Safeguard Scientifics Annual Report 2018

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Safestyle UK plc

Safestyle UK plc
Annual Report 2018
The UK’s No.1 for replacement
windows and doors

Financial Overview

Contents

Revenue (£m)

2016

159.4

2017

158.6

-1%

2018

116.4

-27%

Underlying Proﬁt / (Loss) Before Taxation¹ (£m)

2016

2017

2018

20.5

15.1

-27%

(8.7)

-158%

Reported Proﬁt / (Loss) Before Taxation (£m)

2016

2017

19.3

13.8

-29%

2018

(16.3)

-218%

Net Cash² (£m)

2016

13.5

2017

11.0

-18%

2018

0.3 -98%

Average Installed Order Value (£)

2016

3,103

2017

3,232

2018

3,319

Average Frame Price (£)

2016

2017

2018

565

608

646

Frames Installed

2016

288,460

2017

265,716

-8%

2018

184,184

-31%

Welcome page and Financial Overview

Strategic Report

What we do

Chairman’s Statement

CEO’s Statement

Financial Review

Risk Management

Corporate Social Responsibility

Our People

Governance

Board of Directors

Audit Committee Report

Directors’ Remuneration Report

Directors’ Report

Independent Auditor’s Report

Financials

Consolidated Income Statement

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

¹ See the Financial Review for deﬁnition of underlying proﬁt / (loss) before taxation
² See the Financial Review for deﬁnition of net cash

Annual Report & Accounts 2018

Safestyle UK plc

Gold Trusted
Service Award 2018
For achieving a service rating of at
least 4.5 out of 5 stars during the year

Highly Recommended

Composite front door

“Really happy with service provided, the
quality of the product and the ability to
pay over a two year period. I had a new
composite front door installed and from
start to ﬁnish Safestyle provided an
excellent service”.

Fair price with big beneﬁts!

“Was visited by a very pleasant sales person. I
was able negotiate a fair price, for a very good
product. Which was installed in less than three
weeks, by a very competent ﬁtter. Who left my
property in a clean and tidy state. He was a
pleasure to have around the property. So much
so I've had a second job done with the same
amount of satisfaction and feel the beneﬁt of
replacing old draughty doors and windows”.

Kay in London

David Moore in Leicester

Security and style

A job well done

“All the way through it was a pleasure to
deal with Safestyle UK. From the Sales
Rep, Surveyor and the Fitter, they all
worked well to ensure nothing was a
problem and a new replacement door was
ﬁtted which we are very thankful for”.

“The men involved with the work were all
polite and worked with little disruption to us.
They kept good time and when the job was
ﬁnished they made sure everything was clean
and tidy, with nothing left for me to dispose of.
The ofﬁce staff were also easy to understand
and friendly in their conversations”.

John Cooper in Maidstone

Alun Laugharne in Cornwall

Thank you to all at Safestyle

Safestyle does the business

“Surveyor and ﬁtter were very helpful and
did a great job. The area was left clean and
tidy with no evidence of removal of old
ﬁttings. No damage, no re-decorating to
do. Obvious to recommend to anyone, not
just friends and family”.

“The ﬁtting and workmanship was excellent
and I will certainly have Safestyle back to
complete the rest of my windows in the
future. I can't praise Safestyle enough, from
a number of choices I had I plumped for your
company and wow you delivered”.

Lou Barber in Southampton

Harry Clayton in Lancaster

Annual Report & Accounts 2018

Safestyle UK plc

Strategic
Report

What we do

Chairman’s Statement

CEO’s Statement

Financial Review

Risk Management

Corporate Social Responsibility

Our People

Safestyle UK plc

Our Nationwide
Branches & Depots
We currently have 36 sales branches and
13 installation depots across the UK

Operation Headlines

1 Head Ofﬁce

1 Manufacturing Facility

13 Installation Depots

36 Sales Branches

Our 36 sales branches spread our inﬂuence out
across the country to generate enquiries on
which our appointments team can capitalise.

13 Installation Depots

Our 13 Installation Depots are the hubs from
which our ﬁtting operation can efﬁciently service
our customers' orders. Our expert ﬁtting teams
visit their branch each day to unload and reload
their vehicles, connect with the nerve centre of
the company and set off to fulﬁl the day's orders.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

The Customer Journey

We are proud to be the UK's largest supplier of replacement windows and doors to the UK
homeowner market. We control all aspects of the customer journey from start to ﬁnish which
creates a personalised and long-term relationship with each of our customers.

G
N
I
T
E
K
R
A
M

S
E
L
A
S

We generate thousands
of appointments
through various
marketing channels
with potential
customers each year

We help thousands of
customers navigate the
complexity of options
that they face when
changing their windows
or doors

Y
E
V
R
U
S

We survey over 50,000
properties to precisely
specify products ready
for bespoke
manufacture

G
N
R
U
T
C
A
F
U
N
A
M

N
O
I
T
A
L
L
A
T
S
N

E
C
V
R
E
S

Efﬁciently manufacture
customer speciﬁc, high
quality, energy saving
products in Barnsley
and distribute to 13
installation depots

Expertly install the new
windows and doors
before recycling the
items we replace in
1,000 homes per week

Complete peace of
mind on every
installation with our ten
year warranty period

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

How Many Windows?

When you multiply together the number of different window types, designs, colours and other
options, you won't believe the number of different windows we can offer our customers...

Window
Types

141

Window
Designs

Casement

Tilt & Turn

Sash

Flush Sash

Window
Colours

Classic
White

Irish
Oak

Slate
Grey

Cream Anthracite

Mila
Pro Linear

Handle
Options

Mila
Hero

Monkey
Tail

Pear
Drop

White
Woodgrain

Golden
Oak

Rosewood Chartwell

Black
Woodgrain

Lead
Designs

Decorative
Glass

Privacy
Glass

Clear Glass

Autumn

Sycamore

Tafetta

Arctic

Handle
Colours

White

Black

Polished
Chrome

Satin

Gold

Chrome Pewter

PVC

Window
Sills

Equal Sight
Lines

Hardwood

Softwood

Equal Sight Lines

Non-Equal Sight Lines

Florielle

Mayﬂower

Stippolyte

Cotswold

Everglade

243,648,000

Window choices...
and every one made bespoke to the
customer’s individual size

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

How Many Composite Doors?

When you multiply together the number of different door types, designs, colours and other
options, you won't believe the number of different doors we can offer our customers...

Composite
Door Types

11 Outside Colours X

Inside
Colours

Cantebury

Cheltenham Exeter

Gloucester Oxford

Richmond Stratford Warwick

White

Black

Blue

Chartwell

Cream

White

Same as
Outside

10 Frame

Colours 3
X

Outside

Above
Window
Options

Toplight

Windsor

Florence Milano

Roma

Siena

Turin

Venice

Verona

Duck Egg

Green

Grey

Oak

Red

Rosewood

Classic
White

Irish
Oak

Slate
Grey

White

Golden
Oak

Arched Head

Rosewood

Cream

Chartwell
Green

Black

Anthracite

Or none

20 Privacy or

X
Coloured
Glass Options

5 Flag

Window
Options

Full

Three
Quarters

Half

Side
Panel

Or
None

2 Spy

Hole
Options

3 Letter

Plate
Options

5 Knockers

Urn

Lion Head

Scroll

5 Handle

Options X

Standard
Handle

Pad
Handle

Pro Style
Handle

With

Or without

2 Safety

Chain
Options

Low

Middle

Oval

Victorian Scroll

Cranked Long
Bar Handle

Curved Handle

Or none

Options vary depending on the door design

X 6 Furniture

Colours X 2 Thumb

Turn
Options

White

Black

Gold

With

Chrome

Brushed
Chrome

Pewter

Or Without

3,801,600,000
Door choices...
... and every one made to measure to
every customer’s speciﬁcations

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Chairman’s Statement

Summary of performance

2019 represents a key year for our
turnaround after 2018 saw an
unprecedented period of disruption
and change for Safestyle that
signiﬁcantly impacted the ﬁnancial
performance of the Group. We have
started 2019 well and are
encouraged by our sales order
intake for the ﬁrst part of the year,
which has continued the momentum
achieved in late 2018.

Much of 2018 was severely
impacted by the activities of an
aggressive new entrant, NIAMAC
Developments Ltd (“NIAMAC”)
(trading as SafeGlaze UK), which
affected all areas of the Group's
operations and which resulted in the
Group taking legal action to protect
itself in May 2018. This event,
combined with a backdrop of a
challenging consumer environment,
resulted in a severe decline in our
ﬁnancial performance in the year.

Revenue was down 26.6% to
£116.4m (2017: £158.6m) with
underlying (loss) / proﬁt before

taxation¹ a loss of £(8.7)m as
compared to a £15.1m proﬁt in
2017. Reported (loss) / proﬁt before
taxation was a loss of £(16.3)m
(2017: proﬁt of £13.8m). Basic EPS
for the period was down from 13.1p
to (16.1)p.

There were also signiﬁcant non-
underlying items² incurred in the
year of £7.5m (2017: £1.3m). These
consist of costs principally
associated with litigation,
restructuring, the Commercial
Agreement (see below) and a ﬁne
from the Health and Safety
Executive (“HSE”) following
prosecution for an incident which
occurred in March 2017.

The Group settled its legal action
against NIAMAC in September 2018
and subsequently entered into a
Commercial Agreement (see below)
which led to a recovery in the
contracted workforce across our
canvass, sales, surveying and
installations operations at the start
of November.

Linked to this upturn in workforce,

the Group invested signiﬁcantly in
lead generation, commissions and
associated overheads prior to the
end of the year. Whilst this
investment is expected to result in a
quicker recovery than would
otherwise have been the case, it
occurred too late in the year to
improve the ﬁnancial performance
for 2018. Nonetheless, as I
mentioned above, sales order intake
for the ﬁnal two months of 2018
saw a step change in performance
compared to the majority of the
year and I am pleased to report that
the ﬁrst part of 2019 has continued
this positive momentum, with a
performance that is ahead of the
comparative period in 2018.

The Group is now focused on a rapid
return to proﬁtability. A detailed
three phase turnaround plan was
developed in the second half of the
year which has clearly-deﬁned
projects and milestones that are
designed to stabilise the Group,
rebuild sales and margins and
manage costs effectively. The ﬁrst
phase of the turnaround, involving
the stabilisation of the Group, was

Annual Report & Accounts 2018

¹ See the Financial Review for deﬁnition of underlying (loss) / proﬁt before taxation
² See the Financial Review for deﬁnition and detail of non-underlying items

successfully completed in the year.
The second phase, which is to return
the Group to proﬁtability and to
improve operational efﬁciencies, is
well underway. The third phase,
aimed at accelerating growth, will
begin in 2020.

Litigation

The Group has invested heavily in
building its leading market position
over many years and whilst the
Group welcomes healthy
competition in the market, it is
committed to protecting its brand,
its reputation, and its staff.

As such, in May 2018, the Group
issued a claim seeking injunctive
relief and damages against NIAMAC
and a number of named individuals.
The claim was made in the Business
and Property Courts of England &
Wales, on the Intellectual Property
list.

considered to be passing off, the
misuse of conﬁdential information,
unlawful means conspiracy and
malicious falsehood. Safestyle also
applied for urgent interim relief,
pending the trial of the matter.

As a result of interim applications to
the Court, a series of injunctions
were put in place in May and
subsequently in July. On 3
September 2018, the Group
announced that it had settled the
claim against all parties with a
number of appropriate undertakings
made by NIAMAC to the Court.

Further details of the settlement
were kept conﬁdential. NIAMAC
was subsequently placed into
administration on 30 October 2018.

The Board is pleased that this
matter is closed and the restoration
of the Group to proﬁtability is now
our focus.

The claim asked the Court to
determine whether Safestyle was
entitled to injunctive relief and
damages from what the Group

Commercial Agreement

Shortly after the announcement
that the litigation had been settled,

the Group entered into an
agreement with Mr M. Misra, who
was a party to the Group's dispute
involving NIAMAC.

Whilst the full detail of the
agreement is conﬁdential, it
encompasses a ﬁve year non-
compete agreement and the
provision of services by Mr Misra in
support of the continued recovery
of Safestyle. The Group agreed
consideration with Mr Misra subject
to the satisfaction of both clear
performance conditions by him over
the period to quarter 4 2020 and
Safestyle's trading performance in
2019.

Subject to satisfying the strict terms
of the agreement, the consideration
will take the form of an allotment by
Safestyle to Mr Misra of four million
ordinary shares of 1 pence each in
the capital of the Group and a
payment of cash consideration of
between £nil and £2.0 million. Both
the allotment of shares and payment
of the cash, if any, would only be
made in quarter 4 2020.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Chairman’s Statement

Balance Sheet and Dividend

Directorate changes

As part of phase one of its
turnaround plan, the Group secured
a £7.5m committed ﬁnance facility
in October 2018, which will remain
in place to October 2020. This
facility is designed to support the
Group's working capital needs in the
short term. The net cash position at
the end of the year was £0.3m with
an additional £3m of the facility
remaining unutilised.

To ensure that the Group maintains
suitable liquidity for the immediate
future, the Board does not propose
a ﬁnal dividend for the year (2017:
£nil). The Board will continue to
assess the possibility of resuming
payment of a dividend; this would be
linked to increases in the Group's
net cash levels and delivery of the
turnaround plan.

There have been a number of
changes to the Board this year and
the following appointments were
made in 2018:

Ÿ Mike Gallacher was appointed as
Chief Executive Ofﬁcer on 1 May
2018.
I, Alan Lovell, was appointed as
Non-executive Chairman on 16
July 2018.

Ÿ Rob Neale was appointed as

Chief Financial Ofﬁcer on 16 July
2018.

Ÿ Fiona Goldsmith joined the
Board as a Non-executive
Director and Chair of the Audit
Committee on 17 September
2018.
Julia Porter joined the Board as a
Non-executive Director on 5
November 2018.

These new appointees joined Chris
Davies, a Non-executive Director
who will retire from the Board after
the May AGM. I would sincerely like
to thank Chris for his service to the
Group since ﬂotation, particularly
during 2018 when the Group and
the Board was going through a
challenging period. I am pleased
with how the new Board is working
and I am conﬁdent that the
considerable breadth and depth of
the Board's experience will underpin
our plans to return Safestyle to
proﬁtability and deliver value to our
shareholders.

These appointments replaced
longstanding Executive Directors
Steve Birmingham and Mike
Robinson who left the Group in the
ﬁrst half of the year along with the
previous Chairman, Steve Halbert
and Non-executive Director Peter
Richardson.

Most recently, on 5 March 2019,
Giles Richell, Chief Operating
Ofﬁcer, resigned from both his
Executive role and Board
Directorship. Giles's role will not be
replaced and his reporting lines will
revert to the senior leadership team
as the Group works to simplify its
organisational structure and
recover its overhead position.

Looking ahead / outlook

2019 represents a key year for our
turnaround from which the Board
and the Executive team are
conﬁdent, despite the backdrop of
weaker consumer conﬁdence, that
we can emerge stronger for the
future.

We reported before the close of
2018 that in the last two months of
the year, following the recovery in
our contracted workforce numbers,

the Group achieved an improved
sales order intake that was inline
with the comparative period for
2017, signalling a step-change in the
performance seen for the majority
of the year.

As I have previously described, our
sales order intake performance for
the ﬁrst part of 2019 has sustained
the momentum from late 2018; this
represents an encouraging start to
the year.

We are well-invested in our
manufacturing facilities and are
focussed on implementing our
turnaround plan to modernise our
operations and develop a more
efﬁcient and professional business,
whilst retaining as much as possible
of what made the Group successful
in the past.

Finally and most importantly, in such

a year of uncertainty and adversity, I
would sincerely like to thank all our
colleagues for their unparalleled
hard work, tenacity and
commitment.

A C Lovell
Chairman
21 March 2019

“Our sales order intake
performance for the
ﬁrst part of 2019 has
sustained the
momentum from late
2018; this represents
an encouraging start
to the year.”

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

CEO’s Statement

Summary

The business faced a unique and
challenging operating context in
2018, but I am pleased to say that,
through the dedication and hard
work of our people, we ended the
year with our business stabilised
and trading position materially
improved.

Nonetheless, much of 2018 was
spent combating the impact of a
well-funded and aggressive
competitor, NIAMAC, trading as
SafeGlaze UK. NIAMAC rapidly
took over 30% of our self-employed
agents as well as some key
managerial and specialist staff.
Safestyle responded with
appropriate legal action and we
reached an early out of court
settlement during the third quarter
of our ﬁnancial year.

By the end of 2018, the business had
experienced a signiﬁcant recovery in
its contracted workforce across its
canvass, sales, surveying and
installations operations, resulting in
a signiﬁcantly improved sales order
intake in the ﬁnal two months of the
year.

2018 has also seen needed
advances in our Health, Safety and
Compliance practices and signiﬁcant
progress in our Digital
Transformation initiative, all of
which I am conﬁdent will support
our leading position in the market in
the future.

In summary, our business model
remains simple and focussed. We
have a strong and recognised brand,
one of the sector's leading
production facilities, along with
committed and skilled people across

all areas of the organisation. I would
like to thank all our staff and self-
employed agents for their hard work
through such an unusual set of
circumstances.

Business review

The NIAMAC issue impacted the
business in three ways; the rapid
loss of both key permanent staff and
revenue driving self-employed
agents, cost increases associated
with retaining staff and agents and
the cost of litigation and the
diversion of management time.
These factors combined led to a fall
in turnover of 26.6% to £116.4m
(2017: £158.6m) and an underlying
loss before taxation¹ of £(8.7)m
(2017: Proﬁt of £15.1m). After 13
consecutive years of market share
gains, our market share decreased
to 8.2% (from 10.7% in 2017)

reﬂecting a 28.3% drop in
installations from 59,983 to 42,995.
We were able, however, to increase
our average frame sales price by
6.2% to £646 and our average
installed order value by 2.7% from
£3,232 to £3,319.

Turnaround plan

Faced with the challenges outlined
above, the business developed a
three phase turnaround plan in mid-
2018. The plan has clearly-deﬁned
projects and milestones designed to
stabilise the business in 2018,
before returning it to proﬁtability in
2019 and then accelerating growth
in 2020.

The ﬁrst phase of the turnaround
plan was aimed at stabilising the
business through taking immediate
legal action to address the NIAMAC

issue, putting in place robust
funding to support the turnaround
process and establishing a new
Board. After the initial success in
our legal case we then reached an
early out of court settlement, albeit
after signiﬁcant costs were incurred
due to the scale and complexity of
the legal action.

Concurrently, new funding was
quickly put in place and a series of
highly experienced appointments
were made to rebuild the Board and
to bolster the Executive Team.
Accordingly, the ﬁrst phase of the
turnaround plan was completed by
October 2018.

