METZO GmbH

Vita (Lux III) S.à r.l

Luxemburg

Konzernabschluss zum Geschäftsjahr vom 01.01.2021 bis zum 31.12.2021

Société à responsabilité limitée

Consolidated financial statements for the year ended 31 December 2021

Contents

Management report

Independent auditors' report to the Partners of Vita (Lux III) S.à r.l

Consolidated income statement for the year ended 31 December 2021

Consolidated statement of comprehensive income for the year ended 31 December 2021

Consolidated balance sheet as at 31 December 2021

Consolidated statement of changes in equity for the year ended 31 December 2021

Consolidated cash flow statement for the year ended 31 December 2021

Notes to the consolidated financial statements

Management report

The management present their report and the audited consolidated financial statements of the Group (Vita (Lux III) S.à r.l (the "Company") and its subsidiary undertakings) for the year ended 31 December 2021.

Overview of performance during 2021

Financial Highlights

^* Earnings before finance costs, taxation, depreciation, exceptional items, impairments and amortisation (EBITDA) are in respect of the Group, including both continuing and discontinued operations.

Building on a resilient trading performance in 2020, the Group planned for material growth in 2021 underpinned by significant investments in capability, capacity and innovation, as well as continuing recovery in those markets most affected by the Covid pandemic.

The Group's trading performance over 2021 has been strong, especially in the first half of the year prior to the development of multiple challenges in the supply chain including shortages of materials, labour, and the continued impact of CO VID-19 on logistics and personnel. These challenges have been significant and have affected all areas of the business, although in most of the markets served by the Group, including bedding and furniture, volumes and profitability have continued to grow, and the scale and diversification of the Group have helped limit exposure to the worst affected markets (automotive and aviation).

A key highlight has been the successful acquisition of three businesses in 2021, including the Group's first foaming facility in Italy, as well as two UK based businesses, one of which substantially increases the Group's mattress production capability, while the other provides specialist Technical foam products. All of these acquisitions support the Group's growth strategy and will provide access to new markets or grow the Group's presence in existing markets.

The Group has also launched a new Environment, Social & Governance (ESG) policy in 2021, as well as continuing to develop products from recycled or more sustainable sources. This underpins the Group's commitment to sustainable business and creates a roadmap of further ESG initiatives, which the Group's leadership believe will be pivotal in the years ahead.

The VMT (Vita Management Team) is very well supported by the Group's ultimate controlling party, investment funds managed by Strategic Value Partners LLC or its affiliates ("SVP Global"), which purchased the Group in May 2018, and has continued to support a structured programme of business and performance improvements and investments despite the pandemic.

This programme of improvement initiatives includes the following:

Financing

At 31 December 2021, the Group had cash and cash equivalents of €31.2m (2020: €73.1m). Cash and cash equivalents comprise cash in hand, current balances with banks and similar institutions and highly liquid investments with maturities of three months or less. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value.

In June 2021, the principal facility agreement available to the Group was refinanced with a new Senior Facilities Agreement (SFA) which contains a super senior committed Revolving Credit Facility (RCF) for €30.0m maturing in December 2026. €10.0m was withdrawn from the RCF as at 31 December 2021 (2020: undrawn). Certain assets of several Group companies, in a number of countries, are pledged to the financing institutions participating in the Senior Facilities Agreement.

The carrying amount of these assets as at 31 December 2021 was €0.2m (2020: €43.6m), comprising €nil (2020: €36.6m) of cash and cash equivalents (notes 15 and 19), €0.2m (2020: €0.2m) of financial derivatives (notes 18 and 19) and €nil (2020: €6.6m) of trade and other receivables (notes 14 and 19). Such pledged assets can be used by the financing institutions participating in the Senior Facilities Agreement to offset any losses in the event of an acceleration of any amounts outstanding relating to the Senior Facilities Agreement.

In addition, the SFA contains a Term Loan B for €250.Om (2020: €90.0m). In June 2021, Vita Global Finco Limited, a parent company of the Company, secured a term loan of €250.0m as part of a Senior Facilities Agreement (SFA), which matures in June 2027. Part of this loan was used to pay back the €90.0m term loan. The Revolving Credit Facility was also refinanced to €30.0m bearing an initial interest margin of 3.50%, which is going to reduce by 0.25% for every quarterly reduction in Senior Secured Net Leverage up to 2.75%. In September 2021, an additional Term Loan B for £75.0m was taken out as an Additional Facility within the SFA. The loan was used to help a subsidiary undertaking fund an acquisition. The Group also paid off an unsecured loan of €3.0m in relation to a French subsidiary.

The Group had a €50m pan-European non-recourse factoring facility with FactoFrance SA where certain trade receivables from UK, France, Germany, Poland, Netherlands, Lithuania and Romania were sold to FactoFrance. On 26 October 2021, the Group replaced the FactoFrance facility with a receivables securitisation funding programme (the "Lex" facility) maturing in October 2023. Certain trade receivables from UK, France, Germany, Poland, Netherlands, Lithuania, Romania and Hungary are sold to Vita Lex DAC, a special purpose entity not under the control of the Group. The facility was drawn approximately to €59.0m as at 31 December 2021 (2020: €40.5m for the FactoFrance facility). In connection with the Lex facility, the Group subscribed to a Senior Subordinated Note and Junior Subordinated Note (note 12) which are recognised in the Group's balance sheet as at 31 December 2021.

Group Description

Overview and principal activities

The Group was founded in 1949 and is Europe's leader in flexible polyurethane ("PU") foam technology and solutions; for example, Furniture, Bedding, including BiB finished mattresses, mobility and medical solutions; latex foam products, liquid compounds and expanded polystyrene providing differentiated applications for customers in the Comfort, Technical and Flooring markets.

The Group's products and solutions cater for a very wide range of applications in a large number of end markets including mattresses and pillows, acoustic/noise control, automotive, construction, consumer, filtration, flooring, furniture, healthcare, insulation, hygiene, packaging, sports mats, sports shockpads, telecommunications and transportation. During 2021, the Group operated in 15 countries on 37 sites.

The Company is a limited liability company incorporated and domiciled in Luxembourg. The address of its registered office is 15, Boulevard F.W. Raiffeisen, L-2411 Luxembourg, R.C.S. Luxembourg: B107 582.

Business Review

Strategy

The Group is very well positioned to leverage its scale, diversification, capabilities and footprint to grow revenues and profitability materially over the coming years in a sustainable manner. Building on its leading positions, the Group has clear plans for growth in each of its divisions through the following levers:

2021 Review and Outlook

In 2021, the Group's sales value increased overall vs 2020, driven by a combination of organic growth, new acquisitions, and higher raw material input pricing being passed on. The Covid pandemic has continued to create supply chain challenges and raw material prices remain high, however the Group has managed these challenges, securing the materials required to supply its customers and delivering its highest EBITDA in recent years.

The Group has made three acquisitions in 2021;

Profitability, both in terms of margin and absolute EBITDA, has increased in 2021 due to these acquisitions, but also organically as the Group has continued to invest in an array of improvement initiatives of both an operational and a commercial nature. Investment has also been made in production capacity and this continues to be the case as the Group looks towards further growth across its portfolio in 2022.

Research and development

The Group continues to invest in research and development, as it is considered necessary for its continuing success in the medium to long-term future. Many developments are pioneered through partnerships with suppliers and customers and development expenditure is charged to the Income Statement in the period in which it is incurred or capitalised under IFRS, when relevant conditions are met.

During 2021, the Group operationalised its four innovation centres. Three of the centres are located in the UK, focused on bedding, technical foams and flooring/reprocessed foam products. One centre, located in Lithuania, focuses on chemical formulation development. The innovation centres will help to drive continuous new product development and support the sustainability goals of the Group. In addition, the innovation centres focus on accelerating the speed of our sustainability developments in key areas such as wet chemistry.

Business Review

Environment, Social & Governance (ESG)

In 2021, the Group commenced activity on its "enhancing everyday life" ESG vision. The vision document outlines the Group's successes to date, its ambitious goals and case studies that demonstrate that it has the capability to meet those goals. The vision has four core principles:

A number of key activities took place during 2021 including green-house gas mapping, setting Science Based Targets in line with the Science Based Targets Initiative (SBTi). The Vita Group has modelled and committed to a challenging target of reducing Scope 1 and 2 emissions by 46% by 2030. Additional developments took place in product circularity, with the Orbis™ programme becoming operational where 'repolyol' materials are being used.

Health & Safety

The Group believes that strong Safety, Health and Environmental (SHE) risk management is a moral and commercial imperative and underpins the Group's values and provides a framework and focus for risk reduction in operations.

The Group's policy states it will work hard to protect its employees and others who could be affected by the Group's work. Legal compliance is the minimum acceptable standard, and the Group will strive continually to improve its performance. The Company recognises the contribution all employees must make to achieve this. As an indication of its importance, these areas are the first items at VMT, management and regional meetings. All accidents, incidents, near misses and hazards are recorded in a standardised format. Any Fatality (of which there were none), Lost Time Accident (LTA), Major Injury or Major Incident report would be issued immediately to the VMT. The person responsible for risk management at the affected site must communicate with site management. An initial report detailing the nature and circumstances of the incident is submitted as soon as possible and in any event within twenty-four hours.

All Group businesses share the same policy framework, with a single group-wide Safety Policy that encompasses the overall safety objectives for the Group. This is then supported by Mandatory Policies and Mandatory Standards on higher risk activities. In addition, each Vita site has "Cardinal Rules" that explain the safety rules for their site. The overarching Health & Safety Policy summarises the belief that all injuries and occupational illnesses are preventable and, therefore, the ultimate goal is to achieve zero reported events. The Health & Safety Standards highlight key areas where there are clear policies and guidance on safety critical tasks and operations. These are 'black and white' standards that must be adhered to and these help in the Group's relentless pursuit of an injury free workplace, ensuring a safe environment for the Group's employees and those working on or near Group sites. The Health & Safety Policies are documents that underpin everything the Group does; they set out the Group's fundamental objectives and define a system of principles and procedures to guide decisions. All operational policies are available in Dutch, English, French, German, Hungarian, Italian, Lithuanian, Polish, Romanian, Slovakian, Serbian, Croatian, Bulgarian and Mandarin (Chinese); these being the local languages for all block foam and liquid compounding production sites. Follow-up support is provided to the local business leader directly responsible for SHE management and SHE advisers, as well as senior managers.

