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Stock code: DNLM
Dunelm Group plc
Annual Report and Accounts
for the period ended 2 July 2016
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About us
Dunelm is the UK’s No. 1 Homewares retailer offering over 26,000 quality products
across more than 28 different departments. The business operates from 152 ‘out-of-
town’ superstores, five high streets and provides further ‘multi-channel’ convenience
through online, mobile, catalogue, telephone ordering and reserve & collect
propositions.
We create value through our products, customer focus, people and business strength
(as demonstrated in our business model on page 5). This underpins our three-pillar
strategy through which we intend to achieve our overall objective of growing sales by
50% in the medium term (see our strategy on pages 6 to 9).
INVESTMENT PROPOSITION
Customer Offer
We provide customers with unrivalled
choice with over 26,000 lines across
all key homewares categories, offering
excellent value for money, and supported
by friendly and knowledgeable customer
service.
Property Portfolio
Our portfolio of 152 UK superstores
comprises good quality trading locations
at low average rents.
Supplier Relationships
We have a number of long-established
UK suppliers who are well placed to
support the growth and development of
our ranges.
Scale
As market leader and with a focus purely
on homewares, we are able to leverage
economies of scale whilst continuing
to build on our expertise in our chosen
categories.
Multi-channel Capability
We have a high quality website allowing
customers to shop with us online for
home delivery or to reserve products for
collection in store.
Financial Strength
With a highly cash generative business
model and conservative capital structure,
we are able to take a long-term view of
both trading and investment decisions.
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dunelm.com Stock code: DNLM
dunelm.com Stock code: DNLM
Navigating the reportLook out for these iconsRead more in this reportFind more information online at www.dunelm.com@ContentsChairman’s Statement 3Marketplace 4Business Model 5Strategy 6UK Store Locations 7Strategic Initiatives 8Chief Executive’s Review 10Key Performance Indicators 12Chief Financial Officer’s Review 14Risks and Risk Management 17Principal Risks and Uncertainties 19Corporate Social Responsibility 26Directors and Officers 36Chairman’s Letter 39Corporate Governance Report 40Letter from the Chair of the Audit and Risk Committee 47Audit and Risk Committee Report 48Letter from the Chair of the Remuneration Committee 52Executive Remuneration structure - At a Glance 53Remuneration Report 54Letter from the Chair of the Nominations Committee 78Nominations Committee Report 79Directors’ Report 82Statement of Directors’ Responsibilities 84Independent Auditors’ Report 86 Consolidated Income Statement 91Consolidated Statement of Comprehensive Income 92Consolidated Statement of Financial Position 93Consolidated Statement of Cash Flows 94Consolidated Statement of Changes in Equity 95Accounting Policies 96Notes to the Annual Financial Statements 100Parent Company Statement of Financial Position 116Parent Company Statement of Cash Flows 116Parent Company Statement of Changes in Equity 117Parent Company Accounting Policies 118Notes to the Parent Company Financial Statements 119Company Information Advisers and Contacts 125Store Listing 126financialsstrategic reportstrategic reportgovernance1Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016Revenue£880.9m (2015: £822.7m† )Operating profit £129.3m (2015: £121.3m† )Profit before tax£128.9m (2015: £122.6m* )Net cash from operations £148.2m (2015: £118.2m* )6 new stores openedLike-for-like sales up 2.5%Home delivery sales up 23.2%Continued investment in our infrastructureSpecial distribution of 31.5p per shareDividend policy change to reduce ordinary dividend cover to a range of 1.75× to 2.25×* 2016 was a 52 week accounting period whilst the comparative was a 53 week accounting period. The additional 53rd week contributed £13.1m of revenue and £1.2m of operating profit.† 52 weeksDunelm AR2016-front.indd 120/10/2016 15:57:16 Strategic report
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dunelm.production.investis.com
The competitive landscape in retail
continues to change at a fast pace
with the growth of new competition,
especially online. Our operating model
has allowed us to gain market share in
times of uncertainty, and post-Brexit,
we are confident the same opportunities
exist now. We have ambitious plans
to continue to grow our business and
we intend to grasp the opportunities
to further strengthen our competitive
position. We remain confident in the
Dunelm proposition and look forward to
reporting further progress.
Andy Harrison
Chairman
14 September 2016
Chairman’s Statement
Andy Harrison Chairman
I am pleased to report another year
of good progress for Dunelm. On a
consistent 52-week basis, we grew
our total sales by 7.1%, driven by the
opening of six new stores, 1.0% growth
in our like-for-like store sales and 23.2%
growth in our home delivery sales. We
converted this revenue growth into 6.2%
growth (5.1% growth on a 53-week basis)
in pre-tax profits and 7.5% growth (6.3%
growth on a 53-week basis) in earnings
per share, notwithstanding our sustained
investment in the business.
This profit growth, coupled with strong
cash flow, allows us to propose a 19.4%
increase in the final dividend, which
would increase the full year dividend by
16.7%. In addition, we paid a special
dividend of 31.5 pence per share during
the year, bringing the total dividend
proposed for the year to 56.6 pence
per share, some £115m in shareholder
distributions. In view of the scale of the
special dividends in recent years, the
Board has refined our dividend policy
to provide a slightly higher ordinary
dividend pay-out ratio, the details of
which are included in the Chief Financial
Officer’s report.
Dunelm has become the UK’s leading
homewares retailer by offering customers
an unrivalled proposition through our
national network of 152 superstores and
website, providing an extensive choice
of good quality, great value products,
backed up by the knowledge and
expertise of nearly 9,000 colleagues.
Let me thank all our colleagues for
their tremendous contribution to our
continuing success. We really appreciate
their hard work and dedication.
Our Chief Executive, John Browett,
describes in the following report the
key initiatives which our teams are
implementing to further strengthen our
business and support future growth.
These initiatives, which represent a
considerable investment in the business,
include exciting new store designs,
investment in our online shop and its
supporting infrastructure, and improved
supply chain and warehousing which
will improve product availability and
efficiency. In addition, we shall continue
to invest in our people with increased
training and talent development
programmes. In short, we aim to give our
customers even more reasons to shop at
Dunelm and to make Dunelm a better
place for our colleagues to work.
We have successfully navigated a year
of considerable change in our Board,
with John Browett formally taking the
CEO reins in January 2016, Keith Down
becoming our new CFO in December
2015 and two new Non-Executive
Directors, William Reeve and Peter
Ruis, joining our Board. John has also
strengthened our Executive team with a
number of new appointments, which are
central to delivering our plans. We are
pleased to have brought in strong new
leadership whilst maintaining Dunelm’s
distinct business principles and culture,
which have sustained our growth since
the business was founded by Bill and
Jean Adderley in 1979. We are proud of
our culture which is exemplified by our
Deputy Chairman, Will Adderley.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Marketplace
We continue to enhance our proposition to take advantage
of market changes and opportunities, with our online channel
being a key area of focus for us.
@
Read more online at
dunelm.production.investis.com
MARKET SIZE AND GROWTH
The market has seen continued growth in the past year.
There has been no immediate impact of Brexit but it is
too early to ascertain longer term impact on demand in
the homewares market. The UK homewares market is
estimated to reach £11.6bn in 2016.
Market size
£bn
10.8
10.9
11.0
11.2
11.4
MARKET SHARE
Dunelm continues to grow share and affirm its position
with clear market leadership. Whilst the market remains
fragmented, the top three retailers continue to grow
share and now have a combined share of 19.2% vs
15.1% four years ago.
DRIVERS OF RETAILER SELECTION
Value for money is the most important consideration for
a homewares customer, followed by quality and price.
Dunelm’s proposition enables customers to buy across
a broad spectrum of both price and quality. Dunelm has
a market leading range and its key customer service
metric, net promoter score, is consistently high.
2011
2012
2013
2014
2015
Source: Verdict Retail
Market share
%
Calendar Year
2011
2015
Dunelm
5.9%
8.1%
John Lewis
5.5%
6.4%
IKEA
Top 10
3.7%
4.7%
42.2% 47.3%
Source: Verdict Retail
Top five drivers of homewares
retail selection
% of customers citing reasons as important when
selecting homewares retailers
92%
91%
90%
84%
Value for money
Quality
Price
Range
Service
70%
Source: Verdict Retail
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PRODUCT
PEOPLE
Business Model
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WHAT WE DO…
Dunelm is the market leader in the £11.6bn United Kingdom Homewares market. We
currently operate 157 stores, of which 152 are out-of town superstores and five are located on
high streets, and an online store to be found at www.dunelm.com.
Read more online at
dunelm.production.investis.com
PRODUCT
CUSTOMER FOCUS
We source over 26,000 homewares products
across all key homewares categories, the
majority under our own brands.
We have a number of long-established suppliers
who are well placed to support the growth and
development of our ranges.
We provide customers with an unrivalled range of
products, offering excellent value for money, which
they can purchase at their convenience (in one of our
152 nationwide superstores, from our website or our
catalogue for home delivery or collection in store).
Our depth of range is supported by
friendly and knowledgeable
customer service.
Va l u e
X Customers
X Colleagues
X Shareholders
X Communities
Delivering value for our:
PEOPLE
We employ almost
9,000 people, the majority in
our stores, but also in our store support centre,
in our warehouse and in our contact centre.
Our Board, Executive Board and Senior
Management Team comprise a range of high
calibre individuals with a depth of retail experience,
supported by our enthusiastic, hardworking,
knowledgeable colleagues across the business.
We offer competitive remuneration and great
prospects for training, development and promotion.
BUSINESS
STRENGTH
As market leader, and with a focus purely on
homewares, we are able to leverage economies
of scale whilst continuing to build on our expertise in our
chosen categories.
Our portfolio of superstores comprises good quality
trading locations at low average rents, and our online offer
combines value, choice and convenience.
With a highly cash generative business model and
conservative capital structure, we are able to take a long-
term view of both trading and investment decisions.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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24722.04 20 October 2016 3:56 PM PROOF 5We aim to deliver shareholder value through long-term, sustainable, profitable growth.As such, we have adopted a three-pillar growth strategy underpinned by eight core initiatives in order to achieve our objective of 50% sales growth in the medium term.See pages 8 to 9 for more informationLFL STORES SALES GROWTHPRODUCTCUSTOMER FOCUSPEOPLEBUSINESS STRENGTH50% Growth...and our four key enablers:...which are supported by eight core initiatives:...via our three strategic pillars: zRange development (including Dorma) zColleague engagement and ‘Customer First’ programme zInvestments in store environment (‘Great place to shop’) zEmphasis on stronger seasonal campaigns zIncreased focus on digital marketing zInvestment in enhanced delivery options zFurther expansion into online product range123NATIONAL COVERAGE THROUGH ROLLING OUT NEW STORESGROWING SALES AND PROFIT THROUGH THE HOME DELIVERY CHANNEL1 3ONLINE zTarget of 200 superstores in the UK zAverage payback period of 30 months zParticular focus on expansion in London & South EastWe’ll achieve our target of 2 LONDON1 3PRODUCT1 3FURNITURE1 2 3STOREOPERATIONS1 3SUPPLYCHAIN1 3MADETO MEASURESTORE FORMAT1 26dunelm.com Stock code: DNLM StrategyDunelm AR2016-front.indd 620/10/2016 15:57:40 24722.04 20 October 2016 3:56 PM PROOF 5 Pontypridd Colliers Wood Catford High Wycombe Nottingham (relocation) Sheffield Woodseats (relocation)See pages 8 to 9 for more informationNEW SUPERSTORESOPENED since 5 July 2015 Superstores as at 4 July 2015New superstores opened since 5 July 2015KEYstrategic report7Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016UK Store LocationsDunelm AR2016-front.indd 720/10/2016 15:57:49 24722.04 20 October 2016 3:56 PM PROOF 5We are working on making our website easier to access. We want to make the range and relevant content broader and provide an improved site experience. We also want to provide greater convenience through an increase in collection points, times and availability.We have reviewed all activities carried out in store and found several opportunities to help our colleagues work more effectively. As a result, we have reduced task in the business and reinvested colleagues’ time into helping customers, improving service and driving sales.We are trialling several new category merchandising initiatives and continue to improve the store format design as we open new stores, reflecting a lighter, more open environment with lower shelving and easier navigation.Link to strategy LFL STORES SALES GROWTH1Link to strategy LFL STORES SALES GROWTHHOME DELIVERY123NEW STORESLink to strategy LFL STORES SALES GROWTH12NEW STORESONLINESTORE OPERATIONSHOME DELIVERY3We currently have eight stores in the Greater London area and we are expanding this number with a sharper focus on catchment potential as a significant part of our target of establishing a portfolio of 200 superstores.Link to strategy 2NEW STORESLONDONGREATER LONDONSTORE FORMAT8dunelm.com Stock code: DNLM Strategic InitiativesDunelm AR2016-front.indd 820/10/2016 15:57:57 t
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MADE TO MEASURE
FURNITURE
We offer a bespoke service that differentiates us
from most of our competitors. We manufacture
the majority of our Made to Measure curtains
ourselves and offer great value for money. We are
working to improve our customer offer and the
efficiency of our business.
We are working hard to improve our offer
through delivery of new ranges with better
quality and greater choice. We are trialling new
formats in store using room-sets and new ways
to display products. We are working on an
improved service model and our new point of
sale system will help our colleagues to sell our
entire online range in store.
Link to strategy
1
3
LFL STORES
SALES GROWTH
HOME DELIVERY
Link to strategy
1
3
LFL STORES
SALES GROWTH
HOME DELIVERY
SUPPLY CHAIN
PRODUCT
We have successfully opened our new
warehouse in Stoke, which doubles our
capacity and provides a purpose-built
platform for reducing costs over time. We
are correspondingly reducing our third party
storage requirements which are costly and
inefficient. Improved efficiency also enables us
to offer better availability to our customers.
Great product is the lifeblood of our business.
We have started working on a new strategic
initiative (replacing stock management) to
further improve our product ranges. We
see major opportunities in product design,
innovation and sourcing.
The work on product should enable us to grow
by appealing to a broader set of customers
across more categories. Our sourcing work
should also improve our value for money
proposition.
Link to strategy
1
3
LFL STORES
SALES GROWTH
HOME DELIVERY
Link to strategy
1
3
LFL STORES
SALES GROWTH
HOME DELIVERY
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Chief Executive’s Review
John Browett Chief Executive
@
Read more online at
dunelm.production.investis.com
One of the great things about Dunelm
is that we are able to offer tremendous
value for money for our customers and
an unrivalled range whilst remaining
a low cost retailer. In the last year we
have continued to strengthen our offer
and expand our store base, allowing
us to further increase market share and
enhance our market leading position.
We are confident that our ambitious
plans will bring further improvements for
customers and underpin our prospects,
even if the market proves to be difficult.
Customers love what we do; our wide
product ranges are suitable for all
budgets and tastes. Our prices are
always competitive or market leading.
We have fantastic colleagues in our
stores, in the supply chain and our
support centre who give great service.
We have high on-shelf availability in-
store and online. Indeed, our offer is
unmatched by our competitors.
Our low cost model is a critical part of
making our business work for customers.
Our store costs are low because we
have built a network of stores that work
for customers but have been rented
on sensible terms. We have modern
IT systems that are cost effective and
easy to upgrade. By running a defined
contribution pension scheme we have
clear costs and no legacy liabilities. We
always endeavour to run a lean operation
so we can invest more in lower prices
and better products.
Last year, we continued to improve the
shopping trip for our customers. We
have improved our ranges, have become
more competitive on price, made our
stores easier to shop and launched a
vastly improved website. I think almost
all our customers have noticed the work
we have done to clear the aisles, put the
product back into logical places and run
our promotions much more tightly and
effectively. These may seem like small
things, but through customer feedback
we know they make a major difference.
The improvements in the customer offer
are paid for by running our business
more effectively. We continue to work on
developing our IT platform to provide
more efficient processes as well as a
better customer experience in-store and
online. Our internal ‘Keep it Simple’
programme looks at activity in our head
office to ensure that we are eliminating
unnecessary work or improving broken
processes. Last year, we invested heavily
in our logistics infrastructure to enable
better customer service at lower costs
in the future. The store teams have also
made great progress in simplifying their
operation to free up hours to serve
customers.
In the year ahead it may be that the
economy proves to be difficult. However,
even if there are short term problems,
life continues and for a business like
Dunelm this is almost sure to bring
new opportunities. Our ‘Simply Value
for Money’ proposition becomes even
more appealing if consumers feel under
financial pressure. In addition, our
business is not significantly reliant on
big-ticket purchases; our average basket
size remains around £30.
Dunelm is a strong business due to the
level of profit and cash flow generated,
combined with its low leverage, even
including our lease liabilities. None of
that changes because of Brexit. Indeed,
in uncertain times our strengths become
even more of an advantage. It should
mean that we can expand faster and
offer even more to our customers.
At the end of my first year, I’d like to
express what a tremendous privilege it
is to work with all of our colleagues at
Dunelm and I want to thank them for all
their effort, enthusiasm and dedication
to making Dunelm a great place to shop
and work. It is hard to get everything
right every day, but it is both pleasurable
and rewarding to find a company which
is always trying to do the right thing.
Growth Strategy
When we reported our half year results in
February, we reiterated our commitment
to our three-part growth strategy;
growing like-for-like sales, rolling out new
stores and growing our home delivery
channel. We also identified eight key
initiatives that I believe will enable us to
achieve this and will be the key method
by which we improve our business
substantially for our customers and
shareholders over the medium term.
Online
Whilst we continue to work towards
increasing our store estate to 200 stores,
we still believe in a multi-channel world
for homewares and continue to see
online as a critical part of our shopping
trip.
We are working on making our website
easier to access; for example allowing
customers to browse and order in-
store. We want to make the range and
relevant content broader and provide an
improved site experience. We also want
to provide greater convenience through
an increase in collection points, times
and availability.
We have also made progress in multiple
other areas. The integration of our one-
man fulfilment process into our Stoke
distribution centre is a significant step
towards broader fulfilment options.
We have grown our email database to
over two million customers, an increase
of 18%. We have an online Made to
Measure service, and are building a
more comprehensive solution, due to be
launched later this year.
Over the coming year, we are looking
to extend our range through a new
DSV (drop shipped vendor) service. We
are also rolling out tablet devices and
associated chip and pin payment options
in-store and are working towards a full
Click & Collect service.
London
As part of our challenge to find 50
new stores to reach our 200 target, we
recognise that London and the South
East will provide a significant proportion
of this opportunity.
Encouragingly, we have legally
committed to nine new stores in the
coming year, of which three are within
10
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the M25; an excellent result given that
we have only eight stores currently in this
area.
We are also focusing on improving the
capability of our colleagues in the region
and will be looking to increase our online
participation in London, aided by the
increased store presence.
Store Operations
We have reviewed all activities
carried out in-store and found several
opportunities to help our colleagues
work more effectively. As a result, we
have reduced hours worked on certain
tasks in the business, partially to mitigate
the cost of introducing the National
Living Wage, but more importantly to
reinvest back into helping customers,
improving service and driving sales.
We see this as a continual process, with
several rounds of improvements that will
allow us to continue to reinvest in wages
and service.
Store Format
Our customers love our stores, but they
do tell us that we could make them
easier to shop, particularly in terms of
navigation and making our displays more
attractive.
We are trialling several new category
merchandising initiatives, and are
particularly pleased with the work that
we have done around rugs, lighting and
the till area. We will continue to roll these
out across the estate in the coming year.
We also continue to improve the store
format design as we open new stores.
Our recent openings in Nottingham and
Sheffield in particular reflect a lighter,
more open environment with lower
shelving and easier navigation. We are
aiming to refit around 15 stores in FY17
in this new format, as well as using the
format in our new store openings.
Made to Measure
Made to Measure is a service that
differentiates us from most of our
competitors. We manufacture the
majority of our curtains ourselves and
offer great value for money.
We are trialling new operations in-store
and developing a greater understanding
of how investment in service,
presentation and range can enhance
our offer. We are looking to improve our
manufacturing performance by creating
more efficiency in our processes. We
are also working on a new IT system
to manage customer orders and make
things easier for customers.
Furniture
Dunelm continues to develop its
furniture offer across all channels. We are
working hard to deliver new ranges, with
better quality and greater choice. We are
trialling new formats in-store using room-
sets and new ways to display products.
We are also working on an improved
service model and our new POS system
will help our colleagues to sell our entire
range in-store.
Supply Chain
We have successfully opened our new
warehouse in Stoke, which doubles our
capacity and provides a purpose-built
platform for reducing costs over time.
We are correspondingly reducing our
third party storage requirements which
are costly and inefficient.
We are near the end of the process of
moving our one-man delivery operation
into Stoke, which is a precursor to
moving to a Click & Collect offer. This
will enhance the attractiveness of our
online offer by providing greater choice
and ease to customers.
We will look to further integrate our
e-commerce and direct-to-store
distribution over time. This will enable
improved availability, productivity and a
cleaner end of season clearance.
Stock Management
To meet customer expectations, we rely
on having full ranges available in-store
which previously resulted in a high
stock holding. We are working towards
reducing the amount of stock that we
hold whilst improving availability. This
will make us more efficient and enable us
to reinvest in the customer offer.
We have reduced our stock holding by
£16.5m (12.4%) during the course of
the year by focussing on sensible retail
disciplines such as reducing minimum
order quantities, reducing pack sizes
and through the better use of order
replenishment systems. In-store we have
focused on better stock management,
both on shelf and back of house, by
enhancing stock control processes.
Although we believe we can reduce
stock levels further in time, we consider
this to be business as usual and stock
management will therefore no longer
form one of our strategic initiatives in
FY17.
Product
Great product is the lifeblood of our
business. We have started work on
a new strategic initiative (replacing
stock management) to further improve
our product ranges. We see major
opportunities in product design,
innovation and sourcing.
The work on product should enable us
to grow by appealing to a broader set of
customers across more categories. Our
sourcing work should also improve our
value for money proposition.
Enablers
While our key initiatives are the
focus for improving the business for
customers, there are several initiatives
we are working on to make the business
more effective. This work ranges from
‘Keep it Simple’ changes in the Store
Support Centre and Contact Centre, to
developing our IT systems to support
the key initiatives and customer offer. We
could also talk at length about the use of
better customer insight, service and sales
training in stores and investment in skills
and training across the Company.
At Dunelm we are always looking for
opportunities and working on making
our business better for customers and a
more fulfilling place to work. The agenda
is always ambitious.
Outlook
Whatever the market brings us, our
strategy remains unchanged. Indeed,
we may be able to achieve more in a
difficult economy. We can’t forecast
what will happen to the broader market
but we know we will be busy improving
our Company, through our self-help
initiatives and also by continuing to roll-
out and reinvest in our stores.
As we have seen in previous years, hot
weather can have a dampening effect on
footfall, so the start to the new financial
year has inevitably seen some impact
here. However, the weather is outside
of our control and our job is to trade
through such periods.
Encouragingly, we believe that we
continue to outperform the homewares
market as a whole and therefore are
confident of continuing to deliver on
our growth ambitions, including new
store openings which should number
at least nine this year. We have the key
infrastructure in place, the right team, a
great heritage and a continued focus on
product and people.
John Browett
Chief Executive
14 September 2016
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Key Performance Indicators
The following key
performance indicators
are considered to be
the most appropriate
for measuring how
successful the business
has been. A number of
them are also relevant
to our remuneration
strategy, as set out in the
Remuneration Report.
Read more about remuneration
on pages 52 to 77
Link to strategy
LFL STORES
SALES GROWTH
NEW STORES
1
2
3
Sales growth
%
12.1
12.2
12.7
7.8
7.1
Ordinary dividends
per share
(pence)
25.1
21.5
20.0
16.0
14.0
2012
2013
2014
2015* 2016*
2012
2013
2014
2015
2016
Strategic link 1 2 3
Strategic link 1 2 3
Like-for-like store
sales growth %
3.9
3.4
Total distributions
per share
(pence)
91.5
56.6
1.0
14.0
41.0
20.0
2015* 2016*
2014
(0.2)
2012
2013
2014
2015
2016
HOME DELIVERY
0.2
2013
2012
Strategic link 1
Strategic link 1 2 3
Earnings per share
(diluted)
(pence)
50.3
46.8
43.7
40.0
35.1
Home delivery
sales growth
%
79.4
68.6
55.0
2012
2013
2014
2015* 2016
2012
2013
2014
2015* 2016*
12.4
23.2
Strategic link 1 2 3
Strategic link 3
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Gross margin change
(basis points)
EBITDA
(£m)
80
60
137.3 142.6
154.3
40
30
127.1
113.2
2012
2013
2014
2015* 2016*
New store openings
(number)
14
14
12
12
6
(30.0)
2012
2013
2014
2015* 2016
2012
2013
2014
2015
2016
Strategic link 2
Operating margin
%
Emissions (tCO2e per
£1m Group Revenue) %
Total tax contributions
(£m)
15.8
15.7
15.9
14.7
14.7
40.2
39.9
34.9
29.0
2012
2013
2014
2015* 2016
2012
2013
2014
2015
2016
£140.8
£122.7
£23.4
£23.5
£26.2
£22.9
£50.1
£25.5
£29.4
£62.5
2015
2016
Property taxes
Corporation tax
Payroll taxes
including NI
Net VAT paid
Strategic link 2
* 2015 is treated as a
52 week period for
these measures,
rather than 53 weeks
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Chief Financial Officer’s Review
Keith Down Chief Financial Officer
@
Read more online at
dunelm.production.investis.com
The year ended 2 July 2016 was a
52 week accounting period but the
comparative year ended 4 July 2015
was a 53 week accounting period.
The additional 53rd week last year
contributed £13.1m of revenue and
£1.2m of operating profit. Unless
otherwise stated, reference to 2015 or
the comparative year relates to this 53
week period.
Revenue
Group revenue for FY16 was £880.9m
(FY15: £835.8m), an increase of 5.4% for
the full financial year and 7.1% on a 52
week basis. Like-for-like (‘LFL’) sales grew
by 2.5% on a 52 week basis as a result of
growth in both in-store LFL sales (+1.0%)
and home delivery sales (+23.2%). Over
the financial year as a whole, home
delivery sales represented 7.0% of total
business (FY15: 6.1%).
Our store expansion programme
continued with six new openings in the
year (of which two were relocations).
We also closed our high street store
in Coalville, leaving a portfolio of 152
superstores and five stores in high street
locations.