As a result, the business is now
engaged in the second phase of the
plan through 2019 which is to
return the business to proﬁtability.
Our work will be focussed on

rebuilding our branches and
organisation, improving margins,
addressing costs, recovering
operational KPIs and driving
growth. A key element of the plan
includes delivering a step change in
our compliance, working closely
with regulatory and industry bodies
to strengthen our processes and
controls.

The third phase of the plan will start
in 2020, when the business plans to
step up investment in our brand and
the Group's core capabilities,
establish new revenue streams and
capitalise on our Digital
Transformation.

Annual Report & Accounts 2018

¹ See the Financial Review for deﬁnition of underlying (loss) / proﬁt before taxation

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

CEO’s Statement

Health, safety and compliance

Since late 2017, the business has
initiated a step change in its
approach to managing Health and
Safety with signiﬁcant investment in
additional resource, new processes,
training and equipment. Our prime
focus has been on the most
signiﬁcant risk for our people,
working at height. This followed a
working at height incident with one
of our people, earlier in 2017, for
which the Group received a
signiﬁcant ﬁne from the HSE in
2018. The transformation in our
approach has been reinforced by
additional audits and management
reporting.

Given the scale and nature of our
operations, close management is

Annual Report & Accounts 2018

needed to monitor compliance with
relevant Fair Trading and Consumer
legislation. During 2018, West
Yorkshire Trading Standards
(“WYTS”) took the Group to court
over a number of historical
incidents. As a result of this, the
new business leadership team has
put in place a comprehensive series
of actions while aiming to establish
an effective and collaborative
partnership with WYTS. Good
progress has been made on this at
the time of writing.

The Board and Executive team will
continue to monitor and adapt our
business practices as beﬁts our
leading position in the market and a
generally stricter regulatory
environment.

Modernisation

I am pleased to report that we made
good progress during the year with
our ambitious Digital
Transformation project.

At the start of 2018, the ﬁrst phase
of this project, Electronic Lead
Generation, was launched. In
August 2018, the second phase,
Electronic Contract, was put in
place. Before these changes, all our
self-employed sales representatives
carried paper price lists and entered
orders onto forms which were then
faxed to head ofﬁce every day. They
have all now been equipped with a
tablet with a sales process that
ensures quick and accurate pricing
and an immediate digital contract
submission process.

For our door canvass and sales
agents, this represents the largest
single change for Safestyle since
ﬂotation and the smooth
implementation of the programme
in such challenging circumstances is
one of the major successes in 2018.

This programme has enabled
simpliﬁcation and delivered some
cost savings within the business.
Moreover, the new real time sales
data ﬂow gives us a detailed, data-
driven understanding of our sales
performance through a rich source
of Management Information which
will deliver performance-improving
insights in the years ahead.

During 2019, we will consolidate the
implementation of the system
changes we have already made and

further expand them into other
parts of the business as we develop
our digital capability.

Outlook

Clearly, as a UK consumer-facing
business, we are not alone in
experiencing signiﬁcant headwinds
in 2019. There is of course a great
deal of speculation and some
uncertainty about the impact that
Brexit will have on UK consumer
conﬁdence, along with the impact
that it may also have on our supply
chain and input costs. The actions
and steps taken by the Board to
mitigate speciﬁc Brexit risks are
described in the Risk Management
section.

Nevertheless, we are conﬁdent in

the underlying strength of the
Safestyle business model and we are
encouraged that our sales order
intake performance for the ﬁrst part
of 2019 has sustained the
momentum from late 2018. With an
experienced Board and Executive
team now in place, our focus is on
delivering phase two of our
turnaround plan, preparing the
ground for accelerating our growth
and ﬁnancial performance in 2020.

M Gallacher
Chief Executive Ofﬁcer
21 March 2019

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Turnaround plan

The business developed a three
phase turnaround plan in June 2018.
This plan consisted of three phases
focused respectively on stabilising
the business, returning the business
to proﬁtability and ﬁnally,
accelerating growth.

Phase one
Stabilising the business

June to October 2018. There were
three key elements of this initial
stabilisation phase delivered during
2018.

Leadership: The Board and
Executive team experienced high
levels of turnover in early 2018,
with the illness of the outgoing CEO
preventing an effective handover,
the subsequent loss of two
Chairmen and the concurrent
retirement of the long-serving CFO.
In the midst of a hugely challenging
business position the gaps in senior
leadership needed to be addressed
and hence, led by Chris Davies
(Senior Non-executive Director), the
business moved swiftly to appoint
experienced leaders to the Board.

Annual Report & Accounts 2018

Alan Lovell was appointed as
Chairman in July concurrent with
the arrival of our new CFO, Rob
Neale. Fiona Goldsmith (Non-
executive Director) was appointed
in September and Julia Porter (Non-
executive Director) also joined the
Board in November.

The Executive team was
strengthened with the
appointments of industry veteran
Martin Troughton as Marketing
Director (formerly Marketing
Director at Everest Home
Improvements and previously
Anglian Home Improvements) and
Andrew Parkinson as Sales Director
(formerly Operations Director at
Provident Financial Group).

Legal case: Early in quarter two, it
became clear that the aggressive
challenge from NIAMAC required a
legal response aimed at protecting
our brand, our people and our
business model. Over the previous
decade, Safestyle has made
considerable investment in building
a nationally recognised brand and
we could not allow consumers to be

confused by the SafeGlaze UK brand
name.

Phase two
Return to proﬁtability

As a result, in May 2018 we sought
immediate injunctive protection and
lodged a series of claims with strong
support from major shareholders.
Our claims met with early success,
providing protection to the business
and led in due course to a number of
court orders being made, including
one requiring NIAMAC to change its
SafeGlaze UK brand name. While
the business was conﬁdent about
the expected ﬁnal outcome of our
court case we were pleased to reach
an early out of court settlement with
NIAMAC, allowing the management
team to refocus its efforts with the
case successfully concluded and
behind us.

Financing: To underpin the next
phases of the turnaround plan and
support the Group's working capital
needs, a £7.5m committed ﬁnance
facility was obtained in October
2018, which will remain in place
until October 2020.

With the conclusion of our legal
case, funding in place and the arrival
of a new leadership team, the
business moved into the second
phase of our turnaround plan. This
phase is focussed on returning the
business to proﬁtability. This phase
will run through 2019 and the key
elements are:

Rebuilding our staff & self-
employed workforce: The business
made progress on rebuilding staff
and agent numbers through the
second half of the year and this
accelerated in the fourth quarter
with the return of former agents
following NIAMAC going into
administration. Integrating large
numbers of agents carried some
cost, but supported a clear step up in
our sales and installation volumes as
we exited 2018.

Deliver top line growth: Fuelled by
the return of a signiﬁcant number of
agents and strong investment in
demand generation, sales order

intake grew to similar levels to those
seen in the same six week period
last year. Our plan for 2019 shows
an improvement versus 2018 with a
strong recovery in Door Canvass
and sustained growth in Media
demand generation. In addition, we
will be making selective above the
line investments, using new TV copy
which was aired to support the sales
campaign at the start of 2019.

Improving margins: During 2018,
margins were negatively impacted
by a number of factors. These
include commission costs which
rose due to the competitive
landscape, increased digital lead
generation costs and higher
overheads due to investment in
compliance, customer service and IT
systems. We expect these costs to
normalise and for our margin
performance to improve.

Operational effectiveness and
cost: The business has experienced
signiﬁcant cost increases since
2017, shaped by a combination of
costs associated with the disruption
caused by NIAMAC and investment

into key areas of the business. Our
focus during phase two of our
turnaround plan is to recover large
components of the cost shape we
had during 2017. We also aim to
make progress on basic operational
metrics such as 'right ﬁrst time
installation,' ﬂeet and transport
costs, frame and door remakes, lead
conversion rates and cancellation
rates. All of these have clear plans in
place for improvement during 2019.

Compliance: We operate in an
increasingly regulated industry. This
is evident from the 2018 ﬁnes
relating to historical Health &
Safety and Trading Standards issues.
As a direct result we have now
established effective working
relationships with WYTS as we
move to put in place the right
management processes and
standards. We also continue our
focus on the management of our
main Health & Safety risks, with
industry-leading practices and
equipment.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Turnaround plan

Phase three
Accelerate growth

Phase three of our turnaround plan
will focus on accelerating our
growth from a base of proﬁtable and
sustainable operations. The key
elements of this part of our
programme are;

Brand investment: We plan to
recharge our brand investment with
stepped-up investment in TV
advertising and lead generation. We
will aim to achieve a leading Share of
Voice in the industry with effective
TV copy.

Capability development: We will
broaden our initial investments in
our staff with the establishment of a

Annual Report & Accounts 2018

Technical Training Academy and
selective investment in management
development.

technology to enable business
improvements and deliver cost
savings.

Compliance: We will continue to
focus on compliance and
continuously live our values around
customer service, integrity and
safety.

M Gallacher
Chief Executive Ofﬁcer
21 March 2019

New business: We will be making
selective investments in new growth
opportunities, encompassing New
Product Development and
geographic expansion, as well as
exploring near adjacent
opportunities. Our focus will be on
growing our core business and this
growth will not come at the expense
of increasing complexity or diverting
from our strong and simple core
business.

Modernisation: As referenced
above, the Digital Transformation of
the business will continue with a
strong emphasis on harnessing

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Financial Review

Financials

Underlying

£’000

116,426
(89,748)
26,678
(35,287)
(8,609)
7
(142)
(8,744)

Revenue
Cost of sales
Gross proﬁt
Other operating expenses
Operating (loss) / proﬁt
Finance income
Finance costs
(Loss) / proﬁt before taxation
Taxation
(Loss) / proﬁt for the year

Ÿ Basic EPS (pence per share)
Ÿ Diluted EPS (pence per share)

Cash and cash equivalents
Loan facility
Net cash¹

2018

Non-
underlying
items
£’000

Total

Underlying

£’000

2017

Non-
underlying
items
£’000

158,552
(107,133)
51,419
(36,379)
15,040
35
(10)
15,065

(1,251)
(1,251)

(1,251)

(801)
(801)
(6,717)
(7,518)

(7,518)

116,426
(90,549)
25,877
(42,004)
(16,127)
7
(142)
(16,262)
2,964
(13,298)

(16.1)p
(16.1)p

4,163
(3,903)
260

Change in
underlying

(26.6%)
16.2%
(48.1%)
3.0%
(157.2%)
(80.0%)
(1320.0%)
(158.0%)

Total

£’000

158,552
(107,133)
51,419
(37,630)
13,789
35
(10)
13,814
(2,986)
10,828

13.1p
13.0p

10,975
-
10,975

¹ Net cash is cash and cash equivalents less loan facility.
² Underlying gross proﬁt is deﬁned in the 'Underlying performance measures' section below and the reconciliation between this
measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review.
³ Underlying other operating expenses are deﬁned in the 'Underlying performance measures' section below and the reconciliation
between this measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review.
4
Underlying (loss) / proﬁt before taxation is deﬁned in the 'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review.

KPIs

2018

2017

Change %

Average Order Value (£ inc VAT)
Average Frame Price (£ inc VAT)
Frames installed units
Orders installed
Frames per order

3,319
646
184,184
42,995
4.28

3,232
608
265,716
59,983
4.43

2.7%
6.2%
(30.7%)
(28.3%)
(3.3%)

Financial and KPI headlines

Ÿ Frames installed declined by

30.7% to 184,184 units with a
similar decline of 28.3% for
orders installed to 42,995.

Ÿ Average frame price improved by
6.2% to £646 as a result of price
actions and a larger mix of higher
average priced composite guard
doors.

Ÿ Revenue decreased by 26.6% to
£116.4m, largely as a result of
the signiﬁcant decline in
installation volumes for the
majority of the year linked to the
NIAMAC disruption.

Ÿ Underlying gross proﬁt² declined
by 48.1% to £26.7m with the
decline in revenue described
above further compounded by
higher commission costs, an
increase in lead generation
investment (speciﬁcally in digital

media), a growth in installation-
related materials and access
solutions equipment and ﬁnally,
higher (mix-driven) consumer
ﬁnance subsidies. Reported
Gross Proﬁt declined by 49.7% to
£25.9m.

Ÿ Underlying other operating
expenses³ reduced by 3% to
£35.3m with reductions in TV
advertising offset by increased
Factory and IT capital
investment-driven depreciation,
an increase in costs linked to
rebuilding the Board and
management team, and
investment in compliance,
customer service and IT systems
and infrastructure costs.
Ÿ Reported other operating

expenses increased by 11.6% to
£42.0m with the increase largely
attributable to £7.0m of non-
recurring costs in 2018 (see note

7 for full breakdown).

Ÿ Finance costs include costs of the

borrowing facilities from
November 2018.

Ÿ Underlying (loss) / proﬁt before

taxation was a loss of £(8.7)m for
the year (2017: proﬁt of £15.1m).

Ÿ Non-underlying items were

£7.5m in the year, full details of
which are provided on the
following pages of this Financial
Review.

Ÿ Reported (loss) / proﬁt before
taxation was a loss of £(16.3)m
(2017: proﬁt of £13.8m) which is
attributable to the decline in
gross proﬁt due to the trading
performance in the year, coupled
with a £7.0m increase in non-
recurring costs versus 2017.
Ÿ Net cash¹ was £0.3m versus the
prior year position of £11.0m.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Financial Review

Underlying performance measures

As described in the Chairman's
Statement, the Group has faced an
unprecedented series of events.
These events have given rise to a
number of signiﬁcant non-
underlying items in the year.

Consequently, adjusted measures of
underlying gross proﬁt, underlying
other operating expenses and
underlying (loss) / proﬁt before
taxation have been presented as the
primary measures of ﬁnancial
performance. Adoption of these
measures means that non-
underlying items are excluded to
enable a meaningful evaluation of
the performance of the Group from
year to year.

Non-underlying items consist of
non-recurring costs, share-based
payments and Commercial
Agreement amortisation. A full
breakdown of these items with
details are shown below. Non-
recurring costs are excluded
because they are not expected to
repeat in future years. These costs
are therefore not included in the

Annual Report & Accounts 2018

Group's primary performance
measures as they would distort how
the performance and progress of the
Group is assessed and evaluated.

Share-based payments are subject
to volatility and ﬂuctuation and are
excluded from the primary
performance measures as such
changes year to year would again
potentially distort the evaluation of
the Group's performance year to
year.

Finally, Commercial Agreement
amortisation is also excluded from
the primary performance measures
because the Board believes that
exclusion of this enables a better
evaluation of the Group's underlying
performance year to year.

These alternative measures are
entirely consistent with how the
Board monitors the ﬁnancial
performance of the Group.

Revenue

Revenue for the period was
£116.4m compared to £158.6m last
year, representing a decline of

26.6%. The key performance drivers
were as follows:

Ÿ Leads generated from direct
response media increased by
2.8%. However, leads from other
sources, particularly canvass
which was signiﬁcantly disrupted
by the NIAMAC issues during the
year, declined by 60% for the full
year.

Ÿ Signiﬁcantly, in the last two

months of the year, following the
recovery of the workforce
described in the Chairman's
Statement, the Group
experienced a marked
improvement in lead generation
with total leads only 3.9% lower
than the same period last year.
Ÿ Conversion of leads into orders

improved by 16.1% versus 2017,
which was driven by the
increased mix of digital media
leads that convert at an
improved rate compared to other
lead sources. This improvement
in conversion went some way to
offsetting the reduction in total
leads described above.
Ÿ For the full year, there was a

28.3% decline in the volume of

orders installed from 59,983 to
42,995 which was largely driven
by the decline in our workforce
due to the NIAMAC disruption.

Ÿ A reduction in the number of

frames installed also occurred,
predominantly for the same
reason as above, with a 30.7%
decline from 265,716 to 184,184
frames, resulting in a slight
reduction in number of frames
installed per order of 3.3% to
4.28.

Ÿ The average order value

including VAT increased by 2.7%
to £3,319 and the average frame
price increased by 6.2% from
£608 to £646. Some price
increases were implemented
during the year. Whilst the
Group remains focussed on
maintaining a competitive price
point, the price increases were
required to negate margin
pressures in a number of areas
along with the impact of Sterling
weakness and commodity and
silicone inﬂation. These price
changes, together with an
increased share of higher value
composite doors and coloured
frames, resulted in the overall

average price increase observed.

Ÿ This favourable average price

impact was partially offset by an
increase in uptake of our
consumer ﬁnance products, the
impact of which is deducted from
revenue.

Underlying gross proﬁt

Underlying gross proﬁt reduced by
48.1% in the period to £26.7m
(2017: £51.4m). Underlying gross
margin percentage reduced to
22.9% (2017: 32.4%).

£11.7m of the reduction in
underlying gross proﬁt is
attributable to the decline in
installation volumes described
above. The other main drivers of the
lower gross proﬁt and diluted gross
margin percentage are as follows:

Ÿ There has been an increased
utilisation of traditional
scaffolding solutions to ensure
our teams are working safely at
height.

Ÿ The change of mix generated via
direct response media drove an
adverse cost per order effect

despite an improved lead to
order conversion rate. The mix
effect was compounded in FY18
by a signiﬁcant year on year
increase in 'Pay Per Click' rates
which were driven by increased
online competition. The increase
in digital media costs was
partially offset by savings in TV
advertising investment which is
included within underlying
operating expenses.

Ÿ Agent commission costs as a

percentage of sales increased in
the year. The single largest
driver was the business
responding to the more
competitive recruitment
environment. In the last two
months of the year, following the
recovery of the workforce, this
effect was ampliﬁed by investing
in lead generation and installer
training ahead of the installation
activity occurring.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Financial Review

Underlying other operating
expenses

Underlying other operating
expenses decreased by 3% versus
2017. There were reductions in the
amount invested in TV advertising,
which partially offset the higher
investment in digital media referred
to above. There were increases in
other overhead areas as follows:

Ÿ Depreciation increased due to

factory and IT capital investment
in the last 2 years;

Ÿ Salary and related costs
increased despite cost
reductions in some operational
areas as a result of the Digital
Transformation project. These
savings have been offset by
investment in Health & Safety,

Annual Report & Accounts 2018

Customer Service, HR and
Installation workforce
management as well as costs
associated with the rebuild of the
Board and Executive team. A key
component of the turnaround
plan is for the Group to simplify
its organisational structure and
recover its overhead position
during 2019.
IT licensing and infrastructure
costs also increased in the year
as a result of the Digital
Transformation project, the
rollout of technology across the
branch network and the
implementation of improved
network security and resilience.

Underlying (loss) / proﬁt before
taxation

Underlying (loss) / proﬁt before
taxation was a loss of £(8.7)m in the
period (2017: a proﬁt of £15.1m).
This is before the non-underlying
items described below.

