safestyleukplc.co.uk
Safestyle UK plc
Annual Report & Accounts 2019
Safestyle UK plc
Safestyle UK plc
Annual Report 2019
The UK’s No.1 for replacement
windows and doors³
Financial Overview
Contents
Revenue (£m)
2017
158.6
2018
116.4
2019
126.2
-27%
8%
Underlying profit / (loss) before taxation¹ (£m)
2017
2018
2019
15.1
(8.7)
-158%
(1.5)
83%
Reported profit / (loss) before taxation (£m)
2017
13.8
2018
(16.3)
-218%
2019
(3.8)
76%
Net cash² (£m)
2017
11.0
2018
0.3 -98%
2019
0.4 71%
Average installed order value (£)
2017
3,232
2018
3,319
2019
3,337
Average frame price (£)
2017
2018
2019
608
646
678
Frames installed
2017
265,716
2018
184,184
-31%
2019
190,252
3%
3%
1%
6%
5%
01
Welcome page and Financial Overview
Strategic Report
06
20
22
24
30
36
What we do
Chairman’s Statement
CEO’s Statement
Financial Review
Risk Management
Corporate Social Responsibility
38
Our People
Governance
46
48
50
58
61
Board of Directors
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
Independent Auditor’s Report
Financials
68
69
70
71
72
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
³ Based on Fensa data
Annual Report & Accounts 2019
01
Safestyle UK plc
Safestyle UK leading the
way in customer reviews
Not only do we have the most reviews,
more customers rate us excellent than
any other window company
Trustpilot February 2020
Highly Recommended
All figures from February 2020
Safestyle UK currently have
19,599
independent customer
reviews rating us excellent
14,537
of those gave us 5 stars
with a further
1,878
giving us a 4 stars
In 2019 alone we received
5,371
Trustpilot reviews with
4,141
of those giving us 5 stars
Excellent service, 1st class
windows and doors
From initial contact through to
completed installation I can't
praise Safestyle enough.
Each step was clear, well
explained and expertly
managed. The installation
team was second to none and
successfully completed the
whole house in one day. The
quality of the windows is
evident, not all double glazed
windows are the same.
Fantastic job. Thanks!
Paul Gill
Middlesbrough
From a total number of
customers reviews, a huge
9,756
7,407
of those are 5 star
reviews, meaning that
89.3%
of our customers would
highly recommend us
Based on total reviews of
2,857
Safestyle UK has a customer
experience and product
rating of an excellent
4.6/5
««««
Excellent company
Really happy with the
salesman & fitting! Great
quality windows and doors.
The guys who did the fitting
were polite, friendly and
cleaned up brilliantly. An all-
round excellent experience!
Angela Pickering
Liverpool
Annual Report & Accounts 2019 03
Safestyle UK plc
Strategic
Report
06
20
22
24
30
36
What we do
Chairman’s Statement
CEO’s Statement
Financial Review
Risk Management
Corporate Social Responsibility
38
Our People
Safestyle UK plc
Our Nationwide
Branches & Depots
We currently have 36 sales branches and
12 installation depots across the UK
Operation Headlines
1 Head Office
1 Manufacturing Facility
12 Installation Depots
36 Sales Branches
36 Sales Branches
Our 36 sales branches spread our influence out
across the country to generate enquiries on
which our appointments team can capitalise.
12 Installation Depots
Our 12 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 2019 07
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
1
S
E
L
A
S
2
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
3
We survey over 50,000
properties to precisely
specify products ready
for bespoke
manufacture
I
G
N
R
U
T
C
A
F
U
N
A
M
N
O
I
T
A
L
L
A
T
S
N
I
4
5
I
E
C
V
R
E
S
6
Efficiently manufacture
customer specific, high
quality, energy saving
products in Barnsley
and distribute to 12
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
08
Annual Report & Accounts 2019
Annual Report & Accounts 2019 09
Safestyle UK plc
Strategic Report
Governance
Financials
Go Figure, Safestyle in numbers for 2019
Last year we made a lot of
coloured windows
34,344
if you want to be exact
White windows
a whopping...
120,475
that’s a lot
of windows!
2019 in total we recycled...
5,890
t nnes The equivalent weight of...
double decker buses!
of all post consumer waste
453
London to
Greenland
The distance from London to Greenland
metres
of PVCu extrusion used in 2019!
is equivalent to the
3,441,000
81,025,549
2,398,796 users
impressions on our website from PPC
5,584
hours
or 232 days
of operational & compliance training completed in 2019
Safestyle processed
206,335m²
of glass...
This is enough
glass to re-glaze
The Shard almost
4 times over!
We sent a whopping
number of emails last year...
1,065,490
...and received a mind
blowing number back
4,631,236
5
9
2
1
,
online
modules
completed covering
Health & Safety
and Business
Protection
Awareness
10
Annual Report & Accounts 2019
644
colleagues
across the company successfully
completed GDPR refresher training
1,608
hours
completed of Safestyle
Advanced Technical
Competency training
18 Blue wales
tonnes
Equivalent weight of the
of general waste we recycled last year!
2,565
1,424
tonnes of wood
1,118
tonnes of glass
l
e
b
b
u
r
f
o
s
e
n
n
o
t
2
4
4
310
tonnes
of PVCu off cut
that’s a huge
78African
elephants
30tonnes
of metal
equivalent of
2 million+
empty drinks cans
15
tankers
of fuel saved
that’s 167,437 litres of fuel thanks
to our new, more efficient fleet of vans...
Last year we made
1,090,025
journeys up
and down the UK
In 2019 we received
5,371
4,141
Trustpilot reviews
gave us five stars
Last year we produced a lot of composite doors
with a huge range of options
including styles, colours,
glass designs, handles, knockers,
letter boxes, the list goes on...
17,899
1,500+ workplace
posts
Workplace is Facebook for
business, designed to keep
team members connected
and always in the know
Over
1,500
colleagues
helping to make Safestyle the
UK’s No.1 for windows & doors
Annual Report & Accounts 2019 11
Safestyle UK plc
Strategic Report
Governance
Financials
Safestyle 2019 timeline
What a difference
a
year
makes...
2019
June
‘Polaris’ our lead processing
system celebrated it’s first
birthday, as did our ‘eContract’
management system. We also
launched our ‘Swap Shop’ recycling
promotion with great results
SWAP
SWAP
SWAP
SHOP
SHOP
SHOP
2019
May
May saw the second
Senior Managers
Conference and the
roll out of Office
365 company wide.
We also started
realising savings
from the glass
toughening project
2019
April
Add some colour without splashing
out! We lowered coloured windows
pricing resulting in an uplift in sales.
Plus our ‘Safestyle Derby’ branch
competition came to an end, the
winners enjoying York Races from
an all-expenses-paid private box
2019
March
Following on from the
success of our Senior
Managers Conference
we held the first Senior
Sales Agent Conference
2019
January
Safestyle Advanced Technical
Competency (SATC)
programme commenced.
Enhancing fitter skills alongside
refreshing best practice whilst
keeping their technical &
legislative knowledge up to
date. We also introduced new
‘Monkey Tail’ & ‘Pear Drop’
furniture ranges available on
our Eco Diamond™ windows
2019
February
6th February saw the first ever Safestyle Senior
Managers’ Conference take place in Leeds. We
started our glass toughening project to reduce
energy usage and also had our biggest Door
Canvass sales week of the year
2019
November
Late November saw the start of our
‘Illumination Street’ sponsorship. A
competition celebrating festive
decorations for the home & garden.
Coverage included National
press, TV news, online blogs
and a host of social media...
We also saw our biggest
Media and Tele Canvass
sales week of 2019
2019
July
Full roll out and
implementation of the
Health & Safety ‘iAuditor’
system, allowing us to
audit installation sites,
depots and manufacturing
in real time. This also
reduced paper waste and
allows us to be more
dynamic and responsive
2019
December
Our Fortnum & Mason
Christmas hamper
competition ended just in
time for the festivities and
all Senior Management
came together once more
2019
August
We changed our
recruitment process and
overhauled our sales
training programme to
improve the quality and
retention of new Sales
Representatives
2019
October
The hard work on recruitment
and training started to deliver
results. Since August, Rep
retention has improved by 38%!
October also hosted the second
Senior Sales Agent Conference in
Nottingham and saw the launch
of our 'free colour upgrade'
promotion with a great response
2019
September
Our Canvass operation leaders all
came together for the first Canvass
growth meeting in Bradford.
Towards the end of September our
new and improved sales training
programme started it’s roll out
across the country and our 3 phase
Turnaround Plan continued on track
12
Annual Report & Accounts 2019
Annual Report & Accounts 2019 13
Safestyle UK plc
Strategic Report
Governance
Financials
With so many window options no two are the same
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...
Last year we made 151,366 casement windows
available in 141 configurations in 10 different colours
White Smooth
117,136
Anthracite
13,855
Rosewood
9,423
Golden Oak
3,810
Black
2,463
With 10 privacy
glass options to
pick from
Clear
84%
Stippolyte
5%
Cotswold
3%
Everglade
2%
Arctic
1%
Autumn
1%
Last year we made 3,453 tilt & turn windows
available in 10 beautiful colour finishes
From 10 privacy
glass options
the most
popular were
White Smooth
2,545
Anthracite
414
Golden Oak
179
Rosewood
153
Black
60
Slate Grey
1,853
Cream
819
White Woodgrain
778
Chartwell
720
Irish Oak
509
Mayflower
1%
Tafetta
1%
Slate Grey
36
Chartwell
22
Cream
20
White Woodgrain
16
Irish Oak
8
Then 137,727 handles were chosen from 3 styles in 6 colours
With 3,622 hero handles in 5 colours
Florielle
1%
Sycamore
1%
16,506 people
chose fret
Chrome
60%
White
27%
Gold
7%
Brushed
5%
Black
1%
Chrome
33%
Pewter
21%
White
20%
Chrome
57%
White
28%
Gold
8%
Brushed
6%
Black
1%
8,077 people
chose lead
And multiple fret options to choose from
Black
60%
Black
11%
Chrome
9%
Brushed
8%
Gold
7%
White
5%
Brushed
14%
Gold
7%
Black
5%
And a wide
range of
lead designs
Then there’s the decorative & bevelled glass range to choose from, the number of openers,
dummy sash options, toplights, trickle vents, fire escape hinges, windows stays and more!
14
Annual Report & Accounts 2019
Annual Report & Accounts 2019 15
Clear
90%
Stippolyte
3%
Cotswold
2%
Everglade
1%
Arctic
1%
Autumn
1%
Safestyle UK plc
Strategic Report
Governance
Financials
With so many door options no two are the same
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...
Last year we made 18,049 composite doors in 16 different styles
14,971 had letter boxes
And 8,432 people chose a door knocker from 5 designs
Windsor
4,367
Milano
3,134
Cheltenham
2,373
Gloucester
1,240
Florence
1,187
Stratford
784
Exeter
730
Oxford
721
And 4,916 had numerals
Chrome
10,588
Brushed
3,146
Gold
1,237
Urn
3,391
Victorian Scroll
1,922
Scroll
1,786
Lion Head
785
Oval
548
All available in 5 colour finishes
Verona
599
Richmond
579
Canterbury
518
Warwick
486
Turin
427
Venice
331
Siena
290
Roma
283
And 150 composite side panels in
5 complementary designs
All in a choice of 12 different colours
Chrome
3,052
Gold
406
Brushed
78
Chrome
469
Gold
73
Brushed
6
Chrome
1,661
Gold
103
Brushed
22
Chrome
3,773
Brushed
636
Gold
507
Chrome
2,925
Gold
443
Brushed
23
Chrome
1,735
Gold
163
Brushed
24
And 3,536 had spy holes
Chrome
598
Gold
183
Brushed
4
And 6,511 people chose a safety chain
3,732 doors had contemporary handles
Anthracite
5,686
Black
3,866
Blue
1,814
Chartwell
1,476
White
1,280
Red
928
Rosewood
852
Oak
632
Chrome
4,517
Brushed Chrome
1,326
Gold
668
Brushed Chrome
2,995
Brushed Chrome
737
Whilst 13,751 people went for a choice of 3 traditional handles in 5 colours
Exeter
99
Canterbury
18
Oxford
18
Warwick
11
Stratford
4
Green
569
Duck Egg
387
Slate
348
Cream
211
Chrome
9,291
Gold
1,154
Black
319
White
152
Brushed
3
Chrome
2,338
Gold
328
Black
75
White
17
Brushed
37
Chrome
30
Black
3
Gold
2
Pewter
2
And then there’s the decorative & bevelled glass range to choose from, privacy glass styles,
multiple lead & fret options, toplights, side flags, thresholds, frame colours, the list goes on!
16
Annual Report & Accounts 2019
Annual Report & Accounts 2019 17
Safestyle UK plc
Strategic Report
Governance
Financials
The journey of an order
Across the
country
1
Interest registered
Up and down the country,
millions of people every
year contact Safestyle UK
through various channels
to register their interest in
energy efficient windows
& doors and request a free
quote.
Head Office &
Manufacturing
Yorkshire
2
Arrange appointment
Our appointment agents based at
Head Office in Bradford or in our
Sales Branches speak to the
customer, confirm their interest and
agree upon a convenient time and
date for one of our representatives
to visit. The appointment is then
created within our lead
management system 'Polaris'.
Distribute to branch
Through our lead management
system, the appointment data is
received by the local branch. At
which time the appointment is
then assigned to a specific
representative for the visit.
3
Visit the property
The representative will visit the
property and go through all
relevant product and service
information with the potential
customer. Next they will
measure up, confirm all the
requirements and present a
totally free quote.
4
Survey the property
One of our expert surveyors will visit
the property to double check all
measurements and aspects of the job.
All details are confirmed with the
customer including styles, designs etc.
and make sure we are meeting the full
requirements of the customer.
6
10
Ready for installation
Once the products arrive at
the depot, the assigned team
will collect these bright and
early on the morning of
installation. They will check
in with the depot, go through
the work sheets and head off
to the installation.
9
Happy customer
At the agreed time and date our
fitting team will arrive ready for the
transformation. All work will be
carried out quickly, carefully and
professionally, installing the
customers new products to their
exact specifications. We will take
great care leaving the customers
home as tidy and clean as we found it.
Confirm & book survey
If the customer is happy
and wants to go ahead
then back in Bradford the
order is received,
confirmed and all details
are double checked. A
survey will then be booked
on our system and the
customer will be notified.
5
7
8
Finalise survey to order
Safestyle manufacturing
Head Office receive the detailed survey.
It is then passed through Quality
Control for final checks before sending
to the pricing team. Lastly, the
installation date is confirmed with the
customer, the order is created and is
electronically sent to our manufacturing
facility for production to start.
Under the watchful eyes of our highly
skilled craftsmen, every single window
and door is manufactured in our state-
of-the-art facility in Barnsley to the
customer’s exact specifications. Having
passed through all quality control
checks, the products are then
transferred to our network of
installation depots ready for installation.
18
Annual Report & Accounts 2019
Annual Report & Accounts 2019 19
Safestyle UK plc
Strategic Report
Governance
Financials
Chairman’s Statement
Summary of performance
I am pleased to report that the
Group made strong progress in its
Turnaround Plan in 2019.
Profitability was achieved in the
second quarter of the year and this
momentum continued into Q3. In
Q4, sales order intake accelerated in
November and December, causing
additional lead generation costs;
whilst this reduced 2019's profits, it
has strengthened the year end order
book which increased by 24% above
2018's closing position.
Revenue increased by 8.4% to
£126.2m (2018: £116.4m). This,
combined with a higher gross
margin and reduced overheads,
delivered a significantly improved
underlying (loss) before taxation¹ of
£(1.5)m compared to £(8.7)m in
2018. Reported (loss) before
taxation was a loss of £(3.8)m, an
improvement of £12.4m when
compared to the loss of £(16.3)m in
2018. Basic EPS for the period
improved to (4.0)p from (16.1)p in
2018.
months to October 2021, which will
support the Group's working capital
needs over the next few years.
Non-underlying items² reduced
significantly to £2.3m (2018:
£7.5m). The 2019 items include
restructuring costs of £1.1m (2018:
£1.2m) and impairment of right-of-
use property leases of £0.7m as the
Group simplified its organisation
structure and reduced its overhead
cost base.
Encouragingly, the improving
performance trajectory described
above continued into the first part
of 2020 as the Group moved into
phase three of its Turnaround Plan,
which is the last, but also the longest
phase of the plan.
Balance sheet and dividend
The Group has a £7.5m committed
finance facility, the term of which
was extended during the year by 12
The net cash³ position at the end of
the year improved to £0.4m (2018:
£0.3m).
The Board does not propose a final
dividend for the year (2018: £nil)
which will underpin the
maintenance of suitable liquidity
levels in the immediate future. The
Board will revisit the dividend policy
once further progress has been
made in the Turnaround Plan.
Outlook
Our strategic plan for 2020 is now
paused as the business faces into
the unprecedented challenges
caused by the COVID-19 pandemic.
While huge uncertainties exist, our
starting position as we go into this
crisis is strengthened by recent
strong trading performance and the
20
Annual Report & Accounts 2019
¹ See the Financial Review for definition of underlying (loss) before taxation
² See the Financial Review for definition and detail of non-underlying items
³ See the Financial Review for definition of net cash
capable Executive Team now in
place.
