Safeguard Scientifics Annual Report 2020

Plain-text annual report

safestyleukplc.co.uk Safestyle UK plc Annual Report & Accounts 2020 Safestyle UK plc Safestyle UK plc Annual Report 2020 The UK’s No.1 for replacement windows and doors³ New Nottingham Installations Depot Financial Overview Contents Revenue (£m) 2018 116.4 2019 126.2 2020 113.2 8% -10% Underlying (loss) before taxation¹ (£m) 2018 2019 2020 (8.7) (1.5) 83% (4.8) -213% Reported (loss) before taxation (£m) 2018 (16.3) 2019 2020 (3.8) 76% (6.2) -61% Net cash² (£m) 2018 0.3 2019 0.4 71% 2020 7.6 1,607% Average installed order value (£) 1% 4% 5% 4% 2018 3,319 2019 3,337 2020 3,474 Average frame price (£) 2018 2019 2020 646 678 704 Frames installed 2018 184,184 2019 190,252 3% 2020 163,617 -14% 01 Welcome page and Financial Overview Strategic Report 06 18 20 22 28 34 What we do Chairman’s Statement CEO’s Statement Financial Review Risk Management Corporate Social Responsibility 38 Safestyle People Governance 46 48 50 64 69 Board of Directors Audit Committee Report Directors’ Remuneration Report Directors’ Report Independent Auditor’s Report Financials 80 81 82 83 84 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 (loss) before taxation ² See the Financial Review for deﬁnition of net cash ³ Based on Fensa data Annual Report & Accounts 2020 01 Safestyle UK plc Over 19,000 ﬁve star reviews and counting Safestyle UK have more reviews than any other window company rating us ‘great’ Trustpilot February 2021 Highly Recommended All ﬁgures from February 2021 Trustpilot score 4.2 - ‘Great’ Safestyle UK currently have From a total number of 25,364 independent customer reviews rating us great 18,669 of those gave us 5 stars with a further 2,493 giving us a 4 stars In 2020 alone we received 7,010 Trustpilot reviews with 4,889 of those giving us 5 stars Excellent service Friendly sales people, Great communication, Prompt service, Professional ﬁtters, Kept within guidelines, Lay covering over ﬂoors and tidied up afterwards, No rubbish left, Extremely happy with the service received, Have already, and would recommend again. Marie Hickin New composite Guard Doors introduced January 2021 customers reviews, a huge 10,385 7,906 of those are 5 star reviews, with a further 1,398 4 star reviews, meaning that in total 89% of our customers would highly recommend us Great installation Every window and door replaced in two days, no mess to clean up afterwards, no decorating damaged. Excellent job. David from Oldham A job well done From start to ﬁnish everything went smoothly. Great price which matched our budget. Great communication, dates which suited our diary and most importantly the installation was speedy but done to a very high standard. Well done Safestyle! Shirley Walmsley Annual Report & Accounts 2020 03 Safestyle UK plc Safestyle UK plc Strategic Report 06 18 20 22 28 34 What we do Chairman’s Statement CEO’s Statement Financial Review Risk Management Corporate Social Responsibility 38 Safestyle People Please deliver to: Safestyle Uk, Unit 2, Glaisdale Point, Glaisdale Parkway, Nottingham. NG8 4GP Safestyle UK plc Our nationwide branches & depots We currently have 33 sales branches and 13 installation depots across the UK New Bury St Edmunds Installations Depot New Nottingham Installations Depot Operation headlines 1 Head Ofﬁce 33 Sales Branches 1 Manufacturing Facility 13 Installation Depots 33 Sales Branches Liverpool Sales Branch Opened November 2020 Our 33 sales branches, over ﬁve regions spread our inﬂuence across the country with our teams generating enquiries and responding locally to our customers’ needs. North West: Blackburn, Chester, Liverpool, Manchester, Preston, Salford and Stoke North East: Doncaster, Gateshead, Hull, Leeds, Middlesbrough, Bradford and Shefﬁeld Midlands: Coventry, Edgbaston, Norwich, Nottingham, Peterborough and Wolverhampton South East: Brighton, Guildford, Hemel Hempstead, Romford, Sittingbourne and Southampton South West: Bristol, Exeter, Plymouth, Reading, Swansea, Swindon and Truro Hemel Hempstead Sales Branch Opened November 2020 Bury St Edmunds Installation Depot Opened August 2020 Nottingham Installation Depot Opened December 2020 13 Installation Depots Our 13 installation depots are the hubs from which our ﬁtting operation can efﬁciently fulﬁl 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 carry out the day's orders. Annual Report & Accounts 2020 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. 01 02 03 04 05 06 MARKETING MARKETING MARKETING SALES SALES SALES SURVEY SURVEY SURVEY MANUFACTURE MANUFACTURE MANUFACTURE INSTALLATION INSTALLATION INSTALLATION SERVICE SERVICE SERVICE 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 We survey over 50,000 properties to precisely specify products ready for bespoke manufacture Efﬁciently manufacture customer speciﬁc, high quality, energy saving products in Barnsley and distribute to 13 installation depots Expertly install the new windows and doors before recycling the items we replace in 1,000 homes per week Complete peace of mind on every installation with our ten year warranty period 08 Annual Report & Accounts 2020 Annual Report & Accounts 2020 09 Safestyle UK plc Strategic Report Governance Financials Go ﬁgure, Safestyle in numbers for 2020 Established since 1992 That’s 29 years or 10,585 days Just enough time to walk around the world roughly 30 times without stopping 11,276,733 Safestyle UK web pages viewed 78.53% increase in web trafﬁc vs 2019 4,282,652 minutes 71,377 hours, 2,974 days, 424 weeks or 8.148 years of web browsing Based on web browsing 24 hours a day, 365 days a year 40+ new bespoke training courses introduced 1,054 on-line GDPR modules completed 2,280 Covid-19 secure on-line training modules completed 26,582 Reactions to Workplace posts More than the number of windows in the Burj Khalifa 9,180 Workplace comments 1,837 Workplace posts created In total we completed a lot of training courses during 2020 8,590 1,757 Senior Manager & FCA courses completed That’s more than the entire number of steps in the Empire State Building In total for 2020 we recycled the equivalent weight of... 28 Boeing airliners That’s 5,253 tonnes of all post consumer waste 426 tonnes of rubble was also recycled And we used Teams a lot 80,151 messages 12,337 meetings 15,870 calls We recycled lots of general waste 3,012 tonnes 753 tonnes of glass was recycled 1,062 tonnes of wood was put to good use During 2020 we made a lot of phone calls, over 2,168,358 We sent a lot of emails too... 764,971 312,000 pairs of COVID safe gloves supplied 157,740 face masks provided 244 football pitches long Now that’s long Equivalent to the length of 12,825 composite doors made in 2020 laid end to end 26,768 PVC doors made in the year Plus a huge 85,254 white windows were made during 2020 That’s one window manufactured roughly every 6 minutes Last year we made 52,327 coloured windows 10 Annual Report & Accounts 2020 Annual Report & Accounts 2020 11 Safestyle UK plc Strategic Report Governance Financials 2020, another busy year... 2020 has been a year in which we have had to navigate through all the difﬁculties presented to us as a result of the COVID-19 pandemic and we have always prioritised the safety of our people and our customers. However, alongside facing these challenges, we have continued to make progress on many improvement projects. New van ﬂeet roll out Gary Pickering Commercial Director Ÿ A promising start to the year – order intake, revenues and proﬁtability all growing year on year Ÿ New van ﬂeet roll out begins Ÿ Gary Pickering, our new Commercial Director, joins Safestyle Ÿ First COVID-19 lockdown starts – manufacturing and all visits to customers' homes cease Ÿ Manufacturing operations Ÿ restart mid-May In-home selling, surveying and installations restarts at end of May New Liverpool Sales branch Ÿ Strong trading performance achieved in the period following restart – the start of a sustained period of year on year order intake growth Ÿ Recruitment drive launches for Ÿ Ÿ new surveyors, order processing staff and installation teams ISO 45001 occupational Health and Safety Management accreditation achieved Journey Further – our new digital media agency – are appointed Commercial Leadership Team: Left to right: Eddie Sims, Mark Oldham, Saf Chisty, Tayyib Ali, Sarah Spacey, Paul Croft, Richard Stoate, Azmat Ali, Gary Pickering, Lee Davenport, Tom Morley, Jim Babb and Clare Haycock New Hemel Hempstead Sales branch Ÿ The Safestyle UK Commercial Leadership Team assembles, headed up by Gary Pickering, Commercial Director Sales recruitment seminars via Zoom launched Ÿ Ÿ Second national lockdown starts with Door Canvass operations paused Ÿ New Liverpool sales branch opens Ÿ New Hemel Hempstead sales branch opens January 2020 March 2020 May 2020 July 2020 September 2020 November 2020 February 2020 April 2020 June 2020 August 2020 October 2020 December 2020 Ÿ Detailed contingency planning for response to COVID-19 begins Ÿ New server room project commences Ÿ Share Placing occurs raising £8.2m Ÿ Remote selling over Zoom starts Ÿ Over 90% of staff furloughed Ÿ New agreement concludes with Duraﬂex which includes the building of signiﬁcant buffer stocks Ÿ Factory returns to pre- lockdown pattern of two shifts per day Ÿ The majority of colleagues return to work from furlough during the month Ÿ New Bury St Edmunds Ÿ installation depot opens Supply chain experiences some temporary challenges which disrupts operations ISO 14001 environmental certiﬁcation achieved Ÿ New consumer ﬁnance portfolio launched Ÿ WORKING TOGETHER TO STAY SAFE WORKING TOGETHER TO STAY SAFE WORKING TOGETHER TO STAY SAFE 12 Annual Report & Accounts 2020 Bury St Edmunds - Installations depot Ÿ Order book reaches record high – over twice October 2019's level Ÿ Rollout of new phone Ÿ system begins Leadership Excellence Accreditation Programme (LEAP) training commenced Ÿ New Nottingham installation depot opens Ÿ New ClawGrip additional security device launches Ÿ New Composite Guard Door Ÿ styles and colour range launches Sales branch Standard Operating Procedures launched newcolours & styles Rose Pink Taupe Dove Grey Imola Cotswold Ambleside Modena Annual Report & Accounts 2020 13 Safestyle UK plc Strategic Report Governance Financials How many composite door combinations? 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... 20 COMPOSITE COMPOSITE COMPOSITE DOOR TYPES DOOR TYPES DOOR TYPES 15 EXTERNAL EXTERNAL EXTERNAL COLOURS COLOURS COLOURS 02 INTERNAL INTERNAL INTERNAL COLOURS COLOURS COLOURS 10 FRAME FRAME FRAME COLOURS COLOURS COLOURS Canterbury Cheltenham Exeter Gloucester Oxford Richmond Anthracite Black Blue Chartwell Green Duck Egg Stratford Warwick Windsor Milano Roma Turin White Red Rosewood Oak Slate Cream Ambleside Imola new new Flat White Irish Oak Slate Grey Textured White Golden Oak Rosewood Cream Chartwell Venice Ilkley Padstow Florence Cotswold Modena Dove Grey Taupe Rose Pink White Same as external Black Anthracite 03 ABOVE ABOVE ABOVE WINDOW WINDOW WINDOW OPTIONS OPTIONS OPTIONS Toplight Arched Head Or none HANDLE HANDLE HANDLE OPTIONS OPTIONS OPTIONS 09 PRIVACY OR COLOURED PRIVACY OR COLOURED PRIVACY OR COLOURED GLASS OPTIONS GLASS OPTIONS GLASS OPTIONS 20 SIDE FLAG SIDE FLAG SIDE FLAG OPTIONS OPTIONS OPTIONS 10 03 LETTER LETTER LETTER PLATE PLATE PLATE OPTIONS OPTIONS OPTIONS 05 KNOCKERS KNOCKERS KNOCKERS Urn Lion head Standard handle Pad handle Pro Style handle Curved handle new Middle Low None Pony Tail Oval Victorian Scroll Long Bar handle: 800mm, 1200mm & 1800mm Pull Escutcheon Standard Escutcheon 02 02 07 02 SPY HOLE SPY HOLE SPY HOLE OPTIONS OPTIONS OPTIONS CHAIN CHAIN CHAIN OPTIONS OPTIONS OPTIONS FURNITURE FURNITURE FURNITURE COLOURS COLOURS COLOURS THUMB TURN THUMB TURN THUMB TURN OPTIONS OPTIONS OPTIONS With or without With or without White, black, gold, polished chrome, satin chrome, pewter & brushed chrome With or without Options vary depending on the door design Full Three quarters Half Side panel None. Or one of our 5 composite side panels = 27,216,000,000 COMPOSITE DOOR CHOICES AND EVERY ONE MADE TO MEASURE TO EVERY CUSTOMER’S EXACT SPECIFICATIONS 14 Annual Report & Accounts 2020 Annual Report & Accounts 2020 15 Safestyle UK plc Strategic Report Governance Financials The journey of an order 1 2 3 4 5 6 INTEREST REGISTERED ARRANGE APPOINTMENT DISTRIBUTE TO BRANCH VISIT THE PROPERTY 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. 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'. 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. 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. CONFIRM AND 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. 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 we make sure we are meeting the full requirements of the customer. 11 10 9 8 7 PEACE OF MIND HAPPY CUSTOMER Then the customer can sit back, relax and enjoy their brand new windows and doors knowing that for the next 10 years we are only a phone call or e-mail away should they need us. Our expert service engineers are on hand to help with any issues, big or small should they arise. 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 customer’s new products to their exact speciﬁcations. We will take great care leaving the customers home as tidy and clean as we found it. 4.2 stars - rated ‘Great’ READY FOR INSTALLATION SAFESTYLE MANUFACTURING FINALISE SURVEY TO ORDER 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. Under the watchful eyes of our highly skilled craftsmen, every window & 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. 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. 16 Annual Report & Accounts 2020 Annual Report & Accounts 2020 17 Safestyle UK plc Strategic Report Governance Financials Chairman’s Statement Introduction The challenge of managing the business through the COVID-19 pandemic took centre stage in 2020. I am pleased to report that the Group reacted well to the challenge, bolstering its ﬁnances, moving rapidly out of lockdown at the end of May and recovering strongly in the second half of the year, achieving revenue, proﬁt and order book growth in that period. Trading and ﬁnancial performance The Group's ﬁnancial performance was adversely impacted by the cessation of installation activity for nine weeks in H1 as a result of the COVID-19 pandemic and lockdown period. Prior to the lockdown, the Group had started the year well, with the ﬁrst two months of the year seeing revenue growth of £0.6m (3.4%), gross proﬁt growth of £0.6m (11.4%) and an underlying proﬁt before taxation¹ of £0.9m, an improvement of £1.4m versus the same period in 2019. Following the 'Stay at Home' measures guidance published by the Government on 23 March 2020 in relation to the COVID-19 outbreak, the Group took prompt and decisive action with the aims of: Ÿ Ÿ Ÿ protecting its people, business and customers; providing the best service possible through the crisis; and ensuring it had both the capability and plans in place to accelerate rapidly out of the crisis. Consequently, the Group temporarily closed all of its locations across the country and ceased all installation activities for what eventually became a nine-week period between late March and the end of May. The Group recorded a loss of over £6m in this three month period. During this lockdown, the Group implemented numerous steps to protect and strengthen cash. These steps included furloughing 95% of the Group's staff at 80% pay at the end of March; the CEO, each of the Non-Executive Directors and I took a 50% reduction in salary / fees for the duration of the crisis. Total Job Retention Scheme support totalled £1.8m for the year, almost all of which was received in relation to furloughed staff in the April and May period. Alongside these measures, to strengthen the balance sheet and put in place a strong cash buffer to support the Group through and out of the crisis, the Group achieved an equity Placing and raised £8.2m in net proceeds from existing and new shareholders; in support of the Placing, lenders reduced covenant targets for both the duration of the lockdown and our restart and extended the borrowing facility to October 2023. The strong and rapid support from our shareholders and banking partners was a critical enabler for managing the business smoothly through this challenging time. Following the restart of operations at the end of May, the Group returned to proﬁtability for the second half of the year with installation revenue increasing by 15% versus H2 2019. Underlying proﬁtability was achieved despite the Group incurring signiﬁcant costs related to growing the Group's order book which closed the year 83% higher than 2019. This investment reduced the proﬁt in the year, but the strong order book has contributed to the Group making a strong and proﬁtable start to 2021 despite the ongoing and challenging operational context. Revenue for the full year was £113.2m, a reduction of 10.3% across the year, but including growth in the second half of the year of 15% at £71.1m. Gross margin was £28.5m for the year, a reduction of 10.8% versus 2019; but a strengthening trend was achieved in the second half of the year with gross margin growing ahead of revenues by 22.7%. As a result of the ﬁrst half loss, the Group's underlying (loss) before taxation for the full year was £(4.8)m compared to £(1.5)m with a reported (loss) before taxation of £(6.2)m compared to £(3.8)m in the prior year. Basic EPS fell from (4.0)p in 2019 to (4.3)p this year. Non-underlying items² reduced to £1.4m (2019: £2.3m) predominantly as a result of lower restructuring costs. Balance sheet and dividend As noted above, the Group's £7.5m committed ﬁnance facility was extended in the year and now runs to October 2023. This facility will continue to support the Group's working capital needs over the next few years and provide a source of additional liquidity if required. The net cash³ position at the end of the year improved to £7.6m (2019: £0.4m) thanks to the £8.2m share Placing in April and the deferral of a £2.5m VAT tax payment into 2021. £3m of the Group's £7.5m facility, representing the revolving credit facility, remains undrawn. The Board does not propose a ﬁnal dividend for the year (2019: £nil) which will underpin the maintenance of suitable liquidity levels in the immediate future. The Board expects to revisit its dividend policy later in 2021 assuming that the Group has returned to a consistent delivery of proﬁtability. 2 The Group's CO emissions per frame installed in 2020 have reduced by 6.1% versus 2019. The Group has achieved ongoing reductions in energy consumption through its furnace energy usage reduction programme, a signiﬁcant component of our manufacturing process, resulting in a 25% reduction at like for like operating levels. We target a further 10% reduction in CO emissions per frame over the next three years. 2 The Group is also now halfway through replacing its leased van ﬂeet, representing 333 vans in total. This will be fully completed by the middle of 2021. Each new van produces 8% less CO emissions than the previous model and this will make an important contribution to our programme of reducing the impact on the environment of our business. 2 Pages 34 to 37 provide further details on our various sustainability initiatives and activities in the last year and also detail our recycling processes. consequential need to furlough over 90% of our employees for a short time and withhold work from our self- employed colleagues were made simpler by their cooperation and understanding. In this difﬁcult year where so many have contributed, I feel I must mention the small number of individuals who worked throughout the entire lockdown period. Their enormous contribution at such an uncertain time enabled us to maintain contact with our people, our customers and our many other stakeholders and their efforts underpinned our ability to restart operations quickly when it was safe to do so. Our people's resilience and determination continues to truly make a difference and I thank them all once again for all their hard work and dedication and look forward to sharing Safestyle's success with them all in the future. Sustainability Safestyle's people The Group is proud of how it has embedded its approach to sustainability in its operations. The Group recycles 95% of all materials removed from a customer's home during an installation; few of the removed materials are sent to waste disposal sites by either the customer or by Safestyle. We believe we set the highest benchmark in the industry in this regard. After a period of signiﬁcant disruption in 2018, we have suffered another extraordinary year. It is down to all our skilled and dedicated colleagues that we have again navigated through extremely challenging circumstances. The COVID-19 pandemic placed a signiﬁcant strain on the Group and our people have inevitably been at the centre of that. The cessation of operations in March and the Alan C Lovell Chairman 24 March 2021 18 Annual Report & Accounts 2020 ¹ See the Financial Review for deﬁnition of underlying proﬁt / (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 Annual Report & Accounts 2020 19 Safestyle UK plc Strategic Report Governance Financials CEO’s Statement Summary 2020 has been an extraordinary trading year, with huge levels of disruption and sustained uncertainty. Despite this, the business has emerged strongly, building momentum in H2 and making progress on our core strategic priorities. I am immensely proud of the response of our staff who showed enormous ﬂexibility and resilience in responding to the sustained challenges the business faced during 2020. The business started the year with good growth sustained from Q4 2019 but our priorities shifted rapidly in Q1 to a focus on protecting our staff, customers and the business through the pandemic. Our results in H1 were impacted signiﬁcantly by the cessation of business operations between March and the end of May. However, as a result of the support of shareholders and our lenders in April, the business was able to recapture its strong momentum in H2, delivering double-digit revenue growth of 15% while also growing the order book by 83%. The strong order book has allowed us to entirely mitigate the disruption caused by the interruption in sales and canvass operations during Q1 2021. COVID-19 response The business began contingency planning in February and this ensured a rapid cessation of operations on 23 March, in line with government guidance. The hibernation of the business at that point encompassed canvassing, in home sales, survey, processing, manufacturing and installations. We retained a small remote selling team together with a skeleton customer service function. This enabled us to minimise our cash outﬂow during this period of uncertainty. The support of shareholders and our lenders during April was critical given the business was still recovering ﬁnancially from 2018. The funds provided allowed the business to emerge strongly from the ﬁrst lockdown in May and navigate the further disruption arising from the second lockdown in November. Within the business we developed COVID-safe practices that allowed our ofﬁces and factories to operate without interruption from May, with key staff 20 Annual Report & Accounts 2020 split into socially distanced bubbles and extensive use of remote working. Staff operating in customers' homes were subject to new working practices, with the mandatory use of face masks and other personal hygiene measures. Again, this approach enabled us to sustain our business operations through H2. The COVID-safe measures taken in 2020 carried cost and inevitably drove a level of inefﬁciency but were successful in allowing us to operate commercially throughout H2, while also protecting our staff and maintaining the conﬁdence of our customers. Generating momentum through the turbulence - H2 performance Furnished with the support of shareholders, the phased restart was rapid and we quickly found that consumer demand was strong. The strength of the market reﬂected the multiple restrictions on other forms of consumer spending and was seen across the wider Repair, Maintenance and Improvement (RMI) sector. In response to this growth we invested in expanding our capacity across survey, processing, manufacturing and installations. The resulting capacity increase lagged the growth in sales but delivered revenue growth of 15% in H2. This meant our order book grew by 83% versus 2019 as we exited the year, setting us up for a strong start to 2021. During H2 we also made signiﬁcant progress in driving margin, with reduced complexity, reduced ﬁnance subsidy costs and enhanced management of discounting, all of which contributed