Safeguard Scientifics Annual Report 2021

Plain-text annual report

safestyleukplc.co.uk The UK’s No.1 for windows & doors Safestyle UK plc Annual Report & Accounts 2021 Safestyle UK plc Strategic Report Governance Financials Safestyle UK plc 2021, its been another busy year... 2021 has been another year in which we have had to navigate our way through difﬁculties caused by the COVID-19 pandemic, in which our priority has always been the safety of our people and our customers. That aside, we have been very busy making great progress on our business objectives and focussing on the long term success of Safestyle and what we need to do to achieve it... Richard Stoate Ÿ UK economy re-opening with restrictions beginning to be lifted Ÿ Appointed our customer service director Richard Stoate Rated ‘Great’ on Over 25,000 5 star reviews Ÿ New Customer Retentions Team launched Ÿ Our ﬁrst 'Young Apprentice' joins our new NVQ training programme Ÿ Fit efﬁciency project launched reducing cancellation rates Sales conference and awards Ÿ Goal keeping legend David Seaman selected as Brand Partner and star of new TV campaign Ÿ Sponsorship began of the David Seaman podcast to start building awareness before the TV campaign Ÿ Sales conference and awards evening with special guest Ÿ Government start to put plans in place as Omicron variant spikes in the UK Jan Mar May Jul Sep Nov Feb Apr Jun Aug Oct Dec Ÿ 3rd National lockdown Ÿ 29th March rules Ÿ Appointed IMA Ÿ Appointed Running Ÿ Filmed our new TV Home as Creative Advertising Agency following pitch process relaxed and lockdown came to an end Ÿ We received our Association of Professional Sales ‘Ethical Sales Business Accreditation’ - the ﬁrst company to receive this in the sector with restrictions to door canvassing and sales activities Ÿ Started tracking our Net Promoter Score and have seen a strong upward trend since Ÿ LEAP (Leadership Excellence Accreditation Programme) rolled out to all ASMs from January to July Total as Media Partner following pitch process Ÿ Surge in national COVID infection rates ('pingdemic') impacts customer availability, supply chain and operational capacity Ÿ Launch of New Consumer Finance Contracts in place adverts with David Seaman, MBE, for imminent return to TV advertising Ÿ 14th installation depot in Milton Keynes opened Ÿ We launched our very own Safestyle Installer Training Academy Ÿ Created new roles for sales branch management and recruited c.100 PAYE employees into these roles Safestyle Technical Training Academy Safestyle UK plc Annual Report 2021 The UK’s No.1 for replacement windows and doors³ NEW Training academy Launched Q4 2021 Highlights Contents 01 Welcome page and Highlights Strategic Report 06 16 18 20 26 42 What we do Chairman’s Statement CEO’s Statement Financial Review Strategic Highlights Risk Management Governance 50 52 54 62 67 Board of Directors Audit Committee Report Directors’ Remuneration Report Directors’ Report Independent Auditor’s Report Financials 78 79 80 81 82 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 Revenue (£m) 2018 2019 116.4 126.2 2020 113.2 2021 143.3 8% -10% 27% Underlying proﬁt / (loss) before taxation¹ (£m) 2018 2019 2020 2021 (8.7) (1.5) (4.8) 7.6 Reported proﬁt / (loss) before taxation (£m) (16.3) (3.8) (6.2) 2018 2019 2020 2021 6.0 Net cash² (£m) 2018 2019 2020 2021 0.3 0.4 7.6 12.1 CO (tonnes) per frame installed 2 2018 n/a 2019 0.0324 2020 0.0304 6% reduction 2021 0.0246 19% reduction Average frame price (£) 5% 4% 12% 2018 2019 2020 2021 646 678 704 791 Frames installed 2018 2019 183,184 190,252 3% 2020 163,617 -14% 2021 183,374 12% 20 Annual Report & Accounts 2021 Annual Report & Accounts 2021 21 ¹ See the Financial Review for deﬁnition of underlying proﬁt / (loss) before taxation ² See the Financial Review for deﬁnition of net cash ³ Based on Fensa data Annual Report & Accounts 2021 01 Safestyle UK plc Rated great with over 25,000 ﬁve star reviews More people rated Safestyle excellent than any other window company Trustpilot March 2022 We come very highly recommended Figures February 2022 Rated ‘Great’ on Safestyle currently have 34,005 independent customer reviews rating us great In 2021 alone we received 8,113 reviews, of those happy 5,450 customers gave five stars! 24,315 of those gave us 5 stars with a further 3,925 customers happily giving us 4 stars Delighted with the service received Excellent as always Delighted with the service received from beginning to end. The whole process exceeded my expectations, and I wouldn’t hesitate recommending this company to others and using them again. Excellent ﬁtters who worked in a friendly yet professional manner to instal two beautiful new windows in under three hours (and that included the clearing up too!). 24/01/22 by Judith Levin ««««« Excellent as always. Safestyle have over the last 10 years replaced all the doors and windows of our house. I have gone back again and again as we have always had good service and the installers have been excellent. Would recommend them and should we ever move will deﬁnitely use them again. 24/01/22 by Christine Loader ««««« Rated 4.5/5 stars on From a total number of 10,955 customer reviews, a huge 8,304 gave us a 5 star rating A huge would 89% highly of customers recommend us Professional Everything was better than expected. For 11 windows, the team ﬁnished the work in 6 hours, including the cleaning. The guys were really polite and professional. Will recommend to everyone! 21/01/2022 by Martin ««««« Annual Report & Accounts 2021 03 For great saves, you can’t beat Safestyle You’re in safe hands with the UK’s No.1 Strategic Report 06 What we do 16 18 20 26 42 Chairman’s Statement CEO’s Statement Financial Review Strategic Highlights Risk Management Safestyle UK plc Our nationwide branches and depots We have 29 sales branches and 14 installation depots across the UK Operational headlines 1 Head Ofﬁce 29 Sales Branches 1 Manufacturing Facility 14 Installation Depots 29 Sales Branches Our 29 sales branches provide coverage across the country with our teams generating enquiries and responding locally to our customers’ needs. NEW Milton Keynes Installations depot Milton Keynes Installation depot opened Aug 2021 14 Installation Depots Our 14 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 2021 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 Marketing We generate 1,000s of appointments through various marketing channels with potential customers each year Sales We help 1,000s of customers navigate the complexity of options that they face when changing their windows or doors Survey We survey over 50,000 properties to precisely specify products ready for bespoke manufacture 04 05 06 07 Manufacture We efﬁciently manufacture customer speciﬁc, high quality, energy saving products in Barnsley and distribute to 14 installation depots Installation We expertly install the new windows and doors before recycling the items we replace in 1,000s of homes every year Service We provide complete peace of mind for every customer on every installation with our ten year warranty period Feedback We contact our customers via email with a survey of our overall quality of service feeding into our Net Promoter Score 08 Annual Report & Accounts 2021 Annual Report & Accounts 2021 09 Appearing in a host of high proﬁle spots such as Coronation Street, Emmerdale, and Ant & Dec's Saturday Night Takeaway, over 8 weeks it will be aired to over 107 million households. Initial response to the TV campaign is very positive. David will feature heavily in all our marketing, sales and canvass collateral to further cement our relationship with David in peoples minds. David is an absolute professional and here’s a few behind the scenes photos of him nailing all his lines ﬁrst time, well almost... Safestyle UK plc Strategic Report Governance Financials You’ll almost be spoilt for choice... As the UK’s number one we offer a wide range of products, in a variety of styles and designs, all available in many stunning ﬁnishes with a huge choice of glass and furniture options to name but a few. Here’s just a little taster of what we do.... 3 window types Wide range of furniture options Including many door knockers to choose from, letter plates, spy holes, safety chains, numbers and more... 20 composite door designs 15 colour options Cotswold Canterbury Cheltenham Exeter Gloucester Oxford Padstow Casement Tilt & turn Sliding sash Chartwell Green Duck Egg 3 garden door options Anthracite Black Blue Stratford Warwick Windsor Roma Turin Modena Ambleside White Red Rosewood Oak Slate Cream French door Patio door Bi-folding doors 7 furniture colours Venice Ilkley Richmond Florence Imola Milano Dove Grey Taupe Rose Pink 11 PVCu door designs White Black Gold Polished chrome Satin chrome Pewter Brushed chrome Lots of handle styles, here’s just a few... Chatsworth Burghley Althorpe Haddon Hardwick Harewood Windsor Woburn Half/full glass Stable style Noble 10 colour options Applicable to PVCu doors, all windows, garden doors and frames Pro style Standard Pad handle Hero handle Monkey tail Pear drop Pull escutcheon Curved Long bar 10 privacy glass options White Cream Chartwell Flat White Anthracite Golden Oak Rosewood Irish Oak Slate Grey Black 10 Annual Report & Accounts 2021 Annual Report & Accounts 2021 11 Safestyle UK plc Strategic Report Governance Financials Safestyle UK plc Strategic Report Governance Financials Safestyle UK plc Strategic Report Governance Financials Net Promoter Score The journey of an order Net Promoter Score Net Promoter Score (’NPS’) is a simple idea. The system is designed to assess if you like using a certain product or doing business with a particular company and whether you would share your experience with others. We started tracking our NPS from January 2021 and have seen a strong upward trajectory. Here’s how it works Safestyle’s NPS score has seen a solid upward trajectory since inception in January 2021 Depending on the score that is given to the Net Promoter question, three categories of people can be distinguished: Promoters = respondents giving a 9 or 10 score Passives = respondents giving a 7 or 8 score Detractors = respondents giving a 0 to 6 score The beneﬁts of a better NPS Although the Net Promoter Score is calculated by subtracting the % Promoters and the % Detractors, the score itself isn’t a percentage but a number. Increase customer satisfaction Detractors Passives Promoters They will rate you from 0-6 on the scale. They are not particularly satisﬁed with the company and there is a danger they will spread negative word of mouth. They will rate you between 7-8. Passives are neutral about the company and are receptive to better deals. They are left out of the NPS score calculation. They are very loyal and highly committed to the company. Promoters will rate you between 9-10, fuelling viral growth through recommendations. One of the main beneﬁts of NPS is that you can directly see how satisﬁed customers are with the service you offer. We want as many of our customers as possible to be happy and NPS gives us the opportunity to measure this effectively. Evaluate and increase customer loyalty The NPS system goes past just measuring customer satisfaction, but actually determining how many of these customers are loyal to our brand and will return time and again. Create more advocates Reduce detractors What comes with customer loyalty is customer advocates, those who are going to recommend us to friends, family and colleagues. Word of mouth is such a powerful marketing tool, especially in the heavy-spend digital marketing world of today. NPS Score calculation It’s simple to calculate your ﬁnal NPS score, just subtract the percentage of detractors from the percentage of promoters. For example, if 10% of respondents are detractors, 20% are passives and 70% are promoters, your NPS score would be 70-10 = 60. In general, a score below 0 would indicate It’s important to focus on how well your business is doing in creating promoters, but it’s also incredibly important to focus on how to reduce detractors. Knowing our NPS enables us to target the drivers that will create an unforgettable customer experience which encourages passives and detractors to improvement needed. A score between 0 and 30 is good, but still room for progress. If an NPS score become promoters. is between 30 and 70 this would indicate a great company with far more happy customers than unhappy. Above 70 and your customers’ love you with lots of positive referrals. Business growth! By understanding your net promoter score, you can understand the customers that ﬁt into each group and their thoughts - good or bad. This enables you to take action to turn detractors into promoters, greatly improving the customer experience, resulting in positive word of mouth. All in all, we’re after sustainable business growth and the actionable feedback NPS provides is exactly what sets us up to achieve this. Promoters are the driving force and we want as many customers as possible to be in the green. This is why NPS is so beneﬁcial. 1 2 3 4 5 6 Interest registered Arrange appointment Distribute to branch Visit the property Conﬁrm & book survey Survey 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. 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 no-obligation quote. 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. 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. 12 11 10 9 8 7 Feedback Peace of mind Installation day Ready for installation Safestyle manufacturing Finalise survey to order Two days after installation is complete, our customer’s will receive an email with a link to a survey. The questions cover all relevant aspects of our service so we can accurately monitor our performance and this feeds into our Net Promoter Score. 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 email 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. 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. 12 Annual Report & Accounts 2021 Annual Report & Accounts 2021 13 12 Annual Report & Accounts 2021 Annual Report & Accounts 2021 13 12 Annual Report & Accounts 2021 Net Promoter Score (NPS) is a simple idea. The system is designed to assesses if you like using a certain product or doing business with a particular company and wether you would share your experience and to others. Here’s how it works 2021 Safestyle Net promoter score 34 Response breakdown 58% of respondents rated Safestyle 9 or 10 18% of respondents rated Safestyle 7 or 8 24% of respondents rated Safestyle 0 to 6 What is a good score? In general, a score below 0 would improvement needed. A score between 0 and 30 is good, but still room for progress. If an NPS score is between 30 and 70 this would indicate a great company with far more happy customers than unhappy. Above 70 and your customers love you with lots of positive referrals. Depending on the score that is given to the Net Promoter question, three categories of people can be distinguished: Promoters = respondents giving a 9 or 10 score Passives = respondents giving a 7 or 8 score Detractors = respondents giving a 0 to 6 score Although the Net Promoter Score is calculated by subtracting the % Promoters and the % Detractors, the score itself isn’t a percentage but a number. Detractors Passives Promoters They will rate you from 0-6 on the scale. They are not particularly satisﬁed with the company and there is a danger they will spread negative word of mouth. They will rate you between 7-8. Passives are neutral about the company and are receptive to better deals. They are left out of the NPS score calculation. They are very loyal and highly committed to the company. Promoters will rate you between 9-10, fuelling viral growth through recommendations. Response rate Of the 32,775 surveys sent, a huge 41% of customers, that’s 13,311 customers completed our survey. The median response rate on the customer Gauge platform is 17.4%, so we lie in the 92nd percentile for response rate which is a great result. Median response 17.4% 59% no response 41% responsed 17.4% 59% 41% NPS Score calculation It’s simple to calculate your ﬁnal NPS score, just subtract the percentage of detractors from the percentage of promoters. For example, if 10% of respondents are detractors, 20% are passives and 70% are promoters, your NPS score would be 70-10 = 60. By understanding your net promoter score and the customers that ﬁt into each group, you can take action to turn detractors into promoters and improve the loyalty to your brand. The overall score for Safestyle respondents in 2021 was 58-24 = 34. Darlington installations was the highest scoring depot in 2021 with an impressive NPS of 46, comfortably within the great category. In fact, almost every depot scored great between 30 and 70. Depot scoring Upward tarjectory Our NPS score has seen a solid upward trajectory since inception. In 2021 detractors dropped by 19% all the way down to 17% whilst our promoter category has seen a big increase by 19% to a huge 64%. Dec 21 Jan 21 Jan 21 Dec 21 36% 17% 45% 64% Detractors Promoters Annual Report & Accounts 2021 13 Safestyle UK plc Strategic Report Governance Financials Go ﬁgure, Safestyle in numbers for 2021 2,488 Workplace posts created 8,113 happy customer Trustpilot reviews in 2021 4,762,791 minutes 1,075 tonnes of wood was put to good use Knock, knock, we made lots of PVC doors too, over 27,000 A huge 5,450 Trustpilot reviews gave us 5 stars Watching 66 movies nonstop is roughly the equivalent of the 6,000 hours of online training completed during 2021 Based on each module completed in a modest 15 minutes. 79,379 hours 3,307 days 472 weeks 9.061 years of web browsing Total time people spent browsing our website in 2021. Based on web browsing 24 hours a day, 365 days a year. We also recycled lots and lots of glass in 2021 3,717 tonnes We produced enough glass to glaze the Burj Khalifa over 3 times! That’s well over 400,000 square metres of glass 13,311 Net Promoter Score survey responses, the same number of people as 190 full double decker buses We recycled lots of post consumer PVC 2,401 tonnes We made a lot of windows during 2021, almost 150,000 In total for 2021 we recycled the equivalent weight of 271 full fuel tankers! That’s 11,917 tonnes of all post consumer waste 31,902 Workplace reactions 553 tonnes of rubble was recycled 10,011,540 page views 24,199 completed online modules Nearly 3 times more than 2020! 3,661,328 new website users More than the combined population of Manchester and Liverpool Over 1,400 new people joined our online training Adding a splash of colour. In 2021 coloured products alone came to over 60,000 250 football pitches long Roughly equivalent to the length of 13,207 composite doors we made in 2021 when laid end to end John O’Groats to Lands End and back...almost twice! Is the equivalent distance of the 3,436,562m of old, inefﬁcient PVC we have replaced with our ‘A’ rated energy saving products Distance in a straight line 14 Annual Report & Accounts 2021 Annual Report & Accounts 2021 15 Our brand new, market-leading training facility based at our factory will give us the opportunity to 'grow our own' ﬁtters. Trained on all aspects of the job they will gain a multitude of skills with hands-on training, rigourous inspections and completing module assessments to give them everything they need to know to become top class installers. This unique training program has been developed by Safestyle speciﬁcally to fast track exceptional ﬁtters in just 12 months. So far we have seen very high demand, from nearly 300 applications we are already seeing the future potential in our fantastic candidates. Here’s a few of them getting to grips with our ladder safety training. The future is bright. Safestyle UK plc Strategic Report Governance Financials Chairman’s Statement Introduction Safestyle has navigated an extraordinarily turbulent period since the arrival of the new Board and Executive Team in 2018. The combination of the Safeglaze issues in 2018/19, immediately followed by the COVID pandemic through 2020/21 has represented a unique range and intensity of management challenges. Through this period, the Group has completed a robust turnaround and returned to ﬁnancial stability, evidenced by improving proﬁt before tax by £22.2m between 2018 and 2021, delivering the best ﬁnancial performance since 2017 and with net cash of £12.1m at the end of 2021. As importantly through the turbulence, the Group has transformed at an accelerating rate, keeping the best elements of the fast growth entrepreneurial industry challenger while modernising and building the platform for sustained growth. Trading and ﬁnancial performance The Group's ﬁnancial performance for 2021 was encouraging, especially given the third national lockdown at the start to the year. Covid restrictions curtailed our sales activities for the ﬁrst two months of the year although we were able to maintain a good level of installation activity by virtue of the record order book at the start of the year. Restrictions began to lift by the beginning of March and the Group was able to restore the balance between order intake and installation activity whilst at the same time starting to address the customer service backlog that had increased in the 12 months since the ﬁrst lockdown in March 2020. This recovery work continued to be hampered by the ongoing supply chain disruption as well as skilled labour shortages that have been an ongoing challenge as the UK economy re-opened. I am pleased to say that, by the end of the year, the backlog had been recovered and we are now able to work to a reduced timescale to service our customers. The Group delivered strong progress on revenues which increased to £143.3m, representing growth of 13.5% versus 2019 (which is a more appropriate comparative to assess underlying performance given the impact on revenues of the lockdown in 2020). Alongside this top line growth, the ongoing initiatives to improve the Group's margins are delivering results and gross proﬁt increased by 37.2% to £43.8m. This represents an improvement in gross margin percentage of 527bps versus 2019. The Group has reinvested some of this gross proﬁt growth back into its people, operational capacity, customer service and IT, all of which are critical to deliver on the Group's ongoing growth aspirations. As a result, the Group achieved an underlying proﬁt before taxation¹ for the full year of £7.6m compared to an underlying loss in 2019 of £(1.5)m. Reported proﬁt before taxation was £6.0m compared to £(3.8)m in 2019. Basic EPS also turned round from a loss of (4.0)p in 2019 to 3.5p this year. The Group has signiﬁcantly increased its covenant headroom in 2021 and the facility will provide a source of additional liquidity if required. The Board does not propose a ﬁnal dividend for the year (2020: £nil). The Group will continue to assess opportunities to accelerate growth in line with our strategy, which encompasses acquisitions, new business development and organic core business growth. This will be the prime call on our cash, but we do intend, if our net cash position grows from its current levels after these growth opportunities, to return to the dividend list in the relatively near future. Balance sheet and dividend Sustainability The net cash² position at the end of the year improved to £12.1m (2020: £7.6m) as a result of the trading performance; that is after repayment during the year of a £2.4m VAT liability which was deferred from May 2020. The Group continues to retain a £7.5m committed ﬁnance facility which runs to October 2023. £3m of the Group's £7.5m facility, representing the revolving credit facility, continued to be undrawn. The Group continues to focus on its approach to sustainability in all its operations. It continued to recycle over 95% of all materials removed from a customer's home during an installation. We believe that we set the highest benchmark in the industry in this regard. 