The situation is moving rapidly and
our aims will be to protect our
people, our customers and the
business as we move through, and in
due course out, of this crisis.
The overall effect of the current
uncertainty on the Group is, at the
current time, difficult to quantify.
For this reason, the audit opinion
will contain an emphasis of matter in
respect of going concern as a result
of COVID-19, although the audit
opinion will remain unqualified.
Notwithstanding these concerns,
the Directors confirm that, after due
consideration, they have a
reasonable expectation that the
Group has adequate resources to
continue in operational existence
for the foreseeable future and have
continued to adopt the going
concern basis in preparing the
financial statements.
The Board believes that our
business is now much better
equipped to deal with the probable
short-term adverse impact because
of the Group's improved net cash
position, which is underpinned by a
committed facility to October 2021
alongside a leaner cost base as a
result of the actions taken as part of
the Turnaround Plan. Inevitably, a
number of our strategic investments
are now on hold (totalling c.£3m in
2020). The Board believes that it is
prudent to defer all possible
financial commitments possible until
after the impact of COVID-19 is
more fully understood and we can
plan with a higher degree of
certainty.
With the above as context and
acknowledging the material
uncertainty that this creates, the
Board still targets making progress
in 2020 although remains cautious
about the degree to which
previously anticipated growth can
be achieved.
Finally, I must once again stress that
the progress we have made would
not have been at all possible without
our skilled colleagues who all work
with relentless dedication across the
entire business. Right now that
dedication is being demonstrated
further as they address the
challenges of COVID-19. I would
once again like to thank them all for
their continued commitment to
Safestyle.
Alan C Lovell
Chairman
19 March 2020
Annual Report & Accounts 2019 21
Safestyle UK plc
Strategic Report
Governance
Financials
CEO’s Statement
Summary
During 2019 the business recovered
strongly, delivering improvements in
margin, costs and profitability, while
also growing ahead of the market (as
measured by FENSA) in an uncertain
domestic consumer context. Our
growth was balanced, coming from
both volume and price across all
lead sources. In addition, the
business transformation
accelerated, improving further in
customer service, safety,
compliance, and internal
management processes.
Following the challenges of 2018,
we started 2019 with an almost
entirely new Executive Team and
our progress gathered pace through
the year as the team bedded into
their roles. While the focus has
been on business recovery,
substantial changes have taken
place internally as we embed our
sales digitalisation process, which
has been the biggest change within
the business seen to date. The
performance visibility resulting
from this project will be a key
enabler of 'levelling up' performance
across sales, an initiative which will
be at the heart of our strategy
through 2020/21.
Our industry has changed
significantly in recent years and this
resulted in the business being
impacted by regulatory issues in
2017 and 2018. The business has
responded to the challenge robustly
and 2019 saw compliance
embedded across all parts of the
business. As market leader it is
essential that we operate to the
highest ethical standards and we
will continue to work closely with
regulators to ensure best practice.
The business is now heavily engaged
in phase three of its Turnaround
Plan, focused on building our value
brand and embedding the
transformation already underway.
This will be a multiyear process that
will deliver a branded business that
is modern, compliant and a clear
market leader.
Phase two - Return to Profitability
The focus of phase two of our
Turnaround Plan in 2019 was to
return to monthly profitability.
Continuous progress was made
through the year as actions taken by
management positively impacted
profitability. The Group achieved an
underlying (loss) before taxation¹ for
the full year of £(1.5)m (2018: loss of
£(8.7)m) with profitability restored
in Q2 and increased in Q3. Our Q4
exit rate profitability was reduced
by a decision to invest behind our
strong year end sales momentum
and this led to a stronger order book
at the end of the year which was
24% higher than at the end of 2018.
Improvements in profitability were
driven by revenue growth and
higher gross margin percentage
which increased by 240bps versus
2018, with the year on year
improvement higher at 300bps for
H2. In addition, measured
restructuring and cost controls
helped recover our cost base
towards 2017 levels, with a £2.8m
(excluding the impact of IFRS16
adoption) reduction in underlying
operating expenses² year on year.
While the trajectory of quarterly
improvement matched our
expectations, the absolute level of
profitability delivered was below
our original plan due to marginally
lower top line growth and the higher
year end investment. The former
was the outcome of structuring the
Door Canvass department for the
long term which has included
utilising new technology and further
embedding compliance. Despite
this, the business grew revenues by
8.4% year on year, with the second
half of the year's growth
accelerating to 10.6%. In a broadly
flat market this performance
delivered solid share gain (as
measured by FENSA) to 8.5%.
In addition, 2019 saw the business
start to benefit from the Digital
Transformation programme
launched in 2018. The breadth and
detail of management information
available is enabling a step change in
how we can identify, analyse and
drive performance in sales.
Combined with our fast-paced
culture this change will be critical
for our strategy of 'levelling up' our
sales performance nationally in
2020.
The experiences of 2018 highlighted
our need to adapt to the breadth of
changes in our regulatory
environment and 2019 saw us
initiate fundamental changes to
deliver this. Our collaboration with
West Yorkshire Trading Standards
has been hugely beneficial and has
accelerated our focus on treating
consumers fairly. We also made
significant changes to adapt our
processes to new Data Protection
laws, including the introduction of
new technology and internal audit
processes. Together with sustained
progress on Health and Safety, the
business now aims to ensure that
both our values and regulatory
compliance are at the core of our
business processes.
Phase three – Accelerating
Growth & Embedding
Transformation
In 2020 the business plan moved
into Phase Three. The objectives of
this phase included both
accelerating growth and embedding
the fundamental changes initiated
during 2018.
Clearly in the context of COVID-19
much of the strategic activity and
investment will be deferred.
However, as the economy comes out
of the crisis we will aim to drives the
following strategic priorities:
Improving the National Sales and
Depot Network. There are
significant variances across the UK
in the performance of our sales
branches and installation depots.
Levelling up the performance of
each location through implementing
role model sites, supported by clear
standard operating procedures and
consistent training will deliver huge
benefits. This will be a two-year
process and will leverage the
excellent management information
now available.
Sustaining Momentum in
Compliance and Customer Service.
The business is determined to
provide excellent customer service
and has made significant progress in
2019, cutting installation quality
issues by c.30%. Concurrently, we
aim to continue to embed our new
compliance standards while working
with the wider industry participants
to establish these standards across
the industry.
Modernising our Value Brand.
During 2020 we aim to update our
value brand, setting a new and clear
identity as we move beyond the 'Buy
One, Get One Free' communication
message. Having done this work,
our plan includes a return to mass
media brand investment in H2 2020.
While the duration of the COVID-19
crisis is uncertain, these key
strategies will focus our efforts for
the next two years and support the
continued development of our
financial delivery.
Current trading
The business has started strongly in
2020, but is now facing into the
challenges posed by the COVID-19
pandemic. The Executive Team and
Board has responded rapidly with
the twin aims of protecting our
people and customers, while
providing the best service possible
through the crisis. Our contingency
planning was conducted early and
our responses are being executed
with excellent support from our
staff and agents.
Our immediate focus for the months
ahead will be on managing our
business through the pandemic
crisis. Our long-term intent remains
the same; to build the business for
the long-term benefit of
shareholders with our trusted value
brand whilst consolidating our
position as the UK's No 1 choice for
Windows and Doors.
Mike Gallacher
Chief Executive Officer
19 March 2020
22
Annual Report & Accounts 2019
¹See the Financial Review for definition of underlying (loss) before taxation
²See the Financial Review for definition of underlying operating expenses
Annual Report & Accounts 2019 23
Safestyle UK plc
Strategic Report
Governance
Financials
Financial Review
Financials
Underlying
£’000
126,237
(94,337)
31,900
(32,018)
(118)
2
(1,402)
(1,518)
4
Revenue
Cost of sales
Gross profit³
Other operating expenses
Operating (loss)
Finance income
Finance costs
(Loss) before taxation
Taxation
(Loss) for the year
5
Basic EPS (pence per share)
Diluted EPS (pence per share)
Cash and cash equivalents
Loan facility
Net cash²
2019
Non-
underlying
items¹
£’000
Total
Underlying
£’000
£’000
2018
Non-
underlying
items¹
£’000
116,426
(89,748)
26,678
(35,287)
(8,609)
7
(142)
(8,744)
(801)
(801)
(6,717)
(7,518)
(7,518)
(2,314)
(2,314)
(2,314)
126,237
(94,337)
31,900
(34,332)
(2,432)
2
(1,402)
(3,832)
526
(3,306)
(4.0)p
(4.0)p
4,435
(3,991)
444
Change in
underlying
8.4%
(5.1%)
19.6%
9.3%
98.6%
(71.4%)
(887.3%)
82.6%
Total
£’000
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
¹See later section in this Financial Review
²Net cash is cash and cash equivalents less borrowings
³Underlying 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
4
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
5
Underlying (loss) 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
6
Underlying gross margin % is defined as underlying gross profit divided by revenue
KPIs
2019
2018
Change %
6
Underlying gross margin %
Average Order Value (£ inc VAT)
Average Frame Price (£ ex VAT)
Frames installed units
Orders installed
Frames per order
25.3%
3,337
678
190,252
46,412
4.10
22.9%
3,319
646
184,184
42,995
4.28
240bps
0.5%
5.0%
3.3%
7.9%
(4.2%)
Financial and KPI headlines
Ÿ Revenue rose by 8.4% to
£126.2m, which is attributable to
a 3.3% increase in frames
installed to 190,252 and a 5.0%
improvement in the average
frame price to £678 (2018:
£646) as a result of price actions
and a 0.2ppts increase in the mix
of higher priced composite guard
doors. These positive trends
were partially offset by higher
consumer finance subsidy costs.
Ÿ Underlying gross profit³
improved by 19.6% to £31.9m
with the increase in revenue
combining with reduced costs
across commissions, access
solutions and installation-related
materials. Lead generation costs
(predominantly in digital media)
partially offset these reductions,
in part due to higher costs per
lead versus the prior year,
coupled with investment in sales
order intake in Q4 that increased
the closing order book by 24%
versus the prior year. Underlying
gross profit is the same as
reported gross profit in 2019.
Ÿ Underlying other operating
4
expenses reduced by 9.3% to
£32.0m with reductions in the
overhead cost base achieved
following restructuring and
other cost-reduction initiatives.
H2 underlying other operating
expenses were £15.3m, a year on
year reduction versus H2 2018
of £2.0m (11.7%).
Ÿ Reported other operating
expenses reduced by 18.3% to
£34.3m with the decrease
attributable to both the cost
reduction actions described
above, along with a reduction of
£4.4m in non-underlying¹ items
(further detail below).
Ÿ Finance costs represented £0.9m
of interest and fees payable on
borrowings along with £0.5m of
interest on lease liabilities
following the adoption of IFRS
16 Leases.
5
Ÿ Underlying (loss) before taxation
was £(1.5)m for the year (2018:
loss of £(8.7)m). Non-underlying
items were £2.3m in the year, a
reduction of £5.2m versus 2018,
leading to a reported (loss)
before taxation of £(3.8)m (2018:
loss of £(16.3)m).
Ÿ Net cash² also improved to
£0.4m versus the prior year
position of £0.3m.
24
Annual Report & Accounts 2019
Annual Report & Accounts 2019 25
Safestyle UK plc
Strategic Report
Governance
Financials
Financial Review
Underlying performance measures
In the course of the last two years,
the Group encountered a series of
unprecedented and unusual
challenges. These gave rise to a
number of significant non-
underlying items in 2018.
Addressing the impact of some of
these events has continued into
2019, particularly as part of the
Turnaround Plan.
Consequently, adjusted measures of
underlying gross profit, underlying
other operating expenses and
underlying (loss) 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 Group's
performance from year to year.
These alternative measures are
entirely consistent with how the
Board monitors the financial
performance of the Group and the
underlying profit / (loss) before
taxation measure is the
26
Annual Report & Accounts 2019
performance target for the annual
incentive plan described in the
Directors' Remuneration Report.
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
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.
Revenue
Revenue for the year was £126.2m
compared to £116.4m in 2018,
representing an improvement of
8.4%. Year on year revenue growth
in H2 was 10.6%, representing the
improving year on year performance
as the year progressed. The key
performance drivers were as
follows:
Ÿ A 7.9% improvement in the
volume of orders installed from
42,995 to 46,412, as the
business recovered from the
decline in sales and installation
workforce levels in 2018.
Ÿ Alongside the increase in
installations, the number of
frames installed also increased
by 3.3% to 190,252 from
184,184 which therefore
represents a slight reduction in
the number of frames installed
per order of 4.2% to 4.10. This
dilution was largely driven by an
increased mix of installations of
higher average priced composite
doors in H1 which typically
represent a lower unit count per
job. This trend was reversed in
H2, with the mix of composite
doors declining, which in turn led
to a commensurate increase in
frames per order of 2.4% versus
H2 2018.
Ÿ Average order value including
VAT increased by 0.5% to £3,337
which is despite the lower
number of frames per order. The
increased order value was
largely the result of the
annualisation effect of price
increases made in late 2018
together with an increased mix
of higher value composite doors
and coloured frames. During
2019, the Group enacted
minimal price increases to
ensure it maintained its value-
based proposition and lower
price point relative to the
competition.
Ÿ Continuing the trend of recent
years, favourable average price
gains were partially offset by an
increase in uptake of 0%
interest-free consumer finance
offering, which drives higher
subsidy costs with the Group's
consumer finance provider
partners.
Underlying gross profit
Underlying gross profit improved by
19.6% to £31.9m while the
underlying gross margin percentage
increased by 240bps to 25.3%
(2018: 22.9%). The improvement
versus 2018 in both these measures
is a result of the following:
Ÿ The 3.3% increase in frames
installed improved gross margin
by £1.0m (3.8%) which, alongside
the increase of 5.0% in the
average price per frame,
represented the largest
components behind the
improvement in both the gross
profit and gross margin %.
Ÿ The Group achieved an
improvement in many of the
material cost ratios within cost of
sales which includes
commissions, access solutions
and installation materials. The
improvements in these areas
were achieved through balancing
the workforce with activity
Ÿ
levels, whilst improving
processes and establishing
additional controls on material
ordering.
Improvements in quality metrics
and increased reliability of the
product across the 10-year
warranty period resulted in a
reduction in the warranty
provision required.
Ÿ The above margin-enhancing
factors were partially offset by
the marginal costs of growing the
number of leads to fuel the
growth of the business. The
volume-related element of the
investment supported higher
revenue in the year whilst also
driving a 24% growth in the
closing order book versus 2018.
However, alongside this, 2019
continued the trend seen in
recent years of higher costs per
each lead across all channels,
albeit most notably within the
digital lead generation channel.
As referred to in the Chairman's
statement, the Group is targeting a
recovery to a more balanced mix of
digital and above the line
investment in 2020 and beyond, to
drive brand awareness and reverse
the trend of increasing costs in the
more expensive lead generation
channels.
Underlying other operating
expenses
Underlying other operating
expenses decreased by £3.3m
(9.3%) versus 2018, with the
reduction increasing in H2 to 11.7%
versus the 6.9% reduction of H1.
The improving trend was largely a
result of the impact of many of the
cost reduction initiatives
implemented as part of phase two of
the Turnaround Plan. Expanding
into more detail, the main changes
were as follows:
Ÿ A reduction of £0.7m in fixed
marketing investment, the
largest component being TV
advertising. All of the year on
year reduction occurred in H1,
predominantly as a result of a
larger TV campaign run at the
start of 2018 that was not
repeated at the same activity
level in 2019.
Ÿ Salary and related costs
decreased versus 2018 as the
Group simplified its
organisational structure and
reduced its fixed cost as part of
the Turnaround Plan and
efficiency drive. The benefit of
these reductions were larger in
H2 as the actions took place
across H1.
Ÿ Recruitment costs reduced
Ÿ
versus 2018, which saw larger
recruitment fees as part of the
search for new senior
management and executive
directors.
IT licensing and infrastructure
costs increased versus 2018,
which is a result of both the full
year effect of the license fees for
the Digital Transformation
project and also the fees
following the implementation of
Office365, which is an up to date
and more resilient operating
system for all users.
Ÿ Adoption of IFRS 16 Leases
reduced underlying other
operating expenses by £0.5m
with a corresponding increased
interest charge of £0.5m as
described in the Financial and
KPI Headlines section above (see
note 1 for more details).
Underlying (loss) before taxation
Underlying (loss) before taxation
was £(1.5)m (2018: loss of £(8.7)m)
although profitability was achieved
throughout the middle of the year.
This loss is before the non-
underlying items described below.
Non-underlying items
A total of £2.3m has been separately
treated as non-underlying items for
the year, which represents a marked
reduction when compared to the
£7.5m reported in 2018. This
reflects the transition from the
unusual events and associated costs
incurred in 2018, to the costs
predominantly incurred as part of
phase two of the Turnaround Plan in
2019.
The non-underlying items consisted
of £1.8m (2018: £7.8m) of non-
recurring costs, a £0.0m share-
based payment charge (2018: credit
of £0.4m) and £0.5m (2018: £0.1m)
of Commercial Agreement
(Intangible Asset) amortisation.