to a 3.8% year on year improvement in average frame price. This partially offset the ﬁnancial impact of building the order book in H2 and it is contributing to the improved ﬁnancial performance for Q1 2021. Progress on strategic priorities Despite the challenges of 2020, I am pleased that we were able to make progress against our longer term strategic agenda with some critical milestones achieved. Improving our national sales and depot network: Q1 saw the arrival of our new Commercial Director Gary Pickering and the recruitment of a new regional sales leadership team during H1. These appointments have enabled an acceleration in the transformation of our sales and canvass functions, supported by sophisticated and transparent management information. In Q4 we were also able to launch our new training programme for our self- employed branch managers, an initiative that will continue in 2021 as all managers will be required to complete the programme. This is the ﬁrst structured national training programme of its sort at Safestyle and it is supported by clariﬁed responsibilities and a new pay structure aligned to business results. Concurrently our installations network embarked on a parallel programme, again establishing a new leadership team and updating our national depot network through a series of closures and openings across the UK. Sustaining momentum in compliance and customer service: While COVID safety was our prime focus in 2020, we completed a number of key actions that further developed our business compliance. These included the development of our new canvass app, which now enables tracing of all sales leads and the recruitment of a new Data Compliance Manager to embed and audit our practices. The progress made on improving customer service was hampered during 2020 as we sought to mitigate the impact of signiﬁcant supply disruption during Q3. This was caused by a combination of restart challenges with two key suppliers, industry-wide raw material constraints and global shipping disruption. These challenges were not unique to Safestyle, but they demonstrated the difﬁculty of recovering from this type of issue and the importance of maintaining a smooth and robust supply chain. Modernising our value brand: We progressed two elements during 2020; brand development and establishing a digital competitive advantage. Our appointment of 'Journey Further' as our new digital agency has proved successful as we have leveraged our scale to bring best in class practices to our digital marketing work. Our brand work, which seeks to build on the investment of the past, will be used to shape our TV investment and brand experience in the years ahead. As we move into 2021 and embed the progress that has been made through the turnaround programme we have updated and refreshed our key strategic objectives for 2021 and beyond. These will be: Delivering our financial roadmap: Reshaping our ﬁnancial performance to deliver sustained improvements in proﬁtability through a combination of revenue growth, margin improvement and measured investment. Levelling up / standardising depots & branches: Building on and embedding the work done to date on improving the consistency of local performance using Standard Operating Procedures ('SOPs'), role descriptions, effective management reporting and performance management for all our branches and depots. Driving proﬁtable growth: This encompasses our planned brand investment, building a digital competitive advantage, developing consumer insight and expanding our national sales footprint. Transforming our customer experience: Our ratings and feedback show that the majority of customers have a seamless experience. However, we know that we can do better, using technology and improved communications to address customer issues more rapidly. We will support this by embedding the use of Net Promotor Score (NPS) customer interviews, which we recently introduced to the business. Embedding compliance and sustainability: I am pleased that we have made great progress in these areas, but we also want to drive further improvements at Safestyle and throughout the wider industry. We have embedded sustainability into our operations and now recycle 95% of all materials removed from a customer's home as part of their installation. As described in the Chairman's Statement, the Group continues to make good progress on reducing its CO 2 emissions per frame and we fully intend to continue with this important agenda. Moreover, our existing impressive environmental initiatives will be broadened and form part of our consumer offer. These priorities will be supported by the key enabling initiatives of developing our people, our culture and our systems. Together, these initiatives set an exciting direction for the business, aimed at sustaining improved ﬁnancial delivery, growth and continued modernisation of the business. Current trading & outlook Our deliberate strategy of building a large order book has enabled us to entirely mitigate the impact of the further restrictions on sales and canvass that came with the third national lockdown in January 2021. This has meant that despite geographic and national interruptions we have been able to maintain our survey, processing, manufacturing and installations operations. As a result, we have now reduced our order book to a more normalised level which is still c.20% higher than the prior year and further strengthened our cash position. During Q1 we have taken the opportunity to improve our customer service levels, with further investments in call centre stafﬁng and in resolving the backlog of service issues that were caused by the ﬁrst lockdown and the signiﬁcant supply-chain disruption in Q3. Our intent is to enter Q2 having put the operational challenges of 2020 fully behind us as we focus on accelerating the transformation of the business and delivering improved ﬁnancial results. Clearly the outlook remains uncertain, but I am optimistic that the progress made by the business will allow us to maximise any opportunity that comes as the economy reopens. Our intention remains as before the crisis; to build long term value for shareholders by consolidating our position as the UK's number 1 choice for replacement windows and doors. As a result of this encouraging start to the year, the Board expects 2021 ﬁnancial performance to be signiﬁcantly ahead of market expectations. Mike Gallacher Chief Executive Ofﬁcer 24 March 2021 Annual Report & Accounts 2020 21 Safestyle UK plc Strategic Report Governance Financials Financial Review Financials Underlying £’000 113,191 (84,732) 28,459 (32,057) (3,598) 1 (1,161) (4,758) Revenue Cost of sales Gross proﬁt Other operating expenses³ Operating (loss) Finance income Finance costs (Loss) before taxation Taxation (Loss) for the year 4 Basic EPS (pence per share) Diluted EPS (pence per share) Cash and cash equivalents Borrowings Net cash² 2020 Non- underlying items¹ £’000 Total Underlying £’000 £’000 2019 Non- underlying items¹ £’000 126,237 (94,337) 31,900 (32,018) (118) 2 (1,402) (1,518) (2,314) (2,314) (2,314) (1,399) (1,399) (1,399) 113,191 (84,732) 28,459 (33,456) (4,997) 1 (1,161) (6,157) 1,103 (5,054) (4.3)p (4.3)p 11,705 (4,127) 7,578 Change in underlying (10.3)% 10.2% (10.8)% (0.0)% (2,949.2)% (50.0)% 17.2% (213.4)% Total £’000 126,237 (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 KPIs FY 2020 FY 2019 Change % H2 2020 YOY change % H1 2020 5 Revenue £000 Gross margin % Average Order Value (£ inc VAT) Average Frame Price (£ ex VAT) Frames installed units Orders installed Frames per order 113.2 25.1% 3,474 704 163,617 39,789 4.11 126.2 25.3% 3,337 678 190,252 46,412 4.10 (10.3)% (13)bps 4.1% 3.8% (14.0)% (14.3)% 0.0% 71.1 26.3% 3,494 714 100,920 24,735 4.08 15.0% 165bps 3.6% 3.6% 10.6% 10.5% 0.0% 42.1 23.1% 3,440 688 62,697 15,054 4.16 YOY change % (34.7)% (271)bps 4.1% 3.0% (36.6)% (37.4)% 1.1% The Group's ﬁnancial performance measures and KPIs in 2020 were adversely impacted by the cessation of installation activity for nine weeks in H1 as a result of the COVID-19 pandemic and lockdown period. In the ﬁrst half of the year, the Group made an underlying proﬁt before taxation of £0.9m for the ﬁrst two months of the year before the business entered a temporary lockdown in late March to the end of May where it incurred losses totalling in excess of £6m. The second half of the year saw the Group return to proﬁtability, despite the ongoing disruption and cost of working in a challenging context and material investment in the Group's order book which closed the year 83% higher than 2019. This Financial Review details the changes in the ﬁnancial measures of the business across the year within the above context and draws particular attention to how the revenues and operating costs changed between the ﬁrst and second half of the year. ¹ See the non-underlying items section in this Financial Review ² Net cash is cash and cash equivalents less borrowings ³ Underlying other operating expenses are deﬁned in the 'Underlying performance measures' section below and the reconciliation between this measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review 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 5 Gross margin % is gross proﬁt divided by revenue 4 Financial and KPI headlines Ÿ Revenue declined by 10.3% to £113.2m for the full year, the decrease entirely attributable to the cessation of operations in H1 with Q3 and Q4 revenues increasing versus the prior year by 9.3% and 20.8% respectively. Ÿ Frames installed decreased by 14.0% to 163,617, the decline again fully attributable to the ﬁrst half disruption. Ÿ The Group continues to improve average frame price, achieving a 3.8% increase in the year due to a focus on discount management and a small annualisation effect of 2019 price increases. This average price improvement was achieved despite a reduced mix of higher average- priced composite guard doors which was 7.6% in 2020 compared to 9.2% in 2019. Ÿ The Group also made changes to its consumer ﬁnance portfolio in the last part of the year which has maintained a strong promotional ﬁnance offering, but which has resulted in a reduction in ﬁnance subsidies of £0.8m. This beneﬁt will increase in FY21 when the impact is annualised. In H1, gross proﬁt declined by 41.5% to £9.7m and gross margin percentage reduced by 271bps to 23.1%, which is again attributable to the volume decline described above although the impact was partially offset by £0.7m of a total £1.8m Ÿ reclaim under the Government's Coronavirus Job Retention Scheme ('CJRS') with the remainder included within operating expenses as described below. Ÿ H2 gross proﬁt improved versus the prior year by 22.7% to £18.7m with the growth attributable to the increased installation volumes. Gross margin percentage in the second half increased by 165bps versus H2 2019 to 26.3% due to the combination of a higher average price per frame as described above and a year on year reduction in the cost of lead generation (a reduced rate) in the second half of the year. The second half gross proﬁt and gross margin percentage improvement would have increased further were it not for the investment into the closing order book described above Ÿ Underlying other operating expenses³ for the year were the same as the prior year. There was a reduction in H1 operating expenses as a result of no investment in TV advertising and a £1.1m reclaim under the Government's Coronavirus Job Retention Scheme ('CJRS'). H2 operating expenses increased year on year due to costs associated with many of the Group's COVID-safe measures – such as PPE and cleaning – coupled with higher operational capacity costs to support the revenue growth and to increase our customer-facing headcount. Ÿ Reported other operating expenses reduced by £0.9m (2.6%) to £33.5m as a result of the items described above along with a year on year reduction in non-recurring costs following completion of the actions taken as part of the cost reduction initiatives in 2019. Ÿ Finance costs have decreased year on year as a result of reduced borrowing costs due to lower utilisation (and thus lower fees) in relation to the £3m revolving credit facility. Ÿ Underlying (loss) before taxation 4 was £(4.8)m for the year (2019: loss of £(1.5)m). As described above, the loss was generated in H1, totalling £(5.1)m, before the Group returned to proﬁtability in H2. Ÿ Non-underlying items were £1.4m for the period (2019: £2.3m), full details of which are provided on the following pages of this Financial Review and therefore reported (loss) before taxation was £(6.2)m versus £(3.8)m in 2019. Ÿ Net cash² improved to £7.6m versus £0.4m at the end of last year. The improved cash position is despite the losses incurred in the ﬁrst half of the year and is predominantly the result of a successful Placing of New Shares in April 2020 which raised net proceeds of £8.2m and the agreed deferral of £2.5m of VAT payments originally payable during the lockdown period which will be paid in 2021. 5 22 Annual Report & Accounts 2020 Annual Report & Accounts 2020 23 Safestyle UK plc Strategic Report Governance Financials Financial Review Underlying performance measures In the course of the last three years, the Group has encountered a series of unprecedented and unusual challenges. These gave rise to a number of signiﬁcant non-underlying items in 2018 and consequential items continued into 2019 as the Group addressed the impact of these challenges, predominantly as part of its Turnaround Plan. The impact of COVID-19 in 2020 has also given rise to a material non-underlying item in the form of a holiday pay accrual which is described in detail below. Consequently, adjusted measures of underlying other operating expenses and underlying (loss) before taxation have been presented as the primary measures of ﬁnancial performance. Adoption of these measures results in non-underlying items being excluded to enable a meaningful evaluation of the performance of the Group compared to prior periods. These alternative measures are entirely consistent with how the Board monitors the ﬁnancial performance of the Group and the underlying proﬁt / (loss) before taxation is the basis of performance targets for incentive plans for the Executive Directors and senior management team. 24 Annual Report & Accounts 2020 Non-underlying items consist of non- recurring costs, share based payments and Commercial Agreement amortisation. A full breakdown of these items is 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 £113.2m compared to £126.2m last year, representing a decrease of 10.3% for the year as a result of the cessation of installation activity across late March, April and the majority of May. The year on year revenue performance up to the end of February represented year on year growth of 3.4% with Q3 and Q4 growth of 9.3% and 20.8% respectively which depicts the improving trajectory either side of the lockdown period. Frames installed volume represented a similar decline of 14.0% to 163,617 frames installed compared to 190,252 in the prior year. The revenue decline reduction was less than this volume decline as a result of improvements in the following areas: Ÿ The average frame price increased by 3.8% to £704 (2019: £678). The impact of an annualisation beneﬁt of modest list price increases in 2019 alongside a larger beneﬁt coming from reduced discount levels were the major drivers of the improvement. Ÿ The improvement in the average frame price was also despite a reduced mix of higher average- priced composite guard doors which reduced to 7.6% of installed volumes (2019: 9.2%). Ÿ The favourable average price gains were further augmented by a reduction in the ﬁnance subsidy costs linked to our consumer ﬁnance offering. These reductions follow a successful set of changes to our promotional ﬁnance portfolio late in 2020 which generated a £0.8m beneﬁt in the second half of the year. The Group continues to sell over 43% of its products alongside a consumer ﬁnance agreement which represents a ﬂattening of a trend that has been steadily rising over the last ﬁve years. Ÿ The metric of the average number of frames per order remained consistent with 2019 which halts the declining trend of the last two years and follows the rebalancing of mix out of higher-value composite doors. Ÿ Finally, the average order value also improved by 4.1% to £3,474. Progress in these operational KPIs remains a critical area of ongoing focus for the Group as it continues to target an improving quality of revenue into 2021. Gross proﬁt Gross proﬁt decreased by 10.8% to £28.5m while the gross margin percentage declined by (13)bps to 25.1% (2019: 25.3%). In the ﬁrst half of the year, the gross margin percentage reduced by (271)bps versus the prior period to 23.1% before improving year on year for the second half of the year by 165bps to 26.3% (H2 2019: 24.7%). The reduction in installation volumes described above was the main contributor to the year on year reduction in gross margin and the dilution of gross margin percentage in H1. The additional factors behind the trends of ﬁrst half dilution and subsequent improvement in gross margin percentage in the second half of the year were as follows: Ÿ Prior to the lockdown, the Group was continuing to experience increased costs per leads generated as a result of continued competition driving up 'Pay Per Click' and other digital marketing channel costs. Moving into the middle of the ﬁrst half, despite the cessation of installation activities, the Group continued, albeit on a much-reduced scale, to respond via remote-selling methods to customer enquiries during the lockdown period. These enquiries were generated with minimal levels of investment as compared to spend prior to the lockdown. Ÿ Following the restart of operations, the Group experienced a strong consumer response as it stepped up its lead generation activities across all lead sources and although the costs per lead increased as volumes grew when compared to the very low levels during lockdown, these were still lower than the ﬁrst two months of the year. The Group's cost to order intake ratio across the second half was 10.2% lower than H2 2019. Ÿ This beneﬁcial rate effect was more than offset by the Group driving order intake levels that exceeded the level of installation activity which resulted in an order book at the year end that was 83% ahead of the prior year. This investment diluted the gross margin percentage across the year. Ÿ Aside from the above, gross margin in the ﬁrst half was impacted favourably by a £0.7m reclaim under the CJRS scheme from the UK Government to contribute to the costs of the Group's furloughed factory employees. Ÿ Despite this assistance, the Group continued to incur some ﬁxed costs in H1 that could not be fully mitigated during the lockdown such as leased equipment costs. In addition, as the business restarted its factory in late May, the initial few weeks of operation were part of a staged return to work plan which inevitably resulted in a lower level of productivity than normal whilst COVID-secure ways of working were fully embedded. Both of these factors diluted H1 gross margin. In the second half of the year, the growth in installation revenues, the reduction in ﬁnance subsidies and the continued improvement in average price per frame increased the gross margin percentage above that of 2019. Ÿ Ÿ Gross margin in H2 would have recovered more strongly were it not for the lead generation effect described previously alongside the Group investing in recovering its warranty and service backlog that built up during the lockdown period. This investment is expected to carry on in the early part of 2021 before reducing to pre-COVID levels in the latter stages of the year. furloughed in April with the remaining half spread across May and June. This reducing reclaim proﬁle after April reﬂects the gradual return to work of furloughed staff through the second half of May with 60% of staff returned to work by the end of May and 93% by the end of June. Ÿ Alongside the furlough support, the beneﬁts of the 2019 cost reduction activities reduced H1 operating expenses versus H1 2019 by a further £1.0m. However, as the Group moved into the second half of the year, as described in the CEO's statement, the high levels of demand resulted in the Group taking steps to increase its operational capacity. This equated to an increased cost in the second half of the year of £0.5m as the Group re-opened a previously- closed depot in Crawley and a new installation depot in Nottingham alongside growing headcount across surveying, order processing, installations and customer services. Ÿ The Group also incurred bonus costs of £1.0m in relation to the H2 bonus scheme that was introduced to incentivise a rapid restart of the business, delivering proﬁt alongside the building of a strong order book. IT licensing and infrastructure costs increased by £0.3m versus the prior year as the rollout of technology across the Group continued, most notably the implementation of Ofﬁce 365 and Microsoft Teams which proved crucial to underpin remote working during the lockdown and to enable a phased return to ofﬁce working after restrictions were lifted. Ÿ Ÿ Finally, costs associated with the Group's response to implementing COVID-19 safeguards including enhanced cleaning routines for ofﬁces, the provision of Personal Protective Equipment ('PPE') to the workforce and providing safety screens around workstations totalled £0.4m in the year. Underlying other operating expenses Underlying (loss) before taxation Underlying (loss) before taxation was £(4.8)m (2019: loss of £(1.5)m), although proﬁtability was achieved either side of the lockdown period as described above. This loss is before the non-underlying items described below. Underlying other operating expenses were consistent versus 2019 across the full year. Ÿ Ÿ There were reductions in the amount invested in TV advertising of £0.7m which partially offset the increased investment in digital media lead generation channels referred to above. In addition to the amount received and included within gross margin, the Group also received £1.1m in the ﬁrst half of the year for its CJRS reclaim for furloughed staff costs that are expensed within underlying other operating expenses. Half of the amount reclaimed was for staff Annual Report & Accounts 2020 25 Safestyle UK plc Strategic Report Governance Financials Financial Review Non-underlying items A total of £1.4m has been separately treated as non-underlying items for the year (2019: £2.3m). The prior period included £1.8m of costs related to restructuring activities and asset impairment as part of phase two of the Turnaround Plan. The current year's costs consist of £0.5m of non-recurring costs (2019: £1.9m), a £0.4m shared based payment charge (2019: £0.0m) and £0.5m (2019: £0.5m) of Commercial Agreement (Intangible Asset) amortisation. The table below shows the full breakdown of these items: Non-underlying items Holiday pay accrual Litigation costs Restructuring and operational costs Impairment of right-of-use assets Modiﬁcation of right-of-use assets and liabilities Reversal of prior year impairment of right-of-use assets Commercial Agreement service fee IT project Impairment Total non-recurring costs (note 7) Equity-settled share based payment charge (note 32) Commercial Agreement amortisation 2020 £000 470 74 266 - 5 (292) - - 523 424 452 2019 £000 - - 1,058 692 - - (13) 113 1,850 12 452 Total non-underlying items 1,399 2,314 The holiday pay accrual of £0.5m has arisen as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement to the end of 2021 which is in line with the Government's recommendation. This has signiﬁcantly increased the level of deferred holiday entitlement at the year end which has been recognised as an accrual and which will reverse in full in 2021. This item has been excluded from the underlying performance measures to ensure performance of the business is not skewed by both the expense in 2020 or its subsequent full release in 2021. Litigation costs of £0.1m are expenses incurred as a result of an ongoing legal dispute between the Group and an ex- 26 Annual Report & Accounts 2020 agent. These costs were predominantly legal advisor's fees. In 2020 and 2019, the Group incurred restructuring and non-recurring operational costs of £0.3m and £1.1m respectively which reduced the Group's overheads in some areas. In addition, in 2019, 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. The installation branch was re-opened in 2020 as the Group increased its capacity levels and consequently, £0.3m of the prior year's impairment charge has been reversed. The receipts in relation to the CJRS