to promote flexible solutions tailored to and supportive of
individual needs. Our internal processes support all employees who
may require help and support through our Occupational Health
provision, enabling them to fulfil their day-to-day work activities.
In line with our Company Values we continue to enhance our
policies, procedures and associated management training to further
develop a culture of diversity and inclusivity.
Our retention has been excellent, with 87% of our Kickstarts still
in their six-month placement positions with us. So far, two of our
early appointed Kickstarts have gone on to be registered for full-
time apprenticeships in our manufacturing function. In the branch
network, where there is an appropriate vacancy, we are taking our
Kickstarts into permanent full-time Trade Counter Assistant roles.
Owen Lilley, Eurocell’s first Kickstart employee, progressed to
become a Trade Counter Assistant at our Barnstaple branch.
Of those who left, most went on to full-time work
in other companies.
We see these programmes as a great success in helping young
people into work and we’re proud of our association with the
Kickstart scheme. Overall, our target is to deliver a 20% increase
in apprenticeships and Kickstarters by 2025, against the 2020
baseline of 32 positions, and we believe our plans put us on
track to deliver that. Although a total of 79 apprenticeships and
Kickstarters were registered in 2021, this number will fall in 2022,
as the Government has now closed the Kickstart scheme.
48
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
People Toolkit
A major initiative, the People Toolkit, was launched in November
2021 to help our managers complete everyday people
management activities with more consistency and fairness.
Available to managers across the whole business, the Toolkit
consists of ‘How To’ guides in ten key management topics, which
contain over 50 checklists, flowcharts, forms, step-by-step guides
and guiding principles. The topics covered range from recruitment
through to managing performance.
Each resource has been carefully created to ensure legal
compliance and guidance in line with the Company’s own policies
and procedures. The Toolkit aims to build confidence in a ‘One
Team’ approach to people management and saves time by
eliminating the need for local management teams to create their
own resources.
We will continue to build the Toolkit with additional topics and
resources throughout 2022. Feedback indicates that the Toolkit is
welcomed as a valuable one-stop-shop for our managers.
Incentives and rewards
We want to ensure that we attract the best people, either internally
through our talent pipeline or from outside the business, who
provide the right skills and knowledge to 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, in addition to providing a range of savings
and special offers.
Also, during the year, another tranche of employee share options
reached their maturity under the Group’s Save As You Earn (‘SAYE’)
scheme, resulting in gains available to all participants at the time of
maturity and further increases in employee share-ownership for our
colleagues who chose to retain their shares. We intend to continue
to launch SAYE schemes on an annual basis.
In order to support our recruitment and retention efforts across
the business, during the year we began a major project to review
the level of pay and reward for our branch and operational teams.
This project will complete in 2022, but has already resulted in a
significant mid-year pay uplift in 2021 for several large employee
groups in order to maintain competitiveness, improve staff welfare
and support our objective to become an employer of choice.
At the end of 2021, 98% of our employees were paid above the
National Living Wage. Our target is to increase this to all employees
by 2023.
Colleague wellbeing
Over the last 12 months, where appropriate, we have continued to
adopt the hybrid working principles introduced during the first UK
COVID-19 lockdown in 2020. Our colleagues across the business
continue to value the flexibility of working this way.
2021 saw the launch of our ‘Pulse Survey’, the primary purpose
of which was to reach out to all of our employees and better
understand their views and opinions, including those where
face-to-face contact has been lower than normal due to COVID-19.
Employees responded positively to the survey, with an overall
completion rate of 60%, and an overall satisfaction level of 68%.
We will run the survey annually, and our target is to deliver year-
on-year improvements in both measures. The 2021 results have
subsequently been used to create action and improvement plans.
The results of the survey have also been used to signpost our
strategy on developing our employee wellbeing initiatives.
With regard to wellbeing, in recognition of the pressures our
employees experienced during the pandemic, we ran a flyer
campaign in January 2021 full of tips for staying resilient and
healthy. This included information about getting professional
advice through the Employee Assistance Programme (‘EAP’),
the Samaritans, Shout and Mind UK.
To further support our employees’ wellbeing, we ran a daily
campaign during the UK’s 2021 Mental Health Awareness Week
in May. Each day offered every employee a simple click to a short
60-second video on topics such as reducing money worries, health
and fitness, coping with anxiety and stress, and links to useful
sources of help. We plan to build on this work in 2022.
Eurocell plc Annual Report and Accounts 2021
49
FinancialStatements RESPONSIBLE BUSINESS CONTINUED
Talent Development Review (‘TDR’) and Leadership
Development (‘LD’)
For the first time at Eurocell, we designed and launched a pilot TDR
process in 2021 to support our commitment to develop our people
and to ensure that the business has the right people with the right
skills for the future. The TDR pilot was deployed successfully in the
Building Plastics division. The outputs were used to help create an
LD programme. We now have nine colleagues taking part in the
scheme, which consists of a series of modules covering topics
such as finance, sales and project management. The programme
also includes one-to-one coaching for participants.
It is anticipated that the TDR and LD programmes will be rolled out
into other areas of the business beginning in 2022.
New policies and procedures
As described above, the health and wellbeing of our colleagues is
of the upmost importance to us. We have continued to review and
develop our company policies and procedures in this area to reflect
our evolving business and the environment in which we operate.
These revised policies provide our people with the help, support
and guidance on all employee-related issues. For example, during
2021 we have continued to update a range of policies that align
to the Eurocell values and drive a culture of fairness, equality and
transparency.
Labour turnover
Our objective is that the initiatives and actions described in this
section combine to drive improved employee wellbeing, better pay
and reward, successful recruitment and retention, and exciting
development opportunities for our teams. Over time, we expect this
strategy to drive year-on-year reductions in labour turnover.
However, as described above, we were impacted by the well-
publicised national labour shortages affecting many sectors of
the economy in 2021. In response to a significant shortfall in
operational labour through the summer months, we successfully
recruited over 100 new colleagues in order to service higher than
expected sales volumes, reduce our dependency on agency labour
and facilitate our ongoing growth ambitions. Our labour turnover
calculation includes the impact of all starters and leavers, including
this programme. As a result, in 2021, labour turnover for the Group
increased to 26%, compared to 21% in 2020.
However, we remain confident that our initiatives will drive future
reductions in labour turnover.
Learning and development (‘L&D’)
In the Building Plastics division, the L&D team have made
improvements to the employee induction and product training
programmes for branch colleagues and have worked to ensure
active participation through a blend of eLearning (delivered through
our Learning Management System), and face-to-face training
delivered online through Teams.
Elsewhere in the business, we have seen an increase in mechanical
handling equipment training within our manufacturing and
warehouse teams, with the sophisticated equipment used in the
new warehouse demanding a greater blend of skills and licences
for our employees.
In terms of compliance training, in 2021, we introduced a new
supplier for First Aid training, which has improved the efficiency,
effectiveness and lowered the cost of training. We have also
moved much of our Standard Operating Procedures (‘SOPs’)
training resources online, to make the deployment and tracking of
completion more effective.
Diverse and inclusive culture
In line with our values, we continue to enhance our policies, procedures and associated management training to further develop a
culture of diversity and inclusiveness at Eurocell.
The recruitment platform and processes we introduced in 2020 continue to ensure that our equality and diversity standards are
transparent, and this enables us to make decisions without bias or discrimination.
We provide specific support for specific groups and individuals throughout our business, including the provision of free English
and maths tuition for non-English speakers, access to improved occupational health support, mental wellbeing support and a free
Employee Assistance Programme. We have stepped up our communication in a variety of ways this year, to enable our people to
access what they need in order to feel supported and included, whatever their background or needs.
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 while recognising we operate in a historically
male-dominated industry. Our target is to deliver year-on-year increases in the proportion of female employees in the Group.
This was achieved in 2021, with female employees increasing to 13.4% (2020: 12.8%).
Gender analysis
Directors
Executive Committee
Other senior management
Senior management
Other employees
Total
Male no.
5
6
26
37
1,816
1,853
%
83%
86%
70%
74%
87%
86%
Female no.
%
Total average no.
1
1
11
13
277
290
17%
14%
30%
26%
13%
14%
6
7
37
50
2,093
2,143
50
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Strategic Report
Corporate
Governance
WORKING RESPONSIBLY
WITH COMMUNITIES AND
OTHER STAKEHOLDERS
Community and charity
Our manufacturing and recycling centres, warehouses and branches can have
a significant impact on, and benefit from, the communities in which we operate.
We believe it is important to support the communities local to our sites.
LOCAL
HOSPITALS
The staff at our Alfreton
Head Office, manufacturing
and warehousing facilities
donated Christmas presents
to children spending the
festive period in local
Derbyshire hospitals. The
Eurocell team also provided
a Christmas hamper for
the Royal Derby Hospital
Chemotherapy ward, and
sponsored a 5k Santa Run,
which raised funds for local
hospital charities.
PARKINSON’S UK
Two of our senior managers in the
Building Plastics division completed
a 140-mile coast-to-coast cycle
ride, taking in Eurocell branches at
Workington, Penrith and finishing up in
Newcastle, which raised over £5,000
for research into helping find a cure for
Parkinson’s disease.
CARE HOME
RESIDENTS
Our team at Eurocell Recycle
North donated more than 50
Easter Eggs to the residents of a
local care home, many of whom
had not been able to see their
friends or family in over a year
due to the COVID restrictions.
CHILDREN’S
SPORT
We sponsored the junior
section of a local Derbyshire
football club, Holme Rovers
FC, which runs 10 junior
football teams for c.180
children from under 6s up
to under 16s, including
the provision of smart rain
jackets.
Eurocell plc Annual Report and Accounts 2021
51
FinancialStatements RESPONSIBLE BUSINESS 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.
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.
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.
To support all of the above initiatives, we recruited a Head of
Procurement during the year to manage supplier relationships
and provide a consistent strategy and sustainable approach to
purchasing.
Constant improvement
Uniform standards across our business benchmarked against
industry best practice with constant review and improvement
of processes. 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.
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.
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.
Since August 2019, we have been certified as an accredited Fair
Tax Mark business, following successful assessments 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 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.
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 addition, we have
established supplier pre-appointment checks to evaluate the
environmental and humanitarian impact of our products and supply
chain.
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 suppliers’ quality management processes and
controls as part of the set-up and approval process.
We have a loyal supplier base, of which a significant majority have
been suppliers to Eurocell for several 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.”
52
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Strategic Report
Corporate
Governance
LOOKING TO A
SUSTAINABLE FUTURE
Throughout this Responsible Business section we have described the work
currently in progress to achieve our objective of continually improving all
aspects of the sustainability of the Group.
Carbon, energy and water efficiency
Building on the strong platform we already have, a key next step
for the business is to define our pathway to carbon neutrality and
net zero. This will likely include:
• Continuing to reduce Scope 1 and 2 emissions,
particularly in PVC extrusion and recycling
• Further work to reduce transport and mobile plant
emissions
• Working with suppliers and sector partners to better
understand and improve Scope 3 emissions
• Further developing our closed-loop water cooling
Waste minimisation and circularity
Here we will focus on further strengthening our materials recovery
and process optimisation, driving leaner and more sustainable
resource use over time. We also intend to create Environmental
Product Declarations (‘EPDs’) to differentiate our key products
from competitors on sustainability grounds.
People and places
The events of the last two years, dominated by the COVID-19
pandemic, have served to increase our focus on employee
wellbeing, including mental health, remote working, diversity and
fair wages. Our aim remains to become the regional employer of
choice in the communities in which we operate.
We will also continue to develop and refurbish our facilities for our
people and step up our community engagement.
Governance
As described above, we will report our progress against the
published ESG targets and KPIs on an annual basis. We also
intend to enhance our non-financial disclosures, improve
sustainability scores against recognised indices (e.g. MCSI,
Sustainalytics) and align as closely as practical with reporting
bodies such as the Sustainability Accounting Standards Board
(‘SASB’) and FTSE4Good.
Eurocell plc Annual Report and Accounts 2021
53
FinancialStatements CHIEF FINANCIAL OFFICER’S REPORT
STRONG FINANCIAL
RESULTS FOR 2021
Michael Scott
Chief Financial Officer
“Our effective response to the
challenges of 2021 has allowed
the business to capitalise on the
continued strength in the RMI
market and report good financial
results for the year.”
54
Eurocell plc Annual Report and Accounts 2021
Group
Revenue
Gross profit
Gross margin %
Overheads
IFRS 9 impairments
Adjusted1 EBITDA
Depreciation and amortisation
Adjusted1 operating profit
Finance costs
Adjusted1 profit before tax
Taxation
Adjusted1 profit after tax
Adjusted1 basic EPS (pence per share)
Non-underlying items
Tax on non-underlying items
Reported operating profit
Reported profit/(loss) before tax
Reported profit/(loss) after tax
Reported basic earnings/(losses) per share (pence)
1 See alternative performance measures.
Introduction
Our effective response to the challenges of supply chain disruption,
major raw material cost inflation and tight labour markets has
allowed the business to capitalise on the continued strength in the
RMI market and report good financial results for 2021.
Revenue
Revenue for 2021 was £343.1 million, 33% higher than 2020
(£257.9 million) and up 23% on 2019 (£279.1 million). Growth
compared to 2019 is comprised of 15% from volume and 8% from
selling price increases / surcharges.
We experienced an inflationary environment in 2021, with prices for
certain raw materials, particularly PVC resin increasing significantly.
We recovered these higher costs through our market-leading
recycling plants, as well as through selling price increases and a
surcharge adjusted monthly in response to cost changes, with
selling price inflation becoming a larger component of sales growth
as the year progressed.
Growth compared to 2019 is also equivalent to a like-for-like
increase of 21%, representing a strong performance across
the business. Like-for-like excludes new branches opened in
2019/20/21.
Gross margin
Gross margin for the year was 50.5%, up from 49.4% in 2020 but
down 70 basis points compared to 2019. As described above, the
surcharge successfully recovered the higher material costs in 2021,
and is therefore broadly neutral to profit, but it is dilutive to the
margin percentage.
Strategic Report
Corporate
Governance
2021
£m
343.1
173.4
50.5%
(122.4)
0.7
51.7
(22.7)
29.0
(2.0)
27.0
(5.9)
21.1
18.9
—
—
29.0
27.0
21.1
18.9
2020
£m
257.9
127.4
49.4%
(93.9)
(3.7)
29.8
(19.5)
10.3
(1.8)
8.5
(1.5)
7.0
6.5
(10.0)
0.8
0.7
(1.5)
(2.2)
(2.0)
2019
£m
279.1
142.9
51.2%
(99.0)
(1.5)
42.4
(17.8)
24.6
(1.9)
22.7
(3.4)
19.3
19.3
—
—
24.6
22.7
19.3
19.3
Distribution costs and administrative expenses
(overheads) and IFRS 9 impairments
Overheads and IFRS 9 impairments were together £121.7 million,
up 25% on underlying costs in 2020 (£97.6 million) and 21% higher
than 2019 (£100.5 million), reflecting higher production and sales
volumes.
Underlying overheads in 2020 included COVID-related UK
Government support of £8.3 million, comprising receipts under the
Job Retention Scheme of £6.5 million, retail grants of £0.7 million
and retail rates relief of £1.1 million. Overheads in 2021 include
retail rates relief of £1.0 million.
Following the first COVID-19 lockdown, we assessed the level
of customer credit risk to have increased materially. As a result,
IFRS 9 impairment charges of £3.7 million were reflected in the
underlying income statement 2020. Subsequently, cash receipts
have been good and the ageing profile in our ledgers has improved,
and consequently an IFRS 9 credit of £0.7 million has been
recorded in 2021.
Depreciation and amortisation
Depreciation and amortisation was £22.7 million compared to an
underlying charge of £19.5 million in 2020 (reported: £20.8 million)
and £17.8 million in 2019.
Alternative performance measures
Alternative performance measures are used alongside statutory
measures to facilitate a better understanding of financial
performance and comparison with prior periods, and in order to
provide audited financial information against which the Group’s
bank covenants, which are all measured on a pre-IFRS 16 basis,
can be assessed.
Eurocell plc Annual Report and Accounts 2021
55
FinancialStatements CHIEF FINANCIAL OFFICER’S REPORT CONTINUED
Alternative performance measures (continued)
Adjusted EBITDA, adjusted operating profit and adjusted profit
before tax all exclude non-underlying items. Adjusted profit after tax
and adjusted earnings per share exclude non-underlying items and
the related tax effect.
Profit/(loss) before tax and earnings/(losses) per share
The profit before tax for the year was £27.0 million compared to an
adjusted profit before tax of £8.5 million in 2020 and a profit before
tax of £22.7 million in 2019. Improved profits compared to 2020
and 2019 reflect higher sales volumes.
Pre-IFRS 16 EBITDA is stated inclusive of operating lease rentals
under IAS 17 Leases. Pre-IFRS 16 net debt is defined as total
borrowings and lease liabilities less cash and cash equivalents,
excluding the impact of IFRS 16 Leases.
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
No non-underlying items were recognised in 2021 and 2019.
Non-underlying items for 2020 of £10.0 million included a
non-cash goodwill impairment charge of £5.8 million, right-of-use
asset impairment charges of £0.9 million, restructuring costs of
£0.6 million and warehouse dual-running costs of £2.7 million.
Finance costs and taxation
Finance costs for 2021 were £2.0 million, compared to £1.8 million
in 2020 on an underlying basis and £2.2 million in total, with
£0.4 million of IFRS 16 lease interest classified as non-underlying
in 2020, as it related to warehouse dual-running costs (see Non-
underlying items).
The tax charge for 2021 was £5.9 million (2020: £1.5 million on an
underlying basis, and £0.7 million in total). The effective tax rate
on underlying profit before tax for 2021 of 22.0% is higher than
the standard rate of corporation tax of 19% due to the impact of
the change in the standard rate that will take effect in 2023 on the
measurement of deferred taxes.
The effective underlying tax rate in 2020 of 17.6% was lower than
the standard rate of 19%, due to the benefit of Patent Box relief.
The effective tax rate on non-underlying items was 7.0% due to the
£5.8 million goodwill impairment charge being non-deductible for
tax purposes.
We were pleased to retain the Fair Tax Mark accreditation in 2021,
reflecting our commitment to paying the right amount of tax at the
right time.
The reported loss before tax in 2020 was £1.5 million.
Basic earnings per share for the year were 18.9 pence (2020:
adjusted basic earnings per share of 6.5 pence; 2019: 19.3 pence),
reflecting the increase in the weighted average number of shares
issued (2021: 111.7 million shares; 2020: 108.2 million shares;
2019: 100.3 million shares). Reported basic losses per share for
2020 were 2.0 pence.
Diluted earnings per share for the year were 18.8 pence (2019:
19.2 pence). As a loss was recorded in 2020, share options were
not considered to have a dilutive effect.
Dividends
We paid an interim dividend 3.2 pence per share in October 2021
(£3.6 million). The Board proposes a final dividend of 6.4 pence
per share, taking total dividends for the year to 9.6 pence, or
£10.8 million (2019: 3.2 pence or £3.2 million). The dividend will
be paid on 18 May 2022 to Shareholders registered at the close
of business on 22 April 2022. The ex-dividend date will be 21 April
2022.
Retained earnings as at 31 December 2021 were £83.1 million
(2020: £65.5 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 2021 was £16.7 million (2020: £13.7
million). 2021 includes c.£7 million to expand manufacturing
capacity across a number of key product lines, c.£2 million to
increase logistics capability and c.£2 million for new branches.
Other capital expenditure in the period of c.£6 million includes
recycling, branch refurbishments, IT and maintenance capex.
Cash flow
Net cash generated from operating activities was £29.6 million
(2020: £32.9 million).
A net outflow from working capital for 2021 of £19.4 million includes
the substantial impact of inflation (c.£8 million net across all working
capital components). The outflow is comprised of an increase in
stocks of £17.8 million, an increase in trade and other receivables
of £6.0 million and an increase in trade and other payables of £4.4
million. For stocks, the inflation impact alone is c.£7 million, with the
year-on-year increase also including a build in Q4, when PVC resin
was readily available, providing an opportunity to protect against
any adverse impact from COVID-19 isolations in Q1 2022. This
compares to a net inflow from working capital of £4.7 million in 2020.
56
Eurocell plc Annual Report and Accounts 2021
Other items include payments for capital investments of £15.5
million (2020: £14.0 million) and financing costs paid of £0.6 million
(2020: £0.7 million). Tax paid in the year was £3.5 million (2020: £1.0
million). Dividends of £3.6 million were paid in the year (none paid
in 2020).
The principal elements of lease payments of £10.1 million (2020:
£10.7 million) are presented within cash flows arising from financing
activities. The finance elements of lease payments were £1.2 million
(2020: £1.3 million).
Net debt
Net debt on a pre-IFRS 16 basis at 31 December 2021 was
£11.0 million (31 December 2020: £9.9 million).
Lease liabilities increased by £10.3 million. Reported net debt at
31 December 2021 was £69.7 million (31 December 2020:
£58.3 million).
Group
Cash
Bank overdrafts
Borrowings
Net debt (pre-IFRS 16)
Lease liabilities
Net debt (reported)
2021
£m
6.6
(5.9)
(11.7)
(11.0)
(58.7)
(69.7)
2020
£m
7.1
(4.5)
(12.5)
(9.9)
(48.4)
(58.3)
Change
£m
(0.5)
(1.4)
0.8
(1.1)
(10.3)
(11.4)
Bank facility
We have an unsecured Revolving Credit Facility (‘RCF’) of £75
million which matures at the end of 2023. In 2020 we converted
the facility into a Sustainable RCF, where modest adjustments to
the margin are applied based on our achievement against annual
recycling targets. We were pleased to meet our target for 2021,
and plan to invest the interest saved in sustainability-related
initiatives.
We operate comfortably within the terms of the facility and in
compliance with our financial covenants, which are measured on a
pre-IFRS 16 basis.
Michael Scott
Chief Financial Officer
Strategic Report
Corporate
Governance
Revenue1 (£m)
400
350
300
250
200
150
23.2
337.1
6.0
343.1
22.0
12.8
279.1
2019
Profiles
LFL
Building
Plastics
LFL
Selling price
increase and
surcharge
Group
LFL
New
branches
2021
7.5
2.0
2.6
173.4
Gross profit (£m)
18.4
142.9
180
170
160
150
140
130
120
2019
Volume
Price
Recycling
New
branches
2021
Overheads2 (£m)
14.8
100.5
6.1
(2.2)
2.5
121.7
130
120
110
100
90
80
70
60
50
2019
Volume
Wage
inflation,
bonus and
SBP
Bad
debts
New
branches
2021
Cashflow (£m)
60
50
40
30
20
10
0
-10
51.7 (19.4)
(2.7)
29.6
(15.5)
(0.8)
0.5
(21.6)
(3.6)
2021
EBITDA
Working
capital
Tax
and
other
Net cash
from
operating
activities
Capex
Financing
Shares
issued
Leases
(non-cash)
Dividends
paid
(11.4)
Change
in net
debt
1 Like-for-like sales up 21%.
2 Distribution costs and administrative expenses
Eurocell plc Annual Report and Accounts 2021
57
FinancialStatements 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.
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.
Senior managers take ownership of specific risks and implement
policies and procedures to mitigate exposure to those risks.
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. 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 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.
Identify risks
Assess gross risk
Quantify net risk
Identify existing
mitigation
Identify any further
action required
Monitor
and control
58
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
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.
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.
The Group also has processes in place for ensuring business
continuity and emergency planning.
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.
h
g
H
i
y
t
i
l
i
b
a
b
o
r
P
i
m
u
d
e
M
w
o
L
Low
08
02
03
06
07
09
12
16
05
01
04
10
11
13
14
15
Medium
Impact
High
Principal risks
01
Macroeconomic conditions
06
Customer credit risk
12
Shortages or increased costs of
appropriately skilled labour
02
Cyber security
07
Sustainability
13
Failure to develop new products
03
04
05
Regulatory risks, including
health & safety
Raw material supply
Raw material and traded
goods pricing
08
09
Manufacturing capacity
constraints
14
Competitor activity
Warehousing and distribution
capacity constraints
15
Failure to identify, complete and
integrate bolt-on acquisitions
10
Unplanned plant downtime
16
Digital and IT system development
11
Ability to attract and retain key
personnel and highly skilled individuals
Eurocell plc Annual Report and Accounts 2021
59
FinancialStatements PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK MANAGEMENT
The principal risks monitored by the Board are as follows:
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
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.
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).
• Notwithstanding macro
• The UK economy is close
to full employment, but with
growth currently limited by
supply chain shortages and
the rising cost of living.
• CPA now forecasts the
private housing RMI market
to be flat in 2022 (after
growth of 17% in 2021).
• We may now be in a RMI
super-cycle, driven by
historical under-investment
in the UK housing stock and
the shift to permanent hybrid
working.
• The UK is also experiencing
high levels of mortgage
approvals, with 1 in 16
homes changing hands in
2021.
• The UK base rate increased
twice in consecutive months
in early 2022 in response to
rising inflation.
• Potential for increased
cyber activity due to current
tensions between Russia and
the UK and its allies.
• Recent cyber attacks on
companies within our sector
have caused considerable
disruption to IT systems.