The index of LTAs per one hundred thousand hours worked is measured monthly at all businesses and collated for the Group. The target for 2021 was to achieve a lost time incident frequency rate (LTIFR) per one hundred thousand hours of 0.55. In 2021, the Group achieved an LTIFR of 0.39 (i.e., exceeded its target), a significant improvement over the previous two years (2020: 0.65, 2019: 0.80).

Safety is an area where complacency is not tolerated and a significant programme of training and support for employees has been developed. Vita Towards Zero (VTZ) was launched in 2016 and continued during 2021. This programme follows the Milliken model for health and safety, which engenders a cultural move towards behavioural safety systems, and will continue into 2022. In 2021, this programme was supplemented with a behavioural safety approach in partnership with DuPont Sustainable Solutions called VTZ: Behavioural Safety. This programme involved all managers in the Group being trained by DuPont and all employees in the Group being trained by Safety Champions. This training focussed on creating a safe working culture and improving safe behaviours.

In addition, the Group has continued to embed Policies and Mandatory Standards with a two-year roll-out plan. In 2022, these will focus on areas such as 'working at height', 'management of change' and 'road safety'.

Relations with stakeholders

During the year the Board and VMT review key stakeholder impacts and relationships as part of regular business management and when making key decisions. Although the Group has multiple stakeholders, the Board considered that its key stakeholders were:

Shareholders, leadership and management structure

The Boards' engagement with the shareholders is primarily through the VMT, as detailed below. The Company does not have a formal dividend policy.

The Group includes two divisions. Comfort and the Technical and Flooring division, of which Comfort is the largest. During 2021, the Group was managed for all matters, including business ethics, by the VMT, which consists of the Group Chief Executive Officer ('CEO'), Group Chief Financial Officer ('CFO'), Managing Director Comfort Division, Managing Director Technical and Flooring Division, General Counsel and Company Secretary, Human Resource (HR) Director, Procurement Director, M&A and Transformation Director and Chief Technology Officer.

Compliance to company policies (including human rights and labour practices)

The Group's business relies heavily on the skills and experience of its employees. It prides itself on the fact that it operates businesses locally, with local managers, while supporting these leaders and businesses with strong fit for purpose frameworks, policies, tools and guidelines. The Group has spent time building its leadership teams ensuring that the leaders understand the Group's ethical business practice, its strategy, the associated business challenges and their roles in leading and engaging their teams. The Group's Code of Business Conduct summarises the Group's policies and supports managers in upholding the highest standards of business practice throughout the Group. Metrics including mandatory training are tracked to ensure behaviours are aligned with the Group's Code of Business Conduct.

All senior managers, customer facing and purchasing employees are supported in their understanding of the high standards of ethics and business practice expected by the Group. The management structure and regular 'face to face' meetings allow coaching and discussion about issues. Since 2011, to reinforce understanding of the Group's business ethics, this group of employees undertake online training offered in 15 languages. Group-wide online compliance training on Economic Sanctions and Trade, IT/Document retention/Data security/GDPR, Anti-Bribery and Corruption and Competition has been undertaken by these employees. Each online employee makes an annual affirmation of the Anti-bribery and Corruption Policy and Competition Policy.

Employees, human rights and labour practices

The Group seeks to engage positively with its employees and embraces everyone's talents and abilities, and values diversity. It does not unfairly discriminate and respects human rights. It seeks to recruit people who are committed to the business and to provide opportunities for employees to progress within the organisation on the basis of their skills, experience and aptitude.

The Group encourages involvement of its employees in the performance of the business and aims to achieve a sense of shared commitment. The Group produces regular communications from the CEO to share experiences and achievements. The Group has an intranet, which is a central portal for information on projects, SHE matters and policies. The VMT encourages honest, straightforward two-way communication. Announcements are periodically circulated to give details of commercial and staff matters. Notice boards are positioned at strategic locations at all sites, to ensure employees are informed on SHE matters as well as providing information relating to performance and projects. Posters providing information about the Group's Whistleblowing Policy are shown on employee notice boards at all sites. The Board and VMT have direct engagement with employees during site visits and other business management activities. Throughout the pandemic period, regular video call interaction has also taken place in a structured manner across the Group.

Employment policies

The Group has standards of business conduct with which it expects all its employees to comply. The Group is committed to employment policies which follow best practice and are based on respect and equal opportunities for all employees, irrespective of gender, religion or belief, age, racial or ethnic origin, sexual orientation or disability. To avoid any issues arising from any conflicts of interest between the interests of the business and any personal interests of the employee, employees are encouraged always to disclose any potential or actual conflicts of interest to their manager or HR representative. In February 2021, eight group-wide HR Policies were launched that include matters such as our people commitments, diversity, recruitment, onboarding and offboarding approaches. In 2022, a number of additional activities are planned, including a group-wide employee survey and launching a 'job chat' process so that all employees receive some form of career-based dialogue. Additionally, learning and development opportunities are being offered with performance management training planned, and leadership development programmes too.

Remuneration

The Group recognises that its approach to reward is a critical factor to both attract and retain its employees and drive a performance culture. The Group offers a competitive reward package at all levels within the business. Performance, at all levels, is assessed against measures and targets that are relevant to the Group's business.

For management, the performance metrics that are used for its annual bonus have been selected to reflect the Group's key performance indicators, covering both financial and non-financial indicators including SHE, environment and compliance.

VMT and management remuneration:

Remuneration approaches and their application are determined by the Group Remuneration Committee consisting of a shareholder representative, the Group Chairperson and Group CEO. The executive remuneration arrangements aim to be simple and transparent for both employees and shareholders. One of the Group's main objectives is to build shareholder value sustainably. The Group's strategic focus places great importance on creating that value through high operating performance as well as successful corporate finance activity.

The remuneration framework is designed to reinforce the link between pay and performance rewarding senior managers for delivering the Group's strategy. For these people, the focus is on cash and variable pay rather than fixed benefits. The reward package includes an annual performance-driven bonus, based on personal objectives and the key performance indicators of the Group (for VMT), or the performance of the operating entities on which the individual manager's performance has a direct impact (for management). This encourages all its managers to contribute towards achieving the Group's strategic objectives and enables them to share in the Group's success.

Employees' remuneration:

Except where specific bargaining arrangements apply, local management reviews salaries, wages and benefits annually in line with market rates to ensure continued alignment. In addition, the Group offers pension schemes to all employees.

Financial KPIs

Every company in the Group produces monthly reporting packs containing its financial results and these are consolidated and submitted to the divisional leadership teams, the VMT and the Board for review. There are a range of KPIs which are reviewed, with significant focus on:

The financial KPIs are measured in absolute terms as a % of revenue and, in addition, working capital is also measured on days sales outstanding, days purchases outstanding and days inventory in hand.

Non-financial KPIs

There are three non-financial key performance indicators, which are:

Gender Pay Reporting

The Group's Gender Pay Report for 2021 was published on the Group website in accordance with the Equality Act 2010 Regulations (Gender Pay Gap Information) for its UK businesses. The VMT will continue to review this information and ensure that the key principle of equal pay for work of equal value remains an important legal and moral commitment.

Gender diversity

The analysis below shows the gender diversity of employees in 2021, across all businesses worldwide and is split between the Board of Directors of Vita (Lux III) S. á r.l and the VMT/Senior Managers. VMT/Senior Managers consists of the VMT', business managers and financial controllers for each of its operating businesses plus senior personnel in the support functions (i.e., Treasury, Tax, Human Resources, Legal and Communications). At the financial year end the breakdown was:

Equality and diversity

Capitalising on individual employees' unique qualities and drawing on their different perspectives and experiences adds value to the way the Group does business. The Group recognises that a diverse workforce provides an insight into different markets and helps the Group to anticipate and provide what is required in those markets.

Human rights

The Group supports and respects the protection of internationally proclaimed human rights in the Ten Principles of the UN Global Compact and will not tolerate human rights abuses. The Group upholds the freedom of association and the effective recognition of the right to collective bargaining. It has no tolerance to all forms of forced and compulsory labour or child labour and does not discriminate in respect of employment and occupation.

The Group's Slavery and Human Trafficking Statement sets out the steps the Group has taken during 2021 to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its business. This statement is published on its website in accordance with the requirements of the UK Modem Slavery Act. The Group adheres to the regulatory requirements of the countries where it operates and, therefore, believes the risk of breaches in human rights is low. The Group's Supply Chain Responsibility Policy outlines the expectations of its relationships with its supply base. During 'face to face' meetings in 2021, major suppliers were asked to confirm agreement to respect employee rights to choose employment freely, freedom of association, working hours that comply with national laws, equal opportunities (irrespective of gender, religion or belief, age, racial or ethical origin, sexual orientation or disability), recognised employment relationships, freedom from intimidation and to a safe and healthy working environment. Our major suppliers are all large Multinational organisations, and they direct us to the relevant policies displayed on their websites and confirm that they comply with their policies during the meetings.

Business ethics

The Group's business ethics are outlined in its Code of Business Conduct, which includes guidance on recording and avoiding conflicts of interest. The code is signed and championed by the Group CEO and available in 15 languages, so all employees can read and be familiar with the Group's conduct expectations. More detailed guidance is contained in the Group's policies which are available on the Group intranet.

The Group's Whistleblowing Policy is available in 15 languages. The Group has a recognised procedure for investigating whistleblowing concerns, and there is supporting information available on the Group intranet. All policies are reviewed annually in light of any internal or external changes. This review and any amendments are presented to the Board of Directors.