described earlier in this Financial Review have not been classiﬁed as a non-recurring item on the basis that these partially offset the wage costs of unproductive labour in the lockdown period. In the prior year, the Commercial Agreement service fee costs 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 ﬁve years and Safestyle's trading performance in 2019. Subject to satisfying the strict terms of the agreement, the consideration took 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. The Commercial Agreement service fee was originally assessed in 2018 at a £1.0m fair value as 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 conﬁrmed based on the actual performance in 2019, and the provision for consideration to be paid was reduced by £13k to £987k. This amount was paid and four million ordinary shares of 1 pence each were issued in October 2020 in accordance with this agreement. The non-compete element of the Commercial Agreement was 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. The items classiﬁed as non-recurring costs on the Consolidated Income Statement, the share based payment charge and the amortisation of the intangible asset created as a result of the Commercial Agreement reached in 2018 have all 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. Earnings per share Basic earnings per share for the period were a loss of (4.3)p compared to a loss of (4.0)p for the prior year. The basis for these calculations is detailed in note 9. Net cash and cashﬂow A key aspect of the Group's response to the COVID-19 pandemic to mitigate the impact on the Group's liquidity as a result of the cessation of revenue- driving activity was to raise funds via a share Placing. The Placing was completed at the end of April with net proceeds of £8.2m raised. Alongside this injection of additional liquidity, the Group also secured a two year extension to its existing borrowing facilities until October 2023. Covenant waivers for the lockdown period and reductions in covenant targets for the remainder of the facility were also secured. At the end of the year, net cash was £7.6m (2019: £0.4m). £4.5m of the Group's £7.5m facility, being that of the term loan, remains fully drawn with the remaining £3.0m revolving credit facility undrawn. Net cash inﬂow from operating activities, including the cashﬂow impact of non-underlying items, was £3.4m (2019: £4.5m). This inﬂow was despite the losses in the year as a result of favourable working capital movements. The most signiﬁcant increase is attributable to the agreed deferral of payments originally due in May 2020 to HRMC totalling £2.5m. This deferral will be paid from March 2021 in line with HMRC's deferral repayment scheme. Since the restart of operations, the Group has not continued to defer any further tax payments owed to HMRC and, with the exception of this deferred amount, continues to pay all liabilities as they fall due. The other working capital beneﬁt within operating cashﬂows is driven by an increase in payments on account for customer deposits received in line with the growth in the order book of £2.6m. This effect has been partially offset by outﬂows driven by increases in buffer stock levels for PVCu proﬁle which have been built as part of mitigation against any potential supply chain disruption. Capital expenditure of £0.6m increased from £0.4m in 2019. Some capital expenditure was deferred as part of the Group's response to the pandemic, but the Group continued with its investment programme to replace and upgrade IT hardware. After the £8.2m proceeds in relation to the share Placing and the lease payments of £3.7m on leased assets (2019: £3.6m), net cash inﬂow in the period was £7.3m (2019: £0.3m). Dividends As the Group looks ahead to 2021, 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 end (2019: £nil per share). Rob Neale Chief Financial Ofﬁcer 24 March 2021 Annual Report & Accounts 2020 27 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 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 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 are identiﬁed and enacted. 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 The Group began an Internal Audit programme in late 2019 which was supported by outside service providers. In 2020, the Group appointed an internal auditor who will provide additional independent assurance on key processes and controls. Principal risks and uncertainties Risk Description Mitigation Regulatory The Group operates in a highly regulated sector including consumer protection and consumer credit regulations. Should the Group be found liable for breaches of such regulations, the business could face signiﬁcant brand damage, ﬁnancial or existential consequences. The Group has a wide-ranging set of programmes of appropriate training to ensure legal compliance and to minimise mistakes. This training is for both new joiners and also in the form of refresher training. This is supported with comprehensive record keeping, audit trails and e-Learning training modules for new colleagues alongside refresher programmes for existing colleagues. 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. Risk Description Mitigation Health & safety The Group's operations take place in a diverse range of domestic operating environments. In 2020, there were 40k installations, 25k in the second half of the year following resumption of activities, 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 or result in serious injury to employees or agents. 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. The disruption to normal operations in 2020 as a result of the UK lockdowns created additional challenges to the maintenance of acceptable customer service levels. Should the Group's reputation fall, future performance could be adversely impacted. The Group has continued its focused priority of managing 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 continues to engage 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 and positive conversations which are supported by a programme of training and investment in people and facilities. This is further underpinned by proactive audit and data collection, allowing live conﬁrmation of compliance direction for continued improvement. During 2020, the Group also attained the accreditation for Occupational Health and Safety Management ISO 45001 which is a further indicator of the Group's focus on the safety of its people. This approach is fully supported by the Board and Executive Team who review performance regularly and ensure that safety is the priority within the business, challenging results and driving improvements. Finally, numerous speciﬁc 'COVID-safe' measures were also implemented as part of the Group's response to the Coronavirus pandemic which are detailed separately in the Coronavirus risk section. The Group recognises the importance of providing excellent customer service and continues to invest in improving its systems and processes in this regard. The Group has maintained its close working relationship with West Yorkshire Trading Standards which was established in late 2018 and this continues a pro- active response to any complaints that are escalated to third parties. The Group continues to maintain its customer complaints process in order to identify issues early and put corrective actions in place and has also again achieved its accreditation to ISO 10002 Customer Satisfaction and Complaints Handling standard. The Group added additional resource to mitigate the impact of longer lead-times created during the lockdown in 2020 and also those generated during a period of supply disruption in Q3 2020. The Group is now further developing a speciﬁc set of projects to improve the customer experience which will build on initiatives already in place. The Group has also invested in the resources available to monitor online reviews and social media comments in order that complaints can be identiﬁed and responses made promptly to maintain the Group's reputation. 28 Annual Report & Accounts 2020 Annual Report & Accounts 2020 29 Safestyle UK plc Strategic Report Governance Financials Risk Management Risk Description Mitigation Market and competition The Group operates in a competitive market which is exposed to the UK's economic performance and general consumer conﬁdence. Reasonably low barriers to entry exist for new competitors to be established on a regional scale which could disrupt the market locally. 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. The Group also appointed a new leading digital media agency in 2020, Journey Further, which it believes will further underpin its competitive advantage. 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. Finally, the Group continues to invest in its brand via digital marketing channels and also plans to invest further in its brand and consumer messaging via 'above the line' marketing activities in 2021. IT system dependency and information security The Group continues to invest in improvements to its IT systems and people, with security, compliance and capacity planning at the forefront of its plans. The Group is reliant on a number of key IT systems and processes. 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. Investment has been made into new Anti-Virus, Web Filtering and Firewall technologies and the Group retired its on-site email servers to make way for the introduction of Ofﬁce365 and associated Advanced Threat Protection. The Group has also invested in the building of a new, modern server infrastructure at its Head Ofﬁce which is part of a programme that will retire old servers in 2021 and result in signiﬁcantly improved capacity and resilience. Furthermore, the Group has made steady progress in its drive towards Cyber Essentials+ accreditation which is expected to be achieved in 2021. This programme includes a Cyber awareness / IT security campaign that is active for all employees. The Group has also progressed its implementation of the 'Information Technology Infrastructure Library' (ITIL) operating framework, aimed at ensuring compliance in IT operations. The Group has ﬁnancial crime protection and cyber liability insurance in place. 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. Risk Description Mitigation Data security and data privacy The Group's operations are subject to 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. Reliance on key suppliers The Group relies upon certain key suppliers. If relationships with such suppliers are not maintained or key suppliers fail, there could be potential disruption to the Group's business. This is particularly applicable in respect of the suppliers of PVCu to the Group who went through an administration process before recommencing operations in 2020. Although alternative suppliers are available to provide the supplies required by the Group, the transition of suppliers could cause disruption to normal operations which may adversely impact the Group's performance. 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. 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, the Group has formed a compliance committee, chaired by one of its 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 and data incident monitoring. A data compliance ofﬁcer was appointed in 2020 to aid the 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 the risk register, with mitigating actions implemented as appropriate. A data breach and incident handling policy is in place and a programme of data compliance audits planned to identify opportunities for improvement and to report any non-compliance for action. 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. Speciﬁcally in response to the potential risk of failure by the supplier of PVCu to the Group, signiﬁcant buffer stocks have been built during 2020 to mitigate the potential impact of this key risk. This is further supplemented by enhanced monitoring of the ﬁnancial performance of the supplier. 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 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. Finally, the Group continues to focus on improving employee engagement and communication. 30 Annual Report & Accounts 2020 Annual Report & Accounts 2020 31 Safestyle UK plc Strategic Report Governance Financials Risk Description Mitigation Risk Management Risk Description Mitigation 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. 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 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. 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 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 also 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 renewed its committed £7.5m banking facility during the year which is now in place until October 2023. As part of this renewal covenant thresholds were lowered which has resulted in increased headroom. 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. 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 will review its arrangements accordingly. 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. 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. 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 or work speciﬁc hours which can lead to higher levels of turnover and short term resource gaps which in turn could impact the consistent operation of the Group. COVID-19 (Coronavirus) risk The COVID-19 (Coronavirus) pandemic caused signiﬁcant disruption to the business in H1 2020. The impact of the lockdown resulted in a cessation of all operations for 2 months during which time the Group secured additional shareholder support to underpin the recovery from this interruption. The rollout of the vaccine programme in Q1 2021 in the UK has resulted in a steady lifting of restrictions to businesses. However, there remains the risk that should infection rates increase once again that the UK government would possibly have to revert to new restrictions that could impact business operations. 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. 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 continues to focus on the provision of what it believes are market-leading commission plans and incentives. The Board and the Group continues to closely monitor the evolving situation of Coronavirus and has in place a number of processes and policies to protect its customers, staff and the business which include: Ÿ A number of COVID-safe policies and measures, developed throughout 2020, which follow guidance on PPE, enhanced cleaning and minimising contact to prevent the spread of the virus. Ÿ Investment in home-working capability such as laptops and communications. Ÿ Development of department and site by site plans to respond to any disruption caused to maintain business as usual wherever possible. Ÿ A number of modelling scenarios which measure the impact of various restrictions on 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. 32 Annual Report & Accounts 2020 Annual Report & Accounts 2020 33 Safestyle UK plc Strategic Report Governance Financials Corporate Social Responsibility We are committed to recycling as much waste as possible. 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. 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 02 THE OLD WINDOWS THE OLD WINDOWS THE OLD WINDOWS ARE TAKEN AWAY ARE TAKEN AWAY ARE TAKEN AWAY Our team of expert ﬁtters install a beautiful new set of windows for the happy customer. All the old windows (and any other waste) are loaded onto the van and brought back to the depot. WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2020... WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2020... WHAT WE CAN’T USE OURSELVES WE SEND TO A RECYCLER WHO CAN, IN 2020... GLASS PLASTIC WOOD METAL 753 tonnes of old glass (called cullet) went into making new windows. 2,783 tonnes of post consumer plastic is recycled into drainpipes & plastic decking etc. 1,062 tonnes of wood got recycled into pellet fuels for Biomass heating systems. 75 tonnes of metal in 2020 was melted down and reused. 06 BESPOKE WINDOWS ARE NOW BORN Highly-skilled craftsmen and state-of-the-art machinery precisely manufacture new windows to your exact order. 03 MATERIALS ARE SORTED MATERIALS ARE SORTED MATERIALS ARE SORTED AND SEPARATED AND SEPARATED AND SEPARATED We sort and separate all the different materials ready to go back to our factory in Yorkshire. 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. 05 NEW ENERGY EFFICIENT 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 ALL MATERIALS ARE EXPERTLY RECYCLED The separate materials arrive back at our dedicated recycling centre. Whatever we can't use, we send to a recycler who can. VIRGIN PVCu OFF CUTS 368 tonnes each year go back into making new frames. 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. 34 Annual Report & Accounts 2020 Annual Report & Accounts 2020 35 Safestyle UK plc Strategic Report Governance Financials Going even greener As part of our ongoing Corporate Social Responsibility we are always looking for ways in which we can become even greener. We care about our planet and strive to lead the way in our industry in looking after it. COOL TEMPER FURNACE ENERGY SAVING PROJECT COOL TEMPER FURNACE ENERGY SAVING PROJECT COOL TEMPER FURNACE ENERGY SAVING PROJECT ELECTRIC CHARGING POINTS DESIGNATED CYCLE PARKING 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 and if it is subsequently broken, the glass will fragment into lots of much smaller and safer pieces of glass - here’s how it works... As more of our vehicle ﬂeet become hybrid and full electric we have installed various charging points at our factory. To encourage local workers to use leg power rather than petrol power, we have installed a designated cycle parking area. 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. 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 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. 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. 36 Annual Report & Accounts 2020 Annual Report & Accounts 2020 37 Safestyle UK plc Strategic Report Governance Financials Safestyle People Values 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. 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. 2020 people review We entered 2020 with enthusiasm, energy, and drive. We were rested and ready to accelerate the work on our People Agenda, to continue the cultural transformation journey and ready to enjoy seeing the impact of our projects. Yet within a few short weeks we found ourselves in a very different situation. With our strategic agenda and long- term value adding projects on pause, we turned all our attention towards the unknown, towards a Global pandemic, towards the daily challenge to protect our people and our customers, and towards the unprecedented hibernation and then re-start of our business. 38 Annual Report & Accounts 2020 Whilst people were increasingly craving clarity and certainty in a world where things were anything but clear and certain, our managers worked hard to support their teams through everything from the sudden necessity of remote working to being placed on furlough to returning to remote working whilst family lives were often turned upside down. Our philosophy has been to provide support and ﬂexibility where it has been needed; in return our people have supported the business with real stoicism and determination. Because of this, 2020 was still a productive year for our People Agenda. Communication Despite hibernation and extended periods of remote working, our communication has improved in 2020 and although we have not been able to introduce some of the new initiatives that we had planned, these will roll forward into 2021. The saying “you're on mute” will epitomise 2020 forever. In Safestyle, remote working was not part of the way we went to work before the pandemic but, true to form our people embraced the change and developed their use of technology for effective communications both during and outside of the working day. We have had our fair share of interruptions such as doorbells ringing, parcels being delivered, dogs barking, inquisitive children, upset children – we've even been entertained by a parrot! It is fair to say that we have come to know each other better and that seeing beyond the 'work persona' has often led to closer team working. relationships has not been easy for new recruits and is something that we must remember as we all start to return to our ofﬁces in 2021. Investment in people During 2020 we recruited and on- boarded 106 new Safestyle employees and over 500 contractors. There have also been real challenges with remote working. Induction and on- boarding have been particularly difﬁcult especially for those who have of people with limited experience of work, perhaps in their ﬁrst job. Getting to know the business and building In March 2020, just 2 weeks before our ofﬁce doors closed, we welcomed Gary Pickering as our new Commercial Director. An accomplished sales professional with a track record of creating large remote teams and leading them to deliver transformational growth, Gary took the opportunity presented by our hibernation to focus on developing his commercial plan. Through internal promotions and external recruitment, we have now assembled an exceptionally strong Commercial Leadership team which combines outstanding talent from our existing senior management in Sales and Canvass with people from leading industry competitors and other highly successful businesses. This team will in turn recruit, develop and retain a world- class commercial team, and at the heart of everything they do will be providing our customers with a sales experience we are proud of. Annual Report & Accounts 2020 39 Safestyle UK plc Strategic Report Governance Financials Safestyle People 2020 will have an impact for some time to come for many people. We are genuinely very proud of our people and the way in which we worked together to learn, to adapt, to understand, to support, and ultimately to make the best of a situation that would have been incomprehensible only 6 months earlier. Our key strengths have always included positivity, resilience, and acceptance of change, all of which stood us in good stead during 2020 and will do so again in 2021 … albeit hopefully a more normal year! Learning & development We are committed to the development of our people, recognising that our business will only ever be as successful as the people who bring our business alive every day. As we continue to grow, we will ensure that our colleagues have the appropriate skills to perform their roles effectively and efﬁciently in an increasingly regulated industry. After all, our people are a competitive advantage in our market. An example of our commitment is our Leadership Excellence Accreditation Programme (LEAP) which was launched in our Sales function during the second half of 2020. With our ﬁrst cohort of managers now graduated we look forward to welcoming the second group in early March. Whilst we were able to launch LEAP, other face-to-face training was a challenge to deliver in 2020. To mitigate this, we made further investment in our E-Learning Platform with over 8,500 40 Annual Report & Accounts 2020 courses completed in the year. All Safestyle colleagues now have an individual learning account and we have added a further 40 bespoke training modules to our library. Utilising our Apprenticeship Levy in 2020 we funded training for 29 individuals across the business from various departments and we are pleased to report that 4 people completed their apprenticeships before the close of the year. Looking forwards As we come out of the pandemic in 2021, we will pick up the pace of the development of our People Agenda. Our focus will be 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. We will also have a strong focus on the wellbeing of our people as the stress and strain of Annual Report & Accounts 2020 41 Safestyle UK plc Strategic Report Governance 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 Most important aspect of your role or project worked on? Creating the revenue dashboard that underpins our daily sales performance versus target on our meeting and enables us to quickly commercial KPIs, such as cost of see how we are performing lead generation, rep conversion against our KPIs, and launching etc. These KPIs are tracked in our Tableau data analytics into our sales dashboards and reviewed at sales branches to give branch What is your typical day? A typical start to the day is making sure that all critical IT Most important aspect of your role or project worked on? Helping with the creation and systems are running as expected, implementation of Polaris was 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 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 the daily sales meeting. I spend a managers a data-driven view of ensure the business processes are running successfully. 