Revenue
£’m
Year on
year
growth*
Like-for-like stores
729.0
1.0%
Home delivery
61.9
23.2%
Gross Margin
Gross margin increased by 60 basis
points to 49.8% (FY15: 49.2%). Gross
margin in FY15 was impacted by a high
level of markdown needed to clear
excess stocks (particularly furniture). In
FY16, however, we have improved our
product life cycle management, stock
turn and absolute stock levels.
Operating Costs
Operating costs in FY16 grew by 7.1%
compared with the prior year, an increase
of £20.5m, or by 9.1% on a 52 week
basis, an increase of £25.7m. The main
drivers of this increase were:
z Store portfolio growth – six new store
openings and two closures;
z Multi-channel fulfilment – the value
of business through this channel rose
by 23.2% compared with the previous
year;
z Warehousing infrastructure – we
invested £3.0m in transition costs
associated with the opening of
our new Distribution Centre (‘DC’)
in Stoke. This DC will significantly
increase our ability to deliver
multi-channel fulfilment operations
and negates the need to operate
additional third party storage facilities;
z Store labour – the increase in the
National Living Wage has been offset
by productivity savings;
Total like-for-like
790.9
2.5%
z IT capability – recognising the
Non-like-for-like stores
90.0
880.9
7.1%
*2015 is treated as a 52 week period.
importance of IT in our business, we
have again significantly increased the
scale and capability of our internal IT
function. We have also seen the first
year of amortisation relating to our
web re-platform;
z Marketing – increased spend on
digital marketing to replace loss
of natural search following web re-
platform; and
z Administration – we have invested
in the Board and Executive team to
support the continued growth of the
business.
Looking ahead, a number of these
cost drivers will continue to apply in
the new financial year as we open new
stores, look to refit 15 stores into our
new format, grow our home delivery
business further and continue to invest in
IT and management to support our key
initiatives.
Operating Profit
Group operating profit for the financial
year was £129.3m (FY15: £122.5m),
an increase of £6.8m (5.6%). On a 52
week basis operating profit increased by
£8.0m, an increase of 6.6%. Operating
profit margin was 14.7% (FY15: 14.7%).
In the year the business invested in
operating costs (described above)
to enhance key infrastructure and
capabilities to deliver future growth.
EBITDA
Earnings before interest, tax,
depreciation and amortisation were
£154.3m (FY15: £144.2m, £142.6m
on a 52 week basis).This represents
an increase of 7.1% on the previous
financial year, or 8.2% on a 52 week
basis. The EBITDA margin achieved was
17.5% of sales (FY15: 17.3%, 17.3% on a
52 week basis).
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Financial Items
The Group incurred a net financial
expense of £0.4m in FY16 (FY15: £0.1m
income). Interest and amortisation of
costs arising from the Group’s revolving
credit facility amounted to £1.6m (FY15
£0.7m). These costs were partially offset
by interest earned on cash deposits of
£0.2m (FY15: £0.5m) and gains of £1.0m
(FY15: £0.3m) resulting from foreign
exchange differences on the translation
of dollar denominated assets and
liabilities.
As at 2 July 2016 the Group held $90.5m
(FY15: $91.5m) in US dollar forward
contracts, representing approximately
61% of the anticipated US dollar spend
over the next financial year. Surplus US
dollar cash deposits amounted to $1.6m
(FY15: $3.2m).
Hedging
Due to the Brexit vote that took place
close to the Group’s period end, the
hedging balance was material at
2 July 2016, and additional disclosures
have been included in the notes to
the financial statements. The financial
position of the Group, its cash flows,
liquidity position and borrowing facilities
are described below. In addition, note 16
to the financial statements includes
the Group’s objectives, policies and
processes for managing its capital,
its financial risk objectives, details of
its financial instruments and hedging
activities, and its exposures to credit and
liquidity risk.
PBT
After accounting for interest and foreign
exchange impacts, profit before tax for
the financial year amounted to £128.9m
(FY15: £122.6m), an increase of 5.1%.
On a comparable 52 week basis this
represents an increase of 6.2% over
FY15.
Taxation
The tax charge for the year was 20.6%
of profit before tax, compared with
21.6% in the prior year. This reflects
the reduction in the headline rate of
corporation tax from 20.75% in FY15
to 20.0% this year. The tax charge
is expected to trend approximately
75-80 bps above the headline rate
of corporation tax going forward,
principally due to depreciation charged
on non-qualifying capital expenditure.
PAT and EPS
Profit after tax was £102.3m (FY15:
£96.1m), an increase of 6.5%.
Basic earnings per share (EPS) for the
52 weeks ended 2 July 2016 was 50.5p
(FY15: 47.5p), an increase of 6.3%. Fully
diluted EPS increased by 6.3% to 50.3p
(FY15: 47.3p). This is a rise of 7.5% on
a comparable 52 week basis (FY15 52
week: 46.8p).
Operating Cash Flow
Dunelm continues to deliver strong cash
returns. In FY16 the Group generated
£148.2m (FY15: £118.2m) of net cash
from operating activities, an increase of
25.4%.
Year-end working capital decreased by
£18.3m compared with the previous
year-end. This reflects our drive to
improve product life cycle management
and increase stock turn. At the end of
the year the Group had £16.5m lower
inventories than the prior year despite
the investment in new stores. Trade
and other payables due within one year
increased by £7.4m primarily as a result
of an increase in the capital creditor as a
result of the completion of our new DC
in Stoke at the end of the year.
Capital Expenditure
Gross capital expenditure in the financial
year was £42.5m compared with £31.5m
in FY15. Significant investments were
made in the opening of our second
distribution centre in Stoke (£11.9m), IT
infrastructure (£7.2m) and in acquiring
the Fogarty brand (£4.8m). In addition
we invested £18.0m in the continued
growth and development of the store
portfolio with the addition of six new
superstores and seven major refits.
We expect higher capital expenditure in
the next financial year of approximately
£50m to support the business’ growth
strategy. We expect to open more new
stores (requiring an average investment
of £1.2m per store), we plan to carry
out a number of major store refits
(approximately £20m in total), and
will continue to invest in IT systems
development (estimated at £6m) and
supply chain improvements (estimated
at £5m). We will also consider freehold
store acquisitions on an opportunistic
basis, with FY17 having already seen
the purchase of a freehold property in
Shoreham for £5.5m.
Banking Agreements and
Net Debt
The Group has in place a £150m
syndicated Revolving Credit Facility
(‘RCF’) which matures in 2020. The
terms of the RCF 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
1.5× fixed charges), both of which were
met comfortably as at 2 July 2016.
In addition the Group maintains £20m of
uncommitted overdraft facilities with two
syndicate partner banks.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Chief Financial Officer’s Review CONTINUED
Net debt at 2 July 2016 was £79.3m
(0.51x historical EBITDA) compared
with £73.6m in FY15 (0.51× historical
EBITDA). Daily average net debt in
FY16 was approximately £50.0m. This
compares with an average of £75.4m
in FY15 from the date of the special
distribution (20 March 2015) following
the inception of our RCF.
Capital and
Dividend Policy
During FY15, the Board adopted a new
policy on capital structure, targeting an
average net debt level (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 to
invest in the Group’s growth strategy
and to take advantage of investment
opportunities as and when they arise, for
example freehold property acquisitions.
At the year end, net debt/EBITDA was
0.51× (FY15: 0.51×).
The Board’s policy on dividends in FY15
was that ordinary dividend cover (by
which we mean the Group’s earnings
per share divided by the total amount
paid to shareholders by way of ordinary
dividend) should be between 2 and 2.5×
in the full year in respect of which the
dividend is paid. The Board has decided
to move the targeted range of dividend
cover to a range of 1.75 and 2.25×,
reflecting the strong cash generation in
the business and the Board’s confidence
in the growth prospects of the business.
The Board will consider further special
distributions in the future if average
net debt over a period consistently
falls below the minimum target of
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
www.dunelm.com.
Dividend and Special
Dividend Paid
Reflecting the capital and dividend
policy, an interim dividend of 6.0p per
share was paid in March 2016 (FY15:
5.5p). It is proposed to pay a final
dividend of 19.1p per share (FY16:
16.0p), subject to shareholder approval.
The total dividend of 25.1p represents an
increase of 16.7% over the previous year,
giving a dividend cover of 2.0× (FY15:
2.2×). The final dividend will be paid on
25 November 2016 to shareholders on
the register at the close of business on
4 November 2016.
During the year, the Group returned
excess capital of £63.8m (31.5p per
share) to shareholders in the form of a
special dividend.
In total the Group returned £108.4m to
shareholders by way of dividend in the
year, the equivalent of 53.5p per share.
Distributable Reserves
During the current financial year, the
Group undertook a capital restructuring
exercise which facilitated the payment of
dividends from subsidiary undertakings
to Dunelm Group plc of £359m.
Consequently the Parent Company has
retained earnings of £242.8m as at 2 July
2016.
Share Buy-back
During the year, the Group invested
£7.8m to buy 841,359 shares to hold
in treasury in line with its policy to
purchase shares in the market to satisfy
the future exercise of options granted
under incentive plans and other share
schemes. At the year-end, 846,455
shares were held in treasury, equivalent
to approximately 42% of options
outstanding. Over time, we expect to
increase our holding in treasury to be
equivalent to approximately 60% of
outstanding options.
Since the year end £4.2m has been
invested to purchase an additional
500,000 shares into treasury.
Tax Policy
The Group has 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
as well as actively managing tax affairs
and only to 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.
HMRC has recently renewed the Group’s
low-risk tax status. Further details of the
Group’s tax policy are available on our
website, www.dunelm.com.
During the year, total tax contributions
paid to HMRC in the form of corporation
tax, property taxes, PAYE and NICs and
VAT were £140.8m (FY15: £122.7m).
Treasury Management
The Group Board has established an
overall Treasury Policy, day-to-day
management of which is delegated to
me as 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
pages 12 and 13.
Keith Down
Chief Financial Officer
14 September 2016
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Risks and Risk Management
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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 shareholding
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 on-going 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 accounts;
z they are regularly reviewed by the Board; and
z the systems accord with the guidance issued by the Financial Reporting Council’s guidance on risk management, internal
control and related financial and business reporting issued in September 2014.
The diagram below sets out how responsibility for risk management is allocated and how that responsibility is discharged:
Board
Collective responsibility for
managing risk
X Formal review of principal risks twice annually – one of which is in connection
with consideration of the viability statement (see further below)
Oversees risk management process
Audit
and Risk
Committee
Executive
Board
Reviews principal risks
Members have responsibility for
managing risk within their area
of accountability
X Separate discussion of ‘what keeps us awake at night’
X Key risk topics reviewed through regular timetabled presentations or papers
X Monitor KPIs through Board reports
X Executive Directors have line responsibility for managing specific risks.
X Receives report on risk management process twice annually
X Formal review of principal risks twice annually – one of which is in connection
with consideration of the viability statement (see further below)
X Allocates resources for external assurance reviews of selected risks
X Selects topics for ‘key risk’ reviews by the Board.
X Formal review of principal risks twice annually
X Review risk register once a year
X Key risk topics reviewed through regular timetabled presentations or papers
X Monitor KPIs through Executive Board reports
X Executive Board members have line responsibility for managing risk within
their area of accountability.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Risks and Risk Management CONTINUED
Internal control and internal audit
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. The diagram below
summarises the Group’s system.
Board
Audit and Risk
Committee
Executive
Board
Internal Audit
Programme
Operational
Audit Team
X Collective responsibility for internal control
X Formal list of matters reserved for decision by the Board
X Control framework setting out responsibilities
X Approval of key policies and procedures
X Monitors performance
X Oversees effectiveness of internal control
X Receives reports from external auditors
X Approves external assurance programme
X Receives reports generated through the external assurance programme
X Responsible for operating within the control framework
X Reviews and monitors compliance with policies and procedures
X Recommends changes to controls/policies where needed
X Monitors performance
X Reviews specific matters selected by the Audit and Risk Committee
X Reviews compliance with certain internal procedures in stores and at other locations
The Audit and Risk Committee has
oversight of the system of internal
controls and of the external assurance
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
look at how assurance of performance
against the controls is gained to identify
whether any further assurance is needed.
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 apprised 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 auditors 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.
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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.
Following a review of the risks as part of the process to support the viability statement, the Board decided to amend the
description of some of the risks set out below; the categorisation used in last year’s report is recorded in the table. The risks
themselves have not changed materially, with the exception of the addition of the risks associated with the United Kingdom’s exit
from the European Union.
Risk
Description
How we mitigate
Progress in 2015/16
The Group competes
with a wide variety of
retailers across multiple
channels and across a
broad spectrum of price-
points. Failure to maintain
a competitive offer in
the homewares market
on multiple fronts (price,
range, quality and service)
and/or to respond to
changing customer needs
could materially impact
profitability and limit
opportunities for growth.
z Comparative performance within
the homewares market tracked
monthly across all main product
categories.
z Customer insight research gauges
relative customer perception and
experience.
z Investment in store design
and marketing designed to
communicate our credentials on
range, choice and value.
z We continually focus on new
product development, both in
existing and new homewares
categories, to strengthen our
specialist proposition.
Board oversight:
Reviewed annually in depth by the
Board at its Strategy Day.
Strategic initiative review once
per annum.
X Dunelm continues to lead the UK
homewares market with an increased
share of 8.1% in 2015 (7.7% in 2014).
X New Marketing Director appointed
to the Executive Board to lead our
customer insight, marketing, store
format and multichannel activities.
X Enhancement of our store format to
improve the customer experience is
one our eight strategic initiatives.
X Additional investment in customer
insight activity and resource.
X Continuing product innovation in
existing categories and strengthened
seasonal campaigns. New strategic
initiative for 2016-17 to focus on
‘Product’.
X One of our eight strategic initiatives
is development of our online offer
following the successful launch of a
new web platform.
X Strategic initiatives in place to
develop our furniture and made
to measure business as part of the
growth of our competitive offer.
Competition,
market and
customers
Link to strategy:
1 2 3
Performance Indicator:
Market share
Strategic initiative link:
Store format, Online
(Marketing Director);
Furniture (Product Director);
Made to Measure business
(Stores Director); Product
(Product Director)
Executive responsibility:
Marketing Director
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Competition and customers
Trend Direction:
INCREASING
UNCHANGED
DECREASING
Link to strategy
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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Principal Risks and Uncertainties CONTINUED
Risk
Brand
damage
Link to strategy:
1 2 3
Performance Indicator:
Product complaints and
recalls
Strategic initiative link:
Product
Executive responsibility:
Product Director
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Brand reputation, product
and service quality
Description
How we mitigate
Progress in 2015/16
X Committed suppliers and overseas
agents continue to work directly
with factories to deliver more ‘green’
ratings against our Ethical Code of
Conduct.
X Clearer communication to suppliers
about corrective actions and
what is expected to make the
improvements.
X Food Safety manual reviewed and
updated, and all food suppliers
signed up to Anti-Bribery and Ethical
Codes of Practice.
X Timber policy adopted.
X Policy on Modern Slavery adopted
and awareness programme launched
with colleagues and key partners.
For further information please see the
Corporate Social Responsibility Report.
The quality and safety of
our products and services is
essential to the business.
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 and
consumers, colleagues and
other stakeholders losing
confidence in the Dunelm
brand.
z We have a range of policies
specifying the quality of
products and production
processes which suppliers must
adopt.
z We operate a full test schedule
for all new products and on
a sample basis for on-going
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. Staff
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 Codes of Conduct which
is in line with international
guidelines, and also specifically
covers modern slavery.
z We conduct periodic audits on
all stock suppliers against our
Code of Conduct.
z Selected non-stock suppliers are
assessed against our modern
slavery audit.
Board oversight:
Ethical trading/modern slavery and
product safety reviewed annually
‘in depth’ by the Board.
Trend Direction:
INCREASING
UNCHANGED
DECREASING
Link to strategy
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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Description
How we mitigate
Progress in 2015/16
Portfolio
expansion
Link to strategy:
2
Performance Indicators:
Number of new store
openings and pipeline
Strategic initiative link:
London
Executive responsibility:
Property Director
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Portfolio expansion
People and
culture
Link to strategy:
1 2 3
Performance Indicator:
Colleague retention
Strategic initiative link:
All
Executive responsibility:
People Director
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Management team and key
personnel
Availability of vacant or
new retail space in the
right location is essential
to deliver our growth
plans. Inability to secure or
develop the required retail
trading space to deliver
our superstore format 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.
X We have opened six new stores in
the year, including two in the London
area.
X We have legally completed on nine
new stores due to open in 2016/17
and beyond, of which three are
within the M25.
X ‘Project London’ to specifically
source stores in the London area,
where we are relatively under-
represented, is one of our eight
strategic initiatives.
The success of Dunelm
is dependent upon the
availability of talented
senior management and
specialist colleagues. The
success of the business
could be impacted if it
fails to attract, retain and
motivate high calibre
colleagues.
X Our new Chief Executive and
Chief Financial Officer have been
appointed.
X The Executive Board has been
further strengthened through the
appointments of a Stores Director,
a Supply Chain Director and a
Marketing Director (all new roles).
X Formal people plan and talent
management process adopted.
X Significant investment in training and
development programme for the
senior management team.
X Further investment has been made
in both depth and capability of
teams in key areas such as IT, Buying
& Merchandising and Logistics.
X Key business principles reinforced
through communication and
incorporation into induction
processes.
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 ‘Key business principles’ in
place to describe our values and
business culture.
z The Group’s remuneration policy
detailed on pages 55 to 59 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 talent management
reviewed annually by the Board.
Trend Direction:
INCREASING
UNCHANGED
DECREASING
Link to strategy
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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Principal Risks and Uncertainties CONTINUED
Risk
Description
How we mitigate
Progress in 2015/16
X Health and safety policies and audit
procedures reviewed and refocused
on highest risk areas by new Health
and Safety Manager.
X Operational audit updated to focus
on key risk areas.
X New training programme for
commercial teams includes focus on
pricing and marketing law.
X Data protection compliance
strengthened through colleague
training and awareness programme.
X New procedures adopted to address
requirements of the Market Abuse
Regulation.
X Continued investment is being made
in the capability of our IT function
and in maintaining and upgrading
business critical systems.
X The IT Roadmap is aligned to and
reviewed alongside our strategic
initiatives.
X 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.
The Group risks incurring
penalties, damages,
claims and reputational
damage arising from
failure to comply with
legislative or regulatory
requirements across many
areas including, but not
limited to, trading, health
and safety, employment law,
data protection, Bribery Act,
advertising, human rights
and the environment.
Regulatory,
Environment &
Compliance
Performance Indicators:
Prosecution and other
regulatory action
Link to strategy:
1 2 3
Strategic initiative link:
All
Executive responsibility:
Company Secretary
Reports to:
Chief Financial Officer
Impact compared
to 2014/15:
Previous category:
Regulatory, Environment &
Compliance
IT Systems,
Sensitive Data
and Cyber Risk
Link to strategy:
1 2 3
Performance Indicator:
Number of major incidents
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.
Strategic initiative link:
All
Executive responsibility:
Chief Information Officer
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
IT systems, sensitive data
and cyber risk
Trend Direction:
z Policies and codes of practice
are in place outlining mandatory
requirements within the business
for all key compliance areas.
These are regularly reviewed and
updated.
z Operational management are also
responsible for liaising with the
Company Secretary and external
advisers to ensure that potential
issues from new legislation are
identified and managed.
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.
z All business critical systems are
based on established, industry
leading package solutions, with
full support in place.
z A detailed IT Roadmap is in
place.
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 standard agenda
item for the Audit and Risk
Committee.
IT strategy reviewed annually by the
Board.
Major security incidents reported by
the Company Secretary.
Link to strategy
INCREASING
UNCHANGED
DECREASING
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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Risk
Description
How we mitigate
Progress in 2015/16
Supply chain disruption
could disrupt stock flows
to store and customers
leading to an impact on
trading or cost / efficiency
implications.
Loss of the store support
centre, workroom or contact
centre could impact our
ability to trade and divert
focus from long term
strategy and planning.
z Physical infrastructure – All
Dunelm non-store facilities are
subject to disaster recovery plans
and could all operate from fall-
back facilities.
z Suppliers – The Group seeks 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.
X Supply Chain Director recruited to
develop and lead our supply chain
strategy.
X Major project completed to
construct a new warehouse facility
at Stoke to increase capacity and
provide a further fall-back facility for
our existing warehouse – one of our
eight strategic initiatives.
X Desk-top simulation exercises
completed to increase Crisis
Management Team capability.
Failure to operate the
business in an efficient
manner leads to additional
cost and margin pressure,
and could constrain our
profitability, 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 managed by the Board
X Store operating procedures and
and Executive Board through the
budget and forecast process.
z Strategic initiatives are in place to
simplify store processes to reduce
store operating costs and improve
stock management.
stock management are two of our
eight strategic initiatives.
X Impact of living wage offset
by productivity improvements
generated by leaner store operating
procedures.
z Dunelm’s scale, growth and
X Project in place to reduce cost of
product returns.
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.
Board oversight:
Board receives monthly management
accounts.
Strategic initiatives and budget
reviewed by the Board at least
annually.
Supply chain
disruption
Link to strategy:
1 2 3
Performance Indicator:
Service levels in respect of
store service
Strategic initiative link:
Supply chain
Executive responsibility:
Supply Chain Director
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Business interruption and
infrastructure
Business
efficiency
Link to strategy:
1 2 3
Performance Indicator:
Gross margin
Strategic initiative link:
Store operations, stock
management
Executive responsibility:
Chief Financial Officer,
Stores Director (Store
Operations), Supply
Chain Director (Stock
Management)
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Commodity prices
HOME DELIVERY
INCREASING
UNCHANGED
DECREASING
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
Trend Direction:
Link to strategy
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Principal Risks and Uncertainties CONTINUED
Risk
Description
How we mitigate
Progress in 2015/16
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.
z The Group has a £150m, five-year
revolving credit facility in place
until March 2020.
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
X Net Debt at the end of the year was
£79.3m (0.51× EBITDA).
X Foreign currency hedges are in
place covering c 60% of expected
purchases in FY17.
X The fall in the value of sterling
following the United Kingdom’s vote
to exit from the European Union will
potentially impact the Group’s gross
margin if this is long term and cannot
be mitigated.
Failure to anticipate and
manage the potential
impact of Britain leaving the
European Union.
place to govern levels of debt,
cash management strategies
and to control foreign exchange
exposures. 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.
Assessment of potential impact
made and mitigating actions taken,
including:
z Implementation of plan to
address potential cost inflation
arising from the fall in the value
of sterling
z Modelling of impact of a short
term recession on FY17 sales
z Product range and marketing to
be positioned appropriately
z Identification of potential profit
protection opportunities.
Board oversight:
Board receives monthly management
accounts and quarterly management
updates on likely out-turn for the
financial year.
X Mitigating actions taken as
described.
Finance and
treasury
Link to strategy:
1 2 3
Performance Indicators:
Operating cash conversion
Banking covenants
Loan headroom
Strategic initiative link:
All
Executive responsibility:
Chief Financial Officer
Reports to:
Chief Executive
Impact compared
to 2014/15:
Previous category:
Finance and treasury
Brexit risk
Link to strategy:
1 2 3
Performance Indicator:
Sales and gross margin
Strategic initiative link:
All
Executive responsibility:
Chief Financial Officer
Reports to:
Chief Executive
Previous category:
New
Trend Direction:
INCREASING
UNCHANGED
DECREASING
Link to strategy
1
LFL STORES
SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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As a result, a number of sales and gross
margin based 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).
Going concern
The Directors have made appropriate
enquiries and formed a judgement
at the time of approving the financial
statements that it is appropriate to adopt
the going concern basis of accounting in
preparing the financial information.
Viability statement
In accordance with provision 2.2 of the
2014 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 3 July 2021.
A period of five years has been chosen
as this is the timeframe 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 mitigation
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 their annual Strategy
Day in May 2016 when the five year
plan and the budget for the following
year was considered and again at the
September 2016 meeting, when the
potential effect of the United Kingdom’s
exit from the European Union was also
considered.
The Board considers that the risk
most likely to occur in the near future
is a reduction of sales due to a fall in
consumer confidence following the
Brexit vote, and an increase in its cost
base as a result of the fall in the value of
sterling against the US dollar. However,
it also 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 resultant
weakening in gross margin.
HOME DELIVERY
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Corporate Social Responsibility
HOW WE MANAGE OUR CORPORATE SOCIAL RESPONSIBILITY (“CSR”)
Although we report on CSR topics separately, they are part of how we do business
and so form part of the role accountabilities of our Executive Board members and
are regular agenda items for the Board and Executive Board.
The diagram below illustrates how
CSR is managed by us:
BOARD
OVERALL RESPONSIBILITY FOR CSR
z Approve policies
z Executive members have line responsibility for
z Monitor progress through KPIs and Board reports
z Annual presentations on people, health and
managing specific CSR topics
safety and ethical sourcing
EXECUTIVE BOARD
MEMBERS HAVE LINE RESPONSIBILITY FOR MANAGING SPECIFIC CSR TOPICS
z Approve policies prior to submission to Board
z Regular Executive Board meeting agenda items
HOW WE MANAGE OUR CSR DIALOGUE AND COMMUNICATION
z Customers: through
customer care, online
surveys and social
media
z Colleagues: weekly
‘John’s Journal’,
in-house magazine
and through
Colleagues’ Council
z Suppliers: annual
conference and
meetings throughout
the year
z Others: social media,
corporate website
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Our key areas of focus – why these matter
OUR CUSTOMERS
OUR COLLEAGUES
See page 28
See page 29
Our core strength as a business is the delivery of market
leading choice of products and services, at great value for
money, and an enjoyable shopping experience, backed
up by friendly and knowledgeable customer service. We
can only deliver this by having customer interests at the
heart of our business.
We believe that a ‘Great Place to Work = Great Place
to Shop’. Our success is founded on the hard work and
dedication of our colleagues; our aim is to preserve our
culture and values as embodied in our ‘Key Business
Principles’ as we grow, to provide our colleagues with
more opportunities and more training, and to celebrate
their success.
Who manages this for Dunelm: Marketing Director
Who manages this for Dunelm: People Director
OUR HEALTH
AND SAFETY
See page 30
OUR SUPPLIERS AND
HUMAN RIGHTS
See page 31
We have a duty of care which we take very seriously to
ensure the health and safety of customers, colleagues,
contractors and all other visitors to our premises. The
Group’s Health and Safety manager regularly reports to
Board and Executive Boards, and there is an on-going
programme of education and training for colleagues.