Annual Report & Accounts 2019 27
Safestyle UK plc
Strategic Report
Governance
Financials
Financial Review
Non-underlying items (continued)
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
Impairment of right-of-use assets
Commercial Agreement costs
Commercial Agreement service fee
Non-recurring pay awards
IT project Impairment
Dilapidations provision
Non-recurring costs charged to other operating expenses (note 7)
Total non-recurring costs (note 7)
Equity-settled share based payment charge / (credit) note 32)
Commercial Agreement amortisation (note 14)
2019
£000
-
-
-
1,058
-
-
692
-
(13)
-
113
-
1,850
1,850
12
452
2018
£000
801
801
1,912
1,167
1,079
294
-
311
1,000
635
-
618
7,016
7,817
(374)
75
Total non-underlying items
2,314
7,518
The largest non-recurring item in
2019 was £1.1m related to people
restructuring costs which reduced
the Group's aforementioned
overhead levels. In addition, the
Group recognised an impairment of
right-of-use assets of £0.7m
following closure of an installation
branch and a sales office in the
period. Finally, project costs of
£0.1m represented the impairment
of a capital investment made in a
new electronic survey system that
was stopped following results of
field trials.
Included within the 'Fines' category
in 2018 was a fine from the Health
and Safety Executive (”HSE”) of
£0.9m following prosecution for a
working at height accident in March
2017. Last year the Group also
reported there was another
contingent liability linked to a
second reportable incident which
also occurred in 2017. The HSE
confirmed in 2019 that, following
completion of its thorough
investigation, it would not take any
further action on this matter.
The Commercial Agreement costs
and service fees in 2018 arose as a
result of an agreement entered into
in 2018 with Mr M. Misra which
encompassed 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
5 years and Safestyle's trading
performance in 2019.
Subject to satisfying the strict terms
of the agreement, the consideration
takes 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 would only be made in
October 2020.
The Commercial Agreement service
fee of £1.0m in 2018 was the
assessed fair value of the
consideration payable under the
terms of the Commercial Agreement
that was attributed to services
received in 2018. Following
conclusion of the 2019 year, the
value of the services received was
re-assessed, based on the actual
performance in 2019, and the
provision for consideration to be
paid has been reduced by £13k.
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
was measured based on the fair
value of the consideration that the
Group expects to issue under the
terms of the agreement and is being
amortised over 5 years which
matches the term of the non-
compete arrangement.
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 charge /
(credit) and the amortisation of the
intangible asset created as a result of
the Commercial Agreement reached
in 2018 have been excluded from the
underlying (loss) before taxation
performance measure to enable a
meaningful evaluation of the
performance of the Group from year
to year.
IFRS 16
IFRS 16 is effective for this year and
requires the total commitments of
all leases (both finance and operating
leases) to be recognised on the
balance sheet. The impact of
adopting the standard is:
Ÿ on the balance sheet, an
additional lease liability of £6.4m
and right-of-use assets of £6.0m
have been recognised;
in the income statement, the
impact on the operating (loss) is a
£0.5m benefit as rental payments
are now replaced with
depreciation on the right-of-use
assets. However, higher finance
costs of £0.5m relating to the
lease liability offsets the above
benefit which combined results in
a reduction of £0.0m in the
overall reported or underlying
(loss) before taxation compared
with the previous basis of
accounting for leases; and finally,
there is no cash flow impact.
Ÿ
Ÿ
Earnings per share
Basic earnings per share for the
period were a loss of (4.0)p
compared to a loss of (16.1)p for the
prior year. The basis for these
calculations is detailed in note 9.
Net cash and cashflow
As reported last year, the Group
secured a £7.5m committed finance
facility in October 2018, which
consisted of a £4.5m term loan that
was drawn on completion of the deal
and a £3.0m revolving credit facility
that can be utilised as required over
the term of the arrangement. I am
pleased to report that this facility
was extended for a further year to
end in October 2021. This facility
will continue to underpin the
working capital needs of the
business and provide considerable
liquidity for the next two years.
At 31 December 2019, the revolving
credit facility was undrawn in its
entirety and cash and cash
equivalents were £4.4m (2018:
£4.2m). After deducting borrowings
of £3.9m (2018: £4.0m), which are
stated net of arrangement fees, net
cash of the Group was £0.4m at year
end (31 December 2018: £0.3m).
Net cash inflow / (outflow) from
operating activities, including the
cashflow impact of non-underlying
items, was an inflow of £4.8m (2018:
outflow of £(8.8)m).
Capital expenditure in the year on
property, plant and equipment and
software was £0.4m, (2018: £1.9m)
which represents a considerable
reduction on the spend compared to
the prior year which included the
investment in the Digital
Transformation project. The focus in
2019 was on embedding the systems
and processes related to the Digital
Transformation project implemented
in 2018. Looking ahead, the Group
plans to continue to invest in
improving and modernising its IT
infrastructure and systems to ensure
security, stability and resilience
whilst also facilitating improved
processes and efficiency.
Receipt of a £2.5m tax refund from
HMRC follows a tax reclaim against
the reported losses in 2018.
No dividends were paid in the year
(2018: £nil) which, combined with
the movements above, resulted in a
net cash inflow in the year of £0.3m
(2018: outflow of £(6.8)m).
Dividends
As the Group moves into phase three
of its Turnaround Plan, the Board
will focus on continuing to increase
the Group's net cash position and
consequently does not propose a
final dividend for this year (2018:
£nil per share).
Net cash update post balance sheet
date
As at 19 March 2020, £2.0m of the
revolving credit facility has been
drawn down, leaving £1.0m of the
facility undrawn. The Group had net
cash at the end of February 2020 of
£0.1m (Feb 2019: net debt of
£(2.5)m).
Rob Neale
Chief Financial Officer
19 March 2020
28
Annual Report & Accounts 2019
Annual Report & Accounts 2019 29
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, for the Group's internal control systems 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 key features of the Group's systems of internal control are:
Ÿ 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.
Ÿ An ongoing process is in place to assess key risks which is performed by senior management and presented to the Board
at least annually. A risk register is maintained and regularly reviewed by the Executive 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, ownership and mitigation measures, as well as any proposed further actions (and timescale for completion) for
each significant risk.
Ÿ The Group has a Compliance Committee which is chaired by Julia Porter, non-executive director. This committee meets
on a regular basis (generally monthly). The status of the risks and mitigations are reviewed at each meeting, with the
minutes being reported and discussed at each Board meeting.
Ÿ Risks faced by the Group are identified during the formulation of the annual business plan and budget process, which
sets objectives and agrees initiatives to achieve the Group's goals, taking account of the risk appetite set by the Board.
Ÿ The Group has begun an Internal Audit programme in late 2019, which will provide independent assurance on key
processes and controls.
Principal risks and uncertainties
Risk Description
Mitigation
Health & safety
The Group's operations take place
in a diverse range of domestic
operating environments. In 2019,
there were 46k 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.
30
Annual Report & Accounts 2019
The Group has continued it’s focused priority of improving its safety performance
for its employees and stakeholders, using a proactive strategy of focusing on risks
in the process and ensuring mitigation is in place across all our activities,
specifically working at height and glass handling to reduce accidents and risk.
The approach is aligned across all aspects of the Group with a structure that
supports positive engagement from suppliers to end customers. The Group has
been engaging with suppliers, specifically of working at height equipment to
ensure that standardised solutions are delivered to meet operational needs for the
activities that are required to work safely. In addition to this, best practice
exercises have taken place with our main glass supplier to review methods of
working with glass and equipment used for Personal Protective Equipment (“PPE”)
to ensure the Group is operating at the highest level.
This strategy is supported by a team of health and safety professionals embedded
and working within the operational teams. This ensures continual improvement,
positive conversations supported by a programme of training and investment in
people and facilities. This is supported by proactive audit and data collection,
allowing live confirmation of compliance direction for continued improvement.
Risk Description
Mitigation
Health & safety (continued)
This approach is fully supported by the Board and Executive Teams who review
performance regularly and ensure that safety is the priority within the business,
challenging results and driving improvements.
This is also supported by the decision for the Group to implement systems and
develop the culture to attain the accreditations for Occupational Health and
Safety Management, ISO 45001:2018. This is expected to be delivered in 2020
and is a further indicator of the Group's desire to focus on the safety of our people.
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.
The Group has a wide-ranging set of programmes of appropriate training to
ensure legal compliance and minimise mistakes. This training is for both new
joiners and also in the form of refresher training.
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.
A Compliance Committee, chaired by one of the Group's non-executive
directors, also meets on a monthly basis to ensure all regulatory requirements
are being met.
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 recognises the importance of providing excellent customer service
and continues to invest in improving its systems and processes in this regard.
As part of the Turnaround Plan, a specific set of projects to improve the
customer experience have been ongoing which have resulted in a positive trend
in terms of the numbers of post-installation complaints.
The close working relationship with West Yorkshire Trading Standards since
late 2018 has also resulted in a far more pro-active response should there be
complaints that are escalated to third parties.
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.
Online reviews and social media comments are also reviewed and responses
made promptly to maintain the Group's reputation.
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.
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.
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Governance
Financials
Risk Management
Risk Description
Mitigation
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 negotiations on the final terms
of the Brexit deal progress, there is
a risk that Sterling could weaken
further with a potential negative
impact on performance.
IT system dependency and
information security
The Group is reliant on a number of
key IT systems and proceses. 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.
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.
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.
The Group continues to invest in improvements to IT systems and people,
with security, compliance and capacity planning at the forefront of the plans
for 2020.
This follows investment made in the last 2 years into new Anti-Virus, Web
Filtering and Firewall technologies, in addition to the retirement of on-site
email servers to make way for the introduction of Office365 and associated
Advanced Threat Protection.
A concerted effort toward Cyber Essentials accreditation will form the basis
of the security focus, with an overhaul of The Group's foundation IT
infrastructure offering significantly improved capacity and resilience.
Both of the above will be complimented by the implementation the
'Information Technology Infrastructure Library' (ITIL) operating framework,
aimed at ensuring compliance in IT operations.
As we highlighted last year, awareness is pivotal to data security and our
GDPR training programme has matured well, with a good rhythm built into
refresher training across the organisation and new people trained as they are
inducted into the business.
As described above, we have formed a compliance committee, chaired by one
of the Group's non-executive directors, which meets on a monthly basis to
review the activity of the business in terms of matters such as data subject
rights requests and responsiveness thereto, training statistics, data incident
monitoring and the like.
A data compliance officer is being recruited to aid our privacy programme
objectives and to assist in its continual development. This person will assist
the Data Protection Office ('DPO') who was appointed in 2018. Risks are
identified and captured within our risk register, with mitigating actions
implemented as appropriate.
Risk Description
Mitigation
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.
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 that it continues to develop.
Plans capture natural events, critical infrastructure outage and malicious acts.
Mitigation measures include a robust physical and technical security plan.
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.
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.
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Safestyle UK plc
Strategic Report
Governance
Financials
Risk Management
Risk Description
Mitigation
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.
Self-employed status
The Group uses the services of a large
number of self-employed individuals
for marketing, sales, surveying and
installation purposes.
These individuals are engaged as self-
employed agreements and payments
are accordingly paid on this basis.
The Group is currently involved in a
compliance review by HMRC that has
been ongoing for over 2 years.
There is a risk if HMRC determine that
the incorrect employment status has
been applied for some or all of its
agents that the Group could be
required to pay employment taxes not
collected on this basis.
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 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 has had 2 status audits performed by professional tax firms which
concluded that the status being applied was appropriate.
The Group continues to monitor developments in legislation and case law and
has sought professional advice to ensure the rules are being applied correctly.
The Group's approach in this area is comparable with many other companies
operating in this industry and wider sector where the use of self-employed
agents and contractors is the primary source of specialised resource.
The Group is aware that HMRC has previously agreed to its assessment of
some of its self-employed agents and has recovered unpaid taxes from these
individuals on that basis.
The Group will continue to work with HMRC to respond to any further queries
and believes that it has followed professional advice and applied the
requirements diligently.
The Group mitigates its exposure to credit risk through close monitoring of the
trade debtors ledger through a dedicated collections team. Performance of this
collections team is regularly reviewed and monitored by members of the
finance team, including the Chief Financial Officer.
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.
Risk Description
Mitigation
Liquidity risk
Liquidity risk is the risk that the
Group will have insufficient funds
to meet its financial obligations as
they fall due.
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 until October 2021. Regular forecasts and
assessments of the facility's covenant compliance are 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.
Post-Brexit risk
Now that the UK has exited the EU,
Brexit risk reflects the potential
impact on the Group's operations
and financial position of the UK
future trade deal and relationship
with the EU.
Now that the UK has officially left the EU, the post-Brexit trade deal is the
subject of continued negotiation between the UK Government and the EU and
the full implications of this 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
PVCu profiles the Group uses to manufacture its window frames and the
composite door slabs that are imported from South Korea.
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.
COVID-19 (Coronavirus) risk
The COVID-19 (Coronavirus)
pandemic represents a material risk
to the business and is driving
significant uncertainty. The impact
on consumer spending and our
operations is difficult to assess at
this stage.
The Board and Management are closely monitoring the rapidly evolving
situation of Coronavirus and has already responded with the following
measures :
Ÿ
Ÿ
Implemented a number of measures which follow government guidance
focussed on cleaning and preventing the spread of the virus.
Implemented bans for any unnecessary travel within the UK whilst also
enacting a ban on international travel for all members of the senior
management team.
Ÿ Department and site by site plans have been developed to respond to any
disruption caused to maintain business as usual wherever possible.
Ÿ Audited key suppliers to understand the measures they have in place to
maintain continuity of supply.
Ÿ The Group has modelled a number of scenarios and measured the impact to
its balance sheet and liquidity using a detailed weekly cashflow forecasting
model. This proactive approach enables the Group to identify quickly
emerging risks to liquidity.
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Corporate Social Responsibility
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 strive to lead
the way in our industry in looking after it.
Going even greener, new energy saving initiatives in 2019
Cool Temper furnace energy saving project
At our manufacturing facility in Barnsley, the Cool Temper furnace is used for the glass toughening process. What this means is, once glass is
toughened if it’s broken, the glass will fragment into lots of much smaller and safer pieces of glass - here’s how it works...
01
OUT WITH THE OLD,
OUT WITH THE OLD,
OUT WITH THE OLD,
IN WITH THE NEW
IN WITH THE NEW
IN WITH THE NEW
Our team of expert fitters install a
beautiful new set of windows for
the happy customer.
02 OLD WINDOWS
OLD WINDOWS
OLD WINDOWS
TAKEN AWAY
TAKEN AWAY
TAKEN AWAY
03
MATERIALS
MATERIALS
MATERIALS
SORTED OUT
SORTED OUT
SORTED OUT
All the old windows (and any other waste)
are loaded onto the van and brought back
to the depot.
We sort and separate all the different
materials ready to go back to our
factory in Yorkshire.
01
The individual panes of glass
are loaded onto the in-feed bed
of the Cool Temper furnace.
02
The glass is then taken into the
furnace on rollers ready for the
transformation to take place.
03
Super heating the glass to
approximately 700°C before
being rapidly cooled.
04
The toughened glass is now
ready for the next stage of its
manufacturing process.
06
BESPOKE WINDOWS
ARE NOW BORN
Highly-skilled craftsmen and state-of-
the-art machinery precisely manufacture
new windows to your exact order.
05 THE NEW GLASS
IS MADE
Old glass, (called 'cullet') is crushed and
recycled. Every month 80 tonnes of it is
made into brand new, energy saving glass.
04 EXPERTLY RECYCLED
The separate materials arrive back at our
dedicated recycling centre. Whatever we
can't use, we send to a recycler who can.
Energy saving project
After toughening a fragmentation test is performed, the glass is smashed and we count
the fragments within a small area. To pass the BSI test we must have 40 fragments or
more. Before our project, we had up to 140 meaning we were massively over-processing.
Due to the furnace using a lot of energy, the equivalent of 600 homes, we began testing
and found that by marginally lowering the heating and cooling time, this greatly reduced
the amount of energy we use. With approximately 80 fragments we also still pass the BSI
test with flying colours. This has resulted in huge amounts of energy being saved, the
equivalent of around 150 homes per year!
Before: 127 fragments
After: 74 fragments
VIRGIN PVCu OFF CUTS
8 tonnes each month go back into making new frames
WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2019...
WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2019...
WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2019...
Electric
charging
points
As more of our
vehicle fleet
become hybrid and
full electric we have
installed various
charging points at
our factory.
Single use plastics
Even the little things add up to make a
big difference. We’ve been
consciously replacing any single use
plastics across the
business with
greener alternatives,
such as paper cups
for our drinking
water machines.
Designated
cycle parking
To encourage local
workers to use leg
power rather than
petrol power, we have
installed a designated
cycle parking area.
Compressed air
energy saving
project
At our manufacturing
facility many of our
machines and tools are
powered by compressed
air. Making this process
as efficient as possible
has also saved huge
amounts of energy.
GLASS
1,118 tonnes of old glass
(called cullet) went into
making new windows.
PLASTIC
Each month 500 tonnes of
post consumer plastic is
recycled into drainpipes &
plastic decking etc.
WOOD
1,424 tonnes of wood got
recycled into pellet fuels for
Biomass heating systems.
METAL
30 tonnes of metal in 2019
was melted down and reused.
OUR LORRIES
COME BACK FULL
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.
WE CERTAINLY
PACK 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.
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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.
