The UK’s leader in replacement windows and doors 2015 ANNUAL REPORT UK PLC SAFESTYLE UK MARKET POSITION 9.46% MARKET SHARE “Market share increased for the 11th consecutive year as Safestyle UK consolidates its position as market leader.” Strategic Report Governance 32 34 38 Directors’ report Remuneration report Independent auditors report Financial Statements 40 41 42 43 44 Consolidated income statement Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements 3 4 5 6 7 8 10 12 14 16 18 19 20 21 22 24 26 28 29 30 31 Satisfied customers 2015 financial & operational highlights The group at a glance Ÿ Trustworthy Ÿ Ÿ Market leaders Ÿ Market dynamics Our business cycle Great value product range Chairman’s statement CEO statement Our route to outperform the market Strategic process Ÿ Growing the power of the brand Ÿ Product range and unbeatable value Ÿ Manufacturing improvements Ÿ Digital technology Financial review Principal risks and uncertainties Board of Directors Focussed and committed Ÿ The Safestyle team Ÿ Growing talent for the future Ÿ Here to help Ÿ Corporate social responsibility P2 - Safestyle UK PLC Annual Report and Accounts 2015 2015 FINANCIAL & OPERATIONAL HIGHLIGHTS +9.5% +9.0% +7.1% +9.8% +7.3% +7.9% +10.6% +11.5% . m 8 4 2 1 £ e u n e v e R . m 0 6 3 1 £ . m 9 8 4 1 £ T B P * g n i y l r e d n U . m 3 5 1 £ . m 8 6 1 £ m 0 8 1 £ . A D T I B E * g n i y l r e d n U m . 1 6 1 £ m 8 7 1 £ . m . 1 9 1 £ ) p ( S P E * d e t s u d A j p 8 4 1 . p 5 6 1 . p 8 7 1 . 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 * Excludes costs relating to admission fees and historic tax settlement. Reported figures shown on page 40 +5.6% +3.8% 4 0 7 2 £ , 6 0 8 2 £ , 3 6 9 2 £ , e u l a v r e d r o d e l l a t s n i e g a r e v A +5.4% +4.4% +7.0% +4.3% +4.7% e c i r p e m a r f e g a r e v A +1.6% 6 9 4 £ 4 0 5 £ 1 3 5 £ d e l l a t s n i s e m a r F 5 8 1 , 0 5 2 £ , 2 4 6 7 6 2 £ , 3 5 4 9 7 2 £ d e l l a t s n i s r e d r O 2 1 1 , 5 5 2 8 6 7 5 , 4 3 1 , 0 6 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 P3 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - TRUSTWORTHY A STRONG REPUTATION “Quality product and quality service. We had two bay windows installed, very pleased with the overall service from the first visit from the representative, the professional and obliging fitters and the after service facility. I have no hesitation to recommend this company to any prospective purchaser of windows and doors. The quality of the windows and service is highly recommended.” Mr Peck, Burton-upon-Trent, January 2016 Safestyle UK is proud to be rated as the top double glazing and conservatory company by reviewers on reviewcentre.com P4 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - SATISFIED CUSTOMERS speaking from experience 87% of our customers would recommend us, placing Safestyle number one for double glazing according to the independent Review Centre* * as at Feb 17, 2016 FANTASTIC JOB “People have commented in the street how good it looks, a neighbour of ours is having the same thing done. So quiet when the traffic is going by outside, fantastic.” Mr & Mrs Baldwin, Knaresborough, June 2015 P5 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - MARKET LEADERS Safestyle is the market leader in the UK replacement windows and door market, providing high quality, energy efficient products with expert installation and a fully serviced 10 year guarantee. The UK domestic consumer market is serviced through 34 sales branches and 12 distribution depots. Number one in England and Wales since 2012 Market share growth accelerated 9.46% in 2015 60,134 installations in 2015 that’s 164 improved homes every day Manufacturing excellence centre in Barnsley New premium ranges and replacement conservatories giving growth potential Consistent and progressive growth in revenue and profits Regional map of installations within last three years, each dot represents a postcode with at least one Safestyle UK installation P6 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - MARKET DYNAMICS In a highly fragmented market Safestyle offers consumers compelling reasons to choose us as a provider. 1 2 3 4 5 Great value Unrivalled finance options Attractive range of products High quality service Strong reputation MARKET SHARE 60% Local companies Often small and including some general builders rather than specialists Safestyle UK Focussed and highly competitive 9.5% National brands With a wider home improvement focus 10.5% Regional providers With a limited geographic reach and lower efficiencies of scale 20% Board of Directors estimates of market share P7 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - OUR BUSINESS CYCLE Lead generation Ÿ Brand development Ÿ Focussed campaigning via TV, digital and canvassing Sales opportunities Ÿ Great value range of products and credit options Ÿ Strong reputation and trust Safestyle aims to be recognised as the UK’s number one replacement window and door company. Surveying & contracting Ÿ Ensuring compliance with regulation and best practice Ÿ Preparing for manufacturing and installation P8 - Safestyle UK PLC Annual Report and Accounts 2015 THE GROUP AT A GLANCE - OUR BUSINESS CYCLE Aftercare & loyalty Ÿ No quibble ten year insurance backed guarantee Ÿ National aftercare maintenance team Bespoke manufacturing Ÿ Manufacturing excellence centre in Barnsley Ÿ High efficiency and significant economies of scale Expert installation Ÿ Specialist BTEC qualifications or training for all installation teams Ÿ Highly commended service leading to industry leading testimonials and reviews P9 - Safestyle UK PLC Annual Report and Accounts 2015 GREAT VALUE PRODUCT RANGE EcoDiamond WINDOWS A-Rated energy efficient windows EcoDiamond UPVC DOORS Traditional panel doors with modern features EcoDiamond BI-FOLD DOORS Transforming living spaces P10 - Safestyle UK PLC Annual Report and Accounts 2015 EcoDiamond REPLACEMENT CONSERVATORIES A modern conservatory to be used all year round PREMIUM PRODUCT RANGE GuardDoor COMPOSITE DOOR RANGE TM HERITAGE WINDOWS Pavilion CONSERVATORY REPLACEMENT RANGE Inspire BI-FOLD DOORS High specification, high security doors, very popular range. Beautiful windows, hand crafted finish. Great option for period homes. Luxury high performance conservatory upgrades. Class leading energy efficiency, striking modern looks and appeal. P11 - Safestyle UK PLC Annual Report and Accounts 2015 CHAIRMAN’S STATEMENT The Group has again delivered record revenue, market share and profit. Revenue increased 9.5% to £148.9m (2014: £136.0m). I am pleased to report the Group's results for the year ended 31 December 2015. Summary of Financial Performance The Group has again delivered record revenue, market share and profit. Revenue increased 9.5% to £148.9m (2014: £136.0m), delivering profit before tax of £17.6m, up 7.3% (2014: £16.4m). Earnings per share increased 7.9% to 17.8p (2014: 16.5p). As expected, after a slower first half in terms of profit growth, we delivered significant growth in the second half as a number of initiatives began to bear fruit. This included further refinements to our advertising and online strategies, the delivery of our enhanced range of consumer finance offerings, and the launch of our conservatory refurbishment programme. In the second half, revenue was up 12% and profit before tax up 13%, very creditable results in a market that, in overall terms, contracted in the period. Market Share FENSA data reported a 6.6% contraction in the overall market in 2015. However, Safestyle UK has continued to grow and to gain market share, which increased to 9.46% for the year to 31 December 2015, up from 8.48% a year earlier. Factory Expansion Plans Since 2008, the Group has delivered sustained growth, with installations up from 40,700 in 2008 to 60,134 in 2015. Throughout this period, we have invested in our manufacturing facilities, with total expenditure on fixed assets, excluding freehold properties, of £6.2 million in the last five years. Steve Halbert P12 - Safestyle UK PLC Annual Report and Accounts 2015 To ensure we continue to capture manufacturing efficiencies and have the capacity to handle further increase in demand for our products, the Board has approved the development of further manufacturing space and an additional glass furnace, adjacent to our existing freehold facilities at Wombwell, South Yorkshire. The Group owns the adjoining site, on which we have planning permission to construct a 5,750 sq m factory extension. We expect to increase our production capacity by up to 50% when fully operational, and by up to 100% once we have fully utilised all available space. We have committed up to £7.25m for this project, with expenditure commencing in Q2 2016 and the facilities operational by Q3 2017. The investment will be funded from current cash resources through 2016 and the first half of 2017. Balance Sheet, Final Dividend and Special Dividend The business continues to be highly cash generative, with 2015 cash conversion (the ratio of net cash inflow from operating activities, before taxation to underlying EBITDA,) at 95%, compared with 88% for 2014. As a consequence, our balance sheet remains strong and the business had £16.5m net cash at 31 December 2015, an increase of £8.0m in the year. The Board recommends, subject to approval at the Annual General Meeting to be held on 19 May 2016, a final dividend of 6.8p per share payable to ordinary shareholders registered on 17 June 2016. Together with our interim dividend already paid of 3.4p per share, this takes total proposed distributions up to 10.2p per share, representing cover of circa 1.78x. The Board has also considered the levels of resources it needs for its future plans. Our policy is to maintain cash resources for investment in manufacturing and other operating facilities, and to maintain a buffer in the event of a sustained period of market regression. This is reflected in our historic dividend cover. We also seek to have sufficient flexibility in our funding structure to take advantage of strategic growth opportunities that may from time to time become available. The Board is committed to returning excess capital to shareholders where our cash resources are materially in excess of investment requirements. In keeping with our capital allocation policy and taking into account the Group's current financial strength, our anticipated trading performance, our known and anticipated investment plans, and the level of cash available, the Board is proposing that cash amounting to £5.5m (6.8p per share) will be returned to shareholders in the form of a special dividend, payable at the same time as the final dividend, to shareholders registered on 17 June 2016. Looking Ahead We expect to continue to deliver market out performance, gaining market share and growing in absolute terms. This reflects the compelling nature of our proposition from financial, aesthetic and energy efficiency perspectives. We have a suite of products that represent excellent value, we have invested heavily in technology to enhance the customer proposition, and we have an outstanding leadership team which drives excellent performance. So far this year to date, I am pleased to report that order intake has been significantly ahead of the same period in 2015 and the Board looks forward to further progress in 2016. I would like to thank our many stakeholders, and especially our employees, for their commitment and contribution to our continued success. RS Halbert, Chairman, 17 March 2016 P13 - Safestyle UK PLC Annual Report and Accounts 2015 CEO STATEMENT In 2015 Safestyle's market share increased for the eleventh consecutive year to 9.46% (from 8.48% in 2014) consolidating our sector leading position. I am pleased to report that Safestyle UK enjoyed a record year in 2015 and I would like to formally express my thanks to all our people for their dedicated hard work and loyalty. Business Review In 2015 Safestyle's market share increased for the eleventh consecutive year to 9.46% (from 8.48% in 2014) consolidating our sector leading position. During the period we carried out a record 60,134 installations (up 4.4% on 2014) consisting of 279,453 window and door frames. Our average frame sales price excluding VAT increased by 5.4% to £531 and our average installed order value increased from £2,806 to £2,963. This strong operational performance resulted in increased revenue up 9.5% to £148.9m and profit before tax up 7.3% from £16.4m in 2014 to £17.6m in 2015. We continued to expand our sales branch network in the South of England with new branch openings in Watford in February 2015 and in Guildford on 1 January 2016. In addition we also responded to increased demand throughout the rest of the country by opening new sales branches in Newcastle and Stockport. During 2016 we will seek to expand our sales branch network in line with strategy by identifying locations in which we are relatively underrepresented in relation to our target customer base. We added an installation depot in Stevenage in the last quarter of 2015 and now have a network of 12 installation depots. Leads generated from our digital activities and direct response channels accounted for 37% of all business in 2015, a significant increase on the 31% in 2014. Lead generation from door canvassing remains