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 for design, innovation, quality and value.
These suppliers must also demonstrate that they operate in
accordance with recognised standards that uphold human
rights and safety and prohibit modern slavery.
Who manages this for Dunelm: Chief Executive
Who manages this for Dunelm: Product Director
OUR COMMUNITY
OUR ENVIRONMENT
See page 32
See page 33
It is important to Dunelm and our colleagues and
shareholders that we are responsible members of our
community, and that we support local and national
charitable causes.
We recognise that we have a responsibility to manage
the impact of our business on the environment both now
and in the future. The Group is committed to controlling
and minimising the impact of its operations, directly and
indirectly in the key areas of waste management, energy
consumption and carbon (CO2) emissions.
Who manages this for Dunelm: Marketing Director
Who manages this for Dunelm: Chief Financial Officer
Link to strategy
1
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SALES GROWTH
2
NEW STORES
3
HOME DELIVERY
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Corporate Social Responsibility
Customers
Executive responsibility:
Marketing Director
Link to strategy:
1 2 3
What do we do?
We aim to provide to our customers:
z Market leading choice of products,
fantastic availability and great value.
z An enjoyable shopping experience,
whether in store, online or through
our catalogue.
z Excellent service in-store, online and
through our contact centre.
z Stores which are convenient, safe and
accessible.
z Fair and truthful marketing.
Awards
z Which? Recommended Provider for
Furnishings and Homeware High
Street Shop, June 2016.
z Readers of House Beautiful Magazine
awarded us Gold home retailer of the
year 2016 and Silver online retailer of
the year 2016.
z Runner up – British Sandwich
Association ‘Sammies’ award Café /
Coffee Bar Sandwich Retailer of the
Year 2016.
WHAT HAVE WE ACHIEVED THIS YEAR?
All of our strategic initiatives are aimed at improving our customer offer, but two will
have particular impact on customers: our Store Format initiative will deliver a more
exciting and inspiring in-store experience; our online initiative will deliver greater
access to Dunelm, broader choice and a range of convenient delivery and collection
options. Both of these are being led by our Marketing Director who was appointed
in September 2015.
2015/2016 objectives
Achievements
Further develop our product
ranges, including more
market beating value offers
and exciting new products
X We have increased our seasonal offer. Web exclusives
have been added in core categories to extend choice.
Enhance our “made to
measure” curtains and blinds
proposition
X Development of our made to measure proposition is
one of our eight strategic initiatives – a plan is in place to
improve our offer in-store and online.
Further improvements to
our home delivery service,
including named day delivery
options
X Successful launch of our new web platform, giving better
functionality and experience. Significant growth in home
delivery.
Other achievements
z Clearer communication of value
in store through new point of sale
materials.
z Investment in dedicated customer
2016/17 objectives
z Continued trial of a new store format
in selected new and existing stores
and a delivery of a significant refit
programme across the estate.
insight resource and launch of a new
customer feedback mechanism (‘How
Do We Measure Up?’) to help us
better understand how to improve
our offer.
z Launch of a wider range online
via a drop ship vendor service in
partnership with key suppliers.
z An increase in delivery/collection
options for customers.
z Project commenced to help us better
define and communicate the Dunelm
brand through our marketing, product
offer and people.
z Launch of a new way of talking about
the Dunelm brand to customers
across all channels.
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Colleagues
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Executive responsibility:
People Director
Link to strategy:
1 2 3
What do we do?
We employ almost 9,000 colleagues
across our business; in stores, our
distribution and manufacturing
operations, our contact centre in
Radcliffe, and our store support centre
team in Leicester.
We are an equal opportunities employer;
our policy is to recruit, develop, promote
and retain skilled and motivated people
regardless of disability, race, religion or
belief, sex, sexual orientation, gender
reassignment, marital status or age.
At the end of the financial period,
the breakdown of male and female
colleagues was as follows:
Male Female
%
Female
Group Board
Executive Board
7
6
2
4
22%
40%
Senior
Management
Team
22
11
33%
All colleagues
2,880
6,088
68%
We maintain regular communication with
our colleagues via a weekly email from
our Chief Executive (‘John’s Journal’),
through regular store manager ‘huddles’,
our Dunelm Gazette magazine which is
published at least quarterly, and via the
computer-based ‘Dunelm My Learning’,
to which all colleagues have access.
We operate a Colleagues’ Council,
through which colleague representatives
can raise and discuss ideas and concerns
with senior management. These are
fed back to the Executive Board for
consideration and action. In addition,
we run a colleague engagement survey,
the output of which is fed back to the
Executive Board.
WHAT HAVE WE ACHIEVED THIS YEAR?
2015/2016 objectives
Achievements
Further graduate intake in
September 2015
X New graduate scheme launched, recruiting five
graduates, each of whom reports to an Executive
Board member and rotates around different functions,
to gain a broad understanding of the business.
Review pay and benefits
structure to ensure that it
remains competitive and meets
the needs of the business,
taking into account the
implications of the new National
Living Wage
X Agreed new Pay & Benefits principles for our Retail
and Store Support Centre colleagues. In Retail,
we re-contracted all colleagues and increased our
established pay rate significantly above the National
Living Wage. At the Store Support Centre we have
introduced levels and pay banding to ensure fairness
and consistency.
Respond to issues and
opportunities arising from the
engagement surveys to take
place in September 2015 and
March 2016
Implement a new Learning
Management System to enable
training to be delivered at the
touch of a button
X Survey held in September 2015 with over 80%
response rate and improved overall engagement
each time. Actions to address issues agreed and
implemented by the Executive Board. The March 2016
survey was deferred pending appointment of a new
third party provider.
X Implemented in February 2016, giving all colleagues
access to interactive training and development
materials and support.
We offer a range of training and
development opportunities to
colleagues at all levels of the business.
z Increased capability in our Executive
Board and Senior Management Team
by recruiting 14 new senior colleagues.
These include:
z Nationally accredited modern
apprenticeships and NVQs.
z Our graduate programme, which
leads to an Institute of Leadership
and Management qualification.
z Support for colleagues studying for
professional qualifications, such as in
finance, HR and IT.
z Workshops in management
skills, such as leadership and
communications.
z Interactive computer based product
knowledge.
Other 2015/2016
achievements
z As part of our initiative to provide
more opportunities for our store
based colleagues we have promoted
116 colleagues to Retail Management
positions, filling 68% of vacancies
from homegrown talent.
z Invested in a leadership
development programme for our
Senior Management Team, with
contributions from external experts
including our Non-Executive
Directors.
2016/17 objectives
z Deliver a ‘Sell More’ programme to
colleagues to support them in being
able to serve and sell.
z A new approach to colleague
engagement, using the same method
as for customer feedback, which allows
colleagues to give feedback more
regularly and at their convenience.
z Reinforce the Key Business Principles
aligning the way we attract, reward
and develop colleagues.
z Evolve our recruitment and training
programmes, such as introducing a
‘Dunelm degree’ offering the chance
to work and study towards a degree
level qualification as an alternative
to attending a fee-paying university;
and developing our high-potential
graduate schemes.
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Corporate Social Responsibility
Health and Safety
Executive responsibility:
Chief Executive
Link to strategy:
1 2 3
What do we do?
The Board is ultimately 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.
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.
Although senior management
take responsibility for the overall
implementation, maintenance and
development of our safety management
system, every colleague has a
responsibility for the safety of themselves
and other colleagues, customers and
visitors.
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 centre we have
a dedicated Health and Safety Adviser.
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 complete an online self-audit
WHAT HAVE WE ACHIEVED THIS YEAR?
2015/2016 objectives
Achievements
Implement a new health and
safety management system
for our new Stoke distribution
centre
X Full time Health and Safety Adviser now in place within
our Stoke DC operation, covering both the new and old
sites. Risk Assessments all reviewed and brought up to
date and safety practices significantly strengthened.
Roll out ‘in house’ first aid
training
Review of specific safety risks
in Pausa coffee shops
X Not implemented – we use St John’s Ambulance training
instead.
X Pausa accident records are now analysed on a monthly
basis. Identified risks have now formed the basis of the
Pausa section of the new health and safety audit.
Specific health and safety
guidance for our Dunelm at
Home service
X Health and safety folder produced and is given out to all
fitters. New H&S audit process covers risks specific to the
role of consultants.
Update legionella database
and produce action plan
New St Johns Ambulance
First Aid Booking Portal
X Legionella testing commenced in August 2016
throughout all stores.
X All stores can now book directly with and certificates can
be uploaded from the site.
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 key operational
functions.
We have a proactive approach to safety,
and colleagues are encouraged to report
all potential hazards and risks. We have
an on-going programme of education
and training, including DVDs and
interactive computer based learning and
ensure colleague involvement through
the Colleague Council.
Other achievements
z Policy, risk assessments and method
statements reviewed across all Group
sites.
z New store audit devised with
additional focus on coffee shop safety
and five “red” risks which result in
automatic failure.
z Review of safety practices of third
party contractors and logistics
partners.
z Significant reduction in liability claims
received.
z Decision taken to phase out use of
forklift trucks in store warehouses by
2021 to reduce risk to colleagues.
2016/17 objectives
z Start implementing the programme to
eliminate forklift truck usage in store
warehouses.
z Strengthen procedures relating to
contractors working in stores, with a
focus on working at height and roof
working.
z Continue to review the current health
and safety processes with specific
focus on areas of highest risk such as
the new Stoke warehouse, and where
needed, implement further training
materials and support.
z Provide IOSH “Managing Safety”
training to Area People Managers
and Shift Managers at Stoke and our
Workroom operations.
z Implement a simplified and focused
induction DVD and validation quiz for
all store colleagues.
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Suppliers and Human Rights
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Executive responsibility:
Product Director
Link to strategy:
1 3
What do we do?
Effective management of human rights
throughout our supply chain is built into
our product procurement procedures.
Our in-house technology team has
extensive experience of working with
factories to improve quality and ethical
standards. Monitoring and working to
improve human rights is part of the
factory management role carried out by
our Far East sourcing partners on our
behalf.
All suppliers of product for resale have
been made aware of the growing risk
of modern day slavery and have been
reissued with the Dunelm Ethical Code
of Conduct, based on the Ethical Trading
Initiative (‘ETI’) base code which has a
strengthened section on slavery. New
ethical audits will be semi-announced,
4 Pillar SMETA audits. This is to gain a
more realistic view of the manufacturer
and learn more about the ethical stance
of the company.
We have assessed the remainder of our
supply base for modern slavery risk and
have required the major providers to
sign our revised Code of Conduct. Our
statement made pursuant to Section 54,
Part 6 of the Modern Slavery Act 2015,
which contains further information, is
available at www.dunelm.com.
We work with our suppliers to ensure
that our products are produced in clean
and safe environments, that workers
are treated with respect and earn a
reasonable wage and that suppliers
work within the relevant local laws and
regulations. All manufacturers with whom
we trade directly are required to sign up
to our Code of Conduct. No new factory
source is taken on without a satisfactory
audit being in place, and audits are
repeated at least every two years.
WHAT HAVE WE ACHIEVED THIS YEAR?
2015/2016 objectives
Achievements
Monthly audit corrective action
reporting to be introduced for high
volume Far East suppliers
X Improved corrective action report format
introduced to simplify and improve the progress
on signing off corrective actions with suppliers.
Include training on ethical matters
in induction for all members of the
Buying Team, with annual refresher
training
Increase the proportion of factories
with ‘green’, ‘amber’ or ‘branded’
audits against our Ethical Code of
Conduct
Monitor developments in anti-
slavery legislation and practice and
adapt our processes accordingly
X Ethical Auditing and Modern Day Slavery training
for the Product Team, UK Suppliers and Far East
Suppliers.
X Score increased to 72% of product supply base
(70% in 2014-15).
X Reviewed the business overall to highlight the
biggest slavery risks internally and for both
stocked and non-stocked products. Investigated
the core routes for high risks of slavery depending
on country of origin and material sourcing.
Where non-compliance is discovered
we have a formal procedure for working
with a supplier to help them achieve
compliance, usually within three months.
Critical non-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.
We aim to treat all of our suppliers
fairly and consistently. We ask all of our
suppliers to sign our standard terms and
conditions in advance of commencing
trade.
We have signed up to the Prompt
Payment Code which requires companies
to pay suppliers in accordance with
agreed terms, with a default period of
60 days. The number of days’ purchases
outstanding for payment at 2 July 2016
was 38 days (2015: 42 days).
Other achievements
z Clearer communication to suppliers
about corrective actions and what is
expected to make the improvements.
z Black audits (critical failures) reduced
from 27 in 2015 to 5 in 2016.
z Ethical audits standardised to SMETA
audit style.
2016/17 objectives
z Introduce semi-announced (within
a four week period) 4 Pillar SMETA
audits for stock products.
z Extend audit regime to major coffee
shop suppliers and non-stocked
product suppliers.
z New product development not
to be granted to factories with a
“red” rating, unless they are new to
Dunelm or have shown a marked
improvement in their corrective
actions.
z Include training on ethical and slavery
matters in induction for all members
of the Buying Team, with annual
refresher training.
z Introduce Factory Profile
Questionnaire for potential vendors.
z Roll out Technical Audits to top 30%
of factories for stock products.
z Obtain clarity on high risk countries of
origin and materials for sustainability
and slavery issues.
z Monitor developments in anti-slavery
legislation and practice and adapt our
processes accordingly.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Corporate Social Responsibility
Community
Executive responsibility:
Marketing Director
Link to strategy:
1 2 3
What do we do?
We and our colleagues believe that
the Company should contribute to
the communities in which we operate,
both nationally and in the local store
community.
The Group pays corporation tax on its
operations in the United Kingdom and
does not operate in any tax havens, or
use any tax avoidance schemes.
We have a Charity Committee which
adopts a ‘charity of the year’, for which
collections are made in-store, specific
fund-raising events are organised 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.
We also support colleagues who are
raising money for charities of their
choice, often by matching the sums
raised. All colleagues are entitled to
an extra day’s paid leave to undertake
charitable activities.
We donate funds raised from English and
Scottish carrier bag sales to Roald Dahl’s
Marvellous Children’s Charity, and from
Welsh carrier bag sales to GroundWork.
GroundWork is a charitable organisation
which brings people and the
environment together with practical local
action to build stronger communities,
create more green spaces and get
people back into work through creating
green jobs.
The total value of charitable donations
made by the Group in the period ended
2 July 2016 was £58,541 (2015: £98,000).
Total funds raised for charity by the
Group and colleagues was £231,328
(2015: £366,000).
WHAT HAVE WE ACHIEVED THIS YEAR?
2015/2016 objectives
Achievements
Support our charity of the
year, Roald Dahl’s Marvellous
Children’s Charity
Funds were raised through a variety of ways including:
X The annual Charity Day, (a themed fancy dress
fundraising event in-store);
X Team fundraising events in-stores across the business;
X Regular local donations including supporting schools,
the local community, the town of Syston when Dunelm
Store Support Centre is based, and communities where
colleagues have expressed passion for a local cause.
X Colleagues regularly volunteer their time thanks to the
‘Charity Day’ annual leave colleague benefit.
X Colleagues have been participating in marathons
bungee jumps, mountain treks and skydives to raise
money for our charity of the year and charities within
local communities.
X National and international donations with funds being
sent to a variety of charities including: LOROS, Marie
Curie, Cancer Research, Childreach International.
X Full sponsorship of a colleague across various channels
whilst he participated in the 7 days 7 irons challenge,
with stores supporting him all the way through his seven
day journey.
Continue to support our
colleagues in their charitable
fundraising efforts and by
offering an annual day’s
leave to support charitable
activities
Sponsor for the ‘7 days 7
irons’ challenge, supporting
an individual who will
complete seven triathlons
from Land’s End to John
O’Groats in seven days, and
passing by 23 of our stores
en route
z Continue to support our colleagues
in their charitable fundraising efforts
by offering an annual day’s leave to
support charitable activities.
z We will continue to support local
causes and community focuses
where possible to ensure we help the
communities around our entire estate.
2016/17 objectives
z During the Summer of 2016 we
embarked on a Company-wide
Dunelm Relay Challenge involving
160 locations within the estate
and key suppliers. Our goal was to
raise funds to support Roald Dahl’s
Marvellous Children’s Charity with this
Company-wide challenge beginning
in July 2016 and ending in August
2016.
z From Autumn 2016 we have a new
charity partnership with Homestart.
Our goal is to support Homestart for
a two year partnership and support
their mission to help families create
a nurturing, loving and stable family
and home environment.
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Environment
Executive responsibility:
Chief Financial Officer
Link to strategy:
1 2 3
Dunelm is committed to controlling and
minimising the impact of its business on
the environment.
The Group has an Environment
Committee responsible for the
development and implementation of
strategies to maximise waste recycling
and to reduce energy consumption and
carbon (CO2) emissions.
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WHAT HAVE WE ACHIEVED THIS YEAR?
2015/2016 objectives
Achievements
2015/2016 objectives
Achievements
Eliminate glass drinks
packaging within our coffee
shops
Deliver full LED lighting
systems to at least 50% of
our stores and re-lamp all
lighting department display
canopies
Fully test voltage-
optimisation technology
and reduce site capacity
requirements
Launch web-based
compliance audits
X Plastic packaging has now replaced glass packaging in
Lorem ipsum
X Lorem ipsum dolor sit amet, consectetur adipiscing elit.
all coffee shops.
X Plastic bottles are now segregated in store and back-
hauled to our DC for re-cycling.
X 87 stores (55%) of the estate have full LED lighting
installed.
X LED systems and budgets have been approved for an
additional 40 stores.
X All lighting canopies have been re-lamped and a greater
range of LED bulbs are now on sale to customers.
X Voltage optimisation has been successfully implemented
in three stores.
X Opportunities for voltage-optimisation have been
identified in 15 additional sites.
X An electricity capacity review has been completed with
many sites being reduced.
X Web-based compliance audits have been developed
and are now live.
X 15 store audits have been completed identifying
improvements to site set-up and raising colleague
awareness.
Lorem ipsum
Donec accumsan quis ex quis vulputate. Mauris rhoncus
turpis tortor, ac fermentum purus dictum sit amet. Fusce
ac accumsan diam. Praesent sollicitudin velit velit. Donec
vel eros massa. Suspendisse sit amet lacus sagittis,
pretium enim id, fermentum neque. In eu congue risus.
Nam quis sem ut libero lacinia faucibus.
X Nunc diam est, efficitur vel lobortis non, consequat sed
ligula. Quisque eget viverra risus. Pellentesque vitae leo
eget massa placerat cursus quis vitae tellus. In.
X Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec accumsan quis ex quis vulputate. Mauris rhoncus
pretium enim id, fermentum neque. In eu congue risus.
Nam quis sem ut libero lacinia faucibus.
X Nunc diam est, efficitur vel lobortis non, consequat sed
ligula. Quisque eget viverra risus. Pellentesque vitae leo
eget massa placerat cursus quis vitae tellus. In.
WASTE RECYCLING
Waste Recycled
%
82%
83%
78%
78%
85%
12-13
13-14 14-15 15-16
Target
16-17
Key objectives
z To maximise levels of waste recycling.
z To anticipate and to be fully
compliant with all waste legislation.
2016/17 objectives
z We will audit all sites to ensure that
the latest equipment, signage and
training is in place.
z We will engage colleagues to
promote greater awareness and to
drive consistently high standards.
z We will launch a new scheme to
recycle all take-away coffee cups in
support sites.
What we do
Dunelm operates a ‘Recycle at Work’
initiative across the business aimed
at achieving high levels of recycling.
All sites have balers for cardboard
and colour-coded bins to segregate
waste and are supported by training
programmes that increase colleague
awareness and compliance.
Our national distribution centre in Stoke
recycles all of our cardboard, plastics,
paper, bottles, cans, metal and wooden-
pallets. In addition all electrical waste
is recycled through a WEEE compliant
scheme. Any waste that is not directly
recycled within the business is sent
offsite for further sortation.
The Group achieves a direct recycling
rate of 78%. This increases to circa 90%
following offsite sortation.
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Corporate Social Responsibility
Environment
Heading
ENERGY USE
Year on year reduction
in electricity usage %
1.2
12-13
1.1
13-14
14-15 15-16 Target
16-17
(5.8)
(10.0)
(14.2)
GREENHOUSE
GAS EMISSIONS
CO2e emissions
tCO2e per £1m Group Revenue
40.2
39.9
34.9
29.0
2012
2013
2014
2015
2016
CRC Annual Report Data
What we do
Dunelm targets energy reduction on
a site-by-site basis. ‘Smart’ meters are
fitted to electricity and gas supplies
and measure energy consumption on a
half-hourly basis. Building Management
Systems (‘BMS’) designed to optimise
energy use, are also standard across the
estate.
Energy consumption is monitored
by our dedicated Energy Manager in
conjunction with a specialist energy
partner. We target underperforming sites
as well as the implementation of various
energy reduction initiatives to maximise
energy efficiency while maintaining a
comfortable trading environment for our
customers and colleagues.
The business has prioritised a
programme to invest in full LED lighting
at all sites. All new stores are 100% LED
and we have retro-fitted 69 stores to this
efficient technology. 87 stores (55% of
the estate) now have LED lighting fitted.
The Group was fully compliant with the
Energy Savings & Opportunities Scheme
(‘ESOS’) newly launched this year. In
addition, we have partnered with a
specialist energy provider in this area to
maximise the benefit and to ensure our
on-going compliance.
Our key objectives
z To optimise energy use across the
business.
z To evaluate renewable technology
options and trial where appropriate.
z To fully comply with the new Energy
Savings & Opportunities Scheme.
2016/17 objectives
z Continue our programme of LED
investments to all sites.
z To reduce like-for-like energy
consumption by in excess of 10%.
z To monitor performance of our solar
powered stores and assess future
investment potential.
What we do
We have invested in photovoltaic
systems (solar power) in four of our
stores (Leeds, Dunstable, Bristol and
Cambridge). These systems replace
energy sourced through the national grid
with local renewable energy.
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 a specialist
partner to consult on our energy buying
strategy, investments in energy saving
technology and to further focus on
reducing our carbon emissions.
Our company car fleet is graded on
emissions and we encourage the use
of fuel efficient vehicles in all schemes.
Average emissions in 2016 were 108
CO2 g/km (2015: 110 CO2 g/km).
Our key objectives
z To reduce CO2 emissions relative to
turnover year-on-year.
z To identify and trial new technologies
to reduce greenhouse gas emissions.
Our current performance
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 £m
of turnover’ as its intensity measure
reflecting the link between growth,
activity and performance.
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Directors and Officers
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Chair of the
Nominations
Committee
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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. Regularly visits stores to meet colleagues
and members of the senior management team. Participates in investor
presentations and some shareholder meetings.
Key strengths: Experienced Chief Executive. Exceptional combination
of business leadership and outstanding retail skills across a breadth of
sectors, from grocery to electricals and fashion. Proven experience of
applying technology in multi-channel operations.
Dunelm role: Leads the Group and the Executive Board and liaises
with the Remuneration Committee in respect of below Board
remuneration. Attends Audit and Risk Committee meetings by
invitation.
Joined Dunelm Board: September 2014.
Joined Dunelm Board: July 2015.
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.
Previous experience: Various leadership positions at Tesco PLC
between 1999 and 2007, including appointments as Strategy Director,
CEO of Tesco.com, and Group Operations Development Director.
CEO of Dixons Retail plc between 2007 and 2012. Senior Vice
President Apple Retail. CEO of Monsoon 2012 to 2015.
Other commitments: Non-Executive Director of Octopus Capital
Limited and Octopus Investments Limited.
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Chair of the
Remuneration
Committee
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Chair of Audit and
Risk Committee
Key strengths: A current CEO with extensive general management
experience in a retail model, customer service and hospitality
expertise. Long-standing plc experience and shareholder
understanding.
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 to meet store colleagues and members of
the senior management team. Attends investor presentations and
shareholder meetings. Senior Independent Director and Chair of the
Remuneration Committee.
Joined Dunelm Board: June 2007.
Previous experience: Sales and marketing, customer service and
general management in the brewing and hospitality sector.
Other commitments: Chief Executive of Fuller Smith and Turner plc.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores to meet store colleagues and members of
the senior management team. Attends investor presentations and
shareholder meetings. 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.
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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: Executive 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 of
Deputy Chairman when John Browett became Chief Executive on
1 January 2016.
Previous experience: All parts of Dunelm’s business.
Other commitments: WA Capital Limited.
Key strengths: Finance background and extensive plc experience in
retail and consumer businesses. Understanding of investor community.
Strategic and financial perspective across a number of Group
functions.
Dunelm role: Leads the finance department, as well as taking
responsibility for a number of strategic and cross-functional initiatives.
Participates in Audit and Risk Committee meetings by invitation and
sits on the Executive Board.
Joined Dunelm Board: December 2015.
Previous experience: Chartered Accountant who, after qualifying at
KPMG, held a number of senior finance roles in convenience retailing
and at Tesco PLC. Finance Director of JD Wetherspoon Plc between
2008 and 2011 and Chief Financial Officer at The Go-Ahead Group Plc
between 2011 and 2015.
Other commitments: Non-Executive Director of Topps Tiles plc.
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Key strengths: A serial entrepreneur and investor with deep digital
experience, who can operate at Board level.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores to meet store colleagues and members of
the senior management team. Attends investor presentations and
shareholder meetings.
Joined Dunelm Board: July 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: Co-CEO of Hubbub.co.uk.
Key strengths: A current CEO with deep experience in retail and
brands, working for both large and more entrepreneurial organisations,
with a particular expertise in marketing.
Dunelm role: As a Non-Executive Director, provides strategic advice,
monitors management performance and oversees risk management.
Regularly visits stores to meet store colleagues and members of
the senior management team. Attends investor presentations and
shareholder meetings.
Joined Dunelm Board: September 2015.
Previous experience: Senior positions at John Lewis Partnership (2005
to 2013), Levi Strauss (2001 to 2004) and Ted Baker (1997 to 2001).
Other commitments: Chief Executive of Jigsaw.
Committee memberships
A
Audit and Risk Committee member
NA
N R
Nominations Committee member
Remuneration Committee member
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Directors and Officers CONTINUED
r
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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.
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 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.
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 WA Capital Limited.
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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.