2019 People Review
After the unique challenges of 2018,
we commenced 2019 with a
refreshing sense of normality as we
went to work to reignite our People
Agenda.
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
this, effective communication,
engagement, training and
development are of paramount
importance as is a fit for purpose
organisation design.
Organisation Design
During the year we completed two
significant restructure projects that
supported the re-alignment of our
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Annual Report & Accounts 2019
cost base whilst importantly
delivering fit for purpose
organisation structures. We set to
work to simplify reporting lines to
enable more efficient decision-
making processes and to bring our
managers closer to our people and
to our front-line activities.
Accompanying these projects, the
work continues to review role
profiles and key accountabilities and
to embed these within a suitable
performance review process
starting with our senior
management population and
ultimately cascading this
throughout the organisation
through 2020.
In the field, a new approach to Sales
Agent recruitment was adopted in
July and has delivered a more cost-
effective service for the business
and a much-improved experience
for the Rookie Reps. To complement
this, we have restructured our Sales
Training team and re-designed our
introductory training. These
activities have translated into better
performance results for our Sales
Agents and the business.
Equality & Diversity
We are working to encourage a
more diverse workforce throughout
the business. We are committed to
recruiting and promoting our
colleagues based on their skills,
competencies and abilities, and in
ensuring that our decisions
encourage equality and diversity. To
this end, 2020 will see a focus on
training in this area for our
managers and colleagues alike.
We continue to address our Gender
Pay Gap having always recognised
that this will take time to improve.
As we get ready to publish our 2019
Gender Pay Gap Report we are
pleased to confirm that the median
Gender Pay Gap decreased from
23% to 15% to 12% from 2017 to
2019, whilst the proportion of
females receiving a bonus rose from
18% to 30% to 33% in the same
period.
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 will continue
to develop and promote equality
and diversity within the
organisation.
Communication & Engagement
2019 saw the enhancement of
strong foundation work that had
commenced in 2018.
A new communication committee
was established at our Barnsley site
to complement the constructive
relationship with our Trade Union
colleagues and the 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.
To more easily reach our field-based
colleagues, and to provide an
improved two-way communication
mechanism we have further
developed our use of the
Workplace Digital Platform and
are increasingly using video
messaging to bring key updates
alive. Our Senior Managers'
Christmas video messaging was
particularly light-hearted and well
received.
At the beginning of February we
held our very first Senior Managers'
Conference which has been since
followed by 3 more successful
events, the second of which took the
theme of our People Vision “To
make Safestyle UK plc a successful
business that our colleagues are
proud to be part of and that others
want to join.” The positivity from
showcasing the achievements that
our teams were most proud of was
something that created a lasting
memory.
Building on the success of our Senior
Management Conferences, 2019
saw the introduction of Sales
Management Conferences
designed to share information and
best practice across the business.
Annual Report & Accounts 2019
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Safestyle UK plc
Strategic Report
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Financials
Safestyle People
Learning & development
The development of our people
continues to be a crucial factor in
our continued growth. Our business
will only ever be as successful as the
people within it. Ensuring that our
colleagues have the right skills to
perform their roles effectively and
efficiently in an increasingly
regulated industry will only serve to
drive a positive and profitable
business as we move forward.
The Safestyle Advanced Technical
Competency programme (SATC)
commenced in earnest at the start
of 2019 and by year end we were in
the position of enrolling all new lead
installers automatically to the
programme. With approximately
two thirds of lead installers now on
the programme and a closer working
relationship with FENSA, the
programme is starting to gain
traction and the installer feedback
remains extremely positive.
Throughout 2019 our surveyors
have been enrolled onto either a full
NVQ Level 3 qualification in
Surveying or onto a suitable
Continued Competency Update
(CCU) programme and at the end of
2019 the business had all surveyors
on programme with 49% fully re-
qualified. With a good working
relationship with the provider GFTS,
communication channels remain
clear and effective ensuring genuine
improvements in the knowledge and
skills of our surveyors.
In continued support of our
Customer Service value – “We treat
our Customers as we want to be
treated. We put our Customers
first” – 2019 saw the training
programme entitled “Customer
First” embedded into operational
inductions as well as the PAYE
induction and sales agent
inductions.
Utilising our Apprenticeship Levy
in 2019 we funded 25 individuals
across the business from various
departments on programmes
ranging from Level 2 to Level 6. The
first fully “levy funded” individuals
successfully achieved their
Customer Service Practitioner level
2, with distinction in January 2020.
In addition to the above, our E
Learning facility has added a huge
amount of value in 2019 to our
colleagues. During the year 1340
modules were completed across
both business protection and health
and safety subject areas. This
training intervention reached over
600 individuals, some of whom had
not received any form of training for
extended periods leading up to this.
For the business this has achieved a
baseline competence in compliance
areas and has sent a clear message
of change to colleagues and
contractors alike that right first time
is our way of working. E-learning
will continue to complement the
training and development our
colleagues receive throughout
2020.
Looking forward
2019 was yet another to be proud of
the passion, enthusiasm,
commitment and resilience of our
colleagues. The work carried out
resulted in increased collaboration,
better team-working and more
openness and positivity – all
rewarding steps in our cultural
development.
We will continue this journey in
2020 when our People Agenda will
focus on the development of
leadership and management skills,
building high performing sales and
installation functions, increasing
engagement, and developing reward
strategies to support delivery in line
with our cultural values.
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Financials
A day in the life of...
With a huge diversity of roles across the business, here’s a glimpse into a typical
day in the life of some of our unsung heroes working tirelessly behind the scenes.
What is your typical day?
I generally spend the first few
hours reviewing the prior day
sales data, looking at
performance versus target on our
commercial KPIs, such as cost of
lead generation, rep conversion
etc. These KPIs are tracked in our
sales dashboards and reviewed at
the daily sales meeting. I spend a
lot of time working with the
commercial teams to drive
performance and investigate
issues, using data analysis tools
such as Tableau to take complex
data and turn it into usable
information.
What challenges do you face?
Engaging a broad range of people
to use and understand often
quite complex data to drive the
right actions.
Most important aspect of your
role or project worked on?
Creating the revenue dashboard
that underpins our daily sales
meeting and enables us to quickly
see how we are performing
against our KPIs, and launching
Tableau data analytics into our
sales branches to give branch
managers a data-driven view of
performance.
How do you measure success?
When the analysis I provide is
used to make decisions that
benefit the business.
Most proud moment?
Seeing people who were
previously cautious around data
using data analytics to drive
performance.
What is your typical day?
A typical start to the day is
making sure that all critical IT
systems are running as expected,
before moving on to my planned
work for the week. This includes
designing, writing, testing and
implementing new software or
changes to existing systems to
ensure the business processes are
as efficient and effective as
possible. This is combined with
resolving any issues that may
arise and providing a quick, but
safe fix that will get the business
back up to full speed as quickly as
possible.
Most important aspect of your
role or project worked on?
Helping with the creation and
implementation of Polaris was
the biggest project worked on to
date. Out-of-hours support,
when required, is important to
help ensure colleagues across the
business can keep the business
running successfully.
How do you measure success?
The size of the helpdesk queue
and hitting deadlines, whilst
retaining customer satisfaction
when colleagues come to us with
questions or issues.
What challenges do you face?
Balancing the resolution of issues
with planned work on tight
deadlines.
Most proud moment?
Finishing my apprenticeship at
Safestyle and getting recognition
from the company for my efforts.
What is your typical day?
First I deal with urgent queries
from fitters and create the daily
scaffold plan of how many to
order. I deal with invoice queries,
specials, urgent requests, creating
reports and much more. I also
negotiate scaffold prices and as a
Yorkshire lass I drive a hard
bargain! I live up to my name
being a busy Bee, which I couldn't
do without my colleagues help!
What challenges do you face?
I face many challenges, site access
issues, scheduling problems,
Access Solutions to name a few
but we always try our best to find
a solution!
Most important aspect of your
role or project worked on?
Most important is enjoying work,
smiling and laughing with good
people whilst working hard to
achieve the best results. Access
Solutions has developed recently
with the ongoing projects and it's
great being a part of this!
How do you measure success?
Leaving my office daily knowing
everything is sorted. If you always
work to the best of your ability
then the day's a success! A bit of
positive feedback is also nice.
Most proud moment?
Can I have more than one please?
Working my way up to where I
am, receiving kind words &
recognition from those in higher
roles than me, being asked to
answer these questions and of
course getting my photo on as
many Marketing projects as I can.
What is your typical day?
I start work at 7:30am, review
my workload and prepare for a
project meeting which I lead. In
the meantime, I focus on actions
assigned to me from the project
meetings. Trying to close as many
actions as I possibly can, and in
some cases, it requires
performing engineering trial on
relevant process. As a project
leader I challenge other project
team members on their actions.
What challenges do you face?
Breaking old-fashioned thinking
and convincing people to think
out of the box.
Most important aspect of your
role or project worked on?
The two big projects of 2019
were ‘Cool Temper’ and
‘Compressed Air Optimisation’
which combined resulted in huge
savings both monetary and in
energy usage. Currently I'm
leading three parallel projects
which are focused on improving
Safety, Quality and Service
through application of lean tools.
Nine more projects are on the
way in 2020!
How do you measure success?
Electricity usage data shows we
are using much less energy now
compared to before the two big
projects of 2019. We measure
cell performance and perform
audits in improved areas.
Most proud moment?
Recognition for the project
achievements.
Tom Morley
Commercial Finance Manager
Based at Head Office
4 years with Safestyle UK
Adam Jacobs
IT Developer
Based at Manufacturing Facility
4 years with Safestyle UK
Bee Calam
Access Solutions Team Leader
Based at Head Office
5 years at Safestyle UK
Karolina Plonka
Manufacturing Engineer
Based at Manufacturing Facility
1 year at Safestyle UK
What is your typical day?
My role includes visiting all
installation depots to aid in the
daily running and the overall
management of depot
performance. Implementing
Standard Operating Procedures
with a clear goal of getting each
depot to run in line with company
policies.
What challenges do you face?
On a daily basis my challenges
are organising depots and
ensuring they are providing a
good customers service, this in
turn ensures depots are running
smoothly and few issues arise.
Most important aspect of your
role or project worked on?
Support the teams around me
and be available for anybody
when they need assistance or
advice. My most important
project was taking the Manager
position at Warrington depot and
turning the depot into one of the
best performing depots.
How do you measure success?
I measure success by giving
myself clear goals; if I then
achieve these goals I would
consider myself successful.
Most proud moment?
My most proud moment was
turning the Warrington depot
around and getting it to perform
to it’s maximum in all aspects.
This achievement is shared with
everyone involved. The fitters
and the depot staff who without
their support and hard work
would have made it impossible.
What is your typical day?
My day consists of contacting
customers that have any issues
with their orders. This could be
that extra money is required,
orders that are unable to be
installed due to technical issues
and customers that have
requested to cancel their orders.
What challenges do you face?
The main challenge is when
asking for any extras that are
required, mainly things like
scaffolding or building work that
has been requested by the
surveyor. This is made more
difficult as the customers are
unaware of these extras at this
stage, so the first time the
customer is notified of this is
when we call them from head
office to explain.
Most important aspect of your
role or project worked on?
Speaking to customers that have
requested to cancel their order to
see how we can help to keep their
business. Discuss extra amounts
that are required with customers
without losing their business.
How do you measure success?
Success is measured by Managers
running reports which show how
many files have been booked on
for an installation date.
Most proud moment?
I’m most proud at the end of each
day, when I have worked through
all my calls knowing that I have
helped our customers and
resolved any issues to the best of
my abilities.
What is your typical day?
When working in HR, no day is
ever the same. Since taking on
the recruitment role alongside my
general HR role I have to be more
structured, producing reports for
the exec team. I have regular
meetings with my business
partners to support them with
any projects and HR needs.
What challenges do you face?
Ensuring that I give the best
service to the business and the
areas I work with. The business is
going through lots of change, so I
need to manage managers
expectations, understand their
thoughts whilst guiding them in
the right direction.
Most important aspect of your
role or project worked on?
The most important project has to
be the Sales Rep recruitment
process, this was a new way of
recruiting for me but with the rest
of the team, I managed to build a
process successfully bringing in
new reps every week.
How do you measure success?
I believe within HR, people
relationships are top priority, if I
build one new relationship and
employees feel they can approach
me, I’ve been successful.
Most proud moment?
Smashing the record for number
of reps booked on one week’s
course. We worked so hard to
build the process and improve the
candidate experience. The
positive comments from around
the business makes me feel proud.
What is your typical day?
7:30am start my prep for the
9:00am production meeting.
Check the number of reported
missed fits/deliveries and stock
issues, minimising any negative
impact. Oversee recycling's
productivity making sure targets
and standards are being met.
Next, it's onto checking in with
purchasing and the stores team
that everything is running
smooth. Reviewing depot queries
and making sure the depots are
receiving feedback. Finally later
in the day I debrief our drivers,
checking the condition of our
wagons, number of hours worked
and time sheets are completed.
wrong and how to prevent a
reoccurrence. Keeping fork lift
trucks running as they a critical in
the plants efficiency
Most important aspect of your
role or project worked on?
Making sure the manufacturing
plant has the stock required to
make the frames on time to hit
delivery dates. Maintaining the
legality and service schedules of
our HGV fleet to minimise any
potential down time.
How do you measure success?
We use OTIF reports to monitor
our progress and as a driver for
constant improvement.
What challenges do you face?
Understanding unknown stock
outs, investigating what went
Most proud moment?
Watching promoted staff
members grow and surprise me.
Paul Willett
Branch Support Manager
Based Nationwide
9 years with Safestyle UK
Stacey Power
Contract Manager
Based at Head Office
3 years with Safestyle UK
Natalie Hellowell
Human Resources
Based at Head Office
2.5 years with Safestyle UK
42
Annual Report & Accounts 2019
Dale Mallison
PCW, Stocks & Transport Manager
Based at Manufacturing Facility
22 years at Safestyle UK
Annual Report & Accounts 2019
43
Safestyle UK plc
Our new, more fuel
efficient fleet of vans
will save 167,437
litres of fuel this year
Governance
46
48
50
58
61
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
From left to right: Mike Gallacher, Rob Neale, Alan Lovell, Fiona Goldsmith and Julia Porter
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 Chairman
of Interserve Group Limited since
July 2019, and Senior Independent
Director at SIG plc since July 2018.
He was National Chairman of the
Consumer Council for Water from
2015 to 2019 and a Non-Executive
Council Member of Lloyd's of
London from 2007 to 2016.
During the last two years, Alan has
been a Non-Executive Director and
Chairman of the Restructuring
Committee of Carillion plc for its
final 10 weeks of trading and a Non-
Executive Director of Amey UK as it
extracted itself from an onerous
contract and established a solid base
for the future. Alan has a huge
breadth of experience, including
both strategic and complex
situations, with a particular focus on
companies undergoing turnaround
or business improvement initiatives.
46
Annual Report & Accounts 2019
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. His
other Chief Executive Officer
appointments were in the consumer
goods group Dunlop Slazenger and
in three businesses in the
construction sector, Jarvis plc,
Costain Group plc and Conder
Group plc.
In the not-for-profit world, Alan is
Chair of the Governors of the
University of Winchester, Chair of
the Mary Rose Trust and the
Hampshire Cultural Trust and a
Trustee of Winchester Cathedral
Trust.
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
Fiona Goldsmith
Non-Executive Director
Julia Porter
Non-Executive Director
Fiona joined the Safestyle Board in
September 2018 and she is Senior
Independent Director and Chair of
the Audit Committee. She is also a
Non-Executive Director and the
Audit Chair designate at the listed
housebuilder MJ Gleeson plc. She
was previously Chair of the Audit
Committee, at Walker Greenbank
PLC (2008 to 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.
Prior to embarking on a portfolio
career, Fiona was CFO of Land
Securities Trillium, the outsourcing
division of Land Securities Group
PLC.
Julia joined the Safestyle Board in
November 2018 and she is Chair of
the Remuneration Committee. Julia
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).
Julia’s 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 also holds an MBA
from London Business School.
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
fellow of the Institute or Chartered
Accountants of England and Wales
and started his career at Arthur
Andersen.
Annual Report & Accounts 2019
47
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.
Committee does not believe that the size of the company
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.
This report provides details of the role of the Audit
Committee and the work it has undertaken during the year
and at its meeting in March 2020 when this annual report
and financial statements were approved.
The Committee undertook the following activities during the
year:
Financial reporting
Principal duties
The principal duties of the Committee are to:
The Committee reviews the half year and annual financial
statements and matters raised by management and the
auditors.
Ÿ Oversee the integrity of the Group's financial statements
Ÿ The accounting policies used are consistent both year on
and public announcements relating to financial
performance.
Ÿ Review significant accounting and reporting judgements.
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 are in place for
individuals to raise concerns regarding breach of conduct
and legal and regulatory compliance.
Committee membership
The Committee comprises two independent Non-Executive
Directors: Julia Porter and me. The Committee met three
times during the year and had 100% attendance.
The Company Secretary acts as secretary to the Committee.
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.
Terms of reference
These were adopted by the Board on 11th December 2013
and are available on the company 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 Company'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
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,
considering the views of the external auditor.
Ÿ The appropriate accounting standards have been applied.
External audit
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.
Audit tender
KPMG confirmed they will retire as the Group's external
auditors following completion of the 2019 Annual Report.