• This remains a high-profile
area and continues to receive
considerable management
attention.
conditions, we expect our
strategic priorities and self-
help initiatives to support
sales and profit growth and
drive good cash conversion.
• Initiatives include: growing
market share, expanding the
branch network, delivering
sustained operational
excellence and increasing
recycling.
• We operate comfortably
within the terms of our bank
facility and related financial
covenants.
• Ongoing investment in cyber
risk detection and prevention
tools.
• Physical security of servers
at third-party off-site data
centre, with full disaster
recovery capability.
• Password and safe-use
policies in place, internet
usage monitored and anti-
malware used.
• External cyber review
and internal audit reviews
conducted periodically,
resulting in significant
enhancements in defence.
• Cyber awareness/IT security
campaign active for all
employees.
• Enhanced monitoring and
vigilance in response to
increased remote working.
• Financial crime protection
and cyber liability insurance
in place.
60
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Movement key:
Increase
No change
Decrease
Strategic Priorities key:
Increase the use of recycled
materials
Target growth in market share
in Profiles
Expand the branch network
Develop innovative new
products
Explore potential bolt-on
acquisitions
Deliver sustained operational
excellence
Develop a sector-leading
digital platform
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
REGULATORY RISKS,
INCLUDING HEALTH &
SAFETY
We may be adversely affected by
the crystallisation of unexpected
corporate or regulatory risks.
These include health & safety, data,
reputational and environmental risks
(including regulations related to our
recycling operations), or other legal,
taxation and compliance matters.
RAW MATERIAL SUPPLY
There are only a limited number of
PVC resin and certain other raw
material suppliers and we operate
with limited raw material storage
capacity.
The recycling feedstock supply
market is fragmented and can be
unpredictable.
Failure to receive raw materials on
a timely basis could impact on our
ability to manufacture products and
meet customer demand.
• Procedures and policies in
place to support compliance
with all relevant regulations.
• COVID-19 has increased
health & safety risks.
• More generally, recent
• Regular communication
and training on policy
compliance.
• Monitoring procedures
in place, including near
miss and potential hazard
reporting for health & safety
matters.
• Introduction of a range
of COVID-safe protection
measures, in line with
recommended guidance and
designed and implemented
collaboratively with input
from the workforce.
• Internal and third-party site
audits to test compliance
with our policies.
• We generally operate with
at least two suppliers for
all critical raw materials,
including PVC resin, to
support security of supply.
• Ongoing raw material
tests to identify potential
alternative suppliers.
• A spot market exists for
resin, that we are able to
access at certain times.
• Contractual arrangements for
certain key suppliers include
liquidated damages for failure
to supply.
• Regular reviews to test
financial stability of key
suppliers.
• Potential remains for
increased resin supply
originating from the US to
come on line and deliver into
Europe.
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 and
General Data Protection
Regulations (‘GDPR’).
• Brexit-related supply chain
issues were exacerbated
by strong demand and
a lack of sea freight
container capacity, leading
to increased freight prices
and sector-specific material
shortages.
• High demand for PVC
put sector supply chains
under pressure, which also
significantly impacted pricing
(see overleaf).
• Our market-leading recycling
plants supported continuity
of supply of resin in tight
markets.
• Due to strong relationships
with our suppliers, most of
the raw materials and traded
goods we require were
secured throughout 2021,
although sometimes subject
to delays.
• Supply chains in early 2022
remain tight, although we
do expect this to ease in the
coming months.
Eurocell plc Annual Report and Accounts 2021
61
FinancialStatements PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
RAW MATERIAL AND TRADED
GOODS 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.
CUSTOMER CREDIT RISK
Default by a large customer or multiple
smaller customers could result in a
material bad debt(s).
The loss of a major customer(s) could
limit our ability to continue to grow the
business.
SUSTAINABILITY
Demonstrating improving business
sustainability is becoming increasingly
important to all stakeholders.
We published a Group-wide
sustainability strategy in 2021,
including KPIs and targets linked to
relevant UN Sustainable Development
Goals and the UK Government’s
transition towards a net zero carbon
economy.
Failure to improve in all material
aspects of ESG (environmental, social,
governance) could lead to regulatory
and other challenges (e.g. employee
recruitment and retention).
If we do not deliver on our
environmental targets and set out a
credible pathway to carbon neutrality
and net zero, then investors and
lenders may show a preference to
allocate capital to businesses with
smaller climate impacts.
• We generally operate with
at least two suppliers for all
critical raw materials and
traded goods, including PVC
resin, to provide competitive
pricing.
• 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, although prices for
recycling feedstock can also
be volatile.
• We consider fixed price
supply arrangements
with suppliers where it is
economic to do so.
• Resin and other raw material
prices increased sharply in
2021, due to a combination
of high demand and supply
shortages.
• We have mitigated raw
material cost inflation to date
with selling price increases
and surcharges.
• It is difficult to predict what
will happen to raw material
prices in 2022.
• We have elected not to enter
into a fixed price contract
for PVC resin so far in 2022,
as the premium currently
required by suppliers is
prohibitive.
• Regular process for in-depth
credit reviews for existing
and new customer accounts.
• Following onset of COVID-19
pandemic and first lockdown,
increased frequency of
credit reviews and greater
involvement of relevant
Executive Committee
members in managing
position on key accounts.
• Credit insurance in place
to the extent available for
selected large accounts.
• Strong underlying position on
sustainability underpinned by
window recycling operation,
which drives significant
carbon savings compared to
the use of virgin PVC resin.
• Publication of verified carbon
savings data for the first time
in the 2020 Annual Report.
• Investor and other
stakeholder feedback
indicates published ESG
targets and KPIs have
been well received and
understood.
• Task Force on Climate-
related Financial Disclosures
(‘TCFD’) introduced for
the first time in the 2021
Annual Report, including
consideration of climate-
related risks.
• Significantly increased bad
debt provisions recorded in
2020 in response to impact
of COVID-19. Subsequent
cash receipts in 2021 were
good and ageing profile of
receivables much improved.
• Launch of a Group-wide
sustainability strategy, with
long-term goals linked to
relevant UN Sustainable
Development Goals and the
UK Government’s transition
towards a net zero carbon
economy.
• Defined a suite of
environmental and social
targets and KPIs against
which to measure our
progress.
• Appointment of a new
Environmental Sustainability
Manager.
• Awarded the FTSE Green
Economy Mark certification.
62
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
MANUFACTURING CAPACITY
CONSTRAINTS
Demand running above our
manufacturing capacity may result in
production-related inefficiencies, as
well as customer service issues if a
backlog of customer orders develops.
A shortage of capacity may also
prevent the acquisition of new
customers, thereby limiting our ability
to continue to grow the business.
WAREHOUSING AND
DISTRIBUTION CAPACITY
CONSTRAINTS
We exceeded the capacity of our
existing warehouse in 2018/19,
resulting in inefficiencies and
additional labour and distribution
costs.
As a result the business invested in
a new warehouse, commissioned in
2021, which significantly increases
our warehousing capacity and is key
to delivering further improvements in
operational efficiencies as the new
plant, systems and processes become
embedded.
On-time execution of the fit-out
project and successful operation from
the new site are critical to unlocking
future growth potential and the
delivery of anticipated improvements
in operating efficiencies.
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 or other
extended workforce absences; natural
disasters; and other unforeseen
events.
• Investment in 2018/19
increased manufacturing
capacity by more than
20% and removed historic
constraints.
• A further five new extrusion
lines were commissioned in
2021.
• Operations management
team now providing the
strong leadership required
to install additional capacity
and address operational
challenges as the business
grows.
• New warehouse facility (see
below) frees up space in the
existing footprint to future-
proof extrusion capacity.
• Fit-out of the new warehouse
and transition completed in
2021.
• Customer demand for our
manufactured products in
2021 was very strong, and
the business has significant
opportunities to continue
strong growth and deliver
further market share gains.
• A further five extrusion lines
will be added in H2 2022.
Together with the 2021
expansion, this increases
capacity by a further 15%
relative to the end of 2020.
• Space is available in the
current footprint for a further
increase beyond that of
around 15%.
• The focus for 2022 will be
to deliver the anticipated
operational efficiencies
and we are optimistic that
performance will exceed our
original expectations.
• Regular planned
maintenance to reduce the
risk of plant failure, including
maintenance capital
investment of >£5 million per
annum across the Group.
• Extrusion facilities spread
over three manufacturing
sites.
• Recycling facilities spread
over two sites.
• Group-wide disaster recovery
plans in place.
• Continued maintenance
capital investment in the
extrusion facility, and in the
recycling plants.
• Financial impact of recycling
plant downtime increasing
due to elevated cost of
virgin resin. Initiatives to
progress in 2022 to eliminate
bottlenecks and single
points of failure in recycling
processes.
Eurocell plc Annual Report and Accounts 2021
63
FinancialStatements PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
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, with the
appropriate skills and experience.
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 and several
manufacturing and operational sites
are located in areas of generally full
employment.
We may also experience labour cost
increases (including those related
to the National Living Wage) or
disruptions in circumstances where
we have to compete for employees
with the necessary skills and
experience in tight labour markets.
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.
• Progressive implementation
of people plan.
• Strengthened Operational
management in
Manufacturing, Recycling
and Supply Chain.
• Risk increased initially
mid-2021 due to very tight
labour supply, particularly for
agency workers.
• Further adverse impact mid-
2021 when absence rates
were high due to COVID-19
related isolations.
• Risk subsequently reduced
by successful H2 recruitment
programme, replacing
agency staff with permanent
employees. Programme
underpinned by results of
pay and benefits review and
improvements to recruitment
and on-boarding procedures.
• We now have the resources
in place to operate efficiently
and achieve our growth
ambitions.
• Sixth SAYE scheme planned
for 2022.
• Progressive implementation
of people plan.
• Recent successes include:
flush sash French doors,
improved conservatory roof
and roof lantern ranges
and a further extension to
the outdoor living product
categories.
• Developing successful track
record and clear strategic
direction provides an
attractive backdrop to joining
the senior team at Eurocell.
• Market rate compensation
for all personnel, including
leadership team.
• Equity-based long-term
incentive plans in place for
senior team.
• People plan includes
focus on improving
employee engagement and
communication.
• Resourcing, recruitment and
on-boarding procedures
enhanced in 2021 along with
improvements to training
programmes.
• Pay and benefits
benchmarking and review
conducted in 2021 to ensure
we offer market level or
better salaries and good
benefits package.
• Annual SAYE share-save
scheme available to all
personnel.
• People plan includes
focus on improving
employee engagement and
communication.
• 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 work closely with
customers and technical
advisers on product
development.
• We have a strong product
pipeline with more than 25
projects in development.
64
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Principal Risk
and Impact
Strategic
Priorities
Mitigation
Risk Change in
Reporting Period
Movement
COMPETITOR ACTIVITY
We have a number of existing
competitors that compete on range,
price, quality and service. Increased
competition could reduce volumes
and margins on manufactured and
traded products.
FAILURE TO IDENTIFY,
COMPLETE AND INTEGRATE
ACQUISITIONS
We may not be able to identify
and complete appropriate bolt-on
acquisitions (one of our strategic
priorities).
Any future acquisition we do make
poses integration 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.
DIGITAL AND IT SYSTEMS
DEVELOPMENT
We have introduced a new strategic
priority to develop a sector-leading
digital proposition.
Stakeholders in most organisations
increasingly require full end-to-end
digital solutions, a trend exacerbated
by the COVID-19 pandemic.
Failure to develop a leading
digital proposition could lead to a
competitive disadvantage, hinder
progression of our other priorities and
detract from the supplier, customer
and employee experience of working
with Eurocell.
• Strong market and
customer awareness, with
good intelligence around
competitor activity.
• Absolute focus on customer
proposition and points of
differentiation in product and
service offering.
• We have developed a strong
new customer pipeline.
• Public communication of
bolt-on acquisitions being a
strategic priority.
• Good knowledge of
companies operating in our
sector and related sectors.
• Six acquisitions completed
since our IPO in 2015.
• Tried and tested procedure
for the integration of new
acquisitions and a good track
record of recent success.
• The more uncertain market
environment may have
weakened some of our
competitors.
• We believe we continued to
take market share in 2021.
• Whilst we continue to assess
and consider acquisition
opportunities, our focus for
2022 will be on delivering
operational efficiencies
from recent investments
in manufacturing and
warehousing capacity.
• In 2021, we introduced a new
strategic priority to ‘develop
a sector-leading digital
proposition’.
• Three-year IT road map
launched in 2020, including
significant investment in
additional resources and
application landscape to
support development of
business efficiency and
digital proposition.
• During the year we selected
platforms for a new website,
product information
management system,
e-commerce solution and
employee management
system.
• Development is under way,
with these systems expected
to launch in 2022 and 2023.
Eurocell plc Annual Report and Accounts 2021
65
FinancialStatements 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 three-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 Group has a £75 million Revolving Credit Facility. Monthly cash
flow projections show significant headroom throughout the period
to December 2024. The facility includes standard covenants for
leverage and interest cover, which are measured twice per annum
at June and December. The projections also show good headroom
on the covenants at each measurement date to December 2024.
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 three 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 17 March
2022 and signed on its behalf by:
Mark Kelly
Chief Executive Officer
Michael Scott
Chief Financial Officer
VIABILITY STATEMENT
As required by section 4 of
the UK Corporate Governance
Code, the Directors have taken
into account forecasts to assess
the future funding requirements
of the Group, and compared
them with the level of committed
available borrowing facilities.
A period of three years has been adopted as this is
the time frame 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
long-term future prospects, our strategy, management
of risk, and also the Board’s assessment of the outlook
in the marketplace, all of which are covered in detail
within the Strategic Report.
The Board considers its strategy and risks on
strategy away-days, and revisits these annually when
considering the next year’s budget. The three-year plan
considers revenue and earnings growth and how this
impacts on cash flows and key ratios. Operational plans
and financing options are considered as part of this
process.
In preparing the plan, we adopt a prudent forecast in
respect of like-for-like sales growth, but assume other
initiatives, in line with the published strategy. We have
also taken into account the current and potential range
of future impacts of COVID-19 and related economic
uncertainty.
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
three-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
three-year plan period.
66
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Eurocell plc Annual Report and Accounts 2021
67
FinancialStatements BOARD OF DIRECTORS
ONE TEAM
ALL TOGETHER BETTER
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 for Genus
plc (until November 2020), Barratt
Developments plc, Hays plc and the
Federation of Groundwork Trust. Prior
to this, he was Managing Director
for the Vitec Group for 4 years, Chief
Executive Officer of Electrocomponents
plc for 11 years and subsequently
Chair for a further 6 years.
Experience:
Mark joined the Group in March
2016 and was appointed Chief
Executive Officer in May 2016. He was
formerly Chief Executive for 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 for 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:
• None
External appointments:
• None
External appointments:
• None
Committee membership:
Committee membership:
Committee membership:
• None
68
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Committee key:
Member of the Audit and Risk Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Denotes Committee Chair
Frank Nelson
Senior Independent
Non-executive Director
Date of appointment:
4 February 2015
Martyn Coffey
Independent
Non-executive Director
Date of appointment:
4 February 2015
Sucheta Govil
Independent
Non-executive Director
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 previously a
Non-Executive Director for McCarthy &
Stone plc and Telford Homes Plc. Prior
to this, Frank was Finance Director
for Galliford Try plc for 12 years and
Finance Director for Try Group plc. He
is a fellow of the Chartered Institute of
Management Accountants.
External appointments:
• Chair of Van Elle Holdings plc (AIM)
• Senior Independent Non-executive
Director of HICL Infrastructure plc
(FTSE 250)
• Chair of Nobel Topco Ltd
(Private Equity)
Experience:
Martyn, prior to his current role
at Marshalls plc (see below), was
Divisional Chief Executive Officer for
BDR Thermea Group BV and Chief
Executive for the private equity-owned
Baxi Group. He also held the position
of Managing Director for Pirelli Cable.
Martyn has a BSc in Mathematics.
Experience:
Sucheta, prior to her current role
at Covestro AG (see below), was
previously the Chief Marketing Officer
for Royal DSM and also held various
management positions in marketing,
innovation, strategy and general
management worldwide, among
others, for 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 (FTSE 250)
• Director of Mineral Products
Association Ltd (Private)
External appointments:
• Chief Commercial Officer of Covestro
AG and member of the Managing
Board (German listed)
Committee membership:
Committee membership:
Committee membership:
Eurocell plc Annual Report and Accounts 2021
69
FinancialStatements
CHAIR’S INTRODUCTION
LETTER FROM
THE CHAIR
Bob Lawson
Chair
“I am pleased to introduce
Eurocell plc’s Corporate
Governance Report for the
year, on behalf of the Board.”
70
Eurocell plc Annual Report and Accounts 2021
Dear Shareholder,
This report sets out the Group’s corporate governance
framework and explains how it underpins and supports
the Executive Committee and senior management in
delivering the Group’s strategy.
The Board recognises that 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
that these principles continue to underpin the basis of
our Board discussions. The Board also recognises that
good governance is essential to support resilience and
drive innovation in our business activities.
The Board has continued to support the Executive
Committee in progressing the Group’s strategic
priorities, and has worked well with the senior
management team to help address new challenges
arising in 2021, including the launch of our new state-
of-the-art warehouse facility at a time of unprecedented
levels of customer demand, as well as the impact of
significant cost inflation and labour and raw material
supply constraints.
Environmental, social and governance (‘ESG’)
considerations are an increasing area of focus for our
stakeholders and I am pleased with the progress made
during the year, particularly in relation to sustainability
matters (see our sustainability KPIs on pages 34 to 35)
and colleague engagement (see pages 46 to 51).
As always, I am very grateful for the continued strong
shareholder support that we receive, which has allowed
us to continue to invest in expanding our operating
capacity and build a platform for long-term sustainable
growth. I hope to see this support continue into 2022.
Succession planning is an essential aspect of
good governance. As described in the Nomination
Committee Report (see pages 83 to 85), I have notified
the Board of my intention to step down and a process
to recruit my successor has begun, led by Frank
Nelson, the Senior Independent Director.
Throughout the year, we have continued to apply
the principles and provisions of the UK Corporate
Governance Code (the ‘Code’), under which this report
has been prepared, and the following reports provide
details of the Board’s activities during the year, including
how it, and its Committees, have discharged their
governance duties.
Bob Lawson
Chair
17 March 2022
Strategic Report
Corporate
Governance
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 68 and 69.
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.
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 83 to 108.
Eurocell plc Annual Report and Accounts 2021
71
FinancialStatements CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE STATEMENT
Governance Framework
The Board meets regularly to discuss key business 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. Day-to-day management and
the implementation of strategies agreed by the Board are delegated to the Executive Directors. Key to this delegation is the Executive
Committee, which meets each month.
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, either virtually or in-person, during the year without the Executive Directors present.
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 86 TO 90
SEE COMMITTEE REPORT ON PAGES 91 TO 108
SEE COMMITTEE REPORT ON PAGES 83 TO 85
Executive Committee
The Executive Committee comprises 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. The
Board receives regular updates from the Executive Committee in relation to business issues and developments.
SEE PAGE 85
72
Eurocell plc Annual Report and Accounts 2021
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.
Strategic Report
Corporate
Governance
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 68 and 69. Their terms of appointment are reported on page
99 and length of service on the Board is set out in the chart below:
Bob Lawson (Chair)
Frank Nelson
Martyn Coffey
Sucheta Govil
Mark Kelly
Michael Scott
0
1
2
3
4
5
6
7
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.
Eurocell plc Annual Report and Accounts 2021
73
FinancialStatements CORPORATE GOVERNANCE STATEMENT CONTINUED
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:
Construction
industry Manufacturing
Multi-site
operations
Industrial
plastics
Governance &
Finance
regulatory Marketing
Principal skills and experience
Bob Lawson (Chair)
Frank Nelson (Senior Independent Non-executive Director)
Martyn Coffey (Independent Non-executive Director)
Sucheta Govil (Independent Non-executive Director)
Mark Kelly (Chief Executive Officer)
Michael Scott (Chief Financial Officer)
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
conducted during the year, with the results presented and discussed at the March 2022 Board meeting.
This year, this evaluation was performed internally using a framework based on three of the Board’s key priorities, being:
• gaining insight and foresight;
• clarifying priorities and defining expectations; and
• holding to account and seeking assurance.
A survey covering each area in the framework was completed by Board members and the Group Company Secretary, all of whom
fully engaged with the process resulting in a 100% response rate. The survey included quantitative responses and valuable qualitative
comments. The anonymity of respondents was ensured 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. Governance structure – good blend of Board/Committee experience/skills and effective performance of duties
2. Leadership/dynamics of the Board/Committees – strong leadership complemented by an ethos of openness and trust
3. Clarity of priorities and expectations – clear vision and values within a culture of performance improvement and innovation
4. Board information – accurate and timely information provided to facilitate considered decision making
Area
Detail
Proposed actions
Board engagement
Due to COVID-19, Board interaction with the
business, and subsidiaries, has been limited in
the last couple of years
Face-to-face meetings and site visits to be reinstated
wherever safe and appropriate to do so
Board composition
Board diversity and tenure-range are limited by
coinciding IPO appointments made in 2015
Succession planning for Non-executive Directors, led
by the Nomination Committee, to continue
Professional
development
Potential to provide more formal opportunities for
Board members to undertake regular professional
development
Attendance of external professional advisers at
Board meetings to continue to be reviewed and
developed as appropriate
74
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
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 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 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 2021,
three meetings of the Audit and Risk Committee, three meetings of
the Remuneration Committee and two meetings of the Nomination
Committee. Due to COVID-19, all of the meetings were held
virtually and therefore planned site visits by Non-executive Directors
were postponed accordingly.
In addition, following the introduction of regular virtual Board
update meetings in 2020, in order to maintain the highest possible
standards of governance and to keep the Board fully updated on all
financial and operational matters, five such update meetings were
held during 2021. Attendance at these additional meetings was
c.90%, with any non-attendance due to unavoidable clashes with
existing commitments.
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 Audit and
Risk, Remuneration and Nomination Committees, 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
–
3/3
* 2/3
–
–
3/3
3/3
3/3
3/3
–
–
3/3
2/2
2/2
2/2
2/2
–
2/2
Board
6/6
6/6
* 5/6
6/6
6/6
6/6
* Absence due to a clash with pre-existing engagement, following an unavoidable
rearrangement of meeting dates.
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.
Paul Walker has served as Group Company Secretary throughout
the year.
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.
Eurocell plc Annual Report and Accounts 2021
75
FinancialStatements CORPORATE GOVERNANCE STATEMENT CONTINUED
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.
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 60 to 65) 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 86 to 90 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.
Stakeholder engagement and Section 172
statement
Engagement with our shareholders and wider stakeholder groups
plays a vital role across the Group, including at Board level. One of
the primary areas of focus for the Board at any time is the impact
its decisions or actions may have on key stakeholder groups
represented within the Board’s duty under s172 of the Companies
Act 2006.
The Board is mindful of the levels of engagement with key
stakeholder groups and how their respective views may be
incorporated into relevant decision making. Board discussions
therefore seek to appropriately consider the impact of its decisions
and views of key stakeholder groups thereon, whilst always
ensuring the need to promote the success of the Company for the
benefit of its members as a whole.
In doing so s172 requires the Directors to 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 considers information from across the organisation to
help understand the impact of its operations and decisions, and
the interests and views of our key stakeholders. This includes
reviews of strategy, financial and operational performance, as well
as information covering areas such as key risks, and legal and
regulatory compliance.
This information is provided to the Board, and its Committees,
through reports sent in advance of each meeting, and through
in-person presentations, where appropriate. As a result of these
activities, the Board has developed a good understanding of the
interests and views of all stakeholders, and other relevant factors,
which enables the Directors to comply with the requirements of
section 172 of the Companies Act 2006.
The table overleaf sets out the Board’s approach to stakeholder
engagement, why stakeholders matter and some key decisions
made during 2021. The Board will sometimes engage directly with
certain stakeholders on certain issues, but the size and distribution
of our stakeholders and of the Eurocell Group dictate that
stakeholder engagement often takes place at an operational level.
To give greater understanding to this, we have provided clear
cross-referencing to where more detailed information can be found
in this Annual Report and Financial Statements.
76
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Eurocell plc Annual Report and Accounts 2021
77
FinancialStatements CORPORATE GOVERNANCE STATEMENT CONTINUED
Why they
matter
How we
engage
Shareholders
Employees
Customers
Suppliers
The Board recognises
the dependence of
our growth plans on
building strong and
lasting relationships
with our customers.
Inter alia, this requires
that we continuously
improve product
ranges, quality,
availability and service
to become the
supplier of choice in
our sector.
The Board
appreciates that to
operate effectively
we must ensure
secure supplies
of good quality
sustainable materials
at a fair price from
suppliers with high
ethical standards,
and monitor supplier
performance against
appropriate metrics.
Our objective is to
build and maintain
strong and lasting
working relationships
with our supplier
base.
Regular review
meetings are held
between senior
management and key
suppliers to discuss
relevant topics, such
as pricing, supply
continuity and service
levels.
Formal tender
processes are
undertaken for large
and / or high value
supplies, which helps
develop relationships
and creates a better
understanding for
all parties of the key
issues involved.