Key business relationships - customers

Strong customer relationships are critical to the business. Dedicated sales professionals work with customers in all markets and geographies to understand their needs. The Board and VMT received regular information on customers in business reports that are discussed at management meetings. As detailed in the employee section, all customer facing and purchasing employees are supported in their understanding of the high standards of business ethics expected by the Group through the management structure.

Online training is offered in local languages on Economic Sanctions and Trade, Purchasing and Marketing Code of Ethics, Anti-Bribery and Corruption, Competition Law and Whistleblowing.

Creditor payment policy and practice

The Group does not follow any specific external code or standard on payment practice. Its policy is normally to pay suppliers according to the terms of business agreed with them on entering into binding contracts, and to keep to the payment terms providing the relevant goods or services have been supplied in accordance with the contracts.

Key business relationships - suppliers

The Group's procurement team has developed Category Management plans for each spend area and has a dedicated team of purchasing professionals, who work closely with its suppliers. Each supplier is dealt with in accordance with the Group's Supply Chain Responsibility Policy, which outlines the Group's expectations of its relationships with its supply base; this includes the Group's Purchasing Code of Ethics, Ethical Standards, Environmental Standards and Health & Safety Standards. The Group works collaboratively with suppliers in pursuit of this policy. The Group has diversified sourcing, ensuring materials are obtained with the expected quality and ensuring continuity of supply across our portfolio. The Board and VMT receive regular information on suppliers in business reports that are discussed at management meetings.

Social and community

The Group is aware of its social responsibilities to the communities where it operates. There is no policy that applies to all sites and management at each site uses discretion when supporting local community activities. Generally, all units communicate with local residents about changes in activities that may impact on, or be of interest to, the local community, such as informing them of onsite training with the fire services or significant changes to plant layout. In addition, sites may have involvement with local community groups and schools.

The Group does not have a formal process for recording community activities since these are arranged in response to local conditions and there is no target set for the number of events. Businesses are encouraged to share reports on their community activities through the Group's Yammer site.

Environment

The Group recognises the importance of its environmental responsibilities through its Sustainability Policy and associated ESG policies. The Group complies with all local, national and international legislation with respect to the transportation, storage and use of hazardous chemicals. It supports a precautionary approach to environmental challenges. Some operations do have small amounts of permitted emissions, and continued efforts are made to reduce and eliminate any environmental impact. The Group's operations have some environmental impact principally derived from greenhouse gas emissions which arise from electricity, gas and oil consumption used for heat, light and power. It undertakes initiatives to promote greater environmental responsibility and encourages the development and sharing of environmentally friendly technologies. In 2021, the Group modelled its greenhouse gas emissions to accurately measure Scope 1 and Scope 2 emissions and set specific targets, in line with the Science Based Targets Initiative (SBTi). These targets were set at a 46% reduction by 2030. In addition, through switching to green electricity and to energy attribute certificates (EACs) where green electrons where not available, the Group has cut its scope 2 emissions by over 99% in 2021. This is a significant achievement of which the Group is very proud.

The Group designs and implements policies to reduce any environmental damage that might be caused by its activities and regularly reviews its performance. Recycling opportunities are actively sought to reduce the volume of waste sent to landfill, this includes the reuse of trim, a by-product of the Group's conversion processes. When making any strategic business investment, sustainability issues will be embedded in the scope and specification, as these often create an opportunity to improve processes and reduce environmental impact.

The Group's key energy reduction projects are:

Environmental incidents are reported immediately to the VMT. At 31 December 2021, there were no prohibition/improvement/non-compliance notices at any sites across the Group. The Group's Sustainability Policy is available on the Group intranet and has been communicated to all business leaders and employees; it is also available on the Group's website.

In 2022, we will be producing our first annual sustainability report: an annual commitment to provide transparent data on our operational performance. Ambitious targets are being set by the Group with the aim of positioning the Group as the leader on the ESG agenda in the flexible PU foam industry. This includes the creation of a specific Group Sustainability Policy, which was released in March 2021. These targets include the following:

Regulators and Trade Associations

Operating in a regulated industry, the Group's employees have the expertise and networks to foresee and respond to opportunities and challenges. The Group is committed to transparency and trust and supports legislative and regulatory change, such as climate change including the introduction of the Streamlined Energy & Carbon Reporting (SECR) from 2020. The Group's employees, particularly product and quality specialists, are members of specific industry associations. The Group attends meetings with local government and emergency services to ensure legislative compliance is maintained. The Group has been involved in establishing best practice and producing guidelines and standards to enhance customer safety and product quality. Similarly, as many of our sites are regulated by the SEVESO Directive, these sites undertake frequent audits including on key areas such as management of chemicals and exothermic reactions. In addition, the SEVESO sites are subject to frequent audit by local regulators.

Reducing risk through business controls

The VMT and the Board are mindful of the risks and uncertainties facing the Group and have implemented controls that aim to mitigate or reduce these risks. Review of internal controls and identification of key risk areas is ongoing and a live process.

Strong ownership by the divisional leadership teams, supported by central functional expertise, is designed to provide a robust platform for sustained improvement in business performance and delivery of the growth strategy.

Risk is regularly reviewed by the VMT, risk findings are evaluated and action plans drawn up aimed at mitigating risks and reinforcing controls as appropriate. The Group has brought together the various separate general commercial and business risk insurance policies into one consolidated global policy umbrella wherever possible.

Future developments

The Group continues to pursue its strategy of growth through product innovation in our key Comfort and Technical and Flooring foam markets. Through investment in Innovation centres, new production capabilities and skilled resources, to enable new product development and productivity improvements, our products are developed in partnership with our customers to be beneficial and competitive on a worldwide scale. The Group has particular focus on developing sustainable solutions to lead the industry towards a fully circular economy and contribute to Net Zero efforts.

Research and development

The Group continues to invest in research and development, as it is considered necessary for its continuing success in the medium to long term future. Development expenditure of €0.6m was expensed in the financial year (2020: €0.6m).

Political and charitable contributions

Charitable contributions amounting to €6,159 (2020: €nil) were made by the Group during the year. No political donations (2020: €nil) were made by the Group during the year.

Dividends

In 2021, the Company did not pay a dividend to its immediate parent company, Vita Global Limited (2020: €nil).

Going concern

The Company has received written confirmation from its indirect parent company, Vita Global Finco Limited, that it is its current intention to provide its support to the Company, in order for the Company to continue to operate on a going concern basis. The directors have assessed the Company's going concern status using all available information and considered the foreseeable future. Following this assessment, the directors conclude that there are no material uncertainties related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern.

Subsequent events

At this time, the Directors do not believe that Group will be directly affected by the tragic conflict between Russia and the Ukraine. None of the Group's manufacturing, nor that of our key suppliers, takes place in the region, and our customers' operations there are very limited. We do not expect any disruption to the supply chain relating to the Group's raw materials, although the conflict has impacted global energy markets and we are seeing rising energy (oil & gas) and electricity prices. Over the medium term, we expect that these events will further accelerate the UK and Europe's transition away from oil and gas towards clean energy. Depending on the outcome and duration of the conflict, there may be longer-term indirect impacts on the industry that are more difficult to forecast. We will continue to monitor the situation actively and comprehensively as it continues to develop.

Audit report

To the Partner of Vita (Lux III) S.à r.l.

Report on the audit of the consolidated financial statements

Our opinion

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of Vita (Lux III) S.à r.l. (the "Company") and its subsidiaries (the "Group") as at 31 December 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

What we have audited

The Group's consolidated financial statements comprise:

Basis for opinion

We conducted our audit in accordance with the Law of 23 July 2016 on the audit profession (Law of 23 July 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier" (CSSF). Our responsibilities under the Law of 23 July 2016 and ISAs as adopted for Luxembourg by the CSSF are further described in the "Responsibilities of the "Réviseur d'entreprises agréé" for the audit of the consolidated financial statements" section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants, including International Independence Standards, issued by the International Ethics Standards Board for Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the consolidated financial statements. We have fulfilled our other ethical responsibilities under those ethical requirements.

Other information

The Board of Managers is responsible for the other information. The other information comprises the information stated in the Management report but does not include the consolidated financial statements and our audit report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Managers for the consolidated financial statements

The Board of Managers is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs as adopted by the European Union, and for such internal control as the Board of Managers determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Managers is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Managers either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Responsibilities of the "Réviseur d'entreprises agréé" for the audit of the consolidated financial statements

The objectives of our audit are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on other legal and regulatory requirements

The Management report is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal requirements.

Consolidated income statement for the year ended 31 December 2021

The profit for the year is all in respect of continuing operations.

The accounting policies and notes on pages 22 to 67 form part of these consolidated financial statements.

Consolidated statement of comprehensive income for the year ended 31 December 2021

There was no income tax relating to the components of other comprehensive income above.

The accounting policies and notes on pages 22 to 67 form part of these consolidated financial statements.

Consolidated balance sheet as at 31 December 2021

The consolidated financial statements and notes on pages 17 to 67 were approved by the Board on 30 June 2022 and were signed on its behalf by:

The accounting policies and notes on pages 22 to 67 form part of these consolidated financial statements.

Consolidated statement of changes in equity for the year ended 31 December 2021

Consolidated cash flow statement for the year ended 31 December 2021

The accounting policies and notes on pages 22 to 67 form part of these consolidated financial statements.

Notes to the consolidated financial statements

Section I: Accounting policies

Compliance with applicable law and International Financial Reporting Standards

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) guidance as adopted by the European Union.

Going concern

The Company has received written confirmation from its indirect parent company, Vita Global Finco Limited, that it is its current intention to provide its support to the Company, in order for the Company to continue to operate on a going concern basis. The directors have assessed the Company's going concern status using all available information and considered the foreseeable future. Following this assessment, the directors conclude that there are no material uncertainties related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern.

Accounting principles and policies

The preparation of the financial statements in conformity with IFRS requires the use of critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed on page 28.