an important part of the marketing mix and although the value of business from this source remained constant in 2015 it reduced to under 50% as a proportion of the total. Our continuing increased investment in direct Steve Birmingham P14 - Safestyle UK PLC Annual Report and Accounts 2015 and digital marketing will be a key factor in gaining market share and reducing average lead generation costs. From 1 July 2015 we enhanced our consumer finance offer which resulted in a significant step up in order intake. This growth came with additional subsidy costs which we have sought to recover with an increase in our prices from 1 January 2016. Early indications are that despite this price increase we expect to maintain our market leading price and value proposition. Manufacturing Expansion Plan As part of our five year asset replacement plan during 2015 we invested in a new machining and cutting centre at our Wombwell manufacturing facility. In addition, in February 2016 we committed to constructing a new 5,750 sq m factory adjacent to our existing freehold facilities in Wombwell, South Yorkshire. Construction of the new factory is expected to commence in the second half of 2016 and be completed in the first half of 2017. On completion this factory will house a new glass toughening furnace replacing the current furnace which is 12 years old and the glass manufacturing process. This will bring the manufacturing of both the frames and double glazed units to a single site which will reduce handling and increase efficiency. The remaining increased manufacturing area in the new factory will allow us to extend and optimise our manufacturing operations, improve our product quality and provide sufficient capacity for the foreseeable future. On vacation it is intended to use the current glass manufacturing factory for the manufacture of non standard and specialist bought in items. Product Development In April 2015 we launched our conservatory upgrade product to an initial eight selected sales branches. Following proof of concept we then rolled out the product to all our sales branches. Order intake in the second half of 2015 and in the first two months of 2016 has continued to gain momentum and suggests that our target number of installed conservatory upgrades of 450 in 2016 will be comfortably met. At the beginning of 2016 we launched our Heritage range of PVCu windows and doors, which are intended to reproduce the authentic look of traditional timber, our Inspire aluminium bi-folding doors and in spring 2016 we will be launching three new coloured PVCu frames to enhance our product offering. The Board believes that as more customers look to replace their existing double glazed PVCu products an increased variety of options will be an important factor in their decision making process. Outlook During 2016 we will continue our drive to grow market share and expand our sales branch network. We will continue to invest in our manufacturing equipment and will commence a major expansion of our factory. We have established a solid foundation following our entry into the conservatory refurbishment market in 2015 and expect growth in this exciting area to accelerate in 2016. Our robust cash generation and strong financial position will enable the Group to make the substantial investment in its infrastructure outlined without compromising returns to our shareholders. Furthermore we will maintain sufficient flexibility to take advantage of any strategic opportunity to enhance our market leading position should any such opportunity arise. We believe that our enhanced range of energy efficient products, compelling consumer finance options and value proposition will continue to drive growth in a highly fragmented market. The Group again delivered record results in 2015 and it is our intention to continue our successful progress in 2016. Early indications for the first two months of 2016 are very encouraging and we have started the year well. S.J. Birmingham FCA, CEO, 17 March 2016 P15 - Safestyle UK PLC Annual Report and Accounts 2015 STRATEGIC PROGRESS 1 2 3 Strengthen the brand Grow the product range Ÿ Better lead volume Ÿ Better sales conversion Ÿ Higher ROI from marketing Ÿ New premium and value ranges Ÿ Wider selection of modern colours Ÿ Enhances brand appeal Ÿ Creates cross selling opportunities Compelling consumer finance offers Ÿ Industry leading finance options Ÿ Two years interest free popular Ÿ Competitive advantage. 2 INTEREST FREE YEARS P16 - Safestyle UK PLC Annual Report and Accounts 2015 OUR ROUTE TO OUTPERFORM THE MARKET 4 5 6 Expand territory and awareness Trusted quality Efficiency and effectiveness Ÿ Factory expansion and remodelling Ÿ Digital processes to aid sales and financing Ÿ Grow brand and operations in South and South East Ÿ Returns are increasing in Midlands and North Ÿ Scalable and organic route to growth Ÿ Continued investment on quality products and services Ÿ Customer satisfaction ratings are industry leading (independent consumer site reviewcentre.com rates Safestyle as their number one with more than double the number of 5 star reviews than second ranked company) Ranked No.1 P17 - Safestyle UK PLC Annual Report and Accounts 2015 STRATEGIC PROGRESS Growing the power of the Safestyle brand Safestyle has been driving a process of brand evolution since late 2011. Extensive market research programmes were commissioned to look at what potential customers wanted and how Safestyle measured up. The simple truth was that Safestyle’s customers were experiencing a far better service and product than they were expecting - Safestyle was under selling itself. Safestyle has invested in improving the brand values in its TV and online advertising without sacrificing its call to action and value proposition. A strong brand and digital performance means higher returns Headline results have improved dramatically. A stronger Safestyle brand means that more of our potential customers are looking for Safestyle by name. Further research has found that these brand focussed enquirers are: Orders from direct response advertising up 34% year on year Cost efficiency improved 16% year on year 36.5% more likely to arrange a sales visit 35.7% more likely to buy 10.6% increase in average order amount 34% 16% 36.5% 35.7% 10.6% Overall these brand responders are worth more than double the value of general enquirers. By continuing to grow the power of the Safestyle brand it is believed that there is the potential for significant growth in both volume and contribution. P18 - Safestyle UK PLC Annual Report and Accounts 2015 STRATEGIC PROGRESS Strengthening the Safestyle product range to give unbeatable value and choice Safestyle now offers a significantly expanded range of value and premium options whilst retaining focus on what is does best – expertly and efficiently transforming homes with high quality service and bespoke manufactured and fitted products. Pavilion CONSERVATORY REPLACEMENT RANGE Conservatory replacements and upgrades were introduced to the range in 2015 in a phased roll out and are already showing promising levels of customer demand and sales potential. Customers benefit from being able to use their upgraded conservatories all year round. Three roofing options are available with the top of the range Safestyle Pavilion offering a part solid roof which offers a true transformation of the living area. Expanding our range in 2016 Inspire BI-FOLD DOORS New Inspire Aluminium Bi-folding doors Ÿ Class leading energy efficiency Ÿ Striking modern looks and appeal HERITAGE WINDOWS New Heritage Windows Ÿ Beautiful windows with a traditional hand crafted finish Ÿ Great option for period homes and conservation areas EcoDiamond WINDOWS New modern colour options for core window ranges Ÿ Moving from three to six colour options Ÿ Adding anthracite grey, black and cream to the range P19 - Safestyle UK PLC Annual Report and Accounts 2015 STRATEGIC PROGRESS Building on our manufacturing excellence In order to support Safestyle’s long term growth strategy and new product introduction the Group is investing £7.25 million to extend its manufacturing facility and upgrade and expand its production lines. The investment will provide a facility capable of supporting the Group’s growth for the foreseeable future as well as delivering efficiency and product quality improvements. The project includes the building of a 5,750 m2 extension on land owned by the Group adjacent to the current factory and the purchase of a ‘state of the art’ glass toughening furnace and a high speed glass production line. It will also involve some re- organisation of the production flow and the creation of additional space for new product introductions. P20 - Safestyle UK PLC Annual Report and Accounts 2015 STRATEGIC PROGRESS Using digital technology to drive growth Safestyle is investing in digital technology to improve the efficiency of core business processes. Sales applications have been developed in the second half of 2015 to enhance the sales presentation and help customers see our offering more clearly. This will include presentations, styles and option selection. Online processes are being developed with the ability to complete credit applications at point of sale rather than relying on applications being handled via central support teams. This investment will improve our customer experience and is expected to result in better lead conversion. P21 - Safestyle UK PLC Annual Report and Accounts 2015 FINANCIAL REVIEW Gross profit increased by 10% in the year to £54.5 million (2014: £49.7 million), with gross margin higher at 36.6% (2014: 36.5%). Revenue Revenue for the year was £148.9 million, an increase of 9.5% over 2014. The key factors underpinning this growth were: Ÿ 31.6% growth in order value generated from direct response channels Ÿ 4.4% growth in the volume of frames installed from 267,642 to 279,453 Ÿ 5.4% growth in average unit price from £504 to £531 5.6% growth in average order value from £2,806 to £2,963 Ÿ The introduction in April and phased rollout of our conservatory upgrade product resulted in 108 installations and added £0.9 million to revenue for the period. The further enhancement of our consumer finance offer has been a key driver of sales during the year. This reflects our strategy of using finance to generate incremental business and has resulted in the elimination of all products that had previously earned the Group introductory commissions. Gross margin Gross profit increased by 9.7% in the year to £54.5 million (2014: £49.7 million), with gross margin higher at 36.6% (2014: 36.5%). The gross margin improvement was driven by a higher average sales price and a continued reduction in the proportion of sales being generated by door canvass operations but was impacted, particularly in the second half, following the decision to further enhance our consumer finance offer. Average sales prices increased from £504 per unit in 2014 to £531 in 2015 while the proportion of sales generated by door canvass operations reduced from 52% in 2014 to 47% in 2015. Mike Robinson P22 - Safestyle UK PLC Annual Report and Accounts 2015 The Group received £2.5 million during the year from the exercise of warrants issued on IPO. Capital expenditure in the period was £1.6 million (2014: £1.6 million). The majority of this investment was part of our 5 year asset upgrade plan for our manufacturing facility. Dividends The Board is proposing a final dividend of 6.8 pence per share subject to approval by shareholders at the AGM. The dividend will be paid on 11 July 2016 to shareholders on the register at close of business on 17 June 2016. The Board has also considered its priorities for the use of cash and proposes to pay a special dividend to shareholders. The special dividend will be £6.8p per share and will be paid at the same time as the 2015 final dividend. MJ Robinson, CFO, 17 March 2016 The additional subsidies paid for the enhanced finance offer resulted in a reduction in the gross margin from 37.2% in the first half of the year to 36.0% in the second half. A price increase was implemented from the beginning of 2016 with the aim of increasing gross margin back to around 37%. Other operating expenses Other operating expenses for 2015 were £37.0 million (2014: £33.3 million), an increase of 11%. Marketing costs were the biggest contributor to the increase with an additional £1.7 million being invested in TV and online advertising. This represented an 18% increase in cost but this resulted in a 32% increase in the value of orders generated. Other major cost areas including salaries, fleet and property costs increased at a slower rate than sales. EBITDA and PBT Underlying EBITDA before share-based payments was £19.1 million for the year (2014: £17.8 million), an increase of £1.3 million. PBT was £1.2 million higher at £17.6 million, and after adjusting for share-based payments was 7.1% higher than last year at £18.0 million (2014: £16.8 million). The earnings per share were 17.8p for the year, up from 16.5p in 2014. The current year figure was impacted by the exercise of warrants. Diluted earnings per share increased from 15.9p in 2014 to 17.3p for the period. The basis for these calculations is detailed in note 8. Underlying EPS was 18.4p versus 17.0p in 2014. Cash Strong operating cash flow