Committee memberships
A
Audit and Risk Committee member
NA
N R
Nominations Committee member
Remuneration Committee member
Notes:
David Stead was Chief Financial Officer until he was succeeded by Keith Down
on 7 December 2015. David retired from the Board on 31 December 2015.
Geoff Cooper, former Chairman, retired from the Board on 7 July 2015 and was
succeeded as Chairman by Andy Harrison on 8 July 2015.
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Chairman’s Letter
Andy Harrison Chairman
De ar Sh ar e h o l d er
The last fifteen months have been a period of renewal for the
Dunelm Board, with new appointments to both the Executive
and Non-Executive teams. This has been spurred partly by the
natural retirement process and partly by the Board’s desire to
bring in new skills and experiences to deliver our ambitious
plans. The new team is settling down remarkably well, helped
by our Deputy Chairman and the experience of our longer
serving Non-Executive Directors.
We remain totally committed to maintaining our track record
of good governance, supporting best practice guidelines and
seeking to apply them in a pragmatic way that adds value to
Dunelm.
Marion Sears has played a central role in our Board renewal
and I am delighted that she will continue as a Non-Executive
Director. To comply with best practice she has retired from the
Audit and Risk and Remuneration Committees, and as chair of
the Nominations Committee.
We have asked Simon Emeny to continue as our Senior
Independent Director and Chair of our Remuneration
Committee for one more year. We really appreciate the
continuity and experience that he brings to our Board.
Although he has served nine years, we believe his
independence has been in no way compromised by his length
of service.
In January we held a Corporate Governance meeting, attended
by Will Adderley, the Non-Executive Directors and myself, to
which our major institutional shareholders were invited. We had
a useful exchange of views on a number of governance topics,
which we have taken into account in our subsequent Board
discussions.
We have carried out our regular Board evaluation process,
with the help of an external expert. This confirmed that your
new Board is working well together and brought some helpful
insights to make us more effective.
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.
In April, Will Adderley, our Deputy Chairman and a major
shareholder, disposed of part of his shareholding to the point
where it is no longer necessary for us to seek a Rule 9 waiver
to support our policy to buy back shares to satisfy employee
share option entitlements. When we asked for this waiver in
previous years it has caused a policy difficulty for a number of
our institutional shareholders, although the Board believes that
it has been in the interests of our shareholders as a whole.
I look forward to meeting shareholders at the AGM.
Yours sincerely
Andy Harrison
Chairman
14 September 2016
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Corporate Governance Report
2015/16 SUMMARY OF PRINCIPAL ACTIVITIES
7 JULY 2015
Geoff Cooper retired as Chairman
31 DECEMBER 2015
David Stead retired from the Board
8 JULY 2015
Andy Harrison succeeded Geoff Cooper as Chairman
10 SEPTEMBER 2015
Peter Ruis appointed as a Non-Executive Director
11 SEPTEMBER 2015
Simon Emeny succeeded Marion Sears as Chair of the
Remuneration Committee
1 JANUARY 2016
John Browett succeeded Will Adderley as Chief Executive;
Will became Deputy Chairman
7 JANUARY 2016
Corporate Governance presentation to shareholders
11 MARCH 2016
Andy Harrison succeeded Marion Sears as Chair of the
Nominations Committee
24 NOVEMBER 2015
AGM – revised Remuneration Policy approved by shareholders
7 DECEMBER 2015
Keith Down succeeded David Stead as Chief Financial Officer
MARCH TO JUNE 2016
External Board evaluation
Overview
Our approach to governance has been unchanged since
flotation in 2006, and can be summarised as follows:
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 honesty, 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 copy of the presentations
that we made to our major institutional investors and
shareholder representatives in January 2012, 2013, 2014, 2015
and 2016, available in the ‘Reports and Presentations’ section
of our corporate website.
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 September 2014
(the ‘Corporate Governance Code’).
The Board considers that it has fully complied with the
Corporate Governance Code during the financial year covered
by this annual report, with the exception of the fact that Marion
Sears, determined by the Board in September 2015 to be
no longer independent, continued to chair the Nominations
Committee during a transitional period until March 2016. The
Nominations Committee did not meet during this time.
The Board considers that it has continued to comply with the
Corporate Governance Code since the financial year end. In
making its determination, particular consideration was given
to the independence of Simon Emeny, who has served nine
years on the Board in June 2016. Further details are given in
the section below headed ‘Independence of Non-Executive
Directors’.
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Board role and composition
The Board has three roles:
STRATEGY
GOVERNANCE
PERFORMANCE
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 community in which
we operate and the interests of our
other stakeholders.
Instil and maintain a culture of
honesty, integrity and transparency.
Ensure that financial and other
controls and processes for risk
management are in place and
working effectively.
Set an effective remuneration policy.
Ensure that resources are in place to
deliver the strategy.
Maintain good relationships with
shareholders.
Review progress towards strategic
and operational goals and the
performance of management.
Board balance and committee
membership is 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:
ANDY HARRISON CHAIRMAN
EXECUTIVES/NON-INDEPENDENTS
INDEPENDENT NON-EXECUTIVES
Will Adderley Deputy Chairman
John Browett Chief Executive
Keith Down Chief Financial Officer
Marion Sears Non-Executive Director
Simon Emeny Senior Independent Director
Liz Doherty Non-Executive Director
William Reeve Non-Executive Director
Peter Ruis Non-Executive Director
The names and roles of each of the Directors during the period are set out in the table below.
Name
Position at period end
Committee Chair
Note
Andy Harrison
Chairman
Nominations
Succeeded Geoff Cooper as Chairman on 8 July 2015.
Will Adderley
Deputy Chairman
John Browett
Chief Executive
None
None
Was Chief Executive until he was succeeded by John Browett on
1 January 2016.
Became Chief Executive on 1 January 2016. Prior to that was Chief
Executive Designate.
Keith Down
Chief Financial Officer
None
Appointed on 7 December 2015.
Simon Emeny
Senior Independent Director Remuneration
Chair of Remuneration Committee from 11 September 2015.
Marion Sears
Non-Executive Director
None
Retired as Remuneration Committee Chair on 11 September 2015 and
as Nominations Committee Chair on 11 March 2016.
Liz Doherty
Non-Executive Director
Audit and Risk
William Reeve
Non-Executive Director
Peter Ruis
Non-Executive Director
Geoff Cooper
David Stead
None
None
None
None
None
None
Appointed on 10 September 2015.
Former Chairman, retired from the Board on 7 July 2015.
Former Chief Financial Officer. Succeeded by Keith Down on
7 December 2015 and retired from the Board on 31 December 2015.
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Chairman, Deputy Chairman and Chief
Executive responsibilities
The Board has adopted written statements setting out the
respective responsibilities of the Chairman, the Deputy
Chairman and the Chief Executive; these are available on the
Group’s website or from the Company Secretary. In general
terms, the Chairman is responsible for running the Board and
the Chief Executive is responsible for running the Group’s
business. The Deputy Chairman supports the Chairman and
the Chief Executive and undertakes activities to promote the
long term interests of the business and preserve its culture.
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 2016 and we confirmed that Andy Harrison was
independent on appointment and that Simon Emeny, Liz
Doherty, William Reeve and Peter Ruis are independent.
As noted above, in the Board’s annual review of the
independence of the Non-Executive Directors in September
2016, particular consideration was given to the assessment of
Simon Emeny’s independence in view of his nine year tenure.
To help preserve continuity following changes to the Board in
the past year, Simon has been asked to stay on until the AGM
in 2017, at which point we would anticipate the appointment
of an additional independent Non-Executive Director to
succeed him. The Board determined that Simon’s tenure
has in no way affected his independence of character and
judgement, and therefore he should continue to be considered
as ‘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. In March
2016 she was appointed a director of WA Capital Limited. 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. One of the
factors set out in the Corporate Governance Code to indicate
that a director may not be independent is the existence of
a ‘relationship which is likely to affect or could appear to
affect the director’s judgement’ and/or ‘cross-directorships or
significant links to other directors through involvement in other
companies’. The Dunelm Board considered the matter prior to
Marion’s appointment to the Board of WA Capital and decided
that it would not affect her judgement as a Director of Dunelm;
and that any potential conflict of interest could be 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.
Further, as Marion is already treated as non-independent, there
are no implications for Board composition. The Board therefore
gave prior consent to the appointment, and considered and
cleared the potential conflict of interest.
Both Marion and Simon will put themselves 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 continue to
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
During the period the following planned changes in the responsibilities of the Non-Executive Directors took place:
Date
8 July 2015
Role
Chairman
Previous
Geoff Cooper
11 September 2015
Chair of Remuneration Committee
Marion Sears
11 March 2016
Chair of Nominations Committee
Marion Sears
New
Andy Harrison
Simon Emeny
Andy Harrison
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Board attendance
The Board held ten 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
Geoff Cooper1
Liz Doherty
Keith Down2
Simon Emeny
Andy Harrison
Peter Ruis2
William Reeve
Marion Sears
David Stead1
Meetings attended
10
10
1
10
6
10
10
8
9
10
4
Areas of focus
Strategy
X Group strategy,
including our eight
strategic initiatives
X Property strategy
X Budget
Governance
and risk
X Board succession
X Board
independence,
composition and
diversity
X Investor feedback
via advisors
X AGM voting and
feedback
X Culture and values
X Treasury policy
X Capital and
Dividend policy
X Tax policy
X Risk reviews and
“what keeps us
awake at night”
X Health and safety
X Ethical sourcing
X Modern slavery
X IT security and
cyber security
X Market abuse
regulation
1. Geoff Cooper and David Stead attended all meetings prior to their
retirement.
2. Peter Ruis and Keith Down attended all meetings subsequent to their
Operational
appointment.
Any Director who was unable to attend a meeting received the
papers in advance and passed on comments to the Chairman.
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 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 and the Chief Financial
Officer report 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 topics discussed by the Board in 2015/16 were:
X Competitor activity
X Customer insight
X Store operating
model
X Format
development
X People strategy
and colleague
engagement
X Supply chain
strategy
X Product quality
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 committee secretary respectively and
circulated for approval. Any unresolved concerns raised by a
Director are recorded in the minutes.
Non-Executive Director meetings
The Chairman and the other Non-Executive Directors formally
met once during the year without Executive Directors being
present and regularly have informal, individual, meetings with
the Executive Directors and other senior managers in the
business, usually at a store location.
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Board committees
The Board has appointed 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.
Evaluation
Each of the Directors receives a formal evaluation of their
performance during the year.
The Board and committees are also formally evaluated as a
whole.
2015 Evaluation
The actions arising from the 2015 review conducted by Andy
Harrison, as incoming Chairman, were:
z To ensure that the Board retains and builds on its strengths
in the coming year during a period of substantial change
around the Board table.
z Continued focus on the Board succession plan.
The Board considered that these objectives, which were
necessarily broad in a year of change in the composition of
the Board, have been met. This was confirmed by the 2016
external Board evaluation.
2016 Evaluation
An external evaluation was conducted by Lorna Parker in
April to June of 2016. Lorna Parker does not have any other
connection with the Group or any of its Directors.
The conclusion of this evaluation was that the Board and its
committees are functioning well and dynamics are good,
with all members actively engaged, proud to be associated
with Dunelm and ambitious for its future. A number of
recommendations were made and accepted by the Board to
build on this and make the Board even more effective. The key
recommendations were:
z Refocusing the Board’s agenda so that more time is spent
discussing key aspects of the strategy where the Board can
add most value to the Executive team, with sufficient time
on each topic to allow a free flowing debate.
z Build more structured Non-Executive time into the Board
timetable; additional Non-Executive only dinners and
scheduled Non-Executive only sessions at the end of each
Board meeting.
z Maximising value from the Non-Executive Directors by
informal ‘mentoring’ of Executives and continuing to share
their specialist knowledge and leadership experience
through presentations to the Senior Management Team.
z The Company Secretary to facilitate more formal
governance training for the Non-Executive Directors.
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. This includes access to recent Board and
Committee papers, including strategy documentation;
meetings with each of the Executive Directors and
the Company Secretary and other members of senior
management; store visits; meetings with advisers such as the
auditors.
This year four new Directors joined the Board, two Executives
and two Non-Executives.
z John Browett, Chief Executive, had a six month period
as Chief Executive designate, which he spent gaining a
detailed knowledge of the business. This included time
working in stores and our distribution centre and meeting
with advisers and key suppliers, as well as getting to know
Board members and senior management. This work enabled
him to formulate the Senior Management Team and devise
the eight strategic initiatives that will drive forward the
Board’s strategy.
z Keith Down, Chief Financial Officer, had a short handover
period with his predecessor David Stead. He had a formal
induction programme which included time with Board
members and other senior managers in store, as well as
meetings with advisers and our auditors.
z William Reeve and Peter Ruis, Non-Executive Directors, both
met with the Chairman and other Directors and have met
other senior management in store. They received a briefing
from the Company Secretary on the duties of PLC directors.
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 and tutorials 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
36 to 38 for details of the specific skills and experience of each
Director.
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Investor relations and understanding
shareholder views
We formalised our Investor Relations Strategy in 2013 and it is
available on our corporate website. The main elements are:
Event
Company attendees
Results presentation
Twice a year
Presented by Chief Executive and
Chief Financial Officer
Attended by Chairman and other
Directors
Meetings with institutional
investors (‘roadshow’)
Twice a year
Chief Executive and Chief
Financial Officer
Chairman and Non-Executive
Directors attend a selection of
meetings
Adderley family dinner
Once a year
All Directors and Company
Secretary
AGM
Once a year
All Directors and Company
Secretary
Corporate governance
presentation
Every one or two years
Chairman, Non-Executive
Directors and Will Adderley
Analyst and shareholder
presentation at store
Every two or three years
Chief Executive and Chief
Financial Officer
Other senior managers as
appropriate
The Chief Executive 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 we held a Corporate Governance meeting,
attended by Will Adderley, the Non-Executive Directors, the
Company Secretary and myself, to which our major institutional
shareholders were invited. This was the first opportunity for the
corporate governance representatives of our shareholders to
meet with the new Non-Executive team following the changes
that have taken place during 2015. We had a useful exchange
of views on a number of governance topics, including Board
composition, the work of the Audit and Risk Committee,
remuneration, the Rule 9 waiver and corporate social
responsibility. The views expressed were considered by the full
Board and have been taken into account in our subsequent
Board discussions.
Our corporate website contains useful shareholder information,
copies of presentations and policies in relation to governance
and corporate social responsibility. Please see http://dunelm.
production.investis.com.
All Directors will be available at the Annual General Meeting to
meet with shareholders and answer their questions.
Rule 9 waiver
In April, 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 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.
Significant shareholders
The Group’s significant shareholders are listed in the Directors’
report on page 83 and voting rights are stated on page 82.
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:
Directors who have an interest in matters under discussion at
a Board meeting must declare that interest and abstain from
voting.
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.
The Directors are able to impose limits or conditions when
giving authorisation if they feel this is appropriate.
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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
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 2016 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.
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 cost 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 our risk management framework, systems and
controls and internal control framework are set out in the
Strategic report on pages 17 to 25.
This report was reviewed and approved by the Board on
14 September 2016.
Andy Harrison
Chairman
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.
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.
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Letter from the Chair of the
Audit and Risk Committee
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Liz Doherty Chair of the Audit and Risk Committee
De ar Sh ar e h o l d er
This has been a year of change for the Board and for the Audit
and Risk Committee. Keith Down was appointed as our new
Chief Financial Officer in early December 2015, succeeding
David Stead who retired from the Board at the end of that
month. I am pleased to report that the transition has been a
smooth one, reflecting the calibre of both individuals and the
strength of the finance team and the controls and systems in
place.
Marion Sears retired from the Committee in September 2015
to comply with corporate governance guidelines, following
the Board’s determination that she is no longer ‘independent’
due to her tenure on the Board. I thank her for her vigilant and
dedicated service to the Committee during the previous ten
years. Andy Harrison also retired from the Committee when he
was appointed Chairman in July 2015, again to comply with
governance guidelines. Both continue to make themselves
available for attendance as requested. The Committee has
also welcomed our two new Non-Executive Directors, William
Reeve and Peter Ruis, who joined the Board in July 2015 and
September 2015 respectively. We therefore have a healthy mix
of old and new members to bring both ‘corporate knowledge’
and continuity as well as fresh perspectives.
We have spent time this year overseeing the preparations for
the Board’s statements on long term viability, going concern
and risk management. This work has involved looking again at
our principal risks and ensuring that the process for reviewing
and assessing them is expressly linked to our financial planning
process, and to our annual report disclosures.
The Board has responded to the FRC’s Financial Reporting
Lab’s paper in November 2015 on ‘Disclosure of dividends
– policy and practice’, and has provided a more detailed
description of its capital and dividend policy. This was reviewed
by the Committee prior to being adopted by the Board.
All businesses continue to be exposed to cyber risks, and this
continues to be a standing agenda item for the Committee.
Following a number of high profile data security breaches at
other businesses, the Committee carried out a ‘deep dive’
review of the processes in place at Dunelm to manage a data
breach.
Our programme of internal audit activity, supported by external
assurance providers, continued throughout the year. Specific
reviews were conducted of the way in which we account for
supplier income and the accounting processes used with ‘drop
ship’ vendors.
We paid our auditors PricewaterhouseCoopers LLP advisory
fees of £70,500 in the financial year, as against the audit fee
of £75,000. This relates to the review work carried out on our
interim results which we requested for the first time this year
to reflect the growing size and complexity of the business; to
some follow up work on senior management remuneration
from a previous year; and to a technical piece of work to
support the future availability of distributable reserves. We
have adopted a new policy on use of our auditors for non-audit
services for the FY17 financial year which is in line with recently
adopted regulations.
Looking forward, we have noted the recent revisions to
the Corporate Governance Code which relate to Audit
Committees and also the Financial Reporting Council’s
guidance issued in June, and we will be taking steps to ensure
that we can demonstrate that we are adhering to these.
I look forward to meeting shareholders at the AGM.
Yours sincerely,
Liz Doherty
Chair of the Audit and Risk Committee
14 September 2016
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Audit and Risk Committee Report
2015/16 SUMMARY
Principal activities
X Review of annual financial statements for FY15 and interim results for FY16
X Review of the process for the identification and mitigation of principal risks including the development of an assurance
framework and the process for Board oversight
X Review of approach to the viability statement
X Review of processes in place to minimise the risk of a data security breach and the process for handling one in the event that
one occurred
X External assurance reviews of supplier income and the accounting processes used for ‘drop ship’ vendors
Since the year end
X Approval of the full year annual financial statements for FY16
X Approval of the Board’s dividend policy statement
X Approval of the Board’s tax policy statement
X Approval of revised policy on use of auditors to provide non-audit services
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 2016 when the annual report and financial statements were approved.
Principal duties
The principal duties of the Committee are to:
X oversee the integrity of the Group’s financial statements and public announcements relating to financial performance
X hold the relationship with the external auditors and oversee the external audit process
X oversee the internal audit process
X monitor the effectiveness of financial controls and the process for identifying and managing risk throughout the Group
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 September 2016.
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. During the year the Committee received reports detailing the calls made to the helpline.
Committee membership
The following Directors served on the Committee during the year:
Name
Liz Doherty (Chair)
Marion Sears3
Simon Emeny
William Reeve
Andy Harrison1
Peter Ruis2
From:
1 May 2013
To:
To date
18 January 2005
11 September 2015
25 June 2007
1 July 2015
1 September 2014
10 September 2015
To date
To date
7 July 2015
To date
1. Andy Harrison stepped down from the Committee due to his appointment as Chairman on 8 July 2015.
2. Peter Ruis was appointed to the Board and the Committee on 10 September 2015.
3. Marion Sears stepped down from the Committee on 11 September 2015.
The Company Secretary acts as secretary to the Committee.
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The Chief Financial Officer and the Chairman of the
Board usually attend meetings by invitation, along with a
representative from the external auditors. Other Directors
attend by invitation as required.
The Board considers that I have recent and relevant financial
experience 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 36 to 38
for full details.
Committee activities in 2015/16
Three meetings were held in the year and members’
attendance was as shown in the table below.
Name
Liz Doherty
Marion Sears1
Simon Emeny
William Reeve
Andy Harrison1
Peter Ruis2
Meetings attended
3
1
3
3
0
2
1. Andy Harrison stepped down from the Committee on 8 July 2015 and
Marion Sears retired on 11 September 2015. They attended all meetings
during their tenure on the Committee.
2. Peter Ruis was appointed to the Board on 10 September 2016. He has
attended all meetings since then.
The activities of the Committee included:
Routine items
z Approval of the full year results issued in September 2015
and the half year results issued in February 2016
z Review of the process for identifying and managing risk
within the business in September 2015, and a full review of
the principal risks and how they are managed by the Board
in February 2016
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
z Receipt of external assurance reports (see below)
z Approval of the annual Audit and Risk Committee report
z Review of whether the FY15 and FY16 annual reports are
‘fair, balanced and understandable’
z Annual review of tax policy, business control framework and
terms of reference
Specific topics
z Review of the process used to support the viability
statement to be given in the FY16 annual report
z Review of processes in place to manage a data security
breach
z Review and approval of dividend policy statement
z Revision of our policy on use of auditors for non-audit work
z External assurance review of supplier income and the
process used with ‘drop ship’ vendors
Significant areas of judgement
Within its terms of reference, the Committee monitors the
integrity of the annual and half year results and interim
management statements, including a review of the significant
financial reporting issues and judgements contained in them.
At its meetings in September 2015 and 2016, 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 auditors, which included significant reporting and
accounting matters.
The major accounting issues discussed by the Committee in
September 2016 in relation to the FY16 Annual Report and
Financial Statements were as follows:
Provisions for inventory, returns and
property
For each of the above, the Committee considered the
approach taken by management and assessed available
evidence, including historical outcomes. Particular attention
was given to reviewing the provision for obsolete, slow-moving
or discontinued inventory and the pattern of stock clearance
over the financial period. The Committee concluded that the
values recorded in the financial statements are appropriate.
Complex supplier arrangements
The Committee received a report from management on
the nature and scale of supplier income. The Committee
noted that the main source of supplier income is through
retrospective volume rebates, that these are not significant
in the context of the Group’s financial statements, and that
management’s policy for recognising such income is in any
event conservative.
“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 Chief Executive’s and Chief
Financial Officer’s reviews fairly reflect the performance of
the Group over the period reported on?
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Audit and Risk Committee Report CONTINUED
z Are the narrative sections consistent with each other, and
with the financial statements?
z Is the connection between strategy and remuneration
Resolutions to reappoint PricewaterhouseCoopers LLP
as auditors and to authorise the Directors to agree their
remuneration will be put to shareholders at the AGM.
clearly described?
z Can readers easily identify key events that happened during
the year?
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 that the FY16
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.
One of the primary responsibilities of the Audit and Risk
Committee is to assess the effectiveness of the external audit
process and make recommendations to the Board in relation to
the appointment, reappointment and removal of the external
auditors. The Committee took a number of factors into account
in its assessment, including but not limited to:
z The quality and scope of the planning of the audit. In
February 2016, the external auditors presented their
strategy for 2015/16 to the Committee. The Committee
reviewed and agreed with the external auditors’ assessment
of risk. The Committee also reviewed the audit approach
and the approach to assessing materiality for the Group;
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.
We have a relatively flat management structure and all
advisory work commissioned from our auditor is required to be
sanctioned by the Chief Financial Officer, who obtains the prior
approval of the Committee (or between meetings of myself as
Committee Chair). Consent would only be given if there are
no issues regarding independence. Much of the advisory work
that we outsource is tax related, and we have retained the
services of KPMG for this purpose.
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 will be prohibited from providing certain non-
audit services, including:
— almost all tax work
— internal audit
— corporate finance
z The quality of reports provided to the Committee and the
— involvement in management activities, including working
Board and the quality of advice given;
z The level of understanding demonstrated 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 2016.
The fee paid to PricewaterhouseCoopers LLP for the statutory
audit of the Group and Company financial statements
and the audit of Group subsidiaries pursuant to legislation
was £75,000. A breakdown of non-audit fees paid to
PricewaterhouseCoopers LLP during the financial year is set
out below.
PricewaterhouseCoopers LLP attended the Committee
meetings in September 2015, February, June and September
2016. 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.
capital and cash management and the provision of
financial information.
During the period we paid PricewaterhouseCoopers LLP
£70,500, of which £15,000 related to their review of the
interim financial statements and £40,000 to a technical piece
of work to support the future availability of distributable
reserves. The remainder was in relation to an executive salary
benchmarking exercise for below Board Executives. In each
case they were considered to be the best firm to provide
the work in view of their expertise and knowledge of the
Group. Their appointment was made in line with the policy
applicable during the financial year, and was approved by me
as Committee Chair.
Fees paid to PricewaterhouseCoopers LLP for audit work were
£75,000.
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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
control; crisis management; monitoring and reporting.
The framework and the controls in place were reviewed by the
Committee in June 2016, together with progress that had been
made against actions agreed in 2015. Although no significant
control weaknesses have been identified, we agreed that
we would look at how assurance of performance against the
controls is gained to identify whether any further assurance is
needed.
Information security
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. In view of the
high profile data breaches suffered by certain retailers, and
the tougher data protection regime that will shortly come into
force under the terms of the Data Protection Directive, this year
the Committee also reviewed the processes we have in place
to minimise the risk of a data breach and also the steps that
we would take in the event that a breach occurred, and found
them to be appropriate.
Approved by the Board of Dunelm Group plc on 14 September
2016 and signed on its behalf by
Liz Doherty
Chair of the Audit and Risk Committee
Auditor rotation
It is our policy to tender the statutory audit at least every five
years and to rotate auditors at least every 20 years, in line
with the requirements of the EU Audit Directive. This means
that the next tender will be for the 2018/19 audit at the latest.
We will also invite at least one firm outside the ‘Big Four’
to participate in the tender process. 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.
Viability statement and risk management
The Company is required to provide a viability statement
for the first time in this year’s annual report. The Committee
reviewed the process in place to support the assurance given.
This included a full review of the principal risks facing the
Group and the process by which they are managed by the
Board and management. We also reviewed the risks in the
context of our strategic and financial planning process to
ensure that all elements are appropriately aligned. As a result
of this review, we revised the ‘Principal Risks and Uncertainties’
statement set out in this report to make it more consistent with
the terminology used by management.