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? 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 as efﬁcient and effective as possible. This is combined with resolving any issues that may How do you measure success? The size of the helpdesk queue arise and providing a quick, but and hitting deadlines, whilst safe ﬁx that will get the business retaining customer satisfaction back up to full speed as quickly as when colleagues come to us with possible. questions or issues. What challenges do you face? Most proud moment? Engaging a broad range of people previously cautious around data Balancing the resolution of issues Finishing my apprenticeship at to use and understand often using data analytics to drive with planned work on tight quite complex data to drive the performance. deadlines. Safestyle and getting recognition from the company for my efforts. right actions. What is your typical day? First I deal with urgent queries from ﬁtters and create the daily scaffold plan of how many to people whilst working hard to achieve the best results. Access Solutions has developed recently with the ongoing projects and it's order. I deal with invoice queries, great being a part of this! specials, urgent requests, creating reports and much more. I also How do you measure success? negotiate scaffold prices and as a Leaving my ofﬁce daily knowing Yorkshire lass I drive a hard bargain! I live up to my name everything is sorted. If you always work to the best of your ability being a busy Bee, which I couldn't then the day's a success! A bit of do without my colleagues help! positive feedback is also nice. What challenges do you face? Most proud moment? I face many challenges, site access Can I have more than one please? issues, scheduling problems, Working my way up to where I Access Solutions to name a few am, receiving kind words & but we always try our best to ﬁnd recognition from those in higher a solution! Most important aspect of your role or project worked on? Most important is enjoying work, smiling and laughing with good 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 ‘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 meetings. Trying to close as many Safety, Quality and Service actions as I possibly can, and in through application of lean tools. 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. 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 important aspect of your Most proud moment? role or project worked on? The two big projects of 2019 were ‘Cool Temper’ and 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 when they need assistance or advice. My most important installation depots to aid in the project was taking the Manager daily running and the overall management of depot performance. Implementing Standard Operating Procedures with a clear goal of getting each position at Warrington depot and turning the depot into one of the best performing depots. How do you measure success? depot to run in line with company I measure success by giving 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 smoothly and few issues arise. 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 to it’s maximum in all aspects. This achievement is shared with turn ensures depots are running around and getting it to perform Most important aspect of your everyone involved. The ﬁtters role or project worked on? Support the teams around me and be available for anybody 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 most important project has to be the Sales Rep recruitment process, this was a new way of the recruitment role alongside my recruiting for me but with the rest general HR role I have to be more of the team, I managed to build a structured, producing reports for process successfully bringing in 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 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 service to the business and the me, I’ve been successful. areas I work with. The business is going through lots of change, so I Most proud moment? need to manage managers expectations, understand their thoughts whilst guiding them in the right direction. 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 Most important aspect of your positive comments from around role or project worked on? 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 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? productivity making sure targets Making sure the manufacturing and standards are being met. Next, it's onto checking in with purchasing and the stores team that everything is running plant has the stock required to make the frames on time to hit delivery dates. Maintaining the legality and service schedules of and making sure the depots are receiving feedback. Finally later in the day I debrief our drivers, checking the condition of our potential down time. How do you measure success? We use OTIF reports to monitor wagons, number of hours worked our progress and as a driver for and time sheets are completed. 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. employees feel they can approach smooth. Reviewing depot queries our HGV ﬂeet to minimise any 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 2020 Dale Mallison PCW, Stocks & Transport Manager Based at Manufacturing Facility 22 years at Safestyle UK Annual Report & Accounts 2020 43 Safestyle UK plc Strategic Report Governance Financials Together we will get through this... In true Safestyle fashion, the commitment of our workforce in these turbulent times has been inspirational. All around the country our colleagues have been going above and beyond to help and support their local communities. Here’s just a few examples... KEEPING SPIRITS HIGH! KEEPING SPIRITS HIGH! KEEPING SPIRITS HIGH! CYSTIC FIBROSIS CHARITY BIKE RIDE CYSTIC FIBROSIS CHARITY BIKE RIDE CYSTIC FIBROSIS CHARITY BIKE RIDE LOCAL FOOD BANK LOCAL FOOD BANK LOCAL FOOD BANK VOLUNTEERING VOLUNTEERING VOLUNTEERING Mike Smales, our Canvass Manager at Hull and his team of helpers supported their local community volunteering at a food bank during lockdown. Great work guys, we know how appreciated it is! Great community spirit! ESSENTIAL PPE ESSENTIAL PPE ESSENTIAL PPE DELIVERIES DELIVERIES DELIVERIES Service Engineer Tom Savage and his wife delivered PPE and essential supplies to over 200 nursing homes during lockdown. Just another example of going above and beyond to help those in need. Helping those in need... FUNDRAISING FUNDRAISING FUNDRAISING Our Middlesbrough Branch Manager Ray Foster, has been going through a very tough time due to this wife having terminal cancer. Despite this incredibly upsetting news, Ray and a group of close friends decided to take on the Lake District Mighty Hike for Macmillan Cancer Support. Services Manager Tracey Hindle and her family kept people smiling on their daily walks around the neighbourhood! Keep smiling :) ROYAL VOLUNTARY ROYAL VOLUNTARY ROYAL VOLUNTARY NHS SERVICE NHS SERVICE NHS SERVICE What an amazing thing to do! Our very own Lynn Day, Regional Canvass Manager has been volunteering as an NHS responder, doing what she can to help those in need. Such an important and selﬂess act of kindness. Well done Lynn. What an amazing achievement Well done Lynn! THE GREAT SAFESTYLE BAKE OFF... THE GREAT SAFESTYLE BAKE OFF... THE GREAT SAFESTYLE BAKE OFF... It looks like most of us have turned into Great British bakers at one point or another this year. Whether it has been to keep yourselves and the children busy, celebrate VE day or bake lovely treats for your neighbours or those in need! Yummy... Tasty treats :) Simon Davis, one of our Branch Canvass Managers, with a group of friends, embarked on a 700km bike ride for the Cystic Fibrosis Trust from Land’s End to Chester over a total of 5 days. The ﬁrst day, Monday 14th September, took them from Land’s End to Newquay. Then from Newquay to Exeter, Exeter to Stonehenge, Stonehenge to Hereford and then to Chester for the ﬁnish. The Cystic Fibrosis Trust is ﬁghting for a brighter future for people and their families by funding cutting-edge research, driving up standards of care and supporting people with the condition and their loved ones every step of the way. An amazing £5,745 was raised for such a worthy cause, what a fantastic effort! A fantastic £5,745. 00 raised... Day 2 complete! FRIENDLY FACES FRIENDLY FACES FRIENDLY FACES COMPETITION COMPETITION COMPETITION We wanted to recognise local lockdown heroes and shine a light on some of these kind-hearted individuals. We launched a nationwide ‘Friendly Faces’ competition to discover some of the most heartwarming and touching stories across the UK, no matter how big or small. Here’s a few competition winners. From making sure local communities had food, dressing up to make people smile, raising money, dog walking, keeping people connected with a local newsletter and much, much more. WISHING YOU AN EGG-CELLENT EASTER WISHING YOU AN EGG-CELLENT EASTER WISHING YOU AN EGG-CELLENT EASTER We’re proud to see our vans being used to spread a little joy. Safestyle UK colleagues have been volunteering with Business in the Community Charity, delivering these enormous Easter Eggs to children’s homes and hospices across the country. Huge thanks (yes we mean huge – those eggs weighed 7kgs each) to Gareth Rodgers and Harninder Nagra from Birmingham Installations, along with Andy Kyle from our Transport team. Head of Transport, Steven Lambert, also got involved delivering face visors on behalf of SENSE to several children’s homes, making sure staff had vital PPE. KEEPING MOTIVATED KEEPING MOTIVATED KEEPING MOTIVATED It’s good to see everyone keeping ﬁt and motivating others during lockdown. We’ve had loads of photos, beautiful walks, runners and bikers! Well done to those that took part in fundraising and donating for our amazing NHS. That’s a lot of chocolate... 42 Annual Report & Accounts 2020 Annual Report & Accounts 2020 43 NHS fundraising Safestyle UK plc Governance 46 48 50 64 68 Board of Directors Audit Committee Report Directors’ Remuneration Report Directors’ Report Independent Auditor’s Report Safestyle UK plc Strategic Report Governance Financials Board of Directors Alan Lovell Mike Gallacher Rob Neale Fiona Goldsmith Julia Porter Prior to First Milk, Mike held a number of senior roles at Mars Inc. including UK Managing Director for Mars Petcare and various business leadership roles for Mars in Asia. His 8 years in Asia gave him signiﬁcant experience of putting in place effective and appropriate systems, processes and training for fast growing branded businesses. Mike has been focused throughout his career on building growth businesses, establishing brands, managing lean manufacturing, leading effective management teams and delivering ﬁnancial results. Prior to Mars, he was a British Army Ofﬁcer for eight years, serving as a Bomb Disposal operator in the UK and overseas. 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. 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. In his executive career, Alan was Chief Executive Ofﬁcer of six companies, including two in the waste-to-energy sector and three in the construction sector, Jarvis plc, Costain Group plc and Conder Group plc. 46 Annual Report & Accounts 2020 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 transformation that resulted in a £30 million improvement in business proﬁtability in 24 months. Rob Neale Chief Financial Ofﬁcer Fiona Goldsmith Non-Executive Director Julia Porter Non-Executive Director 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 at Dyson Limited as well 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 $30 billion NYSE-listed Stanley Black & Decker Inc. Group. Rob is a fellow of the Institute of Chartered Accountants of England and Wales and started his career at Arthur Andersen. 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, Audit Chair and Employee Representative at the listed housebuilder MJ Gleeson plc. She was previously Chair of the Audit Committee at Walker Greenbank plc (2008 to 2018). 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). 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's consulting roles include strategic advice for business startups 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. Annual Report & Accounts 2020 47 Safestyle UK plc Strategic Report Governance Financials Audit Committee Report During the year the Committee has continued to assist the Board in fulﬁlling its oversight responsibilities. 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. During the year the Committee was additionally focused on the impact of the COVID-19 pandemic on the business in terms of ﬁnancial performance, new and emerging risks, business continuity and resilience. 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 2021 when this annual report and ﬁnancial statements were approved. Principal duties in November to review and agree the Audit plan for the year ahead. At meetings the ﬁndings of the external audit are discussed, and the effectiveness of the Group's system of internal controls and risk management is reviewed. The Committee supports the Board in carrying out its responsibilities in relation to ﬁnancial reporting, risk management and assessing internal controls. In September 2020 an internal auditor was appointed to the Group. During the following 3 months the focus was on the review of revenue processes and controls and stock. A detailed internal audit plan for 2021 is under preparation and this will be reviewed and approved by the Committee. The Committee also manages the relationship with the external auditor. The Committee undertook the following activities during the year: The principal duties of the Committee are to: Financial reporting Ÿ Oversee the integrity of the Group's ﬁnancial statements 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. The Committee reviews the half year and annual ﬁnancial statements and matters raised by management and the auditors. The Committee satisﬁed itself that; Ÿ The accounting policies used are consistent both year on year and across the Group (other than as disclosed in note 1 of the ﬁnancial statements). Ÿ The methods used to account for signiﬁcant transactions are appropriate. Ÿ The ﬁnancial statements give a true and fair view and the disclosures made are balanced and understandable. Ÿ Appropriate estimates and judgements have been used, considering the views of the external auditor. Ÿ Ensure appropriate arrangements are in place for Ÿ The appropriate accounting standards have been applied. individuals to raise concerns regarding breach of conduct and legal and regulatory compliance. External audit Committee membership The Committee comprises two independent Non-Executive Directors: Julia Porter and myself. The Committee met three times during the year and had 100% attendance. The Company Secretary acts as secretary to the Committee. Although not members of the Audit 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. Detailed information on the experience, skills and qualiﬁcations of the Committee members can be found on page 47. The Board is satisﬁed that the Committee Chair has recent and relevant ﬁnancial experience. Terms of reference These were adopted by the Board on 11th December 2013 and are available on the Group website. The terms of reference are reviewed annually. Meetings The Committee meets three times per year; in March and September being the appropriate time to review the Annual Report and Accounts and the interim report respectively, and 48 Annual Report & Accounts 2020 Following a comprehensive Audit tender process Grant Thornton UK LLP ('Grant Thornton') were appointed as the Group and subsidiary companies' auditors at the AGM held on 14th May 2020. The Committee held discussions with both Grant Thornton and KPMG to ensure that there was a smooth and detailed handover of responsibilities. 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 appointment and remuneration. The Committee will review 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. During the year Grant Thornton only provided audit services with tax compliance work provided by KPMG. 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 Chair of the Audit Committee before the work commences. 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 Grant Thornton. Risk management The risks identiﬁed and the mitigating actions were reviewed regularly by the Executive Committee and annually by 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 28 to 33 sets out the key risks that the business may face and how it mitigates them. The Executive Committee implements the internal controls and processes to put the Committee's policies on risk and control into effect and provides assurance on compliance with these policies and processes. During much of the year the Executive Committee was managing the risks associated with the impact of Covid-19. There was a regular dialogue with the Board and members of the Audit Committee to ensure that we were kept informed of all actions designed to mitigate the risk to customers, staff and the business. The Compliance Committee 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. In addition, our external auditors, Grant Thornton, 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. Signiﬁcant issues considered during the ﬁnancial year 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 2020 and March 2021, the Committee reviewed the Group's results and other information provided by the Chief Financial Ofﬁcer to support the Directors' going concern statements. The Committee also considered a paper prepared by the external auditor, which included signiﬁcant reporting and accounting matters. The Committee considered the appropriateness of the following areas of signiﬁcant judgement, complexity or estimation in the ﬁnancial statements. Going concern The Audit Committee, and the Board, reviewed the ﬁnancial information prepared by management to support the fact that it is appropriate to adopt the going concern basis of preparation for the Group. This included ﬁnancial forecasts which reﬂected current trading and anticipated performance for the period to the end of ﬁnancial year 2022. 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. The Board and the Audit Committee have also considered the ongoing possible impact of the COVID-19 restrictions on the Group's trading and cashﬂow forecasts. When the Audit Committee considered the potential impact of Covid-19 at the start of the pandemic it was difﬁcult to predict the overall impact it could have on the business. This year the business has signiﬁcantly more clarity as to the potential impact and this along with the improving operating context and the outcome of the scenarios modelled, underpin the Director's conclusion that the risk of the liquidity requirements exceeding the total quantum of facilities available is now deemed remote. Detail of the scenarios considered is set out in note 1 to the ﬁnancial statements. The Audit Committee considered the basis of preparation of the accounts and concluded that it is appropriate to prepare the accounts on a going concern basis. Valuation of Goodwill and Intangibles Management undertook an impairment review of the goodwill and intangible balances. As this involved judgement of the future cashﬂows and the appropriateness of the discount rate used it was considered by the Audit Committee. Sensitivities were applied to the key assumptions in the impairment model and these demonstrated that the recoverable amount exceeds the carrying value of Goodwill and Intangibles in all reasonably possible scenarios. Fiona Goldsmith Chair of the Audit Committee 24 March 2021 Annual Report & Accounts 2020 49 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Statement from the Chair of the Remuneration Committee Dear Shareholder New policy Ÿ I am pleased to present the Directors' Remuneration Report for the ﬁnancial year 2020, which comprises three sections: Ÿ This annual statement; Ÿ The Directors' Remuneration Policy (Policy); and Ÿ The Annual Report on Remuneration, which provides details of the amounts earned in respect of the ﬁnancial year 2020 and remuneration for the ﬁnancial year 2021. As an AIM company, Safestyle is not subject to the remuneration reporting regulations of fully listed UK companies, and therefore provides these remuneration disclosures on a voluntary basis. The Remuneration Committee has taken account of the remuneration reporting regulations in the preparation of the Directors' Remuneration Report as a matter of best practice. Similar to previous years, the Directors' Remuneration Report is subject to an advisory vote at the May 2021 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. Our current Policy was approved by shareholders at the May 2018 AGM, as part of an advisory vote on the 2017 Directors' Remuneration Report, and is reaching the end of its three-year term. A new Policy will therefore be subject to shareholder approval at the 2021 AGM, as part of an advisory vote on the 2020 Directors' Remuneration Report. The Committee considers that the current Policy remains broadly ﬁt for purpose. Following consultation with our major shareholders, three key changes are proposed in order to better support good governance. These are as follows: Ÿ Pension: The policy states that Executive Directors are entitled to receive a pension contribution of up to 12% of salary. Under the new Policy, we are reﬂecting the current pension arrangements where executives are entitled to receive a pension contribution (or cash allowance) of up to the level available to the executive team (currently 8% of salary). Ÿ Recovery provisions: The malus and clawback provisions contained within the Safestyle UK plc 2017 Performance Share Plan have been formally included within the Policy. The malus and clawback provisions apply to (i) a material misstatement of the audited ﬁnancial results; (ii) an error in assessing a performance condition; (iii) a material failure of risk management; (iv) serious reputational damage to the Company; and (v) serious misconduct on the part of the participant. Shareholding guidelines: In order to further align the Executive Directors' long-term interests with those of shareholders, share ownership guidelines have been introduced that include the expectation that the Executive Directors build up and maintain a shareholding in the Company equivalent in value to 200% of salary. Review of the 2020 ﬁnancial year As detailed in the Chief Executive Ofﬁcer's statement and Financial Review, after a promising trading performance at the start to the year, the business ceased all operations in late March 2020 in line with Government guidance with activities resuming in late May as COVID-19 lockdown restrictions were eased. The Group recorded a loss of c.