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8
Dunelm Group plc
Annual Report
and Accounts
for the period ended 30 June 2018
Stock code: DNLM
Dunelm
The Home of Homes
At Dunelm, we love homes and are just as obsessed by the
products that go in them. We’re the UK’s No. 1 Homewares retailer
offering our customers a wide range of products to enhance every
room in their home. We focus on style, quality and value and are
always working hard to make our customers’ lives a little easier.
We’re a multichannel retailer with 169 superstores, three high street stores and our website, Dunelm.com, featuring
extended ranges and delivery convenience (Home Delivery and Reserve & Collect) via multi-device functionality and our
own delivery fleet.
We are really proud of our business culture and we like to do things our own way. We’re committed to our suppliers and
making Dunelm a great place to work for our colleagues.
Our purpose is to help everyone create a home they love.
Investment Proposition
1 WELL POSITIONED FOR GROWTH
Our growth record has been strong with 39 consecutive years
of increased sales and we’re always looking out for ways to
sell more to our customers. We have a significant opportunity
to continue to grow in the UK as we become the customers’
number one choice for Homewares and Furniture.
z Number 1 in the £13bn Homewares market with 8.1%
share. Opportunity to consolidate leadership position in a
fragmented sector
z Opportunity to accelerate the growth of our online
business with an expanded range, and improved delivery
options, attracting new customers and evolving our
model for the future
z Significant growth potential in Furniture where our share
is less than 1% in an £11bn market
3 OPERATING MODEL
Our low cost operating model provides a solid platform for
continued growth. We’ve invested sensibly over the years
and remain agile enough to respond quickly to changes in
the marketplace.
z We’re not held back by an over-priced or over-sized retail
estate. In fact, we know we can still open more stores in
key locations across the UK
z Our focus on cost and reducing waste ensures that we run
a lean business and allows us to reinvest for growth and
maintain great pricing for our customers
z We’ve grown up with many of our suppliers. Their skills
and experience complement our own. We are committed
to maintaining great relationships and working with our
suppliers to create a more efficient supply chain
2 CUSTOMER OFFER
We are always looking for ways to enhance our customer
offer. We want to be famous for style, as well as quality and
value. We’re always looking and listening to ensure we make
our customer experience as inspiring and easy as possible.
z We’re well known for offering great value and quality
across our broad product ranges. We will introduce
more fashion and style-led ranges, and leverage our
own brands to drive consideration and conversion across
our categories
z Investments in our multichannel capability means
customers can increasingly shop how and whenever they
choose with next day or day of choice home delivery or
collection in-store
z Our great people really make Dunelm different. We’re
proud to offer friendly and knowledgeable service to our
customers, not pushy salespeople
4 LONG TERM VALUE CREATION
We make decisions for the long term which means that our
levels of internal reinvestment can rise and fall. We always
want to do the right thing for our business and stakeholders.
z As a highly cash-generative business with a conservative
capital structure, we have the ability to reinvest and/or
distribute our free cash flow each year
z As a large employer and a responsible business, we
care about our communities and environment too.
As our business grows we have increased community
activities year on year, and still managed to reduce
emissions and waste
z Our progressive distribution policy has increased
dividend per share each year since floating on the
London Stock Exchange in 2006
IFC
corporate.dunelm.com Stock code: DNLM Highlights
Revenue
£m
EBITDA*
£m
+9.9%
(2017: +8.5%)
-1.8%
(2017: -7.8%)
* EBITDA is presented before exceptional costs.
Dividend Per Share
Pence
+1.9%
(2017: +3.6%)
880.9
822.7
730.2
1,050.1
955.6
154.3
136.3
142.7
142.2
139.6
25.1
26.0
26.5
21.5
20.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Operational Highlights
z Growth in unique customers numbers
both online (+18%), and in-store (+5%)*
z Integration of Worldstores product
catalogue and supply chain completed
z Continued gain in Homewares market
share to 8.1% (2017: 8.0%)†, further
strengthening number one position
z Improvement in customer satisfaction
scores across all channels
z Opening of ten new superstores in the
year (including one relocation) and
completion of six new format refits
z Product range grew in breadth and
quality with 90% of customer reviews
of products online being rated four or
five stars
* Unique customer numbers reflects internal
analysis based on unique payment card
transactions within the financial period
† GlobalData Retail research. FY17 has
been restated based on final market data
(see page 8 for further details)
Financial Highlights
z Sales growth of 9.9% including 1.0%
like-for-like (LfL) growth in stores and an
online LfL sales increase of 37.9%
z EBITDA of £139.6m (pre exceptional
items), down 1.8% year-on-year reflecting
investment for growth and consolidation
of Worldstores trading losses
z PBT of £102.0m (pre exceptional items),
inclusive of an estimated £8.4m of
Worldstores operating losses in year
which will not repeat in future years
z PBT of £93.1m including £8.9m
of exceptional costs relating to
the integration of the Worldstores
businesses
z £44.0m capital investment in
year including digital technology
development, new and refit stores and a
new purpose-built manufacturing centre
for our made-to-measure offer
z Improvement in free cash flow year-on-
year to £52.9m (FY17: £14.2m)
z 1.9% increase in full year dividend to
26.5 pence per share
Contents
Contents
Business Overview
Welcome
Highlights
At a Glance
Chairman’s Statement
Strategic Report
Our Marketplace
Our Business Model
Our Vision & Strategy
Key Performance Indicators
Business Review
Financial Review
Risks and Risk Management
Principal Risks and Uncertainties
Sustainability
Governance
Directors and Officers
Chairman’s Letter
Corporate Governance Report
Letter from the Chair of the
Audit and Risk Committee
Audit and Risk Committee Report
Letter from the Chair of the
Remuneration Committee
Remuneration Report
Letter from the Chair of the
Nominations Committee
Nominations Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
IFC
1
2
4
8
10
12
14
16
22
26
28
35
46
49
50
62
63
68
70
96
97
100
103
106
112
113
Consolidated Statement of Financial Position 114
Consolidated Statement of Cash Flows
115
Consolidated Statement of Changes
in Equity
Accounting Policies
Notes to the Consolidated Financial
Statements
Parent Company Statement of
Financial Position
116
117
123
142
Parent Company Statement of Cash Flows 142
Parent Company Statement of Changes
in Equity
Parent Company Accounting Policies
Notes to the Parent Company
Financial Statements
Company Information
Advisers and Contacts
Store Listing
143
144
146
152
IBC
1
BusinessOverviewDUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018 At a Glance
SUSTAINABLE LONG TERM VALUE CREATION
About us
We’re the UK’s No. 1 Homewares retailer offering our customers great
products to enhance every room in their home. We focus on style,
quality and value and are always working hard to help our customers
to create a home they love.
z 30,000 products in store
z Extended product ranges online
z Over three and a half million customers visit our stores and
websites each week
z House Beautiful awards: Favourite Home Retailer and Favourite
Online Retailer 2017
z Made to Measure curtains and blinds service including home fitting
z Home Delivery and Reserve & Collect service
Where We Operate
Read more in our
Business Model on pages and
10
11
We’re a UK retailer with nationwide stores coverage including
Northern Ireland. We also sell products online through our
website, Dunelm.com.
z 169 superstores and 3 high street stores
z Support Centres in Leicester and London
z Two Distribution Centres in Stoke-on-Trent
z Contact Centre in Radcliffe, Manchester
z Made to Measure Manufacturing Centre in Leicester
z Four Dunelm Home Delivery Network sites
(Barnsley, Northampton, Bristol and Dartford)
KEY
Superstores as at 2 July 2017
New superstores
opened since 3 July 2017
SSC
Leicester and London Support Centres
Manufacturing
Stoke I & II Distribution Centres
Dunelm Home Delivery Network Sites
See our Store Listing on page IBC
SSC
SSC
JERSEY
2
SSC
SSC
SSC
SSC
corporate.dunelm.com Stock code: DNLM Our Brands
Our Business Goals and Our Business Principles
We have five clear business goals which help us
continually shape our business for our customers
and the future.
We have a unique culture stemming from our
entrepreneurial beginnings and a set of business
principles we live by.
1
2
3
4
5
Reaching more customers
with our brand
Create new reasons for
customers to shop with Dunelm
Easy and inspiring multichannel
shopping for our customers
Simple and low cost –
good housekeepers
A great place to work
for colleagues
Sell more
Be
committed
Do things
our own
way
Keep it
simple
Read more on our
Business Goals on page
13
Read more on our
Business Principles on page
11
Our People
How our Revenue is spent
One of our business goals is to make Dunelm a great
place to work for our colleagues.
z Over 9,000 colleagues, 68% female at year end FY18
z Improved benefits offering and communication
through launch of “Home Comforts” for all colleagues
z Appointed Marion Sears as our “Designated Non-
Executive Director” for employee engagement
z 30% increase in colleague engagement measures
between July 2017 and May 2018
REVENUE
£1,050.1m
Cost of sales £546.5m
Labour costs £156.2m
Other operating costs £242.7m
Exceptional items £8.9m
Financial items £2.7m
Corporation tax £19.8m
Dividends paid £53.4m
3
BusinessOverviewDUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018 Chairman’s
Statement
WINNING SHARE AND PUTTING THE CUSTOMER FIRST
Dunelm has made significant strategic
progress in the last few years and I am
confident that under Nick’s leadership
we will turn our strategic plans into
substantial value creation.
We are proud of Dunelm’s strong
culture and amazing colleagues.
I would like to thank them all for
their hard work and commitment.
Although our business is becoming
more digital, the human touch from all
our colleagues is as important to our
success as always.
Performance
Against the backdrop of challenging
and volatile market conditions, over
the last financial year we grew our
total sales by 9.9% to £1,050.1m, with
positive like-for-like sales performance
of 4.2%. We have continued to
win homewares market share and
strengthen our leadership position.
Our store like-for-like sales increased
by 1.0%, while like-for-like online
sales were up 37.9%, reflecting our
increasing focus on this channel
as customer shopping behaviour
Introduction
Dunelm has grown to become the
market leader in homewares in the UK.
It has a network of 169 superstores
selling a broad product range (with
most lines being unique to Dunelm)
offering outstanding value and choice.
Our strategy in recent years has been
to build on these strengths by growing
our online participation, evolving
towards a truly multichannel business.
This strategy has necessitated large
investments in our systems and in
our supply chain logistics, and the
acquisition of Worldstores in November
2016 accelerated this transition.
The year under review was complicated
by a combination of management
changes, the integration of Worldstores
and a fragile economic environment.
However, the appointment of our
new CEO, Nick Wilkinson, in February
brought cohesion and impetus to
our strategic thinking and as a Board
we are pleased with the immediate
progress he has achieved. The
Worldstores integration is virtually
complete and the acquired unit
will in future no longer be reported
separately, as all the continuing sales
are transferred to the Dunelm.com site,
which will incorporate key elements of
the Worldstores systems. As a result,
our fast-growing online business will
become better established and will be
our primary focus for future growth.
4
corporate.dunelm.com Stock code: DNLM “We are now well placed for future profitable growth
in a multichannel world. Our strategy will bring continuous
improvement online and in stores”
continues to shift. We opened ten
new superstores in the year (including
one relocation) taking our network
to 169 superstores, and we still see
opportunity to grow our national store
network in a measured way.
Profit before tax and exceptional items
fell by 6.7% to £102.0m, reflecting a
full year of trading losses reported
in respect of Worldstores, a small
reduction in our core business gross
margin, and increased operating
costs due in part to the higher mix of
online sales. As a result of new store
openings, refits and investment in
our digital technology infrastructure,
we maintained a relatively high level
of capital investment of £44.0m
(FY17: £60.5m). Profits after tax and
exceptional items were in line year-on-
year at £73.3m (2017: £73.1m).
Our balance sheet remains strong with
limited leverage (net debt:EBITDA
before exceptional items of 0.89x at
year-end) and cash generation remains
a key feature of our business model
with free cash flow of £52.9m in the
year (FY17: £14.2m).
Dividends
The Board has recommended
maintaining the final dividend at
19.5 pence per share, bringing the
total dividend for the full year to
26.5 pence per share, an increase
of 1.9% on the previous year. While
dividend cover before exceptional
items of 1.5x remains below our target
range, it reflects both the non-recurring
costs associated with the Worldstores
acquisition and integration, and
our confidence in Dunelm’s future
growth prospects.
Board changes
Nick Wilkinson has made a strong start
as CEO and is already bringing fresh
energy to our wider leadership team.
Laura Carr will join as CFO on 29
November and will bring valuable
retail and commercial experience
having been CFO of Indigo in Canada
and most recently Group Financial
Controller of Compass Group plc. In
the meantime, we have been fortunate
to have David Stead return as Interim
CFO following the departure of Keith
Down in May. David was previously
our CFO from 2003 to 2016 and I
would like to thank him for returning to
smooth the CFO transition.
As previously advised, Simon Emeny,
our Senior Independent Director,
stepped down at our AGM in
November 2017 after ten years’ service.
Liz Doherty, who chairs our Audit & Risk
Committee, has succeeded Simon as
Senior Independent Director.
In March, we appointed Rachel
Osborne as a Non-Executive Director
to gain the benefit of her experience
as CFO in a variety of consumer facing
businesses. Unfortunately, Rachel
subsequently changed her executive
role which created a competitive
conflict and she stood down from the
Board in August. We have initiated a
search for Rachel’s replacement and
will update on progress in due course.
The future
Our mission at Dunelm is to help
everyone create a home they love.
Notwithstanding a difficult retail
environment, after a challenging period
of change and investment we are now
well placed for future profitable growth
in a multichannel world. Our strategy
will bring continuous improvement
in our proposition both online and in
stores, based around our broad range
of great value and stylish products,
our well invested infrastructure, our
right-sized estate, and the committed
colleagues who live and breathe our
business principles every day.
I look forward to working with Nick and
the rest of the Board to capitalise on
the exciting opportunities ahead.
Andy Harrison
Chairman
12 September 2018
5
BusinessOverviewDUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018 Strategic
Report
Customer First
We continue to adapt and evolve as our customers’
needs change. Our foundations are strong and
they give us a great platform to accelerate our
multichannel capabilities. Our colleagues make
Dunelm what it is. Friendly service, product
expertise, and willing to go the extra mile.
6
corporate.dunelm.com Stock code: DNLM
Contents
Our Marketplace
Our Business Model
Our Vision & Strategy
Key Performance Indicators
Business Review
Financial Review
Risks and Risk Management
Principal Risks and Uncertainties
Sustainability
8
10
12
14
16
22
26
28
35
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018
7
Our Marketplace
WELL POSITIONED FOR GROWTH
Macroeconomic Trends
The UK retail sector has endured another volatile and
uncertain year, with many well-established retailers struggling
to adapt to rapidly changing consumer behaviour, disruptive
competitive pressures and continual technological progress.
How We are Responding
At Dunelm, we are focused on our customer and the things
that we can control. We are clear about the opportunities and
challenges ahead of us, and we are responding quickly to the
changing consumer and market conditions.
The consumers’ channel shift online continues apace, with
online shopping now a part of almost every shopping
journey. At the same time, consumers are looking for value
and convenience. The economic backdrop remains fragile
and uncertain with high levels of employment but stagnant
productivity and low real wage growth.
The year ahead does not look any less tumultuous for retail
in the UK.
Our competitor set is fighting hard, so we’re looking to
reassert our value credentials while improving ease of
shopping in a multichannel world and we’re adding more
inspiration to help our customers create a home they love.
We know we have a product and service advantage, and we
want to spread the word. That’s why we’re launching a brand
building programme so more customers can get to know us
and shop with us.
The Homewares Market*
Headlines
The UK homewares market is worth over £13bn per year.
Based on estimated GlobalData research, the homewares
market has grown in FY18 and this is supported by our
internal analysis, based on actual weekly sales data for our
trading period. Growth in the market has been driven by
price, rather than volume, which our analysis indicates has
declined in the year.
Online penetration is still growing, and estimated to be
13.6% in 2018 (2017: 12.7%), and is forecast to reach 16.5%
by 2022. Improved convenience through shorter delivery
times and cheaper deliveries will support growth.
Stores continue to play a key role in the shopping journey
with research highlighting an increasing importance of the
in-store experience to consumers.
Most consumers purchase homewares every four to six
months and the most frequent and highest spending
shoppers are 25-34 year-olds. Younger shoppers especially
are influenced by trends and design-led ranges.
Key growth drivers and inhibitors
Store space and new formats
improve experience
Fashion and design-led ranges
increase visit frequency
Online provides more choice and convenience
Economic uncertainty, inflation
and price competition
Leisure favoured over retail
8
Homeware-market-size
Market size
£bn
% Growth
1.7%
1.4%
1.1%
1.6%
1.9%
13,257
13,442
13,592
13,812
14,079
2016
2017
2018
2019
2020
ESTIMATE
FORECAST
FORECAST
corporate.dunelm.com Stock code: DNLM Key
Differentiators:
z Product obsessed – focus on style, quality and value
z Everyone’s welcome in our home
z Multichannel convenience – shop when, how and
where you want
z Our people – friendly and knowledgeable service
The Furniture Market†
Headlines
The UK furniture market is estimated to be worth £11.4bn
in 2018. The market is expected to grow slightly in 2018
but this growth is driven by price inflation and volumes are
expected to decline, impacted by economic uncertainty,
lower consumer confidence and the weaker housing market.
Online penetration is forecast to grow to 17.3% in 2018
(2017: 15.7%), and is forecast to reach 22.4% by 2022 with
customers becoming more comfortable with shopping this
channel and benefitting from broader ranges, convenient
delivery and lower pricing.
The market is expected to continue to consolidate with
independents declining most, as costs erode margins, and
online retailers capitalise on the benefits of the channel to
attract and convert customers.
Key growth drivers and inhibitors
Furniture-market-size
Online growth: lower overheads, broader ranges,
keener prices, convenient deliveries
Growth in sales of bedroom furniture categories
will be driven by increasing well-being and
health awareness
Growth in sales of living room furniture as space is
more constrained and innovative storage solutions
are needed
Economic uncertainty, inflation and
price competition
* Homewares market data is based on GlobalData analysis. The
methodology has been revised in the last 12 months; prior years and
forecast market sizes, including retailers’ market share analysis, have
been amended to reflect better available information.
† Furniture market data is based on GlobalData analysis.
Market size
£bn
% Growth
2.6%
1.9%
1.2%
0.3%
(0.7%)
11,449
11,367
11,405
11,546
11,766
2016
2017
2018
2019
2020
ESTIMATE
FORECAST
FORECAST
9
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Our Business
Model
DEVELOPING DUNELM. THE HOME OF HOMES
The resources we use
OUR PEOPLE
Our people are passionate
about Dunelm and
committed to helping
our customers create a
home they love. Our deep
product knowledge and
friendly service helps create
and enhance our leading
customer proposition.
OUR RELATIONSHIPS
We have grown up with
many of our committed
suppliers, and we also
build open and trusted
partnerships with new
suppliers and in the
communities where we
operate. The strength of
our relationships and the
way we work together
allows us to continually
improve Dunelm for our
customers.
OUR BRAND
REPUTATION
The Dunelm brand is known
and trusted by millions of
UK consumers, for choice,
value, quality and style.
We’re working hard to build
awareness of Dunelm so
that those customers who
don’t yet know us or shop
with us, can get access to
our leading product ranges
and friendly service too.
CAPITAL AND
INFRASTRUCTURE
We’re a prudently financed
business and over the
years, we have invested in
appropriate systems and
capabilities that provide a solid
platform for growth. Our store
network is not over-sized and
the highly cash generative
nature of our business allows
us to reinvest for growth,
whilst maintaining shareholder
distributions.
What we do
PRODUCT
SERVICE
MULTICHANNEL CONVENIENCE
Provide a leading range of
quality, great value products
for all customer groups.
Support customers throughout their
shopping journey with friendly and
knowledgeable colleagues in-store,
ready to help.
Gives options to customers on how
they want to shop. Online or
in-store, Home Delivery or Collect+.
z
z
z
Over 25,000 products in store
with 30% annual range refresh
and frequent promotional buys to
retain interest
High levels of in-store availability to
take home today
Over 60,000 items available online for
Home Delivery
10
z Over 9,000 colleagues, over 100,000
z
training hours per year
z High in-store Net Promoter Scores (NPS)
highlight customer satisfaction and provide
feedback on how to improve
z
Dedicated customer service centre in
Radcliffe, Manchester available to support
customers seven days a week
Mobile and tablet friendly websites allow
on-the-go browsing with clear pricing,
product information and customer
reviews
z A conveniently located superstore estate
allowing customers to touch and feel
products and seek expert advice
z Multiple home delivery options and free
or low cost delivery charges
corporate.dunelm.com Stock code: DNLM “ At Dunelm, our purpose is to help
everyone create a home they love”
Will Adderley DEPUTY CHAIRMAN
The long term value we create
FOR OUR CUSTOMERS
z Ever increasing reasons to
shop at Dunelm. With new
ranges, new departments,
new products and new
services
z Everyday low prices, two
end of season clearance
sale events per year
z An easy shopping
experience, how and
wherever customers want
to shop
z Inspiration across channels
to help everyone create a
home they love
FOR OUR PEOPLE
AND COMMUNITIES
z Stable and secure
employment in a growing
business with opportunities
to develop and progress
z A fair pay deal with pay
rates above National
Minimum/National
Living Wage levels, plus
additional benefits
z A strong commitment
to our relevant nominated
charities, helping us
give back
z Focused on doing the right
thing for the environment
by reducing emissions
and waste
FOR OUR SUPPLIERS
z We deal with our suppliers
in an open an honest way –
fair and consistent
z Effective management of
human rights throughout
our supply chain
z In-house Sourcing team
supports our suppliers
with improvement in
their quality and ethical
standards
z Continually improving
provenance to reduce
social, regulatory and
environmental impacts
FOR OUR
SHAREHOLDERS
z A clear strategy for
continued growth, with
targeted investment for
long term value creation
z Focus on cost control to
maximise efficiency and
return on capital employed
z Strong free cash flow
generation allowing
invest/distribute decisions
to be made
z A progressive dividend
policy with growth in
dividend per share each
year since flotation
Read more about Sustainability on pages to
35
42
What makes Dunelm different
LOVING EVERY HOME
We love every home and all the life that takes
place within them
PRODUCT OBSESSED
We’re obsessed with everything we sell, whether
they’re our own products or not. We don’t waste
our time on things our customers can’t take home
FAMILY VALUES
We’re friendly, helpful and straightforward, because
we love homes just as much as our customers do
WHY PAY MORE
We make the right trade-offs. We always try to strike
the right balance between price and quality
EVERYONE’S WELCOME
We value every customer and every colleague.
Everyone should feel at home in our home
ENERGY TO DO MORE
We’re never satisfied with what we’ve done in the
past; we trust our instincts, build on our successes
and look to the future
Our Culture and Business Principles
Our business principles underpin our
culture and encourage us to do the right things
with the long term in mind
Sell more
Be
committed
Do things
our own
way
Keep it
simple
MERCHANDISE
SUPPLIER
RELATIONSHIPS
KEEP LISTENING
AND LOOKING
CUSTOMER
FOCUS
MOTIVATE
OUR TEAMS
DEVELOP
OUR PEOPLE
BE THE
UNDERDOG
LONG TERM
DECISIONS
WASTE
ENVIRONMENT
KEEP OUR
COST
STRUCTURE
LEAN
Read more online at corporate.dunelm.com
11
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Our Vision
& Strategy
WHAT WE ARE SETTING OUT TO DO
Our vision is to be the leading multichannel specialist.
Famous for style, value, quality and ease of shopping.
Our purpose is to help everyone create a home they love.
Dunelm
The Home of Homes
Our customers shop differently to
how they did when our business
was growing up. Online, whether for
inspiration, browsing or purchasing is
now a part of most customers’
shopping experience.
Our stores play a pivotal role in a
Multichannel world. Take-home-today
convenience, friendly colleague advice,
or that touch and feel experience,
means we provide a unique experience
which sets us apart.
The rate of change in the UK retail
market is high, and gathering pace all
the time. Developments in technology
are changing customers’ shopping
behaviour and our competitor set
is evolving rapidly. Discounters are
competing on price and pure-play
retailers are offering a wide product
choice and transparent pricing. This
can be disruptive as they have a very
different approach to profits and long
term value creation.
We continue to grow well, taking market
share and developing our customer
proposition. We must continue to adapt
and evolve as our customers’ needs
change. Our foundations are strong
and they give us a great platform to
accelerate our multichannel capabilities.
As the rate of new store openings slows
down, we must find ways to reach more
customers with our Dunelm brand. Our
brand awareness remains relatively
low for a market leader. Attracting and
converting more customers will allow us
to sell more.
We must continue to give customers
clear (and more) reasons to shop with
us. We will be famous for style, value,
quality and ease of shopping. This
means well designed, brilliant quality,
own label products at the best possible
prices. We must offer more than today
– more newness, choice and seasonality
and desirable brands for example in
Dorma and Fogarty.
We will broaden our appeal. We want
everyone to create a home they love
and to feel comfortable in ours – starting
out, settled down, well off, hard up,
classic tastes, bling-loving, sofa surfer or
day tripper.
We know that convenience is important
given our customers’ busy lifestyles.
Getting our product must be easy –
anytime, anywhere. Our stores must
be worth visiting, providing inspiration,
advice, product trial and a window on
our entire range. Our websites must be
easy and inspiring to shop, with painless
delivery and collection options.
Our colleagues make Dunelm what it is.
Friendly service, product expertise, and
willing to go the extra mile. We
will keep making our place a better
place to work. Happy colleagues make
happy customers.
We will focus on five Business Goals:
1
2
3
4
5
Reaching more customers
with our brand
Create new reasons
for customers to shop
with Dunelm
Easy and inspiring
multichannel shopping for
our customers
Simple and low cost –
good housekeepers
A great place to work
for colleagues
For us, this will feel like continual
adaptation and evolution. To our
customers, it will simply be what they
expect of us.
This is Dunelm,
The Home of Homes
for tomorrow, as well as today.
12
corporate.dunelm.com Stock code: DNLM Our Business Goals
Goal One
Reaching more
customers with our
brand
Goal Two
Create new reasons
for customers to shop
with Dunelm
Goal Three
Easy and inspiring
multichannel
shopping for our
customers
Goal Four
Simple and low
cost – good
housekeepers
Goal Five
A great place
to work for
colleagues
STRATEGIC OBJECTIVE
Increase the number of
shoppers at Dunelm
STRATEGIC OBJECTIVE
Increase customer visit
frequency
STRATEGIC OBJECTIVE
Increase conversion and
basket size
STRATEGIC OBJECTIVE
Improve operating
leverage and efficiency
STRATEGIC OBJECTIVE
Improve customer
conversion efficiency
WHAT WE’RE DOING
An integrated programme
to build brand awareness,
consideration and
acquisition
WHAT WE’RE DOING
Improving our product
proposition by offering
the best choice, quality,
value and style
WHAT WE’RE DOING
Be the leading
multichannel brand in
homewares for customer
experience
WHAT WE’RE DOING
Developing our business
to be agile and scalable.
Instilling the good
housekeepers mindset
z Brand building
campaign begins in
September 2018 with
TV sponsorship and
advertising
z Performance
marketing
programmes will
accelerate under
one brand
z Developing own
channels and unique
content (#mydunelm,
Salesforce capabilities,
emails)
z Store roll-out
continues with a long
term target of around
200 stores in the UK
z Product PR and
Influencer programme
gaining critical mass
z Cultivate win/play/
show category
ranging strategies
including seasonal
z Buy more promotional
product to
complement core
ranges and increase
newness and value
z Use drop-ship
capabilities to
develop online range,
especially in soft
furnishings
z Build differentiated
offer in selected
furniture categories
(e.g. Fogarty
mattresses)
z Introduce our
new web platform
including Click &
Collect in Q3 FY19
z All range available
in-store through
customer hosts and
mobile tablet selling
equipment
z Refits to develop
inspiration and ease
of shopping
z Technology teams
set up for agile
development from
Q1 FY19
z Simplify to one brand,
one platform (for Tech
and Supply Chain
efficiency)
z Develop agile and
scalable systems and
processes
z Improve internal
controls around retail
basics
z Attack third party
costs (sourcing,
procurement, value
engineering)
z Re-engineer non-
customer facing
activities in store
WHAT WE’RE DOING
Retaining our culture as
we embrace a digital
future
z Restructured
commercial teams
to increase pace and
customer ownership
z Always-on colleague
listening to enhancing
our ability to
engage with and
make continual
improvements for our
colleagues
z Restructured
technology team to
enhance technical
product ownership
and development
agility and skillset
z Appointed a
designated non-
executive Director
to our Colleague
Council to improve
engagement with the
Group Board
Helping everyone create a home they love
OUR PURPOSE
OUR BUSINESS GOALS
Reaching more
customers with our
brand
Create new reasons
for customers to
shop with Dunelm
Easy and inspiring
multichannel
shopping for our
customers
Simple and low
cost – good
housekeepers
A great place
to work for
colleagues
OUR FOUNDATIONS
A customer
first culture
Committed
colleagues
The best store
portfolio
Agile and
scalable digital
platform
A lean and
efficient supply
chain
Committed
supplier
partners
Sell more
Be committed
Do things our own way
Keep it simple
OUR KEY BUSINESS PRINCIPLES
13
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport
Key
Performance
Indicators
Key performance indicators (KPIs)
are used by the board and throughout
Dunelm to monitor business performance.
The KPIs set out in this summary are those considered to be most relevant
to understand the performance of Dunelm over time.
Link to Business Goals:
1
2
3
4
5
Reaching more customers
with our brand
Create new reasons for
customers to shop with Dunelm
Easy and inspiring multichannel
shopping for our customers
Simple and low cost –
good housekeepers
A great place to work
for colleagues
TOTAL REVENUE
£m and growth %
TOTAL LFL REVENUE
growth %
HOME DELIVERY SALES
£m and participation %
12.2%
12.7%
7.8%
% Growth
8.5%
7.1%
9.9%
1,050.1
955.6
822.7
880.9
677.2 730.2
5.8
2.1
1.7
2.5
(0.5)
4.2
2.8% 4.4% 6.1% 7.0%
% Growth
19.2
32.4
50.3
62.0
16.3%
174.4
13.5%
129.0
FY13
FY14
FY15
FY16
FY17
FY18
FY13
FY14
FY15
FY16
FY18
FY13
FY14
FY15
FY16
FY17
FY18
Commentary
Growth of 9.9% includes LfL growth of 4.2%
from both stores and online and reflects the
full-year impact of Worldstores sales and the
benefit of ten new stores which opened in
the first half.
Why this measure is important
Sell More is a Business Principle and our
strong record of continued sales growth
reflects the ambition and culture of Dunelm.
This measure, which coincides with market
share growth, is central to our vision as we
become the customer’s number one choice
for Homewares and Furniture.
Link to business goals:
1
2
3
FY17
Commentary
Good LfL growth of +4.2% reflects improved
store performance (+1.0% store LfL),
supported by strong online Home Delivery
growth (+37.9%).
Why this measure is important
Creating more reasons for customers to shop
with Dunelm is a Business Goal which is core
to our strategy of driving sales growth. It also
allows us to monitor the performance of our
existing store estate and high growth online
channel.
Link to business goals:
1
2
3
Commentary
Home delivery sales now exceed 16%
of total sales including the benefit of the
consolidation of Worldstores sales for
the full year. Extensions to online ranges
and improved user experience have also
contributed to growth.
Why this measure is important
Our digital growth ambition to offer a
seamless multichannel experience to
customers means that monitoring growth
in this KPI is important to understand our
progress and success over time.
Link to business goals:
1
2
3
14
corporate.dunelm.com Stock code: DNLM EBITDA*
£m and % sales
18.7% 18.7%
% Growth
17.3% 17.5%
FREE CASH FLOW AND
EBITDA CONVERSION
£m/%† sales
58.3% 56.6% 60.9%
71.8%
14.9%
13.3%
% Growth
126.9
136.3
142.7
154.3
142.2
139.6
110.8
86.9
11.1%
74.0
77.1
14.2
39.3%
52.9
EARNINGS PER SHARE
Diluted, pence and growth %
14.0% 9.3%
7.1% 7.5%
% Growth
40.0
43.7
46.8
50.3
0.3%
(28.2%)
36.1
36.2
FY13
FY14
FY15
FY16
FY17
FY18
FY13
FY14
FY15
FY16
FY17
FY18
FY13
FY14
FY15
FY16
FY17
FY18
Commentary
EBITDA has declined modestly this year
as a result of Worldstores losses, higher
depreciation from recent investments and
wage inflation. We are focusing on improving
operating leverage and this measure is
expected to improve in FY19.
Why this measure is important
EBITDA is a good indicator of the cash
generation capability of business operations
before working capital and capital investment
decisions. It is important to monitor to ensure
that Dunelm maintains its operating cost
leadership position.
Link to business goals:
Commentary
Free cash flow has improved this year due
to lower capital investment and corporation
tax payments. This was partially offset by
increased working capital driven by a
reduction in inventory purchases towards the
end of year.
Why this measure is important
Dunelm is highly cash generative, and has
the ability to make investment decisions
for the long term to support growth, or to
make capital distributions to shareholders.
This KPI allows the Board to monitor cash
flows carefully throughout the year as these
decisions are made.
1
2
4
* EBITDA is presented before
3
exceptional costs
Link to business goals:
1
2
3
4
† Free Cash Flow and EBITDA Conversion % are
presented after exceptional costs
Commentary
There was a modest increase in diluted
Earnings Per Share (EPS). Before exceptional
items this measure decreased to 40.0p
(FY17: 42.8p). EPS is expected to improve
again in FY19.
EPS is expected to improve again in FY19.
Why this measure is important
EPS is a key measure for shareholders
and employees and is a component of
remuneration calculations. It monitors
Dunelm’s ability to grow profitably over the
long term.
Link to business goals:
1
2
3
4
5
DIVIDEND PER SHARE
growth %
CO2 EMISSIONS (-7.4%)
tCO2e /£1m Group Revenue
TAX CONTRIBUTIONS (£142.3M)
£m
26.0
26.5
25.1
39.9
34.9
21.5
20.0
16.0
29.0
25.6
23.7
FY13
FY14
FY15
FY16
FY17
FY18
2014
2015
2016
2017
2018
140.8
62.5
132.6
52.4
142.3
58.9
29.4
26.6
32.0
25.5
23.4
25.0
18.9
28.6
32.5
FY16
FY17
FY18
Net VAT collected
Payroll taxes
including NI
Corporation tax
Property taxes
Commentary
The Board has recommended a 1.9%
increase in dividend per share reflecting
confidence in the long term cash generation
capability of Dunelm and in the strategic
plan. Dividend per share has increased each
year since flotation in 2006.
Commentary
A continued reduction in both absolute
emissions and emissions/revenue
highlights the progress made on a range
of environmental initiatives including LED
lighting, solar power generation and lower
emission vehicles.
Commentary
We aim to comply with all relevant
tax legislation and keep our tax affairs
transparent and sustainable for the long term.
In line with business performance our total
tax contributions have increased to £142.3m
in 2017-18.
Why this measure is important
With so many colleagues owning shares in
Dunelm, dividend per share is an important
metric for both external shareholders and for
our people as we continue to make Dunelm a
great place to work.
Link to business goals:
4
5
Doing the right thing for the environment is
something we take seriously and invest in. We
recognise it is important for our colleagues
and customers too. It also helps us reduce
waste and keep our cost structures lean.
Why this measure is important
This KPI allows us to assess our progress in
reducing our impact on the environment.
Why this measure is important
This measure highlights our contribution to
society and conservative tax planning.
Link to business goals:
4
5
Link to business goals:
4
5
15
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport
Business
Review
SEIZING OPPORTUNITIES IN A DIGITAL WORLD
First impressions
Dunelm is a great business which has
grown sales in each year of its 39-year
history by offering great choice and
value for money. Over time we have
developed deep knowledge and
an unrivalled range of homewares
products, supported by committed
suppliers. The business is prudently
financed, and highly cash generative.
Investment in appropriate systems and
infrastructure provides a solid platform
for growth, and the superstore portfolio
combines good locations and attractive
rent levels. Our long-established
business principles and committed
colleagues help ensure a high level of
customer satisfaction, which is
still growing.
However, we need to continue to
change if we are to continue to win.
The market is changing, with the
increasing penetration of online retail.
At the same time, while some of our
traditional competitors are retrenching,
discounters continue to expand their
physical store portfolios. Our rate of
market share gain has slowed. We have
made some inroads into the furniture
market, but our proposition is not yet
well developed. The acquisition of
Worldstores in FY17 has accelerated
the development of our multichannel
capabilities, but the process of
integrating Worldstores into Dunelm
has been substantial and has reduced
our focus on some of our operating
disciplines.
16
My conclusion is that I have joined an
excellent business which is experiencing
some new challenges, both near term
and medium term. I am really excited
about helping Dunelm to navigate
these challenges as we aim to fulfil our
purpose of helping everyone create a
home they love. We will differentiate
ourselves by being famous for product
style, value and quality in all market
segments, and we are working hard to
become the best multichannel retailer
for homewares in terms of convenience
and customer experience.
corporate.dunelm.com Stock code: DNLM Total Revenue
Growth %
9.9%
(2017: 8.5%)
Homeware’s
Market Share%
8.1%
(2017: 8.0%)
Worldstores
The acquisition of Worldstores was a
major event in Dunelm’s development
and trading and integrating the
acquired businesses has been a massive
focus for the management team.
Although Worldstores was acquired
from administration for a nominal
sum, our estimate of the total cash
outlay we will incur, including goodwill
payments to suppliers, integration
costs and trading losses amounts to
approximately £30m (net of tax relief).
The business model of Worldstores
itself was not sustainable and at the
time of acquisition it was incurring
losses of over £20m per year. We
have transferred significant numbers
of profitable lines (approximately
15,000 to date) from Worldstores
and Kiddicare to our own website,
strengthening the Dunelm.com offer
and contributing to growth. Having
transferred the worthwhile sales,
we decided to cease trading the
Worldstores websites as separate
entities and they were fully withdrawn
by early September 2018. We also
sold the Achica brand which did not
fit with Dunelm’s business model and,
having tested the Kiddicare brand, we
concluded that we can more profitably
extend our presence in the children’s
market using the Dunelm brand. We
therefore closed the Kiddicare business
in July 2018.
The main benefit from the acquisition
is the access to technology and
digital development capabilities,
which are an important ingredient to
the infrastructure that is essential to
our success in a multichannel world.
Importantly, we see the technology
platform acquired with Worldstores
as a real asset. We are well advanced
in a major programme to move the
Dunelm.com website onto this platform
which will allow us to launch Click &
Collect and subsequent developments
(such as improved delivery options)
with much greater agility than has been
possible whilst working with a third-
party technology partner. We are on
track to introduce the new platform
during Q3 of our financial year. Linked
to the above, we now have not only
better technology assets but also a
much more advanced capability within
the organisation, with a significant
increase in the number of digital
developers and a digital development
centre in London.
With the integration behind us, it is
clear that Worldstores has created a
new level of energy and focus in the
business around digital growth. This
will play a key role in driving Dunelm’s
growth for the foreseeable future.
“I see plenty of opportunity for us to drive growth as the
leading multichannel specialist, helping more customers
to create a home they love... This is a new and exciting chapter
for Dunelm as we fully embrace digital retailing.”
17
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Business Review
continued
Immediate challenges
and opportunities
We have seen profits fall in our last two
financial years and we have identified
a number of issues and opportunities
to improve performance of the core
Dunelm business.
We need to evolve to a market-
leading multichannel offer. The actions
described above to capitalise on the
assets acquired with Worldstores are
the critical next phase on this journey.
We also have a clear opportunity
to improve our customer offer via
renewed focus on our value for
money credentials. We will reinvigorate
our programme of special buys in the
coming months and ensure these
are prominently displayed in stores
and online.
We have grown our furniture
business over recent years such that
furniture (excluding Worldstores)
now represents approximately 5% of
Dunelm sales, but the proposition is
still at an early stage of development.
I am excited by the opportunity to
develop our furniture offer further
across all channels.
Partly as a result of management
change and partly due to the
distraction of the Worldstores
acquisition and integration activity,
some of our basic retail disciplines
have slipped, for example in the areas
of margin management and stock loss.
I am determined that we will regain our
grip in these areas.
We have invested heavily in our
store portfolio over recent years.
With a small number of exceptions,
the performance of new stores has
been positive and continues to give
good payback on investment. Refit
investments have shown a mixed
return. I continue to believe in the
opportunity for rolling out new stores,
and for targeted refits, although I will
ensure that we are highly selective
with these investments going forward.
I anticipate that the rate of new store
openings will be lower, approximately
three to five per year, as we move
towards our target of 200 stores for
full national coverage; and that our
investment in refits will settle at £5-10m
per year over the medium term.
Evolution of strategy
The core of Dunelm’s business strategy
is sound, but needs to adapt to reflect
fully the issues described above and
the challenges of a multichannel
environment.
Our customer purpose is to help
everyone create a home they love.
We intend to reflect this in the way
we think about the business, the way
we organise, and the way we express
our strategy.
Customer first –
The leading multichannel
specialist
We are now organising ourselves in
line with a clear “Customer First” mind-
set. In this retail environment, we must
be agile and able to work at pace in an
ever-evolving competitive landscape.
Our combined store and online
business enables us to offer a leading
multichannel customer proposition
which neither the discounters nor the
pure-play operators can match.
By listening to our customers and
serving them better we have a
significant opportunity to sell more.
Shopping frequency and average
basket size have considerable
headroom for growth as we develop
our customer proposition. We under-
participate in certain key homewares
customer segments, such as “confident
nest builders” and “necessity buyers”,
and have the potential to grow
substantially within these groups.
Furthermore, awareness of the Dunelm
brand is approximately 80%, which
remains low for a market leader.
In the coming years our customer
proposition will evolve significantly.
Product choice will be extended
considerably, in both current and
adjacent categories, as we help our
customers by sourcing great products.
Our stores will become more service
and experience orientated, supported
by market-leading services which
offer inspiration and advice to help
customers create a home they love.
At the same time, we will work hard to
improve the value we offer customers,
and to make it even easier for them to
shop with us.
In addition to our four existing business
goals which help us shape and prioritise
our activities to support growth, we
have now added a fifth, reflecting
the opportunity to grow customer
awareness and improve our capabilities
with regards to customer acquisition.
18
corporate.dunelm.com Stock code: DNLM 1
Reaching more customers
with our brand
We have increased the number of
unique customers shopping in our
stores by 5% and online by 18% during
the last year. Continuing to grow our
customer base is now a key focus.
Historically customers have “found”
Dunelm as we have opened new stores
near their homes. In recent years, with
the growth of online performance
marketing, we have also attracted new
customers directly to our website,
which in turn supports our store sales.
In the current financial year, we are
launching a new integrated brand
building campaign which will begin
in September 2018, comprising
TV sponsorship and advertising,
supported by PR, social media activity,
email communications and instore
activities. We will test and learn from
this approach, and will endeavour to
have an “always on” flow of customer
communications to ensure the Dunelm
brand is “front of mind” amongst
our target customer segments. Our
investment in this campaign over the
coming financial year will be partly
funded by redirecting existing brand
spend. We will measure success in
terms of customer acquisition and
visit numbers.
We plan to accelerate investment in
online performance marketing on
Dunelm.com in line with our growth
expectation for this channel.
We will also continue to develop the
use of our own content via our own
website, emails to customers, and
on social media channels where we
are targeting increased followers
and likes. We are learning how best
to leverage the capabilities of our
new CRM system, and generating
interaction through #mydunelm and
user-generated content and imagery.
We will further step up our product PR
activity and influencer programmes to
gain critical mass.
We are excited about the potential
for medium term growth across all
our channels which will come from
this heightened focus on customer
acquisition.
2 Create new reasons
for customers to shop
with Dunelm
We must continually improve our
proposition by offering the best
product choice, quality, value and
style to our customers. We must
broaden our product appeal to suit
all customer tastes, and reinforce our
product advantage compared to our
competitors. Driving broader category
awareness will help us drive visit
frequency and basket size.
During the last year we have had
some notable successes in improving
our product ranges in areas such as
lighting and rugs where sales grew
significantly both online and in stores.
We have recently launched online a
new Made to Measure blinds offer,
which will be followed in due course
by Made to Measure curtains, which
we expect to appeal to customers
seeking convenience. In furniture, we
are building differentiation into our
offer to improve the ranges available
for customers and drive consideration
in areas such as mattresses with new
Dorma and Fogarty branded products.
We want our customers to see new
products each time they visit our
stores and website. We will achieve
this by reinvigorating our approach
to special buys and trading to bring a
wide variety of styles and great value
products to our customers.
In the last year, we have continued to
grow our sales of seasonal products
across key winter and summer trading
periods (on top of strong growth
in FY17). We believe there is more
potential for growth here and are
planning further improvements in
seasonal ranging over the next year.
3 Easy and inspiring
multichannel shopping
for our customers
Our customers tell us that shopping
convenience is high on their priority
list. In addition, customers seek help,
advice and inspiration to help create a
home they love.
Our 169 superstores provide a fantastic
opportunity for us to showcase our
product ranges and inspire customers
as they browse. As we expand our store
estate to around 200 stores, we will
bring this opportunity within reach of
even more customers, enabling them
to access our great ranges and ‘take
home today’ convenience.