The Committee formally reviewed the process in place to
support the viability statement and for the identification and
management of risks in September 2016 and confirmed that it
is appropriate and in compliance with regulatory requirements.
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 February 2016 the Committee discussed and agreed
that this approach to internal audit remains satisfactory.
Topics reviewed in the year are set out below:
Review topic
Review of supplier income
‘Drop ship’ vendor processes
Reviewed by
KPMG
KPMG
Reports were discussed by the Committee and the Board and
a number of actions agreed to improve controls.
In addition, the Committee monitored progress against actions
agreed following the reports received in the 2014-15 financial
year from external assurance providers in relation to pensions
auto-enrolment. All agreed actions are now completed.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Letter from the Chair of the
Remuneration Committee
Simon Emeny Chair of the Remuneration Committee
De ar Sh ar e h o l d er
This is my first letter as Chair of the Committee, and I would
like to start by thanking Marion Sears, my predecessor, for the
detailed and dedicated work she has carried out chairing the
Committee over the past ten years; and for putting in place
the principles behind our remuneration structure, which have
been largely unchanged since flotation in 2006. I have been a
member of the Committee for the past nine years, and intend
to continue to apply these principles, which have the support
of our shareholders and are in line with best practice.
Last year we put forward a revised Remuneration Policy for
approval at the AGM. We needed to update the performance-
related elements of Executive remuneration following the
appointment of our new Executive team, John Browett
(Chief Executive) and Keith Down (Chief Financial Officer).
I am pleased that the policy was approved by 97.7% of our
shareholders, reflecting the positive feedback that we had
received through prior consultation with our major institutional
shareholders. This policy is set out on the following pages
of this report, although we are not asking for shareholder
approval this year.
The Committee is aware that remuneration continues to be
an issue of focus for shareholders and governance analysts,
particularly where executive reward earned is out of line with
profits and shareholder returns. Our policy has always been
to structure remuneration so as to reward shareholder value
creation over the long term, so that the majority is performance
based according to stretching targets. We consider that
this remains relevant and are pleased that our simplicity of
approach and execution is in line with recent policy statements
issued by institutional investor bodies, and the Executive
Remuneration Working Group.
At the time of writing this report, the effects of the United
Kingdom’s vote to leave the European Union is unclear. A
sustained economic slowdown or a significant increase in
our cost base could have a material effect on the potential
outcome of our performance based incentive schemes,
particularly the Long Term Incentive Plan. Although we have
left the targets unchanged for the LTIP awards to be granted
this year, we will review these before we make awards in 2017
to ensure that they continue to be in line with our policy to
provide fair reward for strong performance. We would consult
with major shareholders before proposing any change.
In the financial year under review, our Chief Executive and
Chief Financial Officer have earned an annual bonus equal to
58% of the maximum, reflecting the financial performance of
the business, the work that has been carried out to further our
eight strategic initiatives, and their own personal performance.
Although both have received awards under our Long Term
Incentive Plan, these awards will not vest until 2018, subject of
course to performance conditions. Will Adderley’s basic salary
was reduced to £1 from 1 July 2015 at his request, and he has
also waived his entitlement to an award under the Long Term
Incentive Plan. Total executive pay was therefore £1.8m, 1.4%
of PBT.
Our 2015 policy also requires that newly appointed Executive
Directors are required to make an investment in Dunelm shares
on appointment (subject to Company closed periods). I am
pleased to report that in October 2015 John Browett purchased
21,606 shares for £200,227 and Keith Down purchased 5,265
shares for £49,500; Keith made a further purchase of 3,246
shares in April 2016 for £29,700. Since the year end John and
Keith have purchased 4,534 and 5,629 shares respectively,
taking their total holdings at the date of this report to: John
Browett: 27,785 shares and Keith Down: 14,140 shares.
For completeness I should add that Will Adderley and David
Stead did not receive any payment in respect of loss of office
when John Browett and Keith Down assumed the roles of
Chief Executive and Chief Financial Officer respectively. David
Stead, who retired as a good leaver after 12 years, has been
permitted to benefit from performance-related bonus and LTIP
options earned during his employment, pro-rated to his service
and after applying performance criteria. Full details were
disclosed on his retirement and are set out in the report and in
last year’s report, and are in line with our approved policy.
I look forward to meeting shareholders at the AGM.
Yours sincerely,
Simon Emeny
Chair of the Remuneration Committee
14 September 2016
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Executive Remuneration Structure – at a glance
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GROUP STRATEGY
DELIVER SHAREHOLDER VALUE THROUGH LONG TERM, SUSTAINABLE, PROFITABLE GROWTH
Remuneration strategy
z Pay fairly for an individual’s role and responsibilities
z Reward strong performance
z Focus on long term value creation
z Align Executives with shareholders through share
Remuneration structure
z Base pay and benefits at median or below
z Annual bonus at median
z Long Term Incentive Plan at upper quartile
z Two thirds of variable pay retained in shares for duration
of employment and half of these for a further two years
ownership
Policy
element
Base salary
Pension
Annual bonus
maximum
Annual bonus
performance
measures
Long Term
Incentive Plan
Long Term
Incentive Plan
performance
measures
‘Lifetime lock-in’
Will Adderley
Deputy Chairman
£1
n/a
n/a
n/a
n/a
n/a
n/a
John Browett
Chief Executive
£500,000
Keith Down
Chief Financial Officer
£350,000
20% of base salary
15% of base salary
125% of base salary
80% PBT
20% strategic and personal targets
110,000 shares per annum
60,000 shares per annum
Growth in EPS relative to RPI growth over three years
At least two thirds of all performance pay (after payment
of income tax and NI) invested in Dunelm shares to
be held for duration of employment; half of holding
retained for 2 years after that
Shareholding
requirement
n/a as Will is a major
shareholder
100% of salary by July
2018
100% of salary by
December 2018
Shareholding (as
percentage of
salary) at year end
Performance pay
earned in FY16
54,161,779
shares
n/a
200% by July 2020
200% by December 2020
23,251 shares
37% of salary
8,511 shares
19% of salary
58% of maximum annual
bonus earned in FY16
58% of maximum annual
bonus earned in FY16
No LTIP shares were due
to vest
No LTIP shares were due
to vest
FY16 ‘single
figure’
remuneration
FY16 total Board
‘single figure’
remuneration
Company EPS
growth FY16
£21,000
£981,600
£403,703
£2.26m
1.8% of PBT
7.5%
Note
CEO and CFO base
salary increased by 2%
on 1 July 2016 in line
with Group award
Awards made in
December 2015:
performance period
FY16–FY18
Further awards planned
in October 2016 for
performance period
FY17–FY19.
Does not include
unvested shares in LTIP
or joining award
Keith Down’s annual
bonus was pro-rated
from his appointment on
7 December 2015
Keith Down’s
remuneration dates from
his appointment on
7 December 2015
Note: from 1 July 2015, Will Adderley requested that his annual base salary be reduced to £1 and he has waived all performance-related benefits including
LTIP awards.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Remuneration Report
HOW OUR POLICY IS LINKED TO OUR STRATEGY
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:
X To pay fairly and appropriately for an individual’s role and responsibilities;
X To reward strong performance;
X To be focused on long term value creation;
X 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 delivery of the objectives set out in our corporate strategy, which are all long term in nature; namely the
growth of like-for-like sales in store; obtaining national coverage from rolling out new stores; and growing sales and profit in the
home delivery channel. 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.
Introduction
This Directors’ Remuneration Report is divided into three sections: the Letter from the Chair of the Remuneration Committee,
set out on page 52; the Policy Report; and the Annual Report on Implementation.
The Policy Report sets out the Directors’ remuneration policy, which was approved by shareholders at the Annual General
Meeting on 24 November 2015, and took effect from that date. This was a binding vote and the policy remains in place until the
AGM in 2018.
No payment may be paid to a Director or past Director unless it is consistent with the approved policy unless shareholder
approval is sought.
The Annual Report on Implementation sets out how the policies approved in November 2014 and November 2015 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 2016, 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) (Amendment) Regulations 2013, as well as the UK Corporate Governance Code and the
UKLA Listing Rules.
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THE POLICY REPORT
Directors’ Remuneration Policy 2015
The policy set out below took binding effect from the date of its approval by shareholders at the Annual General Meeting on
24 November 2015, to replace the policy that was approved in 2014. It remains in force for three years from the date of approval,
and will be due for renewal at the latest at the 2018 AGM.
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
X Fixed remuneration for the role.
X To attract and retain the high-calibre talent necessary to develop and deliver the business strategy.
X Reflects the size and scope of the Executive Director’s responsibilities.
Operation
X Normally paid monthly.
X Base level set in the context of:
z Pay for similar roles in companies of similar size and complexity in the relevant market.
z Scale and complexity of the role.
X Should comprise a minority of potential remuneration.
Maximum
opportunity
X Reviewed annually, with percentage increases in line with the Company-wide review unless other
circumstances apply, such as:
z A significant change in the size, scale or complexity of the role or of the Company’s business
z 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).
X The Committee does not consider it to be appropriate to set a maximum base salary that may be paid to
an Executive Director within the terms of this policy.
Performance metrics
X None, although performance of the individual is considered at the annual salary review.
X No recovery provisions apply to base salary.
Retirement benefits
Purpose and link to
strategic objectives
X To provide a competitive post-retirement benefit.
X To attract and retain the high-calibre talent necessary to develop and deliver the business strategy.
Operation
X Contribution equivalent to a percentage of base salary made to a defined contribution plan or paid as a
cash allowance.
Maximum
opportunity
X Up to 20% of base salary. No element other than base salary is pensionable.
Performance metrics
X None.
X No recovery provisions apply to retirement benefits.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Remuneration Report CONTINUED
Benefits
Purpose and link to
strategic objectives
X To provide a competitive benefits package.
X To attract and retain the high-calibre talent necessary to develop and deliver the business strategy.
Operation
X 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.
X 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.
X For non-UK Executives (none at present) the Committee may consider additional allowances in accordance
with standard practice.
Maximum
opportunity
X Current benefits provided are described in the Annual Report on Implementation on page 67.
X The Committee reserves the right to provide such benefits as it considers necessary to support the
strategy of the Company.
X The Committee does not consider it to be appropriate to set a maximum cost to the Company of benefits
to be paid.
Performance metrics
X None.
X No recovery provisions apply to benefits.
Annual bonus – awards to be made to Executive Directors other than Will Adderley, who has waived his entitlement.
Purpose and link to
strategic objectives
X Rewards and incentivises delivery of annual financial, strategic and personal targets.
Operation
X Paid in cash, after the results for the financial year have been audited, subject to performance targets
having been met.
X Two-thirds of bonus earned must be invested in Dunelm shares after tax and national insurance obligations
have been met.
Maximum
opportunity
X Maximum opportunity – 125% of base salary per annum.
X For on target performance – 40% of maximum opportunity.
X For threshold performance – 5% of maximum opportunity.
Performance metrics
X 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.
X Financial objectives include, but are not limited to, budgeted PBT for the financial year taking into account
market consensus and individual broker expectations.
X The strategic objectives will vary depending on the specific business priorities in a particular year.
X Typically, the majority of the annual bonus for Executives is subject to financial objectives.
X 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.
X 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.
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Annual bonus – award made to David Stead in 2015 only – retired on 31 December 2015.
Please note – this award was made under the terms of the 2014 approved policy.
Purpose and link to
strategic objectives
X Rewards and incentivises delivery of annual financial, strategic and personal targets.
Operation
X Paid in cash, after the results for the financial year have been audited, subject to performance targets
having been met.
Maximum
opportunity
X Maximum opportunity – 100% of base salary per annum.
X For on target performance – 40% of maximum opportunity.
X For threshold performance – 5% of maximum opportunity.
Performance metrics
X As for John Browett and Keith Down above.
Long Term Incentive Plan – awards to be made to Executive Directors other than Will Adderley, who has waived
his entitlement.
Purpose and link to
strategic objectives
X 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.
X Rewards strong financial performance and sustained increase in shareholder value over the long term.
X Aligns with shareholder interests through the delivery of shares, the majority of which are retained.
Operation
X 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.
X 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
X 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.
X The Committee will review the fixed number of shares set out above every three years.
X For threshold performance: 10% of the award will vest.
X For maximum performance: 100% of the award will vest.
X Straight-line vesting between the threshold and maximum levels will apply for performance between
threshold and maximum points.
Performance metrics
X 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.
X The Remuneration Committee considers the target annually taking into account market consensus and
individual broker expectations.
X For information, the target applicable to awards to be made are:
z No part of the award will vest until EPS growth exceeds RPI growth by 3%.
z 10% of the award vests at RPI growth plus 3%. 100% of the award vests at RPI plus 15%.
z Between those figures the award will vest on a straight-line basis.
X 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.
X 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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Long Term Incentive Plan – award made to David Stead in 2015 only.
Please note – this award was made under the terms of the 2014 approved policy.
Purpose and link to
strategic objectives
X 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.
X Rewards strong financial performance and sustained increase in shareholder value over the long term.
X Aligns with shareholder interests through the delivery of shares.
Operation
X Conditional awards (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.
X Shares earned after applying the performance criteria are subject to an additional two year holding
period. During this two year period dividend entitlement (including, at the discretion of the Remuneration
Committee, any special dividend) will also accrue and be paid at the end of that period.
Maximum
opportunity
X Maximum face value of shares at award date: 150% of base salary.
X For threshold performance: 25% of the award will vest.
X For maximum performance: 100% of the award will vest.
X Straight-line vesting between the threshold performance and maximum levels will apply for performance
between threshold and maximum points.
Performance metrics
X 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.
X The Remuneration Committee considers the target annually taking into account market consensus and
individual broker expectations.
X For information, the target applicable to awards made to David Stead are:
z No part of the award will vest until EPS growth exceeds RPI growth by 3%.
z 25% of the award vests at RPI growth plus 3%. 100% of the award vests at RPI plus 15%.
z Between those figures the award will vest on a straight-line basis.
X 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.
X 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.
Lifetime lock-in and personal shareholding targets
Purpose and link to
strategic objectives
Operation
X Aligns with shareholder interests through shareholding and promotes long term thinking.
X 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.
X From the date of approval of this Policy the following additional requirements apply:
X A personal investment in Dunelm shares should be made on appointment as an Executive Director
(subject to close periods).
X Other than for the award made to David Stead referred to on page 67, 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.
X These shares must be held during employment and at least 50% of them retained for at least two years
after employment ends.
X 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
Not applicable.
Performance metrics Not applicable.
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All employee share plan (Sharesave)
Purpose and link to
strategic objectives
X Promotes share ownership by all eligible colleagues (including Executive Directors).
Operation
X 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).
X 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 scheme.
X 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.
X Maximum participation limits are set by the UK tax authorities. Currently the maximum limit is savings of
£500 per month.
Maximum
opportunity
Performance metrics None.
Keith Down joining award
Purpose and link to
strategic objectives
X Keith Down was granted an award of restricted stock to compensate him for deferred shares earned with
his previous employer which were forfeited when he resigned. This represents a small proportion of his
benefits left behind.
Operation
X Nil cost option vesting as to 22% in 2016 and 78% in 2017 (reflecting the proportion and vesting dates of
the deferred shares that have been forfeited).
Maximum
opportunity
X Award over 33,958 shares with a face value at grant of £335,000 (based on the market value of Dunelm
shares at the date of grant).
Performance metrics
X No performance conditions apply in relation to this award as the deferred shares in respect of which he is
being compensated are not subject to a performance condition.
X Awards are subject to recovery provisions (malus) at the discretion of the Committee if there has been a
misstatement of results for a financial period from 2015-16 onwards or in the case of gross misconduct.
X 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.
Non-Executive Directors
Fees
Purpose and link to
strategic objectives
X To attract and retain a high calibre Chairman and Non-Executive Directors by offering competitive fee levels.
Operation
X 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.
X The Chairman is paid an all-inclusive fee for all Board responsibilities.
X The Non-Executive Directors receive a basic fee, with supplemental fees for additional Board
responsibilities.
X The level of fee reflects the size and complexity of the role and the time commitment.
X 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.
X 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.
X 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
X Maximum fees to be paid by way of fees to the Non-Executive Directors are set out in the Company’s
Articles of Association.
X Fees paid to each Director are disclosed in the Annual Report on Implementation.
Performance metrics None.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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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.
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 2015-16 and 2016-17, 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.
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 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 EPS target for the LTIP is based on growth in EPS compared to the increase in the Index of Retail Prices (RPI) over the
performance period. The targets that apply to awards that are outstanding are set out in the Policy table on pages 55 to 59.
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.
LTIP awards made to Executive Directors prior to approval of 2015 policy may vest on their original terms.
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Illustrative performance scenarios
The following graphs set out what each of the Executive Directors could earn in the financial year 2016-17 under the following
scenarios:
2,500
John Browett
Keith Down
Will Adderley
)
0
0
0
£
’
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
2,000
1,500
1,000
500
0
£2,228k
43%
29%
£1,453k
38%
18%
£633k
£1,399k
37%
32%
£919k
34%
19%
£432k
100%
44%
28%
100%
47%
31%
£21k
£21k
£21k
Minimum
On target Maximum
Minimum
On target Maximum
Minimum
On target Maximum
Fixed pay
Annual bonus
LTIP
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 cash bonus or LTIP (see table below).
John Browett
Will Adderley
Keith Down
1. 20% of salary reflecting pension provision for 2016–17.
2. 15% of salary reflecting pension provision for 2016–17.
Base
(last known
salary)
£’000
Benefits
(as in single
figure table)
£’000
Pension
(20%/15% of
last known
salary)
£’000
510
–
357
21
21
21
1021
–
542
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 John Browett and Keith Down (after payment of their 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 reduced to £1 per annum, and he has waived his entitlement to receive an
LTIP award.
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It should be noted that the illustrative performance number
is likely to be different to the actual pay that is earned by the
Executive Directors during the year:
z Actual pay will reflect Company and personal performance
over the relevant performance period.
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 of 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.
z The value of the LTIP awards to be made is based on the
average price of a Dunelm share over the three months to
2 July 2016, which is 869.95p – the actual share price at
date of award is likely to differ.
z We are not required to show Keith Down’s joining award
which was granted on 7 December 2015, and included
in the illustrative performance graph in last year’s annual
report. 7,470 shares will vest on 15 September 2016
pursuant to this award.
Recovery
There is provision for recovery of variable pay, as highlighted in
the policy table.
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.
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 addition, Keith Down’s joining award is subject to malus
and clawback if there has been a misstatement of results for a
financial period from 2015-16 onwards or in the case of gross
misconduct or fraud.
Salary, pension and 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 John Browett and Keith Down 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
prorated to service.
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 of 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.
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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
a 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 death, 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).
Joining award
If Keith Down leaves the employment of the Group prior to
vesting of the joining award it will lapse if he leaves due to
resignation, or he is dismissed for misconduct. If he leaves for
any other reason it will vest on the normal vesting date and
be exercisable for six months (if it has not already vested),
although the Committee retains discretion to permit the award
to vest earlier. If Keith leaves other than due to resignation
or dismissal for misconduct after the award vested, it will be
exercisable for six months after cessation.
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 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.
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.
Joining award
If there is a change of control or winding up of the Company,
shares subject to the award will vest and may be exercised in
full.
The Executive may agree that his awards are ‘rolled over’ into
shares of the acquiring company as an alternative.
Executive pay and the pay of other
colleagues
Pay for all colleagues throughout the Group 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.
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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 scheme, 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.
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
in relation to executive pay. However colleagues have the
opportunity to raise any concerns via the People Director,
or anonymously through engagement surveys. Recent
engagement surveys have not identified executive pay to be a
concern to colleagues.
Shareholder views
The Board is committed to on-going 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 informally discuss governance topics,
including remuneration. In addition, the Chairman and Non-
Executive Directors usually attend results presentations and a
selection of shareholder meetings.
Approach to recruitment remuneration
The Remuneration Committee will apply the following
principles when agreeing a remuneration package for a
new Director (whether an external candidate or an internal
promotion):
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 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:
— 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.
— 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.
— 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
decide are set out below:
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.
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.
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.
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.
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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 and awards in the first
year of employment, would normally be in line with the policy
table set out on pages 53 to 59. 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. 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’).
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.
On the appointment of a new Chairman or Non-Executive
Director, the fees 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. No
share incentives or performance related incentives would be
offered.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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ANNUAL REPORT ON IMPLEMENTATION
Directors’ Remuneration – Report on Implementation 2016
This section of the report sets out how the Directors’ Remuneration Policy which was approved by shareholders on 24 November
2015 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
Simon Emeny
(Chair)2
Period from:
25 June 2007
To:
To date
Geoff Cooper1
18 January 2005
7 July 2015
Marion Sears2
18 January 2005
11 September 2015
Liz Doherty
1 May 2013
Andy Harrison
1 September 2014
William Reeve
1 July 2015
Peter Ruis3
10 September 2015
To date
To date
To date
To date
1. Geoff Cooper resigned from the Committee on 7 July 2015, upon his
retirement from the Board.
2. Simon Emeny succeeded Marion Sears as Committee Chair on
11 September 2015.
3. Peter Ruis was appointed to the Board and the Committee on
10 September 2015.
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
Simon Emeny (Chair)
Liz Doherty
Andy Harrison
William Reeve
Peter Ruis1
Geoff Cooper1
Marion Sears1
Meetings attended:
6
6
6
6
4
1
2
1. Geoff Cooper, Marion Sears and Peter Ruis attended all meetings held
during their tenure on the Committee.
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 £6,400.
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Single figure for total remuneration (audited information)
The following table sets out total remuneration for Directors for the period ended 2 July 2016:
Table 3 – Directors’ remuneration – single figure table
Salary/fees8,9
£’000
Benefits4
£’000
Bonus5
£’000
LTIP awards6
£’000
Pension7
£’000
Total
£’000
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
500
199
–
140
–
198
–
53
59
54
48
39
–
7
–
502
275
596
34
122
49
45
45
–
–
24
21
31
21
10
–
–
–
–
–
–
–
–
–
–
–
17
12
18
–
–
–
–
–
–
–
–
361
144
–
81
–
–
–
–
–
–
–
–
–
–
–
25
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
157
353
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
30
–
14
–
–
–
–
–
–
–
–
–
1
–
45
27
8
–
–
–
–
–
–
–
–
982
404
21
402
–
–
198
–
53
59
54
48
39
–
8
–
589
681
622
–
34
122
49
45
45
–
–
24
1,290
1,699
83
47
586
39
157
353
144
81
2,260
2,219
Director
Executive
John Browett
Keith Down1,2
Will Adderley
David Stead3
Nick Wharton
Non-Executive
Andy Harrison
Geoff Cooper
Marion Sears
Simon Emeny
Liz Doherty
William Reeve
Peter Ruis
Matt Davies
Total
1. Keith Down joined the Board on 7 December 2015. His basic salary, benefits, pension and bonus are pro-rated from that date.
2. As disclosed in last year’s report, the Committee agreed to pay Keith Down relocation expenses of up to £35,000. The actual amount paid of £19,365 is
included in the ‘benefits’ column above.
3. David Stead retired from the Board on 31 December 2015. His basic salary, benefits and pension are pro-rated to that date. He has received a time pro-
rated percentage of his FY16 annual bonus entitlement, after applying the financial performance criteria over the full performance period and the personal
performance criteria to the date of his cessation of employment.
4. Benefits include the cost to the Company of a car allowance and private health insurance for the individual and their family (health insurance waived by
David Stead). The 2014-15 value also includes the taxable benefit in respect of the car and chauffeur provided to Will Adderley in connection with his role
prior to 10 September 2015.
5. Annual bonus is the amount earned in respect of the financial year 2015-16. Details of how this was calculated are set out below.
6. The LTIP award number for 2016 is the value of the LTIP award vesting whose three year performance period ends on the last day of the financial period
being reported (2015-16). Details of how this value was calculated are set out in the note to table 5. The first LTIP grant to John Browett and Keith Down
was made in December 2015. Therefore there are no LTIP awards vesting to them for 2016.
The comparable figure for 2014-15 is the actual value of the 2012 LTIP award which vested in favour of David Stead on 20 November 2015 based on the
mid-market price on 20 November 2015, of 965.5p. The comparable figure in the 2014-15 annual report was based on the number of shares in the 2012
LTIP award due to vest in favour of David Stead on 20 November 2015 calculated using the average share price over the three months preceding the end
of the performance period on 4 July 2015, which was 915.7p.
7. Pension is 20% of base salary for John Browett, 15% of base salary for Keith Down and 10% for David Stead. Will Adderley waived his entitlement to
pension from 1 July 2015.
8. From 1 July 2015 the following changes to base salary/fee were implemented: Will Adderley’s salary was reduced to £1 per annum; David Stead’s salary
increased by 2% in line with the Company-wide award; the base fee for Non-Executive Directors was increased to £48,000 and the Committee Chair and
SID fee increased to £6,000 per annum. Andy Harrison’s fee was increased to £200,000 per annum with effect from 8 July 2015 when he assumed his
position as Chairman.
9. From 1 July 2016, John Browett and Keith Down’s base salary was increased by 2%, in line with the Company-wide award. Will Adderley’s base salary is held
at £1 per annum. The fees for the Chairman and the other Non-Executive Directors were also increased by 2%.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Annual bonus
Executive Directors were awarded an annual performance-related cash bonus for 2015-16 with a maximum potential payment of
125% of salary for John Browett and Keith Down, and 100% of salary for David Stead (the bonus for both David Stead and Keith
Down being pro-rated by time in line with service over the financial year). For all three Directors, the performance condition was
linked to PBT versus budget (80%), and performance against personal and strategic objectives (20%). 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.
Financial target – 80% of bonus opportunity
For the period ended 2 July 2016, budget PBT was £128.2m. The financial target set was that no bonus would be paid until PBT
reaches £120.5m and maximum bonus will be paid at £134.6m. Between those numbers, bonus would be payable calculated on
a straight-line basis. Market consensus for 2015-16 PBT at the date the target was set in early September 2015 was £130.6m.
Reported PBT of £128.9m for 2015-16 has therefore given rise to a bonus payable of 47.12% of the maximum for this element of
the bonus, meaning £235,600 to John Browett, £93,813 to Keith Down (pro-rated from 7 December 2015) and £52,809 for David
Stead (pro-rated to 31 December 2015).