The financial statements have been prepared in accordance with the Group's accounting policies approved by the Board and described below. Accounting policies of subsidiary undertakings are consistent with the policies adopted by the Group under IFRS. These policies have been consistently applied to all years presented, unless otherwise stated.

Basis of consolidation

The consolidated financial statements are presented in Euros, which is the Group's functional currency. The consolidated financial statements include the functional statements of the Group and its subsidiary undertakings controlled by the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity, in order to obtain benefits from its activities.

A list of subsidiary undertakings, which in the opinion of the Board principally affected the amount of profit or net assets of the Group, is given in note 27, 'Principal Subsidiaries'.

The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings and associates acquired or disposed of in the year, including businesses acquired as major asset purchases, are included in the Consolidated Income statement from the date of acquisition or up to the date of disposal.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Section I: Accounting policies

New accounting standards and IFRS IC interpretations

The Group has adopted the following new and amended IFRSs in all periods presented in the consolidated historical financial information:

The amendment listed above had no impact on prior periods as the Group do not expect to affect the current or future periods significantly.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

Early adoption of standards

The Group has not adopted, and does not intend to adopt, any standards early.

Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the carrying amount recognised in profit or loss. Any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related asset and liabilities. This may mean that amounts previously recognised in other comprehensive income, such as foreign exchange relating to the overseas entity disposed, are reclassified to profit or loss.

Foreign currency transactions

The results of overseas subsidiary undertakings and associates are translated into Euros using the average rates of exchange during the year. Foreign currency monetary assets and liabilities are translated into Euros at year-end closing exchange rates. The results and financial position of foreign operations that have a functional currency different from the presentation currency, are translated into the presentation currency as follows:

Derivative financial instruments

The Group uses derivative financial instruments to reduce exposures to foreign exchange risk. The Group does not hold or issue derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies adopted by the Board.

Derivative financial instruments are initially recognised at fair value on the date that a derivative contract is entered into, and they are subsequently re-measured to their fair value at the end of each reporting period. Changes in the fair value are recognised in income statement as they arise. The fair values of derivative financial instruments are disclosed in notes 18 and 19. They are classified as a non-current asset or liability, when the remaining maturity of the hedged item is more than twelve months, and as a current asset or liability, when the maturity is less than twelve months.

Property, plant and equipment

Property (which comprises freehold and leasehold land and buildings), plant and equipment (including vehicles) are stated at cost, net of depreciation and any provision for impairment. Cost includes expenditure attributable to the acquisition of the items. Financing costs are capitalised within the cost of qualifying assets in construction.

Right-of-use assets

Right-of-use assets are measured at cost comprising the following:

Depreciation

Depreciation of property, plant and equipment is provided at rates estimated to write off the cost less residual value of assets over their useful economic lives, the principal rates of annual straight-line depreciation being:

Property

a) Freehold buildings 2.5%. Freehold land is not depreciated;

b) Leasehold land and buildings 2.5% or over the period of the lease if less than forty years;

Plant and equipment

a) Plant and machinery between 10% and 33.33%;

b) Vehicles between 16% and 25%;

Right-of-use assets

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life;

Residual values and lives are reviewed, and where appropriate adjusted, annually. On disposal of property, plant and equipment, the cost and related accumulated depreciation and impairments are removed from the financial statements and the net amount, less any proceeds, is taken to the Income Statement.

Goodwill and other intangible assets

Goodwill arises on the acquisition of subsidiary undertakings and represents the excess of the consideration transferred over the Group interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree and is stated at cost less impairments. For the purpose of impairment testing, goodwill is allocated to each of the cash generating units (CGUs) or groups of CGUs, which are expected to benefit from the synergies of the combination. Each unit or group of units to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes.

Goodwill is deemed to have an indefinite useful life and is tested for impairment annually. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell Any impairment is recognised immediately as an expense and is not subsequently reversed. On disposal of a previously acquired business, goodwill is included in determining the profit or loss on disposal.

Other intangible assets, which include corporate brands, customer relationships, customer contracts, software, know-how and development costs, are capitalised and amortised over their useful economic lives up to fifteen years on a straight-line basis. Development costs include certain projects where the outcome is assessed as being reasonably certain as regards viability and technical feasibility. Know-how is in respect of acquired know-how.

Corporate brands include Technical Foam Services and Usleep brand names, which the Group uses to sell its products. The Group has direct customer relationships for the supply of its products, which meet the intangible asset recognition criteria of IAS 38. These have been separated by CGU and valued as two cohorts. This is on the basis that the customer pools are relatively homogenous in nature within each CGU and therefore have similar attrition profiles and profit margins. Development costs include certain projects where the outcome is assessed as being reasonably certain as regards viability and technical feasibility. Know-how is in respect of acquired know-how. Customer contracts acquired in a business combnation are recognised at fair value at the acquisition date. They have a finite useful life and are subsequently carried at cost less accumulated amortisation and impairment losses.

The Group amortises intangible assets at the following rates:

Customer relationships between 11.1% and 14.3%

Customer contracts between 9.1% and 12.5%

Corporate brands 6.7%

Other intangibles between 20% and 100%

Leases

The Group recognises lease liabilities in relation to rental properties, plant and equipment, vehicles and other hired equipment, such as office equipment. These liabilities are measured at the present value of the lease payments, discounted using the lessee's incremental borrowing rate.

Practical expedients applied:

In applying IFRS 16, the Group uses the following practical expedients permitted by the standard:

Impairment reviews

Where circumstances indicate that there may have been an impairment of the carrying value of an intangible or tangible fixed asset, an impairment review is carried out using cash flows calculated from budgets and projections approved by the Board which are discounted at the Group's risk-adjusted weighted average cost of capital (WACC), calculated from equity market data and borrowing costs.

Inventories

Inventories are valued at the lower of first-in, first-out cost and net realisable value. Net realisable value is the estimated selling price less any anticipated selling costs. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads allocated on a systematic basis (based on normal operating capacity). Provision is made for obsolete slow-moving or defective items where appropriate.

Trade receivables

Trade receivables are amounts due from customers for merchandise sold in the ordinary course of business. These are carried at original invoice amount less any provision for impairment. The Group applies the impairment model under IFRS 9, which requires the recognition of impairment provisions for financial assets to be based on expected credit losses (ECL). Long-term receivables are discounted where the effect is material. Financial assets are written off when there is no reasonable expectation of recovery, such as an agreed payment plan. The Group categorises a receivable for write off when a debtor fails to make contractual payments more than 120 days past due or when the debtor is no longer able to pay its debts. Where receivables have been written off, the Group continues to engage in enforcement activity to recover the receivable due. When recoveries are made, these are recognised in profit or loss.

A receivable is recognised when the goods are delivered, as this is the point in time that the consideration is unconditional, because only the passage of time is required before the payment is due.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, current balances with banks and similar institutions and highly liquid investments generally with maturities of three months or less. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value. Bank overdrafts are shown as borrowings in current liabilities.

Finance costs

Finance costs are deducted from the carrying value of debt and are recognised in the Income Statement over the term of such instruments at a constant rate on the carrying amount.

Financial liabilities - borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost, any difference between the proceeds, net of transaction costs, and the redemption value is recognised in the Income Statement over the period of the borrowings using the effective interest method.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. These are classified as current liabilities if payment is due within one year or less. If not, they are presented as noncurrent liabilities. Trade payables are held at amortised cost which equates to nominal value. Long-term payables are discounted where the effect is material.

Current and deferred taxation

Current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. It establishes provisions for uncertain tax positions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is provided in full, using the liability method, on temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the financial statements, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying value of deferred tax assets is reviewed at each balance sheet date and is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred tax is based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Retirement benefit obligations

i) Defined benefit pension schemes:

For defined benefit schemes, the cost of benefits accruing during the year in respect of current and past service is charged or credited against operating profit or loss. The expected return on the schemes' assets and the increase in the present value of the schemes' liabilities arising from the passage of tune, are included in finance costs.

Actuarial gains and losses are recognised in full in the year they occur. They are recognised outside the Income Statement and are presented in the Consolidated Statement of Comprehensive Income.

The liability recognised in the balance sheet in respect of defined benefit schemes is the present value of the defined benefit obligations at the end of the reporting year less the fair value of scheme assets, together with adjustments for unrecognised pastservice costs. The defined benefit obligations are calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high- quality corporate bonds that are denominated in the currency in which benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligations. There is a restriction on the surplus recognised in the balance sheet for the UK scheme under IFRS IC 14 'The limit on a defined benefit asset, minimum funding requirements and their interaction'.

During 2019, the balance of the debt instruments was transferred to an insurance company, Aviva Life & Pensions (UK) Limited (Aviva) and is held under an insurance policy. The formal buy out of the scheme and the completion of the scheme wind up happened on 26 May 2022.

ii) Defined contribution pension schemes:

Amounts charged in respect of defined contribution schemes represent the contributions payable in the year and are charged in the Income Statement.

Provisions

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to passage of time is recognised as interest expense.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly.

The Group is exposed to environmental liabilities relating to its operations. Provisions are made immediately where a constructive or legal obligation is identified, can be quantified and it is regarded as more likely than not that an outflow of resources will be required to settle the obligation.

Loss making sites

Where management have identified a site where the trade is loss making but it is uneconomic to close at the present time and it is unlikely to be restored to profitability, a provision has been recognised for the lowest net cost of exiting these units.

Revenue

Revenue is recognised in the Income Statement when goods are supplied to external customers against orders received, title and risk of loss is passed to the customer and all relevant obligations have been fulfilled, such that the earnings process is regarded as being complete. Rebates, discounts and returns are recognised when reliable estimates can be made of these relevant deductions. The Group's sales arrangements do not involve multiple performance obligations, and the Group is not significantly exposed to contracts or other long-term sales arrangements, with sales recognised on delivery or collection of manufactured products, which is generally the point at which the Group's performance obligations have been fulfilled. Transaction pricing is based on sales invoice price and is recognised on fulfilment of the relevant performance obligations.