resulted in the Group increasing its cash balance from £8.5 million at 31 December 2014 to £16.5 million as at 31 December 2015 while paying £7.5 million in dividends in the year. P23 - Safestyle UK PLC Annual Report and Accounts 2015 PRINCIPAL RISKS AND UNCERTAINTIES The following sets out the Group's risk management processes and the principal risks and uncertainties that the board consider to be material and that may have a significant impact on the Group's financial performance. The Board has ultimate responsibility for setting the Group's risk appetite and for effective management of risk. An annual assessment of key risks is performed by senior management and presented to the Board. A risk register is maintained and regularly reviewed by the senior management team. All risks are scored by taking into consideration the likelihood of the event occurring and the impact of that event. Once the risks have been assessed appropriate mitigation actions are determined for each key risk identified. Summarised below are the key risks that have been identified and that could have a material impact on the Group's performance. Risk Description Mitigation Regulatory The Group operates in a heavily regulated sector, including consumer protection and consumer credit regulations. Should the Group be found liable for breaches of these regulations or any others the business could face severe financial or existential consequences. The Group has programmes of appropriate training to ensure legal compliance and minimise mistakes. This is backed up with comprehensive record keeping and audit trails. The Group also ensures that the process is quality checked by head office with each customer. Reputation with customer base As a retail brand, the Company's future success will be significantly affected by its reputation with its customer base. Should the Company's reputation suffer, fairly or otherwise, future performance could be significantly impaired. The Group operates a rigorous customer complaints process in order to identify issues early and put corrective actions in place. The Group is accredited to ISO 10002 Customer Satisfaction and Complaints Handling. Market and competition The Group operates in a competitive market which is very exposed to the UK's economic performance and general consumer confidence. The Group has historically taken market share in tough market conditions and is well placed to compete effectively against the competition. IT and data security The Group is very dependent on its IT systems and infrastructure to ensure effective operations and customer service. A major disruption to the system would impact performance significantly. The Group's operations are subject to a number of laws relating to data privacy and breach of this legislation could result in the Group being subjected to legal proceedings. The Group maintains tight access controls over its data and IT systems and has regular reviews to agree priorities and plans. Particular focus is given to the plans and infrastructure required to ensure adequate disaster recovery processes and procedures are in place. Reliance on key equipment The Group relies upon certain key manufacturing equipment. Although most of the manufacturing equipment has back-up capacity there are some machines that have no in-house back-up. In the event of significant downtime on these machines there is a risk of short term disruption and increased costs. The Group has an experienced maintenance team onsite and operates a preventative maintenance programme on all key equipment. For the machines identified the Group has sourced suppliers capable of manufacturing the required products and has a documented disaster recovery process in place to minimise the impact on performance. P24 - Safestyle UK PLC Annual Report and Accounts 2015 Risk Description Mitigation Reliance on key suppliers The Group relies upon certain key suppliers which, if relationships with such suppliers are not maintained, could in the short term disrupt the Group's business, in particular in respect of the suppliers of PVCu to the manufacturing plant. Although alternative suppliers are readily available to provide the supplies required by the Group, any disruption to supply or transition between suppliers may adversely impact the Group's performance. The Group maintains strong working relationships with key suppliers through regular review meetings. In addition robust contractual arrangements are maintained and supplier performance is monitored against agreed standards. In the event of significant disruption to supply alternative suppliers have been identified and a documented disaster recovery process is in place to minimise the impact on performance. Health & safety The Group's operations take place in a diverse range of operating environments. These operations require ongoing management of health and safety risks in order to ensure a safe working environment for our employees and others we engage with. A failure to manage these risks may give rise to significant potential liabilities. The Group maintains detailed health and safety procedures and processes which are managed by a team of dedicated health and safety professionals. The team support and advise operational management and run a programme of site reviews and audits. Health and safety performance is reviewed regularly by the board. Dependence on key personnel The Group has a relatively small management team and the loss of any key individual or the inability to attract appropriate personnel could impact on its ability to execute its business strategy successfully and provide quality services to its customers, which could negatively impact upon the Group's future performance. The Group maintains competitive and attractive employment terms and conditions, fully empowering key individuals and allowing them to maximize their job satisfaction. The Group incentivizes key management through performance related pay in the short term and through share options for medium and long term retention. Self-Employed Individuals The Group uses the services of a large number of self- employed individuals for marketing, sales, surveying and installation purposes. These individuals are engaged on standard form agreements stating that the act as self-employed commercial agents. There is a risk of potential claims for employee or worker status, resulting in additional cost for the Group. The Group undertakes on-going reviews of the terms on which self-employed individuals are engaged and historically this has not been an issue for the Group. The Group ensures that all self –employed individuals are registered for income tax purposes and an increasing proportion is now VAT registered. Factory expansion The Group is about to embark on a major expansion of its manufacturing facilities. This involves the construction of 5,750m² expansion, the purchase and installation of a new glass toughening furnace and the reorganisation of the production flow. This will increase the risk of disruption and could result in increased costs. A dedicated, experienced project manager has been appointed to lead the team responsible for successful delivery of the project. A detailed project plan has been produced and approved by the board as well as a robust contingency plan. Weekly project meetings will take place to monitor progress and take away necessary actions and the board will be updated each month. P25 - Safestyle UK PLC Annual Report and Accounts 2015 BOARD OF DIRECTORS Christopher John Davies, BA (Oxon), Non-Executive Director, aged 62 Chris joined the Safestyle UK Board in December 2013. In addition to the customary duties and responsibilities of a Non-Executive Director, he is Chairman of the Remuneration Committee. A former FTSE 250 CEO at SIG plc, Chris has extensive Board, commercial and operational experience from his successful executive career in the construction, manufacturing and support services sectors. Stephen John Birmingham FCA, Chief Executive Officer, aged 57 Steve joined Safestyle UK in 1999 as Group Operations Director, becoming Managing Director in 2007 and subsequently Chief Executive Officer on the company's IPO. Steve takes overall responsibility for the business' day to day operations and oversees implementation of the Group’s long and short term plans in accordance with its strategy. Steve has over 30 years experience of the replacement window industry in senior management positions. SENIOR MANAGEMENT Kiz Misra, Sales Director, aged 51 Kiz is responsible for all areas of sales and marketing. He joined Safestyle UK when the business was established in 1993 and worked his way up to become Sales Director in 1999. Along with day to day responsibility for sales he leads the expansion of Safestyle UK’s sales branch network. David Clarke, Operations Director, Pre Installations, aged 53 Dave became Operations Director in 2009 and is responsible for pre installations operations and transport. He joined Safestyle UK in 2004 and has over 20 years experience in senior logistics, sales and operational roles. P26 - Safestyle UK PLC Annual Report and Accounts 2015 BOARD OF DIRECTORS Robert Stephen Halbert BA, FCA, Non-Executive Chairman, aged 58 Steve has been Chairman of Safestyle UK since December 2013. In his role as Chairman, he is responsible for the proper operation of the Board and its committees, compliance with the Company's code of corporate governance and, working closely with the CEO, for ensuring the business regularly reviews its strategic plans. Steve is Chairman of the Audit and Nominations Committees. In addition, Steve is Chairman of Alcumus Group Limited and AIM quoted NAHL Group plc. Michael John Robinson FCMA, Chief Financial Officer, aged 54 Mike joined Safestyle UK in 2008 and has over 30 years experience in operational finance roles in a range of manufacturing and distribution businesses. As CFO Mike is responsible for the financial control, planning and reporting for the Group. He also has responsibility for the Group’s IT function. Mike has 20 years board level experience mainly within privately owned SMEs. He also spent 13 years with RR Donnelley, a Fortune 500 company, where he held a succession of finance and commercial roles including 3 years as UK Finance Director. SENIOR MANAGEMENT Mark Scaife, Operations Director, Manufacturing, aged 47 Mark leads all areas of manufacturing with full day to day responsibility for the manufacturing site and its strategic development. He joined Safestyle UK as Operations Director in 2008 with a background of senior manufacturing roles. He is a Lean Six Sigma practitioner and program deployment champion. Phil O’Malley, Operations Director, Installations, aged 43 Phil was appointed Operations Director in 2009 having joined Safestyle UK’s installation management team in 2001. He has responsibility for all aspects of installation including surveys, our installation network and teams, quality control and after-sales care. Phil has 20 years experience in the building and installation industry. P27 - Safestyle UK PLC Annual Report and Accounts 2015 FOCUSSED AND COMMITTED That’s Safestyle team work The latest survey of our manufacturing teams in Barnsley had an overwhelming 99% response rate. Particular highlights were about making improvements, team-work, engagement and confidence in future growth. Such levels of team engagement help underpin Safestyle's drive to improve the efficiencies and quality of manufacturing output. Providing a high quality product at the right price is central to Safestyle's winning customer proposition and leads to significant competitive advantage. “The focus on involving everyone in improvements is good.” “Our continuous improvement programme is an appropriate way of managing the business.” 87%AGREE OR STRONGLY AGREE 92%AGREE OR STRONGLY AGREE “I feel comfortable asking for help from my team.” 90%AGREE OR STRONGLY AGREE “I understand the direction the company is taking.” “I understand how my job contributes to the aims of the business.” “I fully expect the company to continue to grow and develop.” 