Regular contact takes
place between senior
management and key
customers, with our
sales teams ensuring
we engage properly
across the full range of
customers. Customer
reviews discuss
our operational
performance,
including service levels
and other relevant
matters.
We perform customer
insight surveys on
a regular basis to
assess satisfaction
and ‘Net Promoter
Scores’.
In addition, quarterly
forums are held with
customer groups
to discuss product
design and innovation.
Regular monitoring
of social media
platforms for relevant
comments/issues,
coupled with Trustpilot
customer reviews/
ratings and direct
comments received
from customers
visiting our branches,
provide valuable
customer insight.
The Board recognises
the importance of
engaging with all
shareholders and
prioritises effective
dialogue to ensure
that we capture and
embrace feedback
relating to areas
of interest and of
concern, and to ensure
that our obligations
are met.
The Group runs
a comprehensive
investor relations
programme that results
in regular dialogue
with the investment
community.
This includes formal
presentations made
to institutional
shareholders and
analysts, following
the announcement of
the Group’s half-year
and full-year results,
covering a range of
key topics affecting
the Group’s strategy,
financial and operating
performance. Ad hoc
meetings are also
held following trading
updates and otherwise
throughout the year.
The Chair, the Senior
Independent Director
and the other Directors
are available to engage
in dialogue with major
shareholders as
appropriate.
Shareholders have
the opportunity to
meet members of the
Board and the senior
management team at
the Annual General
Meeting and to ask any
questions they may
have.
The Board
understands that our
colleagues underpin
the performance
and success of
our business and,
therefore, the
importance of providing
a safe working
environment that
promotes inclusion
and diversity, as well
as ensuring they have
the opportunity to
realise their potential
and progress in their
careers.
The Group conducts
periodic staff surveys.
In 2021 this included
a ‘Pulse’ survey and
a ‘Safety, Health,
Environment and
Quality’ survey, to
source the views
of colleagues on
several important
topics. Results are
analysed, shared
with colleagues
and used to drive
appropriate change
and improvement.
Management regularly
‘walk the floor’ to
understand first-hand
the experiences of our
shopfloor colleagues
and also undertake
visits to operating
sites and branches to
ensure all parts of the
Group are understood
and taken into
account in formulating
action plans.
Regular team-briefings
on operational and
financial performance,
coupled with
the publishing of
internal bulletins
(‘In the Know’)
and newsletters
(‘Eurocellebrate’),
help to keep our
colleagues well
informed.
All whistleblowing
reports and
grievances are
investigated and
appropriate changes
implemented to help
prevent reoccurrence.
Communities and
environment
The Board
understands the role
all organisations have
to play in protecting
the environment
and in mitigating the
impact of climate
change.
The Board also
recognises the need
to support the local
communities in which
our larger facilities are
located.
We believe
sustainability sits right
at the heart of our
business.
We are the leading
UK-based recycler
of PVC windows,
through our two
recycling sites in
Selby and Ilkeston,
which drive a very
large carbon saving
compared to the use
of virgin materials.
Our major sites
engage with and
support their local
communities on an
ongoing basis. We
seek to recruit locally,
retain a skilled local
workforce, build
relationships with
local community
organisations and
support charitable
initiatives where we
can.
Government
and regulatory/
industry bodies
The Board
recognises the
critical importance
of ensuring the
highest standards
of corporate
governance,
including compliance
with the rules for
listed companies
and other relevant
regulations (e.g.
health & safety,
taxation), which
together give us our
licence to operate.
The Company
applies the principles
and provisions of
the UK Corporate
Governance Code
and operates
structures and
policies to ensure
ongoing compliance.
We also operate
clear and effective
policies to help
prevent wrongdoing,
including
whistleblowing,
bribery and
corruption, fraud,
financial crime and
modern slavery, with
training provided
where appropriate.
Regular meetings
are held with
tax advisers
to discuss tax
compliance, HMRC
correspondence and
other relevant issues
pertinent to the
Group’s finances and
tax position.
The Company is
a member of both
the Windows and
Recycling groups of
the British Plastics
Federation and the
British Fenestration
Rating Council,
which provide a
forum to understand
changes in relevant
legislation and
building standards.
78
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Shareholders
Employees
Customers
Suppliers
Communities and
environment
How the
Board
complements
engagement
efforts
During 2021, the Chair
attended a number of
investor meetings with
the Executive Directors
and also met with
some of our largest
shareholders without
the Executive Directors
being present.
The Board also
received regular
updates on shareholder
engagement and
investor feedback,
analyst reports
and share price
developments from the
Chief Financial Officer.
How their
interests
were
considered
Investor relations is
covered at all Board
meetings and updates.
During the year, the
Board approved
the reinstatement of
dividend payments,
following a temporary
suspension in 2020
as a result of the
COVID-19 pandemic.
During 2021, the Board
received updates on
the progress of our
colleague engagement
initiatives and, in
particular, considered
the results of the
staff surveys and the
proposed action plan
to address matters
arising.
This included
the Board being
instrumental in
supporting proposed
improvements to pay
and reward for several
large employee
groups (see below).
Board members were
also able to share
their own experiences
and ideas to address
the retention and
recruitment challenges
that arose mid-2021.
The Chief Executive
Officer provided regular
updates to the Board
on health and safety
matters, including
issues in relation to
the ongoing impact
of COVID-19 on our
colleagues and the
steps taken to ensure
appropriate safety,
wellbeing and flexible
working arrangements
were in place.
During the year, the
Board approved
management’s
proposals to
implement significant
mid-year salary
uplifts for certain
large employee
groups, to maintain
competitiveness,
improve staff welfare
and support our
objective to become
an employer of
choice.
Throughout 2021,
the Board received
regular updates on
our performance
against customer
service-related KPIs,
compared to historical
and industry / sector
benchmarks.
The Board has
significant experience
in supply chain
management.
The Board is actively
engaged with the
development and
implementation of the
Group’s ESG strategy.
The Board receives
regular updates
on sustainability
issues, including the
operating and financial
performance of the
two recycling sites.
During 2021, raw
material availability
and pricing have
been regularly
discussed at all
Board meetings
and updates. Board
members have
shared their ideas
and experiences on
supplier relationships
and engagement, in
the light of current
supply chain risks
and challenges.
During the year, the
Board approved
the increase in, and
acceleration of, capital
expenditure to expand
our operating capacity
in order to meet
increased customer
demand and improve
customer service
levels.
During the year, the
Board approved
management’s plans
to accept supplier
cost increases where
appropriate and
to secure supply,
and to pass a fair
proportion of such
increases on to our
own customers
through selling
price increases and
potentially reversible
surcharges.
During the year,
the Board approved
management’s
proposed suite of
sustainability KPIs,
and targets which
were published
in the Group’s
Half-Year Report.
The KPIs cover
circular economy
(including recycling),
emissions and energy
management and
social targets.
Government
and regulatory/
industry bodies
The Audit and Risk
Committee receives
regular reports
on governance,
regulatory and
compliance matters
from management
and from external
and internal auditors.
The internal audit
programme is
designed to provide
assurance in this
area.
In addition, the
Board receives
updates on
matters such as
developments in
building regulations
and our associated
new product
development
initiatives.
During the year, the
Board supported
management’s
initiative to introduce
/ improve /
relaunch several
compliance-related
policies, including
Financial Crime,
Gifts and Hospitality,
Whistleblowing,
Anti-bribery and
Conflicts of Interests.
We also worked
with the Financial
Conduct Authority
in connection with
an approval to offer
consumer finance
with our Eurocell
Home initiative.
Further
details
See Chief Financial
Officer’s Report
on page 54
See Valuing
Our People
on page 46
See Chief Executive
Officer’s Report
on page 10
See Working
Responsibly
on page 52
See Investing
In Recycling
on page 21
See Valuing
Our People
on page 46
Eurocell plc Annual Report and Accounts 2021
79
FinancialStatements CORPORATE GOVERNANCE STATEMENT CONTINUED
ONE TEAM
ALL TOGETHER BETTER
Our Culture
The Group’s culture is based on the following Vision and Values which were formally introduced in 2018:
Our Vision:
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.
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
The Board assesses and monitors culture through:
• reviews of staff survey results and response rates;
• 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
• 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 our Vision and Values
described above and no corrective action is currently required.
Nevertheless, this will be reviewed on an ongoing basis to ensure a
positive culture endures.
Engagement with the workforce
As described in Stakeholder engagement on pages 76 to 79,
we recognise that our colleagues underpin the performance and
success of our business and active engagement has never been
more important than in recent times as we have adapted to new
ways of working.
During 2021, the Group implemented a number of colleague
engagement initiatives to complement the existing team briefings,
continuous improvement workshops, newsletters and health and
safety forums currently in place, including:
• group-wide ‘Pulse’ and ‘Safety, Health, Environment and
Quality’ surveys, with encouraging response rates;
• review of retention and recruitment challenges, resulting in
mid-year salary reviews for certain large employee groups;
• enhancement of the induction process for new colleagues,
leading to reduced short-term staff turnover;
• introduction of more flexible approaches to work, including
home/hybrid working where possible with appropriate IT
resources;
• enhancement of colleague facilities and rest-room
arrangements, including refurbishment of the Clover Nook
building;
• continued focus on strong COVID-19 safety measures, which
go beyond government guidance, to reduce the infection risk
and associated absenteeism;
• continued opportunity for all colleagues to become shareholders
via the Save As You Earn scheme; and
• update and relaunch of the Whistleblowing Policy, and the
associated reporting mechanisms, to increase colleague
awareness and assurance.
Due to the ongoing effects and restrictions in relation to COVID-19,
it has not been possible for Sucheta Govil, the designated Non-
executive Director, to attend colleague focus groups during 2021 as
originally intended. Nevertheless, regular contact with management
has been maintained throughout the year, in order to monitor
activities and ensure the good progress made to date is continued.
Eurocell plc Annual Report and Accounts 2021
81
Our Values:
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
FinancialStatements CORPORATE GOVERNANCE STATEMENT CONTINUED
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.
Bob Lawson
Chair
17 March 2022
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 2021.
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
except for Provision 38.
Provision 38 provides that Executive Director pension contribution
rates (or payments in lieu) should be in line with those available
to the workforce. Our incumbent Executive Directors’ pension
contribution rates, while in line with the policy for existing Executive
Directors, do not yet match the wider workforce. Changes
proposed in the Directors’ Remuneration Policy, will see the
pension contributions for the incumbent Executive Directors being
reduced to 10% of salary, to be aligned with those with the highest
rate below the Board level, and then further reduced to be aligned
with the workforce rate from 1 January 2023, in line with the
Investment Association’s guidance. Further details regarding the
Executive Directors’ pension contributions are set out on page 92
of the Directors’ Remuneration Report.
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
109 to 111.
Annual General Meeting
Our AGM will be held at our Head Office (see Company Information
on page 164 for details) on 12 May 2022. However, in line with the
last two years, shareholder attendance in-person may be restricted
in accordance with COVID-19 guidance.
The notice of our AGM (including any related COVID-19 guidance),
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.
Subject to COVID-19 restrictions, all Directors intend to 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.
82
Eurocell plc Annual Report and Accounts 2021
NOMINATION COMMITTEE REPORT
Strategic Report
Corporate
Governance
Chair
Members
Bob Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Mark Kelly
Dear Shareholder,
I am pleased to report to you on the main activities of the
Committee and how it has performed its duties during 2021.
This year, the Committee’s main focus has been on overseeing
the continued development of the Executive Committee, which
included the recruitment for a new position of Marketing Director
and the addition to the Executive Committee of the IT Director, both
of which strengthen the senior management team and support
progression of our strategic priorities.
I am pleased to have attracted such high-calibre individuals, and
these appointments, along with further development of commercial
and operational responsibilities, result in an Executive Committee
very well equipped to take the business forward (see page 85 for
further details of the current members).
In addition, following on from last year’s activities, the Committee
has continued to consider succession planning for the Board, given
the length and concurrency of service of the Chair and the majority
of the Non-executive Directors. In particular, a detailed review of
the Board’s skills and experience has been undertaken during the
year to develop desired role profiles and identify the attributes to be
sought in future appointments.
After 7 enjoyable years as Chair of Eurocell, I have notified the
Board of my intention to step down and a process to recruit my
successor has begun, led by Frank Nelson, the Senior Independent
Director.
I would like to thank my fellow Board and Committee members, all of
whom have served throughout the year, for their valuable contribution
and support throughout my whole tenure, and I welcome any
comments or questions from shareholders.
Bob Lawson
Chair of the Nomination Committee
17 March 2022
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 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 considering the challenges and
opportunities facing the Company, along with the skills
and expertise needed in the future, while promoting
diversity of ethnicity, gender, background and skills.
Summary of activities during the year
The Nomination Committee met formally twice during the
year and attendance at the meetings is shown on page 75.
The main activities of the Committee included:
• overseeing the development of the Executive Committee
to support the strategy and governance of the wider
Group;
• succession planning for the Board, given the length and
concurrency of service of the Chair and the majority of the
Non-executive Directors;
• the ongoing review of talent for the Board and senior
management, including an assessment of their training
and development needs;
• considering the results of the internal review of the
Committee’s effectiveness (see page 74 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.
Eurocell plc Annual Report and Accounts 2021
83
FinancialStatements NOMINATION COMMITTEE REPORT CONTINUED
Composition
The Nomination Committee is chaired by Bob Lawson, except
where it is dealing with matters relating to his reappointment or
replacement and comprises all three of the Non-executive Directors
along with the Chief Executive Officer, all of whom have served on
the Committee throughout the whole year.
Succession planning
In 2021, the Committee continued its work on succession planning
for the Board, given the length and concurrency of service of the
Chair (approximately 7 years) and the Non-executive Directors
(approximately 7 years for two Non-executive Directors).
As part of this process, a detailed review of the Board’s current
skills and experience was undertaken during the year to develop
desired role profiles and identify the preferred attributes to be
sought in future appointments. The results of this review were
integrated into the current search for the new Chair of the Board,
which should result in an appointment which complements the
existing Board and provides a new perspective on the business
and strategic matters.
As part of the development of the Executive Committee, the
Nomination Committee has also considered succession planning
for senior management, in order to maintain an appropriate balance
of skills, experience and diversity within the Company in line with
our strategic priorities. This ongoing 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 or other senior managers.
The benefits of this proactive approach are illustrated by the
smooth evolution of the Executive Committee over the last 18
months, ensuring the Company is well placed, with the best people
and the right balance of skills to secure future success. In particular,
the successful recruitment of a Marketing Director will now support
development of the Eurocell brand, alongside our growth objectives
and opportunities to progress our digital and e-commerce offering.
The inclusion of our IT Director onto the Executive Committee
reflects the strategic priority to develop a sector-leading digital
proposition and recognises that effective IT systems will be at the
heart of everything we do.
In summary, we are confident that 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.
Bob Lawson
Chair of the Nomination Committee
17 March 2022
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.
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, the Group has maintained the policy 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.
The Board recognises the Group operates in a historically male-
dominated industry. At present, 17% (1 out of 6) of the Board is
female, along with 26% (12 out of 46) of the senior management.
We have an 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 Responsible Business section
on page 50.
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Executive Committee
(in addition to Mark Kelly and Michael Scott)
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.
Andy McDonnell
Commercial Managing Director
Andy joined Eurocell in May 2018, initially as
Managing Director for the Building Plastics
division, and more recently has stepped
up to the role of Commercial Managing
Director, with responsibility for the majority
of commercial activities in both divisions. He
previously held senior leadership positions
in retail and trade at B&Q, TradePoint and
Oak Furniture Land.
Bruce Stephen
Group Human Resources Director
Bruce joined Eurocell in July 2019. 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).
Mike McKay
Group IT Director
Mike joined Eurocell in March 2020. He
previously worked for Polypipe Group
(now Genuit Group) where he was Group
Information Services Director for 15 years.
Immediately prior to this, Mike was Head
of Information Services for William Grant &
Sons and he has also held positions with
Ascent Technology and APV Baker.
Beth Boulton
Marketing Director
Beth joined Eurocell in November 2021.
She previously worked for Magnet kitchens
where she was Head of Marketing
and Digital. Prior to that role, Beth was
Marketing Director at Utopia Bathrooms
and has also held positions at Topps Tiles
and Jewson.
Eurocell plc Annual Report and Accounts 2021
85
FinancialStatements AUDIT AND RISK COMMITTEE REPORT
Chair
Members
Frank Nelson
Martyn Coffey
Sucheta Govil
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.
Dear Shareholder,
I am pleased to report to you on the Audit and
Risk Committee’s objectives and activities during
2021.
This report, which is part of the Directors’ Report,
explains how the Audit and Risk Committee has
discharged its responsibilities during 2021.
During the year, the Committee has continued to
consider the ongoing impact, both direct and indirect,
of COVID-19 on the Company’s financial position,
reporting and risk management.
In addition, the business faced new challenges during
2021, including the impact of Brexit and strong demand
on our raw material supply chain, as well as the effect of
labour shortages and significant cost inflation.
These factors have demanded an agile approach to
risk management and I am pleased to report that our
teams have responded well. In addition, in response
to an increasingly demanding environment, the Group
has added senior resources to the areas of financial
reporting, risk management and internal controls.
I am also satisfied with the progress made by the
Internal Audit programme during the year, which
included a review of our business continuity planning
and crisis management arrangements, which have
been relied upon heavily during the COVID period.
Collectively, this work has provided the necessary
assurance to the Committee that internal controls
and governance are both adequate and working
effectively. A summary of our activities, including the key
accounting estimates and judgements made, is set out
in this report.
Finally, I would like to thank my fellow Committee
members, all of whom have served throughout the
year, and both the internal and external auditors, for
their valuable contribution and support during another
challenging year.
Frank Nelson
Chair of the Audit and Risk Committee
17 March 2022
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Summary of activities during the year
The Audit and Risk Committee met formally three times during
the year and attendance at the meetings is shown on page 75.
Following the 2020 year end, at the March 2021 meeting, the
Committee reviewed and recommended for approval by the
Board, the financial results for the year ended 31 December 2020,
including a review of the full-year external audit.
The areas of particular focus for the Committee in 2021,
and up to the date of this Annual Report, were as follows:
• Reviewed the 2020 and 2021 Annual Reports, as well
as the 2021 Half-Year Report, including preliminary
announcements;
• Considered information presented by management on
significant accounting estimates and judgements adopted
in respect of the Group’s 2020 and 2021 Financial
Statements and the 2021 Half-Year Report;
• Considered the impact of COVID-19 on the Company’s
financial position and reporting, including potential asset
impairments and related disclosures;
• Reviewed documentation prepared to support the viability
statement and going concern assumption set out on page
66;
• Reviewed the external auditors’ plan for their audit for the
year ended 31 December 2021;
• Reviewed reports from the external auditor setting out
their findings as a result of their audits for the years ended
31 December 2020 and 2021, as well as their review of
the 2021 Half-Year Report;
• Considered the impact of any 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 internal assessment of the
Committee’s effectiveness;
• Approved updates to the Committee’s terms of reference;
and
• Reviewed, and approved updates where applicable, to
Group policies for anti-bribery, whistleblowing, capital
expenditure and treasury, along with the Group Tax
Strategy.
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.
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.
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.
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.
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.
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 69, 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 and industrial 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.
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements 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 2021
Financial Statements (including a review of PricewaterhouseCoopers LLP’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
Impact of raw material
price inflation on stock
valuation
Provisions for slow-
moving items and
discontinued product
lines
Review of raw material price variances (vs historic
standard cost) included in stock valuation
Assessment of the appropriate level of provisioning
against obsolescence, undertaken in the context of
current trading and the forecast for the next financial
year and beyond
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 used
Accounts receivable
recoverability
Provisions for bad and
doubtful debts
Application 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), plus
overlays to take into account other material factors
affecting recoverability, including credit insurance
Critically evaluated the methodology with
respect to setting provisions for potential bad
and doubtful debts, including management’s
assessment of macro uncertainty, as well as
the absolute level of provisions held1
Notes:
1 The Committee’s review also considered the specific nature and characteristics of customers in the Group’s 2 major divisions.
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.
Risk management
The Group’s risk management processes are set out in detail on
pages 60 to 61.
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 performance against
financial budgets and forecasts.
In reviewing the effectiveness of the system of internal controls, the
Audit and Risk Committee:
• reviews the risk register compiled and maintained by senior
managers within the Group at least bi-annually and question and
challenge where necessary;
• regularly reviews the systems of financial and accounting
controls; and
• reports to the Board on the risk and control culture within the
Group.
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.
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
In respect of the Group’s financial reporting, the Finance function
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.
• Routine: internal audit reviews covering financial, regulatory,
compliance and IT operations which require cyclical assurance
coverage; and
• Request: internal audit reviews that have been specifically
included at the request of either management or the Audit
Committee.
A summary of the 2021 programme is as follows:
Internal audit programme Summary of findings
Business continuity
planning and
COVID-19 lessons
learned
• Crisis management governance
structure worked well and swift and
decisive actions were taken as the
COVID-19 crisis escalated.
IT General Controls
The internal control environment was strengthened in 2020, in
response the impact of the COVID-19 pandemic, with the changes
now embedded in the business. For example, as described in last
year’s report, the Board increased the regularity and frequency
of its business review meetings, which proved to be a significant
benefit to the business. As a result, the Board meeting calendar
was amended to incorporate these additional review meetings as a
matter of course for 2021 and beyond.
In addition, with the Group’s finance and administrative teams
continuing to work substantially from home during the year,
the enhanced controls which were introduced relating to the
processing of cash payments and receipts (e.g. higher levels of
approval required for transactions over certain limits), have also
been retained. Furthermore, the Group’s IT team have remained
particularly vigilant and alive to cyber risks during this year and we
continue to invest in our cyber security.
Finally, in response to an increasingly complex and demanding
environment, in 2021 we have strengthened our financial reporting,
risk management and internal control activities, with the recruitment
of a Group Controls Manager and new senior resource added into
the Group Finance team.
Other than as described above, there have been no changes in the
Company’s internal control systems during the financial year under
review that have materially affected, or are reasonably likely to
materially affect, the Company’s control over financial reporting.
As part of its horizon scanning, the Committee is considering the
potential impact of the recently published BEIS White Paper with
regards to a new internal control regime 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.
Treasury and
Cash Flow
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 60 to 65.
Internal audit
KPMG LLP provide an outsourced Internal Audit function which
complements the internal finance-based checks performed on the
branch network operations.
The Committee, working in conjunction with KPMG LLP, approved
a full programme for 2021 which was compiled based on the
following specific categories:
• Risk: internal audit reviews specifically linked to Eurocell’s key
financial and operational risks;
• Other notable strengths include:
– Successful adoption of remote
working by employees
– Clear decision making in
relation to, and management of,
furloughed staff
– Efficient and effective closure
and reopening of operations
– Staff wellbeing considerations
enhanced
• Areas of good practice include:
– Board-approved IT/Digital
Strategy in place
– Document storage and access
controlled by secure links
– Annual review of IT assets
undertaken to determine
replacement requirements
– Regular review of proposed
system changes undertaken
prior to live release
• Recommendations made to
formalise/document certain policies
and procedures
• Areas of good practice include:
– Good awareness of Group
Treasury team of control
strengths and weaknesses
– Treasury-specific risks included
within the Group Risk Register
– Strong trend analysis performed
to understand and predict future
cash flows
– Strong governance structure,
with the activities of the Group
Treasury Committee underpinned
by a comprehensive Treasury
Policy
• Recommendations included the
formalisation of cash management
procedures and improvements to
the forecasting of foreign exchange
requirements
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements AUDIT AND RISK COMMITTEE REPORT CONTINUED
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 members, who monitor a report on the status of the
outstanding actions. Whilst inevitably COVID-19 caused some
delays to implementation, overall progress remains satisfactory.
Whistleblowing, bribery and business ethics
The Group is committed to the highest standards of openness,
honesty, integrity and accountability.
The Group has a Whistleblowing Policy, which was updated, and
following approval by the Committee, relaunched during the year,
with a focus on improving awareness and understanding.
This policy makes employees and third parties aware that they
should report any serious concerns or suspicions about any
wrongdoing or malpractice on the part of any employee of the
Group, without fear of criticism, discrimination or reprisal, as well as
the procedure for raising such concerns. Examples include fraud,
breakdown in internal controls, misleading customers, bribery,
modern slavery, dishonesty, corruption and breaches of data
protection or health and safety.
During the year, there were 5 (2020: nil) reports received through
the whistleblowing process, all of which were fully investigated and
addressed in accordance with the policy, and no significant trends
were identified.
The 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.
The Group also maintains a suite of other policies which support
our commitment to strong business ethics and for which we take a
strict approach to non-compliance. This includes policies related to:
• Financial crime
• Conflicts of interest
• Gifts and hospitality
• Share dealing
In accordance with the obligations under the Reporting on Payment
Practices and Performance Regulations 2017, the Company has
submitted its bi-annual reports in line with the legislation during the
year.
The Group’s Modern Slavery Statement, which sets out details of
the policies in relation to slavery and human trafficking, as well as
its due diligence processes with its partners, has been published
on the Group’s website (www.eurocell.co.uk).