2 I am very pleased to report that the Group's CO emissions per frame installed in 2021 have reduced by 19.1% versus 2020 which represents an early over-achievement of our targeted 10% reduction by 2024. The Group has achieved these reductions through its move to cleaner renewable energy, realising the beneﬁts of lower emissions from its more modern ﬂeet and ongoing energy usage reduction programmes in the manufacturing process. Vehicle emissions now account for over 80% of the Group's total and we are developing long-term plans which target reductions in this area for the next ﬂeet replacement cycle. In light of us exceeding our original target early, we now see an opportunity for a further 6% improvement before 2025. This will be delivered by continued incremental improvement ahead of the introduction, when technology and infrastructure enables it, of a fully-electriﬁed vehicle ﬂeet. We will continue to target the elimination of the remaining 5% of consumer waste going to landﬁll in conjunction with both existing and new partners. In addition, we will conduct a Scope 3 audit of our ten largest suppliers in 2022 to ensure that progress on reducing emissions is also being made downstream. Pages 30 to 33 provide further details on our various sustainability initiatives and activities in the last year as well as an overview of our recycling processes. Safestyle's people It is ﬁnally my pleasure to recognise the efforts of all our people at Safestyle. The business has gone through a number of challenges since 2018 and our strong ﬁnancial performance this year is attributable to our skilled, dedicated and tenacious colleagues. The ongoing challenges of the pandemic in 2021 continued to place a strain on our people who have worked with great ﬂexibility through unpredictable times with spirit and good nature. Ultimately, it is our team of people who make the difference and I once again thank them all for their hard work. With their support, the Board looks to the future with conﬁdence. Alan C Lovell Chairman 20 April 2022 16 Annual Report & Accounts 2021 ¹ See the Financial Review for the deﬁnition of underlying proﬁt / (loss) before taxation ² See the Financial Review for the deﬁnition of net cash Annual Report & Accounts 2021 17 Safestyle UK plc Strategic Report Governance Financials Safestyle UK plc Strategic Report Governance Financials CEO’s Statement Faced with another year of turbulence, our core challenge through 2021 was to deliver both a step change in our ﬁnancial performance and to accelerate the pace of our strategic transformation. I am delighted to report that against these objectives in 2021, we delivered our best ﬁnancial performance since 2017 and made signiﬁcant progress across the breadth of our strategic agenda. Once again, I have been hugely impressed by the agility and resilience of our staff and self- employed agents. The overwhelming priority of maintaining a safe working environment for our people and our customers posed day to day challenges through the year. However, from our return to work from the ﬁrst lockdown in May 2020, we were able to sustain manufacturing and installations operations continually, despite the impact of labour and supply interruptions. Financial delivery despite turbulence The Group's underlying proﬁt before tax for the year represents a £16.4m turnaround from 2018's underlying losses, a £22.2m improvement versus 2018's reported loss before taxation and a strong step up from 2019 as we continued to improve margins and deliver growth. Our ﬁnancial delivery in H2 was impacted by an investment in recovering customer service levels, which were disrupted by the operational challenges associated with increased COVID isolations in early summer the post pandemic supply chain shortages and latterly, the Omicron surge at the end of the year. Despite this, the ﬁnancial progress we have made demonstrates the underlying potential and resilience of the business model as we emerge from three years of turbulence. The performance also completes the execution of the Group's Turnaround Plan. Revenue growth of 26.6% vs 2020 and 13.5% versus 2019 showed a sustained trajectory of performance and was underpinned by an early and proactive response to emerging cost pressure and capacity constraints. The number of frames 18 Annual Report & Accounts 2021 installed improved by 12.1% year on year and gross margin increased to 30.5%, an improvement of 540bps vs 2020 and 527bps vs 2019. Our strong order intake in 2020 built a record order book for the start of 2021 and allowed us to smooth the interruptions in sales caused by the third national lockdown. Subsequently, the excellent order intake continued through 2021 giving us a closing order book 8.4% lower than 2020's record closing level, albeit more than 30% higher than any other year in the Group's history. The impact of operational disruption on our customers meant that it was imperative that we invested in recovering our customer service levels in H2. This required central resource and, inevitably, utilisation of our installation capacity to complete orders that were partially delayed or impacted by disruption. As a result, we ended the year having returned to normal levels of service. The priority given to improving our customer experience is in line with our strategic work to focus on the consumer experience, building our brand through word of mouth recommendation in addition to TV investment. However, the inefﬁciency associated with this recovery underlined the need to accelerate the modernisation of our core business IT systems which is underway. Our net cash position improved during the year to £12.1m at year end, an increase of £4.5m from 2020. This represents a return to a healthy and stable ﬁnancial position and is after the Group repaid £2.4m of VAT that was deferred from 2020 as part of our COVID support measures. Accelerated strategic delivery The work done during 2020 enabled us to accelerate the pace of change within the business during 2021. Levelling Up Depots and Sales Branches: The range of performance across our sites represents a signiﬁcant opportunity and is being unlocked through embedding Standard Operating Procedures ('SOPs'), effective IT systems and through establishing training and performance management processes. During 2020, SOPs were developed for both Operations and Sales and H2 saw us establish, recruit and train almost 100 new PAYE sales branch management roles. Delivering Proﬁtable Growth: Our brand development project completed work on a modernised brand logo and refreshed brand communications campaign, fronted by David Seaman MBE, the former England goalkeeper. This work was underpinned by new research and consumer insight which informs much of our business strategy during 2022. We continued to advance our digital marketing capability, which now encompasses the use of artiﬁcial intelligence, to drive volume and mitigate cost pressure in the digital channel. We continued to move pricing promptly in response to emerging cost pressure and capacity constraints and this delivered revenue growth and margin improvement. Transforming the Customer Experience: Our metrics show that the vast majority of our customers have a seamless experience from sales through to installations, but we know we have an opportunity to improve this further. During 2021 we implemented Net Promoter Score ('NPS') across our operations divisions, combined with ﬁnancial incentives for quality performance across our depot network. While disrupted by supply and labour issues in H2, the underlying progress is clear and these actions support our intent of placing customer experience at the heart of the business. 2 Embedding Sustainability and Compliance: Our focus on delivering against our CO reduction roadmap allowed us to achieve our previously disclosed 2024 target during 2021. This focus will continue as we reset our targets again and engage all our staff and suppliers in supporting their delivery. The year also saw us become the ﬁrst major sales force in the industry to join the Association of Professional Sales and be awarded their Ethical Sales Business accreditation. Looking forward, we expect the impact of inﬂation and consumer conﬁdence to be reﬂected in consumer demand for the year ahead, albeit our order book, which is now at record levels, will allow us to smooth the impact of any mid term slowing of demand. Furthermore, our historic performance as a value brand has demonstrated resilience through periods of reduced consumer demand. Meanwhile, raw material, labour and material cost inﬂation are at record levels and we intend to mitigate these impacts through pricing whilst maintaining focus on both costs and productivity to limit the impact as far as possible. Our strategic intent remains consistent into 2022; to build long term value by consolidating our position as the clear UK market leader. Despite the factors above, the Board remains positive on the outlook for 2022 as the business emerges transformed after four very challenging years and continues to deliver a return to our historical strong ﬁnancial performance and growth. Mike Gallacher Chief Executive Ofﬁcer 20 April 2022 Go ﬁgure, Safestyle in numbers for 2021 2,488 Workplace posts created 31,902 Workplace reactions 3,661,328 new website users More than the combined population of Manchester and Liverpool 4,762,791 minutes 79,379 hours 3,307 days 472 weeks 9.061 years of web browsing Total time people spent browsing our website in 2021. Based on web browsing 24 hours a day, 365 days a year. 1,624 GDPR courses completed 10,011,540 page views 24,199 completed online modules Nearly 3 times more than 2020! Watching 66 movies nonstop Over 1,400 new people joined our online training 13,311 Net Promoter Score survey responses, the same number of people as 190 full double decker buses is roughly the equivalent of the 6,000 hours of online training completed during 2021 Based on each module completed in a modest 15 minutes. 8,113 happy customer Trustpilot reviews in 2021 A huge 5,450 gave us 5 stars Adding a splash of colour. In 2021 coloured products alone came to over 60,000 We recycled lots of post consumer PVC 2,401 tonnes We also recycled lots and lots of glass in 2021 3,717 tonnes In total for 2021 we recycled the equivalent weight of 271 full fuel tankers! That’s 11,917 tonnes of all post consumer waste 1,075 tonnes of wood was put to good use 553 tonnes of rubble was recycled We made a lot of windows during 2021, almost 150,000 Knock, knock, we made lots of PVC doors too, over 27,000 250 football pitches long Roughly equivalent to the length of 13,207 composite doors we made in 2021 when laid end to end We produced enough glass to glaze the Burj Khalifa over 3 times! That’s well over 400,000 square metres of glass John O’Groats to Lands End and back...almost twice! Is the equivalent distance of the 3,436,562m of old, inefﬁcient PVC we have replaced with our ‘A’ rated energy saving products Distance in a straight line Annual Report & Accounts 2021 19 18 Annual Report & Accounts 2021 Annual Report & Accounts 2021 19 Our progress in ﬁnancial delivery and against our strategic priorities has been supported by sustained investment in our people and in modernising our systems. The latter has encompassed the replacement of legacy systems, system resilience and most importantly, the preparation for implementing a new CRM system in 2022. successful launch of our new TV Advertising campaign, our largest investment in our brand since 2017. This saw the fruition of our 2021 brand development work. Our communication focuses on value with a 'Safestyle Saves' message, fronted by David Seaman. Initial results have been positive with the campaign still underway. We are particularly proud of the launch of the Safestyle Academy, the largest professional development programme for installers in the UK. This is a major long term investment and illustrates our commitment to raising professional standards across the industry. Sustaining the strategic transformation in 2022 Despite the progress made in 2021, we have more work ahead to complete and embed the strategic changes that are now underway in the business. Our key strategies will remain; Ÿ Delivering our Financial Roadmap Ÿ Levelling Up our Depots and Branches Ÿ Driving Proﬁtable Growth Ÿ Transforming our Customer Experience Embedding Sustainability and Compliance Ÿ All supported by our two enabling strategies; investing in the development of our people and modernising our systems and processes. Current trading and outlook Our ﬁrst quarter has seen robust order intake supported by the It was immensely frustrating that as we emerged from four years of turbulence and following strong ﬁnancial performance in 2021, the business was hit on 25 January 2022 by a sophisticated cyber attack, which originated from Russia. Safestyle was one of a number of businesses impacted by what we understand to be a signiﬁcant increase in cyber attacks on mid- size UK businesses. The immediate response from our staff was prompt and impressive and we were able to sustain our core operations, sales, surveying, manufacturing and installations throughout the business recovery period, which is now complete. It is clear that our programme of recent IT investments contributed to signiﬁcantly mitigating the impact of the attack. Despite our ability to sustain our core operations, the attack did cause a level of disruption as we temporarily reverted to our business continuity processes. The business now has all core systems back up and running and concurrently has further enhanced our cyber security measures. Based on the increased and likely persistent threat to UK businesses, we plan to accelerate our existing IT modernisation plan further during 2022 and 2023. Safestyle UK plc Strategic Report Governance Financials Financial Review Financials Revenue Cost of sales Gross proﬁt Other operating expenses² Operating proﬁt / (loss) Finance income Finance costs Proﬁt / (loss) before taxation³ Taxation Proﬁt / (loss) for the year Basic EPS (pence per share) Diluted EPS (pence per share) Cash and cash equivalents Borrowings 4 Net cash Underlying £000 2021 Non- Underlying items¹ £000 Total £000 Underlying £000 2020 Non- Underlying items¹ £000 Total £000 2021 vs 2020% change 2021 vs 2019% change 113,191 (84,732) 28,459 (32,057) (3,598) 1 (1,161) (4,758) 143,251 (99,496) 43,755 (34,519) - - - 143,251 (99,496) 43,755 (1,650) (36,169) 9,236 (1,650) 7,586 - (1,623) 7,613 - - (1,650) - (1,623) 5,963 (1,188) 4,775 3.5p 3.4p 16,351 (4,231) 12,120 - - - 113,191 (84,732) 28,459 (1,399) (33,456) (1,399) (4,997) 1 - - 26.6% (17.4%) 53.7% (7.7%) n/a n/a 13.5% (5.5%) 37.2% (7.8%) n/a n/a (1,161) (39.8%) (15.8%) n/a n/a n/a n/a n/a n/a (1,399) (6,157) 1,103 (5,054) (4.3p) (4.3p) 11,705 (4,127) 7,578 Where appropriate we have included comparisons of the Group's ﬁnancial and operating performance for 2020 and also 2019 with the latter, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020. KPIs 5 Revenue £000 Gross margin % Average Order Value (£ inc VAT) Average Frame Price (£ ex VAT) Frames installed (units) Orders installed Frames per order 2021 2020 2021 vs 2020 change 2019 2021 vs 2019 change 143,251 30.54% 4,032 791 183,374 43,167 4.25 113,191 25.14% 3,474 704 163,617 39,789 4.11 26.6% 540bps 16.1% 12.4% 12.1% 8.5% 3.4% 126,237 25.27% 3,337 678 190,252 46,412 4.10 13.5% 527bps 20.8% 16.7% (3.6%) (7.0%) 3.7% 2021 represents a return to full year proﬁtability and further improvement to the Group's ﬁnancial performance trajectory which builds on the performance in H2 2020. The Group moved swiftly to mitigate inﬂationary pressures and gross margins have improved materially versus 2020 and 2019 as a result of a number of margin-enhancing initiatives. 2021 also included further investment in customer service resource and installation capacity as the Group focused on recovery from the operational turbulence caused by the pandemic in 2020 and early 2021. The Group made an underlying proﬁt before taxation³ of £7.6m for the year, representing a strong recovery from the losses sustained in 2020. Net cash also strengthened to £12.1m at the end of the period, an increase of £4.5m versus the prior year. 4 This Financial Review now provides further detail behind the changes in the ﬁnancial measures and KPIs of the business and will draw attention to how the performance compares to both 2020 and also 2019 which is, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020. 1 2 3 4 5 See the non-underlying items section in this Financial Review 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 proﬁt / (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 Net cash is cash and cash equivalents less borrowings Gross margin % is gross proﬁt divided by revenue Financial and KPI headlines Ÿ Revenue increased to £143.3m, Ÿ Ÿ growth of 26.6% compared to the COVID-impacted 2020 and by 13.5% compared to 2019. Frames installed increased by 12.1% versus 2020 to 183,374 with the prior year levels adversely impacted by the ﬁrst half COVID disruption in 2020. Compared to 2019, frames installed reduced by 3.6% with the Group optimising the balance between utilisation of its available installation capacity for new customers alongside customer service recovery work. The Group has continued to improve average frame price, achieving a 12.4% increase over 2020 which is attributable to necessary price increases to negate input cost inﬂation, favourable market conditions and discount management. Higher priced composite guard doors were relatively consistent year on year at 7.3% of frames installed compared to 7.6% for 2020. Ÿ Alongside the average price improvement, the majority of the beneﬁt arising from changes made to the Group's consumer ﬁnance portfolio in the latter part of 2020 is now being realised. This has resulted in a reduction in ﬁnance subsidy costs of £1.9m versus 2020 and £3.3m versus 2019. 5 Ÿ Gross proﬁt increased by 53.7% and 37.2% over 2020 and 2019 respectively to £43.8m. Gross margin percentage increased by 540bps versus 2020 and by 527bps versus 2019 to 30.5%. This is predominantly attributable to the improvement in average frame price, the reduction in ﬁnance subsidy costs and ﬁnally, lower lead generation costs which are a result of both internally-driven efﬁciencies and favourable market conditions. The latter effect was most noticeable in the ﬁrst half of the year. Lead generation costs in the second half of the year normalised back towards pre- pandemic levels of 2019. Ÿ Underlying other operating expenses² for the period increased by £2.5m (7.7%) compared to 2020. 2020 was materially reduced as a result of a £1.1m furlough reclaim beneﬁt as part of the Government's Coronavirus Job Retention Scheme ('CJRS') and reduced levels of operating activity during the lockdown period in the ﬁrst half of the year. Excluding this impact, the year on year increase represents ongoing investment in the Group's installation capacity, customer service resource and IT. Finance costs increased versus 2020 despite reduced borrowing costs due to lower utilisation (and thus lower fees) in relation to the £3m revolving credit facility. This Ÿ effect was offset by higher ﬁnance costs on lease liabilities following the renewal of the Group's vehicle ﬂeet and the consequential higher interest expense charged at the beginning of the lease under IFRS 16. Ÿ Underlying proﬁt / (loss) before taxation was a proﬁt of £7.6m for the period (2020: loss of £(4.8)m) with the recovery in volume and improvements in gross margin described above driving the £12.4m improvement. Ÿ Non-underlying items¹ were £1.7m for the period (2020: £1.4m) and therefore reported proﬁt / (loss) before taxation was £6.0m versus a loss of £(6.2)m in 2020. Ÿ Net cash improved to £12.1m compared to £7.6m at the end of the prior year. The improved cash position is directly related to the proﬁtability of the year with this positive cash generation being partially offset by repayment of a £2.4m VAT liability which was deferred from May 2020 as part of the Group's COVID support measures. 5 20 Annual Report & Accounts 2021 Annual Report & Accounts 2021 21 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. In 2021, the Group has incurred some non-recurring restructuring and operational costs. Further details are provided below in this Financial Review. Consequently, adjusted measures of underlying other operating expenses and underlying proﬁt / (loss) before taxation have been presented as the 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. Non-underlying items consist of non-recurring costs, share based payments and Commercial 22 Annual Report & Accounts 2021 Agreement amortisation. Non- recurring costs are excluded because they are not expected to repeat in future years. These costs are therefore not included in these alternative 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 these alternative performance measures as such changes would again potentially distort the evaluation of the Group's performance year to year. Finally, Commercial Agreement amortisation is also excluded from these alternative 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 2021 was £143.3m compared to £113.2m for 2020, representing an increase of 26.6% with the prior period comparative adversely impacted by the cessation of installation activity between late March and the end of May 2020. Revenue versus 2019 represents growth of 13.5% and this increase is more representative of the Group's improving revenue trajectory. Frames installed volume improved by 12.1% versus 2020 to 183,374 frames, which is 3.6% lower than 2019. The revenue improvement exceeds the volume performance for both comparative periods as a result of improvements in the following areas: Ÿ Ÿ Ÿ Ÿ The average frame price increased by 12.4% year on year to £791 (2020: £704, 2019: £678). The impact of necessary list price increases alongside the continued drive to reduce discount levels and optimise margins are the main components to this improvement. The growth in the average frame price was also despite a marginal adverse average price effect due to a lower mix of higher-priced composite guard doors of 7.3% versus 7.6% and 9.2% for 2020 and 2019 respectively. Alongside the favourable average frame price change, the results of the Group's project to reduce ﬁnance subsidy costs incurred as part of its consumer ﬁnance offering, which was launched in H2 2020, are now being almost fully realised this year. These reductions follow changes to our promotional ﬁnance portfolio in late 2020 which have generated a £1.9m beneﬁt versus 2020 and a £3.3m beneﬁt versus more comparable volumes and full year cost of 2019. Following a comprehensive re- tender process with both existing and potential new partners at the start of 2021, we expect ﬁnance subsidy costs to be a minimal net cost to the Group. At the same time, we Ÿ remain focussed on ensuring we have a market-leading set of payment options available to our customers. The average number of frames per order has also increased to 4.25 in the year, which represents an increase of 3.4% and 3.7% over 2020 and 2019 respectively. The Group has driven a higher order size which, alongside the average frame price growth described above, has resulted in an increase in the average order value versus 2020 of 16.1% to £4,032. Focus on improving metrics such as these has underpinned the improvements in the Group's gross margin. Gross proﬁt Gross proﬁt was £43.8m, growth of 53.7% over 2020 and 37.2% over 2019. The Group's gross margin percentage improved signiﬁcantly by 540bps to 30.5% versus 2020's 25.1%. This also represents a 527bps increase versus the 25.3% gross margin percentage of 2019. The combination of the installation volume increase alongside the average price and ﬁnance subsidy reductions described above were all contributors to the growth in gross proﬁt and the improvement in the Group's gross margin percentage. Further components behind the improving trends were as follows: Ÿ Ÿ The Group began the year with an order book that was 83% ahead of the prior year which proved important in protecting the Group from selling restrictions at the start of the year when a third national lockdown was required in response to the COVID pandemic. By the end of 2021, the order book had reduced by 8.4% versus the record closing position of 2020. The order book remains healthy with 2021's closing position still over a third higher than any other year excluding 2020. The year on year reduction in the record opening order book equates to a £0.4m gross margin beneﬁt in 2021. The third national lockdown in the UK restricted the Group's selling and marketing activities in January. Once the Group was able to restart activities in February 2021, the Group experienced a strong consumer response that was similar to that experienced in the second half of 2020. Lead generation activities were increased across all lead sources and costs per lead remained low compared to pre-pandemic levels. As lockdown restrictions lifted in late April and May, lead costs increased and have returned to levels similar to those in 2019. Alongside the lead generation cost context described above, the Group has continued to make strong progress on lead management, conversion optimisation and sales performance which has reduced cancellation rates and mitigated some of the inﬂationary pressures of lead generation. As a result of all these factors, the cost to order intake ratio for 2021 was 8.6% lower than in 2020. The improvement in gross proﬁt versus the prior period is also despite a £0.7m reclaim in 2020 under the CJRS scheme to contribute to the costs of the Group's furloughed factory employees during the 2020 lockdown. Although there has continued to be disruption caused by COVID-required isolations and illness across 2021, the return to higher / more normal levels of activity across the period has driven an improved utilisation of ﬁxed costs included within cost of sales. This has also contributed to the improvement in the Group's gross margin percentage. Ÿ Ÿ Ÿ Ÿ Underlying other operating expenses Underlying other operating expenses were £34.5m for the year, which represents an increase of £2.5m compared to both 2020 and 2019. 