£6m across the 3 months impacted by lockdown. The second half of the year saw strong order intake performance which was then followed by actions to increase installation capacity to match this performance. Year on year revenues steadily increased in the second half of the year with Q4 revenue over 20% higher than the prior year. Alongside this revenue growth, the Group increased the size of its order book by over 80% compared to the 2019 closing position. As part of the Group's response to the challenges faced, the Chief Executive Ofﬁcer and Non-Executive Directors reduced their salary and fees by 50% during the period from when lockdown started to the recommencement of business in late May. The Board remained fully active during this period. After the recommencement of operations in May the Committee reviewed the 2020 annual bonus structure for the Executive Directors and wider workforce. For Executive Directors, the Committee replaced the original annual bonus scheme with a structure focused on H2 performance, in order to incentivise a rapid restart of the business, the achievement of proﬁt in H2, and the build-up of a strong order book and sustainable future. The maximum opportunity under the original bonus scheme was 100% of salary (up to 70% based on PBT performance and up to 30% based on strategic and personal objectives). The PBT element of the revised scheme was based on performance for H2 where 35% of salary could be earned for achievement of the H2 PBT target (£0.93m) which was consistent with the H2 element of the maximum PBT target under the original annual bonus scheme. In order to incentivise a rapid recovery, a stretch target was introduced up to 52.5% of salary which could be earned based on stretching H2 PBT performance (£2.03m). The strategic and personal objectives remained in place with targets unchanged. In total therefore, the maximum opportunity under the revised structure was reduced to 82.5% of salary (up to 52.5% based on H2 PBT performance and up to 30% based on strategic and personal objectives). Mike Gallacher and Rob Neale earned a bonus equal to 21% and 20% respectively (against a maximum opportunity of 30%) based on performance against strategic and personal objectives, which were focused on key metrics to deliver the 2020 plan. See page 59 for further details. The Group achieved H2 PBT of £2.33m resulting in an outcome of 52.5% of salary for the PBT element of the scheme for the Executive Directors. Ÿ Mike Gallacher and Rob Neale therefore earned a bonus equal to 73.5% and 72.5% of salary respectively. Bonus outcomes in 2020 for the eligible wider workforce ranged between 48% to 85% of the maximum opportunity. The Committee carefully considered the bonus outcome and considered it to be appropriate taking into account underlying business performance and the experience of stakeholders during the year. In particular, the following factors and achievements were taken into account: Ÿ The business was closed for 2 months between March and May. Through a programme of careful planning in terms of operations, including supporting home working with technology and equipment upgrading, and health & safety, we were able to fully re-open the business by the end of May. This meant that the Group avoided any COVID-19 related redundancies and minimised the period of time for which staff were furloughed. Ÿ Given the high levels of uncertainty in March, and mindful of protecting the ﬁnancial future of the business, the Executives acted rapidly in April to secure its ﬁnancial stability. Measures included a share placing, an extension of ﬁnancing arrangements to October 2023 and covenant targets also reduced to underpin available liquidity. Ÿ Upon restarting operations, the Group's order book was signiﬁcantly increased during H2 (83% higher vs 2019 closing position) and key supply contracts have been renewed to ensure cost certainty, supporting a strong start to 2021. Ÿ As a result of sustained sales and marketing activity, market share has increased from 8.4% to 9.2% over the course of the year whilst key competitors continue to face difﬁculties. Ÿ The Group has achieved a strong commercial performance following the ﬁrst lockdown with share price increasing from a low of 14.5p to 39.7p at 31 December 2020. Performance share plan awards were granted to Mike Gallacher and Rob Neale in 2018. Vesting of the awards were subject to EPS targets over the three-year performance period to the end of the ﬁnancial year 2020. The threshold EPS target was not met and the awards lapsed in full. See page 59 for further details. 50 Annual Report & Accounts 2020 Annual Report & Accounts 2020 51 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Statement from the Chair of the Remuneration Committee Share awards granted in respect of the 2020 ﬁnancial year compared to the normal award level under the Remuneration Policy (100% of salary). Performance share plan awards Given the uncertain outlook presented by the COVID-19 pandemic and in line with guidance published by the Investment Association, the Committee chose to defer the grant of the 2020 performance share plan awards. Following careful consideration of quantum, performance metrics and targets, and consultation with our major shareholders, the 2020 awards were subsequently granted on 23 February 2021. When determining quantum, the Committee was sensitive to the need to balance incentivising executive performance at a time when our management teams are being asked to demonstrate signiﬁcant leadership and resilience, whilst ensuring that the executive experience is commensurate with that of shareholders, employees and other stakeholders. With these factors in mind, the maximum opportunity at grant was set at 45% of salary for both Executive Directors, representing a 55% of salary reduction 52 Annual Report & Accounts 2020 The Committee has been mindful of the requirement to ensure that windfall gains do not arise to the extent that the awards vest. The Committee considers that the reduction in quantum of 55% of salary provides sufﬁcient protection against this eventuality. Vesting is subject to the achievement of EPS performance (as regards 75% of the award) and absolute Total Shareholder Return (TSR) performance (as regards 25% of the award), thereby incentivising executives to deliver longer term earnings and share price growth performance. The vesting date is 23 February 2024 - three years after the date of grant. See page 60 for further details. Restricted share awards The Committee strongly believes that the Executives Directors and the senior management team have performed exceptionally well and, in particular, were instrumental in rescuing the business from potential collapse in 2018. Since then, they have driven the signiﬁcant progress made in the turnaround of the business. Despite their best efforts, the 2018 performance share plan awards have lapsed. Therefore, in order to recognise the performance of the Executive Directors and the senior team and to continue to motivate them to deliver long term growth, the Committee considered it appropriate to grant them restricted share awards. On 21 October 2020, Mike Gallacher and Rob Neale were granted restricted share awards equal to 56% and 42% of salary respectively as part of these awards. These awards vest on 18 June 2021 subject to continued employment (being the point at which the 2018 performance share plan awards would have been capable of vesting) and are subject to a one year post-vesting holding period. The Executive Directors will retain all shares following the post- vesting holding period (after selling sufﬁcient shares to cover tax liabilities arising on exercise) in order to build up their shareholdings. The Committee has been mindful of the requirement to ensure that windfall gains do not arise to the extent that the awards vest. The Committee considers that there is sufﬁcient protection against windfall gains given the award levels and that the awards are capable of vesting on 18 June 2021. Outlook for the 2021 ﬁnancial year Salary / fees Mike Gallacher received an exceptional increase in his base salary from £275,000 to £300,000 (9%) which was effective from 1 January 2021. This is his ﬁrst salary increase since he joined the Company almost three years ago and is the result of his contribution to the business since he joined and consideration of wider benchmarks. Rob Neale has also received an increase in his base salary to £220,000 which was also effective from 1 January 2021 and is part of a phased set of salary increases across a two year period which ends in 2021. This pay structure was also a result of benchmarking and linked to his signiﬁcant development in role, the additional management responsibilities assumed and overall contribution to the business since he joined. The increases at each stage are subject to a personal performance achievement assessment which the Remuneration Committee are satisﬁed has been achieved. Alan Lovell, Non-Executive Chairman, and both Non-Executive Directors waived a general cost of living increase to their base fees for 2021. Annual bonus There will be a bonus for 2021 which will be 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 63 for further details. Performance share plan awards Performance share plan awards in respect of 2021 are expected to be made at the normal levels permitted under the Policy (i.e. up to 100% of salary). Awards will be subject to performance targets based on the Company's EPS and TSR performance for the ﬁnancial year 2023. The weighting of the performance measures and targets will be disclosed in the 2021 Annual Report on Remuneration. 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 2021 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's activities. Julia Porter Chair of the Remuneration Committee 24 March 2021 Annual Report & Accounts 2020 53 Safestyle UK plc Strategic Report Governance Financials Component Purpose and link to strategy Operation Maximum opportunity Performance measures Directors’ Remuneration Policy This part of the report sets out the Company's Directors' Remuneration Policy. The Policy is determined by the Committee. Executive Directors Component Purpose and link to strategy Operation Maximum opportunity Salaries are usually reviewed annually. Base salary Fixed remuneration to provide a competitive base salary for the market in which the Company operates to attract and retain Executive Directors of a suitable calibre. No overall maximum has been set under the policy. However, salaries are determined taking into consideration a range of factors, which may include: Ÿ Underlying Company performance Ÿ Role, experience and individual performance Ÿ Competitive salary levels and market forces Ÿ Pay and conditions elsewhere in the Company Performance measures n/a Set at a level which the Committee deems appropriate. n/a Other beneﬁts To provide a market competitive beneﬁts package as part of total remuneration. Executive Directors receive beneﬁts in line with market practice. These include: Ÿ Ÿ Ÿ Ÿ Ÿ life assurance; private medical insurance (including family cover); company car or car allowance; private fuel; and SAYE. Other beneﬁts may be provided based on individual circumstances. Retirement beneﬁts To provide an appropriate level of retirement beneﬁt (or cash allowance equivalent). Executive Directors are eligible to participate in the Group deﬁned contribution pension plan or an approved personal pension (or receive a cash allowance equivalent). n/a The maximum employer pension contribution (or cash allowance equivalent) is aligned with the level available to the majority of the wider workforce (currently 8% of base salary). Targets are set annually reﬂecting the Company's strategy and aligned with key ﬁnancial, strategic and/or individual targets. Stretching targets are required for maximum pay-out. At least 50% of vesting will be subject to achievement of ﬁnancial objectives. This will generally include a proﬁtability measure. The balance will be based on the delivery of key strategic corporate and personal objectives. Relevant performance measures are set that reﬂect underlying business performance. Performance measures and their weighting where there is more than one measure are reviewed annually to maintain appropriateness and relevance. Maximum bonus opportunity is 100% of annual base salary. Executive Directors may receive an award, in respect of any year, over shares worth up to a maximum of 100% of base salary under either the PSP or the ESOP (or a combination of both the PSP and ESOP). In exceptional circumstances such as recruitment, a maximum award of up to 200% of salary may apply under either the PSP or the ESOP (or a combination of both the PSP and ESOP). Annual bonus To incentivise Executive Directors to deliver against short and medium term objectives of the Company. Long term incentive To drive and reward the achievement of longer-term objectives, support retention and promote share ownership for Executive Directors. Performance share plan (“PSP”) Executive Share Option Plan (“ESOP”) Awards are based on annual performance. Pay-out levels are determined by the Committee after the year end based on performance against targets. The Committee has discretion to amend the pay-out should any formulaic output not reﬂect the Committee's assessment of overall business performance. Annual bonus awards may be subject to malus provisions at the discretion of the Committee. Further details are set out on page 56. Long term incentive awards may be granted under either the 2017 Performance Share Plan (“PSP”) or the Executive Share Option Plan (“ESOP”). The vesting of awards will normally be subject to the achievement of speciﬁed performance conditions, normally over a period of at least three years. Dividend equivalents may be earned on vested awards. Long-term incentive awards may be subject to malus provisions at the discretion of the Committee. Further details are set out on page 56. Under the PSP, awards will be in the form of nil-cost share options, conditional shares or other such form as has the same economic effect. Under the ESOP, awards of share options may be granted with an exercise price equal to the market value of the shares at the date of grant. 54 Annual Report & Accounts 2020 Annual Report & Accounts 2020 55 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Policy This part of the report sets out the Company's Directors' Remuneration Policy. The Policy is determined by the Committee. Non-Executive Directors Component Purpose and link to strategy Operation Annual fees Sole element of Non-Executive Director remuneration, set at a level that reﬂects market conditions and is sufﬁcient to attract individuals with appropriate knowledge and experience. Fees are normally reviewed annually. Fees paid to Non- Executive Directors for their services are approved by the Board. Fees may include a basic fee and additional fees for further responsibilities (for example, chairmanship of board committees). Non-Executive Directors do not participate in the ESOP, PSP or annual bonus scheme nor do they receive any pension contributions. Non-Executive Directors may be eligible to receive beneﬁts such as the use of secretarial support, travel costs or other beneﬁts that may be appropriate. employees. There is no consultation with employees regarding Directors' remuneration. Approach to recruitment remuneration The policy aims to facilitate the appointment of individuals of sufﬁcient calibre to lead the business and execute the strategy effectively for the beneﬁt of shareholders. When appointing a new Director, the Committee seeks to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate. The Committee will take into consideration a number of relevant factors, which may include the calibre of the individual, the candidate's existing remuneration package, and the speciﬁc circumstances of the individual including the jurisdiction from which the candidate was recruited. The Committee will typically seek to align the remuneration package with the Company's remuneration policy (as set out in the policy table). The Committee retains discretion to include other remuneration components or awards which are outside the speciﬁc terms of the policy to facilitate the hiring of candidates of an appropriate calibre, where the Committee believes there is a need to do so in the best interests of the Company. In some circumstances, the Committee may make payments or awards to recognise or “buy-out” remuneration arrangements forfeited on leaving a previous employer. The Committee will normally aim to do so broadly on a like-for-like basis taking into account a number of relevant factors regarding the forfeited arrangements which may include the form of award, any performance conditions attached to the awards and the time at which they would have vested. Fees payable to a newly-appointed Non-Executive Director will be set at a level commensurate with their experience and responsibilities, with consideration of the fee policy in place at the time of appointment. Application of malus and clawback Service contracts Malus and clawback apply to annual bonus and long term incentive awards as follows: All of the Executive Directors have service contracts with the Company. The notice period of all Executive Directors' service contracts is kept under review by the Committee. Annual fees To such time as payment is made Up to two years following payment Details of the Directors' service contracts, notice periods and, where applicable, expiry dates, are set out below: Purpose and link to strategy Operation All Non-Executive Directors have ﬁxed-term agreements with the Company. Long term incentive awards To such time as the award vests Up to two years following vesting Malus and clawback may apply in the following circumstances: Ÿ Ÿ Ÿ Ÿ Ÿ a material misstatement of the audited ﬁnancial results; an error in assessing a performance condition applicable to the award or in the information or assumptions on which the award was granted or vests; a material failure of risk management; serious reputational damage to the Company; or serious misconduct. Name M Gallacher R Neale A C Lovell F C Goldsmith J Porter Payments for loss of ofﬁce Commencement Expiry Notice period 1 May 2018 16 July 2018 16 July 2018 N/A N/A 15 July 2021 17 September 2018 16 September 2021 5 November 2018 4 November 2021 12 months 12 months 3 months 3 months 3 months Explanation of performance measures chosen The principles on which the determination of payments for loss of ofﬁce will be approached are set out below: Performance measures are selected that are aligned with the performance of the Company and the interests of shareholders. Stretching performance targets are set each year for the annual bonus and for long term incentive awards. When setting these performance targets, the Committee will take into account a number of different reference points, which may include the Company's business plans and strategy and the economic environment. Full vesting will only occur for what the Committee considers to be stretching performance. The annual bonus is predominantly based on PBT as this is the primary ﬁnancial measure of the business. PSP awards are typically based on EPS and TSR performance. The Committee considers EPS to be the key external measure of ﬁnancial performance over the longer term. TSR provides alignment with shareholder interests. Shareholding guidelines In order to further align the Executive Directors' long term interests with those of shareholders, share ownership guidelines have been introduced that expects the Executive Directors to build up and maintain a shareholding in the Company equivalent in value to 200% of salary. Until the level of shareholding has been reached, Executive Directors are expected to retain at least 50% of shares exercised under PSP awards (after selling sufﬁcient shares to cover tax liabilities arising on exercise). Policy for the remuneration of employees more generally Remuneration arrangements throughout the Company are heavily performance driven. The Committee considers the general basic salary increase, remuneration arrangements and employment conditions for the broader employee population when determining remuneration policy for the Executive Directors. The Company operates an SAYE scheme which is open to all Policy Payment in lieu of notice Base salary and the value of contractual beneﬁts for the duration of the notice period. Annual bonus At the discretion of the Committee dependent upon the circumstances of departure and contribution to the business during the bonus period. Long term incentives The extent to which any unvested award will vest will be determined in accordance with the rules of the ESOP or PSP. Unvested awards will normally lapse on cessation of employment, other than when the individual is considered to be a “good leaver”. Other payments In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement legal fees and under the terms of the SAYE plan. Statement of consideration of shareholder views The Committee considers shareholder feedback received on remuneration matters, including issues arising in relation to the AGM, as well as any additional comments received during any other meetings with shareholders. The Committee engages directly with major shareholders and their representative bodies where it considers there to be material changes to the executive remuneration framework. 56 Annual Report & Accounts 2020 Annual Report & Accounts 2020 57 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Annual Report on Remuneration 2020 Remuneration The table below details the elements of remuneration received by each Director for the ﬁnancial year 2020, and the total remuneration received by each Director for that ﬁnancial year and also for the ﬁnancial year 2019. Salary¹ and fees Beneﬁts² Annual bonus Long term incentives Pension³ £000 £000 £000 £000 £000 Total remuneration 2020 £000 Total remuneration 4 2019 1 £000 Executive Directors M Gallacher R Neale Total Non-Executive Directors A C Lovell F Goldsmith J Porter Total 257 197 454 110 50 50 210 20 14 34 - - - - 202 148 350 - - - - - - - - - - - 37 16 53 - - - - 516 375 891 110 50 50 210 401 256 657 120 47 44 211 ¹Salary and fees are stated after the 50% salary and fee reductions taken by the Chief Executive Ofﬁcer and Non-Executive Directors for the period 1 April to 15 May as part of the Group's COVID-19 measures. ²Beneﬁts include car allowance, private fuel and private medical insurance. ³Pension for Mike Gallacher includes payment for pension entitlement deferred in 2018 and 2019. 4 Mike Gallacher and Rob Neale earned bonuses of £82,500 and £52,500 in respect of 2019 based on performance against personal objectives. The bonus payments were deferred as part of the Group's COVID-19 measures. The bonuses have now been paid and the total remuneration for 2019 has been restated. Individual elements of remuneration Base salary The annualised salaries for 2020 and 2019 are as set out below. 2020 base salary 1 July 2020 £000 2020 base salary 1 January 2020 £000 2019 base salary £000 % increase in salary between 2019 and 2020 Annual bonus After the recommencement of operations in May the Committee reviewed the 2020 annual bonus structure for the Executive Directors and wider workforce. For Executive Directors, the Committee replaced the original annual bonus scheme with a structure focused on H2 performance, in order to incentivise a rapid restart of the business, the achievement of proﬁt in H2, and the build-up of a strong order book and sustainable future. The maximum opportunity under the original bonus scheme was 100% of salary (up to 70% based on PBT performance and up to 30% based on strategic and personal objectives). The PBT element of the revised scheme was based on performance for H2 where 35% could be earned for achievement of the H2 PBT target (£0.93m) which was consistent with the H2 element of the maximum PBT target under the original annual bonus scheme. In order to incentivise a rapid recovery, a stretch target was introduced up to 52.5% which could be earned based on stretching H2 PBT performance (£2.03m). The strategic and personal objectives remained in place with targets unchanged. In total, the maximum opportunity under the revised structure was reduced to 82.5% of salary (up to 52.5% based on H2 PBT performance and up to 30% based on strategic and personal objectives). The Group achieved H2 PBT of £2.33m resulting in an outcome of 52.5% of salary for the Executive Directors. For the purposes of the annual bonus, PBT is stated after the costs of the bonus (i.e. is self-ﬁnancing), before all non-underlying items as deﬁned in the Financial Review and is also adjusted to exclude costs of investment in growth of the order book. The strategic and personal objectives were tailored to each executive and focused on key performance metrics to deliver the 2020 plan. Director Performance metrics Bonus opportunity (% of salary) Performance achieved (% of salary) M Gallacher Performance metrics related to operational targets and strategic milestones, including establishing and maintaining COVID safe practices, improvements in Digital Marketing, brand development, targeted cost improvements, effectiveness of the Executive Team, compliance, depot and branch development and customer ﬁt quality. 30% R Neale Performance metrics related to operational and strategic milestones, including margin development, ﬁnancial controls, internal audit, funding and our ﬁnancial strategy / roadmap. 