The Group has also updated its Tax Strategy Statement, again
published on our website, in compliance with the Finance Act
2016, which sets out details of the Group’s attitude to tax planning
and tax risk.
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 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, PricewaterhouseCoopers 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,
PricewaterhouseCoopers 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,
PricewaterhouseCoopers 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 assumed full
responsibility at the conclusion of the 2019 audit.
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
PricewaterhouseCoopers LLP for audit and audit-related assurance
services in 2021 are set out on page 137. The audit-related
assurance services provided during the year were in relation to the
Half-Year Report (£35,000) and the sustainability measure which
was introduced into the Company’s banking facility (£16,000).
Prior to recommending the appointment of PricewaterhouseCoopers
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:
• an assessment of the lead audit partner and the audit team,
including their responses to questions from the Committee;
• a review of the audit approach, scope, determination of
significant risk areas and materiality;
• the execution of the audit, including the increased use of
technology, and the audit findings reported;
• input from, and interaction with, management and
communication with, and support to, the Committee;
• the quality of any recommendation points; and
• a review of independence, objectivity, scepticism and their ability
to challenge.
Based on this review, the Committee concluded that the
external audit process had been run efficiently and that
PricewaterhouseCoopers 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
reappointment of PricewaterhouseCoopers LLP as auditor until
the AGM in 2023.
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.
Frank Nelson
Chair of the Audit and Risk Committee
17 March 2022
90
Eurocell plc Annual Report and Accounts 2021
DIRECTORS’ REMUNERATION REPORT
Strategic Report
Corporate
Governance
Chair
Members
Martyn Coffey
Dear Shareholder,
Bob Lawson
Frank Nelson
Sucheta Govil
I am pleased to report to you on the main activities of the
Committee and how it has performed its duties during 2021.
As described elsewhere in this Annual Report, the business
has made a strong recovery from the COVID-19 pandemic.
Performance in 2021 has benefited from the continued successful
deployment of the Group’s strategy and the decisive actions taken
in response to new challenges arising during the year, including
supply chain disruption, major cost inflation and tight labour
markets.
This has resulted in a strong financial performance for 2021, with
sales, profit before tax and cash generated from operations all
well ahead of pre-pandemic levels. It is in this context that the
Committee has assessed 2021 bonus outcomes, and approved
new basic salary levels, awards and targets.
During the year, the Committee reviewed the Directors’
Remuneration Policy, given that we have reached the end of its
3-year shareholder approved policy period. The proposed new
policy, details of which are included later in this report, will be
subject to shareholder vote at the 2022 AGM, in addition to the
advisory shareholder vote on the Annual Report on Remuneration,
and I look forward to a continued strong level of shareholder
support in this regard.
Finally, I would like to thank my fellow Committee members,
all of whom have served throughout the year, for their valuable
contribution and support.
Martyn Coffey
Chair of the Remuneration Committee
17 March 2022
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
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.
Summary of activities during the year
The Committee met three times during 2021. 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 2020 annual bonus awards;
• agreeing Executive Director and senior management base
salaries from 1 April 2021;
• setting the performance targets for the 2021 annual
bonus;
• agreeing the award levels and appropriate targets for the
2021 Performance Share Plan (‘PSP’) awards;
• overseeing the operation of the Group’s Save as You Earn
scheme;
• reviewing the Committee terms of reference; and
• undertaking a review of the Directors’ Remuneration
Policy.
Eurocell plc Annual Report and Accounts 2021
91
FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
Implementation of the Remuneration Policy for 2022
The Remuneration Committee intends to operate the Remuneration
Policy for 2022 as follows:
Base salaries
Salary levels are positioned to reflect performance, experience and
responsibility. Mark Kelly’s and Michael Scott’s current base salaries
are £403,103 and £257,538 respectively.
The Committees believe that, in order to better reflect experience
and responsibility, it is appropriate to increase the base salaries
of the Executive Directors at a rate above the rate of increase for
the wider workforce. In doing so, the Committee notes that the
resulting base salaries still remain below the median level seen in
similar sized FTSE SmallCap companies.
With effect from 1 April 2022, the salaries will therefore be
increased by 7.5% to £433,336 and £276,853 respectively.
Pensions/benefits
A defined contribution/salary supplement of 10% of salary will be
offered to the current Executive Directors, together with a standard
suite of other benefits. The pension level will be aligned to the wider
workforce from 1 January 2023.
Annual bonus
The maximum annual bonus remains at 100% of salary. For 2022,
70% of the bonus will be based on adjusted profit before tax and
30% will be based on adjusted 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 2022. Award levels
will be set at 150% of salary for Mark Kelly and Michael Scott.
Performance targets will be based on earnings per share (two-
thirds of the award) and return on capital employed improvement
(one-third) in the third year of the performance period.
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.
Outcome for 2021
Reflecting the strong financial performance described above,
sales for the year of £343.1 million were 33% up on 2020 and
23% above 2019, with adjusted profit before tax of £27.0 million,
compared to £8.5 million in 2020 and £22.7 million in 2019.
Cash generated from operations for the year was £33.1 million,
which included the significant adverse impact of major cost inflation
on working capital of approximately £8 million. Cash generated
from operations was £33.9 million in 2020 and £29.0 million in
2019.
As a result of this strong performance, the outturn for the Annual
Bonus Plan results in a maximum achievement of 100% of salary
for the profit before tax element, and an achievement of 100% for
the cash flow element. After the appropriate weightings are applied,
this provides an overall pay-out of 100% of salary being awarded to
the Executive Directors in respect of 2021, further details of which
can be found on page 103 of this report.
As in previous years, annual PSP awards were made during the
year, with targets based on earnings per share and return on capital
employed, and further details can be found on page 104.
The PSP awards originally granted in 2019 are expected to lapse in
2022 as a result of earnings per share and cash flow performance
in the three years to 31 December 2021 being below the required
vesting threshold.
Proposed changes to the Remuneration Policy
In conjunction with our external remuneration consultants, a
detailed review of the Remuneration Policy was performed by the
Committee during the year. This process involved reviewing the
current policy against the business strategy, pay and conditions
in the wider Group and market practices. In addition, potential
conflicts of interest were considered in line with the requirements of
the Companies Act 2006.
The Committee’s conclusions were that the main features of the
current policy, originally set and approved by shareholders at the
2019 AGM, continue to remain appropriate for Eurocell. As such,
the Committee is only proposing minor updates in respect of recent
developments in governance and to ensure the policy is not out
of line with that of similarly sized FTSE SmallCap companies. No
increases to variable pay levels are proposed.
The proposed changes to Eurocell’s Remuneration Policy are as
follows:
• Pension contributions for the incumbent Executive Directors are
being reduced to 10% of salary to be aligned with those with the
highest rate below the Board level, and then further reduced to
be aligned with the workforce rate from 1 January 2023, in line
with the Investment Association’s guidance.
• Remuneration Committee ability to adjust the formulaic PSP
outturn has been incorporated (this ability was already in place
for the annual bonus);
• A post-cessation share ownership guideline is being introduced.
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Eurocell plc Annual Report and Accounts 2021
Remuneration Policy links to strategy
The Group’s strategy has seven key priorities, as set out on pages
16 and 17, established 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.
Reflecting the strategic emphasis on profitability, short-term
performance is incentivised with an annual bonus scheme which is
based on the key Company financial objectives of profit before tax
and operating cash flow. Together, these performance conditions
ensure that the Executive Directors are focused on driving
increased profitable growth but not at the expense of its quality
and sustainability.
The importance of health and safety in operations is also reflected
by the associated underpin that can reduce the bonus pay-out,
demonstrating the Group’s commitment to employee wellbeing and
the need to ensure that growth and profitability are not achieved
in a way that is detrimental to the employees nor in a way that
promotes short-term, high-risk behaviour.
Long-term performance is incentivised with a performance share
plan (‘PSP’), which is based on the achievement of demanding
earnings per share and return on capital employed targets. These
performance conditions ensure that the Executive Directors are
focused on driving increased profitable growth, as noted above,
as well as ensuring that capital is appropriately invested to provide
sustainable returns to shareholders over the longer-term.
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
the Remuneration Policy for which shareholder approval will be
sought at the 2022 AGM, given that Eurocell has reached the
end of its 3-year shareholder approved policy period.
• 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 2021 and
how the policy will be operated for 2022.
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.
Strategic Report
Corporate
Governance
Part A: Directors’ Remuneration Policy
Policy scope
The Policy applies to the Chairman, Executive Directors and Non-
executive Directors.
Policy duration
The new Directors’ Remuneration Policy will be put to a binding
shareholder vote at the 2022 AGM and, subject to receiving
majority shareholder support, the policy will apply from the date of
approval for a maximum of 3 years.
Changes from the 2019 Remuneration Policy
In devising the new Directors’ Remuneration Policy, the Committee
undertook a review of the existing policy and determined that it,
as approved by 99.4% of shareholders at the 2019 AGM, remains
aligned with the Group’s remuneration principles.
The minor amendments to the policy are primarily driven
by emerging requirements under the Code and regulatory
remuneration reporting, which the Committee continues to monitor.
The main changes from the 2019 Remuneration Policy are
summarised below:
• Incumbent Executive Directors will receive a pension
contribution of 10% of salary through to the end of 2022 in
line with those with the highest available rate below the Board
level, and then will be aligned to the rate available to the wider
workforce, which is currently 5% of salary. Future Executive
Director appointments will also be offered a pension in line with
this wider workforce rate.
• Clarified the ability of the Committee to adjust the PSP formulaic
outcomes from performance conditions where appropriate.
• Application of a share ownership guideline for a 1-year period
post termination of employment.
The following table summarises the key aspects of the Directors’
Remuneration Policy:
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FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
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.
n/a
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.
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.
Benefits
To provide benefits
valued by recipients.
Pension
To provide retirement
benefits.
Base salary is normally paid monthly
in cash.
The Executive Directors can receive
a car allowance or Company car
(and fuel), 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 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
the circumstances.
The maximum employer’s
contribution (or cash supplement) is
10% of base salary.
n/a
Pension contributions for new
Executive Director appointments will
be aligned with the pension benefits
available to the wider workforce,
currently 5% of salary.
From the introduction of the new
policy, contributions are 10% of
salary for the Chief Executive Officer
and 10% of salary for the Chief
Financial Officer. These levels will be
aligned to the wider workforce from
1 January 2023.
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Strategic Report
Corporate
Governance
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,
as explained in more detail below.
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, as explained
in more detail below.
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.
The Committee also has standard
power to apply its judgement to
adjust the outcome of the PSP for
any performance measure (from
zero to any cap) should it consider
that to be appropriate.
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
Element and purpose
Policy and operation
Maximum
Performance measures
200% of base salary for all
Executive Directors.
n/a
Share ownership
guidelines
To further align the
interests of Executive
Directors with those of
shareholders.
Executive Directors are required
to retain at least 50% of the net
of tax shares which vest under
the PSP and DSP awards until
the guideline is met. Any PSP
performance vested shares subject
to a holding period and any shares
awarded in connection with annual
bonus deferral will be credited
for the purpose of the guidelines
(discounted for anticipated tax
liabilities).
From the 2022 AGM, Executive
Directors will be required to
maintain a shareholding in the
Company for a one-year period
after stepping down from that
position, being 100% of salary or
the Executive Directors’ actual
relevant shareholding at leaving this
position, if lower.
The Executive Directors’ actual
relevant shareholding will include
shares vesting under any of the
Company’s discretionary share
incentive arrangements (including
any deferred bonus shares) from
awards granted after the date the
Policy was adopted but excludes
shares acquired through purchase
and the release of shares under
share incentive plans where the
grant occurred prior to the adoption
of the Policy.
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.
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.
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Corporate
Governance
Chair and Non-executive Directors
Element and purpose
Policy and operation
Maximum
Performance measures
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.
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. Should any
assessment to tax be made on
such reimbursement, the Company
reserves the ability to settle such
liability on behalf of the Non-
executive Director.
Notes to the policy table
Performance targets
Details of the performance targets applying to annual bonus awards and PSP grants, which are set to reflect the Company’s strategic
goals and to align with shareholder’s interests, can be found in the relevant sections of the Annual Report on Remuneration.
Malus and clawback
Malus (being the forfeiture of unpaid or unvested awards) and clawback (being the ability of the Company to claim repayment of paid
amounts) provisions apply to the Annual Bonus Plan, DSP and PSP in certain circumstances (e.g. material misstatement of accounts,
miscalculation of vesting/pay-outs and conduct that would or could justify summary dismissal). Normally, clawback can operate for up to
three years following the vesting of an award.
Stating maximum amounts for the Remuneration Policy
The DRR regulations and related investor guidance encourages companies to disclose a cap within which each element of the
Directors’ Remuneration Policy will operate. Where maximum amounts for elements of remuneration have been set within the Directors’
Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration.
Travel and hospitality
While the Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate
hospitality (whether paid for by the Company or another) and business travel for Directors (and exceptionally their families) may technically
come within the applicable rules and so the Committee expressly reserves the right for the Committee to authorise such activities within
its agreed policies.
Differences between the policy on remuneration for Directors and remuneration of other employees
While the appropriate benchmarks vary by role, the Company seeks to apply the philosophy behind this policy across the Company as a
whole. Where Eurocell’s pay policy for Directors differs from its pay policies for groups of employees, this reflects the appropriate market
rate position and/or typical practice for the relevant roles. The Company takes into account pay levels, bonus opportunity and share
awards applied across the Group as a whole when setting the Executive Directors’ Remuneration Policy.
Eurocell plc Annual Report and Accounts 2021
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Committee discretions
The Committee will operate the Annual Bonus Plan, DSP and PSP according to their respective rules and the above policy table.
The Committee retains discretion, consistent with market practice, in a number of respects, in relation to the operation and administration
of these plans. These discretions include, but are not limited to, the following:
• the selection of participants;
• the timing of grant of an award/bonus opportunity;
• the timing of vesting an award/bonus opportunity;
• the size of an award/bonus opportunity subject to the maximum limits set out in the policy table;
• the determination of the extent to which performance targets are satisfied and the resultant vesting/bonus pay-outs;
• discretion required when dealing with a change of control or restructuring of the Group;
• determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends);
• the annual review of performance measures, weightings and targets from year-to-year; and
• application of malus and/or clawback provisions.
In addition, while performance measures and targets used in the Annual Bonus Plan and PSP will generally remain unaltered, if events
occur which, in the Committee’s opinion, would make a different or amended target a fairer measure of performance, such amended or
different target can be set, provided it is not materially more or less difficult to satisfy (having regard to the event in question).
Any use of these discretions would, where relevant, be explained in the Directors’ Remuneration Report and may, where appropriate and
practicable, be the subject of consultation with the Company’s major Shareholders. In addition, for the avoidance of doubt, in approving
this policy report, authority is given to the Company to honour any commitments entered into with current or former Directors under
previous policies.
The Committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.
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.
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Corporate
Governance
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 including, if
appropriate, 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
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 2021
2 February 2021
2 February 2021
1 October 2021
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 Group 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
Committee has discretion to determine an annual
bonus which may be limited to the period actually
worked.
Awards normally vest either on cessation or the
normal vesting date. The Committee can pro-rate
awards if considered appropriate.
Will receive a pro-rated award subject to the
application of the performance conditions at the end
of the normal performance period.
Committee retains standard discretions to either vary/
disapply time pro-rating or to accelerate vesting to the
earlier date of cessation (determining the performance
conditions at that time).
If a leaver is not a ‘good leaver’
Change in control
Annual bonus not generally
paid.
Committee has discretion to
determine annual bonus.
All awards will normally lapse. Awards vest on a pro rata
basis, unless the Committee
determines not to pro-rate.
All awards will normally lapse. Will receive a pro-
rated award subject to
the application of the
performance conditions at
the date of the event, unless
the Committee determines
not to pro-rate.
On death, the Annual Bonus Plan, DSP and PSP awards typically vest in full (with pro-rating also potentially applying).
Eurocell plc Annual Report and Accounts 2021
99
FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
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.
External appointments
The Company’s policy is to permit an Executive Director to serve as a non-executive director elsewhere when this does not conflict with
the individual’s duties to the Company, and where an Executive Director takes such a role they will be entitled to retain any fees which
they earn from that appointment (unless the Committee determines otherwise).
Statement of consideration of employment conditions elsewhere in the Group
Pay and employment conditions generally in the Group are taken into account when setting Executive Directors’ remuneration. The
Committee receives regular updates on overall pay and conditions in the Group, including (but not limited to) changes in base pay and
any staff bonus pools in operation, and uses this information to ensure consistency and fairness of approach throughout the Group. As
a result, the Committee did not consider it necessary to formally consult with employees in drawing up this policy or the Remuneration
Report although it is intended to develop future annual staff engagement surveys to potentially include discussion on parts of the Group’s
remuneration approach.
Statement of consideration of shareholder views
When determining executives’ remuneration, the Committee takes into account views of shareholders and best practice guidelines
issued by institutional shareholder bodies. The Committee is always open to feedback from shareholders on Remuneration Policy and
arrangements, and commits to undergoing shareholder consultation in advance of any significant changes to Remuneration Policy.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure that the
structure of the executive remuneration remains appropriate.
Illustrations of application of Remuneration Policy
The charts above aim to show how the Remuneration Policy for Executive Directors will be applied in 2022 using the assumptions in the
table below.
CEO
CFO
Share price growth
PSP
Annual bonus
Fixed pay
£1,894k
17%
£1,569k
41%
34%
£865k
19%
25%
£486k
28%
23%
100%
56%
31%
26%
2000
1800
1600
1400
1200
0
0
0
£
1000
800
600
400
200
0
£1,221k
17%
£1,013k
41%
34%
£564k
18%
25%
£321k
27%
23%
100%
57%
32%
26%
Minimum
Target
Maximum
Maximum
with share
price growth
Minimum
Target
Maximum
Maximum
with share
price growth
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
The charts above aim to show how the Remuneration Policy for Executive Directors will be applied in 2022 using the assumptions in the
table below.
Minimum
Target
Maximum
Maximum with share
price growth
• Consists of base salary, benefits and pension.
• Base salary is the salary to be paid with effect from 1 April 2022.
• Estimated value of a full year’s benefits, including car (and fuel) or car allowance, private family medical
cover, permanent health insurance and travel insurance.
• Pension measured as the cash allowance in lieu of Company contributions at 10% of salary.
Mark Kelly
Michael Scott
Base salary
Benefits
Pension
Total fixed
£433,336
£276,853
£8,903
£16,766
£43,334
£27,685
£485,573
£321,304
• 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 maximum level of vesting under the PSP.
As per the maximum but with a 50% share price growth assumption for the PSP awards.
Part B: The Annual Report on Remuneration
The Committee (unaudited)
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 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.
Eurocell plc Annual Report and Accounts 2021
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FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
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 the 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 2021 were £16,326 (excluding VAT). FIT’s fees were charged on the basis of the firm’s standard terms of business for
advice provided.
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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 2021:
Name
Mark Kelly
Michael Scott
Robert Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Salary/fees
£000
Taxable
benefits1
£000
Pension
£000
Other2
£000
Total fixed
remuneration
£000
401
256
120
48
45
40
8
17
–
–
–
–
60
38
–
–
–
–
7
5
–
–
–
–
476
316
120
48
45
40
Bonus3
£000
403
258
–
–
–
–
Long-term
incentives
£000
Total variable
remuneration
£000
Total
remuneration
£000
–
–
–
–
–
–
403
258
–
–
–
–
879
574
120
48
45
40
For the year ended 31 December 2020:
Name
Mark Kelly
Michael Scott
Robert Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Salary/fees4
£000
Taxable
benefits1
£000
Pension
£000
Other2
£000
Total fixed
remuneration
£000
Bonus
£000
Long-term
incentives
£000
Total variable
remuneration
£000
Total
remuneration
£000
380
243
116
46
44
39
29
16
–
–
–
–
57
36
–
–
–
–
–
–
–
–
–
–
466
295
116
46
44
39
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
466
295
116
46
44
39
Notes:
1 Taxable benefits comprise Company car (and fuel) or car allowance, private family medical cover, permanent health insurance and travel insurance.
2 Other comprises the buy-out of unused holiday entitlement.
3 Bonuses are calculated on the salary in operation at the end of the financial year.
4 The Directors took a 20% reduction in salary/fees, for 2 months, during the first lockdown period in 2020.
The aggregate emoluments (being salary/fees, bonuses, benefits and pension allowances) of all Directors for 2021 was £1,706,000
(2020: £1,006,000).
Further information on the 2021 annual bonus (audited)
In 2021, the annual bonus metrics were a blend of targets relating to 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 profit before tax and cash flow bonus targets were as follows:
£m
Profit before tax
Cash generated from operations
Threshold
Target
Maximum
17.5
29.1
18.4
30.6
19.8
32.9
Actual
27.0
33.1
Achievement
(% of max)
100%
100%
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 for 2021. Performance against the profit before tax element of the bonus resulted in
an achievement of 100% of that element (70% of salary). Performance against the cash flow element of the bonus resulted in an
achievement of 100% of that element (30% of salary). The health and safety underpin was also considered satisfied and no discretion has
been applied to the formulaic outcome by the Committee.
In total, this results in a total bonus pay-out of 100% of salary. Under our Directors’ Remuneration Policy, 25% of the annual bonus paid
to Mark Kelly and Michael Scott will be deferred into shares for three years from the date of grant under the DSP.
Eurocell plc Annual Report and Accounts 2021
103
FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
PSP awards vesting in respect of 2021 (audited)
The PSP values included under long-term incentives in the single figure table above (£nil) relate to awards granted in 2019 which vest
in 2022, dependent on EPS and cash flow performance measured over the 3-year period ended 31 December 2021. As noted below,
these share awards are not expected to vest, primarily reflecting the impact of COVID-19 on the financial results for 2020.
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 4% p.a. is achieved over the three-year performance period, increasing pro rata
to full vesting where mean average annual growth of 10% p.a. is achieved.
Performance target
Adjusted basic EPS (pre IFRS 16)
EPS at
31 December
2021
Average
annual EPS
growth
Base EPS
Threshold
4% p.a.
Maximum
10% p.a.
19.1p
18.8p
(0.5)%
21.4p
24.8p
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 £79.4 million, increasing pro rata to full vesting for cash
flow of £97.0 million.
Performance target
Cash flow
Threshold
Maximum
Actual
£79.4m
£97.0m
£59.3m
Vesting
%
0%
As a result of EPS and cash flow performance, no PSP share awards are expected to vest in 2022. No discretion to the formulaic
outcome has been applied by the Committee.
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 2021:
Director
Mark Kelly
Michael Scott
Robert Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Beneficially
owned
31 December
20201
Beneficially
owned
31 December
20211
Vested but
unexercised
awards
161,717
38,488
101,311
49,090
16,428
5,714
195,346
59,971
101,311
49,090
16,428
5,714
–
–
–
–
–
–
Unvested
DSP
Unvested
PSP2
–
–
–
–
–
–
713,191
455,648
–
–
–
–
Unvested
SAYE
10,465
10,465
–
–
–
–
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 2021 (audited)
The following awards were made under the PSP in 2021:
Performance target
Mark Kelly
Michael Scott
Date of grant
Basis of award
(% salary)
Share price1
Number of
shares
Face value
of award
Vesting
%
22 April 2021
22 April 2021
150%
150%
258p
258p
234,362 £604,654
149,731 £386,306
April 2024 to April 2025
April 2024 to April 2025
Notes:
1 Rounded to one decimal place for the purposes of presentation in this report.
The performance conditions applying to the awards made in April 2021 relate to: (i) adjusted Earnings per Share for two-thirds of the
award; and (ii) Group Return on Capital Employed for one-third of the award.
104
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
More specifically:
Adjusted basic EPS1 for the year ended 31 December 2023
Portion of award vesting
Above 20.2p
Between 18.6p and 20.2p
18.6p
Below 18.6p
100%
Pro rata on straight-line between 25% and 100%
25%
0%
Group ROCE2 for the year ended 31 December 2023
Portion of award vesting
Above 25.5%
Between 20.4% and 25.5%
20.4%
Below 20.4%
100%
Pro rata on straight-line between 25% and 100%
25%
0%
1 Defined as adjusted basic earnings per share as shown in the consolidated audited accounts of the Company, excluding non-underlying items, for the third financial year of the
performance period.
2 Defined as Group adjusted operating profit divided by average totals of opening and closing assets less trade and other payables (all on a pre-IFRS 16 basis), for the third
financial year of the performance period.
DSP awards granted in 2021 (audited)
No DSP awards were granted during the year.