Revenue represents net invoice value after the deduction of discounts and allowances given and accruals for estimated rebates and returns. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted regularly in the light of contractual and legal obligations, historic trends, past experience and projected market conditions.

Based on the quality assurance system implemented, the Group is confident that a significant reversal in the amount of revenue recognised will not occur. Therefore, no provision is recognised for the Group's obligation to repair or replace faulty products where standard warranty terms apply.

Revenue is after eliminating sales within the Group and excluding value added tax and other sales taxes. All sales are made with an average credit term of 30-60 days.

Section I: Accounting policies

Critical accounting estimates and judgements

The Group's accounting policies have been set by management and approved by the Audit Committee. The application of these accounting policies to specific scenarios requires reasonable estimates and assumptions to be made concerning the future. These are continually evaluated based on historical experience and expectations of future events. The resulting accounting estimates will, by definition, seldom equal the related actual results.

Under IFRS, estimates or judgements are considered critical where they involve a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities from period to period. This may be because the estimate or judgement involves matters which are highly uncertain, or because different estimation methods or assumptions could reasonably have been used.

Critical accounting estimates have been made in the following areas when preparing the Group's financial statements:

Section I: Accounting policies

Exceptional items

Items which are non-recurring in nature, which derive from events or transactions that fall within the ordinary activities of the Group, are presented as exceptional charges or credits in order to provide a better indication of the Group's underlying business performance and are shown separately on the face of the Income Statement.

Government grants

Grants on assets are credited to the Income Statement over the lives of the relevant assets. Other grants are credited to revenue in the period where the expenditure to which they relate is charged. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. They are included within cost of sales, distribution costs and administrative expenses in the Income statement.

Research, patents and trademarks

Expenditure is charged to the Income Statement in the period in which it is incurred. Applied development costs of €0.1m were capitalised in 2021 (2020: €0.4m).

Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders.

Share capital

Shares are classified as equity and any incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. The Group manages its capital structure and makes adjustments to it in light of changes to economic conditions and the strategic objectives of the Group. In order to maintain or adjust the capital structure, the Group might adjust the amount of dividends paid, return capital to shareholders and issue new shares.

Section II: Other notes

1 Acquisitions of businesses

I.M.P.E S.p.A

On 1 March 2021, the Group acquired 100% of the shares of I.M.P.E S.p.A from Natuzzi S.p.A., Italy. The Company is a furniture manufacturer. I.M.P.E acquisition enables the business to gain an important foothold in Italy, which is the second largest furniture producing country in Europe and one of its largest furniture exporters.

The Company was acquired for €7.9m including deferred consideration of €1.1m, which was paid in February 2022. It was agreed between the parties to defer the payment of € 1.1m for commercial reasons.

The business contributed revenue of €29.9m and net profit of €1.0m to the Group's revenue and profit for the year. If the acquisition had occurred on 1 January 2021, revenue and net profit would have been €32.1m and €1.2m respectively.

Fair value of identifiable assets acquired at the date of acquisition was €7.0m with goodwill recognised on acquisition of €0.9m.

Technical Foam Services Limited

On 30 June 2021, the Group purchased 100% of the shares of Technical Foam Services Limited (TFS), a UK foam conversion business based in Corby, United Kingdom, and its holding company Technical Foam Holdings Limited. TFS acquisition brings enhanced technical foam conversion capacity and capability to the Vita Group, as well as bringing an even greater level of service and access to product and conversion expertise for customers.

The business was acquired for a total consideration of €4.9m. Of this, €1.1m is contingent on one of the Sellers remaining employed by the Group for a defined period. The sale and purchase agreement defines the circumstances of any termination event for this employee, in which deferred payments would be forfeited.

The business contributed revenue of €3.6m and net profit of €0.2m to the Group's revenue and profit for the year. If the acquisition had occurred on 1 January 2021, revenue and net profit would have been €7.7m and €0.6m respectively.

Fair value of identifiable assets acquired at the date of acquisition was €3.4m with goodwill recognised on acquisition of €1.5m.

Usleep Group

On 24 September 2021, the Group acquired 100% of the shares of Palma Topco Limited, the parent company of two mattress manufacturers Usleep Limited and Usleep SAS, for a total cash consideration of €97.7m, including €47.8m for repayment of acquiree debt. The Usleep acquisition significantly enhances and accelerates Vita Group's strategy to grow its bedding business across Europe.

The business contributed revenue of € 19.9m and net profit of €2.5m to the Group's revenue and profit for the year. If the acquisition had occurred on 1 January 2021, revenue and net profit would have been €74.7m and €10.3m respectively.

Fair value of identifiable liabilities acquired at the date of acquisition was €1.6m and as a result goodwill recognised on acquisition of €49.4m.

Effect of acquisition

I.M.P.E S.p.A - the acquisitions had the following effect on Group's assets and liabilities:

Total cost of business combination:

Cash consideration and Goodwill:

Acquisition-related costs

Acquisition-related costs of €82,464 that were not attributable to the issue of shares are included in exceptional items in the consolidated income statement and in operating cash flows in the cash flow statement.

Effect of acquisition

Technical Foam Services Limited - the acquisitions had the following effect on Group's assets and liabilities:

Total cost of business combination:

Cash consideration and Goodwill:

Customer relationships (€1.7m) and brand (€0.4m) were valued externally by a third party using generally accepted valuation methods.

Acquisition-related costs

Acquisition-related costs of €336,631 that were not attributable to the issue of shares are included in exceptional items in the consolidated income statement and in operating cash flows in the cash flow statement.

Usleep Group - the acquisitions had the following effect on Group's assets and liabilities:

Total cost of business combination:

Consideration paid:

Contracts (€39.2m), customer relationships (€2.0m) and brand (€2.1m) were valued externally by third party using generally accepted valuation methods.

Acquisition-related costs

Acquisition-related costs of €2,187,726 that were not attributable to the issue of shares are included in exceptional items in the consolidated income statement and in operating cash flows in the cash flow statement.

2 Exchange rates

The principal exchange rates used in the preparation of the financial statements are:

3 Operating profit

Auditors' remuneration

The total remuneration payable to the auditors, PricewaterhouseCoopers, was

Auditors' remuneration in respect of the Company, included above, was €75,000 (2020: €68,500).

4 Finance costs

5 Income tax expense

The tax reconciliation has been prepared by aggregating the separate reconciliations for each jurisdiction, which were prepared using the relevant domestic rate.

On 3 March 2021, the UK Chancellor announced that the main rate of UK corporation tax will be increasing to 25% with effect from 1 April 2023. This was substantively enacted on 24 May 2021.

Following strong trading conditions in France in 2021 the Group reviewed previously unrecognised tax losses and determined that it was now probable the sufficient taxable profits would be available against which the tax losses could be utilised. Consequently, a deferred tax asset of €5.1m was recognised for these losses in 2021.

There were no significant changes to the overseas tax rates that would impact the Group for the year ending 31 December 2021.

As required by International Accounting Standard 12 'Income taxes' (IAS 12), deferred tax assets and liabilities may only be offset when there is a legally enforceable right and they arise in the same jurisdiction as part of a tax fiscal unity and are, therefore, presented on the Balance sheet as follows:

The deferred taxation asset is in respect of retirement benefits, property revaluations, taxable losses and other timing differences (which include excess capital allowances) in different countries.

Potential deferred tax assets have not been recognised in respect of tax losses carried forward of €301.4m (2020: €279.4m), as it is not currently expected that they will be recoverable in the foreseeable future.

The deferred taxation liability has arisen due to capital allowances being claimed in excess of depreciation in the UK and also is in respect of property revaluations in different countries.

As at 31 December 2021 there was an unrecognised deferred tax liability of €3.9m (2020: €3.4m) in relation to potential withholding tax suffered on future dividends from investments in subsidiaries. This was not recognised as the Group can control the timing of the reversal of these differences and management are satisfied that they will not reverse in the foreseeable future. Of the €15.2m deferred tax asset (2020: €6.8m), €3.6m is expected to be realised within one year (2020: €1.7m). Of the €16.4m deferred tax liability (2020: €1.9m), €1.0 is expected to be realised within one year (2020: €nil).

6 Staff costs

€111.6m are included in Cost of sales, Distribution costs and Administrative expenses (2020: €98.6m). €3.3m are in exceptional costs in Administrative expenses (2020: €1.4m).

During the year ended 31 December 2021, the Group received €1.6m from government support schemes (2020: €3.8m), which has been included in Wages and salaries. There are no unfulfilled conditions or other contingencies attaching to government assistance.

Average numbers employed

The average number of Group employees includes directors and excludes temporary and contract staff.

7 Key management compensation

Key management includes directors (Executive) and members of the Leadership Team.

The compensation paid to the key management in aggregate is:

8 Retirement benefit obligations

Defined benefit schemes

In the UK, the majority of employees were eligible up to 28 February 2008 to join a scheme, administered by British Vita Pension Fund Trustees Limited, which provided final pensionable salary related benefits from separately invested assets. The Trustees are responsible for the operation and the governance of the scheme, including making decisions regarding the scheme's funding and investment strategy in conjunction with the Group.

The scheme is registered under UK legislation and funded in accordance with statutory requirements and the advice of consultant actuaries, Mercer Limited. All members receive an annual benefits statement, together with a copy of an annual report on the status of the scheme. See section A below for details.

On 28 February 2008 the UK scheme was closed to any new entrants and the scheme continued to operate for existing members until 20 November 2015 when the scheme was closed to future accrual of benefits. The UK now also operates a separate defined contribution scheme.

Defined benefit schemes are provided to employees in France and Germany, supplementing the state pension provision. In France, a lump sum indemnity is provided to employees reaching normal retirement age. This liability is unfunded except for partial insurance policies in the French business units. In Germany collective contracts provide for employees to receive either a single lump sum payment or a monthly pension on retirement and are unfunded.