Non-underlying items

A total of £7.5m has been separately
treated as non-underlying items for
the year (2017: £1.3m). These
consist of £7.8m of non-recurring
costs, a £0.4m shared based
payment credit and £0.1m of
Commercial Agreement (Intangible
Asset) amortisation. The following
table provides the full breakdown:

Non-underlying items

Product guarantee provision

Non-recurring costs charged to cost of sales (note 7)

Litigation costs
Restructuring and operational costs
Fines
Onerous leases
Commercial Agreement costs
Commercial Agreement service fee
Non-recurring pay awards
Dilapidations provision

Non-recurring costs charged to other operating expenses (note 7)

Total non-recurring costs

Equity-settled share based payment (credit) / charges (note 31)
Commercial Agreement amortisation (note 14)

2018
£000

801

1,912
1,167
1,079
294
311
1,000
635
618

7,016

7,817

(374)
75

2017
£000

-
830
-
-
-
-
-
-

830

421
-

Total non-underlying items

7,518

1,251

The single largest non-recurring
item is £1.9m of costs related to the
NIAMAC litigation in the year as
described in the Chairman's
statement. This matter is now
closed and there will be no
continuation of these costs into
2019.

Included within the 'Fines' category
is a ﬁne from the HSE of £0.9m
following prosecution for a working
at height accident in March 2017.
Since early 2017, the Group has
taken signiﬁcant steps to avoid a
reoccurrence. These measures
include an increased use of
scaffolding, investment in other
market-leading solutions for
working safely at height,
establishing a new Group Health
and Safety Function managed by an
experienced manager and
signiﬁcantly increasing safety audits
alongside numerous other process
improvements.

The remaining £0.2m within the
'Fines' category relates to a ﬁne for
13 infringements brought by WYTS
across a period of 2½ years between
2015 and early 2017. As a business,
we view the conduct and behaviour
of our representatives of the utmost

importance and we are now pro-
actively working in partnership with
WYTS to ensure compliance with
customer standards across the
business.

The Commercial Agreement service
fee is the assessed fair value of the
consideration payable under the
terms of the Commercial
Agreement that has been attributed
to services received in the year.

As part of a review by management
of provisions made for the Group's
future obligations, a revision to the
estimates used for future product
guarantee claims and the creation of
a dilapidations provision has been
made which management consider
more accurately reﬂect the Group's
obligations in these two areas. The
full impact of this change in estimate
has been recorded in the
Consolidated Income Statement for
the current year. However, included
in non-recurring costs is the impact
on the prior year had this change in
estimate been retrospectively
applied being £0.8m in relation to
the change in product guarantee
provision estimate (recognised in
cost of sales) and £0.6m in relation
to the dilapidation provision change

in estimate (recognised in other
operating expenses). Both of these
amounts have been excluded from
underlying results as management
believes recording the full charge in
2018 distorts assessment of the
underlying performance for the
year.

Further detail of all non-recurring
costs is contained in note 7.

Finally, in addition to the items
classiﬁed as non-recurring costs on
the Consolidated Income Statement,
the share based payment (credit) /
charge and the amortisation of the
intangible asset created as a result
of the Commercial Agreement have
been excluded from the underlying
(loss) / proﬁt before taxation
performance measure to enable a
meaningful evaluation of the
performance of the Group from year
to year.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Financial Review

Earnings per share

Basic earnings per share for the
period were a loss of (16.1)p
compared to 13.1p proﬁt for the
prior year. The basis for these
calculations is detailed in note 9.

Net cash and cashﬂow

As part of phase one of its
turnaround plan, the Group secured
a £7.5m committed ﬁnance facility
in October 2018, which will remain
in place to October 2020. This
facility is designed to support the
business and underpin the
turnaround of the Group. The
structure of the facility is that of a
£4.5m term loan, which was drawn
on completion of the deal and a £3m
revolving credit facility that can be
utilised as required over the next

two years to support any ongoing
working capital needs.

At the year-end, cash and cash
equivalents were £4.2m (2017:
£11.0m). After deducting the loan
facility of £3.9m, which is stated net
of arrangement fees, net cash¹ of the
Group was £0.3m at the end of the
year (2017: £11.0m).

Investment in the Digital
Transformation project in the year
represented the largest component
of capital investment in the period.

No dividends were paid in 2018
(2017: £9.4m) which, combined with
the movements above, resulted in a
net cash outﬂow in the year of
£(6.8)m (2017: outﬂow of £(2.5)m.

Net cash (outﬂow) / inﬂow from
operating activities, including the
cashﬂow impact of non-underlying
items, was an outﬂow of £(8.8)m
(2017: inﬂow of £11.7m).

Capital expenditure in the year on
property, plant and equipment and
software was £1.9m, a considerable
reduction on the £4.7m spend in
2017 which included £2.4m related
to the factory expansion.

Dividends

The Board is not proposing a ﬁnal
dividend for this year (2017: £nil per
share).

R Neale
Chief Financial Ofﬁcer
21 March 2019

Annual Report & Accounts 2018

¹ Net cash is cash and cash equivalents less loan facility

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Risk Management

Risk management

The Board's strategy is to grow the business organically and, if appropriate, through carefully planned acquisitions.
This section sets out the Group's risk management processes and the principal risks and uncertainties that the Board
consider to be material and may have a signiﬁcant impact on the Group's ﬁnancial performance.

Approach to risk

The Board has ultimate responsibility for setting the Group's risk appetite and for the effective monitoring and
management of risk. The Board recognises risk can be ﬂuid and can change unexpectedly with signiﬁcant
consequences on the performance of the business.

The Group recognises ISO 31000: 2018 standards and processes. ISO 31000 is a framework that facilitates the
development of a risk management strategy which effectively identiﬁes and mitigates risks, thereby enhancing the
likelihood of an organisation achieving its objectives and increasing the protection of its assets. The overarching goal
is to develop a risk management culture where employees and stakeholders are aware of the importance of
monitoring and managing 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 assessed and scored, taking into
consideration the likelihood of the event occurring and its consequence. Once the risks have been assessed,
appropriate mitigation actions are determined for each key risk identiﬁed and where necessary, senior management
responsibility allocated.

Principal risks and uncertainties

Risk description

Mitigation

Regulatory

The Group operates in a highly
regulated sector including, quite
correctly, consumer protection
and consumer credit regulations.
Should the Group be found liable
for breaches of these regulations
or any others the business could
face ﬁnancial or existential
consequences.

Reputation with customer base

As the UK's largest provider of
replacement windows and doors,
the Group's success is affected by
its reputation with its customer
base. Should the Group's
reputation fall, fairly or
otherwise, future performance
could be adversely impacted.

The Group has a wide ranging set of programmes of appropriate training to
ensure legal compliance and minimise mistakes.

This is supported with comprehensive record keeping and audit trails.

The Group also ensures that a large number of orders are quality checked by
head ofﬁce with each customer. An overarching compliance committee also
meets on a monthly basis to ensure all regulatory requirements are being
met.

The Group recognises the importance of providing excellent customer
service and continues to invest in improving its systems and processes in
this regard.

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 a ISO 10002 Customer Satisfaction and Complaints Handling
standard. On-line reviews and social media comments are constantly
reviewed and responses made promptly to maintain the Group's reputation.

Risk Description

Mitigation

Market and competition

The Group operates in a
competitive market which is
exposed to the UK's economic
performance and general
consumer conﬁdence.

Reasonably low barriers to entry
exist for new competitors to be
established on a regional scale
which could disrupt the market
locally.

Currency exposure

Although the Group does not
export products and has no
material foreign currency
exposure, it does purchase
materials that are manufactured
outside the UK. The weakness in
Sterling since the EU referendum
result has therefore increased
operating costs.

As Brexit negotiations progress,
there is a risk that Sterling could
weaken further with a potential
negative impact on performance.

Technology

The Group is investing in its IT
systems and infrastructure to
ensure that it can continue to
operate efﬁciently and take
advantage of ever-improving
technology.

The Group understands and
accepts the need to further
develop the IT security and
capacity planning strategy.

A failure in the Group’s IT systems
could result in a loss of
information, cause signiﬁcant
disruption and lead to a material
ﬁnancial loss.

The Group has a strong brand and has historically taken market share in
tough market conditions as a value-based company.

The Board believe the Group remains well placed to compete effectively
against both existing and new competitors in the long term because of its
people, speed and modern manufacturing facility. Furthermore, for a new
competitor to establish signiﬁcant scale and an efﬁcient operating model,
substantial capital investment would be required.

Regular research on consumer conﬁdence and the health of the brand are
undertaken including benchmarking of the competition to ensure the
Group maintains its leading market position.

The increased costs as a result of Sterling weakness are likely to have been
suffered by all competitors. Indeed, the Group’s exposure to adverse
currency movements are possibly less than those faced by other companies
by virtue of the fact that the majority of the manufacturing processes occur
in the UK.

Component and material prices denominated in foreign currencies
represent only a small proportion of the Group’s overall costs and the
Group has increased its prices to ensure that these increases are fully
recovered.

The Group believes that its competitive market position has not been
negatively impacted as a result of these price increases.

Over the previous year, the Group has continued to invest further in the
resilience of its systems, including replacement web and email ﬁltering as
well as new anti-virus protection.

There is a disaster recovery procedure in place and there has also been the
installation of an automated cross site back-up and replication facility which
means that recovery in the event of a signiﬁcant system outage should take
place within a few hours.

The Group will continue to review and develop its IT security strategy
alongside the renewal, development and improvement of the IT system
architecture.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Risk Description

Mitigation

Risk Management

Risk Description

Mitigation

Data security and data privacy

The Group’s operations are
subject to increasingly complex
regulatory requirements relating
to data security and data privacy
which will protect customers and
their data.

The Group takes data security and
privacy extremely seriously and
recognises the value in changes to
individual privacy rights brought
about by regulatory changes
implemented by the General Data
Protection Regulation ('GDPR')
and Data Protection Act 2018.

A major breach of regulations
could result in signiﬁcant
reputational damage and ﬁnancial
loss.

Facilities management

The Group is heavily dependent
on its physical infrastructure.
Signiﬁcant business disruption
could follow as a result of
interruption caused by natural
occurrence or other events.

At the start of the year, an information audit was carried out to identify and
assess the personal information undergoing processing by the Group.

Records of processing activities are maintained in accordance with Article
30 of the GDPR, with ways of working reviewed and improvements
implemented as appropriate. Our Data Subject Access Request procedures
have been updated to accommodate the latest guidance.

We have also embedded data protection impact assessments into our
processes and have developed our policies to ensure they meet the
regulatory requirements of the GDPR.

A Data Protection Ofﬁcer ('DPO') has been appointed to provide advice and
guidance in data privacy matters and to maintain development in that key
business area.

Awareness is pivotal to data security and so a rolling training and awareness
programme has been implemented to ensure staff and representatives are
informed of their responsibilities, requirements and expectations.

The Group is focussed on creating safe operating environments to ensure the
protection of people, property, information and reputation providing the
framework in which the Group operates.

The Group has an Incident Management Plan with facility and business
function-speciﬁc business continuity plans.

Plans capture natural events, critical infrastructure outage and malicious acts.
Mitigation measures include a robust physical and technical security plan.

Reliance on key suppliers

The Group relies upon certain key
suppliers. If relationships with
such suppliers are not maintained,
there could be potential short
term disruption to 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
transition between suppliers may
adversely impact the Group’s
performance.

Reliance on key equipment

The Group relies on 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.

Dependence on key personnel

The current and future success of
the Group is reliant on the
recruitment and retention of the
right people with the right
capabilities.

The Group has a relatively small
management team and the loss of
key individuals 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 strong working relationships with key suppliers
through regular review meetings and open communication channels.

A risk register that includes all suppliers, both direct and indirect, is
regularly reviewed and actions that emerge from this process are taken to
negate any potential impact.

In addition, robust contractual arrangements are maintained and supplier
performance is constantly 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.

The Group has an experienced maintenance and engineering team on site at
its manufacturing facility and it operates a preventative maintenance
programme for all key equipment.

For the critical machines identiﬁed there is a either a critical spares holding
or an availability plan whereby the Group has sourced suppliers capable of
manufacturing the required products.

The Group has a documented disaster recovery process in place to minimise
the impact on performance. Site security is of a high standard and operates
24/7 throughout the year.

The Group maintains competitive and attractive employment terms and
conditions, and takes proactive steps to maximise job satisfaction.

The Group incentivises key management through performance related pay
in the short term and through share options for medium and long term
retention.

The Group also continues to develop its Senior Management Team using its
performance appraisal process which also facilitates personal development
and succession planning.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Risk Management

Risk Description

Mitigation

Risk Description

Mitigation

Credit risk

The Group derives revenue from
sales to individual customers.
There is a general risk of default,
particularly over cash sales as
opposed to ﬁnance sales.

The Group mitigates its exposure to credit risk through close monitoring of
the trade debtors ledger through a dedicated collections team. A provision is
recognised over debts deemed to have a risk of recoverability. In cases of
signiﬁcantly aged receivables, the Group will pursue legal action and seek to
obtain a charge over the customer's property.

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 self-employed
agreements.

There is a risk of potential claims
for employee or worker status,
resulting in additional costs for
the Group.

Legislation and case law are
evolving in this area and could
have an impact on self-employed
status.

By their very nature self-
employed individuals are not
required to give notice and are,
generally, less loyal than
employees leading to higher
levels of turnover and short term
resource gaps.

Health & safety

The Group’s operations take place
in a diverse range of domestic
operating environments. In 2018,
there were 43k installations, of
which approximately 50% involve
working at height.

These operations require on-
going 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 obtains conﬁrmation from the individual of self-employed status.
The Group respects the rights of self–employed people to self-determine
their working hours.

The Group constantly monitors developments in legislation and case law
and will respond as necessary to any changes. Where roles are identiﬁed
that require much greater management control and inﬂuence, the terms of
engagement are reviewed and amended as necessary.

Historically, excluding what the Group believes was an exceptional set of
events in 2018, retention of agents has not been a signiﬁcant issue for the
Group due to the opportunities that the scale of the business can provide. In
order to reduce self-employed individuals' turnover, the Group aims to offer
updated and attractive commission plans and incentives.

The Group continues to focus on improving its safety performance whilst
minimising health and safety risks.

The Group continues to concentrate its resources in managing its highest
risk activity which continues to be working at height. Whilst the Group
continues to ﬁnd alternative solutions to avoid or minimise the need to work
at height, it is still leading the industry with the use of the Tetra ladder safety
system, which complements an existing range of working at height solutions.

There are dedicated health and safety professionals who provide expert
knowledge and guidance to the business. Continual and increased
investment and improvement in induction, training, education and
inspection programmes contributes to a safe working environment.

Health and Safety performance is reviewed regularly by the Board to ensure
suitable preventative and corrective actions are implemented.

Liquidity risk

Liquidity risk is the risk that the
Group will have insufﬁcient funds
to meet its ﬁnancial obligations as
they fall due.

Brexit risk

Brexit risk reﬂects the potential
impact of the UK's decision to
leave the EU on the Group’s
operations and ﬁnancial position.

The Group prepares a detailed weekly cashﬂow forecast that is reviewed by
its Directors which looks forward 3 months. This forecast identiﬁes any
emerging liquidity challenges in order that they can be managed proactively.

The Group has implemented a clearly-deﬁned and detailed forecasting
process that provides the basis for longer-term cashﬂow and liquidity
forecasting. Sensitivities are applied to the Group’s forecasts to ensure that
unexpected events can be withstood and managed within the liquidity
available.

The Group has also secured continuity and ﬂexibility of funding through a
committed banking facility. A weekly assessment of the Group’s facility
covenant compliance is performed. The Group’s objective when managing its
liquidity is to protect the Group’s ability to continue as a Going Concern
whilst providing a sustainable return to shareholders.

Brexit remains the subject of negotiation between the UK Government and
the EU and the full implications are unclear. The Directors believe the
following points are of most importance to the Group:

Ÿ The impact on materials imported by the Group from overseas, in terms

of both increased tariff levels and potential customs delays. Most
notably, the PVC proﬁles the Group uses to manufacture its window
frames and the composite door slabs that are imported from South
Korea.

Ÿ The Group has taken steps to ensure our supplier partners have built up
increased stock levels in the UK ahead of the Brexit deadline at the end
of March.

Ÿ The impact of Sterling volatility during this period of political uncertainty
for which the mitigation is as described in the 'Currency Exposure' risk.

Ÿ The impact on consumer conﬁdence may result on customers delaying or
cancelling their purchase. Once again, the Directors believe that the
mitigating factors to this risk are as described in the 'Market and
competition' risk which focus on the Group’s strong brand and its
positioning as a value-based company with scale and manufacturing cost
advantages.

Ÿ The Group is not heavily reliant on freedom of movement of people

within the EU to maintain its workforce and therefore expects very little
impact should the rules governing this principle change.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Corporate Social Responsibility
Closed Loop Recycling

As part of our ongoing Corporate Social Responsibility commitment, we've reﬁned our recycling
programmes to the point where we can re-use 95% of the waste we remove from a house, reducing
landﬁll to an absolute minimum. We care about our planet and do everything we can to look after it.

OUT WITH THE OLD
IN WITH THE NEW

02 OLD WINDOWS

TAKEN AWAY

MATERIALS
SORTED OUT

OUR LORRIES
COME BACK FULL

Our team of expert
ﬁtters install a
beautiful new set of
windows for the
happy customer.

All the old windows
(and any other
waste) are loaded
onto the van and
brought back to the
Safestyle depot.

We sort and
separate the
plastics from the
glass from the
rubber etc., ready
to go back the
factory.

VIRGIN PVCU OFF CUTS
8 tonnes of virgin PVCu offcuts and trim every
month go back into making new frames

NEW BESPOKE
WINDOWS ARE BORN

THE NEW
GLASS IS MADE

EXPERTLY
RECYCLED

With the help of
highly-skilled
craftsmen and
state-of-the-art
machinery, new
windows are
precision-made to
your exact order.

The old glass,
(called 'cullet') is
crushed and
recycled. Every
month, we make 80
tonnes of it into
brand new glass,
with newer,
modern properties.

The separate
materials arrive at
our dedicated
recycling centre in
Yorkshire.
Whatever we can't
use ourselves, we
send to a recycler
who can.

Rather than drive our
lorries back to the depot
empty, we converted them
all to carry waste materials.
This means they now have
an important job to do,
saving 200,000 miles of
fuel per year when they
would have been empty.

PACKING IT IN

We use a Grab Machine to pick, crush and
compact the old PVCu, so that where our
lorries used to carry 4 tonnes, they can now
carry 16! Which means we can cut 5 lorries
per day down - saving 250,000 miles in
transport each year.

WHY WE
REUSE
GLASS
CULLET

The main ingredient of ﬂat glass is SiO2 (silica
sand) which is superheated to a very high
melting temperature (about 1700°C). Adding
the glass cullet accelerates the process, and the
sand melts at a lower temperature saving on fuel
and power – and of course keeping costs down.

GLASS
CULLET

80 tonnes of glass cullet
per month goes back into
the manufacturing process.

POST CONSUMER
PLASTIC

WOOD

METAL

A huge 500 tonnes of plastic from old
windows is recycled into drainpipes
and plastic decking, etc.