Outstanding share plan awards (audited)
Details of all outstanding share awards made to Executive Directors are set out below:
Awards
lapsed
in the year
Awards
exercised
in the year
Interest at
31 December
2021
Exercise period
Notes
Executive
Award type
Mark Kelly
Michael Scott
PSP
PSP
PSP
PSP
DSP
DSP
SAYE
PSP
PSP
PSP
PSP
DSP
DSP
SAYE
Exercise
price
(p)
Grant date
0 18/04/18
0 24/04/19
0 17/11/20
0 22/04/21
0 18/04/18
0 09/09/20
172.0 09/04/20
0 18/04/18
0 24/04/19
0 17/11/20
0 22/04/21
0 18/04/18
0 09/09/20
172.0 09/04/20
Interest at
1 January
2021
173,549
170,247
308,582
–
33,708
26,863
10,465
110,879
108,768
197,149
–
21,535
17,162
10,465
Awards
granted
in the year
–
–
–
234,362
–
–
–
(173,549)
–
–
–
–
–
–
— (110,879)
–
—
–
—
–
149,731
–
–
–
–
–
–
–
–
–
–
(33,708)
(26,863)
Apr 21 – Apr 22
–
Apr 22 – Apr 23
170,247
308,582 Nov 23 – Nov 24
Apr 24 – Apr 25
234,362
Apr 21 – Apr 22
–
Apr 21 – Apr 22
–
Jun 23 – Nov 23
— 10,465
–
–
–
–
(21,535)
(17,162)
–
Apr 21 – Apr 22
–
108,768
Apr 22 – Apr 23
197,149 Nov 23 – Nov 24
Apr 24 – Apr 25
149,731
Apr 21 – Apr 22
–
Apr 21 – Apr 22
–
Jun 23 – Nov 23
10,465
1
2
3
4
5
6
9
1
2
3
4
7
8
9
All figures above exclude dividend equivalent shares, where applicable.
Notes:
1 See ‘PSP Awards Vesting in Respect of 2020’ section in the 2020 Directors’ Remuneration Report.
2 See ‘PSP Awards Vesting in Respect of 2021’ section above.
3 As disclosed in the 2020 Directors’ Remuneration Report.
4 See ‘PSP Awards Granted in 2021’ section above.
5 DSP awards in respect of the deferred element of the 2017 annual bonus award. On 22 April 2021, an option was exercised by Mark Kelly when the share price was 258.0p.
In accordance with the rules of the DSP, 2,880 dividend-equivalent shares were added to the original share award and therefore 36,588 shares were due to be acquired under
the option. The Company exercised its right to satisfy a proportion of the above options in cash, to cover the associated tax and national insurance liabilities. The gain made by
Mark Kelly was £94,397.
6 DSP awards in respect of the deferred element of the 2019 annual bonus award. On 22 April 2021, an option was exercised by Mark Kelly when the share price was 258.0p.
In accordance with the rules of the DSP, no dividend-equivalent shares were added to the original share award and therefore 26,863 shares were due to be acquired under the
option. The Company exercised its right to satisfy a proportion of the above options in cash, to cover the associated tax and national insurance liabilities. The gain made by
Mark Kelly was £69,307.
7 DSP awards in respect of the deferred element of the 2017 annual bonus award. On 22 April 2021, an option was exercised by Michael Scott when the share price was
258.0p. In accordance with the rules of the DSP, 1,837 dividend-equivalent shares were added to the original share award and therefore 23,372 shares were due to be
acquired under the option. The Company exercised its right to satisfy a proportion of the above options in cash, to cover the associated tax and national insurance liabilities.
The gain made by Michael Scott was £60,300.
8 DSP awards in respect of the deferred element of the 2019 annual bonus award. On 22 April 2021, an option was exercised by Michael Scott when the share price was
258.0p. In accordance with the rules of the DSP, no dividend-equivalent shares were added to the original share award and therefore 17,162 shares were due to be acquired
under the option. The Company exercised its right to satisfy a proportion of the above options in cash, to cover the associated tax and national insurance liabilities. The gain
made by Michael Scott was £44,278.
9 Awards granted under the Eurocell plc Save As You Earn Scheme in 2020. Awards are based on a 3-year savings contract with an exercise price of 172.0p.
Eurocell plc Annual Report and Accounts 2021
105
FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
During the year ended 31 December 2021, the highest mid-market price of the Company’s shares was 288.0p and the lowest mid-
market price was 208.0p. At 31 December 2021 the share price was 241.0p.
The aggregate gains by all Directors during 2021 was £268,282 (2020: £142,791).
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.
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 2021, 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 (unaudited)
200
150
100
3 Mar
2015
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
31 Dec
2021
Eurocell
FTSE SmallCap
Source: Datastream
The table below details certain elements of the CEO’s remuneration over the same period as presented in the TSR Index graph:
Year
CEO
Single figure of total
remuneration
Annual bonus pay-out
against maximum %
Long-term incentive vesting rates
against maximum opportunity %
Year-on-year change in
CEO remuneration %
Year-on-year change in
employee remuneration %1
2021
2020
2019
2018
2017
2016
Mark Kelly
Mark Kelly
Mark Kelly
Mark Kelly
Mark Kelly
Mark Kelly
Patrick Bateman
£879,271
£465,945
£673,262
£459,294
£916,442
£560,558
£284,457
2015
Patrick Bateman
£637,098
100%
0%
49%
0%
40%
80%
33%
87%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
89%
(31)%
47%
(50)%
8%
33%
n/a
10%
2%
2%
2%
2%
2%
n/a
As the Company listed in March 2015, part of the 2015 remuneration relates to when Eurocell was a privately owned Company.
Notes:
1 Based on all Group employees in order to provide a more meaningful comparison (Eurocell plc employees comprise the Executive and Non-Executive directors only).
106
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
Annual change in remuneration of each director compared to employees (unaudited)
The table below presents the year-on-year percentage change in remuneration for each Director and for all Group employees:
Mark Kelly
Michael Scott
Robert Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
All employees
Salary/fee increase/decrease1
%
Annual bonus increase/decrease
%
Taxable benefits increase/decrease
%
5%
5%
3%
3%
3%
3%
6%
n/a2
n/a2
n/a
n/a
n/a
n/a
232%
(73)%
2%
n/a
n/a
n/a
n/a
0%
Notes:
1 All the Directors took a 20% reduction in salary/fees, for 2 months, during the first lockdown period in 2020.
2 Percentage increase is not available due to 2020 bonuses being £nil.
CEO to employee pay ratio (unaudited)
The table below shows the CEO to employee pay ratio.
Year
2021
2020
2019
Method
Option B
Option B
Option B
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
42 : 1
23 : 1
34 : 1
33 : 1
19 : 1
27 : 1
27 : 1
15 : 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 of
5 April 2021.
4 FTE equivalent pay has been calculated using the gender pay gap reporting methodology.
5 The Chief Executive Officer’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
2021
Salary £000
Total pay and benefits £000
25th percentile
Median
75th percentile
25th percentile
Median
75th percentile
21
25
32
21
27
32
Based on the salary profile of the Group’s UK employees, the median pay ratio is consistent with the pay, reward and progression policies
of the Group as a whole.
Relative importance of spend on pay (unaudited)
The table below details the change in total employee pay between 2020 and 2021 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
% change
35%
n/a
2021
£m
81.9
3.6
2020
£m
60.7
nil
Staff costs in 2020 are stated net of Coronavirus Job Retention Scheme income amounting to £6.5 million.
The average number of employees during the year was 2,143 (2020: 1,945).
Eurocell plc Annual Report and Accounts 2021
107
FinancialStatements DIRECTORS’ REMUNERATION REPORT CONTINUED
Statement of voting at the Annual General Meeting (unaudited)
The following table shows the results of the binding Remuneration Policy vote at the 10 May 2019 AGM and the advisory Directors’
Remuneration Report vote at the 13 May 2021 AGM.
For (including discretionary)
Against
Votes withheld
(Binding Vote – 10 May 2019)
Approval of the Directors’ Remuneration Policy
(Advisory Vote – 13 May 2021)
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%
–
95,287,108
226
–
100%
0%
–
Implementation of policy for 2022 (unaudited)
Base salary
• Base salaries from 1 April 2021 were as follows: £403,103 for Mark Kelly, and £257,538 for Michael Scott. With effect from 1 April
2022, these salaries will be increased by 7.5% to £433,336 and £276,853 respectively. The salary increase reflects the individuals’
performance in their respective roles and the resulting salaries remain below the median for similar sized companies.
Pension
• Contribution rates for Executive Directors will be initially 15% of salary in 2022 and then reducing to 10% following the adoption of the
new policy. These rates will be aligned with the general workforce rate from 1 January 2023.
Benefits
• Details of the benefits received by Executive Directors are set out in Note 1 to the Single Total Figure Table on page 103. There is no
intention to introduce additional benefits in 2022.
Annual bonus
• The annual bonus opportunity for 2022 will be structured in a similar manner to 2021. 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 will be set in light of internal and external forecasts and will require 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 2022 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
2022 bonus outturn.
Long-term incentives
• Awards will be made under the PSP in 2022 to the Executive Directors structured in a similar manner to the awards made in 2021,
in that awards will be made which will vest subject to three-year earnings per share (two-thirds of the award) and return on capital
employed (one-third) targets.
• Full details of these targets will be disclosed in next year’s report, with these targets no less challenging in relative terms than the
targets applied to the 2021 PSP awards.
Chair and Non-executive Directors’ fees
• The fees for the Chair and Non-executive Directors have not changed since the IPO in 2015 and, following a benchmarking exercise,
are to be increased from 1 April 2022 in order to align with similar sized listed companies.
• The fees for the Chair will increase to £141,000 p.a. and the base fees for Non-executive Directors will increase to £48,000 p.a.
• Additional fees for the Chair of the Audit Committee and Chair of the Remuneration Committee will increase to £8,000 p.a. and the
additional fee for the Senior Independent Director will increase to £8,000 p.a.
By Order of the Board
Martyn Coffey
Chair of the Remuneration Committee
17 March 2022
108
Eurocell plc Annual Report and Accounts 2021
DIRECTORS’ REPORT
Strategic Report
Corporate
Governance
The Directors present their audited consolidated financial
statements for the year ended 31 December 2021. Eurocell plc
(‘the Company’) is a company incorporated and domiciled in
the UK, with registration number 08654028, and is the holding
company of the Eurocell Group of companies (‘the Group’). All
of the Group’s activities are within the United Kingdom, with the
exception of two overseas branches in the Republic of Ireland.
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.
The shares of the Company have been traded on the main
market of the London Stock Exchange throughout the year ended
31 December 2021.
The Directors’ Report includes the Corporate Governance
Statement set out on pages 72 to 82.
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 68 and 69 and
were in place on the date this Directors’ Report was approved, all
of whom served throughout the year and up to the date of signing
the Financial Statements, with no changes in the intervening period.
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 1
to 69. 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 72 to 82, which is incorporated herein by reference.
Results
Our Financial Statements for the year ended 31 December 2021
are set out on pages 122 to 163. The Financial Statements should
be read in conjunction with the Chief Executive Officer’s Report,
Divisional Reviews and the Chief Financial Officer’s Report.
Dividends
The Board is recommending a final dividend of 6.4 pence (2020: nil
pence) per share for 2021 which, together with the interim dividend
of 3.2 pence (2020: nil pence) per share, makes a combined
dividend of 9.6 pence (2020: nil pence) per share.
Payment of the final dividend, if approved at the Annual General
Meeting (‘AGM’), will be made on 18 May 2022 to Shareholders
registered at the close of business on 22 April 2022. The ex-
dividend date will be 21 April 2022.
Dividends paid in the year to 31 December 2021 and disclosed in
the Consolidated Cash Flow Statement of £3.6 million (2020: £nil),
is comprised exclusively of the 2021 interim dividend of
3.2 pence per share which was paid in October 2021.
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 of tax affairs
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.
Eurocell plc Annual Report and Accounts 2021
109
FinancialStatements DIRECTORS’ REPORT CONTINUED
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 2021, we had 111,972,477 (2020: 111,486,709)
ordinary shares of 0.1 pence each in nominal value in issue (the
‘issued share capital’). Details of the shares issued in the year are
shown in Note 25 to the Consolidated Financial Statements.
Holders of ordinary shares are entitled to receive dividends when
declared, to receive the Company’s Annual Report, to attend and
speak at general meetings of the Company, to appoint proxies and
to exercise voting rights.
Whilst the Board has the power under the Articles of Association to
refuse to register a transfer of shares, there are no such restrictions
on the transfer of shares in place.
Under the Company’s Articles of Association, the Directors
have 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
may have a proportion of their annual bonus deferred for up to
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 30 to the
Financial Statements and in relation to the employment of Directors,
details of which are provided in the Remuneration Committee
Report on pages 91 to 108, 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.
110
Eurocell plc Annual Report and Accounts 2021
Substantial shareholders
As at 31 December 2021, the Company’s major shareholders were
as follows:
Shareholder
No. of Shares
% of voting rights
Soros Fund Management
Alantra Asset Management
Aberforth Partners
18,337,234
15,188,715
14,977,666
JO Hambro Capital Management
9,683,055
AXA Framlington Investment
Managers
7,480,435
Schroder Investment Management
6,546,157
Chelverton Asset Management
5,137,685
Columbia Threadneedle Investments
5,020,929
Premier Miton Investors
Janus Henderson Investors
3,633,000
3,375,404
Royal London Asset Management
3,365,000
16.4
13.6
13.4
8.7
6.7
5.9
4.6
4.5
3.2
3.0
3.0
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 2022
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
Strategic Report
Corporate
Governance
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.
There are no specific company rules in relation to the appointment/
replacement of Directors and all such matters are managed by the
Board in accordance with the Articles of Association, the Companies
Act 2006 and any directions given by special resolution.
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 91 to
108. No change in the interests of the Directors has been notified
between 31 December 2021 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 2021
and remain in force. The indemnity provision in the Company’s
Articles of Association also extends to provide a limited indemnity in
respect of liabilities incurred as a director, secretary or officer of an
associated company of the Company.
A copy of the deed poll of indemnity is available for inspection at
the Company’s registered office during normal business hours and
will be available for inspection at the Company’s AGM.
Conflicts of interest
Under the Companies Act 2006, Directors must avoid situations
where they have, or could have, a direct or indirect interest that
conflicts or possibly may conflict with the Company’s interests. As
permitted by the Act, the Company’s Articles of Association enable
Directors to authorise actual or potential conflicts of interest.
Legal and regulatory compliance
The executive team is responsible for identifying and carrying out
assessments of those areas of the business where material legal
and regulatory risks may be present. Where issues are identified,
mitigating actions are built into an action plan involving the drafting
and communication of policies and the delivery of training where
appropriate, or are approached by way of a revision to key
contractual terms. The Board receives regular reports on material
litigation and the legal action taken to support our strategy.
Health and safety
We are committed to providing a safe place for employees to work.
Our policies are reviewed on an ongoing basis to ensure that the
approach to training, risk assessment, safe systems of working and
accident management is 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.
Events after the balance sheet date
The Directors are not aware of any material events that have
occurred after 31 December 2021 which would require disclosure.
Other matters
Employee disclosure (including equality, diversity and
disabled employees)
See Responsible Business section on pages 32 to 53.
Employee engagement statement
See Corporate Governance Statement on pages 72 to 82.
Statement on engagement with suppliers, customers and
others in a business relationship with the Company
See Corporate Governance Statement on pages 72 to 82.
Financial risk management
See Note 3 of the Financial Statements.
Research and development
The Group undertakes research and development work in support
of its objectives. Further details of our research and development
activities can be found in the Strategic Report on pages 1 to 67.
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.
Political donations
In accordance with the Group’s policy, no political donations were
made and no political expenditure was incurred during 2021
(2020: £nil).
Greenhouse gas emissions and energy use
See Responsible Business section on page 43.
Disclosure of information to auditors
See the Directors’ confirmations on page 112.
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
17 March 2022
Eurocell plc Annual Report and Accounts 2021
111
FinancialStatements STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
Directors’ confirmations
The Directors consider that the Annual Report and Accounts
2021 and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group’s and Company’s position and
performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the
Corporate Governance Report confirm that, to the best of their
knowledge:
• the Group Financial Statements, which have been prepared
in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
• the Company Financial Statements, which have been prepared
in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets,
liabilities and financial position of the Company; and
• the Strategic 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’s 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’s and Company’s
auditors are aware of that information.
The Directors’ Responsibility Statement was approved by the
Board on 17 March 2022.
Mark Kelly
Chief Executive Officer
Michael Scott
Chief Financial Officer
The Directors are responsible for preparing the Annual Report and
Accounts 2021 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
UK-adopted international accounting standards and the 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, 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 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 UK-adopted international accounting
standards 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 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 also responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s 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.
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.
112
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF EUROCELL PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
• 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 2021 and of the Group’s profit and the Group’s cash flows
for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with UK-adopted international accounting standards;
• 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 applicable law); and
• the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial Statements, included within the Annual Report and Accounts 2021 (the ‘Annual Report’), which comprise:
the Consolidated Statement of Financial Position and the Company Statement of Financial Position as at 31 December 2021; the
Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes
in Equity and the Company Statement of Changes in Equity for the year then ended; and the 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.
BASIS FOR OPINION
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 of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
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 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 provided.
Other than those disclosed in Note 5, we have provided no non-audit services to the Company or its controlled undertakings in the period
under audit.
OUR AUDIT APPROACH
Overview
Audit scope
• A component was considered to be a company or division where discrete financial data was prepared. Financially significant
components were determined to be those which contributed more than 15% of the underlying profit before tax (measured on an
absolute basis).
• For components that were not financially significant audit work was performed over specific Financial Statement Line Items (‘FSLI’s’)
if they contributed more than 5% of the consolidated FSLI and were above Group performance materiality. For all other balances/
components disaggregated analytical review procedures were performed to Group materiality.
• Work on the consolidation was considered separately to the component scoping exercise and performed to Group materiality.
• All work was performed by the Group audit team.
• As disclosed within the TCFD disclosures on page 36 to 45, management have considered the impact of climate change. Given the
headroom noted on the impairment assessments as disclosed in Note 17 we have considered this assessment and our wider risk
assessment and concluded that there were no other material impacts on the audit.
Key audit matters
• Trade receivables provisions (Group).
• Assessment of the valuation of inventory (Group).
• Impairment to intercompany investments and intercompany receivables (Parent).
Materiality
• Overall Group materiality: £1,350,000 (2020: £891,000) based on 5% of underlying profit before taxation (2020: 5% of the average
underlying profit before taxation for the past three years).
• Overall Company materiality: £602,000 (2020: £647,000) based on 1% of total assets.
• Performance materiality: £1,000,000 (2020: £668,000) (Group) and £451,000 (2020: £485,000) (Company).
Eurocell plc Annual Report and Accounts 2021
113
FinancialStatements INDEPENDENT AUDITORS’ REPORT CONTINUED
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.
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.
Impairment of assets at a Cash Generating Unit (‘CGU’) level (Group) and COVID-19 (Group and Parent), which were key audit matters
last year, are no longer included because of the level of headroom available in the goodwill impairment assessment and the absence of
other specific impairment triggers for the impairment of assets at a CGU level. The COVID-19 key audit matter has been removed as the
impact of COVID-19 has been considered as part of our normal risk assessment and no heightened areas of risk were identified in the
current year. Otherwise, the key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Trade receivables provisions (Group)
Refer to pages 58 to 65 (Risk management and Principal risks and
uncertainties), pages 86 to 90 (Audit and Risk Committee Report),
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 £41.3 million at 31
December 2021 (2020: £38.6 million) against which provisions of
£2.6 million (2020: £4.4 million) were held in accordance with IFRS
9. We focused on this area, and specifically the valuation assertion,
because the Directors’ assessment of the provisions required
in respect of trade receivables included complex and subjective
judgements. These increased in complexity in the prior year due
to the uncertain economic environment, which has continued into
2021.
We understood the Directors’ methodology for calculating trade
receivables provisions across the Group and considered if these
complied with IFRS 9. Audit procedures performed included:
• We confirmed that the amounts included in the IFRS 9 model
agreed back to the underlying ledgers as at 31 December 2021;
• We tested the ageing of amounts due at the balance sheet date
to verify the data had been analysed correctly;
• We tested the accuracy of the calculations in the model;
• We reviewed the accuracy of past management estimates;
• We considered the results of our other audit procedures
over trade receivables (for example review of post year end
payments made by customers) for inconsistencies with the
IFRS 9 models; and
• We challenged management over the expected credit loss
percentage applied to each category.
We identified no material exceptions from the procedures noted
above. Based on the results of our audit work we concluded that
the provisions recorded were materially accurate, calculated in line
with the requirements of IFRS 9 and that appropriate disclosures
have been made.
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Eurocell plc Annual Report and Accounts 2021
Assessment of the valuation of inventory (Group)
Refer to pages 58 to 65 (Risk management and Principal risks and
uncertainties), pages 86 to 90 (Audit and Risk Committee Report),
Note 1 (Accounting Policies), Note 2 (Critical Accounting Estimates
and Judgements) and Note 18 (Inventories). Inventory totalled
£55.9 million as at 31 December 2021 (2020: £38.1 million) after
provisions of £4.9 million (2020: £4.2 million). We focused on
this area because the Directors’ assessment of the absorption
of labour and overhead costs into inventory and the assessment
of the recoverability of inventory involved 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, during the year there has been significant raw materials
cost price inflation leading to a risk that inventory may not be held
at the lower of cost and net realisable value.
Impairment to intercompany investments and intercompany
receivables (Parent)
Refer to Note 34 (Accounting Policies), Note 35 (Critical
Accounting Estimates and Judgements), Note 37 (Investments)
and Note 38 (Trade and other receivables). The Company has
investments in subsidiary companies of £17.8 million (2020:
£17.8 million) and intercompany receivables of £41.6 million
(2020: £46.2 million). Material impairment to these could result
in implications for future dividends.
Strategic Report
Corporate
Governance
Our audit procedures over the valuation of inventory consisted of:
• 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’);
• We tested, on a non-statistical sampling basis, the valuation
and calculation of costs absorbed into inventory;
• We re-performed the valuations of inventory on a non-statistical
sampling basis; and
• We challenged management over the costs included within
inventory, the setting of the standard costs and the accounting
for variances.
Our audit procedures over the impairment of inventory consisted of:
• 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. We evaluated the Directors’ assumptions
over future forecast usage and validated historic usage and
compared this to forecasted future sales;
• 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 a sample of inventory held as at 31 December
2021 and verified that sales recorded in 2022 were made above
cost; and
• Where specific impairments were made, outside of the
standard impairment reviews, we challenged management
of the completeness and appropriateness of these additional
amounts.
Based on the results of our audit work, we concluded that the
inventory recognised by the Directors was at an appropriate value
and was consistent with the requirements of IAS 2. Appropriate
disclosures regarding the above have also been made.
We obtained management’s impairment assessment regarding the
investment’s carrying value and management’s IFRS 9 expected
credit loss model in respect of the intercompany receivables.
The recoverability of the investment’s carrying value was based
upon the same underlying data noted in other Group calculations
such as the going concern assessment and goodwill impairment
model. We also noted that the market capitalisation of the Group
was c.£269 million as at 31 December 2021 which is significantly
in excess of the Parent Company’s total assets. We considered
the IFRS 9 model and noted that a significant change in the key
assumption (being the expected loss rate of 0.1%) would be
required prior to a material impairment being noted. The amounts
owed to the Company were due from profitable subsidiaries,
with sufficient net assets. We tested the integrity of the models
and the validity of the key data inputs. No exceptions were
noted in the performance of the above procedures. We therefore
concluded that the investments and intercompany receivables
were accounted for in line with IFRS 9 and IAS 36, with appropriate
disclosures being made.
Eurocell plc Annual Report and Accounts 2021
115
FinancialStatements
INDEPENDENT AUDITORS’ REPORT CONTINUED
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 and 2 in Ireland to generally
smaller scale customers. This segment includes the trading subsidiary companies Eurocell Building Plastics Limited and Security
Hardware 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.
Other than Vista Panels Limited, which has its own finance team, all finance and operational management functions are located at the
Alfreton headquarters. Therefore all audit work, including work on components, was completed by a single Group audit team.
For the purposes of our audit of the Group we considered components to be operations where there was discrete financial data
maintained by management, including a separate trial balance. For the consolidated audit of Eurocell plc this related to the individual
subsidiary companies, with Eurocell Profiles Limited the statutory entity, being seen as two components (as S&S Plastics is now a division
within Eurocell Profiles Limited but this component is out of scope).
A component was included within our full scope audit procedures, and considered to be a financially significant component, if it
represented 15% or more of the reported underlying profit before taxation, measured on an absolute basis (as some entities act as
cost centres then all results of components were added together and then if a component represented 15% or more of this total it was
included as a financially significant component). There were three financially significant components (Eurocell Profiles Limited, excluding
the S&S plastics division, Eurocell Building Plastics Limited and Vista Panels Limited). Vista Panels Limited met the criteria to be classified
as a financially significant component for the first time this year end. These components represented 96% of the reported consolidated
revenues and 84% of the reported consolidated underlying profit before taxation on an absolute basis.
We then considered the remaining components to ascertain if further procedures would be required. Where these had an individual
Financial Statement Line Item (‘FSLI’) that represented more than 5% of the consolidated FSLI and was individually above Group planning
materiality we included that specific FSLI within our scope of testing and performed audit procedures over this FSLI to Group materiality.
Due to the relative size of the acquisitions between 2015 and 2019 a number of additional FSLIs were included as a result of the above
assessment. For all other balances not considered for detailed testing, analytical review procedures were performed, to Group materiality.
There were no specific components or areas included within our Group audit scope due to specific risk factors.