Our website provides a different type
of convenience for customers shopping
at home or on the go. We are working
hard to create a seamless multichannel
proposition, and are aiming to be
the leading multichannel brand in
homewares for customer experience.
In reality, we are still in catch-up mode
for online capability, and we know our
customers will appreciate the Click &
Collect service which we will introduce
in tandem with our new web platform
early in 2019, as well as improved
payment and delivery options.
Read more on our
Strategy on pages and
12
13
19
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Business Review
CONTINUED
We know that our stores are an
integral part of our future success in
a multichannel world, and delivering
an inspirational and easy to shop store
remains important. We have rolled out
tablet-based selling in-store during the
last 12 months, providing customers
with the opportunity to access the full
Dunelm range from every store. We
have introduced customer hosts in
our stores who will support customers’
shopping needs, offering friendly
advice and expertise, and helping them
navigate the wide variety of ranges
available to them.
Last year we continued to evolve our
format in stores by completing six
major refits, as well as a number of
smaller modular refits around furniture,
lighting and Made to Measure. We
will continue to trial and develop new
concepts in stores and currently plan
to complete a small number of further
major refits in the next financial year.
4 Simple and low cost –
good housekeepers
Our low-cost operating model and
dedication to keeping things simple
has historically been a source of
significant cost advantage. However,
cost growth has exceeded sales growth
for a number of years now as we
have addressed the changing retail
market and transitioned to our
multichannel model.
Our approach going forward is to
drive efficiency by leaving behind the
Worldstores and Kiddicare brands,
and leveraging a single brand, web
platform and integrated supply chain.
As our channel mix shifts, we will attack
costs and work to keep all our channel
operations low cost and efficient.
We calculate that the marginal
contribution from 1-man home delivery
sales is currently around 15% below
in-store sales.
20
Over the last year we have made
conscious decisions to invest in
areas such as digital marketing and
technology, and these investments
will continue. We have partially offset
these investments through productivity
initiatives, both in stores and in our
supply chain operations, including
elimination of some of the Worldstores
operating costs. However, we have also
suffered increased operating costs due
to weaker grip on basics such as stock
loss, sourcing and procurement. We are
now refocused on improving controls
in these areas.
corporate.dunelm.com Stock code: DNLM 5 A great place to work
for colleagues
Making Dunelm an even better place
to work for all our colleagues is a
continual focus for our leadership team
and something that we are passionate
about. We know that highly engaged
colleagues provide better service to
our customers.
Our business principles are really
important to us, and as we embrace a
digital future, we are working hard to
retain the culture which has enabled us
to get to where we are.
We are encouraged by the progress
made this year in creating better,
more rewarding jobs for colleagues
in stores and in support functions. We
have again promoted more colleagues
to management level roles, and we
continue our efforts to identify and
develop talent to enable individuals to
reach their full potential.
We continually listen to our customers
and colleagues using our “always-on”
feedback and engagement tools.
Significant actions taken in response to
feedback from our colleagues include
restructuring our Technology teams
to become more agile and product
focused, and combining our Buying
and Merchandising functions into an
integrated team.
Colleagues value our commitment
to activities which have a benefit for
the environment. During the year,
we reduced CO2 emissions by 7.4%,
supported by the completion of 25
LED refits in the year, taking the total
number of our sites with LED lighting
up to 164 out of 184. Our focus on
recycling and landfill diversion has
enabled us to reduce our costs of
waste management year-on-year,
generate significant revenues from
recycling, and improve our landfill
diversion by three percentage points
to 95%.
Summary
In the near term, we have a number
of self-help opportunities to improve
profitability and cash generation after
a difficult and disappointing FY18. I
am determined that we grasp these
opportunities quickly so as to return to
profit growth.
Over the medium term I see plenty of
opportunity for us to drive growth as
the leading multichannel specialist,
helping more customers to create
a home they love. This is a new and
exciting chapter for Dunelm as we fully
embrace digital retailing.
The UK retail environment remains
challenging, but against this difficult
background we have traded in line
with expectations during the current
financial year to date.
Nick Wilkinson
Chief Executive Officer
12 September 2018
21
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Financial
Review
A STRONG PLATFORM FOR GROWTH
Overview
The table below is provided in order to aid understanding of the impact of
Worldstores on the performance of the group as a whole. The analysis includes a
number of assumptions and judgements, particularly in relation to the allocation
of costs between core Dunelm and Worldstores.
Dunelm
Worldstores
transfer
(£m)
Total
(£m)
Worldstores
(£m)
Total
Group
(£m)
12.4
(7.4)
5.0
(2.4)
2.6
984.1
(503.1)
481.0
(365.3)
115.7
66.0
1,050.1
(43.4)
22.6
(33.6)
(546.5)
503.6
(398.9)
(11.0)
104.7
Existing
(£m)
971.7
(495.7)
476.0
(362.9)
113.1
(2.7)
102.0
(8.9)
93.1
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial income and
expense
Profit before tax and
exceptional items
Exceptional items
Profit before tax
The commentary which follows explains the performance of Dunelm and
Worldstores separately as far as possible.
Revenue
Within this, Dunelm revenue grew by
8.9% to £984.1m.
Despite volatile trading conditions
throughout the year, like-for-like
(‘LFL’) revenue grew by 4.2%. This was
primarily driven by continued strong
performance online, where revenue
grew by 37.9%; over the year as a
whole, Dunelm.com accounted for
10.7% of total Dunelm business (13.5%
including reserve & collect orders
picked up in stores).
After a decline in the previous
financial year, revenue in LFL stores
also increased, with growth of 1.0%
reflecting:
z Better availability throughout the
financial year, with no repeat of the
supply chain disruption seen in FY17
z Improvements in product ranges
with more new lines and a stronger
seasonal offering
z Benefits from investment in existing
stores, including six major refits
z Favourable weather conditions
through the first half, and especially
the first quarter
z Adverse weather conditions in the
LFL stores
LFL online (Dunelm.com) (including lines
transferred from Worldstores)
Total LFL
Non-LFL stores
Total Dunelm
Worldstores businesses
Total Group
52 weeks to 30 June 2018
second half
Revenue
(£m)
YoY
Growth
(£m)
YoY
Growth
(%)
805.0
+8.2
+1.0%
105.4
910.4
73.7
984.1
66.0
1,050.1
+28.9
+37.9%
+37.1
+43.6
+80.7
+13.7
+94.5
+4.2%
—
+8.9%
—
+9.9%
Non-LFL revenue reflected the impact
of our ongoing store expansion
programme, with ten new openings
in the year (of which one was a
relocation). We ended the year with
a portfolio of 169 superstores and
three stores in high street locations.
We anticipate a smaller number
of new openings in FY19, with two
new superstores committed (both
relocations) as at the date of this report.
Group revenue for FY18 was £1,050.1m (FY17: £955.6m), an increase of 9.9%.
22
corporate.dunelm.com Stock code: DNLM Earnings per Share
(diluted) Pence
36.2p
(2017: 36.1)
Dividend per Share
Pence
26.5p
(2017: 26.0)
Operating Costs before
Exceptional Items
Operating costs before exceptional
items in FY18 were £398.9m, an
increase of £43.0m or 12.1% compared
with the prior year. The total included
£33.6m of costs relating to Worldstores
businesses (FY17: £29.2m).
The main drivers of the £38.6m
increase in core Dunelm operating
costs include:
z Store portfolio growth – nine new
superstore openings (net of one
relocation), increasing selling space
by 6.1%
z Online – digital marketing and
Exceptional Items
We have treated as exceptional those
non-recurring costs which relate to
the acquisition, integration and/or
disposal of the Worldstores businesses.
During the year, these exceptional
items totalled £8.9m, comprising the
following:
Fair value adjustments
in respect of acquired
inventory
Acquisition costs
Welcome payments for
continuation of supply
FY18
(£m)
FY17
(£m)
—
—
—
0.5
1.3
7.3
fulfilment costs grew broadly in line
with Dunelm.com sales
Retention and redundancy
payments
1.2
2.7
z National Living Wage – upward
cost pressure in excess of inflation,
partially mitigated by productivity
initiatives
We will redouble our focus on
productivity and overhead cost control
going forward.
Loss on disposal, asset
write-offs, impairments
and accelerated
amortisation
Other integration costs
Total
5.8
1.9
2.9
2.2
8.9
16.9
Management retention and
redundancy payments were made in
the year in accordance with contractual
agreements. There are no further
payments due to be made.
We have reviewed the websites and
other intangible IT assets of both the
existing Dunelm business and the
acquired Worldstores businesses.
Having determined our technology
plans going forward, we have written
off certain technology assets and
useful economic lives of others have
been reduced resulting in accelerated
depreciation.
23
The Worldstores businesses,
comprising Worldstores.co.uk, Achica.
com and Kiddicare.com, were acquired
midway through FY17. During FY18
we divested Achica.com and made the
decision to transfer continuing lines
from the Worldstores and Kiddicare
ranges to Dunelm.com, prior to
winding down the Worldstores.co.uk
and Kiddicare.com sites in the first
quarter of FY19. As a consequence,
sales attributed to Worldstores
businesses will be minimal in FY19.
Gross Margin
Gross margin decreased by 90
basis points to 48.0% (FY17: 48.9%).
Excluding the dilutive impact of lower
margins earned by the Worldstores
businesses, core Dunelm gross margin
was 48.9% in FY18 and 49.8% in FY17.
Key factors causing the year-on-year
decline in gross margin were adverse
foreign exchange impacts and a higher
level of clearance of discontinued lines
(including a year-end adjustment to
increase our obsolete stock provision
by £2.6m).
Setting aside the year-end adjustment
described above, core Dunelm gross
margin showed year-on-year growth of
40bps during the final quarter of the
year. This gave positive momentum
going into FY19, when we also expect
to benefit from improved foreign
exchange rates. We anticipate that
these benefits will more than offset the
margin dilution from transfers of further
Worldstores lines to Dunelm.com.
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Financial Review
CONTINUED
During the year we took the decision to
develop the Kids and Nursery category
under the Dunelm brand, rather than
the Kiddicare standalone brand. As a
result, the Kiddicare brand acquired as
part of the Worldstores acquisition was
deemed to be fully impaired. As well as
this, aged Kiddicare stock and various
other intangible assets relating to
the development of a new Kiddicare
website were also written off.
As a result of the sale of the Achica
business, certain costs relating to the
sale and subsequent restructure of
the business have been classified as
exceptional. These costs include the
write-off of assets relating to Achica
and onerous contracts. The proceeds
from the sale of the Achica business
were £0.6m.
Other integration costs include
professional advisory support and
costs associated with the transfer of the
London head office to a new location.
Of the above exceptional items, £1.6m
were net cash outflows in the period.
We do not expect to report exceptional
items in FY19.
Operating Profit before
Exceptional Items
Group operating profit before
exceptional items for the financial
year was £104.7m (FY17: £111.7m),
equating to 10.0% of sales (FY17:
11.7%). Included within this is a net
negative impact from the Worldstores
businesses, which we estimate
at £8.4m. This impact will reduce
significantly in FY19 as Worldstores
trading is absorbed fully into the core
Dunelm business.
Operating profit after exceptional items
was £95.8m (FY17: £94.8m) reflecting
the lower level of exceptional costs in
the current year.
EBITDA
Before exceptional items, earnings
before interest, tax, depreciation and
amortisation were £139.6m (FY17:
£142.2m). This represents a 1.8%
reduction on the previous financial
year. The EBITDA margin achieved was
13.3% (FY17: 14.9%).
After exceptional items EBITDA was
£134.7m (FY17: £128.2m).
Financial Items
The Group incurred a net financial
expense of £2.7m in FY18 (FY17:
£2.4m). Interest and amortisation
of costs arising from the Group’s
revolving credit facility amounted to
£2.2m (FY17: £2.0m) and net foreign
exchange differences on the translation
of dollar denominated assets and
liabilities amounted to a further £0.5m
expense (FY17: expense of £0.6m).
Interest earned on cash deposits was
£nil (FY17: £0.2m).
As at 30 June 2018, the Group held
$164.0m (FY17: $140.0m) in US dollar
forward contracts, of which $121.5m
were due to mature in the next 12
months (FY17: $107.6m), representing
76% of the anticipated US dollar spend
over the next financial year. US dollar
cash deposits amounted to $7.3m
(FY17: $0.3m).
PBT
After accounting for interest and foreign
exchange impacts, profit before tax
(excluding exceptional items) for the
financial year amounted to £102.0m
(FY17: £109.3m), a decrease of 6.7%.
Profit before tax and after exceptional
items was £93.1m (FY17: £92.4m).
Taxation
The tax charge for the year was 21.3%
of profit before tax, a premium of
230bps compared with the statutory
rate of 19.0%. This included an
unusually high level of disallowable
asset write-offs largely relating to the
acquired Worldstores brands.
In future, we expect the tax charge to
trend approximately 100 bps above
the headline rate of corporation tax,
principally due to depreciation charged
on non-qualifying capital expenditure.
PAT and EPS
Profit after tax was £73.3m (FY17:
£73.1m).
Basic earnings per share (EPS) for the
year ended 30 June 2018 was 36.3p
and in line with last year, or 40.1p
before exceptional items (FY17: 43.1p).
Fully diluted EPS increased slightly to
36.2p (FY17: 36.1p). Before exceptional
items this measure decreased to 40.0p
(FY17: 42.8p).
Operating Cash Flow
In FY18 the Group generated £98.5m
(FY17: £79.5m) of net cash from
operating activities, an increase of 24%.
Cash elements of exceptional costs
were £1.6m (FY17: £11.3m).
Net working capital increased by
£20.3m over the year (FY17: £26.2m
increase). Despite the expansion of
our store estate, we reduced year-
end inventory by £8.6m through a
combination of delayed inflow of
Christmas merchandise and lower cover
levels on continuing lines. However,
payables reduced by £31.4m due to
a combination of factors including the
later timing of Christmas stock flows and
the lower level of capital investment in
progress at year-end.
Capital Expenditure
Gross capital expenditure in the
financial year was £44.0m compared
with £60.5m in FY17. During the year,
we opened ten new stores (£13.8m),
and invested £10.6m in refits. We
continued to invest in technology
infrastructure to improve our website
and open up new sales channels
(£14.3m). We relocated our London
Support Centre and invested in a
new bespoke curtains manufacturing
site, as well as acquiring one freehold
property.
We expect capital expenditure in the
next financial year to be lower. We
anticipate fewer new store openings.
We intend to complete a small number
of major store refits as well as other
specific upgrades across the estate
to introduce concepts which have a
proven return (estimated £5-10m in
total). We will continue to invest in
technology and web development as
we move the Dunelm.com website
to the Worldstores technology
platform and introduce Click & Collect
(estimated at £15m). In total, we are
planning capital investment, assuming
no freehold acquisitions, of £30-35m
in FY19.
Free Cash Flow (FCF)
We measure FCF as net cash from
operating activities less net cash used
in investing activities. FCF was £52.9m
in the year (FY17: £14.2m), reflecting
the improved operating cash flow and
lower capital expenditure year-on-year.
Banking Agreements
and Net Debt
During the year the Group amended
and extended its syndicated Revolving
Credit Facility (‘RCF’). The RCF was
increased to £165m and extended
until March 2023. The terms of the
RCF are unchanged and are consistent
with normal practice. They include
covenants in respect of leverage
(net debt to be no greater than 2.5×
EBITDA) and fixed charge cover
24
corporate.dunelm.com Stock code: DNLM “Dunelm continues to deliver strong
cash returns from operations providing the
opportunity to make investment decisions to
deliver long term growth”
(EBITDA to be no less than 1.75× fixed
charges), both of which were met
comfortably as at 30 June 2018. In
addition, the Group maintains £20m of
uncommitted overdraft facilities with
two syndicate partner banks.
Net debt at 30 June 2018 was £124.0m
(0.89× historical EBITDA before
exceptional items) compared with
£122.1m in FY17 (0.86× historical
EBITDA). Daily average net debt in
FY18 was £112.4m (FY17: £92.2m).
Capital and
Dividend Policy
The Board targets an average net
debt (excluding lease obligations and
short-term fluctuations in working
capital) of between 0.25× and 0.75×
historical EBITDA. This policy provides
the flexibility to continue investing in
the Group’s growth strategy and to take
advantage of investment opportunities
as and when they arise, for example
freehold property acquisitions.
The Board targets ordinary dividend
cover (by which we mean the Group’s
earnings per share in a given financial
year divided by the total ordinary
dividends declared in respect of that
year) of between 1.75× and 2.25×.
The Board will consider special
distributions if average net debt over a
period consistently falls below the lower
limit of the target range (0.25× EBITDA),
subject to known and anticipated
investment plans at the time.
The Group’s full capital and dividend
policy is available on our website at
https://corporate.dunelm.com.
Dividends Paid
and Proposed
An interim dividend of 7.0p per share
was paid in March 2018 (FY17: 6.5p).
It is proposed to pay a final dividend
of 19.5p per share (FY17: 19.5p),
subject to shareholder approval. The
total dividend of 26.5p represents an
increase of 1.9% over the previous
year, giving a dividend cover of 1.5×
before exceptional items (FY17: 1.6×).
This cover level is outside our policy, as
described above; however, the Board
has confidence in the strategic plans
of the business and believes that
ordinary dividend cover will revert to
the policy range in the medium term.
The final dividend will be paid on
7 December 2018 to shareholders on
the register at the close of business on
16 November 2018.
Share Buy-backs
The Group’s policy is to purchase
shares in the market from time to
time to satisfy the future exercise of
options granted under incentive plans
and other share schemes. During
FY18 no shares were purchased
(FY17: 500,000). At the year-end,
914,635 shares were held in treasury
(FY17: 1,150,642), equivalent to
approximately 37% of options
outstanding.
Tax Policy
The Group maintains a straightforward
and transparent tax policy. The aim is to
comply with all relevant tax legislation
and pay all taxes due, in full and on
time. While actively managing its tax
affairs, the Group will only engage in
tax planning where this is aligned with
commercial and economic activity
and does not lead to an abusive
result. We would normally expect our
corporation tax charge to be higher
than the statutory tax rate, as noted
above. HMRC has recently reconfirmed
the Group’s low-risk tax status. Further
details of the Group’s tax policy are
available on our website, https://
corporate.dunelm.com.
During the year, total tax contributions
paid to HMRC in the form of
corporation tax, property taxes, PAYE
and NIC and VAT were £142.3m
(FY17: £132.6m).
Treasury Management
The Group Board has established an
overall Treasury Policy, day-to-day
management of which is delegated to
the Chief Financial Officer. The policy
aims to ensure the following:
z Effective management of all clearing
bank operations
z Access to appropriate levels of
funding and liquidity
z Effective monitoring and
management of all banking
covenants
z Optimal investment of surplus cash
within an approved risk/return profile
z Appropriate management of foreign
exchange exposures and cash flows
Key Performance Indicators
In addition to the traditional financial
measures of sales and profits, the
Directors review business performance
each month using a range of other
KPIs. These include measures shown on
page 14.
David Stead
Interim Chief Financial Officer
12 September 2018
25
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Risks and
Risk Management
The Board as a whole takes responsibility for management
of risk throughout the business.
We believe that risk is best managed by a combination
of the following:
z Formal risk management processes as described in
this report
z The Board and senior management leading by example
z Alignment through promoting colleague shareholding
in Dunelm
z Embedding our culture and values
Given the size of our Board and the relative lack of complexity
in our business, we do not have a separate Board Risk
Committee; our Audit and Risk Committee oversees the risk
management process as part of its activities.
Risk management framework
The Board confirms that:
z There is an ongoing process for identifying, evaluating and
managing the principal risks faced by the Group;
z The systems have been in place for the year under review
and up to the date of approval of the annual report and
financial statements;
z They are regularly reviewed by the Board; and
z The systems accord with the guidance to Audit
Committees issued by the Financial Reporting Council
dated April 2016.
The table below sets out how responsibility for risk
management is allocated and how that responsibility is
discharged:
Board
Audit and Risk
Committee
Executive
Board
Company
Secretary
Collective responsibility for
managing risk
Oversees risk management
process
z Formal review of principal
risks twice annually – one
of which is in connection
with consideration of the
viability statement (see
further below)
z Risk topics reviewed in
depth through regular
timetabled presentations
or papers
z Monitors KPIs through
Board reports
z Assesses the coverage
and adequacy of
independent assurance
z Ensures Executive
Directors have line
responsibility for
managing specific risks
z Receives report on risk
management process
twice annually
z Conducts formal reviews
of principal risks twice
annually – one of which
is in connection with
consideration of the
viability statement (see
further below)
z Allocates resources for
independent assurance
reviews of selected risks
z Selects and proposes
topics for ‘key risk’
reviews by the Board
Reviews principal risks
Members have responsibility
for managing risk within their
area of accountability
Ensures that the above
process is adhered to
z Conducts formal reviews
of principal risks twice
annually
z Reviews risk topics
through regular
timetabled presentations
or papers
z Monitors KPIs through
Executive Board reports
z Conducts individual risk
reviews with Executives
z Maintains the risk register
z Presents the outcome
of the risk review to
the Executive Board,
the Audit and Risk
Committee and the
Group Board twice a year
z Delegates line
z Ensures that principal
responsibility for
managing risk within their
area of accountability
to individual Executive
Board members and
reviews these formally
twice a year
risk topics are scheduled
for regular review by the
Executive Board and the
Group Board
26
corporate.dunelm.com Stock code: DNLM Internal control and internal audit
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. The table below
summarises the Group’s system:
Board
Audit and Risk
Committee
Executive
Board
Internal Audit
Programme
Operational
Audit Team
z Collective
z Oversees
responsibility for
internal control
z Formal list of
effectiveness of
internal control
process
matters reserved
for decision by the
Board
z Receives reports
from external
auditor
z Control framework
z Approves
setting out
responsibilities
z Approval of key
policies and
procedures
z Monitors
performance
independent
assurance
programme
z Receives reports
generated through
the internal audit
programme
z Responsible
for operating
within the control
framework
z Reviews and
monitors
compliance with
policies and
procedures
z Recommends
changes to
controls/policies
where needed
z Monitors
performance
z Provides assurance
to the Audit and
Risk Committee
through
independent
reviews of agreed
risk areas
z Reviews
compliance with
certain key internal
procedures in
stores and at other
locations
The Audit and Risk Committee has oversight of the system
of internal controls and of the internal audit programme
and receives the report of the external auditor following the
annual statutory audit. For further details please see the Audit
and Risk Committee report.
It should be noted that internal control systems such as this
are designed to manage rather than eliminate the risk of
failure to achieve business objectives and can provide only
reasonable, and not absolute, assurance against material loss
or accounting misstatement.
Although no significant control weaknesses have been
identified as a result of the review, the Board agreed that the
Audit and Risk Committee would continue to look at how it
obtains assurance regarding the adequacy and
operation of internal controls and to identify whether
any further independent assurance is needed. Further
progress was made in the year and we will continue to
review this in conjunction with the development of our
internal audit function.
Process for preparing consolidated
financial statements
The Group has established internal control and risk
management systems in relation to the process for preparing
consolidated financial statements. The key features of these
systems are:
z Management regularly monitors and considers
developments in accounting regulations and best practice
in finance reporting and, where appropriate, reflects
developments in the consolidated financial statements.
The external auditor also keeps the Audit and Risk
Committee appraised of these developments
z The Audit and Risk Committee and the Board review the
draft consolidated financial statements. The Audit and
Risk Committee receives reports from management and
the external auditor on significant judgements, changes
in accounting policies, changes in accounting estimates
and other pertinent matters relating to the consolidated
financial statements
z The full year financial statements are subject to external
audit and the half year financial statements are reviewed by
the external auditor
27
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Principal Risks
and Uncertainties
The Board confirms that it has carried out a robust assessment of the
principal risks facing the Group, including those that would threaten
its business model, future performance, solvency or liquidity. The
Board’s assessment of the principal risks and uncertainties facing the
Group and the mitigation in place is set out below.
In February 2017, the Board decided that “Failure to integrate the Worldstores business successfully” was an additional
principal risk which should be added to the register. As the integration is now largely complete this has been revised to cover
“Failure to deliver maximum value from our online business”.
We have also included this year a separate section on “Brexit” to highlight the risks and mitigating actions. Last year we
included these in the “competition, markets and customers” section, the “business efficiency” section, and the “finance and
treasury” sections.
RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Competition,
market and
customers
Link to business goals:
1
2
3
4
Performance Indicator:
Market share
Executive responsibility:
Customer Director
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Failure to respond to changing
consumer needs, particularly the
shift towards online sales, and to
maintain a competitive offer in the
Homewares market on multiple
fronts (price, range, quality and
service) could materially impact
profitability and limit opportunities
for growth.
A downturn in consumer spending
will impact sales and productivity.
z Focus on “customer” rather
than channel to align strategy
and operational focus to
customer demand
z Customer insight research
gauges relative customer
perception and experience
z Focus on new product
Z Dunelm continues to lead the
UK Homewares market with an
increased estimated share of
8.1 in 2018 (8.0% in 2017)
Z Continued product innovation
in existing categories and
strengthened seasonal
campaigns
development, particularly own
brand, in both in existing and
new Homewares categories, to
strengthen our offer
Z More customer-centric
vision, strategy and KPIs
developed and communicated
throughout the business
z Comparative performance
within the Homewares market
tracked monthly across all
main product categories
z Investment in development of
our website and store design
and marketing designed to
communicate our credentials
on product, range, choice
and value
Board oversight:
Reviewed annually in depth
by the Board at its Strategy
Day and through subsequent
presentations.
Business plan review once
per annum.
Z Optimal Store Format
template(s) finalised.
Refocused refit programme to
make fewer changes to more
stores
Z Customer Host concept trialled
and rolled out
Z M2M production time
decreased and work started
on new manufacturing facility.
M2M Blinds online launched
Z Marketing to emphasise the
value that we offer across all
price points
Z Launched Dunelm Extra with
wider furniture catalogue and
enhanced customer delivery
proposition on dunelm.com
launched next day and named
day delivery service
Trend direction:
INCREASING
UNCHANGED
DECREASING
Link to business goals:
1
REACHING MORE
CUSTOMERS WITH
OUR BRAND
2
CREATE NEW REASONS
FOR CUSTOMERS TO
SHOP WITH DUNELM
Read more on our Business Goals on page 13
3
EASY AND INSPIRING
MULTICHANNEL
SHOPPING FOR OUR
CUSTOMERS
4
SIMPLE AND LOW
COST – GOOD
HOUSEKEEPERS
5
A GREAT PLACE
TO WORK FOR
COLLEAGUES
28
corporate.dunelm.com Stock code: DNLM RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Failure to deliver
maximum value from
our online business
Failure to deliver maximum
value from our online business
will adversely impact Dunelm’s
profitability and investment KPIs.
Link to business goals:
1
2
3
4
5
Performance Indicator:
Web traffic growth
Executive responsibility:
Chief Executive Officer
Impact compared to
2016/17:
Brand damage
Link to business goals:
1
2
3
Performance Indicator:
Product recalls
Percentage of audits
completed within policy
Executive responsibility:
Product Director
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Our customers expect us
to deliver products that are
safe, compliant with legal and
regulatory requirements, and fit
for purpose.
We must also ensure that our
suppliers share and uphold our
approach to business ethics,
human rights (including safety
and modern slavery) and the
environment.
Failure to do so could result
in harm to individuals with
the potential for customers,
colleagues and other stakeholders
to lose confidence in the Dunelm
brand.
z All activity under the Dunelm
brand from Autumn 2018, and
Digital Growth plan in place to
focus on driving sales across
the combined business
z Formal projects in place
to deliver remaining IT
integration programme,
monitored monthly by the
Executive Board
Board oversight:
Chief Executive Officer provides a
monthly progress update.
Z Integration plan completed
and cost savings delivered
Z London office reduced in size
and new cheaper premises
secured
Z Achica business divested and
Kiddicare business redirected
to Dunelm baby and kids offer
Z Single digital P&L created;
online offer to be integrated
under Dunelm.com in FY19
Z Committed suppliers and
overseas agents continue to
work directly with factories to
deliver more ‘green’ ratings
against our Ethical Code of
Conduct
Z Factory profile questionnaire
introduced, to obtain a more
holistic assessment
Z Modern Slavery awareness
programme continued. For
further information please see
the Sustainability Report
Z Preferred materials and animal
welfare policies updated
Z Plan to seek alternatives to
plastic packaging developed
z We have a range of policies
specifying the quality of
own brand products and
production processes which
suppliers must adhere to
z We operate a full test schedule
for all new own label products
and on a sample basis for
ongoing lines, overseen by our
specialist product technology
team
z Food hygiene is maintained
through the adoption of
clear operating guidelines
contained in our food safety
manual. Colleague certification
is compulsory and risk
assessments, equipment
inspections and compliance
audits are performed regularly
to ensure standards are
maintained
z All stock and food suppliers
and the majority of our
other suppliers are required
to sign up to our Anti-
Bribery and Ethical Code of
Conduct which is in line with
international guidelines, and
also specifically covers modern
slavery
z We conduct periodic audits
on all suppliers of own brand
products against our Code of
Conduct
z Selected non-stock suppliers
are assessed against our
modern slavery audit
Board oversight:
Ethical trading/modern slavery
reviewed annually ‘in depth’ by
the Board.
29
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Principal Risks and Uncertainties
CONTINUED
RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Portfolio expansion
Link to business goals:
2
3
4
Performance Indicator:
Number of new store
openings and pipeline
Executive responsibility:
Property Director
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
People and culture
Link to business goals:
5
Performance Indicators:
Colleague engagement
Executive responsibility:
People Director
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Availability of vacant or new
retail space in the right location
is essential to deliver our
strategy to expand our national
coverage through growth in
our store portfolio. Inability to
secure or develop the required
retail trading space will limit our
pace of expansion or force us to
compromise our offer.
z Our property team actively
monitors availability of retail
space with the support of
professional advisers
z Financial modelling helps us
assess the viability of potential
sites
z The Group’s strong cash
generation and funding
headroom provide an
attractive covenant to
landlords and the ability
to acquire freehold units if
appropriate
Board oversight:
Property strategy reviewed
annually by the Board.
Z We have opened ten new
stores in the year
Z We are currently planning
to open two stores (both
relocations) in 2018/19
Z The roll out of tablet based
selling and our “Customer
Host” initiative will give
customers easier access
to the whole of our online
range – enhancing their
multichannel experience,
exploiting our advantage over
pure play online retailers,
and underpinning our digital
growth
The success of the business could
be impacted if it fails to attract,
retain and motivate high calibre
colleagues.
Maintaining the culture of our
business, embodied in our ‘
business principles’ is essential to
deliver our strategy and ensure
the long term sustainability of our
business.
Z New Chief Executive Officer
and Chief Financial Officer
appointed
Z Purpose and Business goals
relaunched across the business
Z New “housewarming”
induction adopted for non-
store colleagues and store
management
Z “Always on” colleague
feedback mechanism
implemented
Z Board discussion of culture
and culture KPIs formally
reviewed
Z Over 71% of store managers
now recruited internally
z The composition of the
Executive team is regularly
reviewed by the Board to
ensure that it is appropriate to
deliver the growth plans of the
business
z Succession plans and annual
appraisals are in place across
the Group
z High calibre individuals are
retained and developed
through sponsored
talent management and
development
z ‘Business principles’ in place
to describe our values and
business culture
z The Group’s remuneration
policy detailed on pages 72
to 76 is designed to ensure
that high calibre executives
are attracted and retained.
Lock-in of senior management
is supported by awards under
the Long Term Incentive Plan
Board oversight:
People plan and culture reviewed
at least annually by the Board.
Trend direction:
INCREASING
UNCHANGED
DECREASING
Link to business goals:
1
REACHING MORE
CUSTOMERS WITH
OUR BRAND
2
CREATE NEW REASONS
FOR CUSTOMERS TO
SHOP WITH DUNELM
Read more on our Business Goals on page 13
3
EASY AND INSPIRING
MULTICHANNEL
SHOPPING FOR OUR
CUSTOMERS
4
SIMPLE AND LOW
COST – GOOD
HOUSEKEEPERS
5
A GREAT PLACE
TO WORK FOR
COLLEAGUES
30
corporate.dunelm.com Stock code: DNLM RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Fines, damages claims and
reputational damage could arise
if we fail to comply with legislative
or regulatory requirements
including consumer law, Health
and Safety, employment law,
GDPR and data protection, Bribery
Act, competition law and the
environment.
Regulatory,
environment and
compliance
Link to business goals:
1
2
3
4
Performance Indicator:
Prosecution and other
regulatory action
Executive responsibility:
Company Secretary
Reports to:
Chief Financial Officer
Impact compared to
2016/17:
Z New policies and processes
implemented to comply with
the General Data Protection
Regulation, including training
for all colleagues
Z Health and safety focus on
contractor management, safety
during store refits and store
fixtures and fittings
Z Review of safety of our third
party logistics partners and
improved safety in the Dunelm
Home Delivery Network
Z Policies and standard
conditions amended to
address the corporate offence
of failure to prevent tax evasion
Z Independent third party
whistleblowing hotline
introduced
z Policies and training in in place
in respect of key compliance
areas. These are regularly
reviewed and updated
z Operational management are
responsible for liaising with
the Company Secretary and
external advisers to ensure that
new legislation is identified
relevant action taken
z Dedicated Group Health and
Safety function to oversee this
aspect of compliance
z Training on the requirements
of the Bribery Act and
Competition Law is in place
for all relevant colleagues and
policies are communicated to
all suppliers
z We have a whistle blowing
procedure and helpline which
enables colleagues to raise
concerns in confidence
Board oversight:
Monthly Board report on Health
and Safety.
Health and safety reviewed
in depth by the Board at least
annually.
Non-compliances reported by the
Company Secretary by exception.
Brexit
Link to business goals:
3
4
5
Performance Indicator:
Sales and profit
Executive responsibility:
Chief Executive Officer
Impact compared to
2016/17:
Britain’s exit from the European
Union could lead to the following:
Fall in the value of sterling against
the US$, resulting in an increase
in the cost of goods purchased
for resale.
Disruption or congestion at ports
causes delays in product supply
chain.
Labour shortages affecting drivers
/ warehouse labour of Dunelm or
third party logistics providers.
Supplier failure / fall in service as a
result of the above.
z High level Brexit risk
Z Political situation to be
monitored during FY19 to
assess the likely impact, and
the need to take mitigating
actions
Z A number of further actions
planned to assess likely impact
on supply chain
Z Increased the percentage of
anticipated FY19 purchases
which have foreign currency
hedging in place
assessment completed to
identify potential areas of risk
z Desktop review completed to
understand the operational
risks from a supply chain
perspective, and a number of
mitigating actions identified
z Continue to reduce use of
agency labour in the Dunelm
Home Delivery Network and
in Dunelm DCs, and logistics
partners encouraged to do
likewise
Board oversight:
Twice yearly review of
Principal Risks.
More frequent reviews in FY19 as
appropriate.
31
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Principal Risks and Uncertainties
CONTINUED
RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Dunelm is dependent on the
continued availability, integrity
and capability of key information
systems and technology. A major
incident (including a cyber-attack),
sustained performance problems
or failure to keep technology up to
date could constitute a significant
threat to the business, at least in
the short term.
The risk of loss of data including
customer data could have a
significant adverse reputational
impact.
Supply chain disruption could
disrupt stock flows from DCs to
stores and customers’ homes,
leading to an impact on trading or
cost / efficiency implications.
Loss of the store support centre,
the manufacturing centres, or our
contact centre could impact our
ability to trade and divert focus
from long term strategy and
planning.
z Business critical systems are
based on established, industry
leading package solutions, or
are established systems which
have been developed in-house
with full support in place
z A detailed IT development and
security roadmap is in place,
aligned to strategy
z We have a disaster recovery
strategy designed to ensure
continuity of trade
z Authorisation controls and
access to sensitive transactions
are kept under constant review
z Information Security Steering
Group in place to oversee the
Group’s approach to IT security
and data protection
Board oversight:
Cyber security is a standard
agenda item for the Audit and Risk
Committee.
IT strategy reviewed annually by
the Board.
Major security incidents reported
by the Company Secretary.
z Supply chain strategy in place
to ensure capacity is in line
with five year plan
z Disaster recovery plans in
place for Dunelm non-store
facilities
z We seek to limit dependency
on individual suppliers by
actively managing key supplier
relationships
Board oversight:
Disaster recovery is a standard
Audit and Risk Committee
agenda item.
Z Continued investment is being
made in the capability of our
IT function and in maintaining
and upgrading business
critical systems
Z We have adopted the
Government’s ‘10 steps to
cyber security’ as a template to
assess our position; progress
has been made against all
measures during the year
Z Data security and integrity
assessed and a number of
improvements made as part
of the plan to implement
the General Data Protection
Regulation, and further
planned
Z Stock management
programme initiated to review
process and compliance
across the whole UK supply
chain
Z Warehousing activity
consolidated at Stoke DC 1
and 2 to improve efficiency
and customer experience and
reduce cost
Z Agreements with two man
delivery partner extended to
secure service continuity and
provide flexibility / fallback
Z More focus on partnerships
with committed suppliers
Z Consolidation of former
Worldstores supply base to
improve customer experience
IT systems, data and
cyber security
Link to business goals:
1
2
3
4
Performance Indicator:
Number of major incidents
Executive responsibility:
Chief Information Officer
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Supply chain
disruption
Link to business goals:
1
2
3
4
Performance Indicator:
Service levels in respect of
store fulfilment
Business Plan link:
Supply chain
Executive responsibility:
Supply Chain Director
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
32
corporate.dunelm.com Stock code: DNLM RISK
DESCRIPTION
HOW WE MITIGATE
PROGRESS IN 2017/18
Failure to operate the business
in an efficient manner leads to
additional cost and operating
margin pressure, and could
constrain our profitability and our
ability to compete and grow the
business in line with our strategy.
Failure to anticipate or manage
cost price volatility in key areas
such as freight, raw materials,
energy and exchange rates may
lead to increased cost, margin
pressure and lower profitability.
z Costs are managed by
Z Non-stock procurement
the Board and Executive
Board through the budget
and forecasting process
and monthly management
accounts reviews
z Dunelm’s scale, growth and
increased buying power
allows it to secure supply
of key services and raw
materials at competitive prices.
Commodity price tracking
covers all key materials
z Major non-stock purchase
contracts regularly tendered
team upskilled and targeted
to deliver significant cost
reductions
Z Further work to improve store
productivity by automation
and removal of unnecessary
task, and improved stock
management
Z Standard new store format
adopted to reduce cost
Z Efficiency savings delivered
through completion of the
Worldstores integration plan
Business efficiency
Link to business goals:
1
2
3
4
Performance Indicator:
EBITDA %
Executive responsibility:
Chief Financial Officer,
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Finance and treasury Lack of access to appropriate
levels of cash resources or
exposure to significant variations
in interest rates or exchange rates
could have an impact on the
Group’s operations and growth
plans.
Link to business goals:
4
Performance Indicator:
Operating cash conversion,
Banking covenant compliance
Executive responsibility:
Chief Financial Officer
Reports to:
Chief Executive Officer
Impact compared to
2016/17:
Board oversight:
Board receives monthly
management accounts.
Five year plan and Budget
reviewed by the Board at
least annually.
z The Group has a £165m, five-
year revolving credit facility in
place until March 2023
z Further, uncommitted
borrowing facilities have been
agreed for possible short term
working capital requirements
z Dunelm works with a syndicate
of long term, committed
partner banks
z A Group Treasury Policy is in
place to govern levels of debt,
cash management strategies
and to control foreign
exchange exposures.
z Hedging is in place for foreign
exchange, and freight and
energy prices are agreed in
advance, to help mitigate
volatility and aid margin
management
Board oversight:
Board receives monthly
treasury report.
Z Revolving credit facility
extended from 2020 to 2023
and increased by £15m
Z Net Debt at the end of the year
was £124m (0.89× EBITDA
before exceptional items)
(FY17: £122.1m). Since our
debt is higher than in recent
years we are managing our
cash more closely
Z Foreign currency hedges are in
place covering approximately
76% of expected purchases
in FY19
Trend direction:
INCREASING
UNCHANGED
DECREASING
Link to business goals:
1
REACHING MORE
CUSTOMERS WITH
OUR BRAND
2
CREATE NEW REASONS
FOR CUSTOMERS TO
SHOP WITH DUNELM
Read more on our Business Goals on page 13
3
EASY AND INSPIRING
MULTICHANNEL
SHOPPING FOR OUR
CUSTOMERS
4
SIMPLE AND LOW
COST – GOOD
HOUSEKEEPERS
5
A GREAT PLACE
TO WORK FOR
COLLEAGUES
33
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Principal Risks and Uncertainties
CONTINUED
Going concern
The Group has considerable financial
resources together with long-
standing relationships with a number
of key suppliers and an established
reputation in the retail sector across
the UK. In their consideration of
going concern, the Directors have
reviewed the Group’s future cash
forecasts and profit projections, which
are based on market data and past
experience. The Directors are of the
opinion that the Group’s forecasts and
projections, which take into account
reasonably possible changes in trading
performance, show that the Group
is able to operate within its current
facilities and comply with its banking
covenants for the foreseeable future.
As a consequence, the Directors
believe that the Group is well placed to
manage its business risks successfully.
Having reassessed the principal risks,
the Directors consider it appropriate
to adopt the going concern basis of
accounting in preparing the financial
information. Further information
regarding the Group’s business
activities, together with the factors
likely to affect its future development,
performance and position is set out in
the Strategic Report on pages 8 to 21.
The financial position of the Group,
its cash flows, liquidity position and
borrowing facilities are described in the
Financial Review on pages 22 to 25. In
addition, note 18 to the annual report
and financial statements includes
the Group’s objectives, policies and
processes for managing its capital, its
financial risk management objectives,
and its exposures to credit risk and
liquidity risk.
Viability statement
In accordance with provision C.2.2
of the 2016 Corporate Governance
Code, in addition to the going concern
statement, the Directors have also
assessed the prospects of the Group
over a longer period.
The Directors confirm that the Group
has considerable financial strength,
and therefore they have a reasonable
expectation that the Group will continue
in operation and meet its liabilities as
they fall due for the next five years,
ending June 2023.
A period of five years has been chosen
as this is the time frame currently
adopted by the Board as its strategic
and financial planning horizon, and the
business is largely dependent on UK
consumer confidence and discretionary
spending which is difficult to project
beyond this period.
The five year plan considers the Group’s
earnings growth potential, its cash flows,
financing options and key financial
ratios, taking into account the economic
outlook and principal risks and
mitigating factors affecting the Group.
This assessment of viability has been
made with reference to the Group’s
current position and future prospects,
its strategy, the market outlook and
its principal risks and the mitigation
in place to manage them. These
were reviewed by the Directors at
the September 2018 Board meeting
alongside the latest five year plan, which
took into account amongst other things
the latest market outlook.
The Board considers that the
uncertainties around the UK’s exit from
the European Union give rise to the
most significant risks in the near future.
Consumer confidence may decline, a
fall in the value of sterling against the
US dollar could result in increases to the
cost base and disruption at ports could
impact the supply chain. Price increases
would partially alleviate the cost
pressure but could be offset by declines
in volume. It therefore considers that the
likely impact of any of the principal risks
materialising would be a reduction in
the level of sales growth and possibly a
weakening in gross margin.
As a result, sensitivities against the
five-year plan have been reviewed by
the Audit and Risk Committee and the
Board as part of the assessment made
to support this statement, together with
the actions which could be taken to
mitigate these. Account was also taken
of the Group’s strong balance sheet and
relatively low level of debt.
In the scenarios reviewed by the Board,
the likely impact could be absorbed
over the term of the financial forecasts
by making adjustments to its operating
plans within the normal course of
business (without impacting its external
financing or capital and dividend
policy).
34
corporate.dunelm.com Stock code: DNLM
Sustainability
HOW WE OPERATE
Our business principles provide a guide to how the Group,
the Board and all of our colleagues should behave towards
our customers, other colleagues, our suppliers and our local,
national and international community. They are set out in
our “little book of house rules” which all of our colleagues
receive on induction, and all colleagues are appraised against
them. We also use our business principles in our colleague
communications.
As well as forming part of our business principles, the
individual topics which we report against below form part of
the role accountabilities of our Executive Board members and
are regular agenda items for the Board and Executive Board.
The chart below details how our sustainability activities are
embedded in our business.