2020 comparatives are reduced by the receipt of a £1.1m furlough claim and thus 2019 is a more meaningful comparative to understand the operating cost base of the business. The key factors behind the increase versus 2019 are as follows: Ÿ Ÿ Ÿ The Group has invested in both its customer service resource levels and its installations capacity in the last 18 months. Since 2019, the Group has re- opened its Crawley depot and also opened new depots in Nottingham (prior to the end of 2020) and Milton Keynes (August 2021). In conjunction with this increased depot footprint, further resources have been added to manage operations. The Group has increased investment in additional IT licensing and infrastructure costs as it continues to rollout new technology. This includes further upgrades to network security and resilience alongside the implementation of Ofﬁce 365 and Microsoft Teams. The latter have facilitated the continuation of operations throughout the last two years within the context of the COVID pandemic which was necessitated by more people working remotely than prior to the pandemic. This investment has also helped to mitigate the impact of the cyber attack in January 2022. Finally, marketing spend increased by £0.3m versus 2019 which includes costs of brand consultancy, consumer insight research and other services incurred in advance of the Group's return to TV advertising in February 2022. Underlying proﬁt / (loss) before taxation Underlying proﬁt before taxation was £7.6m versus a loss in 2020 of £(4.8)m and a loss of £(1.5)m for 2019. This loss is before the non- underlying items described below. Annual Report & Accounts 2021 23 Ÿ Following a comprehensive re- selling and marketing activities its customer service resource Ÿ tender process with both existing and potential new partners at the start of 2021, we expect ﬁnance subsidy costs to be a minimal net cost to the Group. At the same time, we remain focussed on ensuring we have a market-leading set of payment options available to our customers. The average number of frames per order has also increased to 4.25 in the year, which represents an increase of 3.4% and 3.7% versus 2020 and 2019 respectively. The Group has alongside the average frame price growth described above, has resulted in an increase in the average order value versus 2020 of 16.1% to £4,032. Focus on improving metrics such as these has underpinned the improvements in the Group's gross margin. driven a higher order size which, Ÿ Gross proﬁt Gross proﬁt was £43.8m, growth of 53.7% versus 2020 and 37.2% versus 2019. The Group's gross margin percentage improved signiﬁcantly by 540bps to 30.5% versus 2020's 25.1%. This also represents a 527bps increase versus the 25.3% gross margin percentage of 2019. The combination of the installation volume increase alongside the average price and ﬁnance subsidy reductions described above were all contributors to the growth in gross proﬁt and the improvement in the Group's gross margin percentage. Ÿ Ÿ Ÿ activities were increased across (September 2021). In in January. Once the Group was able to restart activities in February 2021, the Group experienced a strong consumer response that was similar to that experienced in the second half of 2020. Lead generation all lead sources and costs per lead remained low compared to pre-pandemic levels. As lockdown restrictions lifted in late April and May, lead costs increased and have returned to levels similar to those in 2019. Ÿ Alongside the lead generation cost context described above, the Group has continued to make strong progress on lead management, conversion optimisation and sales performance which has reduced cancellation rates and mitigated some of the generation. As a result of all these factors, the cost to order intake ratio for 2021 was 8.6% lower than in 2020. versus the prior period is also despite a £0.7m reclaim in 2020 under the CJRS scheme to contribute to the costs of the Group's furloughed factory employees during the 2020 lockdown. levels and its installations capacity in the last 18 months. Since 2019, the Group has re- opened its Crawley depot and also opened new depots in Nottingham (prior to the end of 2020) and Milton Keynes conjunction with this increased depot footprint, further resources have been added to manage operations. The Group has increased investment in additional IT licensing and infrastructure costs as it continues to rollout new technology. This includes further upgrades to network security and resilience alongside the implementation of Ofﬁce 365 and Microsoft Teams. The latter have facilitated the continuation of operations throughout the last two years within the context of necessitated by more people working remotely than prior to the pandemic. This investment has also helped to mitigate the impact of the cyber attack in January 2022. Ÿ Finally, marketing spend which includes costs of brand consultancy, consumer insight research and other services incurred in advance of the Group's return to TV advertising in February 2022. The improvement in gross proﬁt increased by £0.3m versus 2019 inﬂationary pressures of lead the COVID pandemic which was Although there has continued operating expenses compared to to be disruption caused by 2020 is a similar quantum to the COVID-required isolations and variance versus 2019 and is driven by The increase in underlying other The further components behind the illness across 2021, the return to the new depot openings and improving trends were as follows: higher / more normal levels of ongoing investment in IT and Ÿ The Group began the year with an order book that was 83% ahead of the prior year which activity across the period has customer service resource. The driven an improved utilisation increase of £2.5m is, in reality, less on of ﬁxed costs included within a like for like basis because 2020 cost of sales. This has also expenses were reduced as a result of proved important in protecting contributed to the improvement the business activity being curtailed the Group from selling in the Group's gross margin for over 2 months in full lockdown restrictions at the start of the percentage. year when a third national lockdown was required in response to the COVID pandemic. By the end of 2021, Underlying other operating expenses between late March and May 2020. Furthermore, 2020 included £1.1m received for the Group's CJRS reclaim for furloughed staff costs which further reduced operating the order book had reduced by Underlying other operating expenses expenses in 2020. 8.4% versus the record closing were £34.5m for the year, which position of 2020. The order book remains healthy with represents an increase of £2.5m Underlying proﬁt / (loss) before versus both 2020 and 2019. 2020 taxation 2021's closing position still over comparatives are impacted by the a third higher than any other receipt of a £1.1m furlough claim and Underlying proﬁt before taxation was year excluding 2020. The year thus 2019 is a more meaningful £7.6m versus a loss in 2020 of on year reduction in the record comparative to understand the £(4.8)m and a loss of £(1.5)m for opening order book equates to operating cost base of the business. 2019. This loss is before the non- a £0.4m gross margin beneﬁt in The key factors behind the increase underlying items described below. 2021. Ÿ The third national lockdown in the UK restricted the Group's versus 2019 are as follows: Ÿ The Group has invested in both Safestyle UK plc Strategic Report Governance Financials Financial Review The holiday pay release represents a release for part of an accrual made at the end of 2020 which arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement into future holiday years in line with the legislation. This increased the level of deferred holiday entitlement of our people at the end of 2020 which was recognised as an accrual in 2020 and will reverse in full by 2023. This item was excluded from the Group's underlying performance measures to ensure performance of the business is not skewed by both the expense in 2020, or its subsequent use in 2021/22. The Group incurred £0.3m (2020: £0.3m, 2019: £1.1m) of restructuring and non-recurring operational costs which reduced the Group's overheads in some areas. In addition, non-recurring costs of £0.1m were incurred linked to the issuance of the Restricted Share Award in June 2021 (see note 32). As reported in the last three years, the Commercial Agreement 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. 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 ﬁve years which matches the term of the non- compete arrangement. Share based payment charges predominantly increased versus 2020 due to charges in relation to the Restricted Share Award granted in October 2020 that vested in June 2021. This builds on signiﬁcant investment in proﬁle stock in 2020 which was also to underpin continuity of supply; this stock remains in place. Furthermore, the overall net cash inﬂow from operating activities is also after the Group has repaid £2.4m of VAT that was deferred in 2020 as part of the Group's COVID support measures. The ﬁnal payment of £0.1m was made in January 2022. Capital expenditure increased to £1.2m versus £0.6m in 2020 with the prior year representing a reduced level of activity similar to operating expenses. The majority of the capital expenditure in the year was in relation to ongoing investment in the Group's IT infrastructure and systems. Dividends The Board does not propose a ﬁnal dividend (2020: £nil). As reported in the Chairman's statement, based on current performance expectations, the Group will generate further net cash by the end of 2022. The Board's capital allocation policy is to ﬁrstly utilise surplus cash to fund forthcoming strategic initiatives. If all current initiatives are funded as required and surplus cash remains, the Board signals its intent to return to the dividend list in the relatively near future. Rob Neale Chief Financial Ofﬁcer 20 April 2022 The items classiﬁed as non-recurring costs in the Consolidated Income Statement, the share based payment charges 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 proﬁt / (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 3.5p for the year compared to a loss of (4.3)p for 2020. Diluted earnings per share were 3.4p (2020: loss of (4.3)p, 2019 loss of (4.0)p). The basis for these calculations is detailed in note 9. Net cash and cashﬂow As reported previously, the actions taken last year to protect liquidity and maintain the Group's borrowing facility ensured that it could invest quickly to facilitate a strong restart to trading following cessation of business activity for the ﬁrst lockdown in 2020. The Group continued to increase its net cash last year, closing at £12.1m versus £7.6m at the end of 2020. £4.5m of the Group's £7.5m facility, being that of the term loan, remains 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 £9.6m (2020: £3.4m). The inﬂow for the period reﬂects the strength of the Group's operating model with trading results correlating positively with cashﬂow generation. Partially offsetting the impact of this positive proﬁt to cash conversion was further working capital investment of £0.7m in the Group's raw material inventories last year to protect ‘on time in full’ fulﬁlment from short-term supply chain disruption. Non-underlying items A total of £1.7m has been separately treated as non-underlying items for the year (2020: £1.4m, 2019: £2.3m). The current year's total consists of £0.5m of non-recurring costs (2020: £0.5m, 2019: £1.9m), a £0.7m share based payment charge (2020: £0.4m, 2019: £0.0m) and £0.5m (2020 and 2019: £0.5m) of Commercial Agreement (Intangible Asset) amortisation. The table below shows the full breakdown of these items: Non-underlying items Holiday accrual RSA related costs Litigation costs Restructuring and operational costs Modiﬁcation of right-of-use assets and liabilities Impairment of right-of-use assets Reversal of prior year impairment of right-of-use assets IT project Impairment Commercial Agreement service fee Total non-recurring costs (note 7) Commercial Agreement amortisation (note 14) Equity-settled share based payment charges (note 32) 2021 £000 (79) 147 90 300 (83) 122 - 14 - 511 452 687 2020 £000 470 - 74 266 5 - (292) - - 523 452 424 2019 £000 - - - 1,058 - 692 - 113 (13) 1,850 452 12 Total non-underlying items 1,650 1,399 2,314 24 Annual Report & Accounts 2021 Annual Report & Accounts 2021 25 Proudly transforming homes since 1992 The window & door specialists Strategic Highlights 28 30 34 36 Delivering proﬁtable growth Embedding sustainability Technical training academy Safestyle people Safestyle UK plc Strategic Report Governance Financials Safestyle UK plc Strategic Report Governance Financials Delivering proﬁtable growth Delivering proﬁtable growth We have modernised our brand logo and have a refreshed brand communications campaign. Partnering with the goal-keeping legend David Seaman, MBE, just seemed like the perfect ﬁt. Known as ‘safe hands’ for making great saves, Safestyle are well known for saving our customers money and for being the safe choice. Rationale of logo evolution This is the result of extensive research and development to move towards a more modern, fresh feel. Whilst there are many similarities, which is important, the new evolved version creates a more recognisable and legible brand identity. Let’s take a look below at the changes and why... The UK’s No.1 Original logo New evolved logo The original Safestyle logo has been in use since the company was established in 1992 and helped the business to create a strong, memorable brand identity. This is why we didn't want a complete new direction, instead more of an evolved brand logo. Retaining recognisable aspects whilst modernising and making the logo cleaner and more legible. The red has been brightened to feel more fresh and contemporary. This will make it stand out from the crowd and will work stronger on print & digital artwork executions. We have also introduced a space between the words ‘safe’ and ‘style’ to create a clearer and easier to read brand name. The handwritten style font has been slightly updated to make it more legible and in a more contemporary feel. The rectangular shape remains the same, representing stability, trust and reliability. Keeping the frame is also a nice nod towards our product. The ‘UK’ has also been removed from the new logo. Safestyle tone of voice Simple The Safestyle brand speaks in a way that’s simple, direct, reassuring and reiterative. Simple because we don’t just help people save money. We save them time and hassle too. Direct because we want to jolt people into action. We do that with urgency and clarity. Reassuring because we’re a safe pair of hands. The way we speak should build trust. Finally, reiterative because sometimes repetition can help to land our key messages. Brand toolkit As part of our evolving visual identity we have created a brand toolkit. This toolkit looks at a whole range of brand aspects; how we use our logo, the application of colour, the fonts we use and how we integrate our new media campaign front man David Seaman. It’s also not just about the visuals, it’s how we talk to our customers, the phrases and messaging we use and our overall tone of voice. Direct Reassuring Reiterative We have modernised our brand logo and have a refreshed brand communications campaign. Partnering with the goal keeping legend David Seaman, MBE, just seemed like the perfect ﬁt. Known as ‘safe hands’ for making great saves, Safestyle are well known for saving our customers money and for being the safe choice. Rationale of logo evolution This is the result of extensive research and development to move towards a more modern, fresh feel. Whilst there are many similarities, which is important, the new evolved version creates a more recognisable and legible brand identity. Original logo Brand toolkit As part of our evolving visual identity we have created a brand toolkit. This toolkit looks at a whole range of brand aspects; how we use our logo, the application of colour, the fonts we use and how we integrate our new media campaign front man David Seaman. It’s also not just about the visuals, it’s how we talk to our customers, the phrases and messaging we use and our overall tone of voice. New evolved logo The UK’s No.1 Simple Direct Reassuring Reiterative You’re in safe hands with Safestyle It’s an exciting time at Safestyle. Not only have we evolved our brand and visual identity, we have also launched a brand new media campaign fronted by our newly appointed brand ambassador, the one and only David Seaman, MBE. As the UK’s number one, we wanted to partner with someone who is also known for being the best in their ﬁeld. The synergy between David and Safestyle makes this a winning team, both are synonymous for great saves and for being a safe pair of hands. David’s successful career has spanned more than two decades. Best-known for being Arsenal’s and England’s number one goal keeper and possibly one of the best of all time. Following retirement, his on-screen presence and likeable personality made him a popular choice for podcasts, chat shows and various TV appearances including the high proﬁle ‘Dancing on Ice’. The ﬁrst advert was ﬁlmed in our own Nottingham Depot where David is announced as our new hire, explaining to the world why he is such a great ﬁt and why he joined the UK’s No.1 for windows & doors. David is an absolute professional and here’s a few behind the scenes photos of him nailing all his lines ﬁrst time, well almost... 28 Annual Report & Accounts 2021 Annual Report & Accounts 2021 29 28 Annual Report & Accounts 2021 Annual Report & Accounts 2021 29 Safestyle UK plc Strategic Report Governance Financials Embedding sustainability We are committed to recycling as much waste as possible. We've reﬁned our recycling programmes to the point where we can recycle 95% of the waste we remove from a house, reducing landﬁll to an absolute minimum. 01 02 03 04 05 06 Out with the old, in with the new It’s the big day. Our team of expert ﬁtters install a beautiful new set of energy efﬁcient windows made to the happy customers exact requirements and speciﬁcations. The old windows are taken away After the installation and clean up is completed, all the old windows (and any other waste) are loaded onto the van and brought back to the installation depot ready for the next step. Sort and separate materials Once the waste arrives back at the depot, we sort and separate all the different materials ready to be transported to our factory based in the heart of Yorkshire. Materials are expertly recycled All the sorted and separated materials arrive back at our dedicated recycling centre. Whatever we can't use ourselves, we pass on to expert recyclers who can. New energy efﬁcient glass is made Old glass, (called 'cullet') is crushed ready to be recycled. Every month 80 tonnes of clean glass cullet was re-used and made into brand new, energy saving glass for our ‘A’ rated windows. New bespoke windows are born Highly-skilled craftsmen combined with state- of-the-art machinery precisely manufacture new windows to the customer’s exact order requirements. 11,916 tonnes in total of post consumer waste recycled in 2021 What we can’t reuse we send to a recycler who can... Last year we recycled vast amounts of various materials. Anything we couldn't use like post consumer plastic was sent off to be recycled into drainpipes and plastic decking. Huge amounts of wood is reused for Biomass heating fuels and metal waste gets melted down and is reused in various forms. 3,739 tonnes of general waste 3,717 tonnes of glass 2,401 tonnes of post consumer PVC 1,075 tonnes of wood 553 tonnes of rubble 302 tonnes of virgin PVC 73 tonnes of metal 56 tonnes of card Our lorries come back full We certainly pack it in Rather than drive our lorries back to the depot empty, we converted them all to carry waste materials. This means they now have an important job to do, saving 200,000 miles of fuel per year when they would have been empty. We 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 out 3 lorries per day - saving 250,000 miles in transport each year. 30 Annual Report & Accounts 2021 Annual Report & Accounts 2021 31 Safestyle UK plc Strategic Report Governance Financials Embedding sustainability 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... We care about our planet and strive to lead the way in our industry in looking after it. Cool Temper furnace process The individual panes of glass are loaded onto the in-feed bed of the Cool Temper furnace. The glass is then taken into the furnace on rollers ready for the transformation. Super heating the glass to approximately 700°C before being rapidly cooled. The toughened glass is now ready for the next stage of its manufacturing process. Energy saving project After toughening, a fragmentation test is performed. We smash the glass and count the fragments within a small area. To pass the 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 test with ﬂying colours. This project has resulted in huge amounts of energy being saved at our manufacturing facility, the equivalent of around 150 homes per year! Before 140 fragments After 80 fragments Electric charging points As more of our vehicle ﬂeet become hybrid and full electric we have installed various charging points at our factory. Designated cycle parking To encourage local workers to use leg power rather than petrol power, we have installed a designated cycle parking area. 