Strategic and personal objectives – 20% of bonus opportunity
Both John Browett and Keith Down were new in role during the financial year, and the strategic initiatives which underpin delivery
of the Group’s strategy were in the course of being formalised by the Executives during the second part of the year. Their strategic
and personal bonus targets were linked to progress against these initiatives, albeit that in view of their stage of development hard
KPIs could not be set for all of them. The Committee therefore recognised that as a result they would need to form a holistic view
of performance. The FY17 bonus objectives are also linked to delivery of specific strategic objectives and have firm KPIs.
Assessment of performance against strategic and personal objectives was made as follows:
Director
Target
Performance and bonus earned
John Browett
Keith Down
X Satisfactory performance against the
eight strategic initiatives during the
financial year, measured by reference
to milestones set out in the project
plan for each initiative.
X Personal objectives linked to
establishment of a strengthened and
highly engaged senior management
team, and development of a strong
relationship with the Board.
X Ensure that the strategic initiatives
have clear plans with a supporting
business case, and that all of the
plans are aligned.
X Departmental objectives to
strengthen the finance function.
David Stead
X Completing the FY15 year end process
in a satisfactory manner.
X Facilitating a smooth handover to Keith
Down.
The Committee assessed that these strategic and personal
objectives had been met in full during the year, resulting in
delivery of 20% of total bonus opportunity.
FY16 initiative milestones were substantially met. Information
on progress against the eight strategic initiatives is set out in
the CEO’s Review on pages 10 to 11.
A new Executive Board is in place and the Board is working well
(as confirmed by the external Board evaluation).
The Committee assessed that these strategic and personal
objectives had been met in full during the year, resulting in
delivery of 20% of total bonus opportunity.
All of the strategic initiatives have a formal project plan which
contains a summary of deliverables, milestones and financial
targets. These have been integrated into the FY17 budget and
aligned to the IT Roadmap.
Departmental objectives have been drafted and planned
actions completed.
The Committee assessed that these strategic and personal
objectives had been met in full during the year, resulting in
delivery of 20% of total bonus opportunity.
Year end process and handover to Keith Down all completed
smoothly.
As set out above, the Committee determined that all three Executives had met the personal and strategic targets applicable to
their bonus in full. This has given rise to payments of £125,000 to John Browett, £49,774 to Keith Down (pro-rated from
7 December 2015) and £28,019 to David Stead (pro-rated to 31 December 2015) in respect of this element of the bonus.
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Total bonus earned is set out in the table below:
Table 4 – Annual bonus in respect of 2015-16 performance
John Browett
Keith Down
Will Adderley
David Stead
Bonus
awarded
£
360,600
143,587
–
80,828
Percentage
of maximum
award
£
57.7%
57.7%
57.7%
57.7%
LTIP – awards earned in respect of performance in 2015–16
The only award which will mature in respect of 2015-16 performance is that granted to the former Chief Financial Officer, David
Stead in 2013. 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 2 July 2016). In the case of the award maturing on 7 October 2016, this would equate to a maximum of 40,976 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 pages 55 to 65.
Please note that this award is subject to a two year holding period, and therefore will not vest until October 2018.
Over the three year performance period which ended on 2 July 2016, reported fully diluted EPS grew at a compound annual rate
of 7.9%. This is 6.1% above the compound annual growth in RPI over the same period. Accordingly, 44% of the October 2013
LTIP award will vest in October 2018 as follows:
Table 5 – LTIP awards in respect of performance in 2012–15
David Stead
Shares
vesting
18,029*
Percentage
of maximum
award
44%
* The original award was in respect of 46,087 shares, this was increased by 6.79% to 49,216 following the return of capital to shareholders in March
2015. Please see the note to table 7. The maximum award was pro-rated by service over the performance period (30/36 months) before applying the
performance criteria.
Will Adderley waived his entitlement to receive an LTIP award in 2013. John Browett and Keith Down joined the business in 2015
and no awards under the LTIP are due to vest to them until 2018.
The 2013 LTIP award which vests in favour of David Stead as described above is included in the single number for total
remuneration for 2015/16 set out in table 3. The value has been calculated using the average share price over the three months
preceding the end of the performance period on 2 July 2016, which was 869.95p.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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LTIP awards made to Directors during 2015–16
LTIP awards were made to Executive Directors on 15 October 2015 to David Stead, and on 7 December 2015 to John Browett
and Keith Down as set out below:
Table 6 – LTIP awards made to Directors during 2015–16
Name
Award
Number of
shares
Face value at
date of award
(percentage
of salary
where
relevant)
110,000
£1,085,1502
John
Browett
Nil cost
option
under
LTIP
Performance
period
Vesting date
% vesting
at threshold
performance
July 2015 to
June 2018
7 December
2018
10%
Performance condition
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 EPS growth exceeds RPI
growth by 3%.
10% of the award vests at RPI
growth plus 3%.
100% of the award vests at RPI
plus 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
David
Stead
Nil cost
option
under
LTIP
Nil cost
option
under
LTIP
60,000
£591,9002
As for John Browett
July 2015 to
June 2018
7 December
2018
n/a
July 2015 to
June 2018
15 October
2020
25%
44,5921
£420,278
(150%)
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 EPS growth exceeds RPI
growth by 3%.
25% of the award vests at RPI
growth plus 3%.
100% of the award vests at RPI
plus 15%. Between those figures
the award will vest on a straight-
line basis.
Subject to a two year deferral
period following the end of the
performance period.
1. David Stead’s original award will be pro-rated to service over the performance period (6/36 months), and therefore the maximum shares to vest in 2020
would be 7,350.
2. Based on the closing share price on 4 December 2015, of 986.5p per share.
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Joining award made to Keith Down in 2015
Following approval by shareholders at the AGM on 24 November 2015, and as noted in last year’s 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 will vest on 15 September 2016, and
26,488 (78%) of these shares are due to vest on 15 September 2017. Further details are set out in the policy report on page 59.
Payments to past Directors and for loss of office (audited)
Geoff Cooper
Geoff Cooper retired from his position as Chairman and stepped down from the Board on 7 July 2015. Geoff continued to
receive a fee for his role on the Board up to and including 7 July 2015 at the rate of £122,400 per annum. He did not receive any
payment in lieu of notice or for loss of office. As a Non-Executive Chairman, Geoff Cooper was not entitled to participate in the
Company’s bonus, employee share plans or pension arrangements.
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 worked for six months of the 12 month performance period applicable to his FY16 annual
bonus. The Remuneration Committee determined that he would receive 50% of his FY16 annual bonus entitlement in September
2016, after applying the financial performance criteria over the full performance period and the personal performance criteria to
the date of cessation of employment. Details of the amount paid are included in tables 3 and 4.
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
No. of shares pro-rated to
31 December 2015
7 October 2013
9 October 2014
15 October 2015
FY14-16
FY15-17
FY16-18
7 October 2018*
9 October 2019*
15 October 2020*
49,216
53,922
44,592
40,976
27,035
7,350
* Includes two year holding period following the end of the three year performance period.
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 last year’s remuneration report which was 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.
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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Remuneration Report CONTINUED
Will Adderley complies with this requirement at the financial year end.
John Browett was appointed on 1 July 2015, and purchased 21,606 shares for £200,227 in October 2015 (after the end of the close
period). Keith Down was appointed on 7 December 2015; he purchased 5,265 shares for £49,500 in October 2015, and a further
3,246 shares in April 2016 for £29,700.
The following tables show the interests of the Directors in shares of the Company at 2 July 2016 as follows:
Shares held beneficially – table 8.
Interests in options – table 9.
Table 8 – Directors’ beneficial shareholdings (audited)
Will Adderley
Marion Sears
Andy Harrison
Simon Emeny
John Browett
Keith Down
Liz Doherty
William Reeve
Peter Ruis
At 2 July 2016
1p Ordinary
Shares
At 4 July 2015
1p Ordinary
Shares
54,161,779
61,961,779
101,313
108,133
28,555
23,251
8,511
2,500
2,500
–
101,313
–
26,400
1,645
n/a
2,500
–
n/a
Between the financial year end and the date of this report Directors have purchased shares as follows:
Name
Keith Down
John Browett
Date of purchase No. purchased
5 August 2016
12 August 2016
5,629
4,534
Total beneficial
holding
following
purchase
14,140
27,785
Price
865p
865p
Table 9 – Directors’ interests in options at the period end (audited)
Director
Will Adderley
John Browett
Keith Down
Date of
award
–
Nature of
award
Share
options at
2 July 2016
End of
performance
period
Option
price
Market price of
shares at date
of award
–
Nil
–
–
Nil
Dec 2015
2016/18 LTIP
110,000
June 2018
Nov 2015
2016/18 Sharesave
2,385
Dec 2018
754.5p
Dec 2015
Dec 2015
Dec 2015
2016/18 LTIP
60,000
June 2018
Joining award
7,470
Sept 2016
Joining award
26,488
Sept 2017
Nil
Nil
Nil
–
986.5p
942.5p
986.5p
986.5p
986.5p
The LTIP awards above are subject to the performance condition noted in Table 6 above.
Further details of Keith Down’s joining award and of the Sharesave scheme are set out in the policy table.
Details of options held by David Stead, former Chief Financial Officer, who retired from the Board on 31 December 2015, are set
out in Table 7 and in the policy table.
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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, since
flotation of the Group in 2006, options have been granted over 2.5% of the Company’s issued share capital. 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 contracts entered into before 1 July 2015, and six months for contracts entered into
on or after that date. 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
John Browett
Keith Down
Marion Sears
Simon Emeny
Liz Doherty
Andy Harrison
William Reeve
Peter Ruis
Date of contract
Unexpired term
Notice period
28 September 2006
1 July 2015
7 December 2015
22 July 2004
25 June 2007
1 May 2013
17 July 2014
1 July 2015
10 September 2015
n/a
n/a
n/a
10 months
9 months
31 months
11 months
21 months
24 months
12 months
6 months
6 months
1 month
1 month
1 month
3 months
1 month
1 month
Since Marion Sears has now served 11 years on the Board (nine of which are post flotation of the Company in 2006), and Simon
Emeny has served nine years on the Board, their contracts are renewed for one year terms (rather than three), with the notice
period referred to above.
Relative TSR performance
The graph below shows the Group’s performance over seven 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 760p to 1,023p during the year and stood at 797p at 2 July 2016.
)
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
750
700
650
600
550
500
450
400
350
300
250
200
150
100
454.9%
169.9%
29.1%
Dunelm
FTSE 250
FTSE 350
Retail
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Remuneration Report CONTINUED
Table 12 – Historic Chief Executive pay
The table below sets out the prescribed remuneration data for each of the individuals undertaking the role of Chief Executive
during each of the last seven financial years:
FY15/16
FY15/16
FY14/15
FY14/15
FY13/14
FY12/13
FY11/12
FY10/11
FY10/11
FY09/10
Annual bonus
payment
against
maximum
opportunity
%
Long-term
incentive
vesting rates
against
maximum
opportunity
%
CEO Single
figure of total
remuneration
£’000
John Browett1
Will Adderley1
Will Adderley2
Nick Wharton
Nick Wharton3
Nick Wharton
Nick Wharton
Nick Wharton4
Will Adderley4
Will Adderley
489
10
507
110
1,509
1,292
853
429
1,413
1,366
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
77.5%
86.7%
n/a
n/a
100.0%
100.0%
1. Will Adderley was succeeded by John Browett as Chief Executive on 1 January 2016. The data for each Director for 2015/16 is pro-rated by time of service
as Chief Executive. Will Adderley’s base salary was reduced to £1 on 1 July 2015.
2. Will Adderley was reappointed Chief Executive 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.
3. Nick Wharton’s first LTIP award vested and was exercised in December 2013.
4. Will Adderley was Chief Executive 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.
Change in remuneration of Chief Executive compared to Group employees
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 pay
Chief Executive1
All colleagues (per capita)
Change in
base
salary 2014/15
to 2015/16
−3.7%
−1.2%
Change in
benefits
2014/15
to 2015/162
+24.8%
+7.5%
Bonus earned
as % of salary
2015/16
Bonus earned
as % of salary
2014/15
% change in
bonus earned
2015/16
% change in
bonus earned
2014/15
72%
19%
5%
8%
+1,340%
+138%
−73%
+2
1. John Browett was appointed Chief Executive on 1 January 2016 with a base salary of £500,000 per annum. He succeeded Will Adderley who had been
appointed Chief Executive on 11 September 2014. During the financial year Will Adderley received a base salary of £1 per annum. In the prior year, he
received a base salary of £560,000 per annum. Nick Wharton, Will’s predecessor, had a base salary of £424,485 in 2014-15. A pro-rated base salary of each
has been used in the table above for both 2015/16 and 2014/15.
2. The 2014-15 value included the additional taxable benefit in respect of the car and chauffeur provided to Nick Wharton in connection with his role. Will
Adderley waived this entitlement.
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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 2015-16 and 2014-15.
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:
2015/16
£’m
115.4
44.6
7.8
63.8
116.2
2014/15
£’m
107.3
41.5
–
141.7
183.2
% increase
7.5%
7.5%
n/a
-55.0%
-36.6%
z Total spend on pay – total employee costs from note 4 on page 101, including salaries and wages, social security costs,
pension and share based payments.
z Dividends taken from note 7 on page 103.
z Share buyback taken from consolidated statement of changes in equity on page 95.
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.
On joining the Company on 1 July 2015, John Browett was a Non-Executive Director of easyJet plc, and retained this position until
31 December 2015. He was also a Director of Octopus Capital Limited and Octopus Investments Limited (effectively one external
role) during the period. He retained his Director fees (easyJet £30,000 to 31 December 2015; Octopus £50,000).
Keith Down was appointed as a Non-Executive Director of Topps Tiles plc on 1 July 2015, prior to his appointment to the Board
of Dunelm. He retained his Director fees (£24,000 from 7 December 2015 in 2015-16).
David Stead was a Non-Executive Director of Card Factory plc on 12 May 2014. He retained his Director fee (£26,000 to
31 December 2015).
Senior Executive remuneration
The Remuneration Committee provides oversight and guidance on the remuneration structure for 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 Senior Management Team are eligible for awards under either the LTIP or the Company Share Option scheme
(market priced options).
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 five years
Other Executives
0.5× base salary to be acquired over time
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Remuneration Report CONTINUED
Statement of implementation of policy in the 2016/17 financial year
Base salary, benefits and pension
Base salary and benefits for each of the Executive Directors for 2016/17 are set out in the table below:
Table 15 – Base salary, benefits and pension for 2016/17
Base
salary
Increase to
base salary
year on year
Benefits
John Browett £510,000
+2%
Car allowance; private health
insurance for the individual and their
family; permanent health cover; life
assurance; mobile phone
Increase to
benefits
year on year
Pension
Increase to
pension
year on year
Nil
£102,000
+2%
Keith Down
£357,000
Will Adderley £1
+2%
Nil
As above
As above
n/a
Nil
£53,550
Nil
+2%
n/a
Basic salary increase for John Browett and Keith Down is in line with the Company-wide award of 2%.
Annual bonus
John Browett and Keith Down have been awarded a bonus opportunity of up to 125% of base salary. The performance conditions
attached to the bonus are:
z 80% linked to achievement of Budget PBT;
z 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.
John Browett and Keith Down have each 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.
LTIP
An award is expected to be made to John Browett and Keith Down under the Long Term Incentive Plan in October 2016. The
award to John Browett will be over 110,000 shares, and to Keith Down over 60,000 shares.
The awards to John Browett and Keith Down 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.
As in the past four years, Will Adderley has waived his entitlement to receive an LTIP award.
Sharesave
An invitation will be issued in October 2016 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.
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Non-Executive Director fees for 2016/17
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
Chairman
£204,000
Nil
£48,960
£12,240
2%
2%
n/a
2%
Simon Emeny
Marion Sears
Senior
Independent
Director and
Remuneration
Committee Chair
Non-Executive
Director
Liz Doherty
William Reeve
Audit and Risk
Committee Chair
Non-Executive
Director
Peter Ruis
Non-Executive
Director
£48,960
£48,960
Nil
2%
−100%
£48,960
£6,120
£48,960
Nil
Nil
2%
2%
2%
2%
n/a
n/a
Increase in Committee Chair fee
reflects full year fee for 2016-17
(10 months in 2015-16).
Reduction in Committee Chair
fee follows retirement as Chair of
Remuneration and Nominations
Committees in 2015/16.
Audit and Risk Committee Chair
since 12 September 2014.
Base fee for 2015-16 pro-rated
from appointment in September
2015.
Fee increases with effect from 1 July 2016 were in line with the Company-wide increase of 2%.
Statement of shareholder voting
At the Annual General Meeting on 24 November 2015, the total number of shares in issue with voting rights (excluding treasury
shares) was 202,479,676. The resolution to approve the Directors’ Remuneration Policy, the Annual Report on Implementation of
the Remuneration Policy, and to approve the revised Long Term Incentive Plan and the Share Award Agreement in respect of the
Joining Award to be made to Keith Down received the following votes from shareholders:
Table 17 – Voting on remuneration related resolutions at the 2015 AGM
Resolution
Votes for
% of
votes cast
Votes
against
% of
votes cast
Approve Remuneration Policy
179,735,245
Approve Annual Remuneration Report
180,631,706
Approve Long Term Incentive Plan
178,948,744
Approve Share Award Agreement
176,125,499
97.7
99.1
97.4
96.2
4,278,572
1,600,216
4,700,818
7,016,262
2.3
0.9
2.6
3.8
Votes
withheld
4,460
1,786,355
368,715
876,516
% withheld
0.0
1.0
0.2
0.5
Approved by the Board of Dunelm Group plc on 14 September 2016 and signed on its behalf by
Simon Emeny
Chair of the Remuneration Committee
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Letter from the Chair of the
Nominations Committee
Andy Harrison Chair of the Nominations Committee
De ar Sh ar e h o l d er
Last year we announced a number of changes to our Board as
part of our long term succession plan as Dunelm moves into its
next chapter of growth. This has been a year of transition for
the Board during which these changes have taken effect.
I succeeded Geoff Cooper as Chairman of the Board at the
start of the financial year in July 2015, and became Chair of this
Committee in March of this year. The previous chair, Marion
Sears, played a major part in shaping the Board that we have
today during her ten years as Committee Chair and I thank her
on behalf of the Board and shareholders for her diligent and
committed work.
As we announced last year, our Executive team changed during
the year. In January 2016, John Browett formally succeeded
Will Adderley as Chief Executive, after a six month induction
during which he spent time working in all parts of the business,
developing the eight strategic initiatives which underpin our
growth strategy, and making a number of new appointments to
strengthen the Executive team. The Board and the business are
already benefiting from John’s clear leadership and experience,
which, combined with that of Will Adderley, means we now
have two top retailers on our Board.
Keith Down succeeded David Stead as Chief Financial Officer
in December 2015. David retired from the Board after twelve
years on the Board. During this period he built and led the
finance team (and, until recently, the IT and HR functions)
through the Group’s IPO in 2006 and the sustained growth
which followed. Keith has brought a wealth of experience from
his previous roles in the consumer, hospitality and transport
sectors, and he has already made an impact at the Board and
with the wider Executive team.
We were also joined by two new Non-Executives: William
Reeve in July 2015 and Peter Ruis in September 2015.
We now have a Board with a combination of experience and
fresh ideas, with complementary retail, consumer and online
expertise. The Board is already working well together, and I
expect that we will continue to build on this over the coming
months and years.
This year we held an externally facilitated Board evaluation,
which was completed shortly before the financial year end. This
confirmed that your new Board is working well together and
brought some helpful insights to make us more effective.
A number of external bodies have commented during the year
on the importance of the work of the Nominations Committee
in overseeing succession planning in particular, including the
Financial Reporting Council and the report produced through
a collaboration between Ernst & Young and the Institute of
Company Secretaries and Administrators. We have a number
of the recommended best practice processes in place,
including a formal Board succession plan, and oversight of
the composition and changes to the Executive team below
the Board. This focus will continue and grow over the coming
years.
Looking forward, as part of our normal succession process, we
expect to appoint an additional Non-Executive Director during
2017 to succeed Simon Emeny, who is expected to step down
at the 2017 AGM after ten years on the Board.
Yours sincerely,
Andy Harrison
Chair of the Nominations Committee
14 September 2016
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2015/16 SUMMARY OF PRINCIPAL ACTIVITIES
X Andy Harrison succeeded Geoff Cooper as Chairman
X John Browett succeeded Will Adderley as Chief Executive in January 2016; Will Adderley becomes Deputy
Chairman
X Keith Down succeeded David Stead as Chief Financial Officer on his retirement in December 2015
X Peter Ruis appointed as a Non-Executive Director
X Changes to Remuneration Committee and Nominations Committee Chairs
X External Board evaluation
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 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
Andy Harrison (Chair)
Marion Sears2
Simon Emeny
Will Adderley
Liz Doherty
William Reeve
Peter Ruis
Geoff Cooper1
Period from:
1 September 2014
18 January 2005
25 June 2007
17 February 2011
1 May 2013
1 July 2015
10 September 2015
To:
To date
To date
To date
To date
To date
To date
To date
18 January 2005
7 July 2015
1. Geoff Cooper resigned from the Committee on 7 July 2015, upon his retirement from the Board.
2. Marion Sears was Chair of the Committee until 11 March 2016, when she was succeeded by Andy Harrison.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Nominations Committee Report CONTINUED
There were two formal 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)
Simon Emeny
Will Adderley
Liz Doherty
Marion Sears1
William Reeve
Peter Ruis3
Geoff Cooper2
Meetings attended:
2
2
2
2
2
2
0
1
1. Marion Sears chaired the Committee until 11 March 2016.
2. Geoff Cooper retired from the Board and the Committee on 7 July 2015.
There was one meeting during his tenure.
3. Peter Ruis was appointed to the Board and the Committee on
10 September 2015. No meetings were held during his tenure.
Committee Activities in 2015–16
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.
In 2015-16 a number of changes planned and announced in
the previous year took effect.
On at least an annual basis each Director’s intentions are
discussed with regard to serving on the Board and their
succession is considered in the context of the shape of the
overall Board and the corporate governance guidance on
Non-Executive Director tenure. This transparency amongst a
small and collegiate Board allows for an open discussion about
succession for each individual, both for short-term emergency
purposes as well as longer-term plans.
As part of our Board evaluation process, we conducted an
analysis of 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.
Summary of Board changes in 2015–16
X July 2015: Andy Harrison succeeded Geoff Cooper as
Chairman.
X September 2015: Peter Ruis appointed as a Non-Executive
Director.
Simon Emeny succeeded Marion Sears as Chair of the
Remuneration Committee.
X December 2015: Keith Down succeeded David Stead as
Chief Financial Officer.
David Stead retired.
X January 2016: John Browett succeeded Will Adderley as
Chief Executive.
Will Adderley become Deputy Chairman.
X March 2016: Andy Harrison succeeded Marion Sears as
Chair of the Nominations Committee.
All of these changes were described in last year’s Nominations
Committee report.
Board evaluation
This year we appointed a third party, Lorna Parker, to carry out
a formal evaluation of the Board and its processes. The review
confirmed that there is a good balance of complementary skills
and experiences on the Board, and that compared to many
other companies the Chairman and Non-Executive Directors
are especially hard-working, committed and involved.
Separately I carried out a formal evaluation of the Non-
Executive Directors and the Chief Executive; the Chief
Executive reviewed the performance of the Chief Financial
Officer; and the Non-Executive Directors reviewed my
performance.
Diversity
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 Whilst confirming that our overriding concern is to ensure
the Board comprises outstanding individuals who can
lead the Group, we also believe the Group’s best interests
are served by ensuring that these individuals represent a
range of skills, experiences, backgrounds and perspectives,
including gender.
z Accordingly, it is our policy that the Board should always be
of mixed gender.
z Quotas are not appropriate as a target for female
representation on company boards, since they are likely
to lead to compromised decisions on Board membership,
quality and size.
z We will seek 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, both male and female, to enjoy career
progression within Dunelm.
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Details of the gender balance within the Group are set out in
the Corporate Social Responsibility report on page 29. The
Committee is pleased that there is a good level of gender
diversity at Board, Executive Board and senior management
level (22%, 40% and 33% respectively).
Tenure and Re-election of Directors
In accordance with the UK Corporate Governance Code,
all Directors will seek re-election at the 2016 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.
Marion Sears and Simon Emeny have served eleven and nine
years on the Board respectively. Marion is now considered by
the Board to be ‘non-independent’ in view of her tenure. As
noted in last year’s report, we have asked Simon to stay for an
extra year at the end of his nine year term to provide continuity
during the recent period of change; it is expected that he
will retire at the 2017 AGM following the appointment of a
successor. I am mid-way through my first three year term, and
Liz Doherty is now in the fourth year since appointment, with
both William Reeve and Peter Ruis in their first term.
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 and in regular store
visits, where a Non-Executive Director meets a member of the
Executive Board on a less formal basis. This year the Board also
received a Talent Management presentation from the People
Director, which will become part of the Board’s rolling agenda
going forward. As part of the development of the Senior
Management Team, we have implemented a programme of
presentations by Non-Executive Directors to this group of 40
or so senior managers, to share their leadership experience.
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 of Dunelm Group plc on 14 September
2016 and signed on its behalf by
Andy Harrison
Chair of the Nominations Committee
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Directors’ Report
The Directors present their report together with the audited
financial statements for the period ended 2 July 2016.
Where reference is made to other sections of the Annual
Report and Financial Statements, these sections are
incorporated into this report by reference.
Strategic Report
The Group’s Strategic Report is set out on pages 3 to 34. 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 £102.3m
(2015: £96.1m). The results are discussed in greater detail in
the Chief Financial Officer’s review on pages 14 to 16.
A final dividend of 19.1p per share (2015: 16.0p) is proposed
in respect of the period ended 2 July 2016 to add to an interim
dividend of 6.0p per share paid on 24 March 2016 (2015:
5.5p). The final dividend will be paid on 25 November 2016 to
shareholders on the register at 4 November 2016.
Special Distribution
On 24 March 2016, 31.5p per Ordinary Share was paid to
shareholders by way of a special dividend.
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:
a. conduct all transactions and relationships with any member
of the Group on arm’s length terms and on a normal
commercial basis;
b. 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);
c. 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;
d. 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;
e. 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; and
f. 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; and
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.
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.
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 close 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.
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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:
Directors
The Directors of the Company and their biographies are set
out on pages 36 to 38. Details of changes to the Board during
the period are set out in the Corporate Governance Report on
page 40.