After a comprehensive tender process, Grant Thornton will
be recommended for appointment as the Group's external
auditors at the AGM in May 2020.
The Committee also considered a paper prepared by the
external auditor, which included significant reporting and
accounting matters.
The Committee considered the appropriateness of the
following areas of significant judgement, complexity or
estimation in the financial statements.
Risk management
Going concern
During the year the Group's risk register was refreshed
following a detailed bottom up review. The risks identified
and the mitigating actions were reviewed by the Executive
Committee and then the Audit Committee. In managing risk,
the Committee analyses the nature and extent of risks and
considers their likelihood and impact, both on an inherent
and a residual basis, after taking account appropriate
mitigation and the Group's appetite. The Risk Management
section on pages 30 to 35 sets out the key risks that the
business may face and how it mitigates them.
During the year a Compliance Committee was established
this is made up of managers from across the business and is
Chaired by an independent director. This Committee meets
monthly and is focussed on managing Data Compliance risks.
The Group has commenced the process to gain 'Cyber
Essentials' certification. The Audit Committee will be kept
updated on the progress.
Internal controls
The Committee is responsible for reviewing and monitoring
the effectiveness of internal controls and risk management
systems on behalf of the Board. The Group's system of
internal control includes the following processes:
Ÿ Each department has defined procedures and controls to
identify and minimise operational and financial risks.
These procedures include segregation of duties and the
regular monitoring of KPI's.
Ÿ The Board and management meet regularly to monitor
the performance of the business against the KPI's.
The Audit Committee monitors the requirement for an
Internal Audit function. During the year the committee
appointed an external firm to perform internal audit reviews
on certain key controls. There is a detailed Internal Audit
programme for the coming year, initially this will be carried
out by external resource, but we continue to monitor the
requirement for internal audit resource within the business.
In addition, our external auditors, KPMG, report annually to
the Audit committee on their review of the control
environment.
Whistleblowing
The Group's whistleblowing policy was reviewed during the
year. All cases of whistleblowing are appropriately
investigated, however following the review it was decided
that it was appropriate to update awareness across the
business. Consequently, an online training programme is
now being rolled out across the business.
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 2019 and
March 2020 the Committee reviewed the Group's results
and other information provided by the Chief Financial
Officer to support the Directors' going concern statements.
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 period to December 2021. These forecasts were then
sensitised to reflect reasonable possible adverse effects
which could arise. 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.
During the period leading up to the date of this report the
global impact of COVID-19 escalated. The Board and the
Audit Committee have considered possible impacts of the
COVID-19 outbreak on the Group's trading and cashflow
forecasts. In preparing this analysis a number of scenarios
were modelled based on management's current
understanding of potential income. In each scenario,
mitigating actions within the control of management,
including reductions in discretionary spend, have been
modelled, but no fixed cost reductions have been assumed.
In these uncertain times, it is difficult to predict the overall
outcome and impact of COVID-19 as the extent of the
duration and impact on the business. More detail of the
scenarios considered is set out in note 1 to the financial
statements. Under some scenarios modelled there is a risk of
breaching the Group's financial covenants and in a scenario
where a loss of written and fitted sales extends beyond the
end of April 2020 there is a risk of the liquidity requirements
of the business exceeding the total quantum of facilities
available. The Board welcomes the financial support
commitment announced by the UK Government on 17th
March 2020. Whilst detailed information on the qualifying
criteria is yet to be provided, based on the initial
announcement the directors would anticipate that the Group
would qualify for a level of financial support should it be
required.
The Audit Committee considered the basis of preparation of
the accounts against the background of the material
uncertainty posed by COVID-19 and concluded that it is
appropriate to prepare the accounts on a going concern basis
subject to the detail set out in note 1. In a continually
evolving situation, the Audit Committee are satisfied that the
Annual Report as a whole reflects our expectations and
actions at the date of signing.
Impact of uncertainties due to the UK exiting the
European Union
The Audit Committee reviewed the Group's preparation for
Brexit. Whilst there remains uncertainty as to the eventual
terms under which the UK will exit the European Union, the
Board and the Audit Committee are satisfied that the Group
is appropriately positioned to address any impact.
Fiona Goldsmith
Chair of the Audit Committee
19 March 2020
48
Annual Report & Accounts 2019
Annual Report & Accounts 2019
49
Safestyle UK plc
Strategic Report
Governance
Financials
Directors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee
Dear Shareholder
I am pleased to present the
Directors' Remuneration Report for
the year ended 31 December 2019,
my first report as Chair of the
Remuneration Committee, which
comprises two sections:
Ÿ This annual statement.
Ÿ The Annual Report on
Remuneration, which provides
details of the amounts earned in
respect of the year ended 31
December 2019 and
remuneration for the year ending
31 December 2020.
Our Directors' Remuneration Policy
was approved as part of an advisory
vote on the 2017 Directors'
Remuneration Report at the May
2018 AGM. The Policy has not been
reproduced here but is available in
our 2017 Directors' Remuneration
Report.
Similar to previous years, the
Directors' Remuneration Report is
subject to an advisory vote at the
May 2020 AGM. The Committee
believes the advisory vote provides
a greater degree of accountability
and provides shareholders with a
say on executive pay. We recognise
that this is an important area of
corporate governance attracting
increasing media and societal focus.
Review of the 2019 financial year
As detailed in the CEO's statement
and Financial Review, the underlying
50
Annual Report & Accounts 2019
loss before taxation for 2019 (which
is stated before all non-underlying
items which include share based
payments) was £(1.5)m. This
underlying performance represents
a material improvement on the
£(8.7)m underlying loss in 2018,
which was an exceptionally
challenging year for all the factors
covered in the Annual Report &
Accounts 2018.
Notwithstanding the improving
trend and the recovery to
profitability achieved for part of
2019, the full year loss is below the
bonus performance targets set for
2019. Despite personal objectives
for the Executive Directors being
achieved within the challenging
recovery context, the Committee
concluded that there would be no
bonus payments to Executive
Directors in 2019 for either the PBT
or personal objectives elements of
the annual incentive plan. In
reaching this decision, the
Committee considered the
underlying performance of the
Group during the performance
period, taking into account financial
and strategic performance including
affordability as well as the
experience of stakeholders. See
page 53 for further details.
With this performance context for
2019, the Committee is aware that
the performance thresholds in
relation to the 2018 LTIP awards,
are considerably in excess of current
market expectations and look
extremely unlikely to be achieved at
any level. The Committee is
currently reviewing this matter and
will consult with major shareholders
on this point in the coming weeks.
Share awards
Under our Policy, our usual award
for the LTIP is up to 100% of base
salary. In 2019, awards were
granted under the LTIP to the CEO
and CFO at 47% of salary which is
less than half of the usual maximum
level. The lower percentage was set
to ensure a balance between a
satisfactory award level for
performance attainment whilst
managing the potential dilution of
shareholders.
These awards are linked to absolute
EPS targets for the year ended 31
December 2021, which have been
set at a threshold performance (at
which 25% of the LTIP award vests)
of 3.45p and for maximum
performance at 5.03p, with straight
line vesting in between. The
Committee considers these targets
to be very stretching, particularly in
light of the financial losses in the last
2 years and the current market
uncertainty as we rebuild and
modernise the business. Once
again, malus and clawback triggers
apply to the awards.
On 10 April 2017, nil cost options
equivalent to 80% of salary were
granted to Giles Richell and to
former Executive Directors Steve
Birmingham and Mike Robinson
under the 2017 Performance Share
Plan. As disclosed in the 2018
Directors' Remuneration Report,
Steve Birmingham and Mike
Robinson were treated as good
leavers under the 2017
Performance Share Plan. Giles
Richell was also treated as a good
leaver under the 2017 Performance
Share Plan (see below). All three
individuals therefore retained
interests in the unvested awards.
Vesting of the awards were subject
to EPS growth targets over the
three-year performance period to
31 December 2019. The threshold
EPS growth target was not met and
the awards lapsed in full. See page
53 for further details.
Changes to the Board
Giles Richell stepped down from the
Board on 5 March 2019 and left the
Group on 31 August 2019 as part of
a redundancy process. The terms of
Giles' exit were set in line with the
Group's redundancy policy. Giles
received his salary, pension and
benefits until the date he left the
Group and following his departure
date, he also received payments in
lieu of his unexpired noticed period.
No 2019 bonus was awarded and his
2018 LTIP award was pro-rated to 6
February 2019. See page 52 for
further details.
Outlook for the 2020 financial
year
Rob Neale received an exceptional
increase in his base salary, from
£175,000 to £190,000 (9%) which is
effective from 1 January 2020. This
was the result of consideration of
wider market benchmarks, his
significant development in role,
additional management
responsibilities assumed in early
2019 and his overall contribution to
the business since he joined. Fiona
Goldsmith's fees have increased to
£55,000 (17%), effective from 1
January 2020, reflecting her
additional duties as Senior
Independent Director alongside
those of Audit Committee chair.
Julia Porter's fees have also
increased to £55,000 (17%), also
effective from 1 January 2020
reflecting her additional duties as
chair of the Compliance Committee.
This is in addition to an increase to
£47,000 (12%) effective from 1
August 2019 on account of her
additional duties as chair of the
Remuneration Committee following
Chris Davies' retirement in May
2019.
Mike Gallacher, Executive Director
and Alan Lovell, Chairman waived a
general cost of living increase to
their base salary and fees
respectively for 2020.
See page 52 for further details.
The annual bonus structure will
remain the same as in 2019.
Executive Directors will be awarded
an annual bonus opportunity of up
to 100% of salary, based on
delivering against stretching PBT
targets (as regards 70% of the
award) and a range of strategic and
personal objectives (as regards the
remaining 30% of the award). See
page 56 for further details.
Awards under the Performance
Share Plan in 2020 are expected to
reflect the usual Policy at 80% to
100% of salary for Executive
Directors. We are currently
reviewing the associated
performance criteria and targets
and these will be disclosed in full in
the 2020 Remuneration Report. I
anticipate that these will continue to
be based on EPS targets.
Summary
The Committee aims to provide
clear and transparent reporting on
executive pay and performance at
Safestyle, taking into account best
practice amongst larger AIM listed
companies. I look forward to
receiving your support at our May
2020 AGM, where I will be available
to respond to any questions
shareholders may have on this
Directors' Remuneration Report or
in relation to any of the Committee
activities.
Julia Porter
Chairman of the Remuneration
Committee
19 March 2020
Annual Report & Accounts 2019
51
Safestyle UK plc
Strategic Report
Governance
Financials
Directors’ Remuneration Report
Annual Report on Remuneration
2019 Remuneration (Audited)
The table below details the elements of remuneration received by each Director for the financial year ended 31
December 2019, and the total remuneration received by each Director for that financial year and also for the financial
year ended 31 December 2018.
2019
Salary
and
fees
£’000
8
Benefits¹
Annual
bonus
Long term
incentives
Pension
£’000
£’000
£’000
£’000
Supplemental
salary and
fees
£’000
Total
remuneration
2019
£’000
Total
remuneration
2018
£’000
Executive Directors
M Gallacher¹
R Neale²
G Richell³
Total
Non-Executive Directors
A C Lovell
4
5
F Goldsmith
J Porter
6
C J Davies
7
Total
275
175
146
596
120
47
44
20
231
21
14
10
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
14
9
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
318
203
165
686
120
47
44
20
231
544
193
367
1,104
55
16
7
72
150
Remuneration in 2019 for G Richell (and remuneration in 2018 for other Directors) reflects a part year as follows:
1
2
3
4
5
6
7
8
Mike Gallacher was appointed to the Board on 1 May 2018.
Rob Neale was appointed to the Board on 16 July 2018.
Giles Richell resigned and stepped down from the Board on 5 March 2019. Giles Richell remained as an employee of
the Company until 31 August 2019 to focus on handing over his executive responsibilities.
Alan Lovell was appointed to the Board as Chairman on 16 July 2018.
Fiona Goldsmith was appointed to the Board on 17 September 2018.
Julia Porter was appointed to the Board on 5 November 2018.
Chris Davies retired from the Board on 16 May 2019.
Benefits include car allowance, private fuel and private medical insurance.
Individual elements of remuneration
Base salary
The annualised salaries for 2019 and 2018 are as set out below. Executive Directors did not receive a salary
increase in 2019.
2019 base
salary £,000
2018 base
salary £,000
% increase
M Gallacher
R Neale
G Richell
275
175
175
275
175
175
0%
0%
0%
Annual incentive plan
Bonus opportunities equal to 100% of salary were awarded to Mike Gallacher, Rob Neale and Giles Richell. 70% of
the opportunity was dependent on Profit Before Tax (PBT) performance, with the remaining 30% of the opportunity
dependent on strategic and personal objectives.
Giles Richell's annual bonus award lapsed in full following his cessation of employment.
As illustrated in the table below, PBT performance fell short of the threshold target and the proportion of the annual
bonus subject to PBT lapsed in full. Whilst good progress was made by Mike Gallacher and Rob Neale against
strategic and personal objectives, the Committee determined that no payment should be made under this element of
the annual bonus, taking into account underlying financial performance.
PBT¹
Performance target
(50% profit element / 35% of salary)
Performance target
(100% profit element / 70% of salary)
Bonus earned by each Executive
Director (% of salary)
PBT of £2.5m
PBT of £3.0m
0%
¹For the purposes of the annual incentive plan, PBT is stated before all non-underlying items as defined in the
Financial Review.
Strategic and personal objectives
The strategic and personal objectives were tailored to each Executive Director and focused on key performance
metrics in the 2019 plan to deliver our strategy and deliver the Group to profitability.
Director
Performance metrics
Bonus opportunity
(% of annual salary)
Performance
achieved
M Gallacher
Performance metrics relating to delivery of operating
plan, improving operational metrics, establishing
appropriate business processes, improving cost base,
embedding regulatory compliance, improving quality
and establishing an effective new Exec Team.
30%
R Neale
Performance metrics relating to delivery of operating
plan, driving financial awareness and accountability
across the Executive Team, implementing data
analytics and insights reporting on commercial
performance, and managing cash, liquidity and
borrowing facilities.
100%
100%
Long term incentives
Awards vested during the financial year
On 10 April 2017, nil cost options equivalent to 80% of salary were granted to Giles Richell and to former Executive
Directors Steve Birmingham and Mike Robinson under the 2017 Performance Share Plan. As disclosed in the 2018
Directors' Remuneration Report, Steve Birmingham and Mike Robinson were treated as good leavers under the 2017
Performance Share Plan. Giles Richell was also treated as a good leaver under the 2017 Performance Share Plan. All
three individuals therefore retained interests in the unvested awards.
Vesting of the awards were subject to EPS growth targets over the three-year performance period to 31 December
2019. These targets were 6% average annual growth for threshold performance (at which level 25% of the awards
vest) and 12% average annual growth for maximum performance. The threshold EPS growth target was not met and
the awards lapsed in full.
52
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Directors’ Remuneration Report
Annual Report on Remuneration
Awards granted during the financial year
The following awards were granted during the year under the 2017 Performance Share Plan
2018
M Gallacher
R Neale
Type of
award
Nil cost
option
Date of grant
Percentage
of salary
Number of
shares
Exercise
price
Performance
period
27 June 2019
27 June 2019
47%
47%
200,000
127,273
£nil
1 January 2021 - 31
December 2021
Vesting of the awards is subject to achievement of an EPS targets for the year ending to 31 December 2021.
The targets are as follows.
EPS for the year ending 31
December 2021 (%)
Percentage of PSP
award vesting¹
5.03p
3.45p
100%
25%
¹For EPS below 3.45p no amount vests. Straight line vesting between threshold and maximum.
Payments made to former Directors during the year and payments for loss of office during the year
As mentioned above, Giles Richell stepped down from the Board in the year. He received his salary, pension and
benefits until the date he left the Group on 31 August 2019 and following his departure date, he also received 3
payments of £16,596 in lieu of his unexpired noticed period. No 2019 bonus was awarded and his 2018 LTIP award
was pro-rated to 6 February 2019.
As disclosed in the 2018 Directors' Remuneration Report, under the terms of his exit agreement, Steve Birmingham
received £10,000 equal monthly payments during January 2019 to August 2019 for pay (covering salary and benefit)
in lieu of his unexpired notice period.
Statement of Directors' shareholding and share interests (Audited)
The Directors who held office at either 31 December 2019 or 31 December 2018 had the following interests in the
ordinary shares of Safestyle UK plc at that date:
Executive Directors
M Gallacher
R Neale
G Richell
Non-Executive Directors
A C Lovell
F Goldsmith
J Porter
C J Davies
31 December 2019
Number
31 December 2018
Number
50,000
50,000
n/a
130,000
20,000
9,671
n/a
50,000
-
-
130,000
20,000
-
160,000
The interests of each individual, who served as a Director of the Group during the year, as at 31
December 2019 in the Group's share schemes were as follows:
Director
Plan
Date of
grant
Exercise
price
Options
held at 31
December
2018
Options
granted
in the
period
Options
exercised
in the
period²
Options
lapsed in
the
period
Options held at
31 December
2019 and
status
M Gallacher
Safestyle UK
2017 PSP
Safestyle UK
2017 PSP
18 June
2018
27 June
2019
£nil
733,333
-
£nil
-
200,000
Safestyle UK
2017 PSP
13 August
2018
£nil
350,000
-
R Neale
G Richell
Safestyle UK
2017 PSP
Safestyle UK
2017 PSP
Safestyle UK
2017 PSP
27 June
2019
10 April
2017
18 June
2018
£nil
-
127,273
£nil
41,913
£nil
350,000
-
-
-
A C Lovell
Individual share
agreement
20 December
2018
£nil
250,000
-
-
-
-
-
-
-
-
-
-
733,333¹
200,000¹
350,000¹
127,273¹
41,913¹
-
(275,845)³
74,155¹
-
-
250,000²
54
Annual Report & Accounts 2019
¹Unvested subject to performance conditions linked to EPS.