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. 32 Annual Report & Accounts 2021 Annual Report & Accounts 2021 33 Safestyle UK plc Strategic Report Governance Financials Investing in our future Safestyle Technical Training Academy Brand new, market-leading facility In November 2021, we were proud to launch our brand new, market-leading technical training facility, The Safestyle Academy, based at the headquarters of our Operations Division at Wombwell. This long-planned strategic initiative represents a £1m investment in developing a pipeline of professionally trained installers, surveyors and service engineers to support our growth ambitions for the future. The Academy will also provide continuing professional development for those already qualiﬁed. Our ﬁrst program was the 'Fast-Track Programme' for Installers which takes new entrants through an intensive 12 month mix of classroom and on the job training, delivering fully qualiﬁed ﬁtters who can then take on the role within Safestyle. We were delighted that we received more than 300 applications for the 30 places available and all applicants were subject to a rigorous selection process that emphasised practical skills and attitude. Our ﬁrst cohort of this leading programme are progressing well and looking forward to 'graduating' later in 2022. We’ll be putting 30 trainees though our very own Safestyle training academy every year... In addition, the Academy is now providing support to our existing Youth Programme, which is a formal apprenticeship scheme, and also to our Continuous Improvement Programme. In 2022, we plan to widen the scope of the Academy to offer similar opportunities for existing and aspirant surveyors and service engineers. This investment is based on a clear strategic intent to provide the best customer experience and raise standards across the industry. Over time we are conﬁdent that the Safestyle Academy will be recognised as the leading centre in the UK for developing the best installers, service engineers and surveyors. Skills Knowledge Coaching Teaching Development Learning Experience 34 Annual Report & Accounts 2021 Annual Report & Accounts 2021 35 Safestyle UK plc Strategic Report Governance Financials Safestyle people 2021 people review 2021 was far from the normal year that we had hoped for following the extraordinary events of 2020. Returning from the Christmas break we were immediately faced with the third national lockdown that prevented our canvass force from working and restricted our sales activities. This pattern of disruption continued throughout the year with localised restrictions, increased infection rates and associated isolation requirements impacting every area of operations and deferring the keenly-awaited return to ofﬁce working. Developing our people Developing our people is a strategic enabler to the delivery of our business goals. During 2021 we made signiﬁcant progress through a range of strategic initiatives: Ÿ We invested in establishing dedicated training roles for the ﬁrst time in operations, customer services, sales and canvass. We launched a Youth Programme apprenticeship scheme for window installers. We designed and built our Operations Training Academy, launching our Adult Fast-Track installer training programme in November 2021. Ÿ Ÿ 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. HR and Marketing teams collaborating to ensure that our brand values and consumer insight work is translated into an engaging internal communication programme. This will be further developed into our external employer brand to promote Safestyle as an attractive employment proposition, linking to our new TV advert and our brand ambassador, David Seaman with the strapline 'your career is in safe hands with Safestyle'. Compliance Labour market challenges Our focus on compliance training continued to be strong in 2021 with priority given to health and safety, GDPR, COVID, Equality, Diversity and Inclusion (EDI), cyber security and policy awareness. We further developed the use of our e-learning platform and saw an increase in employee and contractor engagement in the tools available to them for learning. In total, 16,000 modules were completed by our staff and agents in the 12 months – double that completed in 2020. A combination of COVID disruption, demographics and existing skill shortages presented a challenging labour market for many specialist roles during 2021. This spurred us to modernise our recruitment and retention processes, with a particular focus on self-employed contractors which in turn allowed us to increase our headcount despite the headwinds. Ÿ Ÿ Ÿ Ÿ We introduced a Master Installer scheme that recognises and rewards those installers with exemplary safety and quality records. We fundamentally redesigned our sales branch management roles and then recruited almost 100 staff into these roles. This important change was driven by our strategy to level up performance across the UK. Having made great progress over the previous 18 months, the next step required investment in training and continuous development of the management team to ensure that they and their teams can excel, enabling us to take the best of what we do and make it scalable and sustainable. We delivered 'LEAP', our Leadership Accreditation Programme to our area sales managers, assistant managers, and to some of our identiﬁed high performers in our Commercial Team. We launched our Manufacturing Cell Leader Training Programme which includes modules to develop skills in working with people, managing self and others, providing direction, managing change, utilising resources, and achieving results. Developing our culture We are committed to developing a culture that puts our customers at the heart of everything we do. In 2021, we appointed Richard Stoate to the new role of Customer Services Director to lead the delivery of improved service levels and communication. This was supported by new support roles and additional customer service agents. We redesigned the onboarding process for our call handlers and introduced a dedicated trainer and a new performance related pay system. Outside of the customer services department, we have introduced the Net Promoter Score system, backed by new incentives in our installations network to drive customer focussed behaviour. Communication The return from lockdown and even to a partial lifting of remote working enabled us to physically reconnect with our people through more face- to-face brieﬁngs, Depot Roadshows, and a celebratory Sales Conference in October. We supported this interaction with our TEAM and Next Instalment magazines as well as with video updates from the Executive Team. In 2022, we will be delivering our new communication strategy, with our 36 Annual Report & Accounts 2021 Annual Report & Accounts 2021 37 Safestyle UK plc Strategic Report Governance Financials Safestyle people Diversity and inclusion We are committed to ensuring that we provide a level platform for people to access opportunities, to increase our diversity, and to ensure that we encourage inclusivity. Working to improve the gender balance in our organisation, we have improved our support for those on maternity leave with an enhanced pay policy, and we have expanded our already successful Women in Commercial initiative to a Women in Safestyle forum. Since 2017, we have signiﬁcantly reduced our gender pay gap, we are succeeding in encouraging women into historically male dominated areas of the business, although there is much more work to do in this area. We are also keen to support our people to develop their understanding of different cultures; we have developed an information programme to encourage people to ask questions and share information. A current example is our Ramadan communication programme designed to increase knowledge, and awareness during the Holy Month of Ramadan which is observed by many of our colleagues. The programme concludes with an invitation for colleagues to celebrate the breaking of the fast together on 27th April – an event that this year will be even better as it will not be impacted by the need to maintain social distance. Looking forwards Despite 2021 being another volatile year both personally and professionally, Safestyle staff and agents continued to give their best and show their resilience, determination, energy, and drive. The business and its people achieved great things in the face of adversity, setting us up for a successful 2022. 38 Annual Report & Accounts 2021 Annual Report & Accounts 2021 39 89% of customers would highly recommend us Figures from Review Centre, February 2022 Risk Management 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 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. The Group has a Compliance Committee which was chaired by Julia Porter, Non-Executive Director throughout 2021 and which will be chaired by Rob Neale, Chief Financial Ofﬁcer, in 2022. 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. 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 has been providing additional independent assurance on key processes and controls during 2021. This programme will continue in 2022. Ÿ Ÿ 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 also meets on a monthly basis to ensure 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 2021, there were 43k installations, of which approximately 50% involve working at height. These operations require on-going management of health and safety risks in order to ensure a safe working environment for our employees and others we engage with. A failure to manage these risks may give rise to signiﬁcant potential liabilities or result in serious injury to employees or agents. The Group has continued its priority of managing its safety performance for its employees and stakeholders, using a proactive strategy of focusing on key control measures in the activities conducted to ensure mitigation of risk. Although the Group has an expansive approach, emphasis is of course given to the key risk areas involving working at height and glass handling. The approach is aligned across all areas of the Group with a structure that supports positive engagement from suppliers to end customers. The Group engages with its suppliers, emphasising those providing working at height equipment, to ensure that standardised solutions are delivered to meet operational needs for the activities that are required to work safely. The Group has commissioned bespoke Working at Height ('WAH') training modules from Tetra, a leading WAH supplier. This is physical competency training activity for all the Group's ladder users whether they are direct employees or contractor stakeholders. 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. The resource levels of this team have risen which has enabled an increase in the monitoring and audit of on-site activities. This ensures continual improvement 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 to processes. During 2021, the Group also maintained its accreditations for Occupational Health and Safety Management ISO 45001. Finally, numerous speciﬁc 'COVID-safe' measures were implemented or continued to be maintained as part of the Group's response to the Coronavirus pandemic. These are detailed separately in the Coronavirus risk section. 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 and 2021 as a result of the UK lockdowns created additional challenges to the maintenance of acceptable customer service levels. The Group recognises the importance of providing excellent customer service and continues to invest in improving its systems and processes in this regard. A Director of Customer Services was appointed in H1 2021 and investment has increased in both people and systems. The Group continues to work closely with West Yorkshire Trading Standards and the volume of complaints originating from this source have signiﬁcantly reduced over the last 18 months. The Group continues to make enhancements to its customer complaints handling process, with overall speed of complaint resolution improving during 2021. Our outstanding complaint volumes were at their lowest ever levels by the end of the year despite the operational challenges faced. Should the Group's reputation fall, future performance could be adversely impacted. At the end of 2021, our warranty service backlogs were also at their lowest level for four years, meaning customers can be offered a much-improved timescale for appointments under their 10-year warranty service. The Group has targeted further additional business improvement projects for the coming year to further enhance the overall customer experience. Finally, 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. 42 Annual Report & Accounts 2021 Annual Report & Accounts 2021 43 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 has returned to TV advertising at the start of 2022; a return after a four year gap in running above the line activity. The new campaign features David Seaman, MBE, the ex-England Goalkeeper and proud Yorkshireman as our brand ambassador. This investment is designed to raise our brand awareness nationally, ensure we keep ahead of our competitors who have limited visibility in this space and to continue to promote our 'brand value' messaging. Our existing relationship with Journey Further continues to develop with the emergence of new digital opportunities. The introduction of two new agencies – Running Total (TV planning & buying) and IMA Home (brand) – means that we have expanded our access to expertise that helps us to develop our brand further. These partnerships mean it continues to be difﬁcult 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. IT system dependency and cyber security The Group is reliant on a number of key IT systems and processes. A failure in the Group's IT systems or a cyber attack could result in a loss of information, cause signiﬁcant disruption and lead to a material ﬁnancial loss. This risk has been clearly highlighted and realised in January 2022 when the Group was the victim of a highly sophisticated cyber attack that emanated from Russia. During the last three years, the Group has invested signiﬁcantly in its IT systems and people, with security, compliance and capacity planning at the forefront of its plans. Investment has been made into new Anti-Virus, Web Filtering and Firewall technologies and the Group has retired systems such as its on-site email servers to make way for the introduction of Ofﬁce365 and associated Advanced Threat Protection. The Group has also segregated parts of its internal networks to protect key parts of the infrastructure and invested in the building of a new, modern server infrastructure at its Head Ofﬁce. This is part of a programme that will retire old servers by the middle of 2022 which will signiﬁcantly improve capacity and resilience. The Group is developing further plans for upgrades to its key internal systems and applications and expects this to include further migration of core systems to cloud-hosted software services. Finally, the Group has also focused on training and education of its system users to raise awareness of the methods adopted by cyber criminals to cause disruption and ﬁnancial harm to a business. 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 focused 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. The Compliance Committee regularly reviews the activity of the business with regard to matters such as data subject rights requests and responsiveness thereto, training statistics and data incident monitoring. The development of our privacy programme continues and a data governance platform has recently been invested in to make further progress. Data compliance audits are undertaken by the data compliance ofﬁcer, risks and opportunities being identiﬁed and mitigating actions implemented as appropriate. The Group maintains strong working relationships with key suppliers through regular review meetings and open communication channels. A risk register that includes all large 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 monitored against agreed standards. Speciﬁcally in response to the potential risk of failure by the supplier of PVCu to the Group, signiﬁcant buffer stocks were built during 2020 to mitigate the potential impact of this key risk. These stocks remain in place. This is further supplemented by enhanced monitoring of the ﬁnancial performance of the supplier. Furthermore, additional stocks of other materials that are critical to maintaining operational performance were acquired in the second half of 2021 as further mitigation to any short-term supply chain disruption. 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. 44 Annual Report & Accounts 2021 Annual Report & Accounts 2021 45 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. Alongside this, the group has strong relationships with the machinery Original Equipment Manufacturers ('OEMs') and a network of local subject matter experts. For the critical machines identiﬁed, there is either a critical spare 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 of factory machine downtime. 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 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 Chief Financial Ofﬁcer which looks forward three months. This forecast identiﬁes any emerging liquidity challenges in order that they can be managed proactively. The Group has in place a committed £7.5m banking facility which is in place until October 2023. This facility was renewed in 2020 and as part of this renewal, covenant thresholds were lowered which has, alongside the Group’s improved ﬁnancial performance, resulted in increased headroom. Regular forecasts and assessments of the Group's compliance with these covenants 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 platform for delivering sustainable returns to its shareholders. Self-employed status The Group has had two status audits performed by professional taxation ﬁrms which concluded that the status being applied was appropriate. 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 ﬁve years, although there has been no contact from HMRC since January 2020. However, there remains a risk if HMRC determine that the incorrect employment status has been applied for some or all its agents that the Group could be required to pay employment taxes not collected on this basis. 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. 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 self-employed staff 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 Group has also reduced the number of self- employed roles within some areas of its business. The Board and the Group continues to monitor the risk of Coronavirus and has in place a number of processes and policies to protect its customers, staff and the business which include: Ÿ Monitoring of COVID infection levels across all sites to highlight any concerns. 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. Although some of these are not currently being utilised, they remain available as a response to any changes if required. Investment in home-working capability such as laptops and communications. The majority of the Group's people are now working as they were before the ﬁrst lockdown in H1 2020. However, these investments do enable greater ﬂexibility should the need to change arise. Ÿ Ÿ Development of department and site by site plans to respond to any disruption caused to maintain business as usual wherever possible. Ÿ Various ﬁnancial models are maintained which measure sensitivities of the Group's balance sheet and liquidity to changes in revenue streams. Some of these changes would be similar to a return to various COVID-related restrictions. This proactive approach enables the Group to quickly identify emerging risks to liquidity. 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. Since this lockdown, there have been ongoing restrictions, some of which impacted the Group's ability to operate normally. The rollout of the vaccine programme in 2021 in the UK has resulted in a steady lifting of restrictions to businesses and, as of April 2022, the UK is no longer under any COVID-related restrictions. There remains a risk that should infection rates and related hospitalisations increase that the UK government would possibly have to consider new restrictions that could impact business operations. 46 Annual Report & Accounts 2021 Annual Report & Accounts 2021 47 We are the UK’s No.1 for windows and doors High quality, energy saving products Governance 50 52 54 62 67 Board of Directors Audit Committee Report Directors’ Remuneration Report Directors’ Report Independent Auditor’s Report Safestyle UK plc Strategic Report Governance Financials Board of Directors Alan Lovell Non-Executive Chairman Alan joined the board as Non-Executive Chairman on 16 July 2018. He has held numerous listed company directorships, both executive and, more recently, non-executive. Alan has been 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. In the not-for-proﬁt world, Alan is Chair of 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. 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. Rob Neale Chief Financial Ofﬁcer Rob joined the board as Chief Financial Ofﬁcer on 16 July 2018. He was previously Head of Leisure Travel Finance at AIM-listed Jet2 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, the multinational technology company, 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 Goldsmith Non-Executive Director Fiona joined the Safestyle Board in September 2018 and she is Senior Independent Director and Chair of the Audit Committee. She is also Senior Independent 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). 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 Porter Non-Executive Director Julia joined the Safestyle Board in November 2018 and she is Chair of the Remuneration Committee. Julia is an experienced CMO, advisor, mentor and board director. Her non-executive career includes board member of Freeview (UK's largest free to air digital TV platform) and Origin Housing as well as Chair of DMA (Data and Marketing Association). 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 marketing and leadership roles at Guardian News & Media, Getty Images and ITV. She also holds an MBA from London Business School. 50 Annual Report & Accounts 2021 Annual Report & Accounts 2021 51 Alan Lovell Mike Gallacher Rob Neale Fiona Goldsmith Julia Porter Alan Lovell and Conder Group plc. Prior to First Milk, Mike held a number Non-Executive Chairman In the not-for-proﬁt world, Alan is of senior roles at Mars Inc. including Chair of the Governors of the UK Managing Director for Mars Alan joined the board as Non- University of Winchester, Chair of the Petcare and various business Executive Chairman on 16 July 2018. Mary Rose Trust and the Hampshire leadership roles for Mars in Asia. His 8 He has held numerous listed company directorships, both executive and, more recently, non- Cultural Trust and a Trustee of Winchester Cathedral Trust. executive. Alan has been Chairman Mike Gallacher of Interserve Group Limited since July Chief Executive Ofﬁcer 2019 and Senior Independent Director 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 the $30 billion NYSE-listed Stanley Securities Group plc. 