Our business principles
Sell more
Be
committed
Do things
our own
way
Keep it
simple
MERCHANDISE
SUPPLIER
RELATIONSHIPS
KEEP LISTENING
AND LOOKING
CUSTOMER
FOCUS
MOTIVATE
OUR TEAMS
DEVELOP
OUR PEOPLE
BE THE
UNDERDOG
LONG TERM
DECISIONS
WASTE
ENVIRONMENT
KEEP OUR
COST
STRUCTURE
LEAN
Board
Executive Board
z Overall responsibility for our sustainability
z Role models for the business principles
z Oversight of the business principles
z Members have line responsibility for managing
z Approves policies
specific topics
z Executive members have line responsibility for
managing specific topics
z Approves policies prior to submission to Board
z Regular Executive Board meeting agenda items
z Monitors progress through KPIs and Board reports
z Monitors progress through KPIs, Board reports and
z Annual presentations on people, Health and Safety
and ethical sourcing
customer and colleague feedback
Colleagues
How we engage
z Appraised by reference to our business principles
z Provide feedback of customer and colleague
suggestions via our engagement survey, Yammer
and colleague council
Customers: through customer care, online surveys and
social media
Colleagues: weekly email from the CEO, in-house
magazine, Colleagues’ Council, Yammer (in-house
communication tool), instant communication from stores,
and “always on” engagement survey
Suppliers: annual conference and meetings throughout
the year
Others: social media, corporate website
35
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Customers
UNDERSTANDING HOMEMAKERS
EXECUTIVE RESPONSIBILITY:
Chief Customer and Digital Officer
LINK TO BUSINESS GOALS:
1
2
3
LINK TO BUSINESS PRINCIPLES:
Sell
more
Be
committed
LINK TO PRINCIPAL RISKS:
Competition, markets and customers
Our Policies
We will always look out for ways to make
homes (and shopping for them) better for
our customers. We offer:
z Well designed, brilliant quality,
own label products at the best
possible prices
z The widest possible range of products,
offering choice, newness, seasonality
and desirable brands
z Easy access to our products, however
customers choose to shop (in-store,
home delivery, delivery to store)
z Stores which are worth visiting –
inspiring, conveniently located, safe
and accessible
z Websites that are inspiring and easy to
navigate, with convenient delivery and
collection options
z Friendly and knowledgeable
colleagues, in-store, in our contact
centre and delivering our products
z Products which meet our customers’
expectations for safety and ethical and
sustainable sourcing
z Marketing which is always fair and
truthful, and responsible use of our
customers’ personal data
Measuring our impact
z Customer satisfaction: 0.7%
improvement over the previous
12 months
Our purpose is to help everyone create a home they love.
We welcome all customers, whatever their age, taste or budget,
and offer them the widest range of products for their homes,
whenever and however they want to shop.
2017/18 achievements
z We opened ten new stores (one of
z Our online offer of Made to Measure
which was a relocation) and completed
six refits in our latest format
curtains and blinds was expanded and
lead times reduced
z We offered our biggest ever Christmas
range of homewares and gifting
and we improved product availability
for customers
z We opened a new mock shop and
photo studio to improve the quality
of our photography and instore
merchandising
z We equipped our store colleagues with
chip and pin enabled tablets, making
our entire online portfolio accessible
for ordering in-store for home delivery
Awards
z House Beautiful – Gold Awards -
Favourite Home Retailer of the Year and
Favourite Online Retailer of the Year
z Your Home Awards – Best Home
Retailer, Best Soft Furnishing Retailer
What’s next for 2018/19
z We will continue to develop our store
formats to make them more attractive
and inspiring for our customers
z We will consolidate all of our activities
under the “Dunelm” brand, reach more
people with our brand, and focus on
delivering our brand “purpose”
z We will continue to improve our
product range, design and value
z We will provide more convenient
delivery options for customers who
order from us online
z Delivery of our new web platform will
enable us to continually develop and
improve customer experience
36
corporate.dunelm.com Stock code: DNLM People
THE DUNELM FAMILY
EXECUTIVE RESPONSIBILITY:
People Director
LINK TO BUSINESS GOALS:
2
4
5
LINK TO BUSINESS PRINCIPLES:
Sell
more
Be
committed
Do things
our own
way
Keep it
simple
LINK TO PRINCIPAL RISKS:
People and culture
Our Policies
Deliver the basics – provide fair
employment to all colleagues, regardless
of disability, race, religion or belief, sex,
sexual orientation, gender reassignment,
marital status or age.
At the end of June 2018, the breakdown of
male and female colleagues was as follows:
Male Female
%
Female
6
5
3
4
33%
44%
24
12
33%
3,015
6,319
68%
Group Board
Executive Board
Dunelm
Leadership
Team (including
Executive Board
members)
All other
colleagues
Laura Carr joins as Chief Financial Officer
during FY19, and from that date the
percentage of female members of our
Group Board and Executive Board will
change to 37% and 50% respectively.
Invest in our home-grown talent –
“develop our people” is one of our
business principles – providing training
and development opportunities helps us
retain talent in the business.
We held career days for the first time this
year across the entire business, showing
colleagues the various career paths open
to them within Dunelm.
Living our business principles – all new
colleagues receive our “Little Book of
House Rules” explaining our principles,
which are used in recruitment and
appraisals, and embedded into our
colleague communications.
We believe that a great place to work is a great place to shop.
We can only deliver great products and services to our customers
through the hard work and commitment of our colleagues.
We employ over 9,000 colleagues across our business; in stores, our
distribution and manufacturing operations, our contact centre in
Radcliffe, and our support centres in Leicester and London.
2017/18 achievements
z Continued to work at aligning our
employment proposition consistently
across all of our sites and businesses
z Held a Company-wide engagement
survey (in addition to the “always on”
survey), using this to better inform the
way we communicate and engage
colleagues throughout their career.
We saw engagement increase by
over 30% between July 2017 and
May 2018
z Launched a voluntary benefits portal
called ‘Home Comforts’ that all
colleagues can access. This portal is
used for communication as well as
benefits. We have a 90% take up rate
across the business
z Reviewed all of our policies and
processes to improve how we
safeguard the personal data of
our colleagues
z Appointed Marion Sears as our
“Designated Non-Executive Director”
for employee engagement – Marion
will attend two National Colleague
Council meetings each year and feed
back to the Group Board
Some of the ways we bring our business
principles to life include:
z “Housewarming” induction for new
starters, to introduce them to us, our
products and our way of doing things
z Communication through regular
“huddles” (informal team briefings);
a weekly topical email; our quarterly
Gazette, In touch, and Yammer intranet
communications and an annual strategy
communication event
z Regular colleague council meetings
attended by senior management,
enabling colleagues to raise and
discuss issues; the outcome is fed back
to the Executive Board
z Our “always on” colleague feedback
mechanism allows us to act on issues
quickly. A number of key concerns
affecting colleagues have been
identified and addressed this year
Copies of our policies are available at
corporate.dunelm.com.
Measuring our impact
z Colleague NPS: 30%
What’s next for 2018/19
z Galvanise the business behind our
purpose – to “help everyone create a
home they love”, and our supporting
business goals
z Launch a new Careers website to create
great candidate experience
z Launch a project called “everyone’s
welcome” to promote diversity,
regardless of disability, race, religion or
belief, sex, sexual orientation, gender
reassignment, marital status or age,
background or circumstances
z Create ‘Super Fans’ in our colleague
population who can act as business
ambassadors, including online and on
social media
z Invite members of our National
Colleague Council to a discussion with
the Group Board
37
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Health and Safety
KEEPING OUR HOUSE IN ORDER
We want to ensure the safety and well-being of our customers,
our colleagues and all our visitors. We have a Group Health and
Safety Manager who ensures that the appropriate policies and
procedures are in place, and regularly reports to the Group
Board and the Executive Board.
2017/18 achievements
z Review of store fixtures and fittings in
both established and new formats to
ensure that they are safe
z Launched a half day Health and Safety
training course for new managers and
store premises key holders
z Launched ‘’Clean As You Go’’ policy
z Continued to provide Health and
in all stores to help mitigate the risk of
trips, slips and falls
z Supported and strengthened health
and safety procedures within the
Dunelm Home Delivery Network,
including fleet safety and four
distribution centres
Safety training and development to
senior management throughout the
business
z A new trailer fleet for Stoke DC was
operational in January 2018, which
allowed forklift trucks to be removed
from 42 stores
We have a proactive approach to safety,
and colleagues are encouraged to report
all potential hazards and risks. We have
an ongoing programme of education and
training, including DVDs and interactive
computer based learning, and we ensure
colleague involvement through the
Colleague Council.
Measuring our impact
z Number of reportable accidents under
the Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
2013 (RIDDORs) flat year on year,
despite ten new store openings
z Accident / footfall rate reduced to 2.8%
from 3.2% in FY17
z Total accidents reduced by 5%
compared to FY17
What’s next for 2018/19
z Complete programme to remove
forklift trucks from 67 more stores
z Continued focus on safety at our DCs,
home delivery fleet safety and through
the construction and commissioning of
our new manufacturing centre
z Continue to build competency through
education and training
z Update Colleague Drivers’ policies and
implement a new third party licence
checking service to monitor / check
driver and car details
z Implement Drug and Alcohol testing
post-accident across our fleet and
distribution centres
z Strengthen governance through
creation of functional steering groups
to drive health and safety actions
EXECUTIVE RESPONSIBILITY:
Company Secretary
LINK TO BUSINESS GOALS:
1
4
5
LINK TO BUSINESS PRINCIPLES:
Sell
more
Be
committed
Keep it
simple
LINK TO PRINCIPAL RISKS:
Regulatory, environment and
compliance, people and culture
Our Policies
The Board is responsible for the creation
and implementation of our Health and
Safety policy and procedures, which
include an effective system of ‘upward’ and
‘downward’ communication, appropriate
standards for monitoring performance
and ensuring that sufficient resources are
available to support this activity. A copy of
our full policy is at corporate.dunelm.com.
Health and Safety is a standard agenda
item at every Board and Executive Board
meeting and each of these receive a
monthly report and a formal annual
presentation from the Group’s Health
and Safety Manager with accident/risk
analysis, review of previous objectives
and agreement of new objectives for the
next year.
In our stores, each store manager
is responsible for ensuring the
implementation of Health and Safety
policy and procedures in his or her store,
supported by the area manager and the
Group Health and Safety Manager. At
our Stoke distribution centres we have a
dedicated Health and Safety Manager. Risk
assessments are in place at all Company
sites and updated as required.
We have an in-house Health and Safety
audit, which monitors compliance to
policy and procedures and is reviewed
annually to ensure that it meets best
practice industry standards and to
address any specific risks identified. Our
stores and distribution centres complete
an online self-audit monthly and area
managers audit each of their stores at
least once a year. This is backed up by
our in-house operational audit team and
followed up by the Health and Safety
Manager. Regular review meetings are
held between the Group’s Health and
Safety Manager and senior management
from operational functions.
38
corporate.dunelm.com Stock code: DNLM Suppliers and
Human Rights
UNDER ONE ROOF
EXECUTIVE RESPONSIBILITY:
Product Director
LINK TO BUSINESS GOALS:
1
2
3
4
Link to business principles:
Sell
more
Be
committed
Do things
our own
way
Keep it
simple
LINK TO PRINCIPAL RISKS:
Brand damage; regulatory,
environmental and compliance
Our Policies
Fair and consistent – One of our business
principles is to deal with suppliers in an
open and honest way. We require all
of our suppliers to sign our standard
terms and conditions in advance of
commencing trade, and we have signed
up to the Prompt Payment Code. The
number of days’ purchases outstanding
for payment at 30 June 2018 was 31 days
(2017: 38 days).
Human rights – Effective management
of human rights throughout our supply
chain is built into our product procurement
procedures. Suppliers of our own
branded products are asked to sign our
Code of Conduct, based on the Ethical
Trading Initiative (‘ETI’) base code, with
a strengthened section on slavery. This
requires that suppliers provide a clean
and safe work environment, workers
must be treated with respect and earn a
reasonable wage, and relevant local laws
and regulations must be met. Our policy is
available at corporate.dunelm.com.
All suppliers of Dunelm branded
products must have a satisfactory audit
in place which is no more than two years
old, and a valid building and fire safety
certificate. During 2017/18 we rolled
this requirement out to the suppliers of
our Worldstores, Kiddicare and Achica
branded products. Supplier branded
products are not subject to audits but
suppliers sign our Code of Conduct (or
equivalent) and an assessment is made of
their standards and capability.
Our in-house technology team has
extensive experience of working with
factories to improve quality and ethical
standards. Our Far East sourcing partners
monitor standards and work to improve
them on our behalf. Where non-
compliance is discovered we work with a
supplier to help them achieve compliance,
usually within six months. Critical non-
We do not manufacture the vast majority of the products that
we sell, so we need to maintain relationships with suppliers and
manufacturers worldwide who can meet our high standards.
They must demonstrate that they operate in accordance with
recognised standards that uphold human rights and safety,
prohibit modern slavery and promote sustainable sourcing.
2017/18 achievements
z Dunelm quality, ethical sourcing and
audit standards were extended to all
Worldstores, Kiddicare and Achica
own branded products
z Dunelm audits independently verified
by third party (Bureau Veritas)
z Started work to consolidate our supply
base towards fewer, larger factories
with better compliance
z Training provided to all UK
manufacturers of own brand products,
to raise awareness of modern slavery
and how to improve procedures to
reduce the risk within the supplier’s
supply chain
conformances such as use of child labour,
working against choice/slavery or absence
of valid Building or Fire Certificates are
escalated immediately, and supplies
cease until the issue has been resolved.
Ultimately, if progress is inadequate, we
will cease to trade with the supplier.
Modern slavery – In 2016 we assessed
our own facilities and supply base
(products and services) for modern slavery
risk and have required the major providers
to sign our Code of Conduct. Our audits of
suppliers of our Dunelm branded products
also covers modern slavery. Our statement
made pursuant to the Modern Slavery Act
2015, which contains further information, is
available at corporate.dunelm.com.
Provenance – We are raising the
provenance requirements for our
products, with particular emphasis on
timber sourcing, cotton, animal welfare
and feathers and down. This is to ensure
that we meet relevant regulatory,
social, environmental and best practice
requirements. Our policies in this area are
available at corporate.dunelm.com. We are
also reviewing our use of single use plastics
in product packaging and in our Pausa
coffee shops, and are looking for suitable
alternatives which will allow us to remove
them completely or move to a more
environmentally friendly material.
Measuring our impact
z Percentage of factory base for own
brand products with audit no more
than two years old: 82%
z Percentage of green or amber
audits: 80%
What’s next for 2018/19
z All UK manufacturers of own branded
products to complete a comprehensive
modern slavery risk assessment, with a
FastForward audit for higher risk sites
z Risk assessment of Pausa direct
suppliers to be made, and programme
of audits to be devised if required
z Implement “Preferred employment
agency” list for all UK sites, and ensure
appropriate contracts are in place to
ensure that all regulatory matters are
covered, including modern slavery risk
z All Dorma branded textiles to be made
from sustainable cotton (Jan 2019)
z Supply chain for all Dunelm branded
timber products to be verified
independently, to ensure compliance
with regulatory requirements as to legal
and sustainable sourcing
39
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Community
CHARITY
EXECUTIVE RESPONSIBILITY:
Chief Customer and Digital Officer
LINK TO BUSINESS GOALS:
1
2
4
LINK TO BUSINESS PRINCIPLES:
Sell
more
Be
committed
Do things
our own
way
LINK TO PRINCIPAL RISKS:
Competition, markets and customers;
people and culture
Our Policies
We are proud to support Home-Start UK
as our “charity of the year”. Collections are
made in-store, specific fundraising events
are organised both by individuals and
business areas and the Group makes its
own donations. Each store has a ‘Charity
Champion’ and amounts raised by store
are reported monthly, with the top
three recognised in the Dunelm Gazette
each quarter.
We also support colleagues who are
raising money for charities of their choice,
by matching the sums raised by a donation
it to Home-Start UK. All colleagues are
entitled to, and are encouraged to take,
an extra day’s paid leave to undertake
charitable activities, either individually or
as a team.
We donate funds raised from English and
Scottish carrier bag sales to Home-Start
UK, and from Welsh carrier bag sales to
GroundWork, a charitable organisation
which brings people and the environment
together with practical local action to build
stronger communities. They aim to create
more green spaces, and get people back
into work through creating green jobs.
Measuring our impact
z The total value of charitable donations
made by the Group in the period
ended 30 June 2018 was £102,009
(2017: £35,998)
z Total funds raised for charity by the
Group and colleagues were £490,717
(2017: £365,774). Of this, £455,630
was raised for Home-Start UK (2017:
£340,776)
40
We aspire to be responsible members of our community, as this
reflects our aim to always do the right thing; it also matters to
our shareholders, customers and colleagues.
2017/18 achievements
z We have relaunched our charitable
initiatives with our colleagues, with a
Charity Booklet containing details of
activities which they can participate in
and fundraising ideas
z Colleagues have proactively organised
larger events to support Home-Start
including a golf day and charity ball,
as well as smaller events in individual
stores and offices
z This is the second year of our
partnership with Home-Start UK
and support and donations
continue to grow
z We continue to support local causes
and communities where possible to
ensure we help the local areas we
serve around our entire store estate
z We continue to support our colleagues
in their charitable fundraising efforts
by offering an annual day’s paid leave
to support charitable activities
What’s next for 2018/19
z Our Charity Committee will focus
on driving colleague and customer
engagement with our charitable
activities to ensure we are giving
back as much as possible. We will be
appointing a new Charity partner or
partners as part of our usual two
year rotation
z We will increase our company
matched funding
z We will make it easier for colleagues
to donate to charity through
Payroll Giving
z We continue to support local causes
and communities where possible to
ensure we help the local areas we
serve around our entire estate
corporate.dunelm.com Stock code: DNLM Environment
GOOD NEIGHBOURS
EXECUTIVE RESPONSIBILITY:
Chief Financial Officer
LINK TO BUSINESS GOALS:
1
2
3
4
LINK TO BUSINESS PRINCIPLES:
Sell
more
Be
committed
Do things
our own
way
Keep it
simple
LINK TO PRINCIPAL RISKS:
Brand Damage, Regulatory environment
and compliance
Recycling & Waste
Management
Our Policies
We aim for high levels of recycling across
our business, and our Reduce, Reuse, and
Recycle policy supports our approach.
All stores have cardboard balers and
colour-coded bins to segregate waste
for recycling. Training programmes and
communication to increase colleague
awareness and compliance are
undertaken frequently.
Our Distribution Centres in Stoke recover
and process our product packaging from
our DC and store operations (cardboard
and polypropylene) ready for recycling.
We have dry mixed recycling collections
from our stores for paper, plastic bottles
and cans which is then sorted and recycled
offsite. We also recycle wooden pallets
and metal fixtures. All electrical waste
is recycled through a WEEE compliant
scheme. Any remaining waste that is not
sorted for recycling within the business
is sent offsite for further sortation and
wherever possible we aim to generate
energy from waste.
In the first instance we will aim to sell “less
than perfect stock” to our customers who
are looking for a bargain. We also work
with over 100 charity partners nationwide
to donate homewares items that cannot be
sold to customers. This helps us support
our communities and minimise our
environmental impact.
At Dunelm we always try to do the right thing, and we
are committed to minimising the impact of our business
on the environment.
Our Sustainability Committee is responsible for the
development and implementation of environmental strategies
to continually improve our recycling and waste management
and reduce our energy consumption and carbon (CO2)
emissions. We have an Environment & Sustainability Manager
who leads and co-ordinates these efforts across our business.
2017/18 achievements
z Introduction of Food Waste
collections to over 140 stores across
the country allowing reduction
of waste to landfill volumes and
generating energy from waste
z All sites have been environmentally
audited by our in-house audit team
z Internal marketing campaigns
completed to raise awareness
z Landfill diversion rate has increased to
95% from 92% last year
z 12 show and tell waste audits
including waste bin emptying have
been completed throughout the
store network, providing valuable
education and awareness to
colleagues and store managers
Measuring our Impact
Last year Dunelm recycled 75% (2017:
79%) of waste. We increased our food
waste collections, which is turned into
energy, to over 100 tonnes in stores. Total
company landfill diversion increased
again to 95% (2017: 92%) and we have
achieved 100% landfill diversion from our
Distribution Centres in Stoke.
Waste recycled %
82
83
78
78
79
z De-compostable take-away food
and drink containers, and cutlery
have been introduced in our Support
Centres to reduce the impact on
the environment
z Held a World Environment Day event
at our Leicester Support Centre to
raise awareness amongst colleagues
of how we can minimise our impact
z Award finalist for recycling initiatives
and progress at both the National
Recycling Awards and the Recycling
Excellence Awards in 2018
Key policy objectives
z Our approach to recycling and
waste more generally is to adopt the
following prioritisation: Reduce, Reuse,
Rework, Recycle
z To minimise general non-recyclable
waste across the business and reduce
use of landfill and other adverse
environmental impacts
z To be fully compliant with all relevant
waste legislation
75
What’s next for 2018/19
z Continue to improve recycling
FY13
FY14
FY15
FY16
FY17
FY18
performance aiming towards 100%
landfill diversion over the medium term
z Introduce reusable cups and bottles for
colleagues in our Support Centres, and
promote them in-store for customers
z Improve compliance in stores and
in our Stoke distribution centres to
improve our recycling rate
41
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Environment
CONTINUED
Energy use
Our Policies
Our policy objective is to reduce energy
usage year on year.
Dunelm manages energy usage and
energy reduction initiatives on a site-
by-site basis. ‘Smart’ meters are fitted to
electricity and gas supplies and energy
consumption is measured frequently with
analytics tools available to help identify
issues and opportunities to reduce usage.
Building Management Systems (“BMS”),
designed to optimise energy use, are fitted
as standard across our estate.
Energy consumption is monitored by
our Energy Manager in conjunction
with a specialist energy partner. We
target underperforming sites alongside
the implementation of various energy
reduction initiatives to maximise energy
efficiency, while maintaining a comfortable
trading environment for our customers
and colleagues.
We have prioritised a programme to invest
in full LED lighting at all sites. All new
stores are 100% LED and in total we have
retro-fitted 94 stores to this more efficient
equipment. 164 sites (89% of the estate)
now have LED lighting fitted.
Greenhouse Gas
Emissions (CO2e)
Our Policies
Our policy objective is to reduce CO2
emissions relative to turnover year on year.
We invest in photovoltaic systems (solar
power) wherever viable across our estate.
We now have these in five of our stores
(Leeds, Dunstable, Bristol, Cambridge
and Darlington). These systems replace
energy sourced through the national
grid with local renewable energy. We
continue to monitor performance of these
installations to inform future investment
decisions as we assess additional sites for
solar power generation.
We continue to source electricity
from ‘Green Energy’ supplies such as
combined heat and power sources where
CO2 emissions are 30% lower than the
national average.
Dunelm also works with specialist
partners to consult on our energy buying
strategy, investments in energy saving
technology and to further focus on
reducing our carbon emissions.
2017/18 achievements
z We continued the LED programme and
re-fitted 25 stores with LED lighting, as
well as new store/ site installs taking
the total number of our locations with
LED lighting to 164 out of 184 sites
z Our focus on energy consumption in
stores continued and we appointed
an energy manager to continually
monitor performance and ensure that
our building management systems are
optimised. Due to the protracted cold
winter, and the May/June heatwaves,
we have incurred additional energy
usage this year to heat/cool our stores
appropriately for our colleagues and
customers
z We continue to monitor the
performance of our stores and assess
future investments. We introduced
solar power to one new site in FY18
and we completed maintenance work
on our existing solar panels sites to
ensure their performance is optimised
What’s next for 2018/19
z Introduce systemised cut-offs for
overrides of Building Management
Systems to reduce accidental usage
z Reduce like-for-like energy
consumption by at least 5%
z Increase weekly focus on energy
consumption and challenge stores to
reduce through cost targets
z Assess investment potential for more
solar powered sites, and voltage
optimisation initiatives
z Raise awareness of energy
consumption across the business
through internal communications
Our company car fleet is graded on
emissions and we encourage the use
of fuel efficient vehicles in all schemes.
Average emissions in 2018 were
110 CO2 g/km (2017: 108 CO2 g/km).
What’s next for 2018/19
z Continue to reduce CO2 emissions
relative to turnover year on year
z Introduce charging points for electric
vehicles in our car parks at Support
Centres and assess certain stores for
suitability
z Review and assess our company car
fleet to introduce more zero and low
emissions options to colleagues
Measuring our impact
Carbon Dioxide Equivalent (“CO2e”)
emissions data is reported using the GHG
Protocol Corporate Standard (Scope 1 &
Scope 2) and applies to our organisational
boundary as defined by the ‘operational
control’ approach.
The methodology used to calculate
our emissions is based on the UK
Government’s GHG Conversion Factors for
Company Reporting 2013.
Dunelm uses ‘Tonnes of CO2e per £1m
of turnover’ as its intensity measure,
reflecting the link between growth, activity
and performance.
Year on year reduction in
energy usage %
1.2
1.1
FY13
FY14
FY15
FY16
FY17
5
FY18
(5.8)
(10.0)
(14.2)
2017/18 achievements
z We have reduced CO2 emissions by
15.7% year on year compared to
revenue growth
z We have trialled various electric and
low emission vehicles to see if they are
suitable for operational purposes, and
are introducing them into our company
car fleet
z Our work to roll out more LED stores
has helped reduce energy usage and
lower emissions
Intensity Measure – tCO2e per
£1m Group Revenue
39.9
34.9
29.0
25.6
23.7
FY14
FY15
FY16
FY17
FY18
42
corporate.dunelm.com Stock code: DNLM 2017/18 achievements
Bribery, fraud
and tax evasion
UPHOLDING OUR VALUES
Our Policies
Dunelm takes a zero tolerance approach to bribery,
corruption, fraud and tax evasion.
The Group pays corporation tax on its operations in the
United Kingdom and Jersey and does not operate in any tax
havens, or use any tax avoidance schemes.
Our Anti-Corruption and Anti-Bribery Policy and our Tax
Strategy are available on our website https://corporate.
dunelm.com.
The main areas of potential risk in Dunelm’s organisation are:
z A colleague accepting a bribe or some other personal
advantage in return for awarding a contract
z A supplier acting on Dunelm’s behalf offering or accepting
a bribe or other personal advantage
z A Dunelm colleague facilitating tax evasion by a third party,
for example by making an “off book” payment to enable a
third party to avoid tax
The procedures in place to ensure compliance with the
Bribery Act 2011 and other relevant legislation are set
out below:
z Anti-corruption and anti-bribery policy implemented –
which also covers fraud and tax evasion
z Formal procedure implemented for signing off and
logging gifts and hospitality accepted by colleagues
z Executive Board members, Senior colleagues, all members
of the commercial team and any individuals with authority
to place significant contract orders have received anti-
bribery training and complete an annual refresher
z All Senior colleagues sign a declaration of compliance and
conflicts of interest statement annually
z Standard terms and conditions for suppliers include a
Bribery Act / tax evasion clause
z Specific training has been carried out for suppliers and
agents in high risk territories
z All payments to third parties must be supported by a valid
invoice and segregated duties are in place in the finance
team; commercial checks made on all new suppliers;
policy on engagement of contractors under review
z Our Whistleblowing Policy refers specifically to the Bribery
Act, fraud and tax evasion and an externally hosted
independent helpline is in place
z Standing agenda item for the Audit and Risk Committee
Measuring our impact
z % of internal training completed – 100%
This report was reviewed and signed by
order of the Board on 12th September 2018.
Nick Wilkinson
Chief Executive Officer
43
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018StrategicReport Governance
Customer First
Online, whether for inspiration, browsing or
purchasing is now a part of almost every customer’s
shopping experience. Our stores play a pivotal
role in a Multichannel world. Take-home-today
convenience, friendly colleague advice, or that touch
and feel experience, means we provide unique
experience which sets us apart.
44
corporate.dunelm.com Stock code: DNLM
corporate.dunelm.com Stock code: DNLM Contents
Directors and Officers
Chairman’s Letter
Corporate Governance Report
Letter from the Chair of the
Audit and Risk Committee
Audit and Risk Committee Report
Letter from the Chair of the
Remuneration Committee
Remuneration Report
Letter from the Chair of the
Nominations Committee
Nominations Committee Report
Directors’ Report
Statement of Directors’
Responsibilities
46
49
50
62
63
68
70
96
97
100
103
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018
45
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018 Directors and Officers
Andy Harrison
Chairman
N R
Chair of the Nominations
Committee
Will Adderley
Deputy Chairman
N
Key strengths: A former CEO with considerable experience of
leading large consumer facing organisations with a strong service
offer. Long-standing plc experience and shareholder understanding.
Dunelm role: Chairs the Board, which is responsible for Group
strategy, performance, risk oversight and good governance. Chairs
the Nominations Committee. Provided interim executive support in
the year pending appointment of new CEO. Regularly visits stores
and the webstore to meet colleagues and members of the senior
management team. Participates in investor presentations and some
shareholder meetings.
Joined Dunelm Board: September 2014.
Previous experience: Chief Executive of Whitbread plc from 2010
to 2016. Chief Executive of easyJet plc from 2005 to 2010. Chief
Executive of RAC plc between 1996 and 2005. Non-Executive Director
and Chair of Audit Committee at EMAP plc from 2000 to 2008.
Other commitments: None.
Key strengths: Has worked in, and is familiar with, all parts of the
Group. Specific strengths in buying and trading with strong and long-
standing supplier relationships. Has been instrumental in growing the
Group to its current size having developed the out-of-town format in the
late 1990s.
Dunelm role: Director and major shareholder, who spends his time
on strategic activities which protect and enhance shareholder value
and preserve the Group’s culture and values. Member of the
Nominations Committee.
Joined Dunelm Board: 1992, and has worked for Dunelm for his whole
career. He took over the day-to-day running of the Group from his father
in 1996. Remained as Chief Executive through the Group’s IPO in 2006.
Became Deputy Chairman in February 2011 and was reappointed Chief
Executive in September 2014. Resumed his role as Deputy Chairman
in January 2016. Retains an executive role to support the business
in matters agreed with the CEO, and as required. Current focus is on
buying, merchandising and mentoring colleagues internally.
Previous experience: All parts of Dunelm’s business.
Other commitments: WA Capital Limited.
Nick Wilkinson
Chief Executive Officer
Liz Doherty
Non-Executive Director
A N R
Senior Independent Director
Chair of the Audit and
Risk Committee
Key strengths: An experienced CEO, with proven business leadership
in multi-channel retail businesses operating across a number of
consumer brands and geographies.
Dunelm role: Leads the Group and Chairs the Executive Board.
Proposes the Strategy to be approved by the Board, and accountable
for delivery of strategic and financial objectives. In addition to his
Board responsibilities, liaises with the Remuneration Committee in
respect of below Board remuneration, and attends Audit and Risk
Committee meetings by invitation.
Joined Dunelm Board: February 2018
Previous experience: Chief Executive of Evans Cycles (2011-2016);
Chief Executive of Maxeda DIY (2007-2010); Group Buying Director
and MD of Currys at Dixons Retail Group (1999-2006). Early career at
Unilever and McKinsey & Co.
Other commitments: Trustee of Age UK.
Key strengths: A former Finance Director with extensive operational
experience in international consumer and retail businesses, specifically
with brands, marketing and online. Long-standing plc experience and
shareholder understanding.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores and the webstore to meet store colleagues
and members of the senior management team. Attends investor
presentations and shareholder meetings. Senior Independent Director
and Chair of the Audit and Risk Committee.
Joined Dunelm Board: May 2013.
Previous experience: Fellow of the Chartered Institute of
Management Accountants (FCMA). Finance Director of Reckitt
Benckiser plc (2011 to 2013), Brambles Limited (Australia) (2007 to
2009) and Group International Finance Director of Tesco PLC from
2003 to 2007.
Other commitments: Non-Executive Director of Corbion NV and
Novartis International AG.
46
corporate.dunelm.com Stock code: DNLM William Reeve
Non-Executive Director
A N R
Chair of the Remuneration
Committee
Peter Ruis
Non-Executive Director
A N R
Key strengths: An entrepreneur and investor with deep
digital experience.
Dunelm role: As a Non-Executive Director, provides strategic
advice, monitors management performance and oversees risk
management. Regularly visits stores and the webstore to meet
colleagues and members of the senior management team.
Attends investor presentations and shareholder meetings. Chair of
the Remuneration Committee.
Key strengths: A current Managing Director with deep experience
in retail and brands, working for both large and more entrepreneurial
organisations, with a particular expertise in marketing and product.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores and the webstore to meet colleagues and
members of the senior management team. Attends investor
presentations and shareholder meetings.
Joined Dunelm Board: July 2015.
Joined Dunelm Board: September 2015.
Previous experience: Co-founder of three internet-related
businesses: Fletcher Research, LOVEFiLM.com, and Secret Escapes.
Non-Executive Director of numerous others including Graze.com,
Paddy Power plc and Zoopla.
Other commitments: Chief Executive of Oh Goodlord Limited.
Previous experience: Chief Executive of Jigsaw (2013-2018). Senior
positions at John Lewis Partnership (2005 to 2013), Levi Strauss (2001
to 2004) and Ted Baker (1997 to 2001).
Other commitments: Managing Director of URBN Corporation.
Marion Sears
Non-Executive Director
N
Designated Non-Executive
Director for colleague matters
Committee memberships
A Audit and Risk Committee member
N Nominations Committee member
R Remuneration Committee member
Key strengths: Extensive City, investor and banking experience
including mergers and acquisitions. Customer focused and strategic.
Long-standing plc experience and shareholder understanding.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores and the webstore to meet store colleagues and
members of the senior management team. Now non-independent,
as defined by tenure, but asked to remain on the Board by the
Board members and Adderley family. Attends investor presentations
and shareholder meetings. Designated Non-Executive Director for
colleague matters.
Joined Dunelm Board: July 2004. Marion was Senior Independent
Director and Chair of Remuneration Committee 2006–2015 and Chair
of Nominations Committee until 2016.
Previous experience: Robert Fleming, JP Morgan Investment Banking.
Other commitments: Non-Executive Director of Persimmon plc,
Fidelity European Values plc, Aberdeen New Dawn Investment Trust
plc and Director of WA Capital Limited.
47
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Directors and Officers
CONTINUED
Dawn Durrant
Company Secretary
Bill Adderley
Founder and
Life President
Key strengths: Extensive plc company secretarial and legal
experience including corporate governance, legal and regulatory
compliance, mergers and acquisitions, company and commercial,
retail and consumer law.
Dunelm role: Responsible for governance, legal and regulatory
matters. Member of the Executive Board.
Joined Dunelm: November 2011.
Previous experience: Qualified as a solicitor at Allen & Overy (1988
to 1994). Company Secretary of Geest plc between 1994 and 2005.
Other commitments: None.
Bill, together with his wife Jean, founded the business in 1979.
Although no longer on the Board or actively involved in management,
Bill and Jean remain major shareholders and frequently visit stores.
Notes:
John Browett was Chief Executive Officer during the financial year to 30 June 2018. He resigned and stepped down from the Board on 29 August 2017.
Keith Down was Chief Financial Officer during the financial year to 30 June 2018. He resigned and stepped down from the Board on 24 May 2018.
Simon Emeny retired as planned from his role as Senior Independent Director and Chair of the Remuneration Committee at the AGM on 21 November 2017.
Rachel Osborne was appointed to the Board on 1 April 2018 as a Non-Executive Director, and stepped down on 29 August 2018 to take up an executive role
on the Board of a competitor.
Laura Carr will join the Board as Chief Financial Officer on 29 November 2018. Details of her background and appointment are in the Nominations
Committee Report.
David Stead, Dunelm’s former Chief Financial Officer (September 2003 to December 2015) has provided interim support pending Laura’s arrival since April
2018, although he has not been appointed to the Board over this short period.
48
corporate.dunelm.com Stock code: DNLM Chairman’s
Letter
Dear Shareholder
When I wrote to you last year, we had
just started the process of recruiting
a new Chief Executive Officer. I am
pleased that we were able to appoint
Nick Wilkinson in February 2018.
Nick brings an excellent retail skill-set
with multi-channel experience across
a number of consumer sectors and
geographies. He has made an excellent
start and is working well with the rest of
the Board and the Executive team.
Shortly after Nick joined, we
announced that Keith Down, our Chief
Financial Officer, had decided to step
down from the Board, to take up a role
closer to his family home. I would like
to thank Keith for his contribution and
commitment to Dunelm.
We have appointed Laura Carr to
succeed Keith as Chief Financial Officer,
and she will start with us in November.
Laura brings a breadth of business and
finance experience with multi-national
and consumer facing businesses, and I
look forward to working with her.
To support the Board and the Executive
team during the transition from Keith
to Laura, David Stead, Dunelm’s former
CFO, has served as Interim CFO. I
would like to thank David for coming
out of retirement to support us during
this period.
As I mentioned last year, Simon Emeny
retired at the AGM in November 2017,
after serving ten years as a Non-
Executive Director, latterly as Senior
Independent Director and Chair of
the Remuneration Committee. Liz
Doherty has succeeded Simon as Senior
Independent Director, and William
Reeve has taken the role of Chair of the
Remuneration Committee.
As planned, we were also pleased to
appoint an additional Non-Executive
Director, Rachel Osborne, in April.
Unfortunately, Rachel subsequently
changed her executive role which
created a competitive conflict and she
stood down from the Board in August.
We have initiated a search for Rachel’s
replacement and will update on
progress in due course. I thank
Rachel for her contribution over her
short tenure.
Whilst there have been a number of
changes to the Board over the year, we
have maintained a core Board team
of Will Adderley, Liz Doherty, William
Reeve, Peter Ruis, Marion Sears and
myself, all of whom have served at
least three years on the Board. I thank
all my colleagues for their continued
support and commitment, and the time
given to help with the appointment and
induction of my newer colleagues.
Externally, the Government and
regulators have continued to focus
on the need to strengthen corporate
governance and requiring companies
to demonstrate higher standards
of corporate behaviour and to fully
recognise their obligations to all of
their stakeholders. As I have written in
previous years, good governance is an
integral part of our corporate culture,
and our business principles encompass
a commitment to take long term
decisions and to treat our customers,
colleagues, suppliers and communities
with equal respect, as key stakeholders
in our business.
We have reviewed the Financial
Conduct Authority’s revisions to
the Corporate Governance Code,
and whilst it is not yet in force, we
have implemented some of its
recommendations. Marion Sears,
who has been on the Board since the
Group’s flotation in 2006, has agreed to
act as the “Designated Non-Executive
Director” for our colleagues. She has
attended two meetings of our National
Colleague Council and reported back to
the Board. In November 2018, members
of the Colleague Council will meet with
the Board to communicate their views.
We have also reviewed how we engage
with our other stakeholders, and details
are set out in this report. Finally, we have
looked at how the Board is monitoring
the culture of the business and tabled
an annual Board review of these.
In January 2018, we held one of
our regular Corporate Governance
meetings, attended by Will Adderley,
the Non-Executive Directors, the
Company Secretary and myself,
to which our major institutional
shareholders were invited. There was a
useful exchange of views on a variety
of governance topics, and we intend to
repeat this regularly.
In the last two years our annual Board
effectiveness review was facilitated
by an external third party. This year I
conducted an internal review, focused
mainly on how we manage succession
and Board and Committee effectiveness
going forward. Further details are set
out in the report below.
At our AGM this year, as usual,
all Directors will be seeking
reappointment. In addition, in
accordance with the Listing Rules, each
of the Non-Executive Directors will also
be subject to a vote of shareholders
independent of the Adderley family.
I look forward to meeting shareholders
at the AGM.
Yours sincerely,
Andy Harrison
Chairman
12 September 2018
49
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance
Report
Code compliance
This report explains how we have applied the principles of good governance and code of best practice set out in the Corporate
Governance Code published in April 2016 (the ‘Corporate Governance Code’), which is available from the website of the
Financial Reporting Council, www.frc.org.uk.
The Board considers that it has fully complied with the Corporate Governance Code during the financial year covered by this
annual report. In making its determination, consideration was given to the independence of Simon Emeny, who had served ten
years on the Board in June 2017, and retired as planned at the AGM in November. Further details are given in the section below
headed ‘Independence of Non-Executive Directors’.
After the year end, one of our independent Non-Executive Directors, Rachel Osborne, resigned as a result of her appointment
to an executive role with a competitor. We have started the search for a replacement, to ensure that once our new Chief
Financial Officer, Laura Carr, joins us in November, we have an equal number of executives / non-independent Directors and
Non-Executive Directors as required by the Corporate Governance Code.
We share the Government’s view that good governance helps
companies to take better decisions, for their own long term
benefit and that of the UK economy overall. Our approach,
which has not changed since the flotation of the Company in
2006, is summarised below:
z We believe that good governance leads to stronger value
creation and lower risks for shareholders
z It is the Board’s responsibility to instil and maintain a
culture of openness, integrity and transparency throughout
the business, through our policies, communications and by
the way in which we act
z We support corporate governance guidelines and apply
them in a way that is meaningful to our business and
consistent with our culture and values
z If we decide that the interests of the Company and its
shareholders can be better served by doing things in a
different way, we will explain the reasons why
For more information please see the copies of the
presentations that we made to our major institutional investors
and shareholder representatives, available in the ‘Reports and
Presentations’ section of our website, www.dunelm.com.
Board role and composition
STRATEGY
z Set the strategy to secure the
continued growth of the Group
over the long term in the interests
of our shareholders, taking account
of our responsibilities to colleagues,
customers, the communities in which
we operate and the interests of our
other stakeholders
z Ensure that resources are in place to
deliver the strategy
GOVERNANCE
z Instil and maintain a culture of
openness, integrity and transparency
z Ensure that financial and other
controls and processes for risk
management are in place and
working effectively
z Set an effective remuneration policy
z Maintain good relationships
with shareholders and all of
our stakeholders
PERFORMANCE
z Review progress towards strategic
and operational goals and the
performance of management
z Ensure that Board balance and
committee membership are
appropriate and effective, and fully
compliant with the requirements of
the Corporate Governance Code
The Board structure at the date of this report is shown below:
CHAIRMAN – Andy Harrison
Executives/Non-Independents
Independent Non-Executives
Will Adderley Deputy Chairman
Nick Wilkinson Chief Executive Officer
Marion Sears Non-Executive Director
Liz Doherty Senior Independent Director
William Reeve Non-Executive Director
Peter Ruis Non-Executive Director
Note: Laura Carr will join the Board on 29 November 2018 to succeed Keith Down who resigned and stepped down from the Board on 24 May 2018.
David Stead, Dunelm’s former Chief Financial Officer has provided interim support since April 2018 although has not been appointed to the Board over
this short period.We have started the search process for an additional independent Non-Executive Director, to replace Rachel Osborne who stepped down
from the Board on 29 August 2018.
50
corporate.dunelm.com Stock code: DNLM Board responsibilities
The Board has adopted written statements setting out the respective responsibilities of the Chairman, the Deputy Chairman
and the Chief Executive Officer; these are available on the Group’s website or from the Company Secretary. A summary of the
names and responsibilities of the Directors is set out below:
CHAIRMAN
Andy Harrison is responsible for:
z The leadership, effectiveness and governance of the Board
z Setting the agenda, style and tone of Board discussions with
z Ensuring that the Directors receive accurate, timely and
clear information
a particular focus on strategic matters
z Chairing the Nominations Committee
z Ensuring each Non-Executive Director makes an effective
contribution to the Board
DEPUTY CHAIRMAN
Will Adderley is responsible for:
z Maintaining a close dialogue with the Chairman and
z Assisting the CEO in strategic and operational activities
the CEO
as requested
z Contributing to the development of the Group’s culture and
values by promoting and visibly demonstrating the Company’s
long established business principles
z Supporting and deputising for the Chairman as required
z Member of the Nominations Committee
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
Liz Doherty is responsible for:
z Acting as a ‘sounding board’ for the Chairman and an
z Making herself available to shareholders, particularly if they
intermediary for the other Directors
z Leading the Non-Executive Directors in their annual assessment
have concerns that the normal channels have failed to resolve,
or for which such contact would be inappropriate
of the Chairman’s performance
z Chairing the Audit and Risk Committee
CHIEF EXECUTIVE OFFICER
Nick Wilkinson is responsible for:
z Proposing the strategic objectives of the Group for approval by
the Board, and delivering the strategic and financial objectives
in line with the agreed strategy
z Leading the Executive Board and senior management in
managing the operational requirements of the business
z Providing clear and visible leadership in business conduct
z Effective and ongoing communication with shareholders
NON-EXECUTIVE DIRECTORS
Liz Doherty, William Reeve, Peter Ruis, and Marion Sears are responsible for:
z Constructive contribution and challenge to the
z Oversight of financial and other controls and processes for
development of strategy
risk management
z Monitoring operational and financial performance and scrutiny
of management performance in the delivery of strategic
objectives
z William Reeve chairs the Remuneration Committee
z With the exception of Andy Harrison and Marion Sears, all Non-
Executive Directors chair or sit on all Board Committees
The Chief Financial Officer (Laura Carr from November 2018) is responsible for:
CHIEF FINANCIAL OFFICER
z Working with the CEO to develop and implement the Group’s
z Ensuring proper financial controls and risk management of the
strategic objectives
z The financial delivery and performance of the Group
z Ensuring that the Group remains appropriately funded to
pursue the strategic objectives
Group and compliance with associated regulation
z Investor relations activities, and communications with investors
COMPANY SECRETARY
Dawn Durrant is responsible for:
z Supporting the Chairman and the Non-Executive Directors
z Facilitating individual induction programmes for Directors and
with their responsibilities
assisting with their development as required
z Advising on regulatory compliance and corporate governance
z Communications with shareholders and organisation of
the AGM
z Overseeing the Sustainability activities of the Group
51
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance Report
CONTINUED
Independence of
Non-Executive Directors
As required by the Corporate Governance Code and the
Listing Rules of the United Kingdom Listing Authority, the
Board considers annually whether all independent Non-
Executive Directors continue to exhibit independence of
character and judgement prior to putting them forward
for reappointment at the AGM. This was last considered in
September 2018 and we confirmed that Andy Harrison was
independent on appointment and that Liz Doherty, William
Reeve and Peter Ruis and are independent.