Defined benefit pensions were provided to employees in the Netherlands where funds were paid into third party insurance policies as benefits accrue. These policies provided guaranteed investment returns and the insurer bore the primary risk of asset return and mortality. However, during 2014, these schemes were converted to plans that qualify for defined contribution accounting treatment under IAS 19R 'Employee benefits'. The schemes are now fully secured with an insurance contract but, whilst the obligations are still accounted for on a defined benefit basis, the value of the assets is now assessed as equal to the obligations and so the net balance sheet liability is €nil.

See section B in respect of details of France and Germany, together with impact of the movements in the asset and obligation reconciliations for the Netherlands.

Recognition of obligations and funding of defined benefit and insured defined benefit schemes are made according to the advice of independent consulting actuaries who regularly review the various schemes.

Defined contribution schemes

Defined contribution pension plans operate in the principal operations in the UK and certain other countries. Pension benefits are paid as lump sums or ongoing payments. These benefits are funded and obligations accounted for at the time that benefits accrue and all investment, mortality and other risk is bome by the employee. Scheme assets are held separately from those of the Group by independent third-party providers.

A. UK scheme

The Group's principal UK defined benefit pension scheme is set out below.

The 31 March 2016 actuarial valuation has not been updated at 31 December 2021 by a qualified actuary using revised assumptions that are consistent with the requirements of The Pensions Regulator, given the pending wind up mentioned below. Investments have been valued, for this purpose, at fair value.

The UK scheme was in surplus at the start of the year and at the end of the year. As the scheme is closed to new entrants there is an IFRS restriction to the surplus that is recognised in the balance sheet. In addition, the Group has adopted IFRS IC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' and, therefore, recognises the liability based on the present value of future deficit reduction contributions, which are now €nil, following the payment of a lump sum of € 25m in November 2017.

During 2019, the balance of the debt instruments was transferred to an insurance company, Aviva Life & Pensions (UK) Limited (Aviva) and is held under an insurance policy. The formal buy out of the scheme and the completion of the scheme wind up happened on 26 May 2022.

In February 2021, the trustees of the Group's principal UK defined benefit pension scheme substantially completed the data exercise ahead of the transfer of the scheme's liabilities to Aviva Life & Pensions (UK) Limited and triggered the process to wind up the pension scheme. The formal buy out of the scheme and the completion of the scheme wind up happened on 26 May 2022. At this point, all assets and liabilities associated with the UK pension scheme are no longer recognised in the Group's financial statements as the risks and rewards associated with the UK defined benefit pension scheme will have transferred to Aviva. The inception of the insurance policies incurred a significant loss that was recognised in the Statement of Comprehensive Income in 2019, as the value of the insurance policy assets was reduced to match the value of the scheme liabilities. This was offset by a reduction in the asset ceiling under IFRIC 14, such that a small net gain was recognised in the Statement of Comprehensive Income.

(i) The major assumptions for the actuarial valuation were:

Mortality assumptions are 122% weighting for males, 105% weighting for females and a smoothing parameter (s-kappa) of 7.5 (2020: 122% weighting for males, 105% weighting for females and a smoothing parameter (s-kappa) of 7.5):

(ii) The fair value of the assets in the scheme, the present value of the obligations in the scheme and the expected rates of return at each balance sheet date were:

^* Indicates an asset class with a quoted market price.

(iii) The sensitivity of the principal assumptions is as follows:

The sensitivities have been calculated on an approximation basis by changing the key assumptions only while keeping all other assumptions fixed. The impact of the above sensitivity will be negated by the limitation under IFRS IC 14.

(iv) Movements in the fair value of scheme assets:

(v) Movements in present value of scheme obligations in the year:

(vi) Defined benefit obligation by participant status:

From 20 November 2015 the scheme was closed to future accrual of benefits. There were no active members in either year.

(vii) Changes in asset ceiling/onerous liability in the year:

(viii) Analysis of the amount charged to operating profit:

(ix) Analysis of the amount charged to net finance charges:

(x) Analysis of the amount recognised in the Statement of Comprehensive Income:

(xi) Cumulative actuarial gains and losses recognised in equity:

The cumulative loss reflects the total recognised since the acquisition of British Vita PLC in June 2005.

(xii) Information about the risks of the scheme to the Group:

The ultimate cost of the scheme to the Group will depend upon actual future events rather than the assumptions made. Many of the assumptions made are unlikely to be borne out in practice and as such the cost of the scheme may be higher (or lower) than disclosed. In general, the risk to the Group is that the assumptions underlying the disclosures or the calculation of contribution requirements are not borne out in practice and the cost to the Group is higher than expected. This could result in higher contributions required from the Group and a higher deficit disclosed. Furthermore, the liability transfer exercise that commenced in 2019 will further reduce the risk of future liabilities to the Group, as well as securing the benefits of the members in scheme.

More specifically, the assumptions not being borne out in practice could include:

(xiii) Information about any amendments, curtailments and settlements:

There were no scheme amendments, curtailments or settlements during the reporting year other than referred to in 7 viii) above.

(xiv) Expected future cash flows to and from the scheme:

In the recovery plan dated 23 June 2014, which was based on 31 March 2013 valuation deficit of €7.1m, the Group agreed to pay contributions of €1.4m each year, with the view to eliminating the shortfall by 30 September 2020. Following the payment of a lump sum of €25.0m in November 2017, no future contributions are due to be made to the scheme. The scheme's Pension Protection Levies are met by the participating UK companies.

The Group has not calculated any sensitivities for the year ended 31 December 2021 as liabilities were nil following the buyout.

In 2020, taking an average of the +/- 25 basis points, the weighted average duration of defined benefit obligation was 18.0 years.

(xv) The scheme's investment strategy:

The scheme's investment strategy, prior to transferring its assets into insurance policies, was to invest broadly 25% in low risk assets and 75% in liability management assets. This strategy reflects the scheme's liability profile and the Trustees' and Group's attitude to risk.

Notes to the consolidated financial statements

B. European Schemes

(i) The major assumptions for the actuarial valuation were:

As stated above, the European schemes are generally unfunded, with the exception of insurance policies in France and the Netherlands. The present value of the obligations in the scheme at the balance sheet date was as stated below. The ongoing company cash contribution to the insurance policies is negligible.

(ii) The fair value of the assets in the schemes and the present value of obligations in the schemes were:

The assets above do not have a quoted market price.

(iii) The sensitivity of the principal assumptions is as follows:

The sensitivities have been calculated on an approximation basis by changing the key assumptions only while keeping all other assumptions fixed.

(iv) Movements in the fair value of the schemes' assets:

(v) Movements in present value of the schemes' obligations in the year:

The actuarial gain includes a gain of €nil (2020: €0.6m) for demographic assumptions.

(vi) Analysis of the amount charged to operating profit:

Notes to the consolidated financial statements

(x) Information about the risks of the schemes to the Group:

The ultimate cost of the schemes to the Group will depend upon actual future events rather than the assumptions made. Many of the assumptions made are unlikely to be borne out in practice and as such the cost of the schemes may be higher (or lower) than disclosed. In general, the risk to the Group is that the assumptions underlying the disclosures or the calculation of contribution requirements are not borne out in practice and the cost to the Group is higher than expected. This could result in higher contributions required from the Group and a higher deficit disclosed, although given the schemes are unfunded it is considered that there is limited risk to the Group.

(xi) Information about any amendments, curtailments and settlements:

A curtailment gain was reported of €nil (2020: €nil) as a result of a site rationalisation. There were no other amendments or settlements during the reporting year.

(xii) Expected future cash flows to and from the schemes:

No significant change to future cash flows, to or from the schemes, are anticipated for future years.

Taking an average of the +/- 25 basis points, the weighted average duration of defined benefit obligation is 11.7 years (2020: 12.3 years).

(xiii) The scheme's investment strategy:

There is no stated investment strategy for the schemes. The assets for the schemes are entirely held in insurance policies.

C. Summary of scheme deficits

D. Reconciliation of balance sheet

The Overseas deficit includes a partially funded deficit of €0.2m (2020: €0.2m).

9 Intangible assets

Goodwill is allocated to cash generating units. Goodwill is deemed to have an indefinite useful life and is tested for impairment annually.

The carrying value of goodwill is represented below:

Amortisation of other intangible assets, customer relationships, customer contracts and corporate brands in 2021 was charged to administrative expenses. Other intangible assets include software and licences.

Intangible assets are capitalised and amortised over their useful economic lives on a straight-line basis. They have a finite useful life and are carried at cost less accumulated amortisation and impairment losses.

The Group amortises intangible assets at the following rates:

Customer relationships between 11.1% and 14.3%

Customer contracts between 9.1% and 12.5%

Corporate brands 6.7%

Other intangibles between 20% and 100%

Lives remaining at the Balance sheet date:

Customer relationships between 7 - 9 years

Customer contracts between 8 - 11 years

Corporate brands between 15 years

Other intangibles between 1 - 5 years

The Board, in considering the appropriate analysis of goodwill, views the Group as having three cash generating units, i.e. Comfort, Technical and Flooring which is reflected in the Group's internal reporting.

The recoverable amounts of the cash generating units are assessed using a value in use model. Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash flows plus a terminal value of the cash generating operation to which the goodwill is allocated.

Initially a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. The post-tax discount rate is based on the Group post-tax weighted average cost of capital (WACC) of 12.1% (2020: 11.6%). The Group WACC is equivalent to a pre-tax discount rate of approximately 13.2% (2020: 13.8%). Where the impairment test indicates that the recoverable value of the operation is close to or below its carrying value, the test is re-performed using a pre-tax discount rate and pre-tax cash flows in order to determine if impairment exists and to determine its magnitude.

Details relating to the discounted cash flow models used in the impairment tests:

No reasonably possible change in any assumptions would be expected to give rise to an impairment of the carrying value of goodwill at 31 December 2021 and 31 December 2020.