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 Goldsmith Non-Executive Director Rob Neale Chief Financial Ofﬁcer Julia Porter Non-Executive Director Rob joined the board as Chief Fiona joined the Safestyle Board in Julia joined the Safestyle Board in Financial Ofﬁcer on 16 July 2018. He September 2018 and she is Senior November 2018 and she is Chair of the at SIG plc since July 2018. He was Mike joined the Board as Chief career on building growth businesses, was previously Head of Leisure Travel Independent Director and Chair of the Remuneration Committee. Julia is an National Chairman of the Consumer Executive Ofﬁcer on 1 May 2018 and establishing brands, managing lean Finance at Jet2.com and Jet2 Audit Committee. She is also a Non- experienced marketing leader, Council for Water from 2015 to 2019 has over 20 years' commercial and manufacturing, leading effective Holidays, a division of AIM-listed Dart Executive Director, Audit Chair and advisor, mentor and board director. and a Non-Executive Council Member operational experience of building management teams and delivering Group plc where he worked since Employee Representative at the listed Her non-executive career includes of Lloyd's of London from 2007 to 2016. and managing businesses in the UK ﬁnancial results. and internationally. He brings Alan has a huge breadth of signiﬁcant expertise in operational Prior to Mars, he was a British Army 2013. As Head of Leisure Travel Finance, Rob was responsible for providing all aspects of ﬁnance housebuilder MJ Gleeson plc. She Chair of DMA (Direct Marketing was previously Chair of the Audit Association) and board member of Committee at Walker Greenbank plc Origin Housing and Freeview (UK's experience, including both strategic strategy, business development and Ofﬁcer for eight years, serving as a support to both the commercial and (2008 to 2018). largest free to air digital TV platform). performance improvement. Mike was Bomb Disposal operator in the UK and operational areas of the Leisure Travel undergoing turnaround or business the UK major dairy company owned most recently CEO of First Milk Limited, overseas. and complex situations, with a particular focus on companies improvement initiatives. by British family farms, where he developed and implemented a major In his executive career, Alan was Chief transformation that resulted in a £30 Executive Ofﬁcer of six companies, million improvement in business including two in the waste-to-energy proﬁtability in 24 months. sector and three in the construction sector, Jarvis plc, Costain Group plc business that operates under the Fiona is a Chartered Accountant who Julia's consulting roles include brands of Jet2.com and Jet2holidays. started her career with KPMG, where strategic advice for business startups for nine years she focused on the as well as marketing and CRM/data Rob's early career included roles at retail and leisure sectors in various strategy consulting and accessible Dyson Limited as well as Commercial roles, she then moved to First Choice practitioner led GDPR advice. Her Finance Director for Europe, Africa and Holidays plc, where she became executive experience includes stints ANZ for ghd, a designer, manufacturer European Finance Director. Prior to at Guardian News & Media, Getty and supplier of professional hair embarking on a portfolio career, Fiona Images, ITV and IPC Magazines. She styling products. He also served as was CFO of Land Securities Trillium, also holds an MBA from London Finance Director for Stanley UK, part of the outsourcing division of Land Business School. 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 maintains oversight of the external auditor. During the ﬁrst quarter, the business continued to be impacted by national lockdowns so the Committee continued to focus on the impact on the business in terms of ﬁnancial performance, 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 April 2022 when these ﬁnancial statements were approved. Principal duties The principal duties of the Committee are to: Ÿ Oversee the integrity of the Group's ﬁnancial statements and public announcements relating to ﬁnancial performance; Ÿ Review and challenge the critical management judgments and estimates which underpin the ﬁnancial statements; Ÿ Advise on the clarity of disclosure and information contained in the Annual Report and Accounts; Ÿ Assist the Board in conﬁrming that, taken as a whole, Ÿ the Annual Report is fair, balanced and understandable; Ensure compliance with applicable accounting standards and review the consistency of methodology applied; Ÿ Review the adequacy and effectiveness of the internal control and risk management systems; Ÿ Oversee the relationship with the external auditor, reviewing performance and advising the board on their appointment and remuneration; Ÿ Monitor the effectiveness of the Group's whistleblowing process, including awareness within the business, types of issues raised and how matters are investigated. 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 50. The Board is satisﬁed that the Committee Chair has recent and relevant ﬁnancial experience. The Board has adopted the Quoted Companies Alliance (’QCA ) Corporate Governance code (2018) as its Governance framework. ’ ’ Further details of how the Group applies each principle of 52 Annual Report & Accounts 2021 the QCA code, including the relevant Board Committees, can be found on the Group’s website at www.safestyleukplc.co.uk/investor-relations/corporate- governance. 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 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 and the Board also receives regular updates from the Compliance Committee. The Committee supports the Board in carrying out its responsibilities in relation to ﬁnancial reporting, risk management and assessing internal controls. During the year, the internal auditor reviewed payroll and customer feedback processes, performed several audits in our installation depots and ensured appropriate controls were in place for the transfer of raw material buffer stocks to a new warehouse location. A number of internal audits are currently underway across procurement, IT and payroll commissions. The Committee also manages the relationship with the external auditor. The Committee undertook the following activities during the year: Financial reporting 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). The methods used to account for signiﬁcant transactions are appropriate. The ﬁnancial statements give a true and fair view and the disclosures made are balanced and understandable. Ÿ Ÿ Ÿ Appropriate estimates and judgements have been used, considering the views of the external auditor. The appropriate accounting standards have been applied. Ÿ External audit During the year, the Committee reviewed the independence and objectivity of the external auditor, which was conﬁrmed in their independence letter containing information on procedures providing safeguards established by the external auditor. Relations with the external auditors are managed through a series of meetings and regular discussions and the Committee ensures a high-quality audit by challenging the key areas of the external auditor's work. 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 UK LLP provided non-audit services for the review of the interim ﬁnancial statements for which the fee was £3k. Taxation compliance work was 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 risk appetite. The Risk Management section on pages 42 to 47 sets out the key risks that the business may face and how it mitigates them. The Executive Team 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. One of the key risks included in the risk matrix is cyber security. During 2021, the Group took further steps towards achieving ‘Cyber Essentials’. As part of a wider plan to retire all old servers by the middle of 2022, the Group also segregated parts of the infrastructure and invested in the building of a new modern server room at Head Ofﬁce. Unfortunately, the Group was hit by a Cyber attack, emanating from Russia, at the end of January 2022. Business continuity actions helped mitigate the impact although it caused a level of operational disruption. The systems have now been recovered and the Group plans to accelerate its existing IT modernisation programme. The Compliance Committee is made up of managers from across the business and during the year was chaired by an independent director. This Committee meets monthly and is focussed on managing data compliance and other regulatory risks. 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. The Board and management meet regularly to monitor the performance of the business against the KPI's. Ÿ 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 2021 and April 2022, 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 2023. The forecasts include a number of assumptions in relation to sales volume, pricing, margin improvements and overhead investment. For 2022, these included a scenario which modelled a 9% reduction in order intake versus 2020 and installation volumes at similar levels to the Covid-impacted year of 2020. Following the Cyber attack in January 2022, the Directors have reviewed the impact of this on the business and highlight the continued strong order intake performance, record order book, maintained liquidity levels and swift return to expected operating levels following the incident. The Committee also considered mitigating actions proposed by management including proposed reductions in discretionary spend. The Audit Committee concluded that it was appropriate to prepare the ﬁnancial statements on a going concern basis. Fiona Goldsmith Chair of the Audit Committee 20 April 2022 Annual Report & Accounts 2021 53 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Statement from the Chair of the Remuneration Committee Dear Shareholder I am pleased to present the Directors' Remuneration Report for the ﬁnancial year 2021, which comprises two sections: Ÿ Ÿ This Annual Statement; and The Annual Report on Remuneration, which provides details of the amounts earned in respect of the ﬁnancial year 2021 and remuneration for the ﬁnancial year 2022. Our Directors' Remuneration Policy was approved as part of an advisory vote on the 2020 Directors' Remuneration Report at the May 2021 AGM. The Policy has not been reproduced here, but is available in our 2020 Directors' Remuneration Report. Similar to previous years, the Directors' Remuneration Report is subject to an advisory vote at the June 2022 AGM. The Committee believes the advisory vote provides a greater degree of accountability and provides shareholders with a say on executive pay. Review of the ﬁnancial year 2021 As detailed in the CEO’s statement and Financial Review, the Group's ﬁnancial performance represented a strong recovery after the challenges presented to the Group in the last 3 years. Underlying proﬁt before tax was £7.6m for the year and 54 Annual Report & Accounts 2021 represents a £16.4m turnaround from the underlying losses sustained in 2018. Annual bonus and performance share awards The Group continued to experience the operational turbulence caused by the pandemic during 2021, most notably on its available installation capacity and its ability to recover from the customer service backlogs created by various lockdowns. Consequently, the Group had to ensure a balanced utilisation of its operational capacity to fulﬁl new orders whilst also recovering from these backlogs. This balance was managed effectively and the Group achieved revenue growth of 26.6% versus 2020 and also recovered customer service levels by the end of the year. Concurrently, the Group continued to maintain a healthy order book whilst making good progress in improving its gross margins. Good progress was also made on the Group's long-term strategic initiatives which are described fully in the CEO's statement. Overall, 2021 was a good ﬁnancial performance which was delivered in challenging and unpredictable conditions that the executives responded to in an agile manner. Despite a good performance level, the Group fell short of maximum stretch proﬁt targets which resulted in the bonus outcome linked to proﬁt performance as described below. Mike Gallacher and Rob Neale were granted an annual bonus with a maximum opportunity equal to 100% of salary, based on delivering against stretching underlying PBT targets (as regards 70% of the award) and a range of strategic and personal objectives (as regards the remaining 30% of the award). The Group achieved underlying PBT of £7.6m resulting in an outcome of 10% of salary for the PBT element of the annual bonus. Mike Gallacher and Rob Neale earned a bonus equal to 25% and 24%% of salary respectively based on performance against strategic and personal objectives, which were focused on key metrics to deliver the 2021 plan. See page 57 for further details. Mike Gallacher and Rob Neale therefore earned a total bonus equal to 35% and 34% of salary respectively. In June 2019, performance share plan awards with a maximum opportunity equal to 47% of salary were granted to Mike Gallacher and Rob Neale. Vesting of the awards were subject to EPS targets over a three-year performance period to the end of the ﬁnancial year 2021. The Group achieved EPS of 3.5p for the ﬁnancial year 2021 meaning that 28% of the maximum award will vest in June 2022. See page 57 for further details. The Committee carefully considered the vesting outcome of the annual bonus and performance share plan awards and considered it to be appropriate taking into account underlying business performance and the experience of stakeholders during the respective performance periods. Restricted share awards As disclosed in the 2020 Directors' Remuneration Report, in October 2020, Mike Gallacher and Rob Neale were granted restricted share awards equal to 56% and 42% of salary respectively. The awards vested on 18 June 2021 and are subject to a one year holding period. Mike Gallacher and Rob Neale 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. See page 58 for further details. Performance share plan awards granted during ﬁnancial year 2021 In June 2021, performance share plan awards were granted to Mike Gallacher and Rob Neale with a maximum opportunity equal to 100% and 80% of salary respectively. Vesting of the awards is subject to EPS targets (as regards 75% of the award) and absolute Total Shareholder Return targets (as regards 25% of the award) over the three-year performance period to the end of the ﬁnancial year 2023. The vesting date is 10 June 2024 – three years after the grant date. See page 58 for further details. Outlook for the 2022 ﬁnancial year Salary / fees Mike Gallacher and Rob Neale each received a 3% salary increase effective from 1 January 2022, in line with the average increase awarded to the wider workforce. Alan Lovell, non-executive chairman, received a fee increase of 4.2% to £125,000 which is his ﬁrst fee increase since appointment in July 2018. Both non-executive directors received a fee increase of 3% to £56,650. Annual bonus Mike Gallacher and Rob Neale will each be granted an annual bonus with a maximum opportunity equal to 100% of salary, based on delivering against stretching PBT targets (as regards 70% of the award) and a range of strategic and personal objectives (as regards the remaining 30% of the award). See page 61 for further details. Performance share plan awards Performance share plan awards are expected to be granted in accordance with the levels permitted under the Directors' Remuneration 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 2024. The weighting of the performance measures and targets will be disclosed retrospectively in the 2022 Annual Report on Remuneration. Conclusion 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 June 2022 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 20 April 2022 Annual Report & Accounts 2021 55 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 compared to the normal award level 2018. Since then, they have driven the gains do not arise to the extent that the at each stage are subject to a personal Annual Report on Remuneration. 2020 ﬁnancial year under the Remuneration Policy (100% of signiﬁcant progress made in the awards vest. The Committee considers performance achievement assessment Performance share plan awards salary). turnaround of the business. Despite their best efforts, the 2018 performance that there is sufﬁcient protection which the Remuneration Committee are Summary against windfall gains given the award satisﬁed has been achieved. Given the uncertain outlook presented requirement to ensure that windfall Therefore, in order to recognise the by the COVID-19 pandemic and in line gains do not arise to the extent that the performance of the Executive Directors The Committee has been mindful of the share plan awards have lapsed. levels and that the awards are capable of vesting on 18 June 2021. Alan Lovell, Non-Executive Chairman, and transparent reporting on executive and both Non-Executive Directors pay and performance at Safestyle, taking The Committee aims to provide clear with guidance published by the awards vest. The Committee considers and the senior team and to continue to Outlook for the 2021 ﬁnancial year waived a general cost of living increase into account best practice amongst Investment Association, the Committee that the reduction in quantum of 55% of motivate them to deliver long term chose to defer the grant of the 2020 salary provides sufﬁcient protection growth, the Committee considered it Salary / fees against this eventuality. appropriate to grant them restricted share awards. On 21 October 2020, Mike Gallacher received an exceptional to their base fees for 2021. Annual bonus 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 targets, and consultation with our major EPS performance (as regards 75% of the granted restricted share awards equal to £275,000 to £300,000 (9%) which was will be based on delivering against Directors' Remuneration Report or in shareholders, the 2020 awards were award) and absolute Total Shareholder 56% and 42% of salary respectively as effective from 1 January 2021. This is stretching PBT targets (as regards 70% relation to any of the Committee's subsequently granted on 23 February Return (TSR) performance (as regards part of these awards. his ﬁrst salary increase since he joined of the award) and a range of strategic activities. Vesting is subject to the achievement of Mike Gallacher and Rob Neale were increase in his base salary from There will be a bonus for 2021 which shareholders may have on this performance share plan awards. Following careful consideration of quantum, performance metrics and 2021. When determining quantum, the 25% of the award), thereby incentivising executives to deliver longer term earnings and share price growth These awards vest on 18 June 2021 subject to continued employment (being Committee was sensitive to the need to performance. The vesting date is 23 the point at which the 2018 balance incentivising executive performance at a time when our February 2024 - three years after the performance share plan awards would date of grant. See page 60 for further have been capable of vesting) and are management teams are being asked to details. demonstrate signiﬁcant leadership and resilience, whilst ensuring that the Restricted share awards executive experience is commensurate subject to a one year post-vesting holding period. The Executive Directors will retain all shares following the post- vesting holding period (after selling with that of shareholders, employees The Committee strongly believes that sufﬁcient shares to cover tax liabilities and other stakeholders. With these the Executives Directors and the senior arising on exercise) in order to build up factors in mind, the maximum management team have performed their shareholdings. opportunity at grant was set at 45% of exceptionally well and, in particular, salary for both Executive Directors, were instrumental in rescuing the The Committee has been mindful of the representing a 55% of salary reduction business from potential collapse in requirement to ensure that windfall the Company almost three years ago and personal objectives (as regards the and is the result of his contribution to remaining 30% of the award). See page the business since he joined and consideration of wider benchmarks. 