The Board has treated Marion Sears as a ‘non-independent’
Director since September 2015 in view of her tenure of
more than nine years on the Board, and her subsequent
appointment as a director of WA Capital Limited in March
2016. WA Capital Limited is a private limited company
established by Will Adderley (the Deputy Chairman, and a
major shareholder) to act as a long term holding company
for his beneficial interest in the Company and various other
investments. The Dunelm Board has determined that this
appointment does not affect her judgement as a Director
of Dunelm, and that any potential conflict of interest has
been cleared on the basis that WA Capital Limited and Will
Adderley are parties to a Relationship Agreement (referred
to below in the section headed ‘Conflicts of Interest’) which
regulates their conduct.
Marion will put herself forward for reappointment at the AGM
by shareholders independent of the Adderley family as well
as a full shareholder vote.
As noted in the report of the Nominations Committee, Board
refreshment is a continued area of focus and we consider
the tenure of all Directors as part of our succession planning.
Our policy on Board diversity is explained in the Nominations
Committee report.
Change of Non-Executive
Director responsibilities
Following the planned retirement of Simon Emeny at the
AGM on 21 November 2017, Liz Doherty was appointed
Senior Independent Director, and William Reeve took the
Chair of the Remuneration Committee.
Board attendance
The Board held 11 meetings in the course of the year, one
of which was dedicated to a formal review of strategy.
Attendance at meetings was as follows:
DIRECTOR
Will Adderley
John Browett
Liz Doherty*
Keith Down*
Simon Emeny
Andy Harrison
Rachel Osborne
Peter Ruis
William Reeve
Marion Sears
Nick Wilkinson
MEETINGS
ATTENDED
11/11
1/1
10/11
9/10
3/3
11/11
3/3
11/11
11/11
11/11
6/6
* Liz Doherty was unable to attend one Board meeting in the year, however,
she received papers and communicated her views in advance to Andy
Harrison, Chairman. Keith Down did not attend the last Board meeting
before he stepped down from the Board.
Board meetings
There is a schedule of matters reserved to the Board for
decision or approval, which is available on the Group’s
website or from the Company Secretary. Examples of such
matters include Group strategy and budget, Group capital
structure, approval of financial results and Annual Report
and financial statements, significant capital or contractual
commitments, maintaining internal control and risk
management and approval of significant Group-wide policies.
At each meeting, the Chief Executive Officer reports on
operational performance (including health and safety) and
the Chief Financial Officer reports on financial performance.
There is a rolling agenda of other operational, strategic and
risk topics which is regularly refreshed to reflect the most
up-to-date strategy and ‘live’ issues in the business. The
principal areas of focus discussed by the Board in 2017/18
are set out below.
52
corporate.dunelm.com Stock code: DNLM Areas of focus
STRATEGY
z Group strategy, including our vision, goals
z Digital strategy
and business plans
z Budget
z Impact of Brexit
z Competitor landscape
z Furniture strategy
z Marketing strategy
z Tax strategy
GOVERNANCE
AND RISK
z Board succession
z Gender pay statement
z Board independence, composition
z Culture
and diversity
z Investor feedback via advisers
z AGM voting and feedback
z Corporate governance reform
z Stakeholder engagement
z Risk reviews
z Customer insight
z Store operating model
z Format development
z Stock management
OPERATIONAL
We measure the time spent on strategy, governance and
operational performance at each meeting. Over the year, the
biggest part of our time was spent on strategy, followed by
governance and operational performance, which the Board
considers to be appropriate.
Minutes of all Board and Committee meetings are taken
by the Company Secretary and circulated for approval.
Any unresolved concerns raised by a Director are recorded
in the minutes.
Non-Executive Director meetings
There is scheduled “Non-Executive Only” time at the end
of each Board meeting, attended by the Chairman and the
Non-Executive Directors. This is a useful way of exchanging
views and dealing with any concerns or questions. In
addition to this, the Chairman and the other Non-Executive
Directors regularly have informal, individual, meetings with
the Executive Directors and other senior managers in the
business, usually at a store location.
z Health and safety
z Ethical sourcing and modern slavery
z Cyber security
z The General Data Protection Regulation
z People strategy, colleague engagement and
succession planning
z Supply chain strategy
z Integration of the Worldstores business
Board committees
The Board has three committees, an Audit and Risk
Committee, a Nominations Committee and a Remuneration
Committee. The terms of reference of each of these
committees can be found on the Group’s website and are
available from the Company Secretary.
Details of the membership of the committees and of their
activities during the past financial year can be found in the
reports from the Chair of each of the committees.
Training and induction
Upon joining the Board, any new Director is offered a
comprehensive and tailored induction programme with
visits to key sites and meetings with senior managers and
other colleagues.
Nick Wilkinson joined the Board as Chief Executive Officer
in February 2018. Prior to this he met with all members of
the Board and the Executive Board, and received a briefing
from the Company Secretary on the duties of a public
company director. He also had access to past Board papers
and other relevant documentation. On joining the Group, he
completed a comprehensive induction programme, visiting
a large number of stores, all non-store sites, and meeting
all of the senior management. He “shadowed” a number of
colleagues in store and operational roles. He also participated
in the interim results presentation and “roadshows”, and held
separate meetings with advisors.
53
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance Report
CONTINUED
Rachel Osborne joined the Board as a Non-Executive Director
in April 2018. Her induction involved meetings with the
Chairman, the Deputy Chairman and other Directors and
the Company Secretary, as well as other members of the
Executive team. She also visited a number of stores and our
Stoke distribution centres. She was also given access to past
Board papers and the external audit partner.
We have an open culture and Non-Executive Directors are
free to make direct contact with senior management and store
teams. Throughout the year all Directors have visited stores
both informally and together with members of the senior
management team.
The Company Secretary reports to the Board at each meeting
on new legal, regulatory and governance developments
that affect the Group and actions are agreed where needed.
Directors attend seminars provided by independent
organisations which cover a wide range of governance topics.
As part of the annual Board evaluation, any additional training
or development needs are addressed by the Chairman with
each Director. Please see the Directors’ biographies on pages
46 to 48 for details of the specific skills and experience of
each Director.
Evaluation
Each of the Directors receives a formal evaluation of their
performance during the year. The Senior Independent
Director appraises the Chairman, and the Chairman
appraises all of the other Directors individually. In addition,
the performance of the Board and committees are formally
evaluated as a whole.
2017 External Board evaluation
The recommendations arising from the 2017 review
conducted by Lorna Parker, an independent Board Evaluation
specialist, and actions implemented in response are set out
below:
RECOMMENDATION
ACTION TAKEN
Review the structure of Board meetings and the rolling
agenda again to ensure that the Board is allowing enough
time for discussion of the external environment, and other
“softer” matters such as people and culture.
Rolling agenda reviewed, “people” reviews scheduled twice
a year.
Culture paper considered in April and culture KPIs agreed
Agenda time allocated to a general discussion of trends and
share experiences/concerns.
Improve meeting dynamics, in particular to promote more
open discussion and focused debate.
Chairman took action to facilitate this, for example by
ensuring that the purpose of each agenda item was clear,
and summarising the outcome at the end of the discussion.
Review Board papers to ensure that they reflect the
rearticulated, customer-centric strategy and objectives, and
contain only relevant detail and KPIs.
Regular customer report and KPI pack refocused and
finance elements of the pack slimmed down.
Consider whether an additional Non-Executive Director
should be appointed, to strengthen the overall skill base
amongst the Non-Executive Directors.
Rachel Osborne appointed to replace Simon Emeny, who
retired in the year. Rachel’s financial expertise filled an
identified skill gap. The search for a replacement for Rachel
has started.
54
corporate.dunelm.com Stock code: DNLM 2018 Board evaluation
The Board held a scheduled external evaluation in 2016,
and a follow up by the same provider in 2017. In 2018 the
Chairman led an internal evaluation, based on a discussion
with each Board member focused on the following topics:
z Review of the Board’s activities over the past year
z Consideration of whether the Board has the correct
balance of skills and diversity to deliver the strategic
objectives in future years
z Board and committee effectiveness.
The Chairman collated views and these were discussed by the
Board. The following actions were agreed:
z Nominations Committee and Board to review the Board
succession plan in the light of recent Board changes, likely
NED rotations and the ongoing strategic plans for the
business
z Further review of Board packs to give greater focus and
remove unnecessary detail
z People Director to be requested to provide more visibility
of diversity throughout the business to enable the Board to
consider how to measure and promote this.
These actions will be progressed during the year and we will
report back on them in next year’s report.
s172 Companies Act 2006
As a Board we have always taken decisions for the long
term, and collectively and individually our aim is always to
uphold the highest standards of conduct. We expect all of
our colleagues, at every level of the business, to do the same.
Similarly, we understand that our business can only grow and
prosper over the long term if we understand and respect
the views and needs of our customers, colleagues and the
communities in which we operate, as well as our suppliers
and the shareholders to whom we are accountable. This is
reflected in our “Business Principles”, and our Sustainability
report sets out more detail on how we manage our
relationships with them.
The Company Secretary sets out the text of s172 Companies
Act 2006 on every Board agenda, and as we receive
presentations and make decisions, we ensure that the impact
on any of these groups is considered. At our meeting in
April, we spent time examining how we engage with them. A
summary of this is set out below. We will formally review this
at least once a year to consider whether there are ways that
the Board’s engagement can be improved to help us operate
more effectively.
How the Board engages with its stakeholders
STAKEHOLDER
GROUP
CUSTOMERS
HOW THE BOARD ENGAGES
WHY WE ENGAGE
Customer insight report in
Management and Board packs,
which includes customer
satisfaction scores.
We want to be the customer’s
chosen partner for creating a
home they love – the Home of
Homes.
Customer KPIs reported in
Management and Board packs.
CEO / Deputy Chairman reply
personally to a number of high
level customer contacts.
Management and Directors visit
stores regularly.
We welcome all customers,
whatever their age, taste or
budget, and offer them the widest
range of products for their homes,
whenever and however they want
to shop.
ISSUES RELEVANT TO
THIS GROUP
Product range, price
and quality.
Convenience and
accessibility.
Customer service.
Fair marketing.
Product safety.
Responsible use of
personal data.
Environment.
Ethics and corporate
responsibility.
55
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance Report
CONTINUED
STAKEHOLDER
GROUP
COLLEAGUES
ISSUES RELEVANT TO
THIS GROUP
Fair employment.
Fair pay and benefits.
Diversity and inclusion.
Training, development and
career opportunities.
Health and safety.
Responsible use of
personal data.
Environment and
community.
HOW THE BOARD ENGAGES
WHY WE ENGAGE
We believe that a to be a great
place to shop, Dunelm also needs
to be a great place to work – we
can only deliver great products
and services to our customers
through the hard work and
commitment of our colleagues.
Designated “Non-Executive”
director has Board responsibility
for championing the interests of
colleagues.
Regional and National Colleague
Councils in place, feedback goes
to the Executive Board and is
acted on.
Designated NED attends two
National Colleague Council
meetings a year.
Annual Board discussion
with Colleague Council
representatives.
“Always on” engagement
mechanism, and full
engagement survey twice a year.
Colleague KPIs in Management
and Board packs.
Annual conference for Store
managers and senior support
colleagues, attended by
Chairman, Chief Executive
Officer, Chief Financial Officer
and Company Secretary.
Exec Board and Directors visit
stores and other sites regularly.
Weekly and monthly “huddles”
held, and Gazette magazine
published quarterly.
Independent whistleblowing
helpline.
56
corporate.dunelm.com Stock code: DNLM STAKEHOLDER
GROUP
SUPPLIERS
ISSUES RELEVANT TO
THIS GROUP
Fair trading terms.
Anti-bribery.
Ethics and slavery.
Operational improvement.
HOW THE BOARD ENGAGES
WHY WE ENGAGE
Annual supplier conference held,
attended by the Chairman and
Executive management.
Supplier presentation to the
Group Board.
Key suppliers attend the annual
colleague conference.
Chief Executive Officer and
Deputy Chairman meet regularly
with key suppliers.
Annual Board presentation on
ethical trading / modern slavery.
Supplier payment terms
reported to the Board and
published.
We do not manufacture the
vast majority of the products
that we sell; therefore we need
to maintain relationships with
suppliers and manufacturers
worldwide who can meet our
high standards.
Suppliers must demonstrate that
they operate in accordance with
recognised standards that uphold
human rights and safety, prohibit
modern slavery and promote
sustainable sourcing.
ENVIRONMENT
Company Secretary chairs the
Sustainability Committee, which
considers matters relating to the
environment, community and
other topics.
Annual report to the Exec Board.
We are committed to
minimising the impact of our
business operations on the
environment. It is also important
to our colleagues, customers and
shareholders.
Energy usage.
Recycling.
Waste management.
Packaging materials (e.g.
plastic) and minimisation.
Emissions from company
vehicles.
COMMUNITY
Charity Committee in place
to spearhead charitable and
community activity, reports to the
Exec Board and the Board.
A representative of the company-
sponsored charity attends the
annual company conference.
Charitable activity reported in
the “Gazette”.
We aspire to be responsible
members of our community as
it reflects our principle to do the
right thing. It is also important to
our colleagues, customers and
shareholders.
Charitable donations.
Employment opportunities.
Volunteering.
Environmental impact.
57
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance Report
CONTINUED
STAKEHOLDER
GROUP
SHAREHOLDERS
AND POTENTIAL
SHAREHOLDERS
ISSUES RELEVANT TO
THIS GROUP
Long term value creation.
Growth opportunity.
Financial stability.
Transparency.
Ethics and corporate
responsibility.
HOW THE BOARD ENGAGES
WHY WE ENGAGE
Continued access to capital
is important for our business.
We work to ensure that
our shareholders and their
representatives have a good
understanding of our strategy
business model, opportunity and
culture.
Annual report and accounts
Corporate website.
AGM.
Results announcements and
presentation.
Shareholder and analyst
meetings with management,
followed up by feedback
from brokers and financial PR
consultants.
Capital Markets presentation.
Regular Corporate Governance
presentation.
Engagement via the Company
Secretary.
Engaging with our colleagues
Dunelm is a very open business and our colleagues are
seldom reluctant to share their views with us! Members of
the Board and our leadership team are expected to spend
time in store and at other Group locations, and actively seek
their opinions on how we can improve. We have an “always
on” colleague feedback system, and management review
this and respond. We also have a twice yearly engagement
survey, the results of which are fed back to managers, the
Executive Board, and the People Director covers this as
part of her regular presentations to the Board. We have
Regional and National Colleague Councils, and this year we
have designated Marion Sears as our “Designated Non-
Executive Director” for colleague purposes. Marion attended
the National Colleague Council meetings in April and
September and fed back to the Board afterwards. National
Colleague Council members will be meeting with the Board
in November.
Investor relations and understanding
shareholder views
The table above summarises how we communicate with
our shareholders. The Chief Executive Officer and the Chief
Financial Officer report back to the Board after the investor
roadshows. The Group’s brokers and financial PR advisers
also provide a written feedback report after the full and
half year results announcements and investor roadshows to
inform the Board about investor views, and in addition Non-
Executive Directors attend a selection of investor meetings.
In January 2018, we held one of our regular Corporate
Governance meetings, attended by Will Adderley, the Non-
Executive Directors, the Company Secretary and myself,
to which our major institutional shareholders were invited.
This gives the corporate governance representatives of
our shareholders an opportunity to discuss with us a range
of governance topics. Matters discussed included Board
composition, the work of the Audit and Risk Committee,
remuneration, risk, cyber security, human rights and the
environment. We are planning to hold another meeting in
January 2019.
Our corporate website contains useful shareholder
information, copies of presentations and policies in relation to
governance and sustainability. Please see www.dunelm.com.
All Directors will be available at the Annual General Meeting
to meet with shareholders and answer their questions.
58
corporate.dunelm.com Stock code: DNLM Culture and the Board
Dunelm has an open and straightforward culture, with a
strong moral compass, reflecting the values instilled by the
Adderley family. The Board has always been cognisant of
the need to retain this culture as the business grows and
becomes more complex. “Culture” is one of our “principal
risks”, which are monitored formally by the Executive Board
and the Board twice a year. The Board has defined the
Group’s “purpose”, namely “to help everyone create a home
they love – the “Home of Homes”. This is supported by five
business goals, underpinned by our business principles,
which define how we will act towards others. Further details
of this are set out in the Strategic Report. Members of the
Board and the leadership team are expected to act as role
models for our business principles, and all colleagues are
appraised against them.
Board members monitor adherence to the culture in a
number of ways, including by visiting Group locations and
interacting with colleagues and advisors to the Group as
part of their Board duties. The Board also reviews a number
of “culture” indicators, such as colleague and customer
satisfaction scores, accident statistics, internal audit reports,
whistleblowing data, and regulatory enforcement. During
the year, a “culture scorecard” has been developed, bringing
this data together, and was formally reviewed by the Board
in September. This will be repeated at least once a year
going forward.
Share buyback and Rule 9 waiver
In April 2016, Will Adderley, our Deputy Chairman and a
major shareholder, disposed of part of his shareholding.
As his shareholding is now below 30%, and the combined
Adderley shareholding is above 50%, we are no longer
required to seek a Rule 9 waiver at the AGM to support our
policy to buy back shares to satisfy employee share option
entitlements, so long as this situation remains the case
after the Company share purchase. The Rule 9 waiver vote
caused a policy difficulty for a number of our institutional
shareholders, which can now be avoided.
The Board has reviewed whether our policy to purchase
shares in the market to satisfy share option entitlements (as
opposed to issuing shares) is still appropriate; we believe
that it is in the interests of our shareholder base as a whole
as it avoids dilution of shareholdings, and it is supported
by the majority of our institutional shareholders. I would
like to reassure shareholders again that shares bought back
by the Company will be held in treasury and used only to
satisfy share option entitlements, and not cancelled. The
Company did not purchase any of its own shares during the
financial year.
Significant shareholders
The Group’s significant shareholders are listed in the
Directors’ Report on page 102 and voting rights are stated
on page 100.
Conflicts of interest
The Companies Act 2006 allows the Board of a public
company to authorise conflicts and potential conflicts
of interest of individual Directors where the Articles of
Association contain a provision to that effect. The Company’s
Articles of Association give the Board this authority subject
to the following safeguards.
z Directors who have an interest in matters under
discussion at a Board meeting must declare that interest
and abstain from voting
z Only Directors who have no interest in the matter being
considered are able to approve a conflict of interest
and, in taking that decision, the Directors must act in a
way they consider, in good faith, would be most likely to
promote the success of the Company
z The Directors are able to impose limits or conditions
when giving authorisation if they feel this is appropriate
All Directors are required to disclose any actual or potential
conflicts to the Board and the following existing matters
have been considered and approved:
z Will Adderley is a major shareholder and connected to
other major shareholders. Authorised on the basis that
Will continues to abide by the terms of the Relationship
Agreement entered into between himself, other major
shareholders and the Company on flotation of the
Company in 2006
z Marion Sears is a director of WA Capital Limited, a private
limited company established by Will Adderley to act as a
long term holding company for his beneficial interest in
the Company and various other investments. Authorised
on the basis that WA Capital Limited is party to the
Relationship Agreement referred to above
Any actual or potential conflicts are considered by the Board
and any authorisations given are recorded in the Board
minutes and reviewed annually by the Board.
Conflicts that have been disclosed are reviewed annually by
the Board.
The Board considers that its procedures to approve
conflicts of interest and potential conflicts of interest are
operating effectively.
59
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Corporate Governance Report
CONTINUED
Advice and insurance
All Directors have access to the advice and services of the
Company Secretary. In addition, Directors may seek legal
advice at the Group’s expense if they consider it necessary in
connection with their duties.
The Group purchases Directors’ and Officers’ liability
insurance cover for its Directors.
Articles of Association
The Company’s Articles of Association may only be amended
by a special resolution of shareholders.
Governance and risk
Details of the Group’s risk management framework, systems
and controls and internal control framework are set out in the
Strategic report on pages 28 to 34.
This report was reviewed and approved by the Board on
12 September 2018.
Andy Harrison
Chairman
Appointment and removal
of Directors
The Articles of Association of the Company provide that a
Director may be appointed by ordinary resolution of the
Company’s shareholders in general meeting, or by the
Board so long as the Director stands down and offers him
or herself for election at the next Annual General Meeting of
the Company. The Articles also provide that each Director
must stand down and offer him or herself for re-election by
shareholders at the Annual General Meeting at least every
three years. The Board has decided to adopt the requirement
of the Corporate Governance Code, that all Directors should
stand down and offer themselves for re-election at each
Annual General Meeting.
Directors may be removed by a special resolution of
shareholders, or by an ordinary resolution of which special
notice has been given in accordance with the Companies Act
2006. The Articles also provide that the office of a Director
shall be vacated if they are prohibited by law from being a
Director, or is bankrupt; and that the Board may resolve that
his or her office be vacated if he or she is of unsound mind or
is absent from Board meetings without consent for six months
or more. A Director may also resign from the Board.
The Nominations Committee makes recommendations to the
Board on the appointment and removal of Directors.
In accordance with the Corporate Governance Code, all
Directors will retire from the Board and offer themselves
for re-election at the Annual General Meeting. Non-
Executive Directors will also be subject to a separate vote by
shareholders independent of the Adderley family as required
by the Listing Rules of the United Kingdom Listing Authority.
Powers of Directors
The business of the Company is managed by the Board,
which may exercise all of the powers of the Company, subject
to the requirements of the Companies Act, the Articles of
Association of the Company and any special resolution of the
Company. As stated above, the Board has adopted internal
delegations of authority in accordance with the Code and
these set out matters which are reserved to the Board or
committees and the powers and duties of the Chairman and
the Chief Executive Officer respectively.
At the Annual General Meetings of the Company from 2007
onwards, the Board has sought and been given authority
to issue shares and to buy back and reissue shares. Similar
resolutions are being tabled at the 2018 Annual General
Meeting. Any shares bought back would be held in treasury
for reissue to employees who exercise options under one
of the Group’s share incentive schemes. For further details
see the Notice of Annual General Meeting which
accompanies this report.
60
corporate.dunelm.com Stock code: DNLM “Dunelm has an open and straightforward culture, with a
strong moral compass. The Board is cognisant of the need
to retain this culture as the business grows’”
61
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Letter from the Chair of the
Audit and Risk
Committee
The Committee has continued its
oversight of the controls in place to
address cyber risks which continue
to pose a risk to all businesses, and
noted that further progress has been
made in this area. The proper use and
safeguarding of personal data has
been a high profile topic this year,
and we have received regular reports
of the plan in place to implement the
requirements of the General Data
Protection Regulation (GDPR). Whilst we
were GDPR compliant by 25 May, and a
number of steps were taken to improve
our personal data management, there
remain a number of points (for which
plans are in place) where further work is
required. This will be a continued area
of focus and we will receive an update
on this at each meeting.
In January 2018, Dunelm published
our first payment practices report. We
also put in place processes to address
the offence of facilitating corporate
tax evasion which came into force in
September 2017. Both of these were
reviewed by the Committee. We have
also reviewed progress being made
towards the implementation of IFRS 16
which will impact Dunelm in the next
financial year. Further detail is given in
the financial statements on page 122.
We paid our auditors
PricewaterhouseCoopers LLP non-audit
fees of £15,000 in the financial year in
respect of the half year results review
(a service now classified as ‘non-audit‘).
This compares to the audit fee of
£120,000.
As required by the regulatory guidance
we formally reviewed the 2017
audit and found it to be satisfactory.
Separately, the Financial Reporting
Council’s Audit Quality Review team
also completed a review of the
FY17 audit as part of their routine
sampling activity and concluded
that only limited improvements were
required. The Committee discussed
the FRC’s recommendations with
PricewaterhouseCoopers and
concluded that the actions they
have agreed to take as a result were
reasonable and appropriate given that
none of the findings were significant.
We have reviewed our policy on
rotation of the statutory auditor and
updated it, to bring it in line with
regulatory requirements. We will now
tender the external audit at least every
ten years, and change the audit firm at
least every 20 years. This means that
whilst there will be a change of audit
partner for the FY19 audit; the latest
time at which our policy requires us to
tender the audit will be for the FY24
financial year.
Looking forward, there are
developments in corporate reporting
coming into effect within the next two
years, including the new Corporate
Governance Code, and IFRS 16, which
we will review as required.
I look forward to meeting shareholders
at the AGM, when I will be happy to
take questions on any of this report.
Yours sincerely,
Liz Doherty
Chair of the Audit and Risk Committee
12 September 2018
Dear Shareholder
Since I last wrote to you Keith Down, our
Chief Financial Officer, stepped down
in May. Dunelm’s former CFO, David
Stead, stepped in on an interim basis
with immediate effect and will remain
until Keith’s successor, Laura Carr, starts
later in the year. The rest of the Finance
team has been in place throughout
the financial year and the Committee
is therefore comfortable that the CFO
transition has not adversely impacted
the year end process.
Apart from the executive change,
the most significant activity from a
controls and risk perspective was
the continued integration of the
Worldstores group, which has added
significant operational complexity to
the business. At the end of the financial
year this has largely been completed.
The most significant financial controls
and risk management procedures are
in place across the whole business, and
financial accounting systems are due
to be fully integrated during the next
financial year. The Committee has once
again closely reviewed the specific
items in the Group financial statements
relating to the acquisition.
Our programme of internal audit
activity, supported where appropriate
by external assurance providers and
our newly appointed Group Assurance
Manager, continued throughout the
year. As well as following up the actions
from the report on customs and duty,
reviews were completed of payment
controls, supplier compliance with
stock routines, offshore consolidation
warehouses, colleague discounts and
processes in place with our major
supplier of made-to-measure blinds.
We also progressed our plan to
develop a full internal audit function.
Our internal audit team has worked
with the Company Secretary to further
align our internal audit programme to
the risk register, and to develop more
robust KPIs to help the Board assess
the effectiveness of our controls and
risk mitigations.
62
corporate.dunelm.com Stock code: DNLM Audit and Risk
Committee Report
SUMMARY OF PRINCIPAL ACTIVITIES
z Reviews of the following:
— Tax strategy
z Annual review of the business controls framework
and committee terms of reference completed
— Annual financial statements for FY17 and interim
z Internal Audit/Compliance
results for FY18
— Internal controls and the process for the
identification and mitigation of principal risks
— The plan to address the requirement to report
on Payment Practices and to address the new
corporate offence of facilitating tax evasion
z External Auditor
— Annual reviews of policy on use of auditors for
non audit work
— Policy on rotation of external auditor revised
— Review of findings from the FRC Audit Quality
Review team’s review of the FY17 audit which
required “limited improvements” in three areas
— Since the year end, approval of the full year
annual financial statements for FY18, and
approval of the new statutory audit partner for
the FY19 audit onwards
— Further progress made in plan to develop a
more formal internal audit function, including
appointment of a Group Assurance Manager
— Internal Audit reviews of payment controls,
supplier compliance with stock routines,
offshore consolidation warehouses, colleague
discounts, and processes in place with our major
supplier of made-to-measure blinds
— Further improvements made to provide
assurance in respect of risk controls and
mitigations, and to align to internal audit activity
— Oversight of plan to secure compliance with the
General Data Protection Regulation (GDPR)
This report provides details of the role of the Audit and Risk
Committee and the work it has undertaken during the year
and at its meeting in September 2018 when this annual
report and financial statements were approved.
z Monitor the effectiveness of financial controls and the
process for identifying and managing risk throughout
the group
z Monitor the financial reporting process and submit
Principal duties
The principal duties of the Committee are to:
z Oversee the integrity of the group’s financial statements
and public announcements relating to financial
performance
z Hold the relationship with the external auditor and
oversee the external audit process
z Establish formal and transparent arrangements
for considering how they should apply the
corporate reporting, risk management and internal
control principles
z Oversee the internal audit process
recommendations
z Monitor the statutory audit of the annual report and
financial statements
z Review and monitor the external auditor’s independence
and the provision of additional services
The full terms of reference for the Committee can be found
on the Group’s website, www.dunelm.com. These terms
were last reviewed by the Committee in June 2018.
The Committee has approved a policy which allows
employees to raise legitimate concerns in confidence
without fear of discrimination, including access to an
independent whistleblowing helpline. A copy of our policy
is available on our corporate website https://corporate.
dunelm.com. During the year, the Committee received
reports detailing the calls made to the helpline.
63
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Audit and Risk Committee Report
CONTINUED
Committee membership
The following Directors served on the Committee during
the year:
NAME
FROM:
Liz Doherty (Chair)
William Reeve
Peter Ruis
1 May 2013
1 July 2015
10 Sept 2015
TO:
To date
To date
To date
z Receipt of internal audit reports (see below)
z Approval of the annual Audit and Risk Committee report
z Review of whether the FY17 and FY18 annual reports are
‘fair, balanced and understandable’
z Annual review of business control framework and
committee terms of reference
z Formal review of auditor performance
z Formal review of Committee effectiveness
Rachel Osborne
1 April 2018
28 August 2018
Simon Emeny
25 June 2007
21 Nov 2017
Specific topics
z Approval of Tax Strategy
z Consideration of the plans to address the requirements
of the General Data Protection Regulation and the duty to
report on Payment Practices
z Internal audit reviews of payment controls risk, supplier
compliance with stock routines, offshore consolidation
warehouses, colleague discounts, and processes in place
with our major supplier of made-to-measure blinds
Committee effectiveness
At its meeting in June 2018, the Committee carried out a
review of its own effectiveness, using a checklist prepared by
one of the major accounting firms. The conclusion was that
the Committee is functioning well, broadly in accordance with
regulatory and “best practice” requirements, and provides
appropriate assurance to the Board.
Significant areas of judgement
Within its terms of reference, the Committee monitors the
integrity of the annual and interim reports, including a review
of the significant financial reporting issues and judgements
contained in them.
At its meetings in September 2017 and 2018, the Committee
reviewed a comprehensive paper prepared by the Chief
Financial Officer, which analysed the Group’s results for the
financial year; highlighted matters arising in the preparation
of the Group financial statements; and provided information
to support the Directors’ viability and going concern
statements. The Committee also considered a paper prepared
by the external auditor, which included significant reporting
and accounting matters.
The major accounting issues discussed by the Committee in
September 2018 in relation to the FY18 Annual Report and
Accounts were as follows:
The Company Secretary acts as secretary to the Committee.
The Chief Executive Officer, Chief Financial Officer and the
Chairman of the Board usually attend meetings by invitation,
along with a representative from the external auditor. Other
Directors attend by invitation as required.
The Board considers that I have recent and relevant
financial experience to chair the Committee, by virtue of my
professional qualification and my previous executive roles,
including as Chief Financial Officer of Reckitt Benckiser Group
plc. Members of the Committee can also demonstrate a
breadth of experience across the retail and consumer goods
sector through their current and previous roles – please see
the Directors’ biographies on pages 46 to 48 for full details.
Committee activities in 2017/18
Four meetings were held in the year and members’
attendance was as shown in the table below.
NAME
Liz Doherty
Simon Emeny
William Reeve
Peter Ruis
Rachel Osborne
MEETINGS ATTENDED
4/4
2/2
4/4
4/4
1/1
The Committee also met in September 2018.
The activities of the Committee included:
Routine items
z Approval of the full year results issued in September 2017
and the half year results issued in February 2018
z Review of the process for identifying and managing risk
and a full review of the principal risks and how they are
managed in September 2017, and a mid year review in
February 2018
z Verification of the independence of the auditor and
approval of the scope of the audit plan and the audit fee
z Review of fraud and Bribery Act controls and
cyber security, which are standing agenda items for
each meeting
64
corporate.dunelm.com Stock code: DNLM Provisions for inventory
The Committee considered the approach taken by
management and assessed available evidence. Particular
attention was given to reviewing the provision for obsolete,
slow-moving or discontinued inventories including the
utilisation of provisions reported in prior periods. The
Committee concluded that the values recorded in the
financial statements are appropriate.
Exceptional items
The Committee considered the requirement to identify,
measure and disclose exceptional items, and concluded that
the approach taken and the values reported in the financial
statements are appropriate.
Fair, balanced and understandable
At the request of the Board, the Committee also considered
whether the annual report and financial statements as a whole
are “fair, balanced and understandable”. Factors taken into
account included:
z Does the narrative of the Business Review and Financial
Review fairly reflect the performance of the Group over the
period reported on?
z Are the narrative sections consistent with each other, and
with the financial statements?
z Is the connection between strategy and remuneration
clearly described?
z Can readers easily identify key events that happened
during the year?
z Committee members received the draft annual report in
advance and had the opportunity to make comments in
advance of the formal meeting at which the report was
tabled for approval
Following its review, the Committee confirmed to the Board
that in its view the FY18 annual report was fair, balanced and
understandable.
External auditor
The report and financial statements were audited by
PricewaterhouseCoopers LLP, following that firm’s
appointment as statutory auditor in January 2014. Mark Smith
has been the audit partner since the firm’s appointment. The
audit partner for the FY19 audit onwards will be
Mark Skedgel.
PricewaterhouseCoopers LLP attended the Committee
meetings in September and October 2017, February, June
and September 2018. The Committee also met privately with
them during the September meetings, and as Chair of the
Committee I had dialogue with the audit partner on a number
of occasions.
Audit effectiveness
It is the responsibility of the Audit and Risk Committee to
assess the effectiveness of the external audit process.
The Chief Financial Officer and his team presented their
review of the FY17 audit in February 2018. This covered a
number of aspects including:
z The quality of reports provided to the Committee and the
Board and the quality of advice given
z The level of understanding demonstrated by the audit
team of the Group’s businesses and the retail sector
z The objectivity of the external auditor’s views on
the controls around the Group and the robustness
of challenge and findings on areas which required
management judgement
z The findings from the FRC’s annual inspection of auditors
published in May 2017
The conclusion was that the audit had been effective and that
no significant issues had been highlighted; this was endorsed
by the Committee.
The FY17 audit was also reviewed by the Financial Reporting
Council’s Audit Quality Review team as part of their routine
sampling activity. Their assessment was that “limited
improvements” were required in three specific areas. A
summary of their recommendations and the actions that
PricewaterhouseCoopers have agreed to take as a result were
discussed by the Committee in June, and we agreed that
none of the findings were significant.
Auditor appointment for FY18
It is the Committee’s responsibility to make recommendations
to the Board in relation to the appointment, reappointment
and removal of the external auditor, and to agree the audit fee.
In February 2018, the external auditor presented their
strategy for the 2017/18 audit to the Committee. The
Committee reviewed and agreed with the external auditor’s
assessment of risk. The Committee also reviewed and
agreed the audit approach and the approach to assessing
materiality for the Group.
The fee proposed by PricewaterhouseCoopers LLP for
the statutory audit of the Group and Company financial
statements and the audit of Group subsidiaries pursuant to
legislation was £120,000.
Taking into account the review of the FY17 audit and
the proposed plan and fee, the Committee agreed that
PricewaterhouseCoopers LLP be reappointed as auditor for
the FY18 audit for the fee proposed. Resolutions to reappoint
PricewaterhouseCoopers LLP as auditor and to authorise
the Directors to agree their remuneration will be put to
shareholders at the AGM.
65
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Audit and Risk Committee Report
CONTINUED
Use of auditors for non-audit work
The Committee is aware that the use of audit firms for non-
audit work is a sensitive issue for investors and corporate
governance analysts, as it could potentially give rise to a
conflict of interest.
Risk management
The Committee is responsible for assessing the scope and
effectiveness of the systems established by management to
identify, assess, manage and monitor financial and non-
financial risks, and to consider the level of assurance.
The Committee carried out a formal risk review in September
2017 and February 2018. During the year, at the Committee’s
request, further work has been conducted by management to
assign KPIs to all of the principal risks, to measure the impact
of each risk, so as to better understand the mitigating actions
necessary and how effective they are, and to align the Internal
Audit programme more closely with the Risk Register. Further
work on this is planned in FY19.
The Committee also asked for the register to include details of
the assurance activities which assess the strength of mitigating
factors in respect of principal risks.
Internal control framework
In 2015 the Committee adopted a formal internal control
framework, covering the following areas: business ethics
including anti-bribery controls; accountabilities; people
management, including succession planning; development
and alignment of incentives; risk management processes;
internal financial control; crisis management; monitoring
and reporting. Details of internal and external assurance
are included. The framework and the controls in place are
reviewed annually, the last review was in June 2018; no
significant control weaknesses have been identified.
Viability statement and risk management
In September 2018, the Committee reviewed the viability
statement given by the Board in this report and the process in
place to support the assurance given and confirmed that it is
appropriate and in compliance with regulatory requirements.
This review took into account the principal risks facing the
Group and the process by which they are managed by the
Board and management.
Following the issue of the EU Audit Directive in June 2016, we
reviewed our policy on the use of auditors for non-audit work
in September 2016. The full policy is available on our website,
www.dunelm.com, but in summary from FY17:
z Fees for non-audit services provided by the statutory
auditor in any year may not exceed 70% of the
average fees for the Group statutory audit in the three
previous years
z The auditor is prohibited from providing certain non-audit
services, including: almost all tax work; internal audit;
corporate finance; involvement in management activities,
including working capital and cash management and the
provision of financial information
z The external auditor may not be engaged to provide any
non-audit services without the agreement of the Audit and
Risk Committee Chair
During the period we paid PricewaterhouseCoopers LLP
£135,000, of which £15,000 was for their review of the interim
financial statements (considered to be a non-audit service).
No other non-audit services were provided by the external
auditor. Fees paid to PricewaterhouseCoopers LLP for audit
work were £120,000.
Auditor rotation
In June 2018 we updated our Auditor Rotation policy to bring
it into line with the current EU Audit Directive. This means that
we will tender the audit at least every 10 years (previously 5);
we will change auditor at least every 20 years (no change);
and we will invite at least one firm outside the ‘Big Four’ to
participate (no change). The latest date for the next tender will
therefore be for the 23/24 audit. A competitive tender is in the
best interests of shareholders.
In accordance with relevant ethical standards, the
PricewaterhouseCoopers LLP audit partner (Mark Smith) will
rotate after the FY18 audit, and the new partner Mark Skedgel
will be responsible for the FY19 audit onwards.
I can confirm that the Company has complied with The
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order 2014
during the financial year.
66
corporate.dunelm.com Stock code: DNLM Cyber security and data
protection/GDPR
Information security remains one of the most important risk
areas and it is a standing Committee agenda item, as well
as being one of the Board’s principal risks, as outlined in the
‘Risks and Uncertainties’ section of this annual report. The
coming into force of the General Data Protection Regulation
in May 2018 has raised the profile and importance of
managing personal data safely and lawfully, and has increased
the severity of the consequences of a personal data breach.
The Committee had oversight of the plan in place to secure
compliance, and data protection is now considered alongside
cyber security in general at every meeting.
The Committee noted that continued progress has been
made over the year to strengthen controls over cyber
and data security. A number of practices and systems
considered “high risk” have been closed as part of the GDPR
implementation plan, and training has been rolled out across
the business to increase awareness. A risk treatment plan
is in place to make further improvements during FY19. In
addition, legacy Worldstores systems will be fully integrated
during the coming financial year, which will further enhance
security and integrity.
Approved by the Board on 12 September 2018.
Liz Doherty
Chair of the Audit and Risk Committee
Internal audit/external assurance
The Committee initiated a formalised programme in 2013
with activities conducted either by an internal team that is
independent of the area under review, or by an external
party, decided on a case-by-case basis. In either case, the
review is conducted on behalf of the Committee and reports
back to them.
In June 2017 the Committee adopted a plan to develop a
more formal internal audit function by the end of the 2019
financial year, reflecting the increased complexity of the
business. Following a review of the internal audit function’s
quality and expertise, at the beginning of the financial year
a Group Assurance Manager with a financial accounting
background was appointed. Her role is to conduct internal
assurance activity which would previously have been
outsourced, and to bring a more strategic approach to the
department’s activity.
At the Committee’s suggestion, the Executive Board was
involved in making recommendations for future topics to be
addressed, in conjunction with the risk review process.
Reviews completed in the year are set out below:
Payment controls
Reviewed by
Internal Audit
Supplier compliance with stock routines
Internal Audit
Offshore consolidation warehouses
Colleague discounts
Blinds supplier compliance
Internal Audit
Internal Audit
Internal Audit
Reports were discussed by the Committee and the
Board and a remediation plan agreed by management to
improve controls.
In addition, the Committee monitored progress against
actions agreed following the reports received in the 2016–17
financial year from internal audit /external assurance providers
and noted that these had been completed.
67
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Letter from the Chair of the
Remuneration
Committee
Dear Shareholder
This is my first letter to you since
taking over from Simon Emeny as
Remuneration Committee Chair of
Dunelm after the AGM in November
2017. I would like to thank Simon
for his sound stewardship of the
Committee over the past three years,
and for overseeing the adoption of the
2017 Remuneration Policy at the AGM,
with a vote of 99% in favour.
At the moment, I have four objectives
as Chair of the Remuneration
Committee. Firstly, I want the
Committee to help the Board ensure
a strong Policy framework for securing
the best talent for Dunelm. Secondly,
we should ensure that remuneration
for senior appointments follows the
principles set out in our Policy or,
where we need to consider exceptions,
that there is appropriate challenge
and rationale. Thirdly, I want to
help the Board keep abreast of our
shareholders’ and wider stakeholders’
views. Finally, I want us to follow best
practices, taking professional advice if
necessary, but in a Dunelm way that fits
our strong and positive culture.
Since I became Chair, we have made
two Executive Director appointments:
CEO Nick Wilkinson in February 2018,
and Laura Carr who starts in November.
The remuneration packages for both
Nick and Laura are in line with our
2017 Policy, and with that of their
predecessors. We have however taken
the opportunity to reduce pension
entitlement for both to 10% of salary,
to align this more closely to that of
our senior management. We believe
that it is important for our Executive
Directors to live close to our Syston
Support Centre, and so both have been
offered relocation assistance, and for
Nick Wilkinson a travel allowance and
temporary accommodation assistance.
In order to ensure that Laura does not
incur a significant penalty by joining
Dunelm, we also had to agree to
compensate her partially. We are never
happy about having to make payments
of this nature, but having considered
the matter carefully and taken expert
advice, the Committee decided that,
together with a requirement to invest
in Dunelm shares upon appointment,
the arrangements are acceptable and
in the best interests of the Company.
More details are set out in the report.
John Browett and Keith Down both
stepped down from the Board in
the year. John was paid salary and
benefits to date of termination and
for his six month notice period, plus
bonus entitlement in respect of the
2017 financial year during which he
was employed. Keith worked part of
his notice period and was paid salary
and benefits to the date of termination
only. No other amounts were paid,
and all other bonus and share option
entitlements have lapsed.
Our 2017 Remuneration Policy
requires Executive Directors to make
an investment in Dunelm shares on
joining, and then to invest two-thirds of
performance pay earned (after payment
of tax and national insurance) in Dunelm
shares. Executives also have to build a
personal shareholding equivalent to
1× salary after three years and 2× salary
after five years. Nick Wilkinson invested
£250,000 in Dunelm shares shortly after
his arrival, and a further £250,000 in July
2018. Laura Carr has agreed to invest
a significant sum in Dunelm shares on
joining the Group. Nick has qualified for
bonus during FY18 and his purchase of
shares in July includes an investment of
two thirds of this after tax .
68
corporate.dunelm.com Stock code: DNLM We have published our Gender
Pay report during the year. We are
committed to paying men and women
equally for roles of the same size and
scale. We are proud that 67% of our
colleagues are female. However, in
common with many other retailers, 80%
of our colleagues are employed in our
retail operations, and these roles tend
to be lower paid. As a result, we have
a significant gap in the pay between
genders (our mean gap is 17.4% and
our median gap is 4.8%), very much
in line with our peers in the UK retail
sector. We have made progress over
the twelve months to improve, and we
have more activity planned, including
the launch of an Empowering Female
Leaders programme, widening our
internal mentoring programme, and
looking at how we can reduce friction
for women returning to work after
maternity leave. We are leading by
example; 33% of our senior leadership
roles are held by women, and following
Laura Carr’s appointment to the Board,
at least before Rachel Osborne had to
step down for competitive reasons, four
of our nine Board members, and half of
our Executive Board were female.
Finally, we have reviewed proposed
governance changes, including the
new Corporate Governance Code
and supporting guidance. We support
these changes and have already taken
steps to implement them as follows:
z We have strengthened the ability
of the Committee to recover bonus
and LTIP awards through malus and
clawback to cover a wider range of
events of corporate or individual
failure
z We have changed the Committee’s
terms of reference to give the
Committee formal approval of
remuneration of the Executive Board
and the Company Secretary
z We are taking steps to ensure that
Board and the Committee engage
more directly with our colleagues
on executive pay and other matters,
and to reinforce the Board oversight
of all matters relating to our People,
including diversity and the gender
pay gap
I look forward to meeting shareholders
at the AGM.