Disclosure provided
See above section headed
‘Shareholder and Voting
Rights’.
Applicable sub-paragraph
within LR 9.8.4
(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.
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.
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.
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 2 July 2016, the Company held 846,455 Ordinary Shares in
treasury (2015: 357,158).
During the period the Company purchased 841,359 Ordinary
Shares into treasury. 352,062 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, the Company has purchased
500,000 shares and 8,010 Ordinary Shares have been moved
out of treasury since the period end to employees who
exercised options under a share incentive scheme.
Substantial Shareholders
At 2 July 2016 the following had notified the Company of a
disclosable interest in 3% or more of the nominal value of the
Company’s Ordinary Shares:
Will Adderley
Bill Adderley
Ordinary
Shares
Percentage of
share capital
54,161,779
48,070,000
26.8
23.8
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.
There have been no changes in the holdings of substantial
shareholders since the period end date and 14 September 2016.
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 46.
Employee Information
Information relating to employees of the Group is set out in the
Corporate Social Responsibility report on page 29.
Share incentive schemes in which employees participate are
described in the Remuneration Report on pages 53 to 77.
Donations
The Group does not make any political donations.
Greenhouse Gas Emissions
The Corporate Social Responsibility report on page 34 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 is explained in the Principal Risks and
Uncertainties section on page 24 and note 16 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 auditors of the Group.
Disclaimer
This Directors’ Report and Business Review 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 Business Review or in these
Financial Statements should be construed as a profit forecast.
Annual General Meeting
The Annual General Meeting will be held at 9.00 am on
Tuesday 22 November 2016 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 report and accounts.
This report was reviewed and signed by order of the Board of
Directors on 14 September 2016.
Dawn Durrant
Company Secretary
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual
Report, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
Each of the Directors, whose names and functions are listed in
the Corporate Governance Report, confirm that, to the best of
their knowledge:
z the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the EU, 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, together with a description of the
principal risks and uncertainties that it faces.
Disclosure of information to auditors
In accordance with Section 418, the Directors’ report shall
include a statement, in the case of each Director in office at the
date the Directors’ report is approved, that:
a. so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware;
and
b. he/she has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware
of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group 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 the Company
and of the profit or loss of the Group for that period. In
preparing these financial statements, the Directors are required
to:
z select suitable accounting policies and then apply them
consistently;
z make judgements and accounting estimates that are
reasonable and prudent;
z state whether applicable IFRSs as adopted by the
European Union have been followed, subject to any
material departures disclosed and explained in the financial
statements;
z prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group 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. They are also responsible for
safeguarding the assets of the Company and the Group 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 Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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 Company’s position and performance, business model and
strategy.
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Financials
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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24722.04 12 October 2016 7:29 AM PROOF 5Independent Auditors’ Report to the members of Dunelm Group plcReport on the financial statementsOur opinionIn our opinion: zDunelm Group plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 2 July 2016 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; zthe Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; zthe Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and zthe financial statements 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.What we have auditedThe financial statements, included within the Annual Report, comprise: zthe consolidated and Parent Company statements of financial position as at 2 July 2016; zthe consolidated income statement and consolidated statement of comprehensive income for the period then ended; zthe consolidated and Parent Company statements of cash flows for the period then ended; zthe consolidated and Parent Company statements of changes in equity for the period then ended; and zthe notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.Certain required disclosures have been presented elsewhere in the Annual Report and Accounts 2016 (the ‘Annual Report’), rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.Our audit approachOverview MaterialityAudit scopeAreasof focus zOverall Group materiality: £6.4 million which represents 5% of profit before tax. zThe Group is structured with one segment that comprises a consolidation of six legal entities. zWe conducted an audit of the complete financial information of these six legal entities, together with additional procedures performed, including over the Group consolidation. zInventory provisions.The scope of our audit and our areas of focusWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).We designed our audit by determining materiality and assessing 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. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. 86dunelm.com Stock code: DNLM Dunelm AR2016-back.indd 8620/10/2016 16:02:52 i
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Area of focus
How our audit addressed the area of focus
Inventory provisions
Refer to the Audit and Risk Committee Report on page 49
and the use of estimates and judgements in the Accounting
Policies on page 96.
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 NRV provision involves judgement in assessing slow
moving or obsolete inventory. The Group accounting policy
is 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 the number of weeks’ cover, type
of inventory, 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.
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
geographic structure of the Group, the accounting processes
and controls, and the industry in which the Group operates.
The Group is structured with one segment. The Group financial
statements are a consolidation of six legal entities within
this segment, comprising the Group’s operating business,
intermediate holding companies and centralised functions.
In establishing the overall approach to the Group audit, we
identified two legal entities: Dunelm Soft Furnishings Limited
and Dunelm Group plc, which, in our view, required an audit
of their complete financial information due to their financial
significance to the Group.
We tested the inputs to the provision calculation, including
the classification (for example continuity line or discontinued)
of inventory to reports from the buying department, which
is segregated from the finance department, and found them
to be consistent. We also re-performed the weeks’ cover
calculation, identifying no exceptions.
We challenged the expected realisable value of inventory
by reference to the historic 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.
In addition, we also conducted the statutory audits of the
remaining four 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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Independent Auditors’ Report CONTINUED
to the members of Dunelm Group plc
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 on the
financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Overall Group
materiality
How we
determined it
Rationale for
benchmark
applied
£6.4 million (2015: £6.1 million).
5% of profit before tax.
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 agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£0.05 million (2015: £0.05 million) as well as misstatements
below that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’
statement, set out on page 25, in relation to going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you
if we have anything material to add or to draw attention to
in relation to the Directors’ statement about whether they
considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing material
to add or to draw attention to.
As noted in the Directors’ statement, the Directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the Group and Parent Company have
adequate resources to remain in operation, and that the
Directors intend them to do so, for at least one year from
the date the financial statements were signed. As part of our
audit we have concluded that the Directors’ use of the going
concern basis is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the
Group’s and Parent Company’s ability to continue as a going
concern.
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Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion:
z the information given in the Strategic Report and the
Directors’ Report for the financial period for which the
financial statements are prepared is consistent with the
financial statements; and
z the information given in the Corporate Governance
Statement set out on pages 40 to 46 with respect to internal
control and risk management systems and about share
capital structures is consistent with the financial statements.
The Directors’ assessment of the prospects of
the Group and of the principal risks that would
threaten the solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation
to:
z the Directors’ confirmation on page 83 of the Annual
Report, in accordance with provision C.2.1 of the Code, 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.
We have nothing material to add or to draw attention to.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in
our opinion:
z the disclosures in the Annual Report that describe those
risks and explain how they are being managed or mitigated.
We have nothing material to add or to draw attention to.
z the Directors’ explanation on page 83 of the Annual Report,
in accordance with provision C.2.2 of the Code, 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 material to add or to draw attention to.
z information in the Annual Report is:
— materially inconsistent with the information in the
audited financial statements; or
— apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group and
Parent Company acquired in the course of performing
our audit; or
— otherwise misleading.
We have no exceptions to report.
z the statement given by the Directors on page 83, in
accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the
Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary
for 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 acquired in the course of performing
our audit
We have no exceptions to report.
z the section of the Annual Report on page 48, as required
by provision C.3.8 of the Code, describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
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Independent Auditors’ Report CONTINUED
to the members of Dunelm Group plc
Under the Listing Rules we are required to review the Directors’
statement that they have carried out a robust assessment of the
principal risks facing the Group and the directors’ 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 enquiries and considering the Directors’ process
supporting their statements; checking that the statements are
in alignment with the relevant provisions of the Code; and
considering whether the statements are consistent with the
knowledge acquired by us in the course of performing our
audit. We have nothing to report having performed our review.
Adequacy of accounting records and information
and explanations received
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 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.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
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.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
z whether the accounting policies are appropriate to the
Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed;
z the reasonableness of significant accounting estimates
made by the Directors; and
We have no exceptions to report arising from this responsibility.
z the overall presentation of the financial statements.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006
opinion
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not made. We have no
exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report
to you if, in our opinion, a corporate governance statement
has not been prepared by the Parent Company. We have no
exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to ten further
provisions of the Code. We have nothing to report having
performed our review.
Responsibilities for the financial
statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 84, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
We primarily focus our work in these areas by assessing the
Directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We
obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
14 September 2016
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Consolidated Income Statement
For the 52 weeks ended 2 July 2016
i
s
l
a
c
n
a
n
fi
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial income
Financial expenses
Profit before taxation
Taxation
Profit for the period attributable to owners of the parent
Earnings per Ordinary Share – basic
Earnings per Ordinary Share – diluted
2016
52 weeks
£’m
2015
53 weeks
£’m
Note
1
3
2
5
5
6
8
8
880.9
835.8
(442.4)
(424.6)
438.5
411.2
(309.2)
(288.7)
129.3
122.5
1.2
(1.6)
0.8
(0.7)
128.9
122.6
(26.6)
102.3
50.5p
50.3p
(26.5)
96.1
47.5p
47.3p
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Consolidated Statement of Comprehensive Income
For the 52 weeks ended 2 July 2016
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 for the period, net of tax
2016
52 weeks
£’m
2015
53 weeks
£’m
102.3
96.1
10.3
(2.9)
(1.3)
6.1
1.0
1.7
(0.6)
2.1
Total comprehensive income for the period attributable to owners of the parent
108.4
98.2
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Consolidated Statement of Financial Position
As at 2 July 2016
i
s
l
a
c
n
a
n
fi
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
Total equity attributable to equity holders of the parent
Note
9
10
11
16
12
13
16
14
15
16
17
15
11
18
16
19
2 July
2016
£’m
18.6
168.9
0.6
0.8
4 July
2015
£’m
13.1
158.9
1.9
–
188.9
173.9
116.6
19.2
6.8
14.9
157.5
346.4
(95.4)
(12.8)
–
133.1
18.0
–
16.2
167.3
341.2
(88.0)
(12.5)
(0.3)
(108.2)
(100.8)
(94.2)
(41.4)
(0.8)
(2.0)
(0.2)
(138.6)
(246.8)
99.6
2.0
1.6
43.2
5.9
46.9
99.6
(89.8)
(42.4)
–
(3.1)
–
(135.3)
(236.1)
105.1
2.0
1.6
43.2
(0.2)
58.5
105.1
The financial statements on pages 91 to 115 were approved by the Board of Directors on 14 September 2016 and were signed on
its behalf by:
Keith Down
Chief Financial Officer
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Consolidated Statement of Cash Flows
For the 52 weeks ended 2 July 2016
Profit before taxation
Adjustment for net financing costs
Operating profit
Depreciation and amortisation
Impairment charge on non-current assets
(Profit)/loss on disposal of non-current assets
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Increase in payables
Net movement in working capital
Share-based payments expense
Interest received
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from reissue of treasury shares
Purchase of treasury shares
Drawdowns on revolving credit facility
Repayments of revolving credit facility
Loan transaction costs
Interest paid
Ordinary dividends paid
Special dividends/distributions to shareholders
Net cash flows used in financing activities
Net decrease 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
Note
2016
52 weeks
£’m
2015
53 weeks
£’m
128.9
0.4
129.3
25.3
–
(0.3)
154.3
16.5
(1.2)
3.0
18.3
1.4
174.0
0.1
(25.9)
148.2
2.0
(29.6)
(10.2)
(37.8)
1.3
(7.8)
39.0
(35.0)
–
(1.6)
(44.6)
(63.8)
(112.5)
(2.1)
0.8
16.2
14.9
122.6
(0.1)
122.5
21.5
0.1
0.1
144.2
(17.6)
1.5
16.2
0.1
0.3
144.6
0.5
(26.9)
118.2
–
(25.3)
(5.9)
(31.2)
0.8
–
127.0
(36.0)
(1.3)
(0.1)
(41.5)
(141.7)
(92.8)
(5.8)
0.3
21.7
16.2
2
10
2
12
13
15
21
5
10
10
9
20
20
17
17
17
5
7
7
14
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Consolidated Statement of Changes in Equity
For the 52 weeks ended 2 July 2016
i
s
l
a
c
n
a
n
fi
As at 28 June 2014
Profit for the period
Fair value gains on cash flow hedges
Loss on cash flow hedges transferred to inventory
Deferred tax on hedging movements
Total comprehensive income for the period
Issue of treasury shares
Share based payments
Deferred tax on share based payments
Current tax on share options exercised
Ordinary dividends paid
Special distributions to shareholders
Total transactions with owners, recorded directly in equity
As at 4 July 2015
Profit for the period
Fair value gains on 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
Issue of treasury shares
Share based payments
Deferred tax on share based payments
Current tax on share options exercised
Ordinary dividends paid
Special dividends
Total transactions with owners, recorded directly in equity
Issued
share
capital
£’m
Share
premium
account
£’m
Capital
redemption
reserve
£’m
Note
Hedging
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
2.0
1.6
43.2
(2.3)
145.2
189.7
16
16
11
20
21
11
6
7
7
16
16
11
20
20
21
11
6
7
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
1.7
(0.6)
2.1
–
–
–
–
–
–
–
96.1
96.1
–
–
–
96.1
0.8
0.3
(0.8)
0.1
1.0
1.7
(0.6)
98.2
0.8
0.3
(0.8)
0.1
(41.5)
(41.5)
(141.7)
(141.7)
(182.8)
(182.8)
2.0
1.6
43.2
(0.2)
58.5
105.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
102.3
102.3
10.3
(2.9)
(1.3)
6.1
–
–
–
10.3
(2.9)
(1.3)
102.3
108.4
–
–
–
–
–
–
–
–
(7.8)
1.3
1.4
(0.6)
0.2
(44.6)
(63.8)
(7.8)
1.3
1.4
(0.6)
0.2
(44.6)
(63.8)
(113.9)
(113.9)
As at 2 July 2016
2.0
1.6
43.2
5.9
46.9
99.6
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Accounting Policies
Basis of preparation
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 91 to 115 present information about the Company
as a separate entity and not about its Group.
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:
The Group and its subsidiaries are domiciled, and are
incorporated as limited companies, in the UK.
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 91 to 115.
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, 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. 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
and Business Review on pages 3 to 34. The financial position
of the Group, its cash flows, liquidity position and borrowing
facilities are described in the Chief Financial Officer’s review
on pages 14 to 16. In addition note 16 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.
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 less any cost to sell the goods. Future price
reductions in turn 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.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Company. An
investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee
and has the ability to affect those returns through its power
over the investee. 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
Intragroup balances, and any unrealised gains and losses or
income and expenses arising from intragroup 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 through
the Group’s stores and website, and small amounts of related
services such as the Dunelm at home consultants. Revenue
therefore represents the proceeds from sales of goods and
related services, excluding sales between Group companies
and is after deducting returns, discounts given and VAT.
Revenue is recognised when risk and reward passes to the
customer, which is predominantly at the point of sale. 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.
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.
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Intangible assets
These comprise software development and implementation
costs and brands and are stated at cost less accumulated
amortisation (see below). Costs incurred in developing the
Group’s own brands are expensed as incurred.
Separately acquired brands are shown at historical cost. Brands
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 of brands 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.
Development costs previously recognised as an expense are
not recognised as an asset in a subsequent period.
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
trademarks and brands
3 years
5 to 15 years
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less
accumulated depreciation (see below) and impairment losses.
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
plant and machinery
fixtures and fittings
50 years
over the period of the lease
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.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value and then carried at amortised cost 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 rate.
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.
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
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Accounting Policies CONTINUED
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.
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.
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 periodically throughout their duration 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
Impairment
The carrying amounts of the Group’s assets, other than
inventories and deferred tax assets, are reviewed at each
balance sheet date to determine whether there is any
indication of impairment. If any such indication exists, the
asset’s recoverable amount is estimated.
The recoverable amount is the greater of fair value 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 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 transactions 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 and it is probable that an outflow of economic
benefits will be required to settle the obligation. A provision
for onerous contracts, including property leases, is recognised
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.
Expenses
Property leases
Lease incentives received 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.
Financing income/expense
Financing income/expense comprises interest payable on
borrowings calculated using the effective interest rate 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 payment transactions
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 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).
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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 the deferred income
taxes assets and liabilities 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.
New standards and interpretations
No new standards, amendments or interpretations, effective
for the first time for the period beginning on or after 5 July
2015 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. None of these is expected to have a
significant effect on the financial statements of the Group or
Parent Company, except the following, set out below:
IFRS 9, ‘Financial instruments’, which is effective for periods
beginning on or after 1 January 2018, replaces IAS 39 and
addresses the classification, measurement and recognition of
financial assets and financial liabilities.
IFRS 16, ‘Leases’ addresses the definition of a lease,
recognition and measurement of leases and establishes
principles for reporting useful information to users of financial
statements about the leasing activities of both lessees and
lessors. A key change arising from IFRS 16 is that most
operating leases will be accounted for on balance sheet for
lessees. The standard replaces IAS 17 ‘Leases’, and related
interpretations. The standard is effective for annual periods
beginning on or after 1 January 2019 and earlier application is
permitted, subject to EU endorsement and the entity adopting
IFRS 15 ‘Revenue from contracts with customers’ at the same
time. The full impact of IFRS 16 has not yet been assessed.
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 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.
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.
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.
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.
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 tax assets are
reduced to the extent that it is no longer probable that the
related tax benefit will be recognised.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements
For the 52 weeks ended 2 July 2016
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 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
Impairment charge on non-current assets
(Profit)/loss on disposal of property, plant and equipment and intangible assets
Operating lease rentals
Net foreign exchange gains
2016
52 weeks
£’m
2015
53 weeks
£’m
439.9
421.3
5.6
19.7
–
(0.3)
41.3
(1.8)
2.0
19.5
0.1
0.1
38.9
(0.9)
The cost of inventories stated above includes the benefit of a net reduction in the provision for obsolete inventory of £0.9m
(FY15: £0.8m).
The analysis of auditors’ remuneration is as follows:
Fees payable to the Company’s auditors for the audit of the Parent and consolidated annual financial
statements
Fees payable to the Company’s auditors and their associates for other services to the Group
— audit of the Company’s subsidiaries pursuant to legislation
— other services (see Audit and Risk Committee Report on page 48 for further information)
2016
52 weeks
£’000
2015
53 weeks
£’000
18
57
71
17
55
55
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3 Operating costs
Selling and distribution costs
Administrative expenses
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2016
52 weeks
£’m
273.9
35.3
309.2
2015
53 weeks
£’m
262.6
26.1
288.7
4 Employee numbers and costs
The average monthly number of people employed by the Group (including Directors) was:
Selling
Distribution
Administration
2016
52 weeks
Number
of heads
2016
52 weeks
Full time
equivalents
2015
53 weeks
Number of
heads
2015
53 weeks
Full time
equivalents
8,035
4,757
7,757
4,425
439
494
431
487
382
417
377
410
8,968
5,675
8,556
5,212
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 21)
Pension costs — defined contribution plans
2016
52 weeks
£’m
2015
53 weeks
£’m
120.0
109.5
7.0
1.4
1.5
6.5
0.3
1.3
129.9
117.6
Details of Directors’ remuneration, share options, long-term incentive schemes and pension entitlements are disclosed in the
Remuneration Report on pages 54 to 77.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
5 Financial income and expenses
Finance income
Interest on bank deposits
Foreign exchange gains (net)
Finance expenses
Interest on bank borrowings
Amortisation of issue costs of bank loans
Net finance (expense)/income
6 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
Impact of change in tax rate
Total tax expense
2016
52 weeks
£’m
2015
53 weeks
£’m
0.1
1.1
1.2
(1.3)
(0.3)
(1.6)
(0.4)
0.5
0.3
0.8
(0.6)
(0.1)
(0.7)
0.1
2016
52 weeks
£’m
2015
53 weeks
£’m
26.6
(0.2)
26.4
–
–
0.2
0.2
26.6
26.3
(0.3)
26.0
0.2
0.3
–
0.5
26.5
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6 Taxation continued
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 20.00% (2015: 20.75%)
Factors affecting the charge in the period:
Non-deductible expenses
Loss on disposal of non-qualifying assets
Adjustments in respect of prior periods
Effect of change in standard rate of corporation tax
Tax charge
2016
52 weeks
£’m
128.9
25.8
2015
53 weeks
£’m
122.6
25.4
1.1
(0.3)
(0.2)
0.2
26.6
1.1
–
–
–
26.5
The taxation charge for the period as a percentage of profit before tax is 20.6% (2015: 21.6%).
A reduction in the UK corporation tax from 20% to 19% (effective from1 April 2017) was substantively enacted on 26 March 2016,
and a further reduction to 18% (effective from 1 April 2020) was substantively enacted on the same day.
Further changes were announced in the Chancellor’s budget on 16 March 2016 reducing the UK corporation tax by a further 1%
to 17% from 1 April 2020. As this further change had not been enacted at the balance sheet date the effect is not included in the
financial statements.
7 Dividends and special distributions to shareholders
The dividends set out in the table below relate to the 1p Ordinary Shares.
Final for the period ended 28 June 2014
Interim for the period ended 4 July 2015
Final for the period ended 4 July 2015
Interim for the period ended 2 July 2016
– paid 15.0p
– paid 5.5p
– paid 16.0p
– paid 6.0p
Special dividend for the period ended 2 July 2016
– paid 31.5p
2016
52 weeks
£’m
2015
53 weeks
£’m
–
–
32.4
12.2
63.8
30.4
11.1
–
–
–
108.4
41.5
The Directors are proposing a final dividend of 19.1p per Ordinary Share for the period ended 2 July 2016 which equates to £38.6m.
The dividend will be paid on 25 November 2016 to shareholders on the register at the close of business on 4 November 2016.
In the prior year, the Group made a special distribution to shareholders by way of a B/C share scheme. The amount paid to
shareholders on 10 March 2015 was 70p per share, which equated to £141.7m.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
8 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 20).
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
Earnings per Ordinary Share — basic
Earnings per Ordinary Share — diluted
9 Intangible assets
Cost
At 28 June 2014
Additions
At 4 July 2015
Additions
Disposals
At 2 July 2016
Accumulated amortisation
At 28 June 2014
Charge for the financial period
At 4 July 2015
Charge for the financial period
At 2 July 2016
Net book value
At 28 June 2014
At 4 July 2015
At 2 July 2016
2016
52 weeks
’000
2015
53 weeks
’000
202,456
202,217
795
982
203,251
203,199
2016
52 weeks
£’m
102.3
50.5p
50.3p
2015
53 weeks
£’m
96.1
47.5p
47.3p
Software
development
and licences
£’m
Rights to
brands
£’m
14.1
5.8
19.9
6.4
(0.1)
26.2
4.8
2.0
6.8
5.3
12.1
9.3
13.1
14.1
5.0
–
5.0
4.8
–
9.8
5.0
–
5.0
0.3
5.3
–
–
4.5
Total
£’m
19.1
5.8
24.9
11.2
(0.1)
36.0
9.8
2.0
11.8
5.6
17.4
9.3
13.1
18.6
All additions were acquired and do not include any internal development costs.
All amortisation is included within operating costs in the income statement.
During the year, the Group acquired the rights to the Fogarty brand which will be amortised over a 15 year period.
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10 Property, plant and equipment
Land and
buildings
£’m
Leasehold
improvements
£’m
Plant and
machinery
£’m
Fixtures
and fittings
£’m
Cost
At 28 June 2014
Additions
Disposals
At 4 July 2015
Additions
Disposals
At 2 July 2016
Accumulated depreciation
At 28 June 2014
Charge for the financial period
Disposals
Impairment
At 4 July 2015
Charge for the financial period
Disposals
At 2 July 2016
Net book value
At 28 June 2014
At 4 July 2015
At 2 July 2016
80.0
4.3
–
84.3
–
(0.8)
83.5
9.0
1.3
–
0.1
10.4
1.4
(0.4)
11.4
71.0
73.9
72.1
101.9
11.8
(0.2)
113.5
21.8
(3.6)
131.7
40.4
7.5
(0.1)
–
47.8
8.4
(2.5)
53.7
61.5
65.7
78.0
3.6
0.4
–
4.0
0.6
–
4.6
2.2
0.7
–
–
2.9
0.5
–
3.4
1.4
1.1
1.2
66.2
9.2
(0.9)
74.5
8.9
(3.0)
80.4
47.2
10.0
(0.9)
–
56.3
9.4
(2.9)
62.8
19.0
18.2
17.6
All depreciation and impairment charges have been included within operating costs in the income statement.
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Total
£’m
251.7
25.7
(1.1)
276.3
31.3
(7.4)
300.2
98.8
19.5
(1.0)
0.1
117.4
19.7
(5.8)
131.3
152.9
158.9
168.9
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
11 Deferred tax
Deferred tax is provided in full on temporary differences under the liability method using a taxation rate of 18% (2015: 20%).
Deferred taxation assets are attributable to the following:
Property, plant and equipment
Share-based payments
Hedging
Deferred tax recoverable/(payable)
after more than 12 months
Deferred tax recoverable/(payable)
within 12 months
Assets
Liabilities
Net assets/(liabilities)
2016
£’m
0.4
0.7
–
1.1
Assets
2016
£’m
0.8
0.4
1.2
2015
£’m
0.6
1.3
–
1.9
2015
£’m
1.3
0.6
1.9
2016
£’m
–
–
(1.3)
(1.3)
2015
£’m
–
–
–
–
2016
£’m
0.4
0.7
(1.3)
(0.2)
Liabilities
Net assets/(liabilities)
2016
£’m
(0.2)
(1.2)
(1.4)
2015
£’m
–
–
–
2016
£’m
0.6
(0.8)
(0.2)
2015
£’m
0.6
1.3
–
1.9
2015
£’m
1.3
0.6
1.9
The movement in the net deferred tax balance is as follows:
Property, plant and equipment
Share-based payments
Hedging
Other temporary differences
Property, plant and equipment
Share-based payments
Hedging
12 Inventories
Goods for resale
Balance at
28 June
2014
£’m
Recognised
in income
£’m
Recognised
in equity
£’m
Balance at
4 July
2015
£’m
0.4
2.7
0.6
0.1
3.8
0.2
(0.6)
–
(0.1)
(0.5)
–
(0.8)
(0.6)
–
(1.4)
Balance at
4 July
2015
£’m
Recognised
in income
£’m
Recognised
in equity
£’m
0.6
1.3
–
1.9
(0.2)
–
–
(0.2)
–
(0.6)
(1.3)
(1.9)
0.6
1.3
–
–
1.9
Balance at
2 July
2016
£’m
0.4
0.7
(1.3)
(0.2)
2016
£’m
116.6
2015
£’m
133.1
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13 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
All trade receivables are due within one year from the end of the reporting period.