63 for further details. Rob Neale has also received an increase Chair of the Remuneration Committee in his base salary to £220,000 which was Performance share plan awards in 24 March 2021 Performance share plan awards Julia Porter also effective from 1 January 2021 and respect of 2021 are expected to be is part of a phased set of salary increases made at the normal levels permitted across a two year period which ends in under the Policy (i.e. up to 100% of 2021. This pay structure was also a salary). Awards will be subject to result of benchmarking and linked to his performance targets based on the signiﬁcant development in role, the Company's EPS and TSR performance additional management responsibilities for the ﬁnancial year 2023. The assumed and overall contribution to the weighting of the performance measures business since he joined. The increases and targets will be disclosed in the 2021 58 Annual Report & Accounts 2021 Annual Report & Accounts 2021 59 Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Annual Report on Remuneration 2021 Remuneration Annual bonus Mike Gallacher and Rob Neale were granted an annual bonus with a maximum opportunity equal 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). The PBT element of the scheme was based on underlying PBT performance for the year. PBT is stated before non- underlying items as deﬁned in the Financial Review. The Group achieved a PBT of £7.6m for the year, resulting in an outcome of 10% of salary for the executive directors. Despite this being the Group's ﬁrst achievement of full year proﬁtability since 2017, the full stretch PBT targets were not met and thus the remaining 60% of the PBT element was not awarded. The table below details the elements of remuneration received by each director for the ﬁnancial year 2021, and the total remuneration received by each director for that ﬁnancial year and also for the ﬁnancial year 2020. Strategic and personal objectives (30% of award) Salary and fees Beneﬁts¹ Annual bonus Long term incentives² Pension £000 £000 £000 £000 £000 Total remuneration 2021 £000 Total remuneration 2020 £000 Executive directors M Gallacher R Neale Total Non-executive directors A C Lovell F Goldsmith J Porter Total 300 227 527 120 55 55 230 21 7 28 - - - - 104 75 179 - - - - 357 175 532 - - - - 24 18 42 - - - - 806 502 1,308 120 55 55 230 516 375 891 110 50 50 210 The strategic and personal objectives were tailored to each executive and focused on key performance metrics to deliver the 2021 plan. Executive director Performance metrics M Gallacher Performance related to a set of metrics that included the ﬁnancial performance of the business, managing the operational and safety impact of COVID, customer service levels, quality, delivering our ESG objectives and developing our Brand. R Neale Performance related to a set of metrics and deliverables that included the ﬁnancial performance of the business, further enhancements to management information and reporting, implementing a levelling up measurement framework, rolling out new cost of quality measures and working capital / liquidity enhancements. Performance achieved (% of salary) 25% 24% Mike Gallacher and Rob Neale therefore earned a bonus equal to 35% and 34% of salary respectively. The Committee considered the bonus outcome to be appropriate taking into account underlying business performance and the experience of stakeholders during the year. ¹Beneﬁts include car allowance, private fuel and private medical insurance. ²Long term incentives includes the estimated gain on performance share awards at the time of vesting (see page 57) and the actual gain on restricted share awards which vested in June 2021 (see page 58). Details of all options exercised in the year can be found on page 60. Share awards Awards vesting in respect of the ﬁnancial year Performance share plan awards Individual elements of remuneration Base salary The salaries for 2021 and 2020 are as set out below. Executive Director 2021 base salary 1 July 2021 £000 2021 base salary 1 January 2021 £000 2020 base salary 1 July 2020 £000 2020 base salary 1 January 2020 £000 % increase in salary between 2020 and 2021 M Gallacher R Neale 300 235 300 220 275 205 275 190 9% 15% Mike Gallacher received an exceptional increase in his base salary from £275,000 to £300,000 (9%) effective from 1 January 2021. This was his ﬁrst salary increase since he joined the company almost three years prior and was the result of his contribution to the business since he joined and consideration of wider benchmarks. Rob Neale's salary was increased to £220,000 effective from 1 January 2021 and further increased to £235,000 effective from 1 July 2021. This was part of a phased set of salary increases across a two year period, which took into account his signiﬁcant development in role, additional management responsibilities assumed and his overall contribution to the business since he joined the company. In June 2019, performance share plan awards with a maximum opportunity equal to 47% of salary were granted to Mike Gallacher and Rob Neale. Vesting of the awards were subject to EPS targets over the three-year performance period to the end of the ﬁnancial year 2021. The Group achieved EPS of 3.5p for the ﬁnancial year 2021 meaning that 28% of the maximum award will vest in June 2022. Adjusted underlying EPS for the ﬁnancial year 2021 Percentage of award vesting 5.03p 3.45p 100% 25% Straight-line vesting between threshold and maximum. Actual performance: 3.5p 28% Executive director Number of shares granted Number of shares vesting on performance (28% of maximum) Vesting date Estimated gain on award at vesting¹ M Gallacher R Neale 200,000 127,273 56,000 27 June 2022 35,636 27 June 2022 £27,440 £17,462 ¹Based on the average mid-market closing share price over the period 1 October 2021 to 31 December 2021 (£0.49). The Committee considered the vesting outcome to be appropriate taking into account underlying business performance and the experience of stakeholders during the three year performance period. 56 Annual Report & Accounts 2021 Annual Report & Accounts 2021 57 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. Safestyle UK plc Strategic Report Governance Financials Directors’ Remuneration Report Annual Report on Remuneration Restricted share awards As disclosed in the 2020 Directors' Remuneration Report, in October 2020, Mike Gallacher and Rob Neale were granted restricted share awards equal to 56% and 42% of salary respectively. The awards vested on 18 June 2021 and are subject to a one year holding period. Mike Gallacher and Rob Neale 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. Absolute TSR for the ﬁnancial year 2023 Percentage of TSR element vesting 105p or more 97.5p 90p 75p Less than 75p 100% 75 50% 25% 0% Straight line vesting between points. The Committee has discretion to amend the vesting outcome where it considers that it is not a fair and accurate reﬂection of underlying business performance or the experience of stakeholders during the performance period. This includes consideration of any potential “windfall gains” at the point of vesting. Executive director Number of shares vesting Vesting date Gain on award at vesting¹ Holding period 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. M Gallacher 550,000 18 June 2021 £300,000 18 June 2021 to 18 June 2022 Statement of Directors' shareholding and share interests Executive directors M Gallacher R Neale Non-executive directors A C Lovell F Goldsmith J Porter Year end 2021 Year end 2020 Number Number 611,740 464,125 700,000 50,000 38,671 200,000 325,000 450,000 50,000 28,671 R Neale 262,500 18 June 2021 £157,500 18 June 2021 to 18 June 2022 ¹Based on the share price on the vesting date (£0.60). Awards granted in respect of the ﬁnancial year Performance share plan awards In June 2021, performance share plan awards were granted to Mike Gallacher and Rob Neale with a maximum opportunity equal to 100% and 80% of salary respectively. Vesting of the awards is subject to EPS targets (as regards 75% of the award) and absolute Total Shareholder Return targets (as regards 25% of the award) over the three-year performance period to the end of the ﬁnancial year 2023. Thereby incentivising the executive directors to deliver long-term earnings and share price growth. Executive director Type of award Date of grant Percentage of salary Number of shares Exercise price Performance period Date of grant M Gallacher Nil cost option 10 June 2021 100% 461,538 £nil R Neale Nil cost option 10 June 2021 80% 270,769 £nil Beginning of the ﬁnancial year 2021 to the end of the ﬁnancial year 2023 Beginning of the ﬁnancial year 2021 to the end of the ﬁnancial year 2023 10 June 2024 10 June 2024 The EPS and TSR targets for the ﬁnancial year 2023 are set out below. EPS for the ﬁnancial year 2023 Percentage of EPS element vesting 7.87p or more 7.10p 6.33p 5.85p Less than 5.85p 100% 75% 50% 25% 0% Straight line vesting between threshold and maximum. 58 Annual Report & Accounts 2021 Annual Report & Accounts 2021 59 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 Number of of salary 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 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. 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 2021 in the Group's share schemes were as follows: Options held at beginning of year Options granted in the year Options vested in the year Options exercised in the year Options lapsed in the year Options held at end of year Status Annual bonus Mike Gallacher and Rob Neale will each be granted an annual bonus with a maximum opportunity equal 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 non-underlying items. The strategic and personal objectives will be tailored to each executive and will focus around key performance metrics to deliver the 2022 plan. The PBT targets and strategic and personal objectives will be disclosed retrospectively in the 2022 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 are expected to be granted in accordance with the levels permitted under the Directors' Remuneration 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 2024. The weighting of the performance measures and targets will be disclosed retrospectively in the 2022 Annual Report on Remuneration. Director Award Performance share award Performance share award Date of grant 18 June 2018 27 June 2019 M Gallacher Restricted share award 21 October 2020 Performance share award 22 February 2021² Performance share award 10 June 2021 Performance share award 13 August 2018 Performance share award 27 June 2019 Restricted share award 21 October 2020 Performance share award 22 February 2021² Performance share award 10 June 2021 R Neale 733,333 200,000 550,000 275,000 - - - - - 461,538 350,000 127,273 262,500 205,000 - - - - - 270,769 550,000 (550,000) - - - - - - - - - - 262,500 (262,500) - - - - A C Lovell Individual share agreement 20 December 2018³ 250,000 - 250,000 (250,000) - (733,333) - n/a Consideration by the directors of matters relating to directors' remuneration - - - - 200,000 Unvested¹ - Vested and exercised 275,000 Unvested 461,538 Unvested 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: reviewing the on-going appropriateness and relevance of remuneration policy; reviewing and approving the remuneration packages of the executives; Ÿ Ÿ Ÿ monitoring the level and structure of remuneration of the senior management; and Ÿ production of the Directors' Remuneration Report. - (350,000) - n/a Advisors - - - - - 127,273 Unvested¹ - Vested and exercised 205,000 Unvested 270,769 Unvested - Vested and exercised 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 2021 AGM The table below sets out the voting outcome at the Group's AGM held on 19 May 2021 in respect of the resolution to approve the Directors' Remuneration Report contained in the Group's 2020 Annual Report and Accounts. Votes for % for Votes against % against Total votes cast Votes withheld (abstentions) ¹The performance share plan awards granted on 27 June 2019 will vest at 28% of maximum on 27 June 2022 based on performance against targets. See page 57. ²Performance share plan awards granted on 22 February 2021 were awarded in respect of the ﬁnancial year 2020. ³These options vested in 2 tranches in 2019 and 2020 and were exercised on 20 August 2021. Alan Lovell has retained all these shares in his shareholding which now stands at 700,000 shares. The gain at exercise based on the share price on 20 August 2021 of £0.539 was £134,750. Further details of these options can be found in the 2018 Annual Report on pages 56 and 60. Approval of Directors' Remuneration Report 63,137,768 82.68% 14,068,948 17.32% 81,206,716 0 Implementation of Directors' Remuneration Policy for the ﬁnancial year 2022 Approval Information on how the Group intends to implement the Directors' Remuneration Policy for the ﬁnancial year 2022 is set out below. Salary / fees Mike Gallacher and Rob Neale each received a 3% salary increase effective from 1 January 2022, in line with the average increase awarded to the wider workforce. Accordingly, effective from 1 January 2022, Mike Gallacher's and Rob Neale's salaries are £309,000 and £242,050 respectively. Alan Lovell, non-executive chairman, received a fee increase of 4.2% to £125,000 which is his ﬁrst fee increase since appointment in July 2018. Both non-executive directors received a fee increase of 3% to £56,650. This report was approved by the Board on 20 April 2022 and signed on its behalf by: Julia Porter Chair of the Remuneration Committee 20 April 2022 60 Annual Report & Accounts 2021 Annual Report & Accounts 2021 61 Safestyle UK plc Strategic Report Governance Financials Directors’ Report The directors present their annual report and audited ﬁnancial statements of the Group for the ﬁnancial year 2021 Registered ofﬁce The registered ofﬁce of Safestyle UK plc is 47 Esplanade, St Helier, Jersey, JE1 0BD. Principal activities Safestyle UK plc is an AIM listed company. The Group's principal activities are the sale, manufacture and installation of replacement PVCu windows and doors for the UK homeowner market. Business review 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. 2021 has been a challenging year with the continuation of the impact of the COVID-19 pandemic on the business. The Board has continued to respond to these challenges with a focus on ensuring the safety of the Group's people and its customers whilst also making progress on the strategic priorities of the Group. The Board understands 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: Ÿ Ÿ Ÿ Ÿ Ÿ Standing agenda points and papers presented at each Board meeting. A rolling agenda of matters to be considered by the Board throughout the year, which includes strategy review days that consider the Group strategy for the longer-term. Board presentations and reports which include monthly updates on Health & Safety, compliance with regulatory requirements along with operational, performance and people matters. Regular engagement with our stakeholders, including, but not limited to, suppliers, customers and employees. Consideration of the impact of the Group's operations on the community and the environment, and how this can be improved. The Chairman's statement, the CEO’s statement and the Financial Review on pages 16 to 25 report on the Group's performance during the year and future developments. Shareholder communication Dividends The directors do not propose a ﬁnal dividend for the year (2020: £nil). Governance Safestyle UK plc is an evolving organisation and one that has ethics, integrity and high standards of corporate governance as key priorities. The Board has adopted the Quoted Companies Alliance (QCA) Corporate Governance Code (2018) as its Governance Framework. The Board understands its responsibility in managing the business for the long term beneﬁt of its stakeholders, through effective and efﬁcient decision making and acknowledges the importance of the ten principles set out within the QCA code. 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. Audit Committee The Audit Committee report on pages 52 to 53 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. The Board is committed to maintaining good communication with both institutional and private investors. Dialogue with fund managers, institutional investors and analysts to discuss performance and future prospects is actively pursued. The Annual General Meeting provides an opportunity for shareholders to address questions to the Chairman and the Board directly. Risk management and internal controls The Board has overall responsibility for the Group's system of internal controls and for reviewing the effectiveness of this system. It should be recognised that such a system is designed to manage rather than eliminate the risk of failure to achieve the business objectives and can only provide reasonable, and not absolute, assurances against material misstatement or loss. Directors' indemnities and insurance Safestyle UK plc indemniﬁes its ofﬁcers and ofﬁcers of its subsidiary companies against liabilities arising from the conduct of the Group's business, to the extent permitted by law, by the placing of directors' and ofﬁcers' insurance. The insurance policy indemniﬁes individual directors' and ofﬁcers' personal legal liability and cost for claims arising out of actions taken in connection with Group business. Directors' responsibilities The directors are responsible for preparing the ﬁnancial statements in accordance with applicable law and IFRS as adopted by the EU. Company law requires the directors to prepare Group ﬁnancial statements for each ﬁnancial year which give a true and fair view of the state of affairs of the Group and of the proﬁt or loss of the Group for that year. In preparing those ﬁnancial statements, the directors are required to: Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable, relevant and reliable; 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 use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the ﬁnancial position of the Company and to enable them to ensure that the ﬁnancial statements comply with the Companies (Jersey) Law 1991. They are responsible for such internal control as they determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 62 Annual Report & Accounts 2021 Annual Report & Accounts 2021 63 Safestyle UK plc Strategic Report Governance Financials Directors’ Report Substantial shareholdings As at 11 Mar 2022, 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 UBS Securities Hargreaves Lansdown Asset Management Invesco Advisors Inc FIL Investment International 31,911,957 27,156,173 16,097,411 6,544,029 5,764,738 4,816,740 4,465,000 4,337,503 23.02% 19.59% 11.61% 4.72% 4.16% 3.47% 3.22% 3.13% Carbon reporting Our manufacturing site and our large vehicle ﬂeet are the main sources of the Group’s carbon emissions. We have changed our sourcing of gas and electricity supplies for the majority of the properties we occupy to a cleaner source of energy. We also completed the upgrade of our van and car ﬂeets to more modern variants with a lower emissions performance. We are pleased to report a 19% reduction in our CO per frame installed ratio in 2021, which represents the early over-delivery of our 10% reduction target set for 2024. 2 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 2023, including performance against ﬁnancial covenants. Further disclosure of the factors considered are given in the basis of preparation note to the accounts. As we have reported, the Group was the subject of a cyber attack in January 2022 which does not impact the ﬁnancial results for 2021, but has had a detrimental impact on the ﬁnancial performance of the Group at the start of 2022. The Group has now recovered from this incident and has quickly returned to trading proﬁtably. Aside from this short term impact on trading as described, the Directors do not expect there to be any consequential cash outﬂows as a result of the cyber attack. Having considered the impact of this attack, as well as any further potential impact of COVID-19, 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 2021. Auditors Grant Thornton UK LLP were reappointed as the Group's auditors in May 2021. The Board will put forward a resolution to reappoint Grant Thornton UK LLP as auditors at the forthcoming AGM of the Group. Statement of disclosure of information to auditors As at the date this report was signed, so far as each of the directors is aware, there is no relevant information of which the auditor is unaware and each director has taken all steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. Approved by the Board of Directors and signed on behalf of the Board on 20 April 2022 We now see an opportunity for a further 6% improvement before 2025. This will be delivered by continued incremental improvement ahead of the introduction, when technology and infrastructure enables it, of a fully-electriﬁed vehicle ﬂeet. We will continue to target the elimination of the remaining 5% of consumer waste going to landﬁll in conjunction with both existing and new partners. In addition, we will conduct a Scope 3 audit of our ten largest suppliers in 2022 to ensure that progress on reducing emissions is also being made downstream. Rob Neale Chief Financial Ofﬁcer 20 April 2022 2021 2020 CO 2 (Tonnes) CO (Tonnes) / Frame installed 2 CO 2 (Tonnes) 2 CO (Tonnes) / Frame installed Manufacturing Vehicles Ofﬁces / depots 541 3,736 240 0.0030 0.0203 0.0013 1,007 3,109 860 0.0062 0.0190 0.0052 Total 4,517 0.0246 4,976 0.0304 This above data is aligned with the Greenhouse Gas Protocol methodology ('GHG Protocol'). The GHG Protocol establishes comprehensive global standardised frameworks to measure and manage greenhouse gas ('GHG') emissions from private and public sector operations, value chains and mitigation actions. The framework has been in use since 2001 and forms a recognised structured format to calculate a carbon footprint. This is a market-based report and covers the fact that emissions factors have been taken from each of Safestyle UK Plc's relevant suppliers where applicable (i.e. for green tariff it would be zero emissions). 64 Annual Report & Accounts 2021 Annual Report & Accounts 2021 65 Safestyle UK plc Strategic Report Governance Financials 66 Annual Report & Accounts 2021 Annual Report & Accounts 2021 67 Safestyle UK plc Strategic Report Governance Financials 68 Annual Report & Accounts 2021 Annual Report & Accounts 2021 69 Safestyle UK plc Strategic Report Governance Financials 70 Annual Report & Accounts 2021 Annual Report & Accounts 2021 71 Safestyle UK plc Strategic Report Governance Financials 72 Annual Report & Accounts 2021 Annual Report & Accounts 2021 73 Safestyle UK plc Strategic Report Governance Financials 74 Annual Report & Accounts 2021 Annual Report & Accounts 2021 75 NEW Training Academy Opened Q4 2021 Financials 78 79 80 81 82 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 2 January 2022 Consolidated Statement of Financial Position at 2 January 2022 7,586 (4,997) Non-current assets Revenue Cost of sales Gross profit Expected credit losses expensed Other operating expenses¹ Operating profit / (loss) Finance income Finance costs² Profit / (loss) before taxation Underlying profit / (loss) before taxation before non-recurring costs, Commercial Agreement amortisation and share based payment charges Non-recurring costs Equity settled share based payment charges Commercial Agreement amortisation Profit / (loss) before taxation Taxation Profit / (loss) after taxation Earnings per share Basic EPS (pence per share) Diluted EPS (pence per share) 18 6 12 7 32 14 13 9 9 Note 2021 £000 2,5 143,251 2020 £000 113,191 (99,496) (84,732) 43,755 28,459 (362) (35,807) (890) (32,566) - (1,623) 1 (1,161) 5,963 (6,157) 7,613 (511) (687) (452) 5,963 (1,188) (4,758) (523) (424) (452) (6,157) 1,103 4,775 (5,054) 3.5p 3.4p (4.3p) (4.3p) ¹Other operating expenses includes £511k (2020: £523k) of non-recurring costs, £452k (2020: £452k) of Commercial Agreement amortisation and £687k (2020: £424k) of share based payment charges. Adjusting for these gives underlying other operating expenses of £34,157k (2020: £31,167k). See Financial Review for details. ²Finance costs includes £761k (2020: £487k) of lease related interest costs (see note 26) and £269k (2020: £nil) for the unwind of the provision discount in the year. There is no other comprehensive income for the period. 2020 represents the year ended 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 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 Corporation taxation liability Provision for liabilities and charges Current liabilities Provision for liabilities and charges Lease liabilities Borrowings Non-current liabilities Total liabilities Note 14 14 14 14 15 26 16 17 18 19 20 21 26 23 23 26 24 2021 £000 504 20,758 870 832 10,811 11,146 1,053 2020 £000 504 20,758 850 1,284 11,475 8,004 1,980 45,974 44,855 5,298 4,880 16,351 26,529 4,545 5,663 11,705 21,913 72,503 66,768 1,386 89,495 10,893 (66,527) 1,368 89,495 5,347 (66,527) 35,247 29,683 18,052 4,104 159 1,274 23,589 2,109 7,327 4,231 13,667 21,929 2,524 - 1,118 25,571 1,801 5,586 4,127 11,514 37,256 37,085 72,503 66,768 All operations were continuing throughout all years. Total equity and liabilities The accompanying notes form part of the ﬁnancial statements. 78 Annual Report & Accounts 2021 Annual Report & Accounts 2021 79 The accompanying notes form part of the ﬁnancial statements. 