21% 20% Mike Gallacher and Rob Neale therefore earned a bonus equal to 73.5% and 72.5% of salary respectively. The Committee carefully considered the bonus outcome and considered it to be appropriate taking into account underlying business performance and the experience of stakeholders during the year (see page 51 for further details). Share awards Awards vesting in respect of the ﬁnancial year Performance share plan awards equivalent to 160% of salary were granted to Mike Gallacher on 18 June 2018 following his appointment as Chief Executive Ofﬁcer. Performance share plan awards equivalent to 120% of salary were granted to Rob Neale on 15 August 2018 following his appointment as Chief Financial Ofﬁcer. Vesting of the awards were subject to EPS targets over the three-year performance period to the end of the ﬁnancial year 2020. The threshold EPS target was not met and the awards lapsed in full. M Gallacher R Neale 275 205 275 190 275 175 0% 13% Adjusted underlying EPS for the ﬁnancial year 2020 Percentage of award vesting¹ As disclosed in the 2019 Directors' Remuneration Report, Rob Neale received a 9% increase in his salary effective from 1 January 2020. This was further increased on 1 July 2020 as part of a phased set of salary increases across a two-year period which ends with a ﬁnal increase on 1 July 2021. The Committee was satisﬁed that the increases were entirely appropriate following consideration of wider market benchmarks, his signiﬁcant development in role, additional management responsibilities assumed and his overall contribution to the business since he joined the Group. At each stage, the increase is subject to a personal performance review. 9.66p 5.80p 100% 25% ¹ Straight-line vesting between threshold and maximum. 58 Annual Report & Accounts 2020 Annual Report & Accounts 2020 59 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Annual Report on Remuneration Awards granted in respect of the ﬁnancial year Performance share plan awards Given the uncertain outlook presented by the COVID-19 pandemic and in line with guidance published by the Investment Association, the Committee chose to defer the grant of the 2020 performance share plan awards. Following careful consideration of quantum, performance metrics and targets, and consultation with our major shareholders, the 2020 awards were subsequently granted on 23 February 2021. When determining quantum, the Committee was sensitive to the need to balance incentivising executive performance at a time our management teams are being asked to demonstrate signiﬁcant leadership and resilience, whilst ensuring that the executive experience is commensurate with that of shareholders, employees and other stakeholders. With these factors in mind, the maximum opportunity at grant was set at 45% of salary for both executives, representing a 55% of salary reduction compared to the normal award level under the Remuneration Policy (100% of salary). The Committee has been mindful of the requirement to ensure that windfall gains do not arise to the extent that the awards vest. The Committee considers that the reduction in quantum of 55% of salary provides sufﬁcient protection against this eventuality. Executive Director Type of award Date of grant Percentage of salary Number of shares Exercise price Performance period M Gallacher Nil cost option 23 February 2021 45% 275,000 £nil R Neale Nil cost option 23 February 2021 45% 205,000 £nil The beginning of the ﬁnancial year 2020 to the end of ﬁnancial year 2022 The beginning of the ﬁnancial year 2020 to the end of ﬁnancial year 2022 Vesting is subject to the achievement of EPS performance (as regards 75% of the award) and absolute TSR performance (as regards 25% of the award), thereby incentivising executives to deliver longer term earnings and share price growth. The vesting date is 23 February 2024 – three years after the date of grant. The EPS and TSR targets for the ﬁnancial year 2022 are set out below. EPS for the ﬁnancial year 2022 Percentage of EPS element vesting¹ 6.23p or more 5.74p 5.25p 4.75p Less than 4.75p 100% 75% 50% 25% 0% ¹Straight line vesting between points. Absolute TSR for the ﬁnancial year 2022 Percentage of TSR element vesting¹ 90p or more 75p 60p Less than 60p 100% 50% 25% 0% ¹Straight line vesting between points. 60 Annual Report & Accounts 2020 Restricted share awards The Committee strongly believes that the executives have performed exceptionally well over the last few years, making signiﬁcant progress towards the turnaround of the business. Despite best efforts, the 2018 performance share plan awards have lapsed. Therefore, in order to recognise the performance of the executives and continue to motivate them to deliver long term growth, the Committee considered it appropriate to grant restricted share awards to the executives. On 21 October 2020, Mike Gallacher and Rob Neale were granted restricted share awards equal to 56% and 42% of salary respectively. The awards vest on 18 June 2021 subject to continued employment (being the point at which the 2018 performance share plan awards would have been capable of vesting) and are subject to a one year post-vesting holding period. The Executive Directors will retain all shares following the post-vesting holding period (after selling sufﬁcient shares to cover tax liabilities arising on exercise) in order to build up their shareholdings. The Committee has been mindful of the requirement to ensure that windfall gains do not arise to the extent that the awards vest. The Committee considers that there is sufﬁcient protection against windfall gains given the award levels and that the awards are capable of vesting on 18 June 2021. Executive Director Date of grant Percentage of salary Number of shares Exercise price Vesting date Holding period M Gallacher 21 October 2020 56% 550,000 Nil 18 June 2021 R Neale 21 October 2020 42% 262,500 Nil 18 June 2021 18 June 2021 to 18 June 2022 18 June 2021 to 18 June 2022 Payments made to former Directors during the year and payments for loss of ofﬁce during the year No payments to former Directors or payments for loss of ofﬁce were made during the year. Statement of Directors' shareholding and share interests Executive Directors M Gallacher¹ R Neale Non-Executive Directors A C Lovell F Goldsmith J Porter² Year end 2020 Number Year end 2019 Number 200,000 325,000 450,000 50,000 28,671 50,000 50,000 130,000 20,000 9,671 ¹Mike Gallacher increased his shareholding by 120,240 shares on 10 February 2021, taking his total interest to 320,240 shares. ²Julia Porter increased her shareholding by 10,000 shares on 11 February 2021, taking her total interest to 38,671 shares. Annual Report & Accounts 2020 61 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Annual Report on Remuneration The interests of each individual, who served as a Director of the Group during the year, as at the end of ﬁnancial year 2020 in the Group's share schemes were as follows: Director Award Options held at beginning of year Options granted in the year 733,333 200,000 - - Date of grant 18 June 2018 27 June 2019 Performance share award Performance share award Restricted share award 21 October 2020 Performance share award 23 February 2021² Performance share award Performance share award 13 August 2018 27 June 2019 Restricted share award 21 October 2020 Performance share award 23 February 2021² - - 550,000 275,000 350,000 127,273 - - - - 262,500 205,000 Options exercised in the year Options lapsed in the year Options held at end of year Status - - - - - - - - - - - - - - - - - - 733,333 Unvested¹ 200,000 Unvested 550,000 Unvested 275,000 Unvested 350,000 Unvested¹ 127,273 Unvested 262,500 Unvested 205,000 Unvested 250,000 125,000 vested M Gallacher R Neale A C Lovell Individual share agreement 20 December 2018 250,000 - ¹The performance share plan awards granted on 18 June 2018 lapsed in full following the ﬁnancial year 2020 as the threshold EPS performance target was not achieved. ²Performance share plan awards granted on 23 February 2021 were awarded in respect of the ﬁnancial year 2020. As such, the awards have been included in the table for completeness. Implementation of Directors' Remuneration Policy for the ﬁnancial year 2021 Information on how the Group intends to implement the Policy for the ﬁnancial year 2021 is set out below. Salary / fees Mike Gallacher received an exceptional increase in his base salary from £275,000 to £300,000 (9%), which is effective from 1 January 2021. This is his ﬁrst salary increase since he joined the company almost three years ago and is the result of his contribution to the business since he joined and consideration of wider benchmarks. Rob Neale received an increase in his base salary to £220,000 which is also effective from 1 January 2021. He will then receive an increase in his base salary to £235,000, effective from 1 July 2021, as the ﬁnal element of the aforementioned salary review. Alan Lovell, non-executive chairman, and both non-executive directors waived a general cost of living increase to their base fees for 2021. Annual bonus Executives 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. PBT will be measured before share based payments and non-underlying items. The strategic and personal objectives will be tailored to each executive and will focus around key performance metrics to deliver the 2021 plan. The PBT targets and strategic and personal objectives will be disclosed in the 2021 Annual Report on Remuneration, where further detail of performance against the targets and objectives will also be provided. Performance share plan awards Performance share plan awards in respect of 2021 are expected to be made at the normal levels permitted under the Policy (i.e. up to 100% of salary). Awards will be subject to performance targets based on the Company's EPS and TSR performance for the ﬁnancial year 2023. The weighting of the performance measures and targets will be disclosed retrospectively in the 2021 Annual Report on Remuneration. 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. Executives only attend meetings by invitation. The Committee's key responsibilities are: Ÿ Ÿ Ÿ Ÿ reviewing the on-going appropriateness and relevance of remuneration policy; reviewing and approving the remuneration packages of the executives; monitoring the level and structure of remuneration of the senior management; and production of the Directors' Remuneration Report. Advisors During the 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 2020 AGM The table below sets out the voting outcome at the Group's AGM held on 14 May 2020 in respect of the resolution to approve the Directors' Remuneration Report contained in the Group's 2019 Annual Report and Accounts. Votes for % for Votes against % against Total votes cast Votes withheld (abstentions) Approval of Directors' Remuneration report 87,581,769 86.23% 13,982,457 13.77% 101,564,226 0 Approval This Report was approved by the Board on 24 March 2021 and signed on its behalf by: Julia Porter Chair of the Remuneration Committee 24 March 2021 62 Annual Report & Accounts 2020 Annual Report & Accounts 2020 63 Safestyle UK plc Strategic Report Governance Financials Directors’ Report maintaining focus on the strategic priorities of the Group. The Board fully appreciates that the Group 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: Standing agenda points and papers presented at each Board meeting. Ÿ Ÿ A rolling agenda of matters to be considered by the Board throughout the year, which includes strategy review days that The Directors present their annual report and audited ﬁnancial statements of the Group for the ﬁnancial year 2020 consider the Group strategy for the longer-term. Registered ofﬁce The registered ofﬁce of Safestyle UK plc is 47 Esplanade, St Helier, Jersey, JE1 0BD. 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 Group's operations on the community and the environment, and how this can be improved. Principal activities Shareholder communication 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. 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. Business review The Chairman's statement, the Chief Executive's statement and the Financial Review on pages 18 to 27 report on the Group's performance during the year and future developments. Dividends Risk management and internal controls The Board has overall responsibility for the Group's system of internal controls and for reviewing the effectiveness of this system. It should be recognised that such a system is designed to manage rather than eliminate the risk of failure to achieve the business objectives and can only provide reasonable, and not absolute, assurances against material misstatement or loss. The directors do not propose a ﬁnal dividend for the year (2019: £nil). Directors' indemnities and insurance 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. Further details of how the Group applies each principle of the QCA code can be found on the Group's website at www.safestyleukplc.co.uk/investor-relations/corporate-governance. An overview of the Group's corporate governance procedures is given below. The Board The Group is controlled through a Board of Directors which comprises 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. 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; assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and Ÿ Ÿ use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no Audit Committee realistic alternative but to do so. The Audit Committee report on pages 48 to 49 provides details regarding the Audit Committee members and its responsibilities. Remuneration Committee The Chair 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 meets at least once a year. 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. 2020 has been an extraordinary year due to the COVID-19 pandemic and the Board responded to the many challenges presented in the year to ensure the safety of the Group's people and its customers whilst 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. 64 Annual Report & Accounts 2020 Annual Report & Accounts 2020 65 Safestyle UK plc Strategic Report Governance Financials Directors’ Report Substantial shareholdings As at 5 March 2021 the Group has conﬁrmed the following interests in more than 3% of its ordinary share capital. Signiﬁcant Shareholders Shares Held % Alantra Asset Management Soros Fund Management Janus Henderson Investors Jupiter Assest Management 27,272,423 19.93% 18,509,642 13.52% 16,553,708 12.09% 11,575,383 8.46% Cambridge Global Asset Management 10,196,611 7.45% Hargreaves Lansdown Asset Management Invesco Advisors Inc 5,038,712 4,465,000 3.68% 3.26% Carbon Reporting 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 the end of ﬁnancial year 2022, 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, including the potential impact of COVID-19 which has been considered separately, the Directors have a reasonable expectation that the Group has adequate resources to continue to trade for the foreseeable future. Consequently, the Directors continue to adopt the going concern basis of preparation in preparing the ﬁnancial statements for the ﬁnancial year 2020. Auditors Grant Thornton were appointed as the Group’s auditors in May 2020. The Board will put forward a resolution to reappoint Grant Thornton as auditors at the forthcoming AGM of the Group. Statement of disclosure of information to auditors As at the date this report was signed, so far as each of the Directors is aware, there is no relevant information of which the auditor is unaware and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. Approved by the Board of Directors and signed on behalf of the Board on 24 March 2021 The energy used across our owned and leased properties, particularly at our manufacturing site, along with our large vehicle ﬂeet are the main sources of the Group's carbon emissions. We continue to upgrade to new, more efﬁcient technologies, including the renewal of our van ﬂeet alongside the implementation of other key initiatives. These include a furnace energy reduction programme which has, and will continue to, reduce our carbon emissions. Rob Neale Chief Financial Ofﬁcer 24 March 2021 2020 2019 CO (Tonnes) 2 2 Co (Tonnes) / Frame installed CO (Tonnes) 2 2 Co (Tonnes) / Frame installed Manufacturing Vehicles Ofﬁces / depots 1,007 3,109 860 0.0062 0.0190 0.0053 1,232 3,922 1,008 0.0065 0.0206 0.0053 Total 4,976 0.0304 6,162 0.0324 The above carbon emissions data covers the Period of this Annual Report. For electricity and gas CO , the emissions have been compiled using data from the Group’s energy suppliers and is converted to CO using conversion factors published by the Department for Business, Energy and Industrial Strategy. For CO emissions created by the Group’s vehicle ﬂeet, mileage data from our in-house transport team has been used and converted to CO using the UK Government's conversion factors. 2 2 2 2 66 Annual Report & Accounts 2020 Annual Report & Accounts 2020 67 Safestyle UK plc Strategic Report Governance Financials 68 Annual Report & Accounts 2020 Annual Report & Accounts 2020 69 Safestyle UK plc Strategic Report Governance Financials 70 Annual Report & Accounts 2020 Annual Report & Accounts 2020 71 Safestyle UK plc Strategic Report Governance Financials 72 Annual Report & Accounts 2020 Annual Report & Accounts 2020 73 Safestyle UK plc Strategic Report Governance Financials 74 Annual Report & Accounts 2020 Annual Report & Accounts 2020 75 Safestyle UK plc Strategic Report Governance Financials 76 Annual Report & Accounts 2020 Annual Report & Accounts 2020 77 Safestyle UK plc Safestyle UK plc Financials 80 81 82 83 84 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 3 January 2021 Revenue Cost of sales Gross profit Expected credit losses expensed Other operating expenses¹ Operating (loss) Finance income Finance costs² 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) Note 2020 £000 2019 £000 2,5 113,191 126,237 (84,732) (94,337) 28,459 31,900 (890) (32,566) (477) (33,855) (4,997) 1 (1,161) (1,160) (6,157) (4,758) (523) (452) (424) (6,157) 1,103 (2,432) 2 (1,402) (1,400) (3,832) (1,518) (1,850) (452) (12) (3,832) 526 (5,054) (3,306) (4.3p) (4.3p) (4.0p) (4.0p) 18 6 12 7 14 32 13 9 9 ¹Other operating expenses includes £523k of non-recurring items, £452k of Commercial Agreement amortisation and £424k of share based payments. Adjusting for these gives underlying other operating expenses of £31,167k (2019: £31,541k). See Financial Review for details. ²Finance costs includes £487k of lease related interest costs (see note 26). There is no other comprehensive income for the period. 2019 represents the year ended 29 December 2019. All operations were continuing throughout all periods. The accompanying notes form part of the ﬁnancial statement. Consolidated Statement of Financial Position at 3 January 2021 Assets Intangible assets - Trademarks Intangible assets - Goodwill Intangible assets - Software Intangible assets - Other Property, plant and equipment Right-of-use assets Deferred taxation asset Non-current assets Inventories Trade and other receivables Cash and cash equivalents Current assets Total assets Equity Called up share capital Share premium account Profit and loss account Common control transaction reserve Total equity Liabilities Trade and other payables 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 Note 14 14 14 14 15 26 16 17 18 19 20 21 26 22 23 23 26 24 2020 £000 504 20,758 850 1,284 11,475 8,004 1,980 2019 £000 504 20,758 1,122 1,736 12,633 6,012 886 44,855 43,651 4,545 5,663 11,705 2,725 3,999 4,435 21,913 11,159 66,768 54,810 1,368 89,495 5,347 (66,527) 828 81,845 10,009 (66,527) 29,683 26,155 21,929 2,524 - 1,118 15,384 2,482 17 990 25,571 18,873 1,801 5,586 4,127 11,514 1,891 3,900 3,991 9,782 37,085 28,655 66,768 54,810 The accompanying notes form part of the ﬁnancial statements. 2019 represents the ﬁnancial position at 29 December 2019. The ﬁnancial statements were approved by the Board of Directors and authorised for issue on 24 March 2021 and were signed on their behalf by: Rob Neale Chief Financial Ofﬁcer 80 Annual Report & Accounts 2020 Annual Report & Accounts 2020 81 Safestyle UK plc Strategic Report Governance Financials Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows for the year ended 3 January 2021 for the year ended 3 January 2021 Share capital Share premium Proﬁt and loss account £000 £000 £000 Balance at 31 December 2018 Total comprehensive (loss) for the period Transactions with owners recorded directly in equity: Deferred taxation asset taken to reserves (note 16) Equity settled share based payment transactions 828 - - - 81,845 - 13,347 (3,306) - - (44) 12 Balance at 29 December 2019 828 81,845 10,009 Total comprehensive (loss) for the period Transactions with owners recorded directly in equity: Issue of new shares Transaction costs relating to the issue of new shares Deferred taxation asset taken to reserves (see note 16) Issue of shares - Commercial Agreement Equity settled share based payment transactions - 500 - - 40 - - (5,054) 8,000 (350) - - - - - 8 (40) 424 Common control transaction reserve £000 (66,527) - - - - (66,527) - - - - - - Total equity £000 29,493 (3,306) (44) 12 26,155 (5,054) 8,500 (350) 8 - 424 Balance at 3 January 2021 1,368 89,495 5,347 (66,527) 29,683 The accompanying notes form part of the ﬁnancial statements. Cash flows from operating activities (Loss) for the year Adjustments for: Depreciation of plant, property and equipment Depreciation of right-of-use assets Amortisation of intangible fixed assets Reversal of impairment loss Modification of right-of-use assets and liabilities Finance income Finance expense IT project impairment Equity settled share based payments charge Taxation (credit) (Increase) in inventories (Increase) / decrease in trade and other receivables Increase in trade and other payables Increase / (decrease) in provisions IFRS 16 prepaid lease costs IFRS 16 onerous leases Other interest (paid) Taxation received Net cash inflow from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Interest received Acquisition of intangible fixed assets Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issue of share capital Transaction costs relating to the issue of share capital Proceeds from loans and borrowings Repayment of borrowings Transaction costs relating to loans and borrowings Payment of lease liabilities Net cash inflow / (outflow) from financing activities Net inflow in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Note 15 26 14 26 26 12 14 32 13 15 14 24 24 24 26 2020 £000 (5,054) 1,559 3,745 880 (292) 5 (1) 1,161 - 424 (1,103) 1,324 (1,820) (1,664) 6,545 38 - - 3,099 (986) - 3,437 (401) 1 (156) (556) 8,500 (350) 2,000 (2,000) (39) (3,722) 4,389 7,270 4,435 11,705 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) - - 2,500 (2,500) (235) (3,606) (3,841) 272 4,163 4,435 82 Annual Report & Accounts 2020 Annual Report & Accounts 2020 83 The accompanying notes form part of the ﬁnancial statements. 2019 represents the year ended 29 December 2019. Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements General information The ﬁnancial statements set out herein are in respect of Safestyle UK plc (the Company) and its subsidiaries (the Group) for the ﬁnancial year 2020. 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 ﬁnancial year 2020 (“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 statements 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 Deﬁnition of a Business (Amendments to IFRS 3) Ÿ Deﬁnition of Material (Amendments to IAS 1 and IAS 8) Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) Ÿ Ÿ Amendments to References to the Conceptual Framework (Various Standards) Ÿ COVID-19 Rent Related Concessions (Amendments to IFRS 16) (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 IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4) Ÿ References to the Conceptual Framework Ÿ Proceeds before Intended Use (Amendments to IAS 16) Ÿ Onerous Contracts – Cost of Fulﬁlling a Contract (Amendments to IAS 37) Ÿ Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41) Ÿ Classiﬁcation of Liabilities as Current or Non-current (Amendments to IAS 1) 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 ended on the closest Sunday to the end of December. This date was 3 January 2021 for the current reporting year and 29 December 2019 for the prior year. All references made throughout these accounts for the ﬁnancial year 2020 are for the period 30 December 2019 to 3 January 2021 and references to the ﬁnancial year 2019 are for the period 31 December 2018 to 29 December 2019. 