Yours sincerely
William Reeve
Chair of the Remuneration Committee
12 September 2018
69
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration
Report
How Our Policy is linked to Our Strategy
GROUP STRATEGY
DELIVER SHAREHOLDER VALUE THROUGH LONG TERM, SUSTAINABLE, PROFITABLE GROWTH
REMUNERATION STRATEGY
REMUNERATION STRUCTURE
z Pay fairly for an individual’s role and responsibilities
z Base pay and benefits at median or below
z Reward strong performance
z Annual bonus at median
z Focus on long term value creation
z Long Term Incentive Plan at upper quartile
z Align Executives with shareholders through
share ownership
z Two thirds of variable pay retained in shares for
duration of employment and half of these for a
further two years
Our binding Remuneration Policy was last updated in 2017, and approved by shareholders at the AGM on 21 November 2017
with 99.4% of votes in favour of it.
The principles behind, and the reasons for, the overall remuneration structure that we have adopted for our Executive Directors
are directly related to our long term strategic goal of delivering shareholder value through the profitable growth of a quality
business.
Since the flotation of the Company our Executive remuneration has been structured specifically:
z To pay fairly and appropriately for an individual’s role and responsibilities
z To reward strong performance
z To be focused on long term value creation
z To align Executives strongly with shareholders through share ownership
The majority of the Executive Directors’ potential remuneration is variable and performance-related in order to encourage and
reward superior business performance and shareholder return. Discretion is allowed in certain circumstances to ensure rewards
are appropriate and overall levels of pay are analysed carefully each year.
This is consistent with the creation of long term, sustainable growth in shareholder value through delivery of the objectives
set out in our corporate strategy, which are all long term in nature; namely to become the customer’s number one choice for
helping consumers create homes they love: famous for style, value and quality, and the best multichannel retailer in terms of
convenience and customer experience. Our approach is also in keeping with the family origin of the business, and is important
to the Adderley family who remain our majority shareholders.
It is our intention to maintain a simple and transparent remuneration structure for the benefit of all parties.
70
corporate.dunelm.com Stock code: DNLM Introduction
This Directors’ Remuneration Report is divided into three
sections: the Letter from the Chair of the Remuneration
Committee, set out on page 68 to 69; the Policy Report; and
the Annual Report on Implementation.
The Policy Report sets out the 2017 Remuneration Policy
which has been in force since 21 November 2017, when it was
approved by shareholders at the AGM with a vote of 99.4%
in favour of it. No changes to our Policy are being put forward
this year.
The Annual Report on Implementation sets out how the
policies approved in November 2014, 2015 and 2017 have
been applied during the financial year being reported on
and how policy will be applied in the coming year. This
report will be put to shareholders for approval at the Annual
General Meeting in November 2018, although the vote on the
implementation report is advisory.
This report complies with the provisions of the Companies
Act 2006 and Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations
2013 (as amended), as well as the UK Corporate Governance
Code and the UKLA Listing Rules.
The Policy Report
Directors’ Remuneration Policy 2017
The policy set out below (the “2017 Policy”) is the policy approved by shareholders at the AGM on 21 November 2017, and
applied from that date.
The information contained in this report is unaudited unless specifically stated as being audited.
Future policy table
The following table sets out the structure of remuneration for Directors of the Company.
Executive Directors
BASE SALARY
Purpose and link to
strategic objectives
z Fixed remuneration for the role
z To attract and retain the high-calibre talent necessary to develop and deliver the business strategy
z Reflects the size and scope of the Executive Director’s responsibilities
Operation
z Normally paid monthly
z Base level set in the context of:
— Pay for similar roles in companies of similar size and complexity in the relevant market
— Scale and complexity of the role
z Should comprise a minority of potential remuneration
Maximum
opportunity
z Reviewed annually, with percentage increases in line with the Company-wide review unless other
circumstances apply, such as:
— A significant change in the size, scale or complexity of the role or of the Company’s business
— Development and performance in role (for example on a new appointment base salary might
be initially set at a lower level with the intention of increasing over time)
z The Committee does not consider it to be appropriate to set a monetary limit on the maximum
base salary that may be paid to an Executive Director within the terms of this policy
Performance
metrics
z None, although performance of the individual is considered at the annual salary review
z No recovery provisions apply to base salary
71
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
RETIREMENT BENEFITS
Purpose and link to
strategic objectives
z To provide a competitive post-retirement benefit
z To attract and retain the high-calibre talent necessary to develop and deliver the
business strategy
Operation
z Contribution equivalent to a percentage of base salary made to a defined contribution plan or
paid as a cash allowance
Maximum
opportunity
Performance
metrics
BENEFITS
z Up to 15% of base salary (for Executive Directors appointed from November 2017 onwards. For
Executive Directors appointed prior to that the maximum is 20% of base salary). No element
other than base salary is pensionable
z None
z No recovery provisions apply to retirement benefits
Purpose and link to
strategic objectives
z To provide a competitive benefits package
z To attract and retain the high-calibre talent necessary to develop and deliver the
business strategy
Operation
z A range of benefits are provided, which may include car or car allowance; private health
insurance for the individual and their family; permanent health cover; life assurance; mobile
phone; use of a car and driver in connection with the role; colleague discount
z Additional benefits, such as relocation expenses, housing allowance and school fees may also be
provided in certain circumstances if considered reasonable and appropriate by the Committee
z For non-UK Executives (none at present) the Committee may consider additional allowances in
accordance with standard practice
Maximum
opportunity
z Current benefits provided are described in the Annual Report on Implementation on page 83.
z The Committee reserves the right to provide such benefits as it considers necessary to support
the strategy of the Company
z The Committee does not consider it to be appropriate to set a maximum cost to the Company of
Performance
metrics
benefits to be paid
z None
z No recovery provisions apply to benefits
72
corporate.dunelm.com Stock code: DNLM ANNUAL BONUS – AWARDS TO BE MADE TO EXECUTIVE DIRECTORS OTHER THAN WILL ADDERLEY,
WHO HAS REQUESTED THAT HE NOT BE CONSIDERED FOR ANNUAL BONUS.
Purpose and link to
strategic objectives
z Rewards and incentivises delivery of annual financial, strategic and personal targets
Operation
z Paid in cash, after the results for the financial year have been audited, subject to performance
targets having been met
z Two-thirds of bonus earned must be invested in Dunelm shares after tax and National Insurance
obligations have been met
Maximum
opportunity
Performance
metrics
z Maximum opportunity – 125% of base salary per annum
z For on-target performance – 40% of maximum opportunity
z For threshold performance – 5% of maximum opportunity
z Stretching performance targets are set each year. Performance targets for the Executive
Directors are typically based on financial and strategic objectives set by the Remuneration
Committee annually
z Financial objectives include, but are not limited to, budgeted PBT for the financial year taking
into account market consensus and individual broker expectations
z The strategic objectives will vary depending on the specific business priorities in a
particular year
z Typically, the majority of the annual bonus for Executives is subject to financial objectives
z Awards are subject to recovery provisions (malus) at the discretion of the Committee if there
has been a misstatement of results for the year in respect of which the bonus is paid, or if there
has been an error in calculating performance, or in the case of gross misconduct
z The Remuneration Committee also has the discretion to claw back the bonus up to three years
after payment in the above circumstances and in cases of fraud, the Committee can apply
malus and clawback for an unlimited period of time
73
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
LONG TERM INCENTIVE PLAN – AWARDS TO BE MADE TO EXECUTIVE DIRECTORS OTHER THAN WILL ADDERLEY,
WHO HAS REQUESTED THAT HE NOT BE CONSIDERED FOR LTIP AWARDS.
Purpose and link to
strategic objectives
z Supports delivery of strategy by targeting EPS growth, which the Committee believes to be
closely aligned to the drivers of growth in the business over the long term
z Rewards strong financial performance and sustained increase in shareholder value over the
long term
z Aligns with shareholder interests through the delivery of shares, the majority of which (after
payment of tax liabilities) are retained
Operation
z Conditional awards are made annually (which can take the form of a conditional award, nil-cost
option or nominal value option), with vesting subject to performance over three financial years
z Two-thirds of all shares vesting must be retained by the Executive (after sale of shares to meet tax
and National Insurance obligations)
Maximum
opportunity
z For awards to be made in respect of the FY18–FY20 performance period, the maximum annual
award is 110,000 shares for the Chief Executive Officer and 60,000 shares for the Chief Financial
Officer, subject in either case to such adjustment as the Committee determines to take account of
any variation in the Company’s share capital
z For awards to be made in respect of the FY19–FY21 performance period and awards to be
made in future years, the maximum annual award for Executive Directors is shares with a value
up to 200% of salary, calculated by reference to the market price of Dunelm shares on the date
preceding the date of grant
z For threshold performance: 10% of the award will vest
z For maximum performance: 100% of the award will vest
z Straight-line vesting between the threshold and maximum levels will apply for performance
between threshold and maximum points
z Dividend accruals may be made in respect of special dividends paid during the performance
period applicable to an award and up to the vesting date. Payment would only be made in
respect of shares vesting after applying performance criteria. This will apply to all awards vesting
after the 2017 Policy comes into effect
Performance
metrics
z Growth in fully diluted EPS over the three year performance period compared with growth in the
index of retail prices (RPI) over the same period
z The Remuneration Committee considers the target annually taking into account market
consensus and individual broker expectations
z For information, the target applicable to awards to be made are:
No part of the award will vest until compound annual EPS growth exceeds RPI growth by 3%
For awards to be made in respect of the FY18–FY20 performance period, 10% of the award vests
at compound annual EPS growth in excess of RPI plus 3%. 100% of the award vests at compound
annual EPS growth in excess of RPI plus 15%
For awards to be made in respect of the FY19–FY21 performance period, and for awards made
in future years, 10% of the award vests at compound annual EPS growth in excess of RPI plus 3%.
100% of the award vests at compound annual EPS growth in excess of RPI plus 12%
Between those figures the award will vest on a straight-line basis
z Awards are subject to recovery provisions (malus) at the discretion of the Committee if there has
been a misstatement of results for the performance period to which the award relates, or if there
has been an error in calculating performance or in the case of gross misconduct
z The Remuneration Committee also has the discretion to claw back vested awards for up to three
years from vesting in these circumstances and in cases of fraud, the Committee can apply malus
and clawback for an unlimited period of time
74
corporate.dunelm.com Stock code: DNLM LIFETIME LOCK-IN AND PERSONAL SHAREHOLDING TARGETS
Purpose and link to
strategic objectives
z Aligns with shareholder interests through shareholding and promotes long term thinking
Operation
z Executive Directors are required to build a beneficial holding of shares equal to 100% of salary
after three years and 200% of salary after five years from appointment
z A personal investment in Dunelm shares should be made on appointment as an Executive
Director (subject to closed periods)
z Two-thirds of amounts earned under the annual bonus and the LTIP (after payment of tax and
National Insurance) must be retained in Dunelm shares
z These shares must be held during employment and at least 50% of them retained for at least two
years after employment ends
z The Remuneration Committee retains the right to waive this requirement in exceptional
circumstances, such as death, divorce, ill health or severe financial hardship
Maximum
opportunity
Performance
metrics
z Not applicable
z Not applicable
ALL EMPLOYEE SHARE PLAN (SHARESAVE)
Purpose and link to
strategic objectives
z Promotes share ownership by all eligible colleagues (including Executive Directors)
Operation
z All UK employees with a minimum service requirement are eligible to join the UK tax approved
Dunelm Group Savings Related Share Option Plan (the Sharesave)
z Monthly savings are made over a period of three years linked to the grant of an option over
Dunelm shares at a discount of up to 20% of the market price (or such other amount as permitted
by law) at the date of invitation to join the plan
z Invitations are normally issued annually at the discretion of the Remuneration Committee, which
also has discretion to set the minimum service requirement, maximum discount, maximum
monthly savings and any other limits (such as scaling back) within the terms of the scheme rules
z Maximum participation limits are set by the UK tax authorities. Currently the maximum limit is
savings of £500 per month
z None
Maximum
opportunity
Performance
metrics
75
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Non-Executive Directors
FEES
Purpose and link to
strategic objectives
z To attract and retain a high calibre Chairman and Non-Executive Directors by offering competitive
fee levels
Operation
z Fees for the Chairman and Non-Executive Directors are set by the Board. No Director participates
in any decision relating to his or her own remuneration
z The Chairman is paid an all-inclusive fee for all Board responsibilities
z The Non-Executive Directors receive a basic fee, with supplemental fees for additional Board
responsibilities
z The level of fee reflects the size and complexity of the role and the time commitment
z Fees are reviewed annually and increased in line with the Company-wide increase. In addition,
there will be a periodic review against market rates and taking into account time commitment
and any change in size, scale or complexity of the business
z Flexibility is retained to increase fee levels in certain circumstances, for example, if required to
recruit a new Chairman or Non-Executive Director of the appropriate calibre
z With the exception of colleague discount, no benefits are paid to the Chairman or the Non-
Executive Directors, and they do not participate in any incentive scheme
Maximum
opportunity
z Maximum fees to be paid by way of fees to the Non-Executive Directors are set out in the
Company’s Articles of Association
z Fees paid to each Director are disclosed in the Annual Report on Implementation
Performance
metrics
z None
The Committee reserves the right to make any remuneration
payments and payments for loss of office notwithstanding
that they are not in line with the policy, where the terms of the
payment were agreed (i) before the policy came into effect or
(ii) at a time when the relevant individual was not a Director
of the Company and, in the opinion of the Committee, the
payment was not in consideration for the individual becoming
a Director of the Company. For these purposes ‘payments’
includes the Committee satisfying awards of variable
remuneration, and in relation to an award over shares, the
terms of payment are ‘agreed’ at the time the award is
granted. This includes the satisfaction of the Joining Award
granted to Keith Down on 7 December 2015 to compensate
him for deferred shares earned with his previous employer
which were forfeited when he resigned.
The Committee may also make minor changes to this policy
which do not have a material advantage to Directors, to aid
its operation or implementation without seeking shareholder
approval, but taking into account the interests
of shareholders.
Performance measures and how
targets are set
The Remuneration Committee selects performance measures
that it believes are:
z Aligned with the Group’s strategic goals
z Unambiguous and easy to calculate
z Transparent to Directors and shareholders
Annual bonus
For the financial year 2018/19, 80% of the annual bonus is
linked to PBT and 20% to personal and strategic objectives.
Each Director’s annual bonus is therefore linked primarily to
delivery of Group financial performance, but also to personal
performance and contribution to the strategic progress
of the Group. The PBT target is set by the Remuneration
Committee each year, taking into account market consensus
and broker expectations. Personal and strategic objectives
are set at the commencement of the year and assessed by the
Remuneration Committee.
76
corporate.dunelm.com Stock code: DNLM The Committee reserves the right to adjust the financial
performance target or change the performance condition
if justified by the circumstances, for example if there was a
major capital transaction.
For future years, the Committee will determine the financial
measures and the weighting of financial and non-financial
measures based on specific business priorities in a
particular year.
LTIP
The EPS target for the LTIP is based on growth in fully diluted
EPS compared to the increase in the Index of Retail Prices
(RPI) over each performance period. The targets that apply to
awards are set out in the Policy table on page 74.
The Remuneration Committee considered the use of EPS
as a performance measure carefully when the Company
was floated in 2006, and has discussed it with shareholders
regularly. EPS is believed to be closely aligned to the
drivers of growth for the business and in the long term, EPS
performance is expected to be reflected in shareholder
value. EPS is a more suitable performance measure for
Dunelm than for many other companies and it is therefore
considered appropriate to use it as a single measure for the
LTIP. The use of EPS as a primary measure for Dunelm’s LTIP is
considered appropriate because of the low level of leverage
in the business and because the capital expenditure controls
exercised by the Board are sufficiently rigorous to avoid EPS
accretion by means of ineffective investment of capital.
The number of shares comprised in an award or the
performance target which applies may be adjusted by the
Remuneration Committee in accordance with the plan rules
if justified by the circumstances, for example, if there were a
major capital transaction. Any amendment and the reason for
it would be fully disclosed. A copy of the plan rules is available
from the Company Secretary on request.
Illustrative performance scenarios
The following graphs set out what Will Adderley and Nick
Wilkinson, the Executive Directors in office at the date of this
report, could earn in the financial year 2018/19 under the
following scenarios:
Nick Wilkinson
Will Adderley
£2,595k
47%
28%
'
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
'
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
£676k
£440k
£1,668k
41%
18%
100%
41%
26%
£21k
£21k
£21k
Minimum
In line with
expectations
Maximum
Minimum
Minimum
In line with
In line with
expectations
expectations
Maximum
Maximum
LTIP
Annual bonus
Fixed pay
The following assumptions have been made in respect of the
scenarios above:
Minimum (performance below threshold) – Fixed pay
(comprising base salary, benefits and pension) only with no
vesting under the annual cash bonus or LTIP (see table below).
Base
(last known
salary)
£’000
Benefits
(as in single
figure table)
£’000
Pension
(10% of
last known
salary)
£’000
Will Adderley
Nick Wilkinson
—
591
21
31
—
541
1 10% of salary reflecting pension provision for 2018/19
77
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance
Remuneration Report
CONTINUED
In line with expectations – Fixed pay plus annual cash bonus
at on-target performance of 40% of maximum opportunity
(i.e. 50% of salary) and vesting of 59% of the award of shares
under the LTIP.
Maximum performance – Fixed pay plus 100% of maximum
annual bonus opportunity (i.e. 125% of salary) and 100% of
shares vesting under the LTIP.
Please note that two-thirds of performance pay earned by
Nick Wilkinson (after payment of tax and National Insurance
liability) must be invested in Dunelm shares pursuant to the
‘Lifetime Lock-in’.
Will Adderley has requested that his annual salary be
maintained at £1 per annum, and he has waived his
entitlement to receive an LTIP award.
It should be noted that the illustrative performance number
is likely to be different to the actual pay that is earned by Nick
Wilkinson during the year:
Clawback may be operated at the discretion of the
Remuneration Committee against all variable awards in the
above circumstances, for up to three years from payment or
vesting as appropriate; and in cases of fraud the Committee
can apply malus and clawback for an unlimited period of time.
In recent years, it has become best practice for malus and
clawback to apply in a wider set of circumstances. Therefore,
in respect of bonus and LTIP awards made from the date of
this report onwards, the Remuneration Committee will have
discretion to apply malus and clawback as stated above in the
following circumstances:
z a material misstatement of any Group company’s
financial results;
z a material error in assessing a performance condition
applicable to the award or in the information or
assumptions on which the award was granted or vests:
z a material failure of risk management in any Group
company or a relevant business unit
z Actual pay will reflect Company and personal performance
z serious reputational damage to any Group company or
over the relevant performance period
a relevant business unit
z We are required to show the value of the LTIP awards that
are expected to be made in the year, not those which will
actually vest. This valuation is based on the expected face
value at the date of grant without making any assumptions
for share price growth, and assuming that the award vests
in full at the end of the three year performance period. The
value of the LTIP award to be made is based on the grant
to Nick Wilkinson of an award over shares to the value of
200% of salary
z No adjustment is made for payment of special dividend
equivalents as the level of these cannot be determined at
the date of this report
Recovery
There is provision for recovery of variable pay, as highlighted
in the policy table.
For bonus and LTIP awards made prior to the date of this
report, at the discretion of the Remuneration Committee,
recovery (malus) may be made against any unpaid cash bonus
or unvested LTIP options in the following circumstances:
z performance to which a bonus or LTIP award relates
proves to have been misstated or
z there has been a miscalculation in the extent to which
performance conditions have been met in respect of
previous awards made to the individual that have vested
and been exercised or
z there has been gross misconduct on the part of
the individual
z serious misconduct or material error on the part of
the Participant
z a material corporate failure as determined by the Board; or
z any other circumstances which the Committee in its
discretion considers to be similar in their nature or effect to
those set out above
Salary, pension, benefits and Sharesave options are not
subject to recovery.
Service contracts and loss
of office payments
All of the Executive Directors have service contracts. The
notice period for termination for Will Adderley is 12 months
from either party, and for Nick Wilkinson (and Laura Carr when
she joins) is six months from either party. If the Company
terminates the employment of the Executive Director it
would honour its contractual commitment. Any payment of
salary on termination is contractually restricted to a maximum
of the value of salary plus benefits for the notice period. If
termination was with immediate effect, a payment in lieu of
notice may be made. The Remuneration Committee may
apply mitigation in respect of any termination payment.
The Remuneration Committee has discretion to make a
payment in respect of annual bonus, provided that it is pro-
rated to service.
78
corporate.dunelm.com Stock code: DNLM The limited circumstances in which unexercised LTIP
awards might be exercised following termination of an
Executive Director’s service contract are set out below. If
the Remuneration Committee exercises its discretion to
allow exercise of an unvested LTIP award, it may make a
cash payment in lieu of the anticipated value of the award,
calculated at the date of the payment (taking into account
prorating of the award and the extent to which performance
criteria may apply, as appropriate).
Non-Executive Directors have letters of appointment. The
term is for an initial period of three years with a provision for
termination on one month’s notice from either party, or three
months’ notice from either party in the case of Andy Harrison,
the Chairman. Letters are renewed for up to two additional
three year terms, and then renewed annually. The letter of
appointment will terminate without compensation if the
Director is not reappointed at the AGM.
The Directors’ service contracts and letters of appointment
are available for inspection by shareholders at the Company’s
registered office.
Exercise of LTIP and Sharesave options
following termination of employment
LTIP
If a participant leaves the employment of the Group, the
following provisions apply to options granted under the LTIP:
z Options that have vested but have not yet been exercised
may be exercised within six months of cessation of
employment (12 months in the case of death)
z Except in the case of dismissal for gross misconduct,
options which have not yet vested, but where the
performance period has elapsed (for example if
cessation of employment occurs during the deferral
period applicable to LTIP options granted to David Stead
(former Finance Director) from 2013 onwards), may be
exercised within six months of the relevant vesting date
(or 12 months in the case of death), to the extent that the
performance condition has been met. The Remuneration
Committee has discretion to allow earlier exercise but
would only use this in exceptional circumstances (such
as death or ill health retirement), or at its discretion for a
good leaver
z If the participant leaves the Group before an option
has vested and before the performance period has
elapsed, the option will usually lapse. Except in the case
of dismissal for gross misconduct, the Remuneration
Committee has the discretion to allow the exercise
of options for which the performance period has not
elapsed at the date of cessation of employment, within
six months of the relevant vesting date (or 12 months in
the case of death). The Remuneration Committee also
has discretion to allow earlier exercise. The Remuneration
Committee would only use this discretion in exceptional
circumstances (such as death or ill health retirement), or
at its discretion for a good leaver
z If early exercise is permitted, the Remuneration
Committee may apply an adjustment to take into
account the amount of time that has elapsed through
the performance period and the extent to which any
performance criteria have been met
In all cases, unexercised LTIP awards would be subject to
recovery (malus) in the relevant circumstances. In respect of
LTIP awards made after 1 July 2014, clawback may also apply
to vested awards.
Sharesave
If a participant leaves the Group, options granted under the
Sharesave will normally lapse, but may be exercised within
six months from the cessation of employment due to injury,
disability, retirement, or redundancy (or 12 months in the
case of death), or the employing company leaving the Group
or, provided that the option has been held for at least three
years, cessation for any other reason (apart from dismissal by
the Company).
Change of control and other
corporate events
LTIP
The following provisions apply to awards made under the
Long Term Incentive Plan in accordance with the Plan rules if
there is a change of control or winding up of the Company:
z Any vested but unexercised options may be exercised
z Any options in respect of which the performance period
has elapsed and to which the performance condition has
been applied will vest and may be exercised
z Any options in respect of which the performance period
has not elapsed may be exercised at the discretion of the
Remuneration Committee, subject to any adjustment to
take into account the amount of time that has elapsed
through the performance period and the extent to which
any performance criteria have been met
z The Executive Director may agree that his or her awards
are ‘rolled over’ into shares of the acquiring company as
an alternative
If the Company has been or will be affected by any demerger,
dividend in specie, special dividend or other transaction
which will adversely affect the current or future value of any
awards under the LTIP, the Plan rules allow the Remuneration
Committee, acting fairly and reasonably, to determine the
extent to which any awards should vest and the period within
which Options may be exercised.
A copy of the Plan rules is available from the Company
Secretary on request.
79
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Sharesave
Sharesave options may be exercised within six months
following a change of control or winding up of the Company,
using savings in the participant’s account at the date of
exercise. The participant may agree that his or her awards
are ‘rolled over’ into shares of the acquiring company as
an alternative.
If the Company has been or will be affected by a
capitalisation, rights issue, subdivision, reduction,
consolidation, special dividend or other variation in respect
of which HMRC will allow the variation of options, the Plan
rules allow the Remuneration Committee, with the consent
of HMRC, to vary the number and/or nominal value of
shares covered by an option or the option price to be varied
proportionately.
A copy of the Plan rules is available from the Company
Secretary on request.
Executive pay and the pay of
other colleagues
The principles set out on the Remuneration Strategy on page
70 are applied consistently to pay throughout the Group.
Pay for all colleagues is set at a level that is fair for the role and
responsibilities of the individual, and is designed to attract
and retain high calibre talent that is needed to deliver the
Group’s strategy, without paying too much.
The remuneration of Executive Directors is more heavily
weighted towards variable pay than other colleagues,
so that a greater part of their pay is linked to successful
delivery of strategy and aligned with shareholders. They are
also required to retain two-thirds of post-tax performance
pay in Dunelm shares to be held for the duration of
employment and beyond, and are subject to higher personal
shareholding targets.
The remuneration of colleagues below the Board reflects the
seniority of the role, market practice and the ability of the
individual to influence Company performance.
All eligible colleagues are encouraged to participate in the
Sharesave plan, which enables them to become shareholders
at a discounted rate. Participation is usually offered annually at
the maximum price discount permitted (currently 20%), at the
discretion of the Remuneration Committee.
In setting the policy for the Executive Directors’ remuneration,
the Committee takes note of the overall approach to
remuneration in the Group. In previous years, the Committee
had formal oversight of the remuneration of Executive Board
members. In accordance with the Government’s corporate
governance reform:
z From June 2018 the Committee has formally approved the
remuneration of the Company Secretary and all members
of the Executive Board
z From October 2018, in at least one of her twice yearly
Board updates, the People Director will provide
information about workforce policies and practices
The base salary of Executive Directors may be increased
annually in line with the Company-wide award unless other
circumstances apply, as set out in the policy table.
The Committee does not formally consult with colleagues
specifically in relation to executive pay. However, through the
new processes introduced in the financial year, members of
the National Colleague Council have the opportunity to raise
any concerns directly with Marion Sears, the Non-Executive
Director who has been designated to consider colleague
views. Marion attends two National Colleague Council
meetings each year and Council members are also invited
annually to attend a Board meeting. Colleagues may also raise
any concerns via the People Director, or anonymously through
our engagement survey. To date, executive pay has not been
raised as a concern.
Shareholder views
The Board is committed to ongoing engagement with
shareholders in respect of all governance matters, including
executive remuneration.
In addition to this, the Company holds a Corporate
Governance Day, usually every two years, hosted by the
Chairman, the Deputy Chairman and the other Non-Executive
Directors, to which all major shareholders are invited. This
enables both parties to discuss governance topics informally,
including remuneration. In addition, the Chairman and
Non-Executive Directors usually attend results presentations
and a selection of shareholder meetings. The last Corporate
Governance Day was in January 2018, and a copy of the
presentation is on our website corporate.dunelm.com.
Formal feedback on shareholder views is given to the Board
twice per annum by the Company’s brokers and financial
public relations advisers. The AGM reports issued by the
Investment Association (IA), the Pension and Lifetime Savings
Association, ISS and Pensions Investment Research Council
(PIRC) are also considered by the Board.
All Directors usually attend the Annual General Meeting, and
the Chairman and the Chair of the Remuneration Committee
may be contacted via the Company Secretary during the year.
If any significant change to policy were proposed, the
Committee would consult with major shareholders in
advance. Shareholders were consulted prior to putting
forward both the 2015 Policy and the 2017 Policy for approval.
80
corporate.dunelm.com Stock code: DNLM Approach to recruitment remuneration
The Remuneration Committee will apply the principles set
out below when agreeing a remuneration package for a
new Director (whether an external candidate or an internal
promotion). These have been applied in the recruitment of
Nick Wilkinson who joined the Board on 1 February 2018
and of Laura Carr who will join on 29 November 2018.
Further details of their remuneration are set out in the
Implementation Report.
z The package must be sufficient to attract and retain the
high calibre talent necessary to develop and deliver the
Company’s strategy
z No more should be paid than is necessary
z Notwithstanding the approved policy, the maximum
pension entitlement (or cash allowance) for a newly
appointed Executive Director will be 10% of salary
z Remuneration should be in line with the policy
approved by shareholders set out above; however, the
Committee reserves the discretion to make appropriate
remuneration decisions outside the standard policy to
meet the individual needs of the recruitment provided the
Committee believes the relevant decisions are in the best
interests of the Company
These circumstances might include:
z Where an interim appointment is made on a short term
basis, including where the Chairman or another Non-
Executive Director has to assume an executive position
z Where employment commences at a time in the year when
it is inappropriate to provide a bonus or share incentive
award as there is insufficient time to assess performance,
the quantum for the subsequent year might be increased
proportionately instead
z An executive is recruited from a business or location
that offered benefits that the Committee considers it
appropriate to ‘buy out’ but cannot do so under the
specific terms of the Regulations, or which the Committee
considers it appropriate to offer
Examples of remuneration decisions that the Committee may
make are set out below:
z It may be appropriate to offer a lower salary initially, with
a series of increases to reach the desired salary over a
period of time, subject to performance
z A longer notice period of up to a maximum of 24 months
might be offered, reducing by one month for every month
served until the policy position is reached
z The Committee may also alter the performance criteria
applicable to the initial annual bonus or LTIP award so
that they are more applicable to the circumstances of
the recruitment
z An internal candidate would be able to retain any
outstanding variable pay awarded in respect of their
previous role that pays out in accordance with its terms
of grant
z Appropriate costs and support will be provided if the
recruitment requires the relocation of the individual
The maximum level of variable pay that could be awarded
to a new Executive Director in the first year of employment,
excluding any buyout arrangements, would normally be
in line with the policy table set out on pages 72 to 76. The
Committee would explain the rationale for the remuneration
package in the next annual report of the Company.
In addition, on hiring an external candidate the Committee
may make arrangements to buy out remuneration that the
individual has forfeited on leaving a previous employer. The
Committee will generally seek to structure buyout awards
and payments on a comparable basis to remuneration
arrangements forfeited. These awards or payments are
excluded from the maximum level of variable pay referred
to in the policy tables; however, the Committee’s intention is
that the value awarded or paid would be no higher than the
expected value of the forfeited arrangements.
In order to implement the arrangements described, the
Committee may rely on the exemption in Listing Rule 9.4.2,
which allows for the grant of share or share option awards
to facilitate, in unusual circumstances, the recruitment of
a Director.
The Committee does not intend to use any discretion in
this section to make a non-performance related incentive
payment (for example a ‘golden hello’).
On the appointment of a new Chairman the fee will be
set taking into account the experience and calibre of the
individual and pay for similar roles in companies of similar
size and complexity in the market. All other Non-Executive
Directors receive the same base and Committee chair fees,
which are set at median or below. No share incentives or
performance related incentives would be offered.
81
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Annual Report on Implementation
This section of the report sets out how the Directors’ Remuneration Policy which was approved by shareholders on
21 November 2017 has been applied in the financial year being reported on.
Committee membership and meetings
The following Directors served on the Remuneration Committee during the year:
Table 1 – Committee membership
MEMBER
William Reeve (Chair from 22 November 2017)
Liz Doherty
Andy Harrison
Peter Ruis
Rachel Osborne
PERIOD FROM:
1 July 2015
1 May 2013
1 September 2014
10 September 2015
TO:
To date
To date
To date
To date
1 April 2018
28 August 2018
Simon Emeny (Chair until his retirement on 21 November 2017)
25 June 2007
21 November 2017
The Company Secretary acts as secretary to the Committee.
Six meetings were held in the year and members’ attendance was as shown in the table below.
Table 2 – Attendance at Committee meetings
MEMBER
William Reeve (Chair)
Liz Doherty*
Andy Harrison
Peter Ruis
Rachel Osborne
Simon Emeny
MEETINGS ATTENDED:
6/6
5/6
6/6
6/6
2/2
2/2
* Liz Doherty received the papers and fed back comments to the Committee Chair in advance of the meeting
No Director ever participates when his or her own remuneration is discussed.
Advisers
The Committee uses Deloitte for general advice in relation to executive remuneration on an ad hoc basis. Deloitte is a member
of the Remuneration Consultants’ Group and as such voluntarily operates under a code of conduct in relation to executive
remuneration consulting in the UK. Deloitte does not have any other ongoing business relationship with the Group. The
Committee is satisfied that the advice that they have received from Deloitte in the year has been objective and independent.
Total fees paid to Deloitte for remuneration related work in the year were £8,150 (2017: £10,780).
The Chief Executive Officer attends Committee meetings by invitation to make recommendations as to the remuneration
payable to below Board executives. The People Director attends all meetings by invitation to advise on remuneration related
issues and provide details of the remuneration applied throughout the Group so that a consistent approach can be adopted.
82
corporate.dunelm.com Stock code: DNLM Single figure for total remuneration (audited information)
The following table sets out total remuneration for Directors for the period ended 30 June 2018:
Table 3 – Directors’ remuneration – single figure table
Salary/fees6
£’000
Benefits3
£’000
Bonus4,7
£’000
LTIP awards2
£’000
Pension5
£’000
Total
£’000
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Director
Executive
Nick Wilkinson
Keith Down1,2
Will Adderley
221
327
—
—
357
—
John Browett1,2
347
510
Non-Executive
Andy Harrison
208
204
Marion Sears
Liz Doherty1
William Reeve1
Peter Ruis
Rachel Osborne1
Simon Emeny1
50
64
56
50
12
26
49
55
49
49
—
61
28
20
21
13
—
—
—
—
—
—
—
—
37
21
21
21
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62
—
89
—
—
—
—
—
—
—
—
172
—
66
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
49
—
69
—
—
—
—
—
—
—
—
54
—
102
308
568
21
429
—
560
21
722
—
—
—
—
—
—
—
208
204
50
64
56
50
12
26
49
55
49
49
—
61
Total
1,361
1,334
82
63
37
151
172
66
140
156
1,792
1,770
1
John Browett stepped down from the Board on 29 August 2017, Simon Emeny retired on 21 November 2017 and Keith Down stepped down from the
Board on 24 May 2018. Rachel Osborne joined the Board on 1 April 2018. Liz Doherty was appointed the Senior Independent Director and William
Reeve was appointed Chair of the Remuneration Committee on 22 November 2017. Basic salary / fee, SID fees and Committee Chair fees for Simon
Emeny, Rachel Osborne, Liz Doherty and William Reeve, and salary, pension and benefits for John Browett and Keith Down are pro rated over the year.
The total figure for John Browett includes £322,120 in respect of salary and benefits paid for his six month notice period.
2 As John Browett and Keith Down stepped down during the year neither of them qualified for bonus in respect of FY18 and all LTIP and Sharesave
options have lapsed. The sum for 2018 LTIP paid to Keith Down relates to the second tranche of his Joining Award over 26,488 shares which was
exercised on 19 September 2017. The closing mid market share price of Dunelm shares on vesting date (15 September 2017) was 650p.
3 Benefits include the cost to the Company of a car allowance and private health insurance for the individual and their family. Nick Wilkinson is also
entitled to an allowance of 5% of his annual salary towards the cost of travel from home to Leicester; and a relocation allowance of £50,000, partially
in the form of Dunelm store credit, plus a contribution of £1,500 per month towards the cost of temporary accommodation for the first 12 months of
employment.
4 Annual bonus is the amount earned in respect of FY18. Details of how this was calculated are set out below.
5 Pension is 20% of salary for John Browett, 15% of base salary for Keith Down and 10% for Nick Wilkinson. Will Adderley waived his entitlement to
pension from 1 July 2015.
6 From 1 July 2018, Nick Wilkinson’s base salary was increased by 2%, in line with the Company-wide award for monthly paid colleagues. Will Adderley’s
base salary is held at £1 per annum. The fee for the Chairman and the base fee for the other Non-Executive Directors, the SID fee and the Committee
fees were also increased by 2%.
7 Nick Wilkinson was awarded an annual performance-related cash bonus for FY18 with a maximum potential payment of 125% of salary. The
performance conditions which applied to the bonus were those set in September 2017 for Keith Down (this was prior to Nick’s appointment on 1
February 2018). The performance condition was linked to PBT versus budget (80%), and performance against personal and strategic objectives
(20%). Although not exercised this year, the Committee has the ability to apply judgement to increase or decrease the amount payable by
application of the formula, although no more than the maximum potential opportunity would be paid. Will Adderley has asked that he not be
considered for a bonus award.
83
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Financial target – 80% of bonus opportunity
For the period ended 30 June 2018, budget PBT was £125.0m, pre-exceptional items of £7.0m. The financial target set was
such that no bonus would be paid until PBT reached £118.75m and maximum bonus would be paid at £131.25m. Between
those numbers, bonus would be payable calculated on a straight-line basis. Market consensus for 2017–18 PBT at the date
the target was set in early September 2017 was £121.9m. In considering performance against targets for the purposes of the
annual bonus, the Remuneration Committee has decided that PBT pre budgeted exceptional items should apply. However, this
made no difference to the overall bonus outcome in 2017/18.
PBT for 2017–18 was £93.1m, and pre exceptional items was £102.0m. There was no payment in respect of this PBT element of
the bonus.
Strategic and personal objectives – 20% of bonus opportunity
Assessment was made by reference to personal performance and implementation of strategy as a whole, including progress
against the eight Business Plans agreed by the Board in May 2017 and set out in last year’s annual report, as well as a number of
specific measurable objectives. Performance against these specific objectives was assessed as follows:
TARGET
PERFORMANCE
Combine Dunelm and Worldstores into one business
Achieved
Integrate worldstores.com and Dunelm.com to one website
Progress made – completion expected February 2019
Open 10 new stores (2 relocations) and 10 refits, hitting
financial targets
Achieved
Improve colleague engagement score
Achieved
Launch instore ordering with meaningful sales
Progress made, completion expected October 2019
Launch click & collect service with meaningful sales
Progress made, completion expected February 2019
Taking all of the above into account, it was determined that 67% (2017: 70%) of this element of the bonus had been earned,
giving rise to a payment of £36,879 to Nick Wilkinson (2017: £nil), pro-rated to service during the year. As John Browett and
Keith Down stepped down from the Board during the year, neither was entitled to a bonus payment. Will Adderley has asked
not to be considered for bonus entitlement.
Total bonus earned is set out in the table below:
Table 4 – Annual bonus earned in respect of 2017–18 performance
Bonus
awarded
£
Percentage
of maximum
award
£36,879
13.3%
Nil
Nil
—
N/A
N/A
N/A
Nick Wilkinson
John Browett
Keith Down
Will Adderley (waived entitlement)
84
corporate.dunelm.com Stock code: DNLM LTIP – awards earned in respect of performance in 2016–18
The only LTIP award which is due to mature in respect of 2016–18 performance is that granted to the former Chief Financial
Officer, David Stead in 2015, who retired on 31 December 2015. The Remuneration Committee determined that as a ‘good
leaver’, David would be entitled to receive part of this award, subject to performance criteria, and pro-rated by time served over
the performance period (the three financial years ended 30 June 2018). In the case of the award maturing on 15 October 2018,
and exercisable from 15 October 2020, this would equate to a maximum of 7,350 shares. The performance criteria applicable
to this award was based on growth in fully diluted EPS over the performance period. For further information please see the
policy report on page 74.
Over the three year performance period which ended on 30 June 2018, reported fully diluted EPS declined at a compound
annual rate of -5.4%. This is 8.2% below the compound annual growth in RPI over the same period. Accordingly, the award
granted to David Stead in October 2015 will lapse.
Table 5 – LTIP awards earned in respect of performance in 2016–18
David Stead
Shares
vesting
Percentage
of maximum
award
0
0%
Will Adderley waived his entitlement to receive an LTIP award in 2015. Awards granted to John Browett and Keith Down
have lapsed.
85
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance
Remuneration Report
CONTINUED
LTIP awards made to Directors during 2017–18
LTIP awards were made on 18 October 2017 to Keith Down, and on 28 February 2018 to Nick Wilkinson as set out below. Keith
Down stepped down from the Board on 24 May 2018, his award has lapsed.
Table 6 – LTIP awards made to Directors during 2017–18
Name
Award
Nick
Wilkinson
Nil cost
option
under
LTIP
Number
of shares
Face value
at date of
award
Performance condition
Performance
period
Vesting date
% vesting
at
threshold
performance
July 2017 to
June 2020
28 February
2021
10%
110,000
£642,4001 Growth in fully diluted EPS over
the three year performance
period compared with growth
in the index of retail prices (RPI)
over the same period.
No part of the award will vest
until compound annual EPS
growth exceeds RPI growth
by 3%.
10% of the award vests when
compound annual growth in EPS
exceeds RPI growth by 3%.
100% of the award vests when
compound annual growth in EPS
exceeds RPI by 15%. Between
those figures the award will vest
on a straight-line basis.
Two-thirds of shares vesting
(after payment of tax and
National Insurance) must
be held for the duration of
employment, and 50% of these
retained for two years following
termination
Keith Down
Nil cost
option
under
LTIP
60,000
£451,5002 As for Nick Wilkinson
July 2017 to
June 2020
Lapsed
0%
1 Based on the closing share price on 28 February 2018 of 584.0p per share.
2 Based on the closing share price on 17 October 2017 of 752.5p per share.
Joining award made to Keith Down in 2015
Following approval by shareholders at the AGM on 24 November 2015, and as noted in the 2016 annual report, a joining award
was made to Keith Down on 7 December 2015 over 33,958 shares in the form of a nil cost option, under the terms of the Share
Award Agreement approved by shareholders on 24 November 2015. The market value of the award was £335,000 based on
the closing share price on 4 December 2015, of 986.5p per share. 7,470 (22%) of these shares vested on 15 September 2016,
and 26,488 (78%) of these shares vested on 15 September 2017.
86
corporate.dunelm.com Stock code: DNLM Payments to past Directors and for loss of office (audited)
David Stead
David Stead retired from the Board on 31 December 2015. David received his salary, benefits and pension allowance as usual
until his leaving date of 31 December 2015, at the rate set out in the Annual Report for 2014/15.
At 31 December 2015, David had three outstanding awards under the LTIP:
Table 7 – David Stead’s LTIP awards at his retirement date (31 December 2015):
Award
date
Performance
period
Normal
vesting date
No. of shares
7 October 2013
9 October 2014
FY14–FY16
7 October 2018*
FY15–FY17
9 October 2019*
15 October 2015
FY16–FY18
15 October 2020*
49,216
53,922
44,592
* Includes two year holding period following the end of the three year performance period.
No. of shares
pro-rated to
31 December
2015
No. of shares to
vest after applying
performance
condition
40,976
27,035
7,350
18,029
Nil
n/a
The Remuneration Committee determined that as a ‘good
leaver’ with 12 years’ service during a time of substantial
growth in shareholder value, David may exercise the above
awards, subject to time pro-rating, and after applying the
applicable performance criteria over the full performance
period. The maximum possible vesting, if performance
conditions are fully met, is set out in the table above (column
headed “No. of shares pro-rated to 31 December 2015”).
The awards may be exercised within six months of the normal
vesting date specified above.
The above arrangements are fully in line with the
Remuneration Policy approved at the AGM in November
2015. The LTIP award made to David Stead in October 2015
was disclosed in the 2015 and 2016 remuneration reports
which were approved by shareholders. The Remuneration
Committee’s decision reflects the service provided by
David over the financial years covered by the applicable
performance periods and has been pro-rated according to
that service over those periods.
No further payments have been or are being made to
David Stead in respect of loss of office or the termination of
his employment.
Having retired on 31 December 2015, on 16 April 2018, at the
request of the Board, David Stead entered into a new short-
term service contract with the Company to provide interim
support to on a part time basis pending the appointment
of a permanent CFO to replace Keith Down. David was not
appointed as a director of Dunelm Group plc or any other
Group company. Details of payments made to David in the
year can be found in Note 26 to the Financial Statements.
John Browett
John Browett resigned from his position as Chief Executive
Officer and stepped down from the Board on 29 August
2017. In accordance with the Dunelm Remuneration Policy
approved on 24 November 2015 (which was current at that
date), and in line with his contractual arrangements John was
paid salary, pension and benefits to date of termination of
his employment at the rates set out in Dunelm’s 2017 Annual
Report and Accounts, and £322,120 in respect of salary,
pension and benefits for the six month notice period under
his service contract. This was paid in six monthly instalments
on the last day of the month, commencing 31 October
2017. John also received a payment of £89,250 in respect of
bonus earned for the financial year to 1 July 2017, following
application of performance criteria. This was paid on
31 October 2017.
Payment of bonus earned in respect of the financial year to
1 July 2017 was considered to be fair and reasonable given
that John was Chief Executive Officer for the period to which
this payment relates. No bonus was paid in relation to the
period of his employment during the financial year to 30 June
2018 and all options granted under the Long Term Incentive
Plan and the Sharesave Plan lapsed. The arrangements set
out above were considered carefully by the Remuneration
Committee in consultation with its advisors and reflect the fact
that John was a “good leaver”.