Work was performed over the consolidation adjustments separately to the above scoping of components, due to the relative simplicity
of the Group and the nature of the consolidation (performed by the Head Office Finance function with mainly UK operations). This was
performed using Group materiality.
For the Eurocell plc Company audit the only material transactions and balances related to the intercompany investments (including
amounts owed by subsidiary companies) the debt held by the Company and the related operating expenses and tax charges, and the
share-based payment charge. These were all included in the scope of our audit and tested using the Company materiality by the Group
audit team.
As disclosed within the Task Force on Climate-related Financial Disclosures (‘TCFD’) on page 36 to 45, management have considered the
impact of climate change. Given the headroom noted on the impairment assessments as disclosed in Note 17 we have considered this
assessment and our wider risk assessment and concluded that there were no other material impacts on the audit.
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Strategic Report
Corporate
Governance
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 FSLIs 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
Rationale for benchmark applied
Financial statements – Group
Financial statements – Company
£1,350,000 (2020: £891,000).
£602,000 (2020: £647,000).
5% of underlying profit before taxation
(2020: 5% of the average underlying profit
before taxation for the past three years)
We believe that underlying profit before tax is
the key measure used by the shareholders in
assessing the performance of the Group, and
is a generally accepted auditing benchmark. In
2021 underlying profit before tax is the same as
reported profit before tax.
1% of total assets (2020: 1% of total assets)
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 £124,000 and £1,282,500. Certain components were audited to a local
statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £1,000,000 (2020: £668,000) for the Group
Financial Statements and £451,000 (2020: £485,000) for the Company Financial Statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £67,000
(group audit) (2020: £44,500) and £30,000 (company audit) (2020: £30,000) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
• Discussions with management and those charged with governance regarding the future plans and cash flow projections for the
Group. This included discussions around the forecast cash requirements and sufficiency of available facilities to deal with a severe but
plausible downside to these projections;
• We obtained management’s analysis and cash flow model. We checked this for consistency (i.e. the integrity of the model) and that
the base projections agreed to the approved budgets and were consistent with our work in other areas, for example the projections
were consistent with those used for the impairment reviews;
• We considered the accuracy of management’s forecasting in prior years by comparing actual to forecast cash flows in the past four
years (i.e. the period for which the senior management team has remained materially unchanged);
• We discussed with management the basis of the ‘base case’ and what factors had been considered in their downside ‘sensitised case’.
• We recalculated management’s assessment of the impact of these scenarios on the forecasted compliance with financial covenants
and sufficiency of facilities/available cash;
• We considered the reported headroom on facilities at each month end for the review period (i.e. until 31 December 2023);
• We challenged management around which scenarios would be required prior to the covenant facilities being breached or available
facilities being breached and considered if these were plausible or possible. This included performing our own sensitivities to ascertain
the levels of underperformance required to breach;
Eurocell plc Annual Report and Accounts 2021
117
FinancialStatements INDEPENDENT AUDITORS’ REPORT CONTINUED
• We reviewed the debt facilities to ascertain if management had correctly factored in financial covenants to their model, including that
covenants were appropriately calculated at each measurement point, and expected to be met during the assessment period (i.e. until
31 December 2023);
• We audited management’s compliance with the covenants during 2021;
• We critically assessed the disclosures in relation to going concern compared to the evidence obtained above, our understanding of the
Group and the various requirements detailed within Company Law, the Listing Rules and accounting standards; and
• For the Eurocell plc Company going concern assessment we have reviewed management’s analysis of the Company cash flows,
checked for consistency with the consolidated model (including the mathematical accuracy of the model), reviewed the committed
cash outflows compared to the available funds (being cash reserves and forecast dividend receipts from subsidiaries), considered the
sufficiency of management’s assessment of headroom and critically assessed the disclosures in Note 34. No issues were noted arising
from these procedures.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least
twelve months from when the Financial Statements are authorised for issue.
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the Financial Statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the
company’s ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of
this report.
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, which includes reporting based on the Task Force on Climate-related
Disclosures (‘TCFD’) recommendations. 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 our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
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 2021 is consistent with the Financial Statements and has been prepared in accordance with
applicable legal requirements.
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.
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.
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the Corporate Governance Statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
• The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The Directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the Financial Statements;
• The Directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and
why the period is appropriate; and
• The Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and
only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with
the Financial Statements and our knowledge and understanding of the Group and Company and their environment obtained in the course
of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit:
• The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides
the information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit and Risk Committee.
We have nothing to report in respect of our responsibility to report when 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.
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, 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.
Eurocell plc Annual Report and Accounts 2021
119
FinancialStatements INDEPENDENT AUDITORS’ REPORT CONTINUED
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to UK tax legislation and UK employment laws and regulations, both indirectly and could have a direct impact, 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 Financial Statement such as the Companies Act 2006 and the listing rules. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the Financial Statement (including the risk of override of
controls), and determined that the principal risks were related to posting inappropriate journal entries to revenue, expenses or cash and
management bias in accounting estimates and judgemental areas of the Financial Statement. The Group engagement team shared this
risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their
work. Audit procedures performed by the Group engagement team and/or component auditors included:
• Enquiry of management and those charged with governance around actual and potential frauds, litigations or claims against or by the
company;
• Reviewing Financial Statement disclosures and testing supporting documentation to assess compliance with applicable laws and
regulations;
• Auditing the risk of management override of controls, through testing journal entries (using our data analysis tools to confirm
completeness of data) by adopting a risk based approach for appropriateness, testing significant accounting estimates (as defined in
the notes to the Financial Statements) because of the risk of potential management bias, and evaluating the business rationale and
accounting for any significant or unusual transactions outside the normal course of business;
• Auditing the risk of fraud in revenue recognition by using our data analysis tools to identify unusual credits to revenue for further
investigation;
• Performing unpredictable audit procedures, which are changed year-on-year;
• Understanding of management’s internal controls designed to prevent and detect irregularities; and
• Reviewing minutes of meetings of the Board of Directors.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the Financial Statements.
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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will
often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the sample is selected.
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.
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Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
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 obtained 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 7 years, covering the years ended 31 December 2015 to 31 December 2021.
OTHER MATTER
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over
whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS.
Christopher Hibbs (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
17 March 2022
Eurocell plc Annual Report and Accounts 2021
121
FinancialStatements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Impairment of goodwill2
IFRS 9 impairments2
Operating profit
Finance expense
Profit/(loss) before tax
Taxation
Profit/(loss) for the year and
total comprehensive income/
(expense)
Basic earnings/(losses)
per share
Diluted earnings/(losses)
per share
Note
4,9
19
9
10
9
11
12
12
Year ended
31 December
2021
Underlying
£m
Year ended
31 December
2021
Non-underlying1
£m
Year ended
31 December
2021
Total
£m
Year ended
31 December
2020
Underlying
£m
Year ended
31 December
2020
Non-underlying1
£m
Year ended
31 December
2020
Total
£m
343.1
(169.7)
173.4
(24.5)
(120.6)
—
0.7
29.0
(2.0)
27.0
(5.9)
21.1
18.9p
18.8p
—
—
—
—
—
—
—
—
—
—
—
—
343.1
(169.7)
173.4
(24.5)
(120.6)
—
0.7
29.0
(2.0)
27.0
(5.9)
21.1
18.9p
18.8p
257.9
(130.5)
127.4
(15.8)
(97.6)
—
(3.7)
10.3
(1.8)
8.5
(1.5)
7.0
6.5p
6.5p
—
—
—
—
(3.8)
(5.8)
—
(9.6)
(0.4)
(10.0)
0.8
257.9
(130.5)
127.4
(15.8)
(101.4)
(5.8)
(3.7)
0.7
(2.2)
(1.5)
(0.7)
(9.2)
(2.2)
(2.0)p
(2.0)p
1 Non-underlying items in 2020 are detailed in Note 7. The Group’s policy regarding the recognition of non-underlying items is outlined on page 127.
2 The impairment of goodwill and IFRS 9 impairments have been disclosed on the face of the Consolidated Statement of Comprehensive Income due to the material nature of the
credits/(charges).
The Notes on pages 126 to 154 are an integral part of these Consolidated Financial Statements.
122
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
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
Bank overdrafts
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
14
15
16
18
19
21
22
23
20
21
22
23
24
25
25
26
2021
£m
2020
£m
59.2
54.8
18.6
132.6
55.9
44.5
6.6
107.0
239.6
(48.7)
(11.9)
(5.9)
(0.7)
—
(67.2)
(11.7)
(0.3)
(46.8)
(0.8)
(6.6)
(66.2)
50.8
47.0
19.9
117.7
38.1
38.5
7.1
83.7
201.4
(42.8)
(8.9)
(4.5)
(0.8)
(0.7)
(57.7)
(12.5)
(0.3)
(39.5)
(0.7)
(3.5)
(56.5)
(133.4)
106.2
(114.2)
87.2
0.1
21.9
1.1
83.1
106.2
0.1
21.1
0.5
65.5
87.2
The Financial Statements on pages 122 to 154 were approved and authorised for issue by the Board of Directors on 17 March 2022 and
were signed on its behalf by:
Mark Kelly
Director
Michael Scott
Director
Eurocell plc Annual Report and Accounts 2021
123
FinancialStatements CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2021
Cash generated from operations
Income taxes paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Financing activities
Proceeds from new share capital issued
Costs relating to issuance of new share capital
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
2021
£m
Year ended
31 December
2020
£m
33.1
(3.5)
29.6
(15.1)
(0.4)
(15.5)
0.5
—
(1.0)
(10.1)
(1.2)
(0.6)
(3.6)
(16.0)
(1.9)
2.6
0.7
33.9
(1.0)
32.9
(13.8)
(0.2)
(14.0)
19.2
(0.5)
(27.2)
(10.7)
(1.3)
(0.7)
—
(21.2)
(2.3)
4.9
2.6
Note
31
25
13
32
32
124
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Balance at 1 January 2021
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
Dividends paid
Total transactions with owners recognised
directly in equity
Balance at 31 December 2021
Balance at 1 January 2020
Comprehensive expense for the year
Loss for the year
Total comprehensive expense for the year
Contributions by and distributions to owners
Issue of new share capital
Exercise of share options
Share-based payments
Deferred tax on share-based payments
Total transactions with owners recognised
directly in equity
Balance at 31 December 2020
Note
26
26
13
Note
26
26
24
Share
capital
£m
0.1
—
—
—
—
—
—
0.1
Share
capital
£m
0.1
—
—
—
—
—
—
—
0.1
Share
premium
account
£m
21.1
—
—
0.8
—
—
0.8
21.9
Share-based
payment
reserve
£m
0.5
—
—
(0.6)
1.2
—
0.6
1.1
Share
premium
account
£m
Share-based
payment
reserve
£m
2.4
—
—
17.1
1.6
—
—
18.7
21.1
0.9
—
—
—
(0.6)
0.3
(0.1)
(0.4)
0.5
Retained
earnings
£m
65.5
21.1
21.1
0.1
—
(3.6)
(3.5)
83.1
Retained
earnings
£m
67.1
(2.2)
(2.2)
—
0.6
—
—
0.6
65.5
Total
equity
£m
87.2
21.1
21.1
0.3
1.2
(3.6)
(2.1)
106.2
Total
equity
£m
70.5
(2.2)
(2.2)
17.1
1.6
0.3
(0.1)
18.9
87.2
Eurocell plc Annual Report and Accounts 2021
125
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2021
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 the
United Kingdom. The registered office is located in England at the following address: Eurocell Head Office and Distribution Centre, High
View Road, South Normanton, Alfreton, Derbyshire, DE55 2DT.
The Group is principally engaged in the extrusion and supply 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 (see below).
The Group Financial Statements have been prepared in accordance with UK-adopted international accounting standards in conformity
with the requirements of the Companies Act 2006 (‘IFRS’) and the applicable legal requirements of the Companies Act 2006. On 31
December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK adopted international
accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to
UK-adopted international accounting standards in its Consolidated Financial Statements on 1 January 2021. There were no changes in
accounting policies arising from the transition, and therefore no impact on recognition, measurement or disclosure in the periods reported.
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, unless otherwise stated.
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 2021
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 Group’s functional currency is Sterling. The vast majority of the Group’s revenues are denominated in Sterling, and as a result the
consolidation of non-UK revenues has minimal foreign exchange impact.
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.
All dormant subsidiaries prepare and file financial statements in accordance with section 394A of the Companies Act 2006, which are
filed with the registrar at Companies House.
Going concern
The Group funds its activities through a £75 million Revolving Credit Facility, provided by Barclays and HSBC, which matures in December
2023. The facility includes two key financial covenants, which are tested at 30 June and 31 December on a pre-IFRS 16 basis. These are
that net debt should not exceed 3 times adjusted EBITDA (Leverage), and that adjusted EBITDA should be at least 4 times the interest
charge on the debt (Interest Cover). Adjusted EBITDA is defined as operating profit before depreciation, amortisation and non-underlying
items. See alternative performance measures on page 132.
For the next measurement period, being 31 December 2021, and going forward, the Group expects to comply with its covenants.
126
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
In assessing going concern, the Directors have considered financial projections for the period to December 2024, which is consistent
with the Board’s strategic planning horizons. These forecasts have been compiled based on the best estimates of our commercial and
operational teams. This includes a ’Downside’ scenario, which reflects demand for our products being severely weakened.
In all scenarios tested, including sensitivities reducing sales forecasts to 10% below management’s estimates for the period 2022–24,
the Group operates with significant headroom on its RCF facility and remains compliant with its original covenants.
After reviewing the Group’s projected financial performance and financing arrangements, the Directors consider that the Group has
adequate resources to continue operating and that it is therefore appropriate to continue to adopt the going concern basis in preparing
these Financial Statements.
Changes in accounting policies and disclosures applicable to the Company and the Group
The Group has applied the following amendments for the first time for the financial reporting period commencing 1 January 2021,
with no material impact:
• Interest Rate Benchmark Reform – Phase 2 – amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16; and
• Covid-19-Related Rent Concessions – amendments to IFRS 16.
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not
mandatory for 31 December 2021 reporting periods and have not been early adopted by the Group. These standards, amendments or
interpretations are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable
future transactions.
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.
Revenue is recognised based upon the price specified on the customer’s invoice. A receivable is recognised on the transfer of the
products, as this is the point at which consideration is deemed to be unconditional. There are no variable elements to the consideration
received that require estimation. No significant element of financing is present as sales are made with a credit term of 30 days end of
month, which is consistent with market practice.
Where costs are incurred by the Group in securing a contract to supply products, those costs (subject to a de-minimis limit) are
recognised as customer contract assets (within trade and other receivables) in the Consolidated Statement of Financial Position. The
balance is amortised over the period in which revenue pertaining to those costs is recognised, which in the vast majority of cases is three
years. Reviews are performed to assess expected credit losses and adjust if necessary.
Due to the fact that the Group’s customers typically collect or take delivery of products for immediate use in their intended purpose,
the likelihood of items being returned is small. Therefore, it is highly probable that a significant reversal of revenue will not occur. The
Group’s obligations to repair or replace faulty manufactured products under the standard warranty terms is recognised as a provision,
see Note 23.
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
includes, but is not limited to, acquisition-related expenditure, costs incurred in the act of securing debt or equity funding, the financial
impact of events that impact upon our ability to trade for an extended period of time and non-trading impairment losses.
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 are provided in Note 7.
There are no non-underlying items in the current year.
Eurocell plc Annual Report and Accounts 2021
127
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
1 ACCOUNTING POLICIES (GROUP) CONTINUED
Government grants
In 2020, the Group took advantage of government support made available to businesses to help mitigate the impact of COVID-19, these
include cash contributions of £6.5 million under the Coronavirus Job Retention Scheme. In recognising this support in the Financial
Statements, the Group applied IAS 20 Government Grants. Grant income is recognised only when it is reasonably certain that the cash
will be received, and that all eligibility criteria have been met. Grant income is recognised within administration expenses, with staff costs
presented net of grant income. To the extent that there are ongoing eligibility or performance criteria, grant income is spread over the
relevant period of measurement.
In addition to the Job Retention Scheme, the business claimed and received grants under the Retail, Hospitality and Leisure Grant fund of
£0.7 million in 2020. These were shown as a reduction in administrative expenses within the year. No further claims were made in 2021.
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 exceeds 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. 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, right-of-use 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.
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.
Individual right-of-use lease property assets relating to the Group’s branch network are also tested for impairment when an indication
of impairment arises, such as a branch becoming loss-making. In considering individual branch performance, central overheads are
allocated to each branch in proportion to sales.
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.
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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 is not depreciated. Assets in the course of construction are not depreciated until they are in a condition that would allow
them to be deployed in their intended use without further changes to their condition. 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
Freehold property
Leasehold improvements
Plant and machinery
Mixing plant
Extruders
Stillages and tooling
Other
Motor vehicles
Office equipment and fixtures
Depreciation policy
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. Discount rates are based on our external financing rates and then a lease specific adjustment is applied.
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 Group 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. Leases are assessed for indicators for impairment based on value in use and impaired where this is below book value. Reversals of
impairments can occur where assets are subsequently found to have further value in use.
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 records all of its financial assets at amortised cost and has not classified any of its financial assets at fair value through
profit and loss or other comprehensive income. The Group’s financial assets comprise trade and other receivables and cash and cash
equivalents in the balance sheet. These 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. Customer
rebates are offset against receivable amounts in line with the terms of the customer agreements.
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 the three-year period up to the reporting date, 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. Insured balances are excluded to the extent that no loss would arise in the event
of default by the customer.
Eurocell plc Annual Report and Accounts 2021
129
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
1 ACCOUNTING POLICIES (GROUP) CONTINUED
Financial assets continued
Where the adjusted loss rates are different from the original estimate, there is an 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.
While cash and cash equivalents and contract assets 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 current liabilities in the balance sheet.
Financial liabilities
The Group classifies its financial liabilities as financial liabilities measured at amortised cost which include the following items:
• Bank borrowings which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method,
which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the
balance sheet.
• Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Taxation
Tax on the profit/(loss) 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 HM 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 leases certain properties, vehicles and material handling equipment. The Group has no leases previously classified as finance
leases. Liabilities for leases previously classified as operating leases have been measured in accordance with IFRS 16 using the modified
retrospective approach.
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In applying IFRS 16, 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.
Leases with a remaining term of less than 12 months have been accounted for as short-term leases. Leased assets with a value of less
than £5,000 are omitted on the basis of materiality.
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.
The principal and finance elements of lease payments are presented separately on the face of the Consolidated Cash Flow Statement
within financing activities.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of
money and, when appropriate, the risks specific to the liability.
The Group has recognised provisions for liabilities of uncertain timing or amount in respect of leasehold dilapidations and warranty claims.
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.
Dilapidations provisions are recognised in two ways. Firstly, known specific obligations relating to repairs required or structural changes
made to a building are recognised as soon as the timing and amount of the liability can be reliably estimated. Secondly, wear and tear
provisions relating to the Group’s branches are accrued at a standard rate over the life of each lease, reflecting the cost of returning each
branch to its prior condition at the end of the lease.
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.
Eurocell plc Annual Report and Accounts 2021
131
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
1 ACCOUNTING POLICIES (GROUP) CONTINUED
Foreign currency
The Group’s Financial Statements are presented in 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 Company’s estimate of the shares that will eventually vest and adjusted for the effect of non-market-based
vesting conditions.
Fair value is measured based on the value of options over shares on the date of grant and the likelihood of all or part of the option vesting.
Alternative performance measures
The Group uses alternative performance measures alongside statutory measures to facilitate a better understanding of financial
performance and comparison with prior periods, and in order to provide audited financial information against which the Group’s bank
covenants, which are all measured on a pre-IFRS 16 basis, can be assessed.
EBITDA is defined as operating profit before depreciation and amortisation charges. Pre-IFRS 16 EBITDA is stated inclusive of operating
lease rentals under IAS 17 Leases.
Operating profit
Depreciation and amortisation
EBITDA
Non-underlying items
Adjusted EBITDA
Operating lease rentals under IAS 17
Other lease (credits)/charges
Pre-IFRS 16 adjusted EBITDA
2021
£m
29.0
22.7
51.7
—
51.7
(13.9)
(0.5)
37.3
2020
£m
0.7
20.8
21.5
8.3
29.8
(11.8)
—
18.0
Pre-IFRS 16 total net debt is defined as total borrowings and lease liabilities less cash and cash equivalents, excluding the impact of
leases recognised under IFRS 16 Leases.
Total net debt
Lease liabilities
Pre-IFRS 16 net debt
2021
£m
69.7
(58.7)
11.0
2020
£m
58.3
(48.4)
9.9
Covenants are assessed on an adjusted EBITDA basis. Adjusted EBITDA, profits and earnings per share in the prior year exclude non-
underlying items. There are no non-underlying items in the current year.
Adjusted profit measures allow users of the Financial Statements to better understand financial performance in the year by removing
certain material items of income and expense that are unusual due to their nature or infrequency, thus facilitating better comparison with
prior periods.
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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
The Group reviews 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 estimate 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.
If the realised selling prices of the stock lines captured by the Slow and Obsolete stock provision were, on average, 500 basis points
lower than current estimates, the provision would increase by approximately £1,000,000. Further disclosures relating to inventories are
provided in Note 18.
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 the three-year period up to the reporting date,
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, there is an 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 age category.
During the prior year there was an increase in uncertainty over these estimates, in particular through the impact of COVID-19 on customer
payment behaviour, with many customers struggling to make payments that fell due during the initial lockdown period. The resulting
temporary deterioration in the ageing of balances, along with a weaker outlook for the UK economy, resulted in a higher provision
being implied by the IFRS 9 expected credit loss model. IFRS 9 impairments and bad debt charges of £3.7 million were recognised in
2020. This is consistent with the credit losses incurred in the year, compared to the historically low level of credit losses prior to the end
of March 2020. In the current year a credit of £0.7 million has been recognised in the Consolidated Income Statement, reflecting an
improvement in the ageing of balances and a return to normal payment patterns for the vast majority of the Group’s customers.
If future realised loss rates for current receivables were, on average, 500 basis points higher than current estimates, the provision for
impairment would increase approximately £900,000. Further disclosures relating to trade receivables are provided in Note 19.
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.
Eurocell plc Annual Report and Accounts 2021
133
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
3 FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED
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. The fair value for cash and cash equivalents is approximate to its book value.
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
Bank overdrafts
Borrowings
Total financial liabilities
2021
£m
6.6
37.3
43.9
2021
£m
48.7
58.7
5.9
12.0
2020
£m
7.1
33.4
40.5
2020
£m
42.8
48.4
4.5
13.0
125.3
108.7
The analysis above does not correspond to the values reported in the Consolidated Statement of Financial Position as excluded from the
analysis above are assets and liabilities from which no future cash flows are expected to arise, including unamortised arrangement costs
relating to the Group’s borrowings.
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:
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.
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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.
If variable interest rates were 50 basis points higher/lower, the Group’s finance expense would increase/decrease by £100,000.
During 2021 and 2020 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 2021
Trade and other payables
Lease liabilities
Bank overdrafts
Borrowings
Total
At 31 December 2020
Trade and other payables
Lease liabilities
Bank overdrafts
Borrowings
Total
Total
£m
(48.7)
(64.1)
(5.9)
(12.0)
(130.7)
Total
£m
(42.8)
(53.4)
(4.5)
(13.0)
(113.7)
Up to 3
months
£m
(48.4)
(3.2)
(5.9)
—
(57.5)
Up to 3
months
£m
(42.6)
(1.6)
(4.5)
—
(48.7)
Between
3 and 12
months
£m
—
(9.9)
—
—
(9.9)
Between
3 and 12
months
£m
—
(8.4)
—
—
(8.4)
Between
1 and 2
years
£m
—
(12.8)
—
(12.0)
(24.8)
Between
1 and 2
years
£m
—
(9.4)
—
—
(9.4)
Between
2 and 5
years
£m
(0.3)
(19.1)
—
—
(19.4)
Between
2 and 5
years
£m
(0.2)
(17.3)
—
(13.0)
(30.5)
Over
5 years
£m
—
(19.1)
—
—
(19.1)
Over
5 years
£m
—
(16.7)
—
—
(16.7)
Excluded from the analysis above are assets and liabilities from which no future cash flows are expected to arise.
Eurocell plc Annual Report and Accounts 2021
135
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
3 FINANCIAL INSTRUMENTS – RISK MANAGEMENT CONTINUED
Capital management
The Group’s objective when managing capital, which is deemed to be total equity plus total debt and which totalled £176.6 million (2020:
£148.1 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 at half year and year end on a rolling 12-month basis. As at 31 December 2021 Leverage and Interest Cover
were 0.3:1 and 47:1 respectively (2020: 0.6:1 and 20:1). The Group operated well within the terms of its covenants throughout the
current and prior periods. The Group anticipates that it will comfortably meet all future covenant obligations.