²Unvested subject to time and an overall business performance underpin.
³Pro-rated share options to 6 February 2019.
Annual Report & Accounts 2019
55
Safestyle UK plc
Strategic Report
Governance
Financials
Advisors
During the financial year, the Committee received independent advice from Deloitte LLP. Deloitte is a founder member
of the Remuneration Consultants Group and voluntarily operates under its code of conduct in its dealings with the
Committee.
Directors' Remuneration Report voting at the 2019 AGM
The table below sets out the voting outcome at the Group's AGM held on 16 May 2019 in respect of the resolution to
approve the Directors' Remuneration Report contained in the Group's 2018 Annual Report and Accounts.
Votes for
% for
Votes against
% against
Total votes
cast
Votes
withheld
(abstentions)
Approval of Directors'
Remuneration report
50,529,483
80.11%
12,545,636
19.89%
60,075,119
637
Approval
This Report was approved by the Board on 19 March 2020 and signed on its behalf by:
Julia Porter
Chairman of the Remuneration Committee
19 March 2020
Directors’ Remuneration Report
Annual Report on Remuneration
Implementation of Directors' Remuneration Policy for the financial year commencing 1 January 2020
Information on how the Group intends to implement the Directors' Remuneration Policy for the financial year
commencing on 1 January 2020 is set out below.
Salary / fees
Rob Neale received an exceptional increase in his base salary, from £175,000 to £190,000 (9%) which is effective from
1 January 2020. This was the result of consideration of wider market benchmarks, his significant development in role,
additional management responsibilities assumed in early 2019 and his overall contribution to the business since he
joined. The Board is satisfied that this award is entirely appropriate.
Fiona Goldsmith's fees have increased to £55,000 (17%), effective from 1 January 2020, reflecting her additional
duties as Senior Independent Director alongside those of Audit Committee chair. Julia Porter's fees have also
increased to £55,000 (17%), also effective from 1 January 2020 reflecting her additional duties as chair of the
Compliance Committee. This is in addition to an increase to £47,000 (12%) effective from 1 August 2019 on account
of her additional duties as chair of the Remuneration Committee following Chris Davies' retirement in May 2019.
Mike Gallacher, Executive Director and Alan Lovell, Chairman waived a general cost of living increase to their base
salary and fees respectively for 2020.
Annual incentive plan
The Executive Directors' annual bonus structure will remain the same as in 2019. Executive Directors will be awarded
an annual bonus opportunity of up to 100% of salary, based on delivering against stretching PBT targets (as regards
70% of the award) and a range of strategic and personal objectives (as regards the remaining 30% of the award). This
provides a balanced scorecard approach to measuring and rewarding management performance during the year. As
with the 2019 annual incentive plan, PBT will be measured before share based payments and non-underlying items.
The strategic and personal objectives will be tailored to each individual and will focus around key performance metrics
to deliver the 2020 plan. The PBT targets and strategic and personal objectives will be disclosed retrospectively in the
2020 Annual Report on Remuneration, where further detail of performance against the targets and objectives will
also be provided.
LTIP
With the performance context for 2019, the Committee is aware that the performance thresholds in relation to the
2018 LTIP awards, which are based on performance levels that are considerably in excess of current market
expectations, look extremely unlikely to be achieved at any level. The Committee is currently reviewing this matter
and will consult with major shareholders on this point in the coming weeks.
Awards under the Performance Share Plan in 2020 are expected to reflect the usual Policy at 80% to 100% of salary
for Executive Directors. We are currently reviewing the associated performance criteria and targets and these will be
disclosed in full in the 2020 Remuneration Report.
Consideration by the Directors of matters relating to Directors' remuneration
The Committee is composed of the Group's independent Non-Executive Directors, Julia Porter (Chair), Alan Lovell
and Fiona Goldsmith. 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.
56
Annual Report & Accounts 2019
Annual Report & Accounts 2019
57
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 2019
Registered office
The registered office of Safestyle UK plc is 47 Esplanade, St Helier, Jersey, JE1 0BD.
Principal activities
Promoting the success of the Group
The Board consider, both individually and collectively, that they have acted in a way they consider, in good faith, to
promote the success of the company for the longer term. The Board fully appreciates that the business can only grow
and prosper through having regard for the views and needs of our customers, colleagues and the communities in
which we operate, as well as our suppliers, the environment and the shareholders to whom we are accountable.
The Board ensures that these requirements are met and the interests of our stakeholder groups are considered
through a combination of the following:
Ÿ Standing agenda points and papers presented at each Board meeting.
Ÿ A rolling agenda of matters to be considered by the Board throughout the year, which includes strategy review
days that consider the Group strategy for the longer-term.
Ÿ Board presentations and reports which include monthly updates on Health & Safety along with operational,
performance and people matters.
Ÿ Regular engagement with our stakeholders, including, but not limited to, suppliers, customers and employees.
Ÿ Consideration of the impact of the Company's operations on the community and the environment, and how this
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.
can be improved.
Shareholder communication
Business review
The Chairman's statement, the Chief Executive's statement and the Financial Review on pages xx to xx report on the
Group's performance during the year and future developments.
Dividends
The directors do not propose a final dividend for the year (2018: £nil).
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 2019 comprised a non-executive
chairman, two executive directors and two 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 48 to 49 provides details regarding the Audit Committee members and its
responsibilities.
Remuneration Committee
The Chairman of the Remuneration Committee is Julia Porter with Alan Lovell and Fiona Goldsmith 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 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.
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.
Directors' indemnities and insurance
Safestyle UK plc indemnifies its officers and officers of its subsidiary companies against liabilities arising from the
conduct of the Group's business, to the extent permitted by law, by the placing of directors' and officers' insurance.
The insurance policy indemnifies individual directors' and officers' personal legal liability and cost for claims arising
out of actions taken in connection with Group business.
Directors' responsibilities
The directors are responsible for preparing the financial statements in accordance with applicable law and IFRS as
adopted by the EU.
Company law requires the directors to prepare 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.
58
Annual Report & Accounts 2019
Annual Report & Accounts 2019
59
Safestyle UK plc
Strategic Report
Governance
Financials
Directors’ Report
Substantial shareholdings
As at 17 March 2020 the Group has been advised of the following interests in more than 3% of its ordinary share
capital.
Significant Shareholders
Shares Held
%
Alantra Asset Management
Janus Henderson Investors
Cambridge Global Asset Mgt
Standard Life
Invesco Advisors Inc
Jupiter Asset Management
Invesco Asset Mgt
Ruffer
15,796,480
10,016,122
8,446,452
6,650,259
4,775,000
4,175,000
3,697,816
2,628,923
19.08%
12.10%
10.20%
8.03%
5.77%
5.04%
4.47%
3.17%
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 2021, 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, excluding the potential impact of COVID-19 which is considered below, the
directors have a reasonable expectation that the Group has adequate resources to continue to trade for the
foreseeable future.
The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been separately
considered as part of the directors' consideration of the going concern basis of preparation. A number of potential
downside scenarios have been modelled and in a scenario where a total loss of written and fitted sales extends beyond
the end of April 2020 there is a risk of the liquidity requirements of the business exceeding the total quantum of
facilities available.
Based on the above indications, the directors believe that it remains appropriate to prepare the financial statements
on a going concern basis. However, the specific downside scenario detailed above would indicate the existence of a
material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and that
the Group may, as a consequence, be unable to realise its assets and discharge its liabilities in the normal course of
business.
Auditors
KPMG LLP will sign the 2019 annual report and will then retire as external auditors. Following a comprehensive
tender process, Grant Thornton UK LLP will be recommended for appointment as the Company's external auditors at
the AGM in May 2020.
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 19 March 2020
Rob Neale
Chief Financial Officer
19 March 2020
60
Annual Report & Accounts 2019
Annual Report & Accounts 2019
61
Safestyle UK plc
Strategic Report
Governance
Financials
62
Annual Report & Accounts 2019
Annual Report & Accounts 2019
63
Safestyle UK plc
Strategic Report
Governance
Financials
64
Annual Report & Accounts 2019
Annual Report & Accounts 2019
65
Safestyle UK plc
Financials
68
69
70
71
72
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 2019
Revenue
Cost of sales
Gross profit¹
Note
2019
£000
2018
£000
2,5
126,237
116,426
(94,337)
(90,549)
31,900
25,877
at 31 December 2019
Assets
Intangible assets - Trademarks
Intangible assets - Goodwill
Intangible assets - Software
Intangible assets - Other
Property, plant and equipment
Right-of-use assets
Deferred taxation asset
Other operating expenses²
(34,332)
(42,004)
Non-current assets
Consolidated Statement of Financial Position
Operating (loss)
Finance income
Finance costs³
Net finance costs
(Loss) before taxation
Underlying (loss) before taxation before non-recurring costs,
Commercial Agreement amortisation and share based payments
Non-recurring costs
Commercial Agreement amortisation
Share based payments
(Loss) before taxation
Taxation
(Loss) for the year
Basic EPS (pence per share)
Diluted EPS (pence per share)
6
12
7
14
32
13
9
9
(2,432)
(16,127)
2
(1,402)
(1,400)
7
(142)
(135)
(3,832)
(16,262)
(1,518)
(1,850)
(452)
(12)
(8,744)
(7,817)
(75)
374
(3,832)
(16,262)
526
2,964
(3,306)
(13,298)
(4.0p)
(4.0p)
(16.1)p
(16.1)p
¹Prior year gross profit includes £801k of non-recurring items. Adjusting for this gives underlying gross profit of £26,678k in
2018. See Financial Review for details.
²Other operating expenses includes £1,850k of non-recurring items, £452k of Commercial Agreement amortisation and £12k
of share based payments. Adjusting for these gives underlying other operating expenses of £32,018k. See Financial Review
for details.
³Finance costs includes £526k of IFRS 16 related interest costs (see IFRS 16 note).
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.
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
Lease liabilities
Deferred taxation liability
Provision for liabilities and charges
Current liabilities
Provision for liabilities and charges
Lease Liabilities
Borrowings
Non-current liabilities
Total liabilities
Total equity and liabilities
68
Annual Report & Accounts 2019
Annual Report & Accounts 2019
69
The accompanying notes form part of the financial statements. The financial statements were approved by the Board of
Directors and authorised for issue on 19 March 2020 and were signed on their behalf by:
R Neale
Chief Financial Officer
Note
14
14
14
14
15
26
16
17
18
19
20
21
26
22
23
23
26
24
2019
£000
504
20,758
1,122
1,736
12,633
6,012
886
2018
£000
504
20,758
1,346
2,188
14,213
-
693
43,651
39,702
2,725
-
3,999
4,435
2,416
2,287
4,478
4,163
11,159
13,344
54,810
53,046
828
81,845
10,009
(66,527)
828
81,845
13,347
(66,527)
26,155
29,493
15,384
2,482
17
990
15,286
-
53
1,123
18,873
16,462
1,891
3,900
3,991
9,782
3,188
-
3,903
7,091
28,655
23,553
54,810
53,046
Safestyle UK plc
Strategic Report
Governance
Financials
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
for the year ended 31 December 2019
for the year ended 31 December 2019
Share
capital
Share
premium
Profit and
loss account
£000
£000
£000
Common
control
transaction
reserve
£000
Total
equity
£000
Balance at 1 January 2018
Total comprehensive (loss) for the year
Transactions with owners recorded directly in equity:
Equity settled share based payment transactions (see note 32)
Deferred taxation asset taken to reserves (note 16)
Equity settled Commercial Agreement (see note 14)
Balance at 31 December 2018
Total comprehensive (loss) for the year
Transactions with owners recorded directly in equity:
Deferred taxation asset taken to reserves (see note 16)
Equity settled share based payment transactions (see note 32)
828
-
81,845
-
24,712
(13,298)
(66,527)
-
40,858
(13,298)
-
-
-
-
-
-
(374)
44
2,263
-
-
-
(374)
44
2,263
828
-
81,845
-
13,347
(3,306)
(66,527)
-
29,493
(3,306)
-
-
-
-
(44)
12
-
-
(44)
12
Balance at 31 December 2019
828
81,845
10,009
(66,527)
26,155
The accompanying notes form part of the financial statements.
Note
15
26
14
12
14
6
32
13
1
1
15
14
24
26
Cash flows from operating activities
(Loss) for the year
Adjustments for:
Depreciation of plant, property and equipment
Depreciation and impairment of right-of-use assets
Amortisation of intangible fixed assets
Finance income
Finance expense
IT project impairment
Loss on sale of plant, property and equipment
Equity settled share based payments charge / (credit)
Taxation (credit)
(Increase) in inventories
Decrease in trade and other receivables
Increase in trade and other payables
(Decrease) / increase in provisions
IFRS 16 prepaid lease costs
IFRS 16 onerous leases
Other interest (paid)
Taxation received / (paid)
Net cash inflow / (outflow) 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
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from loans and borrowings
Transaction costs relating to loans and borrowings
Payment of lease liabilities
Net cash (outflow) / inflow from financing activities
Net inflow / (outflow) in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
The accompanying notes form part of the financial statements.
2019
£000
(3,306)
1,666
4,322
904
(2)
1,402
113
-
12
(526)
4,585
(309)
479
98
(1,430)
(413)
67
(1,508)
(1,079)
2,540
4,538
(86)
-
2
-
(341)
(425)
-
(235)
(3,606)
(3,841)
272
4,163
4,435
2018
£000
(13,298)
1,715
-
400
(7)
142
-
42
(374)
(2,964)
(14,344)
(384)
81
4,422
2,282
-
-
6,401
(142)
(757)
(8,842)
(1,028)
(30)
7
33
(855)
(1,873)
3,903
-
-
3,903
(6,812)
10,975
4,163
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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 2019.
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.
1
Basis of preparation
The Group's financial statements for the year ended 31 December 2019 (“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
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)
(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 Amendments to References to the Conceptual Framework in IFRS Standards (effective 1 January 2020)
Ÿ Amendments to IAS 1 and IAS 8 (effective 1 January 2020)
Ÿ Amendments to IFRS 7, IFRS 9 and IAS 39 (effective 1 January 2020)
Changes in significant accounting policies
IFRS 16 Leases transition
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17.
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining
Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the new definition
of a lease. Under IFRS 16, a contract is, or contains a lease, if the contract conveys a right to control the use of an identified asset for a
period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to continue to apply the outcome of the assessments made
under IAS17 of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that
were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 has been applied only
to contracts entered into or changed on or after 1 January 2019.
On transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining
lease payment, discounted at the Group's incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at an
amount equal to the lease liability and adjusted for any prepayment in place.
On transition, the Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating
leases under IAS 17.
Ÿ Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term.
Ÿ Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
Ÿ
Safestyle has decided to rely on its view of whether leases are onerous applying IAS 37 Provisions, Contingent Liabilities and
Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review.
Ÿ Applied the low value exemption when defining right-of-use assets and liabilities.
Impact on financial statements
On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities. The impact on transition is
summarised below.
Right-of-use assets
Property, plant and equipment
Motor Vehicles
Plant & Equipment
Right-of-use assets
Lease liabilities
Property, plant and equipment
Motor Vehicles
Plant & Equipment
Lease liabilities
Reconciliation between assets and liabilities at transition:
Lease liabilities
Prepayments relating to IFRS 16 Leases at 31 December 2018
Onerous leases
Right-of-use-assets
When measuring lease liabilities for leases that were classified as operating leases, the Group
discounted lease payments using its incremental borrowing rate at 1 January 2019. The rate
applied is 7%.
Operating lease commitment at 31 December 2018 as disclosed in the Group's consolidated
financial statements
Discounted using the incremental borrowing rate at 1 January 2019
Finance lease liabilities recognised as at 31 December 2018
Recognition exemption for leases with less than 12 months lease term at transition
Lease liabilities recognised at 1 January 2019
1 Jan 2019
£000
6,088
3,360
293
9,741
£000
5,831
3,271
293
9,395
£000
9,395
413
(67)
9,741
£000
12,470
9,409
-
(14)
9,395
Impact for the period
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised
£9,741k right-of-use assets and £9,395k of liabilities as at 1 January 2019.
Also in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease
expense. In relation to leases under IFRS 16, during the year, the Group recognised £3,835k of depreciation charges and £526k of
interest costs from these leases. The P&L impact of adopting IFRS 16 versus accounting under IAS 17 is a cost of £42k in 2019.
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 2019. The actual trading cut-off date for the year end fluctuates
year on year and is based on the nearest Sunday to the end of December.