£10.0m of prepayments and accrued income are property related (2015: £9.2m).
14 Cash and cash equivalents
Cash at bank and in hand
2016
£’m
0.2
3.0
16.0
19.2
2015
£’m
0.2
3.0
14.8
18.0
2016
£’m
14.9
2015
£’m
16.2
The Group deposits funds only with institutions that have a credit rating of ‘A’ and above and the term is less than three months.
15 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
2016
£’m
52.9
32.2
10.0
0.3
95.4
41.4
41.4
136.8
2015
£’m
51.7
26.9
9.3
0.1
88.0
42.4
42.4
130.4
Current accruals and deferred income include lease incentives of £4.1m (FY15: £3.2m) and capital accruals of £2.6m (FY15: £0.3m).
The maturity analysis of non-current accruals and deferred income, all of which relate to lease incentives, is as follow:
One to two years
Two to five years
After five years
2016
£’m
5.2
15.7
20.5
41.4
2015
£’m
5.0
15.0
22.4
42.4
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
16 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.
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.
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. 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
2016
£’m
14.9
3.2
7.4
25.5
2015
£’m
16.2
3.2
–
19.4
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. The
Group’s available facilities can be found in note 17.
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 2 July 2016
Borrowings including interest
Trade and other payables
At 4 July 2015
Borrowings including interest
Trading and net settled derivative financial instruments
Trade and other payables
Total
£’m
100.1
52.9
Total
£’m
97.4
0.3
51.7
Less than
one year
£’m
One to
two years
£’m
Two to
five years
£’m
1.3
52.8
1.3
0.1
Less than
one year
£’m
One to
two years
£’m
1.3
–
51.6
1.3
0.3
0.1
97.5
–
Two to
five years
£’m
94.8
–
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 year end if Libor interest rates had been 10 basis points higher/lower with all other variables held constant, post tax profit
would have been £0.1m lower/higher (2015: £0.1m) as a result of higher/lower interest expense on floating rate borrowings.
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16 Financial risk management continued
Foreign currency risk
All of the Group’s revenues are in 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 2 July 2016.
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 nine to 12 month horizon. Coverage beyond 12 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 £7.2m asset
(2015: £0.3m liability) which relates to a commitment to purchase $90.5m for a fixed sterling amount. A fair value movement of
£10.3m (2015: £1.0m) was recognised in other comprehensive income and no ineffectiveness (2015: nil) was noted on cash flow
hedges during the period. In the period, a gain of £2.9m (2015: £1.7m loss) 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 $0.4m (2015: $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 year end if GBP had strengthened by 10% against USD with all other variables held constant, post tax profit would have
been £0.2m higher (2015: £0.4m) 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 £5.0m lower (2015: £5.9m 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 £0.2m lower (2015: nil) and other components of equity would have been £6.1m higher (2015: £7.2m higher).
The US dollar period end exchange rate applied in the above analysis is 1.3265 (2015: 1.5603).
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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
16 Financial risk management continued
Capital management
The Company considers equity plus debt as the capital.
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 FY15, the Board reviewed its policy on capital structure and dividends. The original policy was established at the time of
the flotation of the Company in 2006 and in the Board’s opinion has ceased to reflect the scale of the business and its consistent
track record of cash generation over many years. Accordingly, the Board determined that the Group will operate with a modest
amount of leverage such that net debt should fall within the range of 0.25 to 0.75 times the last 12 months EBITDA. In order to
fund the ongoing debt, the Group entered into an arrangement with a syndicate of three major banks for the provision of a £150
million revolving credit facility, expiring on 9 February 2020.
The gearing ratio and net debt as a percentage of EBITDA was as follows:
Total borrowings (note 17)
Less: unamortised debt issue costs (note 17)
Less: cash and cash equivalents (note 14)
Net debt
Total equity
Total capital
Gearing ratio
EBITDA
Net debt as % of EBITDA
2016
£’m
95.0
(0.8)
(14.9)
79.3
99.6
178.9
44%
154.3
51%
Financial (liabilities)/assets
The carrying value of all financial assets and financial liabilities was equal to their fair value.
At 2 July 2016
Cash and cash equivalents
Trade receivables
Forward exchange contracts
Total financial assets
Trade payables
Bank borrowings
Forward exchange contracts
Total financial liabilities
Net financial assets/(liabilities)
Loans and
receivables
£’m
Note
Other
financial
liabilities at
amortised
costs
£’m
Financial
assets/liabilities
at fair value
through profit
and loss
£’m
Derivatives
used for
hedging
£’m
14
13
16
15
17
16
14.9
0.2
–
15.1
–
–
–
–
15.1
–
–
–
–
(52.9)
(94.2)
–
(147.1)
(147.1)
–
–
7.2
7.2
–
–
–
–
7.2
–
–
0.4
0.4
–
–
(0.2)
(0.2)
0.2
2015
£’m
91.0
(1.2)
(16.2)
73.6
105.1
178.7
41%
144.2
51%
Total
£’m
14.9
0.2
7.6
22.7
(52.9)
(94.2)
(0.2)
(147.3)
(124.6)
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16 Financial risk management continued
At 4 July 2015
Cash and cash equivalents
Trade receivables
Total financial assets
Trade payables
Bank borrowings
Forward exchange contracts – current
Total financial liabilities
Net financial assets/(liabilities)
Loans and
receivables
£’m
Note
Other
financial
liabilities at
amortised
costs
£’m
Derivatives
used for
hedging
£’m
14
13
15
17
16
16.2
0.2
16.4
–
–
–
–
16.4
–
–
–
(51.7)
(89.8)
–
(141.5)
(141.5)
The currency profile of the Group’s cash and cash equivalents is as follows:
Sterling
US dollar
Euro
17 Bank loans
Total borrowings
Less: unamortised debt issue costs
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Total
£’m
16.2
0.2
16.4
(51.7)
(89.8)
(0.3)
(141.8)
(125.4)
2015
£’m
14.1
2.0
0.1
16.2
2015
£’m
91.0
(1.2)
89.8
–
–
–
–
–
(0.3)
(0.3)
(0.3)
2016
£’m
13.9
1.0
–
14.9
2016
£’m
95.0
(0.8)
94.2
The Group has medium term bank revolving credit facilities of £150m (2015: £150m) committed until 9 February 2020; £95m of
this facility was drawn down at 2 July 2016 (2015: £91m). The carrying amount of bank borrowings is equal to fair value.
18 Provisions
Balance at
4 July
2015
£’m
Utilised in
the period
£’m
Created in
the period
£’m
Released in
the period
£’m
Balance at
2 July
2016
£’m
Property related
3.1
(0.3)
1.1
(1.9)
2.0
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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
19 Issued share capital
In issue at the start of the period
B/C share issued via bonus issue
B shares cancelled the year
C shares redeemed in the year
In issue at the end of the period
Number of
Ordinary
Shares
of 1p each
2016
Number of
Ordinary
Shares
of 1p each
2015
Number of
B Shares
of 0.001p
each
2015
Number of
C Shares
of 0.001p
each
2015
202,833,931
202,833,931
–
–
–
–
–
–
–
–
202,833,931
202,833,931
128,710,152
73,756,725
(128,710,152)
–
–
–
(73,756,725)
–
Proceeds received in relation to shares issued during the period were £nil (2015: £nil).
Ordinary shares of 1p each:
Authorised
Allotted, called up and fully paid
20 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
2016
Number of
shares
2016
£’m
2015
Number of
shares
500,000,000
202,833,931
5.0
2.0
500,000,000
202,833,931
2016
Number of
shares
357,158
841,359
(352,062)
846,455
2016
£’m
3.3
7.8
(3.3)
7.8
2015
Number of
shares
936,498
–
(579,340)
357,158
2015
£’m
5.0
2.0
2015
£’m
8.6
–
(5.3)
3.3
The Group acquired 841,359 of its own shares through purchases on the London Stock Exchange during the year (2015: nil).
These shares are held by the Group for the purpose of delivery to employees under employee share schemes. The total amount,
including fees, paid to acquire shares was £7.8m (2015: £nil) and the consideration was deducted from retained earnings within
shareholders’ equity.
The Group reissued 352,062 (2015: 579,340) treasury shares during the period for a total value of £3.3m (2015: £5.3m).
Proceeds from the issue of treasury shares included in the consolidated statement of cash flows of £1.3m (2015: £0.8m) is the
amount employees contributed.
The Group has the right to reissue the remaining treasury shares at a later date.
21 Share-based payments
As at 2 July 2016, the Group operated three 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’)
There were 9,399 exercisable options in total under these schemes as at 2 July 2016 (2015: 3,692).
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.
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21 Share-based payments continued
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.
The number and weighted average exercise price of options under GSOP at 2 July 2016 were as follows:
Number
of shares
under option
2016
Weighted
average
exercise price
2016
Number
of shares
under option
2015
Weighted
average
exercise price
2015
Outstanding at beginning of the period
121,781
815.6p
139,900
Adjusted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
–
(33,540)
(12,127)
76,114
–
714.4p
873.0p
851.0p
7,741
–
(25,860)
121,781
814.6p
766.9p
–
795.6p
815.6p
The weighted average share price at the time of exercise during the year was 972.0p.
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 Sharesave scheme at 2 July 2016 was as follows:
Outstanding at beginning of the period
Granted during the period
Adjusted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
Number
of shares
under option
2016
Weighted
average
exercise price
2016
Number
of shares
under option
2015
Weighted
average
exercise price
2015
961,720
563,823
638.8p
754.5p
757,663
523,706
–
–
61,027
(201,727)
(171,726)
1,152,090
545.7p
685.0p
704.8p
(223,043)
(157,633)
961,720
551.0p
653.0p
601.1p
363.1p
639.6p
638.8p
The weighted average share price at the time of exercise during the year was 918.8p.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Annual Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
21 Share-based payments continued
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. One grant was made in the period, to the
Executive Directors and senior management. These grants are exercisable in November 2018, 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 54 to 77.
The number and weighted average exercise price of options under LTIP at 2 July 2016 is as follows:
Number
of shares
under option
2016
Weighted
average
exercise price
2016
Number
of shares
under option
2015
Weighted
average
exercise price
2015
Outstanding at beginning of the period
Granted during the period
Adjusted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
709,083
518,428
–
(116,795)
(338,703)
772,013
–
–
–
–
–
–
1,199,332
304,522
44,948
(356,297)
(483,422)
709,083
The weighted average share price at the time of exercise was 966.7p
d) Impact on income statement
The total (income)/expense recognised in the income statement arising from share-based payments is as follows:
GSOP
Sharesave
LTIP
2016
£’m
0.1
0.8
0.5
1.4
–
–
–
–
–
–
2015
£’m
0.1
0.5
(0.3)
0.3
22 Commitments
As at 2 July 2016 the Group had entered into capital contracts for new stores amounting to £4.2m (2015: £4.4m).
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
Motor
vehicles
2016
£’m
Land and
buildings
2016
£’m
Plant and
machinery
2016
£’m
Motor
vehicles
2015
£’m
Land and
buildings
2015
£’m
Plant and
machinery
2015
£’m
1.0
1.3
–
2.3
43.5
164.0
174.0
381.5
0.7
2.0
0.8
3.5
1.0
1.5
–
2.5
38.5
148.3
161.5
348.3
1.0
2.7
0.4
4.1
The Group has 147 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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23 Contingent liabilities
The Group had no contingent liabilities at the period end date.
24 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 and the Executive Board.
Directors of the Company and their close relatives control 51.3% (2015: 55.4%) of the voting shares of the Company.
Disclosures relating to remuneration of Directors are set out in the Remuneration Report on pages 54 to 77. The remuneration of
the key management personnel is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
2016
£’m
2.9
0.3
0.4
3.6
2015
£’m
3.2
0.3
0.3
3.8
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.
25 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.
26 Subsequent events
There are no reportable subsequent events for Dunelm Group plc.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Parent Company Statement of Financial Position
As at 2 July 2016
Non-current assets
Investment in subsidiaries
Deferred tax asset
Total non-current assets
Current assets
Trade and other receivables
Current tax asset
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share premium account
Non-distributable reserves
Capital redemption reserve
Retained earnings
Total equity attributable to equity holders of the parent
Note
4
5
6
7
10
2 July
2016
£’m
52.3
0.2
52.5
244.3
–
244.3
296.8
(0.1)
(0.1)
(0.1)
296.7
2.0
1.6
7.1
43.2
242.8
296.7
4 July
2015
£’m
51.2
0.2
51.4
3.0
0.2
3.2
54.6
(1.1)
(1.1)
(1.1)
53.5
2.0
1.6
6.0
43.2
0.7
53.5
The financial statements on pages 116 to 124 were approved by the Board of Directors on 14 September 2016 and were signed
on its behalf by:
Keith Down
Director
Company number 4708277
Parent Company Statement of Cash Flows
For the 52 weeks ended 2 July 2016
There were no cash movements during the year 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.
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Parent Company Statement of Changes in Equity
Parent Company Statement of Changes in Equity
For the 52 weeks ended 2 July 2016
For the 52 weeks ended 2 July 2016
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Note
Issued
share
capital
£’m
2.0
Share
premium
account
£’m
Capital
redemption
reserve
£’m
Non-
distributable
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
1.6
43.2
4.3
147.9
199.0
As at 28 June 2014
Profit for the period
Total comprehensive income for the period
Issue of treasury shares
Share-based payments
Deferred tax on share-based payments
Dividends
Special distributions to shareholders
Total transactions with owners, recorded
directly in equity
As at 4 July 2015
Profit for the period
Total comprehensive income for the period
Purchase of treasury shares
Issue of treasury shares
Share-based payments
Deferred tax on share-based payments
Dividends
Special distributions to shareholders
Total transactions with owners, recorded
directly in equity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
1.6
43.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
12
5
3
3
11
12
5
3
3
–
–
–
1.7
–
–
–
1.7
6.0
–
–
–
–
1.1
–
–
–
1.1
7.1
37.2
37.2
0.9
(1.3)
(0.8)
37.2
37.2
0.9
0.4
(0.8)
(41.5)
(41.5)
(141.7)
(141.7)
(184.4)
(182.7)
0.7
356.8
356.8
(7.8)
1.3
0.3
(0.1)
(44.6)
(63.8)
53.5
356.8
356.8
(7.8)
1.3
1.4
(0.1)
(44.6)
(63.8)
(114.7)
242.8
(113.6)
296.7
As at 2 July 2016
2.0
1.6
43.2
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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Parent Company Accounting Policies
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.
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.
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.
Current assets
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.
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 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.
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.
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.
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.
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 tax assets are
reduced to the extent that it is no longer probable that the
related tax benefit will be recognised.
New standards and interpretations
No new standards, amendments or interpretations, effective
for the first time for the period beginning on or after 5 July
2015 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 Company.
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Notes to the Parent Company Financial Statements
For the 52 weeks ended 2 July 2016
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1 Income statement
The Company made a profit after tax of £356.8m (2015: £37.2m). 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 auditors in accordance with the Companies (Disclosure of
Auditor Remuneration) Regulations 2005.
2 Employee costs
The Company has no employees other than the three Executive Directors and the Non-Executive Directors. Full details of the
Directors’ remuneration and interests are set out in the Remuneration Report on pages 54 to 77. Share-based payments details
are given note 12 on pages 122 to 123.
3 Dividends and special distributions to shareholders
The dividends set out in the table below relate to the 1p Ordinary Shares.
Final for the period ended 28 June 2014
Interim for the period ended 4 July 2015
Final for the period ended 4 July 2015
Interim for the period ended 2 July 2016
– paid 15.0p
– paid 5.5p
– paid 16.0p
– paid 6.0p
Special dividend for the period ended 2 July 2016
– paid 31.5p
2016
52 weeks
£’m
2015
53 weeks
£’m
–
–
32.4
12.2
63.8
30.4
11.1
–
–
–
108.4
41.5
The Directors are proposing a final dividend of 19.1p per Ordinary Share for the period ended 2 July 2016 which equates to £38.6m.
The dividend will be paid on 25 November 2016 to shareholders on the register at the close of business on 4 November 2016.
In the prior year, the Company made a special distribution to shareholders by way of a B/C share scheme. The amount paid to
shareholders on 10 March 2015 was 70p per share, which equated to £141.7m.
4 Investment in subsidiaries
On 28 June 2016, the Company transferred its interest in the share capital of Dunelm (Soft Furnishings) Limited and Dunelm
Estates Limited to Dunelm Limited by way of a share for share exchange.
No gain or loss arose on this transaction as the carrying value of the investment in Dunelm Limited increased by an amount
equivalent to the carrying value of the previous investments in Dunelm (Soft Furnishings) Limited and Dunelm Estates Limited.
Shares in subsidiary undertakings:
As at 28 June 2014
Share-based payments
As at 4 July 2015
Share-based payments
As at 2 July 2016
£’m
49.9
1.3
51.2
1.1
52.3
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Parent Company Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
4 Investment in subsidiaries continued
The following were subsidiaries as at 2 July 2016:
Subsidiary
Dunelm Limited
Dunelm (Soft Furnishings) Limited*
Dunelm Estates Limited*
Zoncolan Limited*
Fogarty Holdings Limited*^
* Share Capital held by subsidiary undertaking.
Proportion
of ordinary
shares held
100%
100%
100%
100%
100%
Nature of business
Holding company
Retailer of soft furnishings
Property holding company
Property holding company
Non-trading company
^ The share capital of Fogarty Holdings Limited was purchased during the period by Dunelm (Soft Furnishings) Limited.
All of the above subsidiaries and the Parent Company are registered in England and Wales and operate in the United Kingdom.
5 Deferred tax assets
Employee benefits
The movement in deferred tax assets is as follows:
Employee benefits
Employee benefits
6 Trade and other receivables
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Assets
2016
£’m
0.2
2015
£’m
0.2
Balance at
28 June
2015
£’m
Recognised
in income
£’m
Recognised
in equity
£’m
Balance at
4 July
2015
£’m
1.6
(0.6)
(0.8)
0.2
Balance at
4 July
2015
£’m
Recognised
in income
£’m
Recognised
in equity
£’m
Balance at
2 July
2016
£’m
0.2
0.1
(0.1)
0.2
2016
£’m
244.3
–
244.3
2015
£’m
1.8
1.2
3.0
Amounts owed by subsidiary undertakings are immediately repayable. Interest is charged monthly on all intercompany balances
at an annual rate of 2%.
120
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Notes to the Parent Company Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
7 Trade and other payables
Accruals and deferred income
Other taxation and social security
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n
a
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fi
2016
£’m
–
0.1
0.1
2015
£’m
1.0
0.1
1.1
8 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.
9 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.
10 Issued share capital
In issue at the start of the period
B/C share issued via bonus issue
B shares cancelled the year
C shares redeemed in the year
In issue at the end of the period
Number of
Ordinary
Shares of
1p each
2016
Number of
Ordinary
Shares of
1p each
2015
Number of
B Shares of
0.001p
each
2015
Number of
C Shares of
0.001p
each
2015
202,833,931
202,833,931
–
–
–
–
–
–
–
–
202,833,931
202,833,931
128,710,152
73,756,725
(128,710,152)
–
–
–
(73,756,725)
–
Proceeds received in relation to shares issued during the period were £nil (2015: £nil).
Ordinary shares of 1p each:
Authorised
Allotted, called up and fully paid
2016
Number of
shares
2016
£’m
2015
Number of
shares
500,000,000
202,833,931
5.0
2.0
500,000,000
202,833,931
2015
£’m
5.0
2.0
The holders of the Ordinary Shares are entitled to receive dividends as declared and are entitled to one vote per share.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Parent Company Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
11 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
2016
Number of
shares
357,158
841,359
(352,062)
846,455
2016
£’m
3.3
7.8
(3.3)
7.8
2015
Number of
shares
936,498
–
(579,340)
357,158
2015
£’m
8.6
–
(5.3)
3.3
The Company acquired 841,359 of its own shares through purchases on the London Stock Exchange during the year (2015:
nil). These shares are held by the Company for the purpose of delivery to employees under employee share schemes. The total
amount, including fees, paid to acquire shares was £7.8m (2015: £nil) and the consideration was deducted from retained earnings
within shareholders’ equity.
The Company reissued 352,062 (2015: 579,340) treasury shares during the period for a total value of £3.3m (2015: £5.3m).
Proceeds from the issue of treasury shares included in the consolidated statement of cash flows of £1.3m (2015: £0.8m) is the
amount employees contributed.
The Group has the right to reissue the remaining treasury shares at a later date.
12 Share-based payments
As at 2 July 2016, the Company operated one share award plan:
Long Term Incentive Plan (‘LTIP’)
There were no exercisable options under this scheme as at 2 July 2016 (2015: 2,000).
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. These grants are exercisable in December 2018, 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 54 to 77.
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 twenty 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
December
2015
986.5p
31.31%
4.0%
3 years
1.10%
0.670
661.1p
October
2015
942.5p
31.90%
4.0%
3 years
1.00%
0.670
631.6p
October
2014
816.0p
35.11%
4.0%
3 years
1.44%
0.670
546.8p
October
2013
876.5p
40.00%
4.0%
3 years
1.35%
0.670
587.4p
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Notes to the Parent Company Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
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12 Share-based payments continued
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
2014
816.0p
32.78%
4.0%
October
2013
876.5p
32.78%
4.0%
27 months
15 months
1.40%
0.690
563.0p
1.40%
0.718
629.5p
The number and weighted average exercise price of options under the LTIP at 2 July 2016 is as follows:
Outstanding at beginning of the period
Granted during the period
Adjusted during the period
Exercised during the period
Lapsed during the period
Outstanding at end of the period
Number
of shares
under option
2016
Weighted
average
exercise price
2016
Number
of shares
under option
2015
Weighted
average
exercise price
2015
169,058
248,551
–
(36,915)
(101,374)
279,320
–
–
–
–
–
–
794,753
50,494
10,747
(249,168)
(437,768)
169,058
–
–
–
–
–
–
The total expense/(income) recognised in the income statement arising from share-based payments is as follows:
LTIP
2016
£’m
0.3
2015
£’m
(0.9)
13 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.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Notes to the Parent Company Financial Statements CONTINUED
For the 52 weeks ended 2 July 2016
14 Related party disclosure
The amount due to the Company from subsidiary undertakings is set out in note 4. Transactions between the Company and its
subsidiaries were as follows:
Cash paid to Group undertakings
Cash received from Group undertakings
Dividends received and receivable
Net interest receivable
2016
£’m
2.6
(120.4)
(359.0)
1.4
2015
£’m
2.5
(191.3)
(35.9)
(5.4)
Key management personnel
All employees of the Company are key management personnel.
Directors of the Company and their close relatives control 51.3% (2015: 55.4%) of the voting shares of the Company.
Disclosures relating to remuneration of Directors are set out in the Remuneration Report on pages 54 to 77.
15 Subsequent events
There are no reportable subsequent events for Dunelm Group plc.
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Notes to the Parent Company Financial Statements CONTINUED
Advisers and Contacts
For the 52 weeks ended 2 July 2016
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Corporate Brokers and
Financial Advisers
Legal Advisers
Independent auditors
Principal Bankers
Registrars
Financial Public Relations
Registered Office
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
Store Support Centre
Watermead Business Park
Syston
Leicestershire LE7 1AD
Company Registration No: 4708277
Investor Relations
investorrelations@dunelm.com
Tel: 0116 264 4439
1. If dialling internationally, call +44 121 415 7047. The helpline is open Monday to Friday 8.30am to 5.30pm, excluding bank holidays.
Dunelm Group plc Annual Report and Accounts for the period ended 2 July 2016
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Store Listing
Superstores
Aberdeen
Ashford
Ballymena
Banbury
Bangor
Barnsley
Barnstaple
Barrow-in-Furness
Basingstoke
Bedford
Belfast
Birmingham Bordesley
Birmingham Erdington
Blackburn
Blackpool
Bolton
Bournemouth
Bradford
Bridgend
Bristol Brislington
Broadstairs
Bromborough
Burton
Bury St Edmunds
Cambridge
Cannock
Canterbury
Cardiff
Carlisle
Carmarthen
Catford
Cheltenham
Chester
Chesterfield
Colchester
Coleraine
Colliers Wood
Coventry
Cramlington
High Street
Boston (2 stores)
Hinckley
Online
dunelm.com
Crewe
Croydon
Dartford
Derby
Doncaster
Dumfries
Dundee
Dunstable
Eastbourne
Edinburgh Straiton
Enfield
Exeter
Falkirk
Fareham
Glasgow Clydebank
Glasgow Paisley
Glasgow Uddingston
Gloucester
Grantham
Grimsby
Halifax
Harlow
Hartlepool
Hastings
Hemel Hempstead
Hereford
High Wycombe
Huddersfield
Hull
Huntingdon
Ilkeston
Inverness
Ipswich
Keighley
Kettering
Kidderminster
Kilmarnock
Kirkcaldy
Lancaster
Newcastle-under-Lyme
Sheffield Hillsborough
Leeds
Leicester Thurmaston
Lincoln
Liverpool Garston
Liverpool Sefton
Llanelli
Londonderry
Loughborough
Lowestoft
Maidstone
Manchester Ashton-under-
Lyne
Manchester Radcliffe
Manchester Trafford
Mansfield
Milton Keynes
Newbury
Newport
Newport Isle of Wight
Newtownabbey
North Shields
Northampton
Norwich
Nottingham
Nuneaton
Oldbury
Oxford
Perth
Peterborough
Plymouth
Pontypridd
Preston
Reading
Rochdale
Romford
Rotherham
Rugby
Rustington
St Albans
St Helens
Salisbury
Scarborough
Scunthorpe
Sheffield Woodseats
Shoreham
Shrewsbury Sundorne
Sittingbourne
Southampton
Southport
Stafford
Stevenage
Stockport
Stockton-on-Tees
Stoke-on-Trent Fenton
Sunderland
Swansea
Swindon
Taunton
Telford
Thurrock
Torquay
Truro
Wakefield
Walsall
Warrington
Wellingborough
West London Greenford
West London Harrow
Weston-super-Mare
Wisbech
Wolverhampton
Worcester
Workington
Wrexham
York
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dunelm.com
Tel: 0116 264 4439
Email: investorrelations@dunelm.com
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