Other intangible assets, which include corporate brands, customer relationships, customer contracts, software, know-how and development costs, have a finite useful life and are subsequently carried at cost less accumulated amortisation and impairment losses.

10 Property, plant and equipment

Depreciation of €11.3m (2020: €9.1m) has been charged to cost of sales, €0.2m (2020: €0.7m) to distribution costs and €0.4m (2020: €0.4m) to administrative costs.

2021 plant and vehicles additions include an amount of €2.0m (2020: €1.6m) in respect of assets capitalised but still under construction, which was not depreciated in 2021.

2020 disposals included a cost amount of €2.6m relating to the sale of the land and buildings at Koepp Oestrich-Winkel in Germany and €0.6m relating to the sale of land and buildings at Gehren in, Germany. No significant disposals were made in 2021.

Reversals of impairment arise from subsequent reviews of the impaired assets where the conditions which gave rise to the original impairments are deemed no longer to apply. All the reversals have been credited to exceptional costs where they were originally created.

11 Leases

This note provides information for leases where the Group is a lessee.

i) Amounts recognised in the balance sheet

The balance sheet shows the following amounts relating to leases:

Exchange losses on right-of-use assets were €2.2m for the year ended 31 December 2021 (2020: losses of €2.3m). Exchange gains on lease liabilities were €2.5m (2020: gains of €2.4m).

During 2021, the Group has remeasured a number of leases from the dates on which revised terms came to light. The impact of this was to increase right-of-use assets and lease liabilities by € 1.9m (2020: increase by € 1.3m).

Additions to the right-of-use assets during the 2021 financial year were €17.1m (2020: €0.8m).

ii) Amounts recognised in the Income statement

The Income statement shows the following amounts relating to leases:

The total cash outflow for leases in 2021 was €19.0m (2020: €16.6m).

During 2020, the Group was granted rent concessions on certain property leases, in line with the amendments to IFRS 16 as a direct result of the pandemic. Most rent deferrals were made good within the following quarter. No amounts have been disclosed in these financial statements as there was no material impact.

iii) The Group's leasing activities and how these are accounted for:

The Group leases various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of greater than twelve months to ten years but may have extension options as described in (iv) below. Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group:

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. The Group is not exposed to any other types of variable lease payments.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period in order to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life. While the Group revalues its land and buildings that are presented within property, plant and equipment, it has chosen not to do so for the right-of-use buildings held by the Group.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of twelve months or less. Low-value assets comprise IT equipment and small items of office furniture.

iv) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

v) Critical judgements in determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

For leases of warehouses and equipment, the following factors are normally the most relevant:

Many extension options for offices and production facilities leases have been included in the lease liability, because the Group could not replace the assets without significant cost or business disruption. As at 31 December 2021, potential future cash outflows of €20.9m (2020: €20.3m) (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated).

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised lease liabilities and right-of-use assets of € 1.9m (2020: increase of €1.3m).

12 Loan notes

In October 2021, the Group purchased a Senior Subordinated Note (SSN) and Junior Subordinated Note (JSN) as part of the Lex facility. The Group subscribed to the Notes as part of the receivable securitisation programme where certain trade receivables are sold to Vita Lex DAC, a special purpose entity not under the control of the Group.

Value of the loan notes at 31 December 2021 were:

The Senior Subordinated Note is reported on the Group's balance sheet at its amortised value, whereas the Junior Subordinated Note is valued at fair value through profit and loss (see note 4 for fair value adjustment of €1.3m).

In 2021, the net cost of inventories recognised as an expense amounted to €559.6m (2020: €353.0m) and was included in "cost of sales". Inventories are shown net of provision for impairment.

14 Trade and other receivables

The impairment model under IFRS 9 calls for the recognition of impairment provisions for financial assets to be based on expected credit losses (ECL). The Group has calculated impairment provisions for financial assets using an expected credit loss matrix model as follows:

Some of Group's customers in France and UK were adversely impacted by the pandemic and as a result they went into liquidation.

The Group does not consider there to be any requirement for impairment in the other receivable balances. There is not considered to be any additional credit risk based on the credit quality of financial assets that are neither past due nor impaired.

Derecognised receivables of €87.9m (2020: €40.5m) are factored without recourse. Gross trade receivables include sales rebates of €10.3m (2020: €7.4m). The Group gives volume-based rebates to selected customers. Under the terms of the supply agreements, the amounts payable by the Group are offset against the receivables and only the net amounts are settled.

At the year end, the following trade receivable balances were overdue. All of the below are statements and net of any impairment provision.

Where a customer is unable to pay its creditors, it can file with a federal bankruptcy court for protection under Chapter 11 and, in most instances, remains in control of its business operations as a 'debtor in possession', but is subject to the oversight and jurisdiction of the court.

The carrying amounts of trade receivables are denominated in the following currencies:

15 Cash and cash equivalents (excluding overdrafts)

Principally the cash and cash equivalents are held with financial institutions with a weighted aver: A (Moody's credit rating).

16 Trade and other payables

Amounts falling due after more than one year

Trade payables include purchase rebates of €2.7m (2020: €1.0m). The Group receives volume-based rebates from selected suppliers. Under the terms of the supply agreements, the amounts payable by the suppliers are offset against the Group's payable balances and only the net amounts are settled. The long-term other items include employee and property related liabilities.

The carrying amounts of these payables are denominated in the following currencies:

17 Financial liabilities - borrowings

In 2021, a loan for €3.0m which was granted by HSBC France SA to a subsidiary of the Group at an interest rate of 0.0% for the duration of one year was repaid.

The Group also committed to a Revolving Credit Facility of €30.Om to add further operational cash flow protection. The facility maturity date is December 2026 and it bears an initial interest margin of 3.5%, which is going to reduce by 0.25% for every quarterly reduction in Senior Secured Net Leverage up to 2.75%. As at 31 December 2021, the facility was drawn to €10.0m. At 31 December 2021, the Group had a secured overdraft balance of € 1.5m and an unsecured balance of €0.2m.

The carrying amounts of these liabilities are denominated in the following currencies:

The figures above do not include related party loans. As at 31 December 2021, net cash includes cash and cash equivalents.

The factoring facility is not included, as it is non-recourse and therefore not presented as debt.

Notes to the consolidated financial statements

The Group has undrawn committed borrowing facilities including:

At 31 December 2021, the Group had cash and cash equivalents of €31.2m (2020: €73.1m). Cash and cash equivalents comprise cash in hand, current balances with banks and similar institutions and highly liquid investments with maturities of three months or less. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value.

In June 2021, the principal facility agreement available to the Group was refinanced with a new Senior Facilities Agreement (SFA) which contains a super senior committed Revolving Credit Facility (RCF) for €30.0m maturing in December 2026. €10.0m was withdrawn from the RCF as at 31 December 2021 (2020: undrawn). Certain assets of several Group companies, in a number of countries, are pledged to the financing institutions participating in the Senior Facilities Agreement.

The carrying amount of these assets as at 31 December 2021 was €0.2m (2020: €43.6m), comprising €nil (2020: €36.6m) of cash and cash equivalents (notes 15 and 19), €0.2m (2020: €0.2m) of financial derivatives (notes 18 and 19) and €nil (2020: €6.6m) of trade and other receivables (notes 14 and 19). Such pledged assets can be used by the financing institutions participating in the Senior Facilities Agreement to offset any losses in the event of an acceleration of any amounts outstanding relating to the Senior Facilities Agreement.

In addition, the SFA contains a Term Loan B for €250.0m (2020: €90.0m). In June 2021, Vita Global Finco Limited, a parent company of the Company, secured a term loan of €250.0m as part of a Senior Facilities Agreement (SFA), which matures in June 2027. Part of this loan was used to pay back the €90.0m term loan. The Revolving Credit Facility was also refinanced to €30.0m bearing an initial interest margin of 3.50%, which is going to reduce by 0.25% for every quarterly reduction in Senior Secured Net Leverage up to 2.75%. In September 2021, an additional Term Loan B for £75.0m was taken out as an Additional Facility within the SFA. The loan was used to help a subsidiary undertaking fund an acquisition. The Group also paid off an unsecured loan of €3.0m in relation to a French subsidiary.

The Group had a €50m pan-European non-recourse factoring facility with FactoFrance SA where certain trade receivables from UK, France, Germany, Poland, Netherlands, Lithuania and Romania were sold to FactoFrance. On 26 October 2021, the Group replaced the FactoFrance facility with a receivables securitisation funding programme (the "Lex" facility) maturing in October 2023. Certain trade receivables from UK, France, Germany, Poland, Netherlands, Lithuania, Romania and Hungary are sold to Vita Lex DAC, a special purpose entity not under the control of the Group. The facility was drawn approximately to €59.0m as at 31 December 2021 (2020: €40.5m for the FactoFrance facility). In connection with the Lex facility, the Group subscribed to a Senior Subordinated Note and Junior Subordinated Note (note 12) which are recognised in the Group's balance sheet as at 31 December 2021.

The Group has a guarantee facility of €0.8m (2020: €5.8m), which is carved out of the RCF, under which guarantees of €10m were issued as at 31 December 2021 (2020: €0.3m), also referred to in note 26.

18 Derivative financial instruments

Derivatives financial instruments are only used for economic hedging purposes and not as speculative investments. Hedge accounting is not applied and the derivatives are classified as 'held for trading' for accounting purposes and are accounted for at fair value through profit or loss. They are initially recognised at fair value on the date that a derivative contract is entered into and they are subsequently re-measured to their fair value at the end of each reporting year based on the forward exchange rates at the balance sheet date. Changes in the fair value are recognised in the Hedging and translation reserve as they arise. The fair values of derivative financial instruments are disclosed in notes 18 and 19. They are classified as a noncurrent asset or liability, when the remaining maturity of the hedged item is more than twelve months, and as a current asset or liability, when the maturity is less than twelve months. As at 31 December 2021, all derivative financial instruments had a maturity less than twelve months.

The Group's current assets included derivatives used for hedging foreign currency that are measured at fair value of €nil at 31 December 2021 (2020: €0.2m).