All the wood we recycle is
made into pellet fuels for
Biomass heating systems.

5 tonnes of metal per
month are melted
down and reused.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Corporate Social Responsibility

S A F E S T Y L E

GIVING

Safestyle giving

As part of Safestyle's corporate
social responsibility (CSR), 'Safestyle
Giving' was established in 2017 to
be the face of our CSR activities and
charitable endeavours.

Safestyle has for many years
supported local charities and
worthwhile causes; this was an
opportunity to establish a dedicated
committee to manage, support and
showcase the many positive
contributions the business and its
workforce undertake.

The Safestyle Giving committee has
split its funding into several
categories to maximise the level of
support it can offer. This has
included an annually nominated
charity from both the manufacturing

Annual Report & Accounts 2018

and head ofﬁce sites, with the
respective charities each receiving a
ﬁxed amount spread throughout the
year, combined with ongoing
business support including, but not
limited to social media and online
support and direct staff
engagement.

In addition to the nominated
charities, Safestyle has annually
selected an environmental cause
which reﬂects and supports
Safestyle's environmental
credentials. In 2018 the
environmental charity Colne Valley
Tree society received a £1000
donation and staff support in its
mission to support the creation and
management of woodland in and
around the Colne Valley area.

2018 also saw a £1000 donation to
a local animal charity (Bradford Cat
Watch Rescue) following a
successful one off media campaign
by Safestyle to raise awareness of
their work within the local
community.

A dedicated budget has been set
aside to support any fundraising
efforts undertaken by Safestyle
employees or its wider workforce.
All colleagues are welcome to apply
with company donations limited to
£250 to ensure multiple people and
causes can beneﬁt from the fund.

Finally Safestyle has set aside a
budget for external charitable
applications requesting one off
donations or local causes requiring
business support.

Throughout 2018, organisations
beneﬁting from Safestyle grants
included, but are not limited to,
Bradford Central FoodBank,
Buttercup Children’s Trust, The
Cellar Trust, Simon on the Streets,
Bone Cancer Research Trust and
MND Association.

We look forward to continuing this
valuable work in 2019.

Gender pay report

Safestyle is committed to taking
actions in the best interests of its
people and that truly reﬂect our
values of integrity, quality, passion,
customer service, simplicity, safety
and team working. We take pride in
recruiting and promoting our
colleagues based entirely on their
skills, competencies and abilities,

and in ensuring that our decisions
encourage equality and diversity
amongst our workforce.

Historically we have employed a
greater number of men than women
in senior positions which creates a
gender pay gap. Addressing this will
take time, but we are committed to
encouraging more women to join
our organisation, and to develop
within it.

We are pleased to report that our
2017 Gender Pay Gap Report (for
HPAS Ltd Trading as Safestyle UK)
showed our headcount split as
14.46% women to 85.54% men; by
2018 we had moved this to 20.6%
and 79.4% respectively. The
percentages of women in each pay
quartile has also increased.

In addition, the median Gender Pay
Gap decreased from 23% to 15%
over the last 12 months, whilst the
proportion of females receiving a
bonus rose from 18% to 30%.

Whilst not reportable as part of our
Gender Pay obligations we are
delighted that a number of women
have been appointed to key roles in
the last 12 months. We are
conﬁdent that the increased
presence of women in our
organisation will encourage more
female applications.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Safestyle People

Values

Simplicity
We focus on the essentials
and reduce complexity.

Safety
We do everything safely and
responsibly.

Team-working
We are committed to an
environment in which all
our people act together with
consistency, respect, trust
and compassion.

Integrity
We are honest, open,
ethical and fair. We do
the right thing.

Quality
What we do, we do
well. Good enough is
never enough.

Passion
We are enthusiastic
and determined to do
our best.

Customer service
We treat our customers
as we want to be
treated. We put our
customers ﬁrst.

The engagement and effectiveness
of our people is one of the key
enablers to the achievement of our
objectives all of which must be
achieved whilst being true to our
values.

this, effective communication,
engagement, training and
development are of paramount
importance.

Communication & engagement

Our People Vision is to make
Safestyle UK plc a successful
business that our colleagues are
proud to be part of. The events of
2018 took their toll on many of our
colleagues from those who
remained with Safestyle and worked
above and beyond to rise to the
unprecedented challenges, to those
who joined SafeGlaze and to those
who then later returned to us. We
certainly enter 2019 proud of our
people and their resilience and
tenacity.

Our People Mission is to drive the
delivery of an excellent customer
experience through right ﬁrst time
performance from colleagues who
know that their contribution is
valued, and who are respected,
motivated and engaged. To achieve

We believe that it is important to
have genuine two-way
communication between the
business and its colleagues. We
have made progress in breaking
down the silo mentality of the past
but the journey is not yet over and
strong communication has a key
part to play.

At our manufacturing facility we
have constructive relationships with
our Trade Union colleagues and an
established suite of communication
and engagement activities across
the site. This includes digital news
screens, shift/daily/weekly/monthly
activity brieﬁngs, listening lunches,
and regular business and
performance reviews.

However, effectively communicating

and engaging a diverse, part
employed/part self-employed
workforce in remote locations
across the country is more of a
challenge. The events of 2018
brought this into sharp focus.
Improvement in the quality, quantity
and method of our communication
and engagement activities is
therefore a current key focus.
As the business started to stabilise
in the last quarter of 2018 we re-
launched our “Team Magazine” and
our Workplace Digital Platform,
increased our management visits to
all remote sites, introduced video
messaging from the CEO, increased
our colleague brieﬁngs, and began
work on a communication strategy
for 2019 commencing with a Senior
Managers Conference in January.

Learning & development

The development of our people is an
important factor in the continued
rebuilding of our business.
Equipping our colleagues with the
right skills to operate effectively,

more efﬁciently, and in compliance
with the increasing regulatory
environment is essential to our
success.

In 2018 we reviewed and enhanced
the training for our Installers, and
with additional investment launched
the Safestyle Advanced Technical
Competency programme
supplemented by additional training
in the use of Tetra, easi-dec, health &
safety, and asbestos awareness. We
have received some great feedback
from delegates thus far with
comments including (I liked) “being
educated and having the support to
strive forward and better myself
within the Company.” This
programme continues to be rolled
out in 2019.

ensure that all Safestyle Surveyors
achieve this qualiﬁcation by the end
of 2019.

In support of our Customer Service
value – “We treat our Customers as
we want to be treated. We put our
Customers ﬁrst” – 2018 saw the
launch of a Group-wide training
programme entitled Treating
Customers Fairly. This has already
been delivered to all Sales Agents
and is currently being rolled out to
all Canvassers and all Operations
and Head Ofﬁce colleagues. To
ensure the ongoing focus on
treating customers fairly the
programme has been incorporated
into our upgraded induction
programmes for both PAYE and self-
employed colleagues.

For our Surveyors, many of whom
prove their skills through
“grandfather rights”, we have chosen
the NVQ Level 3 route which is valid
for 5 years and is a step above the
Minimum Technical Competence
required. Starting in 2018 we aim to

Supporting our increased
investment in customer care, and
the additional resource in our Call
Centre, we have set a standard for
our call handlers at an advanced
level of qualiﬁcation. Over 12
months, utilising our Apprenticeship

Levy fund all of our Call Centre
Advisors will complete the NVQ
Level 2 Customer Service
Practitioner qualiﬁcation.

In addition to the above, where
appropriate we proactively support
colleagues to achieve professional
qualiﬁcations to assist them in their
roles. 2019 will also see the Group
focus on ﬁrst line manager
development. We recognise that
many of our management
population are long-serving
industry/Safestyle colleagues who
have been under invested in from a
training and development point of
view. This journey commenced in
2018 with the launch of an E-
Learning programme opening up
opportunities for development
across a wide group of colleagues
with management responsibilities.
This will be enhanced in 2019 by a
series of ﬁrst line manager
workshops.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

A Business in Balance with a Diversity of Roles

Like a machine of many parts, we all work together to drive Safestyle forward - but when we
focus on our own job, perhaps we never have time to understand how others work. So what do
our colleagues' days look like? Read on and ﬁnd out...

GENERATING
LEADS

GURNAK UPPALL
Door Canvasser
Leeds Branch

Q: What is your typical day?
At 10am, I pick the Canvassers up and
share results from the day before. On
prop for the daytime knock, finding where
the day will be more productive. I knock
around 50 doors an hour. Doing the full
A-Z pitch every time, quick and succinct.
Don't take up too much time. Pick up
Canvassers for a break and recharge at
4pm we start the evening knock. More
private houses, working people. Sticking
to exactly the same bread and butter
pitch. At 6pm we recce for the next day's
prop and go through the app to ﬁnd
potential areas. 7:00pm finish, drop the
Canvass team home.
8:00pm get results from Branch.

Q: What are the challenges you face?
Awkward or irate customers. Those
who've had a bad experience with other
window companies.

Q: Most important thing I do?
Be professional, conduct myself in a
manner to be proud of and hit my targets.

Q: How do I measure success?
By learning from the bad experiences and
improving on the good.

Annual Report & Accounts 2018

ASIF JAWED
Sales Representative
Birmingham Branch

Q: What is your typical day?
9am log in, cup of tea, tablet in hand
and when the ﬁrst lead comes through,
check the mirror to make sure I'm
looking sharp and then I'm on the road.
I use my own unique pitch, honed from
7 years experience at Safestyle and
moulded to every customer. I'll usually
perform a market and product
demonstration for each customer if I
can. I ﬁnish when I've exhausted the
last lead of the day.

Q: What are the challenges you face?
Overcoming pre-judged opinions of a
Sales Rep, overcoming customer's
affordability whilst remembering I'm
here to make money too.

Q: Most important thing I do?
Representing Safestyle is a proud
achievement. I treat everyone fairly
and uphold the company’s values.

Q: How do I measure success?
Knowing I've met the customer's
requirements and they're satisﬁed with
my service, the product and the price.
Commission! Having hit the 100k club
numerous times, I'll never forget the
sound advice of a former manager “A
lead is like a scratch card. You must
scratch it with your pitch”.

SELLING
LEADS

WINDOW
SURVEY

AARON TIMPERLEY
Surveyor
North West Region

Q: What is your typical day?
7.00-7.30am download e-surveys, print
run sheets and contracts. Start
contacting my customers for that day
and head to ﬁrst appointment.
Introduce myself to customer, show ID
if required. Work from room to room
checking each frame individually. Draw
out each frame to speciﬁcations on
contract, start measuring and
documenting any access issues,
asbestos and other potential problems.
Go through survey paperwork with the
customer, then I go home, print photos,
ﬁll out paperwork for each job and
package ready for posting.

Q: What are the challenges you face?
Convincing customers of my legitimate
reasons for changing frame designs.
Requested time slots not being passed
on to me.

Q: Most important thing I do?
Provide a professional service that
boosts customer conﬁdence, Safestyle’s
ethics and quality of products.

Q: How do I measure success?
How few queries I get regarding the
surveys I've completed.

JAMIE KERRIGAN
Quality Manager
Barnsley Factory

Q: What is your typical day?
I ofﬁcially start at 8am, but most days
arrive around 6.30am to get set up and
understand all the quality information
and KPIs from the previous day. What
my day involves: Running the quality
function at the factory, managing the
Remakes Department, heading up the
Technical Management at the factory
& the New Product Introduction and
meeting to review the last 24 hours
performance. From this meeting we
take any variances against target and
put actions in place to rectify or
support. Understanding how the
Quality Department can better
support Manufacturing in achieving
key goals.

Q: What are the challenges you face?
Understanding why we have unknown
quality variances each day.

Q: Most important thing I do?
Support the Manufacturing plant with
all technical and quality issues.

Q: How do I measure success?
We review KPI targets against
variance each day, so we know if we're
on target, we aim to make an
improvement, whether that is to a
process or by helping a colleague.

PRECISION
MANUFACTURING

BRANCH
ORGANISATION

PAUL CLARKSON
Branch Manager
Leeds Branch

Q: What is your typical day?
8:30-9am update rep board, clock reps
in and issue morning appointments.
Plan the day ahead: how many
appointments? What areas?
Check all survey fees have been handed
in from the previous day and ﬁnance
applications completed. Discuss weekly
and monthly ﬁt with sales support,
individual meetings with reps if
required. Update reps on incentives,
price changes and all other info from
Head Ofﬁce.

Q: What are the challenges you face?
Keeping staff motivated, wage queries
and the daily challenge of bringing in
enough business.

Q: Most important thing I do?
Make sure everyone in our branch
represents Safestyle UK in the right
way. Make sure everyone's happy and
motivated to achieve daily targets!

Q: How do I measure success?
Knowing I did all I could possibly do for
my team. Doing 50k in a day and only
40% of your staff contributing isn't a
success. Doing 50k in a day and
everybody contributing, now that's
success!

KEV ADLAM
Installer
Darlington Depot

Q: What is your typical day?
6.30am get to the depot and unload van
from previous day. Load up new frames,
collect ancillaries and check van stocks.
Travel to job, introduce ourselves to
customers. Measure all apertures to
ensure correct sizes before ﬁtting. Lay
dust sheets and remove old frames. Fit
new Safestyle products, clean and ﬁnish
to a high standard. Load van with old
frames and demonstrate new windows
and doors to the customer. Call the ofﬁce
to conﬁrm ﬁnish and payment.

Q: What are the challenges you face?
Managing customers' expectations and
fears as many haven't been through this
process before. Being the face of the
company and dealing with any problems
that may occur.

Q: Most important thing I do?
Carrying out our work to a high standard,
leaving customers satisﬁed with no
remedial works required and ensuring
payment and paperwork are in order.

Q: How do I measure success?
Leaving customers totally satisﬁed with
the products and service. Knowing we've
done a job that’s good enough to be in my
own house.

EXPERT
INSTALLATION

«««««

Annual Report & Accounts 2018

Safestyle UK plc

Governance

Board of Directors

Audit Committee Report

Directors’ Remuneration Report

Directors’ Report

Independent Auditor’s Report

Safestyle UK plc

Strategic Report

Governance

Financials

Board of Directors

Alan Lovell
Non-Executive Chairman

Alan joined the board as Non-
Executive Chairman on 16 July
2018. He has held numerous listed
company directorships, both
executive and, more recently, non-
executive. Alan has been the Non-
Executive Chairman of Flowgroup
plc since 2017, National Chairman
of the Consumer Council for Water
since 2015, and was appointed as
Senior Non-Executive Director at
SIG plc in July 2018. He was a Non-
Executive Council Member of
Lloyd's of London from 2007 to
2016, the Senior Independent
Director of Sweett Group plc
between 2014 and 2016 and was
Chairman of professional radio
technology company Sepura plc
which was successfully sold to
Hytera Communications
Corporation Limited in May 2017.

Alan was also appointed as a Non-
Executive Director and Chairman of
the Restructuring Committee of
Carillion plc as part of an attempt to
put together a rescue package for
the company during its ﬁnal 10
weeks of trading. Alan has a huge

Annual Report & Accounts 2018

breadth of experience, including
both strategic and complex
situations, with a particular focus on
companies undergoing turnaround
or business improvement initiatives.

In his executive career, Alan was
Chief Executive Ofﬁcer of six
companies, most recently Tamar
Energy Limited (2011-2013) and
Inﬁnis Limited (2006-2009), both in
the waste-to-energy sector,
consumer goods group Dunlop
Slazenger (1997-2004) and three in
the construction sector, Jarvis plc
(2004-2006), Costain Group plc
(1992-1997) and Conder Group plc
(1989-1992).

Mike Gallacher
Chief Executive Ofﬁcer

Mike joined the Board as Chief
Executive Ofﬁcer on 1 May 2018
and has over 20 years' commercial
and operational experience of
building and managing businesses in
the UK and internationally. He
brings signiﬁcant expertise in
operational strategy, business
development and performance
improvement. Mike was most
recently CEO of First Milk Limited,

the UK major dairy company owned
by British family farms, where he
developed and implemented a major
restructuring and turnaround
strategy that delivered a £30 million
improvement in business
proﬁtability in 24 months. This was
recognised as the 'Financial
Restructuring of the Year 2016' by
the Institute of Turnaround
Management.

Prior to First Milk, Mike held a
number of senior roles at Mars Inc.,
including UK Managing Director for
Mars Petcare. He also led
signiﬁcant business turnarounds in
Asia for Mars, as well as working in
regional leadership positions across
both Asia Paciﬁc and Europe. Prior
to Mars, he was a British Army
Ofﬁcer for eight years.

Rob Neale
Chief Financial Ofﬁcer

Rob joined the board as Chief
Financial Ofﬁcer on 16 July 2018.
He was previously Head of Leisure
Travel Finance at Jet2.com and Jet2
Holidays, a division of AIM-listed
Dart Group plc where he worked
since 2013. As Head of Leisure

Travel Finance, Rob was responsible
for providing all aspects of ﬁnance
support to both the commercial and
operational areas of the Leisure
Travel business that operates under
the brands of Jet2.com and
Jet2holidays.

Rob's early career included roles as
Commercial Finance Director for
Europe, Africa and ANZ for ghd, a
designer, manufacturer and supplier
of professional hair styling products.
He also served as Finance Director
for Stanley UK, part of The Stanley
Works Inc group, a $4.5 billion
NYSE-listed company, now called
Stanley Black & Decker Inc. Rob is a
Chartered Accountant and started
his career at Arthur Andersen.

Christopher Davies
Non-Executive Director

Chris joined the Safestyle 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. Chris is also a Non-
Executive Director of France
Bonhomme.

Fiona Goldsmith
Non-Executive Director

Fiona joined the Safestyle Board in
September 2018. She was most
recently a Non-executive Director,
and Chair of the Audit Committee,
at Walker Greenbank PLC from
December 2008 to June 2018.
Fiona is a Chartered Accountant
who started her career with KPMG,
where for nine years she focused on
the retail and leisure sectors in
various roles. She then moved to
First Choice Holidays plc, where she
became European Finance Director.
From 2004 until 2008 she was
Finance Director of Land Securities
Trillium, a division of Land Securities
Group plc. Fiona is the Chair of the
Audit Committee at Safestyle.

Julia Porter
Non-Executive Director

Julia Porter is an experienced
marketing leader, advisor, mentor
and board director. Her non-
executive career includes Chair of
DMA (Direct Marketing
Association) and board member of
Origin Housing and Freeview (UK’s
largest free to air digital TV
platform). Her consulting roles
include strategic advice for business
start ups as well as marketing and
CRM/data strategy consulting and
accessible practitioner led GDPR
advice. Her executive experience
includes stints at Guardian News &
Media, Getty Images, ITV and IPC
Magazines. She holds an MBA from
London Business School.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Audit Committee Report

The objective of the Committee is to provide oversight
and governance to the Group's ﬁnancial reports, its
internal controls and processes in place, its risk
management systems and the appointment and
relationship with the external auditor.

This report provides details of the role of the Audit
Committee and the work it has undertaken during the
year and at its clearance meeting in March 2019 when
this annual report and ﬁnancial statements were
approved.