89%AGREE OR STRONGLY AGREE 98%AGREE OR STRONGLY AGREE 98%AGREE OR STRONGLY AGREE P28 - Safestyle UK PLC Annual Report and Accounts 2015 FOCUSSED AND COMMITTED Growing talent for the future Safestyle is a leading employer in the local community surrounding its manufacturing site near Barnsley. Through a highly popular apprentice scheme it gives local talent a chance to develop their skills and careers. In return Safestyle gains highly committed team members who share its passion for the future. “I’ve learnt a lot of life skills..... things that will help me going forward in life” Dan McGann - Second Line Support Engineer Safestyle put me through various training courses that will help me in my job and gave me the foundation to work in an IT department as well. I gained an NVQ in IT and I've also got several certificates from training programmes. I've learnt a lot of life skills more than anything - things that will help me going forward in life. David Longford - Quality Engineer I've worked for Safestyle for six years – it's been a great opportunity to develop my skills and develop me as a person. I chose an apprenticeship scheme over further education mainly due to the fact that I find through personal experience I learn better by actually being hands on and on the job experience. You get to meet a range of people, different backgrounds, different skill sets and I've got a lot more confidence... I believe I've grown up a lot more as a person. You work your way up and you feel as though you've achieved something. I would highly recommend Safestyle as a place to work. “You work your way up and you feel as though you’ve achieved something” P29 - Safestyle UK PLC Annual Report and Accounts 2015 FOCUSSED AND COMMITTED Here to help Safestyle prides itself on the quality of aftercare it provides for customers. Everything Safestyle installs is covered by a no nonsense 10 year insurance backed guarantee which is supported by a dedicated team of helpline advisors and a nationwide network of maintenance engineers. Clair Harker joined Safestyle two and a half years ago as a Helpline Advisor. When asked about her role, here's what she had to say.... Clair Harker - Services Helpline Adviser for 2.5 years at Safestyle I really like my job. People say to me - “but you have to deal with customers!” and they look at the negative side of it. But to me I look at it that they're only ringing in because they want help which they're going to get from us. If there's an issue and you can get it sorted for them then you feel like you've helped them and it's really rewarding. Working in Customer Service has taught me to listen to people. You speak to the customers in way that you would like to be spoken to if you rang somewhere. You put yourself in their position, you would want to be treated professionally and with respect. You need to let them know that you're here to help. The job can be tiring but the team are very supportive, it's a good, strong team. “When they called me up to the office to say you’ve got the job, that was the best part and I've not looked back” Last year I finished an NVQ in Customer Services. Because of my job role I thought that the more experience I have, the more I'll be able to help our customers. In the past when a customer had asked something that I wasn't 100% sure about I'd have to put them on hold but having completed the NVQ I can address that problem there and then. It's given me a lot more confidence and it really helps with the job I'm doing. I'm looking to do Level 2 later this year and then I'll be going for the NVQ in Business. My best memory of working at Safestyle is passing my three month probation period. When they called me up to the office to say you've got the job, that was the best part and I've not looked back. I have a team leader and when she's away, things come to me. It's a demanding role because as well as the job itself you also have to look after individuals who will be handling queries on guarantees, repairs, feedback and sales so you need to have a good knowledge of both the product as well as the process. But that's where I see myself in ten years time, as a Team Leader. P30 - Safestyle UK PLC Annual Report and Accounts 2015 CORPORATE SOCIAL RESPONSIBILITY What happens to the old windows and doors that Safestyle replaces? In short, Safestyle recycles as much as possible. Each installation team is responsible for removing all the old windows and doors, all building debris and packaging from our customer's houses and taking it back to the local installation depot. The waste is subjected to an initial break-down and sorting within the depot site with timber, glass, metal, rubble and brickwork all being separated and placed into dedicated recycling skips. Smaller plastic items are also recycled locally but larger PVCu window frames and doors are returned to the central manufacturing site's dedicated recycling centre. Safestyle is committed to market leading recycling efficiency and bringing down the proportion of waste sent to landfill to an absolute minimum. This long term commitment has brought down the proportion of installation waste being non- recycled to just 5% - reducing landfill costs, helping our environment and making good business sense. 5% SENT TO LANDFILL 95% OF WASTE RECYCLED Supporting our communities Safestyle is committed to playing an active role in supporting its staff and their communities. The Group is a proud corporate supporter and donor for Bluebell Wood Children's Hospice. It's a cause that really means something to our people - Bluebell Wood are based nearby our manufacturing facility and offer care and support to children with a shortened life expectancy - both in their homes or at their hospice. Across the country our people have always been keen to volunteer and raise funds for good causes. So, it's natural that Safestyle makes a contribution by supporting these individuals and teams by encouraging participation and helping with fund raising. Safestyle proudly supports the following charities. P31 - Safestyle UK PLC Annual Report and Accounts 2015 DIRECTORS’ REPORT The Directors present their annual report and audited financial statements of the Group for the year ended 31 December 2015 Registered office The registered office of Safestyle UK plc is 47 Esplanade, St Helier, Jersey, JE1 0BD. Principal activities Safestyle UK plc is an AIM listed company. The Group's principal activities are the sale, manufacture and installation of replacement PVCu windows and doors for the UK homeowner market. Business review The Chairman's statement, the Chief Executive's statement and the Financial review on pages 12, 14 & 22 report on the Group's performance during the year and future developments. Dividends The directors propose a final dividend of 6.8p per share and a special dividend of 6.8p per share. Governance As an AIM listed company, Safestyle UK plc is not required to comply with, nor has it chosen to voluntary adopt, the provisions of the 2012 or 2014 UK Corporate Governance Code. However, the Board recognises the importance and value of good corporate governance and accordingly has selected those elements of the 2012 UK Corporate Governance Code that they consider relevant and appropriate to the Group. An overview of the Group's corporate governance procedures is given below. The Board The Group is controlled through a Board of Directors which at 31 December 2015 comprised a non-executive chairman, two executive directors and a non-executive director. Both the non-executive chairman and the non-executive director are considered to be independent and bring a wide range of experience and provide a strong balance to the executive directors. The Board meets at least 9 times a year and is responsible, amongst other things, for business strategy, approval of interim and annual financial results, approval of annual budgets, approval of major capital expenditure and the framework of internal controls. Audit Committee The Chairman of the Audit Committee is Steve Halbert with Chris Davies as the other non-executive member. The Committee has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the Company are properly measured and reported on and reviewing reports from the Company's auditors relating to the Company's accounting and internal controls, in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least twice a year. Remuneration Committee The Chairman of the Remuneration Committee is Chris Davies with Steve Halbert as the other non-executive member. The Committee reviews the performance of the executive directors and determines their terms and conditions of service, including their remuneration and the grant of options. The Remuneration Committee meets at least once a year. Nomination Committee The Chairman of the Nomination Committee is Steve Halbert with Chris Davies as the other non-executive member. The Committee identifies and nominates for the approval of the Board candidates to fill board vacancies as and when they arise. The Nomination Committee meets at least once a year. Shareholder communication The Board is committed to maintaining good communication with both institutional and private investors. Dialogue with fund managers, institutional investors and analysts to discuss performance and future prospects is actively pursued. The Annual General Meeting provides an opportunity for shareholders to address questions to the Chairman and the Board directly. Risk management and internal controls The Board has overall responsibility for the Group's system of internal controls and for reviewing the effectiveness of this system. It should be recognised that such a system is designed to manage rather than eliminate the risk of failure to achieve the business objectives and can only provide reasonable, and not absolute, assurances against material misstatement or loss. P32 - Safestyle UK PLC Annual Report and Accounts 2015 FOR THE YEAR ENDED 31 DECEMBER 2015 Directors' indemnities and insurance Safestyle UK plc indemnifies its officers and officers of its subsidiary companies against liabilities arising from the conduct of the Group's business, to the extent permitted by law, by the placing of directors' and officers' insurance. The insurance policy indemnifies individual directors' and officers' personal legal liability and cost for claims arising out of actions taken in connection with Group business. Directors' responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and IFRS as adopted by the EU. Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing those financial statements, the directors are required to: Ÿ Ÿ make judgements and estimates that are reasonable and prudent; Ÿ Ÿ prepare the financial statements on the going concern basis (unless it is inappropriate to presume that the state whether they have been prepared in accordance with IFRSs as adopted by the EU; and select suitable accounting policies and then apply them consistently; Group will continue in business). The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Substantial shareholdings As at 5th March the Company has been advised of the following interests in more than 3% of its ordinary share capital. Name Miton Asset Management Limited River & Mercantile Asset Management Investec Asset Management AXA Investment Managers UK Steve Birmingham Artemis Fund Managers Ltd Hargreave Hale Henderson Global Investors Standard Life Investments Kiran Misra Number 10,855,027 7,934,017 5,020,456 4,300,000 3,933,889 3,557,755 3,364,537 3,300,000 2,934,590 2,418,889 % 13.53% 9.89% 6.26% 5.36% 4.90% 4.43% 4.19% 4.11% 3.66% 3.01% Going concern As highlighted in the financial review the Group is very cash generative with cash at 31 December 2015 of £16.5 million. The directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of these financial statements. After taking account of anticipated overhead costs and revenue, the directors are confident that sufficient funds are in place to support the going concern status of the Group. Auditors The Board has decided to put forward a resolution to reappoint KPMG LLP as auditors at the forthcoming AGM of the Company. Statement of disclosure of information to auditors As at the date this report was signed, so far as each of the Directors is aware, there is no relevant information of which the auditor is unaware and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. Approved by the Board of Directors and signed on behalf of the Board on 17th March 2016 Mike Robinson, Company secretary P33 - Safestyle UK PLC Annual Report and Accounts 2015 DIRECTORS’ REMUNERATION REPORT 2015 Remuneration The table below details the elements of remuneration receivable by each Director for the financial year ended 31 December 2015 and the total remuneration receivable by each Director for that financial year and for the financial year ended 31 December 2014. 2015 Salary and fees £’000 Benefits £’000 Annual bonus £’000 LTIP £’000¹ Pension £’000 Total remuneration 2015 - £’000 Total remuneration 2014 - £’000 Executive Directors S J Birmingham M J Robinson Non-Executive C J Davies R S Halbert 175 153 46 71 17 12 - - 107 93 - - - - - - 14 12 - - 312 270 46 71 262 238 45 70 ¹No LTIP awards vested by reference to performance in 2015. The options granted to S J Birmingham and M J Robinson on 5 December 2013 vested on 5 December 2015, as referred to on page 35. Individual elements of remuneration Base salary and fees The annualised base salaries for 2015 and 2016 are as set out below: 2015 base salary £’000 2016 base salary £’000 % increase S J Birmingham M J Robinson 175 153 179 156 2.1% 2.1% Details of the aggregate fees paid to the Non-Executive Directors' fees for 2015 and 2016 are as set out below: 2015 fees £’000 2016 fees £’000 % increase 117 120 2.1% Benefits The benefits figures for each of the Executive Directors are as set out below: 2015 Company car or cash allowance £’000 Fuel benefit £’000 Private Medical Insurance £’000 Total 2015 £’000 S J Birmingham M J Robinson 11 7 5 4 1 1 17 12 Total 2014 £’000 13 8 Annual incentive plan For the financial year ended 31 December 2015, each Executive Director had a maximum cash bonus opportunity equal to 100% of base salary. 