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 £(5.1)m in ﬁnancial year 2020 (2019: (loss) of £(3.3)m) and had net current liabilities of £(3.7)m at the end of the ﬁnancial year 2020 (2019: net current liabilities of £7.7m). As detailed in the Financial Review, the Group incurred losses in the ﬁrst half of the year due to the temporary cessation of operations as a result of the COVID-19 pandemic. The Group returned to proﬁt in the second half of the year whilst at the same time building a record level installation pipeline. The Group obtained additional shareholder funding in April 2020 through the raising of £8.2m via a share placing which strengthened the Group's cash position during the lockdown period and facilitated a return to proﬁtability in H2 2020. The Group also has banking facilities which consist of a £4.5m term loan and a £3.0m revolving credit facility. This facility matures in October 2023 having been extended by two years during 2020. The ﬁnance agreement contains certain covenants, including a minimum EBITDA to be tested on a cumulative monthly basis which was revised during 2020 and included a covenant waiver for the loss- making period in H1 2020. The subsequent minimum EBITDA for covenant compliance was also reduced for the remainder of 2020 and for all subsequent years. The covenant target for FY23 is lower than the target originally agreed for FY21. By the end of ﬁnancial year 2020, covenant headroom had increased signiﬁcantly to £1.9m which has further increased in the ﬁrst 2 months of FY21. As at the end of ﬁnancial year 2020, the £4.5m term loan was fully drawn on the facility, while the revolving credit facility was unutilised. This remains the case at the date of signing the accounts. In addition, the Group's net cash position was £7.4m at the end of February 2021 (February 2020: net cash of £0.1m). The Directors have prepared forecasts covering the period to the end of the ﬁnancial year 2022. The forecasts include a number of assumptions in relation to sales volume, pricing, margin improvements and overhead investment. The Directors believe they have taken a cautious approach to the forecast for 2021 with the core assumptions for order intake representing a decline of 7.4% versus the levels achieved in H2 2020. However, revenues are forecast to grow, facilitated by the strong order book the Group carried into the start of FY21 which, along with a number of margin-improving initiatives, forecasts considerable headroom above EBITDA covenant targets alongside growth in net cash and liquidity. Whilst the Group's trading and cash ﬂow forecasts have been prepared using these 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 separately 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, 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 the period to at least the end of 2022. The Group has started the year well, with revenues and proﬁts signiﬁcantly ahead of the pre-lockdown period in FY20 which the directors believe further supports this basis of preparation. The uncertainty as to the future impact on the Group of the COVID-19 outbreak has been separately considered as part of the directors' consideration of the going concern basis of preparation. As described in the CEO's Statement and Financial Review, the COVID-19 pandemic had a material impact on the Group's performance in H1 2020 which required the directors to take swift actions to protect the business and increase its cash and liquidity reserves. These actions were successful and the Group restarted operations quickly and successfully in May 2020 and since then has been operating safely and proﬁtably despite the impact of ongoing restrictions that have affected normal ways of working. The Directors have incorporated their considerations regarding the continuing impact of potential COVID-19 restrictions on the Group in their scenario modelling although also note that these restrictions are reducing as the successful vaccination programme gathers pace. In preparing this analysis, a number of scenarios were modelled which included a 26% drop in written sales versus H2 20 performance levels. In this scenario, mitigating actions within the control of management, including reductions in areas of discretionary spend have been modelled with the result being that despite this reduction in written sales, the Group would grow covenant headroom in FY21 and increase its net cash balance. In March 2020, the Directors highlighted it was difﬁcult to predict the overall outcome and impact of COVID-19 and the duration of disruption to written and ﬁtted sales activity. The Directors now highlight the current and improving operating context which, alongside the outcomes in the scenarios modelled, underpin the Directors’ conclusion that the risk of the liquidity requirements of the business exceeding the total quantum of facilities available are now deemed remote. Based on the above indications and work prepared, the Directors believe that it is appropriate to prepare the ﬁnancial statements on a going concern basis. 84 Annual Report & Accounts 2020 Annual Report & Accounts 2020 85 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 Lease liabilities Onerous leases Right-of-use-assets applied is 7%. financial statements Reconciliation between assets and liabilities at transition: Prepayments relating to IFRS 16 Leases at 31 December 2018 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 Operating lease commitment at 31 December 2018 as disclosed in the Group's consolidated 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 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements Goodwill Government grants Grants under the Coronavirus Job Retention Scheme (CJRS) that compensate the Group for expenses incurred are recognised in proﬁt or loss in staff costs on a systematic basis in the periods in which the expenses are recognised. 2 Summary of signiﬁcant accounting policies Revenue recognition The Group earns revenue from the design, manufacture, delivery of, and installation of domestic double-glazed replacement windows and doors. Identifying the contract with a customer Identifying the performance obligations There are ﬁve main steps followed for revenue recognition: Ÿ Ÿ Ÿ Determining the transaction price Ÿ Allocating the transaction price to the performance obligations; and Ÿ Recognising revenue when or as an entity satisﬁed performance obligations. The various stages of the performance obligations are the design, manufacture, delivery of and installation of domestic double-glazed replacement windows and doors. In applying the principal of recognising revenue related to satisfaction of performance obligations under IFRS 15, the Group considers that the ﬁnal end product is dependent upon a number of services in the process that may be capable of distinct identiﬁable performance obligations. However, where obligations are not separately identiﬁable, in terms of a customer being unable to enjoy the beneﬁt in isolation, the standard allows for these to be combined. The Group considers that in the context of the contracts held these are not distinct. As such the performance obligations are treated as one combined performance obligation and revenue is recognised in full, at a point in time, being on completion of the installation. Revenue is shown net of discounts, sales returns, charges for the provision of consumer credit and VAT and other sales related taxes. Revenue is measured based on the consideration speciﬁed in a contract with a customer. There is no identiﬁable amount included in the ﬁnal price for a warranty, as the Group provides a guarantee on all installations. Payments received in advance are held within other creditors, as a contract liability. The ﬁnal payment is due on installation. A survey fee is paid at the point of agreeing the contract and the customer has up to 14 days, deﬁned in the contract to change their minds. If the customer changes their mind after this cooling off period, the Group has the right to retain this survey fee and as such revenue for this is recognised at the point in time that this becomes non-refundable. In addition to the above, the Group recognises revenue from the sale of materials for recycling. The revenue is recognised when the materials are collected by the recycling company which represents the completion of the performance obligation. The Group have determined that this revenue is derived from its ordinary activities and as such this balance is recognised within revenue. 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 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. Impairment The carrying amounts of the Group's assets, other than inventories and deferred taxation assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For goodwill, assets that have an indeﬁnite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised (not relating to other intangible assets speciﬁcally) are allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash-generating unit is the group of assets identiﬁed on acquisition that generate cash inﬂows that are largely independent of the cash inﬂows from other assets or groups of assets. The recoverable amount of assets or the cash-generating unit is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-taxation discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. For an asset that does not generate largely independent cash inﬂows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Inventories Inventories are stated at the lower of cost and net realisable value. Work in progress comprises direct materials, labour costs, site overheads and other attributable overheads. 86 Annual Report & Accounts 2020 Annual Report & Accounts 2020 87 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 2 Summary of signiﬁcant accounting policies (continued) 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. Provisions A provision is recognised in the balance sheet if, as a result of a past event, the Group has a present, legal or constructive obligation that can be estimated reliably, and it is probable that an outﬂow of economic beneﬁts will be required to settle the obligation. Provisions are determined by discounting the expected future cash ﬂows at a pre-tax rate which 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. The Group gives guarantees against all its products which in the majority of cases covers a period of 10 years. The level of provision required to cover the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period requires judgement. 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 IFRS 9's impairment requirements use forward-looking information to recognise expected credit losses – the 'expected credit loss (ECL) model'. Instruments within the scope of the requirements included trade receivables. The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash ﬂows of the trade receivables. The Group makes use of a simpliﬁed approach in accounting for trade and other receivable and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash ﬂows, considering the potential for default at any point during the life of the ﬁnancial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on age. Refer to note 25 for a detailed analysis of how the impairment requirements of IFRS 9 are applied. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, restricted cash paid over to various counterparties as collateral against relevant exposures and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigniﬁcant risk of changes in value. Trade and other payables Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the “effective interest rate” to the carrying amount of the liability. Financial liabilities – non-current borrowings Borrowings, including advances received from related parties are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Taxation Income taxation on the proﬁt or loss for the year comprises current and deferred taxation. Income taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred taxation is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. Deferred taxation is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable proﬁt, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. The amount of deferred taxation provided is based on the carrying amount of assets and liabilities, using the prevailing taxation rates. The deferred taxation balance has not been discounted. Current taxation is the expected taxation payable on the taxable income for the year, using prevailing taxation rates enacted or substantively enacted at the reporting date, and any adjustment to taxation payable in respect of previous years. Leases 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. As a lessee 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 ﬁxed payments, including in-substance ﬁxed payments Ÿ 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 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 penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. Ÿ Ÿ Ÿ Ÿ 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. 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. 88 Annual Report & Accounts 2020 Annual Report & Accounts 2020 89 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 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 the Group's commitments and development plans. The 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 the Group is managed and adjusted to reﬂect changes in economic circumstances. 2 Summary of signiﬁcant accounting policies (continued) 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 based 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. 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. 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 Group's activities expose it to a variety of ﬁnancial risks: market risk, credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of ﬁnancial markets and seeks to minimise potential adverse effects on its ﬁnancial performance. Risk management is carried out by the Board of Directors. They identify and evaluate ﬁnancial risks in close co-operation with key employees. Market risk 3.1 Market risk is the risk of loss that may arise from changes in market factors such as commodity prices, interest rates and foreign exchange rates. Credit risk 3.2 Credit risk is the ﬁnancial loss to the Group if a customer or counterparty to ﬁnancial instruments fails to meet its contractual obligation. Credit risk arise from the Group's cash and cash equivalents and receivables balances. Liquidity risk 3.3 Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due. This risk relates to the Group's prudent liquidity risk management and implies maintaining sufﬁcient cash. The Board monitors forecasts of the Group's liquidity and cash and cash equivalents on the basis of expected cash ﬂow. Capital risk management The 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. The 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. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values because of the short term nature of such assets and the effect of discounting liabilities is negligible. 4 Accounting estimates and judgements When preparing the Group's consolidated ﬁnancial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, revenue 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. Signiﬁcant management judgements The following are the judgements made by management in applying the accounting policies of the Group that have the most signiﬁcant effect on these consolidated ﬁnancial statements. Recognition of deferred taxation assets The extent to which deferred taxation assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and taxation loss carry-forwards can be utilised. The deferred taxation asset of £1,980k has been recognised on the basis that the Group is forecasting to make sufﬁcient levels of proﬁts in future periods. Further details can be found in note 16. Estimation uncertainty Impairment of goodwill In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on expected future cash ﬂows and uses an appropriate rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. A discount rate of 10% has been applied to the impairment assessment calculation. This was calculated and compared to the discount rates disclosed by a range of comparable quoted companies. Management used judgement in the decision to use a discount factor of 10%. Further detail can be found in note 14, alongside the other key judgements made in calculating the value in use calculations, including expected growth. Dilapidations provision The Group has a portfolio of leased properties that sales branches and installation depots operate from. A dilapidations provision is provided for leased properties where the lease agreement contains a contractual obligation to undertake remedial works at the end of the lease term and where wear-and-tear or damage on the property has occurred. The calculation of the estimate is based on historical experience of cost to rectify upon exiting similar properties. The estimated costs are subject to estimation uncertainty as the ﬁnal payment agreed may differ to the estimated cost given the process whereby dilapidations are negotiated. This value of the provision at the year end is disclosed in note 23. Product guarantee provision The Group guarantees all of its products, which in the majority of cases covers a period of 10 years. The provision is calculated to cover the cost of fulﬁlling any guanratee work to its customers and is based on the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period. The level of provision required to cover this cost is subject to estimation uncertainty. Further details can be found in note 23. Expected credit loss for trade receivables The Group assesses, on a forward-looking basis, the expected credit losses associated with its trade receivables. This is based on historical experience, external indicators and forward-looking information to calculate the expected credit losses. Further detail can be found in note 25. 5 Segmental information The Directors consider that there are no identiﬁable business segments that are engaged in providing individual products or services or a group of related products and services that are subject to risks and returns that are different to the core business. The information reported to the Group's Executive 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 IFRS 8, which is “the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors”. The Group's revenue and results and assets for this one reportable segment can be determined by reference to the Group's statement of comprehensive income and statement of ﬁnancial position. The Group 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. The Group generally receives deposit payments prior to installation. Of the revenue recognised in ﬁnancial year 2020, £0.5m relates to revenue for unsatisﬁed performance obligations at the end of the ﬁnancial year 2019. At the end of the ﬁnancial year 2020, £3.1m of deposits are held on the balance sheet relating wholly to existing contracts where performance obligations are unsatisﬁed at year end. 90 Annual Report & Accounts 2020 Annual Report & Accounts 2020 91 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 9 Earnings per share Basic earnings per ordinary share (pence) Diluted earnings per ordinary share (pence)* 2020 (4.3) (4.3) 2019 (4.0) (4.0) 6 Expenses and auditor's remuneration a) Basic earnings per share Operating (loss) is stated after charging / (receiving): Income from the Coronavirus Job Retention Scheme Depreciation of plant, property and equipment: Owned assets Amortisation of intangibles assets Depreciation, reversal of impairment and net modification of right-of-use assets and liabilities Auditor's remuneration¹: Audit of financial statements relating to subsidiaries Audit of financial statements relating to parent Other services relating to taxation Commissions Lead generation costs Staff costs Cost of materials Other items Total 2020 £000 (1,805) 1,559 880 3,900 70 30 - 37,869 14,026 23,401 18,871 19,387 118,188 ¹Auditor remuneration in 2020 relates to the provision of audit services by Grant Thornton (2019: KPMG). 7 Non-recurring costs Holiday pay accrual Litigation Costs Restructuring and operational costs Impairment of right-of-use assets Modification of right-of-use assets and liabilities Reversal of prior year impairment of right-of-use assets Commercial Agreement service fee IT project impairment Total non-recurring costs Note a b c d e f g h 2020 £000 470 74 266 - 5 (292) - - 523 2019 £000 - 1,666 1,017 4,322 91 39 24 42,968 15,712 21,648 21,434 19,748 128,669 2019 £000 - - 1,058 692 - - (13) 113 1,850 a) b) c) d) e) f) g) h) 8 The holiday pay accrual has arisen as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement to the end of 2021. This has signiﬁcantly increased the level of deferred holiday entitlement at the year end which has recognised as an accrual and which will reverse in full in 2021. This item has been excluded from the underlying performance measures to ensure performance of the business is not skewed by both the expense in 2020 or its subsequent full release in 2021. Litigation costs are expenses incurred as a result of an ongoing legal dispute between the Group and an ex-agent. These costs are predominantly legal advisor's fees. Restructuring and operational costs are expenses incurred, including redundancy payments, as a result of changes being made to reduce the cost structure of the business. Impairment of right-of-use asset costs relate to vacating properties recognised as assets under IFRS 16 where the lease commitment extended beyond 2019. Modiﬁcation of right-of-use assets and liabilities relates to the closure of properties identiﬁed as right-of-use assets and liabilities during the period. Reversal of prior year impairment of right-of-use assets is the reversal of an impairment charge made in 2019 following closure of the Crawley installation depot which was subsequently reopened in 2020. Commercial Agreement service fee was the assessed fair value of the consideration payable under the terms of the Commercial Agreement that was attributed to services received. The provision was adjusted based on the actual performance in 2019 and a £13k reduction to the original provision was made. IT project impairment charge represented the impairment of a capital investment made in a new electronic survey system that was stopped following results of ﬁeld trials. Dividends No dividends in relation to 2020 or 2019 were either paid or declared. 92 Annual Report & Accounts 2020 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) (Loss) attributable to ordinary shareholders ii) Weighted-average number of ordinary shares (basic) In issue during the year 2020 £000 2019 £000 (5,054) (3,306) No. of shares ‘000 117,749 No. of shares ‘000 82,809 b) Diluted earnings per share *Due to net loss for the period, dilutive loss per share is the same as basic. For ﬁnancial year 2020, there were 6,959k (2019: 4,409k) share options outstanding and, for ﬁnancial year 2019, there were also 4,000k shares due to be issued in October 2020 as consideration under the Commercial Agreement. These have been excluded from this calculation as they would have a dilutive effect on the loss per share. 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 IAS 24 (Related Party Disclosures), have been identiﬁed as the Board of Directors and other senior operational management. A summary of key management remuneration is as follows: Salary, bonus and other beneﬁts Pensions Share based payments and associated costs Compensation on loss of ofﬁce Total remuneration Details of long term incentive plans can be found in note 32. 2020 £000 2,761 138 293 - 3,192 2019 £000 1,823 78 161 135 2,197 Annual Report & Accounts 2020 93 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 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: 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: Manufacturing Sales and distribution Administration Salary and fees £000 Beneﬁts £000 Annual bonus¹ £000 LTIP £000 Pension £000 Total £000 2020 Number 2019 Number 279 92 264 635 2020 £000 20,122 1,940 915 424 23,401 276 90 291 657 2019 £000 18,927 1,920 789 12 21,648 The aggregate payroll costs were as follows: Wages and salaries Social security costs Other pension costs (see note 27) Share based payment expenses (see note 32) The analysis of Directors' remuneration is shown in the Directors' Remuneration Report. During the year, £1,805k was received under the Government Coronavirus Job Retention Scheme (CJRS). The note above does not include the beneﬁcial effect of the CJRS grant income. 