Principal duties

The principal duties of the Committee are to:

Ÿ Oversee the integrity of the Group's ﬁnancial

statements and public announcements relating to
ﬁnancial performance.

Ÿ Advise on the clarity of disclosure and information
contained in the Annual Report and Accounts.
Ÿ Ensure compliance with applicable accounting

standards and review the consistency of
methodology applied.

Ÿ Review the adequacy and effectiveness of the
internal control and risk management systems.
Ÿ Oversee the relationship with the external auditor,
reviewing performance and advising the board on
their appointment and remuneration.

Ÿ Ensure appropriate arrangements in place for

individuals to raise concerns regarding breach of
conduct and legal and regulatory compliance.

Committee membership

The following Directors served on the Committee during
the year:

Steve Halbert
1 January 2018 to 23 April 2018
Chris Davies
1 January 2018 to 31 December 2018
Peter Richardson
1 January 2018 to 29 May 2018
Fiona Goldsmith
17 September 2018 to 31 December 2018
Julia Porter
5 November 2018 to 31 December 2018

Terms of reference

These where adopted by the Board on 11th December
2013, and are available on the Group website. The terms
of reference are reviewed annually.

Meetings

The Committee meets three times per year; in March
and September being the appropriate time to review the
Annual Report and Accounts and the interim report
respectively, and in November to review and agree the
Audit plan for the year ahead. At meetings the ﬁndings
of the external audit are discussed, and the effectiveness
of the Group's system of internal controls and risk
management is reviewed.

The Committee supports the Board in carrying out its
responsibilities in relation to ﬁnancial reporting, risk
management and assessing internal controls. The need
for an internal audit support is considered. At this stage
the Committee does not believe that the size of the
Group warrants having an Internal Audit department,
however external resource will be used to on a project
basis where this is considered appropriate. The
Committee also manages the relationship with the
external auditor.

The Committee undertook the following activities
during the course of the year:

Financial reporting

The Committee reviews the half year and annual
ﬁnancial statements and matters raised by management
and the auditors.

Ÿ The accounting policies used are consistent both year
on year and across the Group (other than as disclosed
in note 1 of the ﬁnancial statements).

Ÿ The methods used to account for signiﬁcant

transactions are appropriate.

Ÿ The ﬁnancial statements give a true and fair view and

the disclosures made are balanced and
understandable.

Ÿ Appropriate estimates and judgements have been
used, taking into account the views of the external
auditor.

Ÿ The appropriate accounting standards have been

The Company Secretary acts as secretary to the
Committee.

applied.

External audit

The Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and
the Chairman of the Board usually attend meetings by
invitation, along with representatives from the external
auditor.

The report and ﬁnancial statements were audited by
KPMG LLP following that ﬁrm's appointment as
statutory auditor in 2013.

The Committee considers several areas when reviewing
the external auditor appointment namely their
performance in discharging the audit, the scope of the
audit and terms of engagement, their independence and
objectivity and their reappointment and remuneration.

The Committee reviews the objectivity and
independence of the auditors when considering
reappointment. The external auditor reports to the
Committee on actions taken to comply with professional
and regulatory requirements and is required to rotate
the lead audit partner every ﬁve years.

KPMG provide a range of other services which include
tax compliance and advisory services.
To ensure auditor objectivity and independence, the
Committee has adopted a policy on the engagement of
external auditors for the provision of non-audit services,
which include ﬁnancial limits above which the Audit
Committee must approve. Any non-audit fees above
£10,000 per engagement must be approved by the
chairman of the Audit Committee before the work
commences. Details of fees paid to KPMG during the
year are disclosed in note 6 of the ﬁnancial statements.

The Committee had discussions with the external
auditor on audit planning, fees, accounting policies, audit
ﬁndings and internal controls. The effectiveness of the
audit was assessed through the review of audit plans,
reports and conclusions and through discussions with
management and the external auditor.

The Committee has conﬁrmed it is satisﬁed with the
independence, objectivity and effectiveness of KPMG
and has recommended to the Board that the auditors be
reappointed, and there will be a resolution to this effect
at the forthcoming Annual General Meeting.

Signiﬁcant areas of judgement

Within its terms of reference, the Committee monitors
the integrity of the annual and interim reports, including
a review of the signiﬁcant ﬁnancial reporting issues and
judgements contained in them. At its meetings in
September 2018 and March 2019 the Committee
reviewed the Group's results and other information
provided by the Chief Financial Ofﬁcer to support the
Directors' going concern statements. The Committee
also considered a paper prepared by the external
auditor, which included signiﬁcant reporting and
accounting matters.

Accounting for the Commercial Agreement

The Committee reviewed the assumptions underlying
the accounting treatment of the commercial agreement.
The accounting treatment required careful
consideration as it is covered by several different
accounting standards; IFRS 2, IFRS 3, IAS 38 and IAS 37.

The shares which could become due under the terms of
the agreement have been accounted for in accordance
with IFRS 2 'Share Based Payments'. The fair value of the
shares has been determined by reference to the fair
value of the equity investment. This gives rise to an
intangible asset of £2.3m which is being amortised over
5 years. This is the period of the non-compete included
within the commercial agreement and is the period over
which the Board believes that the business will beneﬁt.
KPMG concurs with this treatment. Under the terms of
the commercial agreement there is also the potential to
pay cash payments of up to £2m dependent on certain
performance targets. The Board believes that the
commercial essence of the agreement is that the
beneﬁts from these payments will also arise over a 5-
year period. Whilst this is the commercial reality, the
accounting standards require us to account for our best
estimate, at this stage, of the amounts to be paid and to
charge the cost to the accounts in the year. Accordingly,
the Committee is satisﬁed that the amount charged to
non-underlying costs is appropriate and in accordance
with current accounting principles.

Going concern

The Audit Committee, and the Board, reviewed the
ﬁnancial information prepared by management to
support the fact that it is appropriate to adopt the going
concern basis of preparation for the Group. This
included ﬁnancial forecasts which reﬂected current
trading and anticipated performance for the next 12
months. These forecasts were then sensitised to reﬂect
reasonable possible adverse effects which could arise.
This included considering the possible downturn in
consumer demand which could result from Brexit
uncertainty. The Group's covenants were then assessed
against these downside sensitivities. The Committee
also considered mitigating actions proposed by
management including proposed reductions in
discretionary spend. The Committee is satisﬁed that it is
appropriate to prepare the Group's ﬁnancial statements
on the going concern basis. Further information is
provided in note 2.

The Committee considered the appropriateness of the
following areas of signiﬁcant judgement, complexity or
estimation in the ﬁnancial statements.

F Goldsmith
Chair of the Audit Committee
21 March 2019

Revenue recognition and trade receivables

Historically Revenue recognition and the recoverability
of trade receivables has been a key area of focus during
the audit. During the year the Committee spent time
with management addressing historical issues.
Signiﬁcant improvements in the controls over revenue
recognition were implemented during the year. KPMG
and the Committee is satisﬁed that the Group's criteria
for revenue recognition has been correctly adopted.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Remuneration Report

Statement from the Chairman of the Remuneration Committee

Dear Shareholder

2018 was an exceptionally difﬁcult
year for the business and I set out
below in full how the Remuneration
Committee responded to those
challenges in respect of
remuneration. These details were
shared with our major shareholders
in November 2018 and the overall
feedback we received was
supportive.

The Annual Report on
Remuneration is subject to an
advisory vote at the 2019 Annual
General Meeting as in the prior year.
Our remuneration policy was
approved under an advisory vote at
the 2017 AGM. It has not been
reproduced here but is available in
our 2017 Annual Report.

Review of the 2018 ﬁnancial year

The Group faced some exceptional
challenges in 2018, which have been
well publicised and which were
resolved towards the end of the
year, but which over the course of
2018 required some immediate
decisions to ensure that we retained
a functioning Board and Executive
team.

The departures of Steve
Birmingham and Mike Robinson,
respectively our previous CEO and
CFO, had been planned for and

Annual Report & Accounts 2018

announced well in advance. Our
new CEO, Mike Gallacher joined us
at the start of May, just three weeks
before the legal proceedings against
our insurgent competitor were
launched, the preparation for which
proved hugely demanding for the
management team, in terms of both
time and complexity, at a point when
the operational challenges were
accelerating. The scale and nature
of the task had turned into
something very different to what it
had appeared to be when our new
CEO accepted the role.

The newly appointed CFO, Rob
Neale, was not due to be in place for
another two months, and there was
no Chairman. As the only remaining
Non-executive director, my
priorities were clear - to stabilise
and secure the senior team, the two
new members of which had been
recruited before the scale of the
crisis became apparent, and to
rebuild the Non-Executive
contingent of the Board, in order
that the Group could continue
trading, successfully ﬁght the legal
battle, and in due course commence
the process of sustainable recovery.

I am pleased to be able to report
that all this we achieved. In order to
secure the management team and
recruit a Chairman of Alan Lovell's
calibre it was necessary to put in
place reward and share award

arrangements that fall outside of
our Policy, which in other
circumstances would not have been
contemplated, and which will not be
repeated. I can say without
hesitation that the new senior team
and Board are experienced and high
quality individuals and represent a
step change for the business.

The arrangements for reward which
were adopted in 2018 in order to
support our business priorities, are
as follows:

Executive directors

Salary

The salary of £275k for Mike
Gallacher and £175k for Rob Neale,
were set as part of the competitive
recruitment process at a level
required to secure them, based on
the role they were exiting and other
offers in the market.

Pension

Pension contribution for Rob Neale
is in line with arrangements for the
previous senior management team,
at 8% of salary. Mike Gallacher does
not receive a company pension
contribution.

Variable pay

By the time our new CEO arrived it

had become apparent that we were
in exceptional circumstances, and
certain emergency measures were
required to tie the executive team
into the business and to recognise
the huge additional commitment
they were required to take on, as
outlined above. Accordingly:

There was for 2018 a maximum
bonus opportunity of 100% of
annual salary, in line with the Policy.
This has been pro-rated for Rob
Neale, given the later date on which
he started. Bonus was not pro-rated
for Mike Gallacher. The bonus was
based on a number of targets set
against the backdrop of the
turnaround situation of the year.
This differs to our practice over
recent years under which 70% of the
bonus was based on PBT
performance and 30% personal
objectives. It is our intention to
return to this model in 2019, but as
events unfolded in 2018 it was clear
that this was wholly inappropriate
given the crisis facing the business
and the uncertainty of its future.
Rewarding short term delivery of
key actions required to secure and
stabilise the business was much
more relevant in the year. All of the
Executives were called upon to
make an exceptional contribution in
2018, and all of them took on
responsibilities and workload way
beyond their customary duties. The
bonus levels awarded reﬂect the

Board's assessment that the
individuals achieved a high level of
success in delivering on their agreed
short term targets, further details of
which are provided on page 59. This
commitment to the business, the
drive and hard work of our
management team, should be
recognised and commended by
shareholders. They have worked
incredibly hard, and faced untold
pressure, to get us to the credible
position we are in today.

A further sum was made available
for the CEO to reﬂect the
supplementary duties which he was
being asked to undertake in the
absence of a full Board (notably,
including a Chairman) and
recognising the extraordinary hours
and pressures he was required to
deal with. This sum for additional
duties equates to c.36% of his
annual base pay. It does not impact
bonus or LTIP awards which are
awarded on base pay only, and is not
pensionable. It was agreed by the
Committee at a critical point in our
legal battle and before we had
secured our Chairman. It was an
exceptional payment in an
exceptional year, and will not be
repeated.

Share awards

Under our Policy our usual award
for the LTIP is up to 100% of base
salary, although in 2017 the award
was 80%. There is an overall
maximum of 200% for exceptional
circumstances, including on
recruitment.

Recognising the exceptional
circumstances, awards were granted
under the LTIP to the CEO at 160%
of salary and the other executive
directors at 120% of salary. These
are linked to absolute EPS targets
for the year ended 31 December
2020, which have been set at a
threshold performance (at which
25% of the LTIP award vests) of
5.80p and for maximum
performance at 9.66p, with straight
line vesting in between. The
Committee considers these targets
to be very stretching, particularly in
the light of the signiﬁcant ﬁnancial
loss in 2018 and current market
uncertainty as we rebuild the
business under our new Board. In
addition there is an overall business
performance underpin which
provides the Committee with
discretion to reduce the level of
vesting if that were to be
appropriate. Malus and clawback
triggers apply to the awards.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Remuneration Report

Statement from the Chairman of the Remuneration Committee

Chairman and NEDs

In September we appointed Fiona
Goldsmith to the Board as NED and
Chair of the Audit Committee, and
her fees of £47k per annum are in
line with Safestyle's established fee
structure. Similarly, in November we
announced the appointment of Julia
Porter as NED with annual base fees
of £42k.

We were delighted to secure Alan
Lovell as our Chairman, who has a
wealth of experience in supporting
companies in a distressed or
turnaround situation. Alan's fee was
set at £120k which reﬂects his
experience and knowledge, was
benchmarked to the market, and
was required in order to secure him
to the role. Since joining the Board
Alan has already made a signiﬁcant
contribution to the security and
future well-being of Safestyle. He
has so far personally acquired
130,000 shares and has committed
to purchase further shares to bring
the total of his personal investment
to a minimum of £120,000, i.e.
equivalent to his annual fee. To
match this commitment, we agreed
to grant Alan nil cost options over
250,000 shares, with a face value at
the time of his appointment
equating also to c.£120,000.

Annual Report & Accounts 2018

The terms of this option are as
follows:

Ÿ 50% of the award will vest two
years after joining the Board
(July 2020) and 50% will vest
after three years (July 2021).

Ÿ There are no ﬁnancial targets but

there is a general business
performance underpin so that
the Committee has discretion to
reduce or lapse the awards that
would vest if the level of vesting
is not appropriate in the context
of the underlying performance of
the business.

Ÿ Change in control provisions

apply so that the awards are pro-
rated for time in the event of a
such an event, but the
Committee retains discretion to
over-ride this if appropriate.
Ÿ Good leaver deﬁnitions are

death, disability and any other
reason at the discretion of the
Committee but in the event of
being a good leaver, there is no
default early vesting (apart from
death), although the Committee
has discretion to allow early
vesting if appropriate.

Ÿ The same malus and clawback

provisions which apply under the
LTIP apply to these awards.

We are not seeking to replicate this
arrangement for our other Non-
executives, and recognise that it is
unusual to grant share awards to the
Chairman. In arriving at this
arrangement we sought to deliver a
competitive package that was
attractive enough to secure
someone of Alan's calibre, whilst
ensuring that there was alignment
to shareholder interests and an
incentive to make a personal
investment in the Group. To avoid
any conﬂicts of interest we have not
made these options performance
related, and we have included
tranched vesting to act as a
retention mechanism whilst also
encouraging sustained share price
improvement. We have also
included good governance practices
as outlined above.

For completeness, I should make
clear that in my own case,
notwithstanding the signiﬁcant
additional workload and
responsibilities in recent months in
helping steer the Group to calmer
waters, I had sought no adjustment
to my annual fees. However, the
new Board prevailed upon me to
accept fees equating to twice my
customary rate for the second half
of 2018 in recognition of my very
high time commitment.

Changes to the Board

As mentioned above, Mike Robinson
and Steve Birmingham stepped
down from the Board during the
year as part of an agreed timeline
for exit. No 2018 bonus was
awarded and neither was granted
PSP awards in 2018. Their salary,
pension and beneﬁts were paid to
the date they left the Group, and
then ceased. In addition, Steve
Birmingham is receiving payment of
£120,000 in equal monthly
instalments for pay in lieu of his
unexpired notice period. Both Mike
and Steve were treated as good
leavers under the 2015 Executive
Share Option Plan (“ESOP”) and the
2017 Performance Share Plan
(“PSP”) recognising their long term
commitment and personal
contribution to the Group. The
ESOP award made in 2016 and
which was due to vest with respect
to performance in the year ended 31
December 2018 will lapse in full as
the threshold performance
conditions were not met. The only
outstanding unvested share award
which they therefore hold is the
2017 award made under the PSP.

We recently announced that Giles
Richell has stepped down from the
Board and is leaving the Group
during 2019 as part of a redundancy

process. The terms of Giles' exit are
in line with the Group's redundancy
policy.

I have also announced my intention
to retire from Safestyle, having
served over ﬁve years as a Non-
executive director. I will step down
at the May AGM and leave the
business in very capable hands, with
a strong and experienced Board in
place. My successor as Chair of the
Remuneration Committee will be
Julia Porter.

Looking forward to 2019

I expect 2019 to be a stable year in
which we can fully apply our usual
remuneration Policy. Salary will
remain unchanged for our
executives and there will be no
increase to fees for the non-
executive directors or the Chairman.
The bonus maximum for Executives
will be maintained at 100% of salary
and will be based 70% on PBT and
30% on strategic and personal
objectives, as was the case in
previous years. Awards under the
Performance Share Plan will reﬂect
usual Policy at 80% of salary. We
are currently reviewing the
associated performance criteria &
targets and these will be disclosed in
full in the 2019 Remuneration
Report. I anticipate that these will

continue to be based on EPS but we
are seeking to ensure that we have
robust three year ﬁgures for the
purposes of target setting.

Summary

I fully recognise that certain of the
decisions made in 2018 fall outside
of our Policy (on which shareholders
have had an advisory vote in the
past), but the urgency of the
situation meant that it was
impossible to consult at the time. I
do hope shareholders will
understand that if I and the
Remuneration Committee had not
acted with urgency and decisiveness
in the way we did in their interest, it
is highly unlikely that the Group
would have had a realistic prospect
over time of rebuilding shareholder
value. I therefore hope that you will
support our advisory vote on
remuneration at the AGM.

Chris Davies
Chairman of the Remuneration
Committee
21 March 2019

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Remuneration Report

Annual Report on Remuneration

2018 Remuneration

Individual elements of remuneration

Base salary

The annualised base salaries for 2018 and 2017 and the salary increases which took effect from 1 January 2018
are as set out below:

2018 base
salary £,000

2017 base
salary £,000

% increase

The table below details the elements of remuneration received by each Director for the ﬁnancial year ended 31
December 2018, and the total remuneration received by each Director for that ﬁnancial year and also for the ﬁnancial
year ended 31 December 2017.