70% of the opportunity was dependent on Earnings Before Interest, Tax Depreciation and Amortisation (EBITDA) performance, with the remaining 30% of the opportunity dependent on strategic and personal objectives. The following tables set out the bonuses earned by the Executive Directors for 2015 and how these reflect EBITDA performance for the year and performance against the strategic and personal objectives. P34 - Safestyle UK PLC Annual Report and Accounts 2015 ANNUAL REPORT 2015 EBITDA Performance target Actual performance Bonus earned by each Executive Director (% of salary) Plan performance (35% of salary): EBITDA¹ of £18.75m EBITDA of £19.1m 41% ¹For the purposes of the annual incentive plan, EBITDA is stated before share based payments Strategic and personal objectives The strategic and personal objectives for both S J Birmingham and M J Robinson were selected by the Committee taking into account the financial, operational and strategic priorities of the Group. The bonuses earned by reference to the strategic and personal objectives were as follows. Director Performance metric Bonus opportunity (% of salary) Performance achieved Bonus earned (% of salary) S J Birmingham M J Robinson Metrics relating to matters including: increased geographic penetration of the UK, the successful launch of the Company's conservatory refurbishment product and the development of enhanced quality procedures across all the Group's functions. Metrics relating to matters including: effective control of marketing spend; the development of a cost effective scaffolding strategy; and the development of the Group's technology processes to enhance operational efficiencies. 30% The performance metrics were assessed by the Committee and determined to be satisfied in part such that 67% of the maximum opportunity was earned. 20% (i.e. 30% x 67%) 20% (i.e. 30% x 67%) Accordingly, the overall bonuses earned by the Executive Directors were as follows. Bonus earned (percentage of salary) Bonus earned (£’000) 61% 61% 107 93 S J Birmingham M J Robinson Long term incentives Awards vested during the financial year No long term incentive awards vested in respect of performance during the financial year. On 5 December 2015, the following options held by the Executive Directors under the Safestyle UK Plc Share Option Plan vested. Director Date of grant Exercise price Number of shares under option¹ S J Birmingham 5 December 2013 M J Robinson 5 December 2013 £1.00 £1.00 583,333 972,222 ¹Each option vested on 5 December 2015 and had not been exercised at the date of this report. P35 - Safestyle UK PLC Annual Report and Accounts 2015 DIRECTORS’ REMUNERATION REPORT Awards granted during the financial year The following options were granted during the year under the Safestyle UK plc 2015 Executive Share Option Plan Director Date of grant Type of award Percentage of salary Number of shares Exercise price % of award vesting at threshold Performance period S J Birmingham M J Robinson 1 April 2015 Market value share option 100% 97,902 85,594 £1.7875 50% 1 January 2015 – 31 December 2017 The vesting of each option is subject to the satisfaction of performance conditions based on stretching Earnings per Share (EPS) growth targets. The targets are as follows. Average EPS growth per annum (%) Percentage of option vesting¹ 10% 5% 100% 50% ¹For average EPS growth between threshold and maximum, vesting will be calculated on a straight line interpolation. Payments made to former Directors during the year and payments for loss of office during the year No payments were made to former directors during the year, and no payments for loss of office were made during the year. Statement of Directors' shareholding and share interests There is no Executive Director shareholding guideline in place. The interests of the Directors and their immediate families in the Company's ordinary shares as at 31 December 2014 and at 31 December 2015 were as follows. Executive Directors S J Birmingham M J Robinson Non-Executive C J Davies R S Halbert 31 December 2015 Number 31 December 2014 Number 3,933,889 25,000 131,000 100,000 3,888,889 25,000 120,000 100,000 The interests of each Executive Director of the Company as at 31 December 2015 in the Company's share schemes were as follows: Director Plan Date of grant Exercise price Options held at 31 December 2014 Options granted in the period Options exercised in the period Options lapsed in the period Options held at 31 December 2015 and status S J Birmingham M J Robinson Safestyle UK Plc Share Option Plan 5 December 2013 Safestyle UK Plc 2015 Executive Share Option Plan 1 April 2015 Safestyle UK Plc Share Option Plan 5 December 2013 Safestyle UK Plc 2015 Executive Share Option Plan 1 April 2015 £1.00 583,333 - £1.7875 - 97,902 £1.00 972,222 - £1.7875 - 85,594 ¹Vested but unexercised ²Unvested subject to performance conditions - - - - - - - - 583,333¹ 97,902² 972,222¹ 85,594² P36 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED Implementation of Directors' Remuneration Policy for the financial year commencing 1 January 2016 Information on how the Company intends to implement the Directors' Remuneration Policy for the financial year commencing on 1 January 2016 is set out below. Salary/fees Each Executive Director was awarded an increase of 2.1% to base salary, with effect from 1 January 2016, in line with the percentage increase in base salary awarded to the wider workforce. Similarly, the Non-Executive Directors were awarded a 2.1% increase in their fees with effect from 1 January 2016. Annual incentive plan The Executive Directors' annual bonus structure for 2016 will remain the same as in 2015. Each Executive Director will have an annual bonus opportunity of up to 100% of base salary based on delivering against stretching EBITDA targets (as regards 70% of the opportunity) and a range of strategic and personal objectives (as regards the remaining 30%) to provide a balanced scorecard approach to measuring and rewarding management performance during the year. As with the 2015 annual incentive plan, EBITDA will be before share based payments. For delivering on plan, the EBITDA element of the annual cash incentive will deliver 50% of the potential linked to EBITDA (i.e. 35% of salary). The strategic and personal objectives will be tailored to each individual and will focus around key performance metrics in the 2016 plan such as operating cost efficiencies, achievement of key milestones, developing the commercial strategy in respect of branding and the sales channel mix, strengthening the senior management team, enhancing manufacturing facilities and improving quality of products and service provided to customers. Maximum vesting of the potential linked to EBITDA (i.e. 70% of salary) will be realised upon achieving EBITDA stretch performance in excess of our Plan which will be disclosed retrospectively in the 2016 Annual Report on Remuneration. Share Options The Company adopted the Safestyle UK plc 2015 Executive Share Option Plan (ESOP) in 2015 in order to make annual share awards to selected individuals. Under the ESOP, market value options (i.e. options with an exercise price equal to the market value of a share at the date of grant) can be granted. Options granted to Executive Directors vest subject to the achievement of performance conditions measured over a three year period. It is intended that options to be granted in 2016 will be at the level of 100% of base salary and subject to the achievement of stretching EPS performance conditions measured over the period from 1 January 2016 to 31 December 2018. The EPS performance conditions and vesting schedule proposed for options to be granted in 2016 is the same as for the options granted in 2015. Consideration by the Directors of matters relating to Directors' remuneration The Remuneration Committee is composed of the Company's independent Non-Executive Directors, C J Davies (Chairman) and R S Halbert. Executive Directors only attend meetings by invitation. The Committee's key responsibilities are: reviewing the on-going appropriateness and relevance of remuneration policy; Ÿ reviewing and approving the remuneration packages of the Executive Directors; Ÿ Ÿ monitoring the level and structure of remuneration of the senior management; and Ÿ production of the annual report on the Directors' remuneration. Advisors During the financial year, the Committee received independent advice from Deloitte LLP. Deloitte is a founder member of the Remuneration Consultants Group and voluntarily operates under its code of conduct in its dealings with the Committee. Directors' Remuneration Report voting at the 2015 AGM The table below sets out the voting outcome at the Company's AGM held on 21 May 2015 in respect of the resolution to approve the Directors' Remuneration Report contained in the Company's 2015 Annual Report and Accounts. Votes for % for Votes against % against Total votes cast Votes withheld (abstentions) Approval of Directors Remuneration report 53,304,911 100% - - 53,304,911 24,472,866 Approval This Report was approved by the Board on 16 March 2016 and signed on its behalf by: C J Davies, Chairman of the Remuneration Committee, 17 March 2016 P37 - Safestyle UK PLC Annual Report and Accounts 2015 INDEPENDENT AUDITOR’S REPORT Independent auditor's report to the members of Safestyle UK plc We have audited the group financial statements of Safestyle UK plc for the year ended 31 December 2015 which comprise Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the EU. This report is made solely to the company's members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors' Responsibilities set out on page 33, the directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. P38 - Safestyle UK PLC Annual Report and Accounts 2015 Independent auditor's report to the members of Safestyle UK plc (continued) Opinion on financial statements In our opinion the financial statements: Ÿ give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the EU of the state of the group's affairs as at 31 December 2015 and of its profit for the year then ended; and Ÿ have been properly prepared in accordance with the Companies (Jersey) Law 1991. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: Ÿ proper accounting records have not been kept by the company; or Ÿ proper returns adequate for our audit have not been received from branches not visited by us; or Ÿ the company financial statements are not in agreement with the accounting records and returns; or Ÿ we have not received all the information and explanations we require for our audit. Ian Beaumont (Senior Statutory Auditor) for and on behalf of KPMG LLP Chartered Accountants 1 Sovereign Square Sovereign Street Leeds LS1 4DA 17 March 2016 P39 - Safestyle UK PLC Annual Report and Accounts 2015 PRIMARY STATEMENTS Consolidated statement of comprehensive income for the year ended 31 December 2015 Revenue Cost of sales Gross profit Other operating expenses Operating profit EBITDA before equity settled share based payments Equity settled share based payments charges Depreciation and amortisation Operating profit Finance income Finance costs Profit for the year Taxation Profit after taxation Other comprehensive income Note 2,5 2015 £000 148,902 (94,384) 54,518 (37,033) 2014 £000 136,012 (86,323) 49,689 (33,339) 6 17,485 16,350 19,060 (443) 17,759 (363) (1,132) (1,046) 17,485 16,350 96 (18) 97 (44) 17,563 16,403 (3,603) (3,572) 13,960 12,831 - - 11 12 Total comprehensive income for the period attributable to equity shareholders 13,960 12,831 Earnings Per Share Basic (pence per share) Diluted (pence per share) 17.8p 17.3p 16.5p 15.9p All operations were continuing throughout all periods. P40 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED Consolidated statement of financial position as at 31 December 2015 Assets Intangible assets - Trademarks Intangible assets - Goodwill Intangible assets - Software Property, plant and equipment Deferred tax asset Non-current assets Inventories Trade and other receivables Cash and cash equivalents Current assets Total assets Equity Called up share capital Share premium account Profit and loss account Common control transaction reserve Total equity Liabilities Trade and other payables Financial liabilities Corporation tax liabilities Provision for liabilities and charges Current liabilities Financial liabilities Provision for liabilities and charges Non-current liabilities Total liabilities Total equity and liabilities Note 13 13 13 14 15 16 17 18 19 20 21 22 21 22 2015 £000 504 20,758 609 7,492 1,241 2014 £000 504 20,758 492 7,153 340 30,604 29,247 1,500 3,858 16,485 1,463 3,314 8,457 21,843 13,234 52,447 42,481 803 79,440 24,278 (66,527) 778 77,000 16,537 (66,527) 37,994 27,788 10,159 108 1,746 668 12,681 70 1,702 1,772 10,317 96 1,589 690 12,692 179 1,822 2,001 14,453 14,693 52,447 42,481 The financial statements were approved by the Board of Directors and authorised for issue on 17 March and were signed on their behalf by: Steve Birmingham Chief Executive Officer P41 - Safestyle UK PLC Annual Report and Accounts 2015 PRIMARY STATEMENTS Consolidated statement of changes in equity for the year ended 31 December 2015 Share capital Share premium Profit and loss account Balance at 1 January 2014 £000 778 £000 77,000 Total comprehensive income for the year Transactions with owners recorded directly in equity: Equity settled share based payment transactions Deferred tax assets expense taken to reserves Dividends - - - - - - - - £000 9,793 12,831 363 239 (6,689) Common control transaction reserve £000 (66,527) - - - - Total equity £000 21,044 12,831 363 239 (6,689) Balance