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Notes to the Consolidated Financial Statements
1
Basis of preparation (continued)
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 £(3.3)m in the year to 31 December 2019 (2018: (loss) of £(13.3)m) and had net current liabilities of
£7.7m at 31 December 2019 (2018: net current liabilities of £3.1m). The Group is financed by a £4.5m term loan and a £3.0m revolving
credit facility, which matures in October 2021, after being extended by one year during 2019. The finance agreement contains certain
covenants, including a minimum EBITDA to be tested on a cumulative monthly basis, which has been revised during 2019 such that the
minimum EBITDA for covenant compliance has been reduced in 2019 and 2020. As at 31 December 2019, the £4.5m term loan was fully
drawn on the facility, while the revolving credit facility was unutilised. At the end of February 2020, £2.0m of the revolving credit facility
has been drawn down and the Group's net cash position was £0.1m (February 2019: net debt of £2.5m).
The Directors have prepared forecasts covering the period to December 2021, built from the detailed Board approved budget for 2020.
The forecasts include a number of assumptions in relation to sales volume and pricing growth, and margin improvements.
Whilst the Group's trading and cash flow forecasts have been prepared using current trading assumptions, the operating environment
presents a number of challenges which could negatively impact the actual performance achieved. Excluding the potential impact of
COVID-19 which is considered below, these risks include, but are not limited to, achieving forecast levels of order intake, the impact on
customer confidence as a result of general economic conditions and Brexit, achieving forecast margin improvements and the director's
ability to implement cost saving initiatives in areas of discretionary spend where required. If future trading performance significantly
underperforms the Group's forecasts, this could impact the ability of the Group to comply with its covenant tests over the period of the
forecasts.
The Group's cash flow forecasts and projections, taking account of reasonably possible changes in trading performance excluding the
potential impact of COVID-19 (which is considered below), offset by mitigating actions within the control of management including
reductions in areas of discretionary spend, show that the Group will be able to operate within the level of its facilities and associated
covenants for a period of at least the duration of the facility agreement. The Group has started the year well, with profit and order intake
ahead of prior year which the directors believe further supports this basis of preparation.
The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been separately considered as part of the
directors' consideration of the going concern basis of preparation. Thus far, the Group has not observed any material impact in trading
performance due to COVID-19. In the downside scenario analysis performed, the directors have considered the reasonably plausible
impact of the COVID-19 outbreak on the Group's trading and cash flow forecasts. In preparing this analysis, a number of scenarios were
modelled ranging from a 30% drop in written and fitted sales both in April and May 2020, followed by a recovery through June, to a total
loss of written and fitted sales for April 2020 followed by a recovery through the first half of May 2020. In each scenario, mitigating actions
within the control of management, including reductions in areas of discretionary spend, have been modelled, but no fixed cost reductions
have been assumed. It is difficult to predict the overall outcome and impact of COVID-19 at this stage and the duration of disruption to
written and fitted sales activity could be longer than anticipated. However, under the scenarios modelled, there is a risk of breaching the
Group's financial covenants and in a scenario where a total loss of written and fitted sales extends beyond the end of April 2020 there is a
risk of the liquidity requirements of the business exceeding the total quantum of facilities available.
The directors note the financial support commitment made by the UK Government as part of a £330bn funding package to support
businesses on 17 March 2020. Whilst there is still uncertainty around this, the directors believe, based on the initial details circulated as
part of the announcement, that the Group would qualify for financial support.
Based on the above indications the directors believe that it remains appropriate to prepare the financial statements on a going concern
basis. However, the specific downside scenario detailed above would indicate the existence of a material uncertainty which may cast
significant doubt on the Group's ability to continue as a going concern and that the Group may, as a consequence, be unable to realise its
assets and discharge its liabilities in the normal course of business.
The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
2
Summary of significant accounting policies
Revenue recognition
The Group earns revenues from the sale, design, manufacture and installation of domestic double-glazed replacement windows and doors.
There is no significant judgement involved in the estimation of revenues and no material contract assets or liabilities are recognised. IFRS
15 requires revenue earned from contracts to be recognised in line with performance obligations based on a five-step model.
Safestyle recognises revenue based on the stand-alone selling price of each performance obligation. The selling price is determined based
on the contract agreed with the customer. Subsidies payable by Safestyle to third party finance providers where the customer takes out a
finance product are recognised as a reduction to revenue. On inception of the contract the performance obligation is identified for each of
the distinct goods or services to be provided to the customer. The following summarises the performance obligations identified and
provides information on the time of when they are satisfied and the related revenue recognition policy.
Revenue on sale of windows and doors
The performance obligation in this case is the manufacture and final installation of products. This doesn't meet the criteria for over-time
recognition as control transfers to the customer on the completion of the installation and subsequent customer approval. Revenue is
recognised at this point and payment is due on installation.
Survey fees
The survey fee is payable in advance of the survey being carried out. For customers that proceed with the contract to purchase, the amount
received is treated as an advance payment and is recognised as revenue when the installation services are provided. For customers that do
not proceed to purchase, the amount received for survey fees is recognised at the point at which the survey fee becomes non-refundable,
which is after a period of time defined in the contract.
Non-recurring items
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.
Cost of sales
Cost of sales principally comprises the costs of materials, direct labour, commissions and lead generation.
Employee benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due.
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment.
Intangible fixed assets
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
Commerical 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.
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2
Summary of significant accounting policies (continued)
Impairment
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
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.
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.
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.
Taxation
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.
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.
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.
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 borrowings
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.
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 (policy applicable from 1 January 2019)
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17.
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Provisions
As a lessee
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-taxation 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 Annual Report and Accounts 2018.
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
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method
less the expected credit loss (ECL) allowance. Appropriate loss allowances for estimated irrecoverable amounts are recognised in the
income statement 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).
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured
at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease
term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use
asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of
the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
Ÿ
Ÿ
Ÿ
Ÿ
Ÿ
Ÿ
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that the Group is reasonably certain to exercise,
lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and
penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, there is a change in the Group's estimate of the amount expected to be payable
under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination
option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, to
the extent that the right-of-use asset is reduced to nil, with any further adjustment required from the remeasurement being recorded in
profit or loss.
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Notes to the Consolidated Financial Statements
2
Summary of significant accounting policies (continued)
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for lease of low-value assets and short-term leases. The
Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Share based payments
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value
of the awards granted is measured using an option valuation model, taking into account the terms and conditions upon which the awards
were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and
non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number
of awards that do meet the related service and non-market performance conditions 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.
4
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.
Assumptions and estimation uncertainties
The assessment of whether trade receivables are recoverable is subject to management judgement. 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 provisions
The Group has a number of 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.
Recoverability of deferred taxation asset
The deferred taxation asset of £886k has been recognised on the basis that the Group is forecasting to make sufficient levels of profits
in future periods in line with the Turnaround Plan. Further details can be found in note 16.
Where the fair value of the goods or services received cannot be reliably estimated, the entity measures the goods or services received,
and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the
date the entity obtains the goods or the counterparty renders service.
5
Segmental information
Dividends
Dividends are only recognised as a liability to the extent that they are declared prior to the year end.
3
Financial risk management
Financial risk factors
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.
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.
The Group 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.
Risk management is carried out by the Board of Directors. They identify and evaluate financial risks in close co-operation with key
employees.
6
Expenses and auditor's remuneration
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.
Operating (loss) is stated after charging:
Depreciation of plant, property and equipment:
Owned assets
Amortisation of intangibles assets
Depreciation and impairment on right-of-use 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
2019
£000
2018
£000
1,666
1,017
4,322
-
-
-
91
39
24
1,715
400
-
42
3,396
1,488
70
30
12
78
Annual Report & Accounts 2019
Annual Report & Accounts 2019
79
Safestyle UK plc
Strategic Report
Governance
Financials
Notes to the Consolidated Financial Statements
7
Non-recurring costs
Product guarantees provision
Non-recurring costs charged to cost of sales
Litigation Costs
Restructuring and operational costs
Fines
Onerous Leases
Impairment of right-of-use assets
Commercial Agreement costs
Commercial Agreement service fee
Non-recurring pay awards
IT project impairment
Dilapidations provision
Non-recurring items charged / (credited) to other operating expenses
Total non-recurring costs
Note
a
b
c
d
e
f
g
h
i
j
k
2019
£000
-
-
-
1,058
-
-
692
-
(13)
-
113
-
1,850
1,850
2018
£000
801
801
1,912
1,167
1,079
294
-
311
1,000
635
-
618
7,016
7,817
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
As part of a review by management of provisions made for the Group's future obligations in 2018, a revision to the estimates
used for future product guarantee claims was made which management considered more accurately reflected the Group's
obligations. £801k represented the impact on 2017 had this change in estimate been retrospectively applied.
Litigation costs are expenses incurred as a result of the NIAMAC litigation in 2018. These costs were predominantly legal
advisor's fees.
Restructuring costs are expenses incurred, including redundancy payments, as a result of changes being made to reduce the
cost structure of the business as part of the Turnaround Plan described in the CEO’s Statement.
Fines relate to the HSE and WYTS fines incurred in 2018.
Onerous leases represent an accrual for all rental costs up until the first lease break date for properties that were closed in the
prior year.
Impairment costs relate to vacating properties recognised as assets under IFRS 16 where the lease commitment extends
beyond 2019.
Commercial Agreement costs are expenses incurred in securing the Commercial Agreement in 2018. These costs consisted 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. The provision was adjusted based on the actual performance in
2019 and a £13k reduction in the 2018 provision has been made.
Non-recurring pay awards relate to the bonus payments made to executives in 2018. These were 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.
This charge represents the impairment of a capital investment made in a new electronic survey system that was stopped
following results of field trials.
The accounting policy for providing for exit obligations on leased property, principally dilapidations, was also assessed in
2018. In previous years, no provision has been made for these. Management concluded that a provision was appropriate
based on new circumstances during the prior 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.
8
Dividends
No final dividend in relation to 2019 was declared and no dividends were paid or declared in 2018.
9
Earnings per share
a) Basic earnings per share
The calculation of basic earnings per share has been based on the following (loss) attributable to ordinary shareholders and weighted-
average number of shares outstanding.
i) (Loss) attributable to ordinary shareholders (basic)
2019
£000
2018
£000
(Loss) attributable to ordinary shareholders
(3,306)
(13,298)
ii) Weighted-average number of ordinary shares (basic)
In issue during the year
b) Diluted earnings per share
No. of shares
‘000
82,809
No. of shares
‘000
82,809
*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 loss 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) attributable to ordinary shareholders (diluted)
2019
£000
2018
£000
(Loss) attributable to ordinary shareholders
(3,306)
(13,298)
ii) Weighted-average number of ordinary shares (diluted)
Weighted-average number of ordinary shares (basic)
Effect of conversion of share options and share consideration
No. of shares
‘000
82,809
7,166
No. of shares
‘000
82,809
2,270
89,975
85,079
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.
10
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:
Basic earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)*
80
Annual Report & Accounts 2019
2019
(4.0)
(4.0)
2018
(16.1)
(16.1)
Details of long term incentive plans can be found in note 32.
Salary, bonus and other benefits
Pensions
Share based payments and associated costs
Compensation on loss of office
Total remuneration
2019
£000
1,823
78
161
135
2,197
2018
£000
2,356
64
201
19
2,640
Annual Report & Accounts 2019
81
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Strategic Report
Governance
Financials
11
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 were as follows:
Wages and salaries
Social security costs
Other pension costs (see note 27)
Share based payments (credit) / expenses (see note 32)
The analysis of Directors' remuneration is shown in the Directors Remuneration Report.
12
Finance costs
On borrowing facility
On lease liabilities
2019
Number
2018
Number
276
90
291
657
2019
£000
18,927
1,920
789
12
21,648
2019
£000
876
526
1,402
316
96
312
724
2018
£000
19,409
1,886
777
(374)
21,698
2018
£000
142
-
142
Notes to the Consolidated Financial Statements
10
Key management remuneration (continued)
Detailed disclosures of individual remuneration, pension entitlements and share options, for the Directors who served during the
year are as follows:
2019
Executive directors
M Gallacher
R Neale
G Richell
Non-executive
A C Lovell
C J Davies
F Goldsmith
J Porter
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
Salary
and fees
£000
Benefits
£000
Annual
bonus
£000
LTIP
Pension
£000
£000
275
175
146
120
20
47
44
827
183
81
175
121
66
55
48
16
7
19
46
817
21
14
10
-
-
-
-
45
11
6
13
15
4
-
-
-
-
-
-
49
-
-
-
-
-
-
-
-
350
100
164
-
-
-
24
-
-
-
-
638
15
9
-
111
-
-
-
135
-
-
-
-
-
-
-
-
-
-
-
-
22
14
9
-
-
-
-
45
-
6
15
10
5
-
-
-
-
-
-
36
Total
£000
333
212
165
231
20
47
44
1,052
544
193
367
146
75
55
72
16
7
19
46
1,540
G Richell resigned from the Board on the 5th March 2019 and his fees therefore reflect a part year.
C Davies resigned from the Board on the 16th May 2019 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 2019 in the Group's
share schemes were as follows:
G Richell
M Gallacher
R Neale
G Richell
A C Lovell
M Gallacher
R Neale
Plan
LTIP 2017
LTIP 2018
LTIP 2018
LTIP 2018
Individual
LTIP 2019
LTIP 2019
Options
held at start
of period
Options
granted
in period
Options
exercised
in period
Options
lapsed in
period
Options
held at end
of period
41,913
733,333
350,000
350,000
250,000
-
-
1,725,246
-
-
-
-
-
200,000
127,273
327,273
-
-
-
-
-
-
-
-
-
-
-
(275,845)
-
-
-
-
41,913
733,333
350,000
74,155
250,000
200,000
127,273
2,052,519
82
Annual Report & Accounts 2019
Annual Report & Accounts 2019
83
Safestyle UK plc
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Governance
Financials
Notes to the Consolidated Financial Statements
13
Taxation
Recognised in the statement of comprehensive income
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)
Total taxation (credit)
The current year taxation (credit) is split into the following:
Taxation (credit)
Total taxation (credit)
Reconciliation of effective taxation rate
Current taxation reconciliation
(Loss) for the year
Total taxation (credit)
(Loss) excluding taxation
Expected taxation (credit) based on the standard rate of corporation taxation in the
UK of 19.00% (2018: 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)
2019
£000
2018
£000
-
(253)
(253)
(489)
45
171
(273)
(526)
(526)
(526)
2019
£000
(3,306)
(526)
(3,832)
(2,461)
155
(2,306)
(658)
-
-
(658)
(2,964)
(2,964)
(2,964)
2018
£000
(13,298)
(2,964)
(16,262)
(728)
(3,090)
229
10
(82)
45
143
(127)
155
(45)
(526)
(2,964)
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September
2016, and the UK deferred taxation asset/(liability) as at 31 December 2019 has been calculated based on this rate. In the 11 March
2020 Budget it was announced that the UK taxation rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This
will have a consequential effect on the group’s future tax charge. If this rate change had been substantively enacted at the current
balance sheet date the deferred taxation asset would have increased by £104k.
14
Intangible assets
Cost
At 1 January 2018
Additions
Transfer
At 31 December 2018
Additions
Transfer
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2018
Charge for the year
At 1 January 2019
Charge for the year
Impairment charge
At 31 December 2019
Goodwill
Trademark
Software
£000
£000
£000
Assets under
the course of
construction
£000
Commercial
Agreement
£000
Total
£000
20,758
30
-
20,788
-
-
20,788
-
30
30
-
-
30
504
-
-
504
-
-
504
-
-
-
-
-
-
1,717
-
579
2,296
-
606
2,902
1,094
295
1,389
452
-
1,841
907
1,061
163
855
(579)
439
341
(606)
174
-
-
-
-
113
(113)
439
61
-
2,263
-
2,263
-
-
2,263
-
75
75
452
-
527
23,142
3,148
-
26,290
341
-
26,631
1,094
400
1,494
904
113
2,511
2,188
1,736
24,796
24,120
NBV at 31 December 2018
NBV at 31 December 2019
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 2019. For the review at 31 December 2019, the recoverable
amount of the CGU has been determined from value in use calculations based on cash flow projections covering a three year period to
31 December 2022. After the third year a sales growth of 2% has been applied into perpetuity based on the expected inflation rate.
The assessment was performed on a value in use basis using a 9% discount rate (2018: 7%) and the following year's budget as approved
by the Board, followed by a forecast for 2022. Sales growth assumptions are 7% in 2020, 7% in 2021 and 8% in 2022. There are no
reasonably possible changes 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 share consideration that the Group expects to issue under the terms of the
Commercial Agreement as described in the Financial Review 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. Under the terms of the agreement, 4,000,000
shares will be issued in October 2020.