M Gallacher

R Neale

G Richell

275

175

n/a

159

n/a

9.8%

2018

Salary
and
fees
£’000

Beneﬁts¹²

Annual
bonus

Long term
incentives

Pension

£’000

Supplemental
salary and
7,
fees¹ 7
£’000

Total
remuneration
2018
£’000

Total
remuneration
2017
£’000

Executive Directors

M Gallacher¹

R Neale²

G Richell³

S J Birmingham

M J Robinson

Total

Non-Executive Directors

A C Lovell

C J Davies

8
F Goldsmith

J Porter

R S Halbert

P Richardson

Total

183

175

121

626

191

250

100

164

514

100

544

193

367

146

100

1,325

215

n/a

163

219

184

566

n/a

165

Remuneration in 2018 (and for Giles Richell in 2017) reﬂects a part year as follows:

M Gallacher was appointed to the Board on 1 May 2018. In 2018, as set out in the Chairman of the Remuneration
Committee’s statement, he received an additional supplemental payment of £100k.
R Neale was appointed to the Board on 16 July 2018.
G Richell was appointed to the Board on 13 February 2017.
S J Birmingham retired and stepped down from the Board on 13 September 2018.
M J Robinson resigned and stepped down from the Board on 31 May 2018.
A C Lovell was appointed to the Board as Chairman on 16 July 2018.
In recognition of the services provided by C J Davies during 2018, additional fees were awarded by the Chairman of
the Board. Further details are in the Chairman of the Remuneration Committee’s statement.
F Goldsmith was appointed to the Board on 17 September 2018.
J Porter was appointed to the Board on 5 November 2018.
R S Halbert resigned from the Board on 23 April 2018.
P Richardson resigned from the Board on 29 May 2018.
Beneﬁts include car allowance, private fuel and private medical insurance.

The increase for Giles Richell was fully communicated in the 2017 Remuneration Report and reﬂected his increased
role and responsibilities and the COO's personal development in role.

Annual incentive plan

No bonuses were paid to SJ Birmingham or M Robinson. Bonus opportunities were awarded to the current executive
team equal to 100% of salary (based on the full year for M Gallacher and G Richell) and from June for R Neale,
recognising his considerable time commitment to the business before he formally joined in July. The full year bonus
formed part of the recruitment arrangements agreed with M Gallacher in recognition of bonus foregone at his
previous employment. These bonuses were based solely on strategic objectives, centred on the turnaround plan with
measures around stabilising the business, a return to proﬁt, staff retention and managing risk. The targets and
achievements against those are set out below:

Director

Performance metrics

Bonus
opportunity
(% of annual
salary)

Performance
achieved

Bonus earned
(% of annual
salary)

M Gallacher

Delivery of the Turnaround plan, plus other
operational targets including leading the legal
action, managing compliance & regulatory issues
and building a capable new management team

100%

100% of Turnaround
element, 67% of
Other Objectives
element

91%

R Neale

Delivery of the Turnaround plan, plus other
operational targets including leading a reﬁnancing
project and the cost-saving & efﬁciency drive

100%

100% of Turnaround
element, 94% of
Other Objectives
element

98% (pro-
rated for 7
months)

G Richell

Delivery of the Turnaround Plan, plus other
operational targets including factory & installation
performance, Health & Safety and digital
transformation

100%

100% of Turnaround
element, 75% of
Other Objectives
element

94%

This was an exceptional year which required exceptional performance and a unique response from the Remuneration
Committee. The bonus opportunity will return to its more usual structure in 2019, with 70% of the total available
dependent on Proﬁt before Tax (PBT) performance, and the remaining 30% dependent on strategic and personal
objectives. These targets and performance against will be disclosed in the 2019 Remuneration Report.

Long term incentives

Awards vested during the ﬁnancial year

Market value options granted in April 2016 to S J Birmingham and M J Robinson under the 2015 ESOP were due to
vest in respect of average EPS growth over the three years to 31 December 2018. These targets were 5% average
annual growth for threshold performance (at which level 50% of the options vest) and 10% average annual growth for
maximum performance. The threshold EPS growth target was not met and no long term incentive awards vested.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Remuneration Report

Annual Report on Remuneration

Awards granted during the ﬁnancial year

The following awards were granted during the year under the Safestyle UK 2017 Performance Share Plan

2018

Type of
award

Date of
grant

Percentage
of salary

Number of
shares

Exercise
price

Performance
period

Non-Executive Directors

M Gallacher

R Neale

G Richell

Nil cost
option

18 June 2018

15 August 2018

18 June 2018

160%

120%

733,333

350,000

£nil

1 January 2018 - 31
December 2020

The vesting of each option is subject to the satisfaction of performance conditions based on stretching Earnings per
Share (EPS) growth targets over the three year performance period to 31 December 2020. The targets are as follows.

Adjusted underlying EPS for
the year ending 31
December 2020 (%)

Percentage of
PSP award
vesting¹

9.66p

5.80p

100%

25%

¹For EPS below 5.80p no amount vests. Straight-line vesting between threshold and maximum.

On 20 December 2018 the Group granted awards over 250,000 shares to Alan Lovell. In making the grant, the
Remuneration Committee considered the importance of Alan's signiﬁcant experience and guidance to the Group in
the implementation of its turnaround plan. The awards are structured as nil cost options. They are exercisable as to
50% from 16 July 2020 and the balancing 50% from 16 July 2021, subject to Mr Lovell's continued appointment. The
awards are not subject to ﬁnancial targets but are subject to a general business performance underpin so that the
Remuneration Committee has discretion to reduce or lapse the awards that would vest if the level of vesting is not
appropriate in the context of the underlying performance of the business. In addition, malus and clawback provisions
apply to the awards.

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. For SJ Birmingham and MJ Robinson no 2018 bonus
was awarded. Salary, pension and beneﬁts were paid to the date that both stepped down from the Board and no
further payments were made. Both were treated as good leavers under the 2015 Executive Share Option Plan and the
2017 Performance Share Plan recognising their long term commitment and contributions to the Group. The award
made in 2016 under the ESOP and which was due to vest with respect to performance in the year ended 31 December
2018 lapsed in full as the threshold performance conditions were not met. The only outstanding unvested share
award which they therefore hold is the 2017 award made under the PSP. Under the terms of his exit agreement, Steve
Birmingham is receiving £120,000 in equal monthly payments for pay (covering salary and beneﬁt) in lieu of his
unexpired notice period.

Statement of Directors' shareholding and share interests

31 December 2018
Number

31 December 2017
Number

Executive Directors

M Gallacher

R Neale

G Richell

S J Birmingham

M J Robinson

A C Lovell

C J Davies

F Goldsmith

J Porter

R S Halbert

P Richardson

50.000

n/a

130,000

160,000

20,000

n/a

2,799,846

316,499

n/a

145,000

n/a

100,000

15,620

The interests of each individual, who served as a director of the Group during the year, as at 31 December 2018 in the
Group's share schemes were as follows:

Director

Plan

Date of
grant

Exercise
price

Options
held at 31
December
2017

Options
granted
in the
period

Options
exercised
in the
period²

Options
lapsed in
the
period

Options held at
31 December
2018 and
status

Safestyle UK plc
2015 ESOP

1 April 2015

£1.7875

97,902

S J
Birmingham

Safestyle UK plc
2015 ESOP

28 April 2016

£2.6838

66,585

Safestyle UK 2017
PSP

Safestyle UK plc
2015 ESOP

Safestyle UK 2017
PSP

M J
Robinson

G Richell

10 April 2017

£nil

47,935

1 April 2015

£1.7875

85,594

28 April 2016

£2.6838

58,220

10 April 2017

£nil

41,913

10 April 2017

£nil

41,913

18 June 2018

£nil

M Gallacher

Safestyle UK 2017
PSP

18 June 2018

£nil

R Neale

Safestyle UK 2017
PSP

13 August
2018

A C Lovell
(Non-Executive
Director)

Individual Share
Agreement

20 December
2018

£nil

350,000

733,333

350,000

250,000

(97,902)

nil

66,585¹

47,935¹

(85,594)

nil

58,220¹

41,913¹

350,000¹

733,333¹

350,000¹

250,000²

Annual Report & Accounts 2018

¹ Unvested subject to performance conditions linked to EPS
² Unvested subject to time and an overall business performance underpin

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors' Remuneration Report voting at the 2018 AGM

The table below sets out the voting outcome at the Group's AGM held on 30 May 2018 in respect of the resolution to
approve the Directors' Remuneration Report contained in the Group's 2017 Annual Report and Accounts.

Votes for

% for

Votes against

% against

Total votes
cast

Votes
withheld
(abstentions)

Approval of Directors'
Remuneration report

45,309,576

99.998%

1,037

0.002%

45,310,613

1,560

Approval

This Report was approved by the Board on 21 March 2019 and signed on its behalf by:

C J Davies
Chairman of the Remuneration Committee
21 March 2019

Directors’ Remuneration Report

Annual Report on Remuneration

Implementation of Directors' Remuneration Policy for the ﬁnancial year commencing 1 January 2019

Information on how the Group intends to implement the Directors' Remuneration Policy for the ﬁnancial year
commencing on 1 January 2019 is set out below.

Salary / fees

No salary increase for the executives, the Chairman or the Non Executives during 2019. Salary increase for
the wider PAYE workforce will be no more than 2%.

Annual incentive plan

The Executive Directors' annual bonus structure for 2019 will reﬂect our usual bonus structure which was in
place for 2017. Each Executive Director will have an annual bonus opportunity of up to 100% of base salary
based on delivering against stretching PBT 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 2017 annual incentive plan,
proﬁt will be measured before share based payments and exceptional costs.

For delivering on plan, the PBT element of the annual cash incentive will deliver 50% of the potential linked to
PBT (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 2019 plan to deliver our strategy and return the Group to proﬁtability.
These include building a wider and more effective management team below the Board, a step change in levels
of customer service after the events of 2018, improvements in ﬁt efﬁciency and factory remakes,
establishment of new forecasting, planning and operational control systems, delivery of signiﬁcant overhead
savings and implementation of an Internal Audit programme.

Maximum vesting of the potential linked to PBT (i.e. 70% of salary) will be realised upon achieving PBT stretch
performance in excess of our Plan which will be disclosed retrospectively in the 2019 Annual Report on
Remuneration, where further detail of performance against the objectives will also be provided.

LTIP

Awards will be granted to the Executive Directors under the 2017 Performance Share Plan at 80% of salary.
Details of the awards and the targets will be disclosed in the 2019 Remuneration Report.

Consideration by the Directors of matters relating to Directors' remuneration

The Remuneration Committee is composed of the Group's independent Non-Executive Directors, C J Davies
(Chairman), Alan Lovell, Fiona Goldsmith and Julia Porter. 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.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Report

The Directors present their annual report and audited ﬁnancial statements of the Group for the year ended 31
December 2018

Registered ofﬁce

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.

The registered ofﬁce of Safestyle UK plc is 47 Esplanade, St Helier, Jersey, JE1 0BD.

Directors' indemnities and insurance

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.

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.

Business review

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 Group ﬁnancial statements for each ﬁnancial year which give a true
and fair view of the state of affairs of the Group and of the proﬁt or loss of the Group for that year. In preparing those
ﬁnancial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;

Ÿ
Ÿ make judgements and estimates that are reasonable, relevant and reliable;
Ÿ

state whether applicable accounting standards have been followed, subject to any material departures disclosed
and explained in the ﬁnancial statements;

Ÿ assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going

concern; and

Ÿ use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations,

or have no realistic alternative but to do so.

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 responsible for such internal control as they determine is necessary to enable
the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.

The Chairman's statement, the Chief Executive's statement and the Financial Review on pages 26 to 33 report on the
Group's performance during the year and future developments.

Dividends

The directors do not propose a ﬁnal dividend for the year.

Governance

Safestyle UK plc is an evolving organisation and one that has ethics, integrity and high standards of corporate
governance as key priorities. The Board has adopted the Quoted Companies Alliance (QCA) Corporate Governance
Code (2018) as its Governance Framework. The Board understands its responsibility in managing the business for the
long-term beneﬁt of its stakeholders, through effective and efﬁcient decision making and acknowledges the importance
of the ten principles set out within the QCA code. 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 2018 comprised a non-executive
chairman, three executive directors and three non-executive directors. The non-executive chairman and the non-
executive directors 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 Audit Committee report on pages 52 to 53 to provides details regarding the Audit Committee members and its
responsibilities.

Remuneration Committee

The Chairman of the Remuneration Committee is Chris Davies with Alan Lovell, Fiona Goldsmith and Julia Porter as the
other non-executive members. 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 Alan Lovell with Chris Davies, Fiona Goldsmith and Julia Porter as the
other non-executive members. The Committee identiﬁes and nominates for the approval of the Board candidates to ﬁll
board vacancies as and when they arise. The Nomination Committee will meet at least once a year.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Directors’ Report

Substantial shareholdings

As at 8 March 2019 the Group has been advised of the following interests in more than 3% of its ordinary share
capital.

Name

Number

Name

Alantra Asset Management
Cambridge Global Asset Mgt
Standard Life
Janus Henderson Investors
Invesco

15,266,125
8,446,452
6,650,259
5,180,706
4,775,000

18.44%
10.20%
8.03%
6.26%
5.77%

Otus Capital Mgt
Invesco Asset Mgt
Ruffer
Steve Birmingham

Number

4,485,351
3,987,465
2,800,000
2,799,846

5.42%
4.82%
3.38%
3.38%

Going concern

For the purposes of assessing the appropriateness of the preparation of the Group's accounts on a going concern
basis, the directors have considered the current cash position, available banking facilities and forecasts of future
trading through to 31 December 2020, including performance against ﬁnancial covenants. Further disclosure of the
factors considered are given in the basis of preparation note to the accounts.

Having considered this information, the Directors have a reasonable expectation that the Group has adequate
resources to continue to trade for the foreseeable future. Consequently, the Directors continue to adopt the going
concern basis of preparation in preparing the ﬁnancial statements for the year ended 31 December 2018.

Auditors

The Board has decided to put forward a resolution to reappoint KPMG LLP as auditors at the forthcoming AGM of the
Group.

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 21 March 2019

Rob Neale
Chief Financial Ofﬁcer
21 March 2019

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

83, 84

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Annual Report & Accounts 2018

Safestyle UK plc

Financials

Consolidated Income Statement

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Safestyle UK plc

Strategic Report

Governance

Financials

Consolidated Income Statement

for the year ended 31 December 2018

Revenue

Cost of sales

Gross profit¹

Other operating expenses²

Operating (loss) / profit³

Finance income
Finance costs

Net finance (costs) / income

(Loss) / profit before taxation

Underlying (loss) / profit before taxation before non-recurring costs,
Commercial Agreement amortisation and share based payments

Non-recurring costs
Commercial Agreement amortisation
Share based payments

(Loss) / profit before taxation

Taxation

(Loss) / profit for the year

Basic EPS (pence per share)
Diluted EPS (pence per share)

Note

2018
£000

2017
£000

2,5

116,426

158,552

(90,549)

(107,133)

25,877

51,419

(42,004)

(37,630)

(16,127)

13,789

7
(142)

(135)

35
(10)

(16,262)

13,814

(8,744)

(7,817)
(75)
374

(16,262)

2,964

(13,298)

(16.1)p
(16.1)p

15,065

(830)
-
(421)

13,814

(2,986)

10,828

13.1p
13.0p

7
14
31

9
9

¹ Gross proﬁt in 2018 includes £801k of non-recurring costs. Adjusting for this gives underlying gross proﬁt of £26,678k.
See Financial Review for details.
² Other operating expenses in 2018 includes £7,016k of non-recurring costs, £374k of share based payments credit and
£75k of Commercial Agreement amortisation. Adjusting for these gives underlying other operating expenses of £35,287k.
See Financial Review for details.
³ Operating loss in 2018 includes £7,817k of non-reccuring costs, £374k of share based payments credit and £75k of
Commercial Agreement amortisation. Adjusting for these gives an underlying operating loss of £8,609k. See Financial
Review for details.

There is no other comprehensive income for the period.

All operations were continuing throughout all periods.

The accompanying notes form part of the ﬁnancial statements.

Consolidated Statement of Financial Position

at 31 December 2018

Assets
Intangible assets - Trademarks
Intangible assets - Goodwill
Intangible assets - Software
Intangible assets - Other
Property, plant and equipment
Deferred taxation asset

Non-current assets

Inventories
Current taxation asset
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
Corporation taxation liabilities
Deferred taxation liability
Provision for liabilities and charges

Current liabilities

Provision for liabilities and charges
Borrowing facility

Non-current liabilities

Total liabilities

Total equity and liabilities

Note

14
14
14
14
15
16

18
19

22
23

23
24

2018
£000

504
20,758
1,346
2,188
14,213
693

2017
£000

504
20,758
786
-
14,975
28

39,702

37,051

2,416
2,287
4,478
4,163

2,032
-
4,559
10,975

13,344

17,566

53,046

54,617

828
81,845
13,347
(66,527)

828
81,845
24,712
(66,527)

29,493

40,858

15,286
-
53
1,123

10,864
776
90
599

16,462

12,329

3,188
3,903

7,091

1,430
-

1,430

23,553

13,759

53,046

54,617

The accompanying notes form part of the ﬁnancial statements. The ﬁnancial statements were approved by the Board of
Directors and authorised for issue on 21 March 2019 and were signed on their behalf by:

R Neale
Chief Financial Ofﬁcer

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

for the year ended 31 December 2018

Share
capital

Share
premium

Proﬁt and
loss account

£000

Balance at 1 January 2017
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Issue of shares
Buy back of shares
Equity settled share based payment transactions (see note 31)
Corporation taxation relief taken to reserves
Dividends

828
-

81,979
-

2
(2)
-
-
-

256
(390)
-
-
-

22,052
10,828

-
-
421
747
(9,336)

Common
control
transaction
reserve
£000

(66,527)
-

-
-
-
-
-

Total
equity

£000

38,332
10,828

258
(392)
421
747
(9,336)

Balance at 31 December 2017
Total comprehensive (loss) for the year
Transactions with owners recorded directly in equity:
Equity settled share based payment transactions (see note 31)
Deferred taxation asset taken to reserves (see note 16)
Equity settled Commercial Agreement (see note 14)

828
-

81,845
-

24,712
(13,298)

(66,527)
-

40,858
(13,298)

-
-
-

(374)
44
2,263

-
-
-

(374)
44
2,263

Balance at 31 December 2018

828

81,845

13,347

(66,527)

29,493

The accompanying notes form part of the ﬁnancial statements.

Cash flows from operating activities
(Loss) / profit for the year
Adjustments for:
Depreciation of plant, property and equipment
Amortisation of intangible fixed assets
Finance income
Finance expense
Loss on sale of plant, property and equipment
Equity settled share based payments (credit) / charge
Taxation (credit) / expense

(Increase) / decrease in inventories
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Increase / (decrease) in provisions

Hire purchase interest paid
Other interest paid

Taxation paid
Net cash (outflow) / inflow from operating activities

Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of subsidiary
Interest received
Proceeds from sale of property, plant and equipment
Acquisition of intangible fixed assets

2018
£000

2017
£000

(13,298)

10,828

1,715
400
(7)
142
42
(374)
(2,964)
(14,344)
(384)
81
4,422
2,282
6,401
-
(142)
(142)
(757)
(8,842)

(1,028)
(30)
7
33
(855)

1,489
241
(35)
10
-
421
2,986
15,940
144
1
(1,120)
(367)
(1,342)
(10)
-
(10)
(2,880)
11,708

(4,075)
-
35
-
(612)

Net cash outflow from investing activities

(1,873)

(4,652)

Cash flows from financing activities
Proceeds from loans and borrowings
Proceeds from the issue of ordinary shares
Purchase and cancellation of ordinary shares
Payment of hire purchase and finance leases
Dividends paid

Net cash inflow / (outflow) from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at start of year

3,903
-
-
-
-

3,903
(6,812)
10,975

-
258
(392)
(70)
(9,336)

(9,540)
(2,484)
13,459

Cash and cash equivalents at end of year

4,163

10,975

The accompanying notes form part of the ﬁnancial statements.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

General information

The ﬁnancial statements set out herein are in respect of Safestyle UK plc (the Company) and its subsidiaries (the Group) for the year
ended 31 December 2018.