at 31 December 2014 778 77,000 16,537 (66,527) 27,788 Total comprehensive income for the year Transactions with owners recorded directly in equity: Issue of shares (see note 19) Equity settled share based payment transactions Deferred tax assets expense taken to reserves Dividends 25 - - - 13,960 - 443 808 (7,470) 2,440 - - - 13,960 2,465 443 808 (7,470) - - - - Balance at 31 December 2015 803 79,440 24,278 (66,527) 37,994 P42 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED Consolidated statement of cash flows for the year ended 31 December 2015 Cash flows from operating activities Profit for the year Adjustments for: Depreciation of plant, property and equipment Amortisation of intangible fixed assets Finance income Finance expense Profit on sale of plant, property and equipment Equity settled share based payments Tax expense Increase in inventories Increase in trade and other receivables Decrease in trade and other payables Decrease in provisions Hire purchase interest paid Other interest paid Taxation paid Net cash from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Interest received Proceeds from sale of property, plant and equipment Acquisition of intangible fixed assets Net cash outflow from investing activities Cash flows from financing activities Proceeds from the issue of ordinary shares Payment of hire purchase and finance leases Dividends paid Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 2015 £000 2014 £000 13,960 12,831 957 175 (96) 18 - 443 3,603 19,060 (36) (544) (160) (142) (882) (17) (1) (18) (3,540) 14,620 (1,343) 96 - (243) (1,490) 2,465 (97) (7,470) (5,102) 8,028 8,457 16,485 907 139 (97) 44 (35) 363 3,572 17,724 (114) (921) (1,035) (23) (2,093) (43) (1) (44) (3,900) 11,687 (1,573) 97 159 (182) (1,499) - (279) (6,689) (6,968) 3,220 5,237 8,457 P43 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS General information The financial statements set out herein are in respect of Safestyle UK plc and its subsidiaries (the Group) for the year ended 31 December 2015. Safestyle UK plc is a public listed company incorporated in Jersey. The company's shares are traded on AIM. The company is required under AIM rule 19 to provide shareholders with audited consolidated financial statements. The registered office address of the Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD. The company is not required to present parent company information. 1 Basis of preparation The Group's financial statements for the year ended 31 December 2015 (“financial statements”) have been prepared on a going concern basis under the historical cost convention and are in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the International Financial Reporting Standards Interpretations Committee interpretations issued by the International Accounting Standards Board (“IASB”) that are effective or issued and early adopted as at the time of preparing these financial statements. Safestyle UK plc was incorporated on 8 November 2013. On 3 December 2013 Safestyle UK plc acquired Style Group Holdings through a share for share exchange. This was accounted for as a common control transaction. The result of this is that the financial statements of Style Group Holdings have been included in the group consolidated financial statement of Safestyle UK plc at their book value at the IFRS transition date of 1 January 2010 with the assumption that the group was in existence for all the periods presented. The excess of the cost at the time of acquisition over its book value has been recorded as a common control transaction reserve. The preparation of financial statements requires Management to exercise its judgement in the process of applying accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in note 4. (a) New and amended standards adopted by the Group The Group has adopted the following new standards and amendments for the first time. Unless otherwise stated, they have not had a material impact on the financial statements. Ÿ Defined Benefit Plans: Employee Contributions – Amendments to IAS 19 Ÿ Annual improvement cycles 2010 – 2012 and 2011 – 2013 (b) New standards, amendments and interpretations issued but not effective and not early adopted At the date of approval of these financial statements, the following standards, amendments and interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU): Ÿ Annual improvement cycles 2012 – 2014 Ÿ Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (mandatory for year ending 31 December 2016). Ÿ Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation Ÿ Amendments to IAS 16 and IAS 41: Bearer plants (mandatory for year ending 31 December 2016) Ÿ Amendments to IAS 27: Equity method in separate financial statements (mandatory for year ending 31 December 2016). Ÿ Disclosure Initiative – Amendments to IAS 1 The Group is currently considering the implication of these standards, however it is anticipated the impact of these standards on the financial position and performance of the Group will be minimal and effects will principally relate to amendment and extension of current disclosures. The Board is aware of the effective dates and will continue to review the potential impact on the financial statements. Basis of consolidation Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an ability to use its power to affect those returns. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. Intragroup transactions and balances are eliminated on consolidation. P44 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 2 Summary of significant accounting policies Going concern The Group has performed very strongly over recent years and this is highlighted on page 2 of the report. The Group has considerable financial resources and has prepared forecasts that show the Group is expected to continue to trade strongly and as a consequence, the directors believe that the Group is well placed to manage its business risks successfully. The assessment of the Group's ability to execute its strategy by funding future working capital requirements involves judgement. The Directors monitor future cash requirements to assess Group's ability to meet these funding requirements. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. Foreign currencies (a) Functional and presentational currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates (“the functional currency”) which is UK Sterling (£). The financial statements are presented in UK Sterling (£), which is the Company's presentational currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in net profit or loss in the statement of comprehensive income. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Revenue recognition Revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of Value Added Tax. The Group primarily earns revenues from the sale, design, manufacture and installation of domestic double-glazed replacement windows and doors. Product sales revenues and survey fees are recognised once the goods have been installed. Where the customer decides not to proceed with installation outside the cooling off period, the survey fees are recognised at this point due to them being non-refundable. The Group receives commissions for introducing finance products to customers. These commissions are recognised on installation. Revenue from maintenance is recognised on completion of the work carried out. Employee benefits Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due. Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Intangible fixed assets Intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and less accumulated impairment losses. The trademark is considered to have an indefinite useful life because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the business. The trademark is not amortised but is tested annually to determine whether there is any indication of impairment. Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation of other intangibles is done on a straight-line basis over the estimated useful economic lives of the particular asset categories as follows: Software development 25% on cost P45 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (continued) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis: Leasehold improvements Plant and machinery Office and computer equipment Motor vehicles 25% on cost 15% on cost 20% to 33.3% on cost 25% reducing balance Assets in the course of construction are not depreciated. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income. Impairment The carrying amounts of the Group's assets, other than inventories and deferred tax assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised (not relating to other intangible assets specifically) are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash-generating unit is the group of assets identified on acquisition that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of assets or the cash-generating unit is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Inventories Inventories are stated at the lower of cost and net realisable value. Work in progress comprises direct materials, labour costs, site overheads and other attributable overheads. Bank and other borrowing Interest bearing borrowings, bank and other borrowings are carried at amortised cost. Finance charges, including issue costs are charged to the income statement using an effective interest rate method. Provisions A provision is recognised in the balance sheet if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. 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 the risks specific to the liability. A provision for warranties is recognised when the underlying products are sold, based on historical service call data and a weighting of possible outcomes against their associated probabilities. Financial instruments Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. P46 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 2 Summary of significant accounting policies (continued) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Trade and other payables Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the “effective interest rate” to the carrying amount of the liability. Financial liabilities – Non-current borrowings Borrowings, including advances received from related parties are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. The amount of deferred tax provided is based on the carrying amount of assets and liabilities, using the prevailing tax rates. The deferred tax balance has not been discounted. Current tax is the expected tax payable on the taxable income for the year, using prevailing tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Leases Assets financed by means of a finance lease are treated as if they had been purchased outright and the corresponding liability to the leasing company is included as an obligation under finance leases. Depreciation on such assets is charged to the income statement, in accordance with the stated accounting policy, over the shorter of the lease term or the asset life. The finance element of payments to leasing companies are calculated so as to achieve a constant rate of interest on the remaining balance over the lease term, and charged to the income statement accordingly. Amounts payable under operating leases are charged to operating expenses on a straight line accruals basis over the lease term. Share Options and Warrants The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service is expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service condition at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. For share based transactions with parties other than employees, the fair value of the goods or services received and the length of the vesting period is estimated. An expense is recognised for the fair value of the goods or services over the specified vesting period or service with a corresponding increase in equity. Dividends Dividends are only recognised as a liability to the extent that they are declared prior to the year end. P47 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management Financial risk management Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance. Risk management is carried out by the Board of Directors. They identify and evaluate financial risks in close co- operation with key employees. 3.1.1 Market risk Market risk is the risk of loss that may arise from changes in market factors such as commodity prices, interest rates and foreign exchange rates. 3.1.2 Credit risk Credit risk is the financial loss to Group if a customer or counterparty to financial instruments fails to meet its contractual obligation. Credit risk arise from Group's cash and cash equivalents and receivables balances. 