2020 represents the ﬁnancial position at 3 January 2021. The ﬁnancial statements were approved by the Board of Directors and authorised for issue on 20 April 2022 and were signed on their behalf by: Rob Neale Chief Financial Ofﬁcer Safestyle UK plc Strategic Report Governance Financials Consolidated Statement of Changes in Equity for the year ended 2 January 2022 Consolidated Statement of Cash Flows for the year ended 2 January 2022 Share capital Share premium Proﬁt and loss account £000 £000 Common control transaction reserve £000 Total equity £000 Balance at 30 December 2019 Total comprehensive (loss) for the year Transactions with owners reported directly in equity: Issue of new shares Transaction costs relating to the issue of new shares Deferred taxation asset taken to reserves (note 16) Issue of shares - Commercial Agreement Equity settled share based payment transactions £000 828 - 500 - - 40 - 81,845 10,009 (66,527) 26,155 - (5,054) 8,000 (350) - - - - - 8 (40) 424 - - - - - - (5,054) 8,500 (350) 8 - 424 Balance at 3 January 2021 1,368 89,495 5,347 (66,527) 29,683 Total comprehensive profit for the year Transactions with owners reported directly in equity: Issue of new shares (see note 20) Deferred taxation asset taken to reserves (see note 16) Corporation taxation taken to reserves Equity settled share based payment transactions - 18 - - - - - - - - 4,775 (18) 4 98 687 - - - - - 4,775 - 4 98 687 Balance at 2 January 2022 1,386 89,495 10,893 (66,527) 35,247 The accompanying notes form part of the ﬁnancial statements. Cash flows from operating activities Profit / (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 Impairment of right-of-use assets Modification of right-of-use assets and liabilities Finance income Finance expense IT project impairment Equity settled share based payment charges Taxation charge / (credit) (Increase) in inventories Decrease / (increase) in trade and other receivables (Decrease) / increase in trade and other payables Increase in provisions Other interest (paid) 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 Proceeds from loans and borrowings Repayment of borrowings Transaction costs relating to loans and borrowings Payment of lease liabilities Net cash (outflow) / inflow 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 26 12 14 32 13 15 14 24 24 24 26 2021 £000 4,775 1,473 3,882 842 - 122 (83) - 1,623 14 687 1,188 14,523 (753) 783 (3,877) 195 (3,652) (1,250) 9,621 (809) - (424) (1,233) - - - - - (3,742) (3,742) 4,646 11,705 16,351 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 The accompanying notes form part of the ﬁnancial statements. 2020 represents the year ended 3 January 2021. 80 Annual Report & Accounts 2021 Annual Report & Accounts 2021 81 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 2021 which ended on 2 January 2022. The Group’s principal activities are the sale, manufacture and installation of replacement PVCu windows and doors for the UK homeowner market. Safestyle UK plc 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 2021 (“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 Limited 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 Ÿ Amendments to References to the Conceptual Framework (Various Standards) Ÿ COVID-19 Rent Related Concessions beyond 30 June 2021 (Amendments to IFRS 16) Interest Rate Benchmark Reform 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) IFRS 17 Insurance Contracts (b) New standards, amendments and interpretations issued but not effective and not early adopted. At the date of approval of these ﬁnancial statements, the following standards, amendments and interpretations which have not been applied in these ﬁnancial statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU): Ÿ Ÿ Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4) Ÿ Ÿ 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) Ÿ Deferred taxation related to Assets and Liabilities from a Single Transaction References to the Conceptual Framework Proceeds before Intended Use (Amendments to IAS 16) 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 2 January 2022 for the current reporting year and 3 January 2021 for the prior year. All references made throughout these accounts for the ﬁnancial year 2021 are for the period 4 January 2021 to 2 January 2022 and references to the ﬁnancial year 2020 are for the period 30 December 2019 to 3 January 2021. 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 proﬁt of £4.8m in the ﬁnancial year 2021 (2020: (loss) of £(5.1)m) and had net current assets of £2.9m at the end of the ﬁnancial year 2021 (2020: net current liabilities of £(3.7)m. As detailed in the Financial Review, the proﬁt reported represents a return to full year proﬁtability for the Group for the ﬁrst time since 2017. Net cash improved further to £12.1m at the end of the year, an increase of £4.5m versus the prior year. Actions taken to protect cash during the pandemic lockdown in 2020 have ceased and the deferral of a £2.5m VAT liability has been settled; working capital is being managed as normal. The Group has banking facilities which consist of a £4.5m term loan and a £3.0m revolving credit facility. This facility matures in October 2023 and the ﬁnance agreement contains certain covenants, including a minimum EBITDA to be tested on a cumulative monthly basis. By the end of the ﬁnancial year, the EBITDA covenant headroom had increased signiﬁcantly to £7.2m. The £4.5m term loan was fully drawn at the end of the year, while the revolving credit facility was unutilised. This has been the case since May 2020 and remains the case at the date of signing the accounts. The Group presently has sufﬁcient liquidity to repay the term loan prior to, or on the facility maturity date, if required. The Directors have prepared forecasts covering the period to the end of the ﬁnancial year 2023. The forecasts include a number of assumptions in relation to sales volume, pricing, margin improvements and overhead investment. The Directors believe the key assumptions to be cautious and realistic with order intake for FY22 to be 10% below the levels achieved in H2 20. This target is deemed to be highly achievable. The Group has a strong opening order book and order intake at this level would match the current capacity of the installation network. Installation volumes are forecast to grow by 5.5% versus 2020, due to a combination of the full year effect of the new Milton Keynes Depot, the recovery of the post-lockdown customer service backlogs as well the expectation that the ongoing workforce availability due to ongoing COVID resrrictions experienced throughout 2021 will subside. The Group is forecasting signiﬁcant increases in manufacturing costs as suppliers pass on increasing energy and raw matieral prices that they are incurring themselves. Increases in overhead costs have also been forecast as the Group continues its strategic agenda to invest in IT, customer services, ﬁeld operations as well as annual pay increases in line with rising inﬂation. These forecasts result in further increases in EBITDA covenant headroom, net cash and liquidity. Whilst the Directors believe the assumptions above to be sensible, the operating environment is exposed to a number of risks which could impact the actual performance achieved in 2022. These risks include, but are not limited to, reducing consumer conﬁdence due to the general economic conditions, delivering the required levels of order intake as the economy reopens and competition from other sectors increases and the Group's ability to maintain margins given the rising input costs. The Directors have modelled various sensitised downside scenarios for 2022 and 2023. For 2022, these included a scenario which modelled a 9% reduction in order intake versus 2020 and installation volumes at similar levels to the COVID-impacted year of 2020. In this scenario, mitigating actions within the control of management, including reductions in areas of discretionary spend could be deployed. Even with the above signiﬁcant reductions in activity, the resultant cash ﬂow forecasts and projections show that the Group will be able to increase its net cash position and operate within the ﬁnancial covenants of the borrowing facility. A sensitised downside scenario has been modelled where performance is signiﬁcantly worse than the scenario described above. In this scenario, whilst a breach of the covenant tests on the borrowing facilities would occur, the Group would still have sufﬁcient cash to repay the borrowing facility. On 25 January 2022, the Group was subject to a sophisticated cyber attack. The impact of the attack on the business was partly mitigated by recent investments to modernise the Group's IT infrastructure. Business continuity plans enabled the business to continue to sell, survey, manufacture, and install, albeit installations levels were reduced for several weeks. The Group's customer service operations were also disrupted. However, with sales remaining strong, the order book has continued to grow and net cash and liquidity has been maintained. The impact of the incident on installation activity levels is now fully overcome and by the end of March, installation levels were fully back to original plans levels. The Group has maintained its hugely important self-employed installation capacity which has underpinned the swift recovery from the disruption. Elements of the pre-existing IT strategy have been accelerated following the attack to further increase the Group's cyber security defences. The Directors have compared the ﬁnancial impact of the cyber attack to its sensitivity scenarios and notes that the sales order intake has remained well ahead of these scenarios and is largely in line with original plans. Whilst weekly installation revenue dropped brieﬂy below the sensitised scenario for a few weeks, the Group's weekly revenue by the end of March had recovered to 20% higher than the downside scenario. The Group has returned to trading proﬁtably following the recovery from the incident. The Directors have considered the cyber attack as a post balance sheet event and have determined that this is a non-adjusting event as the event occurred after the reporting period. Aside from the short-term impact on trading described above, the Directors do not expect there to be any consequential cash outﬂows as a result of the cyber attack and therefore no such items have been included in any of the sensitivity scenarios. In forming their view on preparing the ﬁnancial statements on a going concern basis, the Directors have reviewed the impact of the cyber attack on the business and highlight the continued strong order intake performance, record order book, maintained liquidity levels and the swift return to expected operational levels following the incident. Based on the above the above indications and work prepared, the Directors believe that it is appropriate to prepare the ﬁnancial statements on a going concern basis. 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 82 Annual Report & Accounts 2021 Annual Report & Accounts 2021 83 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 2 Summary of signiﬁcant accounting policies Revenue recognition The Group earns revenue from the design, manufacture, delivery 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. The Group offers consumer ﬁnance products from a range of providers whilst acting as a credit broker and not the lender. The Group earns commission and pays subsidies for its role as a credit broker. As the Group is acting as the agent and not the principal, commission is not disclosed as a separate income stream. 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. 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. Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment. Intangible ﬁxed assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses. The trademark is considered to have an indeﬁnite useful life because there is no foreseeable limit to the period over which the asset is expected to generate net cash inﬂows for the business. The trademark is not amortised, but is tested annually to determine whether there is any indication of impairment. Other intangible assets that are acquired by the Group, which have ﬁnite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. The non-compete element of the Commercial Agreement has been accounted for as an intangible asset on the basis that it is an identiﬁable, non-monetary item without physical substance, which is within the control of the entity and is capable of generating future economic beneﬁts for the entity. The intangible asset has been measured based on the fair value of the consideration that the Group expects to issue under the terms of the agreement. Amortisation of other intangibles is done on a straight-line basis over the estimated useful economic lives of the particular asset categories as follows: Software development Commerical Agreement 25% on cost 20% on cost Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis: Leasehold improvements Plant and machinery Ofﬁce and computer equipment Mobile devices Motor vehicles 25% on cost 15% on cost 20% to 33.3% on cost 50% on cost 25% reducing balance Assets in the course of construction are not depreciated. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income. 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. 84 Annual Report & Accounts 2021 Annual Report & Accounts 2021 85 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-taxation rate which reﬂects current market assessments of the time value of money and the risks speciﬁc to the liability. 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 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. A provision for these guarantees is recognised when the underlying products are sold. The expected cost is calculated, based on historical service call data and determined by discounting the expected future cash ﬂows at a pre-taxation rate which reﬂects current market assessments of the time value of money and the risks speciﬁc to the liability. As a lessee 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 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 receivables 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 in 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. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reﬂects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following: Ÿ Ÿ ﬁxed payments, including in-substance ﬁxed payments variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date Ÿ amounts expected to be payable under a residual value guarantee Ÿ Ÿ Ÿ penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. 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 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 leases of low-value assets and short-term leases where the expected remaining term is less than 12 months. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 86 Annual Report & Accounts 2021 Annual Report & Accounts 2021 87 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements Fair value estimation 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. 2 Summary of signiﬁcant accounting policies (continued) Share based payments The 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 or with market-based 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. Non-underlying items Non-underlying items consist of non-recurring costs, share based payments and Commercial Agreement amortisation. Non- recurring costs are excluded because they are not expected to repeat in future years. 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 arises 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 Ÿ The share capital and the share premium account arising on the issue of shares. 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 and its proﬁts. There are no externally imposed capital requirements. 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. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values because 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 £1,053k (2020: £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 pre-taxation discount rate of 11% 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 11%. 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. If the effect of discounting is material, the dilapidations provision is determined by calculating the expected future cash ﬂows at a pre-taxation rate that reﬂects current market assessments of the time value of money, and when appropriate, the risks speciﬁc to the liability. 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 guarantee 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. If the effect of discounting is material, the guarantee provision is determined by calculating the expected future cash ﬂows at a pre-taxation rate that reﬂects current market assessments of the time value of money, and when appropriate, the risks speciﬁc to the liability. 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 (’ECL’) 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 signiﬁcant 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 Group generates a small income from the sale of recycling waste materials as part of the Group's ESG agenda. Due to the non-signiﬁcant value of the income generated, this is not identiﬁed as a separate business segment. 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 2021, £0.5m (2020: £0.5m) relates to revenue which was sat within contract liabilities at the end of the ﬁnancial year 2020. At the end of the ﬁnancial year 2021, £3.8m (2020: £3.1m) of deposits are held on the balance sheet relating wholly to existing contracts where performance obligations are unsatisﬁed at year end. 88 Annual Report & Accounts 2021 Annual Report & Accounts 2021 89 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 6 Expenses and auditor's remuneration Operating profit / (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 remuneration: Audit of financial statements relating to subsidiaries Audit of financial statements relating to parent Non-audit services; other related services Commissions Lead generation costs Staff costs Cost of materials Other items Total 7 Non-recurring costs Holiday pay accrual RSA related costs Litigation Costs Restructuring and operational costs Modification of right-of-use assets and liabilities Impairment of right-of-use assets Reversal of prior year impairment of right-of-use assets IT project impairment Total non-recurring costs 2021 £000 2020 £000 (255) (1,805) 1,473 842 4,317 80 35 3 44,502 13,238 26,123 24,146 21,161 135,665 2021 £000 (79) 147 90 300 (83) 122 - 14 511 1,559 880 3,900 70 30 - 37,869 14,026 23,401 18,871 19,387 118,188 2020 £000 470 - 74 266 5 - (292) - 523 Note a b c d e f g h a The holiday pay accrual arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement which, for some employees, is up to March 2023. The release in the current reporting period represents a partial- unwinding of the original accrual booked in 2020 due to the deferred holiday subsequently taken in the year. b RSA related costs are the employer related taxes associated with the issue of Restricted Share Award Scheme during the year. Litigation costs are mainly expenses incurred as a result of an ongoing legal dispute between the Group and an ex-agent. c These costs are predominantly legal advisor's fees. d 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. e Modiﬁcation of right-of-use assets relates to the closure of properties identiﬁed as right-of-use assets during the period. f Impairment of right-of-use asset costs relates to the closure of properties identiﬁed as assets under IFRS 16 where the lease commitment extended beyond 2021. 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. g f h 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. 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. 8 Dividends No dividends in relation to 2021 or 2020 were either paid or declared. 9 Earnings per share Basic earnings per ordinary share (pence) Diluted earnings per ordinary share (pence) a) Basic earnings per share 2021 3.5 3.4 2020 (4.3) (4.3) The calculation of basic earnings per share has been based on the following proﬁt attributable to ordinary shareholders and weighted-average number of shares outstanding. i) Proﬁt / (loss) attributable to ordinary shareholders (basic) Proﬁt / (loss) attributable to ordinary shareholders ii) Weighted-average number of ordinary shares (basic) In issue during the year b) Diluted earnings per share 2021 £000 2020 £000 4,775 (5,054) No. of shares ‘000 137,753 No. of shares ‘000 117,749 The calculation of diluted earnings per share has been based on the following proﬁt attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. i) Proﬁt / (loss) attributable to ordinary shareholders (diluted) Proﬁt / (loss) attributable to ordinary shareholders ii) Weighted-average number of ordinary shares (diluted) Weighted-average number of ordinary shares (basic) Effect of conversion of share options 2021 £000 2020 £000 4,775 (5,054) No. of shares ‘000 137,753 3,589 141,342 No. of shares ‘000 117,749 - 117,749 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. Diluted earnings per share is calculated by adjusting the earnings and number of shares for the effects of dilutive options. In the event that a loss is recorded for the period, share options are not considered to have a dilutive effect. 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. 2021 £000 2,398 111 538 44 3,091 2020 £000 2,761 138 293 - 3,192 90 Annual Report & Accounts 2021 Annual Report & Accounts 2021 91 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: Salary and fees £000 Beneﬁts £000 LTIP £000 Pension £000 Total £000 Annual bonus £000 2021 Executive directors M Gallacher R Neale Non-executive A C Lovell F Goldsmith J Porter Total 2020 Executive directors M Gallacher R Neale Non-executive A C Lovell F Goldsmith J Porter Total M Gallacher R Neale A C Lovell M Gallacher R Neale M Gallacher R Neale M Gallacher R Neale M Gallacher R Neale 300 227 120 55 55 757 257 197 110 50 50 664 21 7 - - - 28 20 14 - - - 34 104 75 - - - 179 285 201 - - - 486 160 76 216 - - 452 - - - - - - 24 18 - - - 42 37 16 - - - 53 609 403 336 55 55 1,458 599 428 110 50 50 1,237 Plan LTIP 2018 LTIP 2018 Individual LTIP 2019 LTIP 2019 RSA 2020 RSA 2020 LTIP 2020 LTIP 2020 LTIP 2021 LTIP 2021 Options held at start of period Options granted in period Options exercised in period Options Options lapsed in held at end period of period 733,333 350,000 250,000 200,000 127,273 550,000 262,500 - - - - - - - (250,000) (550,000) (262,500) - - - - - - - - (733,333) (350,000) - - - - - 200,000 127,273 275,000 205,000 461,538 270,769 - - - - - - - - - - - - - 275,000 205,000 461,538 270,769 2,473,106 1,212,307 (1,062,500) (1,083,333) 1,539,580 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 in 2020. Bonuses for 2020 performance as described in the Directors' Remuneration Report were also accrued in 2020. Consequently, the Annual Bonus charge in 2020 reﬂects performance in respect of both years. The interests of each individual who served as a director of the Group during the year, as at the end of ﬁnancial year 2021 in reﬂects performance in respect of both years. the Group's share schemes were as follows: 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 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: Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 2021 £000 2020 £000 13 Taxation 11 Staff numbers and costs The average monthly number of persons (including directors) employed by the Group during the year analysed by category, were as follows: Manufacturing Sales and distribution Administration The aggregate payroll costs were as follows: Wages and salaries Social security costs Other pension costs (see note 27) Share based payment expenses (see note 32) 2021 Number 2020 Number 272 116 312 700 2021 £000 22,439 2,317 680 687 26,123 279 92 264 635 2020 £000 20,122 1,940 915 424 23,401 The analysis of Directors' remuneration is shown in the Directors' Remuneration Report. During the year £255k (2020: £1,805k) was received under the Government Coronavirus Job Retention Scheme (CJRS). The above note does not include the beneﬁcial effect of the CJRS grant income. 