Safestyle UK plc is a publicly 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.

Basis of preparation

The Group's ﬁnancial statements for the year ended 31 December 2018 (“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 accounting policies set out below have unless otherwise stated, been applied consistently to all periods presented in these
ﬁnancial statements.

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
Ÿ

IFRS 9 Financial Instruments (effective 1 January 2018)
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

(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
Ÿ
Ÿ Amendments to IFRS 9 Financial Instruments (effective 1 January 2019)
Ÿ Annual Improvements to IFRSs – 2015-2017 Cycle (effective 1 January 2019)

IFRS 16 Leases (effective 1 January 2019)
IFRIC 23 Uncertainty over Income Taxation Treatments (effective 1 January 2019)

IFRS 9 Financial instruments - Impairment of ﬁnancial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (“ECL”) model. The new impairment model applies to
ﬁnancial assets measured at amortised cost. The Group has elected to measure loss allowances for trade receivables at an amount
equal to lifetime ECLs.

Impact of the new impairment model
The Group has determined that the application of IFRS 9's impairment requirements at 1 January 2018 does not require an
adjustment to the impairment allowance recognised at 31 December 2017. The previous basis of estimating irrecoverable losses is
consistent with the methodology prescribed under IFRS 9.

The following table provides further detail about the calculation of ECLs related to trade receivables on the adoption of IFRS 9.
The Group considers the model and some of the assumptions used in calculating these ECLs as key sources of estimation
uncertainty.

Weighted average loss rate

Debt over 1 yr old
Speciﬁc Debtors to be written off
Standing Orders
Debt less than 1 yr old

100.0%
100.0%
33.0%
4.9%

IFRS 15 Revenue from contracts with customers

Impact of implementing IFRS 15
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced
IAS 18 Revenue. The Group has adopted IFRS 15 with effect from 1 January 2018. The Group primarily earns revenues from the
sale, design, manufacture and installation of domestic double-glazed replacement windows and doors. Product sales revenues are
recognised once the goods have been installed.

The Group is satisﬁed that their treatment of Revenue complies with the remit of IFRS 15 'Revenue from contracts with customers'.
Revenue is currently recognised when a service is delivered and when the contract is completed in accordance with the policy in
note 2. The Group has conﬁrmed that any changes to accounting required to meet this standard are not material to the ﬁnancial
results of the group. It has not been necessary to restate results previously presented.

IFRS 16 Leases

IFRS 16 Leases will have a material impact on the reported assets, liabilities and income statement for the Group. The standard will
be applied for accounting periods starting after 1 January 2019, therefore the Group's ﬁrst ﬁnancial year that is impacted will be
the year ending 31 December 2019. The Directors have performed a review of the effect of IFRS 16 on the Group and the
indicative impact is to increase ﬁxed assets in the range of £9.5m to £11.5m at 31 December 2018, being the present value of
future lease obligations with a corresponding increase in liabilities. The cash ﬂow impact is nil. A reliable estimate of the ﬁnancial
impact on the Group's consolidated results is dependent on a number of unresolved areas, including; reﬁnement of approach to
discount rates, and estimates of lease-term for leases with options to break and renew and the approach is yet to be subject to
audit. In addition, the ﬁnancial impact is dependent on the facts and circumstances surrounding the lease portfolio at the time of
transition. For these reasons, it is not yet practicable to determine a reliable estimate of the ﬁnancial impact on the Group as at 31
December 2018.

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.

Year end

The ﬁnancial statements are presented for the year to 31 December 2018. The actual trading cut off date of the year-end
ﬂuctuates year on year and is based on the nearest Sunday to the end of December.

Summary of signiﬁcant accounting policies

Going concern

The ﬁnancial statements are prepared on a going concern basis which the directors believe to be appropriate for the following
reasons.

The Group made a statutory loss of £13.3m in the year to 31 December 2018 (FY17: £10.8m proﬁt). The Group entered into a two
year ﬁnancing arrangement on 26 October 2018 for £7.5m. The ﬁnance facility includes certain covenants, including a minimum
EBITDA to be tested on a cumulative monthly basis. As at 31 December 2018, £4.5m term loan was fully drawn on the facility and
in the period to 13 March 2019, £2.5m of the revolving credit facility has also been drawn. The Group had net debt of £2.5m at the
end of February 2019. This increase in net debt since the year-end was expected with the ﬁrst quarter representing the peak
period for lead generation investment.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Intangible ﬁxed assets

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment.

Summary of signiﬁcant accounting policies (continued)

Going concern (continued)

The Directors have prepared forecasts covering the period to December 2020, built from the detailed Board approved budget for
2019. The 2019 Budget includes a number of assumptions in relation to sales volume growth and margin improvements. The
Directors have considered reasonably possible downside sensitivity scenarios including a 10% reduction in sales and no margin
growth in 2019, offset by mitigating actions within the control of management including reductions in areas of discretionary spend.

As part of this assessment the Directors have considered the potential impact from Brexit on the forecasts namely in terms of
supply chain availability and pricing and the impact on the wider economy, potentially impacting sales of the Group's product.

These forecasts, including the reasonably possible downside scenarios with mitigating actions, show that the Group will continue
to operate with sufﬁcient headroom within the revised facility terms in place for the duration of the facility agreement (expires
October 2020). Based on the above, whilst recognising the challenges in the turnaround plan, the directors have reasonable
expectation that the Group and company has adequate resources to continue in operational existence for the foreseeable future
and therefore continue to adopt the going concern basis of accounting in preparing the annual ﬁnancial statements.

Non-recurring costs

Items that are either material because of their nature, non-recurring or whose signiﬁcance is sufﬁcient to warrant separate
disclosure and identiﬁcation within the consolidated ﬁnancial statements are referred to as non-recurring items. The separate
reporting of non-recurring items is important to provide an understanding of the Group's underlying performance.

Foreign currencies

Functional and presentational currency

(a)
Items included in the ﬁnancial statements are measured using the currency of the primary economic environment in which the
Group operates (“the functional currency”) which is UK Sterling (£). The ﬁnancial statements are presented in UK Sterling (£),
which is the Group's presentational currency.

Transactions and balances

(b)
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 Taxation. The Group primarily earns revenues from the sale, design,
manufacture and installation of domestic double-glazed replacement windows and doors. Product sales revenues are recognised
once the goods have been installed. Survey fees are recognised at the point at which they become non-refundable. The Group
received no commissions for introducing ﬁnance products to customers in 2018, only paying subsidies which are recognised as a
reduction to revenue. 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.

Intangible assets that are acquired by the Group 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.

The non-compete element of the Commercial Agreement has been accounted for as an intangible asset on the basis that it is an
identiﬁable, non-monetary item without physical substance, which is within the control of the entity and is capable of generating
future economic beneﬁts for the entity. The intangible asset has been measured based on the fair value of the consideration that
the Group expects to issue under the terms of the agreement.

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
Commercial Agreement

25% on cost
20% on cost

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
Mobile devices
Motor vehicles

25% on cost
15% on cost
20% to 33.3% on cost
50% 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 taxation 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 taxation 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.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Summary of signiﬁcant accounting policies (continued)

Impairment (continued)

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. A provision for property dilapidations is recognised across
the life of the property lease to cover the contractual dilapidations charges that the Group estimates will be payable on exit of the
lease. A provision for the Commercial Agreement is in place for the cash consideration that the Group expects to issue under the
terms of the Commercial Agreement as described in the Chairman’s Statement.

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.

Equity instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, restricted cash paid over to various counterparties as
collateral against relevant exposures 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 taxation on the proﬁt or loss for the year comprises current and deferred taxation. Income taxation 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 taxation 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 taxation 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 taxation provided is based on the carrying amount of assets and liabilities, using the
prevailing taxation rates. The deferred taxation balance has not been discounted.

Current taxation is the expected taxation payable on the taxable income for the year, using prevailing taxation rates enacted or
substantively enacted at the reporting date, and any adjustment to taxation payable in respect of previous years.

Leases

Amounts payable under operating leases are charged to operating expenses on a straight line accruals basis over the lease term.

Share based payments

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.

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.

Dividends

Dividends are only recognised as a liability to the extent that they are declared prior to the year end.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method less the expected credit loss (ECL) allowance. Appropriate loss allowances for estimated irrecoverable amounts are
recognised in the statement of comprehensive income at an amount equal to lifetime ECLs. Lifetime ECLs are the ECLs that result
from all possible default events expected over the life of a ﬁnancial instrument.

Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of
interest would be immaterial.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e.
the difference between the cash ﬂows due to the entity in accordance with the contract and the cash ﬂows that the Group expects
to receive).

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Financial risk management

Financial risk factors

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.

Market risk

3.1
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.

Credit risk

3.2
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.

Liquidity risk

3.3
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 and a long term borrowing facility. 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 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.

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.

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.

Accounting estimates and judgements

In preparing these ﬁnancial statements, management has made estimates that affect the application of the Group's
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results can differ from these
estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively.

Judgements

Information about judgements made in applying accounting policies that have the most signiﬁcant effects on the amount
recognised include the following notes:

Note 14 Intangible assets; judgement about the substance and accounting for the Commercial Agreement.

Note 23 Provisions for liabilities and charges; judgement about the substance and accounting for the Commercial
Agreement.

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties at 31 December 2018 that have a signiﬁcant risk of resulting in
a material adjustment to the carrying amounts of assets and liabilities in the next ﬁnancial year is included in the following
notes:

Note 23 Recognition and measurement of provisions; key assumptions about the likelihood and magnitude of an outﬂow of
resources in relation to the Commercial Agreement.

The assessment of whether trade receivables are recoverable is subject to estimation uncertainty. An allowance for
impairment is made for estimated irrecoverable amounts. Further details can be found in note 18.

Other sources of estimation uncertainties

Product guarantees 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 is subject to estimation uncertainty. Further details can be found in note 23.

Dilapidations provision

The Group has a number of operating leases in relation to properties, where there is a contractual obligation to undertake
remedial works at the end of the lease term. The level of provision required to cover the expected future costs of
dilapidations is subject to estimation uncertainty around expected costs and management intention. Further details can be
found in note 23.

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.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Expenses and auditor's remuneration

Included in profit are the following:
Depreciation of plant, property and equipment:

Owned assets
Amortisation of intangibles assets

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

Non-recurring costs

Product guarantee provision
Non-recurring items charged to cost of sales
Litigation costs
Restructuring and operational costs
Fines
Onerous leases
Commercial Agreement costs
Commercial Agreement service fee
Non-recurring pay awards
Dilapidations provision
Non-recurring items charge to other operating expenses
Total non-recurring items

2018
£000

2017
£000

1,715
400

3,396
1,488

70
30
12

1,397
241

3,255
1,336

42
44
10

Note

2018
£000

2017
£000

b
c
d
e
f
g
h
i

801
801
1,912
1,167
1,079
294
311
1,000
635
618

7,016
7,817

-
-
-
830
-
-
-
-
-
-
830
830

Onerous leases represent an accrual for all rental costs up until the ﬁrst lease break date for properties that were closed
in the year.

Commercial Agreement costs are expenses incurred in securing the Commercial Agreement referred to in the
Chairman's Statement. These costs consist of legal advisor fees and a set of one-off payments made as part of the
contractual terms of the ﬁnal agreement.

Commercial Agreement service fee is the assessed fair value of the consideration payable under the terms of the
Commercial Agreement that has been attributed to services received in the year.

Non-recurring pay awards relate to the bonus payments made to executives as described in the Statement from
the Chairman of the Remuneration Committee. These have been classiﬁed as non-recurring as they were paid to reﬂect the
supplementary duties undertaken in a period of signiﬁcant disruption and reward delivery of key actions required to secure
and stabilise the business and are not linked to proﬁt performance. These payments were only awarded due to the
unprecedented events the Group experienced in 2018 and will not be made again.

The accounting policy for providing for exit obligations on leased property, principally dilapidations, has also been assessed
in the year. In previous years, no provision has been made for these. Management have now concluded that a provision is
appropriate based on new circumstances during the year, a strategic review by management, the existence of an
obligation and the ability to reliably estimate it. Were a provision to have been applied in prior years, the cumulative charge
to the end of 2017 would have been £618k.

Dividends

The aggregate amount of dividends paid comprises:

2016 Final dividend paid of £0.075 (2015: £0.075) per ordinary share
2017 Interim dividend paid of £0.0375 (2016: £0.0375) per ordinary share

No final dividend in relation to 2017 was declared and no dividends were declared in 2018.

Earnings per share

Basic earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)*

a) Basic earnings per share

2018
£000

-
-

2017
£000

6,224
3,112

9,336

2018

2017

(16.1)
(16.1)

13.1
13.0

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) (Loss) / proﬁt attributable to ordinary shareholders (basic)

2018
£000

2017
£000

As part of a review by management of provisions made for the Group's future obligations, a revision to the estimates used for
future product guarantee claims has been made which management consider more accurately reﬂects the Group’s obligations.
Included in non-recurring costs is the impact on the prior year had this change in estimate been retrospectively applied.

(Loss) / proﬁt attributable to ordinary shareholders

(13,298)

10,828

Litigation costs are expenses incurred as a result of the NIAMAC litigation referred to in the Chairman's Statement.
These costs are predominantly legal advisor's fees.

ii) Weighted-average number of ordinary shares (basic)

Restructuring and operational costs are expenses incurred, including redundancy payments, as a result of changes being
made to reduce the cost structure of the business.

In issue during the year

Fines relate to the HSE and WYTS ﬁnes described in the Financial Review and related legal representation fees.

Annual Report & Accounts 2018

No. of shares
‘000
82,809

No. of shares
‘000
82,883

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Earnings per share (continued)

b) Diluted earnings per share

*Due to net loss for the period, dilutive loss per share is the same as basic.
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) (Loss) / proﬁt attributable to ordinary shareholders (diluted)

2018
£000

2017
£000

(Loss) / proﬁt attributable to ordinary shareholders

(13,298)

10,828

ii) Weighted-average number of ordinary shares (basic)
Effect of conversion of share options and share consideration

No. of shares
‘000
82,809
2,270

No. of shares
‘000
82,883
396

85,079

83,279

The average market value of the Group'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.

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.

A summary of key management remuneration is as follows:

Salary, bonus and other beneﬁts
Pensions
Share based payments and associated costs
Compensation on loss of ofﬁce

Total remuneration

2018
£000

2,356
64
201
19

2,640

2017
£000

1,292
82
246
354

1,974

Details of long term incentive plans can be found in note 31.

Detailed disclosures of individual remuneration, pension entitlements and share options, for the Directors who served during the
year are as follows:

Board Remuneration

2018
Executive directors
M Gallacher
R Neale
G Richell
S J Birmingham
M J Robinson
Non-executive
A C Lovell
C J Davies
F Goldsmith
J Porter
R S Halbert
P Richardson

2017
Executive directors
S J Birmingham
M J Robinson
G Richell
Non-executive
C J Davies
R S Halbert
P Richardson

Salary
and fees
£000

Beneﬁts

£000

Annual
bonus
£000

LTIP

Pension

£000

Total

£000

183
81
175
121
66

55
48
16
7
19
46
817

184
159
141

48
74
43
649

11
6
13
15
4

-
-
-
-
-
-
49

20
12
11

-
-
-
43

350
100
164
-
-

-
24
-
-
-
-
638

-
-
-

-
-
-
-

-
-
-
-
-

-
-
-
-
-
-
-

-
-
-

-
-
-
-

-
6
15
10
5

-
-
-
-
-
-
36

15
13
11

-
-
-
39

544
193
367
146
75

55
72
16
7
19
46
1,540

219
184
163

48
74
43
731

M Gallacher was appointed to the Board on the 1st May 2018 and his fees therefore reﬂect a part year.
R Neale was appointed to the Board on the 16th July 2018 and his fees therefore reﬂect a part year.
G Richell was appointed to the Board on the 13th February 2017 and his fees in the prior year therefore reﬂect a part year.
S J Birmingham resigned from the Board on the 13th September 2018 and his fees therefore reﬂect a part year.
M J Robinson resigned from the Board on the 31st May 2018 and his fees therefore reﬂect a part year.
A C Lovell was appointed to the Board on the 16th July 2018 and his fees therefore reﬂect a part year.
F Goldsmith was appointed to the Board on the 17th September 2018 and her fees therefore reﬂect a part year.
J Porter was appointed to the Board on the 5th November 2018 and her fees therefore reﬂect a part year.
R S Halbert resigned from the Board on the 23rd April 2018 and his fees therefore reﬂect a part year.
P Richardson resigned from the Board on the 29th May 2018 and his fees therefore reﬂect a part year.

The interests of each individual who served as a director of the Group during the year, as at 31 December 2018 in the Group's
share schemes, were as follows:

S J Birmingham

M J Robinson

G Richell

M Gallacher
R Neale
A C Lovell

Plan

Options
held at start
of period

Options
granted
in period

Options
exercised
in period

Options
lapsed in
period

Options
held at end
of period

LTIP 2015
LTIP 2016
LTIP 2017
LTIP 2015
LTIP 2016
LTIP 2017
LTIP 2017
LTIP 2018
LTIP 2018
LTIP 2018
Individual

97,902
66,585
47,935
85,594
58,220
41,913
41,913
-
-
-
-
440,062

-
-
-
-
-
-
-
350,000
733,333
350,000
250,000
1,683,333

-
-
-
-
-
-
-
-
-
-
-
-

(97,902)
-
-
(85,594)
-
-
-
-
-
-
-
(183,496)

-
66,585
47,935
-
58,220
41,913
41,913
350,000
733,333
350,000
250,000
1,939,899

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Staff numbers and costs

The average monthly number of persons (including directors) employed by the Group during the year analysed by category,
were as follows:

Manufacturing
Sales and distribution
Administration

The aggregate payroll costs
Wages and salaries
Social security costs
Other pension costs (see note 27)
Share based payments (credit) / expenses (see note 31)

The analysis of Directors' remuneration is shown in the Directors Remuneration Report on page 54.