The following table sets out the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date:
GBP
£m
36.6
5.2
(5.9)
(58.7)
(12.0)
(46.8)
(81.6)
GBP
£m
33.1
6.5
(4.5)
(48.4)
(13.0)
(42.1)
(68.4)
As at 31 December 2021
EUR
£m
0.5
1.4
—
—
—
(0.3)
1.6
As at 31 December 2020
EUR
£m
0.3
0.5
—
—
—
(0.4)
0.4
USD
£m
0.2
—
—
—
—
—
0.2
USD
£m
—
0.1
—
—
—
(0.3)
(0.2)
Total
£m
37.3
6.6
(5.9)
(58.7)
(12.0)
(47.1)
(79.8)
Total
£m
33.4
7.1
(4.5)
(48.4)
(13.0)
(42.8)
(68.2)
2021
£m
343.1
2020
£m
257.9
Trade and other receivables
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Other interest-bearing borrowings
Trade and other payables
Trade and other receivables
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Other interest-bearing borrowings
Trade and other payables
4 REVENUE
Revenue arises from:
Sale of goods
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Governance
External revenue by destination:
United Kingdom
European Union
Rest of World
2021
£m
340.1
2.3
0.7
343.1
There are no customers with sales in excess of 10% of total Group revenues.
Revenue is disclosed net of contract asset amortisation and related expenses in the year of £1.8 million (2020: £2.6 million).
Further details are provided in Note 19.
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)
Impairment of goodwill
Impairment of right-of-use assets (Note 15)
Other non-underlying operating expenses
Cost of inventories
Other variable costs
Employee benefits expense (Note 8)
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:
Impairment of goodwill
Impairment of right-of-use assets
Warehouse dual-running costs
Restructuring costs
Non-underlying operating expenses
Finance expense
Total non-underlying expenses
Tax on non-underlying expenses
Impact on profit after tax
There were no non-underlying items in the current year.
2021
£000
85
169
51
305
2021
£m
7.7
13.1
1.9
—
(0.4)
—
156.0
13.8
81.9
40.1
314.1
2021
£m
—
—
—
—
—
—
—
—
—
2020
£m
255.5
1.9
0.5
257.9
2020
£000
60
151
60
271
2020
£m
6.8
12.4
1.6
5.8
0.9
2.9
120.0
10.5
60.7
35.6
257.2
2020
£m
5.8
0.9
2.3
0.6
9.6
0.4
10.0
(0.8)
9.2
Eurocell plc Annual Report and Accounts 2021
137
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
7 NON-UNDERLYING ITEMS CONTINUED
Goodwill impairment charge
The goodwill in respect of Eurocell Recycle North (‘ERN’, formerly Ecoplas) was impaired in full in 2020, leading to a non-underlying
charge of £5.8m. This charge arose as a result of lower projected short-term cash flows than previously expected, reflecting the impact of
COVID-19 on selling prices, customer demand and production volumes (and therefore profitability) of the ERN Cash Generating Unit.
Right-of-use assets impairment charge
Right-of-use assets impairment charges were made in respect of a small number of loss-making branches and a number of leased
assets no longer required following transition to the new warehouse. In total, right-of-use asset impairment charges amounted to
£0.9 million in 2020. The majority of the lease contracts in relation to these assets have subsequently been terminated.
Warehouse dual-running costs
In January 2020 the Group entered into a lease arrangement for a new warehouse and Head Office facility close to its primary
manufacturing operations. The warehouse was fitted-out during the year and was brought into active service in early 2021. Certain
costs incurred during the fit-out process in 2020, such as IFRS 16 lease charges (including the related IFRS 16 finance expense), rates
and other property-related costs were classified as non-underlying, as the warehouse was not operational in 2020, and therefore not
contributing to the underlying performance of the business in that period.
Restructuring costs
Restructuring costs in 2020 relate to redundancies, with 35 roles impacted at a one-off cost of £0.6 million in the second half of 2020.
These costs were classified as non-underlying as they related to roles that no longer exist within the organisation and therefore would not
reoccur in future reporting periods.
8 EMPLOYEE BENEFITS EXPENSE
Staff costs (including Directors) comprise:
Wages and salaries
Share-based payments
Social security costs
Other pension costs
Staff costs in 2020 are stated net of Coronavirus Job Retention Scheme income amounting to £6.5 million.
The average monthly number of employees, including Directors, during the year was as follows:
Production
Office and administration
Distribution
2021
£m
70.8
1.2
7.6
2.3
81.9
2021
No.
750
453
940
2020
£m
53.2
0.3
5.3
1.9
60.7
2020
No.
669
405
871
2,143
1,945
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
2021
£m
1.7
0.5
0.1
2.3
2020
£m
1.1
0.1
0.1
1.3
Directors’ remuneration is set out in the Remuneration Report on pages 91 to 108. The highest paid Director received remuneration of
£879,000 (2020: £466,000).
138
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
During the year, retirement benefits were accruing to two Directors in respect of defined contribution pension schemes (2020: two). The
value of contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £60,000 (2020:
£57,000).
99,268 share options were exercised by Directors of the Group during the current year (2020: 63,322), of which 60,571 were exercised
by the highest paid Director (2020: 51,049).
The Group’s policy for consulting with, sharing information with, and encouraging the involvement of employees is discussed on pages
72 to 82.
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 three 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.
• Building Plastics – sale of building plastic materials across the UK. This segment includes Security Hardware, Kent Building Plastics
and Trimseal.
• Corporate – represents costs relating to the ultimate Parent Company and includes amortisation in respect of acquired
intangible assets.
Inter-segmental sales relate to manufactured products distributed by the Building Plastics division.
Revenue
Total revenue
Inter-segmental revenue
Total revenue from external customers
EBITDA1
Amortisation of intangible assets
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Operating profit/(loss)
Finance expense
Profit before tax
Profiles
2021
£m
204.6
(63.9)
140.7
31.8
—
(6.0)
(5.1)
20.7
Building
Plastics
2021
£m
202.9
(0.5)
202.4
20.8
—
(1.0)
(7.9)
11.9
Corporate
2021
£m
—
—
—
(0.9)
(1.9)
(0.7)
(0.1)
(3.6)
Total
2021
£m
407.5
(64.4)
343.1
51.7
(1.9)
(7.7)
(13.1)
29.0
(2.0)
27.0
1
Included within EBITDA are IFRS 9 impairment credits of £1.0 million (Profiles) and charges of £0.3 million (Building Plastics).
Eurocell plc Annual Report and Accounts 2021
139
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
9 SEGMENTAL INFORMATION CONTINUED
Revenue
Total revenue
Inter-segmental revenue
Total revenue from external customers
Adjusted EBITDA2
Amortisation of intangible assets
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Adjusted operating profit
Impairment of goodwill
Other non-underlying operating expenses
Operating (loss)/profit
Finance expense
Loss before tax
Profiles
2020
£m
156.1
(56.4)
99.7
16.5
—
(5.1)
(3.5)
7.9
(5.8)
(3.1)
(1.0)
Building
Plastics
2020
£m
159.5
(1.3)
158.2
12.7
—
(1.1)
(7.6)
4.0
—
(0.6)
3.4
Corporate
2020
£m
—
—
—
0.6
(1.6)
(0.6)
—
(1.6)
—
(0.1)
(1.7)
2
Included within adjusted EBITDA are IFRS 9 impairment and bad debt charges of £3.7 million (Profiles: £1.7 million; Building Plastics: £2.0 million).
Profiles
2021
£m
13.2
132.6
(61.2)
Profiles
2020
£m
12.3
116.6
(57.6)
Building
Plastics
2021
£m
2.5
87.9
(45.0)
Building
Plastics
2020
£m
0.9
64.9
(32.9)
Corporate
2021
£m
1.0
19.1
(8.9)
Corporate
2020
£m
0.5
19.9
(7.0)
Additions to plant, property, equipment and intangible assets
Segment assets
Segment liabilities
Borrowings
Deferred tax liability
Total liabilities
Total net assets
Additions to plant, property, equipment and intangible assets
Segment assets1
Segment liabilities
Borrowings
Corporation tax payable
Deferred tax liability
Total liabilities
Total net assets
3 Adjusted to reflect a more consistent classification between the segments.
140
Eurocell plc Annual Report and Accounts 2021
Total
2020
£m
315.6
(57.7)
257.9
29.8
(1.6)
(6.8)
(11.1)
10.3
(5.8)
(3.8)
0.7
(2.2)
(1.5)
Total
2021
£m
16.7
239.6
(115.1)
(11.7)
(6.6)
(133.4)
106.2
Total
2020
£m
13.7
201.4
(97.5)
(12.5)
(0.7)
(3.5)
(114.2)
87.2
Strategic Report
Corporate
Governance
Revenue
2021
£m
341.6
1.5
343.1
Non-current
assets
2021
£m
132.6
—
132.6
Revenue
2020
£m
256.3
1.6
257.9
Non-current
assets
2020
£m
117.7
—
117.7
2021
£m
0.8
1.2
2.0
—
2.0
2021
£m
2.7
0.1
2.8
2.2
0.9
—
3.1
5.9
2020
£m
0.9
0.9
1.8
0.4
2.2
2020
£m
(0.1)
—
(0.1)
0.5
0.1
0.2
0.8
0.7
Geographical information
United Kingdom
Republic of Ireland3
Total
4 Non-current assets in the Republic of Ireland are less than £50,000.
10 FINANCE EXPENSE
Finance expense
Bank borrowings
Interest on lease liabilities
Underlying finance expense
Non-underlying finance expense (Note 7)
Total finance expense
11 TAXATION
Current tax expense/(credit)
Current tax on profits/(losses) 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
The reasons for the difference between the actual current tax charge/(credit) for the year and the standard rate of corporation tax in the
United Kingdom applied to profits/(losses) for the year are as follows:
Profit/(loss) before tax
Expected tax (credit)/charge based on the standard rate of corporation tax in the UK of 19.0%
(2020: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes
Capital allowance super-deduction utilised
Impairment of goodwill not deductible for tax purposes
Patent Box claims
Deferred tax impact of share-based payments
Tax impact on share-based payments recognised in equity
Adjustment in respect of prior years
Tax effect of accelerated capital allowances
Total tax expense/(credit)
2021
£m
27.0
5.1
0.5
(0.7)
—
—
0.2
—
0.1
(2.4)
2.8
2020
£m
(1.5)
(0.3)
0.4
—
1.1
(0.7)
—
(0.1)
—
(0.5)
(0.1)
Eurocell plc Annual Report and Accounts 2021
141
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
11 TAXATION CONTINUED
The reasons for the difference between the total 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/(loss) before tax
Expected tax (credit)/charge based on the standard rate of corporation tax in the UK of 19.0%
(2020: 19.0%)
Taxation effect of:
Expenses not deductible for tax purposes
Capital allowance super-deduction utilised
Impairment of goodwill not deductible for tax purposes
Patent Box claims
Adjustments in respect of prior years
Tax impact on share-based payments recognised in equity
Adjustment in respect of change in rates
Total tax expense
2021
£m
27.0
5.1
0.5
(0.7)
—
—
0.1
—
0.9
5.9
2020
£m
(1.5)
(0.3)
0.4
—
1.1
(0.7)
0.2
(0.1)
0.1
0.7
Changes in tax rates and factors affecting the future tax charge
An increase in the mainstream rate of UK corporation tax from 19% to 25% from April 2023 was enacted during 2021. Consequently,
deferred taxes have been remeasured using a higher rate based on expected reversal dates and reflected in the Financial Statements.
There are no material uncertain tax provisions.
Tax included in Other Comprehensive Income
The tax credit arising on share-based payments within Other Comprehensive Income is £nil (2020: £110,000).
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.
Tax residency
Eurocell plc and its subsidiaries are all registered in the United Kingdom and are resident in the UK for tax purposes, except as described
below.
The Group has two branches in the Republic of Ireland, with combined annual revenues of £1.5 million (2020: £1.6 million), total assets
of less than £50,000 (2020: below £50,000) and 8 full-time employees (2020: 8 full-time employees). For tax purposes these two trading
locations form a single branch within Eurocell Building Plastics Limited, and therefore any profits generated are subject to tax in the
Republic of Ireland. The tax charge in relation to the Group’s Republic of Ireland operations in 2021 is €nil (2020: €1,000) and no tax
payments were made during the year (2020: €1,000). This is due to utilisation of losses brought forward. No deferred tax assets are
recognised on unutilised losses due to the uncertainty of future profits.
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. Adjusted earnings per share excludes the impact of non-underlying items.
Diluted earnings per share is calculated by adjusting the earnings and number of shares for the effects of dilutive options. In the event that
a loss is recorded for the period, share options are not considered to have a dilutive effect.
Profit/(loss) 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
142
Eurocell plc Annual Report and Accounts 2021
2021
£m
21.1
21.1
2020
£m
(2.2)
7.0
Number
Number
111,709,049 108,218,827
112,219,319 108,218,827
2020
Pence
(2.0)
6.5
(2.0)
6.5
2020
£m
—
—
Total
£m
72.9
13.5
(1.5)
(0.1)
84.8
16.3
(24.4)
(0.2)
Strategic Report
Corporate
Governance
2021
Pence
18.9
18.9
18.8
18.8
2021
£m
3.6
7.2
Basic earnings/(losses) per share
Adjusted basic earnings per share
Diluted earnings/(losses) per share
Adjusted diluted earnings per share
13 DIVIDENDS
Dividends paid during the year
Interim dividend for 2021 of 3.2p per share
Dividends proposed
Final dividend for 2021 of 6.4p per share
Due to the impact of COVID-19, no dividends were paid in 2020.
14 PROPERTY, PLANT AND EQUIPMENT
Freehold
property
£m
Leasehold
improvements
£m
Plant and
machinery
£m
Motor
vehicles
£m
Office
equipment
and fixtures
£m
Assets under
construction
£m
Cost
Balance at 1 January 2020
Additions
Disposals
Transfers
Balance at 31 December
2020
Additions
Disposals
Transfers
Balance at 31 December
2021
Accumulated
depreciation
Balance at 1 January 2020
Charge for the year
Disposals
Balance at 31 December
2020
Charge for the year
Disposals
Balance at 31 December
2021
Net book value
At 31 December 2021
At 31 December 2020
9.0
—
—
—
9.0
—
—
—
9.0
1.3
0.2
—
1.5
0.2
—
1.7
7.3
7.5
0.2
—
—
—
0.2
—
(0.1)
—
0.1
0.1
—
—
0.1
—
(0.1)
—
0.1
0.1
60.8
3.1
(1.5)
3.2
65.6
3.5
(24.1)
9.8
54.8
27.1
6.6
(1.5)
32.2
7.4
(24.1)
15.5
39.3
33.4
0.3
—
—
—
0.3
—
(0.1)
0.2
0.4
0.1
—
—
0.1
0.1
(0.1)
0.1
0.3
0.2
0.1
—
—
—
0.1
—
(0.1)
—
2.5
10.4
—
(3.3)
9.6
12.8
—
(10.2)
—
12.2
76.5
0.1
—
—
0.1
—
(0.1)
—
—
—
—
—
—
—
—
—
—
12.2
9.6
28.7
6.8
(1.5)
34.0
7.7
(24.4)
17.3
59.2
50.8
Included within freehold property is non-depreciable land of £2.3 million (31 December 2020: £2.3 million).
An exercise was undertaken during the year to dispose of fully written down assets no longer in use. As a result, plant and machinery with
a net book value of £nil, and a gross cost and accumulated depreciation of £24.4 million, were removed from the Group balance sheet.
Eurocell plc Annual Report and Accounts 2021
143
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
15 RIGHT-OF-USE ASSETS
Cost
Balance at 1 January 2020
Additions
Disposals
Balance at 31 December 2020
Additions
Disposals
Balance at 31 December 2021
Accumulated amortisation
Balance at 1 January 2020
Charge for the year
Impairment charges
Disposals
Balance at 31 December 2020
Charge for the year
Impairment charges
Disposals
Balance at 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
16 INTANGIBLE ASSETS
Cost
Balance at 1 January 2020
Additions
Transfers
Balance at 31 December 2020
Additions
Transfers
Balance at 31 December 2021
Accumulated amortisation
Balance at 1 January 2020
Charge for the year
Impairment charge
Balance at 31 December 2020
Charge for the year
Balance at 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Leasehold
improvements
£m
Motor
vehicles
£m
Office
equipment
and fixtures
£m
28.4
24.0
(0.6)
51.8
13.1
(2.3)
62.6
6.0
7.9
0.3
(0.6)
13.6
8.3
—
(2.3)
19.6
43.0
38.2
16.3
1.0
(0.9)
16.4
7.5
(1.9)
22.0
3.5
4.5
0.6
(0.9)
7.7
4.8
(0.4)
(1.8)
10.3
11.7
8.7
0.1
—
—
0.1
—
—
0.1
—
—
—
—
—
—
—
—
—
0.1
0.1
Software
£m
Technology
-based
£m
Customer
-related
£m
Marketing
-related
£m
Goodwill
£m
2.6
0.2
0.1
2.9
0.4
0.2
3.5
1.0
0.3
—
1.3
0.4
1.7
1.8
1.6
1.6
—
—
1.6
—
—
1.6
0.6
0.1
—
0.7
0.1
0.8
0.8
0.9
7.5
—
—
7.5
—
—
7.5
4.0
0.9
—
4.9
0.9
5.8
1.7
2.6
6.3
—
—
6.3
—
—
6.3
2.2
0.3
—
2.5
0.5
3.0
3.3
3.8
16.8
—
—
16.8
—
—
16.8
—
—
5.8
5.8
—
5.8
11.0
11.0
Total
£m
44.8
25.0
(1.5)
68.3
20.6
(4.2)
84.7
9.5
12.4
0.9
(1.5)
21.3
13.1
(0.4)
(4.1)
29.9
54.8
47.0
Total
£m
34.8
0.2
0.1
35.1
0.4
0.2
35.7
7.8
1.6
5.8
15.2
1.9
17.1
18.6
19.9
Included within customer-related and marketing-related intangible assets are the acquired intangibles in relation to the acquisition of
Vista Panels in 2016, which have a combined carrying value of £1.2 million (2020: £1.5 million) and a remaining amortisation period of
four years.
144
Eurocell plc Annual Report and Accounts 2021
Strategic Report
Corporate
Governance
17 IMPAIRMENT
For the purpose of impairment testing, goodwill is allocated to Cash Generating Units (‘CGUs’) as follows:
Eurocell Building Plastics
Eurocell Profiles
Ecoplas
Vista Panels
S&S Plastics
Security Hardware
2021
£m
5.1
3.3
—
2.2
0.2
0.2
2020
£m
5.1
3.3
—
2.2
0.2
0.2
11.0
11.0
CGUs are determined with reference to the smallest identifiable groups of assets that generate cash flows independently of other groups
of assets, with reference to the business or product sectors in which they operate and CGUs are smaller than the disclosed segments.
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 the Group’s published strategy, which includes continuing to open new
branches, developing new products and increasing the use of recycled materials. The cash flow forecasts take into consideration climate
change as discussed in the Responsible Business section of the Strategic Report on pages 32 to 53.
All of the Group’s CGUs operate principally in the UK Repair, Maintenance and Improvements market, and all are funded through a
combination of retained earnings and the Group’s Revolving Credit Facility. The strategic decision-making time frame is also consistent
across all CGUs. Consequently, the key assumptions detailed below are applied consistently across each CGU:
Period on which management-approved forecasts are based (years)
Discount rate (pre-tax)
Profit growth rate in perpetuity
2021
3
12%
2%
2020
3
11%
2%
The period on which management-approved forecasts are based is consistent with the Board’s strategic planning time frame.
The discount rate reflects an estimate of the Group’s pre-tax Weighted Average Cost of Capital, based on past experience and sector-
weighted assumptions. Goodwill is considered to have an indefinite useful life. The profit growth rate in perpetuity is consistent with the
average annual growth in UK Gross Domestic Product between 1990 and 2019 (source: Office for National Statistics).
For CGUs with a higher risk profile due to their size or historical performance, management forecasts are risk-adjusted by applying a sales
sensitivity of 5%. This adjustment has been made for all CGUs with the exception of Eurocell Building Plastics and Eurocell Profiles, prior
to the application of further sensitivities (see below).
The Group assessed the recoverable amount in respect of goodwill for each CGU to be greater than the carrying amount and therefore
no impairment arises. No reasonably possible change in assumptions would result in an impairment for these CGUs.
Sensitivities
The following sales reduction or discount rate increase sensitivities would reduce headroom on each CGU to nil:
Eurocell Building Plastics
Eurocell Profiles
Vista Panels
S&S Plastics
Security Hardware
2021
Sales
62%
86%
90%
68%
50%
2021
Discount rate
40%
73%
93%
35%
13%
2020
Sales
76%
70%
72%
74%
38%
2020
Discount rate
48%
52%
41%
45%
18%
Eurocell plc Annual Report and Accounts 2021
145
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
18 INVENTORIES
Raw materials
Work in progress
Finished goods and goods for resale
2021
£m
7.6
3.0
45.3
55.9
2020
£m
3.9
2.6
31.6
38.1
All inventories are carried at cost less a provision to take account of slow-moving and obsolete items. At 31 December 2021 the inventory
provision amounted to £4.9 million (2020: £4.2 million).
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 financial assets
Prepayments
Other receivables
Total trade and other receivables
2021
£m
41.3
(2.6)
(1.4)
37.3
0.4
37.7
6.7
0.1
44.5
2020
£m
38.6
(4.4)
(0.8)
33.4
1.4
34.8
3.7
—
38.5
Trade receivables are non-interest-bearing and are generally on 30 days’ credit. The fair values of trade and other receivables classified as
financial assets are not materially different to their carrying values.
Contract assets are amortised over the period in which revenue pertaining to those costs is recognised, which in the vast majority of
cases is three years. They are presented net of a provision for impairment of £nil (2020: £0.1 million). Additions of £0.3 million were
recognised during the year (2020: £0.7 million), and amounts amortised against revenue were £1.3 million (2020: £1.8 million). Impairment
charges of £nil were recorded in the year (2020: £0.6 million).
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. Insured balances are excluded to the extent that no loss would arise in the event of default by the
customer.
Expected loss rates are derived based upon the payment profile of sales over a three-year period before 31 December 2021, 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, 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 2021 reconcile to the opening loss allowances
as follows:
Trade receivables
Contract assets
At 1 January
(Credited)/charged during the year
Released or utilised during the year
Receivables written off during the year as uncollectible
At 31 December
2021
£m
4.4
(0.7)
(0.1)
(1.0)
2.6
2020
£m
1.6
3.7
(0.3)
(0.6)
4.4
2021
£m
0.1
—
(0.1)
—
—
2020
£m
—
0.6
(0.1)
(0.4)
0.1
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.
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Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts
previously written off are credited against the same line item.
The rate of expected loss decreased in 2021 as the macroeconomic outlook for the UK improved in 2021.
At 31 December 2021
Expected loss rate
Gross carrying amount – trade receivables
Gross carrying amount – contract assets
Loss allowance
At 31 December 2020
Expected loss rate
Gross carrying amount – trade receivables
Gross carrying amount – contract assets
Loss allowance
Current
£m
2%
34.0
0.4
0.8
Current
£m
4%
31.5
1.4
1.2
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
7%
4.5
—
0.3
29%
0.9
—
0.2
69%
0.3
—
0.2
69%
1.6
—
1.1
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
20%
3.3
—
0.7
65%
0.8
—
0.6
65%
0.5
—
0.3
65%
2.5
—
1.6
20 BORROWINGS
The book value and fair value of borrowings are as follows:
Non-current
Non-current
Bank borrowings unsecured
Total borrowings
Book value
2021
£m
Fair value
2021
£m
Book value
2020
£m
11.7
11.7
11.7
11.7
12.5
12.5
Total
£m
6%
41.3
0.4
2.6
Total
£m
11%
38.6
1.4
4.4
Fair value
2020
£m
12.5
12.5
The bank borrowings outstanding at 31 December 2021 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
In March 2020 the Group amended its multi-currency revolving unsecured credit facility held with Barclays Bank plc and HSBC UK
Bank plc, increasing the facility from £60 million to £75 million, but with all other key terms remaining unchanged. Costs amounting
to £0.2 million were incurred in amending the facility. These costs have been capitalised within borrowings and are being released
to the Consolidated Statement of Comprehensive Income within finance expense over the period of the facility, which expires in
December 2023.
Borrowings of £12.0 million were drawn down at 31 December 2021 (2020: £13.0 million). Total unamortised costs, which are presented
as a deduction to borrowings, were £0.3 million as at 31 December 2021 (2020: £0.5 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 SONIA rate (which replaced LIBOR in 2021)
will remain relatively stable during the next year, and any changes, when applied to the Group’s current bank borrowings of £12.0 million
would not lead to a significant change in finance expense.
All of the Group’s borrowings are denominated in Sterling.
Details of the Company’s banking covenants are given in Note 3.
Eurocell plc Annual Report and Accounts 2021
147
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
20 BORROWINGS CONTINUED
Borrowings continued
The analysis of repayments on the combined borrowings is as follows:
2021
£m
—
12.0
—
12.0
2021
£m
37.4
3.7
0.9
6.7
48.7
0.3
2021
£m
11.9
46.8
58.7
2021
£m
13.1
31.9
19.1
64.1
2021
£m
1.2
2020
£m
—
—
13.0
13.0
2020
£m
28.5
4.8
0.7
8.8
42.8
0.3
2020
£m
8.9
39.5
48.4
2020
£m
10.0
26.7
16.7
53.4
2020
£m
0.9
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 2021 and 2020.