12 Finance costs On borrowing facility Unwind of discount on provisions On lease liabilities 2021 £000 593 269 761 1,623 2020 £000 674 - 487 1,161 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 charge / (credit) The current year taxation charge / (credit) is split into the following: Taxation charge / (credit) Total taxation charge / (credit) Reconciliation of effective taxation rate Current taxation reconciliation Proﬁt / (loss) for the year Total taxation charge / (credit) Proﬁt / (loss) excluding taxation Expected taxation charge / (credit) based on the standard rate of corporation taxation in the UK of 19.00% (2020: 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 charge / (credit) 257 - 257 961 (10) (20) 931 1,188 1,188 1,188 4,775 1,188 5,963 1,133 137 (23) (20) (39) 1,188 - - - (994) (103) (6) (1,103) (1,103) (1.103) (1,103) (5,054) (1,103) (6,157) (1,170) 129 47 (6) (103) (1,103) A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. The March 2020 Budget announced that a rate of 19% would continue to apply with effect from 1 April 2020, and this change was substantively enacted on 17 March 2020. An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the company's future current taxation charge accordingly. The deferred taxation asset at 2 January 2022 has been calculated based on these rates, reﬂecting the expected timing of reversal of the related timing differences (2020: 19%). Manufacturing Sales and distribution Administration The aggregate payroll costs were as follows: Wages and salaries Social security costs Other pension costs (see note 27) Share based payment expenses (see note 32) 92 Annual Report & Accounts 2021 Annual Report & Accounts 2021 93 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 14 Intangible assets Goodwill Trademark Software £000 £000 £000 Assets under the course of construction £000 Commercial Agreement £000 Total £000 Cost At 30 December 2019 Additions Transfer At 3 January 2021 Additions Transfer At 2 January 2022 20,788 - - 20,788 - - 20,788 Accumulated amortisation and impairment At 30 December 2019 Charge for the year At 3 January 2021 Charge for the year Impairment At 2 January 2022 30 - 30 - - 30 NBV at 29 December 2019 NBV at 3 January 2021 NBV at 2 January 2022 20,758 20,758 20,758 504 - - 504 - - 504 - - - - - - 504 504 504 2,902 27 25 2,954 70 53 3,077 1,841 428 2.269 390 - 2,659 1,061 685 418 174 129 (25) 278 354 (53) 579 113 - 113 - 14 127 61 165 452 2,263 - - 2,263 - - 2,263 527 452 979 452 - 1,431 1,736 1,284 832 26,631 156 - 26,787 424 - 27,211 2,511 880 3,391 842 14 4,247 24,120 23,396 22,964 ’ ’ The goodwill is allocated to one cash generating unit (’CGU ) being Style Group Holdings Limited. Management have performed impairment reviews on the carrying value of the goodwill at the end of the ﬁnancial year 2021. As described in the going concern basis of preparation, the Directors have prepared forecasts covering the period to the end of the ﬁnancial year 2023. 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 cost inﬂation. The Directors believe they have taken a cautious approach in these forecasts with the core assumptions for order intake representing a 10% reduction below those levels achieved in H2 2020. This is deemed highly achievable with the assumption curtailed to match the capacity of the installation network. Revenues are modelled to grow by c.5% in 2022 and again in 2023. The growth vs 2021 is in part the full year effect of the new Milton Keynes depot opened in September 2021, as well as the recovery from COVID and is supported by a strong opening order book. 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 cash generated are cautiously forecast to remain constant. For the review at the end of the ﬁnancial year 2021, the recoverable amount of the CGU of £200m has been determined from value in use calculations. The assessment was performed on a value in use basis using an 11% discount rate (2020: 10%). There are no reasonably possible changes in the key assumptions on which assessments of recoverable amounts have been based which 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 impairment of assets under the course of construction represents the impairment of a capital investment made in a new electronic survey system that was stopped following results of ﬁeld trials. 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. 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 30 December 2019 Additions Transfers At 3 January 2021 Additions Transfers At 2 January 2022 Depreciation At 30 December 2019 Charge for the year At 3 January 2021 Charge for the year At 2 January 2022 NBV at 29 December 2019 NBV at 3 January 2021 NBV at 2 January 2022 16 Deferred taxation asset 9,507 - - 9,507 20 - 9,527 783 189 972 279 1,251 8,724 8,535 8,276 425 70 - 495 22 - 517 283 130 413 42 455 142 82 62 10,053 23 - 10,076 77 22 10,175 6,601 1,034 7,635 940 8,575 3,452 2,441 1,600 1,689 257 - 1,946 288 28 2,262 1,376 206 1,582 210 1,792 313 364 470 8 - - 8 - - 8 6 - 6 2 8 2 2 0 - 51 - 51 402 (50) 403 - - - - - - 51 403 Balance at beginning of period Movement in deferred taxation asset on profit / (losses) recognised in income Share based payments credits recognised in equity Balance at end of period The deferred taxation asset provided in the ﬁnancial statements at 19-25% (2020: 19%) is as follows: Losses Share based payments Provisions Capital allowances Balance at end of period 2021 £000 1,980 (931) 4 1,053 2021 £000 718 125 48 162 1,053 Total £000 21,682 401 - 22,083 809 - 22,892 9,049 1,559 10,608 1,473 12,081 12,633 11,475 10,811 2020 £000 886 1,086 8 1,980 2020 £000 1,547 79 89 265 1,980 There are no unrecognised taxation losses (2020: £nil). In accordance with IFRS 12, actual and expected taxation relief in excess of relief in respect of the related cumulative share- based payment expense is reﬂected directly in equity. The deferred taxation asset of £1,053k 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. 94 Annual Report & Accounts 2021 Annual Report & Accounts 2021 95 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 17 Inventories Raw materials and consumables Work in progress Finished goods Stock recognised in cost of sales during the period was £24,146k (2020: £18,871k). 18 Trade and other receivables Trade receivables (net of ECL allowance) Other receivables Prepayments 2021 £000 4,329 80 889 5,298 2021 £000 1,271 476 3,133 4,880 2020 £000 3,272 51 1,222 4,545 2020 £000 2,111 492 3,060 5,663 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 At end of period 2021 £000 1,717 (573) 362 1,506 2021 £000 16,351 16,351 2020 £000 1,072 (245) 890 1,717 2020 £000 11,705 11,705 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 £54k (2020: £361k) 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 At 4 January 2021 1,556,482 Ordinary Shares @ 1p each on 18 June 2021 250,000 Ordinary Shares @ 1p each on 20 August 2021 At 2 January 2022 Allotted, issued and fully paid At 4 January 2021 1,556,482 Ordinary Shares @ 1p each on 18 June 2021 250,000 Ordinary Shares @ 1p each on 20 August 2021 At 2 January 2022 21 Trade and other payables Trade payables Other taxation and social security costs Other creditors and deferred income Accruals 22 Deferred taxation liability Share capital £000 1,368 15 3 1,386 1,368 15 3 1,386 2021 £000 7,118 3,169 4,747 3,018 18,052 2020 £000 7,036 5,563 5,025 4,305 21,929 There was no deferred taxation liability at the end of the financial year 2021 (2020: £nil). 23 Provisions for liabilities and charges Balance at beginning of year Utilised in year Unwind of discount (see note 12) Provided in year At end of year Current Non current At end of year Dilapidations Product guarantees Total 2021 £000 783 (253) 45 48 623 183 440 623 2020 £000 788 (531) - 526 783 285 498 783 2021 £000 2,136 (1,917) 224 2,317 2,760 1,091 1,669 2,760 2020 £000 2,093 (1,297) - 1,340 2,136 833 1,303 2,136 2021 £000 2,919 (2,170) 269 2,365 3,383 1,274 2,109 3,383 2020 £000 2,881 (1,828) - 1,866 2,919 1,118 1,801 2,919 Dilapidations - 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 and then discounted at 11% to a net present value. 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 11% to a net present value. 96 Annual Report & Accounts 2021 Annual Report & Accounts 2021 97 Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 24 Borrowing facilities The total borrowing facilities available at the end of the ﬁnancial year were as follows: Term bank loan Revolving credit facility Less: Prepaid arrangement fees² Nominal interest rate Maturity date LIBOR + 7.0% LIBOR + 7.0%¹ October 2023 October 2023 Amounts drawn down Facilities available 2021 £000 4,500 - (269) 4,231 2020 £000 4,500 - (373) 4,127 2021 £000 4,500 3,000 - 7,500 2020 £000 4,500 3,000 - 7,500 ¹Interest is payable monthly. In addition to the rates disclosed above, a non-utilisation fee of LIBOR +3.5% is charged 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. The changes in loans and borrowings from ﬁnancing activities, during the ﬁnancial year were as follows: 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 other changes At 3 January 2022 See note 26 for changes in lease liabilities. 2021 £000 4,127 - - - - 593 (489) 104 4,231 2020 £000 3,991 2,000 (2,000) - (39) 674 (499) 136 4,127 25 Financial instruments The Group is exposed to the risks that arise from its use of ﬁnancial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these ﬁnancial statements. Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group is funded principally by equity although loans have been utilised during the review period of this ﬁnancial statements. As at the end of ﬁnancial year 2021, £4,500k of loans were outstanding (2020: £4,500k). The capital structure of the Group consists of equity, comprising issued share capital. The Group has no externally imposed capital requirements. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. Principal ﬁnancial instruments The principal ﬁnancial instruments used by the Group, from which ﬁnancial instrument risk arises are as follows: Ÿ Trade and other receivables Ÿ Trade and other payables Ÿ Cash and cash equivalents The carrying value of these ﬁnancial instruments is considered to approximate to their fair value. The Group have identiﬁed a reduced credit risk based on the proﬁle of debtors and as such the expected credit loss expense has reduced. The weighted average loss rate in the year has not increased. Financial assets At the reporting date, the Group held the following ﬁnancial assets: Trade receivables Other receivables Cash and cash equivalents Financial liabilities 2021 £000 1,271 476 16,351 18,098 2020 £000 2,111 492 11,705 14,308 At the reporting date, the Group held the following ﬁnancial liabilities, all of which were classiﬁed as other ﬁnancial liabilities: Trade payables Lease liabilities Other creditors Accruals Borrowings 2021 £000 7,118 11,431 366 3,018 4,231 26,164 2020 £000 7,036 8,110 1,344 4,305 4,127 24,922 98 Annual Report & Accounts 2021 Annual Report & Accounts 2021 99 Safestyle UK plc Strategic Report Governance Financials 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% *The weighted average loss rates in the table above were in place for the ﬁnancial years 2021 and 2020. The following table provides information about the exposure to ECLs for trade receivables at the end of ﬁnancial years 2021 and 2020. < 1 month overdue 1-2 months overdue 2-3 months overdue 3-12 months overdue > 1 Year Total receivables Gross 2021 £000 Loss allowance 2021 £000 244 285 249 631 1,368 2,777 (106) (112) (89) (393) (806) (1,506) Net 2021 £000 138 173 160 238 562 1,271 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 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 £1,506k may be recovered in full or some of the unprovided debtors may become irrecoverable. £546k of trade receivables over one year overdue (2020: £552k) are secured by ﬁxed charges over properties and therefore no provision is made for these balances. £211k of the balance relates to customers setup on standing order (2020: £63k). Notes to the Consolidated Financial Statements 25 Financial instruments (continued) Market risk The Group is not materially exposed to changes in foreign currency exchange rates or interest rate movements. Trade receivables totalling £546k (2020: £552k) 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 2021, 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% (2020: +/- 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 2021 Financial year 2020 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁnancial loss to the Group. Credit risk arises principally from the Group's cash balances and trade and other receivables. The concentration of the Group's credit risk is considered by counterparty. The Group gives careful consideration to which organisation it uses for its banking services in order to minimise credit risk. The Group has a signiﬁcant concentration of cash held in accounts with one large bank in the UK, an institution with an A credit rating (long term, as assessed by Moody's). The amounts of cash held on deposit with that bank at each reporting date can be seen in the ﬁnancial assets table above. All of the cash and cash equivalents held with that bank at each reporting date were denominated in UK Sterling. The nature of the Group's business and current stage of its development are such that customers comprise a signiﬁcant proportion of its trade and other receivables at any point in time. The Group mitigates the associated risk by close monitoring of the trade receivable ledger. At the end of the ﬁnancial year 2021, the Group's trade receivables balance was £1,271k (2020: £2,111k). 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 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). 100 Annual Report & Accounts 2021 Annual Report & Accounts 2021 101 Additional disclosure 2 January 2022 Lease liabilities 3 January 2021 Lease liabilities Less than 1 year 1-2 years 2-5 years More than 5 years Less than 1 year 1-2 years 2-5 years More than 5 years 4,240 4,240 2,551 2,551 3,862 3,862 2,256 2,256 4,802 4,802 3,927 3,927 886 886 932 932 Motor vehicles: Plant and machinery: Land and buildings Less than one year Between two and five years Less than one year Between two and five years 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 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: EBITDA - monthly test on a rolling 12 month basis Ÿ 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 2021 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 2021, the Group had £16,351k (2020: £11,705k) of cash reserves. After deducting borrowings of £4,231k, which are stated net of arrangement fees, net cash of the Group was £12,120k at the end of the year (2020: £7,578k). The £3,000k revolving credit facility was undrawn at the end of the year. The Group's non-derivative ﬁnancial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 2 January 2022 Borrowings Trade payables Other creditors Accruals Lease liabilities 3 January 2021 Borrowings Trade payables Other creditors Accruals Lease liabilities Less than 1 year 1-2 years 2-5 years More than 5 years 495 7,118 366 3,018 4,240 15,237 4,912 - - - 3,862 8,774 - - - - 4,802 4,802 - - - - 886 886 Less than 1 year 1-2 years 2-5 years More than 5 years 458 7,036 1,344 4,305 2,551 15,694 458 - - - 2,256 2,714 4,881 - - - 3,927 8,808 - - - - 932 932 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, 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. 26 Right-of-use assets and liabilities Properties Motor vehicles Equipment Total Assets At 30 December 2019 Additions Depreciation Impairment reversal Modification At 3 January 2021 Additions Impairment Modification Depreciation At 2 January 2022 Liabilities At 3 January 2021 Payment Additions Interest Modification At 2 January 2022 4,680 1,265 (1,104) 292 (363) 4,770 2,080 (122) (253) (1,298) 5,177 4,899 (1,653) 2,080 388 (342) 5,372 1,194 4,376 (2,457) - (79) 3,034 5,123 - (60) (2,411) 5,686 2,996 (2,657) 5,123 357 (54) 5,765 Reconciliation of movements of liabilities to cash flows arising from financial activities At 3 January 2021 Changes from financing cash flows Payment of lease liabilities Total changes from financing cash flows Other changes New leases Modification Interest expense Interest paid Total liability-related other changes At 2 January 2022 Liabilities classification Current (<1 year) Long term (> year) 4,899 (1,265) (1,265) 2,080 (342) 388 (388) 1,738 5,372 1,570 3,802 5,372 2,996 (2,300) (2,300) 5,123 (54) 357 (357) 5,069 5,765 2,419 3,346 5,765 138 251 (184) - (5) 200 256 - - (173) 283 215 (193) 256 16 - 294 215 (177) (177) 256 - 16 (16) 256 294 115 179 294 6,012 5,892 (3,745) 292 (447) 8,004 7,459 (122) (313) (3,882) 11,146 8,110 (4,503) 7,459 761 (396) 11,431 8,110 (3,742) (3,742) 7,459 (396) 761 (761) 7,063 11,431 4,104 7,327 11,431 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 £4,503k (2020: £4,209k). This comprises the payment of lease liabilities of £3,742k (2020: £3,722k) and the interest paid £761k (2020: £487k). The Group has a number of leases within the business including properties for installtion 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 £680k (2020: £915k) and relates to contributions paid into a money purchase scheme in the period. 28 Commitments In 2021 the Group committed to incurring capital expenditure of £11k (2020: £nil) for the purchase of plant and machinery that will be delivered in 2022. 102 Annual Report & Accounts 2021 Annual Report & Accounts 2021 103 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 LTIP 2021 LTIP 2020* LTIP 2019 LTIP 2019 Grant date Vesting date Lapsing date Risk free interest rate Expected volatility Expected option life (in years) Dividend yield Weighted average exercise price Weighted average fair value of options granted Remaining contractual life 10/06/2021 10/06/2024 10/06/2031 0.11%-0.15% 76.58%-81.87% 2.56-3.00 4.54% £0.00 45.43p-54.89p 9.44 22/02/2021 30/06/2023- 22/02/2024 22/02/2031 0.00%-0.03% 73.26%-80.14% 1.85-3.00 0.00% £0.00 22.20p-44.40p 9.15 25/06/2019 25/06/2022 27/06/2019 27/06/2022 25/06/2029 0.52% 61.22% 3.00 0.00% £0.00 64.70p 7.49 27/06/2029 0.56% 60.79% 3.00 0.00% £0.00 65.20p 7.49 Style Group Holdings Limited Style Group UK Limited* HPAS Limited* Windowstyle UK Limited* Safestyle Windows 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. *LTIP’s granted on 22 February 2021 were awarded in respect of ﬁnancial year 2020. These are therefore named ‘LTIP 2020'. 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: 30 Related party transactions During ﬁnancial year 2021 there were no related party transactions. 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 Outstanding at start of the year Granted during the year Exercised during the year Outstanding at end of the year Exercisable at end of the year 2021 2020 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 1,556,482 - (1,556,482) - - £nil - £nil - - - 1,556,482 - 1,556,482 - - £nil - £nil - At the end of the ﬁnancial year 2021, the Group had the following share based payment arrangements: The following information is relevant in the determination of the fair value of the options. At the end of the ﬁnancial year 2021, the Group had the following share based payment arrangements: LTIP The Group operates an equity-settled LTIP remuneration scheme for Directors and certain management ("LTIP 2019", "LTIP 2020" & "LTIP 2021"). 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 the year Granted during the year Lapsed during the year Outstanding at end of the year Exercisable at end of the year 2021 2020 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 3,132,989 2,994,186 (2,274,459) 3,852,716 - £nil £nil £nil £nil - 3,224,825 - (91,836) 3,132,989 - £nil - £nil £nil - 2021 options are valued using both the Black-Scholes option pricing model and Monte-Carlo simulation. Prior to 2021, all options were 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 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 29.00p 0.00 104 Annual Report & Accounts 2021 Annual Report & Accounts 2021 105 30 Related party transactions During ﬁnancial year 2021 there were no related party transactions. During the year, Safestyle UK plc charged management charges to subsidiaries of £3.4m (2020: £2.4m) and received no dividends (2020: £nil). At the year end, total amounts receivable from subsidiaries were £17.8m (2020: £17.5m). 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 LTIP 2020" & "LTIP 2021"). The Group operates an equity-settled LTIP remuneration scheme for Directors and certain management ("LTIP 2019", "LTIP 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: Safestyle UK plc Strategic Report Governance Financials Notes to the Consolidated Financial Statements 32 Share based payments (continued) SAYE On 11 November 2021, the company launched a new share save (SAYE) scheme ("SAYE 2021") in addition to the existing schemes ("SAYE 2019" and “SAYE 2020”) 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: Outstanding at start of the year Granted during the year Cancelled during the year Lapsed during the year Outstanding at end of year Exercisable at end of the year 2021 2020 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 2,019,077 1,084,986 (237,979) (574,817) 2,291,267 - £0.39 £0.43 £0.65 £0.49 £0.36 - 933,817 1,092,160 - (6,900) 2,019,077 - £0.59 £0.23 - £2.51 £0.39 - 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) Dividend yield Weighted average exercise price Weighted average fair value of options granted Remaining contractual life SAYE 2021 SAYE 2020 SAYE 2019 11/11/2021 11/11/2024 11/05/2025 0.62% 70.15% 3.25 5.80% £0.43 22.43p 3.36 11/11/2020 11/11/2023 11/05/2024 0.02% 80.01% 3.36 0.00% £0.23 23.23p 2.36 07/06/2019 01/07/2022 31/12/2022 0.49% 59.24% 3.32 0.00% £0.72 43.30p 0.99 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 the year Exercised during the year Outstanding at end of the year Exercisable at end of the year 2021 2020 Number of share options Weighted average exercise price Number of share options Weighted average exercise price 250,000 (250,000) - - £nil £nil - - 250,000 - 250,000 125,000 £nil - £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. Grant date Vesting date Lapsing date Risk free interest rate Expected volatility Expected option life (in years) Dividend yield Weighted average exercise price Weighted average fair value of options granted Remaining contractual life The total share based payment charges comprise: Equity settled - LTIP Equity settled - RSA Equity settled - SAYE Equity settled - Alan Lovell Options Alan Lovell Options 20/12/2018 16/07/2021 20/12/2028 0.73% 63.50% 1.57 0.00% £0.00 86.30p 0.00 2021 £000 224 318 122 23 687 2020 £000 137 134 74 79 424 106 Annual Report & Accounts 2021 Annual Report & Accounts 2021 107 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. Safestyle UK plc Strategic Report Governance Financials Notes Notes to the Consolidated Financial Statements 33 Contingent liability The Group uses the services of a large number of self-employed individuals for marketing, sales, surveying and installation purposes. As disclosed for the last two years, 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 five years although there has been no contact from HMRC in over two years 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 two years, 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. 34 Post-balance sheet events The Group was hit by a cyber attack, emanating from Russia, at the end of January 2022. Immediately following the incident, there was a short term impact on the Group's operations as it implemented business continuity workarounds as it recovered its systems. The Group now has all its core systems back up and running. Aside from the impact above, no consequential cash outﬂows as a result of the attack are expected and this is treated as a non-adjusting event as it occurred after the balance sheet date. Full details of the incident, as well as the response by the Group, are included within the 'Current trading and outlook' section of the CEO's Statement. Notes 108 Annual Report & Accounts 2021 Annual Report & Accounts 2021 109

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