The Group's current liabilities included derivatives used for hedging foreign currency that are measured at fair value of €1.0m at 31 December 2021 (2020: €0.5m).

The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2021 were €80.1m (2020: €50.4m).

The financial instruments are carried at fair value, by valuation method. The different levels have been defined as follows and all derivatives held by the Group are considered to be level 2:

19 Financial instruments

The Group's treasury function operates procedures designed to reduce or eliminate financial risk and ensure that funds are available for current and future needs. The policies are approved by the Board and the use of financial instruments is strictly controlled.

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the cash and borrowings disclosed in notes 15 and 17, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings, as disclosed in the Statement of Changes in Equity. The maximum exposure to credit risk at the end of each year is the carrying amount of each class of financial instrument.

The Group's principal financial instruments comprise borrowings, cash and liquid resources and various items, such as trade receivables and trade payables that arise directly from its operations. The Group also uses currency swaps and forward foreign currency contracts to manage the currency risks arising from the Group's operations and its sources of finance. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken. Set out below is a comparison by category of book values and fair values of the Group's financial assets and liabilities:

Set out below is a maturity analysis of financial liabilities:

Amounts falling due within one year include undiscounted payments for lease liabilities of €20.4m (2020: €15.7m). Amounts falling due after more than one year relate to undiscounted payments for lease liabilities, €93.8m (2020: €94.9m).

Fair values have been obtained from relevant institutions where appropriate. The carrying amount of bank loans and overdrafts approximates to fair value. The fair values of trade and other receivables and payables are deemed to be equal to their carrying values. The fair value of the Group's financial instruments is measured using inputs other than quoted prices that are directly or indirectly observable.

The main risks arising from the Group's financial instruments are market risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below, together with related disclosure required by IFRS.

Market risk

The Group's main exposure to market risk is in the from of interest rate risk, foreign currency risk and credit risk. The policies adopted to address these risks are as follows:

Interest rate risk

The Group finances its operations through a mixture of retained profits, a term loan, receivables financing and some leases. The majority of the Group's borrowings are at floating rates of interest. This helps to reduce the Group's exposure to interest rate fluctuations.

Foreign currency risk

The Group is a Euro functional currency Group, largely with Euro assets, and does not seek to hedge the translation of nonEuro denominated net assets. The majority of the Group's cash and debt is denominated in Euros and non-Euro net cash and debt is monitored and minimised.

The Group hedges currency transaction exposures at the point of confirmed order, using forward foreign exchange contracts. The Group also, selectively, hedges anticipated currency transaction exposures that are highly likely to occur within the next six months. The Group's policy is, where practicable, to hedge all exposures on monetary assets and liabilities. Consequently, there are no material currency exposures to disclose (2020: €nil).

Credit risk

Credit risk arises from cash balances carried at amortised cost and at fair value through profit or loss. Credit risk is managed on a Group basis. For banks and financial institutions, only independently rated parties with an investment grade are accepted.

The amounts presented in the Balance Sheet for trade and other receivables are net of allowances for doubtful debts as estimated by the Group's management. The Group does not have a significant concentration of credit risk, with exposure being spread over a large number of customers and jurisdictions. Provision for impairment of trade receivables as at 31 December 2021 was €2.8m (2020: €5.2m). In addition, it is the policy of the Group that trade receivables are covered by appropriate credit insurance, where it can be obtained.

Before accepting a new customer the Group uses appropriate procedures to assess the potential customer's quality in order to set a credit limit. A customer is considered to be a low credit risk where there is a low risk of default and the customer has a strong capacity to meet its contractual cash flow obligations in the near term. A default is when the counterparty fails to make contractual payments within 60 days of when they fall due.

Liquidity risk

The Group maintains liquidity in the form of short-term cash deposits, available committed borrowing facilities and highly liquid investments, generally with maturities of three months or less. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value.

The Group manages rolling forecasts of the Group's liquidity reserves on the basis of expected cash flows, modelling the forecasts on a monthly and quarterly basis out to the end of the financial year. Based on its forecast modelling, the Group expects to remain in compliance with all lending covenants and to fund its business operations for the next twelve months, and so does not consider that it has a significant concentration of liquidity risk.

Notes to the consolidated financial statements

Derivative financial instruments

The Group has a number of forward currency contracts that are used to reduce the exposure to currency risk. Changes in the fair value of derivative financial instruments are recognised in the Income Statement as they arise. Changes in the fair value of derivative contracts amounting to €2.0m have been debited to the Income Statement in the year (2020: credited €0.6m).

Sensitivity analysis

The following table illustrates the effect on the Income Statement and items that are recognised in equity that would result from reasonably possible movements in UK and Euro interest rates and in Euro to sterling exchange rates before the effect of income tax:

The interest rate sensitivity analysis shows no impact to the Income Statement or Equity on both derivatives and nonderivative instruments at the balance sheet date. (The Group's facilities have a "zero floor" and, as Euribor is already negative, the base interest rates remain at 0%.) For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year.

The foreign currency sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 1% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or borrower.

The Group's cash and cash equivalents (excluding overdrafts) amounted to €31.2m at 31 December 2021 (2020: €73.1m).

20 Provisions for liabilities and charges

As at 31 December 2021, the provision for rationalisation includes provisions arising from other property related liabilities. €1.5m (2020: €0.3m) is expected to be spent within twelve months including the pending outcome of a bonds tax claim of €1.0m. €0.9m of the provision in relation to claims and litigation settlements was spent in February 2021.

21 Share capital and share premium account

Subscribed and fully paid share capital 31,192 (2020: 31,192) shares at €44 each.

The Company does not hold any of its own shares. The Company does not have a limited amount of authorised capital.

The share premium is distributable.

22 Accumulated (losses)/gains

Accumulated (losses)/gains

Luxembourg companies are required to allocate to a legal reserve a minimum of 5% of the annual net income, until this reserve equals 10% of the subscribed share capital This reserve may not be distributed. At 31 December 2021 the reserve was less than €0.1m (2020: less than €0.1m).

Notes to the consolidated financial statements

23 Capital and leasing commitments

Commitments for capital expenditure at 31 December 2021 contracted but not provided for in the financial statements amounted to €3.5m (2020: €1.9m) for the Group and relates to property, plant and equipment.

Commitments for intangible assets at 31 December 2021 contracted but not provided for in the financial statements amounted to €nil (2020: €nil) for the Group and relates to software, know-how and development costs.

The Group leases various offices, warehouses, equipment and vehicles under non-cancellable operating leases expiring within six months to ten years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

24 Reconciliation from operating profit to operating cash flow

25 Related party transactions

i) As at 31 December 2021, the Group has a loan payable to Vita Global Limited of €nil (2020: € 19.5m), a loan receivable of €76.1m (2020: €14.8m) and a trade receivable of €2.8m (2020: €2.1m), a loan payable to Vita Global Finco Limited of €132.3m (2020: €m1), a trade payable balance to Vita Global Holdings Limited of €nil (2020: €0.5m) and a loan payable of €2.8m (2020: €m1). The receivable balances are included in other receivables, note 14. The payable balances are included in other payables, note 16.

In June 2021, Vita Global Finco Limited, a parent company of the Company, secured a Term Loan B of €250.0m as part of a Senior Facilities Agreement (SFA), which matures in June 2027. Part of this loan was used to pay back the previous term loan of €90.0m. In September 2021, an additional Term Loan B for £75.0m was taken out as an Additional Facility within the SFA. The loan was used to help a subsidiary undertaking fund an acquisition.

The movement in the Vita Global Limited loan relates largely to the repayment in June 2021 of the term loan for €90.0m, which was made on its behalf by a Group subsidiary. Vita Treasury Limited, and to funding to and expenses paid on behalf of Vita Global Limited. Vita Treasury Limited borrowed the funds from Vita Global Finco Limited, in order to pay off the term loan of €90.0m, which partly resulted in the loan payable to Vita Global Finco Limited. The balance of the loan payable relates to the Tenn Loan B of £75.0m received by a Group subsidiary from Vita Global Finco Limited, in order to fund an acquisition in September 2021. The loan receivable from Vita Global Holdings Limited is in relation to cash funding from a Group subsidiary.

The loan payables are interest bearing at six months EURIBOR (zero floor) plus 3.0% and the loan receivable is interest bearing at 1 month EURIBOR (zero floor) plus 0.5%. The interest charge for 2021 was €1.4m (2020: €0.7m).

ii) Key management includes executive directors and members of the VMT. The compensation paid or payable to key management for employee services is shown in note 7.

26 Ultimate controlling party

In the opinion of the Board, the Company's ultimate controlling party is Strategic Value Partners, LLC or its affiliates:

Strategic Value Special Situations Master Fund III, LP

Strategic Value Opportunities Fund, LP, and

Strategic Value Special Situations Master Fund IV, LP,

all of which are partnerships located in the Cayman Islands. The immediate parent company is Vita Global Limited and the ultimate parent company is Vita Global Holdings Limited.

27 Contingent liability

The Group has in place bank guarantees totalling €10.0m (2020: €0.3m).

28 Subsequent events

At this time, the Directors do not believe that Group will be directly affected by the tragic conflict between Russia and the Ukraine. None of the Group's manufacturing, nor that of our key suppliers, takes place in the region, and our customers' operations there are very limited. We do not expect any disruption to the supply chain relating to the Group's raw materials, although the conflict has impacted global energy markets and we are seeing rising energy (oil & gas) and electricity prices. Over the medium term, we expect that these events will further accelerate the UK and Europe's transition away from oil and gas towards clean energy. Depending on the outcome and duration of the conflict, there may be longer-term indirect impacts on the industry that are more difficult to forecast. We will continue to monitor the situation actively and comprehensively as it continues to develop.

29 Principal subsidiaries

Notes:

Vitafoam Inc. and Metzeler Shaum Inc. were dissolved on 16 February 2021 and 10 February 2021, respectively.