22 LEASE LIABILITIES
Lease liabilities
Current
Non-current
Total discounted lease liabilities at 31 December
Maturity analysis
– Less than one year
– One to five years
– More than five years
Total undiscounted lease liabilities at 31 December
Finance expense
Interest on lease liabilities
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23 PROVISIONS
At 1 January 2020
Charged to Statement of Comprehensive Income
Utilised
At 31 December 2020
Charged to Statement of Comprehensive Income
Utilised
At 31 December 2021
Current
Non-current
At 31 December 2021
Dilapidations and
environmental
provisions
£m
Warranty
provisions
£m
0.8
0.1
—
0.9
0.3
—
1.2
0.4
0.8
1.2
—
0.8
(0.2)
0.6
0.1
(0.4)
0.3
0.3
—
0.3
Total
£m
0.8
0.9
(0.2)
1.5
0.4
(0.4)
1.5
0.7
0.8
1.5
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 one and ten years.
Warranty provisions
The Group makes provision to cover known potential warranty issues. The provision represents the Directors’ best estimate of the costs
associated with this obligation. The timing of the utilisation is variable depending on the circumstances of each individual claim under
warranty.
24 DEFERRED TAX
The movement in the net deferred tax liability is as follows:
At 1 January
Charged to Statement of Comprehensive Income
Charged to equity
At 31 December
2021
£m
(3.5)
(3.1)
—
(6.6)
2020
£m
(2.6)
(0.8)
(0.1)
(3.5)
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. There are no unrecognised deferred tax assets. The vast
majority of the deferred tax liability is expected to unwind over a period greater than one year.
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
2021
£m
—
0.6
0.6
Liability
2021
£m
(7.2)
—
(7.2)
Statement of
Comprehensive
Income
2021
£m
(3.4)
0.3
(3.1)
Net
2021
£m
(7.2)
0.6
(6.6)
Equity
2021
£m
—
—
—
Eurocell plc Annual Report and Accounts 2021
149
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
24 DEFERRED TAX CONTINUED
Accelerated capital allowances/intangible fixed assets
Other temporary differences
Net tax assets/(liabilities)
Asset
2020
£m
—
0.3
0.3
Liability
2020
£m
(3.8)
—
(3.8)
Statement of
Comprehensive
Income
2020
£m
(0.8)
—
(0.8)
Net
2020
£m
(3.8)
0.3
(3.5)
Equity
2020
£m
—
(0.1)
(0.1)
Amounts within other comprehensive income due to be settled in greater than one year are not material and therefore no further
disclosure has been provided. Other temporary differences relate to the tax impact of share-based payment transactions and tax losses
deemed to be recoverable in future periods.
25 SHARE CAPITAL
Ordinary shares of £0.001 each
Ordinary shares of £0.001 each
Share premium account
Allotted, called up and
fully paid
2021
Number
2020
Number
111,972,477 111,486,709
2021
£m
0.1
21.9
2020
£m
0.1
21.1
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.
The Group issued 298,061 (2020: 1,030,189) new shares in respect of its Save As You Earn sharesave scheme, in the process receiving
consideration from employees of £0.5 million (2020: £1.6 million). The consideration received above the nominal value of the shares
issued has been recorded as share premium.
During the year no (2020: none) shares were issued in respect of share-based payment transactions for Directors and 187,707
(2020: 90,127) shares vested and were issued in respect of share-based payment transactions for other key management personnel.
26 SHARE-BASED PAYMENTS
The Group enters into equity-settled payment transactions with its employees. For the year ended 31 December 2021, the share-based
payment charge was £1.2 million (2020: £0.3 million). A corresponding credit to equity is recognised in the share-based payment reserve.
On exercise of options, balances are removed from the share-based payment reserve with corresponding entries made to share
premium, retained earnings and cash. The balance on the share-based payment reserve at 31 December 2021 was £1.1 million
(2020: £0.5 million).
a) Employee Save As You Earn scheme
Each year all employees have the right to participate in a Save As You Earn (‘SAYE’) scheme. Employees may make monthly contributions
of up to £500, the proceeds being aggregated and then used to purchase ordinary shares at the end of the three-year vesting period.
The cost to the participants is set at the inception of the scheme, with the balance being funded by the Company. Typically, participants
are offered a discount on the share price at the date of issuance.
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Corporate
Governance
Set out below are summaries of options granted under the plan:
As at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
Vested and exercisable at 31 December
2021
2020
Average
exercise price per
share option
£
1.773
1.832
1.704
1.704
1.817
Average
exercise price per
share option
£
1.692
1.720
1.632
1.632
1.773
Number
of options
1,561,217
925,755
(298,061)
(183,408)
2,005,503
—
Number
of options
2,757,495
627,823
(1,030,189)
(793,912)
1,561,217
—
The weighted average share price at the date of exercise of options exercised during the year ended 31 December 2021 was £2.70.
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Grant date
1 June 2017
1 June 2018
1 June 2019
1 June 2020
1 June 2021
Expiry date
1 June 2020
1 June 2021
1 June 2022
1 June 2023
1 June 2024
Exercise price
£
31 December
2021
Number
31 December
2020
Number
1.632
1.704
1.920
1.720
1.832
—
—
451,925
627,823
925,755
—
481,469
451,925
627,823
—
2,005,503
1,561,217
Weighted average remaining contractual life of options outstanding at end of period.
1.65 years
1.51 years
Fair value of options granted
The assessed fair value at grant date of options granted during the year ended 31 December 2021 was £0.28 per option. The fair value
at the grant date is determined using a form of the Black-Scholes model.
Options are granted for the consideration set at the inception of the scheme. The model inputs for options granted during the year ended
31 December 2021 included:
Grant date
Expiry date
Exercise price
Share price at grant date
Expected price volatility of the Company's shares
Expected dividend yield
Risk-free interest rate
2021
1 June 2021
1 June 2024
£1.832
£2.080
20%
4%
1%
The expected price volatility is based on the historical volatility (based on the remaining life of the options), adjusted for any expected
changes to future volatility due to publicly available information.
Eurocell plc Annual Report and Accounts 2021
151
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
26 SHARE-BASED PAYMENTS CONTINUED
b) Deferred Share Plan
Annual Bonus Plan outcomes can be paid in a mix of cash and deferred shares granted under the Company’s Deferred Share Plan
(‘DSP’), following the determination of achievement against performance measures and targets. Performance measures applied may
be financial or non-financial and corporate, divisional or individual and in such proportions as the Remuneration Committee considers
appropriate. The maximum level of Annual Bonus Plan outcomes is 100% of base salary per annum for the duration of this policy. Awards
under the DSP are deferred for such a period as the Remuneration Committee considers to be appropriate which will normally be less
than (but may be longer than) three years, and are subject to continued employment.
The following table shows the deferred shares granted and outstanding at the beginning and end of the reporting period:
As at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
Vested and exercisable at 31 December
2021
Number
of options
575,498
—
(187,707)
(62,509)
325,282
—
2020
Number
of options
169,685
488,391
(82,578)
—
575,498
—
Weighted average remaining contractual life of options outstanding at end of period
1.45 years
1.55 years
Fair value of options granted
The fair value at the grant date is determined using a form of the Black-Scholes model. No DSP options were granted in 2021.
The assessed fair value at grant date of the rights granted during the year ended 31 December 2020 was between £1.46 and £1.92
per option, a weighted average of £1.58 per option.
c) Long-term incentive plan (‘PSP’)
Awards under the PSP take the form of nil-cost options which vest to the extent performance conditions are satisfied over a period of
at least three years. The share award is based on a percentage of salary, a proportion of the maximum will vest based on performance
targets of which earnings per share equates to two-thirds of the award and cash flow one-third of the award. Vested awards may also be
settled in cash and the PSP allows for awards over shares with a maximum value of 150% of base salary per financial year.
The following table shows the deferred shares granted and outstanding at the beginning and end of the reporting period:
As at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
Vested and exercisable at 31 December
2021
Number
of options
1,749,941
884,402
—
(561,283)
2020
Number
of options
1,309,316
505,731
—
(65,106)
2,073,060
1,749,941
—
—
Weighted average remaining contractual life of options outstanding at end of period.
1.59 years
1.48 years
Fair value of options granted
The fair value at the grant date is determined using a form of the Black-Scholes model. The assessed fair value at grant date of the rights
granted during the year ended 31 December 2021 was between £2.29 and £2.44 per option, the weighted average price was £2.30
(2020: £1.69), and the share price at 31 December 2021 was £2.41.
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Corporate
Governance
d) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were
as follows:
Options issued under SAYE scheme
Deferred shares issued under the DSP scheme
Shares issued under the PSP scheme
2021
£m
0.1
0.4
0.7
1.2
2020
£m
0.1
0.2
—
0.3
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 2021 the bank borrowings were £12.0 million (2020: £13.0 million).
The Group had no other material contingent assets or liabilities (31 December 2020: £nil).
28 CAPITAL COMMITMENTS
The Group had capital commitments of £8.1 million at the balance sheet date (2020: £1.0 million).
29 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
£2.3 million (2020: £1.9 million).
30 RELATED PARTY TRANSACTIONS
The Group’s subsidiary undertakings are detailed in Note 37. The Group has taken advantage of the exemption from disclosing
transactions with wholly owned subsidiaries.
Transactions with key management personnel
The remuneration of Executive and Non-executive Directors is disclosed on pages 91 to 108.
Other related party transactions
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
Amounts outstanding at the period end were £nil (31 December 2020: £3,000).
2021
£000
147
31 RECONCILIATION OF PROFIT/(LOSS) AFTER TAX TO CASH GENERATED FROM OPERATIONS
Profit/(loss) 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
Impairment of goodwill
Impairment of right-of-use assets
Share-based payments
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Increase in provisions
Cash generated from operations
2021
£m
21.1
5.9
2.0
29.0
7.7
13.1
1.9
—
(0.4)
1.2
(17.8)
(6.0)
4.4
—
33.1
2020
£000
48
2020
£m
(2.2)
0.7
2.2
0.7
6.8
12.4
1.6
5.8
0.9
0.3
(0.8)
2.4
3.1
0.7
33.9
Eurocell plc Annual Report and Accounts 2021
153
FinancialStatements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
32 RECONCILIATION OF NET DEBT
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Borrowings
Total
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Borrowings
Total
1 January
2021
£m
7.1
(4.5)
(48.4)
(12.5)
(58.3)
1 January
2020
£m
4.9
—
(34.1)
(39.5)
(68.7)
Cash flows
£m
New leases
£m
Non-cash
movements*
£m
31 December
2021
£m
(0.5)
(1.4)
11.3
1.0
10.4
—
—
(20.6)
—
(20.6)
—
—
(1.0)
(0.2)
(1.2)
6.6
(5.9)
(58.7)
(11.7)
(69.7)
Cash flows
£m
New leases
£m
Non-cash
movements*
£m
31 December
2020
£m
2.2
(4.5)
12.0
27.2
36.9
—
—
(26.3)
—
(26.3)
—
—
—
(0.2)
(0.2)
* Non-cash movements relate to the amortisation of arrangement fees in respect of the Group’s borrowings and finance charges accrued on leases.
31 December 2021
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Borrowings
Total
31 December 2020
Cash and cash equivalents
Bank overdrafts
Lease liabilities
Borrowings
Total
Current
assets
£m
6.6
—
—
—
6.6
Current
assets
£m
7.1
—
—
—
7.1
Current
liabilities
£m
Non-current
liabilities
£m
—
(5.9)
(11.9)
—
(17.8)
Current
liabilities
£m
—
(4.5)
(8.9)
—
(13.4)
—
—
(46.8)
(11.7)
(58.5)
Non-current
liabilities
£m
—
—
(39.5)
(12.5)
(52.0)
33 EVENTS AFTER THE BALANCE SHEET DATE
The Directors are not aware of any material events that have occurred after 31 December 2021 which would require disclosure under
IAS 10.
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Eurocell plc Annual Report and Accounts 2021
7.1
(4.5)
(48.4)
(12.5)
(58.3)
Total
£m
6.6
(5.9)
(58.7)
(11.7)
(69.7)
Total
£m
7.1
(4.5)
(48.4)
(12.5)
(58.3)
Strategic Report
Corporate
Governance
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Assets
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Deferred tax
Cash and cash equivalents
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
37
38
39
40
41
25
2021
£m
17.8
17.8
42.1
0.3
—
42.4
60.2
(0.2)
(0.2)
(11.7)
(11.7)
(11.9)
48.3
0.1
21.9
1.1
25.2
48.3
2020
£m
17.8
17.8
46.7
0.1
0.1
46.9
64.7
—
—
(12.5)
(12.5)
(12.5)
52.2
0.1
21.1
0.5
30.5
52.2
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 loss of £1.8 million in the year (2020: loss of £0.8 million).
The Financial Statements on pages 155 to 163 were approved and authorised for issue by the Board of Directors on 17 March 2022 and
were signed on its behalf by:
Mark Kelly
Director
Michael Scott
Director
Eurocell plc Annual Report and Accounts 2021
155
FinancialStatements COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Balance at 1 January 2021
Comprehensive expense for the year
Loss for the year
Total comprehensive expense for the year
Contributions by and distributions to owners
Share capital issued
Exercise of share options
Share-based payments
Dividends paid
Total transactions with owners recognised directly
in equity
Balance at 31 December 2021
Balance at 1 January 2020
Comprehensive expense for the year
Loss for the year
Total comprehensive expense for the year
Contributions by and distributions to owners
Share capital issued
Exercise of share options
Share-based payments
Deferred tax on share-based payments
Total transactions with owners recognised directly
in equity
Balance at 31 December 2020
Share
capital
£m
0.1
—
—
—
—
—
—
—
0.1
Share
capital
£m
0.1
—
—
—
—
—
—
—
0.1
Share
premium
account
£m
21.1
—
—
—
0.8
—
—
0.8
21.9
Share
premium
account
£m
2.4
—
—
17.1
1.6
—
—
18.7
21.1
Share-based
payment
reserve
£m
0.5
—
—
—
(0.6)
1.2
—
0.6
1.1
Share-based
payment
reserve
£m
0.9
—
—
—
(0.6)
0.3
(0.1)
(0.4)
0.5
Retained
earnings
£m
30.5
(1.8)
(1.8)
—
0.1
—
(3.6)
(3.5)
25.2
Retained
earnings
£m
30.7
(0.8)
(0.8)
—
0.6
—
—
0.6
30.5
Total
equity
£m
52.2
(1.8)
(1.8)
—
0.3
1.2
(3.6)
(2.1)
48.3
Total
equity
£m
34.1
(0.8)
(0.8)
17.1
1.6
0.3
(0.1)
18.9
52.2
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Corporate
Governance
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
34 ACCOUNTING POLICIES (COMPANY)
Corporate information
Eurocell plc (the ‘Company’) is a publicly listed company incorporated and domiciled in the United Kingdom. The registered office is
located in England, at the following address: Eurocell Head Office and Distribution Centre, High View Road, South Normanton, Alfreton,
DE55 2DT.
The Company is principally engaged as a holding company for its subsidiaries which are engaged in the extrusion and supply 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 (see below).
These Financial Statements have been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework
in conformity with the requirements of the Companies Act 2006 (‘FRS 101’) and the applicable legal requirements of the Companies
Act 2006.
These Financial Statements have been prepared under the historical cost convention in accordance with FRS 101 and the Companies
Act 2006.
Going concern
The position of the Company mirrors that of the Eurocell Group. The Eurocell Group funds its activities through a £75 million Revolving
Credit Facility, provided by Barclays and HSBC, which matures in December 2023. The facility includes two key financial covenants,
which are tested at 30 June and 31 December on a pre-IFRS 16 basis. These are that net debt should not exceed 3 times adjusted
EBITDA (Leverage), and that adjusted EBITDA should be at least 4 times the interest charge on the debt (Interest Cover). Adjusted
EBITDA is defined as operating profit before depreciation, amortisation and non-underlying items. See alternative performance
measures on page 132.
For the next measurement period, being 31 December 2021, and going forward, the Group expects to comply with its covenants.
In assessing going concern, the Directors have considered financial projections for the period to December 2024, which is consistent
with the Board’s strategic planning horizons. These forecasts have been compiled based on the best estimates of our commercial and
operational teams. This includes a ’Downside’ scenario, which reflects demand for our products being severely weakened.
In all scenarios tested, including sensitivities reducing sales forecasts to 10% below management’s estimates for the period 2022–24,
the Group operates with significant headroom on its RCF facility and remains compliant with its original covenants.
After reviewing the Group’s projected financial performance and financing arrangements, the Directors consider that the Group has
adequate resources to continue operating and that it is therefore appropriate to continue to adopt the going concern basis in preparing
these Financial Statements.
Changes in accounting policies and disclosures applicable to the Company
The Company adopted no new accounting standards in the year.
Investments in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.
Financial assets
The Company’s financial assets comprise trade and other receivables and cash and cash equivalents in the balance sheet. The Company
records all of its financial assets at amortised cost and has not classified any of its financial assets as fair value through profit and loss or
other comprehensive income.
Financial assets are non-derivative assets with fixed or determinable payments that are not quoted in an active market. They arise
principally through the provision of funding to Group companies, 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.
Eurocell plc Annual Report and Accounts 2021
157
FinancialStatements NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
34 ACCOUNTING POLICIES (COMPANY) CONTINUED
Financial assets continued
The Company applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for
intra-group receivables.
Expected loss rates are derived based upon the payment profile of Group companies over a three-year period up to the reporting date,
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 Group companies 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,
there is an impact on the carrying value of amounts owed by Group undertakings and the amount credited or charged on a net basis to
operating expenses within the Statement of Comprehensive Income.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
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.
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).
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Eurocell plc Annual Report and Accounts 2021
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Corporate
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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).
Paragraphs 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).
Paragraphs 17 and 18A 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 two or more members
of a group.
35 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company 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) Recoverability of amounts owed by Group undertakings
The Company applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for
amounts owed by Group undertakings. Expected loss rates are derived based upon the payment profile of Group companies over a
three-year period up to the reporting date, 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 Group companies 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, there is an impact on the carrying value of amounts receivable from
Group undertakings and this amount is credited or charged on a net basis to operating expenses within the Statement of Comprehensive
Income. The key judgement is the extent to which macroeconomic factors impact upon the recoverability of amounts owed by Group
companies.
If loss rates were, on average, 100 basis points higher than current estimates, the provision for impairment would increase by less than
£500,000.
36 EMPLOYEE BENEFITS EXPENSE
Staff costs (including Directors) comprise:
Wages and salaries
Social security costs
2021
£m
0.3
—
0.3
2020
£m
0.3
—
0.3
The average number of monthly employees was four (2020: four), all of whom are Directors of the Company.
Eurocell plc Annual Report and Accounts 2021
159
FinancialStatements NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
36 EMPLOYEE BENEFITS EXPENSE CONTINUED
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 Company, which is considered to be the Directors of the Company.
Emoluments
Share-based payments
Pension and other post-employment benefit costs
2021
£m
1.6
0.5
0.1
2.2
2020
£m
0.9
0.1
0.1
1.1
The emoluments are paid by Eurocell Group Limited. Directors’ remuneration is set out in the Remuneration Report on pages 91 to 108.
During the year, retirement benefits were accruing to two Directors in respect of defined contribution pension schemes (2020: two).
The highest paid Director received remuneration of £879,000 (2020: £466,000).
99,267 share options were exercised by Directors of the Company during the current year (2020: 63,322), of which 60,571 were
exercised by the highest paid Director.
The value of contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £60,000
(2020: £57,000).
37 INVESTMENTS
Cost
At 31 December 2020 and at 31 December 2021
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:
Holding
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
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
2021
100%
100%
100%
100%
100%
100%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2020
100%
100%
100%
100%
100%
100%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* Directly held by Eurocell plc.
** Ecoplas Limited is treated as a wholly-owned subsidiary for the purposes of consolidating the Financial Statements due to the fact that the remaining 5% shareholding is held
under a put and call option which expires in 2024.
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Corporate
Governance
All of the above have a registered address of Eurocell Head Office and Distribution Centre, High View Road, South Normanton, Alfreton,
Derbyshire, DE55 2DT.
The Company assesses that the recoverable amounts of these investments are supportable. Recoverable amounts 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.
All of the Company’s CGUs operate principally in the UK Repair, Maintenance and Improvements market, and all are funded through a
combination of retained earnings and the Group’s Revolving Credit Facility. The strategic decision-making time frame is also consistent
across all CGUs. Consequently, the key assumptions detailed below are applied consistently across the Group’s entities:
Period on which management-approved forecasts are based (years)
Discount rate (pre-tax)
Profit growth rate in perpetuity
38 TRADE AND OTHER RECEIVABLES
Prepayments and other debtors
Amounts owed by Group undertakings
Total trade and other receivables
2021
3
12%
2%
2021
£m
0.5
41.6
42.1
2020
3
11%
2%
2020
£m
0.5
46.2
46.7
Amounts owed by Group undertakings attract interest of 1% 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, receivables have been grouped based on shared characteristics and days past due.
The Directors have assessed the risk of impairment of its amounts owed by Group undertakings as at 31 December 2021. After
considering the projected future cash flows expected to arise in its subsidiary entities, the Directors believe that any provision over the
amounts owed by Group undertakings are trivial.
39 DEFERRED TAX
At 1 January
Charged to equity
Credited/(charged) to the Statement of Comprehensive Income
At 31 December
2021
£m
0.1
—
0.2
0.3
2020
£m
0.3
(0.1)
(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 Statement of Comprehensive Income and amounts recognised in Other
Comprehensive Income are as follows:
Other temporary differences
Net tax assets
Asset
2021
£m
0.3
0.3
Liability
2021
£m
—
—
Statement of
Comprehensive
Income
2021
£m
0.2
0.2
Net
2021
£m
0.3
0.3
Equity
2021
£m
—
—
Eurocell plc Annual Report and Accounts 2021
161
FinancialStatements NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 December 2021
39 DEFERRED TAX CONTINUED
Other temporary differences
Net tax assets
Asset
2020
£m
0.1
0.1
Liability
2020
£m
—
—
Statement of
Comprehensive
Income
2020
£m
(0.1)
(0.1)
Net
2020
£m
0.1
0.1
Amounts within other comprehensive income due to be settled in greater than one year are not material and therefore no further
disclosure has been provided.
40 TRADE AND OTHER PAYABLES
Trade and other payables
Total current liabilities
Book values approximate to fair value at 31 December 2021 and 2020.
Trade payables are non-interest-bearing and are generally settled on 30-60 day terms.
41 BORROWINGS
The book value and fair value of borrowings are as follows:
2021
£m
0.2
0.2
Equity
2020
£m
(0.1)
(0.1)
2020
£m
—
—
Non-current
Bank borrowings unsecured
Total borrowings
Book value
2021
£m
Fair value
2021
£m
Book value
2020
£m
11.7
11.7
11.7
11.7
12.5
12.5
Fair value
2020
£m
12.5
12.5
In March 2020 the Company amended its multi-currency revolving unsecured credit facility held with Barclays Bank plc and HSBC UK
Bank plc, increasing the facility from £60 million to £75 million, but with all other key terms remaining unchanged. Costs amounting
to £0.2 million were incurred in amending the facility. These costs have been capitalised and are being released to the Statement of
Comprehensive Income over the period of the facility, which expires in December 2023.
Borrowings of £12.0 million were drawn down at 31 December 2021 (2020: £13.0 million). Total unamortised costs, which are presented
as a deduction to borrowings, were £0.3 million as at 31 December 2021 (2020: £0.5 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). Details of the Company’s banking covenants are given in Note 3.
Based upon current economic and market trends, management considers that the Sterling SONIA rate (which replaced LIBOR in 2021)
will remain relatively stable during the next year, and any changes, when applied to the current bank borrowings of £12.0 million would
not lead to a significant change in finance expense.
All borrowings are denominated in Sterling.
162
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Strategic Report
Corporate
Governance
42 RELATED PARTY TRANSACTIONS
Transactions with key management personnel
The remuneration of Executive and Non-executive Directors is disclosed on pages 91 to 108. The Group has taken advantage of the
exemption from disclosing transactions with wholly owned subsidiaries.
Other related party transactions
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
Amounts outstanding at the year end were £nil (31 December 2020: £3,000).
2021
£000
147
2020
£000
48
Eurocell plc Annual Report and Accounts 2021
163
FinancialStatements COMPANY INFORMATION
For the year ended 31 December 2021
Directors
Bob Lawson
Frank Nelson
Martyn Coffey
Sucheta Govil
Mark Kelly
Michael Scott
Registered Number
08654028
Registered Office
Independent Auditors
Bankers
Eurocell Head Office and Distribution Centre
High View Road
South Normanton
Alfreton
DE55 2DT
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
For more investor information,
visit www.eurocell.co.uk/investors
Eurocell Head Office and Distribution Centre
High View Road
South Normanton
Alfreton
DE55 2DT
164
Eurocell plc Annual Report and Accounts 2021
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Eurocell plc
High View Road
Alfreton
Derbyshire
DE55 2DT