Finance costs

On loan facility
On ﬁnance leases and hire purchase contracts

2018
Number

2017
Number

316
96
312
724

2018
£000

19,409
1,886
777
(374)
21,698

2018
£000

142
-
142

361
118
332
811

2017
£000

20,044
1,943
589
421
22,997

2017
£000

-
10
10

Taxation

Recognised in the Consolidated Income Statement
Current taxation
Current taxation on income for the period
Adjustments in respect of prior periods

Total current taxation

Deferred taxation
Origination and reversal of timing differences
Effect of change in taxation rate
Adjustments in respect of prior periods
Total deferred taxation (see notes 16 and 22)

2018
£000

2017
£000

(2,461)
155

(2,306)

(658)
-
-
(658)

2,805
-

2,805

180
(11)
12
181

Total taxation (credit) / expense

(2,964)

2,986

Reconciliation of effective taxation rate

Current taxation reconciliation
(Loss) / proﬁt for the year
Total taxation (credit) / expense

(Loss) / proﬁt excluding taxation

Expected taxation (credit) / charge based on the standard rate of
corporation taxation in the UK of 19.00% (2017: 19.25%)
Effects of:
Expenses not deductible for taxation purposes
Share based payments
Adjustments to taxation charge in respect of prior periods
Effect of change in taxation rate

Total taxation (credit) / expense

(13,298)
(2,964)

10,828
2,986

(16,262)

13,814

(3,090)

2,659

143
(127)
155
(45)

326
-
12
(11)

(2,964)

2,986

A reduction in the UK corporation taxation rate from 21% to 20% (effective from 1 April 2015) was 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, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2017.
This will reduce the Group’s future current tax charge accordingly. The deferred taxation asset at 31 December 2018 has been
calculated based on these rates.

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Intangible assets

Cost
At 1 January 2018
Additions
Disposals
Transfer
At 31 December 2018

Amortisation
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018

Goodwill

Trademark

Software

£000

Assets under
the course of
construction
£000

Commercial
Agreement

Total

£000

20,758
30
-
-
20,788

-
30
-
30

504
-
-
-
504

-
-
-
-

1,717
-
-
579
2,296

1,094
295
-
1,389

623
907

163
855
-
(579)
439

-
-
-
-

163
439

-
2,263
-
-
2,263

-
75
-
75

23,142
3,148
-
-
26,290

1,094
400
-
1,494

-
2,188

22,048
24,796

NBV at 31 December 2017
NBV at 31 December 2018

20,758
20,758

504
504

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 2018 and 31 December 2017. For the review at 31
December 2018, the recoverable amount of the CGU has been determined from value in use calculations based on cash ﬂow
projections covering a two year period to 31 December 2020 which is then rolled forward for 10 years. The assessment was
performed on a value in use basis using a 7% discount rate and the following year's budget as approved by the Board, followed by a
forecast for 2020 used for the recent reﬁnancing with no further growth into the future. The key assumptions underpinning these
forecasts are based on historical sales trends and costs adjusted for up to date information, including pricing changes, product mix
and headcount. 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.

The Commercial Agreement represents the fair value of the shares consideration that the Group expects to issue under the terms
of the Commercial Agreement as described in the Chairman's statement for the non-compete services to be received. The
Commercial Agreement is in place for a 5 year period, therefore the cost is amortised over the 5 year period. Management
considered an alternative accounting treatment allowed under IFRS2, whereby the cost of the non-compete would be expensed
over the vesting period of the shares, being 4 years. This would have the effect of removing the intangible asset of £2,188k from
the balance sheet and therefore reduce the risk of future impairment. Management determined that the most appropriate
accounting treatment was the recognition of an intangible asset.

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

Cost
At 1 January 2018
Additions
Transfers
Disposals
At 31 December 2018

Depreciation
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018

NBV at 31 December 2017
NBV at 31 December 2018

9,281
-
219
-
9,500

413
185
-
598

8,868
8,902

Deferred taxation asset

337
-
88
-
425

58
101
-
159

279
266

10,147
-
546
(708)
9,985

4,963
1,167
(635)
5,495

5,184
4,490

1,440
-
217
(2)
1,655

863
262
-
1,125

577
530

8
-
-
-
8

6
-
-
6

2
2

65
1,028
(1,070)
-
23

-
-
-
-

21,278
1,028
-
(710)
21,596

6,303
1,715
(635)
7,383

65
23

14,975
14,213

Balance at beginning of period
Credit / (debit) to the Consolidated Income Statement for the period
Share based payments to reserves
Balance at end of period

The deferred taxation asset provided in the ﬁnancial statements at 17% (2017: 17%) is as follows:

Losses
Share based payments

There are no unrecognised taxation losses (2017: £nil).

Inventories

Raw materials and consumables
Work in progress
Finished goods

The above amounts are stated net of inventory provisions.

Stock recognised in cost of sales during the period was £21,264k (2017: £27,061k).

2018
£000

28
621
44
693

2018
£000

609
84
693

2017
£000

180
(152)
-
28

2017
£000

-
28
28

2018
£000

2017
£000

1,702
53
661
2,416

1,644
44
344
2,032

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Cash and cash equivalents

Notes to the Consolidated Financial Statements

Trade and other receivables

Cash and cash equivalents
Balance at end of period

2018
£000

4,163
4,163

2017
£000

10,975
10,975

Trade receivables (net of provisions)
Other receivables
Prepayments and accrued income

2018
£000

2,184
22
2,272
4,478

2017
£000

1,713
-
2,846
4,559

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 utilised in year
Expensed in year
Closing provision for trade receivables

2018
£000

1,045
(573)
734
1,206

2017
£000

842
(532)
735
1,045

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:

< 1 month overdue
1-2 months overdue
2-3 months overdue
3-12 months overdue
> 1 Year
Total receivables

2018
£000

2017
£000

624
416
327
1,015
1,008
3,390

(19)
(18)
(5)
(156)
(1,008)
(1,206)

605
398
322
859
-
2,184

608
338
212
861
739
2,758

(8)
(23)
(46)
(229)
(739)
(1,045)

600
315
166
632
-
1,713

The range of reasonably possible outcomes within the next ﬁnancial year is that debtors provided for of £1,206k may be recovered
in full or some of the unprovided debtors may become irrecoverable.

All of the Group's cash and cash equivalents are at ﬂoating interest rates and are 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 25.

Included within cash and cash equivalents is £1,575k (2017: £13k) of cash which is restricted by the Group's merchant acquirers as
collateral and is paid to the Group after a set period of deferral days.

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
2,564,427 Ordinary Shares @ 1p each on 22 April 2016
177,513 Ordinary Shares @ 1p each on 02 May 2017
2,201 Ordinary Shares @ 1p each on 09 May 2017
3,302 Ordinary Shares @ 1p each on 01 June 2017
4,128 Ordinary Shares @ 1p each on 01 June 2017
90,000 Ordinary shares @ 1p each cancelled on 03 October 2017
90,000 Ordinary shares @ 1p each cancelled on 04 October 2017
15,000 Ordinary shares @ 1p each cancelled on 05 October 2017
10,182 Ordinary Shares @ 1p each on 20 November 2017

Allotted, issued and fully paid

2018
£000

2017
£000

778
1
24
25
2
-
-
-
(1)
(1)
-
-
828

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Trade and other payables

Trade payables
Other taxation and social security costs
Other payables
Accruals and deferred income

Deferred taxation liability

Balance at beginning of period
(Credit) / debit to the Consolidated Income Statement for the period
Balance at end of period

The deferred taxation asset provided in the financial statements at 17% (2017: 17%) is as
follows:

Capital allowances in excess of depreciation

Provisions for liabilities and charges

2018
£000

5,921
2,905
2,305
4,155

2017
£000

3,571
2,423
3,022
1,848

15,286

10,864

2018
£000

90
(37)
53

53
53

2017
£000

61
29
90

90
90

Dilapidations

Product guarantees

Commercial Agreement

Total

2018
£000

2017
£000

2018
£000

2017
£000

2018
£000

2017
£000

2018
£000

2017
£000

Borrowing facilities

The Group has entered into a borrowing facility during 2018. The total borrowing facilities available at 31 December 2018
were as follows:

Amounts drawn down

Facilities available

Nominal
interest rate

Year of
maturity

2018
£000

2017
£000

2018
£000

2017
£000

Term bank loan
Revolving credit facility
Less: Prepaid arrangement fees²

LIBOR + 7%
LIBOR + 7%¹

2020
2020

4,500
-
(597)
3,903

-
-
-
-

4,500
3,000
-
7,500

-
-
-
-

¹Interest is charged at a rate of LIBOR +3.5% on all undrawn amounts on the revolving credit facility.
²Prepaid arrangement fees relate to legal, advisory and facility arrangement fees in relation to the borrowing facility. These fees
are prepaid and amortised over the 2 year term of the facility.

Financial instruments

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 2018, £4,500k of loans were outstanding (2017: £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.

The principal ﬁnancial instruments used by the Group, from which ﬁnancial instrument risk arises are as follows:
Ÿ Trade and other receivables
Ÿ Trade and other payables
Ÿ Cash and cash equivalents
The carrying value of these ﬁnancial instruments is considered to approximate to their fair value.

Financial assets

At the reporting date, the Group held the following ﬁnancial assets:

2018
£000

2,184
22
4,163
6,369

2017
£000

1,713
-
10,975
12,688

Balance at beginning of year
Utilised in year
Provided in year
Balance at end of year
Current
Non current
Balance at end of year

-
-
767
767
279
488
767

-
-
-
-
-
-
-

2,029
(1,197)
1,712
2,544
844
1,700
2,544

2,396
(1,180)
813
2,029
599
1,430
2,029

-
-
1,000
1,000
-
1,000
1,000

-
-
-
-
-
-
-

2,029
(1,197)
3,479
4,311
1,123
3,188
4,311

2,396
(1,180)
813
2,029
599
1,430
2,029

Trade receivables
Other receivables
Cash and cash equivalents

Financial liabilities

Dilapidations – The Group has a portfolio of leased properties that sales branches and installation depots operate from. Historically
upon exiting a property lease, the Group has incurred contractual dilapidations charges from the landlord to cover the wear and tear
repair costs from the Group's tenancy. The dilapidation provision is estimated on the property size, its use as either a sales branch
or installation depot, and the historical charges incurred upon exiting similar properties.

Product guarantee - The Group gives guarantees against all its products, which in the majority of cases covers a period of 10 years.
A product guarantee 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.

Commercial Agreement - The provision for the Commercial Agreement represents the cash consideration that the Group expects to
issue under the terms of the Commercial Agreement as described in the Chairman's statement. The cash consideration of between
£nil and £2,000k is payable in October 2020.

Annual Report & Accounts 2018

At the reporting date, the Group held the following ﬁnancial liabilities, all of which were classiﬁed as other ﬁnancial liabilities:

Trade payables
Other payables
Borrowing facility

2018
£000

5,921
2,305
3,903
12,129

2017
£000

3,571
3,022
-
6,593

Annual Report & Accounts 2018

Safestyle UK plc

Strategic Report

Governance

Financials

Commitments

At 31 December, the future minimum lease payments under non-cancellable leases were payable as follows:

Notes to the Consolidated Financial Statements

Financial instruments (continued)

Market risk

The Group is not materially exposed to changes in foreign currency exchange rates or interest rate movements.
Trade receivables totalling £531k (2017: £545k) are secured by charges against the debtors' property.

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.

Motor vehicles:

Less than one year
Between two and five years

Plant and machinery:

Less than one year
Between two and five years

Land and buildings

Less than one year
Between two and five years
More than five years

2018
£000

2017
£000

2,907
1,136

198
146

1,431
4,428
2,224
12,470

2,765
3,457

127
115

1,495
4,982
2,971
15,912

Lease costs of £4,884k (2017: £4,591k) are recognised in the consolidated statement of comprehensive income.

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.

Pension costs

At 31 December 2018, the Group's trade receivables balance was £2,184k (2017: £1,713k). 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.

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. In addition, a regular assessment is made of the Group's banking facility covenant compliance.

At 31 December 2018, the Group had £4,163k (31 December 2017: £10,975k) of cash reserves. After deducting the Loan facility
of £3,903k, which is stated net of arrangement fee, net cash of the Group was £260k at the end of the year. The £3,000k revolving
credit facility was undrawn at the end of the year. The net debt position on 21 March 2019 is £2,855k.

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

The Group's borrowing facility matures in October 2020. All of the Group's other non-derivative ﬁnancial liabilities and its
ﬁnancial assets at each reporting date are either payable or receivable within one year.

The charge for the period amounts to £777k (2017: £807k) and relates to contributions paid into a money purchase scheme in the
period.

Group companies

Safestyle UK plc holds more than 20% of the share capital of the following companies:

Principal activity

Country of
incorporation

Class of
shares

% held by
parent

Holding company
Holding company
Home improvements and double
glazing contractors
Dormant
Dormant
Dormant
Home improvements and double
glazing contractors

England and Wales
England and Wales
England and Wales

England and Wales
England and Wales
England and Wales
England and Wales

Ordinary
Ordinary
Ordinary

Ordinary
Ordinary
Ordinary
Ordinary

100
100
100

100
100
100
100

Style Group Holdings Limited
Style Group Limited*
HPAS Limited*

Windowstyle UK Limited*
Safestyle UK Limited*
Style Group Europe Limited*
Safeglaze (Milnrow) Ltd* / **

*Owned Indirectly

The registered address of all companies is Style House, 14 Eldon Place, Bradford, BD1 3AZ.
** Safeglaze (Milnrow) Ltd was acquired in July 2018. The subsidiary has not traded during the period of ownership and
therefore nothing is included in the consolidated financial statements for this subsidiary.

Related party transactions

During the year ended 31 December 2018 there were no related party transactions, other than transactions with subsidiaries.

During the year, Safestyle UK plc charged management charges to subsidiaries of £3.2m (2017: £2.4m) and received no dividends
(2017: £9.4m). At the year-end, total amounts receivable from subsidiaries were £9.6m (2017: £9.3m).

Transactions with key management personnel are shown in note 10.

Ultimate controlling party

Safestyle UK plc is quoted on the stock exchange (AIM) and ultimate control is exercised by the shareholders.

100

Annual Report & Accounts 2018

101

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Share based payments

At 31 December 2018 the Group had the following share based payment arrangements:

LTIPS

The Group operates an equity-settled Long Term Incentive Plan (”LTIP”) remuneration scheme for Directors and certain
management (“LTIP 2016”, “LTIP 2017” & “LTIP 2018”).

On 18 June 2018, 1,333,333 options were granted (“LTIP 2018”). On 15 August 2018, a further 350,000 options were granted
(also “LTIP 2018”). Finally, on 19 October 2018, a further 1,104,830 options were granted (also “LTIP 2018”). All schemes require a
combination of speciﬁc performance based criteria and remaining an employee for a minimum period.

The numbers of share options in existence during the year were as follows:

Outstanding at start of period
Granted during the year
Issued in the year
Lapsed in the year
Outstanding at end of period
Exercisable at end of period

SAYE

On 8 May 2018 the Group launched a new share save (SAYE) scheme (“SAYE 2018”) in addition to the existing schemes (“SAYE
2016” and “SAYE 2017”) for employees. All 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.

The “SAYE 2015” vested within the period and no shares have been issued. The numbers of share options in existence during the
year were as follows:

2018

2017

Number of
share
options

Weighted
average
exercise price

Number of
share
options

Weighted
average
exercise price

204,125
794,139
-
(194,972)
803,292
-

£2.10
£0.49
-
£1.92
£0.57
-

423,382
128,205
(197,236)
(150,226)
204,125
-

£1.49
£2.40
£1.30
£1.68
£2.10
-

Outstanding at start of period
Granted during the year
Issued in the year
Cancelled in the year
Lapsed in the year
Outstanding at end of period
Exercisable at end of period

2018

2017

Number of
share
options

Weighted
average
exercise price

Number of
share
options

Weighted
average
exercise price

907,359
2,788,163
-
-
(471,922)
3,223,600
-

£1.51
-
-
-
£0.37
£0.17
-

1,030,134
348,210
-
-
(470,985)
907,359
-

£2.18
-
-
-
£1.86
£1.51
-

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.

LTIP 2018

LTIP 2017

LTIP 2016

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

19/10/2018
18/06/2021
19/10/2028
0.85%
60.90%
2.67
£0.57

15/08/2018
18/06/2021
15/08/2028
0.75%
51.90%
2.84
£0.33

18/06/2018
18/06/2021
18/06/2028
0.78%
47.10%
3.00
£0.56

10/04/2017
10/04/2020
10/04/2027
0.15%
33.60%
3.00
£3.04

29/04/2016
29/04/2019
29/04/2026
1.22%
36.93%
3.00
£2.67

£0.00
56.60p
0.00%
9.81

£0.00
33.00p
0.00%
9.63

£0.00
55.90p
0.00%
9.47

£0.00
256.00p
5.71%
8.28

£2.68
65.79p
3.60%
7.25

At the grant date there was limited share price history for the Group 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.

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

SAYE 2018

SAYE 2017

SAYE 2016

08/05/2018
01/06/2021
01/12/2021
0.92%
48.50%
3.35
£0.59
£0.49
24.70p
0.00%
2.92

25/04/2017
01/06/2020
01/12/2020
0.21%
34.17%
3.35
£3.14
£2.51
68.60p
5.53%
1.92

01/04/2016
01/05/2019
01/11/2019
0.56%
32.88%
3.35
£2.81
£2.25
71.93p
3.40%
0.84

At the grant date there was limited share price history for the Group 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.

Alan Lovell Options

On 20 December 2018, as described in the statement from the Chairman of the Remuneration Committee, the Group issued
250,000 options to its Chairman, Alan Lovell. The numbers of share options in existence during the year were as follows:

Outstanding at start of period
Granted during the year
Issued in the year
Lapsed during the period
Outstanding at end of period
Exercisable at end of period

2018

2017

Number of
share
options

Weighted
average
exercise price

Number of
share
options

Weighted
average
exercise price

-
250,000
-
-
250,000
-

-
-
-
-
-
-

102

Annual Report & Accounts 2018

103

Safestyle UK plc

Strategic Report

Governance

Financials

Notes to the Consolidated Financial Statements

Notes

Share based payments (continued)

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

Alan Lovell Options

20/12/2018
16/07/2021
20/12/2028
0.73%
63.50%
2.57
£0.86
£0.00
86.30p
0.00%
9.98

20/12/2018
16/07/2020
20/12/2028
0.71%
76.50%
1.57
£0.86
£0.00
86.30p
0.00%
9.98

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 (credit) / expense comprises:

Equity settled - LTIP
Equity settled - SAYE
Equity settled - Alan Lovell Options

Contingent liability

2018
£000

(2)
(375)
3
(374)

2017
£000

351
70
-
421

During 2017 there was an incident during installation which led to a reportable injury. The Health & Safety Executive (“HSE”) has
carried out an investigation into the case. The HSE has stated that, at this time, it does not intend to prosecute the Group following
its thorough investigation and consequently, management has not recognised a provision in these ﬁnancial statements.

104

Annual Report & Accounts 2018

105