15
Plant, property and equipment
Freehold
property
Leasehold
improvement
Plant and
machinery
£000
£000
£000
Office and
computer
equipment
£000
Motor
vehicles
£000
Assets under
the course of
construction
£000
Cost
At 1 January 2018
Additions
Transfers
Disposals
At 31 December 2018
Additions
Transfers
At 31 December 2019
Depreciation
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018
Charge for the year
At 31 December 2019
NBV at 31 December 2018
NBV at 31 December 2019
9,281
-
219
-
9,500
-
7
9,507
413
185
-
598
185
783
8,902
8,724
337
-
88
-
425
-
-
425
58
101
-
159
124
283
266
142
10,147
-
546
(708)
9,985
-
68
10,053
4,963
1,167
(635)
5,495
1,106
6,601
4,490
3,452
1,440
-
217
(2)
1,655
-
34
1,689
863
262
-
1,125
251
1,376
530
313
8
-
-
-
8
-
-
8
6
-
-
6
-
6
2
2
Total
£000
21,278
1,028
-
(710)
21,596
86
-
21,682
6,303
1,715
(635)
7,383
1,666
9,049
65
1,028
(1,070)
-
23
86
(109)
-
-
-
-
-
-
-
23
-
14,213
12,633
84
Annual Report & Accounts 2019
Annual Report & Accounts 2019
85
Safestyle UK plc
Strategic Report
Governance
Financials
Notes to the Consolidated Financial Statements
16
Deferred taxation asset
Balance at beginning of period
Movement in deferred taxation asset on losses recognised in income
Movement in deferred taxation asset on share based payments recognised in income
Share based payments (charge) / credit recognised in equity
Balance at end of period
The deferred taxation asset provided in the financial statements at 17% (2018: 17%) is as follows:
Losses
Share based payments
2019
£000
693
244
(7)
(44)
886
2019
£000
853
33
886
2018
£000
28
609
12
44
693
2018
£000
609
84
693
Opening provision against trade receivables
Provision utilised in year
Expensed in year
Closing provision for trade receivables
19
Cash and cash equivalents
Cash and cash equivalents
Balance at end of period
2019
£000
1,206
(611)
477
1,072
2019
£000
4,435
4,435
2018
£000
1,045
(573)
734
1,206
2018
£000
4,163
4,163
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 £470k (2018: £1,575k) 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.
20
Share capital
There are no unrecognised taxation losses (2018: £nil).
Authorised
The deferred taxation asset of £886k has been recognised on the basis that the Group is forecasting to make sufficient levels of
profits in future periods in line with the turnaround plan.
17
Inventories
Raw materials and consumables
Work in progress
Finished goods
Stock recognised in cost of sales during the period was £21,434k (2018: £21,264k).
18
Trade and other receivables
Trade receivables (net of provisions)
Other receivables
Prepayments and accrued income
2019
£000
2,149
42
534
2,725
2019
£000
1,702
16
2,281
3,999
2018
£000
1,702
53
661
2,416
2018
£000
2,184
22
2,272
4,478
Contractual payment terms with the Group's customers are typically zero days. Payment is due upon installation. The above
receivables are shown net of the following provisions for doubtful debts.
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
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
2019
£000
2018
£000
778
1
24
25
2
-
-
-
(1)
(1)
-
-
828
778
1
24
25
2
-
-
-
(1)
(1)
-
-
828
778
1
24
25
2
-
-
-
(1)
(1)
-
-
828
778
1
24
25
2
-
-
-
(1)
(1)
-
-
828
86
Annual Report & Accounts 2019
Annual Report & Accounts 2019
87
Safestyle UK plc
Strategic Report
Governance
Financials
Notes to the Consolidated Financial Statements
21
Trade and other payables
Trade payables
Other taxation and social security costs
Other payables
Accruals and deferred income
22
Deferred taxation liability
Balance at beginning of period
(Credit) to The Consolidated Income Statement for the period
Balance at end of period
The deferred taxation asset provided in the financial statements at 17%
(2018: 17%) is as follows:
Capital allowances in excess of depreciation
23
Provisions for liabilities and charges
2019
£000
6,675
2,167
3,197
3,345
2018
£000
5,921
2,905
2,305
4,155
15,384
15,286
2019
£000
53
(36)
17
17
17
2018
£000
90
(37)
53
53
53
Dilapidations
Product guarantees
Commercial Agreement
Total
2019
£000
767
(182)
203
-
-
788
201
587
788
2018
£000
2019
£000
2018
£000
-
-
767
-
-
767
279
488
767
2,544
(1,187)
736
-
-
2,093
789
1,304
2,093
2,029
(1,197)
1,712
-
-
2,544
844
1,700
2,544
2019
£000
1,000
-
-
(13)
(987)
-
-
-
-
2018
£000
-
-
1,000
-
-
1,000
-
1,000
1,000
2019
£000
2018
£000
4,311
(1,369)
939
(13)
(987)
2,881
990
1,891
2,881
2,029
(1,197)
3,479
-
-
4,311
1,123
3,188
4,311
Balance at beginning of year
Utilised in year
Provided in year
Released in year
Reclassified in year to accruals
Balance at end of year
Current
Non current
Balance at end of year
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
warranty provision is made for the expected future costs of rectifying faults arising within the guarantee period and then discounted
at 9% 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 Financial Review. The cash consideration is confirmed at
£987k and is payable in October 2020. As there is no estimation involved the £987k is recognised as an accrual at 31 December 2019.
24
Borrowing facilities
The total borrowing facilities available at 31 December 2019 were as follows:
Amounts drawn down
Facilities available
Nominal
interest rate
Maturity
date
2019
£000
2018
£000
2019
£000
2018
£000
Term bank loan
Revolving credit facility
Less: Prepaid arrangement fees²
LIBOR + 7.0%
LIBOR + 7.0%¹
October 2021
October 2021
4,500
-
(509)
3,991
4,500
-
(597)
3,903
4,500
3,000
-
7,500
4,500
3,000
-
7,500
¹Interest is payable monthly and is charged at the 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 term of the facility which expires in October 2021.
Changes in loans and borrowings from financing activities
At 1 January 2019
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of borrowings
2019
£000
3,903
2,500
(2,500)
2018
£000
-
4,500
-
Total changes from financing activities
-
4,500
Other changes
Transaction costs capitalised
Interest expense
Interest paid
Total liability-related other changes
At 31 December 2019
25
Financial instruments
(235)
876
(553)
88
3,991
(651)
142
(88)
(597)
3,903
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 2019, £4,500k of loans were outstanding (2018: £4,500k). The capital structure of the Group consists of equity,
comprising issued share capital. The Group has no externally imposed capital requirements.
In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
Ÿ 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.
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25
Financial instruments (continued)
Financial assets
At the reporting date, the Group held the following financial assets:
Trade receivables
Other receivables
Cash and cash equivalents
Financial liabilities
2019
£000
1,702
16
4,435
6,153
2018
£000
2,184
22
4,163
6,369
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
Market risk
2019
£000
6,675
3,197
3,991
13,863
2018
£000
5,921
2,305
3,903
12,129
The Group is not materially exposed to changes in foreign currency exchange rates or interest rate movements.
Trade receivables totalling £519k (2018: £531k) are secured by charges against the debtors' properties.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group.
Credit risk arises principally from the Group's cash balances and trade and other receivables. The concentration of the Group's
credit risk is considered by counterparty.
The Group gives careful consideration to which organisation it uses for its banking services in order to minimise credit risk. The
Group has a significant concentration of cash held in accounts with one large bank in the UK, an institution with an A credit rating
(long term, as assessed by Moody's). The amounts of cash held on deposit with that bank at each reporting date can be seen in the
financial assets table above. All of the cash and cash equivalents held with that bank at each reporting date were denominated in
UK Sterling.
The nature of the Group's business and current stage of its development are such that customers comprise a significant proportion
of its trade and other receivables at any point in time. The Group mitigates the associated risk by close monitoring of the debtor
ledger.
At 31 December 2019, the Group's trade receivables balance was £1,702k (2018: £2,184k). 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.
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.
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).
Debt over 1 yr old
Specific Debtors to be written off
Standing Orders
Debt less than 1 yr old
Debt with charges over property
Weighted average
loss rate
100.0%
100.0%
33.0%
26.0%
0.0%
In 2018, debt over 1 year old with charges over property were provided at 100%. Due to recent recovery rates observed
when assessing the ECL, no provision has been made in 2019.
The following table provides information about the exposure to ECLs for trade receivables at 31 December 2019.
< 1 month overdue
1-2 months overdue
2-3 months overdue
3-12 months overdue
> 1 Year
Total receivables
Gross
2019
£000
454
259
121
674
1,266
2,774
Loss
allowance
2019
£000
(12)
(11)
(9)
(361)
(679)
(1,072)
Net
2019
£000
442
248
112
313
587
1,702
Gross
2018
£000
624
416
327
1,015
1,008
3,390
Loss
allowance
2018
£000
(19)
(18)
(5)
(156)
(1,008)
(1,206)
Net
2018
£000
605
398
322
859
-
2,184
All debtors are categorised the same and are not credit impaired. The range of reasonably possible outcomes within the next
financial year is that debtors provided for of £1,072k may be recovered in full or some of the unprovided debtors may become
irrecoverable.
£519k of trade receivables over one year overdue (2018: £531k) and are secured by fixed charges over properties and therefore
no provision is made for these balances. £68k of the balance relates to customers setup on standing order (2018: £40k).
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 2019, the Group had £4,435k (31 December 2018: £4,163k) of cash reserves. After deducting borrowings of
£3,991k, which are stated net of arrangement fees, net cash of the Group was £444k at the end of the year (2018: £260k). The
£3,000k revolving credit facility was undrawn at the end of the year. The Group had net cash of £0.1m at the end of February 2020
(Feb 2019: net debt of £(2.5)m.
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.
The Group's borrowing facility was extended by one year during 2019 and matures in October 2021. 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.
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26
IFRS 16
Assets
Balance at 1 January 2019
Additions
Depreciation
Impairment
31 December 2019
Liabilities
Balance at 1 January 2019
Payment
Additions
Interest
31 December 2019
Properties
Motor vehicles
Equipment
Total
6,088
219
(1,140)
(487)
4,680
5,831
(1,371)
219
367
5,046
3,360
374
(2,540)
-
1,194
3,271
(2,597)
374
145
1,193
3,271
(2,452)
(2,452)
374
145
(145)
374
1,193
293
-
(155)
-
138
293
(164)
-
14
143
9,741
593
(3,835)
(487)
6,012
9,395
(4,132)
593
526
6,382
293
9,395
(150)
(150)
(3,606)
(3,606)
-
14
(14)
-
143
593
526
(526)
593
6,382
Reconciliation of movements of liabilities to cash flows arising from financing activities
Balance at 1 January 2019
Changes from financing cash flows
Payment of lease liabilities
Total changes from financing cash flows
Other changes
New leases
Interest expense
Interest paid
Total liability-related other changes
Balance at 31 December 2019
5,831
(1,004)
(1,004)
219
367
(367)
219
5,046
The interest expense recognised in the profit and loss statement is in the table above. No expenses relating to short-term leases and low-
value leases has been recognised.
The total cash outflow for leases is £4,132k. This comprises the payment of lease liabilities of £3,606k and the interest paid £526k.
Liabilities - classification
The following table sets out a maturity analysis of lease liabilities:
Current (<1 year)
Long term (>1 year)
27
Pension costs
Properties
Motor vehicles
Equipment
1,404
3,642
5,046
976
217
1,193
102
41
143
Total
2,482
3,900
6,382
The charge for the period amounts to £789k (2018: £777k) and relates to contributions paid into a money purchase scheme in the period.
28
Commitments
At 31 December, the future minimum lease payments under non-cancellable leases were payable as follows:
29
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
Style Group Holdings Limited
Style Group Limited*
HPAS Limited*
Windowstyle UK Limited*
Safestyle UK Limited*
Style Group Europe Limited*
Safeglaze (Milnrow) Ltd* / **
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
*Owned Indirectly
** Safeglaze (Milnrow) Ltd was dissolved on 4th February 2020.
The registered address of all companies is Style House, 14 Eldon Place, Bradford, BD1 3AZ.
30
Related party transactions
During the year ended 31 December 2019 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 (2018: £3.2m) and received no dividends
(2018: £nil). At the year end, total amounts receivable from subsidiaries were £9.7m (2018: £9.6m).
Transactions with key management personnel are shown in note 10.
31
Ultimate controlling party
Safestyle UK plc is quoted on the stock exchange (AIM) and ultimate control is exercised by the shareholders.
32
Share based payments
At 31 December 2019 the Group had the following share based payment arrangements:
LTIP
The Group operates an equity-settled LTIP remuneration scheme for Directors and certain management ("LTIP 2017", "LTIP 2018"
& "LTIP 2019").
On 27th June 327,273 options were granted, in addition to 820,375 options granted on 25th June ("LTIP 2019"). 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:
2019
2018
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
3,223,600
1,147,648
-
-
(1,146,423)
3,224,825
-
£0.17
£nil
-
-
£0.47
£nil
-
907,359
2,788,163
-
-
(471,922)
3,223,600
-
£1.51
£nil
-
-
£0.37
£0.17
-
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
2019
£000
-
-
-
-
-
-
-
-
2018
£000
2,907
1,136
198
146
1,431
4,428
2,224
12,470
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
Lease costs are accounted for under IFRS 16 in 2019 and under IAS 17 in 2018. In 2018, £4,884k was recognised in the consolidated
statement of comprehensive income. There were no capital commitments at 31st December 2019 (2018: £nil)
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32
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 period.
LTIP 2019
LTIP 2019
LTIP 2018
LTIP 2018
LTIP 2018
LTIP 2017
Grant date
Vesting date
Lapsing date
Risk free interest rate
Expected volatility
Expected option life (in years)
Weighted average exercise price
Weighted average fair value of
options granted
Dividend yield
Remaining contractual life
25/06/2019
25/06/2022
25/06/2029
0.52%
61.22%
3.00
£0.00
27/06/2019
27/06/2022
27/06/2029
0.56%
60.79%
3.00
£0.00
19/10/2018
18/06/2021
19/10/2028
0.85%
60.90%
2.67
£0.00
15/08/2018
18/06/2021
15/08/2028
0.75%
51.90%
2.84
£0.00
18/06/2018
18/06/2021
18/06/2028
0.78%
47.10%
3.00
£0.00
10/04/2017
10/04/2020
10/04/2027
0.15%
33.60%
3.00
£0.00
64.70p
0.00%
9.50
65.20p
0.00%
9.49
56.60p
0.00%
8.81
33.00p
0.00%
8.63
55.90p
0.00%
8.47
256.00p
5.71%
7.28
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.
Prior to 2019, 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. For 2019 options, there is a sufficiently long share price dataset over which to measure volatility for the
LTIP Awards.
SAYE
On 7 June 2019 the company launched a new equity settled share save (SAYE) scheme ("SAYE 2019") in addition to the existing
schemes ("SAYE 2017" and "SAYE 2018") 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. All schemes require employees to remain an employee at the vesting date.
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
2019
2018
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
803,292
449,800
-
(319,275)
933,817
-
£0.57
£0.72
-
£0.71
£0.66
-
204,125
794,139
-
(194,972)
803,292
-
£2.10
£0.49
-
£1.92
£0.57
-
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 exercise price
Weighted average fair value of options granted
Dividend yield
Remaining contractual life
SAYE 2019
SAYE 2018
SAYE 2017
07/06/2019
01/07/2022
31/12/2022
0.49%
59.24%
3.32
£0.72
43.30p
0.00%
3.00
08/05/2018
08/05/2021
08/05/2021
0.92%
48.50%
3.35
£0.49
24.70p
0.00%
1.92
25/04/2017
01/06/2020
01/12/2020
0.21%
34.17%
3.35
£2.51
68.60p
5.53%
0.92
Prior to 2019, 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. For 2019 options, there is a sufficiently long share price dataset over which to measure volatility for the LTIP
Awards.
Alan Lovell Options
On 20 December 2018, the Group issued 250,000 equity settled options to its Non-Executive Chairman, Alan Lovell. In order to
vest, Alan Lovell must be the Chairman at the vesting date. There are no financial targets, but there is a general business
performance underpin. The number 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
2019
2018
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
250,000
-
-
-
250,000
-
-
-
-
-
-
-
-
250,000
-
-
250,000
-
-
-
-
-
-
-
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%
8.98
20/12/2018
16/07/2020
20/12/2028
0.71%
76.50%
1.57
£0.86
£0.00
86.30p
0.00%
8.98
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Notes
32
Share based payments (continued)
Prior to 2019, 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.
For 2019 options, there is a sufficiently long share price dataset over which to measure volatility for the LTIP Awards.
The total share-based payment expense / (credit) comprises:
Equity settled - LTIP
Equity settled - SAYE
Equity settled - Alan Lovell Options
33
Contingent liability
2019
£000
(125)
26
111
12
2018
£000
(2)
(375)
3
(374)
The Group uses the services of a large number of self-employed individuals for marketing, sales, surveying and installation
purposes. The Group is currently involved in a compliance review by HMRC in respect of the employment status of these
individuals. This review has been ongoing for over two years. The Group has operated this self-employed model consistently for a
number of years and there has been no material change to the underlying business model during this time. The Group continues to
monitor developments in legislation and case law and has sought professional advice to ensure the rules are being applied correctly.
The Group believes that its approach in this area is comparable with many other companies operating in this industry and wider
sector where the use of self-employed agents and contractors is the primary source of specialised resource. Furthermore, the
Group is aware that HMRC has previously assessed some of its self-employed agents and has recovered unpaid taxes from these
individuals on that basis. The Group will continue to work with HMRC to respond to any further queries and believes that it has
followed professional advice and applied the requirements diligently.
While the compliance review is ongoing, the Group acknowledges that there is a potential risk of employee status findings by
HMRC in respect of one or more groups of self-employed workers, however at this time the Group believes that the chance of this is
unlikely based on the facts and circumstances set out above. It would not be practicable to indicate any potential financial impacts
of any status rulings at this time.
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