12 Finance costs On borrowing facility On lease liabilities 2020 £000 674 487 1,161 2019 £000 876 526 1,402 2020 Executive directors M Gallacher R Neale Non-executive A C Lovell F Goldsmith J Porter 2019 Executive directors M Gallacher R Neale G Richell Non-executive A C Lovell C J Davies F Goldsmith J Porter 257 197 110 50 50 664 275 175 146 120 20 47 44 827 20 14 - - - 34 21 14 10 - - - - 45 285 201 - - - 486 - - - - - - - - - - - - - - 15 9 - 111 - - - 135 37 16 - - - 53 22 14 9 - - - - 45 599 428 110 50 50 1,237 333 212 165 231 20 47 44 1,052 ¹The decision as to whether to award certain 2019 bonus payments was deferred as part of the Group's COVID-19 measures. Once the business had restarted operations, Mike Gallacher and Rob Neale were awarded bonuses of £82,500 and £52,500 in respect of 2019 performance against personal objectives. Bonuses for 2020 performance as described in the Directors' Remuneration Report have also been accrued in 2020. Consequently, the Annual Bonus charge in 2020 reﬂects performance in respect of both years. G Richell resigned from the Board on the 5th March 2019 and his total remuneration for 2019 therefore reﬂect a part year. C Davies resigned from the Board on the 16th May 2019 and his fees for 2019 therefore reﬂect a part year. The interests of each individual who served as a director of the Group during the year, as at the end of ﬁnancial year 2020 in the Group's share schemes were as follows: M Gallacher R Neale A C Lovell M Gallacher R Neale M Gallacher R Neale Plan LTIP 2018¹ LTIP 2018¹ Individual LTIP 2019 LTIP 2019 RSA 2020 RSA 2020 Options held at start of period Options granted in period Options exercised in period Options lapsed in period Options held at end of period 733,333 350,000 250,000 200,000 127,273 - - 1,660,606 - - - - - 550,000 262,500 812,500 - - - - - - - - - - - - - - - - 733,333 350,000 250,000 200,000 127,273 550,000 262,500 2,473,106 ¹The performance share plan awards granted on 18 June 2018 lapsed in full following the end of ﬁnancial year 2020 as the threshold EPS performance target was not achieved. 94 Annual Report & Accounts 2020 Annual Report & Accounts 2020 95 Safestyle UK plc Strategic Report 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% (2019: 19.00%) Effects of: Expenses not deductible for taxation purposes Share based payments Adjustments to taxation charge in respect of prior period Effect of change in taxation rate Total taxation (credit) 2020 £000 2019 £000 - - - (994) (103) (6) (1,103) (1,103) (1.103) (1,103) - (253) (253) (489) 45 171 (273) (526) (526) (526) (5,054) (1,103) (6,157) (3,306) (526) (3,832) (1,170) (728) 129 47 (6) (103) 229 10 (82) 45 (1,103) (526) A reduction in the UK corporation taxation rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016, and the UK deferred taxation asset at the end of the ﬁnancial year 2020 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 taxation charge. 14 Intangible assets Cost At 31 December 2018 Additions Transfer At 29 December 2019 Additions Transfer At 3 January 2021 Accumulated amortisation and impairment At 31 December 2018 Impairment Charge for the year At 29 December 2019 Charge for the year At 3 January 2021 NBV at 30 December 2018 NBV at 29 December 2019 NBV at 3 January 2021 Goodwill Trademark Software £000 £000 £000 Assets under the course of construction £000 Commercial Agreement £000 Total £000 20,788 - - 20,788 - - 20,788 30 - - 30 - 30 20,758 20,758 20,758 504 - - 504 - - 504 - - - - - - 504 504 504 2,296 - 606 2,902 27 25 2,954 1,389 - 452 1,841 428 2,269 907 1,061 685 439 341 (606) 174 129 (25) 278 - 113 - 113 - 113 439 61 165 2,263 - - 2,263 - - 2,263 75 - 452 527 452 979 26,290 341 - 26,631 156 - 26,787 1,494 113 904 2,511 880 3,391 2,188 1,736 1,284 24,796 24,120 23,396 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 the end of the ﬁnancial year 2020. As described in the going concern basis of preparation, the Directors have prepared forecasts covering the period to the end of the ﬁnancial year 2022. These forecasts have also been used with regards to the impairment assessment. The forecasts include a number of assumptions in relation to sales volume, pricing and margin improvements. The Directors believe they have taken a cautious approach in these forecasts with the core assumptions for order intake representing a decline of 7.4% versus the levels achieved in H2 2020. However, despite this declining order intake assumption, revenues are modelled to grow by 6.1% in 2021 versus H2 2020 annualised revenue. This growth is facilitated by the strong order book the Group carried into the start of 2021 along with a number of initiatives that enhance revenues and margin, many of which are described in the Financial Review and are already being realised in the exit rate performance levels of 2020. A growth rate of 10% has been modelled for the subsequent year, 2022, which equates to a 4.7% increase in order intake versus H2 2020. This subsequent growth is attributed to modest inﬂationary price gains alongside a minimal modelled return on the investment in sales and marketing as described in the CEO's statement. After the second year, inﬂationary cost increases of 2.0% are forecast to be recovered through price increases which is entirely realistic given the historic price rises delivered and this has been modelled into perpetuity. As a result, proﬁtability and generated cash are cautiously forecast to remain constant. For the review at the end of the ﬁnancial year 2020, the recoverable amount of the CGU of £201m has been determined from value in use calculations. The assessment was performed on a value in use basis using a 10% discount rate (2019: 9%). 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 issued under the terms of the Commercial Agreement for the non-compete services 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 were issued for nil cash consideration in October 2020. 96 Annual Report & Accounts 2020 Annual Report & Accounts 2020 97 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 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 31 December 2018 Additions Transfers At 29 December 2019 Additions Transfers At 3 January 2021 Depreciation At 31 December 2018 Charge for the year At 29 December 2019 Charge for the year At 3 January 2021 NBV at 30 December 2018 NBV at 29 December 2019 NBV at 3 January 2021 16 Deferred taxation asset 9,500 - 7 9,507 - - 9,507 598 185 783 189 972 8,902 8,724 8,535 425 - - 425 70 - 495 159 124 283 130 413 266 142 82 9,985 - 68 10,053 23 - 10,076 5,495 1,106 6,601 1,034 7,635 4,490 3,452 2,441 1,655 - 34 1,689 257 - 1,946 1,125 251 1,376 206 1,582 530 313 364 8 - - 8 - - 8 6 - 6 - 6 2 2 2 23 86 (109) - 51 - 51 - - - - - 23 - 51 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 credit / (charge) recognised in equity Balance at end of period The deferred taxation asset provided in the ﬁnancial statements at 19% (2019: 17%) is as follows: Losses Share based payments Provisions Capital allowances 2020 £000 886 1,086 - 8 1,980 2020 £000 1,547 79 89 265 1,980 Total £000 21,596 86 - 21,682 401 - 22,083 7,383 1,666 9,049 1,559 10,608 14,213 12,633 11,475 2019 £000 693 244 (7) (44) 886 2019 £000 853 33 - - 886 There are no unrecognised taxation losses (2019: £nil). The deferred taxation asset of £1,980k has been recognised on the basis that the Group is forecasting to make sufﬁcient levels of proﬁts to utilise the asset in approximately 2 years. 17 Inventories Raw materials and consumables Work in progress Finished goods An inventory provision is held of £60k (2019: £nil). Stock recognised in cost of sales during the period was £18,871k (2019: £21,434k). 18 Trade and other receivables Trade receivables (net ECL allowance) Other receivables Prepayments 2020 £000 3,272 51 1,222 4,545 2020 £000 2,111 492 3,060 5,663 2019 £000 2,149 42 534 2,725 2019 £000 1,702 16 2,281 3,999 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 ECL allowance. Opening ECL allowance for trade receivables Allowance utilised in year Expensed in year Closing ECL allowance for trade receivables 19 Cash and cash equivalents Cash and cash equivalents Balance at end of period 2020 £000 1,072 (245) 890 1,717 2020 £000 11,705 11,705 2019 £000 1,206 (611) 477 1,072 2019 £000 4,435 4,435 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 £361k (2019: £470k) 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 Authorised Balance at 29 December 2019 50,000,000 Ordinary Shares @ 1p each on 28 April 2020 4,000,000 Ordinary Shares @ 1p each on 23 October 2020 Balance at 3 January 2021 Allotted, issued and fully paid Balance at 29 December 2019 50,000,000 Ordinary Shares @ 1p each on 28 April 2020 4,000,000 Ordinary Shares @ 1p each on 23 October 2020 Balance at 3 January 2021 Share capital £000 828 500 40 1,368 828 500 40 1,368 98 Annual Report & Accounts 2020 Annual Report & Accounts 2020 99 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 creditors and deferred income Accruals 22 Deferred taxation liability Balance at beginning of period (Credit) to The Consolidated Income Statement for the period Balance at end of period There is no deferred taxation liability for the financial year 2020. The deferred taxation provided in the financial statements in 2019 at 17% was as follows: Capital allowances in excess of depreciation 23 Provisions for liabilities and charges 2020 £000 7,036 5,563 5,025 4,305 21,929 2020 £000 17 (17) - - - 2019 £000 6,675 2,167 3,197 3,345 15,384 2019 £000 53 (36) 17 17 17 Dilapidations Product guarantees Commercial Agreement Total 2020 £000 788 (531) 526 - - 783 285 498 783 2019 £000 767 (182) 203 - - 788 201 587 788 2020 £000 2019 £000 2020 £000 2,093 (1,297) 1,340 - - 2,136 833 1,303 2,136 2,544 (1,187) 736 - - 2,093 789 1,304 2,093 - - - - - - - - - 2019 £000 1,000 - - (13) (987) - - - - 2020 £000 2019 £000 2,881 (1,828) 1,866 - - 2,919 1,118 1,801 2,919 4,311 (1,369) 939 (13) (987) 2,881 990 1,891 2,881 Balance at beginning of year Utilised in year Provided in year Released in year Reclassified in year Balance at end of year Current Non current Balance at end of year 24 Borrowing facilities The total borrowing facilities available at the end of the ﬁnancial year were as follows: Amounts drawn down Facilities available Nominal interest rate Maturity date 2020 £000 2019 £000 2020 £000 2019 £000 Term bank loan Revolving credit facility Less: Prepaid arrangement fees² LIBOR + 7.0% LIBOR + 7.0%¹ October 2023 October 2023 4,500 - (373) 4,127 4,500 - (509) 3,991 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 2023. Changes in loans and borrowings from ﬁnancing activities. See note 26 for changes in lease liabilities. At beginning of year Changes from financing cash flows Proceeds Repayment Total changes from financing activities Other changes Transaction costs capitalised (cash) Interest expense Interest paid (cash) Total liability-related other changes At end of year 25 Financial instruments 2020 £000 3,991 2019 £000 3,903 2,000 (2,000) 2,500 (2,500) - - (39) 674 (499) 136 4,127 (235) 876 (553) 88 3,991 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 the end of ﬁnancial year 2020, £4,500k of loans were outstanding (2019: £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. As disclosed in note 4, the Group has a portfolio of leased properties which contain dilapidations clauses. A dilapidations provision is provided for expected costs of rectifying existing wear-and-tear. Principal ﬁnancial instruments 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 10% to a net present value. Commercial Agreement - The provision for the Commercial Agreement represented the cash consideration that the Group paid as per the terms of the Commercial Agreement as described in the Financial Review. The provision was reclassiﬁed to accruals in 2019 when cash consideration was conﬁrmed at £987k and was paid in October 2020. 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. The Group have identiﬁed an increased credit risk based on the proﬁle of debtors and as such the expected credit loss expense has increased. The weighted average loss rate in the year has not increased. 100 Annual Report & Accounts 2020 Annual Report & Accounts 2020 101 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 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 2020 £000 2,111 492 11,705 14,308 2019 £000 1,702 16 4,435 6,153 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 the end of the ﬁnancial year 2020, the Group's trade receivables balance was £2,111k (2019: £1,702k). 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 ECL allowance table shown 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% At the reporting date, the Group held the following ﬁnancial liabilities, all of which were classiﬁed as other ﬁnancial liabilities: *The weighted average loss rates in the table above were in place for the ﬁnancial years 2020 and 2019. Trade payables Lease liabilities Other payables Accruals Borrowing facility Market risk 2020 £000 7,036 8,110 1,344 4,305 4,127 24,922 2019 £000 6,675 6,382 1,466 3,345 3,991 21,859 The Group is not materially exposed to changes in foreign currency exchange rates or interest rate movements. Trade receivables totalling £552k (2019: £519k) are secured by charges against the debtors' properties. Interest rate sensitivity The Group's policy is to minimise interest rate cash ﬂow risk exposures on long-term ﬁnancing. Longer-term borrowings are therefore usually at ﬁxed rates. At the end of ﬁnancial year 2020, the Group is exposed to changes in market interest rates through its borrowing facility at variable interest rates. The exposure to interest rates for the Group's money market funds is considered immaterial. The following table illustrates the sensitivity of proﬁt to a reasonably possible change in interest rates of +/- 1% (2019: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the ﬁnancial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. Proﬁt for the year -1% +1% 75 75 (75) (75) Financial year 2020 Financial year 2019 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 following table provides information about the exposure to ECLs for trade receivables at the end of ﬁnancial years 2020 and 2019. Gross 2020 £000 Loss allowance 2020 £000 338 472 538 1.091 1,389 3,828 (1) (5) (14) (923) (774) (1,717) Net 2020 £000 337 467 524 168 615 2,111 Gross 2019 £000 Loss allowance 2019 £000 454 259 121 674 1,266 2,774 (12) (11) (9) (361) (679) (1,072) Net 2019 £000 442 248 112 313 587 1,702 < 1 month overdue 1-2 months overdue 2-3 months overdue 3-12 months overdue > 1 Year Total receivables 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 £1,717k may be recovered in full or some of the unprovided debtors may become irrecoverable. £552k of trade receivables over one year overdue (2019: £519k) are secured by ﬁxed charges over properties and therefore no provision is made for these balances. £63k of the balance relates to customers setup on standing order (2019: £68k). 102 Annual Report & Accounts 2020 Annual Report & Accounts 2020 103 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 25 Financial instruments (continued) 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. The Group's banking facilities have the following ﬁnancial covenants: Ÿ EBITDA - monthly test on a rolling 12 month basis Ÿ Borrowing base - drawn facility has to be less than 75% of assets plus credit card ﬁnance/ﬁnance receivables Ÿ Monthly cleandown - drawings on the RCF have to be zero for ﬁve business days each month The Group has increased its covenant headroom during 2020 and forecasts ongoing compliance against these covenants. There is no judgement applied in assessing compliance against any of these covenants. At the end of ﬁnancial year 2020, the Group had £11,705k (2019: £4,435k) of cash reserves. After deducting borrowings of £4,127k, which are stated net of arrangement fees, net cash of the Group was £7,578k at the end of the year (2019: £444k). The £3,000k revolving credit facility was undrawn at the end of the year. The Group had net cash of £7,375k at the end of February 2021 (February 2020: net cash of £77k). The Group's non-derivative ﬁnancial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 3 January 2021 Borrowings Trade payables Other creditors Accruals Lease liabilities 29 December 2019 Borrowings Trade payables Other creditors Accruals Lease liabilities Less than 1 year 458 7,036 1,344 4,305 2,551 15,694 Less than 1 year 458 6,675 1,466 3,345 2,508 14,452 1-2 years 2-5 years 458 - - - 2,256 2,714 4,881 - - - 3,927 8,808 1-2 years 2-5 years 4,881 - - - 1,345 6,226 - - - - 2,629 2,629 More than 5 years - - - - 932 932 More than 5 years - - - - 1,061 1,061 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, which previously matured in 2021 was extended by two years during 2020 and now matures in October 2023. 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. Motor vehicles: Plant and machinery: Less than one year Between two and five years 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 26 IFRS 16 Assets At 31 December 2018 Additions Depreciation Impairment At 29 December 2019 Additions Depreciation Reversal of impairment Modification At 3 January 2021 Liabilities At 30 December 2019 Modification Payment Additions Interest At 3 January 2021 Properties Motor vehicles Equipment Total 6,088 219 (1,140) (487) 4,680 1,265 (1,104) 292 (363) 4,770 5,046 (367) (1,371) 1,265 326 4,899 3,360 374 (2,540) - 1,194 4,376 (2,457) - (79) 3,034 1,193 (75) (2,639) 4,376 141 2,996 1,193 (2,498) (2,498) 4,376 (75) 141 (141) 4,301 2,996 1,145 1,851 2,996 293 - (155) - 138 251 (184) - (5) 200 143 - (199) 251 20 215 9,741 593 (3,835) (487) 6,012 5,892 (3,745) 292 (447) 8,004 6,382 (442) (4,209) 5,892 487 8,110 143 6,382 (179) (179) (3,722) (3,722) 251 - 20 (20) 251 215 116 99 215 5,892 (442) 487 (487) 5,450 8,110 2,524 5,586 8,110 Reconciliation of movements of liabilities to cash flows arising from financing activities At 30 December 2019 Changes from financing cash flows Payment of lease liabilities Total changes from financing cash flows Other changes New leases Lease modification Interest expense Interest paid (cash) Total liability-related other changes At 3 January 2021 Liabilities classification Current (<1 year) Long term (> 1 year) 5,046 (1,045) (1,045) 1,265 (367) 326 (326) 898 4,899 1,263 3,636 4,899 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 £4,209k. This comprises the payment of lease liabilities of £3,722k and the interest paid of £487k. The Group has a number of leases within the business including properties for installation depots and sales branches, vehicles and plant & equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reﬂected in the consolidated statement of ﬁnancial position as a right-of-use asset and a lease liability. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. For leases relating to properties, the Group must keep those properties in a good state of repair and return the properties to their original condition at the end of the lease. 27 Pension costs The charge for the period amounts to £915k (2019: £789k) and relates to contributions paid into a money purchase scheme in the period. 28 Commitments There were no capital commitments at the end of the ﬁnancial year 2020 (2019: £nil). 104 Annual Report & Accounts 2020 Annual Report & Accounts 2020 105 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 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 UK Limited* HPAS Limited* Windowstyle UK Limited* Safestyle UK Limited* Style Group Europe Limited* Holding company Holding company Home improvements and double glazing contractors Dormant Dormant Dormant England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 *Owned Indirectly The registered address of all companies is Style House, 14 Eldon Place, Bradford, BD1 3AZ. 30 Related party transactions During ﬁnancial year 2020 there were no related party transactions, other than transactions with subsidiaries. During the year, Safestyle UK plc charged management charges to subsidiaries of £2.4m (2019: £3.2m) and received no dividends (2019: £nil). At the year end, total amounts receivable from subsidiaries were £17.5m (2019: £9.7m). 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 the end of the ﬁnancial year 2020 the Group had the following share based payment arrangements: LTIP The Group operates an equity-settled Long-Term Incentive Plan ("LTIP") remuneration scheme for Directors and certain management ("LTIP 2017", "LTIP 2018" & "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: Outstanding at start of period Granted during the year Lapsed in the year Outstanding at end of period Exercisable at end of period 2020 2019 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 3,224,825 - (91,836) 3,132,989 - £nil - £nil £nil - 3,223,600 1,147,648 (1,146,423) 3,224,825 - £0.17 £nil £0.47 £nil - 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 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 64.70p 0.00% 8.49 27/06/2019 27/06/2022 27/06/2029 0.56% 60.79% 3.00 £0.00 65.20p 0.00% 8.49 19/10/2018 18/06/2021 19/10/2028 0.85% 60.90% 2.67 £0.00 56.60p 0.00% 7.81 15/08/2018 18/06/2021 15/08/2028 0.75% 51.90% 2.84 £0.00 33.00p 0.00% 7.63 18/06/2018 18/06/2021 18/06/2028 0.78% 47.10% 3.00 £0.00 55.90p 0.00% 7.47 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 and beyond, there is a sufﬁciently long share price dataset over which to measure volatility for the share awards. RSA On 21 October 2020, the company granted 1,556,482 share options under a Restricted Share Award Scheme (“RSA Scheme”) to its Executive Directors and certain key management. The Directors' Remuneration Report provides more details on the scheme. The numbers of share options in existence during the year were as follows: Granted during the year Outstanding at end of period Exercisable at end of period 2020 Number of share options Weighted average exercise price 1,556,482 1,556,482 - £nil £nil - The share price at the grant date has been used to value the RSA scheme. Management consider this appropriate as there are no market performance conditions attached to the RSA awards. 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 Weighted average exercise price Weighted average fair value of options granted Remaining contractual life 21/10/2020 18/06/2021 21/10/2030 £0.00 £0.29 9.81 106 Annual Report & Accounts 2020 Annual Report & Accounts 2020 107 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 32 Share based payments (continued) SAYE On 11 November 2020, the company launched a new share save (SAYE) scheme ("SAYE 2020") in addition to the existing schemes ("SAYE 2018" and “SAYE 2019”) for employees. All schemes allow employees to acquire a certain number of shares at a discount of 20% of the share price prior to the invitation to join the scheme, using amounts saved under a 'Save As You Earn' savings contract. The numbers of share options in existence during the year were as follows: Alan Lovell Options On 20 December 2018, the Group issued 250,000 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 Outstanding at end of period Exercisable at end of period 2020 2019 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 250,000 250,000 125,000 £nil £nil £nil 250,000 250,000 - £nil £nil - 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 in existence during the year. Outstanding at start of period Granted during the year Lapsed during the period Outstanding at end of period Exercisable at end of period 2020 2019 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 933,817 1,092,160 (6,900) 2,019,077 - £0.59 £0.23 £2.51 £0.39 - 803,292 449,800 (319,275) 933,817 - £0.57 £0.72 £0.71 £0.59 - 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 Alan Lovell Options 20/12/2018 16/07/2021 20/12/2028 0.73% 63.50% 1.57 £0.00 86.30p 0.00% 7.98 20/12/2018 16/07/2020 20/12/2028 0.71% 76.50% 0.57 £0.00 86.30p 0.00% 7.98 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 2020 SAYE 2019 SAYE 2018 11/11/2020 11/11/2023 11/05/2024 0.02% 80.01% 3.36 £0.23 23.23p 0.00% 3.36 07/06/2019 01/07/2022 31/12/2022 0.49% 59.24% 3.32 £0.72 43.30p 0.00% 2.00 08/05/2018 08/05/2021 08/05/2021 0.92% 48.50% 3.35 £0.49 24.70p 0.00% 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 share awards. 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 share awards. The total share based expense / (credit) comprises: Equity settled - LTIP Equity settled - RSA Equity settled - SAYE Equity settled - Alan Lovell Options 33 Contingent Liability 2020 £000 137 134 74 79 424 2019 £000 (125) - 26 111 12 The Group uses the services of a large number of self-employed individuals for marketing, sales, surveying and installation purposes. As disclosed last year, 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 three years although there has been no contact from HMRC in over a year on this matter. 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. Although there has been no communication received on this matter from HMRC in the last 12 months, the Group will continue to treat this compliance review as an ongoing and open matter. Whilst this remains open, 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 the Group continues to believe that the chance of this is unlikely based on the facts and circumstances set out above. It continues to be impracticable to indicate any potential ﬁnancial impacts of any status rulings at this time. 108 Annual Report & Accounts 2020 Annual Report & Accounts 2020 109

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