No further payments have been or are being made to
John Browett in respect of loss of office or the termination of
his employment.
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DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Simon Emeny
Having completed 10 years’ service on the Board, Simon
Emeny retired from his position as Senior Independent
Director and Chair of the Remuneration Committee and
stepped down from the Board on 21 November 2017.
Simon continued to receive a fee for his role on the Board
up to and including 21 November 2017 at the rate set out
in Dunelm’s 2017 Annual Report and Accounts. He did not
receive any payment in lieu of notice or for loss of office. As
a Non-Executive Director, Simon Emeny was not entitled to
participate in the Company’s bonus, employee share plans or
pension arrangements and no further payments have been or
are being made to Simon Emeny in respect of loss of office or
the termination of his employment.
Keith Down
Keith Down resigned from his position as Chief Financial
Officer and stepped down from the Board on 24 May 2018.
He was paid salary, pension and benefits to that date at the
rate set out in Dunelm’s 2017 Annual Report and Accounts.
He did not receive any payment in lieu of notice or for loss
of office. As Keith left the Company during the financial year,
he has no entitlement to bonus in respect of the financial
year, and all options under the Long Term Incentive Plan and
Sharesave scheme have lapsed. No further payments have
been or are being made to Keith Down in respect of loss of
office or the termination of his employment.
Statement of Directors’
share interests (audited)
Executive Directors are subject to a shareholding target
which requires them to build a beneficial holding of Dunelm
shares with a value of 1× salary after three years and 2× salary
after five years (measured by reference to share price at the
financial year end). In addition, they are required to make
a personal investment in Dunelm shares on appointment
(subject to Company close periods); and to invest two-thirds
of any annual bonus paid and LTIP awards earned (after
payment of tax and national insurance liability on exercise) in
Dunelm shares.
Will Adderley complies with this requirement at the financial
year end.
Nick Wilkinson was appointed on 1 February 2018.
Table 8 and Table 9 show the interests of the Directors in
shares of the Company at 30 June 2018.
Table 8 – Directors’ beneficial shareholdings
(audited)
Will Adderley
Andy Harrison
Marion Sears
Nick Wilkinson
William Reeve
Liz Doherty
Peter Ruis
Rachel Osborne
At 30 June
2018
1p Ordinary
Shares
At 1 July
2017
1p Ordinary
Shares
54,161,779
54,161,779
416,480
105,000
38,855
12,500
2,500
—
—
202,932
105,000
—
7,000
2,500
—
—
88
corporate.dunelm.com Stock code: DNLM Between the financial year end and the date of this report Directors have purchased shares as follows:
Director
Nick Wilkinson
Date of
purchase No. purchased
Price
Total beneficial
holding
following
purchase
20 July 2018
48,876
508.95
87,731
Table 9 – Directors’ interests in options at the period end (audited)
Director
Will Adderley
Nick Wilkinson
Date of
award
Nature of
award
Share
options at
30 June
2018
End of
performance
period
—
—
Nil
—
Feb 2018
2018–20 LTIP
110,000
June 2020
Option
price
Market price
of shares at
date of award
—
Nil
—
584.0p
The LTIP award above granted to Nick Wilkinson is subject to the performance condition noted in Table 6 above.
Share options and dilution
The Remuneration Committee considers the provisions of the Investment Association’s Guidelines on Executive Remuneration
when determining the number of shares over which share scheme incentive awards may be made. At the date of this report,
over the last 10 year period options have been granted over 0.6% of the Company’s issued share capital (adjusted for share
issuance and cancellation). The Group does not hold any shares in an employee benefit trust.
Service contracts
In accordance with the Group’s policy, the service contracts of the Executive Directors have no fixed term, the notice period
for termination is 12 months from either party for Will Adderley, and six months for Nick Wilkinson. Service contracts for the
executives include a non-compete arrangement. Payments on termination are restricted to a maximum of the value of base
salary and benefits for the notice period. The Remuneration Committee may apply mitigation in respect of any termination
payment.
The Non-Executive Directors have letters of appointment for an initial period of three years with a provision for termination of
one month’s notice from either party, or three months’ notice from either party in the case of Andy Harrison, the Chairman.
Table 10 – Directors’ service contracts
Will Adderley
Nick Wilkinson
Marion Sears
Liz Doherty
Andy Harrison
William Reeve
Peter Ruis
Start Date
under contract
Unexpired
term
Notice
period
28 September 2006
1 February 2018
n/a
n/a
12 months
6 months
22 July 2004
10 months
1 May 2013
7 months
1 month
1 month
1 September 2014
23 months
3 months
1 July 2015
33 months
10 September 2015
36 months
1 month
1 month
Since Marion Sears has now served 14 years on the Board (12 of which are post flotation of the Company in 2006), her contract
is renewed for one year terms (rather than three), with the notice period referred to above.
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DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance
Remuneration Report
CONTINUED
Relative TSR performance
The graph below shows the Group’s performance over nine years, measured by total shareholder return, compared with the
FTSE General Retail Index and the FTSE 250. The Remuneration Committee has chosen these indices for comparison because
they provide a range of comparator companies which have similar market capitalisation, which are in the same sector and
which face similar market and economic challenges in the long term.
Table 11 – Total shareholder return performance graph (rebased to 2 July 2009 = 100)
The shares traded in the range 505.0p to 753.5p during the year and stood at 505.0p at 30 June 2018.
Dunelm
FTSE 250
FTSE 350
Retail
700
650
600
550
500
450
400
350
300
250
200
150
100
July 10
July 11
June 12
June 13
June 14
June 15
June 16
June 17
June 18
250.8%
253.9%
65.4%
)
l
m
e
n
u
D
o
t
d
e
s
a
b
e
r
(
e
c
i
r
p
e
r
a
h
S
90
corporate.dunelm.com Stock code: DNLM
Table 12 – Historic Chief Executive Officer pay
The table below sets out the prescribed remuneration data for each of the individuals undertaking the role of Chief Executive
Officer during each of the last nine financial years:
CEO Single
figure of total
remuneration
£’000
Annual bonus payment
against maximum
opportunity
%
Long term incentive vesting
rates against maximum
opportunity
%
FY17/18
FY17/18
FY16/17
FY15/16
FY15/16
FY14/15
FY14/15
FY13/14
FY12/13
FY11/12
FY10/11
FY10/11
FY09/10
Nick Wilkinson5
John Browett5
John Browett
John Browett1
Will Adderley1
Will Adderley2
Nick Wharton2
Nick Wharton3
Nick Wharton
Nick Wharton
Nick Wharton4
Will Adderley4
Will Adderley
308
429
722
489
10
507
110
1,509
1,292
853
429
1,413
1,366
13.3%
n/a
14.0%
57.7%
n/a
5%
n/a
22.5%
97.0%
100.0%
6.0%
4.0%
100.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
77.5%
86.7%
n/a
n/a
100.0%
100.0%
1 Will Adderley was succeeded by John Browett as Chief Executive Officer on 1 January 2016. The data for each Director for 2015/16 is
pro-rated by time of service as Chief Executive Officer. Will Adderley’s base salary was reduced to £1 on 1 July 2015.
2 Will Adderley was reappointed Chief Executive Officer on 11 September 2014, following the resignation of Nick Wharton on 10 September 2014.
The data for each Director for 2014/15 is pro-rated by time of service as Chief Executive Officer.
3 Nick Wharton’s first LTIP award vested and was exercised in December 2013. No LTIP awards have vested to John Browett since his appointment.
4 Will Adderley was Chief Executive Officer until he was succeeded by Nick Wharton on 1 February 2011. The data for each Director for 2010/11
is pro-rated by time of service as Chief Executive Officer.
5
John Browett left the Group on 29 August 2017. He was succeeded by Nick Wilkinson on 1 February 2018. The total figure for John Browett includes
£322,120 in respect of salary and benefits paid for his six month notice period. The data for each Director for 2017/18 is pro-rated by time of
service as Chief Executive Officer.
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DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
The table below sets out the increase in total remuneration of the Chief Executive and that of our other colleagues.
Table 13 – Relative change in Chief Executive Officer pay
Chief Executive Officer2
All colleagues (per capita)
Change in
base salary
2016/17
to 2017/18
11.4%
1.8%
Change in
benefits
2016/17
to 2017/18
95.2%
11.3%
Bonus earned
as % of salary
2017/18
Bonus earned
as % of salary
2016/17
% change in
bonus earned
2016/17 to
2017/18
% change in
bonus earned
2015/16 to
2016/17
6.5%
6.0%1
17.5%
5.4%1
58.6%
101.9%
(75.3%)
(55.3%)
1 Bonus percentage has been calculated in relation to only those employees receiving a bonus in the period as this is considered a more appropriate
comparator group.
2
John Browett left the Group on 29 August 2017. Nick Wilkinson was appointed on 1 February 2018. Chief Executive Officer figures used in the above
calculation include both John Browett and Nick Wilkinson and are as per the Single Figure Table (Table 3). These therefore include £322,120 in respect
of John Browett’s salary and benefits paid for his six month notice period and one off benefits for Nick Wilkinson, and do not reflect the annual salary
increase of Nick Wilkinson on 1 July 2018 of 2% and the bonus earned for FY18 which was lower than that of his predecessor in FY17.
Table 14 – Relative spend on pay
The table below shows the all employee pay cost and returns to shareholders by way of dividends (including special dividends)
and share buyback for 2017–18 and 2016–17.
Total spend on pay
Ordinary dividend to shareholders
Distributions to shareholders via treasury share purchases
Special distributions to shareholders
Total distributions to shareholders
This information is based on the following:
2017/18
£’m
2016/17
£’m
% Increase
139.8
53.4
—
—
53.4
129.3
51.6
4.2
—
55.8
8.1%
3.7%
(100%)
n/a
(4.1%)
Total spend on pay – total employee costs excluding car allowances and bonuses from note 6 on page 126.
Dividends taken from note 9 on page 128.
Share buyback taken from Consolidated Statement of Changes in Equity on page 116.
Executive Director external Board appointments
Executive Directors are permitted to hold one external appointment as a Non-Executive Director or similar advisory or
consultative role, subject to the Board being satisfied that there is no conflict of interest and that the position will not impact
negatively on the Executive’s commitment to their Dunelm role. The Board may allow the Executive to retain any remuneration
received in respect of the appointment.
Will Adderley does not hold any external PLC Board appointments.
John Browett was a Director of Octopus Capital Limited and Octopus Investments Limited (effectively one external role) during
the period. He retained his Director fees (£7,945 pro rated to 29 August 2017).
Keith Down was a Non-Executive Director of Topps Tiles plc during the period until he stepped down on 24 May 2018. He
retained his Director fees (£39,154).
Nick Wilkinson was a trustee of Age UK. This role is unremunerated.
92
corporate.dunelm.com Stock code: DNLM
Senior Executive remuneration
The Remuneration Committee provides formal approval of the remuneration of the Company Secretary and Executive
Board members. The package for new appointments is formally presented to the Committee for approval. In conducting its
assessment of Executive Board remuneration, the Committee pays particular regard to whether any individual is incentivised to
take risks inappropriate to their role and responsibilities.
Members of the Executive Board and Senior Management Team are eligible for awards under the LTIP.
All members of senior management who receive share awards are also subject to shareholding targets as follows:
Executive Board and certain other senior Executives
1× base salary to be acquired over time
Other Executives
0.5× base salary to be acquired over time
Gender pay disclosures
At the end of March, Dunelm published its Gender Pay report. We are committed to paying men and women equally for roles
of the same size and scale. We are proud that 67% of our colleagues are female. However, in common with many other retailers,
80% of our colleagues are employed in our retail operations, and these roles tend to be lower paid. As a result, we have a
significant gap in the pay between genders (our mean gap is 17.4% and our median gap is 4.8%), very much in line with our
peers in the UK retail sector. We have made progress over the twelve months to improve, and we have more activity planned,
including the launch of an Empowering Female Leaders programme, widening our internal mentoring programme, and
looking at how we can reduce friction for women returning to work after maternity leave. We are leading by example; 33% of
our senior leadership roles are held by women, and following Laura Carr’s appointment to the Board, three of our eight Board
members, and half of our Executive Board will be female.
Engaging with our colleagues on pay
Details of how we engage with our colleagues are set out in the Corporate Governance Report.
Statement of implementation of policy in the 2018/19 financial year
Base salary, benefits and pension
Base salary and benefits for each of the Executive Directors for 2018/19 are set out in the table below:
Table 15 – Base salary, benefits and pension for 2018/19
Base
salary
Increase to
base salary
year on year
Nick Wilkinson
£540,600
2%
Laura Carr*
£365,000
N/A
Increase to
benefits
year on year
Increase to
pension
year on year
Pension
Benefits
Car allowance; travel allowance of 5% of
salary; private health insurance for the
individual and their family; permanent health
cover; life assurance; mobile phone;
colleague discount; relocation expenses
Car allowance; private health insurance
for the individual and their family;
permanent health cover; life assurance;
mobile phone; colleague discount ;
relocation expenses
N/A
£54,060
2%
N/A
£36,500
N/A
Will Adderley
£1
Nil
As above
Nil
Nil
n/a
Basic salary increase for Nick Wilkinson is in line with the Company-wide award for monthly paid colleagues of 2%.
* The pay of Laura Carr reflects the annual salary and benefits which will apply when she starts work on 29 November 2018 and has not been pro rated.
Will Adderley has asked that he not be considered for a pay increase.
93
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Remuneration Report
CONTINUED
Annual bonus
Nick Wilkinson has been awarded a bonus opportunity of up
to 125% of base salary. The performance conditions attached
to the bonus are:
80% linked to achievement of Budget PBT;
20% linked to achievement of strategic and personal targets,
aligned to the Group strategy.
The Budget PBT is set taking into account market consensus
and broker expectations. The actual financial and strategic
targets have not been disclosed at this time as they are
commercially sensitive. The targets and an assessment of the
extent to which they have been achieved will be disclosed in
next year’s remuneration report.
On her appointment, Laura Carr will be entitled to receive a
bonus of up to 125% of salary, with 80% linked to Budget PBT
and 20% to strategic and personal targets. This will be pro
rated to service over the financial year.
Nick Wilkinson and Laura Carr have committed that two-
thirds of the bonus earned (after payment of income tax and
National Insurance) will be invested in Dunelm shares, to
be held for the duration of employment, with 50% of these
shares to be retained for two years following cessation
of employment.
Will Adderley has asked that he not be considered for a
bonus award.
LTIP
An award is expected to be made to Nick Wilkinson (in
October 2018) and Laura Carr (shortly after she joins in
November 2018) under the Long Term Incentive Plan over
shares to the value of 200% and 160% of salary respectively.
The award will vest, subject to continued employment, on
the third anniversary of the grant date, to the extent that
performance conditions have been met. Two-thirds of vested
shares (after sale to cover tax and national insurance liability
on exercise) must be retained for the duration of employment,
and 50% of these must be retained for two years following
cessation of employment.
Will Adderley has asked that he not be considered for an
LTIP award.
Joining arrangements
We recruited both Nick Wilkinson and Laura Carr during
FY18. Both Directors were offered remuneration packages in
line with that of their predecessors, except that their pension
entitlement (10% of base salary) is lower, reflecting our desire
to align this better with workforce entitlement (previous
entitlements 20% for CEO and 15% for CFO).
In order to secure their services we needed to agree
certain joining arrangements. These were fully in line with
our Remuneration Policy. Dunelm has a very conservative
approach to executive remuneration with long term
commitment and alignment through shareholding
underpinning our approach. We are never happy about
making any additional payments of this nature. We
considered the proposed joining arrangements very
carefully, and took professional advice from Deloitte in
relation to each Director’s remuneration package as a whole.
In view of the strength of the Nominations Committee’s
recommendation, and the need to secure a permanent
candidate of calibre, the Committee decided that these
joining arrangements were acceptable and in the interests of
Dunelm. Details are set out below:
Nick Wilkinson
We asked Nick to relocate his family from London to
Leicester; we have therefore agreed to award Nick a travel
allowance of 5% of salary, and to pay up to £50,000 by way
of relocation costs. We have also agreed to pay a temporary
accommodation allowance of up to £1,500 per month for up
to 12 months.
We were not asked to compensate Nick for any
remuneration foregone.
Laura Carr
Laura will be financially disadvantaged by leaving her current
role after a relatively short tenure to join Dunelm. We have
also asked her to relocate her family to Leicestershire. We
have therefore agreed that we will partially compensate her.
The exact amounts have not been finalised at the date of
this report, but the maximum will be similar to the joining
arrangements put in place for her predecessor, Keith Down,
in 2015; and the majority of the payment, after deduction of
tax and national insurance, must be invested in Dunelm shares
which are subject to the “Lifetime Lock-in”. If Laura voluntarily
leaves the business or is lawfully dismissed within two years
of commencing her employment with the Company, she will
be liable to repay the gross amounts paid to her by way of
joining arrangements set out above. All payments to be made
are within our agreed Remuneration Policy, and full disclosure
will be made in the FY19 annual report.
Sharesave
An invitation will be issued in October 2018 to all eligible
employees, to apply for options to be granted under the
Sharesave scheme at a 20% discount to the closing market
price of Dunelm Group shares on the dealing day preceding
the issue of the invitation. The maximum monthly savings
will be £500 per month. Executive Directors employed at the
eligibility date may apply for Sharesave options, subject to the
plan rules.
94
corporate.dunelm.com Stock code: DNLM Non-Executive Director fees for 2018/19
Fees to be paid to Non-Executive Directors are as set out in the table below:
Table 16 – Non-Executive Director Fees
Position
Base Fee
Committee/
SID Fee
Increase in
base fee year
on year
Increase in
Committee fee
year on year
Comment
Andy Harrison
Liz Doherty
Chairman
£212,160
Nil
£50,938
£10,200
Audit and Risk
Committee Chair
Senior Independent
Director
William Reeve Non—Executive Director
£50,938
Peter Ruis
Non—Executive Director
£50,938
Marion Sears
Non—Executive Director
£50,938
£6,369
£10,200
Nil
Nil
2%
2%
2%
2%
2%
2%
n/a
2%
2%
SID fee applied from
22 November 2017
n/a Committee chair fee applied
from 22 November 2017
n/a
n/a
Base fee, Senior Independent Director (SID) fee and Committee Chair fee increases with effect from 1 July 2018 were in line
with the Company-wide increase of 2%.
Statement of shareholder voting
At the Annual General Meeting on 21 November 2018, the total number of shares in issue with voting rights (excluding treasury
shares) was 201,709,777. Details of voting on remuneration related resolutions are set out below:
Table 17 – Voting on remuneration related resolutions at the 2017 AGM
Resolution
Votes for
% of
votes cast
Votes
against
% of
votes cast
Approve 2017 Remuneration Policy
180,477,797
99.40%
1,086,936
Approve Annual Remuneration Report
180,381,216
99.64%
648,496
Approve changes to LTIP rules
180,248,756
99.28%
1,314,385
0.60%
0.36%
0.72%
Votes
withheld
115,469
650,490
117,061
% withheld
0.06%
0.36%
0.06%
Approved by the Board on 12 September 2018.
William Reeve
Chair of the Remuneration Committee
95
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Letter from the Chair of the
Nominations
Committee
Preservation of our culture has always
been a priority, as we seek to retain
the values instilled by the Adderley
family who founded the business as we
continue to grow. This year the Board
formally looked at how we monitor
culture in the “governance” sense of
how the business treats its colleagues,
customers and others, and we
have agreed a set of KPIs to help us
monitor this.
In the last two years we had an
externally facilitated Board review. This
year I conducted an internal review
based on a number of questions aimed
at improving the Board’s effectiveness
as we move forward. We agreed a
number of actions around succession
planning, diversity and meeting
effectiveness. Further details are set out
in the corporate governance report.
I look forward to meeting shareholders
at the AGM.
Yours sincerely,
Andy Harrison
Chair of the Nominations Committee
12 September 2018
Dear Shareholder
This has been a year of change for the
Board, and a particularly busy one for
the Committee, as we have recruited
three new Directors. As we are a small
and collegiate Board, we always take
great care with the appointment of any
new colleague, and so this is a very
thorough and time-consuming process.
When I wrote to you last year, we had
just started to look for a new Chief
Executive Officer. We were pleased
to welcome Nick Wilkinson to the
Board at the start of February this
year. Nick brings an excellent retail
skill-set with multi-channel experience
across a number of consumer sectors
and geographies, and is an excellent
cultural fit. The Board is confident that
Nick’s proven business leadership and
track record will help us to deliver our
ambitious plans for growth in market
share and creation of substantial value
for shareholders. Nick has instigated a
review of our “purpose” and the goals
that we have in place to achieve this,
the results of which are reflected in
this report.
In May, Keith Down, the Chief Financial
Officer, stepped down from the Board
for personal reasons, to take up a role
closer to his family home. Keith was
CFO for two and half years and I would
like to thank him and wish him well in his
next role.
We have appointed Laura Carr as
our new CFO. Laura will join us in
November. She brings a breadth of
business and finance experience,
which will really help us to achieve our
ambitious business plans to become
the leading multi-channel retailer in our
space. She will also work well with Nick
and the rest of the Executive team, and
will be a welcome addition to our Board.
David Stead, Dunelm’s former CFO, has
been our interim CFO since April, and
I am grateful to him for stepping out of
retirement and providing us with the
diligent and astute support which we
valued so much in the past.
Simon Emeny retired from the Board
at the AGM as planned. I would like
to thank Simon for his ever-relevant
challenge and useful input over a
momentous decade for both retailing
generally and Dunelm specifically.
We appointed Rachel Osborne as a
Non-Executive Director, to replace
Simon, and also strengthen the financial
expertise on our Board and Audit and
Risk Committee. Shortly after joining
us, Rachel changed her executive
role which created a competitive
conflict, and as a result decided to
step down from the Dunelm Board. I
thank Rachel for her contribution over
her short tenure. We have started the
process to appoint a successor. We
may also consider the appointment of
an additional Non-Executive Director
this coming year should a suitable
candidate become available.
Whilst we have welcomed new
Directors to the Board this year, we have
continued to benefit from the advice
and counsel offered by my other Board
colleagues, all of whom have now
served at last three years on the Board.
Two of them have taken on additional
responsibilities following Simon
Emeny’s retirement: Liz Doherty was
appointed Senior Independent Director,
and William Reeve assumed the chair of
the Remuneration Committee.
The Committee has continued to
monitor external developments,
including the increasing emphasis on
diversity and culture. When Laura joins
us in the Autumn, 37% of our Board
will be female (44% if you include the
Company Secretary). The Executive
Board will be 50% female. Whilst we
are proud of this, our gender pay gap
has shown us that there is more to do to
enable more of our female colleagues
to progress. We know that we also have
more work to do to promote diversity in
the wider sense.
96
corporate.dunelm.com Stock code: DNLM Nominations
Committee
Report
Summary of principal activities
z Appointment of Nick Wilkinson as Chief Executive Officer
in February 2018
z Appointment of Rachel Osborne as a Non-Executive
Director in April 2018
z Appointment of Laura Carr as Chief Financial Officer,
to start in November 2018
z Board now 37% female (44% including the Company
Secretary)
This report provides details of the role of the Nominations
Committee and the work it has undertaken during the year.
Principal duties
The purpose of the Committee is to assist the Board by
keeping the composition of the Board under review and
conducting a rigorous and transparent process against
objective criteria, and with due regard for the benefits of
diversity of the Board, when new appointments to the Board
are made. The full terms of reference for the Committee can
be found on the Company’s website, www.dunelm.com.
While all Board appointment processes and succession
discussions are led by the Nominations Committee, these are
viewed as important whole-Board topics and no appointment
has been or will be made to the Board without agreement of
all Directors.
Committee Membership
The following Directors served on the Committee during
the year:
MEMBER
PERIOD FROM:
TO:
Andy Harrison
(Chair)
1 September 2014
Will Adderley
17 February 2011
Liz Doherty
William Reeve
1 May 2013
1 July 2015
Peter Ruis
10 September 2015
Marion Sears
18 January 2005
To date
To date
To date
To date
To date
To date
Rachel Osborne
1 April 2018
28 August 2018
Simon Emeny
25 June 2007 21 November 2017
There were seven Committee meetings held in the year and
members’ attendance was as shown in the table below. The
Company Secretary acts as secretary to the Committee.
No Director attended that part of a meeting during which his
or her own position was discussed.
MEMBER
Andy Harrison (Chair)
Will Adderley
Liz Doherty
William Reeve
Peter Ruis
Rachel Osborne
Marion Sears
Simon Emeny
MEETINGS
ATTENDED:
7/7
7/7
7/7
7/7
7/7
1/1
7/7
3/3
Committee Activities in 2017-18
Board changes in 2017–18
We have had a number of significant Board changes during
the year, and the Nominations Committee has led the process
throughout.
We started a search process for a new Chief Executive
Officer in August 2017, after John Browett stepped down
from the Board, and we were pleased to announce the
appointment of Nick Wilkinson in December. Nick has
extensive retail experience across a number of consumer
brands, most recently as Chief Executive of Evans Cycles,
the UK’s leading cycling specialist. Previous roles included
Chief Executive of Maxeda DIY, a Belgian and Dutch home
improvement retailer; and MD of Currys, part of Dixons
Retail. Importantly, Nick is also a good cultural fit with the
Board and shares the Dunelm values. We were pleased that
Nick was able to start with us in February.
Shortly after Nick’s appointment, our Chief Financial Officer,
Keith Down, advised the Board that he wished to step down
in the summer for personal reasons, to take up a role closer to
his family home. In May, we announced the appointment of
Laura Carr, who joins us in November from Compass Group,
the FTSE 30 multinational contract food, hospitality and
support services company, where she was Group Financial
Controller. Roles prior to this include CFO of Indigo Books &
Music, Canadian listed company, and senior finance roles with
Japan Tobacco International and PriceWaterhouseCoopers
We are confident that Laura will work well with the Board and
management team.
97
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Nominations Committee Report
CONTINUED
Board evaluation
The Board held a scheduled external evaluation in 2016, and
a follow up by the same provider in 2017. In 2018 I led an
internal evaluation, based on a discussion with each Board
member focused on a number of relevant topics, followed by
a Board discussion of the output from this.
The results of the evaluation are described in the Corporate
Governance report.
Culture and values
Dunelm was founded by the Adderley family, and Will
Adderley, our Deputy Chairman, has a particular interest
and accountability for ensuring that the Dunelm culture is
preserved. Will formulated the Business Principles which
describe the Dunelm culture, these form part of induction,
appraisal and colleague communications. A key theme
running through our principles is to “do the right thing”,
whether this relates to our decisions, or how we deal with
customers, colleagues, suppliers, the community, investors,
and regulators. Our approach is also reflected in our Code of
Business Conduct, our Anti-bribery policy, our Ethical Policy
and our Tax Strategy.
In April, the Board reviewed how it sets and monitors our
business culture. Following the guidance issued by the
Financial Reporting Council in 2016, we looked at how we
have defined the Group’s purpose, vision and values, and the
business principles referred to above. We then considered
what “culture indicator” KPIs are available to give assurance
that the systems that management have in place to embed
these are working effectively. The Board has oversight
through regular agenda items, such as our risk management
procedures, regular presentations from the People Director,
and meetings with senior management and visits to stores
and other company operations. We also review a number
of “culture” KPIs regularly (customer satisfaction, employee
engagement, regulatory breaches for example). To provide
a more specific focus, we decided to draw up a “culture
scorecard” bringing all of our culture KPIs together, which is
reviewed alongside our risk register twice a year.
Finally, we appointed Rachel Osborne as a Non-Executive
Director, to replace Simon Emeny, who retired in November
2017 as planned. Whilst we were able to finalise Rachel’s
appointment in November, she was unable to join us until
April 2018 due to her other commitments. Rachel was until
recently Chief Financial Officer of Domino’s Pizza Group plc,
and is an experienced finance and strategy specialist. She is
a chartered accountant, and has held a number of finance
director and strategic planning roles with large consumer
and retail businesses, including Vodafone, John Lewis,
Sodexo, Kingfisher and Pepsi Co. Rachel resigned from the
Board on 28 August 2018, to take up an executive role with
a competitor.
We adopted a similar search process for all three directors:
the Nominations Committee drew up a detailed role and
person specification. An independent external search
consultant (MWM Consulting) was appointed to conduct
the process, and as is usual, we asked for an equal number
of male and female candidates to feature on the “long list”.
Candidates met initially with the Chairman and at least one
other Board member, and finalists met with other Board
members. Extensive references were taken, and both Nick and
Laura completed psychometric tests. Whilst the process was
led by the Committee, who made the final recommendation,
any Board appointment is regarded as a “whole Board” issue,
no appointment is made without unanimous Board support.
Board Succession Planning
For a number of years we have had a formal, long range plan
for how Board membership should develop. As usual, we
aim to balance continuity with regular refreshment of skill
and experience and the corporate governance guidance on
Chairman and Non-Executive Director tenure.
As part of our Board evaluation process, we review the
balance of skills on the Board as a whole, taking account
of the future needs of the business, and the knowledge,
experience, length of service and performance of the
Directors. In accordance with our policy, we also had regard
to the requirement to achieve a diversity of characters,
backgrounds and experiences amongst Board members.
We also have a short term / contingency plan, which we have
put into operation during the year. During the five months
between the resignation of our former Chief Executive
Officer and our new Chief Executive Officer joining us, I
provided interim leadership, supported by Will Adderley,
the Deputy Chairman, and Keith Down, the CFO. We also
have an experienced and capable Executive Board, who
were able to continue to run the business in the absence of
a permanent CEO. During the period between Keith Down
stepping down as CFO and Laura Carr joining us, members
of the CFO’s management team were able to ensure that the
Finance function continued to operate effectively. We were
also fortunate that David Stead, our former CFO, was able to
provide interim support on a part time basis.
98
corporate.dunelm.com Stock code: DNLM Details of the gender balance within the Group are set out
in the Sustainability report on page 37. The Committee is
pleased that there is a good level of gender diversity at Board,
Executive Board and senior management level (37%, 50% and
33% respectively).
In the financial year we made our first gender pay disclosures,
these are described more fully in the Remuneration Report.
This year we will also be collecting data about ethnic diversity
within our business and considering whether there is more
action needed in this area.
The Board as a whole understands the importance of
engaging our colleagues in order to deliver our strategy.
The Board has oversight of all matters relating to our People,
including diversity and the gender pay gap, and we receive
presentations from our People Director twice a year. In
addition, Marion Sears is our “Designated NED” for colleague
matters, and in November the Board will receive its first
presentation from the National Colleague Council.
Diversity and gender pay
In 2011 we set out the Board’s policy on diversity which
we believe remains appropriate for Dunelm. It can be
summarised as follows:
z Our overriding concern is to ensure the Board comprises
outstanding individuals who can lead the Group, and
we believe the Group’s best interests are served by
ensuring that these individuals represent a range of skills,
experiences, backgrounds and perspectives, including
gender. Naturally it is our policy is that the Board should
always be of mixed gender
z We support the objective of promoting diversity on our
Board and throughout the Group. Quotas are a blunt
instrument but they do bring focus, as well as the risk of
compromised decisions on Board membership, quality
and size, particularly with a small and collegiate Board
z We shall continue to ensure that specific effort is made to
bring forward female candidates for Board appointments
z We will monitor the Group’s approach to people
development to ensure that it continues to enable talented
individuals, regardless of gender and background, to enjoy
career progression within Dunelm
Tenure and Re-election of Directors
The tenure of the Non-Executive Directors is set out below.
Andy Harrison
Marion Sears
Liz Doherty
William Reeve
Peter Ruis
Appointment
Current term
(years)
September 2014
July 2004
May 2013
July 2015
September 2015
4
14
5
3
3
Next renewal
Additional Board role
September 2020
Chairman
July 2019
May 2019
SID, Audit and Risk
July 2021
Remuneration
September 2021
Marion Sears has served 14 years on the Board. Marion is now
considered by the Board to be ‘non-independent’ in view of
her tenure.
In accordance with the UK Corporate Governance Code, all
Directors, will seek re-election at the 2018 AGM, and as now
required by the Listing Rules, the Non-Executives will be
subject to an additional vote by shareholders independent of
the Adderley family.
Executives below Board
The Committee has for some years had both formal and
informal oversight of the Executive team below Board.
Dunelm Board members have regular contact with these
Executives, both through formal Board presentations,
attendance of the Executive Board at the annual Strategy
Days, and in regular store visits, where a Non-Executive
Director meets a member of the Executive Board on a
less formal basis. The Board receives an annual Talent
Management presentation from the People Director which
provides an assessment of performance of the Executive
Board and other members of the Leadership Team, together
with succession planning.
Although these activities are not formally conducted as part
of the work of the Nominations Committee, we see this as a
useful way of preserving our culture and an important aspect
of our oversight of the Executive team development and
succession process.
Approved by the Board on 12 September 2018.
Andy Harrison
Chair of the Nominations Committee
12 September 2018
99
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Directors’ Report
The Directors present their report together with the audited
financial statements for the period ended 30 June 2018.
Where reference is made to other sections of the Annual
Report and Accounts, these sections are incorporated into this
report by reference.
Strategic Report
The Group’s Strategic Report is set out on pages 8 to 43. This
contains an indication of likely future developments in the
business of the Company and the Group.
Results and Dividends
The consolidated profit for the year after taxation was £73.3m
(2017: £73.1m). The results are discussed in greater detail in
the Financial Review on pages 22 to 25.
A final dividend of 19.5p per share (2017: 19.5p) is proposed
in respect of the period ended 30 June 2018, to add to an
interim dividend of 7.0p per share paid on 13 April 2018
(2017: 6.5p). The final dividend will be paid on 7 December
2018 to shareholders on the register at 16 November 2018.
Shareholder and Voting Rights
All members who hold Ordinary Shares are entitled to attend
and vote at the Annual General Meeting. On a show of hands
at a general meeting every member present in person shall
have one vote and on a poll, every member present in person
or by proxy shall have one vote for every Ordinary Share held.
On 2 October 2006, Jean Adderley, Bill Adderley and Will
Adderley (all shareholders) entered into a Relationship
Agreement with the Company, pursuant to which each of
Jean Adderley, Bill Adderley and Will Adderley undertook
to the Company that, for so long as, individually or together,
they are entitled to exercise, or to control the exercise of,
30% or more of the rights to vote at general meetings of the
Company or they are able to control the appointment of
Directors who are able to exercise a majority of votes at Board
meetings of the Company, they will:
z Conduct all transactions and relationships with any
member of the Group on arm’s length terms and on a
normal commercial basis
z Not take any action which precludes or inhibits any
member of the Group from carrying on its business
independently of Jean and Bill Adderley and their
associates (as defined in the Listing Rules)
z Not exercise any of their voting rights or other powers
to procure any amendment to the Articles of Association
of the Company which would be inconsistent with or
undermine any of the provisions of the Relationship
Agreement
z Abstain from voting on any resolution to which LR11.7.R(4)
of the Listing Rules applies involving Jean Adderley, Bill
Adderley or Will Adderley or any of their associates as the
related party
z Not carry on (other than through their holding of securities
of the Company) or have any financial interest (other than a
financial interest in securities which are held for investment
purposes only) in any person who carries on a business
as a homewares retailer, to the extent that it would be
inconsistent with or undermine any provisions of the
Relationship Agreement
z Only enter into, amend or terminate any transaction,
agreement or relationship between themselves or any of
their associates and any member of the Group with the
approval of a majority of the independent Non-Executive
Directors
WA Capital Limited and Nadine Adderley, to whom
Will Adderley transferred shares by way of a gift, have
subsequently become party to this agreement.
In July 2014, the Relationship Agreement was amended so as
to comply with Listing Rule LR 9.2.2A(2)(a), which came into
effect on 16 May 2014. The following additional undertakings
were given by the parties:
z No action will be taken that would have the effect
of preventing the Company from complying with its
obligations under the Listing Rules
z No resolution will be proposed, or procured to be
proposed, which is intended to, or appears to be intended
to circumvent the proper application of the Listing Rules
In addition, the Articles of Association of the Company
provide that the election and re-election of independent
Directors must be conducted in accordance with the
election provisions set out in LR 9.2.2ER and LR 9.2.2FR. This
means that the election or re-election of each independent
Director at the Annual General Meeting will be subject to an
additional separate resolution upon which parties controlling
30% or more of the voting shares of the Company are not
eligible to vote.
100
corporate.dunelm.com Stock code: DNLM The Company confirms that it has complied with its
obligations under the Relationship Agreement during the
financial period under review, and that so far as it is aware, all
other parties to that agreement have complied with it.
Change of Control
The Company is not party to any significant agreements which
take effect, alter or terminate solely on a change of control of
the Company following a takeover bid.
The Company confirms that there are no contracts of
significance between any member of the Group and any
of the parties to the Relationship Agreement, with the
exception of Will Adderley’s service agreement as a Director
of the Company, the terms of which are outlined in the
Remuneration Report.
There are no restrictions on the transfer of Ordinary Shares
in the Company other than certain restrictions imposed by
laws and regulations (such as insider trading and marketing
requirements relating to closed periods) and requirements
of the Listing Rules whereby Directors and certain employees
of the Company require Board approval to deal in the
Company’s securities.
UK Listing Authority Listing Rules (LR) –
compliance with LR 9.8.4C
The majority of the disclosures required under LR 9.8.4 are
not applicable to Dunelm. The table below sets out the
location of those requirements that are applicable:
Applicable sub-paragraph within LR 9.8.4
Disclosure provided
(14) A statement made by the Board
that the Company has entered into an
agreement under LR 9.2.2A, that the
Company has, and as far as it is aware,
the other parties to the agreement have,
complied with the agreement.
See above section
headed ‘Shareholder
and Voting Rights’.
There are no agreements between the Company and
its Directors or employees providing for additional
compensation for loss of office or employment (whether
through resignation, redundancy or otherwise) that occurs
because of a takeover bid.
Details of the rights of employees to exercise options on
a change of control of the Company are set out in the
Remuneration Policy section of this report.
Share Capital and Treasury Shares
The Company has only one class of shares, Ordinary Shares of
1p each.
The issued Ordinary Share capital of the Company has not
changed during the period.
At 30 June 2018, the Company held 914,635 Ordinary Shares
in treasury (2017: 1,150,642).
During the period the Company did not purchase any
Ordinary Shares into treasury. 236,007 shares were transferred
to employees who exercised options under a share incentive
scheme or Directors under the LTIP scheme. Details of option
exercises by Directors are set out in the Remuneration Report.
Since the financial year end, nil Ordinary Shares have been
moved out of treasury to employees who exercised options
under a share incentive scheme.
101
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Directors’ Report
CONTINUED
Substantial Shareholders
At 30 June 2018 the following had notified the Company of a
disclosable interest in 3% or more of the nominal value of the
Company’s Ordinary Shares:
Ordinary
Shares
Percentage of
share capital
Will Adderley
Bill Adderley
54,161,779
48,070,000
Royal London Asset Management
Limited
10,612,144
Standard Life Aberdeen plc
10,274,359
26.9
23.8
5.26
5.09
Will Adderley is also deemed to hold a legal interest in
967,250 Ordinary Shares held by The Stoneygate Trust
(formerly known as The Leicester Foundation) and 172,750
Ordinary Shares held by the Paddocks Discretionary Trust, by
virtue of the fact that he is a trustee of those trusts.
Since the period end date, we have been notified by Royal
London Asset Management Limited that their holding is now
9,907,809 Ordinary shares, 4.9% of the issued share capital.
There have been no other changes in the holdings of
substantial shareholders between the period end date and
12 September 2018.
Directors
Details of the Directors of the Company who served on the
Board during the year, and the biographies of those on the
Board at the date of this report are set out on pages 46 to 48.
Details of changes to the Board during the period are set out
on page 48.
Powers of Directors
Specific powers of the Directors in relation to shares and
the Company’s Articles of Association are referred to in the
Corporate Governance report on page 60.
Employee Information
Information relating to employees of the Group, including
our approach to disabled persons, is set out in the “People”
section of the Sustainability report on page 37.
Donations
The Group does not make any political donations.
Greenhouse Gas Emissions
The Sustainability report on page 42 sets out the
greenhouse gas emissions disclosures required by the
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
Treasury and Risk Management
The Group’s approach to treasury and financial risk
management, including its use of hedging instruments, is
explained in the Principal Risks and Uncertainties section on
page 33 and note 18 to the annual financial statements.
Independent Auditors
In accordance with section 489 of the Companies Act
2006 and the recommendation of the Audit and Risk
Committee, a resolution is to be proposed at the AGM for the
reappointment of PricewaterhouseCoopers LLP as auditor of
the Group.
Disclaimer
This Directors’ Report, Strategic Report and the Financial
Statements contain certain forward-looking statements
with respect to the financial condition, results, operations
and business of Dunelm Group plc. These statements and
forecasts involve risk and uncertainty because they relate to
events and depend upon circumstances that will occur in
the future. There are a number of factors that could cause
actual results or developments to differ materially from those
expressed or implied by these forward-looking statements
and forecasts. Nothing in this Directors’ Report and Strategic
Report or in these Financial Statements should be construed
as a profit forecast.
Annual General Meeting
The Annual General Meeting will be held at 11.00am on
Thursday 29 November 2018 at the Dunelm Store Support
Centre, Watermead Business Park, Syston, Leicester, LE7 1AD.
A formal notice of meeting, explanatory circular and a form
of proxy will accompany this annual report and financial
statements.
Share incentive schemes in which employees participate are
described in the Remuneration Report on pages 74 to 75.
This report was reviewed and signed by order of the Board on
12 September 2018.
Dawn Durrant
Company Secretary
102
corporate.dunelm.com Stock code: DNLM Statement of
Directors’
Responsibilities
IN RESPECT OF THE FINANCIAL STATEMENTS
Directors’ confirmations
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the group and parent company’s position and performance,
business model and strategy.
Each of the directors, whose names and functions are listed
in Corporate Governance Report confirm that, to the best of
their knowledge:
z the parent company financial statements, which have been
prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the company;
z the group financial statements, which have been prepared
in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities,
financial position and profit of the group; and
z the Strategic Report includes a fair review of the
development and performance of the business and the
position of the group and parent company, together with
a description of the principal risks and uncertainties that
it faces
In the case of each director in office at the date the Directors’
Report is approved:
z so far as the director is aware, there is no relevant audit
information of which the group and parent company’s
auditors are unaware; and
z they have taken all the steps that they ought to have
taken as a director in order to make themselves aware of
any relevant audit information and to establish that the
group and parent company’s auditors are aware of that
information
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
law and regulation.
Company law requires the directors to prepare financial
statements for each financial 52 week period. Under that law
the directors have prepared the group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and parent
company financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union. Under company law the directors must not
approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
group and parent company and of the profit or loss of the
group and parent company for that period. In preparing the
financial statements, the directors are required to:
z select suitable accounting policies and then apply them
consistently;
z state whether applicable IFRSs as adopted by the
European Union have been followed for the group
financial statements and IFRSs as adopted by the European
Union have been followed for the company financial
statements, subject to any material departures disclosed
and explained in the financial statements;
z make judgements and accounting estimates that are
reasonable and prudent; and
z prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and parent company will continue in business
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the group and parent company’s transactions and disclose
with reasonable accuracy at any time the financial position of
the group and parent company and enable them to ensure
that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as regards
the group financial statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets
of the group and parent company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and
integrity of the parent company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
103
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Governance Financials
Customer First
We must continue to give customers clear (and
more) reasons to shop with us. We will be famous
for style, value, quality and ease of shopping. This
means well designed, brilliant quality, own label
products at the best possible prices. We must
offer more than today – more newness, choice and
seasonality and desirable brands, for example in
dorma and fogarty. We will broaden our appeal.
We want everyone to create a home they love and
to feel comfortable in ours.
104
corporate.dunelm.com Stock code: DNLM
Contents
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Cash Flows
Consolidated Statement of
Changes in Equity
Accounting Policies
Notes to the Consolidated
Financial Statements
Parent Company Statement
of Financial Position
Parent Company Statement
of Cash Flows
Parent Company Statement
of Changes in Equity
Parent Company
Accounting Policies
Notes to the Parent Company
Financial Statements
106
112
113
114
115
116
117
123
142
142
143
144
146
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018
105
Independent Auditor’s Report
TO THE MEMBERS OF DUNELM GROUP PLC
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described
in the Auditors’ responsibilities for the audit of the 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.
Independence
We remained independent of the group in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the group or the parent company.
Other than those disclosed in the Audit and Risk Committee
Report, we have provided no non-audit services to the group
or the parent company in the period from 2 July 2017 to 30
June 2018.
Report on the audit of the financial
statements
Opinion
In our opinion, Dunelm Group Plc’s group financial statements
and parent company financial statements (the “financial
statements”):
z give a true and fair view of the state of the group’s and of
the parent company’s affairs as at 30 June 2018 and of the
group’s profit and the group’s and the parent company’s
cash flows for the 52 week period (the “period”) then
ended;
z have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as
adopted by the European Union and, as regards the parent
company’s financial statements, as applied in accordance
with the provisions of the Companies Act 2006; and
z have been prepared in accordance with the requirements
of the Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation
We have audited the financial statements, included within
the Annual Report and Accounts (the “Annual Report”),
which comprise: the consolidated and parent company
statements of financial position as at 30 June 2018; the
consolidated income statement and consolidated statement
of comprehensive income, the consolidated and parent
company statements of cash flows, and the consolidated
and parent company statements of changes in equity for the
52 week period then ended; and the notes to the financial
statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the
Audit Committee.