3.1.3 Liquidity risk Liquidity risk is the risk that Group will not be able to meet its financial obligations as they fall due. This risk relates to Group's prudent liquidity risk management and implies maintaining sufficient cash. The Board monitors forecasts of Group's liquidity and cash and cash equivalents on the basis of expected cash flow. Capital risk management Group is funded principally by equity although short term loans have been utilised during the review period of this financial statements. The components of shareholders' equity are as follows: Ÿ The share capital and the share premium account arising on the issue of shares. Ÿ The retained surplus/deficit reflecting financial result incurred to date. Group's objective when managing capital is to maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term. The capital structure of Group is managed and adjusted to reflect changes in economic circumstances. Group funds its expenditures on commitments from existing cash and cash equivalent balances, primarily received from issuances of shareholders' equity. There are no externally imposed capital requirements. Financing decisions are made by the Board of Directors based on forecasts of the expected timing and level of capital and operating expenditure required to meet Group's commitments and development plans. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values because of the short term nature of such assets and the effect of discounting liabilities is negligible. 4 Accounting estimates and judgements Details of the Group's significant accounting judgements and critical accounting estimates are set out in these financial statements and include: Recoverability of trade receivables The assessment of whether trade receivables are recoverable requires judgement. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Further details can be found in note 18. Warranty provisions The Group gives guarantees against all its products, which in the majority of cases covers a period of 10 years. The level of provision required to cover the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period requires judgement. P48 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 5 Segmental information The Directors consider that there are no identifiable business segments that are engaged in providing individual products or services or a group of related products and services that are subject to risks and returns that are different to the core business. The information reported to the Group's board of directors for the purposes of resource allocation and assessment of performance is based wholly on the overall activities of the Group. The Group has therefore determined that it has only one reportable segment under IFRS8, which is “the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors”. The Group's revenue and results and assets for this one reportable segment can be determined by reference to the Group's statement of comprehensive income and statement of financial position. The Group's carries out all of its activities in the UK and as such only has a single geographic segment. During the periods of the financial statements, no customer generated more than 10 per cent of total revenue. 6 Expenses and auditor's remuneration Included in profit are the following: Depreciation of plant, property and equipment: Owned assets Leased assets Amortisation of Intangibles Assets (Profit)/loss on disposal of plant, property and equipment Operating lease rentals: Hire of plant and machinery Rent payable on land and buildings Auditor's remuneration: Audit of financial statements relating to subsidiaries Audit of financial statements relating to parent Other services relating to taxation 2015 £000 881 76 175 - 2,746 1,109 54 40 7 2014 £000 683 224 139 (35) 2,762 1,008 54 43 7 The operating lease rentals disclosed above for plant and machinery relate to daily contract hire and therefore there is no corresponding lease commitment. 7 Dividends The aggregate amount of dividends paid comprises: Final dividend paid of £0.062 (2014: £0.055) per ordinary share Interim dividend paid of £0.034 (2014: £0.031) per ordinary share 2015 £000 4,822 2,648 7,470 2014 £000 4,278 2,411 6,689 A final dividend of 6.8p per ordinary share and a special dividend of 6.8 p per ordinary share are proposed by the Board subject to approval at the AGM. P49 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 8 Earnings per share Basic earnings per ordinary share (pence) Diluted earnings per ordinary share (pence) Note: Earnings per share 2015 17.8 17.3 2014 16.5 15.9 a) Basic earnings per share The calculation of basic earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of shares outstanding. i) Profit attributable to ordinary shareholders (basic) Profit attributable to ordinary shareholders ii) Weighted-average number of ordinary shares (basic) In issue during the year 2015 £000 13,960 2014 £000 12,831 No of shares ‘000 78,283 No of shares ‘000 77,778 b) Diluted earnings per share The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. i) Profit attributable to ordinary shareholders (diluted) Profit attributable to ordinary shareholders ii) Weighted-average number of ordinary shares (diluted) Weighted-average number of ordinary shares (basic) Effect of conversion of share options and warrants 2015 £000 13,960 2014 £000 12,831 No of shares ‘000 78,283 2,435 No of shares ‘000 77,778 2,843 80,718 80,621 The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding. P50 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 9 Key management remuneration Key management personnel, as disclosed under IAS24 (Related Party Disclosures), have been identified as the Board of Directors and other senior operational management. Detailed disclosures of individual remuneration, pension entitlements and share options, for the Directors who served during the year, are given in the Directors' remuneration report on pages 34 to 39. A summary of key management remuneration is as follows: Salary, bonus and other benefits Pensions Share based payments Total remuneration 10 Staff numbers and costs 2015 £000 1,528 62 332 1,922 2014 £000 1,380 13 310 1,703 The average monthly number of persons (including directors) employed by the group during the year analysed by category, were as follows: 2015 Number 346 38 292 676 2014 £000 1,380 13 310 1,703 2015 £000 16,853 1,564 493 443 19,353 2015 £000 1 17 18 2014 £000 16,105 1,471 352 363 18,291 2014 £000 1 43 44 Manufacturing Sales and distribution Administration The aggregate payroll costs Wages and salaries Social security costs Other pension costs Share based payments expenses The analysis of Directors' remuneration is shown in the Directors report on page 36. No Directors were accruing benefits under money purchase pension schemes (2014: nil). 11 Finance costs Bank interest payable On finance leases and hire purchase contracts P51 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 12 Taxation Recognised in the statement of comprehensive income Current tax Current tax on income for the period Adjustments in respect of prior periods Total current tax Deferred tax Origination and reversal of timing differences Effect of change in tax rate Adjustments in respect of prior periods Total deferred tax (see note 15) Total tax expense The current year tax charge is split into the following: Underlying tax charge Total tax expense Reconciliation of effective tax rate Current tax reconciliation Profit for the year Total tax expense Profit excluding tax Expected tax charge based on the standard rate of corporation tax in the UK of 20.25% (2014: 21.50%) Effects of: Expenses not deductible for tax purposes Adjustments to tax charge in respect of prior periods Effect of change in tax rate Total tax expense 2015 £000 3,696 - 3,696 (87) 1 (7) (93) 2014 £000 3,610 (56) 3,554 7 (6) 17 18 3,603 3,572 3,603 3,603 2015 £000 13,960 3,603 17,563 3,572 3,572 2014 £000 12,831 3,572 16,403 3,557 3,527 52 (7) 1 3,603 90 (39) (6) 3,572 Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. This will reduce the company's future current tax charge accordingly. The deferred tax asset at 31 December 2015 has been calculated based on these rates. 13 Intangible assets Goodwill Trademark Software £000 £000 £000 Assets under the course of construction £000 Cost At 1 January 2015 Additions Transfer from tangibles Disposals Transfer At 31 December 2015 Amortisation At 1 January 2015 Charge for the year Transfer from tangibles Disposals At 31 December 2015 20,758 - - - - 20,758 - - - - - NBV at 31 December 2014 NBV at 31 December 2015 20,758 20,758 504 - - - - 504 - - - - - 504 504 947 118 503 (273) 63 1,358 455 175 544 (273) 901 492 457 P52 - Safestyle UK PLC Annual Report and Accounts 2015 - 215 - - (63) 152 - - - - - - 152 Total £000 22,209 333 503 (273) - 22,772 455 175 544 (273) 901 21,754 21,871 CONTINUED 13 Intangible assets (continued) The goodwill is allocated to one cash generating unit (“CGU”) being Style Group Holdings Ltd. Management have performed impairment reviews on the carrying value of the goodwill at 31 December 2015 and 31 December 2014. The recoverable amount of the CGU has been determined from value in use calculations based on cash flow projections covering a three year period to 31 December 2018 which are then taken into perpetuity. The assessment was performed on a value in use basis using a 12% discount rate and the following year's budget as approved by the Board and extrapolated forwards using steady growth rate of 5% for the following 2 years. The key assumptions underpinning these forecasts are based on historic growth rates, prices and costs adjusted for up to date information. Management does not currently believe that any reasonably possible change in the key assumptions on which assessments of recoverable amounts have been based would cause the carrying amount of goodwill to exceed its recoverable amount. The trademark represents the Safestyle trademark which was acquired in 2010. The trademark is considered to have an indefinite useful life because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the business. The trademark is not amortised but is tested annually to determine whether there is any indication of impairment and is included in the review above. 14 Plant, property and equipment Freehold property Leasehold improvement Plant and machinery Office and computer equipment Motor vehicles Assets under the course of construction Total £000 £000 £000 £000 £000 £000 £000 Cost At 1 January 2015 Additions Transfer to intangibles Transfer to tangibles Disposals At 31 December 2015 Depreciation At 1 January 2015 Charge for the year Transfer to intangibles Disposals At 31 December 2015 4,029 - - - - 4,029 81 81 - - 162 NBV at 31 December 2014 NBV at 31 December 2015 3,948 3,867 28 - - - - 28 12 5 - - 17 16 11 5,530 419 - 826 - 6,775 3,807 685 - - 4,492 1,723 2,283 3,559 123 (503) - - 3,179 3,218 168 (544) - 2,842 341 337 128 - - - - 128 55 18 - - 73 73 55 1,054 801 (90) (826) - 939 - - - - - 1,054 939 Included within the net book value are assets under finance leases and hire purchase contracts as follows: Plant & machinery Motor vehicles Computer equipment The depreciation charged on these assets was £187,000 (2014: £224,000). 15 Deferred taxation asset Balance at beginning of period Credit/(Debit) to the income statement for the period Transfer to reserves Balance at end of period The deferred tax asset provided in the financial statements at 20% (2014: 20%) is as follows: Share based payments Capital allowances in excess of depreciation P53 - Safestyle UK PLC Annual Report and Accounts 2015 2015 £000 356 53 - 409 2015 £000 340 93 808 1,241 1,278 (37) 1,241 14,328 1,343 (593) - - 15,078 7,173 957 (544) - 7,586 7,155 7,492 2014 £000 525 69 31 625 2014 £000 120 (19) 239 340 326 14 340 NOTES TO THE FINANCIAL STATEMENTS 16 Inventories Raw materials and consumables Work in progress Finished Goods The above amounts are stated net of inventory provisions. 17 Trade and other receivables Trade receivables (net of provisions) Other receivables Prepayments and accrued income 2015 £000 1,104 62 334 1,500 2015 £000 1,373 303 2,182 3,858 2014 £000 1,104 53 306 1,463 2014 £000 1,112 186 2,016 3,314 Contractual payment terms with the Group's customers are typically zero days. Payment is due upon installation and in the event of a customer default, a trade receivable arises. The above receivables are shown net of the following provisions for doubtful debts. Opening provision against trade receivables Provision created in year Expensed in year Closing provision for trade receivables 2015 £000 139 (125) 153 167 2014 £000 206 (155) 88 139 Included in the above analysis of receivables are the following amounts which are past due and for which we have not made any specific provision: Past due receivables < 1 month overdue 1-2 months overdue 2-3 months overdue >3 months overdue Total overdue receivables 2015 £000 167 120 62 925 1,274 2014 £000 108 145 93 746 1,092 The balance over 3 months old represents debt accumulated over a number of years. The Directors are comfortable that this is recoverable as the majority is secured with a charge over the customers' property. In the year ended 31 December 2015 there were £503,000 of receivables under such orders (2014: £503,000) and a further £46,000 pending (2014: £16,000). The Directors believe that the carrying value of trade and other receivables represents their fair value. In determining the recoverability of trade receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date. For details on the Group's credit risk management policies, refer to note 23. 