Our audit approach
Overview
Materiality
z Overall group materiality: £5.1 million (2017: £5.5 million), based on 5% of profit before
taxation after adjusting for exceptional items
z Overall parent company materiality: £1.2 million (2017: £1.2 million), based on 0.5%
of total assets
Audit scope
z The group is structured with one segment which comprises a consolidation of seven
legal entities
z We conducted an audit of the complete financial information of six of these entities,
together with additional procedures performed, including over the Group consolidation.
These accounted for 100% revenue, 100% of profit before tax and 100% of net assets
Areas
of focus
z Inventory provisions (Group)
z Presentation of exceptional items (Group)
106
corporate.dunelm.com Stock code: DNLM
The scope of our audit
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the
directors made subjective judgements, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that are
inherently uncertain.
We gained an understanding of the legal and regulatory
framework applicable to the group and the industry in which
it operates, and considered the risk of acts by the group which
were contrary to applicable laws and regulations, including
fraud. We designed audit procedures at group and significant
component level to respond to the risk, recognising that the
risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. We focused on laws and regulations that could
give rise to a material misstatement in the group and parent
company financial statements, including, but not limited to,
Companies Act 2006, the Listing Rules and UK Tax legislation.
Our tests included, but were not limited to, review of the
financial statement disclosures to underlying supporting
documentation, review of correspondence with regulators,
review of board minutes and enquiries of management.
There are inherent limitations in the audit procedures
described above and the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we would
become aware of it.
We did not identify any key audit matters relating to
irregularities, including fraud. As in all of our audits we also
addressed the risk of management override of internal
controls, including testing journals and evaluating whether
there was evidence of bias by the directors that represented a
risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the
audit of the financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context
of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list
of all risks identified by our audit.
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Inventory provisions
Inventory represents a significant asset on the group’s
balance sheet and is carried at the lower of cost and net
realisable value (“NRV”). The determination of the NRV
provision involves judgement in assessing slow moving
and obsolete inventory. The group’s accounting policy is to
determine a provision based upon an analysis of the number
of weeks’ cover of inventory (i.e. number of weeks’ sales
held in inventory) based upon an average of the previous
26 weeks of sales. Provisions are recorded according to
type of inventory, the number of weeks’ cover, certain
classifications, such as whether inventory is a continuity
line or discontinued, and management’s assessment of the
expected realisable value for each category of inventory.
We tested the inputs to the provision calculation, including
the classification of inventory and sales data for 0-26 weeks,
to reports from the buying department, which is segregated
from the finance department, and found them to be
consistent. This also included testing the average cost of
inventory by agreeing the inputs to source documentation
and testing freight and duty costs. We also re-performed
the weeks’ cover calculation, identifying no exceptions. We
challenged the expected realisable value of inventory by
reference to the historical experience of selling inventory
at below cost and management’s intended plans for future
routes of clearance. We found that the provision rates
were consistent with the evidence obtained, based on past
activity, and appropriately applied.
Presentation of exceptional items
The ongoing integration of the Worldstores group, acquired
on 28 November 2016, has resulted in further costs
considered to be exceptional in nature during FY18. As a
result of the post acquisition assessment of the Worldstores
group, asset disposal / impairments, accelerated
amortisation and inventory write offs have been treated
as exceptional items, as well as associated integration and
redundancy costs.
We tested items which have been presented as exceptional
to determine whether they are one off in nature and non-
recurring in line with group policy.
We have understood the costs which management have
deemed exceptional and challenged the likeliness of
whether these will occur again.
We have challenged and tested whether there are other
costs which should be classified as exceptional and have
found no omissions.
107
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Independent Auditor’s Report CONTINUED
TO THE MEMBERS OF DUNELM GROUP PLC
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account
the structure of the group and the parent company, the
accounting processes and controls, and the industry in which
they operate.
The group is structured with one segment. The group financial
statements are a consolidation of seven legal entities within
this segment, comprising the group’s operating business and
centralised functions.
In establishing the overall approach to the group audit, we
identified one legal entity: Dunelm (Soft Furnishings) Limited,
which, in our view, required an audit of its complete financial
information due to its financial significance to the group.
In addition, we also conducted the statutory audits of a further
five non-significant legal entities such that the audit work
was complete prior to finalisation of the audit of the group
financial statements, thereby providing further evidence in
support of our group opinion.
The audits of these six legal entities, together with the
additional procedures performed at the group level, including
over the group consolidation, gave us the evidence we
needed for our opinion on the group financial statements as
a whole.
Materiality
The scope of our audit was influenced by our application
of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and
in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent Company financial statements
Overall materiality
£5.1 million (2017: £5.5 million).
£1.2 million (2017: £1.2 million).
How we determined it
5% of profit before taxation after adjusting for
exceptional items.
0.5% of total assets.
Rationale for
benchmark applied
We have applied this benchmark, a generally
accepted auditing practice, as we believe this is
the key measure used by the shareholders in
evaluating the performance of the group.
We have applied this benchmark, a generally
accepted auditing practice, as we believe this is the
key measure used by the shareholders in evaluating
the performance of the parent company.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £0.06 million and £4.8 million. Certain components were
audited to a local statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£0.25 million (group audit) (2017: £0.25 million) and £0.25 million (parent company audit) (2017: £0.25 million) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
108
corporate.dunelm.com Stock code: DNLM Going concern
In accordance with ISAs (UK) we report as follows:
REPORTING OBLIGATION
OUTCOME
We are required to report if we have anything material to add or
draw attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial
statements and the directors’ identification of any material uncertainties
to the group’s and the parent company’s ability to continue as a going
concern over a period of at least twelve months from the date of
approval of the financial statements.
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted, this
statement is not a guarantee as to the group’s
and parent company’s ability to continue as a
going concern.
We are required to report if the directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in
the Annual Report other than the financial statements and
our auditors’ report thereon. The directors are responsible
for the other information. Our opinion on the financial
statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to
the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to
perform procedures to conclude whether there is a material
misstatement of the financial statements or a material
misstatement of the other information. 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 based on
these responsibilities.
With respect to the Strategic Report, Directors’ Report and
Corporate Governance Report, we also considered whether
the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act
2006 (CA06), ISAs (UK) and the Listing Rules of the Financial
Conduct Authority (FCA) require us also to report certain
opinions and matters as described below (required by ISAs
(UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course
of the audit, the information given in the Strategic Report
and Directors’ Report for the period ended 30 June 2018
is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
(CA06)
In light of the knowledge and understanding of the group
and parent company and their environment obtained in
the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report.
(CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Corporate Governance
Report on pages 50 to 61 about internal controls and risk
management systems in relation to financial reporting
processes and about share capital structures in compliance
with rules 7.2.5 and 7.2.6 of the Disclosure Guidance
and Transparency Rules sourcebook of the FCA (“DTR”)
is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
(CA06)
In light of the knowledge and understanding of the group
and parent company and their environment obtained in
the course of the audit, we did not identify any material
misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Corporate Governance
Report on pages 50 to 61 with respect to the parent
company’s corporate governance code and practices and
about its administrative, management and supervisory bodies
and their committees complies with rules 7.2.2, 7.2.3 and
7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility
to report if a Corporate Governance Report has not been
prepared by the parent company. (CA06)
109
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Independent Auditor’s Report CONTINUED
TO THE MEMBERS OF DUNELM GROUP PLC
The directors’ assessment of the prospects of
the group and of the principal risks that would
threaten the solvency or liquidity of the group
We have nothing material to add or draw attention to
regarding:
z The directors’ confirmation on page 34 of the Annual
Report that they have carried out a robust assessment of
the principal risks facing the group, including those that
would threaten its business model, future performance,
solvency or liquidity
z The disclosures in the Annual Report that describe
those risks and explain how they are being managed or
mitigated
z The directors’ explanation on page 34 of the Annual
Report as to how they have assessed the prospects of the
group, over what period they have done so and why they
consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that
the group will be able to continue in operation and
meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions
We have nothing to report having performed a review of
the directors’ statement that they have carried out a robust
assessment of the principal risks facing the group and
statement in relation to the longer-term viability of the group.
Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the
directors’ process supporting their statements; checking that
the statements are in alignment with the relevant provisions
of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the
knowledge and understanding of the group and parent
company and their environment obtained in the course of the
audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
z The statement given by the directors, on page 103, that
they consider the Annual Report taken as a whole to be
fair, balanced and understandable, and provides the
information necessary for the members to assess the
group’s and parent company’s position and performance,
business model and strategy is materially inconsistent
with our knowledge of the group and parent company
obtained in the course of performing our audit
z The section of the Annual Report on page 63 describing
the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit
Committee
z The directors’ statement relating to the parent company’s
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the
financial statements
As explained more fully in the Statement of Directors’
Responsibilities, the directors are responsible for the
preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a
true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’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 directors either
intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
110
corporate.dunelm.com Stock code: DNLM Appointment
Following the recommendation of the Audit Committee,
we were appointed by the directors on 14 January 2014 to
audit the financial statements for the year ended 28 June
2014 and subsequent financial periods. The period of total
uninterrupted engagement is 5 years, covering the years
ended 28 June 2014 to 30 June 2018.
Mark Smith (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants
and Statutory Auditors
Birmingham
12 September 2018
Auditors’ responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditors’ 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
ISAs (UK) 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
financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.
frc.org.uk/auditorsresponsibilities. This description forms part
of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for
and only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
z we have not received all the information and explanations
we require for our audit; or
z adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
z certain disclosures of directors’ remuneration specified by
law are not made; or
z the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns
We have no exceptions to report arising from this
responsibility.
111
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Consolidated Income Statement
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Note
1
4
5
7
7
8
2018
52 weeks
£’m
Underlying
1,050.1
(546.5)
503.6
(398.9)
104.7
—
(2.7)
102.0
(21.0)
81.0
2018
52 weeks
£’m
Exceptional
Items
(Note 3)
—
—
—
(8.9)
(8.9)
—
—
(8.9)
1.2
(7.7)
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial income
Financial expenses
Profit before taxation
Taxation
Profit for the period
Earnings per Ordinary Share – basic
Earnings per Ordinary Share – diluted
10
10
40.1p
40.0p
2017
52 weeks
£’m
Underlying
2017
52 weeks
£’m
Exceptional
Items
(Note 3)
2017
52 weeks
£’m
Reported
955.6
(488.0)
467.6
(355.9)
111.7
0.2
(2.6)
109.3
(22.4)
86.9
43.1p
42.8p
—
(0.5)
(0.5)
(16.4)
(16.9)
—
—
(16.9)
3.1
(13.8)
955.6
(488.5)
467.1
(372.3)
94.8
0.2
(2.6)
92.4
(19.3)
73.1
36.3p
36.1p
2018
52 weeks
£’m
Reported
1,050.1
(546.5)
503.6
(407.8)
95.8
—
(2.7)
93.1
(19.8)
73.3
36.3p
36.2p
112
corporate.dunelm.com Stock code: DNLM
Consolidated Statement of
Comprehensive Income
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Profit for the period
Other comprehensive income/(expense):
Items that may be subsequently reclassified to profit or loss:
Movement in fair value of cash flow hedges
Transfers of cash flow hedges to inventory
Deferred tax on hedging movements
Other comprehensive income/(expense) for the period, net of tax
Total comprehensive income for the period
2018
52 weeks
£’m
2017
52 weeks
£’m
73.3
73.1
1.6
2.6
(0.7)
3.5
76.8
1.4
(9.4)
1.4
(6.6)
66.5
113
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Consolidated Statement of Financial Position
AS AT 30 JUNE 2018
Non–current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Derivative financial instruments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Liability for current tax
Derivative financial instruments
Total current liabilities
Non-current liabilities
Bank loans
Trade and other payables
Deferred tax liabilities
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Retained earnings
Note
11
12
13
18
14
15
18
16
17
18
19
17
13
20
18
21
30 June
2018
£’m
28.6
198.6
—
1.4
1 July
2017
£’m
27.5
195.2
0.3
—
228.6
223.0
154.7
165.3
23.9
2.8
15.0
196.4
425.0
26.4
1.1
17.4
210.2
433.2
(101.8)
(133.1)
(7.8)
(0.7)
(7.0)
(0.4)
(110.3)
(140.5)
(139.0)
(38.3)
(1.0)
(1.7)
—
(180.0)
(290.3)
134.7
2.0
1.6
43.2
2.8
85.1
(139.5)
(39.8)
—
(1.7)
(1.6)
(182.6)
(323.1)
110.1
2.0
1.6
43.2
(0.7)
64.0
Total equity attributable to equity holders of the Parent
134.7
110.1
The financial statements on pages 112 to 141 were approved by the Board of Directors on 12 September 2018 and were
signed on its behalf by:
Nicholas Wilkinson
Chief Executive Officer
114
corporate.dunelm.com Stock code: DNLM
Consolidated Statement of Cash Flows
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Profit before taxation
Adjustment for exceptional operating costs
Adjustment for net financing costs
Operating profit before exceptional operating costs
Depreciation and amortisation
Loss on disposal of non-current assets
Operating cash flows before exceptional operating costs and movements
in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in payables
Net movement in working capital before exceptional operating costs
Share-based payments expense/(credit)
Interest received
Tax paid
Net cash generated from operating activities before exceptional operating costs
Cash flows in respect of exceptional operational costs
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of intangible assets
Proceeds on exceptional disposal of property, plant and equipment
and intangible assets
Acquisition of property, plant and equipment
Amounts due to secured creditor on acquisition
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of treasury shares
Purchase of treasury shares
Drawdowns on revolving credit facility
Repayments of revolving credit facility
Interest paid
Loan transaction costs
Ordinary dividends paid
Net cash flows used in financing activities
Net (decrease)/increase in cash and cash equivalents
Foreign exchange revaluations
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
2018
52 weeks
£’m
2017
52 weeks
£’m
Note
93.1
8.9
2.7
104.7
33.5
1.4
139.6
8.6
2.5
(31.4)
(20.3)
0.3
—
(18.9)
100.7
(2.2)
98.5
92.4
16.9
2.4
111.7
29.3
1.2
142.2
(45.0)
(4.6)
23.4
(26.2)
(0.3)
0.1
(25.0)
90.8
(11.3)
79.5
(12.1)
(11.4)
0.6
(34.1)
—
(45.6)
1.3
—
10.0
(10.0)
(1.9)
(0.8)
(53.4)
(54.8)
(1.9)
(0.5)
17.4
15.0
0.2
(46.6)
(7.5)
(65.3)
0.9
(4.2)
50.0
(5.0)
(1.4)
—
(51.6)
(11.3)
2.9
(0.4)
14.9
17.4
3
7
5
5
6
3
3
2
22
22
19
19
7
9
16
16
115
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Consolidated Statement of Changes in Equity
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Issued share
capital
£’m
Note
Share
premium
account
£’m
Capital
redemption
reserve
£’m
Hedging
reserve
£’m
Retained
earnings
£’m
Total equity
£’m
As at 2 July 2016
Profit for the period
Fair value gains of cash flow hedges
Gains on cash flow hedges transferred to
inventory
Deferred tax on hedging movements
Total comprehensive income for the period
Purchase of treasury shares
Proceeds from issue of treasury shares
Share-based payments
Deferred tax on share-based payments
Current tax on share options exercised
Ordinary dividends paid
Total transactions with owners, recorded
directly in equity
As at 1 July 2017
Profit for the period
Fair value gains of cash flow hedges
Loss on cash flow hedges transferred to
inventory
Deferred tax on hedging movements
Total comprehensive income for the period
Proceeds from issue of treasury shares
Share-based payments
Deferred tax on share-based payments
Current tax on share options exercised
Ordinary dividends paid
Total transactions with owners, recorded
directly in equity
18
18
13
22
22
23
13
9
18
18
13
22
23
13
9
2.0
1.6
43.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.0
1.6
43.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.9
—
1.4
(9.4)
1.4
(6.6)
—
—
—
—
—
—
—
(0.7)
—
1.6
2.6
(0.7)
3.5
—
—
—
—
—
—
As at 30 June 2018
2.0
1.6
43.2
2.8
46.9
73.1
—
—
—
73.1
(4.2)
0.9
(0.3)
(0.6)
(0.2)
99.6
73.1
1.4
(9.4)
1.4
66.5
(4.2)
0.9
(0.3)
(0.6)
(0.2)
(51.6)
(51.6)
(56.0)
64.0
73.3
—
—
—
73.3
1.3
0.3
(0.3)
(0.1)
(56.0)
110.1
73.3
1.6
2.6
(0.7)
76.8
1.3
0.3
(0.3)
(0.1)
(53.4)
(53.4)
(52.2)
85.1
(52.2)
134.7
116
corporate.dunelm.com Stock code: DNLM
Accounting Policies
FOR THE 52 WEEKS ENDED 30 JUNE 2018
General information
The Group financial statements consolidate those of Dunelm
Group plc (‘the Company’) and its subsidiaries (together
referred to as ‘the Group’). The Company financial statements
on pages 142 to 151 present information about the Company
as a separate entity and not about its Group.
Dunelm Group plc and its subsidiaries are incorporated and
domiciled in the UK. Dunelm Group plc is a listed public
company, limited by shares and the company registration
number is 04708277. The registered office is Watermead
Business Park, Syston, Leicestershire, England, LE7 1AD.
The primary business activity of the Group is the sale of
homewares in the UK through a network of stores and
websites.
Basis of preparation
The Group financial statements have been prepared and
approved by the Directors in accordance with International
Financial Reporting Standards ‘IFRS’ and IFRS Interpretations
Committee ‘IFRS IC’ interpretations as adopted by the
European Union and the Companies Act 2006 applicable to
companies reporting under IFRS and these are presented on
pages 112 to 141.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in
these Group financial statements.
The annual financial statements are prepared under the
historical cost convention except for financial assets and
financial liabilities (including derivative financial instruments
and share-based payments), which have been stated at
fair value. The financial statements are prepared in pounds
sterling, rounded to the nearest hundred thousand.
Going concern
The Group has considerable financial resources together with
long-standing relationships with a number of key suppliers
and an established reputation in the retail sector across the
UK. In their consideration of going concern, the Directors
have reviewed the Group’s future cash forecasts and profit
projections, which are based on market data and past
experience. The Directors are of the opinion that the Group’s
forecasts and projections, which take into account reasonably
possible changes in trading performance, show that the
Group is able to operate within its current facilities and
comply with its banking covenants for the foreseeable future.
As a consequence, the Directors believe that the Group is
well placed to manage its business risks successfully. Having
reassessed the principal risks, the Directors consider it
appropriate to adopt the going concern basis of accounting
in preparing the financial information.
Further information regarding the Group’s business
activities, together with the factors likely to affect its future
development, performance and position is set out in the
Strategic Report on pages 6 to 43. The financial position of
the Group, its cash flows, liquidity position and borrowing
facilities are described in the Financial Review on pages 22 to
25. In addition, note 18 to the Annual Report and Accounts
includes the Group’s objectives, policies and processes for
managing its capital, its financial risk management objectives
and its exposures to credit risk and liquidity risk.
Use of estimates and judgements
The presentation of the annual financial statements in
conformity with IFRS as adopted by the EU requires the
Directors to make judgements, estimates and assumptions
that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates
and associated assumptions are based on historical
experience and various other factors that are believed to
be reasonable under the circumstances. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and
in any future periods affected.
The key estimates and judgements used in the financial
statements are as follows:
Estimate: Inventory provisions
The Group provides against the carrying value of the
inventories held where it is anticipated that net realisable
value (NRV) will be below cost. NRV is calculated as the
expected selling price. Future price reductions are assumed
to be in line with the Group’s standard approach to clearing
discontinued and slow-moving inventory and are applied to
such proportion of inventory as deemed appropriate given
the level of cover in relation to recent sales history, on a line-
by-line basis.
Judgement: Exceptional items
The Group exercises its judgement in the classification of
certain items as exceptional and outside of the Group’s
underlying results. The determination of whether an item
should be separately disclosed as an exceptional item
requires judgement on its materiality, nature and incidence, as
well as whether it provides clarity on the Group’s underlying
trading performance. In exercising this judgement, the Group
takes appropriate regard of IAS 1 ‘Presentation of financial
statements’ as well as guidance issued by the Financial
Reporting Council on the reporting of exceptional items
and alternative performance measures. The overall goal of
the Group’s financial statements is to present the Group’s
underlying performance without distortion from one-off or
non-trading events regardless of whether they are favourable
or unfavourable to the underlying result. Further details of
the individual exceptional items, and the reasons for their
disclosure treatment, are set out in note 3.
117
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Accounting Policies CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Basis of consolidation
Business Combinations
The Group applies the acquisition method to account for
business combinations. The consideration transferred for
an acquisition is the fair values of the assets transferred,
the liabilities incurred to the former owners of the acquired
assets and any equity interests issued by the group. The
consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date.
Acquisition related costs are expensed as they are incurred.
Subsidiaries
Subsidiaries are entities controlled by the Company. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances, and any unrealised gains and losses or
income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial
statements. Consistent accounting policies have been
adopted across the Group.
Revenue
Revenue is generated from the sale of homewares and related
goods and services through the Group’s stores and websites,
excluding sales between Group companies and is after
deducting returns, any discounts given and VAT. Revenue is
recognised when risk and reward passes to the customer,
which is predominantly at the point of sale.
Expenses
Property leases
Lease incentives received in respect of operating leases are
recognised in the income statement evenly over the full term
of the lease.
Where leases for land and buildings provide for fixed rent
review dates and amounts, the Group financial statements
account for such reviews by recognising, on a straight-line
basis, the total implicit minimum lease payments over the
non-cancellable period of the lease term.
Financial income and expenses
Financial income and expenses comprise interest payable on
borrowings calculated using the effective interest method,
interest receivable on funds invested and foreign exchange
gains and losses.
Retirement benefits
The Group operates a defined contribution pension plan
using a third-party provider. Obligations for the contributions
to this plan are recognised as an expense in the income
statement as incurred.
Share-based payments
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services
from employees as consideration for equity instruments
(options) of the Group. The fair value of the employee
services received in exchange for the grant of the options is
recognised as an expense. The total amount to be expensed
is determined by reference to the fair value of the options
granted:
z Including any market performance condition (for example,
an entity’s share price);
The exceptions to this are for: custom-made products,
where revenue is recognised at the point that the goods are
collected; gift vouchers, where revenue is recognised when
the vouchers are redeemed; and web sales, where revenue is
recognised at the point of delivery. Revenue is settled in cash
at the point of sale.
z Excluding the impact of any service and non-market
performance vesting conditions (for example, profitability,
sales growth targets and remaining an employee of the
entity over a specified time period), and
z Including the impact of any non-vesting conditions (for
example, the requirement for employees to save)
Exceptional items
Exceptional items are disclosed separately in the financial
statements where it is necessary to do so to provide further
understanding of the financial performance of the Group.
They are items that are material either because of their size or
their non-recurring nature and are presented within the line
items to which they best relate.
Non-market performance and service conditions are
included in assumptions about the number of options that
are expected to vest. The total expense is recognised over
the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied.
In some circumstances employees may provide services
in advance of the grant date and therefore the grant date
fair value is estimated for the purposes of recognising the
expense during the period between service commencement
period and grant date.
At the end of each reporting period, the Group revises its
estimates of the number of options that are expected to vest
based on the non-market vesting conditions. It recognises
the impact of the revision to original estimates, if any, in the
income statement, with a corresponding adjustment to equity.
118
corporate.dunelm.com Stock code: DNLM When options are exercised, the Company either issues new
shares, or uses treasury shares purchased for this purpose.
For new issued shares, the proceeds received net of any
directly attributable transaction costs are credited to share
capital (nominal value) and the share premium account.
Social security contributions payable in connection with the
grant of the share options is considered an integral part of
the grant itself, and the charge will be treated as a cash-
settled transaction.
Foreign currencies
Transactions in foreign currencies are recorded at the
prevailing rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currency are translated at the rates ruling at the balance
sheet date. Resulting exchange gains or losses are
recognised in the income statement for the period in
financial income and expenses.
Taxation
Tax on the profit or loss for the period comprises current
and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax represents the expected tax payable on the
taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date, together with
any adjustment to tax payable in respect of previous periods.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes. Deferred tax is determined using tax rates (and
laws) that have been enacted or substantively enacted at
the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax
liability is settled.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be recognised.
Deferred income tax assets and liabilities are offset when
there is a legally enforceable right to offset current tax assets
against current tax liabilities and when they relate to income
taxes levied by the same taxation authority on either the
taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
Dividends
Dividends are recognised as a liability in the period in which
they are approved such that the Company is obligated to pay
the dividend. Interim dividends are recorded when paid.
Intangible assets
Intangible assets comprise software development and
implementation costs, trademarks and brands and are stated
at cost less accumulated amortisation and impairment (see
below). Costs incurred in developing the Group’s own brands
are expensed as incurred.
Separately acquired brands and customer lists are shown at
historical cost. Software, brands and customer lists acquired
in a business combination are recognised at fair value at
the acquisition date. These assets are deemed to have a
finite useful life and are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line
method to allocate the cost over their estimated useful lives.
Acquired computer software licences are capitalised on
the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortised over their
estimated useful lives.
Costs associated with maintaining computer software
programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design
and testing of identifiable and unique software products
controlled by the Group are recognised as intangible assets
when the following criteria are met:
z It is technically feasible to complete the software product
so that it will be available for use;
z Management intends to complete the software product
and use or sell it;
z There is an ability to use or sell the software product;
z It can be demonstrated how the software product will
generate probable future economic benefits;
z Adequate technical, financial and other resources to
complete the development and to use or sell the software
product are available; and
z The expenditure attributable to the software product
during its development can be reliably measured
Other development expenditures that do not meet these
criteria are recognised as an expense as incurred.
Computer software development costs recognised as assets
are amortised over their estimated useful lives.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful life of the asset.
These are as follows:
Software development and licences
3 years
Rights to brands and customer lists
5 to 15 years
119
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Accounting Policies CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at historical
cost less accumulated depreciation and impairment losses
(see below). Cost includes the original purchased price of the
asset and the costs attributable to bringing the asset to its
working condition for intended use.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items
of property, plant and equipment.
Depreciation
Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of each part
of an item of property, plant and equipment to write down the
cost to its estimated residual value. Land is not depreciated.
The estimated useful lives are as follows:
Freehold buildings
Leasehold improvements
Refit improvements
Plant and machinery
Fixtures and fittings
50 years
over the remaining
period of the lease
7 years
4 years
3 to 5 years
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Derivative financial instruments
Derivative financial instruments used are forward foreign
exchange contracts and structured foreign exchange
options. These are measured at fair value. The fair values are
determined by reference to the market prices available from
the market on which the instruments involved are traded.
Certain derivative financial instruments are designated as
hedges in line with the Group’s treasury policy. These are
instruments that hedge exposure to variability in cash flows
that is either attributable to a particular risk associated with a
highly probable forecasted transaction.
For cash flow hedges the proportion of the gain or loss
on the hedging instrument that is determined to be an
effective hedge, as defined by IAS 39 ‘Financial Instruments:
Recognition and Measurement’, is recognised in equity,
directly in the hedge reserve with any ineffective portion
recognised in the income statement. Such hedges are
tested, both at inception to ensure they are expected to
be effective and on an ongoing basis to assess continuing
effectiveness. The gains or losses that are recognised in equity
are transferred to the income statement in the same period in
which the hedged cash flows affect the income statement.
Any gains or losses arising from changes in fair value
derivative financial instruments not designated as hedges are
recognised in the income statement.
Financial assets
Classifications
The Group classifies its financial assets in the following
categories: at fair value through profit or loss; loans and
receivables; and available-for-sale. The classification depends
on the purpose for which the financial assets were acquired.
Management determines the classification of its financial
assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial
assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in
the short term. Derivatives are also categorised as held for
trading unless they are designated as hedges. Assets in this
category are classified as current assets if expected to be
settled within 12 months, otherwise they are classified as non-
current.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except
for maturities greater than 12 months after the end of the
reporting period where they are classified as non-current
assets. The Group’s loans and receivables comprise ‘trade
and other receivables’ and ‘cash and cash equivalents’ in the
balance sheet (notes 15 and 16).
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are
either designated in this category or not classified in any of
the other categories. They are included in non-current assets
unless the investment matures or management intends to
dispose of it within 12 months of the end of the reporting
period.
Recognition and measurement
Regular purchases and sales of financial assets are recognised
on the trade date – the date on which the Group commits to
purchase or sell the asset. Investments are initially recognised
at fair value plus transaction costs for all financial assets
not carried at fair value through profit or loss. Financial
assets carried at fair value through profit or loss are initially
recognised at fair value, and transaction costs are expensed
in the income statement. Financial assets are derecognised
when the rights to receive cash flows from the investments
have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair
value. Loans and receivables are subsequently carried at
amortised cost using the effective interest method.
120
corporate.dunelm.com Stock code: DNLM Gains or losses arising from changes in the fair value of the
‘financial assets at fair value through profit or loss’ category
are presented in the income statement within ‘Other (losses)/
gains – net’ in the period in which they arise. Dividend income
from financial assets at fair value through profit or loss is
recognised in the income statement as part of other income
when the Group’s right to receive payments is established.
Changes in the fair value of monetary and non-monetary
securities classified as available-for-sale are recognised in
other comprehensive income. When securities classified
as available-for-sale are sold or impaired, the accumulated
fair value adjustments recognised in equity are included in
the income statement as ‘Gains and losses from investment
securities’.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events
and must be enforceable in the normal course of business
and in the event of default, insolvency or bankruptcy of the
Company or the counterparty.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value and then carried at amortised cost using the effective
interest method, net of impairment provisions.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is derived using the average cost method and
includes costs incurred in bringing the inventories to their
present location and condition. Net realisable value is the
estimated selling price less cost to sell in the ordinary course
of business. Provisions are made for obsolete, slow-moving or
discontinued stock and for stock losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
deposits. All cash equivalents have an original maturity of
three months or less.
Trade and other payables
Trade and payables are recognised initially at their fair value
and subsequently measured at amortised cost using the
effective interest method.
Bank borrowings and
borrowing costs
Interest-bearing bank loans are initially recorded at their fair
value and subsequently held at amortised cost. Transaction
costs incurred are amortised over the term of the loan.
Borrowings are classed as current liabilities unless the Group
has an unconditional right to defer settlement of the liability
for at least 12 months from the balance sheet date.
Impairment
The carrying amounts of the Group’s assets are reviewed
annually at each balance sheet date to determine whether
there is any indication of impairment. If any such indication
exists, the asset’s recoverable amount is estimated.
The recoverable amount is the greater of fair value less costs
of disposal, and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current
market assessments of the time-value of money and the risks
specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount
is determined for assets grouped at the lowest levels for
which there are largely independent cash flows, i.e. the cash-
generating unit to which the asset belongs.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds the
recoverable amount. Impairment losses are recognised in the
income statement.
Share capital
Where the Company purchases its own equity share capital
(treasury shares), the consideration paid, including any
directly attributable incremental costs, is deducted from
equity attributable to the Company’s equity holders until
the shares are cancelled or reissued. Where such shares are
subsequently sold or reissued, any consideration received
net of any directly attributable incremental transaction costs
and the related income tax effects, is included in equity
attributable to the Company’s equity holders.
Provisions
A provision is recognised in the balance sheet when the
Group has a current legal or constructive obligation as a result
of a past event, it is probable that an outflow of economic
benefits will be required to settle the obligation, and the
amount has been reliably measured. A provision for onerous
contracts, including property leases, is recognised when the
expected benefit to be derived by the Group from a contract
is lower than the unavoidable costs of meeting its obligations
under the contract.
A dilapidations provision is recognised when there is an
expectation of future obligations relating to the maintenance
of leasehold properties arising from events such as lease
renewals or terminations.
121
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Accounting Policies CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
Operating leases
The Group leases certain property, plant and equipment and
motor vehicles. Where a significant portion of the risks and
rewards of ownership are retained by the lessor, these leases
are classified as operating leases.
Rentals payable under operating leases are charged to the
income statement on a straight-line basis over the period of
the lease.
New standards and interpretations
No new standards, amendments or interpretations, effective
for the first time for the period beginning on or after
2 July 2017 have had a material impact on the Group or
Parent Company.
At the balance sheet date, there are a number of new
standards and amendments to existing standards in issue but
not yet effective. IFRS 9 and IFRS 15 are not expected to have
a significant effect on the financial statements of the Group
or Parent Company. IFRS 16 is expected to have a significant
impact on the financial statements of the Group. The effect
and consideration of these standards are set out below:
IFRS 9, ‘Financial Instruments’, addresses the classification,
measurement and recognition of financial assets and
liabilities and replaces IAS 39. IFRS 9 retains but simplifies the
mixed measurement model and establishes three primary
measurement categories for financial assets. It is effective for
periods beginning on or after 1 January 2018. The Company
has identified that the adoption of IFRS 9 will impact its
consolidated financial statements in the following areas:
z The Group will need to apply an expected credit loss
model when calculating impairment losses on its trade
and other receivables. This will result in increased
impairment provisions and greater judgement due to
the need to factor in forward looking information when
estimating the appropriate amount of provisions. In
applying IFRS 9 the Group must consider the probability
of a default occurring over the life of its trade receivables
on initial recognition of those assets. Under the existing
incurred loss model, there has been no impairment of
the gross carrying amount of receivables over the last five
years so there is no expectation that there will be change
under the new model
z The Group has decided to adopt the hedge accounting
provisions in IFRS 9 to enable it to apply hedge accounting
to foreign exchange options taken out that were not
designated as qualifying hedge relationships under IAS 39.
In addition, a hedging relationship which failed to
qualify for hedge accounting under IAS 39 due to its
80-125% hedge effectiveness criterion, will qualify for
hedge accounting under IFRS 9. As both of these changes
in policy will be applied prospectively from 1 July 2018
there is no change to net assets as at 30 June 2018 or
reported profit for the year then ended
IFRS 15, ’Revenue from Contracts with Customers’, will be
effective from the period ending June 2019 onwards.
The Group’s sales are mainly from individual products which
are sold directly to customers via our stores or websites. The
standard establishes a principle based approach for revenue
recognition that we recognise revenue to reflect the transfer
of goods and services, measured as the amount to which
the entity expects to be entitled in exchange for those goods
or services.
The Group has assessed the impact of the changes
proposed by IFRS 15 on our revenue processes and do not
expect material impact on recognition of revenue when IFRS
15 is adopted.
A further assessment was made on the proposed changes
relating to the recognition of delivery charges and this is not
expected to impact the financial statements as the Group’s
current method is aligned with the approach adopted in
the standard.
IFRS 16, ‘Leases’, will be effective from the period ending June
2020 onwards.
The changes required under IFRS 16 will lead to the creation
of a right-of-use asset and a lease liability on the balance
sheet that did not previously exist. The right-of-use asset will
be subject to depreciation on a straight-line basis over the
term of the lease. An interest charge will be recognised on
the lease liability that will be higher in the earlier years of
the lease term. The total expense recognised in the Income
Statement over the life of the lease will be unaffected by the
new standard. However, IFRS 16 will result in the timing of
lease expense recognition being accelerated for leases which
would be currently accounted for as operating leases.
The presentation of the Cash Flow Statement will change
significantly, with an increase in net cash flows generated from
operating activities being offset by an increase in net cash
flows used in financing activities. This will, however, have no
net impact on cash flows.
The Group has established a Steering Committee which
regularly reports to the Audit Committee. To date, progress
has been made on a number of areas including collection of
relevant data, IT systems, identification of leases as prescribed
by the standard, and consideration of transition options. The
accounting policy is also under review.
The Group intends to apply the retrospective modified
approach on transition and will not restate the comparative
information. Under this approach, at the date of transition the
right-of-use asset will equal the lease liability for all leases.
As a result, there will be no impact on retained earnings.
Furthermore, the Group has begun working through
the recently published technical amendments to the tax
legislation following the introduction of IFRS 16. Given the
complexities of IFRS 16 and the material sensitivity to key
assumptions, such as discount rates, it is not yet practicable to
fully quantify the effect of IFRS 16 on the financial statements
of the Group.
122
corporate.dunelm.com Stock code: DNLM Notes to the Consolidated
Financial Statements
FOR THE 52 WEEKS ENDED 30 JUNE 2018
1 Segmental reporting
The Group has one reportable segment, in accordance with IFRS 8 ‘Operating Segments’, which is the retail of homewares in
the UK.
Customers access the Group’s offer across multiple channels and often their journey involves more than one channel. Therefore,
internal reporting focuses on the Group as a whole and does not identify individual segments.
The Chief Operating Decision-Maker is the Executive Board of Directors of Dunelm Group plc. Internal management reports
are reviewed by them on a monthly basis. Performance of the segment is assessed based on a number of financial and non-
financial KPIs as well as on profit before taxation.
Management believe that these measures are the most relevant in evaluating the performance of the segment and for making
resource allocation decisions.
All material operations of the reportable segment are carried out in the UK. The Group’s revenue is driven by the consolidation
of individual small value transactions and as a result, Group revenue is not reliant on a major customer or group of customers.
2 Acquisitions and disposals
In the prior year, on 28 November 2016 the Group acquired the whole of the trade and certain assets and liabilities of the
Worldstores Group (Worldstores Limited (in administration), Kiddicare Limited (in administration) and Achica Limited (in
administration)) for a cash consideration of £1 through Globe Online Limited, a 100% owned subsidiary of Dunelm Limited.
The purchase has been accounted for as a business combination. The fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out below.
Intangible assets - software
Intangible assets - brands
Intangible assets - customer lists
Property, plant and equipment
Inventories
Trade and other receivables
Accruals and deferred income
Provisions
Amounts due to secured creditor
Total identifiable assets / (liabilities)
Cash consideration
Goodwill
As at
28 November
2016
£’m
5.2
2.2
0.1
0.8
4.2
2.9
(6.5)
(1.4)
(7.5)
—
—
—
As part of this acquisition, the Group acquired a subsidiary registered in Cyprus, Achica Brand Management Limited ‘ABML’,
whose principal activity is to hold the Achica trademarks.
On 16th February 2018, the trade and assets of Achica were sold to BrandAlley UK Limited, a London-based flash sales
business for a total consideration of £0.6m. The transaction included the sale of trademarks and customer lists and resulted in
an overall loss on disposal of £0.3m.
123
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
3 Exceptional items
We have treated as exceptional those non-recurring items which relate to the acquisition, integration and/or disposal of the
Worldstores businesses.
Exceptional cost of sales
Fair value adjustments in respect of acquired inventory
Exceptional operating costs
Acquisition costs - administrator fees
Acquisition costs - other professional fees
Welcome payments for continuation of supply
Retention and redundancy payments
Loss on disposal, asset write-offs, impairments and accelerated amortisation
Other integration costs
2018
52 weeks
£’m
2017
52 weeks
£’m
—
—
—
—
—
1.2
5.8
1.9
8.9
8.9
0.5
0.5
0.9
0.4
7.3
2.7
2.9
2.2
16.4
16.9
Management retention and redundancy payments were made in the year in accordance with contractual agreements.
A review of the websites and other intangible IT assets of both the existing Dunelm business and the acquired business has
been undertaken. Decisions have been made to integrate the available assets, and as a result, certain assets have been written
off and others’ useful economic lives have been reduced, resulting in accelerated amortisation.
During the period, management took the decision to develop Dunelm’s kids and nursery category under the Dunelm brand,
rather than within the standalone Kiddicare brand. As a result, the Kiddicare brand acquired as part of the Worldstores
acquisition was deemed to be fully impaired and as such was written off. As well as this, aged Kiddicare stock and various other
intangible assets relating to the development of the Kiddicare website were also written off.
As outlined in note 2, certain costs relating to the sale and subsequent restructure of the business have been classified as
exceptional. These costs include the write-off of assets relating to Achica and onerous contracts. The proceeds from the sale of
the Achica business were £0.6m.
Other integration costs include professional advisory support, and costs associated with the transfer of the London head office
to a new location.
The taxation credit for the period relating to exceptional items was £1.2m (2017: £3.1m).
Of the above exceptional cost items, £1.6m were cash outflows in the period. We do not expect to report exceptional items in
relation to the acquisition, integration or divestment of the Worldstores business in the next financial period.
124
corporate.dunelm.com Stock code: DNLM
4 Operating costs before exceptional items
Selling and distribution costs
Administrative expenses
2018
52 weeks
£’m
345.9
53.0
398.9
2017
52 weeks
£’m
304.9
51.0
355.9
5 Operating profit
Operating profit is stated after charging/(crediting) the following items:
Cost of inventories included in cost of sales
Amortisation of intangible assets
Depreciation of owned property, plant and
equipment
Loss on disposal and impairment of property,
plant and equipment and intangible assets
Operating lease rentals
2018
52 weeks
£’m
Underlying
539.2
7.3
2018
52 weeks
£’m
Exceptional
Items
—
1.1
2018
52 weeks
£’m
Reported
539.2
8.4
2017
52 weeks
£’m
Underlying
481.0
7.3
26.2
1.4
51.1
—
26.2
22.0
2.9
—
4.3
51.1
1.2
45.2
2017
52 weeks
£’m
Exceptional
Items
—
1.0
—
1.9
—
2017
52 weeks
£’m
Reported
481.0
8.3
22.0
3.1
45.2
The cost of inventories included in cost of sales includes the adverse impact of a net increase in the provision for obsolete
inventory of £2.6m (2017: £0.8m).
The analysis of the auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Parent and consolidated annual
financial statements
Fees payable to the Company’s auditor and their associates for other services to the Group
— audit of the Company’s subsidiaries pursuant to legislation
— audit of Globe Online Limited and opening balance sheet
— other services (see Audit and Risk Committee Report on page 66 for further information)
2018
52 weeks
£’000
2017
52 weeks
£’000
18
102
—
15
18
82
67
15
125
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
6 Employee numbers and costs
The average monthly number of people employed by the Group (including Directors) was:
Selling
Distribution
Administration
2018
52 weeks
Number
of heads
2018
52 weeks
Full time
equivalents
2017
52 weeks
Number
of heads
2017
52 weeks
Full time
equivalents
8,353
5,172
7,759
4,823
706
698
689
690
651
752
615
718
9,757
6,551
9,162
6,156
The aggregate remuneration of all employees including Directors comprises:
Wages and salaries including termination benefits
Social security costs
Share options granted to Directors and employees (note 23)
Pension costs - defined contribution plans
2018
52 weeks
£’m
143.5
10.0
0.3
2.4
2017
52 weeks
£’m
135.0
8.3
(0.3)
1.8
156.2
144.8
Details of Directors’ remuneration, share options, long-term incentive schemes and pension entitlements are disclosed in the
Remuneration Report on pages 70 to 95.
7 Financial income and expenses
2018
52 weeks
£’m
2017
52 weeks
£’m
—
—
(1.9)
(0.3)
(0.5)
(2.7)
(2.7)
0.2
0.2
(1.7)
(0.3)
(0.6)
(2.6)
(2.4)
Finance income
Interest on bank deposits
Finance expenses
Interest on bank borrowings
Amortisation of issue costs of bank loans
Net foreign exchange losses
Net finance expense
126
corporate.dunelm.com Stock code: DNLM
8 Taxation
Current taxation
UK corporation tax charge for the period
Adjustments in respect of prior periods
Deferred taxation
Origination of temporary differences
Adjustments in respect of prior periods
Total tax expense
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
Profit before taxation
UK corporation tax at standard rate of 19% (2017: 19.75%)
Factors affecting the charge in the period:
Non-deductible expenses
Profit on disposal of non-qualifying assets
Adjustments in respect of prior periods
Utilisation of previously unrecognised tax losses
Tax charge
2018
52 weeks
£’m
2017
52 weeks
£’m
19.8
(0.3)
19.5
(0.4)
0.7
0.3
19.8
19.8
(0.8)
19.0
0.1
0.2
0.3
19.3
2018
52 weeks
£’m
2017
52 weeks
£’m
93.1
17.7
1.4
0.4
0.4
(0.1)
19.8
92.4
18.2
1.5
0.2
(0.6)
—
19.3
The taxation charge for the period as a percentage of profit before tax is 21.3% (2017: 20.9%).
The UK Government substantively enacted a reduction in future tax rates by 1% from 1 April 2017 to 19% and a further 1%
reduction to 18% from 1 April 2020. In September 2016, the Government substantively enacted a further 1% reduction in
corporation tax to 17% from 1 April 2020.
127
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
9 Dividends
The dividends set out in the table below relate to the 1 pence Ordinary Shares.
Final for the period ended 2 July 2016
– paid 19.1 pence
Interim for the period ended 1 July 2017
– paid 6.5 pence
Final for the period ended 1 July 2017
– paid 19.5 pence
Interim for the period ended 30 June 2018
– paid 7.0 pence
2018
52 weeks
£’m
2017
52 weeks
£’m
—
—
39.3
14.1
53.4
38.5
13.1
—
—
51.6
The Directors are proposing a final dividend of 19.5 pence per Ordinary Share for the period ended 30 June 2018 which
equates to £39.4m. The dividend will be paid on 7 December 2018 to shareholders on the register at the close of business on
16 November 2018.
10 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to equity holders of the Company by
the weighted average number of Ordinary Shares in issue during the period, excluding Ordinary Shares purchased by the
Company and held as treasury shares (note 22).