18 Cash and cash equivalents Cash and cash equivalents Balance at end of period 2015 £000 16,485 16,485 2014 £000 8,457 8,457 All of the Group's cash and cash equivalents are at floating interest rates and is denominated in UK Sterling (£). The Directors consider that the carrying value of cash and cash equivalents approximates to their fair value. For details of the Group's credit risk management policies, refer to note 23. P54 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 19 Share capital Authorised 77,777,777 Ordinary Shares @ 1p each 97,223 Ordinary Shares @ 1p each on 17 July 2015 2,367,143 Ordinary Shares @ 1p each on 22 October 2015 Allotted, issued and fully paid 77,777,777 Ordinary Shares @ 1p each 97,223 Ordinary Shares @ 1p each on 17 July 2015 2,367,143 Ordinary Shares @ 1p each on 22 October 2015 2015 £000 2014 £000 778 1 24 803 778 1 24 803 778 - - 778 778 - - 778 During the year 97,223 ordinary shares of £0.01 each were issued relating to the 2013 LTIP scheme at an exercise price of £1.00 per share, settled in cash. £972 was credited to share capital and £96,251 was credited to the share premium account. During the year 2,367,143 ordinary shares of £0.01 each were issued on exercise of warrants granted to Zeus Capital in lieu of flotation fees, at an exercise price of £1.00 per share, settled in cash. £23,671 was credited to share capital and £2,343,472 was credited to the share premium account. 20 Trade and other payables Trade payables Other taxation and social security costs Other payables Accruals and deferred income Obligations under finance leases and hire purchase are secured on the related assets. 21 Financial liabilities Current liabilities Obligations under finance lease and hire purchase contracts Non-current liabilities Obligations under finance lease and hire purchase contracts Total secured financial liabilities 2015 £000 2,838 1,645 2,596 3,080 10,159 2014 £000 3,479 1,952 2,504 2,382 10,317 2015 £000 2014 £000 108 108 70 70 178 96 96 179 179 275 The Group has finance leases and hire purchase contracts for some of its plant and machinery, motor vehicles and computer equipment. Future minimum lease payments under finance leases and hire purchase contracts are as follows: Due within one year Due between one and two years Due between two and five years Future minimum lease payment Interest payable on leases Present value of minimum lease payments 2015 £000 120 81 - 201 2014 £000 112 122 79 313 2015 £000 12 11 - 23 2014 £000 16 13 9 38 2015 £000 108 70 - 178 2014 £000 96 109 70 275 The fair value of minimum lease payments is not considered by the Directors to be significantly different to the above analysis. The effective interest rate on finance leases is 3.77% (2014: 3.32%). P55 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 22 Provisions for liabilities and charges The group gives guarantees against all its products, which in the majority of cases covers a period of 10 years. Provision is made for the expected future costs of rectifying faults arising within the guarantee period and then discounted at 7% to a net present value. Product guarantees Balance at beginning of year Utilised in year Provided in year Balance at end of year Current Non current Balance at end of year 23 Financial instruments 2015 £000 2,512 (1,211) 1,069 2,370 668 1,702 2,370 2014 £000 2,535 (1,277) 1,254 2,512 690 1,822 2,512 The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the Group 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. Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group is funded principally by equity although loans have been utilised during the review period of this financial statements. As at 31 December 2015, no loans were outstanding (31 December 2014: £nil). The capital structure of the Group consists of equity, comprising issued share capital. The Group has no externally imposed capital requirements. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises are as follows: Ÿ Ÿ Ÿ The carrying value of these financial instruments is considered to approximate to their fair value. Trade and other receivables Trade and other payables Cash and cash equivalents Financial assets At the reporting date, the Group held the following financial assets: Trade receivables Other receivables Cash and cash equivalents 2015 £000 1,373 303 16,485 18,161 Financial liabilities At the reporting date, the Group held the following financial liabilities, all of which were classified as other financial liabilities: Trade payables Other payables P56 - Safestyle UK PLC Annual Report and Accounts 2015 2015 £000 2,838 2,441 5,279 2014 £000 1,112 186 8,457 9,755 2014 £000 3,479 2,504 5,983 CONTINUED 23 Financial instruments (continued) Market risk The Group's is not materially exposed to changes in foreign currency exchange rates or interest rate movements. Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises principally from the Group's cash balances and trade and other receivables. The concentration of the Group's credit risk is considered by counterparty. The Group gives careful consideration to which organisation it uses for its banking services in order to minimise credit risk. The Group has a significant concentration of cash held in accounts with one large bank in the UK, an institution with an A credit rating (long term, as assessed by Moody's). The amounts of cash held on deposit with that bank at each reporting date can be seen in the financial assets table above. All of the cash and cash equivalents held with that bank at each reporting date were denominated in UK Sterling. The nature of the Group's business and current stage of its development are such that individual customers can comprise a significant proportion of its trade and other receivables at any point in time. The Group mitigates the associated risk by close monitoring of the debtor ledger. At 31 December 2015, the Group's trade receivables balance was £1,373k (31 December 2014: £1,112k). The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained. In the Directors' opinion, there has been some impairment of trade receivables during the year in the trade receivable provisions table in note 18. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. The Board of Directors considers the above measures to be sufficient to control the credit risk exposure. Trade receivables totalling £503k (31 December 2014: £503k) are secured by charges against the debtor's property. Liquidity risk management Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Board manages liquidity risk by regularly reviewing the Group's cash requirements by reference to short term cash flow forecasts and medium term working capital projections. At 31 December 2015, the Group had £16,485k (31 December 2014: £8,457k) of cash reserves. Foreign currency risk management Historically, the Group's exposure to foreign currency risk has been limited, all of its invoicing and the majority of its payments are in UK Sterling. There are no balances held in foreign currencies at each reporting date and it has made no payments in foreign currencies other than US dollar and Euro. Accordingly, the Board has not presented any sensitivity analysis in this area as it is immaterial. Maturity of financial assets and liabilities All of the Group's non derivative financial liabilities and its financial assets at each reporting date are either payable or receivable within one year. P57 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 24 Commitments The group had annual commitment under non-cancellable operating leases as follows: Motor vehicles: Expiring within one year Expiring between two and five years Expiring after five years Plant and machinery: Expiring within one year Expiring between two and five years Expiring after five years Land and buildings: Expiring within one year Expiring between two and five years Expiring after five years 2015 £000 2,366 743 - 128 122 - 1,073 3,683 1,990 10,105 2014 £000 2,278 2,804 - 121 140 - 1,069 3,564 1,647 11,623 During the period ended 31 December 2015, the Group entered into contracts to purchase property, plant and equipment for £nil (2014: £78,000). These commitments are expected to be settled in the following financial year. 25 Pension costs The charge for the period amounts to £493,000 (2014: £352,000) and relates to contributions paid into a money purchase scheme in the period. 26 Group Companies Safestyle UK plc holds more than 20% of the share capital of the following companies: Style Group Holdings Limited Style Group Limited* HPAS Limited* Windowstyle UK Limited* Safestyle UK Limited* Style Group Europe Limited* *Owned Indirectly Principal activity Country of incorporation Class of shares % held by parent Holding company Holding company Home improvements and double glazing contractors Dormant Dormant Dormant England and Wales England and Wales England and Wales Ordinary Ordinary Ordinary England and Wales England and Wales England and Wales Ordinary Ordinary Ordinary 100 100 100 100 100 100 27 During the year ended 31 December 2015 there were no related party transactions, other than transactions with subsidiaries. Related party transactions During the year, Safestyle UK plc charged management charges to subsidiaries of £1,450k (2014: £1,450k) and received dividends of £7,000k (2014: £10,000k). At the year-end total amounts receivable from subsidiaries were £4,697k (2014: £2,179k). Transactions with key management personnel are shown in note 9. 28 Safestyle UK plc is quoted on the stock exchange (AIM) and ultimate control is exercised by the shareholders. Ultimate controlling party P58 - Safestyle UK PLC Annual Report and Accounts 2015 CONTINUED 29 Share Based Payments At 31 December 2015 the Group had the following share based payment arrangements: LTIPS The Group operates an equity-settled LTIP remuneration scheme for directors and certain management (“LTIP 2013”). The only vesting conditions attached to the LTIP 2013 scheme are that the individual must remain an employee of the Group for a minimum period. On 1 April 2015, a further 595,866 options were granted (“LTIP 2015”). The LTIP 2015 scheme requires a combination of specific performance based criteria and remaining an employee for a minimum period. The number of share options in existence during the year were as follows: 2015 2014 Number of share options Weighted average exercise price Number of share options Weighted average exercise price Outstanding at start of period Granted during the year Issued in the year Outstanding at end of period Exercisable at end of period 4,083,333 595,866 (97,223) 4,581,976 3,986,110 £1.00 £1.79 £1.00 £1.10 £1.00 4,083,333 - 4,083,333 - £1.00 - £1.00 - Options are valued using the Black-Scholes option pricing model. The following information is relevant in the determination of the fair value of the options granted during the period. Grant date Vesting date Lapsing date Risk free interest rate Expected volatility Expected option life (in years) Weighted average share price after adjusting for PV of dividends Weighted average exercise price Weighted average fair value of options granted Dividend Yield Remaining contractual life LTIP2015 01/04/2015 01/04/2018 01/04/2025 LTIP2013 05/12/2013 05/12/2015 05/12/2018 1.28% 43.13% 6.50 £1.80 £1.79 44.78p 5.20% 9.76 1.19% 38.90% 3.50 £0.77 £1.00 15.93p 8.00% 3.44 At the grant date there was limited share price history for the company on which to calculate volatility. Volatility was therefore estimated using both Safestyle and companies classified in the 'Home Improvement Retailers' subsector on the London Stock Exchange. P59 - Safestyle UK PLC Annual Report and Accounts 2015 NOTES TO THE FINANCIAL STATEMENTS 29 Share Based Payments (continued) SAYE On 1 April 2015 the company launched a new share save (SAYE) scheme (“SAYE 2015”) in addition to the existing scheme (“SAYE 2014”) for employees. Both schemes allow employees to acquire a certain number of shares at a discount of 20% of the share price prior to the invitation to join the scheme, using amounts saved under a 'Save As You Earn' savings contract. 2015 2014 Number of share options Weighted average exercise price Number of share options Weighted average exercise price Outstanding at start of period Granted during the year Lapsed during the period Outstanding at end of period Exercisable at end of period 262,598 211,657 (21,795) 452,460 - £1.31 £1.43 £1.31 £1.37 - 262,598 - 262,598 - £1.31 - £1.31 - Options are valued using the Black-Scholes option pricing model. The following information is relevant in the determination of the fair value of the options granted during the year. Grant date Vesting date Lapsing date Risk free interest rate Expected volatility Expected option life (in years) Weighted average share price after adjusting for PV of dividends Weighted average exercise price Weighted average fair value of options granted Dividend Yield Remaining contractual life SAYE2015 01/04/2015 01/05/2018 01/11/2018 SAYE2014 27/03/2014 01/05/2017 01/11/2017 0.76% 33.54% 3.35 £1.80 £1.43 41.52p 5.20% 3.34 1.31% 40.04% 3.35 £1.57 £1.31 58.40p 8.00% 2.34 At the grant date there was limited share price history for the company on which to calculate volatility. Volatility was therefore estimated using both Safestyle and companies classified in the 'Home Improvement Retailers' subsector on the London Stock Exchange. The total share-based expense comprises: Equity settled - LTIP Equity settled - SAYE 2015 £000 369 74 443 2014 £000 325 38 363 P60 - Safestyle UK PLC Annual Report and Accounts 2015