For diluted earnings per share, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of
all dilutive potential Ordinary Shares. These represent share options granted to employees where the exercise price is less than
the average market price of the Company’s Ordinary Shares during the period.
Weighted average numbers of shares:
Weighted average number of shares in issue during the period
Impact of share options
Number of shares for diluted earnings per share
Profit for the period
Profit for the period before exceptional costs
Earnings per Ordinary Share - basic
Earnings per Ordinary Share - basic before exceptional costs
Earnings per Ordinary Share - diluted
Earnings per Ordinary Share - diluted before exceptional costs
2018
52 weeks
’000
2017
52 weeks
’000
201,801
201,622
936
956
202,737
202,578
2018
52 weeks
£’m
73.3
81.0
36.3p
40.1p
36.2p
40.0p
2017
52 weeks
£’m
73.1
86.9
36.3p
43.1p
36.1p
42.8p
128
corporate.dunelm.com Stock code: DNLM
11 Intangible assets
Cost
At 2 July 2016
Additions
Assets purchased on acquisition of business
Disposals
At 1 July 2017
Additions
Disposals
At 30 June 2018
Accumulated amortisation
At 2 July 2016
Charge for the financial period
Disposals
At 1 July 2017
Charge for the financial period
Impairment
Disposals
At 30 June 2018
Net book value
At 2 July 2016
At 1 July 2017
At 30 June 2018
Software
development
and licences
£’m
Rights to
brands &
customer lists
£’m
26.2
11.2
5.2
(1.1)
41.5
13.2
(10.6)
44.1
12.1
8.0
(0.1)
20.0
8.1
0.5
(9.0)
19.6
14.1
21.5
24.5
9.8
—
2.3
(0.5)
11.6
—
(0.6)
11.0
5.3
0.3
—
5.6
0.3
1.2
(0.2)
6.9
4.5
6.0
4.1
Total
£’m
36.0
11.2
7.5
(1.6)
53.1
13.2
(11.2)
55.1
17.4
8.3
(0.1)
25.6
8.4
1.7
(9.2)
26.5
18.6
27.5
28.6
All amortisation is included within operating costs in the income statement.
Within software development and licences, £3.9m (2017: £3.1m) of additions relates to internally generated assets.
129
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
12 Property, plant and equipment
Land and
buildings
£’m
Leasehold
improvements
£’m
Refit
improvements
£’m
Plant and
machinery
£’m
Fixtures and
fittings
£’m
Cost
At 2 July 2016
Additions
Assets purchased on acquisition of
business
Disposals
At 1 July 2017
Additions
Disposals
83.5
13.0
—
(0.2)
96.3
2.1
—
131.7
16.0
—
(2.6)
145.1
10.4
(1.8)
At 30 June 2018
98.4
153.7
Accumulated depreciation
At 2 July 2016
Charge for the financial period
Disposals
At 1 July 2017
Charge for the financial period
Disposals
At 30 June 2018
Net book value
At 2 July 2016
At 1 July 2017
At 30 June 2018
11.4
1.6
(0.2)
12.8
1.7
—
14.5
72.1
83.5
83.9
53.7
10.0
(1.4)
62.3
11.1
(1.0)
72.4
78.0
82.8
81.3
—
4.3
—
—
4.3
2.5
—
6.8
—
0.2
—
0.2
0.9
—
1.1
—
4.1
5.7
4.6
0.3
0.2
(0.1)
5.0
0.3
(0.1)
5.2
3.4
0.5
—
3.9
0.4
—
4.3
1.2
1.1
0.9
Total
£’m
300.2
49.3
0.8
(5.8)
344.5
30.8
(4.2)
80.4
15.7
0.6
(2.9)
93.8
15.5
(2.3)
107.0
371.1
62.8
9.7
(2.4)
70.1
12.1
(2.0)
131.3
22.0
(4.0)
149.3
26.2
(3.0)
80.2
172.5
17.6
23.7
26.8
168.9
195.2
198.6
All depreciation and impairment charges have been included within operating costs in the income statement.
130
corporate.dunelm.com Stock code: DNLM
13 Deferred tax assets/(liabilities)
Deferred tax is provided in full on temporary differences under the liability method using a taxation rate of 17% (2017: 17%).
Deferred taxation assets are attributable to the following:
Assets
Liabilities
Net (liabilities)/assets
Property, plant and equipment
Share-based payments
Hedging
Deferred tax recoverable/(payable)
after more than 12 months
Deferred tax recoverable/(payable)
within 12 months
2018
£’m
0.2
—
—
0.2
Assets
2018
£’m
0.2
—
0.2
2017
£’m
0.4
—
0.1
0.5
2017
£’m
0.4
0.1
0.5
2018
£’m
—
(0.6)
(0.6)
(1.2)
2017
£’m
—
(0.2)
—
(0.2)
2018
£’m
0.2
(0.6)
(0.6)
(1.0)
Liabilities
Net (liabilities)/assets
2018
£’m
(0.6)
(0.6)
(1.2)
2017
£’m
(0.2)
—
(0.2)
2018
£’m
(0.4)
(0.6)
(1.0)
2017
£’m
0.4
(0.2)
0.1
0.3
2017
£’m
0.2
0.1
0.3
The movement in the net deferred tax balance is as follows:
Property, plant and equipment
Share–based payments
Hedging
Property, plant and equipment
Share-based payments
Hedging
14 Inventories
Goods for resale
Balance at
2 July
2016
£’m
Recognised in
income
£’m
Recognised in
equity
£’m
Balance at
1 July
2017
£’m
0.4
0.7
(1.3)
(0.2)
—
(0.3)
—
(0.3)
—
(0.6)
1.4
0.8
0.4
(0.2)
0.1
0.3
Balance at
1 July
2017
£’m
Recognised in
income
£’m
Recognised in
equity
£’m
Balance at
30 June
2018
£’m
0.4
(0.2)
0.1
0.3
(0.2)
(0.1)
—
(0.3)
—
(0.3)
(0.7)
(1.0)
0.2
(0.6)
(0.6)
(1.0)
2018
£’m
154.7
2017
£’m
165.3
131
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
15 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2018
£’m
0.3
4.3
19.3
23.9
2017
£’m
0.4
4.3
21.7
26.4
All trade receivables are due within one year from the end of the reporting period.
A total of £14.7m of prepayments and accrued income are property related (2017: £13.4m).
No impairment was incurred on trade and other receivables and no provision is held at period end (2017: nil). Materially, no
amounts are overdue (2017: nil).
16 Cash and cash equivalents
Cash at bank and in hand
2018
£’m
15.0
2017
£’m
17.4
The Group deposits funds only with institutions that have a credit rating of ‘A’ and above and the term is less than three months.
17 Trade and other payables
Current
Trade payables
Accruals and deferred income
Taxation and social security
Other payables
Total current trade and other payables
Non-current
Accruals and deferred income
Total non-current trade and other payables
Total trade and other payables
2018
£’m
51.1
36.6
13.8
0.3
2017
£’m
78.7
42.4
10.7
1.3
101.8
133.1
38.3
38.3
140.1
39.8
39.8
172.9
Current accruals and deferred income include lease incentives of £5.6m (2017: £4.8m) and capital accruals of £2.7m
(2017: £4.9m).
The maturity analysis of non-current accruals and deferred income, all of which relate to lease incentives, is as follows:
One to two years
Two to five years
After five years
132
2018
£’m
5.8
15.6
16.9
38.3
2017
£’m
5.9
15.6
18.3
39.8
corporate.dunelm.com Stock code: DNLM
18 Financial risk management
The Board of Directors has overall responsibility for the oversight of the Group’s risk management framework. A formal process
for reviewing and managing risk in the business is in place.
There are no changes to exposures to risk and how they arise and the Group objectives, policies and procedures for managing
the risk and methods used to measure the risk from the previous period.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Group’s deposits with banks and financial institutions as well as foreign
exchange hedging agreements with its banking counterparties. The Group only deals with creditworthy counterparties and
uses publicly available financial information to rate its counterparties, and as such, credit risk is considered to be low.
Group policy is that surplus funds are placed on deposit with counterparties approved by the Board, with a minimum of ‘A’
credit rating. Credit limits with approved counterparties are limited to £25m for any individual party.
The Group’s maximum exposure to credit risk is represented by the carrying amount of financial assets. No collateral is held
(2017: none). At the period end the maximum exposure is detailed in the table below.
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Total financial assets
2018
£’m
15.0
4.6
4.2
23.8
2017
£’m
17.4
4.7
1.1
23.2
Trade and other receivables include rebates due back from suppliers. The rebates are recovered through deductions from
future payments to suppliers and therefore management is confident of the recoverability of these balances.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and extreme circumstances. The Group manages this risk by continuously monitoring cash flow forecasts.
Further details of the Group’s available facilities can be found in note 19.
The table below analyses estimated future contractual cash flows in respect of the Group’s financial liabilities, according to the
earliest date on which the Group could be required to settle the liability. Floating rate interest payments are estimated based on
market interest rates prevailing at the balance sheet date.
At 1 July 2017
Borrowings
Derivative financial instruments
Accruals (excluding deferred income)
Trade and other payables
At 30 June 2018
Borrowings
Derivative financial instruments
Accruals (excluding deferred income)
Trade and other payables
2.0
76.5
80.0
Total
£’m
Total
£’m
Less than one
year
£’m
One to two
years
£’m
Two to five
years
£’m
More than five
years
£’m
140.0
140.0
0.4
36.8
80.0
—
1.6
5.9
—
—
—
15.6
—
—
—
18.2
—
Less than one
year
£’m
One to two
years
£’m
Two to five
years
£’m
More than five
years
£’m
140.0
140.0
0.7
70.0
51.4
0.7
31.7
51.4
—
—
5.8
—
—
—
15.6
—
—
—
16.9
—
Borrowings of £140m (2017: £140m) above reflect the level of facility drawdown at the period end on the Group’s revolving
credit facilities.
133
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
18 Financial risk management continued
Interest rate risk
The Group’s bank borrowings incur variable interest rate charges. The Group’s policy aims to manage the interest cost of the
Group within the constraints of its financial covenants. The Group will continue to monitor movements in the interest rate
swap market.
At the period end, if Libor interest rates had been 10 basis points higher with all other variables held constant, post-tax profit
would have been £0.1m lower (2017: £0.1m lower) as a result of higher interest expense on floating rate borrowings.
Foreign currency risk
All of the Group’s revenues are in pounds sterling. The majority of purchases are also in sterling, but some goods purchased
direct from overseas suppliers are paid for in US dollars, accounting for just under 20% of stock purchases in the period ended
30 June 2018.
The Group uses various means to cover its exposure to US dollars: holding US dollar cash balances and taking out forward
foreign exchange contracts for the purchase of US dollars.
All the Group’s foreign exchange transactions are designed to satisfy US dollar denominated liabilities. The maximum level of
hedging coverage which will be undertaken is 100% of anticipated expenditure on a three-month horizon, stepping down to
75% on a four to 12-month horizon and 40% on a 13 to 18-month horizon. Coverage beyond 18 months is minimal.
Cash flow hedges are in place to manage foreign exchange rate risk arising from forecast purchases denominated in US dollars.
At the balance sheet date, the fair value of US dollar foreign exchange forward contracts held in cash flow hedges was £3.5m
asset (2017: £0.9m liability) which relates to a commitment to purchase $164m (2017: $140m) for a fixed sterling amount. A fair
value movement of £1.6m (2017: £1.4m) was recognised in other comprehensive income and no ineffectiveness (2017: nil) was
noted on cash flow hedges during the period. In the period, a loss of £2.6m (2017: £9.4m gain) was recycled from the cash flow
hedge reserve to inventory to offset foreign exchange movements on purchases. The remaining hedge reserve balance will be
recycled to the income statement to offset future purchases occurring after the balance sheet date, the majority of which expire
in the next 12 months.
The outstanding US dollar liabilities at the period end were $0.3m (2017: $0.3m).
In the event of a significant adverse movement in the US dollar exchange rate, the Group could seek to minimise the impact on
profitability by changing the selling price of goods, renegotiating terms with suppliers or sourcing from alternative markets.
At the period end, if GBP had strengthened by 10% against USD with all other variables held constant, post-tax profit would
have been £0.4m higher (2017: £0.2m higher) as a result of foreign exchange gains on translation of USD denominated trade
payables compensated by foreign exchange losses on translation of USD cash and cash equivalents. Other components of
equity would have been £9.0m lower (2017: £7.7m lower) as a result of a decrease in fair value of derivatives designated as
cash flow hedges.
Conversely, if GBP had weakened by 10% against USD with all other variables held constant, post-tax profit for the year
would have been £0.5m lower (2017: £0.2m lower) and other components of equity would have been £11.0m higher (2017:
£9.4m higher).
The US dollar period end exchange rate applied in the above analysis is 1.3152 (2017: 1.3002).
134
corporate.dunelm.com Stock code: DNLM 18 Financial risk management continued
Capital management
The Company considers equity plus debt as the capital. There are no externally imposed capital requirements on the Company.
The Board’s objective with respect to capital management is to ensure the Group continues as a going concern in order to
optimise returns to shareholders. The Board’s policy is to retain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development. The Board regularly monitors the level of capital in the Group to ensure
that this can be achieved.
From time to time the Group purchases its own shares on the market. The shares are intended to be used for issuing shares
under the Group’s share option programmes. The Board has authorised a share purchase programme designed to ensure that
all options expected to vest under share option schemes can be fulfilled out of treasury shares.
During the period, the Group amended and extended its syndicated Revolving Credit Facility (‘RCF’). The RCF was increased to
£165m and extended until 2023. The optional accordion facility of £75m remains in place. The terms of the RCF are unchanged
and are consistent with normal practice and include covenants in respect of leverage (net debt to be no greater than 2.5×
EBITDA) and fixed charge cover (EBITDA to be no less than 1.75× fixed charges), both of which were met comfortably as at 30
June 2018. In addition, the Group maintains £20m of uncommitted overdraft facilities with two syndicate partner banks.
The gearing ratio and net debt as a percentage of EBITDA was as follows:
Total borrowings (note 19)
Less: unamortised debt issue costs (note 19)
Less: cash and cash equivalents (note 16)
Net debt
Total equity
Total capital
Gearing ratio
EBITDA before exceptional operating costs
Net debt as % of EBITDA
2018
£’m
140.0
(1.0)
(15.0)
124.0
134.7
258.7
48%
139.6
89%
2017
£’m
140.0
(0.5)
(17.4)
122.1
110.1
232.2
53%
142.2
86%
Fair values
The fair value of the Group’s financial assets and liabilities are equal to their carrying value. The fair value of foreign currency
contracts are amounts required by the counterparties to cancel the contracts at the end of the period.
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
z Level 1: quoted prices in active markets for identical assets or liabilities;
z Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
z Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
All derivative financial instruments carried at fair value have been measured by a Level 2 valuation method, based on
observable market data.
135
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
18 Financial risk management continued
Financial assets/(liabilities)
The carrying value of all financial assets and financial liabilities was materially equal to their fair value.
At 1 July 2017
Cash and cash equivalents
Trade and other receivables
Forward exchange contracts
Total financial assets
Trade and other payables
Accruals (excluding deferred income)
Bank borrowings
Forward exchange contracts
Total financial liabilities
Net financial assets/(liabilities)
At 30 June 2018
Cash and cash equivalents
Trade and other receivables
Forward exchange contracts
Total financial assets
Trade and other payables
Accruals (excluding deferred income)
Bank borrowings
Forward exchange contracts
Total financial liabilities
Net financial assets/(liabilities)
Loans and
receivables
£’m
Other financial
liabilities at
amortised cost
£’m
Derivatives
used for
hedging
£’m
Financial
assets/liabilities
at fair value
through profit
and loss
£’m
17.4
4.7
—
22.1
—
—
—
—
—
22.1
—
—
—
—
(80.0)
(76.5)
(139.5)
—
(296.0)
(296.0)
—
—
1.1
1.1
—
—
—
(2.0)
(2.0)
(0.9)
—
—
—
—
—
—
—
—
—
—
Loans and
receivables
£’m
Other financial
liabilities at
amortised cost
£’m
Derivatives
used for
hedging
£’m
Financial
assets/liabilities
at fair value
through profit
and loss
£’m
15.0
4.6
—
19.6
—
—
—
—
—
19.6
—
—
—
—
(51.4)
(70.0)
(139.0)
—
(260.4)
(260.4)
—
—
4.2
4.2
—
—
—
(0.7)
(0.7)
3.5
—
—
—
—
—
—
—
—
—
—
2018
£’m
8.8
5.9
0.3
15.0
Total
£’m
17.4
4.7
1.1
23.2
(80.0)
(76.5)
(139.5)
(2.0)
(298.0)
(274.8)
Total
£’m
15.0
4.6
4.2
23.8
(51.4)
(70.0)
(139.0)
(0.7)
(261.1)
(237.3)
2017
£’m
16.8
0.3
0.3
17.4
The currency profile of the Group’s cash and cash equivalents is as follows:
Sterling
US dollar
Euro
136
corporate.dunelm.com Stock code: DNLM
19 Bank loans
Total borrowings
Less: unamortised debt issue costs
2018
£’m
140.0
(1.0)
139.0
2017
£’m
140.0
(0.5)
139.5
During the period, the Group amended and extended its syndicated Revolving Credit Facility (‘RCF’). The RCF was increased
to £165m (2017: £150m) and extended until 5 March 2023 (note 18). £140m of this facility was drawn down at 30 June 2018
(2017: £140m). The carrying amount of bank borrowings is equal to fair value. The Group also has an accordion option with a
maximum facility of £75m, as well as an overdraft facility of £20m.
The below analysis shows the reconciliation of net debt:
Net debt at 1 July 2017 and 2 July 2016
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange
Repayments of revolving credit facility
Drawdowns on revolving credit facility
Loan transaction costs
Change in net debt resulting from cash flows
Amortisation of debt issue costs
Movement in net debt
Net debt represented by
Cash and cash equivalents (note 16)
Non-current borrowings (note 19)
Net debt including unamortised debt issue costs
Unamortised debt issue costs
Net debt at 30 June 2018 and 1 July 2017
2018
£’m
(122.1)
(1.9)
(0.5)
10.0
(10.0)
0.8
(1.6)
(0.3)
(1.9)
15.0
(140.0)
(125.0)
1.0
2017
£’m
(79.3)
2.9
(0.4)
5.0
(50.0)
—
(42.5)
(0.3)
(42.8)
17.4
(140.0)
(122.6)
0.5
(124.0)
(122.1)
20 Provisions
Property related
1.7
(0.3)
1.2
(0.9)
1.7
Balance at
1 July 2017
£’m
Utilised in the
period
£’m
Created in the
period
£’m
Released in the
period
£’m
Balance at
30 June 2018
£’m
Property related provisions consist of costs associated with vacant property and dilapidations. Dilapidations are based on the
Directors’ best estimate of the Group’s future liabilities.
137
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
21 Issued share capital
In issue at the start of the period
In issue at the end of the period
Ordinary Shares of 1p each:
Authorised
Allotted, called up and fully paid
2018
Number of
Ordinary Shares
of 1p each
2017
Number of
Ordinary Shares
of 1p each
202,833,931
202,833,931
202,833,931
202,833,931
2018
Number of
shares
2018
£’m
2017
Number of
shares
500,000,000
202,833,931
5.0
2.0
500,000,000
202,833,931
Proceeds received in relation to shares issued during the period were £nil (2017: £nil).
22 Treasury shares
Outstanding at the beginning of the period
Purchased during the period
2018
Number of
shares
1,150,642
—
Reissued during the period in respect of share option schemes
(236,007)
Outstanding at the end of the period
914,635
2018
£’m
10.3
—
(2.1)
8.2
2017
Number of
shares
846,455
500,000
(195,813)
1,150,642
2017
£’m
5.0
2.0
2017
£’m
7.8
4.2
(1.7)
10.3
The Group acquired no shares through purchases on the London Stock Exchange during the period (2017: 500,000).
The Group reissued 236,007 (2017: 195,813) treasury shares during the period for a total value of £2.1m (2017: £1.7m).
Proceeds from the issue of treasury shares included in the Consolidated Statement of Cash Flows of £1.3m (2017: £0.9m) is the
amount employees contributed.
The Group has the right to reissue the remaining treasury shares at a later date.
23 Share-based payments
As at 30 June 2018, the Group operated four share award plans:
a. Dunelm Group Share Option Plan (‘GSOP’)
b. Dunelm Group Savings Related Share Option Plan (‘Sharesave’)
c. Long Term Incentive Plan (‘LTIP’)
d. Restricted Stock Award
There were 64,329 exercisable options in total under these schemes as at 30 June 2018 (2017: 79,168).
The fair value of options granted during the period was determined using the Black–Scholes valuation model. Full disclosures
have not been given based on the immateriality of the figures.
a) Dunelm Group Share Option Plan
The GSOP was established in December 2003. Options have a vesting period of three years from date of grant and a maximum
life of ten years. All grants have an exercise price equal to market price at date of grant. These grants are dependent on the
level of growth in the Group’s EPS relative to RPI as well as continuing employment with the Group.
138
corporate.dunelm.com Stock code: DNLM
23 Share-based payments continued
The number and weighted average exercise price of options under the GSOP at 30 June 2018 were as follows:
Number of
shares under
option
2018
Weighted
average
exercise price
2018
Number of
shares under
option
2017
Weighted
average
exercise price
2017
Outstanding at beginning of the period
81,658
828.0p
Granted during the period
Lapsed during the period
Outstanding at end of the period
—
—
—
—
81,658
828.0p
76,114
20,000
(14,456)
81,658
851.0p
772.5p
873.0p
828.0p
No options were exercised during the period (2017: none).
b) Dunelm Group Savings Related Share Option Plan
The Sharesave scheme was established in 2006 and is open to all staff with eligible length of service. Grants are made under
the scheme annually. Options may be exercised under the scheme within six months of the completion of each three-year
savings contract. There is provision for early exercise in certain circumstances such as death, disability, redundancy and
retirement.
The number and weighted average exercise price of options outstanding under the Sharesave at 30 June 2018 were as follows:
Number of
shares under
option
2018
Weighted
average
exercise price
2018
Number of
shares under
option
2017
Weighted
average
exercise price
2017
Outstanding at beginning of the period
1,276,252
659.1p
1,152,090
Granted during the period
Exercised during the period
Lapsed during the period
844,672
(209,519)
(613,248)
602.0p
650.5p
639.5p
759,151
(139,973)
(495,016)
Outstanding at end of the period
1,298,157
632.6p
1,276,252
704.8p
618.5p
696.7p
692.6p
659.1p
The weighted average share price at the time of exercise was 664.6p (2017: 758.2p).
c) Long Term Incentive Plan
The LTIP was approved by the Board in 2006, enabling the Group to award shares to particular individuals, normally in the form
of nominal cost options. The LTIP is administered by the Remuneration Committee. Two grants were made in the period, to the
Executive Directors and senior management. These grants are exercisable in November 2020 and February 2021, dependent
on the level of growth in Group EPS relative to RPI, as well as continuing employment. The maximum life of options under the
LTIP is ten years from the date of grant. Full details of this plan are included in the Remuneration Report on pages 70 to 95.
The number and weighted average exercise price of options under the LTIP at 30 June 2018 were as follows:
Outstanding at beginning of the period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
Number of
shares under
option
2018
Weighted
average
exercise price
2018
Number of
shares under
option
2017
Weighted
average
exercise price
2017
1,046,375
666,804
(26,488)
(636,323)
1,050,368
—
—
—
—
—
772,013
532,240
(55,840)
(202,038)
1,046,375
—
—
—
—
—
The weighted average share price at the time of exercise was 639.0p (2017: 783.9p).
139
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Consolidated
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
23 Share-based payments continued
d) Restricted Stock Award
The Restricted Stock Award was approved by the Board in this financial period, enabling the Group to award shares to
particular individuals, normally in the form of nominal cost options. The Restricted Stock Award is administered by the
Remuneration Committee. One grant was made in the year, to Senior and Store Managers. These grants are exercisable in
November 2020, dependent on continuing employment and fulfilment of a performance condition. The maximum life of
options under the Restricted Stock Award is ten years from the date of grant. No Directors of Dunelm Group plc are eligible to
receive a Restricted Stock Award.
The number and weighted average exercise price of options under the Restricted Stock Award at 30 June 2018 were as follows:
Number of
shares under
option
2018
Weighted
average
exercise price
2018
Number of
shares under
option
2017
Weighted
average
exercise price
2017
Outstanding at beginning of the period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
—
12,800
—
(800)
12,000
—
—
—
—
—
—
—
—
—
—
No options were exercised during the period (2017: none).
Impact on income statement
The total expense/(income) recognised in the income statement arising from share-based payments were as follows:
GSOP
Sharesave
LTIP
Restricted Stock Award
2018
£’m
—
0.1
0.2
—
0.3
—
—
—
—
—
2017
£’m
—
0.5
(0.8)
—
(0.3)
24 Commitments
As at 30 June 2018, the Group had entered into capital contracts for new stores and refits amounting to £5.7m (2017: £14.5m)
and £1.9m (2017: nil) for intangible assets.
The future minimum lease payments under non-cancellable operating leases were as follows:
Within one year
In the second to fifth year inclusive
After five years
2018
Motor
vehicles
£’m
2018
Land and
buildings
£’m
2018
Plant and
machinery
£’m
0.9
1.1
—
2.0
52.9
178.3
159.1
390.3
2.4
4.9
0.4
7.7
2018
Total
£’m
56.2
184.3
159.5
400.0
2017
Motor
vehicles
£’m
2017
Land and
buildings
£’m
2017
Plant and
machinery
£’m
0.8
0.8
—
1.6
48.8
175.2
167.2
391.2
1.0
2.4
0.5
3.9
2017
Total
£’m
50.6
178.4
167.7
396.7
The Group has 167 (2017: 164) operating leases in respect of properties. These leases run for periods of up to 20 years, with an
option to renew leases on expiry. Lease payments are typically reviewed every five years.
The Group also leases a number of vehicles, shop fittings and items of computer hardware under operating leases. These vary
in length.
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corporate.dunelm.com Stock code: DNLM
25 Contingent liabilities
The Group had no contingent liabilities at the period end date (2017: none).
26 Related parties
Identity of related parties
The Group has related party relationships with its subsidiaries and with its Directors. Transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on consolidation for the Group. A list of subsidiaries can be found
in note 4 to the Parent Company financial statements.
Key management personnel
The key management personnel of the Group comprise members of the Board of Directors, the Executive Board and David
Stead, the Group’s interim Chief Financial Officer.
Directors of the Company and their close relatives control 51.5% (2017: 51.4%) of the voting shares of the Company.
Disclosures relating to remuneration of Directors are set out in the Remuneration Report on pages 70 to 95. The remuneration
of the key management personnel, excluding David Stead is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
David Stead’s remuneration is set out below:
Short-term employee benefits
Post-employment benefits
2018
£’m
5.7
0.3
0.1
6.1
2018
£’000
48.9
3.1
52.0
2017
£’m
4.3
0.5
(0.4)
4.4
2017
£’000
—
—
—
From time to time Directors of the Group, or their related entities, may purchase goods from the Group. These purchases are on
the same terms and conditions as those entered into by other Group employees and values involved are trivial.
27 Ultimate controlling party
The Directors consider that the Adderley family is the ultimate controlling party of Dunelm Group plc by virtue of their
combined shareholding.
28 Subsequent events
There are no reportable subsequent events for Dunelm Group plc.
141
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Parent Company Statement
of Financial Position
AS AT 30 JUNE 2018
Non-current assets
Investments
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Total current assets
Total assets
Current liabilities
Trade and other payables
Liability for current tax
Total current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Non-distributable reserves
Capital redemption reserve
Retained earnings
Total equity attributable to equity holders of the Parent
The Company made a profit after tax of £43.1m (2017: £1.5m).
Note
30 June
2018
£’m
4
5
6
7
8
11
52.5
0.1
52.6
181.6
181.6
234.2
—
—
—
—
234.2
2.0
1.6
7.3
43.2
180.1
234.2
1 July
2017
£’m
52.2
0.1
52.3
191.0
191.0
243.3
(0.1)
(0.3)
(0.4)
(0.4)
242.9
2.0
1.6
7.0
43.2
189.1
242.9
The financial statements on pages 142 to 151 were approved by the Board of Directors on 12 September 2018 and were
signed on its behalf by:
Nicholas Wilkinson
Director
Company number 4708277
Parent Company Statement
of Cash Flows
FOR THE 52 WEEKS ENDED 30 JUNE 2018
There were no cash movements during the period for the Company as any cash transactions were executed by other members
of the Dunelm Group plc Group on behalf of the Company. As a result, no statement of cash flows has been presented in these
financial statements.
142
corporate.dunelm.com Stock code: DNLM
Parent Company Statement
of Changes in Equity
FOR THE 52 WEEKS ENDED 30 JUNE 2018
As at 2 July 2016
Profit for the period
Total comprehensive income for
the period
Purchase of treasury shares
Issue of treasury shares
Share-based payments
Current corporation tax on share
options exercised
Dividends
Total transactions with owners,
recorded directly in equity
As at 1 July 2017
Profit for the period
Total comprehensive income for
the period
Proceeds from issue of treasury shares
Share-based payments
Dividends
Total transactions with owners,
recorded directly in equity
As at 30 June 2018
Issued share
capital
£’m
Note
Share
premium
account
£’m
Non-
distributable
reserve
£’m
Capital
redemption
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
2.0
1.6
7.1
43.2
242.8
296.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.0
1.6
—
—
—
—
—
—
—
—
—
—
—
—
2.0
1.6
—
—
—
—
(0.1)
—
—
(0.1)
7.0
—
—
—
0.3
—
0.3
7.3
—
—
—
—
—
—
—
—
1.5
1.5
(4.3)
0.9
(0.1)
1.5
1.5
(4.3)
0.9
(0.2)
(0.1)
(51.6)
(0.1)
(51.6)
(55.2)
(55.3)
43.2
189.1
242.9
—
—
—
—
—
—
43.1
43.1
43.1
43.1
1.3
—
1.3
0.3
(53.4)
(53.4)
(52.1)
(51.8)
43.2
180.1
234.2
12
13
8
3
12
13
3
The non-distributable reserve’s purpose is to reflect movements in share-based payments in respect of awards given by the
Parent Company to employees of subsidiaries.
143
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Parent Company
Accounting Policies
FOR THE 52 WEEKS ENDED 30 JUNE 2018
General information
Dunelm Group plc is incorporated and domiciled in the UK. Dunelm Group plc is a listed public company, limited by shares
and the company registration number is 04708277. The registered office is Watermead Business Park, Syston, Leicestershire,
England, LE7 1AD.
Basis of preparation
The Company financial statements have been prepared and approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’) and as applied in accordance with the provisions of the
Companies Act 2006.
The financial statements of the Company are prepared under the historical cost convention, in accordance with the Companies
Act 2006, applicable accounting standards and specifically in accordance with the accounting policies set out below.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the
financial statements.
Financial income and expenses
Financial income comprises interest receivable on intercompany balances held with other Group entities.
Share-based payments
The Company operates one equity-settled, share-based compensation plan, under which the entity receives services from
employees as consideration for equity instruments (options) of the Company. The fair value of the employee services received
in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
z Including any market performance conditions (for example, an entity’s share price);
z Excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth
targets and remaining an employee of the entity over a specified time period); and
z Including the impact of any non-vesting conditions (for example, the requirement for employees to save)
Non-market performance and service conditions are included in assumptions about the number of options that are expected
to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date
fair value is estimated for the purposes of recognising the expense during the period between service commencement period
and grant date.
At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest
based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity.
When the options are exercised, the Company either issues new shares, or uses treasury shares purchased for this purpose. For
issued new shares, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal
value) and share premium.
The social security contributions payable in connection with the grant of the share options is considered an integral part of the
grant itself, and the charge will be treated as a cash-settled transaction.
144
corporate.dunelm.com Stock code: DNLM Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax represents the expected tax payable on the taxable income for the period, using tax rates enacted or substantively
enacted at the balance sheet date, together with any adjustment to tax payable in respect of previous periods.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is determined using tax rates (and laws) that have been enacted or substantively enacted at the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be recognised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority on either the taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
Dividends
Dividends are recognised as a liability in the period in which they are approved such that the Company is obligated to pay
the dividend.
Financial assets
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting
period where they are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other
receivables’ (note 6).
Trade and other receivables
Trade and other receivables are initially recognised at fair value and then carried at amortised cost, net of impairment
provisions.
Share capital
Where the Company purchases its own equity share capital (treasury shares) the consideration paid, including any directly
attributable incremental costs, is deducted from equity attributable to the Company’s equity holders until the shares are
cancelled or reissued. Where such shares are subsequently sold or reissued, any consideration received net of any directly
attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s
equity holders.
Investments
Investments in subsidiary undertakings are stated at the adjusted cost of the investment. IFRS 2 requires the Parent Company to
recognise an increase in the cost of its investment in a subsidiary which has issued share options in the Parent Company’s shares
to its employees.
New standards and interpretations
No new standards, amendments or interpretations, effective for the first time for the period beginning on or after 2 July 2017,
have had a material impact on the Parent Company.
At the balance sheet date there are a number of new standards and amendments to existing standards in issue but not yet
effective. None of these is expected to have a significant effect on the financial statements of the Parent Company. Further
details of these can be found in Accounting Policies in the Group’s financial statements on pages 112 to 141.
145
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials Notes to the Parent Company
Financial Statements
FOR THE 52 WEEKS ENDED 30 JUNE 2018
1 Income statement
The Company made a profit after tax of £43.1m (2017: £1.5m). The Directors have taken advantage of the exemption available
under section 408 of the Companies Act 2006 and have not presented an income statement for the Company alone.
The Company is not required to give details of the fees paid to its auditor in accordance with the Companies (Disclosure of
Auditors’ Remuneration) Regulations 2005.
2 Employee costs
The Company has no employees other than the four Executive Directors and the Non-Executive Directors. Full details of the
Directors’ remuneration and interests are set out in the Remuneration Report on pages 70 to 95. Share-based payments details
are given in note 13 on page 150.
The Parent Company does not receive any recharge in respect of Directors’ remuneration.
3 Dividends
The dividends set out in the table below relate to the 1 pence Ordinary Shares.
Final for the period ended 2 July 2016
– paid 19.1 pence
Interim for the period ended 1 July 2017
– paid 6.5 pence
Final for the period ended 1 July 2017
– paid 19.5 pence
Interim for the period ended 30 June 2018
– paid 7.0 pence
2018
52 weeks
£’m
2017
52 weeks
£’m
—
—
39.3
14.1
53.4
38.5
13.1
—
—
51.6
The Directors are proposing a final dividend of 19.5 pence per Ordinary Share for the period ended 30 June 2018 which
equates to £39.4m. The dividend will be paid on 7 December 2018 to shareholders on the register at the close of business on
16 November 2018.
146
corporate.dunelm.com Stock code: DNLM
4 Investments
Shares in subsidiary undertakings:
As at 2 July 2016
Share-based payments
As at 1 July 2017
Share-based payments
As at 30 June 2018
£’m
52.3
(0.1)
52.2
0.3
52.5
The following were subsidiaries as at 30 June 2018 and 1 July 2017:
Subsidiary
Dunelm Limited
Dunelm (Soft Furnishings) Limited*
Dunelm Estates Limited*
Zoncolan Limited*
Fogarty Holdings Limited*
Globe Online Limited*
Achica Brand Management Limited (Registered in Cyprus)*
* Share capital held by subsidiary undertaking.
Proportion of
ordinary shares
held
100%
100%
100%
100%
100%
100%
100%
Nature of business
Holding company
Retailer of soft furnishings
Property holding company
Property holding company
Non-trading company
Dormant
Intellectual property holding company
Dunelm Group plc, the Parent Company and its subsidiaries (excluding Achica Brand Management Limited) are incorporated
and domiciled in the UK. The registered office is Watermead Business Park, Syston, Leicestershire, England, LE7 1AD.
Achica Brand Management Limited was incorporated in Cyprus on 27 June 2011 as a private limited liability company under
the provisions of the Cyprus Companies Law, Cap. 113. Its registered office is at 28 Oktovriou, 261, View Point Tower, 3035,
Limassol, Cyprus.
5 Deferred tax assets
Employee benefits
The movement in deferred tax assets is as follows:
Assets
2018
£’m
0.1
2017
£’m
0.1
Balance at
2 July 2016
£’m
Recognised in
income
£’m
Recognised in
equity
£’m
Balance at
1 July 2017
£’m
Employee benefits
0.2
(0.1)
—
0.1
Employee benefits
Balance at
1 July 2017
£’m
Recognised in
income
£’m
Recognised in
equity
£’m
Balance at
30 June 2018
£’m
0.1
—
—
0.1
147
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Parent Company
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
6 Trade and other receivables
Amounts owed by group undertakings
2018
£’m
181.6
181.6
2017
£’m
191.0
191.0
Amounts owed by subsidiary undertakings are immediately repayable. Interest is charged monthly on all intercompany
balances at an annual rate of 2%.
These amounts pose no liquidity or credit risk as they are owed by other group undertakings and are expected to be settled by
group transactions.
7 Trade and other payables
Other taxation and social security
8 Taxation
Current taxation
UK corporation tax charge for the period
Deferred taxation
Origination of temporary differences
Total tax expense
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
Profit before taxation
UK corporation tax at standard rate of 19% (2017: 19.75%)
Factors affecting the charge in the period:
Non-deductible expenses
Income not subject to tax
Group relief
Tax charge
2018
£’m
—
—
2017
£’m
0.1
0.1
2018
52 weeks
£’m
2017
52 weeks
£’m
—
—
—
—
—
0.2
0.2
0.1
0.1
0.3
2018
52 weeks
£’m
2017
52 weeks
£’m
43.1
8.2
—
(8.0)
(0.2)
—
1.8
0.4
(0.1)
—
—
0.3
The UK Government substantively enacted a reduction in future tax rates by 1% from 1 April 2017 to 19% and a further 1%
reduction to 18% from 1 April 2020. In September 2016, the Government substantively enacted a further 1% reduction in
corporation tax to 17% from 1 April 2020.
148
corporate.dunelm.com Stock code: DNLM
9 Interest bearing loans and borrowings
The Company has no committed borrowing facilities as any cash transactions are executed by other members of the Dunelm
Group on behalf of the Company.
10 Financial risk management
Capital management
The Board’s objective with respect to capital management is to ensure the Company continues as a going concern in order to
optimise returns to shareholders. The Board’s policy is to retain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development. The Board regularly monitors the level of capital in the Group to ensure
that this can be achieved.
11 Issued share capital
Number of
Ordinary
Shares of 1p
each
2018
Number of
Ordinary Shares
of 1p each
2017
Number of
B Shares of
0.001p each
2018
Number of B
Shares of 0.001p
each
2017
In issue at the start of the period
In issue at the end of the period
202,833,931
202,833,931
202,833,931
202,833,931
—
—
Proceeds received in relation to shares issued during the period were £nil (2017: £nil).
Ordinary shares of 1p each:
Authorised
Allotted, called up and fully paid
2018
Number of
shares
2018
£’m
2017
Number of
shares
500,000,000
202,833,931
5.0
2.0
500,000,000
202,833,931
The holders of the Ordinary Shares are entitled to receive dividends as declared and are entitled to one vote per share.
12 Treasury shares
Outstanding at the beginning of the period
Purchased during the period
Reissued during the period in respect of share option schemes
Outstanding at the end of the period
2018
Number of
shares
1,150,642
—
(236,007)
914,635
2018
£’m
10.3
—
2017
Number of
shares
846,455
500,000
(2.1)
(195,813)
8.2
1,150,642
—
—
2017
£’m
5.0
2.0
2017
£’m
7.8
4.2
(1.7)
10.3
The Group acquired no shares through purchases on the London Stock Exchange during the period (2017: 500,000).
The Group reissued 236,007 (2017: 195,813) treasury shares during the period for a total value of £2.1m (2017: £1.7m).
Proceeds from the issue of treasury shares included in the Consolidated Statement of Cash Flows of £1.3m (2017: £0.9m) is the
amount employees contributed.
The Group has the right to reissue the remaining treasury shares at a later date.
149
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Notes to the Parent Company
Financial Statements CONTINUED
FOR THE 52 WEEKS ENDED 30 JUNE 2018
13 Share-based payments
As at 30 June 2018, the Company operated one share award plan:
z Long Term Incentive Plan (‘LTIP’)
There were no exercisable options under this scheme as at 30 June 2018 (2017: nil).
Long Term Incentive Plan
The LTIP was approved by the Board in 2006, enabling the Group to award shares to particular individuals, normally in the form
of nominal cost options. The LTIP is administered by the Remuneration Committee. One grant was made in the period, to the
Executive Directors and senior management. This grant is exercisable in February 2021, dependent on the level of growth in
Group EPS relative to RPI, as well as continuing employment. The maximum life of options under the LTIP is ten years from the
date of grant. Full details of this plan are included in the Remuneration Report on pages 70 to 95.
The fair value of options granted during the period was determined using the Black–Scholes valuation model. The significant
inputs into the model are detailed below. The volatility is measured at the standard deviation of share returns based on the daily
share price over the 20 days prior to the grant date.
The fair value per option granted and the assumptions used in the calculations are as follows:
Share price at date of grant
Volatility
Dividend yield
Option life
Risk-free interest rate
Discount factor, based on dividend yield to vesting date
Fair value of option
February
2018
584.0p
29.00%
4.0%
3 years
1.02%
0.670
391.4p
The fair value of additional options granted and the assumptions used in the calculations are as follows:
Share price at date of grant
Volatility
Dividend yield
Remaining option life
Risk-free interest rate
Discount factor, based on dividend yield to vesting date
Fair value of option
October
2015
October
2013
942.5p
31.90%
4.0%
3 years
1.00%
0.669
631.0p
876.5p
39.85%
4.0%
3 years
1.35%
0.670
587.4p
October
2013
876.5p
32.78%
4.0%
15 months
1.40%
0.718
629.5p
150
corporate.dunelm.com Stock code: DNLM
13 Share-based payments continued
The number and weighted average exercise price of options under the LTIP at 30 June 2018 is as follows:
Outstanding at beginning of the period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
Number of
shares under
option
2018
Weighted
average
exercise price
2018
Number of
shares under
option
2017
Weighted
average
exercise price
2017
418,904
170,000
(26,488)
(427,036)
135,380
—
—
—
—
—
279,320
170,000
(7,470)
(22,946)
418,904
—
—
—
—
—
The total expense recognised in the income statement arising from share-based payments is as follows:
LTIP
2018
£’m
—
2017
£’m
0.3
14 Contingent liability
The Company and certain subsidiaries have given joint and several guarantees in connection with all bank facilities provided by
the Group’s principal bankers.
15 Related party disclosure
The amount due to the Company from subsidiary undertakings is set out in note 6. Transactions between the Company and its
subsidiaries were as follows:
Dividends received
Net interest received
2018
£’m
42.0
3.9
45.9
2017
£’m
—
4.3
4.3
Key management personnel
All employees of the Company are key management personnel including David Stead, the Group’s interim
Chief Financial Officer.
Directors of the Company and their close relatives control 51.5% (2017: 51.4%) of the voting shares of the Company.
Disclosures relating to the remuneration of Directors are set out in the Remuneration Report on pages 70 to 95. Disclosures
relating to the remuneration of David Stead are set out in note 26 in the Group’s financial statements.
16 Subsequent events
There are no reportable subsequent events for Dunelm Group plc.
151
DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018Financials
Advisers and Contacts
CORPORATE BROKERS AND
FINANCIAL ADVISERS
LEGAL ADVISERS
INDEPENDENT AUDITOR
PRINCIPAL BANKERS
REGISTRARS
FINANCIAL PUBLIC RELATIONS
UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP
Tel: 020 7567 8000
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: 020 7710 7600
Allen & Overy LLP
One Bishops Square
London E1 6AO
Tel: 020 3088 0000
PricewaterhouseCoopers LLP
Cornwall Court
19 Cornwall Street
Birmingham B3 2DT
Tel: 0121 265 5000
Barclays Bank PLC
Midlands Corporate Banking
PO Box 333
15 Colmore Row
Birmingham B3 2WN
Tel: 0345 755 5555
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel: 0371 384 20301
MHP Communications
60 Great Portland Street
London W1W 7RT
Tel: 020 3128 8100
REGISTERED OFFICE
INVESTOR RELATIONS
Store Support Centre
Watermead Business Park
Syston
Leicestershire LE7 1AD
Company Registration No: 4708277
corporate.dunelm.com
Tel: 0116 264 4439
Email: investorrelations@dunelm.com
1 If dialling internationally, call +44 121 415 7047. The helpline is open Monday to Friday 8.30 am to 5.30 pm,
excluding bank holidays.
152
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DUNELM GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 30 JUNE 2018CompanyInformation corporate.dunelm.com
Tel: 0116 264 4439
Email: investorrelations@dunelm.com
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